Moneta Money Bank A.S.

Annual Report (ESEF) • Mar 21, 2024

MONETA Money Bank - EN - 2023_v07_FINAL I6USJ58BDV2BO5KP3C312023-01-012023-12-31I6USJ58BDV2BO5KP3C312022-01-012022-12-31I6USJ58BDV2BO5KP3C312023-12-31I6USJ58BDV2BO5KP3C312022-12-31I6USJ58BDV2BO5KP3C312022-12-31ifrs-full:IssuedCapitalMemberI6USJ58BDV2BO5KP3C312022-12-31ifrs-full:SharePremiumMemberI6USJ58BDV2BO5KP3C312022-12-31ifrs-full:StatutoryReserveMemberI6USJ58BDV2BO5KP3C312022-12-31ifrs-full:ReserveOfGainsAndLossesFromInvestmentsInEquityInstrumentsMemberI6USJ58BDV2BO5KP3C312022-12-31ifrs-full:ReserveOfCashFlowHedgesMemberI6USJ58BDV2BO5KP3C312022-12-31ifrs-full:ReserveOfSharebasedPaymentsMemberI6USJ58BDV2BO5KP3C312022-12-31ifrs-full:RetainedEarningsMemberI6USJ58BDV2BO5KP3C312023-01-012023-12-31ifrs-full:IssuedCapitalMemberI6USJ58BDV2BO5KP3C312023-01-012023-12-31ifrs-full:SharePremiumMemberI6USJ58BDV2BO5KP3C312023-01-012023-12-31ifrs-full:StatutoryReserveMemberI6USJ58BDV2BO5KP3C312023-01-012023-12-31ifrs-full:ReserveOfGainsAndLossesFromInvestmentsInEquityInstrumentsMemberI6USJ58BDV2BO5KP3C312023-01-012023-12-31ifrs-full:ReserveOfCashFlowHedgesMemberI6USJ58BDV2BO5KP3C312023-01-012023-12-31ifrs-full:ReserveOfSharebasedPaymentsMemberI6USJ58BDV2BO5KP3C312023-01-012023-12-31ifrs-full:RetainedEarningsMemberI6USJ58BDV2BO5KP3C312023-12-31ifrs-full:IssuedCapitalMemberI6USJ58BDV2BO5KP3C312023-12-31ifrs-full:SharePremiumMemberI6USJ58BDV2BO5KP3C312023-12-31ifrs-full:StatutoryReserveMemberI6USJ58BDV2BO5KP3C312023-12-31ifrs-full:ReserveOfGainsAndLossesFromInvestmentsInEquityInstrumentsMemberI6USJ58BDV2BO5KP3C312023-12-31ifrs-full:ReserveOfCashFlowHedgesMemberI6USJ58BDV2BO5KP3C312023-12-31ifrs-full:ReserveOfSharebasedPaymentsMemberI6USJ58BDV2BO5KP3C312023-12-31ifrs-full:RetainedEarningsMemberI6USJ58BDV2BO5KP3C312021-12-31ifrs-full:IssuedCapitalMemberI6USJ58BDV2BO5KP3C312021-12-31ifrs-full:SharePremiumMemberI6USJ58BDV2BO5KP3C312021-12-31ifrs-full:StatutoryReserveMemberI6USJ58BDV2BO5KP3C312021-12-31ifrs-full:ReserveOfGainsAndLossesFromInvestmentsInEquityInstrumentsMemberI6USJ58BDV2BO5KP3C312021-12-31ifrs-full:ReserveOfCashFlowHedgesMemberI6USJ58BDV2BO5KP3C312021-12-31ifrs-full:ReserveOfSharebasedPaymentsMemberI6USJ58BDV2BO5KP3C312021-12-31ifrs-full:RetainedEarningsMemberI6USJ58BDV2BO5KP3C312021-12-31I6USJ58BDV2BO5KP3C312022-01-012022-12-31ifrs-full:IssuedCapitalMemberI6USJ58BDV2BO5KP3C312022-01-012022-12-31ifrs-full:SharePremiumMemberI6USJ58BDV2BO5KP3C312022-01-012022-12-31ifrs-full:StatutoryReserveMemberI6USJ58BDV2BO5KP3C312022-01-012022-12-31ifrs-full:ReserveOfGainsAndLossesFromInvestmentsInEquityInstrumentsMemberI6USJ58BDV2BO5KP3C312022-01-012022-12-31ifrs-full:ReserveOfCashFlowHedgesMemberI6USJ58BDV2BO5KP3C312022-01-012022-12-31ifrs-full:ReserveOfSharebasedPaymentsMemberI6USJ58BDV2BO5KP3C312022-01-012022-12-31ifrs-full:RetainedEarningsMemberiso4217:CZKxbrli:sharesiso4217:CZKxbrli:shares This document is a transcription of the official version of the Consolidated Annual Financial Report of MONETA Money Bank, a.s. for the year 2023, which was prepared in XHTML format in accordance with the European Single Electronic Format (ESEF) Regulation. Compared to the official version, this document does not contain tags in the XBRL language. The official version of the Consolidated Annual Financial Report of MONETA Money Bank, a.s. for the year 2023 prepared in accordance with the ESEF Regulation is available at https://investors.moneta.cz/financial-results ANNUAL FINANCIAL REPORT 2023 2023 HELPING OUR CLIENTS GROW 3 CONTENT Annual Financial Report 2023 CONTENT 7 | LETTER FROM THE CHAIRMAN OF THE SUPERVISORY BOARD 11 | LETTER FROM THE CHAIRMAN OF THE MANAGEMENT BOARD 19 | HIGHLIGHTS 19 | KEY EVENTS IN 2023 25 | 2023 FINANCIAL RESULTS AND GUIDANCE 26 | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 27 | KEY PERFORMANCE INDICATORS 28 | 2024–2028 MEDIUM-TERM GUIDANCE 29 | MARKET PERFORMANCE OF THE BANK’S SHARES 33 | 1. PROFILE OF MONETA MONEY BANK AND ITS SUBSIDIARIES 33 | 1.1 BASIC INFORMATION ABOUT MONETA MONEY BANK AND ITS SUBSIDIARIES 35 | 1.2 STRATEGY 36 | 1.3 DIVIDEND POLICY 36 | 1.4 SHAREHOLDER STRUCTURE 41 | 2. STRATEGY AND RESULTS 41 | 2.1 MACROECONOMIC ENVIRONMENT 41 | 2.2 MARKET DEVELOPMENT 43 | 2.3 REPORT ON BUSINESS ACTIVITIES 43 | 2.3.1 Overview 44 | 2.3.2 Retail Segment Business Performance 47 | 2.3.3 Commercial Segment Business Performance 50 | 2.3.4 Treasury Segment Performance and Other 50 | 2.4 GROUP FINANCIAL OVERVIEW 50 | 2.4.1 Statement of Financial Position Analysis 52 | 2.4.2 Statement of Profit or Loss Analysis 57 | 3. CAPITAL AND LIQUIDITY 57 | 3.1 CAPITAL 57 | 3.1.1 Regulatory Framework 59 | 3.1.2 Capital and Risk-Weighted Assets 59 | 3.1.3 Capital Management 61 | 3.1.4 The Internal Capital Adequacy Assessment Process (ICAAP) 61 | 3.1.5 Recovery and Resolution 62 | 3.2 LIQUIDITY 62 | 3.2.1 Regulatory Framework 62 | 3.2.2 Internal Liquidity Adequacy Assessment Process (ILAAP) 63 | 3.2.3 Liquidity Position 63 | 3.2.4 Funding 67 | 4. CORPORATE GOVERNANCE STATEMENT 67 | 4.1 ORGANISATIONAL CHART 68 | 4.2 GENERAL MEETING 70 | 4.3 SUPERVISORY BOARD 70 | 4.3.1 Position and Responsibilities of the Supervisory Board 72 | 4.3.2 Members of the Supervisory Board 75 | 4.3.3 Activity Report of the Supervisory Board 76 | 4.4 AUDIT COMMITTEE 76 | 4.4.1 Members of the Audit Committee 77 | 4.4.2 Activity Report of the Audit Committee 78 | 4.5 MANAGEMENT BOARD 78 | 4.5.1 Management, Responsibilities and Structure of the Management Board 79 | 4.5.2 Duties and Responsibilities of the Management Board under the Czech Law 80 | 4.5.3 Members of the Management Board 83 | 4.5.4 Activity Report of the Management Board 84 | 4.6 KEY EXECUTIVE MANAGERS 86 | 4.7 MATERIAL RISK TAKERS 4 CONTENT Annual Financial Report 2023 86 | 4.7.1 Remuneration of Material Risk Takers 86 | 4.8 REMUNERATION AND BENEFITS OF MEMBERS OF THE SUPERVISORY BOARD, THE MANAGEMENT BOARD AND KEY EXECUTIVE MANAGERS 86 | 4.8.1 Remuneration Policy Applied to the Supervisory and Management Boards 87 | 4.8.2 Remuneration and Benefits of the Supervisory Board Members in 2023 88 | 4.8.3 Remuneration of the Audit Committee Members in 2023 88 | 4.8.4 Remuneration and Benefits Awarded to and Received by the Management Board Members in 2023 88 | 4.8.5 Remuneration and Benefits Awarded to and Received by Key Executive Managers in 2023 89 | 4.9 SHARES AND SHARE OPTIONS HELD BY THE SUPERVISORY BOARD, THE MANAGEMENT BOARD, THE AUDIT COMMITTEE MEMBERS AND KEY EXECUTIVE MANAGERS 89 | 4.10 OTHER INFORMATION REGARDING THE MEMBERS OF THE MANAGEMENT BOARD, THE SUPERVISORY BOARD, THE AUDIT COMMITTEE AND KEY EXECUTIVE MANAGERS 89 | 4.11 COMMITTEES ESTABLISHED BY THE SUPERVISORY BOARD AND THE MANAGEMENT BOARD 89 | 4.11.1 Committees Established by the Supervisory Board 91 | 4.11.2 Committees Established by the Management Board 96 | 4.12 INTERNAL AUDIT 96 | 4.13 INFORMATION ON INTERNAL CONTROL AND APPROACH TO RISKS IN THE PROCESS OF ACCOUNTING AND PREPARING FINANCIAL STATEMENTS 97 | 4.14 CORPORATE GOVERNANCE BUILDING BLOCKS 98 | 4.15 REMUNERATION CHARGED BY EXTERNAL STATUTORY AUDITORS OF THE GROUP IN 2023 98 | 4.16 OTHER LEGAL REQUIREMENTS 100 | 4.17 RIGHTS ATTACHED TO SHARES OF THE BANK 103 | 5. RISK MANAGEMENT 103 | 5.1 RISK GOVERNANCE 103 | 5.1.1 Main Principles and Goals of Risk Management 103 | 5.1.2 Risk Management Organisational Structure 105 | 5.2 CREDIT RISK 105 | 5.2.1 Credit Risk Management 105 | 5.2.2 Individually Managed Exposures 105 | 5.2.3 Portfolio Managed Exposures 105 | 5.2.4 Counterparties in the Financial Market 105 | 5.2.5 Categorisation of Exposures 106 | 5.2.6 Collateral 106 | 5.2.7 Allowances Calculation 106 | 5.2.8 Credit Concentration Risk 107 | 5.2.9 Credit Portfolio and Its Quality 107 | 5.2.10 Modified Financial Assets 107 | 5.2.11 Environmental, Social and Governance (ESG) Risk Management 108 | 5.3 CONCENTRATION RISK 108 | 5.4 MARKET AND LIQUIDITY RISK 108 | 5.4.1 Interest Rate Risk 108 | 5.4.2 Foreign Exchange Risk 108 | 5.4.3 Liquidity Risk 108 | 5.5 OPERATIONAL RISK 109 | 5.5.1 Compliance Risk 110 | 5.5.2 Cyber Security 113 | 5.5.3 Business Continuity 113 | 5.5.4 Legal Risk 113 | 5.5.5 Legal Disputes 113 | 5.6 MODEL RISK 113 | 5.7 RISK OF EXCESSIVE LEVERAGE 117 | 6. SUSTAINABILITY AT MONETA 117 | 6.1 RELATIONSHIP TOWARDS THE ENVIRONMENT AND THE COMMUNITY 118 | 6.2 DIVERSITY POLICY 119 | 6.3 SUSTAINABILITY TOWARDS CLIENTS AND SUPPLIERS 123 | 7. OPINION OF THE SUPERVISORY BOARD 127 | 8. MANAGEMENT AFFIDAVIT 131 | 9. FINANCIAL SECTION 131 | INDEPENDENT AUDITOR’S REPORT 5 CONTENT Annual Financial Report 2023 145 | CONSOLIDATED FINANCIAL STATEMENTS OF MONETA MONEY BANK, a.s. 151 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF MONETA MONEY BANK, a.s. 229 | SEPARATE FINANCIAL STATEMENTS OF MONETA MONEY BANK, a.s. 235 | NOTES TO SEPARATE FINANCIAL STATEMENTS OF MONETA MONEY BANK, a.s. 309 | 10. ADDITIONAL DISCLOSURES 309 | 10.1 GOVERNING LAW 310 | 10.2 SIGNIFICANT INVESTMENTS 310 | 10.3 TRADEMARKS, LICENCES AND SUB-LICENCES 310 | 10.4 EXPENSES ON RESEARCH AND DEVELOPMENT 310 | 10.5 INTELLECTUAL PROPERTY 310 | 10.6 DESCRIPTION OF REAL ESTATE OWNED AND LEASED BY THE GROUP 310 | 10.7 MEMBERSHIPS IN INDUSTRY AND OTHER ASSOCIATIONS 310 | 10.8 MATERIAL CONTRACTS 313 | 11. ALTERNATIVE PERFORMANCE MEASURES 319 | 12. INFORMATION ABOUT CAPITAL AND CAPITAL REQUIREMENTS 325 | 13. FORWARD-LOOKING STATEMENTS 325 | 13.1 MACROECONOMIC OUTLOOK 326 | 13.2 MATERIAL ASSUMPTIONS FOR MEDIUM-TERM GUIDANCE FOR 2024–2028 329 | ANNEX 329 | THE LIST OF SIGNIFICANT INTERNAL POLICIES 333 | 2023 KEY PERFORMANCE INDICATORS OF THE MANAGEMENT BOARD AND KEY EXECUTIVE MANAGERS 341 | GLOSSARY Gabriel Eichler Chairman of the Supervisory Board 7 LETTER FROM THE CHAIRMAN OF THE SUPERVISORY BOARD Annual Financial Report 2023 LETTER FROM THE CHAIRMAN OF THE SUPERVISORY BOARD Dear Shareholders, MONETA Money Bank had another successful year, despite the challenging economic environment. In preceding years MONETA’s management took steps to create strong capital and liquidity positions, which stood the Bank in good stead, adjusted the business to address current needs, and maintained manageable levels of risk in a high inflation and high interest environment. These steps and management’s focus ensured that MONETA delivered a net profit of CZK 5.2 billion, exceeding the operating plan and initial guidance from February 2023 by CZK 900 million. Operating profit and operating expenses were in line with the guidance. These good results were aided by a better-than-expected cost of risk and a lower effective tax rate. Record deposit growth of 19.6 per cent took MONETA’s total client deposit base to nearly CZK 400 billion as at 31 December 2023. By extension, balance sheet growth exceeded 18 per cent, reaching CZK 458 billion. In addition to meeting near term challenges, the Bank continued to adapt to, and embrace, an environment where technology and AI play an ever-increasing role, while also reaching its plan in the social and community areas. MONETA is thus increasingly perceived in the region as a leader in modern banking. The introduction of Voicebot, which can process up to 25 per cent of client requests to the call centre, earned MONETA one of the Internet Effectiveness Awards. MSCI confirmed MONETA’s ESG rating at AA. And MONETA is still the only Czech company in the Bloomberg Gender Equality Index, and is well on schedule to entirely eliminate the gender pay gap within the Group. MONETA Money Bank’s shareholder structure became more concentrated in 2023. As at 31 December, the three largest institutional investors held 53.5 per cent shares of the Bank. Czech retail and small institutional investors owned 21.6 per cent and the remaining 24.9 per cent was held by foreign investors. GOVERNANCE The Bank operates under a two-tier corporate governance structure. The independent and non-executive Supervisory Board is responsible for nominating and overseeing the Bank’s Management Board, providing advice and guidance, and reviewing its key decisions and appointments. The Supervisory Board ensures that the Bank adheres to the prevailing Czech and European regulatory requirements, and that it follows the banking industry’s best practice. We are also responsible for ensuring that the correct protocols are followed at General Meetings, and that our shareholders are able to express their views and are able to vote. Six members of the Supervisory Board are elected by the shareholders and three members are elected by the Bank’s employees. In 2023, Kateřina Jirásková was elected as a new member of the Supervisory Board, following the resignation of Tomáš Pardubický. Mrs. Jirásková is a representative of a major shareholder. She joins my colleagues Vice-Chairman Miroslav Singer, Michal Petrman, Clare Ronald Clarke and Denis A. Hall, and employee-elected members Klára Escobar, Zuzana Filipová and Jana Výbošťoková. The Supervisory Board has three committees, whose Chairs and members are mentioned in Chapter 4.11 of this Annual Financial Report. The Supervisory Board formally met five times in 2023. It assessed, in particular, the functionality and efficiency of the Bank’s internal control systems, concluding that the internal control systems are fully functional and effective. The Supervisory Board also regularly discussed the Bank’s monthly and quarterly financial results, and its position on the market in line with macroeconomic developments. In the course of its activities, the Supervisory Board continued to rely on the opinion of its Risk, Nomination and Remuneration Committees, and was informed of the issues discussed by the Audit Committee. The Nomination Committee confirmed Tomáš Spurný in his position as a member of the Management Board for another four-year term, and the Management Board subsequently re-elected him as its Chairman. The General Meeting was held on 25 April 2023. It approved all the items on the agenda, including the 2022 financial results and the 2022 Remuneration Report. Deloitte Audit s.r.o. was appointed as the auditor for 2023. The General Meeting approved a proposal to pay a dividend in the amount of CZK 8 per share, for a total distribution of CZK 4.1 billion from the 2022 net profit. The dividend was paid on 25 May 2023. Shareholders also approved Kateřina Jirásková as a new member of the Supervisory Board. 8 LETTER FROM THE CHAIRMAN OF THE SUPERVISORY BOARD Annual Financial Report 2023 FINANCIAL AND BUSINESS PERFORMANCE MONETA’s financial performance in 2023 exceeded expectations and outperformed the guidance in all important variables. Of particular importance was the nearly 20 per cent growth in customer deposits, which reached almost CZK 400 billion thanks to attractive rates offered on savings and term accounts. The overall balance sheet grew by 18.2 per cent to CZK 458 billion. The loan portfolio was stable and in line with the Bank’s strategy. Overall, MONETA’s capital position remained excellent, with all regulatory requirements either met or exceeded – the overall capital requirement including management buffer was at 16.1 per cent. At year end, MONETA reached the capital adequacy ratio of 20.1 per cent, well above the management target. Sufficient capital enables the Bank to continue with its high dividend payout ratio policy. The Management Board has proposed a distribution of 2023 net profit in a dividend in the amount of CZK 9 per share. This represents a payout ratio of 88 per cent of the consolidated net profit for 2023. The Supervisory Board supports this proposal, which is subject to shareholder approval at the General Meeting to be held on 23 April 2024. AWARDS During 2023, MONETA employed an average of 2,493 people, and their professionalism, dedication and achievements were recognised through numerous awards during the year. MONETA took another record haul of 12 awards at the Zlatá koruna (Golden Crown) financial industry awards, including five golden crowns for its Children’s Account, its savings account for both retail and commercial clients, its building savings products, and the public award for the mobile application Smart Banka, defending its position as the most popular banking product for the third year in a row. Zlatá koruna is an annual competition for the Czech banking and financial services industry that is organised by the Financial Academy, whose members include financial services professionals, economists and academics, with a parallel poll for the general public. In the Best Bank awards, organised by the leading economic daily newspaper Hospodářské noviny, MONETA won second place in two categories: in the main category Best Bank 2023 and in the category Most Client-Friendly Bank 2023. The Bank also won the silver medal in the Mortgage of the Year category at the prestigious Bank of the Year 2023 awards, primarily by offering newly arranged mortgage contracts and refinancing mortgages fully online, from the initial calculation to the final signing of the mortgage contract. ESG The Supervisory Board has closely followed MONETA’s Environment, Social and Governance (ESG) policies. Details of MONETA’s ESG efforts are described in the Sustainability Report, which is published alongside this Annual Financial Report and is available on MONETA’s ESG website. It reports on the good progress made towards the targets set down within the ESG strategy. GUIDANCE AND OUTLOOK FOR 2024 After 2023’s stagnation, economic activity in the Czech Republic is expected to gradually pick up, with GDP growth to reach 0.6 per cent in 2024 and 2.4 per cent in 2025, according to the CNB’s forecast from February 2024. This will be accompanied by a further steep drop in inflation to 2.5 per cent, which is close to the CNB’s target of 2 per cent. Based on December’s decision by the CNB to cut the two-week repo rate by 0.25 percentage points to 6.75 per cent, and another rate cut to 6.25 per cent in February 2024, further rate cuts can be expected in 2024. Unemployment is expected to increase to 3 per cent, which is still well below the EU average. While there are three elections in 2024, they should not impact the expected economic performance. The parliamentary elections will be in 2025. Of bigger importance are global political developments and their impact on the economy. The Czech economy is highly exposed to international trade, and a tense global political situation is not conducive to a stable and positive global economy. Considering the latest macroeconomic forecast and the economic and geopolitical situation, the management of MONETA Money Bank has published its medium-term guidance for 2024–2028. The management seeks to deliver a cumulative net profit of CZK 27.7 billion, which is by CZK 6.7 billion more than in the past five years. In 2024, MONETA aims to deliver a net profit of CZK 5.2 billion. Yours sincerely, Gabriel Eichler Chairman of the Supervisory Board MONETA Money Bank, a.s. Tomáš Spurný Chairman of the Management Board 11 LETTER FROM THE CHAIRMAN OF THE MANAGEMENT BOARD Annual Financial Report 2023 LETTER FROM THE CHAIRMAN OF THE MANAGEMENT BOARD Dear Shareholders, I have the pleasure to report our results for 2023. Throughout the year we faced a challenging operating environment due to high inflation, an increase in the cost of living, and the contraction of the Czech economy. In addition to local challenges, our operating environment was also impacted by global uncertainties and conflicts. All of this translated into lower demand for our credit products, and was accompanied by our deliberately cautious approach to new lending. On the other hand, we successfully targeted lower risk opportunities with our deposit gathering efforts. In this respect, we improved our overall liquidity and placed that liquidity into Czech National Bank (CNB) deposits and Czech government bonds. With our focused deposit gathering, we achieved nearly 20 per cent growth in our deposit base and added CZK 65 billion to the overall balance. Our deposit base increased to nearly CZK 400 billion. The deposit gathering strategy was reliant on competitive interest rates, which were offered across our product portfolio of savings and term deposits. In parallel, we successfully issued and distributed MREL eligible subordinated deposits in the amount of CZK 2.9 billion. And finally, we substantially improved our funding capacity through a mortgage-backed securities programme. This programme enables us to obtain from the CNB up to CZK 70 billion of additional liquidity if needed. The combination of these efforts enabled us to substantially reinforce and improve both the funding and liquidity capability of MONETA. Regarding our results, we successfully fulfilled our commitments with regard to market guidance and managed to deliver a net profit of CZK 5.2 billion. The result constitutes a Return on Equity of 16.1 per cent. Given the contraction of Czech GDP, our increased cost of funding, and the lower demand for our credit products as well as the tightening of our underwriting standards due to inflation, we consider the results satisfactory. In addition, we managed to contain our cost of risk, and we continued to focus on maintaining the quality of our credit portfolios. Last year our operating income remained stable and exceeded CZK 12.1 billion. Our net interest income reached CZK 8.6 billion. The decrease of interest income compared to previous years was due to the market’s competitive interest rate environment. Our tactical approach proved to be successful as the incremental deposits generated a positive margin and mitigated pressure on our overall interest income. On the other hand, we managed to substantially grow our net fee and commission income. Our net fee and commission income reached its highest ever level, of CZK 2.6 billion, or 21.6 per cent of our total income. MONETA’s fee income growth stemmed from our ability to obtain better terms and conditions as well as stronger distribution of life insurance, pension insurance and asset management in the latter part of the year. Other income constituted CZK 946 million, significantly exceeding the level of 2022. Operating efficiency has been a key focus for our management team. Our overall cost base increased marginally and reached CZK 5.7 billion. Key contributors to the increase were higher contributions to regulatory funds, namely the deposit insurance fund and the resolution & recovery fund. The reduction of our employee base enabled us to decrease personnel expenses. The cost stability came despite salary adjustments provided to more than 50 per cent of our staff. We also successfully reduced our leased office space, namely in Ostrava, by approximately 25 per cent. Our profitability was enhanced by a low cost of risk. The overall charge stood at CZK 305 million, or 11bps of the average net loan portfolio for the year. The low-risk charge was due to solid repayment discipline, exiting some lending activities, and through the successful disposal of non-performing loans. The latter improved our risk charge by more than CZK 300 million and was therefore critical to our performance in this category. Overall, the fairly negative view on credit performance that we took in late 2022 did not fully materialise, nonetheless, from the medium-term perspective, we do see an incremental increase in risks due to the contraction of the economy. Our effective tax rate was 15 per cent. This level of taxation was positively impacted by our continued investments into government bonds, the income from which is tax exempt. Part of our excess liquidity was placed into these instruments in order to obtain relatively risk-free income, which in turn reinforced our interest income capacity overall. Nonetheless, we significantly increased our contribution to the state treasury through direct and indirect taxation. For clarity, I am providing you with a table that summarises our contributions to the state budget in the past three years. 12 LETTER FROM THE CHAIRMAN OF THE MANAGEMENT BOARD Annual Financial Report 2023 MONETA’s contribution to state budget during 2021–2023 (in CZK m) 2023 2022 2021 Income tax 2,518 1,782 1,603 of which corporate taxes 1,445 672 477 of which payroll taxes and social security 1,073 1,110 1,126 Withholding tax 1,768 1,053 57 of which from paid dividends 316 580 - of which from paid interest 1,452 473 57 Value added tax 173 224 259 TOTAL CONTRIBUTION 4,459 3,059 1,919 From the regulatory perspective, we had a couple of positive developments concerning capital requirements in 2023. First, the regulator decided to lower the countercyclical capital buffer from 2.25 per cent to 2 per cent effective from 1 October 2023. And second, the CNB decreased our Pillar II requirement from 2.6 per cent to 2.3 per cent effective from 1 January 2024. As a result, our overall capital requirement will decline to 15.8 per cent (including the management capital buffer) with effect from 1 January 2024. Additionally, we were subjected to two on-site inspections by the CNB and we successfully fulfilled our regulatory responsibilities. The inspections did not lead to any sanction or fine for the Bank. During the late part of the 2023 we were faced with the decision by the CNB to cease paying interest on mandatory reserves. This decision impacted our performance during the fourth quarter by CZK 120 million, reducing our interest income. Despite this negative impact we were able to deliver our targets. Given the above context, and in view of our profitability, excess capital and forward-looking business plan, we have decided to propose a dividend of CZK 9 per share. This translates to an 88 per cent distribution of our 2023 consolidated earnings. During the past seven years, MONETA has distributed 83 per cent of its consolidated earnings. We believe that our proposal will be supported by our Supervisory Board and by our shareholders. I will now turn to the Czech economy. ECONOMIC ENVIRONMENT In 2023, annual inflation continued its downward trend from the peak of 18 per cent in the autumn of 2022 to an average 10.7 per cent for the full year. In December 2023, monthly inflation came in at 6.9 per cent. This downward trajectory clearly continues, and on this basis the CNB in December initiated the first cut of the key 2-week repo rate, from 7 per cent to 6.75 per cent. The rate reduction was in line with the CNB’s prognosis that 2024 inflation will be subdued to a level of 2.6 per cent. This does not fully meet the 2 per cent inflationary target, nonetheless if the estimate is correct interest rates are likely to be significantly lower towards the end of 2024. Further evidence can be found in the interest rate swap market, where medium and long-term rates were traded in December at significantly lower levels. Overall, the CNB has maintained a tight monetary policy for more than 18 months, reducing household demand and leading to a correction in the property market. This policy has had a predictable impact on the national economy, which throughout 2023 was largely stagnant. The preliminary results of GDP confirmed the central bank’s prediction that the Czech economy will contract by 0.4 per cent for the full year 2023. If inflation continues its decline, the CNB is expected to gradually reduce interest rates in 2024, which in turn should help the economy to move into positive growth territory. The unemployment rate in the Czech Republic increased to 2.7 per cent in December 2023, its highest since 2021. Despite the increase, the labour market remains balanced, and the economy enjoys nearly full employment. Full employment had been complemented by relatively strong nominal wage growth; salaries increased by 7.5 per cent last year. But real wage growth in 2023 was actually negative 2.9 per cent due to inflation. However, expectations are that real wage growth will turn positive in 2024. If this materialises, it should support consumer demand and the property market. One major area of public debate throughout 2023 was government efforts to bring the state budget deficit under control. The deficit ended the year at CZK 289 billion, equal to 4 per cent of GDP. This was down nearly by CZK 72 billion on 2022’s CZK 360 billion deficit, making it the best performance since the beginning of the covid-19 pandemic in 2020. This has to be considered a clear political and economic achievement, especially given the tensions around the government’s consolidation package that was introduced in June. The consolidation package includes, among other measures, an increase in corporate income tax to 21 per cent from the current 19 per cent, and a cut in state support for building savings products. The budget consolidation measures sparked large trade union protests against the containment of public sector pay and benefits. The Czech crown remained relatively stable throughout 2023, with the CNB regularly intervening to support the crown at around a level of CZK/EUR rate at 24. The central bank, which terminated such interventions in the late autumn, is forecasting an average CZK/EUR rate at 24.6 for 2024. 13 LETTER FROM THE CHAIRMAN OF THE MANAGEMENT BOARD Annual Financial Report 2023 The performance of the coalition government of Prime Minister Petr Fiala will receive first-hand feedback from the electorate in September 2024, when the Czech Republic holds regional elections and elections for one-third of the upper house of the Czech parliament, the Senate. The results will give an early but clear indication of the national mood ahead of the 2025 general election. AWARDS For the second consecutive year MONETA received 12 awards at the prestigious Zlatá koruna (Golden Crown) annual banking awards. We are especially proud that our mobile banking application, Smart Banka, won the People’s Choice Award for the third year in a row. This underlines our success and our strong leadership position in digital banking. Additionally, we were awarded Golden Crowns in the Entrepreneurs' Choice, Newcomer of the Year and Savings Account categories. We also received Silver Crowns for the Business Accounts category (Konto PRO podnikání), and also in the Business Loans category (green loans). This award highlighted our commitment to supporting environmentally beneficial projects initiated by small entrepreneurs. And we received Bronze Crowns for our savings products designed to serve the needs of our small business customers and, additionally, for loan products to serve the needs of women entrepreneurs. The Golden Crown awards are a respected local benchmark determining the quality and value of financial products and services. Importantly, evaluations are carried out by members of the general public and a 400-member strong panel of economic and financial experts. Therefore, the width and breadth of scrutiny results in valuable feedback and serves as guidance as to whether our endeavours meet market tests and expectations. We trust that the results confirm the correctness of our approach to the market. Equally importantly, we delivered a solid performance in the Best Bank competition organised by the Czech Republic’s leading business and finance newspaper, Hospodářské noviny (HN). MONETA won two silver medals in the Bank of the Year and Most Client Friendly Bank categories. HN referenced MONETA’s attractive interest rates for savers and high quality of our online services. I want to personally express my thanks to our staff for their focus and effort to keep MONETA at the vanguard of service delivery, innovation and award-winning products. Their talent and professionalism enable us to successfully compete against much larger competitors while, at the same time, creating value for our shareholders. They deserve respect and gratitude for MONETA’s success. SUBORDINATED DEPOSIT In June, we introduced a subordinated deposit product with a fixed five-year term and an interest rate of 7 per cent. This was aimed at satisfying our MREL requirement set by the CNB. The successful placement of this instrument also opened and cleared the way to continue our dividend distribution policy. Aside from these two principal targets, we believe that an additional element of success lies in the fact that pricing of the instrument at the time of issue was advantageous compared to other options. We successfully distributed CZK 2.9 billion in less than three weeks and fulfilled our MREL requirement six months ahead of deadline. ATM SHARING AGREEMENT Our partner ATM network was successfully extended in early 2023. The ATM network was joined by Air Bank and UniCredit Bank and was significantly reinforced by their infrastructure. These agreements enlarged the shared ATM network to nearly 2,000 machines throughout the country. Additionally, during 2024 we plan to introduce a shared deposit function across the network. The shared ATM network enables us and our partners to better serve our respective clients, it decreases our overall costs, and it enables us to reduce the environmental impact through the relocation and rebalancing of ATM coverage. This is visible from the fact that 1.6 million withdrawals were made by our clients from the ATMs of our network partners. And additionally, the attractiveness of our own network to our partner banks’ clients is apparent through almost 2.5 million withdrawals that they performed on MONETA’s ATMs. FINANCIAL PERFORMANCE In 2023, we delivered a net profit of CZK 5.2 billion, up 0.3 per cent year-on-year, which translates into a Return on Tangible Equity of 18 per cent. Our operating income was CZK 12.1 billion and remained stable compared to 2022. Competition as well as high short-term interest rates increased our cost of funding. Nonetheless, the increase was partially offset by significant growth in the deposit base as well as a positive margin against the CNB repo rate. Both, the volume growth and positive spread against the short-term rate enabled us to improve net interest income overall. Nevertheless, net interest income declined by 7.9 per cent year-on-year to CZK 8.6 billion. Overall, we managed to maintain net interest margin at a level of 2.1 per cent which we consider adequate and in line with our planned 2023 targets. The decline in net interest income was partially offset by our successful efforts to increase fee and 14 LETTER FROM THE CHAIRMAN OF THE MANAGEMENT BOARD Annual Financial Report 2023 commission income. On a net basis, we accomplished strong growth of more than 14 per cent, or more than CZK 300 million, in fee and commission income to generate CZK 2.6 billion. The growth stemmed mainly from the distribution of third-party insurance products due to stronger sales performances and better conditions negotiated with our partners. Our cost base was stable at the targeted level of CZK 5.7 billion, an increase of 2.4 per cent on the previous year. Costs remained stable despite an increase in regulatory contributions of more than 34 per cent to CZK 307 million. The increase in these contributions was mainly caused by higher charges due to the failure of a medium-sized bank (Sberbank) and the need to replenish the CNB’s deposit insurance fund. Additionally, higher charges went hand in hand with the significant growth of our deposit base. Regarding personnel costs, we maintained stability and delivered a slight cost reduction. This was accomplished due to a focused staff reduction programme that began in September 2022 and which was completed in April 2023. At the outset, we set a target of 2,500 full-time employees at the enterprise level, which we met by the end of the first quarter of 2023. The restructuring enabled us to increase compensation to more than 50 per cent of our staff, to increase variable rewards for the distribution of third-party products, and at the same time to keep our overall expenditure stable. With respect to administrative and other costs, we suffered from strong supplier and landlord pressures to adjust for inflation. The felt same effect from energy costs and a number of services, a good example being transport and the handling of cash, as well as increases in IT maintenance and development costs. It is fair to say that costs substantially increased on everything that we as a bank consume. MONETA initiated efforts to decrease inflationary impacts through procurement negotiations. In addition, we closed six retail branches and significantly reduced our office space. In 2023, we incurred a net cost of risk charge of CZK 305 million, or 11bps of the average net loan portfolio. This relatively low cost of risk can be attributed to several factors. First, we successfully disposed of non-performing loan portfolios, which led to a gain of more than CZK 300 million against the carried book value of such receivables. Additionally, throughout the year we benefited from the upgrade of receivables from both non-performing and Stage 2 categories. This benefit was paralleled by our ability to maintain the overall non-performing loan portfolio at a stable level. We also accomplished the repayment and exit from two material real estate financings that in our view reached an unacceptable risk level. Equally importantly, our focused collection efforts kept the balances of overdue loans stable. In addition, we benefited from strong management-initiated loan loss provision overlays created during late 2022 and that were further reinforced during 2023. In this category, during the last quarter, we released part of these overlays after back testing their necessity. And lastly, we benefited from lower overall income tax. Our effective tax rate is now 15 per cent, an indirect consequence of our investment policy conducted throughout 2022 and 2023. The effect is due to our higher investments into government bonds, the income from which is tax-exempt. With respect to the so called “windfall tax”, we incurred no liability. In 2023 we achieved the highest ever level of net profit, at CZK 5.2 billion. We hope to be able to repeat, and improve upon, this performance in the future. GUIDANCE AND OUTLOOK As we do every year, we have updated our five-year medium-term plan and have set internal targets for the current year. Our planning consists of both top-down and bottom-up planning, and strong consideration of capital allocation as per our ICAAP results. Our capital deployment and ability to obtain satisfactory results from such is paramount to our target setting and overall growth consideration. Additionally, we put strong emphasis on our ability to maintain cost discipline and efficient operations. And lastly, we place strong attention to investments across our operating platform to modernise and innovate as well as ensure the regulatory fitness of our endeavours. In this respect, we seek to deliver a cumulative net profit of CZK 27.7 billion for the period 2024 through 2028. Annual earnings should grow by a cumulative growth rate of 3.6 per cent during this period from CZK 5.2 billion in 2024 to CZK 6 billion in 2028. On this basis we also aim to produce a Return on Tangible Equity in excess of 15 per cent. Should we be successful in delivering these targets, the Bank would like to continue its attractive shareholder distributions. CONGRATULATIONS TO OUR STAFF I would like to extend my deepest respect and gratitude to our management and staff for their performance and delivery over the last year. From my perspective, the year was difficult on several fronts. We had to contend with widely unpopular lay-offs and other cost related decisions. Nonetheless, we successfully defended and delivered overall cost stability, which is necessary to reinforce the confidence and credibility we hold with our shareholders and with the overall capital markets. Secondly, we faced a highly competitive environment and turbulence related to failures of banks in the US and Europe. On this front, we successfully delivered and reinforced the resilience of MONETA’s business 15 LETTER FROM THE CHAIRMAN OF THE MANAGEMENT BOARD Annual Financial Report 2023 model. Due to an inverted market yield curve, we were forced to re-think our short-term lending market approach and such a change was not easy to absorb in a short timeframe. During the year, we also faced various other setbacks, namely unexpectedly high regulatory contributions and most recently the decision on mandatory reserves. Against these challenges, we together delivered respectable results and accomplished structural improvements to our operational performance. Concerning cost targets, we successfully delivered on our full-time employee reduction target, closed branches and reduced other expenditures. We delivered solid regulatory results concerning two in-depth regulatory inspections. We also accomplished a positive review of our Pillar II capital requirement, delivering a decrease in this very important metric. In our ability to deliver digital innovations, we successfully reinforced cyber-crime protection in both technical and communication dimensions. And we are progressing in many other material endeavours to maintain the sustainability of our business model as well as our ability to deliver long-term shareholder value. I would like to thank our Supervisory Board, which continually engages management in constructive discussions pertaining to strategy, tactical approaches to the market and many other aspects of our operations. Our Supervisory Board provides us with valuable feedback and alternatives, improving our overall capacity to manage the Bank. Concerning our staff, I am grateful for their endurance, focus and ability to execute strategy, both individually and collectively. I have the deepest respect for these efforts, which this year have once again come to fruition and produced concrete results which we must all be proud of. And with that accolade, I conclude my letter. Yours faithfully, Tomáš Spurný Chairman of the Management Board and CEO MONETA Money Bank, a.s. We thrive with MONETA In Markéta Paikertová‘s café and confectionery Pink Roses in Hradec Králové, you can sweeten your day with traditional and lesser-known desserts. Specialities include, for example, plum jam macaroons with gingerbread cookies or lentil macaroons. The café has an unmistakable style with a floral wall and offers excellent coffee, wine or mixed drinks. We are honoured to be a part of it! Markéta Paikertová PINK ROSES original s.r.o. 19 HIGHLIGHTS Annual Financial Report 2023 JANUARY DEPOSIT PRODUCTS MONETA has introduced savings products designed for condominiums and housing cooperatives with attractive interest rates. The total deposits of these clients amounted to CZK 11.6 billion as at 31 December 2023 which represents an increase of 78.6% year-on-year. MONETA’s market share in this segment grew to 12%. KEY EVENTS IN 2023 APRIL GREEN PRODUCTS MONETA launched a “green” lending programme, first for commercial and later for retail clients. “Green loans” will help clients finance environmentally sustainable projects such as photovoltaic power plants, heating systems, electric vehicles and other. In 2023, MONETA provided “green” loans in the total amount of CZK 322 million. 1 GENERAL MEETING/DIVIDEND The General Meeting of MONETA Money Bank (“Bank”) was held on 25 April 2023 and approved the distribution of a dividend in the amount of CZK 8 per share from the 2022net profit. In addition, the shareholders approved the 2022 consolidated and separate financial statements of the Bank as well as the 2022 remuneration report. The General Meeting was attended by 70.95% of shareholders. 1 SUPERVISORY BOARD Following the resignation of Mr. Tomáš Pardubický from the Supervisory Board of the Bank, Mrs. Kateřina Jirásková was elected to the vacant position at the General Meeting held on 25 April 2023 for a four-year term with immediate effect. 82.9% of the shareholders present voted in favour of her election. 2 FEBRUARY GUIDANCE MONETA published its medium-term guidance for 2023–2027. It aimed to deliver a cumulative net profit of CZK 23.6 billion in the next five years, which is 18% higher than in the previous period 2018–2022. 1 MARCH DIGITAL • MONETA’s online system Smart Finance, designed mainly for agricultural clients, has originated almost CZK 500 million of new loans. 1 • To improve efficiency in the client call centre, MONETA introduced a voicebot, which can process up to 25% of client’s requests. 1 MAY MANAGEMENT BOARD The Bank’s Supervisory Board re-appointed Mr. Tomáš Spurný as a member of the Bank’s Management Board for a further four years, effective from 3 October 2023. The Management Board subsequently re-elected Mr. Spurný as its Chairman. 2 ESG MONETA became the Charity partner of the foundation Pride Business Forum, which focuses on promoting the equal status of LGBT+ employees in the workplace. MONETA was also recognised for its active engagement in supporting the LGBT+ community. 3 2023 1 2 3 4 5 HIGHLIGHTS JUNE SUBORDINATED DEPOSIT On 1 June, MONETA introduced a subordinated deposit product with a fixed five-year term and an interest rate of 7%. It was launched in order to help meet the minimum regulatory requirement set by the Czech National Bank (“CNB”) for own funds and eligible liabilities (“MREL”) which becomes effective 31 December 2023. Thanks to great interest, MONETA raised the required funds within three weeks, and as at 31 December 2023 the subordinated deposit balance stood at CZK 2.9 billion. 1 6 Subordinated deposit CZK 2.9 bn Green loans more than CZK 300 m Dividend for 2022 CZK 8 20 HIGHLIGHTS Annual Financial Report 2023 SEPTEMBER CZECH NATIONAL BANK REGULATION • The Bank Board of the CNB decided on 7 September that it would discontinue remuneration of the mandatory minimum reserves to lower the cost of implementing the monetary policy. The decision became effective on 5 October 2023; prior to that, the mandatory minimum reserves were remunerated using the 2-week repo rate. 6 Such a decision resulted in a decrease in MONETA’s interest income of approximately CZK 120 million in 2023 and an estimated CZK 450 million in 2024. 2 • The CNB completed its inspection of MONETA’s risk management of operations and IT systems and technology with no major or serious findings. This confirms a high standard of MONETA’s processes, practices and overall governance standards. DIGITAL MONETA expanded digital payment methods by including the SwatchPAY! payment service alongside Apple Pay, Google Pay, Fitbit and Garmin Pay. SwatchPAY! enables contactless payment via Swatch wristwatches and MONETA was the second bank in the Czech market to provide this payment capability. 1 INTERNALMORTGAGE-BACKED BOND PROGRAMME The CNB approved MONETA’s mortgage-backed bonds programme, which is designed to provide an additional liquiditybufferif necessary. Within thisprogramme, theBank can get additional liquidity of up to CZK 70 billion through the placement of internally issued mortgage-backed securities as collateral with the CNB. The Bank successfully tested the process in a real transaction with the CNB. 7 OCTOBER CREDIT RATING The rating agency Moody’s Deutschland GmbH confirmed MONETA’s credit rating at A2 with a stable outlook. SREP CAPITAL REQUIREMENT The CNB decreased the Pillar II capital requirement for MONETA by 30bps to 2.3% effective from 1 January 2024. The overall management capital target will therefore decrease to 15.8%, consisting of an 8% Pillar I requirement, 2.3% Pillar II requirement, 2.5% capital conservation buffer, 2% countercyclical buffer and 1% management buffer. 2 10 9 7 JULY ESG According to the carbon footprint calculation for the year 2022, MONETA has reduced its direct (Scope 1 and Scope 2) carbon dioxide emissions by 81.3% since 2016. The calculation has been verified by an independent certified third party according to the international ISO standard. MONETA is close to meeting its target to reduce direct carbon dioxide emissions by 90% by 2026 compared to 2016. 1 AWARDS For the second year in a row, MONETA won a record total of 12 awards in the renowned financial sector competition “Zlatá koruna” when it received five gold, three silver and four bronze awards. The Smart Banka mobile banking application has confirmed its position as the most popular banking product as it won, for the third year in a row, the Public Award category. Other awarded products were accounts for children, savings accounts and building savings products. 4 8 AUGUST INVESTMENT FUNDS MONETA expanded its investment fund portfolio with six new mutual funds denominated in euros. In total, MONETA offers its clients 44 investment funds, both in euros and Czech crowns, as a way to value their savings. 1 ESG RATING The company MSCI confirmed MONETA’s ESG rating at AA. 5 CYBER ATTACK MONETA, along with other Czech banks, was subject to a concentrated cyber-attack that targeted the availability of web services and digital channels. MONETA’s complete services were restored within hours of the attack. Carbon footprint reduction 81.3% Golden Crown 12 awards MSCI rating AA 21 HIGHLIGHTS Annual Financial Report 2023 2024 1 Source: https://www.moneta.cz/web/for-media. 2 Source: https://investors.moneta.cz/news. 3 Source: https://www.pridebusinessforum.com/. 4 Source: https://www.zlatakoruna.info/soutez/2023 (Czech only). 5 Source: https://www.msci.com. Direct link available here. Disclaimer Statement: The use by MONETA Money Bank, a.s. of any MSCI ESG research LLC or its affiliates (“MSCI”) data, and the use of MSCI logos, trademarks, service marks or index names herein, do not constitute a sponsorship, endorsement, recommendation or promotion of MONETA Money Bank, a.s. by MSCI. MSCI services and data are the property of MSCI or its information providers and are provided ‘as-is’ and without warranty. MSCI names and logos are trademarks or service marks of MSCI. 6 Source: https://www.cnb.cz/en/cnb-news/press-releases/CNB-ends-remuneration-of-minimum-reserves/. 7 Source: https://investors.moneta.cz/bonds. 8 Source: https://nejbanka.hn.cz/vysledky/ (Czech only). 9 Source: https://bankaroku.cz/#vysledky (Czech only). 10 Source: https://www.bezemisni.cz/ (Czech only). 11 Source: https://www.seznamzpravy.cz/tag/ceska-elita-95008 (Czech only). 12 Source: https://www.bloomberg.com/company/press/bloomberg-2023-gei/. 13 Source: Market Vision research: Analysis of products online distribution on the domestic banking market, October 2023. 14 Source: Prague Stock Exchange (www.pse.cz). Total Shareholder Return according to Bloomberg methodology, including reinvested dividend. NOVEMBER ESG MONETA opened a day-care centre for the children of its employees on its headquarters premises. This activity was initiated by the MON FAIR Committee as part of MONETA’s efforts to promote work-life balance and the return of parents to work. AWARDS • MONETA won two silver medals in the Best Bank competition, the first one in the Bank of the Year category, and the second one in the Most Client Friendly Bank category. MONETA was successful thanks to its attractive interest rates and wide range of products and services in the online environment. 8 • MONETA earned a second place in the Mortgage of the Year category in the Mastercard Bank of the Year competition. 9 • MONETA was awarded at the Internet Effectiveness Awards with first place in the “Use of Artificial Intelligence” category for the implementation of a voicebot in a call centre. ESG MONETA was a founding member of the “Aliance pro bezemisní budoucnost” (Alliance for zero-emission future), a multi-industry platform to support the transformation of the Czech economy to low carbon solutions. The ultimate goal of the alliance is to help achieve carbon neutrality by the year 2050. 10 MARKET VALUE MONETA Money Bank was evaluated as the 10 th most valuable Czech company in the ranking compiled by the economic portal Seznam Byznys and consulting company Deloitte. As at the date of publication of the ranking, the market capitalisation of the Bank was CZK 46 billion 11 , which increased to CZK 47.8 billion as at 31 December 2023. 11 DECEMBER ESG • The share of e-cars in MONETA’s car fleet increased from 36% in 2022 to 66% in 2023, which brings MONETA close to the goal of 75% share of e-cars by 2026, as stated in the ESG strategy. • MONETA was, for the fourth time, included in the Bloomberg Gender Equality Index as the only Czech company. For 2023, MONETA reported a mean gender pay gap of 0.88% which is a major improvement compared to the first measurement for 2019, when the gender pay gap was 5.19%. 12 DIGITAL MONETA has been confirmed as the digital leader on the Czech banking market based on the Market Vision research, offering all its available retail products fully online, without the need to visit a branch. 13 DEPOSITS AND LIQUIDITY POSITION As at 31 December 2023, MONETA had CZK 399.2 billion of customer deposits thanks to continuous attractive interest rate offers. As at 31 December 2023, the balance of customer deposits increased by 19.6% year-on-year. Retail deposits grew by 22.2%, almost three times the market growth. This resulted in a strengthening liquidity position and resilience of the balance sheet. As at 31 December 2023, the Liquidity Coverage Ratio stood at 354.4% against 213.7% in the previous year. TOTAL SHAREHOLDER RETURN The share price of the Bank reached CZK 93.60 at the end of 2023, which represents 23.2% increase year-on-year. Together with a paid dividend of CZK 8 per share, it represents a total shareholder return for 2023 of 35.7%. 14 12 66% e-cars in carfleet Gender Equality Index 0.88% We thrive with MONETA Aleš Vancl, owner of the family carpentry and metalworking business VANCL design, uses for his products more than 100-year-old wood, mostly from barns and older houses. He thus breathes new life into the wood from roof trusses or floors. In combination with metal components, he creates unique originals. He will custom-make furniture, solitaires and decorations for a house or garden. We are honoured to be a part of it! Aleš Vancl Carpentry and metalworking VANCL design 25 HIGHLIGHTS Annual Financial Report 2023 2023 FINANCIAL RESULTS AND GUIDANCE 1 Metrics 2023 Guidance 2 2023 Results Total operating income (CZK bn) ≥12.0 12.1 Total operating expense (CZK bn) ≤5.7 5.7 Operating profit (CZK bn) ≥6.3 6.4 Cost of risk (CoR, bps) 25–45 11 Effective tax rate (%) � 22.0 14.9 Net profit (CZK bn) ≥4.3 5.2 Earnings per share (CZK) ≥8.4 10.2 Return on Tangible Equity (RoTE, %) ≥15.0 18.0 1 Based on consolidated results. 2 Market guidance published on 3 February 2023 as a part of the presentation of FY 2022 Financial Results. In 2023, MONETA successfully delivered all key financial commitments to its shareholders, expressed in the market guidance published on 3 February 2023 2 . MONETA generated a net profit of CZK 5.2 billion, exceeding its 2023 guidance of CZK 4.3 billion by CZK 0.9 billion. The main drivers of the stronger performance were higher operating income, lower than expected cost of risk and lower effective tax rate. Supported by the successful expansion of the distribution of commission-based third-party products, MONETA exceeded its targeted total operating income of CZK 12 billion by CZK 0.1 billion. Higher than expected net fee and commission income partially offset lower net interest income, which was negatively impacted by the gradual repricing of most of the savings and term deposit balances, resulting in pressure on the net interest margin. This was however accompanied by a very successful expansion of customer deposits, exceeding expectations and growing 19.6% year-on-year, setting MONETA in a solid position for the declining interest rate environment expected in 2024. In 2023, MONETA continued in its efficient management of operating expenses despite significant inflationary pressures and higher than anticipated regulatory charges. The total operating expenses were CZK 5.7 billion, in line with the market guidance. This was achieved mainly by the successful execution of productivity improvements, enabling staffing reduction by 11% to an average of 2,493 in 2023. MONETA’s cost to income ratio for 2023 reached a solid level of 47.2%. The cost of risk was reported at CZK 305 million, or 11bps of the average net loan portfolio, well below the guided range of 25–45bps. Such a result was positively impacted by the good credit performance of the portfolio and successful NPL disposals, generating a positive impact on the cost of risk of CZK 304 million. Return on Tangible Equity for the year 2023 reached 18%, surpassing the minimum market guidance of 15%. The effective tax rate was 14.9%, well below the originally expected level of 22.0%, supported by investments of available liquidity in Czech government bonds, the income from which is tax-exempt. 26 HIGHLIGHTS Annual Financial Report 2023 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in CZK m) 31 Dec 2023 31 Dec 2022 Change Cash and balances with the central bank 10,871 12,467 (12.8)% Investment securities 104,353 57,951 80.1% Loans and receivables to banks 69,632 37,886 83.8% Loans and receivables to customers 263,064 268,752 (2.1)% Remaining assets 10,264 10,454 (1.8)% Total Assets 458,184 387,510 18.2% Due to banks 5,423 5,953 (8.9)% Due to customers 399,497 334,251 19.5% Issued bonds 3,808 5,520 (31.0)% Subordinated liabilities 7,604 4,687 62.2% Remaining liabilities 9,649 6,008 60.6% Total Liabilities 425,981 356,419 19.5% Total Equity 32,203 31,091 3.6% Total Liabilities and Equity 458,184 387,510 18.2% CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS (in CZK m) 2023 2022 Change Interest and similar income 22,046 15,591 41.4% Interest expense and similar charges (13,469) (6,280) 114.5% Net interest income 8,577 9,311 (7.9)% Net fee and commission income 2,624 2,298 14.2% Other income 946 507 86.6% Total operating income 12,147 12,116 0.3% Total operating expenses (5,730) (5,594) 2.4% Operating profit 6,417 6,522 (1.6)% Net impairment of financial assets (305) (90) 238.9% Profit for the period before tax 6,112 6,432 (5.0)% Profit for the period after tax 5,200 5,187 0.3% 27 HIGHLIGHTS Annual Financial Report 2023 KEY PERFORMANCE INDICATORS 3 Business Performance (in CZK bn) 31 Dec 2023 31 Dec 2022 Change Gross performing loan balance 263.9 270.1 (2.3)% Retail gross performing loan balance 179.5 186.6 (3.8)% Commercial gross performing loan balance 84.4 83.4 1.1% Customer deposits 399.2 333.8 19.6% Retail customer deposits 313.2 256.3 22.2% Commercial customer deposits 86.1 77.5 11.1% Figures in the table may not add up to the total due to rounding differences. Profitability and Efficiency 2023 2022 Change Yield 4.7% 4.2% 0.5pp Cost of funds (CoF) on customer deposits 3.30% 1.62% 1.68pp Net interest margin 2.1% 2.6% (0.5)pp Cost of risk (CoR) 0.11% 0.03% 0.08pp Risk-adjusted yield 4.6% 4.2% 0.4pp Net fee & commission income/total operating income 21.6% 19.0% 2.6pp Net non-interest income/total operating income 29.4% 23.2% 6.2pp Cost to income ratio 47.2% 46.2% 1.0pp Return on Tangible Equity (RoTE) 18.0% 18.7% (0.7)pp Return on Equity (RoE) 16.1% 16.7% (0.6)pp Return on Average Assets (RoAA) 1.2% 1.4% (0.2)pp Capital and Liquidity 31 Dec 2023 31 Dec 2022 Change Total capital adequacy ratio 20.1% 18.0% 2.1pp Tier 1 capital adequacy ratio 15.7% 15.3% 0.4pp Loan to deposit ratio 65.9% 80.5% (14.6)pp Total equity/total assets 7.0% 8.0% (1.0)pp Liquid assets/total assets 40.3% 27.9% 12.4pp Liquidity coverage ratio 354.4% 213.7% 140.7pp 3 Based on consolidated results. 28 HIGHLIGHTS Annual Financial Report 2023 2024–2028 MEDIUM-TERM GUIDANCE 4 4 Latest market guidance published on 2 February 2024 as a part of FY 2023 results presentation. Based on recent developments, MONETA’s 2023 results and the latest macroeconomic outlook, the Management Board has provided its guidance for the upcoming five-year period from 2024 to 2028. Overall, MONETA seeks to deliver a minimum cumulative net profit of CZK 27.7 billion, which is 32% more than in the previous five-year period. MONETA expects the total operating income to gradually grow to at least CZK 14.5 billion in 2028. MONETA also aims to maintain operating expenses under tight control, gradually reducing the cost to income ratio below 45%, with operating expenses at CZK 6.3 billion in 2028, despite continuing investments into its digital capabilities. The cost of risk is expected to gradually increase and normalise in the range between 25 and 45bps in the medium term. The effective tax rate is expected to stabilise at 15% from 2025 onwards. The Return on Tangible Equity is expected to reach a minimum of 17% during the whole period. Metrics 2024 2025 2026 2027 2028 CAGR 2024–2028 Total operating income (CZK bn) ≥12.4 ≥12.8 ≥13.5 ≥14.0 ≥14.5 4.0% Total operating expenses (CZK bn) ≤5.8 ≤5.9 ≤6.0 ≤6.2 ≤6.3 2.1% Operating profit (CZK bn) ≥6.6 ≥6.9 ≥7.5 ≥7.8 ≥8.2 5.6% Cost of risk (CoR, bps) 10–30 15–35 25–45 25–45 25–45 n/a Effective tax rate (%) ~ 14.0% ~ 15.0% ~ 15.0% ~ 15.0% ~ 15.0% n/a Net profit (CZK bn) ≥5.2 ≥5.3 ≥5.5 ≥5.7 ≥6.0 3.6% Earnings per share (CZK) ≥10.2 ≥10.4 ≥10.8 ≥11.2 ≥11.7 3.6% Return on Tangible Equity (RoTE, %) ≥17.0% ≥17.0 % ≥17.0% ≥17.0% ≥17.0% n/a More details on the medium-term guidance are also available in Chapter 13 “Forward-Looking Statements” of this Annual Financial Report. 29 HIGHLIGHTS Annual Financial Report 2023 MARKET PERFORMANCE OF THE BANK’S SHARES 5 Latest available market price of the shares. The Prague Stock Exchange does not trade on 31 December and on weekends. 6 Source: www.pse.cz/udaje-o-trhu/akcie/prime-market. 7 The market capitalisation of the Bank was calculated on the basis of the share price of CZK 93.6 as at 29 December 2023. (Source: www.pse.cz/udaje-o-trhu/ akcie/prime-market). 8 Calculated as a percentage of the aggregate market capitalisation of all companies included in the PX index (Source: Prague Stock Exchange www.pse.cz). 9 Calculated as average of daily total turnover in 2023 based on data from https://www.pse.cz/en/detail/CZ0008040318?tab=detail-history. 10 Source: Bloomberg. Total Shareholder Return according to Bloomberg methodology, including reinvested dividend. 11 The dividend yield is calculated as the ratio (expressed as a percentage) of dividend per share approved by the General Meeting and paid in 2023 in the total amount of CZK 8.00 per share before tax and the Bank’s shares closing price of CZK 93.6 as at 29 December 2023. (Source: Prague Stock Exchange). 12 Calculated as consolidated net profit for the year divided by the number of shares issued. 13 Calculated as consolidated Total Equity divided by the number of shares issued. • On 29 December 2023 5 , the closing price of the Bank’s shares on the Prime Market of the Prague Stock Exchange was CZK 93.6, which was also the maximum closing price of the shares in 2023. 6 • The market capitalisation of the Bank reached CZK 47.8 billion 7 as at 31 December 2023, which represents 16.6% of the aggregated market capitalisation of all companies included in the PX index (as at 31 December 2023). 8 • In 2023, the average daily volume of trading in the shares of the Bank on the Prime Market of the Prague Stock Exchange amounted to 436 thousand pieces. 9 • In 2023, MONETA paid out to its shareholders the dividend from 2022 net profit in the amount of CZK 8 per share. The Management Board will propose a dividend distribution from 2023 net profit in the amount of CZK 9 per share, representing a pay-out ratio of 88% of the 2023 consolidated net profit. The payment of this dividend will be subject to approval at the Annual General Meeting to be held on 23 April 2024. The Management Board of the Bank continues to be committed to its dividend policy to distribute at minimum 70% of annual net profit subject to corporate and regulatory approvals. Further details are available in chapter 1.3 “Dividend Policy”. • MONETA’s Total Shareholder Return in 2023 reached 35.7% 10 , and the dividend yield for the same period was 8.5% 11 . Market information on shares of the Bank as at 31 December 2023, unless otherwise indicated: Number of shares issued 511,000,000 Market capitalisation (CZK m) 6 47,830 Consolidated earnings per share (CZK) 12 10.2 Consolidated book value per share (CZK) 13 63.0 Share price (CZK), Prime Market of Prague Stock Exchange 5 Closing price as at 29 December 2023 93.6 Maximum closing price during 2023 93.6 Minimum closing price during 2023 75.3 30 HIGHLIGHTS Annual Financial Report 2023 The following chart shows the development of the shareholder return in 2023. 14 14 PX Index - Czech stock market index, Euro Stoxx Banks - European bank index (Stoxx 600). SHAREHOLDER RETURN (PRICE REBASED TO 100) MONETA Money Bank PX Index Euro Stoxx Banks 95 100 105 110 120 130 125 115 Shareholder return in 2023 MONETA +35.7% PX Index +28.3% Euro Stoxx Banks +27.9% 135 January 23 February 23 March 23 April 23 May 23 June 23 July 23 August 23 September 23 October 23 November 23 December 23 We thrive with MONETA After years in the office, Margita Jarolímová was looking for a fresh start and work that would fulfil her. In her spare time, she had previously created various decorations, so she decided to try to succeed on her own. Today, her “green jungle” called Wreaths with Soul – Gita Jarolímová is a renowned florist in Pardubice. Here she offers her original wreaths, floral arrangements and other decorations, as well as cut or indoor flowers. Customers say they appreciate her ruffled bouquets and especially her personal approach. “I am always interested in who I am tying the bouquet for and put it together accordingly,” says the florist. We are honoured to be a part of it! Margita Jarolímová Florist Wreaths with Soul 33 PROFILE OF MONETA MONEY BANK AND ITS SUBSIDIARIES Annual Financial Report 2023 1. PROFILE OF MONETA MONEY BANK AND ITS SUBSIDIARIES 1 On 6 May 2016, the conditional trading in the Bank’s shares was commenced. The official trading in the Bank’s shares was commenced on 10 May 2016. 1.1 BASIC INFORMATION ABOUT MONETA MONEY BANK AND ITS SUBSIDIARIES Company name MONETA Money Bank, a.s. Registered office Vyskočilova 1442/1b, Michle, 140 00 Prague 4, Czech Republic, Post code 140 28 Company ID No. 25672720 LEI code I6USJ58BDV2BO5KP3C31 Legal form Joint-stock company Registered in the Czech Commercial Register maintained by the Municipal Court in Prague in Section B under Entry No. 5403 Date of registration 9 June 1998 Share capital CZK 10,220 million Paid-up share capital 100% Type, form and format of issued shares and their nominal value The company’s registered capital is divided into 511,000,000 fully paid ordinary registered book-entry shares with a par value of CZK 20.00 each. Number of branches (as at 31 December 2023) 134 Organisation units abroad None Telephone +420 224 441 111 Webpage www.moneta.cz ISIN/Ticker CZ0008040318/MONET MONETA (hereafter also the “Group”) is a holding consisting of the parent controlling company MONETA Money Bank, a.s. (hereafter also the “Bank” or “MONETA Money Bank”) and its controlled subsidiaries: MONETA Stavební Spořitelna, a.s. (hereafter also the “Building Savings Bank”), MONETA Auto, s.r.o. (hereafter “MONETA Auto”) and MONETA Leasing, s.r.o. (hereafter “MONETA Leasing”). The Bank as well as its controlled subsidiaries are headquartered in Prague. The Shared Services Centre is located in Ostrava. Number of Employees 2023 2022 Average number of FTEs during the year 2,493 2,801 - out of that at branches 1,240 1,373 Number of FTEs in December 2,518 2,699 Shares and Share Capital The registered share capital in the amount of CZK 10.2 billion consists of 511,000,000 fully paid ordinary registered book-entry shares with a par value of CZK 20.00 each. No shares in the Bank are owned by the Bank or its subsidiaries or on behalf or for the account of the Bank or its subsidiaries. The Bank has not issued any securities or instruments convertible into or exchangeable for the Bank shares, nor any securities or other instruments with warrants. All shares in the Bank are traded on the Prime Market organised by Burza cenných papírů Praha, a.s. (hereafter as the “Prague Stock Exchange”), which is a regulated market within the meaning of Sections 55 and 64 of Act No. 256/2004 Coll., on Capital Market Business, as amended (hereafter the “Capital Markets Act”). The shares of the Bank are also traded without the Bank’s consent on regulated markets operated by RM-SYSTÉM, česká burza cenných papírů a.s. (on the multilateral trading facility within the meaning of Section 69 of the Capital Markets Act) and can also be traded on certain foreign markets. Security Share ISIN CZ0008040318 Total nominal value CZK 10,220 mil. Issued as Book-entry share Form Registered share Nominal value per share CZK 20 Market Prague Stock Exchange Traded since 6 May 2016 1 34 PROFILE OF MONETA MONEY BANK AND ITS SUBSIDIARIES Annual Financial Report 2023 Statutory Bodies of the Bank Members of the Supervisory Board as at 31 December 2023: Name Role Member position held from Member position held to Gabriel Eichler Chairman 26 October 2017 (Chairman since 2 August 2018) 20 December 2025 Miroslav Singer Vice-Chairman 24 April 2017 (Vice-Chairman since 22 May 2017) 28 April 2025 Clare Ronald Clarke Member 21 April 2016 2 September 2024 Michal Petrman Member 21 April 2016 2 September 2024 Denis Arthur Hall Member 21 April 2016 2 September 2024 Kateřina Jirásková Member 25 April 2023 25 April 2027 Klára Escobar Member elected by employees 7 May 2021 7 May 2025 Zuzana Filipová Member elected by employees 7 May 2021 7 May 2025 Jana Výbošťoková Member elected by employees 7 May 2021 7 May 2025 Mr. Tomáš Pardubický resigned from his position on the Supervisory Board with effect from 24 April 2023. Mrs. Kateřina Jirásková was elected to the vacant position on the Supervisory Board by the General Meeting held on 25 April 2023 with immediate effect. Mrs. Jirásková was proposed to the Supervisory Board by the significant shareholder and her nomination was positively assessed and confirmed by the Nomination Committee of the Supervisory Board. Members of the Management Board as at 31 December 2023: Name Role Member position held from Member position held to Tomáš Spurný Chairman 1 October 2015 3 October 2027 Carl Normann Vökt Vice-Chairman 25 January 2013 (Vice-Chairman since 1 March 2019) 27 January 2025 Jan Novotný Member 16 December 2013 18 December 2025 Jan Friček Member 1 March 2019 2 March 2027 Klára Starková Member 1 June 2021 1 June 2025 Following a recommendation from the Nomination Committee, the Supervisory Board approved the extension of the term of office of Mr. Tomáš Spurný as a member of the Management Board for another four years until 3 October 2027. The Management Board subsequently re-elected Mr. Spurný as its Chairman. Subsidiaries and associates Investments in subsidiaries and associates as at 31 December 2023: Name Registered office Business activity Bank‘s share in registered capital and voting rights MONETA Stavební Spořitelna, a.s. Vyskočilova 1442/1b, Michle, 140 00 Prague 4 Building savings and bridging loans 100% MONETA Auto, s.r.o. Vyskočilova 1442/1b, Michle, 140 00 Prague 4 Auto financing (loans and leases) 100% MONETA Leasing, s.r.o. Vyskočilova 1442/1b, Michle, 140 00 Prague 4 Financing of loans and leasing 100% CBCB - Czech Banking Credit Bureau, a.s. Štětkova 1638/18, Nusle, 140 00 Prague 4 Banking credit register 20% As at 31 December 2023 MONETA also held a position in Bankovní identita a.s. of 10%. 35 PROFILE OF MONETA MONEY BANK AND ITS SUBSIDIARIES Annual Financial Report 2023 Credit Rating In 2023 the Bank has been assigned following credit rating: Rating agency Long-term rating Outlook Short-term rating Long-term rating valid since Moody’s Deutschland GmbH A2 stable P-1 6 October 2023 Rating agency Moody’s Deutschland GmbH. (“Moody’s”) is established in the European Union and is registered under Regulation (EC) No. 1060/2009, as amended (the “CRA Regulation”). As such, Moody’s is included in the list of credit rating agencies published by the European Securities and Markets Authority on its website (https:// www.esma.europa.eu/supervision/credit-rating-agencies/risk) in accordance with the CRA Regulation. When selecting the rating agency, the Bank proceeded in accordance with the obligations laid down in Article 8d of the CRA Regulation. 1.2 STRATEGY MONETA remains focused on its strategic goals and on meeting commitments to its shareholders. Corporate Sustainability Cost Control and Operational Excellence Risk Management Sustainability Efficient Capital Strategy Maintain & Improve Retail Franchise Develop Small Business Banking Retain & Reinforce SME Banking Digital Capabilities Maintain and Improve Retail Franchise • Maintain and further develop its retail banking franchise with a strong focus on mortgage and unsecured consumer lending through a continued concentration on capital returns, risk-based originations and risk management. Additionally, MONETA aims to further expand its offering of third-party products, namely insurance and asset management. Develop Small Business Banking • Maintain a strong focus on small business lending represented by self-employed professionals, tradesmen and entrepreneurs, continue in gradually changing the overall business mix, targeting diversification of revenue streams and building recognition of MONETA as a leading retail and small business bank in the Czech Republic. Retain and Reinforce SME Banking • Significantly grow its presence within the SME segment and deepen relationships with medium-sized commercial customers, leveraging MONETA’s unique position within the agricultural sector of the Czech economy. Digital Capabilities • Improve and develop MONETA’s digital capabilities through providing lending, deposit and third-party products and services via digital channels, while maintaining the position of digital banking leader in the Czech Republic. Risk Management Sustainability • Protect strong asset quality through prudent and sustainable risk management. 36 PROFILE OF MONETA MONEY BANK AND ITS SUBSIDIARIES Annual Financial Report 2023 Efficient Capital Strategy • Pursue capital strategy to efficiently allocate capital resources on exposures with sufficient return through diligent capital management. Cost Control and Operational Excellence • Focus on efficient cost control and operational excellence in MONETA’s processes. Corporate Sustainability • Continue to pursue its Environmental, Social and Governance Strategy that is based on the positive economic, social and environmental impact of MONETA. MONETA will continue to build its recognition as one of the leaders in reducing its carbon footprint and a corporate leader in e-mobility. MONETA is committed to running its business ethically, including its relationships with its key stakeholders, who play an important part in this strategy, with its suppliers and external organisations; promote a healthy, agile, open and diverse corporate culture based on mutual trust, co-operation, recognition and transparency; MONETA encourages and motivates employees to become more deeply connected with their communities throughout the year as volunteers and continues to support and help non-profit organisations in regions as a part of its corporate philanthropy programme. 1.3 DIVIDEND POLICY Subject to corporate, regulatory and regulator’s limitations, the Bank’s target is to distribute the Group’s excess capital above that required to meet the Group’s internal target of the capital adequacy ratio, which stood at 16.1% as at 31 December 2023. However, the internal capital adequacy ratio target is not legally binding upon the Group and is subject to change on the basis of the ongoing re-assessment by the Management Board of the Bank based on the business results and development. In line with its dividend policy, the Bank is targeting a minimum annual dividend of 70% of consolidated net profit for the year, with such dividend potentially increased if less capital is required to fund future loan growth, intangibles and/ or decreased in the event of any accretive investment opportunity for the Bank. Following the approval at the General Meeting held on 25 April 2023, MONETA distributed a dividend in the amount of CZK 8 per share to its shareholders in 2023. On 2 February 2024, the Bank’s Management Board announced that it will propose a dividend for the year 2023 in the amount of CZK 9 per share from the 2023 net profit for shareholder’s approval at the Annual General Meeting, which will be held on 23 April 2024. The total amount of the distributed dividend will reach CZK 4.6 billion, which represents a pay-out ratio of 88% of the consolidated net profit for 2023. The Bank will pay dividends, if any, to its shareholders in CZK. Each of the Bank’s shareholders has the right to receive dividends from the Bank to the extent approved by the General Meeting. 1.4 SHAREHOLDER STRUCTURE The Bank had almost 24 thousand investors from 42 countries according to the excerpt from the Czech Central Securities Depository as at 31 December 2023. An overview of the shareholder structure of the Bank as at 31 December 2023 and 31 December 2022 (as per the extract from the registry of book-entry shares obtained from the Czech Central Securities) is shown below: 23,358 88 307 229 186 511 194 SHAREHOLDER STRUCTURE AS AT 31DECEMBER 2023 Private individuals Number of shareholders Czech legal e n ti ti e s Foreign legal e n ti ti e s Number of shares (in millions) 23,851 21,662 88 309 222 187 511 201 SHAREHOLDER STRUCTURE AS AT 31DECEMBER 2022 Private individuals Czech legal e n ti ti e s Foreign legal e n ti ti e s 22,158 Number of shareholders Number of shares (in millions) 37 PROFILE OF MONETA MONEY BANK AND ITS SUBSIDIARIES Annual Financial Report 2023 As at 31 December 2023, the following entities were recorded in the registry of book-entry shares maintained by the Czech Central Securities Depository in Prague as holding at least 1% of the registered share capital of the Bank. These entities may not necessarily be the beneficial owners of the Bank shares but may hold shares of the Bank (as custodians, securities brokers, banks, or nominees) for the beneficial owners. Shareholder Shareholding Tanemo a.s. 29.94% Mythessa Holdings Limited 11.43% Manecomte Limited 8.28% Chase Nominees Limited 3.62% Banka CREDITAS a.s. 3.18% Brown Brothers Harriman CO. 2.70% State Street Bank and Trust Company 1.81% J.P. Morgan SE - Luxembourg Branch 1.45% Nortrust Nominees Limited 1.38% Generali CEE Holding B.V. 1.36% Brown Brothers Harriman (Luxemburg) S.C.A. 1.00% As at 31 December 2023, the following entities notified the Bank and the Czech National Bank pursuant to Section 122 of the Capital Markets Act of holding a direct or indirect proportion of the Bank’s voting rights of at least 1%. These entities have rights pursuant 2 Source: Analysis provided by external company as at December 2023 and December 2022. to Section 365 et seq. of Act No. 90/2012 Coll., on business companies and cooperatives (Business Corporations Act), as amended. This list is prepared in accordance with the information sent by the Bank’s shareholders to the CNB pursuant to Section 122 of the Capital Market Undertakings Act, which, however, does not impose an obligation to notify the CNB again of a change in the shareholding unless the threshold (1%, 5%, 10% and more) is crossed. Therefore, the amount of the voting shares of the individual shareholders listed may not correspond to their actual shares in the voting rights of the Bank as at 31 December 2023. Shareholder Shareholding Renáta Kellnerová (Tanemo a.s) 29.94% Ivan Jakabovič, Jozef Tkáč (Mythessa Holdings Limited) 10.37% Manecomte Limited 10.04% J.P. Morgan Securities Plc 5.96% BlackRock Inc. 2.64% NN Investment Partners Luxembourg S.A. 1.36% Kuwait Investment Authority (KIA) 1.29% Generali CEE Holding B.V. 1.28% Schroder International Selection Fund 1.11% AllianceBernstein 1.05% Seafarer Capital Partners 1.00% American Century Investment Management 1.00% GEOGRAPHICAL STRUCTURE OF THE BANK’S SHAREHOLDERS AS AT 31 DECEMBER 2023 AND 31 DECEMBER 2022 2 Czech Republic United Kingdom 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 52.6% 52.8% 23.6% 5.3% 2022 2023 United States of America Cyprus 11.4% 21.7% 6.9% 10.2% 7.1% 8.4% Other We thrive with MONETA Pavel Matyáš has been working with wood and floors for more than 15 years. He enjoys working with new materials and technologies, but as he says, nothing can replace the skilled hands of a flooring specialist. “We only lay floors that will make you happy for decades. That is why we avoid low-quality materials and shoddy craftsmanship, which would cost us dearly,” says the proud owner of Podlahy Maty. We are honoured to be a part of it! Pavel Matyáš Podlahy MATY 41 STRATEGY AND RESULTS Annual Financial Report 2023 2. STRATEGY AND RESULTS 1 Source: Czech Statistical Office: GDP Preliminary Estimate – 4th quarter of 2023. 2 Source: Czech Statistical Office: Industry – December 2023. 3 Source: Czech Statistical Office: Consumer price indices – inflation – December 2023. 4 Source: Czech Statistical Office: Average wages – 3rd quarter of 2023. 5 Source: Czech Statistical Office: Retail trade – December 2023. 6 Source: Czech Statistical Office: Rates of employment, unemployment and economic activity – December 2023. 7 Source: Czech National Bank: CNB Board decisions, 21 December 2023. 8 Source: Czech National Bank: CNB Board decisions, 8 February 2024. 9 Source: CNB ARAD monthly report banking sector, residents incl. building societies, deposits and loans according to sector. 10 Source: CNB ARAD monthly report banking sector, residents incl. building societies, loans according to sector. 2.1 MACROECONOMIC ENVIRONMENT In 2023, the Czech economy was influenced by the economic impacts of the ongoing war in Ukraine. High inflation, volatility of energy prices, weakening foreign demand and growing cautiousness of domestic consumers pulled the economic performance of the Czech Republic down, which resulted in a continued mild recession that occurred already in the second half of 2022. The Czech gross domestic product decreased by 0.4% 1 year-on-year in 2023. The economy was negatively influenced by household consumption, which shrank significantly due to a decrease in real wages and weak consumer sentiment. On the other hand, industry and foreign demand more or less supported the economy, at least in the first half of 2023. Industrial production decreased by 0.4% 2 year-on-year in 2023. The industrial performance was, however, very differentiated. Production of motor vehicles was growing for the majority of the year, supported by a low comparison base from 2022, whereas other industrial segments were significantly worse off. At least the last few months of 2023 provide a promising outlook for 2024, when the industry returns to growth and new industrial orders recorded an increase by 0.9% 2 year-on-year in December 2023. Czech households suffered from high inflation, which reached10.7% 3 on average in the whole of 2023 and exceeded the growth of nominal wages. The gap, on the other hand, closed as the year progressed and inflation started disappearing, and in 3Q 2023, the average gross real wage decreased only by 0.8% 4 year-on-year. Inflation reached just 6.9% 3 in December 2023 and is expected to shrink further in 2024. Decreasing real wages negatively affected retail sales, which were lower by 4.1% 5 in 2023 compared to 2022. In contrast, as inflationary pressures were lower towards the year-end, in December 2023 retail sales increased by 1.6% 5 year-on-year and helped to pull the economy out of the recession. Such a quick recovery was also enabled by low levels of unemployment, which reached 2.7% 6 in December 2023 and was higher only by 50bps year-on-year. To fight high inflation, the Czech National Bank kept its key monetary interest rate at 7% for nearly the whole of 2023 and only cut it by 25bps to 6.75% 7 in December 2023. It is expected that the Czech National Bank will continue cutting the rate further in 2024, which was proven by another cut by 50bps to 6.25% at the 8 February 2024 monetary policy meeting. 8 The domestic economy went through a difficult period in 2023. The economic performance improved in the last quarter, when the Czech Republic got out of recession, and is assumed to maintain growth also in 2024. On the other hand, the economy still faces a significant number of risks, among which the most visible is the continuing war in Ukraine. Next to the economic impacts of the war and increasing geopolitical tensions around the globe, the Czech Republic also faces fiscal cuts aimed at decreasing the government budget deficit back to below 3% of the gross domestic product. These cuts will probably stabilise public finance but will also cut the country’s growth potential. Despite the risks, economic prospects remain slightly positive and an overall improvement in the economic landscape is becoming visible. 2.2 MARKET DEVELOPMENT Despite the challenging macroeconomic environment, the Czech banking sector maintained a positive trend during 2023 in both loans, which were up 6.4%, and deposits, which were up 14.9% year-on-year. 9 The commercial lending market continued to show steady growth of 8.3% year-on-year, while the retail segment experienced a slower increase, recording growth of 4.9% year-on-year. 10 The rise in the retail segment was primarily driven by consumer loans, building savings loans and mortgages, while credit 42 STRATEGY AND RESULTS Annual Financial Report 2023 cards slightly decreased. 11 The commercial segment experienced growth in all categories, but medium-term loans saw the most significant increase. 12 CZECH LENDING MARKET (in CZK bn) +6.4% Retail +4.9% YoY Commercial +8.3% YoY 31 Dec 2023 3,966 31 Dec 2022 3,727 2,047 1,680 2,148 1,819 Figures in the chart may not add up to the total due to rounding differences. Retail deposits growth of 7.6% year-on-year was driven by term deposits, reflecting the higher market interest rates. Commercial deposits showed a similar trend with an increase of 24.5% year-on-year. 13 CZECH DEPOSIT MARKET (in CZK bn) 6,438 5,601 3,175 2,426 3,417 3,021 Retail +7.6% YoY Commercial +24.5% YoY 31 Dec 202331 Dec 2022 +14.9% Interest rates in the banking sector rose in comparison to 2022 due to the high interest rate environment. The CNB kept the key 2-week repo rate unchanged at 7% from June 2022 until December 2023, when it was decreased to 6.75%. Retail loan interest rates grew year-on-year in both mortgages (by 17.8%) and consumer loans (by 3.3%). Interest rates of commercial loans remained the same year-on-year. 14 Deposit interest rates increased in both segments compared to the previous 11 Source: CNB ARAD monthly report banking sector, residents incl. building societies, household loans according to type in CZK. 12 Source: CNB ARAD monthly report banking sector, residents incl. building societies, loans to non-financial businesses and entrepreneurs according to time. 13 Source: CNB ARAD monthly report banking sector, residents incl. building societies, deposits according to time. 14 Source: CNB ARAD monthly report banking sector, residents incl. building societies, loans interest rates - outstanding amounts. 15 Source: CNB ARAD monthly report banking sector, residents incl. building societies, deposits interest rates - outstanding amounts. 16 Source: CNB ARAD quarterly mandatory disclosures, total banking sector. year; commercial deposit interest rates by 24.7% and retail deposit interest rates by 20.8% year-on-year. 15 In the first three quarters of 2023, the total operating income of the Czech banking sector increased by 3.1% year-on-year to CZK 181.1 billion due to growth in net non-interest income by 22.8%. This was driven by gains from foreign exchange operations and dividend income. Net interest income decreased by 4% year-on-year due to the higher cost of funding. 16 CZECH BANKING MARKET – TOTAL OPERATING INCOME (in CZK bn) +3.1% Net interest income (4.0)% YoY Net non-interest income +22.8% YoY 3Q 2023 YTD 181.1 3Q 2022 YTD 175.7 129.5 46.3 124.3 56.8 Figures in the chart may not add up to the total due to rounding differences. The net profit of the whole Czech banking sector increased by 1.6% year-on-year to CZK 83.1 billion, which was driven by higher total operating income and benign cost of risk due to good portfolio performance across the whole banking market. 16 CZECH BANKING MARKET – NET PROFIT (in CZK bn) +1.6% 81.8 83.1 3Q 2023 YTD 3Q 2022 YTD The capitalisation of the Czech banking sector remained strong as a result of a combination of prudent management, favourable interest rates, and robust business performance. The Tier 1 capital increased by 6.9% year-on-year to CZK 642.1 billion at the end of the third quarter of 2023. 16 CZECH BANKING MARKET – TIER 1 CAPITAL (in CZK bn) 30 Sep 202330 Sep 2022 +6.9% 600.7 642.1 43 STRATEGY AND RESULTS Annual Financial Report 2023 2.3 REPORT ON BUSINESS ACTIVITIES 2.3.1 Overview MONETA is positioned uniquely as a mid-sized bank with market-leading digital capabilities and a well-established position in Czech household financing and a growing position in the small business segment. It seeks to provide excellent product propositions to clients from these segments accompanied by the best possible customer experience. MONETA has built a strong and well-recognised brand within the Czech Republic. The brand is built around trust, stability, innovation, fairness and transparency. It was established following the IPO at the Prague Stock Exchange in 2016 and within two years, reached the level of spontaneous awareness enjoyed by the predecessor brand. In 2023, spontaneous awareness reached an average of 49%. 17 It is regulated by the Czech National Bank and holds a universal banking licence. Operating Platform and Distribution Channels MONETA operates through a well-dispersed network within the Czech Republic, comprising 134 branches as at 31 December 2023 and a full-service contact centre. At the same time, the Bank operated a network of 562 own ATMs with a further 1,409 ATMs 18 available on a no-cost basis via an alliance with three other banks. MONETA’s branch and ATM networks provide extensive coverage of the entire country with a particular strength in smaller cities and towns, relatively underserved by other banks. In addition, MONETA has distributed certain product categories through a range of third parties, including retail and commercial brokers. However, during 2023, in line with the strategy, MONETA significantly reduced its reliance on the third-party channel, especially in the areas of mortgages, consumer loans and building savings. On the other hand, auto dealers continue to be an important distribution channel for MONETA Auto. MONETA also benefits from market-leading digital banking platforms which are becoming increasingly important channels for both sales and services. As at 31 December 2023, MONETA served 1.6 million retail and commercial clients, up 3.7% year-on-year, driven primarily by the strong acquisition of new deposit clients. This client base represents approximately 15% of the Czech population. 17 Source: NMS Market Research, Brand Tracking Research 2023: Retail. 18 The ATM shared network included as at 31 December 2023 also Komerční Banka (792 ATMs), AirBank (365 ATMs) and UniCredit Bank (252 ATMs). CLIENT BASE EVOLUTION (number of clients in thousands) 31 1,522 +3.7% 31 Dec 202331 Dec 2022 Non performing customers (26.2)% YoY Performing customers - other +5.6% YoY Performing customers - primary +3.6% YoY 747 744 1,578 42 Figures in the chart may not add up to the total due to rounding differences. 733 774 Business Segments MONETA’s business is organised in two main segments: retail and commercial. These segments are reported separately in MONETA’s financial statements along with a third operating segment, “Treasury/Other”. The retail and commercial segments manage product and service propositions customised for their respective clients. The retail business provides banking services to individuals, with a focus on the mass market. The commercial business provides banking services primarily to SME clients with a particular focus on small businesses and entrepreneurs. There is, however, a considerable overlap between the client bases and synergies in terms of the physical and digital infrastructure of the Group. The retail banking proposition includes the following key products: • deposit products: current accounts, savings accounts, building savings accounts, term deposits and transactional banking products, including payment services and debit cards; • lending products: consumer loans, credit cards, overdrafts, mortgages, building savings loans, bridging loans and auto loans; and • supplementary third-party products such as insurance, investment funds and pensions. 44 STRATEGY AND RESULTS Annual Financial Report 2023 The commercial banking proposition includes the following key products: • deposit products: current accounts, savings accounts, building savings accounts, term deposits and transactional banking products, including payment services and debit cards; • lending products: investment loans (including real estate loans), building savings loans, bridging loans, operating financing loans and leasing products; and • supplementary products such as domestic and foreign payments, merchant acquiring, insurance, investment funds, pensions, treasury and trade finance products. In both segments, MONETA reported gross performing loans in the amount of CZK 263.9 billion as at 31 December 2023, down 2.3% year-on-year. This reflects its strategy of tightening new lending volumes due to the high interest rate environment prevailing in 2023 and also the expected worsening of the macroeconomic situation. On the other hand, customer deposits increased by 19.6% to CZK 399.2 billion, up due to a successful campaign on savings accounts and term deposits in 2023. 2.3.2 Retail Segment Business Performance MONETA provides a full retail banking proposition covering the main borrowing, saving/investing and transactional needs as well as a wide range of insurance needs. MONETA has a market-leading digital proposition for retail clients built around secure digital banking platform. In the retail segment, MONETA served 1.4 million clients, up 3.2% year-on-year. At the same time, 72% or 1 million of all retail clients were considered as active. The retail active base grew by 49 thousand clients or 4.9% in 2023, demonstrating MONETA’s ability to drive engagement with newly acquired clients. MONETA continued to enjoy high levels of loyalty; 63% of customers have had a relationship with MONETA for more than 8 years. Clients positively rated its mobile banking application Smart Banka 19 and staff at branches. Overall, MONETA maintained a retail market share of 14% 20 in consumer loans, 8% 20 in mortgages and 9% 21 in retail deposit balances in the Czech banking market as at 31 December 2023. 19 Source: https://play.google.com/store/ and https://apps.apple.com/cz/app/. 20 Source: CNB ARAD monthly report banking sector, residents incl. building societies, household loans according to type in CZK – consumer loans and mortgages. 21 Source: CNB ARAD monthly report banking sector, residents incl. building societies, deposits according to time – households. 2.3.2.1 Retail Segment Strategic Priorities Delivery MONETA’s retail business continued to focus on five key strategic priorities with a strong focus on deposits in the context of the high interest rate environment prevailing in 2023: (a) deposit growth through marketing leading daily banking and savings proposition; (b) sustainable approach to lending in both unsecured consumer lending and mortgage loans; (c) digital transformation to maintain a position of a digital leader in the Czech banking market; (d) optimisation of the physical branch and ATM networks to complement the digital distribution and service platform and maintain cost efficiency; and (e) expansion of third-party product distribution. (a) Deposit Growth through Marketing Leading Daily Banking and Savings Proposition The retail customer deposits grew by 22.2% year-on-year, from CZK 256.3 billion as at 31 December 2022 to CZK 313.2 billion as at 31 December 2023. The portfolio growth resulted from successful savings and term deposit acquisition campaigns that ran throughout 2023. MONETA also recorded strong growth in current account units although the total balance on those accounts declined by 9% year-on-year as the competitive savings proposition attracted client balances out of the current accounts. RETAIL CUSTOMER DEPOSITS (in CZK bn) 31 Dec 202331 Dec 2022 +22.2% 256.3 313.2 45 STRATEGY AND RESULTS Annual Financial Report 2023 The cost of funds on retail deposits increased from 1.7% in 2022 to 3.5% in 2023, albeit the increase began to slow down during the second half of 2023. Whilst MONETA has had to increase deposit rates to drive growth in the portfolio, simultaneously, it sought to build flexibility into the pricing structures, ensuring that the Group will be in a position to manage rates effectively when moving through the easing cycle. By the year’s end, the entire portfolio of retail savings accounts was re-priceable within three months whilst 74% of the term deposit portfolio has a maturity of 6 months or less. (b) Sustainable Approach to Lending in Both Unsecured Consumer Lending and Mortgage Loans MONETA sought to optimise its position in the retail lending market in the context of higher rates and a deteriorating macroeconomic outlook. The retail gross performing loan portfolio declined by 3.8% year-on-year, from CZK 186.6 billion as at 31 December 2022 to CZK 179.5 billion as at 31 December 2023. GROSS PERFORMING RETAIL LOAN PORTFOLIO (in CZK bn) 31 Dec 202331 Dec 2022 (3.8)% 186.6 179.5 The portfolio decline was driven primarily by a slowdown in mortgage production as MONETA sought to reflect the higher cost of funding in its pricing and to tighten underwriting standards in response to the worsening macroeconomic outlook. This resulted in significantly lower new mortgage origination volumes, down 66.7% year-on-year. As a result, the gross performing mortgage portfolio declined by CZK 5.4 billion to CZK 127.6 billion or by 4.1% year-on-year. 22 Source: https://www2.deloitte.com/content/dam/Deloitte/br/Documents/financial-services/Deloitte-DBM%202022-global-report.pdf. GROSS PERFORMING MORTGAGE PORTFOLIO (in CZK bn) 31 Dec 202331 Dec 2022 (4.1)% 133.0 127.6 Gross performing consumer loan portfolio declined marginally by CZK 1.6 billion to CZK 47.1 billion or by 3.2% year-on-year whilst new volume origination in consumer loans decreased by 12.8% year-on-year. GROSS PERFORMING CONSUMER LOAN PORTFOLIO (in CZK bn) (3.2)% 48.6 47.1 31 Dec 202331 Dec 2022 The revolving gross performing loan portfolio (credit cards and overdrafts) continued to decline to CZK 2.4 billion or down 3.1% year-on-year, as a result of lower demand for short-term credit. GROSS PERFORMING CREDIT CARD AND OVERDRAFT PORTFOLIO (in CZK bn) (3.1)% 2.5 2.4 31 Dec 202331 Dec 2022 (c) Digital Transformation to Maintain a Position of a Digital Leader in the Czech Banking Market MONETA’s strategy is to maintain its position as the digital leader in the Czech banking market, offering speed and convenience in both distribution and services through its digital platform. MONETA was recognised as a digital leader in the Czech banking market by the Deloitte Digital Banking Maturity study for the year 2022. 22 46 STRATEGY AND RESULTS Annual Financial Report 2023 The digital strategy remains focused on three key pillars supporting long-term development: • drive growth in active clients and deposit balances through outstanding digital proposition for daily banking; • drive credit growth through digital channels; • build net fee and commission income streams through the development of insurance, pensions, asset management and other related products and services. Drive Growth of the Active Client Base Digital banking is becoming increasingly dominant as clients prefer online channels for daily banking operations. To support the retention and growth of its active client base, MONETA continued to provide market-leading daily banking products and services through its digital platform. At the same time, MONETA aims to focus on providing simple and convenient digital banking solutions in order to enable clients to conduct their entire banking relationship online. On this front, MONETA continues to receive external recognition as the digital leader in the Czech banking market. The mobile banking application “Smart Banka” was again recognised in 2023 as the leading mobile application in the annual “Zlatá Koruna” awards where MONETA won first place in the main public award category for the third time in a row. 23 The increased popularity of MONETA’s digital channels was also reflected in the growth in the number of digital platform users to 1.4 million by 31 December 2023, up 12.8% year-on-year. NUMBER OF DIGITAL PLATFORM USERS (in thousand) 1,259 +12.8% 834 1,076 31 Dec 202331 Dec 2022 1,419 Mobile and internet banking Internet banking 344 425 23 Source: http://www.zlatakoruna.info/soutez/2023 (Czech only). 24 Excluding building savings. 25 Excluding consumer loans consolidation and building savings loans. In line with its strategy, MONETA continued to enhance the digital deposit product proposition, resulting in 54% share, or more than 260 thousand units, of new deposit products (excluding building savings) being originated online in 2023. SHARE OF RETAIL DEPOSIT PRODUCTS ORIGINATED ONLINE 24 20232022 0pp 54% 54% Drive Credit Growth through Digital Channels During 2023, CZK 5.3 billion consumer loans were originated online, reaching a 55% share of MONETA’s consumer loans origination (excluding loan consolidations and building savings loans) by volume. MONETA continued to enhance its online lending propositions for existing retail clients with pre-approved credit limits offered to nearly 329 thousand clients with cumulative limits of CZK 87.6 billion as at 31 December 2023. SHARE OF OF CONSUMER LOANS ORIGINATED ONLINE 25 20232022 +3pp 52% 55% Following the introduction of a fully online proposition for refinancing mortgages in 2021 called “Refinanso”, MONETA continued with further expansion of its digital capabilities in this segment by launching a fully online proposition for new mortgages “Online mortgage” in the first half of 2022. Both channels contributed 15% of all newly disbursed mortgage volumes in 2023. However, the new volume was impacted by MONETA’s strategy to limit new mortgage origination during the year. 47 STRATEGY AND RESULTS Annual Financial Report 2023 Build Net Fee and Commission Income Streams During 2023, MONETA continued to focus on the development of fee income generated through digital transactions and services. The digital platform accounted for 99% of retail payment transactions, which increased by 21% year-on-year to 51 million by number. At the same time, the volume of retail card transactions increased by 8.9% year-on-year, driven entirely by the growth of mobile payments (via tokenised cards), where volume increased by 56.3% year-on-year. The overall retail card transaction volume growth resulted in a 13.9% growth in interchange income. Retail foreign exchange transactions online and via cards continued to grow as MONETA focused on developing this business with income growing by 34.4% year-on-year. (d) Optimisation of the Physical Branch and ATM Networks to Complement the Digital Distribution Branch Network As at 31 December 2023, MONETA operated a network of 134 well-distributed branches, providing convenient access for clients across the entire Czech Republic. The network is managed in four areas, with 40 sales teams, two mortgage teams and four investment teams. BRANCH NETWORK REGIONAL DISTRIBUTION North South East Moravia 32× 33× 34× 35× In addition, the Building Savings Bank operates through a network of tied agents based in 39 locations (11 collocated with the Bank and 28 operated independently by tied agents). MONETA recognises the need to maintain an adequate physical presence, although this is being optimised based on changing customer preferences and behaviour as the digital proposition gains traction in both sales and services. MONETA invests strategically in its flagship branch locations. Since introducing the new branch design in 2017, 52 branches have been fully modernised by creating a unique space for meeting and advising clients whilst using digitalisation to streamline both the customer experience and the administrative processes. Additionally, 36 branches were subject to small refurbishments in order to maintain and incrementally modernise the smaller locations. The refurbishment programme will continue across the network progressively to locations which are aligned with long-term strategy. ATM Network As at 31 December 2023, MONETA operated a network of 562 own ATMs. The network processes on average 1.3 million cash withdrawals per month with all locations equipped for contactless transactions and 192 locations with deposit capable equipment. During 2022, MONETA established a partner network with Komercni banka, which was further expanded by joining two other banks, Air Bank and UniCredit Bank, at the beginning of 2023. As at 31 December 2023, the shared ATM network consisted of 1,971 ATMs and provides wide coverage in high-traffic areas, enabling convenient access to cash and a range of other services. In addition, the shared ATM network allows for the reduction of overall costs and also environmental impact by relocating and rebalancing ATM coverage. (e) Expansion of the Third-Party Products Distribution During 2023, MONETA focused on its strategic goal to expand the distribution of third-party products. The outstanding growth was delivered in insurance distribution with revenue from related activities reaching CZK 1.2 billion, up 51.8% year-on-year. This was driven by a combination of strong sales performance and negotiation of improved commercial terms with partners. New pension insurance contract originations reached almost 38 thousand units up 125.1% year-on-year. Travel insurance sales reached nearly 33 thousand units, up 39.2% year-on-year, and personal items insurance continued to develop well with nearly 42 thousand units sold in 2023, up 4.4% year-on-year. The investment funds distribution franchise enjoyed a similarly strong year with an outstanding balance reaching CZK 38.5 billion, up 37% year-on-year. Gross new investment reached CZK 13 billion up 30.9% year-on-year as clients returned to investing in funds as capital market performance improved and the prospect of interest rate cuts approached. The overall performance was supported by the positive development of the financial market‘s net asset value, which appreciated by 13% during the year. 2.3.3 Commercial Segment Business Performance The commercial division provides a full range of commercial products to clients from all segments of the market with a focus on small business clients. 48 STRATEGY AND RESULTS Annual Financial Report 2023 MONETA served more than 136 thousand commercial clients, up 9.1% year-on-year, driven by continued growth in the small business segment. The commercial division has countrywide coverage, with commercial clients supported by a network of 134 retail branches. In line with its strategy of promoting lending growth in the small business base, as at 31 December 2023, MONETA employed 142 small business segment bankers at 100 branches. Small business bankers provide specific small business product and service knowledge combined with industry know-how. In addition, the division also has an experienced team of 126 relationship managers with expertise in serving SME customers and a smaller team of bankers for real estate clients. MONETA Auto’s products are distributed through a wide network of 1,147 car dealers. Overall, MONETA had a market share of 4% in commercial lending and 3% in commercial deposits in the Czech market as at 31 December 2023. 26 Commercial Customer Deposits MONETA’s commercial deposit balance amounted to CZK 86.1 billion as at 31 December 2023, up 11.1% year-on-year. The commercial deposit growth resulted from attractive propositions on savings accounts and term deposits. COMMERCIAL CUSTOMER DEPOSITS (in CZK bn) 31 Dec 202331 Dec 2022 +11.1% 77.5 86.1 The cost of funds on commercial deposits increased from 1.3% in 2022 to 2.7% in 2023 and just like in retail, the increase began to slow down during the second half of 2023. Commercial Lending Portfolio The commercial loan portfolio comprised CZK 84.4 billion gross performing loans as at 31 December 2023, up 1.1% year-on-year. The increase was mainly driven by the gross performing small business loan portfolio (up 11.8% year-on-year) and 26 Source: CNB ARAD, total commercial loans and deposits excluding non-residents. working capital (up 8.4% year-on-year), which offset the continued decline in the leasing portfolio. GROSS PERFORMING COMMERCIAL LOAN PORTFOLIO (in CZK bn) 31 Dec 202331 Dec 2022 +1.1% 83.4 84.4 2.3.3.1 Commercial Segment Strategic Priorities Delivery MONETA has focused on maintaining and further developing its capabilities in the small business and agricultural segments whilst continuing its targeted approach to the SME segment. At the same time, it continues to focus on digital transformation in the commercial segment, with a particular focus on the small business proposition. Key commercial banking strategic priorities in 2023 were fully aligned with the overall strategy to become a leading provider of services to small businesses and SMEs through a truly national network of specialised bankers as well as through innovative digital servicing channels. The five key priorities in the commercial segment remain unchanged and are the following: (a) further develop small business segment financing capabilities; (b) continue digital transformation for small businesses and SMEs; (c) maintain SME lending portfolio, optimise its capital intensity and profitability; (d) maintain profitable growth in MONETA Auto; and (e) develop the capability to provide sustainable financing to small businesses and SMEs. (a) Further Develop Small Business Segment Financing Capabilities MONETA has remained focused on becoming a market leader in serving small business clients through its proprietary service model. The model comprises mainly specialised physical distribution, development of new products as well as further expansion of digital distribution channels. 49 STRATEGY AND RESULTS Annual Financial Report 2023 The number of dedicated small business bankers stood at 142 as at 31 December 2023. MONETA intends to continue its focus on sales force training and sales force effectiveness to further increase the physical distribution capacity going forward and to leverage its strong digital presence to provide customers with the choice of sales and service through either channel. The gross performing small business loan portfolio reached CZK 13.8 billion, increasing by 11.8% year-on-year. The increase was primarily driven by a key small business product, which is an instalment loan. The total gross performing balance of this loan product grew by 9.7% year-on-year to CZK 11.5 billion. During the same period, the gross performing portfolio of business overdraft loan significantly increased by 21.1% year-on-year to CZK 1.9 billion, and the gross performing portfolio of unsecured commercial credit cards increased by 36.2% year-on-year to CZK 0.5 billion. GROSS PERFORMING SMALL BUSINESS LOAN PORTFOLIO (in CZKbn) 31 Dec 202331 Dec 2022 +11.8% 12.4 13.8 (b) Continue Digital Transformation for Small Businesses and SMEs MONETA sees continuing its digital transformation for commercial clients as pivotal for the further expansion of its commercial distribution capabilities as well as for positioning MONETA for the future. In 2023, MONETA continued to develop its fully digital solutions and expanded the range of deposit products offered fully online in its mobile and internet banking platforms. The volume of small business instalment loans provided via online channels reached CZK 1.3 billion in 2023 and grew by 16.4% year-on-year. The share of the total new production of this product reached 35%. SHARE OF SMALL BUSINESS INSTALMENT LOANS ORIGINATED ONLINE 20232022 +11pp 24% 35% At the same time, MONETA continued to digitise and automate processes in the branch network. The focus was on developing the ability to digitally sign contracts that originated in the physical distribution. In the small business lending process, a possibility to sign branch-originated contracts in the Internet Banka and Smart Banka was introduced, enabling a seamless omnichannel process. In the SME lending process, MONETA introduced the possibility of digitally signing contracts using BankID (digital authentication) in a fully integrated solution. (c) Maintain SME Lending Portfolio, Optimise its Capital Intensity and Profitability MONETA remains focused on maintaining an SME lending portfolio as it is vital to delivering strong commercial performance. The key focus is on portfolio quality, capital deployment and profitability. Overall, the gross performing investment loan portfolio slightly decreased by 2.3% year-on-year to CZK 45.2 billion as at 31 December 2023 from CZK 46.3 billion as at 31 December 2022. GROSS PERFORMING INVESTMENT LOAN PORTFOLIO (in CZK bn) 31 Dec 202331 Dec 2022 (2.3)% 46.3 45.2 The gross performing working capital portfolio balance grew by 8.4% year-on-year, reaching CZK 15.4 billion as at 31 December 2023 compared to CZK 14.2 billion as at 31 December 2022. GROSS PERFORMING WORKING CAPITAL PORTFOLIO (in CZK bn) 31 Dec 202331 Dec 2022 +8.4% 14.2 15.4 Throughout 2023, MONETA continued optimisation of the capital deployed in SME lending through credit risk mitigating techniques, namely through collateral 50 STRATEGY AND RESULTS Annual Financial Report 2023 management (i.e., state guarantees, cash collaterals, cross-collaterals), a new concept of general pledge contract allowing more effective collateral allocation and other measures. (d) Maintain Profitable Growth in MONETA Auto All retail and commercial activities of MONETA Auto are managed by the commercial division. Gross performing MONETA Auto loans increased by 7.3% year-on-year from CZK 9.5 billion as at 31 December 2022 to CZK 10.2 billion as at 31 December 2023 (including inventory financing). In the commercial segment, gross performing loans increased by 10.9% year-on-year to CZK 7.7 billion as at 31 December 2023, whilst in the retail segment, gross performing loans decreased by 2.5% to CZK 2.5 billion as at 31 December 2023. GROSS PERFORMING MONETA AUTO LOAN PORTFOLIO (in CZKbn) +7.3% Retail (2.5)% YoY Commercial +10.9% YoY 10.2 9.5 2.6 6.9 2.5 7.7 31 Dec 202331 Dec 2022 In 2023, MONETA Auto focused, among other things, on maintaining the profitability of its products. The market for new cars was growing again after several years due to renewed deliveries, and therefore MONETA Auto tried to strengthen its market share through several promotional products. The used car market was slightly declining and the challenge was to at least maintain its business position with individual business partners. Despite the initial optimism, the inflation rate remained high and interest rates did not fall as quickly as originally expected. All this had a negative impact on the demand for financial products from both retail and commercial clients due to the sharp increase in operating costs. Despite the persisting challenging market environment, in 2023, MONETA Auto managed to acquire new clients and maintain a stable position on the market for financing cars and other transport equipment. In the area of digitisation, MONETA Auto continued to focus on the development of new functionalities of internal systems, the implementation of legal requirements and the launch of financing offers for other commodities. The most important innovation was the implementation of a new functionality for the conclusion of credit agreements, allowing MONETA’s clients to use a simple form of SMS signature, which led to an increase in the share of digitally (paperless) signed contracts to 91% in December 2023. (e) Develop the Capability to Provide Sustainable Financing to Small Businesses and SMEs In 2023, MONETA introduced its first sustainable financing product for commercial clients called “Green Expres Business”. An unsecured instalment loan for financing energy-saving and/or environmentally oriented projects of up to CZK 2.5 million. The benefits of the product include financing of up to 100% of the costs, loan maturity of up to 15 years and no collateral requirements. During 2023, MONETA continued to provide small businesses preferential loans secured by a portfolio guarantee under the Employment and Social Innovation programme initiated by the European Investment Fund (EaSI) in the total amount of CZK 352.6 million. The main goal of the EaSI programme is to improve access to financial resources for market-disadvantaged entities. Through this programme MONETA offers more favourable lending for women entrepreneurs, self-employed people and small companies affected by an energy crisis. The benefits include a lower interest rate, the availability of a higher financed amount and the possibility of deferring the first principal payment for up to 6 months. 2.3.4 Treasury Segment Performance and Other The Bank also offers currency trading services, such as currency spots, currency swaps and forwards, to its commercial clients, especially from the SME segment. These trades are intended for hedging clients‘ currency risks and their average monthly volume in 2023 was CZK 1.8 billion. MONETA also has a trade finance desk providing other services to its commercial client‘ active in both domestic and foreign trade. Its main areas of focus are customers operating in the construction and industry sectors. The offered products include bank guarantees, letters of credit and documentary collections. 2.4 GROUP FINANCIAL OVERVIEW 2.4.1 Statement of Financial Position Analysis 2.4.1.1 Total Assets MONETA continued to maintain a strong, highly liquid, and well-secured balance sheet with total assets at CZK 458.2 billion as at 31 December 2023, representing 18.2% year-on-year growth. 51 STRATEGY AND RESULTS Annual Financial Report 2023 Cash and Transactions with the CNB The balance of cash and transactions with the CNB increased by 59.3% year-on-year to CZK 77.6 billion as at 31 December 2023. The growth was mainly driven by repo operations with the CNB which increased by 84.1% year-on-year to CZK 66.7 billion. Investment Securities The portfolio of investment securities grew by 80.1% year-on-year to CZK 104.4 billion as at 31 December 2023. The growth was driven by an investment of excess liquidity resulting from the strong expansion of the customer deposit base into the Czech government bonds. MONETA measures all purchased bonds at amortised cost as Hold to Collect assets (“HTC”) according to IFRS 9. Loans and Receivables to Customers The overall portfolio of net customer loans (loans and receivables to customers) declined by 2.1% year-on-year to CZK 263.1 billion as at 31 December 2023. The main driver of the net customer loans decrease was mortgage lending which declined by CZK 5.4 billion, or 4% year-on-year, to CZK 127.9 billion. LOANS AND RECEIVABLES TO CUSTOMERS BREAKDOWN (in CZKbn) 31 Dec 2022 31 Dec 2023 SME (0.5)% YoY Retail (3.6)% YoY (2.1)% Small Business +11.5% YoY 268.8 12.1 179.2 70.3 70.7 186.0 263.1 13.5 Figures in the chart may not add up to the total due to rounding differences. The portfolio of net customer loans is mainly denominated in CZK, with a balance of CZK 247.1 billion as at 31 December 2023, which represents 94% of total net customer loans. The EUR-denominated portfolio amounted to EUR 0.6 billion (equivalent to CZK 15.9 billion) as at 31 December 2023. MONETA also provides USD-denominated commercial loans. However, the balance is not material. LOANS AND RECEIVABLES TO CUSTOMERS BREAKDOWN BY CURRENCY (translated to CZK bn) 31 Dec 2022 31 Dec 2023 268.8 13.9 247.1 254.8 263.1 15.9 EUR CZK Figures in the chart may not add up to the total due to rounding differences. 2.4.1.2 Total Liabilities and Equity Customer Deposits MONETA’s customer deposits reported strong growth in both the retail and commercial segments and stood at CZK 399.2 billion as at 31 December 2023, increasing by 19.6% compared to the previous year. Retail customer deposits increased by 22.2%, with savings accounts recording a 32.2%, or CZK 45.8 billion, increase year-on-year, mainly thanks to a successful campaign for attractive interest rate on deposit products throughout the whole year 2023. Retail term deposits also recorded strong growth of 66.1% year-on-year or CZK 18.2 billion. Commercial customer deposits increased by 11.1% year-on-year to CZK 86.1 billion, driven by significant growth of savings accounts. The recorded growth of client deposits further reinforced the self-funding capacity of MONETA and its solid liquidity position. The loan to deposit ratio continued decreasing in 2023 and reached 65.9% as at 31 December 2023, compared to 80.5% as at 31 December 2022. 52 STRATEGY AND RESULTS Annual Financial Report 2023 CUSTOMER DEPOSITS (in CZK bn) +19.6% Retail +22.2% YoY Commercial +11.1% YoY 399.2 333.8 256.3 77.5 313.2 86.1 31 Dec 202331 Dec 2022 Figures in the chart may not add up to the total due to rounding differences. Issued Bonds and Subordinated Liabilities In order to ensure compliance with the regulatory capital requirement and MREL, MONETA issued several bond issues under approved bond programmes and also offered a subordinated deposit product to its clients. As at 31 December 2023, the carrying amount of issued Tier 2 and senior unsecured bonds was CZK 8.5 billion. The amount of subordinated deposits at the same date was CZK 2.9 billion. Equity MONETA maintained a strong equity position of CZK 32.2 billion as at 31 December 2023, up by 3.6% year-on-year. The growth was driven by retained earnings balance, which increased by 5.4% year-on-year to CZK 21.9 billion. This was due to the inclusion of the 2023 net profit of CZK 5.2 billion, offset by the 2022 dividend of CZK 4.1 billion, which was paid in 2023. EQUITY BREAKDOWN (in CZK m) Retained earnings Statutory reserve and other reserves 20,768 21,880 31 Dec 202331 Dec 2022 Share capital +3.6% 32,203 31,091 103 103 10,220 10,220 2.4.2 Statement of Profit or Loss Analysis In 2023, MONETA generated a net profit in the amount of CZK 5.2 billion, a slight increase of 0.3% year-on-year, with a stable operating income of CZK 12.1 billion, while a higher year-on-year cost of risk was offset by a lower effective tax rate. Return on Tangible Equity for 2023 reached 18%, a 70bps year-on-year decrease. Total operating income amounted to CZK 12.1 billion in 2023, which represents an increase of 0.3% compared to 2022, with lower net interest income offset by higher net fee and commission income and other income. TOTAL OPERATING INCOME (in CZK m) +0.3% 12,116 9,311 2,298 8,577 2,624 2023 2022 Net interest income (7.9)% YoY Net fee and commision income +14.2% YoY Other +86.6% YoY 507 946 12,147 53 STRATEGY AND RESULTS Annual Financial Report 2023 Net Interest Income Net interest income decreased by 7.9% year-on-year to CZK 8.6 billion in 2023. Interest income from loans increased by 12.1% to CZK 12.5 billion, mainly thanks to the higher portfolio yield which reached 4.7% in 2023 compared to 4.2% in 2022. However, interest expense on customer deposits more than doubled year-on-year and reached CZK 12.1 billion primarily due to the higher interest rates on savings accounts and term deposits. The cost of funds on customer deposits increased to 3.3% in 2023 from 1.6% in the previous year. The recorded growth of interest expense was a function of 19.6% customer deposit expansion accompanied by the repricing of a significant portion of the balance to the current market level. Other interest income amounted to CZK 8.2 billion in 2023 and increased substantially compared to CZK 3.2 billion in 2022, driven by higher income from excess liquidity placed with the CNB and invested in government bonds. Net interest margin 27 decreased to 2.1% in 2023 from 2.6% in 2022, reflecting the balance sheet expansion. NET INTEREST INCOME (in CZK m) AND MARGIN (in %) 9,311 11,108 3,218 (5,015) 8,577 8,209 (7.9)% 12,451 20232022 Interest expense on customer deposits +140.9% YoY Interest income on loans +12.1% YoY 2.6% 2.1% Other net interest income +155.1% YoY Net interest margin (12,083) 27 NIM calculated including (if applicable) opportunistic repo operations and encumbered assets and excluding hedging derivatives. Net Fee and Commission Income Net fee and commission income increased to CZK 2.6 billion in 2023 from CZK 2.3 billion in 2022. The increase was mainly driven by higher third-party commissions. These commissions for the distribution of insurance products and investment funds increased by 40.1% year-on-year to CZK 1.5 billion, reflecting a strategic focus on the growth of third-party commission income and improved commercial conditions in insurance distribution. Transaction and other fees increased by 7.9% year-on-year to CZK 0.8 billion. Servicing fees remained flat at CZK 0.6 billion in 2023 while penalty and early termination fees declined by 3.8% to CZK 0.3 billion. NET FEE AND COMMISSION INCOME (in CZK m) 2,624 2,298 +14.2% (434) (593) 3,217 2,732 20232022 Fee income +17.8% YoY Fee expense +36.6% YoY Other Income Other income and net income from financial operations amounted to CZK 0.9 billion during 2023, which is CZK 0.4 billion more than in 2022. This increase was caused mainly by higher foreign exchange conversions and the absence of negative revaluation of foreign exchange swaps reported in 2022. Operating Expenses Despite strong inflationary pressures operating expenses for 2023 grew slightly by 2.4% year-on-year and amounted to CZK 5.7 billion. Personnel expenses decreased by 0.9% year-on-year due to a decrease in the average number of employees by 11% which offset wage inflation. Administrative and other operating expenses increased by 6.2% year-on-year and reached CZK 1.7 billion in 2023. Depreciation and amortisation decreased by 1.3% year-on-year and amounted to CZK 1.2 billion in 2023. Regulatory charges reached CZK 307 million in 2023, increasing by 34.1% year-on-year due to higher contributions into regulatory funds. 54 STRATEGY AND RESULTS Annual Financial Report 2023 OPERATING EXPENSES (in CZK m) 307 229 5,594 5,730 2,504 1,686 2,528 1,588 2022 2023 1,233 1,249 Regulatory charges +34.1% YoY Personnel (0.9)% YoY Admin & Other operating +6.2% YoY Depreciation and amortization (1.3)% YoY +2.4% Cost of Risk In 2023, MONETA reported a cost of risk in the amount of CZK 305 million or 11bps of the average net loan portfolio. That is more than three times higher in comparison with 2022, which was positively impacted by higher loan loss allowance releases related to the upgrades of NPLs. The 2023 cost of risk was supported by a gain on NPL disposals in excess of CZK 300 million. At the end of 2023, MONETA maintained a management overlay in the aggregate amount of CZK 643 million to cover anticipatory credit losses in the context of high inflation and a high interest rate environment. COST OF RISK (in CZK m) 305 +238.9% 145 160 20232022 Retail Commercial 98 90 (8) Magdalena Hájková was inspired to make snack packaging by a product that a friend brought her from abroad. She was thrilled that it is storable, eco-friendly and, at the same time, keep the baked goods fresh. So, more than ten years ago, she founded the MagsBags brand and started looking for suitable materials. Finally, she found domestic suppliers, who are able to produce a tailor-made material that meets strict hygiene standards and is both environmentally friendly and easy to maintain. With her first snack pockets and napkins, she only toured the markets, but the brand soon worked its way up to a turnover in excess of the million mark. Today, she offers a range of products in her e-shop, from the original snack pockets and napkins to linen-cotton bread wrappers and practical sewn car baskets. We are honoured to be a part of it! Magdalena Hájková MagsBags.cz We thrive with MONETA 57 CAPITAL AND LIQUIDITY Annual Financial Report 2023 3. CAPITAL AND LIQUIDITY 1 Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No. 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No. 648/2012. 2 Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures. 3 Directive (EU) 2019/879 of the European Parliament and of the Council of 20 May 2019 amending Directive 2014/59/EU as regards the loss-absorbing and recapitalisation capacity of credit institutions and investment firms and Directive 98/26/EC. 4 „Souhrnné výsledky procesu přezkumu a vyhodnocení provedeného v roce 2023“, published by the CNB on 8 January 2024. 3.1 CAPITAL 3.1.1 Regulatory Framework As the Group operates only in the Czech market, the Bank is subject to supervision by the Czech National Bank. The framework used for capital management involves monitoring and complying with capital adequacy limits in accordance with the Basel III rules codified in Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012, as amended (hereafter “CRR”), Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, as amended (hereafter “CRD”), and Directive (EU) 2014/59 of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms, as amended (hereafter “BRRD”), and their implementing measures. This European regulatory framework was significantly revised in May 2019 by the adoption of the so-called Banking Package, which introduced amendments to, inter alia, CRR (hereafter “CRR II”), 1 CRD (hereafter “CRD V”) 2 and BRRD (hereafter “BRRD II”) 3 . Furthermore, the regulatory framework within the Czech legal system is comprised mainly of Banking Act No. 21/1992 Coll., as amended, CNB Decree No. 163/2014 Coll., as amended, and Act No. 374/2015 Coll., on recovery and resolution in the financial market, as amended. MONETA manages its capital on a consolidated and an individual basis in order to meet the regulatory capital adequacy requirements prescribed in Basel III and codified in EU law and regulation and to allow the Group to continue its operations on a going concern basis while maximising the returns for the shareholders through the optimisation of its Debt-to-Equity Ratio. The overall capital requirement on a consolidated basis stood at 15.1% as at 31 December 2023, composed of the Pillar I requirement (8%), Pillar II requirement (2.6% applicable since 1 March 2022) and required capital buffers, which are applied to the whole Czech banking sector – capital conservation buffer (2.5%) and countercyclical buffer (2.0%). On an individual basis, the overall capital requirement as at 31 December 2023 stood at 12.5% for the Bank. Pursuant to the assessment of the Bank’s Materials for the supervisory review and evaluation process submitted to the CNB in 2022, the CNB confirmed in October 2022 the Pillar II capital requirement on a consolidated basis at an unchanged level of 2.6%. The total SREP capital ratio requirement therefore remained unchanged at 10.6% effective from 1 January 2023. Pursuant to the assessment of the Bank’s Materials for the supervisory review and evaluation process submitted to the CNB in 2023, the CNB decreased the Pillar II capital requirement on a consolidated basis to 2.3% (compared to the previous level of 2.6%) applicable from 1 January 2024. That means that the total SREP capital ratio requirement on a consolidated basis applicable from 1 January 2024 decreased to 10.3%. According to the aggregate results of the supervisory review and evaluation process performed in 2023, as published by the CNB, the average prescribed Pillar II capital requirement was 2.8%. 4 58 CAPITAL AND LIQUIDITY Annual Financial Report 2023 The required capital structure of the Group in 2023 was as follows: TARGET FOR CAPITAL DEVELOPMENT ON A CONSOLIDATED BASIS 5 1 Jan 2023 1 April 2023 1 July 2023 1 Oct 2023 31 Dec 2023 1 Jan 2024 Pillar I – CRR requirement 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Pillar II – SREP requirement 2.6% 2.6% 2.6% 2.6% 2.6% 2.3% CRR capital conservation buffer 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% CRR countercyclical buffer 2.0% 2.5% 2.25% 2.0% 2.0% 2.0% Total regulatory requirement for capital 15.1% 15.6% 15.35% 15.1% 15.1% 14.8% Management capital buffer 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% MANAGEMENT TARGET FOR CAPITAL 16.1% 16.6% 16.35% 16.1% 16.1% 15.8% 5 Expected values are derived from the current values of the relevant indicators. 6 According to definition in the Recovery and Resolution Act. 7 Although Pillar II capital requirement was set only on a consolidated basis, its value was used for setting of MREL requirement on an individual basis. In response to the global financial crisis, the EU introduced a new pan-European crisis management framework in the financial markets. Part of the new framework, primarily provided for in BRRD, is the requirement for EU-established banks to maintain an adequate amount of own funds and eligible liabilities to ensure that they have sufficient loss-absorbing and recapitalisation capacity to withstand crises to come. As a result, the Recovery and Resolution Act implementing BRRD in the Czech Republic requires banks established in the Czech Republic to comply with the Minimum Requirement for Own Funds and Eligible Liabilities (hereafter “MREL”). The CNB, through its independent Resolution Department, was designated as the national resolution authority, and, as such, is responsible for, among other things, setting the MREL requirement specifically for each bank on an individual, and, where appropriate, also on a consolidated basis. In May 2023, the Bank received an updated MREL specification from the CNB pursuant to which it must comply with the MREL requirement on an individual basis of 17.2% of its total risk exposure and 4.92% of its total exposure effective from 1 January 2024. 6 The MREL requirement is calculated as a sum of a Loss Absorption Amount (Pillar I capital requirement of 8% and Pillar II capital requirement of 2.6% 7 - values valid as of the date of the initiation of the planning process for resolution) and a Recapitalisation Amount set at 6.6%. The combined buffer requirement (a capital conservation buffer of 2.5% and a countercyclical capital buffer of 2.0% - values valid as at 31 December 2023) is not taken into account in the MREL calculation, and the Bank must comply with it on top of the MREL requirement. The CNB has set a transitional period for the Bank to meet the MREL requirement by 31 December 2023. The Bank had to fulfil an interim target level of the MREL requirement of 13.5% (that is, the corresponding Recapitalisation Amount of 3.1%) of its total risk exposure and 3.93% of its total exposure from 1 January 2022. However, the CNB expected the Bank to maintain capital and eligible liabilities of at least 15.1% of its total risk exposure (that is, the corresponding Recapitalisation Amount at 4.7%) and 4.4% of its total exposure from 1 January 2023. The Bank’s management decided to set its internal capital adequacy target as one percentage point above the overall capital requirement both on an individual and consolidated basis. The capital adequacy target is subject to an ongoing re-assessment by the Management Board of the Bank based on the business results, regulatory changes and development needs. 59 CAPITAL AND LIQUIDITY Annual Financial Report 2023 TARGET FOR CAPITAL AND ELIGIBLE LIABILITIES DEVELOPMENT ON AN INDIVIDUAL BASIS 8 (AS A SHARE OF THE TOTAL RISK EXPOSURE AMOUNT) 1 Jan 2023 1 April 2023 1 July 2023 1 Oct 2023 31 Dec 2023 1 Jan 2024 MREL requirement – Loss absorption amount 10.4% 10.4% 10.4% 10.4% 10.6% 10.6% MREL requirement – Recapitalisation amount 4.7% 4.7% 4.7% 4.7% 6.6% 6.6% Total MREL requirement 15.1% 15.1% 15.1% 15.1% 17.2% 17.2% CRR capital conservation buffer 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% CRR countercyclical buffer 2.0% 2.5% 2.25% 2.0% 2.0% 2.0% Total regulatory requirement for capital and eligible liabilities 19.6% 20.1% 19.85% 19.6% 21.7% 21.7% Management capital buffer 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% MANAGEMENT TARGET FOR CAPITAL AND ELIGIBLE LIABILITIES 20.6% 21.1% 20.85% 20.6% 22.7% 22.7% REQUIREMENT FOR CAPITAL AND ELIGIBLE LIABILITIES DEVELOPMENT ON AN INDIVIDUAL BASIS 8 (AS A SHARE OF THE TOTAL EXPOSURE) 1 Jan 2023 1 April 2023 1 July 2023 1 Oct 2023 31 Dec 2023 1 Jan 2024 MREL requirement – Loss absorption amount 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% MREL requirement – Recapitalisation amount 1.40% 1.40% 1.40% 1.40% 1.92% 1.92% Total MREL requirement 4.40% 4.40% 4.40% 4.40% 4.92% 4.92% 8 Expected values are derived from the current values of the relevant indicators. 9 https://investors.moneta.cz/bonds. The mortgage covered bonds were issued by MONETA Money Bank, a.s. in accordance with the requirements of Act No.190/2004 Coll., on Bonds (the Bonds Act), as amended, and in particular as amended by Act No.96/2022 Coll, which transposed the requirements of Directive (EU) 2019/2162 of the European Parliament and of the Council of 27 November 2019 on the issue of covered bonds and covered bond public supervision and amending Directives 2009/65/EC and 2014/59/EU (Covered Bonds Directive) into the Bonds Act with effect from 29 May 2022. 3.1.2 Capital and Risk-Weighted Assets The Group’s regulatory capital on a consolidated basis primarily consists of share capital and retained earnings, that is, the highest quality CET 1 capital, and issued Tier 2 capital. The Group incorporates into CET 1 capital periodically (subject to permissions from the CNB) a portion of its quarterly net profit lowered by expected dividend payments. The Bank uses a standardised approach to calculate the regulatory capital requirement for credit risk and operational risk on both an individual and a consolidated basis. The Bank calculates regulatory capital requirements against the market risk of the trading book. As at 31 December 2023, the capital requirement against the market risk of the trading book was immaterial. In order to calculate the internal capital requirement, the Bank applied methods similar to advanced approaches according to regulatory Pillar I, both on an individual and a consolidated basis. 3.1.3 Capital Management In accordance with applicable regulations, the Bank manages capital on a consolidated basis both above the level of the regulatory capital requirement and the management capital target. On an individual basis, the Bank manages capital above the level of both capital and MREL regulatory requirements and management targets for capital and MREL ratios. The Bank has a bond issuance programme approved by the CNB allowing the issuance of covered, senior unsecured, senior preferred, senior non-preferred, subordinated Tier 2 capital and mortgage-backed bonds. The programme was updated in September 2023 to enable the issuance of mortgage-backed bonds particularly in compliance with regulations concerning covered bonds from 2022. 9 The overall capital position, both on an individual and consolidated basis, is strengthened by issued subordinated Tier 2 bonds, senior preferred bonds and subordinated deposits in the total carrying amount of CZK 11.4 billion. 60 CAPITAL AND LIQUIDITY Annual Financial Report 2023 As at 31 December 2023, the Bank had issued the following bonds: Bond type /ISIN Issue date Currency Nominal (in m) Interest type Interest rate Call option Maturity date Moody’s rating Tier 2 CZ0003704918 25 Sep 2019 CZK 2,001 Fixed to float 3.30% pa first five years After 5 years 25 Sep 2029 Baa2 Tier 2 CZ0003705188 30 Jan 2020 CZK 2,601 Fixed to float 3.79% pa first five years After 5 years 30 Jan 2030 Baa2 Senior Unsecured 10 XS2435601443 3 Feb 2022 EUR 100 Fixed to float 1.625% pa first five years After 5 years 3 Feb 2028 A3 Senior Unsecured 10 CZ0003707671 15 Dec 2022 CZK 1,500 Fixed 8% After 3 years 15 Dec 2026 n/a 10 MREL eligible. To ensure that the Bank meets the ultimate MREL requirement in a timely manner, MONETA introduced a new subordinated deposit product for retail clients in June 2023. This deposit has a fixed maturity of five years, bears interest at a fixed rate of 7% and was only available during a limited period from 1 to 23 June 2023. The total balance of subordinated deposits amounted to CZK 2.9 billion as at 31 December 2023. REGULATORY CAPITAL AND CAPITAL RATIOS ON A CONSOLIDATED BASIS (in CZK bn) 31 Dec 2023 31 Dec 2022 Tier 1 regulatory capital 26.3 26.3 Tier 2 regulatory capital 7.2 4.6 Total regulatory capital 33.6 30.9 Risk-weighted assets 167.3 171.7 Capital adequacy ratio 20.1% 18.0% Management capital target 16.1% 15.6% Tier 1 capital adequacy ratio 15.7% 15.3% Tier 1 management capital target 13.2% 12.7% Excess capital over Tier 1 management capital target 2.5% 2.6% Excess capital over Tier 1 management capital target 4.3 4.5 Figures in the table may not add up to the total due to rounding differences. As at 31 December 2023, the total regulatory capital on a consolidated basis increased from CZK 30.9 billion to CZK 33.6 billion as a result of the introduction of the subordinated deposit. The subordinated deposit was eligible for Tier 2 capital in the partial amount of CZK 2.6 billion, which corresponds to the proportional part of the remaining contractual maturity according to Article 64 of Regulation (EU) 575/2013. Overall, the capital adequacy ratio has increased from 18% as at 31 December 2022 to 20.1% as at 31 December 2023 as a result of higher regulatory capital and lower risk-weighted assets. The decrease in risk-weighted assets from CZK 171.7 billion as at 31 December 2022 to CZK 167.3 billion as at 31 December 2023 was driven by a lower net loan portfolio in line with MONETA’s strategy to limit lending during 2023. The Tier 1 capital adequacy ratio has slightly increased from 15.3% as at 31 December 2022 to 15.7% as at 31 December 2023. MONETA maintained an excess capital over the Tier 1 capital target in the amount of CZK 4.3 billion as at 31 December 2023 (compared to CZK 4.5 billion as at 31 December 2022). REGULATORY CAPITAL AND ELIGIBLE LIABILITIES AND MREL RATIO ON AN INDIVIDUAL BASIS (in CZK bn) 31 Dec 2023 31 Dec 2022 Tier 1 regulatory capital 26.9 26.8 Tier 2 regulatory capital 7.2 4.6 MREL instruments 4.2 3.9 Total regulatory capital and MREL instruments 38.4 35.3 Risk-weighted assets 159.8 165.2 MREL ratio 24.1% 21.4% MREL management target 22.7% 20.6% Excess over MREL management target 1.4% 0.8% Excess over MREL management target 2.2 1.3 Figures in the table may not add up to the total due to rounding differences. As at 31 December 2023, the total regulatory capital and eligible liabilities on an individual basis increased from CZK 35.3 billion to CZK 38.4 billion as a result of the introduction of subordinated deposit product in the amount of CZK 2.9 billion. This is partially included in Tier 2 capital in the amount of CZK 2.6 billion, while the remaining CZK 0.3 billion is included in eligible liabilities. Overall, the MREL ratio increased from 21.4% as at 31 December 2022 to 24.1% as at 31 December 2023 as a result of higher regulatory capital and lower 61 CAPITAL AND LIQUIDITY Annual Financial Report 2023 risk-weighted assets. The decrease in risk-weighted assets from CZK 165.2 billion as at 31 December 2022 to CZK 159.8 billion as at 31 December 2023 was driven by a lower net loan portfolio in line with MONETA’s strategy to limit lending during 2023. MONETA maintained an excess capital over the MREL management target in the amount of CZK 2.2 billion as at 31 December 2023 (compared to CZK 1.3 billion as at 31 December 2022). Overall, the Bank met all regulatory requirements and expectations regarding capital adequacy on an individual and a consolidated basis. 3.1.4 The Internal Capital Adequacy Assessment Process (ICAAP) 3.1.4.1 Internal Capital Requirement on a One-Year Horizon The internal capital requirement represents the stock of capital which is needed to cover unexpected losses in the following 12 months at the chosen confidence level. To determine the internal capital requirement on an individual and consolidated basis, the Bank currently uses the internal economic capital (“ECAP”) model. This model covers all regular risks that are material for the Group and which the Group decided to cover by capital. The ECAP model is calibrated, and relevant risks are quantified on at least a 99.9% confidence level. Other risks, which are not covered by the ECAP model and are material to the Group in the following planning period, are identified through workshops with members of the Bank’s Management Board, selected senior managers of the Bank and key executive representatives of subsidiaries. The relevant stress scenarios are built on the key material risks as identified during the workshops and subsequently discussed and approved by the ERMC or the Bank’s Management Board. Capital sources to cover the internal capital requirement are the same as the capital sources to cover the regulatory capital requirement. 3.1.4.2 Mid-term Capital Outlook and Stress Testing In addition to the assessment of the internal capital requirement, the Bank annually prepares a mid-term forward-looking business plan, which summarises the projected development of the Group’s balance sheet and profit or loss statements. The business plan includes dividend pay-outs and retained earnings assumptions. The business plan is based on an expected evolution of external factors, mainly macroeconomic development, and market behaviour obtained from generally respected sources (e.g., the CNB, Bloomberg or Ministry of Finance). Based on the business plan, the Bank prepares a mid-term capital outlook on an individual and consolidated basis with the assessment of capital adequacy and potential actions to fulfil the capital needs for business growth. The capital outlook is composed of the outlook of the regulatory requirement on capital and eligible liabilities as well as internal capital requirement, considering profitability, other sources of capital and dividend pay-out assumptions. The capital outlook is regularly stressed, with the main stress scenario assuming the worsening of the most significant risk factors that may occur approximately once in a 25-year period. Other potential stress scenarios cover material identified as strategic and other risks. The capital outlook and the stress test are updated with a mid-year update of the business plan and on a yearly basis, reported to the Czech National Bank together with the Internal Capital Adequacy Assessment Process (ICAAP) report. 3.1.5 Recovery and Resolution The 2008–2009 financial crisis highlighted the importance of both financial institutions and regulators being prepared to respond effectively to unforeseen severe stress events and the disruptive and costly nature of disorderly financial institution failure. As part of the subsequent global regulatory reforms stipulated in BRRD and the Recovery and Resolution Act, regulators have called on financial institutions to improve recovery plans for restoring their capital, liquidity and balance sheet positions during times of severe stress. In addition, in the event of the failure of these recovery plans, regulators require the institutions to ensure they have capabilities to support their resolution. 3.1.5.1 Recovery Plan Given the above regulatory requirements, the Bank also maintains a Group recovery plan which describes the readiness of the Group to recover from a situation threatening the Group’s existence. This includes the strategic analysis of the Group, governance and responsibility process settings (including the escalation process and communication plan) and a set of three stress scenarios provided for in the current regulatory framework (idiosyncratic event, system-wide event and a combination of these two events) with a proposal of relevant measures to ensure the ability of the Group to respond to the developing situation in a timely 62 CAPITAL AND LIQUIDITY Annual Financial Report 2023 and proper manner when needed. The recovery plan activation is triggered by a combination of external and/or internal events, which are identified through monitoring of recovery indicators. The recovery indicators cover, among others, capital adequacy, liquidity adequacy, profitability, asset quality, market risk and macroeconomic development and are regularly reported to ERMC. The Group’s recovery plan is updated at least on a yearly basis, and significant updates are submitted to the Czech National Bank. The Group manages systemic risk to which it is exposed within the framework of the recovery plan and internal capital adequacy assessment process. 3.1.5.2 Readiness for Resolution In 2020, the CNB introduced its expectations regarding banks’ resolvability to create a resolution regime that ensures banks can fail in an orderly way reducing risks to depositors, the financial system, and public finance. In February 2023, the Bank received from the CNB a summary of key elements of the resolution plan, specifying the preferred resolution strategy for the Group with the Bank designated as the only point of entry with envisaged resolution tool implementation and with the liquidation of other companies within the Group. To reflect the importance of resolvability, the Bank, in cooperation with external advisors, launched an internal “Resolution Readiness Implementation Program for 2023” aimed to ensure effective coordination of the work to improve resolvability and to enhance the capabilities, dedicated resources and established arrangements to remove potential barriers to resolution. To ensure the resolvability capabilities continue to be enhanced and subject to effective governance in business-as-usual operations, the Bank has developed internal policies and handbooks, which ensure the maintenance of the Bank’s resolvability, and has built sufficient resolution capabilities that aim to: • maintain continuity of the Bank’s core business lines and critical functions; • minimise the impact of the Bank’s resolution on the financial system, depositors, clients, and counterparties; and • avoid the destruction of the Bank’s value associated with a disorderly and / or sudden break-up of its business. The Bank will continue to develop and refine its capabilities in line with upcoming changes to regulatory expectations and will make further enhancements and improvements to its resolution readiness to meet these expectations. 3.2 LIQUIDITY 3.2.1 Regulatory Framework Liquidity risk represents the risk of an inability to meet financial liabilities when due or to finance an increase in assets. The Basel III framework for liquidity risk measurement, standards and monitoring was anchored into the EU and Czech law by CRR and by implementing measures, which together specify the Liquidity Coverage Ratio (“LCR”) and the Net Stable Funding Ratio (“NSFR”) requirements. The LCR addresses the liquidity risk of banks over a 30-day period and aims to ensure that banks have a sufficient buffer of high-quality liquid assets available to meet their short-term liquidity needs in a given stress scenario. The minimum required level for LCR is 100%. MONETA maintains LCR well in excess of the requirement of 100% and as at 31 December 2023, it stood at 354.4% on a consolidated basis (compared to 213.7% as at 31 December 2022). The Bank forms, together with the Building Savings Bank, a liquidity sub-group, which allows the Bank to manage liquidity freely within the liquidity sub-group. The regulatory requirement for LCR is applied on the liquidity sub-group level and the consolidated level only. The LCR for the liquidity sub-group stood at 366% as at 31 December 2023 (220.1% as at 31 December 2022). The second liquidity ratio introduced by the Basel III framework is the NSFR, which establishes the criteria for a minimum amount of stable funding to support a bank’s assets and activities in the medium term (i.e. one year). The binding minimum standards for NSFR were introduced by the EU in CRR 2 and have been applicable since June 2021. The minimum required level is 100%, and the Bank maintains NSFR above the regulatory minimum both on a consolidated level, which reached 164.1% as at 31 December 2023, and on the liquidity sub-group level, which was 162.8% for the same period (compared to 134.9% and 134.1% respectively as at 31 December 2022). 3.2.2 Internal Liquidity Adequacy Assessment Process (ILAAP) The concept of an internal liquidity adequacy assessment process (hereafter “ILAAP”) was introduced by the European Banking Authority Guidelines on common procedures and methodologies for the supervisory review and evaluation process (“SREP”) as at 19 December 2014 (EBA/GL/2014/13), as amended. Within ILAAP, the Bank assesses annually the components that constitute the liquidity risk 63 CAPITAL AND LIQUIDITY Annual Financial Report 2023 management of the Group and submits an ILAAP report to the CNB. 3.2.3 Liquidity Position The liquidity position is managed solely by the Bank on a Group and liquidity sub-group level. The Bank invests its free cash mostly in high-quality and high-liquid financial instruments, such as Czech government bonds. As at 31 December 2023, 57% of total highly liquid assets were invested in securities, with the remaining part held at the CNB and interbank deposits. Almost all of these securities were eligible to be placed as collateral for funding purposes from the CNB and other banks, as at 31 December 2023, securities in the nominal amount of CZK 3.1 billion were encumbered. As at 31 December 2023, the Group reported a strong liquidity position with excess liquidity of CZK 114.7 billion (compared to CZK 45.7 billion as at 31 December 2022). The chart below sets out the composition of the Group’s high-quality liquid assets in the amount of CZK 159.8 billion as at 31 December 2023 and its comparison with CZK 85.9 billion as at 31 December 2022: BALANCE AND BREAKDOWN OF HIGH-QUALITY LIQUID ASSETS – HQLA (in CZK bn) 85.9 159.8 91.0 65.6 44.1 38.1 Cash and cash equivalents Loans and receivables to the CNB (including reverse repo) 31 Dec 2022 31 Dec 2023 Government bonds 3.2 3.7 11 The average yield excluding hedging stood at 3.4% as at 31 December 2023, 104bps higher than in the previous year. 12 Excluding CZK 0.8 billion of funds received as collateral under Credit Support Annex (CSA). 13 Deposit Insurance Fund is a fund within the Financial Market Guarantee System established by Act No. 374/2015 Coll., on recovery and resolution in the financial market, as amended, that protects depositors at banks. The volume of high-quality liquid assets increased during 2023 by CZK 73.9 billion, out of that, 63.5% has been invested into Czech government bonds, and the remaining part was placed with the CNB as reverse repo operations. As a result of the purchases of the Czech government bonds, the balance of investment securities increased to CZK 104.4 billion as at 31 December 2023. Almost all of these investments were measured at amortised costs (except for CZK 56 million of investments measured at FVTPL or FVTOCI). The increase is also in line with MONETA’s investment strategy to keep up to 25% of total assets as an investment portfolio. The average duration of the investment securities portfolio measured at amortised costs was 6.4 years as at 31 December 2023, as the Bank predominantly invests in longer-tenure securities. However, 62% of the portfolio is hedged through interest rate derivatives into floating rates, which reduces the total duration to 3.1 years. The average yield, including hedging, of the investment securities portfolio measured at amortised costs stood at 5.26% as at 31 December, 2023 which was 159bps higher than the average yield, including hedging, reported at the end of the previous year. 11 3.2.4 Funding The Bank is fully funded from its customer deposit base. As at 31 December 2023, MONETA reported loan to deposit ratio of 65.9% compared to 80.5% as at 31 December 2022. The Bank itself provides funding to other companies within the Group. MONETA’s overall funding base in the amount of CZK 415.5 billion as at 31 December 2023 12 consists of customer deposits, deposits from other banks, issued bonds and subordinated liabilities. Customer deposits provide 96.1% of the funding and reached CZK 399.2 billion as at 31 December 2023. Deposits from other banks accounted for CZK 4.9 billion, or 1.2% of total funding. The remainder of CZK 11.4 billion, or 2.7%, is represented by issued bonds and subordinated liabilities. In terms of concentration, the customer deposits are not concentrated into large amounts, and as at 31 December 2023, the top 10 depositors accounted for only 1.6% of the total amount. At the same time, 79.7% of the Group’s customer deposits were “on-demand” deposits (78.9 % as at 31 December 2022). Of the total volume of core customer deposits, 85.3% were covered by the Deposit Insurance Fund 13 . In 2023, MONETA continued to outperform deposit market growth in both segments, mainly thanks to 64 CAPITAL AND LIQUIDITY Annual Financial Report 2023 the offer of savings accounts and term deposits with attractive interest rates. The annual growth rate of the Czech deposit market reached 14.9% 14 in 2023, whereas the Group´s core customer deposits grew by 19.6% in the same period. In order to further strengthen and optimise regulatory capital structure (including MREL), the Bank issued capital and MREL instruments in the total volume of CZK 11.4 billion, which also improved the liquidity position of the Bank (more details are provided in section 3.1.3). 14 Source: CNB ARAD. In 2023, the Bank issued, in line with its approved Bond programme, the internal mortgage-backed bonds. Those bonds are issued on MONETA’s own books and are designed to provide an additional liquidity buffer if required in the future. They can be used as collateral for lombard or repo operations with the CNB. The Bank has the option to increase the nominal amount of the bonds up to CZK 90 billion, which would ensure the additional source of liquidity in the amount of CZK 70 billion. As at 31 December 2023, the Bank held on its books those mortgage bonds with a total nominal value of CZK 15 billion. The charts below present MONETA’s customer deposits by segment and type: RETAIL CUSTOMER DEPOSITS BY TYPE (in CZK bn) 256.3 +22.2% 57.8 169.8 52.6 233.8 31 Dec 202331 Dec 2022 Current accounts Savings and term accounts and other Building savings 28.7 26.8 313.2 COMMERCIAL CUSTOMER DEPOSITS BY TYPE (in CZK bn) 77.5 +11.1% 43.4 32.7 41.6 43.3 31 Dec 202331 Dec 2022 1.3 1.2 86.1 Current accounts Savings and term accounts and other Building savings Figures in the chart may not add up to the total due to rounding differences. Management of the Group Back row from the left: Jiří Huml, Chief Shared Services Officer / Monika Kalivodová, Senior Manager Debt Recovery Retail & Small Business / Jakub Valenta, Chief Digital Officer / Jana Výbošťoková, Senior Manager Customer Experience and Process Assurance / Andrew Gerber, Chief Product & Marketing Officer and Chief Executive Officer MONETA Stavební Spořitelna / Lenka Schmiedhammer, Senior Manager Marketing Communication & Brand / Aleš Sloupenský, Chief Retail Banking Officer / Klára Escobar, Director Human Resources / Martin Wrlík, Director Internal Audit / Zuzana Filipová, Director Sustainability & Communication / Vojtěch Neduchal, Managing Director MONETA Auto / Petr Toman, Senior Manager AML & Anti-Fraud & Collateral Management and Chief Risk Officer MONETA Stavební Spořitelna / Linda Kavanová, Senior Manager Investor Relations / Stanislava Hejnová, Director Compliance / Jan Novotný, Senior Manager Accounting, Taxes & IFRS Reporting and Chief Financial Officer MONETA Stavební Spořitelna / Tomáš Černý, Director Legal Tomáš Spurný Chairman of the Management Board and Chief Executive Officer Jan Friček Member of the Management Board and Chief Financial Officer Carl Normann Vökt Vice-Chairman of the Management Board and Chief Risk Officer Jan Novotný Member of the Management Board and Chief Commercial Banking Officer Klára Starková Member of the Management Board and Chief Operating Officer 67 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 4. CORPORATE GOVERNANCE STATEMENT A separate part of the Annual Financial Report pursuant to Section 118 (4) and (5) of Act No. 256/2004 Coll., on conducting business in the capital markets, as amended. 4.1 ORGANISATIONAL CHART The rights of the Bank’s shareholders are exercised through (as set out in the chart below): • decisions of the General Meeting of the Bank; and • participation of persons elected by the General Meeting in the Supervisory Board of the Bank. Shares of the Bank are traded on the Prague Stock Exchange with no majority shareholder. The Bank has a two-tier corporate governance structure, which ensures the separation of the executive and control functions. The Supervisory Board is an integral non-executive element of this structure and is responsible for the oversight of the Bank’s operations and the Management Board activities, while also contributing to the definition of the Bank’s strategic direction. Shareholders General Meeting External Audit Supervisory Board Committees Supervisory Board Management Board Management Board Committees Audit Committee Internal Audit The Supervisory Board has, among other things, the following powers: • to review financial statements and accounting records; • to request information on all business activities and inspect all documents and records related to business activities of the Bank; and • to convene the General Meeting of the Bank if required by law or if it is in the Bank’s interest The Supervisory Board established the principles for the appointing members of the Management Board and candidates to the Supervisory Board and for the composition and performance of the Management Board and the Supervisory Board. These key principles ensure that the members of the Management Board and Supervisory Board are individuals with suitable professional experience, time served and other qualifications so both bodies have the balance of expert’s qualifications and experience and that the composition of the Management Board and the Supervisory Board as a whole is diverse. During 2023 the Supervisory Board of the Bank had nine members. Until 25 May 2023, the members were represented by three women and six men. Following the resignation of Mr. Tomáš Pardubický and the subsequent election of Mrs. Kateřina Jirásková, the Supervisory Board of the Bank is now composed of four women and five men. Six members are elected by shareholders and three are elected by employees. The Management Board had five members in 2023, represented by one woman and four men (further information on the Bank’s diversity policies is available in Chapter 6.2 “Diversity”, which applies also to members of the Supervisory Board and the Management Board). The Management Board is the second component of the two-tier corporate governance structure and the 68 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 corporate body which manages the Bank’s business, including ensuring the proper keeping of the Bank’s books, proper existence, timely evaluation and set up of the management and control system and that the Bank is compliant with the law. 4.2 GENERAL MEETING Participation at the General Meeting The General Meeting may be attended by any person who is registered, as at the record date, as a shareholder, shareholder’s proxy, administrator, or person authorised to exercise rights attached to the shares in the registry of book-entry shares maintained by the Czech Central Securities Depository. The record date for participation at the General Meeting is the seventh (7 th ) day prior to the date of the respective General Meeting. Furthermore, the General Meeting is attended by members of the Management Board, the Supervisory Board and the Audit Committee. Subject to approval by the Management Board, the General Meeting may also be attended by individuals who can reasonably give their opinion on agenda items of the General Meeting, including the Bank’s external auditors, advisers or individuals that make arrangements for the General Meeting. Procedure at the General Meeting The Chairman of the General Meeting shall ensure that all proposals, counterproposals, and requests for explanation made by the shareholders are presented at the General Meeting, provided that they relate to the agenda of the General Meeting. A shareholder may request and shall receive at the General Meeting an explanation of matters related to the Bank or entities controlled by the Bank if such explanation is necessary to consider items on the agenda of the General Meeting or for exercising shareholder’s rights at the General Meeting, unless it follows from the applicable law that providing the explanation may be denied. Explanations may be provided at the General Meeting as a summary answer to multiple questions with similar contents. Explanations of matters related to the current General Meeting are provided by the Bank to a shareholder at the General Meeting. If this is not possible due to the complexity of the explanation, the Bank will provide the explanation to the shareholder within 15 days after the date on which the General Meeting is held. Decision of the General Meeting The General Meeting constitutes a quorum if the present shareholders hold shares whose aggregate nominal value exceeds 50% (fifty per cent) of the Bank’s registered share capital. The General Meeting makes decisions by a simple majority of the votes of the shareholders present, unless a different majority is required by law or by the Articles of Association. The right to vote at the General Meeting is linked with the Bank share and each Bank share with a nominal value of CZK 20.00 carries one vote. A total of all votes of the Bank’s shareholders is 511,000,000 (in words: five hundred and eleven million). 1. The General Meeting is the highest corporate body of the Bank. 2. The General Meeting is authorised to: a) amend the Articles of Association, save for amendments resulting from increasing the Bank’s registered share capital by the duly authorised Management Board or amendments resulting from other legal matters; b) decide on changes in the Bank’s registered share capital; c) decide on an increase in the Bank’s registered share capital by in-kind contributions; d) authorise the Management Board to increase the Bank’s registered share capital; e) approve the offset of the Bank’s receivable towards the Bank’s shareholder for payment of a subscription price for the shares and the Bank’s shareholder’s receivable against the Bank; f) decide on issuing convertible or preference bonds; g) decide on restriction or limitation of the shareholders’ pre-emptive right to subscribe for a pro rata portion of the new shares or the preference or convertible bonds issued by the Bank; h) elect and recall members of the Supervisory Board, with the exception of members of the Supervisory Board who are elected by the Bank’s employees; i) elect and recall members of the Audit Committee; j) approve service contracts with members of the Supervisory Board and the Audit Committee, and fixed and variable components of their compensation; k) approve any compensation to members of the Supervisory Board and the Audit Committee, unless such compensation is established by applicable laws, by a service contract or by the Bank’s internal rules; l) decide that the amount of the variable component of the compensation of a member of the Management Board may be higher than the amount of the fixed component of his/her compensation, but not higher than the double amount of the fixed component of his/her compensation; 69 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 m) approve contracts for settlement of loss caused by a breach of the duty of due care by a member of the Bank’s body; n) approve a distribution of profit or other own resources of the Bank or on compensation of loss; o) approve a distribution of the profit to a person that is not a shareholder of the Bank; p) decide to unwind the Bank; q) approve a proposed distribution of the Bank’s liquidation balance; r) decide to apply for listing or delisting the Bank’s securities on the European regulated market; s) approve a transfer or a pledge of the Bank’s undertaking or a part thereof constituting a substantial change of the existing structure of the Bank’s undertaking or a substantial change of the Bank’s scope of business; t) decide on a change of classes of the shares; u) decide on a change of rights attached to individual classes of the shares; v) decide on a conversion of registered shares to bearer shares and vice-versa; w) approve restrictions or limitations of the shares’ transferability; x) decide on a merger of two or more shares into one share; y) decide on splitting shares; z) decide on an acquisition of the Bank treasury shares; aa) approve a transfer of all other shareholders’ shares to the Bank’s shareholder that owns Bank shares in the total nominal value corresponding to at least 90% (ninety per cent) of the Bank’s registered share capital created by shares with voting rights and carrying at least 90% (ninety per cent) of voting rights in the Bank; bb) approve a transformation of the Bank in compliance with Act No. 125/2008 Coll., on transformations of companies and cooperatives, as amended (hereafter the “Transformations Act”); cc) approve the Bank’s annual, extraordinary or consolidated and, if required, interim financial statements; dd) appoint an auditor to perform the statutory audit; ee) approve principles for the Management Board, the Supervisory Board or another Bank’s body, and give instructions to the Management Board, the Supervisory Board or another Bank’s body, all subject to the terms set forth by applicable laws and the Articles of Association; and ff) exercise all other powers vested to the General Meeting by applicable laws or by the Articles of Association. 3. The General Meeting may not reserve powers which are not vested to it by applicable laws or by the Articles of Association. 4. Resolutions under Article 2 Lett. a), b), d), e), f), p), q), s) and y) above shall be passed at a General Meeting with a qualified majority of at least two-thirds (2/3) of the votes cast at a General Meeting. 5. Resolutions under Article 2 Lett. b) and s) above shall be passed at a General Meeting in addition with a qualified majority of at least two-thirds (2/3) of the votes cast at a General Meeting by the Bank’s shareholders holding each class of the shares, whose rights are affected by such resolutions. 6. Resolution under Article 2 Lett. m) above shall be passed at a General Meeting with a qualified majority of at least two-thirds (2/3) of the votes of all Bank’s shareholders. 7. Resolutions under Article 2 Lett. c), g) and o) above shall be passed at a General Meeting: a) with a qualified majority of at least three-quarters (3/4) of the votes cast at a General Meeting; and b) in addition, with a qualified majority of at least three-quarters (3/4) of the votes cast at a General Meeting by the Bank’s shareholders holding each class of the shares, unless the respective resolution will not affect any rights of owners of these classes of the shares. 8. Resolution under Article 2 Lett. r) (only as for delisting the Bank securities) above shall be passed at a General Meeting by a qualified majority of at least three-quarters (3/4) of the votes cast at a General Meeting by the Bank’s shareholders holding the classes of the shares affected by this resolution. 9. Resolutions under Article 2 Lett. t), u), v) and w) hereof shall be passed at a General Meeting: a) with a qualified majority of at least two-thirds (2/3) of the votes cast at a General Meeting; and b) in addition, with a qualified majority of at least three-quarters (3/4) of the votes cast at a General Meeting by the Bank’s shareholders holding the classes of the shares affected by such resolutions. 10. Resolution under Article 2 Lett. l) above shall be passed at a General Meeting with a qualified majority of at least three-quarters (3/4) of the votes cast at a General Meeting (qualified majority of at least 66% (sixty-six per cent) of the votes cast at a General Meeting is sufficient, provided that the shareholders holding at least one (1) half of the voting rights in the Bank are present at a General Meeting). 11. Resolution under Article 2 Lett. x) above shall be passed at a General Meeting: a) with a qualified majority of at least two-thirds (2/3) of the votes cast at a General Meeting; and b) in addition, by all shareholders of the company whose shares are to be merged. 12. Resolution under Article 2 Lett. aa) above shall be passed at a General Meeting by a qualified majority of at least 90% (ninety per cent) of the votes of all Bank’s shareholders. 70 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 13. Resolution under Article 2 Lett. bb) above shall be passed at a General Meeting by a qualified majority of at least three-quarters (3/4) of the votes cast at a General Meeting by the Bank’s shareholders holding each class of the shares, however: a) a demerger of the Bank with an unequal shares exchange proportion shall be approved by a resolution passed at a General Meeting by a qualified majority of at least 90% (ninety per cent) of the votes of all Bank’s shareholders holding each class of the shares; and b) a transfer of all Bank’s assets to the Bank’s shareholder shall be approved by a resolution passed at a General Meeting by a qualified majority of at least 90% (ninety per cent) of the votes of all Bank’s shareholders. Correspondence Voting at the General Meeting The Bank allows for a corresponding vote at the General Meeting. Thus, each shareholder has a right to vote before the General Meeting under the conditions set forth by the Articles of Association and applicable laws. The correspondence voting is carried out through the delivery of written correspondence ballot cards. The correspondence voting is allowed subject to the following conditions: a) The Management Board shall decide on the possibility of correspondence voting before a specific General Meeting and state the conditions of such voting in the notice of the General Meeting; b) The shareholder shall exercise his/her voting right through the correspondence voting within the period of time specified by the Management Board in the notice of the General Meeting; and c) The correspondence voting meets all the other prerequisites set by the Articles of Association and stated in the notice of the General Meeting. Electronic Voting at the General Meeting The Bank allows for electronic voting at the General Meeting. Thus, each shareholder has a right to vote before the General Meeting under the conditions set forth by the Articles of Association and applicable laws. Shareholder casts the vote electronically via the system of the Central Securities Depository Prague and/or its members and dependant registries connected to such system unless the Management Board stipulates otherwise. The electronic voting is allowed subject to the following conditions: a) The Management Board decides on the possibility of electronic voting before the specific General Meeting and states or refers to the conditions of such voting in the notice of the General Meeting; b) The shareholder shall exercise his or her voting right by casting his or her vote electronically within the period stipulated by the Management Board in the notice of General Meeting; and c) The electronic voting meets all the other prerequisites set by the Articles of Association and stated in the notice of the General Meeting. 4.3 SUPERVISORY BOARD 4.3.1 Position and Responsibilities of the Supervisory Board The Supervisory Board is the Bank’s body that oversees the Management Board and the Bank’s activities, as well as informs the General Meeting on results thereof. The Supervisory Board shall decide on all matters and exercise all powers, rights and duties vested to the Supervisory Board by applicable law or by the Articles of Association. The Supervisory Board shall among others: a) review annual, extraordinary or consolidated and, if required, interim financial statements, proposal for the distribution of profit or compensation of loss, and submit its opinion thereon to the General Meeting; b) establish the Nomination Committee, the Remuneration Committee and the Risk Committee (hereafter jointly as the “Supervisory Board Committees”), adopt statutes of the Supervisory Board Committees and have discretion to set up any other committees of the Supervisory Board and adopt their statutes; c) elect and recall members of the Management Board, of the Supervisory Board Committees and of other committees of the Supervisory Board; d) approve service contracts with members of the Management Board, the fixed component of their compensation and the variable component of their compensation set forth, inter alia, by the Executive Variable Incentive Plan (“EVIP”) and Long-Term Incentive Plan (“LTIP”), up to the amount corresponding to the fixed component of their compensation; e) approve any compensation to members of the Management Board, unless a member’s compensation is established by applicable law, by a service contract or by the Bank’s internal rules; f) propose to the General Meeting an auditor to perform the statutory audit; g) convene a General Meeting if required by applicable law or by the Bank’s interests and propose to the General Meeting appropriate measures to be taken; h) designate one member of the Supervisory Board, who shall represent the Bank before courts or 71 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 other authorities in disputes with members of the Management Board; i) review the affiliated parties report and submit its opinion thereon to the General Meeting; j) inspect all documents and records related to the activities of the Bank; k) examine whether the Bank’s books and records are kept properly,whether they comply with the true current state of affairs and whether the business activities of the Bank are carried out in compliance with applicable law and the Articles of Association; and l) exercise all other powers, rights and duties vested to the Supervisory Board by applicable law, including powers, rights and duties of a controlling body under CNB regulation No. 163/2014 Coll., on activities of banks, saving and credit unions and securities traders, as amended, or, as the case may be, under any replacement thereof (hereafter the “CNB Decree No. 163/2014 Coll.”). The Supervisory Board makes decisions by a simple majority of votes cast at the meeting. The quorum for a meeting of the Supervisory Boar d is a simple majority of all its members. Members of the Supervisory Board may participate at the Supervisory Board meetings through telephone or other technical devices. When necessary in matters of urgency, a decision may be made by the Supervisory Board without holding a meeting. In accordance with the Articles of Association, meetings of the Supervisory Board are called by the Chairman of the Supervisory Board. The Chairman of the Supervisory Board is required to call the meeting at any member’s request or at the request of the member of the Management Board responsible for risk management. At its discretion, the Supervisory Board may invite members of other Bank’s corporate bodies, employees, or other persons to its meetings. The Supervisory Board consists of nine members. Six members of the Supervisory Board are elected and recalled by a decision of the General Meeting. Three members of the Supervisory Board are elected and recalled by the Bank’s employees. Only employees currently employed by the Bank have the right to elect and recall members of the Supervisory Board elected by the employees. The election order of the Bank sets forth the method and rules for elections and recalling of members of the Supervisory Board elected by employees. The majority of members of the Supervisory Board elected by the General Meeting, including the Chairman of the Supervisory Board, must be independent. For purposes of the Articles of Association an independent member of the Supervisory Board shall mean a member who is: a) independent of the Bank’s management; b) not an employee of the Bank or any of its affiliates; c) not closely related to the Bank or its management through significant economic, family or other ties; and d) independent of the Bank’s controlling shareholder(s), if any. No member of the Supervisory Board may be a member of the Management Board or the Bank’s procura holder (if any). Members of the Supervisory Board serve a four-year term and may be re-elected. Members of the Supervisory Board elect and recall the Chairman and Vice-Chairman of the Supervisory Board from among members of the Supervisory Board. The relationship between a member of the Supervisory Board and the Bank is governed by a service contract concluded between the Bank and the respective member of the Supervisory Board and further by applicable law. There are no service contracts entered into between the Bank and the members of the Supervisory Board providing benefits upon termination of their office. A member of the Supervisory Board may resign from the Supervisory Board through a written notification delivered to the Supervisory Board or through a written notification addressed to the Supervisory Board and delivered to the Bank’s registered office. A member of the Supervisory Board may also resign through an oral declaration made at a meeting of the Supervisory Board and recorded in the minutes. A member of the Supervisory Board may not resign at an improper time for the Bank. A member’s office terminates one month after the delivery of the member’s resignation to the Supervisory Board or to the Bank’s registered office, unless the Supervisory Board approves another date at the resigning member’s request. If the number of Supervisory Board members has not dropped below half, it may appoint substitute members until the next meeting of the company’s body, which elects the members. 72 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 4.3.2 Members of the Supervisory Board As at 31 December 2023, the following persons were members of the Supervisory Board: Name Role Member position held from Member position held to Gabriel Eichler Chairman 26 October 2017 (Chairman since 2 August 2018) 20 December 2025 Miroslav Singer Vice-Chairman 24 April 2017 (Vice-Chairman since 22 May 2017) 28 April 2025 Clare Ronald Clarke Member 21 April 2016 2 September 2024 Michal Petrman Member 21 April 2016 2 September 2024 Denis Arthur Hall Member 21 April 2016 2 September 2024 Kateřina Jirásková Member 25 April 2023 25 April 2027 Klára Escobar Member elected by employees 7 May 2021 7 May 2025 Zuzana Filipová Member elected by employees 7 May 2021 7 May 2025 Jana Výbošťoková Member elected by employees 7 May 2021 7 May 2025 Mr. Tomáš Pardubický resigned from his position on the Supervisory Board with effect from 24 April 2023. Mrs. Kateřina Jirásková was elected to the vacant position on the Supervisory Board by the General Meeting held on 25 April 2023 with immediate effect. Mrs. Jirásková was proposed to the Supervisory Board by the major shareholder and her nomination was positively assessed and confirmed by the Nomination Committee of the Supervisory Board. Except as stated below, none of the members of the Supervisory Board has been a member of the administrative, management or supervisory bodies or a partner of any company or partnership other than the Bank at any time in the previous five years. GABRIEL EICHLER is Chairman of the Supervisory Board of MONETA Money Bank. Mr. Eichler studied economics and international relations and has degrees from Brandeis University, The University of Chicago, and the University of Toronto. He began his international banking career at Bank of America, where he spent 15 years (1975–1990), half of it at the bank’s headquarters in the US (his last position was Chief International Economist) and half as regional General Manager of Bank of America in Paris, Vienna and Frankfurt. After leaving Bank of America, Mr. Eichler spent a year as a partner and Executive Vice-President (EVP) in a US private equity group. From 1994 to 1998, Mr. Eichler was Vice-Chairman of the Management Board, and until the end of 1996, CFO of ČEZ. In 1998–2001, he was the Chairman of the Management Board, President & CEO of Východoslovenské železiarne (VSŽ). Mr. Eichler also acted as the Vice-Chairman of the Supervisory Board of Československá obchodní banka, a member of the Supervisory Boards of Česká pojišťovna and Slovenská sporiteľňa. Until September 2016, Mr. Eichler was the Vice-Chairman (earlier Executive Chairman) of the AVG Technologies Supervisory Board. Mr. Eichler helped bring AVG Technologies, as the first Central European company, to the New York Stock Exchange (NYSE). He was also a member of the Board of Ness Technologies (a company traded on the NASDAQ stock exchange). Mr. Eichler has been Chairman of the Supervisory Board of MONETA Money Bank since 2 August 2018. Apart from his position as Chairman of the Supervisory Board of MONETA Money Bank, he is a founder and director of Benson Oak spol. s r.o., originally a boutique investment bank, later a private equity group which he founded in August 1991. He is also Chairman of the Board of Trustees of Vaclav Havel Library, Chairman of the Board of Trustees of the International School of Prague and a member of the Advisory Council at the Division of Social Sciences of the University of Chicago. The current service contract between Mr. Eichler and the Bank was entered into on 20 December 2021 per approval of the General Meeting with effect from 26 October 2021 and will terminate upon the termination of his office. MIROSLAV SINGER is Vice-Chairman of the Supervisory Board of MONETA Money Bank. Mr. Singer graduated from the University of Economics in Prague, where he obtained an engineering degree in econometrics and operations research. He also holds a doctoral degree in economics, majoring in econometrics and labour from the University of Pittsburgh. Mr. Singer served for six years (from July 2010 to June 2016) as the Governor and prior to that for five years (from February 2005 to June 2010) as the Vice-Governor of the Czech National Bank. 73 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 He also has broad experience from having served on a number of boards. Mr. Singer served from 1994 until 1996 at the Centre for Economic Research and Doctoral Studies at Charles University, within the Economic Institute of the Academy of Sciences of the Czech Republic, where he was the Deputy Director for Research. Between 1995 and 1996, Mr. Singer worked as a member of the Supervisory Board and the Board of Directors of Česká pojišťovna a.s. He subsequently joined Expandia Group, where he served as Chief Economist and a member of the Supervisory Board of Expandia Bank and later as CEO and Chairman of the management boards of the Expandia group industrial companies. From 2001 to 2005, he was a Director of Business Restructuring Services at the international consulting firm PwC. In 2019, Mr. Singer also served as a member of the Supervisory Board of ADRIATIC Slovenica. The company merged with Generali zavarovalnica d. d. Slovenia in 2019. Until its merger with Generali Česká pojišťovna in 2022, he also served as Chairman of the Supervisory Board of Generali Poisťovňa, a.s. (Board membership since 2018). Apart from his position as Vice-Chairman of the Supervisory Board of MONETA Money Bank, he currently serves as Chairman of the Supervisory Board of Generali Česká pojišťovna a.s. (since May 2017), member of the Supervisory Board of Generali zavarovalnica d.d. Slovenia and Director for Institutional Affairs and Chief Economist in Generali CEE Holding B.V. (since January 2017), in which he also became a member of the Executive Committee on 1 January 2018. The current service contract between Mr. Singer and the Bank was entered into on 28 April 2021 per approval of the General Meeting with effect from 24 April 2021 and will terminate upon the termination of his office. CLARE RONALD CLARKE is a member of the Supervisory Board of MONETA Money Bank. Mr. Clarke holds an Associate degree from Dalhousie University. He worked as a Human Resources Manager at Pfizer and Warner-Lambert Canada. He joined Cesky Telecom/Eurotel, subsequently acquired by Telefónica, fulfilling HR Business Partner and Head of HR roles through 2010 for the rebranded O2 Czech Republic business. He subsequently became the Head of Learning & Development for O2 Europe, reporting to the Director of Human Resources at the Europe region level. Mr. Clarke was responsible for Commercial & Technical Learning across the five country regions. He designed and implemented Telefónica’s European Region Commercial/Technical Learning & Development Organisation. He has been Chairman of the Nomination and Remuneration Committees (advisory bodies) of the Supervisory Board of the Bank since 2016 and, through his professional capability, initiative and transparent approach has been instrumental in the development of policy, practice and governance in both these key areas of the Bank. Apart from his position as a member of the Supervisory Board of MONETA Money Bank, he currently holds the position of the sole member and director of ReDefine s.r.o. The current service contract between Mr. Clarke and the Bank was entered into on 2 September 2020 per approval of the General Meeting with effect from 1 July 2020 and will terminate upon the termination of his office. MICHAL PETRMAN is a member of the Supervisory Board of MONETA Money Bank. Mr. Petrman is currently engaged in several supervisory and audit committees or boards and is a lecturer at the University of Economics in Prague. Mr. Petrman spent most of his career at Deloitte in the Czech Republic, where he specialised in auditing financial institutions and other large companies. He also held a number of senior management roles, including the Managing Partner of the Deloitte Czech and Slovak offices and a member of the Executive Committee of Deloitte Central Europe. Mr. Petrman was a member of the Supervisory Board of the Dagmar and Václav Havel Foundation VIZE 97 and the Board of the University of Economics in Prague. From 2015 until 2021, he was a managing director of Auxilium Consultum, s.r.o. v likvidaci. Apart from his position as a member of the Supervisory Board and Audit Committee of MONETA Money Bank, he has also been, since May 2020, Chairman of the Audit Committee of MONETA Stavební Spořitelna (member since April 2020) and, until the merger with the Bank in January 2021, Chairman of the Audit Committee of Wüstenrot hypoteční banka a.s. Since 2009, he has been managing director of INCELA s.r.o. He is currently Chairman of the Supervisory Committee of Czech Television and a member of the Audit Committee of NET4GAS, s.r.o.(Chairman until June 2023). He also serves as a member of the Audit Committee of Národní rozvojová banka, a.s. (National Development Bank), the Audit Committee of Allianz pojišťovna, a.s., Allianz penzijní společnost, a.s. and Diamond Point, a.s. in the Czech Republic. The current service contract between Mr. Petrman (as a member of the Supervisory Board) and the Bank was entered into on 2 September 2020 per approval of the General Meeting with effect from 1 July 2020 and will terminate upon the termination of his office. 74 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 DENIS ARTHUR HALL is a member of the Supervisory Board of MONETA Money Bank. Previously, Mr. Hall held senior executive positions as Chief Risk Officer at Citibank (1985–2001), Deutsche Bank (2001–2007) and GE Capital International (2007–2016). From 2008 to November 2016, he worked as a Supervisory Board member and Chairman of the Risk Committee at BPH Bank SA and from November 2013 to March 2017 as a non-executive Board member of Hyundai Capital Cards. From 2012 to June 2015, he worked as a member of the Supervisory Board of Budapest Bank Zrt and from October 2013 to December 2016 as the non-executive Chairman of the Board of UK Home Lending Ltd. From 2013 to April 2022, he was a member of the Supervisory Board and Audit and Risk Committee of Cembra Money Bank AG, Switzerland, a bank listed on the SIX Swiss Exchange. Apart from his position as a member of the Supervisory Board of MONETA Money Bank, Mr. Hall has held, since March 2017, the position of a non-executive Board member and Chairman of the Risk Committee of the Skipton Building Society in the UK. Since November 2020, Mr. Hall has also been Chairman of the Audit and Risk Committee and a non-executive Board member of Auxmoney Europe Holding Ltd, a consumer finance company based in Ireland. Since August 2022, he has been a member of the Supervisory Board of Aareal Bank AG, an International Commercial Real Estate Bank based in Wiesbaden, Germany, and currently sits on its Audit, Risk and Technology committees. The current service contract between Mr. Hall (as a member of the Supervisory Board) and the Bank was entered into on 2 September 2020 per approval of the General Meeting with effect from 1 July 2020 and will terminate upon the termination of his office. KATEŘINA JIRÁSKOVÁ is a member of the Supervisory Board of MONETA Money Bank. After graduating from the University of Economics in Prague, she worked as a securities trader at Conseq and, in 2000, joined PPF Group as a portfolio manager. For eight years she managed Generali PPF Asset Management, where she was responsible for one of the largest investment portfolios in Central and Eastern Europe. At the same time, she was responsible for the investment performance of 27 Generali PPF holding companies in 14 countries with assets of EUR 15 billion. In 2013, she became CFO and COO of PPF Group. Apart from her position as a member of the Supervisory Board of MONETA Money Bank, Mrs. Jirásková has been, since January 2013, the CFO of PPF Group. Since the same year, she has also served as a member of the Management Board of PPF Financial Holdings a.s. She is also Chair of the Board of the foundation Nadace PPF, a member of the Management Board of Tanemo a.s. and Chair of the Supervisory Board of PPF Art a.s. Additionally, she serves as Chair of the Management Board of PPF a.s., and Moranda, a.s. and holds the position of Chair of the Supervisory Board of PPF Gate a.s. and PPF Advisory (CR) a.s. The current service contract between Mrs. Jirásková and the Bank was entered into on 25 April 2023 per approval of the General Meeting with effect from 25 April 2023 and will terminate upon the termination of her office. KLÁRA ESCOBAR is a member of the Supervisory Board of MONETA Money Bank elected by employees. Klára Escobar is a graduate of the Faculty of Arts of Palacký University in Olomouc, majoring in Sociology and Andragogy with a focus on Human Resources. She has been working in the field of human resources management for over 18 years. She started her career in recruitment and gradually moved to the role of a generalist. She has been in the banking sector since 2010 when she joined the original GE Money Bank as HR Business Partner. In October 2016, she became HR Director at Cetelem and was instrumental in its transformation into the new digital bank Hello bank!. She returned to MONETA Money Bank in January 2020 as Human Resources Director. From June 2020 until September 2023, she was a member of the Management Board of MONETA Stavební Spořitelna, and until its merger with the Bank in January 2021, she served as a member of the Management Board of Wüstenrot hypoteční banka a.s. Since May 2023, she has been a member of the Supervisory Board of the foundation Nadace MONETA Clementia. The employment contract between Klára Escobar and the Bank was entered into on 1 January 2020 and was entered into for an indefinite period. ZUZANA FILIPOVÁ is a member of the Supervisory Board of MONETA Money Bank elected by employees. Zuzana Filipová is a graduate of Jan Amos Komenský University in Prague. Her entire career has been dedicated to public relations, public affairs and media. Mrs. Filipová has worked as a parliamentary correspondent for Denní Telegraf, Lidové noviny and Týden magazine, and has also become a representative of the international television station CNN for the Czech Republic. She gained further experience as Director of Public Relations and Communications at the Prague City Hall and was also part of the PR advisory team of 75 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 the Czech Minister of the Environment. Before joining MONETA Money Bank, she worked as a public affairs and public relations manager at the international law and consulting firm Becker and Poliakoff. She has been with MONETA Money Bank since 2019 and now holds the position of Director Sustainability & Communication. Apart from her position as a member of the Supervisory Board of MONETA Money Bank, she has been, since May 2023, a member of the Board of Directors of the foundation Nadace MONETA Clementia. The employment contract between Zuzana Filipová and the Bank was entered into on 25 July 2019 and was entered into for an indefinite period. JANA VÝBOŠŤOKOVÁ is a member of the Supervisory Board of MONETA Money Bank elected by employees. Jana Výbošťoková is a graduate of the University of Economics in Bratislava. She has been working in the financial sector since 2005 when she participated as a consultant and project manager in projects in financial institutions in Slovakia and the Czech Republic and in Romania at BRD Groupe Société Générale. In 2007, she joined Česká spořitelna, where she managed the support of the branch network with a focus on sales efficiency, performance management and process improvement. She joined the original GE Money Bank in autumn 2014 as Senior Manager Customer Experience and Sales Force Effectiveness. At MONETA Money Bank, she now holds the role of Senior Manager Customer Experience and Process Assurance. She is primarily focused on branch network development, front-end processes and customer experience improvement. The employment contract between Jana Výbošťoková and the Bank was entered into on 18 November 2014 and was entered into for an indefinite period. 4.3.3 Activity Report of the Supervisory Board In 2023, the Supervisory Board held five regular meetings and adopted three decisions outside the meeting through per rollam voting. All five meetings of the Supervisory Board in 2023 were attended by all nine members. The Supervisory Board reviewed the Bank’s separate and consolidated financial statements as at 31 December 2022 prepared under IFRS and audited by the external auditor, the audit firm Deloitte Audit s.r.o. The Supervisory Board recommended that the General Meeting held on 25 April 2023 approve these financial statements. The Supervisory Board reviewed the Management Board’s proposal for the distribution of profit after tax for the financial year 2022 and recommended that the General Meeting approve this proposal. Upon recommendation of the Audit Committee, the Supervisory Board made a proposal at the General Meeting held on 25 April 2023 to appoint Deloitte Audit s.r.o. as an auditor to conduct the statutory audit of the Bank for the financial year 2023. During 2023, the Supervisory Board was continuously informed of the Bank’s activities and regularly presented with reports and analyses. The Supervisory Board assessed, in particular, the functionality and efficiency of the Bank’s internal control systems, concluding that the internal control systems are functional and effective. Moreover, it examined the 2021 annual assessment report on the Bank’s system for anti-money laundering and preventing the financing of terrorism, including a related risk assessment and the annual compliance management report. The Supervisory Board regularly discussed the Bank’s quarterly financial results and its position on the market in line with developments in the macroeconomic environment. Furthermore, it discussed the actions of the Internal Audit team and their results in individual periods of the year, changes in the audit plan for 2023, as well as the internal audit plan for 2024. In the course of its activities, the Supervisory Board continued to rely on the opinion of its Risk, Nomination and Remuneration Committees and was informed of the issues discussed by the Audit Committee. Further activities of the Supervisory Board in relation to the 2023 Financial Statements and Annual Financial Report are described in the Supervisory Board report in Chapter 7 “Opinion of the Supervisory Board” and the “Letter from the Chairman of the Supervisory Board”. The Supervisory Board discussed the remuneration of the members of the Management Board and recommended bonus amounts for the performance year 2022, the payment of which is subject to the principles of the deferred bonus scheme. The opinion of the Supervisory Board (i) on the consolidated and separate financial statements for the year ended 31 December 2023 and (ii) on the proposal of the Management Board on the distribution of the profit after tax for the year 2023 to the Bank’s shareholders is available in Chapter 7 “Opinion of the Supervisory Board”. 76 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 4.4 AUDIT COMMITTEE The Audit Committee is a separate body of the Bank and consists of three members. The composition of the Audit Committee and qualification of its members complies with the requirements set forth by Act No. 93/2009 Coll., on auditors and on amending other acts, as amended (hereafter the “Act on Auditors“), and the members of the Audit Committee also comply with the same eligibility qualifications as members of the Supervisory Board. The Audit Committee is empowered to: a) monitor the effectiveness of the Bank’s internal control and risk management system; b) monitor the effectiveness of the Bank’s internal audit and its functional independence; c) monitor the process of compiling the Bank’s consolidated and non-consolidated financial statements, and submit recommendations on ensuring the integrity of the accounting and financial reporting systems to the Management Board or to the Supervisory Board; d) recommend an auditor to the Supervisory Board whereas such recommendation shall be duly reasoned, unless provided otherwise by directly applicable law of the European Union on specific requirements regarding statutory audit of public-interest entities; e) evaluate the independence of the Bank’s auditor and providing non-audit services by that auditor; f) discuss with the Bank’s auditor threats to his/her independence and the safeguards applied by that auditor to mitigate those threats; g) monitor the process of the statutory audit; h) opine on the termination of obligation arising from the agreement on performance of the statutory audit or the withdrawal from the agreement on performance of the statutory audit, pursuant to Section 17a sub. 1 of Act on Auditors; i) evaluate whether the Bank’s auditor engagement shall be subject to an engagement quality control review by another auditor pursuant to Article 4 sub. 3 first subsection of Regulation (EU) No. 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities, as amended (hereafter ”EU Regulation No. 537/2014“); j) inform the Supervisory Board of the outcome of the statutory audit and its findings discovered within monitoring the process of the statutory audit; k) inform the Supervisory Board how the statutory audit contributed to the integrity of the accounting and financial reporting systems; l) decide whether the statutory audit shall be further carried out by the Bank’s auditor pursuant to Article 4 sub. 3 second subsection of EU Regulation No. 537/2014; m) approve providing other non-audit services; n) approve a report on outcome of selection procedure in the selection procedure pursuant to Article 16 of EU Regulation No. 537/2014; o) be entitled to inspect documents and records related to the activities of the Bank to the extent required for execution of its activities; p) receive and discuss with the Bank’s auditor information, declarations and notifications as required by applicable laws; q) provide other Bank’s bodies with information on matters within the Audit Committee’s competences; r) prepare a report on its activities, evaluating its activities in relation to the activities specified in Section 44a sub. 1 of the Act on Auditors, and provide this report to the Council for public audit supervision; and s) exercise all other powers, rights and duties vested to the Audit Committee by applicable laws. The Audit Committee makes decisions by a simple majority of votes cast at the meeting. The quorum for a meeting of the Audit Committee is a simple majority of all its members. The Audit Committee has discretion to invite to its meetings members of other Bank’s corporate bodies, employees, or other persons. 4.4.1 Members of the Audit Committee As at 31 December 2023, the following persons were members of the Audit Committee: Name Role Michal Petrman Chairman of the Committee Denis Arthur Hall Member of the Committee Zuzana Prokopcová Member of the Committee Members of the Audit Committee serve four-year terms and may be re-elected. The relationship between a member of the Audit Committee and the Bank is governed by a service contract agreed upon between the Bank and the respective member of the Audit Committee and further by applicable laws. There are no service contracts entered into between the Bank and the members of the Audit Committee providing benefits upon termination of their office or employment. Information about MICHAL PETRMAN is available in the section “Supervisory Board”. The service contract between Michal Petrman (as a member of the Audit Committee) and the Bank was entered into on 26 October 2017 and will terminate upon the termination of his office. Information about DENIS ARTHUR HALL is available in the section “Supervisory Board”. The service contract between Denis Arthur Hall (as a member 77 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 of the Audit Committee) and the Bank was entered into on 26 October 2017 and will terminate upon the termination of his office. ZUZANA PROKOPCOVÁ is a member of the Audit Committee of MONETA Money Bank (she is not a member of the Supervisory Board). Zuzana Prokopcová graduated from the University of Economics in Prague, Faculty of Finance and Accounting. She has extensive experience as an auditor in an international advisory company and in the management of large companies. She began her professional career at the international consulting company PricewaterhouseCoopers (PwC) in 1998, where she served as an auditor, focusing mainly on financial institutions. Subsequently, she held the same position for one year in Russia and two years in Kazakhstan, again within the framework of her work at PwC. She was recommended for her knowledge of financial reporting and IFRS; she is also a certified member of the Association of Chartered Certified Accountants (ACCA). In 2014, she became Vice-Chair of the Management Board and CFO of Czech Aeroholding, the leading company in the field of air transport in the Czech Republic, where she was responsible for treasury, accounting, tax, controlling, internal audit and risk management areas. She held the position of the Chair of the Supervisory Board of Czech Airlines Handling, a.s., Czech Airlines Technics, a.s., Realitní developerská, a.s., Sky Venture a.s., Whitelines Industries a.s., and B. aircraft, a.s. Apart from her position as a member of the Audit Committee of MONETA Money Bank, Mrs. Prokopcová is currently also the Vice-Chair of the Supervisory Commission of Czech Television and Chair of the Audit Committee of Kofola ČeskoSlovensko a.s. Since April 2020, she has also been a member of the Audit Committee of MONETA Stavební Spořitelna and, until its merger with the Bank in January 2021, a member of the Audit Committee of Wüstenrot hypoteční banka a.s. Since 2021, she has also been a member of the Supervisory Board (which also serves as the Audit Committee) of PPF Group N.V. and also Vice-Chair of the statutory body of the foundation Nadace MONETA Clementia. The current service contract between Mrs. Zuzana Prokopcová and the Bank was entered into on 20 December 2021 and will terminate upon the termination of her office. Except as stated above, none of the members of the Audit Committee has been a member of the administrative, management or supervisory bodies or partner of any company other than the Bank or partnership at any time in the previous five years. 4.4.2 Activity Report of the Audit Committee In 2023, the Audit Committee held six meetings and adopted two decisions outside the meeting through per rollam voting. The Audit Committee is responsible for conducting all its duties in accordance with the relevant law. Its members continued in 2023 to have the main areas of responsibility split as follows: Mr. Petrman is responsible for the internal and external audit, Mrs. Prokopcová is responsible for the financial reporting and controls, Mr. Hall is responsible for risk management. During 2023, all six meetings were attended by all three members of the Audit Committee. The Audit Committee’s activities primarily focused on the following five major areas: I. Internal Control System, Compliance and Risk Management Matters The Audit Committee discussed internal controls with Chief Finance Officer, Chief Risk Officer and the Director Compliance, in particular around financial reporting, risk and compliance matters. Any significant changes and/or issues relating to these matters were on the agenda of the Audit Committee. The Audit Committee also reviewed the Annual Report on the Evaluation of the Functionality and Efficiency of the Internal Control System prepared by the Internal Audit. The Audit Committee continues to oversee the effectiveness of internal controls and risk management, with a focus on financial reporting. II. Preparation of Annual Financial Statements The Audit Committee reviewed and assessed processes and controls relating to financial reporting and, in particular, to the preparation of the Bank’s annual separate and consolidated financial statements. The review of the annual financial statements included inquiries regarding changes to accounting policies, significant accounting estimates, compliance with accounting standards and major trends in financial results. Based on the above and the oversight of external audit activities (see below), the Audit Committee concluded that the annual separate and consolidated financial statements for the year ended 31 December 2022 were prepared in accordance with applicable laws and accounting standards. III. Selection of the External Statutory Auditor and Approval of Non-Audit Services Provided by the Statutory Auditor Based upon the proposal of the Supervisory Board and the recommendation of the Audit Committee, the General Meeting held on 25 April 2023 appointed the audit firm Deloitte Audit s.r.o. (“Deloitte”) as an 78 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 auditor to conduct the statutory audit of the Bank for the financial year 2023. In 2023,the Audit Committee reviewed and approved all requests for the performance of non-audit services by Deloitte. In its review, the Audit Committee focused on any potential threats to the statutory auditor’s independence. IV. Oversight of Internal Audit Activities The Audit Committee approved the internal audit plan and any changes in the plan during the year. A summary of key internal audit findings and remedial action plans was regularly presented to the Audit Committee. Implementation of the 2023 internal audit plans was regularly monitored by the Audit Committee. In December 2023, the Audit Committee approved the 2024 internal audit plan. The Audit Committee did not identify any material deficiencies with respect to the functioning and independence of the Bank’s internal audit function in the year 2023. V. Oversight of External Audit Activities The Audit Committee also monitored the process of the statutory audit of the Bank’s annual separate and consolidated financial statements for the year ended 31 December 2022, which were conducted by Deloitte. The Audit Committee discussed the audit report and the process of the annual statutory audit including unadjusted audit differences and other matters as specified in the agenda with the external auditor. The Audit Committee reviewed and acknowledged Deloitte’s 2022 audit report where Deloitte concluded that, in their opinion, the consolidated and separate financial statements give a true and fair view of the financial position of the Group and the Bank as at 31 December 2022, and of its financial performance and its cash flows for the year then ended in accordance with IFRS. The Audit Committee also received and reviewed the Additional Report to the Audit Committee for 2022 from Deloitte as the statutory auditor as required by EU Regulation No. 537/2014 of the European Parliament and the Council. The Audit Committee was satisfied with assuring the auditor’s independence and with the scope and execution of the statutory audit. The statutory audit contributed to the integrity of financial reporting primarily by challenging the assumptions used by management in the preparation of the financial statements. The Audit Committee confirms the appropriate risk focus of the auditor in the 2023 audit. The Audit Committee informed the Supervisory Board of the outcome of the 2022 statutory audit, the Audit Committee’s observations and the contribution of the statutory audit to the integrity of the Bank’s accounting and financial reporting system. VI. Conclusion In conclusion, the Audit Committee states that it has fulfilled all of its responsibilities as set forth by applicable Czech and EU law, the Bank’s Articles of Association, the Bank’s internal rules and policies and, where relevant, provided its recommendations to the Bank’s Supervisory Board. Within the scope of its responsibilities, the Audit Committee did not identify any substantial facts relating to the Bank and its activities of which the General Meeting should be informed. 4.5 MANAGEMENT BOARD 4.5.1 Management, Responsibilities and Structure of the Management Board The Management Board is the corporate body which manages the Bank’s business. The Management Board is charged with business management, including ensuring the proper keeping of the Bank’s books. The Management Board further guarantees the proper existence, timely evaluation and set up of the management and control system, and ensures the Bank is compliant with the law. The Management Board is responsible for the continuous functioning and effectiveness of the management and control system and creates conditions for the independent and objective performance of compliance related operations and of the internal audit. The Management Board ensures the establishment, maintenance and implementation of the management and control system to ensure the adequacy of information and communication in conducting the Bank’s operations. The Management Board shall decide upon all matters concerning the Bank unless they are assigned to the General Meeting, the Supervisory Board or the Audit Committee by law or by the Articles of Association. The Management Board consists of five members (individuals) who comply with the law for serving as a member of the Bank’s Management Board. They are elected for a four-year term by a majority of all Supervisory Board members at the recommendation 79 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 of the Nomination Committee. The Nomination Committee ensures the trustworthiness, adequate professional qualifications, and experience of the members of the Management Board. The professional qualifications, trustworthiness, and experience of the members of the Bank’s Management Board are assessed by the Czech National Bank. 4.5.2 Duties and Responsibilities of the Management Board under the Czech Law The Management Board is responsible for the Bank’s management and conducts the business activities of the Bank. The Management Board represents the Bank in all matters. The Management Board shall decide on all the Bank’s matters, save for matters reserved for other Bank’s bodies by applicable laws or by the Articles of Association. The Management Board shall, inter alia: a) ensure proper maintenance of the Bank’s book-keeping; b) decide on an increase in the registered share capital, provided that the Management Board has been duly authorised by the General Meeting; c) decide on establishing and dissolving the Bank’s funds and reserves, on the rules relating to such funds and reserves and on the use of resources from such funds and reserves, unless stated otherwise by applicable laws; d) have discretion to set up any committees and other bodies of the Management Board (hereafter the “Management Board Bodies”) and adopt their statutes; e) elect and recall members of the Management Board Bodies; f) exercise rights of the Bank as a shareholder in the Bank’s subsidiaries; g) exercise employer’s rights; h) convene a General Meeting and implement its resolutions; i) prepare and submit to the General Meeting the following documents: i. annual, extraordinary or consolidated and, if required, interim financial statements; ii. proposal for a distribution of profit or for a compensation of loss; iii. affiliated parties report; iv. report on the Bank’s business and its assets; v. summary report pursuant to Section 118 sub. 9 of the Czech Capital Markets Act; vi. proposals to amend the Articles of Association; vii. proposals to increase or decrease the registered share capital; viii. proposals to issue preference or convertible bonds; ix. other documents and proposals, if required by applicable laws or by the Articles of Association; j) approve and issue the election order setting forth the method and rules for elections and recalling of members of the Supervisory Board elected by the Bank’s employees; k) organise elections and recalling of members of the Supervisory Board elected by the Bank’s employees; l) exercise all other powers, rights and duties vested to the Management Board by applicable laws, including powers, rights and duties of a managing body under CNB Decree No. 163/2014 Coll. The Management Board informs the Supervisory Board on the following matters: a) approval or modification of the Bank’s strategy, business plan, annual budget and/or organisation rules; b) issue or modification of any material terms or approval of pre-payment of any bonds or any other debt securities (other than deposit taking), unless: i. issue of bonds is reserved by applicable laws for the General Meeting; and ii. issue or modification of any material terms or approval of pre-payment of any bonds or any other debt securities are included in the approved Bank’s business plan and/or annual budget; c) entering into or modification of any material terms of any agreements concerning loan, credit, guarantee or any other instruments incurring to the Bank financial indebtedness (other than deposit taking) in the aggregate nominal value in excess of 5% (five per cent) of the Bank’s consolidated equity as recorded in the latest available consolidated quarterly financial statements of the Bank (hereafter the “Equity”), unless included in the approved Bank’s business plan and/or annual budget; d) entering into or modification of any material terms of any loan, credit or guarantee agreements with persons with a special relationship to the Bank pursuant to Act No. 21/1992 Coll., on banks, as amended (hereafter the “Act on Banks”); e) entering into or modification of any material terms of any agreements concerning loan, credit or any other financial products with the Bank’s receivables in the aggregate nominal value in excess of 5% (five per cent) of the Equity, unless included in the approved Bank’s business plan and/or annual budget; f) approval of any corporate transformation of the Bank, unless approval of such corporate transformation is reserved by applicable laws for the General Meeting; g) establishment, corporate transformation, dissolution or liquidation of, or acquisition, disposition or encumbrance of any ownership interest in, or increase in the registered share capital of any Bank’s subsidiary, unless included in the approved Bank’s business plan and/or annual budget; 80 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 h) approval or modification or cancellation of any investment with the acquisition value in excess of 5% (five per cent.) of the Equity, unless included in the approved Bank’s business plan and/or annual budget; i) disposition of any non-performing loan, credit or other financial products receivables with the aggregate book value in excess of 5% (five per cent.) of the Equity, unless included in the approved Bank’s business plan and/or annual budget; j) acquisition, disposition or encumbrance of any other assets of the Bank with the book value in excess of 5% (five per cent.) of the Equity, if outside the Bank’s ordinary course of business and unless included in the approved Bank’s business plan and/or annual budget; and k) approval of any compensation to members of the Bank’s staff identified in the Bank’s internal rules. The Management Board makes decisions by a simple majority of votes cast at the meeting. A quorum is present when a simple majority of members of the Management Board is present at a meeting. Members of the Management Board may participate in Management Board meetings by telephone or through another technical device. When necessary in matters of urgency, a decision may be made by the Management Board without holding a meeting. The Management Board has the discretion to invite members of other Bank’s corporate bodies, employees or other persons to its meetings. The Management Board consists of five (5) members. No member of the Management Board may be a member of the Supervisory Board or the Audit Committee. Members of the Management Board are elected and recalled by a decision of the Supervisory Board. Members of the Management Board serve four (4) year terms and may be re-elected. Members of the Management Board elect and recall the Chairman and Vice-Chairman of the Management Board from among members of the Management Board. The relationship between a member of the Management Board and the Bank is governed by a service contract concluded between the Bank and the respective member of the Management Board and further by applicable laws. A member of the Management Board may resign from the Management Board through a written notification delivered to the Chairman of the Supervisory Board or through a written notification addressed to the Chairman of the Supervisory Board and delivered to the Bank’s registered office. A member of the Management Board may not resign at an improper time for the Bank. The Bank is represented by two Management Board members, one of whom must be the Chairman or Vice-Chairman. 4.5.3 Members of the Management Board As at 31 December 2023, the following persons were members of the Management Board: Name Role Member position held from Member position held to Tomáš Spurný Chairman of the Management Board 1 October 2015 (Chairman since 1 October 2015) 3 October 2027 Carl Normann Vökt Vice-Chairman of the Management Board 25 January 2013 (Vice-Chairman since 1 March 2019) 27 January 2025 Jan Novotný Member of the Management Board 16 December 2013 18 December 2025 Jan Friček Member of the Management Board 1 March 2019 2 March 2027 Klára Starková Member of the Management Board 1 June 2021 1 June 2025 Following a recommendation from the Nomination Committee, the Bank’s Supervisory Board approved the reappointment of Mr. Tomáš Spurný as a member of the Bank's Management Board for a further four years until 3 October 2027. The Bank’s Management Board subsequently re-elected him as its Chairman. Except as stated below, none of the members of the Management Board has been a member of the administrative, management or supervisory bodies or partner of any company or partnership other than the Bank at any time in the previous five years. TOMÁŠ SPURNÝ holds a bachelor’s degree from New York University and an MBA from Columbia Business School. He started his career at McKinsey & Company and has extensive experience from managerial positions in the banking and financial sector. He served as CEO and Chairman of the Management Board of Banca Comercială Română, a Romanian subsidiary of Erste Group in Romania. Previously he served as CEO at major banks in the CEE region, including CIB in Hungary, VUB in Slovakia and held the CFO position at Komerční banka. Mr. Spurný also held CEO positions at PPF and CCS. 81 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 On 1 October 2015, he was appointed CEO and Chairman of the Management Board of the Bank for four years. Mr. Spurný has been re-elected for another four-year term from 2 October 2019 and again for a four-year term from 3 October 2023 until 3 October 2027. Both decisions were adopted after the confirmation of the Czech National Bank, which declared Mr. Spurný fit and proper for the performance of his function as Chairman of the Management Board. As Chief Executive Officer, he actively fulfils his duties, which are set by applicable law, internal regulations of the Bank and decisions by the General Meeting of the Bank. Mr. Spurný has also been a member of the Supervisory Boards of MONETA Leasing since November 2015 and MONETA Auto since May 2016. He was also a Managing Director of GE Capital (Czech) Holdings, s.r.o. between October 2015 and May 2016. Since April 2021, he has been Chairman of the Supervisory Board of the foundation Nadace MONETA Clementia. The current service contract between Mr. Spurný and the Bank became effective on 3 October 2023 and will terminate upon the termination of his office. The service contract provides for the following benefits upon termination of Mr. Spurný’s office: In the period of up to twelve months following the termination of his office, Mr. Spurný is entitled to receive monthly in arrears a salary continuance equal to his monthly pre-termination base salary, subject to compliance by Mr. Spurný with non-compete obligation and other terms and conditions of his service contract. CARL NORMANN VÖKT holds a university degree with a major in Finance and Marketing gained at the Karl Franzens University in Graz, Austria. His career started in 1990 in Vienna in the area of Project and Structured Finance at Creditanstalt, followed by a short secondment to the International Finance Corporation in Washington. From 1996, he worked in Poland. During his more than 15-year stay in Poland, Mr. Vökt held different senior positions in Corporate Banking and Risk Management. The last position he held in Poland was Chief Risk Officer and Deputy President of the Management Board at Bank BPH in Warsaw. Since November 2012, Mr. Vökt has held the position of Chief Risk Officer at MONETA Money Bank. On 25 January 2013, he was appointed as a member of the Management Board of the Bank for four years and reappointed with effect from 26 January 2017 for a further four years. On 1 March 2019, he was appointed as Vice-Chairman of the Management Board of the Bank. Following recommendations from the Nomination Committee, the function term of Mr. Vökt in the Management Board of the Bank was prolonged for another four-year term until 27 January 2025. As Chief Risk Officer, he is responsible for the overall direction of the Risk function of the Group. He leads the underwriting, portfolio management and risk management functions and also provides leadership to executive and senior risk managers. He is accountable for enabling the efficient and effective governance of significant risks, and related opportunities. He has also been a member of the Supervisory Boards of MONETA Leasing since November 2015 and MONETA Auto since May 2016. Since April 2020, he has been Chairman of the Supervisory Board of MONETA Stavební Spořitelna, and until its merger with the Bank in January 2021, he was also Chairman of the Supervisory Board of Wüstenrot hypoteční banka a.s. Since April 2021, he has been Vice-Chairman of the Supervisory Board of the foundation Nadace MONETA Clementia. The current service contract between Mr. Vökt and the Bank became effective on 27 January 2021 and will terminate upon the termination of his office. The service contract provides for the following benefits upon termination of Mr. Vökt’s office: In the period of up to twelve months following the termination of his office, Mr. Vökt is entitled to receive monthly in arrears a salary continuance equal to his monthly pre-termination base salary, subject to compliance by Mr. Vökt with his non-compete obligation and other terms and conditions of his service contract. JAN NOVOTNÝ has worked in several positions at the Bank since joining in 2003. He began as a commercial banking analyst and later became the data team leader. Mr. Novotný also led product development and, ultimately, product management. He left in 2007 to gain more experience within the GE Capital Group in Singapore, where he was product manager for the SME segment for the Southeast Asia Region (Singapore, the Philippines, Thailand and China). He returned to the Czech Republic the following year, working as the Head of the Micro and Small Enterprises Segment and later as the Manager of the entire SME segment of the Bank. Mr. Novotný was appointed Chief Commercial Banking Officer in May 2013 and on 16 December 2013 as a member of the Management Board for four years. On 10 August 2017, his service contract was extended for an additional four years. Following recommendations from the Nomination Committee, the function term of Mr. Novotný in the Management Board of the Bank was extended for another four-year term until 18 December 2025. As Chief Commercial Banking Officer, he is responsible for leading and managing all aspects of the client 82 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 relationship and portfolio performance. His mandate is to manage and increase assets and accounts, profitably execute growth initiatives, introduce additional products, manage assigned resources and enhance client relationships in order to retain and grow the business. He has also been a member of the Supervisory Boards of MONETA Leasing since November 2015 and MONETA Auto since May 2016. Since April 2020, he has been Vice-Chairman of the Supervisory Board of MONETA Stavební Spořitelna, and until its merger with the Bank in January 2021, he was also Vice-Chairman of the Supervisory Board of Wüstenrot hypoteční banka a.s. The current service contract between Mr. Novotný and the Bank became effective on 18 September 2021 and will terminate upon the termination of his office. The service contract provides for the following benefits upon termination of Mr. Novotný’s office: In the period of up to twelve months following the termination of his office, Mr. Novotný is entitled to receive monthly in arrears a salary continuance equal to his monthly pre-termination base salary, subject to compliance by Mr. Novotný with his non-compete obligation and other terms and conditions of his service contract. JAN FRIČEK is a graduate of the University of Economics in Prague, Faculty of Finance and Accounting, he is also a Fellow Member of the Association of Chartered Certified Accountants (FCCA). Prior to joining MONETA Money Bank, between the years 2004–2009, he worked as an auditor with Deloitte. Jan Friček has been at MONETA Money Bank, a.s. since 2009, during which time he has held a number of senior positions within the Finance division. In particular, he held the position of a Financial Planning & Analysis department Manager and, prior to that, the position of a Technical Controller. During the years 2016 and 2017, he became a managing director and Chief Financial Officer of MONETA Leasing, s.r.o., and between 2018 and 2019, he also served as Chief Financial Officer of MONETA Auto, s.r.o. In March 2019, he was appointed Chief Financial Officer and a member of the Management Board of MONETA Money Bank, a.s. for four years. In December 2022, following recommendations from the Nomination Committee, the function term of Mr. Friček in the Management Board of the Bank was extended for another four-year term until 2 March 2027. As Chief Financial Officer, he is mainly responsible for business performance, financial and regulatory reporting, investor relations, financial planning, capital and liquidity management, operational accounting and procurement. Since March 2019, he has been a member of the Supervisory Board of MONETA Leasing and MONETA Auto. Since April 2020, he has been a member of the Supervisory Board and Audit Committee of MONETA Stavební Spořitelna, and until its merger with the Bank in January 2021, he was also a member of the Supervisory Board of Wüstenrot hypoteční banka a.s. Since April 2021, he has been a member of the Supervisory Board of the foundation Nadace MONETA Clementia. The current service contract between Jan Friček and the Bank became effective on 2 March 2023 and will terminate upon the termination of his office. The service contract provides for the following benefits upon termination of his office: In the period of up to twelve months following the termination of his office, he is entitled to receive monthly in arrears a salary continuance equal to his monthly pre-termination base salary, subject to compliance with his non-compete obligation and other terms and conditions of his service contract. KLÁRA STARKOVÁ graduated from Wirtschaftsuniversität in Vienna and Rochester Institute of Technology in the USA. She started her career at McKinsey and Company, where she worked for almost 11 years. Between 2007 and 2016, she was a member of the Executive Committee with responsibility for IT and Operations, and she also served as a member of the Executive Committee for Poland and Slovakia at Generali CEE and Generali PPF Holding, respectively. Here she was also responsible for strategic human resources management, the legal division and internal communications, as well as competence centres. Klára Starková also has extensive experience as a director and senior consultant at Accenture, where she has been working since 2017 and was responsible for consulting for major financial institutions in the Central European region. Since June 2021, Klára Starková has held the position of Chief Operating Officer and is a member of the Management Board of MONETA Money Bank, a.s. As Chief Operating Officer, she is responsible for IT and Shared Services. As such, she is leading the IT, operations and strategic change areas. The service contract between Klára Starková and the Bank became effective on 1 June 2021 and will terminate upon the termination of her office. The service contract provides for the following benefits upon termination of her office: In the period of up to nine months following the termination of her office, she is entitled to receive monthly in arrears a salary continuance equal to her monthly pre-termination base salary, subject to compliance with her non-compete obligation and other terms and conditions of her service contract. 83 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 4.5.4 Activity Report of the Management Board During 2023, the main tasks of the Management Board were managing business activities across both the retail and commercial franchise and delivery of the Group’s strategic objectives. The Management Board prepared and discussed the separate and consolidated financial statements of the Bank and the Group for the financial year 2022 which were prepared according to IFRS. The Management Board submitted the separate and consolidated financial statements of the Bank for the financial year 2022 for review to the Supervisory Board and then to the Annual General Meeting held on 25 April 2023, where they were approved. The Management Board also submitted a proposal regarding 2022 net profit distribution to the Supervisory Board for review, which was subsequently approved at the same Annual General Meeting. At the Annual General Meeting, the Management Board presented their report on the Bank’s business activities and the Supervisory Board’s proposal for the appointment of the external statutory auditor. The Management Board also prepared and approved the Bank’s Annual Financial Report for the financial year 2022. During 2023, the Management Board regularly reviewed and published consolidated quarterly financial results. In 2023, the Management Board held 48 meetings in total and adopted four decisions outside the meeting through per rollam voting. A quorum is present when a simple majority of members of the Management Board are present at a meeting. Overview of the Management Board meetings attendance Member of the Management Board Number of Management Board meetings attended in 2023 Tomáš Spurný 92% Carl Normann Vökt 90% Jan Novotný 88% Jan Friček 94% Klára Starková 90% In 2023, the Management Board regularly evaluated the Bank’s capital adequacy and liquidity and approved the Internal Capital Adequacy Assessment Process (“ICAAP”) and Internal Liquidity Adequacy Assessment Process (“ILAAP”) reports which were submitted to the Czech National Bank in accordance with CNB Decree No. 163/2014 Coll. The Management Board also discussed the capital management policy and reports on the market situation during each quarter of 2023. The Management Board also allocated resources to implement regulatory expectations in the area of resolution planning. During the implementation, the Management Board regularly reviewed the implementation status and documents, which were submitted to the CNB. As part of its activities, the Management Board regularly assessed all risks to which the Bank is exposed. In the field of risk management, the Management Board discussed reports on the developments in market and capital risks and developments in lending on capital markets. At the same time, the Management Board discussed and approved limits on market risks and approved certain large loans provided to clients. The Management Board approved competencies in providing the loans and dealt with issues of risk management supervision across the entire Group. In the operational risks area, the Management Board discussed regular quarterly reports containing information on the results of the first level controls. Compliance risks were evaluated by the Management Board both in the Annual Report for the financial year 2022 and in the quarterly reports on the development of these risks. At the same time, the Management Board approved the 2022 annual evaluation report on the Bank’s system against money laundering and the financing of terrorism. The Management Board identified those employees whose professional activities have a material impact on the Bank’s risk profile (“Material Risk Takers”). In 2023, the Management Board considered 32 positions as the material risk takers (see Chapter 4.7. Material Risk Takers). In the area of Internal Audit, the Management Board discussed a number of documents and was regularly informed of all actions carried out by Internal Audit. The management of remedial measures and their proper implementation was fully addressed by the Management Board. The Board monitored the status of individual projects relating to IT and digital strategy. The Management Board evaluated the overall functioning and efficiency of the Bank’s management and control system, which is functional and effective. Furthermore, the Management Board addressed reports on the handling of complaints and claims (including complaints sent to the Bank’s Ombudsman). The Management Board also discussed the Bank’s strategic direction and business plan for the years 2024–2028. The Management Board discussed all issues falling within its competence as the sole shareholder performing the duties of the General Meeting in the Group’s 84 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 subsidiaries, such as approving financial statements, the election and remuneration of members of company bodies, amendments to the articles of association, the appointment of auditors and other matters. During 2023, the Management Board was in regular contact with investors and conducted in total 67 hours of group or individual meetings or phone calls where they met with 49 investors. MONETA also participated in six conferences organised by renowned banks and investment companies. In 2023, the committees established by the Management Board held in total 106 meetings which were attended by individual members of the Management Board. Such committees were established to ensure efficient management and their detailed description and structure are described in Chapter 4.11.2 below. As part of its activities, the Management Board decided on many other matters related to the organisational structure, approving internal directives within various areas or granting powers of attorney. Great attention was further devoted to corporate governance issues in the context of new developments in Czech legislation and in context of corporate governance standards. The Management Board evaluated its activities in 2023 and submitted its report on those activities for this period to the Supervisory Board. 4.6 KEY EXECUTIVE MANAGERS Chief Products & Marketing Officer, Chief Retail Banking Officer, Chief Shared Services Officer and Chief Digital Officer are the Bank’s Key Executive Managers. They provide strategic recommendations to the Management Board on retail products, marketing and retail franchise development and, in accordance with internal governance policies of the Bank, have the power to make certain managerial decisions that may affect future development and the commercial strategy of the Bank, however not the overall business management in the meaning of section 121m (1) of Capital Markets Act. Therefore, they are not persons in the meaning of section 121m (1) of Capital Markets Act. Chief Products & Marketing Officer manages and executes retail product and digital strategies and aligns product development strategy with the wider business objectives and goals of the Bank. Chief Retail Banking Officer participates in key decisions related to strategic initiatives and operational execution in the retail franchise and is responsible for the alignment of the retail client relationship and portfolio performance in the retail franchise. Chief Shared Services Officer ensures the implementation of foreign and domestic non-cash payments, settlement of interbank Treasury operations, ensures operation of ATM network, ensures rendering of banking information to law enforcement bodies, the courts, public authorities, executors, notaries, insolvency trustees, manages the car fleet of the Bank and mobile phones, provides operation and technical management of the Bank's headquarters, sets rules and processes when handling documents, ensures their storage and liquidation. Chief Digital Officer is responsible for defining the strategy for the development of digital platforms and their implementation and oversees all activities related to the Bank’s digital platforms. Name Current role In current role since Employed since Andrew Gerber Chief Products & Marketing Officer 1 July 2016 1 July 2016 Aleš Sloupenský Chief Retail Banking Officer 1 April 2014 1 April 2014 Jiří Huml Chief Shared Services Officer 1 February 2017 15 August 2016 Jakub Valenta Chief Digital Officer 1 May 2023 1 May 2020 None of the aforementioned Key Executive Managers has been a member of the administrative, management or supervisory bodies or partner of any company or partnership at any time during the previous five years excluding companies within the Group. ANDREW GERBER holds a bachelor’s degree from Durham University in the United Kingdom. Mr. Gerber started his career at Bain and Company, where he worked in Australia, Sweden and the UK. He entered banking in 2002, working for several British institutions, including the Royal Bank of Scotland, where he was responsible for retail lending (incl. mortgages) and insurance activities. Before joining MONETA Money Bank, Mr. Gerber spent five years in Banca Comercială Română, a Romanian subsidiary of Erste Group, as the Executive Director for retail product and segment management. Since July 2016, he has held the position of Chief Products & Marketing Officer at MONETA Money 85 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 Bank. In this role, Mr. Gerber is responsible for the strategy and performance of the Bank’s retail franchise products, including product development, pricing and financial performance. Mr. Gerber also leads the Bank’s digital transformation and customer analytics/CRM development. Since June 2020, he has also served as Chairman of the Management Board of the MONETA Stavební Spořitelna, and until its merger with the Bank in January 2021, he also served as Chairman of the Management Board of Wüstenrot hypoteční banka a.s. The employment contract between Mr. Gerber and the Bank was entered into on 1 July 2016 for an indefinite period. The employment contract provides for the following benefits upon termination of Mr. Gerber’s employment: The employee is entitled to an extraordinary bonus in the amount of six times the basic salary of the employee. ALEŠ SLOUPENSKÝ studied marketing and management at the Faculty of Economics of the University of West Bohemia in Plzeň and has an MBA degree from Nottingham Trent University in the United Kingdom. During his career, he has been primarily focused on retail banking. A significant portion of his career was spent at Česká spořitelna, where for 12 years he was responsible for the management and development of the retail distribution network. He also held management positions at Komerční banka and Bank Austria Creditanstalt Czech Republic. Mr. Sloupenský gained foreign experience in Banca Comercială Română, where he cooperated to create a successful retail development strategy. Since April 2014, he has held the position of Chief Retail Banking Officer of the Group. As Chief Retail Banking Officer, Mr. Sloupenský participates in the key decisions related to strategic initiatives, operating model and operational execution in the retail division of the Bank. He is also responsible for the alignment of the client relationship and portfolio performance in retail and the effective growth of the assigned portfolio to increase assets and accounts. From April 2020 until September 2023 Mr. Sloupenský was a member of the Management Board of the MONETA Stavební Spořitelna, and until its merger with the Bank in January 2021, he also served as a member of the Management Board of Wüstenrot hypoteční banka a.s. The employment contract between Mr. Sloupenský and the Bank was entered into on 1 April 2014 and was entered into for an indefinite period. The employment contract does not provide any specific benefits upon termination of Mr. Sloupenský’s employment. JIŘÍ HUML is working in Financial Services since 1992, mainly in banking and insurance. Since 1999, he has held several executive positions in operations, IT, product management and sales in the Czech Republic, Austria and Slovakia. He has also held non-executive positions in other financial institutions (asset management, insurance and building society) and in various charities. Mr. Huml joined MONETA in August 2016 as a Senior Project Manager for Rebranding. Later, he assumed responsibility for Facility Management, Security, Business Continuity, and Central Procurement. In February 2017, Mr. Huml was promoted to Chief Shared Services Officer, thus also acquiring responsibility for Retail Back-Office, Commercial Back Office, Payments, and Business Process Support departments. From May 2020 until September 2023, Mr. Huml was a member of the Management Board of the MONETA Stavební Spořitelna responsible for Operations and IT. Until its merger with the Bank in January 2021, he also served as a member of the Management Board of Wüstenrot hypoteční banka a.s. The employment contract between Mr. Huml and the Bank was entered into on 15 August 2016 and was later extended for an indefinite period. The employment contract provides for the following benefits upon termination of Mr. Huml´s employment contract: Mr. Huml is entitled to an extraordinary payment in the amount of up to six months remuneration in case of the termination of the performance of the employment. Such extraordinary remuneration will be paid to Mr. Huml in six individual payments after the termination of the employment. JAKUB VALENTA is a graduate of Lappeenranta University of Technology in Finland. He has been working in the IT field for more than 22 years. He started his career at GE Healthcare Finland in a team developing software for anaesthesia care. Subsequently, he worked for 13 years at Accenture, a consulting company, where his primary focus was on the development of IT systems in the financial services sector in the Central European region. He joined MONETA in 2020 after having cooperated as a contractor on the successful implementation of a key Card Management system solution. He first held the role of Head of IT Infrastructure and, from 2021, also Head of Data Management. Since May 2023, he has been in the role of Chief Digital Officer with the aim of further developing and expanding MONETA’s digital platforms. The employment contract between Mr. Valenta and the Bank was entered into on 1 May 2020 and was entered into for an indefinite period. The employment contract does not provide any specific benefits upon termination of Mr. Valenta’s employment. 86 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 4.7 MATERIAL RISK TAKERS Material Risk Takers are employees with significant impact on the risk profile of MONETA Money Bank, a.s. on a consolidated basis in line with the requirements of European legislation and Czech law. Besides members of the Management and Supervisory Board, Material Risk Takers are statutory bodies and/or members of statutory bodies of companies within the Group and other executive employees with managerial responsibility within business, control and supporting functions. In 2023, the following functions have been identified as Material Risk Takers besides the Management and Supervisory Boards: • Key Executive Managers (please refer to Chapter 4.6); • Statutory bodies of MONETA Auto, s.r.o., and MONETA Stavební Spořitelna, a.s.; • Staff members responsible for control functions (Director Internal Audit; Director Compliance); • Staff members having managerial responsibility for critical support functions (Director Legal; Director Human Resources; Senior Manager Accounting, Taxes & IFRS Reporting; Director IT Infrastructure & Enterprise Services; Director Core Banking Solutions; Senior Manager Cyber Security); • Members of committees established by the Management Board (Senior Manager Financial Planning and Business Performance; Senior Manager Treasury; Senior Manager Enterprise Risk Management); • Other staff members significantly influencing credit risk exposures (Senior Manager Commercial Risk; Senior Manager Retail & Small Business Risk; Senior Manager Collections; Senior Manager AML & Anti-Fraud & Collateral Management; Senior manager Planning & Reserving & Models); and • Upon the approval of the Management Board, other staff members managing critical processes with significant impact on MONETA (Senior Manager Real Estate; Director Marketing & Online Distribution, Senior Manager Small Business; Senior Manager Term Loans; Senior Manager Structured Finance, Senior Manager Commercial Business Network). Persons considered as Material Risk Takers are identified by evaluating both quantitative and qualitative criteria prepared by Human Resources Department. The Management Board approves the Material Risk Takers group based on assessment of these criteria. Process of the identification is performed on the regular basis, at least annually and is subject to the internal audit review. The list can be extended on need to be basis. The list of persons 1 Full text of the adopted Remuneration Policy is available on MONETA‘s web pages: https://investors.moneta.cz/documents/12270853/20121822/mmb-remuneration-policy-december-2021-en.pdf. included in the Material Risk Takers group is regularly reviewed, at least once a year. Based on the proposal of the Management Board, it is reviewed by the Remuneration Committee and definitively approved by the Supervisory Board. In 2023, the list of persons was extended by three new positions, four positions were removed from the list, total number was 32 positions. 4.7.1 Remuneration of Material Risk Takers Remuneration of Material Risk Takers is governed by the Remuneration Policy of Material Risk Takers in the MONETA Group approved by the Management Board. Due to that, their remuneration must follow the long-term sustainable remuneration principles to avoid unnecessary risk-taking. This means but is not limited to: balance pay mix between fixed and variable remuneration, deferred pay-out of variable remuneration and application of malus and clawback clauses. All Material Risk Takers participate in the Executive Variable Incentive Plan (“EVIP”) complied with regulatory requirements. 4.8 REMUNERATION AND BENEFITS OF MEMBERS OF THE SUPERVISORY BOARD,THE MANAGEMENTBOARD AND KEY EXECUTIVE MANAGERS 4.8.1 Remuneration Policy Applied to the Supervisory and Management Boards 4.8.1.1 Legal Framework Pursuant to Section 121k and following of the Capital Markets Act, which was introduced to Czech law in order to implement new provisions inserted to Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long- term shareholder engagement, the Bank is obliged to prepare a policy governing remuneration of Management and Supervisory Boards members (the “Remuneration Policy”) and submit the Remuneration Policy to the General Meeting for its approval. Against this backdrop, the Management Board submitted a draft Remuneration Policy to the General Meeting of the Bank held on 2 September 2020, at which the Remuneration Policy was approved in submitted wording by the shareholders with effects from the same date. 1 The Management Board is required to submit the Remuneration Policy to the General Meeting at each substantial change or at least once every four years. 87 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 4.8.1.2 Key Principles The Remuneration Policy is based on the following principles: • Regulatory Compliance and Transparency. The remuneration of the Management Board members and the Supervisory Board members shall respect well-structured corporate governance, regulatory requirements, transparency and shareholders’ control over the remuneration. • Shareholder Alignment. Shareholder value interest shall be reflected through the linking of the variable rewards and promotion of the share ownership to the fulfilment of specific KPIs (Key Performance Indicators) goals as an integral part of the Management Board members’ remuneration. • Pay for Performance. In order to ensure attraction, retention and motivation of top performers and sound management of MONETA Money Bank, the Management Board members’ performance shall be measured against various qualitative and quantitative metrics both on the internal (achievement of individual, department and/or Group goals) and external (shareholders’ return, etc.) levels. • Internal and External Equity. The Remuneration Policy reflects internal equity requirements and prudent risk management of the Group, based on organisational level, individual responsibilities, long-term performance and non-discrimination, and utilises external market benchmarks. The Remuneration Policy accordingly takes into account the pay and employment conditions of the Group’s employees as a whole through an observance of market competitive and fair rates of pay and benefits while ensuring effective dedication, qualification and responsibility of each individual. • Effective Risk Management. MONETA Money Bank’s remuneration structures focus on ensuring sound and effective risk management through a thorough governance structure for setting, approving, and communicating performance KPIs 2 Does not include the remuneration paid to Mr. Petrman and Mr. Hall for performance of their office in the Audit Committee. Does not include the remuneration paid to all three members of the Supervisory Board elected by employees. Their annual remuneration for performing their jobs as employees was higher than the annual remuneration for performing the function as the member of the Supervisory Board stipulated by the internal regulation. In such cases, the performance of the office of the member of the Supervisory Board is without any entitlement to remuneration for the performance of the office. and delegating them across the employee group; alignment with the Group’s values, business strategies and long-term objectives; ensuring that the total remuneration is market competitive and the total bonus pool does not undermine or endanger the Group’s capital base, by including the policy and incentive structures in the capital and liquidity planning and setting processes; and ensuring compliance at the Group, department, and individual levels in the setting of the KPIs and approving and evaluating actual performance. The above principles reflect MONETA’s long-term strategy. The general rules and principles of remuneration of members of the Management Board and the Supervisory Board are set out in the Remuneration Policy. Detailed structure of targets and remuneration paid and granted is part of the Remuneration Report for 2023. Both documents are available on MONETA’s investor website https:// investors.moneta.cz/. 4.8.2 Remuneration and Benefits of the Supervisory Board Members in 2023 For performance of their office in the Supervisory Board and the committees established by the Supervisory Board, the Supervisory Board members are rewarded with fixed remuneration, paid monthly, in arrears. No variable remuneration (e.g., annual bonus) is awarded by the Bank or other member of the Group to the Supervisory Board members. The table below sets out the total remuneration received by the Supervisory Board members in the year 2023 for performance of their office in the Supervisory Board and the committees established by the Supervisory Board: Item Amount 2 (thousands CZK) Total remuneration (fixed part) 11,563 Benefits - Total 11,563 88 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 Remuneration of the Supervisory Board and committees established by the Supervisory Board follows the internal regulation approved by the General Meeting held on 26 October 2017: Position Annual Remuneration 3 (EUR) Supervisory Board Chairman Vice-Chairman Member 100,000 70,000 48,000 Risk Committee Chairman Member 17,000 7,000 Remuneration Committee Chairman Member 16,000 7,000 Nomination Committee Chairman Member 16,000 7,000 4.8.3 Remuneration of the Audit Committee Members in 2023 For performance of their office in the Audit Committees, the Audit Committee members are rewarded with: • fixed remuneration, paid monthly in arrears; and • compensation of travel costs, if an Audit Committee member travels in connection with performance of his/her function. No variable remuneration (e.g., annual bonus) is awarded by the Bank or other member of the Group to the Audit Committee members. The table below sets out the total remuneration paid to the Audit Committee members in the year 2023 for performance of their office in the Audit Committee: Item Amount 4 (in thousands CZK) Total remuneration (fixed part) 1,075 Total 1,075 3 Remuneration of the Supervisory Board members is fixed in CZK using the EUR/CZK exchange rate announced by the CNB as at 26 October 2017. If the annual remuneration of the members of the Supervisory Board elected by the employees for performing his/her job as employee is the same, or higher than the annual remuneration for performing the function of the member of the Supervisory Board stipulated by the internal regulation than the performance of this function of the member of the Supervisory Board is without entitlement to remuneration. 4 Does not include the remuneration paid to Mr. Petrman and Mr. Hall for performance of their office in the Supervisory Board or Nomination/Remuneration Committee. 5 Remuneration of the Audit Committee members is fixed in CZK using the EUR/CZK exchange rate announced by the Czech National Bank as at 26 October 2017. The internal regulation concerning the remuneration of the Audit Committee was approved by the General Meeting held on 26 October 2017, as follows: Position Annual Remuneration 5 (EUR) Chairman 19,000 Member (within the Supervisory Board) 8,000 Member (outside the Supervisory Board) 15,000 4.8.4 Remuneration and Benefits Awarded to and Received by the Management Board Members in 2023 The table below sets out the total remuneration and benefits awarded to or received by the Management Board members in the year 2023: Item Amount (in thousand CZK) Remuneration for the year 2023 Fixed remuneration 55,297 Variable remuneration recognised and received in cash - Variable remuneration recognised with payment deferred until 2024–2028 31,805 Benefits 5,484 Total remuneration for 2023 92,585 Variable remuneration received in 2023 in cash and related to performance 2018–2022 20,494 4.8.5 Remuneration and Benefits Awarded to and Received by Key Executive Managers in 2023 The table below sets out the total remuneration and benefits awarded to or received by Key Executive Managers in the year 2023: Item Amount (ín thousand CZK) Remuneration for the year 2023 Fixed remuneration 21,716 Variable remuneration recognised and received in cash - Variable remuneration recognised with payment deferred until 2024–2028 8,515 Benefits 2,453 Total remuneration for 2023 32,654 Variable remuneration received in 2023 in cash and related to performance 2018–2022 6,221 89 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 4.9 SHARES AND SHARE OPTIONS HELD BY THE SUPERVISORY BOARD,THE MANAGEMENT BOARD,THE AUDIT COMMITTEE MEMBERS AND KEY EXECUTIVEMANAGERS The following table provides information on the number of shares issued by the Bank and share options relating to the Bank shares which were as at 31 December 2023 held by members of the Management Board, the Supervisory Board, Key Executive Management Members and the Audit Committee and their close persons: Total shares Share options Management Board Members 388,261 - Supervisory Board Members 115,852 - Key Executive Management Members - - Audit Committee Members 6 15,610 - 4.10 OTHER INFORMATION REGARDING THE MEMBERS OF THE MANAGEMENT BOARD,THE SUPERVISORY BOARD,THE AUDIT COMMITTEE AND KEY EXECUTIVE MANAGERS In the last five years, no member of the Management Board, the Supervisory Board and the Audit Committee, and no Key Executive Manager has been: • convicted in relation to any (fraudulent) offence; • subject to any official public incrimination and/ or sanctions by statutory or regulatory authorities (including designated professional bodies); • disqualified by a court from acting as a member of the administrative, management or supervisory bodies of any issuer of securities or from acting in the management or conduct of the affairs of any issuer of securities; and • associated with any bankruptcies, receiverships or liquidations, when acting in his/her capacity as a member of the administrative, management or supervisory body or as a senior manager. There are no conflicts of interest between the duties of members of the Management Board, the Supervisory Board and the Audit Committee and Key Executive Managers and their private interests or other duties. 6 Including shareholding of members who are also members of the Supervisory Board. 4.11 COMMITTEES ESTABLISHED BY THE SUPERVISORY BOARD AND THE MANAGEMENT BOARD 4.11.1 Committees Established by the Supervisory Board The Nomination Committee, the Remuneration Committee and the Risk Committee established by the Supervisory Board, together with their powers and duties, and chairs and members, are described below. 4.11.1.1 Nomination Committee The Nomination Committee is a supporting and advisory body of the Supervisory Board. The Nomination Committee consists of three members elected and recalled by the Supervisory Board from among its own members, with the majority of its members being independent. The Nomination Committee shall in particular: a) identify and recommend candidates to fill the vacancies on the Management Board or the Supervisory Board for the approval of the Supervisory Board or the General Meeting, as the case may be; b) assess and recommend candidates to fill the vacancies for the positions of Director Internal Audit and Director Compliance; c) periodically, and at least annually, assess the structure, size, composition and performance of the Management Board and the Supervisory Board and make recommendations to the Supervisory Board with regard to any changes; d) periodically, and at least annually, assess the trustworthiness, knowledge, skills and experience of individual members of the Management Board and of the Supervisory Board; of the Management Board collectively and of the Supervisory Board collectively; and report to the Supervisory Board accordingly; e) periodically review the policy of the Management Board and the Supervisory Board for selection and appointment of senior management and make recommendations to the Supervisory Board; and f) exercise other powers and responsibilities vested to the Nomination Committee by applicable law, the Bank’s Articles of Association or by the Bank’s internal rules, to the extent that those comply with applicable law. The Nomination Committee, when nominating candidates for vacancies on the Supervisory Board and the Management Board, analyses the overall composition of the various bodies in terms of professional skills and experience and takes into account 90 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 the level of diversity in terms of experience, education, qualifications, profession, social status, gender, nationality and age. Candidate profiles are assessed in terms of knowledge, professional experience, past work, results, reliability and reputation. The Nomination Committee makes decisions by a simple majority of votes cast at the meeting. The quorum for a meeting of the Nomination Committee is a simple majority of all its members. Meetings of the Nomination Committee are called by the Chairman of the Nomination Committee. As at 31 December 2023, the following persons were members of the Nomination Committee: Name Role Clare Ronald Clarke Chairman of the Committee Gabriel Eichler Member of the Committee Michal Petrman Member of the Committee In 2023 the Nomination Committee held four meetings, which were attended by all members. 4.11.1.2 Remuneration Committee The Remuneration Committee is a supporting and advisory body of the Supervisory Board. The committee consists of three members elected and recalled by the Supervisory Board from among its own members, with the majority of its members being independent. The Remuneration Committee shall, in particular: a) establish the remuneration strategy for the Bank; b) establish and maintain remuneration principles of new and existing members of the Management Board and Material Risk Takers; c) review and approve all aspects of fixed and variable remuneration of the Management Board; d) approve the Remuneration Report; e) comment on remuneration matters of Material Risk Takers, as they arise; f) review and approve all aspects of fixed and variable compensation for the position of Director Internal Audit and Director Compliance; and g) exercise other powers and responsibilities vested to the Remuneration Committee by applicable law, the Bank’s Articles of Association or by the Bank’s internal rules, to the extent that those comply with applicable law. The Remuneration Committee makes decisions by a simple majority of votes cast at the meeting. The quorum for a meeting of the Remuneration Committee is a simple majority of all its members. Meetings of the Remuneration Committee are called by the Chairman of the Remuneration Committee. As at 31 December 2023, the following persons were members of the Remuneration Committee: Name Role Clare Ronald Clarke Chairman of the Committee Miroslav Singer Member of the Committee Gabriel Eichler Member of the Committee In 2023, the Remuneration Committee held five meetings, which were attended by all members. 4.11.1.3 Risk Committee The Risk Committee is a supporting and advisory body of the Supervisory Board. The committee consists of three members elected and recalled by the Supervisory Board from among its own members, with the majority of members being independent. The Committee shall in particular: a) advise the Supervisory Board on the Bank’s overall current and future risk approach, risk strategy and risk appetite; b) assist the Supervisory Board in overseeing the implementation of the risk strategy by the Bank’s senior management; c) on a quarterly basis, review the regulatory risk profile of the Bank or any of its subsidiaries; d) on a quarterly basis, review the Group’s IT security policies and measures; e) on a quarterly basis, monitor major regulatory risks or issues along with compliance with the risk appetite and with all other risk policies (as approved by the Management Board) and oversee any actions taken as a result of material risk policy breaches; f) on a quarterly basis, oversee changes in the Group’s regulatory risk management environment and other emerging risks and monitor the Group’s preparedness for such changes; g) on a quarterly basis, oversee the Group’s capital and liquidity position through escalation and regular reporting from the Enterprise Risk Management Committee (“ERMC”) and the Asset and Liability Committee (“ALCO”); h) on an annual or as required basis, review information and reports on key management and control functions (including but not limited to, the ERMC and the ALCO to assess the level and nature of the risks Group is facing and to make recommendations to the Management and Supervisory Board to adjust its risk appetite if necessary); and i) provide other activities pertaining to business risks of the Bank. 91 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 The Risk Committee makes decisions by a simple majority of votes cast at the meeting. The quorum for a meeting of the Risk Committee is a simple majority of all its members. Meetings of the Risk Committee are called by the Chairman of the Risk Committee. As at 31 December 2023, the following persons were members of the Risk Committee: Name Role Miroslav Singer Chairman of the Committee Denis Arthur Hall Member of the Committee Kateřina Jirásková Member of the Committee In 2023, the Risk Committee held four meetings, which were attended by all members. 4.11.2 Committees Established by the Management Board The committees established by the Management Board, their roles and responsibilities, and their composition as at 31 December 2023 are listed below. 4.11.2.1 Asset & Liability Committee The Asset & Liability Committee (“ALCO”) is responsible for the management and coordination of activities in the area of asset & liability management, capital, market risk and liquidity risk management of companies of the Group. In 2023, ALCO meetings were held on a monthly basis. Its main responsibilities include: a) advising the Management Board in the area of asset & liability management, capital, market and liquidity risk management; b) monitoring market and liquidity risk, asset & liability structure, capital, capital requirements (regulatory and internal) and capital adequacy; c) approving remediation measures in case of adverse trends or limit breaches; d) approving methods, scenarios and limits; including limits for funding; e) approving investment products and transaction limits for Treasury transactions; f) approving investment strategy for Treasury transactions; g) approving Funds Transfer Pricing methodology; h) approving hedging strategy; and i) assessing the profitability of Treasury transactions, j) discussing and approving documents related to the resolvability in the area of its competence and taking measures in case of identified deficiencies. The ALCO makes decisions by a simple majority of votes present at the meeting. The quorum for a meeting of the ALCO is half of its voting members exercising a simple majority of votes of all voting members. If absent, a voting member of the ALCO may appoint another voting member to exercise his or her voting rights. Non-voting members have no voting rights. As at 31 December 2023, the following positions were members of the ALCO: Members Voting members Chief Financial Officer (Chair) Chief Executive Officer (Vice-Chair) Chief Risk Officer Chief Commercial Banking Officer Senior Manager Treasury Non-voting members Chief Products & Marketing Officer Chief Retail Banking Officer Director Legal Senior Manager Enterprise Risk Management Senior Manager Financial Planning and Business Performance Manager ALM 4.11.2.2 Credit Committee The Credit Committee (“CRCO”) is responsible for the management and coordination of activities in the area of credit risk of the Group. In 2023, CRCO meetings were held on a weekly basis. Its main responsibilities include: a) advising the Management Board concerning credit risk; b) maintaining proper methods for credit risk management; c) managing the credit portfolio and its limits as well as collateral, including setting action plans in case of limit breaches; d) approving credit-risk-related stress tests and other parameters and monitoring of their results; e) tracking and assessing the changes of macro-economic environment as well as external legislation and regulation relevant for credit risk management; f) keeping the internal control system and processes for credit risk management efficient and adequate; g) informing other relevant bodies of the Group about significant events in the area of credit risk management; h) evaluating, approving and monitoring large exposures, including those towards financial institutions, governments and countries; i) monitoring of loan-loss allowances and their overall trends; and j) tracking large defaulted exposures and credit frauds. 92 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 The CRCO makes decisions by a simple majority of votes present at the meeting. The quorum for a meeting of the CRCO is half of its voting members exercising a simple majority of votes of all voting members. If absent, a voting member of the CRCO may appoint another voting member to exercise his or her voting rights. Non-voting members have no voting rights. As at 31 December 2023, the following positions were members of the CRCO: Members Voting members Chief Risk Officer (Chair) Chief Executive Officer (Vice-Chair) Chief Financial Officer Chief Commercial Banking Officer Non-voting members Chief Products & Marketing Officer Senior Manager Commercial Risk Chief Risk Officer of the Building Savings Bank Senior Manager Collections Senior Manager Retail & Small Business Risk Senior Manager Enterprise Risk Management 4.11.2.3 Enterprise Risk Management Committee The Enterprise Risk Management Committee (“ERMC”) is responsible for the management and coordination of activities in the area of risk management framework, model risk management and internal capital adequacy assessment process (“ICAAP”) of the Group. In 2023, ERMC meetings were held on a monthly basis. Its main responsibilities include: a) advising the Management Board concerning the risk management framework, model risk management and ICAAP; b) monitoring of effectiveness and adequacy of the risk management framework; c) ensuring effective, efficient and reliable methods for risk management; d) reviewing risk management limits; e) reviewing and approving information security principles; f) approving ICAAP principles and remedial measures in case of recognised deficiencies; g) monitoring risks identified within ICAAP; and h) approving methodology for risk-weighted assets. The ERMC makes decisions by a simple majority of votes present at the meeting. The quorum for a meeting of the ERMC is half of its voting members exercising a simple majority of votes of all voting members. If absent, a voting member of the ERMC may appoint another voting member to exercise his or her voting rights. Non-voting members have no voting rights. As at 31 December 2023, the following positions were members of the ERMC: Members Voting members Chief Risk Officer (Chair) Chief Executive Officer (Vice-Chair) Chief Financial Officer Chief Commercial Banking Officer Chief Operating Officer Non-voting members Director Legal Director Compliance Senior Manager Enterprise Risk Management Senior Manager Treasury 4.11.2.4 Operational Risk Committee The Operational Risk Committee (“ORCO”) is responsible for the management and coordination of activities in the area of operational risk management and the internal control system of the Group. In 2023, ORCO meetings were held on a monthly basis. Its main responsibilities include: a) advising the Management Board concerning the operational risk management and internal control system; b) monitoring of effectiveness and adequacy of the internal control system; c) ensuring effective, efficient and reliable methods for operational risk management; d) approving limits, scenarios, Key Risk Indicators and other parameters used in operational risk management; e) monitoring trends and limits in operational risk and approving remedial actions in case of adverse trends. The ORCO makes decisions by a simple majority of votes present at the meeting. The quorum for a meeting of the ORCO is half of its voting members exercising a simple majority of votes of all voting members. If absent, a voting member of the ORCO may appoint another voting member to exercise his or her voting rights. Non-voting members have no voting rights. 93 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 As at 31 December 2023, the following positions were members of the ORCO: Members Voting members Chief Risk Officer (Chair) Chief Executive Officer (Vice-Chair) Chief Financial Officer Chief Operating Officer Senior Manager Enterprise Risk Management Non-voting members Director Legal Director Compliance Chief Shared Services Officer Chief Digital Officer Director IT Infrastructure & Enterprise Services Senior Manager AML & Anti-Fraud & Collateral Management Manager Operational Risk and Risk Governance 4.11.2.5 Business Review Committee The Business Review Committee is responsible for the management and coordination of activities in the area of prices, fees and commissions and overall profitability of products and segments of the Group. In 2023, Business Review Committee meetings were held on a monthly basis. The Business Review Committee mainly: a) reviews and approves the Group’s pricing strategy; b) approves rates and fees for particular products; c) ensures compliance of rates and fees with legal and regulatory requirements; and d) approves parameters and conditions of contracts with external distribution partners. The Business Review Committee makes decisions by a simple majority of votes present at the meeting. The quorum for a meeting of the Business Review Committee is half of its voting members exercising a simple majority of votes of all voting members. If absent, a voting member of the Business Review Committee may appoint another voting member to exercise his or her voting rights. Non-voting members have no voting rights. As at 31 December 2023, the following positions were members of the Business Review Committee: Members Voting members Chief Executive Officer (Chair) Chief Financial Officer (Vice-Chair) Chief Products & Marketing Officer Chief Commercial Banking Officer Chief Risk Officer Chief Retail Banking Officer Senior Manager Financial Planning and Business Performance Non-voting members Senior Manager Term Loans Manager Product Finance & Sales Incentives Senior Manager Treasury 4.11.2.6 Compensation Committee The Compensation Committee is responsible for the management and coordination of activities in the area of compensations and benefits for the employees of the Group. In 2023, Compensation Committee meetings were held on a quarterly basis. The main responsibilities include: a) preparing compensation strategy and communicating the benefit and compensation philosophy to the employees; b) proposing to the Bank’s Management Board positions into the Material Risk Takers category and reviewing and approving individual changes in their wages (except for members of the Bank’s Management Board); c) reviewing, discussing and approving of individual exceptions in employee’s compensation above the level defined by internal policies; d) reviewing and approving of promotions and offers for strategic positions; e) approving quarterly overviews of payments from incentive programmes, payments exceeding the approved programme budgets and incentive payments outside the currently valid incentive programmes. The Compensation Committee makes decisions by a simple majority of votes present at the meeting. The quorum for a meeting of the Compensation Committee is half of its voting members. Non-voting members have no voting rights. 94 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 As at 31 December 2023, the following persons were members of the Compensation Committee: Members Voting members Chief Executive Officer Chief Financial Officer Chief Risk Officer Chief Commercial Banking Officer Chief Operating Officer Non-voting members Director Human Resources (Chair) 4.11.2.7 Compliance and Anti-Fraud Committee The Compliance & Anti-Fraud Committee (“CAFC”) is responsible for the management and coordination of activities in the area of internal controls, compliance risk, anti-fraud management and prevention in the area of anti-money laundering and combating the financing of terrorism (“AML/CTF”) of companies of the Group. In 2023, CAFC meetings were held on a quarterly basis. Its main responsibilities include: a) using reliable, efficient and effective methods for managing compliance risk; b) maintaining a reliable and integrated framework for managing compliance risk; c) approving methods and limits for compliance risk management; d) approving remedial measures in case of identified deficiencies of internal controls; e) reviewing of new legislation and regulatory requirements and addressing responsibility for their implementation; f) reviewing anti-fraud reports and approving material remedial measures in the area of anti-fraud management; and g) approving and deciding on actions to remedy any deficiencies and regularly reviewing key AML/CTF metrics. The CAFC makes decisions by a simple majority of votes present at the meeting. The quorum for a meeting of the CAFC is half of its voting members exercising a simple majority of votes of all voting members. If absent, a voting member of the CAFC may appoint another voting member to exercise his or her voting rights. Non-voting members have no voting rights. As at 31 December 2023, the following positions were members of the CAFC: Members Voting members Director Compliance (Chair) Chief Risk Officer (Vice-Chair) Chief Executive Officer Chief Financial Officer Chief Operating Officer Chief Commercial Banking Officer Non-voting members Chief Products & Marketing Officer Chief Shared Services Officer Director Human Resources Senior Manager AML & Anti-Fraud & Collateral Management Manager Operational Risk and Risk Governance 4.11.2.8 Business Continuity Management Committee The Business Continuity Management Committee is responsible for the activities in the area of business continuity management (“BCM”) of the Group. In 2023, Business Continuity Management Committee meetings were held on a quarterly basis. Its main responsibilities include: a) reviewing and recommending the BCM Programme and consolidated evaluation of Business Impact Analysis for the Management Board’s approval; b) approving the methodology for Business Impact Analysis; c) deciding on further requirements for managing the risks related to maintaining business continuity; d) reviewing and assessing control reports of regulatory authorities in the area of business continuity management; and e) reviewing the results of BCM tests and monitoring the progress on BCM Programme. The Business Continuity Management Committee makes decisions by a simple majority of votes present at the meeting, in case of equality of votes the chairperson’s vote is decisive. The quorum for a meeting of the Business Continuity Management Committee is a simple majority of all its members or their deputies and present members exceed present deputies. If absent, a member of the Business Continuity Management Committee may appoint a deputy to exercise his or her voting rights. 95 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 As at 31 December 2023, the following positions were members of the Business Continuity Management Committee: Members Voting members Chief Shared Services Officer (Chair) Director IT Infrastructure & Enterprise Services (Vice-Chair) Chief Digital Officer Director Compliance Director Human Resources Manager Security (Shared Services Division) Senior Manager Products Development (Commercial Banking Division) Senior Manager Treasury (Finance Division) Director Sustainability & Communication Manager Operational Risk and Risk Governance (Risk Management Division) Senior Manager Customer Experience and Process Assurance (Retail Banking Division) Senior Manager Payments & Customer Service (Building Savings Bank) Senior Manager Deposits & Cards (Products & Marketing Division) Manager Dealer Management, Sales (MONETA Auto) Managing Director (MONETA Leasing) 4.11.2.9 Sustainability Committee The Sustainability Committee is responsible for the management and coordination of activities in the area of environmental, social and governance („ESG“) of the Group. In 2023, the Sustainability Committee meetings were held on a quarterly basis. Its main responsibilities include: a) discussing the Group’s ESG strategy and proposing it for approval to the Management Board; b) discussing ESG reports (quarterly) regarding compliance with the ESG strategy objectives and deciding on remedial measures in case of adverse trends; c) evaluating changes in the environment (including regulatory) relevant for the ESG area, deciding on appropriate measures and informing other relevant bodies and committees of companies of the Group. The Sustainability Committee makes decisions by a simple majority of votes present at the meeting. The quorum for a meeting of the Sustainability Committee is half of its voting members exercising a simple majority of votes of all voting members. If absent, a voting member of the Sustainability Committee may appoint another voting member to exercise his or her voting rights. As at 31 December 2023, the following positions were members of the Sustainability Committee: Members Voting members Chief Executive Officer (Chair) Chief Risk Officer (Vice-Chair) Chief Financial Officer Chief Commercial Banking Officer Chief Operating Officer Director Sustainability & Communication Chief Shared Services Officer Director Human Resources 4.11.2.10 MON FAIR Committee MON FAIR is an advisory committee to the Management Board for diversity, fair treatment and inclusion of employees. In 2023, MON FAIR Committee meetings were held on a monthly basis. Its main responsibilities include: a) oversees the equal remuneration of men and women working in comparable positions and develops support programmes to increase the number of women in managerial positions; b) oversees the inclusion of disabled colleagues; c) focuses on removing inequalities towards LGBTQ+ employees; d) prepares support programmes for employees on maternity and parental leave in order to facilitate their return to working environment and supports the balance between family and work life of employees who are parents; e) sets up intergenerational dialogue, supports informal care givers and chronically ill employees; f) plans activities to broaden the scope of employee care in the area of diversity and inclusion in order to cover the widest possible range of topics. MON FAIR makes decisions by a simple majority of votes of present voting members. The quorum for a meeting of the MON FAIR is a simple majority of all voting members. As at 31 December 2023, the following positions were members of the MON FAIR: Members Voting members Director Human Resources (Chair) Director Sustainability & Communication Senior Manager Commercial Back Office Senior Manager Investor Relations Senior Manager Digital Channels Senior Manager Deposits & Cards 96 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 4.12 INTERNAL AUDIT The Internal Audit function operates in accordance with CNB Decree No. 163/2014 Coll., as amended. The Internal Audit and its activities follow the International Professional Practices Framework issued by the Institute of Internal Auditors. The Internal Audit in a complete and interconnected manner, covers all activities within the Bank and focuses on identifying risks to which the Bank is exposed. The Internal Audit provides objective and independent assurance to the Management Board, the Audit Committee and the Supervisory Board as to the functionality and efficiency of risk management, control and governance processes within the Bank. In 2023, the Internal Audit continued in the delivery of the 2021–2024 audit cycle according to the Strategic Audit Plan. The Internal Audit was executing assurance engagements in accordance with the Strategic and Periodic Audit Plans based on regular risk assessments and reflecting regulatory requirements. In 2023, the Internal Audit delivered the Audit Plan and evaluated relevant auditable processes in the Group and issued in total 33 audit reports for assurance engagements. The Internal Audit evaluates the Internal Control System of the Bank. The results of this assessment are issued annually in the Report on Evaluation of the Functionality and Efficiency of the Internal Control System. In this Report, issued in 2023, the Internal Audit evaluates the Internal Control System of the Bank as functioning and effective. 4.13 INFORMATION ON INTERNAL CONTROL AND APPROACH TO RISKS IN THE PROCESS OF ACCOUNTING AND PREPARING FINANCIAL STATEMENTS The Group uses various technical and governance measures in order to maintain its financial statements. These measures ensure compliance with the relevant accounting standards and provide users of the financial statements with a true and fair view of the financial position, equity position, cash flows and profitability of the Group. These measures comprise internal governance, namely the Group’s consistent accounting policies, and process set-up. This means multi-level controls over transactions being recorded, and maximum attention being paid to the automation of booking accounting entries. Pursuant to Act No. 563/1991 Coll., on accounting, as amended, the Bank and its subsidiary Building Savings Bank present their financial statements in accordance with IFRS. Subsidiaries MONETA Auto and MONETA Leasing prepare their financial statements in accordance with Czech Accounting Standards and are subject to IFRS consolidation on the Group level. The Group keeps its books through Oracle Financials, using inputs of several auxiliary systems which have either been subject to robust internal testing or been tested by an auditor before being incorporated into the Group’s financial reporting environment. Governance and process set-up measures control the circulation of documents supporting the journal entries. As a rule, any accounting record may only be posted on the basis of the multi-level approval process. This rule excludes any possibility of a single employee having more than one role in the hierarchy. Approval takes place online through the approval process in Oracle’s accounting system. In terms of organisation, the accounting function is separated from the process of managing business partners (e.g., the setup of bank accounts or payment conditions) or procurement. Only users with appropriate rights have access to the accounting system. Access rights for the system are granted by means of a software application and are subject to approval by both a superior and by the owner of the accounting process. Access is provided according to the employee’s job position and reviewed on a regular basis. Only employees of the relevant department have rights for active operations (postings) in the accounting system. The accounting system maintains an audit trail which allows for the identification of the user that created, changed or reversed any accounting record. The Group set up a system of defining responsibilities for the groups of individual balance sheet accounts (the so-called reconciliation system) under which a particular employee is responsible for account analysis of a particular account or group of accounts in the general ledger. The control over account analysis is tracked by the supporting documentation in the reconciliation systems at regular intervals and is approved by a superior and on an ad-hoc basis by a senior member of the finance department (always different from the person who is preparing or reviewing the reconciliation). Within the reconciliation process, the Group stipulates several criteria for proper account reconciliation, such as the exact description of the account, timeliness, independent supporting documentation and its accessibility, and manager oversight control. The correctness of the accounts and presented financial statements is monitored on an ongoing basis. In addition, annual financial statements are audited by an external auditor who carries out the audit of separate and consolidated financial statements as at the balance sheet date, i.e., 31 December of a given year. 97 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 4.14 CORPORATE GOVERNANCE BUILDING BLOCKS The corporate governance structure of the Bank complies with Act No. 90/2012 Coll., on business corporations and co-operatives, as amended (hereafter the “Business Corporations Act”), as well as stringent requirements under Czech and EU banking regulation and international capital markets corporate governance standards. As a result, the Bank has a best-in-class corporate governance structure. In the pursuit of excellence and transparency, the Bank has chosen not to adopt an external corporate governance codex. This decision is rooted in the belief that the Bank's governance practices are comprehensively and clearly articulated within the Articles of Association and are further elaborated in this Annual Report. This approach ensures a high level of clarity and detail, addressing all relevant governance aspects in a manner that is both accessible and comprehensible to the stakeholders. Corporate governance is fulfilled through the following main building blocks and principles, upon which the governance across the Group is based: Shareholders – The Bank’s significant shareholders have a sound reputation, integrity, professional competency and a stable financial situation. The shareholders' right to participate in the management of the Bank is exercised mainly through their participation and decisions at the General Meeting. The General Meeting is authorised to decide on matters falling under established areas of competence. More information on the General Meeting is available in Chapter 4.2 of this Annual Financial Report – General Meeting. Management and Supervisory Bodies – In order to ensure an effective oversight and management process, the roles and responsibilities of the Supervisory Board and the Management Board are clearly defined. The Management and Supervisory Bodies members are and remain qualified, individually and collectively, for their positions. They understand their oversight and corporate governance role and are able to exercise sound, objective judgement in all of the affairs in their area of competence. More information on the Management and Supervisory Bodies is available in Chapters 4.3 and 4.5 of this Annual Financial Report – Supervisory Board and Management Board. Group Structure – The Bank, as a parent company, has the overall responsibility for the Group and for ensuring the establishment and operation of a clear governance framework appropriate to the size, structure, business complexity and risks of the Group and its entities. More information on the Group structure is available in Chapter 1 of this Annual Financial Report – Profile of MONETA Money Bank and Its Subsidiaries. Risk Management Function – The Bank has an effective independent risk management function (Risk Management), under the coordination of Chief Risk Officer (CRO), with sufficient stature, independence, resources and access to the Management and Supervisory Bodies. Risks are identified, monitored and controlled on an ongoing basis. The Bank’s risk management and internal control infrastructure is reviewed and enhanced whenever changes in the Bank’s risk profile, to the external risk landscape or in the industry practice arise. More information on the Risk Management Function is available in Chapter 5 of this Annual Financial Report – Risk Management. Compliance Function – The compliance function (Compliance) has adequate policies and processes for identifying, assessing, monitoring, reporting and advising on compliance risk which are approved by the Management Board. More information on the Compliance Function is available in Chapter 5.5 of this Annual Financial Report – Operational Risk. Internal Audit Function – The Internal Audit Function (Internal Audit) provides independent assurance to the Management and Supervisory Bodies as well as support in promoting an effective governance process and the long-term soundness of the Bank. More information on the Internal Audit Function is available in Chapter 4.12 of this Annual Financial Report – Internal Audit. Remuneration – The Bank’s remuneration structure supports sound corporate governance and risk management. More information on remuneration is available in Chapter 4.8 of this Annual Financial Report – Remuneration and Benefits of Members of the Supervisory Board, the Management Board and Key Executive Managers. Disclosure and Transparency – The governance of the Bank is adequately transparent to its shareholders, depositors, other relevant clients and market participants. The Bank ensures appropriate disclosures and transparency towards its stakeholders in line with applicable regulatory requirements. The Bank has 98 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 implemented a formal policy in order to ensure mainly: (i) identification of all regulatory requirements related to public disclosures, (ii) the disclosure is in accordance with all applicable standards, regulatory requirements and applicable law, (iii) disclosure content, format and roles and responsibilities with regards to disclosure development for meeting the regulatory requirements or (iv) assessment of the appropriateness of disclosures, including their verification and frequency. The Supervisory Board and the Management Board are responsible for establishing and maintaining an effective internal control structure over the disclosure of financial information. They must also ensure that an appropriate review of the disclosures takes place. As a part of maintaining an effective internal control mechanism over the disclosure of financial information, the Audit Committee oversees the financial statements’ preparation, creation and closing process and the process of the external statutory audit. More information on this topic is available in MONETA’s 2023 Sustainability Report published on MONETA’s investor website https://investors.moneta.cz/ in the section “Sustainability”. 4.15 REMUNERATION CHARGED BY EXTERNAL STATUTORY AUDITORS OF THE GROUP IN 2023 (in CZK m) Bank Group Statutory audit 12 21 Other services 7 6 6 Total (incl. VAT) 18 27 4.16 OTHER LEGAL REQUIREMENTS The summary explanatory report pursuant to Section 118(4) of the Capital Markets Act is based on the requirements set forth in Section 118(5)(a) through (k) of the Capital Markets Act. a) Information on the structure of the Bank’s equity on a consolidated basis as at 31 December 2023: (in CZK m) Share capital 10,220 Statutory reserve 102 Other Reserves 8 1 Retained earnings 21,880 Total equity 32,203 7 Other non-audit services, which are allowed to be provided by statutory auditor pursuant to the Act on Auditors, in particular Quarterly Financial Review, MiFID Reporting or Audit of Remuneration report. 8 Other Reserves represent reserve related to Cash Flow hedge revaluation. As at 31 December 2023, the registered share capital consisted of 511,000,000 shares, with a nominal value of CZK 20.00 each. The issue price of all shares has been paid up in full. All the shares were issued as registered book-entry shares. The Bank’s registered share capital is divided exclusively into common shares, with no special rights attached. All of the Bank shares have been admitted to trading on the Prime Market of the Prague Stock Exchange in the Czech Republic. b) Information on restrictions of the transferability of securities: The transferability of the Bank shares is not restricted. c) Information on significant direct and indirect shares in the Bank’s voting rights: Please, refer to Chapter 1 “ Profile of MONETA Money Bank and Its Subsidiaries” section “Shareholder Structure” for information on (i) the entities recorded in the registry of book-entry shares maintained by the Czech Central Securities Depository in Prague as holding at least 1% of the registered share capital of the Bank as at 31 December 2023 and (ii) the entities, which notified the Bank and the Czech National Bank pursuant to Section 122 of the Capital Markets Act of holding a direct or indirect proportion of the Bank’s voting rights of at least 1% as at 31 December 2023. d) Information on owners of securities with special rights, including description of such rights: No special rights are attached to any of the Bank shares. e) Information on restrictions on voting rights: The voting rights attached to the Bank shares are not restricted. f) Information on agreements between shareholders that may restrict or limit the transferability of shares or voting rights: The Bank is not aware of any agreements between its shareholders that might restrict or limit the transferability of its shares or voting rights. g) Information on special rules for the election of and recalling of members of the Management Board and amendments to the Bank’s Articles of Association: Pursuant to the Bank’s Articles of Association, members of the Management Board are elected and removed 99 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 by the Supervisory Board by a simple majority of the votes of the Supervisory Board members present at a meeting. The Articles of Association may be amended by a decision of the General Meeting by a qualified, two-third majority of the votes cast by the shareholders at the General Meeting. Apart from regulatory prudential requirements, no special rules are in place for the election of and recalling of members of the Management Board and for adoption of the amendments to the Bank’s Articles of Association. h) Information on special powers of the Bank’s Management Board: The Bank’s Management Board has no such special powers. i) Information on significant contracts relating to change in control over the Bank as a result of a takeover bid: The Bank has not entered into significant contracts that will become effective, change, or expire if control over the Bank changes as a result of a takeover bid. j) Information on contracts with members of its Management Board or its employees binding the Bank in relation to a takeover bid: Based on their service contracts, members of the Management Board are entitled to receive a monthly payment for a period of 12 months, resp. 9 months after the end of their term (subject to specified conditions) in the amount of a fixed monthly remuneration paid during the term of their office (hereinafter the "Salary Continuance"). In the event that their office is terminated within a period of two years after the event, which results in a change of control over the Bank, which may also occur in connection with a takeover bid, members of the Management Board may be entitled to an increased Salary Continuance. This entitlement arises if the acquirer of control over the Bank pays in connection with the acquisition of control a premium in excess of the average price of the Bank's shares (hereinafter the "Share Premium"). The additional amount of Salary Continuance shall be determined on the basis of share premium reflecting MONETA Money Bank’s share value at the time of the Change of Control event and calculated as follows: i. Establishing the value of the Bank’s shares prior to the public announcement of an intention to execute a Change of Control (initial price): The average daily close of the Bank’s share price for the 20 trading days immediately preceding the public announcement of intent; ii. Establishing the achieved share premium immediately preceding the Change of Control: The average daily close of the Bank’s share price for the 20 trading da ys immediately preceding the Change of Control expressed as a percentage of increase in the Bank’s share price compared to the initial price, if any; iii. Multiplier of eligible Salary Continuance amount (Base Salary): • Share premium 5 – 15% 0.25, • Share premium 15.1 – 20% 0.50, • Share premium 20.1 – 25% 1.00, • Share premium 25.1 – 30% 1.25, • Share premium > 30% 2.00 The aim of the above arrangement is to motivate members of the Management Board to ensure that the acquirer of the control pays the highest possible Share Premium in connection with the acquisition of control. This measure further strengthens the alignment of the motivation of the members of the Management Board with the interests of the Bank's shareholders. k) Information on programmes that allow acquiring the Bank’s corporate securities: In November 2018, the Supervisory Board of the Bank adopted (upon proposal of the Remuneration Committee) the Rules of the Long-Term Incentive Plan internal policy (the “LTIP”), complemented by the Share Holding Guidelines (the “SHG”). This policy was amended by the Supervisory Board in August 2020. The LTIP was developed, as a share-only incentive plan, based upon benchmarks from relevant peer banks of a similar size and business model. Members of the Management Board are eligible to be granted LTIP awards in the form of actual shares in the Bank as part of their variable remuneration, where the proportion of the award that vests is conditional on the satisfaction of mid-term performance targets, determined and evaluated by the Supervisory Board. The annual LTIP award opportunity as a range of an annual fixed salary, as well as its subsequent vesting to the Management Board members, is subject to a decision of the Supervisory Board. The LTIP (through the SHG) also seeks to achieve a minimum number of shares in the Bank retained by the Management Board members as long as they continue to serve as Management Board members. The purpose of this requirement is to further align interests of the Management Board members with those of the Bank’s shareholders. 100 CORPORATE GOVERNANCE STATEMENT Annual Financial Report 2023 In relation to LTIP, the restrictions on the maximum potential of the variable remuneration of the Management Board members and the malus & clawback tools, as described in Remuneration policy applied to Management and Supervisory Boards of MONETA Money Bank, a.s., also apply. The LTIP as a remuneration instrument has been never vested and the Management Board members did not acquire any shares of the Bank through this plan. As the Bank did not have any controlling person in 2023, no report on relations according to the Business Corporations Act was prepared for the accounting period from 1 January 2023 to 31 December 2023. 4.17 RIGHTS ATTACHED TO SHARES OF THE BANK The shares of the Bank are freely transferable, fully fungible and rank pari passu in all respects. Under the Business Corporations Act and the Bank’s Articles of Association, each of the Bank’s shareholders has, inter alia, the following rights: 1. A pre-emptive right to subscribe for a pro rata portion of the shares in the Bank if the registered share capital of the Bank is increased by cash contributions into the Bank unless that the pre-emptive right is restricted or excluded by a General Meeting resolution; 2. A pre-emptive right to subscribe for a pro rata portion of any preference or convertible bonds unless that the pre-emptive right is restricted or excluded by a General Meeting resolution; 3. A right to participate in the Bank’s profit and liquidation balance to the extent approved at a General Meeting; 4. A right to attend and vote at a General Meeting; 5. A right to receive information on matters related to the Bank or its subsidiaries from the Bank at a General Meeting if such information is necessary to assess items on the agenda of the General Meeting or to exercise shareholder rights (and in particular, voting rights); 6. A right to make proposals and counterproposals in relation to items on the agenda of a General Meeting; 7. Within three months following the date of the relevant General Meeting, a right to challenge the validity of resolutions of the General Meeting in a court action against the Bank; and 8. A right to request a copy of the General Meeting minutes from the Management Board. We thrive with MONETA Electrician Zdeněk Dvořák is an expert with a wide portfolio of certifications in heavy current electrical engineering. He carries out expert electrical installations, professional repairs and reconstruction of existing installations in companies and households. Thanks to his knowledge and skills, he acts as a consultant and electrical guarantor. He specialises in lightning and surge protection. We are honoured to be a part of it! Zdeněk Dvořák VOLTUM TECHNOLOGY s.r.o. 103 RISK MANAGEMENT Annual Financial Report 2023 5. RISK MANAGEMENT 5.1 RISK GOVERNANCE 5.1.1 Main Principles and Goals of Risk Management The Group aims to achieve competitive returns at an acceptable risk level as part of its business activities. Risk management covers the control of risks associated with all business activities in the environment in which the Group operates and ensures that the risks taken are in compliance with regulatory limits, as well as falling within its risk appetite. When managing risks, the Group relies on three pillars: • people (the qualifications and experience of its employees); • risk governance (including well-defined information flows, processes, models and responsibilities); and • risk data (including the use of sophisticated analytical instruments and technologies). This combination has supported the Group’s success and the stability of its economic results. The Group’s risk management processes are underpinned by advanced analytics, based on an enterprise-wide data warehouse and a centralised underwriting process. This allows the Group to price on a risk basis, according to its in-house scoring and rating models. The level of risk is measured in terms of its impact on the value of assets and/or capital, as well as on the profitability of the Group. To determine this, the Group evaluates the potential effects on its business of changes in political, economic, market and operational conditions, as well as changes in clients’ creditworthiness. The Bank provides centralised risk management for the Group wherever possible and practical. It does this primarily through outsourcing or by providing methodology guidance to other Group members. This chapter describes the main principles and rules of credit, market and liquidity risk management within MONETA. More information on MONETA’s approach to risk management is available in section 44 “Risk Management” of the Notes to the Consolidated Financial Statements of MONETA Money Bank, a.s. 5.1.2 Risk Management Organisational Structure The Bank’s key committees for risk management of the Group, as established by the Bank’s Management Board, are: • the Enterprise Risk Management Committee (“ERMC”) for the risk management framework internal capital adequacy assessment process and model risk management; • the Operational Risk Committee (“ORCO”) for the internal control system and operational risk management; • the Credit Committee (“CRCO”) for credit risk management; • the Asset & Liability Committee (“ALCO”) for asset and liability management, capital, market risk and liquidity risk management; and • the Compliance & Anti-Fraud Committee for compliance, operational managing of internal controls, anti-fraud management and prevention in the area of anti-money laundering and combating the financing of terrorism. The members of these committees include the members of the Bank’s Management Board and other senior managers of the Bank. The committees are responsible for, inter alia: • approval of the relevant risk management framework including the basic methods, limits, scenario assumptions and any other parameters used in the risk management process; • monitoring the development of relevant risks, including the observance of limits, approval of remedial measures in case of exceeded limits or unfavourable development trends; and • monitoring the adequacy, reliability and efficiency of internal policies, processes and limits for risk management in the area of their responsibility. Other Bank’s committees that are established by the Bank’s Chief Risk Officer (“CRO”) and that manage individual risks include the following: • The Credit Monitoring and Management Committee (“CMMC”) monitors and manages the credit risk of the commercial individually managed credit portfolio not in the work-out process. Members of the committee are employees of the Risk Management Division and the Commercial Banking Division. The CMMC reports to the CRCO. 104 RISK MANAGEMENT Annual Financial Report 2023 • The Problem Loan Committee (“PLC”) monitors and manages the credit risk of the commercial individually managed credit portfolio in the work-out process, and its members are employees of the Risk Management Division and the Legal Department. The PLC reports to the CRCO. • The Cyber Security Committee (“CSC”) manages cyber security. Members of the committee are executive employees and senior managers of the Risk Management Division, Information Technologies Division, Compliance Department and Chief Operating Officer. The CSC reports to the ERMC. • The Investment Products Council (“IPCO”) manages the introduction of new investment products of third parties for clients. Its members are executive employees and managers of the Risk Management Division, Products & Marketing Division and Compliance Department. • The Model Risk Oversight Committee (“MROC”) monitors the model risk. Its members are employees of the Risk Management Division and the Finance Division. The MROC reports to the ERMC; • The Key Vendors Management Committee (“KVMC”) oversees key vendors management. Its members are executive employees and senior managers of the Risk Management Division, Finance Division and Shared Services Division and Chief Executive Officers of the Bank and Building Savings Bank. The KVMC reports to the ORCO. The Bank’s Risk Management Division is responsible for risk management on an individual and a consolidated basis. The Risk Management Division is headed by the CRO, who is also a member of the Bank’s Management Board. The Risk Management Division primarily: • monitors, measures 1 and reports credit, market, model, operational and liquidity risks and proposes remedial measures in case of limits being exceeded or unfavourable trends; • sets terms and conditions for granting loans and lines of credit including their subsequent approval; • assesses the adequacy of collateral given by borrowers to the Group as security for extending loans and lines of credit; • manages the loan portfolio; • executes controls in the area of credit deals; • ensures methodology support and control functions in the area of information security; • administers the data infrastructure and analytical systems supporting risk management; • ensures the model risk management; • maintains and develops models for credit risk management, collections, provisioning, management of operational risks and capital allocation; 1 Credit risk is measured in cooperation with Finance Division of the Bank. • monitors indicators of fraudulent operations in the credit portfolio and is involved in the prevention of credit frauds; and • collects amounts due from borrowers, • implements and applies appropriate strategies and procedures of internal controls in the area of AML/CFT, • ensures the investigation of internal and external frauds, proposes measures for their prevention, • ensures the setting up of AML/CFT processes and processes for the investigation and prevention of frauds in accordance with regulatory requirements. The particular departments of the Risk Management Division are responsible mainly for the following: • the Commercial Risk department: commercial credit risk for individually managed exposures (products’ conditions, underwriting, monitoring, reporting); • the Retail & Small Business Risk department: credit risk for portfolio managed exposures (products’ conditions, underwriting, monitoring, reporting); • the Collections department: preparation of NPL Management Strategy, overall collections process and overall collections reporting; • the AML & Anti-Fraud & Collateral Management department: prevention, detection, reporting and strategy in the area of AML/CFT, ensuring a fraud risk management program covering internal and external frauds, collateral management (methodology, valuation), administrative and data support of early warning system in the area of credit risk of individually managed commercial exposures, credit risk quality assurance and controls; • the Planning & Reserving & Models department: provisioning methodology and provisioning model development, provisioning in the planning process (including stress testing of credit losses), credit risk models development; • the Enterprise Risk Management (“ERM”) department: market, liquidity, and operational risk methodology and internal policies, measuring, monitoring and reporting, regulatory and internal capital requirement methodology and calculation, model governance, model validation; • the Cyber Security department: governance, methodology, monitoring, management and reporting of cyber risks; investigation of emerging threats and security trends. From 1 October 2023, the teams ensuring activities related to the prevention of money laundering and the countering the financing of terrorism (AML/CFT) and fraud risk management in individual Group’s companies were separated from the Compliance Department of the relevant company and transferred to the management of a member of the management 105 RISK MANAGEMENT Annual Financial Report 2023 body of the relevant Group company authorised with ensuring compliance with obligations stipulated by the AML/CFT Act. In both the Bank and Building Savings Bank, the authorized person is the respective Chief Risk Officer. At the same time, the departments ensuring the collection of receivables were merged into the individual Group’s companies. The Group’s business activities involve providing of deposit accounts, loans and lines of credit to retail customers, providing funding to entrepreneurs, as well as SME businesses, and distribution of third-party products (mutual funds, insurance) in the Czech Republic. The Group takes steps to avoid risks that are not associated with its main lines of business and to minimise all other risks. The principal objectives in the management of risks and tolerance of individual types of risks are defined in the Risk Appetite Statement document approved by the Bank’s Management Board. 5.2 CREDIT RISK Credit risk is the risk of loss for a party resulting from the failure of a counterparty to meet its obligations arising from the terms and conditions of the contract under which the party became the creditor of this counterparty. The Group is exposed to credit risk in particular in case of credits granted, non-approved debits, guarantees provided, letters of credit issued, bonds purchased, derivatives and interbank deals. 5.2.1 Credit Risk Management Credit risk management is organised along the following approval processes: Individually managed exposures represent exposures to entrepreneurs and SMEs where loans and lines of credit are approved based on an individual assessment of the borrower’s creditworthiness in connection with the loan size. Portfolio managed exposures include exposures to natural persons, natural persons acting as entrepreneurs, and SMEs where loans and lines of credit are approved using an automated credit scoring process. Mortgages, bridging loans and building savings loans have a specific position, as these form a part of the retail exposures (usually portfolio managed) but a number of the processes and methods used fall within the category of individually managed exposures. Exposures to counterparties in the financial markets include exposures to financial institutions and governments. These exposures primarily arise as part of liquidity management and market risk management. Transactions in the financial markets are performed only by the Bank and Building Savings Bank; other entities in the Group only have receivables to banks in respect of current account balances. The credit risk of these exposures is managed through limits to countries and counterparties approved mainly based on external ratings. 5.2.2 Individually Managed Exposures The Group manages credit risk of individually managed exposures mainly by setting processes, approval authorities and usage of systems and models for underwriting, portfolio management, monitoring (including early warning system), reporting and collection. Internal statistical and expert judgement-based models used for underwriting estimate the probability of default of a borrower, taking into account financial, behavioural, qualitative and ESG indicators in relation to the type of product and the size of the borrower. Underwriting, portfolio monitoring and collection are usually executed individually. Underwriting of the MONETA Auto and MONETA Leasing exposures is centralized in the Bank. 5.2.3 Portfolio Managed Exposures The Group manages credit risk of portfolio managed exposures mainly by setting processes, approval authorities and usage of systems and models for underwriting, portfolio management, monitoring, reporting and collection. Internal statistical scoring models used for underwriting classify individual borrowers into categories of homogeneous exposures using socio-demographic and behavioural data as well as information from the credit bureau. Automated underwriting is complemented by individual underwriting where the client does not meet the criteria for automatic approval. The approval strategy for MONETA Auto exposures is set by the Bank. Monitoring is taken on a portfolio basis, while collection combines the use of a portfolio and individual approach according to the recovery phase and the existence of collateral. 5.2.4 Counterparties in the Financial Market The Group manages credit risk of counterparties in the financial markets mainly by setting processes, approval authorities and usage of systems and models for underwriting, monitoring and reporting. The main tool for measuring the credit risk of countries and counterparties is the rating set by international rating agencies. The Bank decides on maximum limits to countries and counterparties and their allocation among the Group’s entities. Underwriting and monitoring takes place individually. 5.2.5 Categorisation of Exposures The Bank has assigned exposures to individual categories in compliance with CNB Decree 106 RISK MANAGEMENT Annual Financial Report 2023 No. 163/2014 Coll., as amended. The categorisation is used mainly for regulatory reporting and calculation of loan loss allowances. The categorisation is as follows: • exposures without borrower default are classified as performing; • exposures where the borrower has defaulted are classified as non-performing. 5.2.6 Collateral The Group determines the nature and extent of collateral that is required either by individually assessing a prospective borrower’s creditworthiness or as an integral part of the given credit product. The Group sets up types of collateral acceptable for mitigating the credit risk on a loan or line of credit, ways for determination of collateral realisable value and collateral management processes. 5.2.7 Allowances Calculation Allowances for credit losses are determined using an expected credit loss approach as required under IFRS 9. The measurement of expected credit losses and the assessment of significant increases in credit risk considers information about past events and current conditions as well as reasonable and supportable forecasts of future events and economic conditions. The estimation and application of forward-looking information requires significant judgement. To calculate allowances, the portfolio is divided into four segments including three Stages and Purchased or originated as credit impaired (“POCI”). POCI includes exposures of the Acquired entities which were non-performing at the time of the Acquisition as well as exposures originated as credit impaired. These represent modified financial assets where material concessions were granted to obligors in default. Exposures which do not qualify for POCI are assigned to Stage 1, Stage 2 or Stage 3. Non-performing exposures belong to Stage 3. Performing exposures are assigned into Stage 2 when a significant increase in credit risk (“SICR“) since their origination occurred. Exposures that are not assigned into Stage 3 or 2 belong to Stage 1. The Group estimates 12 months expected credit loss (“ECL“) for Stage 1 exposures and lifetime expected credit loss for Stage 2, Stage 3 and POCI. The Group also uses multiple macro-economic forecasts for estimation of future losses; thus the future expected development of macro-economic variables is reflected in risk parameters. The calculation of allowances is based on statistical models. These models are used for calculation of probability of default (“PD“), loss given default (“LGD“), exposure at default (“EAD“) and the cure rate. In situations, where the statistical models used for calculation of allowances do not sufficiently capture the forward-looking risks in ECL level, management overlays are applied. 5.2.8 Credit Concentration Risk As part of managing credit risk, the Bank regularly monitors and actively manages the credit concentration risk of the Group through the limits to countries, counterparties, collateral providers, economic sectors and top 10 commercial exposures (groups of customers). Regional concentration is not relevant as most income is generated within the territory of the Czech Republic. The top 10 commercial exposures (groups of customers) represented 13.3% of commercial receivables (exposure includes gross loans and receivables, unused commitments including credit lines and guarantees) as at 31 December 2023. The top three sector exposures and their share in the Group’s commercial portfolio as at 31 December 2023 were agriculture (26.3%), real estate activities (21.3%) and services (16.5%). The main collateral providers (via guarantees) were Národní rozvojová banka, a.s. (National Development Bank), the European Investment Fund and Exportní garanční a pojišťovací společnost, a.s. (Export Guarantee and Insurance Corporation). 107 RISK MANAGEMENT Annual Financial Report 2023 5.2.9 Credit Portfolio and Its Quality 5.2.9.1 Non-performing Loans and Receivables to Customers 22 (in CZK m) 31 December 2023 31 December 2022 Retail Commercial Total Retail Commercial Total Non-performing Receivables 2,808 1,040 3,849 2,852 937 3,789 Allowances to NPL Receivables 1,307 535 1,843 1,467 557 2,024 NPL Ratio 1.5% 1.2% 1.4% 1.5% 1.1% 1.4% Total NPL Coverage 110.3% 152.2% 121.6% 123.1% 170.5% 134.8% Core NPL Coverage 46.6% 51.5% 47.9% 51.4% 59.5% 53.4% Figures in the table may not add up to the total due to rounding differences. The NPL Ratio remained at 1.4% as at 31 December 2023 (1.4% as at 31 December 2022) thanks to debt sales and continuous good repayment discipline of MONETA’s clients. At the same time, the Group maintained a conservative Total NPL Coverage of 121.6% on the total loan portfolio (134.8% as at 31 December 2022). 2 D ata on non-performing loans and receivables to customers include gross loan portfolio balance at Stage 3 and non-performing gross loan portfolio balance at Stage POCI per IFRS 9. 5.2.10 Modified Financial Assets The modification in the form of the forbearance is reflected in the categorisation of receivables in accordance with the exposures categorisation rules (5.2.5). 5.2.10.1 Forborne Receivables Forborne receivables are receivables for which the Group provided the debtor with relief as it assessed that it would likely incur a loss if it did not do so. For economic or legal reasons associated with the debtor’s financial position, the Group granted it relief that the Group would not otherwise have granted. Reliefs primarily include reworking the repayment plan, a decrease in the interest rate, a waiver of default interest, a deferral of principal or accrued interest repayments. Forborne receivables do not include receivables arising from the roll-over of a short-term loan for current assets if the debtor met all of its payment and non-payment obligations arising from the loan contract. 5.2.11 Environmental, Social and Governance (ESG) Risk Management ESG risk is the risk of losses arising from any negative financial impact on the Group stemming from the current or prospective impacts of ESG factors on the Group’s counterparties or invested assets. Environmental risk is the risk of damage to the reputation or financial situation of the Group (including the ability to utilise collateral or sell ownership stakes) or client (including adverse impact on the client’s assets or the client’s ability to continue its business activities) due to the adverse impact of client’s business activities on the environment and vice versa. Climate-related and environmental risks include both physical risk and transition risk. Physical risk is the risk of losses arising from any negative financial impact on the Group stemming from the current or prospective impacts of the physical effects of environmental factors on the Group’s counterparties or invested assets. Transition risk is the risk of losses arising from any negative financial impact on the Group stemming from the current or prospective impacts of the transition to an environmentally sustainable economy on the Group’s counterparties or invested assets. Social risk is the risk of losses arising from any negative financial impact on the Group stemming from the current or prospective impacts of social factors on the Group’s counterparties or invested assets. Governance risk is the risk of losses arising from any negative financial impact on the Group stemming from the current or prospective impacts of governance factors on the Group’s counterparties or invested assets. Within credit risk management, the Group assesses environmental risk both for clients and their businesses and for collateral. Environmental risk is assessed at a transaction level for individually managed exposures and a product conditions level for portfolio-managed exposures. The CRCO sets up principles for environmental risk management, including restrictions 108 RISK MANAGEMENT Annual Financial Report 2023 for economic sectors, activities and collateral. The Group assesses the overall ESG risks of selected commercial borrowers within the internal rating model (see Note 44.2.1 Credit Risk Management of Notes to Consolidated Financial Statements of MONETA Money Bank, a.s.). In addition, the Group adopted an ESG Strategy summarising the main principles and the Group’s approach to ESG and sustainability and setting objectives that are to be achieved in the following years. Comprehensive information about the ESG area is available in MONETA’s separate Sustainability Report 2023 published on website https://esg.moneta.cz/. 5.3 CONCENTRATION RISK Concentration risk is defined as the risk arising from the concentration of exposures with respect to a person, an economically related group of persons, sector, region, activity or commodity. The Group manages the concentration risk within individual risks, primarily the credit risk and liquidity risk. Activity and commodity concentrations are not relevant for the Group. 5.4 MARKET AND LIQUIDITY RISK Market risk is the risk of a loss arising from changes in prices, rates and indices in the financial markets. Due to its activities, the Group is exposed mainly to interest rate risk and foreign exchange risk. 5.4.1 Interest Rate Risk Interest rate risk is the risk of a loss arising from changes in interest rates in the financial markets. The Group is exposed to interest rate risk as interest-bearing assets and liabilities have different maturity periods or interest rate repricing periods. The Bank strives to minimise the Group’s interest rate risk by setting limits and keeping positions within these limits. The interest rate risk management activities are aimed at reducing the risk of losses. The Group’s interest rate risk management is centralised in the Bank. Only certain client products (FX swap, FX forward, FX spot) of the Bank are included in the Trading book, all other positions of the Group are included in the Banking book. 5.4.2 Foreign Exchange Risk Foreign exchange risk covers the risk of a loss due to changes in exchange rates. The Group is exposed to the foreign exchange risk primarily due to the foreign exchange loan products to commercial borrowers and foreign exchange deposits. The management of the Group’s foreign exchange risk is centralised in the Bank. The Bank strives to minimise the foreign exchange risk of the Group. For this purpose, the Bank maintains a balance of assets and liabilities in foreign currencies (by using a mix of FX spot, forward and swap transactions). 5.4.3 Liquidity Risk Liquidity risk represents the risk of an inability to meet financial liabilities when due or to finance increases in assets. The liquidity risk of subsidiaries is managed by the Bank (providing funding if needed). For liquidity and liquidity risk management, the banks in the Group (in 2023 the Bank and the Building Savings Bank) created a liquidity sub-group. As the banks in a liquidity sub-group were provided an exemption from certain liquidity requirements on individual levels by the CNB in 2020, and so since 2021 the Czech National Bank has supervised the Bank and Building Savings Bank as a liquidity sub-group for liquidity purposes. 5.5 OPERATIONAL RISK Operational risk represents the risk of a loss resulting from inadequate or failed internal processes, people or systems, or from external events, including the risk of loss due to a breach of, or failure to comply with, legal or regulatory requirement, or a threat to the Group’s reputation. It also includes legal and outsourcing risks. The Group implemented standardised tools and processes for operational risk management, including Risk & Control Self-Assessment (“RCSA”), Loss Data Collection (“LDC”) of actual internal operational risk losses, monitoring of external risk events, Key Risk Indicators, scenario analyses and Issue management that is used to record, monitor and report identified risks and issues. The Issue management system is also used for monitoring the relevant action plans, if applicable, and is closely linked to the RCSA process. To mitigate operational risk, the Group produces and maintains business continuity plans for critical situations and operations’ recovery with the aim of ensuring business activities at a back-up workplace and IT disaster recovery plans for key IT applications. The Group also uses the following methods for mitigation of operational risk: • decrease of risk by means of process improvements, organisation changes, introduction of limits, Key 109 RISK MANAGEMENT Annual Financial Report 2023 Risk Indicators or controls, or use of technologies; • transfer of risk via outsourcing; • decrease of risk impact via insurance (mainly for high severity and low frequency operational risk events); and • avoidance of risk by terminating risk-inducing activities. The Bank’s Management Board specifically approves the operational risk governance structure and framework, and the Group’s objectives for operational risk management and decides whether to accept major risks if there are no feasible remedial measures. The ORCO oversees the Group’s operational risk management process and approves methods, limits and Key Risk Indicators, monitors adherence to approved limits and Key Risk Indicators and approves principal changes in the insurance programme. The ERM department especially develops and maintains the operational risk methodology for RCSA, LDC, Key Risk Indicators, outsourcing and insurance, provides measurement of operational risk using the LDC process and Key Risk Indicators and reporting to the ORCO. Individual organisational units across the Bank have operational risk co-ordinators who co-operate with the ERM department in RCSA and issue management process. Whenever it is effective, the collection of certain loss events within the LDC process is centralised in selected organisation units. Other important parts of operational risk (compliance, cyber security, business continuity and legal risk) are managed by other organisational units as described below. 5.5.1 Compliance Risk Compliance risk represents the risk of legal or regulatory sanctions, material financial loss or loss to reputation as a result of failure to comply with laws, regulations, and relevant self-regulatory organisations’ standards and codes of conduct. The Bank’s Compliance Department is an independent control function responsible for monitoring compliance with laws, regulations and internal policies. It oversees the implementation of applicable laws and regulations and provides compliance training to the Group’s employees. The Compliance Department is managed by the Director Compliance, who functionally reports to the Bank’s Management Board and organisationally directly to the Chief Executive Officer of the Bank. The Group manages compliance risk by requiring business activities to adhere to the various compliance policies which it has established and by monitoring compliance with these standards. The Group also has an Issue management system in place to monitor and resolve any compliance issues as they arise. The key areas of responsibility of the Compliance Department include: • managing day-to-day regulatory interactions, and management and follow-up of regulatory on-site or off-site inspection issues; • ensuring and recording the communication of the Group’s entities with local as well as international regulators and authorities, mainly with the CNB, Financial Arbitrator, Data Protection Office, National Cyber and Information Security Agency, Financial Analytical Office or European Banking Authority, as the Group’s single point of contact for communication with all regulatory authorities; • ensuring the Group is aware of the latest legislative and regulatory developments through a process of identification and analyses of legislative and regulatory changes that will have a material effect on the Group’s entities via its “Regulatory Early Warning System”, including initiation of the necessary implementation of the changes and its validation; • ensuring compliance of the Group’s internal policies with applicable legal and regulatory provisions as well as compliance with all other internal policies; • introducing, co-ordinating and overseeing the Group internal policy framework (see the Annex for the list of the significant internal policies); • ensuring compliance with Anti Bribery (Improper payments) and Corruption programme, Competitor Programme & Competitor Contacts database, Conflict of Interest Programme; • performing regular and ad hoc compliance monitoring and controls including co-ordination of the correction process of identified deficiencies and its validation; • co-ordinating the correction process of deficiency findings and recommendations of financial counsellors or relevant community or non-profit organisations; • maintaining the Client Ombudsman function addressing serious client complaints; • maintaining an Employee Ombudsman function operating an independent and confidential channel to ensure protection of whistle-blowers reporting potentially illegal or unethical behaviour; • overseeing compliance with the data privacy and personal data protection agenda. In the reporting period, the Compliance Department coordinated, especially the course of the CNB inspection focused on control of the operational risk management and management of the risks of information systems and technologies. The inspection commenced on 23 February 2023. The Bank subsequently provided all requested documents and materials to the CNB. The 110 RISK MANAGEMENT Annual Financial Report 2023 on-site part itself commenced on 12 May 2023. There were 23 dedicated meetings with the CNB on the ICT part of the inspection and 9 dedicated meetings with the CNB on the operational risk management part. The Bank received the inspection protocol on 18 September 2023, and the Bank confirmed that it would not submit any objections against the protocol on 13 October 2023. As a result of the inspection, there were 4 findings in the area of operational risk management with low severity (grade 1). Specifically, these were in the areas of Identification and Assessment of Operational Risks, Calculation and Reporting of Capital Requirement, Reporting of Operational Risk Events and Monitoring of Operational Risk Events. In the area of risk management of information systems, the CNB identified partial deficiencies in 4 areas. The findings in the ICT operations area were of medium severity (grade 2 on a scale of 1 to 4, with 4 being the highest severity), the business continuity and contingency planning areas were of lower to medium severity (grade 1 to 2), and the (ICT) security incident reporting and ICT security monitoring areas were of low severity. The Bank created an action plan for effective risk mitigation in response to all these findings, which was subsequently confirmed with the CNB. In addition to the above-mentioned inspection, the Compliance Department coordinated the CNB’s regulatory investigation focused on foreign currency loans and the subsequent development and approval of the action plan. From the perspective of the CNB, this was a market-wide investigation which resulted, among other things, in a draft supervisory note in the revision of which the Bank was actively involved. No administrative proceedings have been initiated during the reporting period, and no fine has been imposed by the CNB or any other regulator. In the above-stated and all similar cases, the Bank adopts a very proactive role in cooperation with the Czech National Bank as the main regulatory authority and the Bank acts with a maximum transparency. 5.5.2 Cyber Security The main objective of cyber security is to protect information assets by maintaining their confidentiality, integrity, availability as well as the credibility of information stored at these assets. The Group understands the significance of well-designed and implemented cyber security and considers it as one of its key priorities. Cyber security is assured and applied via a volume of security processes and tools covering all security areas ranging from overall external and internal perimeter protection, end-point protection, identity and access management, data loss prevention, and vulnerability management to user awareness. The aim is to ensure the maximal level of cyber security risk coverage and protection of the Group’s assets and information, including client’s data. The year 2023 saw a number of major events in the cyber security area. According to NCISA, various types of phishing, spear-phishing, vishing, and fraudulent e-mails or attacks on availability, mainly in the form of DDoS attacks, were among the most common types of attacks during the past year in the Czech Republic. MONETA and its clients were not spared either. The ongoing war of aggression against Ukraine continued to influence the cyber landscape – the most noticeable were politically motivated DDoS attacks against EU member states coordinated by pro-Russian hacker groups. MONETA was targeted by several DDoS attacks in the second half of the year, together with other institutions in the Czech Republic. Thanks to a robust infrastructure and network filtering technologies, the Bank’s operation and availability of digital channels experienced only minor interruptions and subsequent attempts were fully mitigated. Throughout the year, the Group continued conducting a red teaming activity (i.e., simulated cyber-attacks) with the help of an external partner. The goal of this engagement was to identify potential weaknesses in the Bank’s IT environment as well as physical access and test employees’ resilience to social engineering by realistically simulating an attack of a motivated and well-funded group, which would utilise any techniques available to achieve its goals. Key findings of this exercise have been incorporated in MONETA’s Cyber Security Strategy and the underlying initiatives plan for the period of 2022–2023. To further strengthen the security of applications and digital channels, the Bank launched a public bug bounty programme in June 2023 (see https://www.moneta.cz/ bug-bounty). This allows ethical hackers and security researchers, who find bugs and vulnerabilities in the Group’s environment, to responsibly report them and upon verification by the Cyber Security department, get rewarded. From February 2023 to September 2023, the CNB conducted an inspection focused on control of the operational risk management and management of the risks of information systems and technologies (see 5.5.1. for further details). 5.5.2.1 Cyber Security Strategy The Group has established a cyber security strategy, which is endorsed by the Management Board. The strategy is reviewed yearly in order to assure its validity and adjustment to the objectives of the business and 111 RISK MANAGEMENT Annual Financial Report 2023 IT strategy and to the overall situation in the banking industry and the latest cyber security industry trends. The latest update is valid from November 2023. The cyber security strategy of the Group is strongly based on the foundation of the following three pillars: • governance; • risk management; • compliance management. Governance is a critical component of the strategy and the main defensive building block defining an overall cyber security approach. Concise and consistent rules and accountability define clear policies and procedures that must be followed. In order to broaden cyber security competencies, cyber security risks are continuously managed by repeatedly: • specifying security objectives; • executing regular and ad-hoc risk assessments (including internal and external audits) and controls; • continuous implementation of corrective measures; • monitoring and reviewing the performance of measures applied; • maintaining and improving the process. The Cyber Security department is a part of the Risk Management Division and follows and achieves the defined strategy goals by: • ongoing communication of an accurate risk landscape to the top management, • periodical assessment reviews; • issuing security policies, guidelines and procedures; • providing guidance and assurance in implementing controls and measures; • monitoring adherence to controls via suitable tools; • investigating emerging threats and security trends; • acting as a second line of defence (the IT departments being the first); • cooperating with other second-level control departments/teams, internal/external audit and regulators; • effectively managing cyber security incidents; • increasing cyber security awareness within the Group. 5.5.2.2 Monitoring and Incident Management To ensure the reliability, availability and security of business services within an increasingly complex IT environment, the internal IT/network traffic is constantly monitored for anomalies with a special focus on assets in the scope of the Czech Cyber Security Act. Real-time analysis of generated security alerts and collected logs are provided by the Security Information and Event Management (“SIEM”) system, whose operational capacities were significantly enhanced in 2021 in order to meet increased volumes of incoming security-related data and which is monitored by the 24×7 Security Operations Centre (“SOC”). Subsequently, in 2023, the capabilities of the system were further improved by the connection of additional log sources of selected applications. Alerts and incidents are investigated/resolved by the Cyber Security department and eventually escalated to Incident managers (when appropriate). The Cyber Security department follows the incident end-to-end and makes sure that not only is the incident resolved, but appropriate “lessons learned” from the incident are also identified and implemented. 5.5.2.3 Endpoint and Server Protection Special attention in terms of coverage of cyber security related risks is paid to the protection of endpoints and servers as they are often used as the main entry points into companies for all kinds of threat actors. The protection of such devices in MONETA is secured by a full-scale EDR (Endpoint Detection and Response) solution. The advanced features of the solution based not only on traditional signature scanning but also on behavioural analyses and threat intelligence provides better protection against advanced threats like polymorphic viruses and ransomware. 5.5.2.4 Vulnerability Management and Penetration Testing Vulnerability management and penetration testing have always been an integral part of the internal security programme. To remain up to date, the scope of vulnerability scanning, its methodology and tools used for this activity are constantly updated and tuned as new threats and vulnerabilities emerge. In addition, regular and ad-hoc control vulnerability management activities provided by reliable, respected partners are conducted. Similarly, the application penetration testing is based on cooperation with proven vendors, contemporary tools and adjusted to recent technologies and development concepts. Overall application protection has been reinforced by deployment of a new anti-virus/anti- malware solution scanning all files uploaded into Group applications by its clients and other third parties (vendors, dealers, brokers, etc.). 5.5.2.5 Vendor Management The Group diligently selects external resources via a structured and documented process of monitoring and performing assessments of vendors and external outsourcing providers. In order to minimise the risk and to evaluate their security status, the process naturally incorporates multiple divisions and departments (mainly Risk Management Division, Legal Department, Compliance Department, etc.) to define the correct contractual requirements and agreements. Contracts between the Group and providers of information 112 RISK MANAGEMENT Annual Financial Report 2023 technology-related services always include agreements focused on ensuring that entrusted data remain secure and protected, and these requirements are also extended to other sub-processors or 3 rd parties. The performance of the Group’s outsourcing providers is monitored continuously and reviewed at least once a year or in case of significant changes in the provided service. The Group seeks to leverage the benefits of cloud services that are highly secure, able to provide scalable innovative digital platforms within a secure environment, and that meet the requirements of the most security-sensitive organisations. With cloud services, MONETA co-operates with the regulators (CNB and NCISA) as well as cloud providers very closely to make sure it does not step outside of the regulatory boundaries. 5.5.2.6 Data Protection and Data Privacy In banking, trust and confidentiality are essential. The Group strives to achieve the maximum protection of data in its custody, especially clients’ data. The Group follows and enforces the “need to know” principle (i.e., limited access to information based on the necessity to conduct work duties) and has established appropriate processes focused on privacy and information protection. Data security is governed by the general information security policy, compelled within the whole Group, that is further elaborated into policies, procedures and guidelines applicable to all company processes. Data classification in custody is enforced. Mandatory encryption “at rest” and “in transit” are applicable to any data classified as Confidential or Restricted. Special attention is dedicated to personal data and sensitive personal data. As the Group operates in the EU, it is fully subject to the GDPR and therefore meets its strict requirements for securing, handling and managing personal data. Third parties with whom the data is shared are assessed and evaluated during the vendor management process (see 5.5.2.4) and data privacy and non-disclosure agreements are concluded to achieve an adequate level of data protection. Data stored on endpoints, especially from lost or stolen equipment, has always been an interesting target for attackers in attempts to gain access to valuable data. In order to meet compliance requirements and to prevent the theft of personally identifiable information or sensitive personal information, the Group leverages a powerful software component composed of several protection suites, which provide: • strong access control and data encryption; • certified encryption technology; • support for both company-issued and “bring your own” device environments. To further enforce policies on compliance, privacy, and intellectual property protection, a market-leading data loss prevention (“DLP”) solution has been deployed company-wide. Access to the DLP tool is being logged and strictly limited to authorised personnel from the Cyber Security department, and authorised personnel from AML & Anti-Fraud department ensuring anti-fraud management. The DLP solution protects the Group’s assets against unauthorised usage of valuable company data by internal users via numerous means, including hardware and content-based filtering and blocking of confidential data on any removable storage devices (e.g., USB devices). Any suspicious activity related to possible data leakage is thoroughly investigated and if proven correct, defined action steps are taken in close cooperation with the Compliance Department, including notification of data subjects, stakeholders and regulators. 5.5.2.7 Training and Awareness Bearing in mind that humans represent the weakest link in cyber security defence,the Group has developed thorough training programmes to raise awareness and help employees as well as clients navigate, survive and thrive in the digital environment, make informed decisions, and successfully recognise and deal with various types of possible threats. The cyber security awareness programme in MONETA consists of several parts, including articles distributed via intranet and e-mail, quarterly e-learning courses, and the utilisation of digital signage in headquarters and branches. Additionally, all newly hired employees must complete a special introductory course in the area of information security. A strong organisational culture and morale, supported by a strong cyber security education programme, combined with teamwork, collaboration, and loyalty, create an incredibly powerful security measure. The Group also utilises a special cyber security awareness platform that via phishing simulation campaigns helps to keep users aware of the dangers of phishing and statistically evaluates the results and risk score based on numerous criteria. Because of that the Group can adjust its security awareness programmes and overall level of protection measures applied based on hard data. 5.5.2.8 Cyber Threat Intelligence To further enhance MONETA’s cyber security and risk management capabilities and improve reaction to cyber security events, MONETA partnered up with a cyber threat intelligence vendor. Cyber threat intelligence allows the Group to prevent, mitigate or react to cyber security risks quickly (even before they occur or during very early stages). This enables MONETA to defend its 113 RISK MANAGEMENT Annual Financial Report 2023 assets and the assets of its customers (e.g., Internet Banka credentials, bank cards etc.) more proactively by maintaining up-to-date information on a vast number of threats, including methods, vulnerabilities, targets and malicious actors. In addition, this partnership has enabled MONETA to monitor open and closed sources on the internet and alert on direct threats to the Group and its clients. Since 2020, the Group has been able to search for compromised or stolen information of its clients which was being sold by cyber criminals on dark web marketplaces. Obtained information included stolen internet banking credentials or details about a payment card which the attackers obtained from a vulnerable third party or with malware present on the client’s devices (PCs, smartphones). Thanks to this monitoring, the Group was able to warn the affected clients, provide recommendations and prevent possible fraudulent activity. 5.5.3 Business Continuity The main goal of business continuity management is to ensure the lowest possible impact on the Group’s business continuity in the case of an extraordinary situation with regard to employee security or health, while maintaining duties prescribed by legal and regulatory requirements. The regular business continuity management process includes Risk Assessment – decisions about critical and non-critical processes, Business Impact Analysis and Business Continuity Plans for critical processes, training and tests. The Group has developed Business Continuity Plans for all critical processes. The Group regularly tests Business Continuity Plans and reviews and assesses their adequacy. During the past five years, the Group (including Building Savings Bank) has experienced no material interruption in its business operations. 5.5.4 Legal Risk Dealing with legal risk and managing it means minimising uncertainty associated with enforcement and interpretation of applicable law, contracts and regulations. In addition to standard legal functions in the various areas such as contract, banking and corporate law, the main tasks of the Group’s lawyers during 2023 consisted of keeping both the retail and commercial contractual documentation aligned with both the business strategy and various needs of the business departments of the Group, as well as new regulations. The Group continuously monitors legal disputes and provision is created for the estimated amount of payment if it is more probable than not that the cash outflow will have to be made. 5.5.5 Legal Disputes The Group is not a party to any significant legal disputes. 5.6 MODEL RISK Model risk refers to the possibility of adverse consequences or other negative impacts emerging from decisions based on the results of a flawed model or the incorrect use of model outputs and/or reports (linked to errors in the development, implementation or use of the models). The Group manages model risk mainly by actively managing individual phases of the model life cycle, among others by imposing requirements and standards on: • model Tiering; • model development documentation; • model validation; • model approvals; • model performance monitoring. Model Tier reflects the influence, complexity and other aspects of models and triggers mainly the depth of model documentation, validation, and approval requirements. The ERMC is responsible for the general set-up of the model risk management process in the Group, with the Model Risk Oversight Committee monitoring compliance and model performance on a regular basis and reporting regularly to the ERMC. The ERMC authorities notably cover approval of the Tiering framework and approval of model use for the most influential models. 5.7 RISK OF EXCESSIVE LEVERAGE The risk of excessive leverage is the risk resulting from a vulnerability due to leverage or contingent leverage that may require unintended corrective measures to a business plan, including distressed selling of assets which might result in losses or valuation adjustments to remaining assets. The Group manages the risk by setting limits on regulatory leverage and keeping regulatory leverage within these limits. Limits are set to the Bank and Building Savings Bank on an individual level and to the Bank also on a consolidated level. Leverage at a consolidated level was 5.7% as at 31 December 2023 (6.7% as at 31 December 2022). CRR 2 introduced a binding leverage ratio requirement of 3% from June 2021. We thrive with MONETA How do four people manage 80 hectares of land, 50 cows and the production of cheese and cream desserts? The history of the family farm dates back to the 17th century when the first Kropáček settled in Nelepeč. The Nelepeč organic farm has been handed down from generation to generation ever since. Veronika Kropáčková, her parents and her brother farm organically with regard to sustainability, the landscape and the environment. They give loving care to the animals that are the source of their livelihood. We are honoured to be a part of it! Veronika Kropáčková Ecofarm Nelepeč 117 SUSTAINABILITY AT MONETA Annual Financial Report 2023 6. SUSTAINABILITY AT MONETA 1 Source: https://www.cdp.net/en/responses?utf8=%E2%9C%93&queries%5Bname%5D=MONETA+MONEY+BANK. In 2023, MONETA continued to further develop and expand its sustainability activities. The ESG strategy published at the end of October 2021 was a cornerstone for initiatives and projects that the Group has conducted since then. Last year, the areas included initiation of double materiality analysis and Corporate Sustainability Reporting Directive (CSRD) gap analysis to achieve compliance with new regulatory requirements. MONETA continued to be included in the ESG ratings, such as MSCI, Sustainalytics, CDP, ISS, S&P and FTSE4Good. The Group’s score in these ratings reflects its commitment to continually shifting its approach to sustainability and also demonstrates the link to the Group’s business strategy. In 2023, MONETA achieved improvements in FTSE4Good from 3.0 to 3.5 and maintained its leading position “AA” in the prestigious MSCI ESG rating. The ESG strategy is available on MONETA’s website https://esg.moneta.cz/ and presents its guiding principles and approach in the Environmental, Social and Governance (ESG) area, both in the Bank itself and all its subsidiaries. During 2023, MONETA continued to extend its activities related to the 11 Sustainable Development Goals (SDGs) that are most relevant to its overall strategy and are consistent with its view of sustainability. MONETA’s long-term goal is to consider the impact of ESG on its business and contribute to sustainable growth. MONETA views sustainability as a fundamental pillar of its overall strategy. For this reason - and following the publication of its ESG strategy and a more detailed approach to sustainability - MONETA issues a comprehensive and detailed Sustainability Report for 2023 dedicated to sustainability and ESG topics as a separate document published alongside the 2023 Annual Financial Report. The Sustainability Report for 2023 is available on MONETA’s Sustainability website https://esg.moneta.cz/. The Sustainability Report includes all non-financial information on the environment, social and employment issues, respect for human rights and the fight against corruption as required by Accounting Act No. 563/1991 Coll., Part eight and also information in accordance with Regulation (EU) 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment (the EU Taxonomy regulation). 6.1 RELATIONSHIP TOWARDS THE ENVIRONMENTAND THE COMMUNITY MONETA behaves responsibly towards the environment and encourages such behaviour within the communities in which it operates. All MONETA’s activities comply with applicable environmental protection laws. Therefore, since 2016, MONETA has been regularly measuring its carbon footprint and taking systematic steps to reduce it. Since the first measurement in 2016, it has managed to reduce direct carbon dioxide emissions by more than 81.3%. For total emissions, i.e. Scope 1-3, MONETA has achieved a reduction of more than 51.2% (without the carbon footprint associated with the commercial loan portfolio). Such results were achieved thanks to the ever-increasing share of electric vehicles in the company fleet, which has already reached 66%. Furthermore, this is thanks to the use of solely green energy at the headquarters and all branches of the Group. In Scope 3, it was mainly driven by significantly lower emissions from waste and purchased products and services. In 2023, the carbon footprint calculation was again certified according to ISO 14064-1:2018. In 2023, MONETA calculated the carbon footprint of its commercial loan portfolio for the second time with the aim of reducing the impact of this portfolio on its total carbon footprint. For the first time, the calculation also included the retail auto loan portfolio. In February 2024, CDP confirmed MONETA’s rating at level “B”. 1 MONETA has long supported innovative environmental solutions such as photovoltaic power plants and biogas stations in the CZ-Biom programme. Even in 2023, MONETA remained a major partner of the Czech University of Life Sciences, especially in the Smart Landscape 2030+ (“Chytrá krajina 2030+”) project. In 2023, MONETA donated another CZK 5.5 million to the development of innovations within this project, which examines climate conditions after 2030 and their impact on landscape change. MONETA also supports environmentally oriented projects through its Grant Programme for the Support of People in Need. Since 1996, this initiative has been providing financial support to projects of non-profit organisations helping disadvantaged children, adults and the elderly, as well as to those oriented towards environmental protection. In 2023, the Group supported 75 non-profit organisations. In total, MONETA distributed CZK 7.3 million among them. 118 SUSTAINABILITY AT MONETA Annual Financial Report 2023 MONETA employees also help non-profit organisations during their two volunteer days, which they can use. In 2023, a total of 729 employees took advantage of this opportunity and worked a total of 4,560 hours (570 volunteer days) 2 in 36 organisations. MONETA’s employees also organised fundraisers to help not only selected organisations but also colleagues in difficult life situations. MONETA also supports employees in difficult life situations through the Social and Matching Fund, from which six employees received a total of CZK 964,840 in 2023. MONETA also cooperates with other organisations whose focus is in line with its strategy in the area of environmental and social responsibility, corporate governance and transparency. These important partners include the Václav Havel Library, Post Bellum, the Reporter Foundation - Institute for Independent Journalism, the Civil Society Development Foundation (Nadace rozvoje občanské společnosti), and the Journey to the Dream (Cesta za snem). 6.2 DIVERSITY POLICY MONETA supports and pursues a diversity policy which results in a balanced set of individuals in the Bank’s governing bodies as one of the priorities of corporate governance. One of the activities of the Supervisory Board is, inter alia, ensuring and regularly reviewing the structure and composition of the Management Board and the Supervisory Board in order to reflect the Bank’s needs in terms of managerial competence, i.e. to reflect professional experience, technical knowledge, managerial skills and other requirements including the gender equality of its composition. These activities of the Supervisory Board are ensured by the Nomination Committee, whose powers and rules of conduct are determined by the Statute of the Nomination Committee and are described in detail in Chapter 4 “Corporate Governance”, section 4.11.1.1 “Nomination Committee”. Already in 2020, MONETA adopted a Diversity, Equity and Inclusion Policy, joined again the Diversity Charter and reaffirmed its long-standing commitment to employee equality and uniqueness. To this end, MONETA has created an expert committee on diversity, inclusion and gender equality called MON FAIR. MON FAIR is an advisory body to MONETA’s Management Board that aims to promote actions that will lead to the reduction of inequalities across the Group. The measures and changes adopted as a 2 A volunteer day represent 8 hours of volunteer work. 3 Document is available at MONETA Money Bank webpages at https://investors.moneta.cz/documents/12270853/20121822/mmb-diversity-equity-inclusion-policy-2022-en.pdf. result of MON FAIR activities contribute to improving employee satisfaction. One of the outputs of the MON FAIR committee is the updated Diversity, Equity and Inclusion Policy 3 published in July 2022, describing principles and guidelines in this area. MONETA has committed to those rules and put them into day-to-day business. One of the pillars of MON FAIR is the support of parents in MONETA. In March 2023, the Bank’s Management Board approved the launch of the MONETA Motýlci children’s day-care group based on a proposal from the MON FAIR Committee. Following the renovation of the multifunctional room and successful approval from authorities, the children’s day-care group was officially opened on 7 November 2023. To increase the flexibility of parents of children and pregnant women, MONETA has enabled extended use of work from home, known as Flex place, to up to 12 days a month. In November 2023, due to a labour code change, MONETA aligned the limit for remote working up to 12 days for employees except selected managers and employees working in distribution networks. To support parents of young children, MONETA has been providing financial allowances for early return from maternity or parental leave since the beginning of 2021. Another area of diversity policy are activities under the name MON CARE, which aim to support informal caregivers, chronically ill employees and intergenerational dialogue. MONETA supported all informal caregivers, chronically ill, including women suffering from endometriosis, and offered them the opportunity to work from home up to 12 days a month. In addition, the Bank’s Management Board approved up to 5 days of paid leave per year for informal caregivers, which significantly helps them to provide the necessary care for their loved ones. As part of the so-called “age management”, junior colleagues connect with experienced employees. This is the third year MONETA has implemented the Trainee Program, which is popular among students for gaining work experience while studying at university. The activities of the inclusion initiative called MON STEP, which was established in September 2021 and is aimed at helping disabled workers and their inclusion, continued in 2023. The goal of raising awareness, removing barriers to communication with disabled employees as well as working with managers who lead those employees is to increase the share of disabled employees in MONETA to 3.5% by 2025. As of the end of the year, this share of such employees was 1.36%. 119 SUSTAINABILITY AT MONETA Annual Financial Report 2023 In May 2023, MONETA started the third year of the development programme for female managers, which aims to support both current female managers in their roles and female employees who are preparing for managerial positions. The programme is designed to help increase the number of women represented in managerial positions. In its medium-term sustainability targets, MONETA aims to achieve a 50% share of women in managerial positions and a 35% share of women in executive positions of the Group by the end of 2026. Through its continuous and long-term focus on supporting gender diversity, MONETA is meeting the requirements defined by Directive (EU) 2022/2381 on improving gender balance (“Women on Boards”) as approved by the European Parliament and the Council in November 2022. On 13 July 2022, MONETA became a signatory of the Women’s Empowerment Principles, which define a set of policies to enforce gender equality and empowerment of women in the labour market. The final pillar of MON FAIR, under the name MON Pride, is the support of LGBTQ+ employees. In 2023, MONETA partnered with the Pride Business Forum Foundation to support LGBTQ+ employee diversity in the workplace. In 2023, MONETA also expressed its public support for the We Are Fair initiative, which seeks to push for same- sex couples to be able to marry in the Czech Republic. In June 2023, MONETA received an Active engagement recognition from Pride Business Forum for the support of the LGBTQ+ community. In 2023, MONETA was once again included in “Bloomberg’s Gender-Equality Index”. MONETA was listed in this index as the first Czech company already in 2019 and continuously succeeded in decreasing the difference between male and female remuneration measured by the “pay gap” indicator. The pay gap reported for 2023 was only 0.88%, which is 85bps below the 2022 result. This confirms MONETA’s effort to eliminate the differences in remuneration, targeting to achieve a 0% pay gap, latest in 2026. MONETA applied for listing in the index also in 2024, which will be confirmed at the end of the first quarter of 2024. 6.3 SUSTAINABILITY TOWARDS CLIENTS AND SUPPLIERS MONETA’s priority in all its activities is both employee satisfaction and, above all, client satisfaction. The feedback from clients is obtained primarily through the award-winning feedTrack application. By analysing this feedback, it is possible to effectively target potential weak points and continuously improve services. Clients in need may contact the Client Ombudsman and MONETA Clementia Foundation, which since its establishment has helped 77 clients and decided to waive debts in the total amount of CZK 25.5 million. Responsible marketing, responsible handling of client data and a high level of cybersecurity are a matter of course for MONETA. The overall pro-client approach is reflected not just in setting up products and services but also in removing barriers from branches and digital channels. Where the nature of the products and services makes this possible, MONETA prefers to work, in the long term, with local suppliers. It also requires responsible behaviour from all suppliers, with compliance with the Group’s Supplier Code of Ethics as its foundation and also collects information on supplier sustainability attitudes through a complex ESG questionnaire. In particular, MONETA emphasises the information on the supplier’s approach to measuring its carbon footprint, but also on its overall strategy for reducing emissions. Assessment of ESG questionnaires plays an important role in the selection process of MONETA’s suppliers. Gabriel Eichler Chairman of the Supervisory Board and member of the Nomination and Remuneration Committees Miroslav Singer Vice-Chairman of the Supervisory Board, Chairman of the Risk Committee and member of the Remuneration Committee Kateřina Jirásková Member of the Supervisory Board and the Risk Committee Zuzana Prokopcová Member of the Audit Committee Supervisory Board and Audit Committee MONETA Money Bank Michal Petrman Member of the Supervisory Board and the Nomination Committee and Chairman of the Audit Committee Clare Ronald Clark Member of the Supervisory Board and Chairman of the Nomination and Remuneration Committees Denis Arthur Hall Member of the Supervisory Board and the Risk Committee, member of the Audit Committee Klára Escobar Member of the Supervisory Board elected by employees Zuzana Filipová Member of the Supervisory Board elected by employees Jana Výbošťoková Member of the Supervisory Board elected by employees 123 OPINION OF THE SUPERVISORY BOARD Annual Financial Report 2023 7. OPINION OF THE SUPERVISORY BOARD The Supervisory Board fulfilled during 2023 all its duties stipulated by law, the Articles of Association and internal policies and also maintained its supervision over the exercise of powers by the Management Board. It also reviewed the accounts and other financial documents, ascertained the effectiveness of the management and control system and made regular assessments. Having reviewed the consolidated and separate financial statements for the year 2023, the Supervisory Board reports that the accounting records and financial documents have been kept in a transparent manner and in accordance with the laws and regulations governing the conduct and accounting of banks. The financial statements prepared on the basis of these accounting records present a true and fair view of the accounting and financial position of MONETA Money Bank, a.s. and the Group as a whole. For the year 2023, MONETA Money Bank, a.s. reported a net profit of CZK 5,200,290,403.66 according to the consolidated financial statements and a net profit of CZK 5,379,725,188.02 according to the separate financial statements. The Supervisory Board recommends that the General Meeting approve the consolidated and separate financial statements. The Supervisory Board further reviewed the proposal of the Management Board and recommends to the General Meeting to approve the distribution of profit after tax for the financial year 2023 according to the separate financial statements of MONETA Money Bank, a.s., for the year 2023 in the total amount of CZK 5,379,725,188.02 as follows: (i) to be distributed to the shareholders of the Bank as dividend: CZK 4,599,000,000.00 (ii) to be transferred to the account of retained earnings: CZK 780,725,188.02 The amount of the profit to be distributed to the shareholders as dividend is CZK 9 per share. In Prague on 19 March 2024 On behalf of the Supervisory Board: Gabriel Eichler Chairman of the Supervisory Board MONETA Money Bank, a.s. Management Board MONETA Money Bank Tomáš Spurný Chairman of the Management Board and Chief Executive Officer Jan Friček Member of the Management Board and Chief Financial Officer Carl Normann Vökt Vice-Chairman of the Management Board and Chief Risk Officer Jan Novotný Member of the Management Board and Chief Commercial Banking Officer Klára Starková Member of the Management Board and Chief Operating Officer 127 MANAGEMENT AFFIDAVIT Annual Financial Report 2023 8. MANAGEMENT AFFIDAVIT To the best of our knowledge, we believe that both the consolidated and individual financial statements, which are part of this Annual Financial Report and were compiled in accordance with applicable accounting standards, provide a true and fair view of the Bank and Group’s financial position, business activities, and results in the year 2023. Additionally, this Annual Financial Report, compiled pursuant to laws regulating accounting, offers a fair overview of the development, performance, and position of the Bank and Group in 2023, along with a description of the main risks and uncertainties they face. In Prague on 18 March 2024 Tomáš Spurný Chairman of the Management Board and CEO MONETA Money Bank, a.s. Jan Friček Member of the Management Board and CFO MONETA Money Bank, a.s. We thrive with MONETA The largest rooftop photovoltaic project to date was carried out by SEPO COMPANY in Wijchen, the Netherlands, where 10,632 panels and 25 inverters were installed on the roof of a DHL warehouse. But they have also helped the domestic Lidl with photovoltaics and prepared solutions for a number of houses. In fact, they tailor-make the photovoltaic plant for each client and handle all the documentation for them, including the New Green Savings subsidy. We are honoured to be a part of it! Jan Poříz SEPO COMPANY s.r.o. 131 FINANCIAL SECTION Annual Financial Report 2023 9. FINANCIAL SECTION INDEPENDENTAUDITOR’SREPORT Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related en tity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more. INDEPENDENT AUDITOR’S REPORT To the Shareholders of MONETA Money Bank a.s. Having its registered office at: Vyskočilova 1442/1b, Michle, 140 00 Prague 4 Report on the Audit of the Consolidated and Separate Financial Statements Opinion We have audited the accompanying consolidated financial statements of MONETA Money Bank, a.s. and its subsidiaries (hereinafter also the “Group”) and separate financial statements of MONETA Money Bank, a.s. (hereinafter also the “Company”) prepared on the basis of IFRS Accounting Standards as adopted by the European Union. The consolidated financial statements comprise the consolidated statement of financial position as of 31 December 2023, consolidated statement of profit and loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of material accounting policies (the “Consolidated Financial Statements”). The separate financial statements comprise the separate statement of financial position as of 31 December 2023, separate statement of income and other comprehensive income, separate statement of changes in equity and separate statement of cash flows for the year then ended, and notes to the separate financial statements, including a summary of material accounting policies (the “Separate Financial Statements”). In our opinion: • The accompanying Consolidated Financial Statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2023, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with IFRS Accounting Standards as adopted by the European Union. • The accompanying Separate Financial Statements give a true and fair view of the financial position of the Company as of 31 December 2023, and of its financial performance and its cash flows for the year then ended in accordance with IFRS Accounting Standards as adopted by the European Union. Deloitte Audit s.r.o. Churchill I Italská 2581/67 120 00 Prague 2 – Vinohrady Czech Republic Tel: +420 246 042 500 DeloitteCZ@deloitteCE.com www.deloitte.cz Registered by the Municipal Court in Prague, Section C, File 24349 ID. No.: 49620592 Tax ID. No.: CZ49620592 133 INDEPENDENT AUDITOR’S REPORT Annual Financial Report 2023 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related en tity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more. INDEPENDENT AUDITOR’S REPORT To the Shareholders of MONETA Money Bank a.s. Having its registered office at: Vyskočilova 1442/1b, Michle, 140 00 Prague 4 Report on the Audit of the Consolidated and Separate Financial Statements Opinion We have audited the accompanying consolidated financial statements of MONETA Money Bank, a.s. and its subsidiaries (hereinafter also the “Group”) and separate financial statements of MONETA Money Bank, a.s. (hereinafter also the “Company”) prepared on the basis of IFRS Accounting Standards as adopted by the European Union. The consolidated financial statements comprise the consolidated statement of financial position as of 31 December 2023, consolidated statement of profit and loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of material accounting policies (the “Consolidated Financial Statements”). The separate financial statements comprise the separate statement of financial position as of 31 December 2023, separate statement of income and other comprehensive income, separate statement of changes in equity and separate statement of cash flows for the year then ended, and notes to the separate financial statements, including a summary of material accounting policies (the “Separate Financial Statements”). In our opinion: • The accompanying Consolidated Financial Statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2023, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with IFRS Accounting Standards as adopted by the European Union. • The accompanying Separate Financial Statements give a true and fair view of the financial position of the Company as of 31 December 2023, and of its financial performance and its cash flows for theyear then ended in accordance with IFRS Accounting Standards as adopted by the European Union. Deloitte Audit s.r.o. Churchill I Italská 2581/67 120 00 Prague 2 – Vinohrady Czech Republic Tel: +420 246 042 500 DeloitteCZ@deloitteCE.com www.deloitte.cz Registered by the Municipal Court in Prague, Section C, File 24349 ID. No.: 49620592 Tax ID. No.: CZ49620592 134 INDEPENDENT AUDITOR’S REPORT Annual Financial Report 2023 Basis for Opinion We conducted our audit in accordance with the Act on Auditors, Regulation (EU) No. 537/2014 of the European Parliament and of the Council and Auditing Standards of the Chamber of Auditors of the Czech Republic, which are International Standards on Auditing (ISAs), as amended by the related application guidelines. Our responsibilities under this law and regulation are further described in the Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report. We are independent of the Group and the Company in accordance with the Act on Auditors and the Code of Ethics adopted by the Chamber of Auditors of the Czech Republic and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Consolidated and Separate Financial Statements of the current period. These matters were addressed in the context of our audit of the Consolidated and Separate Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter Related audit procedures Allowances for loans and receivables As of 31 December 2023, Gross carrying amount of Loans and receivables to customers (hereinafter “loans”) amounted to CZK 267,746 million and CZK 250,152 million for the Group and the Company, respectively, against which Loss allowances for Loans and receivables to customers (hereinafter “allowances”) of CZK 4,682million and CZK 4,271 million, respectively, were recorded. The allowances are determined using statistical models, with the exception of non-performing commercial operating and investment loans (Stage 3), for which allowances are determined on an individual basis using discounted cash flows. The measurement of allowances for loans is deemed a key audit matter due to the level of judgement applied by the Management, especially with regard to identifying impaired receivables and quantifying loan impairment. There is a persistent level of uncertainty and level of subjectiveness of management judgments relating to 2023 financial reporting due to the current macroeconomic risks, as well as the impacts of the deteriorated geopolitical situation. The Group implemented Based on our risk assessment and industry knowledge, we examined the allowances and evaluated the methodology applied and the assumptions used for the calculation of allowances. Together with our specialists, we re-performed the calculation of the allowances. We tested the design and operating effectiveness of selected key internal controls the management of the Bank has established for the impairment assessment and allowance recognition. With the assistance of our IT specialists, we tested IT controls relating to the access rights and change management of relevant IT applications. Assumptions used in the expected credit loss models and in management overlays. In cooperation with our specialists, we assessed the model methodology, internal validation reports and the results of the back- testing for selected internal models. We assessed whether the modelling assumptions considered all relevant risks, were relevant in the light of historical experience and future outlook, economic climate and the circumstances of customers, as well as our own knowledge of procedures used by similar banks. We used a selected sample to evaluate the appropriateness 135 INDEPENDENT AUDITOR’S REPORT Annual Financial Report 2023 Basis for Opinion We conducted our audit in accordance with the Act on Auditors, Regulation (EU) No. 537/2014 of the European Parliament and of the Council and Auditing Standards of the Chamber of Auditors of the Czech Republic, which are International Standards on Auditing (ISAs), as amended by the related application guidelines. Our responsibilities under this law and regulation are further described in the Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report. We are independent of the Group and the Company in accordance with the Act on Auditors and the Code of Ethics adopted by the Chamber of Auditors of the Czech Republic and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Consolidated and Separate Financial Statements of the current period. These matters were addressed in the context of our audit of the Consolidated and Separate Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter Related audit procedures Allowances for loans and receivables As of 31 December 2023, Gross carrying amount of Loans and receivables to customers (hereinafter “loans”) amounted to CZK 267,746 million and CZK 250,152 million for the Group and the Company, respectively, against which Loss allowances for Loans and receivables to customers (hereinafter “allowances”) of CZK 4,682million and CZK 4,271 million, respectively, were recorded. The allowances are determined using statistical models, with the exception of non-performing commercial operating and investment loans (Stage 3), for which allowances are determined on an individual basis using discounted cash flows. The measurement of allowances for loans is deemed a key audit matter due to the level of judgement applied by the Management, especially with regard to identifying impaired receivables and quantifying loan impairment. There is a persistent level of uncertainty and level of subjectiveness of management judgments relating to 2023 financial reporting due to the current macroeconomic risks, as well as the impacts of the deteriorated geopolitical situation. The Group implemented Based on our risk assessment and industry knowledge, we examined the allowances and evaluated the methodology applied and the assumptions used for the calculation of allowances. Together with our specialists, we re-performed the calculation of the allowances. We tested the design and operating effectiveness of selected key internal controls the management of the Bank has established for the impairment assessment and allowance recognition. With the assistance of our IT specialists, we tested IT controls relating to the access rights and change management of relevant IT applications. Assumptions used in the expected credit loss models and in management overlays. In cooperation with our specialists, we assessed the model methodology, internal validation reports and the results of the back- testing for selected internal models. We assessed whether the modelling assumptions considered all relevant risks, were relevant in the light of historical experience and future outlook, economic climate and the circumstances of customers, as well as our own knowledge of procedures used by similar banks. We used a selected sample to evaluate the appropriateness Key audit matter Related audit procedures a management overlay outside the framework of the model approach, with the aim of compensating for the insufficient level of sensitivity of the expected credit loss (ECL) model towards risks related to the high-inflation and high-interest rate environment. The most significant judgements applied in determining allowances are: • Assumptions used in the ECL statistical models such as the probability of default, recovery rates and macroeconomic factors reflected in forward looking information, and assumptions used for management overlays; • Timely identification of exposures with a significant increase in credit risk (Stage 2) and credit-impaired exposures (Stage 3) in the context of the observed macroeconomic risks and the impacts of the deteriorated geopolitical situation; and • Valuation of collateral and assumptions of future cash flows on individually assessed credit-impaired exposures. The management provided further information about loan impairment in Notes 5.7.10, 16, 23 and 44.2 to the Consolidated Financial Statements and in Notes 5.6.10, 16, 23 and 43.2 to the Separate Financial Statements. The management provided further information about the current geopolitical situation and the macroeconomic risks related to high-inflation and high-interest rate environment (the possible correction of real estate prices, the credit risk related to the increase in interest rates upon re-fixation, the increase in prices of construction work and the increase in the cost of living) on the loan portfolio in Notes 5.7.10, 16 and 44.2 to the Consolidated Financial Statements and in Notes 5.6.10, 16 and 43.2 to the Separate Financial Statements. of risk parameters used in the calculation of allowances. On a selected sample, we calculated risk parameters and performed analytical substantive testing. I n light of the volatility in economic scenarios caused by the current geopolitical situation and macroeconomic risks , we assessed whether the macroeconomic and other parameters used in the ECL statistical models fairly reflect the expected degree of defaults and recoverability of loans in the future. We assessed the assumptions and calculation of allowances in the form of a management overlay. Identification of exposures with a significant increase in credit risk and credit-impaired loans We tested system- based and manual controls of the timely classification of loans to the relevant stage. In cooperation with our specialists, we evaluated assumptions used for staging models and we recalculated the staging on a portfolio basis. We assessed the approach to staging and to modification loss recognition adopted by the Bank for loans to customers with deferred payments related to government and non- government measures that were implemented to mitigate the negative consequences of the current macroeconomic and geopolitical situation. We tested a sample of loans and receivables (including loans that had not been classified by the management as Stage 3 and specific industries which were most impacted by the current macroeconomic and geopolitical situation to make our own assessment as to whether impairment had occurred and to assess whether impairment had been identified in a timely manner. Allowances for individually assessed credit- impaired loans We tested controls of the regular assessment and approval of allowances by the management. 136 INDEPENDENT AUDITOR’S REPORT Annual Financial Report 2023 Key audit matter Related audit procedures We selected a sample of loans and, where we deemed them impaired, evaluated the estimated future cash flows from customers including from the realisation of the collateral held, application of different scenarios and scenario weight. Our testing took into consideration the borrowers’ financial status and performance in the current economic environment affected by the current geopolitical situation and macroeconomic development. Interest and fee income recognition For the year ended 31 December 2023, the interest income from financial assets measured at amortised cost amounted to CZK 19,040 million and CZK 17,484 million for the Group and the Company, respectively. Total fee and commission income for the same period amounted to CZK 3,217 million and CZK 2,961 million for the Group and the Company, respectively. These items are the main contributors to the operating income of the Company and the Group affecting their profitability, with their main source being loans and deposits from clients. While interest income is recognised on an accrual basis over the expected life of a financial instrument, the recognition of fee income depends on the nature of the fees as follows: • Fees that are directly attributable to financial instruments are accrued over the anticipated lifetime of the instrument and reported as interest income. • Fees for the services rendered are recognised over time and reported as fee and commission income. • Fees for transaction acts are recognised when the act is performed and reported as fee and commission income. • Commissions for mediating third-party products are recognised when the contract is concluded and reported only up to the amount of net commission as fee and commission income. The specifics of revenue recognition and a large volume of individually small transactions, which depends on the quality of input data relating to Based on our risk assessment and industry knowledge, we evaluated the methodology applied and the assumptions used by the management. We tested the design and operating effectiveness of the key internal controls and focused on: • Assessment of interest/fees recognition during new product validation; • Input data related to interest/fees on customer loans and deposits, including authorisation of the changes in the interest and fees price list and authorisation of non-standard interest/fees; • Recognition of fees and interest income and the management oversight; and • IT controls relating to access rights and change management of relevant IT applications with the assistance of our IT specialists. We also performed the following substantive tests with regard to interest and fee income recognition: We evaluated the accounting treatment applied by the Company to determine whether the methodology complies with the requirements of the relevant accounting standard. We focused our testing on the verification of the correct classification of: • Fees that are identified as directly attributable to the financial instrument; and • Fees that are not identified as directly attributable to the financial instrument. Key audit matter Related audit procedures interest and fees and on IT solutions for their recognition, resulted in this matter being identified as a key audit matter. The management provided further information about interest income and fees and commissions in Notes 5.4, 5.5, 6 and 7 to the Consolidated Financial Statements and in Notes 5.3, 5.4, 6 and 7 to the Separate Financial Statements. We evaluated the mathematical formulas used for accruing the relevant income over the expected life of the financial instrument. We analysed the accuracy of the recognised amount of interest income and fee and commission income using substantive analytical tests and monthly data analytics. Other Information in the Annual Financial Report In compliance with Section 2(b) of the Act on Auditors, the other information comprises the information included in the Annual Financial Report other than the Consolidated and Separate Financial Statements and auditor’s report thereon. The Management Board is responsible for the other information. Our opinion on the Consolidated and Separate Financial Statements does not cover the other information. In connection with our audit of the Consolidated and Separate Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Consolidated and Separate Financial Statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. In addition, we assess whether the other information has been prepared, in all material respects, in accordance with applicable law or regulation, in particular, whether the other information complies with law or regulation in terms of formal requirements and procedure for preparing the other information in the context of materiality, i.e. whether any non-compliance with these requirements could influence judgments made on the basis of the other information. Based on the procedures performed, to the extent we are able to assess it, we report that: • The other information describing the facts that are also presented in the Consolidated and Separate Financial Statements is, in all material respects, consistent with the Consolidated and Separate Financial Statements; and • The other information is prepared in compliance with applicable law or regulation. In addition, our responsibility is to report, based on the knowledge and understanding of the Group and the Company obtained in the audit, on whether the other information contains any material misstatement of fact. Based on the procedures we have performed on the other information obtained, we have not identified any material misstatement of fact. Responsibilities of the Company’s Management Board, Supervisory Board and Audit Committee for the Consolidated and Separate Financial Statements The Management Board is responsible for the preparation and fair presentation of the Consolidated and Separate Financial Statements in accordance with IFRS Accounting Standards as adopted by the European Union and for such internal control as the Management Board determines is necessary to enable the preparation of Consolidated and Separate Financial Statements that are free from material misstatement, whether due to fraud or error. 137 INDEPENDENT AUDITOR’S REPORT Annual Financial Report 2023 Key audit matter Related audit procedures interest and fees and on IT solutions for their recognition, resulted in this matter being identified as a key audit matter. The management provided further information about interest income and fees and commissions in Notes 5.4, 5.5, 6 and 7 to the Consolidated Financial Statements and in Notes 5.3, 5.4, 6 and 7 to the Separate Financial Statements. We evaluated the mathematical formulas used for accruing the relevant income over the expected life of the financial instrument. We analysed the accuracy of the recognised amount of interest income and fee and commission income using substantive analytical tests and monthly data analytics. Other Information in the Annual Financial Report In compliance with Section 2(b) of the Act on Auditors, the other information comprisesthe information included in the Annual Financial Report other than the Consolidated and Separate Financial Statements and auditor’s report thereon. The Management Board is responsible for the other information. Our opinion on the Consolidated and Separate Financial Statements does not cover the other information. In connection with our audit of the Consolidated and Separate Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Consolidated and Separate Financial Statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. In addition, we assess whether the other information has been prepared, in all material respects, in accordance with applicable law or regulation, in particular, whether the other information complies with law or regulation in terms of formal requirements and procedure for preparing the other information in the context of materiality, i.e. whether any non-compliance with these requirements could influence judgments made on the basis of the other information. Based on the procedures performed, to the extent we are able to assess it, we report that: • The other information describing the facts that are also presented in the Consolidated and Separate Financial Statements is, in all material respects, consistent with the Consolidated and Separate Financial Statements; and • The other information is prepared in compliance with applicable law or regulation. In addition, our responsibility is to report, based on the knowledge and understanding of the Group and the Company obtained in the audit, on whether the other information contains any material misstatement of fact. Based on the procedures we have performed on the other information obtained, we have not identified any material misstatement of fact. Responsibilities of the Company’s Management Board, Supervisory Board and Audit Committee for the Consolidated and Separate Financial Statements The Management Board is responsible for the preparation and fair presentation of the Consolidated and Separate Financial Statements in accordance with IFRS Accounting Standards as adopted by the European Union and for such internal control as the Management Board determines is necessary to enable the preparation of Consolidated and Separate Financial Statements that are free from material misstatement, whether due to fraud or error. 138 INDEPENDENT AUDITOR’S REPORT Annual Financial Report 2023 In preparing the Consolidated and Separate Financial Statements, the Management Board is responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management Board either intends to liquidate the Group or the Company or to cease operations, or has no realistic alternative but to do so. The Supervisory Board and Audit Committee are responsible for overseeing the Group’s and the Company’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements Our objectives are to obtain reasonable assurance about whether the Consolidated and Separate Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Consolidated and Separate Financial Statements. As part of an audit in accordance with the above law or regulation, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the Consolidated and Separate Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management Board. • Conclude on the appropriateness of the Management Board’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the Consolidated and Separate Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the Consolidated and Separate Financial Statements, including the disclosures, and whether the Consolidated and Separate Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the Consolidated Financial Statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Management Board, the Supervisory Board and the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Management Board, the Supervisory Board and the Audit Committee, we determine those matters that were of most significance in the audit of the Consolidated and Separate Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements Information Required by Regulation (EU) No. 537/2014 of the European Parliament and of the Council In compliance with Article 10(2) of Regulation (EU) No. 537/2014 of the European Parliament and of the Council, we provide the following information in our independent auditor’s report, which is required in addition to the requirements of International Standards on Auditing: Appointment of the Auditor and the Period of Engagement We were appointed as the auditors of the Company by the General Meeting of Shareholders on 25 April 2023 and our total uninterrupted engagement has lasted for 5 years. Consistency with the Additional Report to the Audit Committee We confirm that our audit opinion on the financial statements expressed herein is consistent with the additional report to the Audit Committee of the Company, which we issued on 19 March 2024 in accordance with Article 11 of Regulation (EU) No. 537/2014 of the European Parliament and of the Council. Provision of Non-audit Services We declare that no prohibited non-audit services referred to in Article 5 of Regulation (EU) No. 537/2014 of the European Parliament and of the Council were provided. In addition, there are no other non-audit services which were provided by us to the Company and its controlled undertakings and which have not been disclosed in the Annual Financial Report. Report on Compliance with the ESEF Regulation We have conducted a reasonable assurance engagement on the verification of compliance of the financial statements included in the Annual Financial Report with the provisions of Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (the “ESEF Regulation”) that apply to the financial statements. 139 INDEPENDENT AUDITOR’S REPORT Annual Financial Report 2023 We communicate with the Management Board, the Supervisory Board and the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Management Board, the Supervisory Board and the Audit Committee, we determine those matters that were of most significance in the audit of the Consolidated and Separate Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements Information Required by Regulation (EU) No. 537/2014 of the European Parliament and of the Council In compliance with Article 10(2) of Regulation (EU) No. 537/2014 of the European Parliament and of the Council, we provide the following information in our independent auditor’s report, which is required in addition to the requirements of International Standards on Auditing: Appointment of the Auditor and the Period of Engagement We were appointed as the auditors of the Company by the General Meeting of Shareholders on 25 April 2023 and our total uninterrupted engagement has lasted for 5 years. Consistency with the Additional Report to the Audit Committee We confirm that our audit opinion on the financial statements expressed herein is consistent with the additional report to the Audit Committee of the Company, which we issued on 19 March 2024 in accordance with Article 11 of Regulation (EU) No. 537/2014 of the European Parliament and of the Council. Provision of Non-audit Services We declare that no prohibited non-audit services referred to in Article 5 of Regulation (EU) No. 537/2014 of the European Parliament and of the Council were provided. In addition, there are no other non-audit services which were provided by us to the Company and its controlled undertakings and which have not been disclosed in the Annual Financial Report. Report on Compliance with the ESEF Regulation We have conducted a reasonable assurance engagement on the verification of compliance of the financial statements included in the Annual Financial Report with the provisions of Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (the “ESEF Regulation”) that apply to the financial statements. 140 INDEPENDENT AUDITOR’S REPORT Annual Financial Report 2023 Responsibilities of the Management Board The Company’s Management Board is responsible for the preparation of the financial statements in compliance with the ESEF Regulation. Inter alia, the Company’s Management Board is responsible for: • The design, implementation and maintenance of the internal control relevant for the application of the requirements of the ESEF Regulation; • The preparation of all financial statements included in the Annual Financial Report in the valid XHTML format; and • The selection and use of XBRL mark-ups in line with the requirements of the ESEF Regulation. Auditor’s Responsibilities Our task is to express a conclusion whether the financial statements included in the Annual Financial Report are, inall material respects, in compliance with the requirements of the ESEF Regulation, based on the audit evidence obtained. Our reasonable assurance engagement was conducted in accordance with the International Standard on Assurance Engagements 3000 (Revised) Assurance Engagements Other Than Audits or Reviews of Historical Financial Information (hereinafter “ISAE 3000”). The nature, timing and scope of the selected procedures depend on the auditor’s judgment. Reasonable assurance is a high level of assurance; however, it is not a guarantee that the examination conducted in accordance with the above standard will always detect a potentially existing material non-compliance with the requirements of the ESEF Regulation. As part of our work, we performed the following procedures: • We obtained an understanding of the requirements of the ESEF Regulation; • We obtained an understanding of the Company’s internal control relevant for the application of the requirements of the ESEF Regulation; • We identified and evaluated risks of material non-compliance with the ESEF Regulation, whether due to fraud or error; and • Based on this, we designed and performed procedures responsive to those risks and aimed at obtaining a reasonable assurance for the purposes of expressing our conclusion. The aim of our procedures was to assess whether: • The financial statements included in the Annual Financial Report were prepared in the valid XHTML format; • The disclosures in the Consolidated Financial Statements were marked up where required by the ESEF Regulation and all mark-ups meet the following requirements: - XBRL mark-up language was used; - The elements of the core taxonomy specified in the ESEF Regulation with the closest accounting meaning were used, unless an extension taxonomy element was created in compliance with the ESEF Regulation; and - The mark-ups comply with the common rules for mark-ups pursuant to the ESEF Regulation. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion. 141 INDEPENDENT AUDITOR’S REPORT Annual Financial Report 2023 Conclusion In our opinion, the Company’s financial statements for the year ended 31 December 2023 included in the Annual Financial Report are, in all material respects, in compliance with the requirements of the ESEF Regulation. In Prague on 20 March 2024 Audit firm: Statutory auditor: Deloitte Audit s.r.o. registration no. 079 Miroslav Mayer registration no. 2529 We thrive with MONETA Skilful hands and an enterprising soul led Eva Rašovská from baking cakes or sewing cloth diapers to having her own business. Three years ago, she found the courage to buy a patisserie company with her husband. But they started from scratch. They created a new recipe, obtained the necessary permits, bought new technology and built a customer network. Now they sell quality pâtés without chemicals, preservatives or nitrite salts under their brand Paštiky Rašovská. We are honoured to be a part of it! Eva Rašovská Patisserie Rašovská 145 CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 CONSOLIDATED FINANCIAL STATEMENTS OF MONETA MONEY BANK, a.s. As at and for the Year Ended 31 December 2023 Prepared according to IFRS Accounting Standards as adopted by the European Union 146 CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 31 December 2023 CZK m Note 2023 2022 Interest and similar income 1) 22,046 15,591 Interest expense and similar charges (13,469) (6,280) Net interest income 6 8,577 9,311 Fee and commission income 3,217 2,732 Fee and commission expense (593) (434) Net fee and commission income 7 2,624 2,298 Dividend income 8 3 4 Net income from financial operations 9 889 357 Other operating income 10 54 146 Total operating income 12,147 12,116 Personnel expenses 11 (2,504) (2,528) Administrative expenses 12 (1,633) (1,523) Regulatory charges 13 (307) (229) Depreciation and amortisation 14 (1,233) (1,249) Other operating expenses 15 (53) (65) Total operating expenses (5,730) (5,594) Profit for the period before tax and net impairment of financial assets 6,417 6,522 Net impairment of financial assets 16 (305) (90) Profit for the period before tax 6,112 6,432 Taxes on income 17 (912) (1,245) Profit for the period after tax 5,200 5,187 Items that will not be reclassified to profit or loss - Change in fair value of Investment securities recognised in OCI - - Items that may be reclassified subsequently to profit or loss - Movement in hedging reserve: - - - Cash flow hedges – effective portion of changes in fair value - - - Deferred tax 38.2 - - Other comprehensive income, net of tax - - Total comprehensive income attributable to the equity holders 5,200 5,187 Profit for the year after tax attributable to the equity holders 5,200 5,187 Profit for the year after tax attributable to the equity holders per share Weighted average of ordinary shares (millions of shares) 511 511 Basic earnings per share (in CZK) 18 10.18 10.15 Diluted earnings per share (in CZK) 18 10.18 10.15 1) Calculated using the effective interest method with the exception of hedging derivatives. 147 CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2023 CZK m Note 31 Dec 2023 31 Dec 2022 Assets Cash and balances with the central bank 19 10,871 12,467 Derivative financial instruments with positive fair values 27 544 761 Investment securities 24 104,353 57,951 Hedging derivatives with positive fair values 27 2,701 4,942 Change in fair value of items hedged on portfolio basis 122 (2,090) Loans and receivables to banks 22 69,632 37,886 Loans and receivables to customers 23 263,064 268,752 Intangible assets 28 3,332 3,379 Property and equipment 29 2,400 2,318 Investments in associates 37 3 3 Current tax assets 30 76 6 Other assets 32 1,086 1,135 TOTAL ASSETS 458,184 387,510 Liabilities Derivative financial instruments with negative fair values 27 523 747 Due to banks 33 5,423 5,953 Due to customers 34 399,497 334,251 Hedging derivatives with negative fair values 27 4,548 845 Change in fair value of items hedged on portfolio basis 63 (438) Issued bonds 25 3,808 5,520 Subordinated liabilities 26 7,604 4,687 Provisions 35 266 306 Current tax liabilities 30 54 482 Deferred tax liabilities 31 462 496 Other liabilities 36 3,733 3,570 Total liabilities 425,981 356,419 Equity Share capital 38 10,220 10,220 Statutory reserve 38 102 102 Other reserves 1 1 Retained earnings 21,880 20,768 Total equity 32,203 31,091 TOTAL LIABILITIES AND EQUITY 458,184 387,510 148 CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2023 CZK m Share capital Share premium Statutory reserve Reserve from revaluation of FVTOCI CF hedge reserve Share based payment reserve Retained earnings Total Balance as reported 1 January 2023 10,220 - 102 1 - - 20,768 31,091 Transactions with owners of the company - Dividends - - - - - - (4,088) (4,088) Total comprehensive income Profit for the year after tax - - - - - - 5,200 5,200 Other comprehensive income after tax - Change in fair value of FVTOCI investment securities - - - - - - - - - Cash-flow hedges – effective portion of changes in fair value - - - - - - - - - Deferred tax - - - - - - - - Balance 31 December 2023 10,220 - 102 1 - - 21,880 32,203 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2022 CZK m Share capital Share premium Statutory reserve Reserve from revaluation of FVTOCI CF hedge reserve Share based payment reserve Retained earnings Total Balance as reported 1 January 2022 10,220 - 102 1 - - 19,158 29,481 Transactions with owners of the company - Dividends - - - - - - (3,577) (3,577) Total comprehensive income Profit for the year after tax - - - - - - 5,187 5,187 Other comprehensive income after tax - Change in fair value of FVTOCI investment securities - - - - - - - - - Cash-flow hedges – effective portion of changes in fair value - - - - - - - - - Deferred tax - - - - - - - - Balance 31 December 2022 10,220 - 102 1 - - 20,768 31,091 149 CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2023 CZK m Note 2023 2022 Cash flows from operating activities Profit for the year after tax 5,200 5,187 Adjustments for: Depreciation and amortisation 14 1,233 1,249 Net impairment of financial assets (excl. cash collection and recovery) 16 320 91 Net gain on revaluation of investment securities 9 (6) - Accrued coupon, amortisation of discount/premium of investment securities 6 609 379 Accrued interest income from derivatives 6 955 (103) Net gain/loss from revaluation of hedging derivatives 9 4,915 (1,335) Net gain/loss from revaluation of items hedged on portfolio basis 9 (5,009) 1,212 Net gain/loss from unrealised FX (7) (138) Change in provisions not recognised in depreciation and amortisation (10) 61 Net gain/loss on sale of investment securities (26) - Net loss on sale and other disposal of tangible and intangible assets 28, 29 3 2 Dividend income 8 (3) (4) Tax expense 17 912 1,245 9,086 7,846 Changes in: Loans and receivables to customers and banks 22, 23 3,358 (11,600) Other assets 32 49 (151) Due to banks 33 (530) (6,627) Due to customers 34 65,237 49,106 Other liabilities 36 (16) (929) 77,184 37,645 Income taxes paid (1,445) (672) Net cash used in operating activities 75,739 36,973 Cash flows from investing activities Acquisition of investment securities (45,320) (10,144) Proceeds from investment securities 1,817 - Acquisition of property and equipment and intangible assets 28, 29 (794) (1,028) Proceeds from the sale of property and equipment and intangible assets 28, 29 38 12 Dividends received 3 4 Net cash used in investing activities (44,256) (11,156) 150 CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 CZK m Note 2023 2022 Cash flows from financing activities Proceeds from issued bonds - 3,827 Repayment of issued bonds (1,900) (525) Proceeds from subordinated deposits 2,922 - Payments of lease liabilities 1) (299) (378) Dividends paid (4,088) (5,110) Net cash used in financing activities (3,365) (2,186) Net change in cash and cash equivalents 28,118 23,631 Cash and cash equivalents at beginning of period 20 50,101 26,476 Effect of exchange rate fluctuations on cash and cash equivalents held 44 (6) Cash and cash equivalents at end of period 20 78,263 50,101 Interest received 2) 26,794 17,048 Interest paid 2) (16,180) (6,467) 1) The Group decided to disclose the change of lease liabilities on a separate line of the Statement of Cash Flows. For the purpose of comparability, the previous period has been adjusted. 2) Lines “Interest received“ and “Interest paid“ represent interest paid by customers and counterparties and received from customers and counterparties, respectively, and are included in cash flows from operating activities. 151 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF MONETA MONEY BANK , a.s. As at and for the Year Ended 31 December 2023 Prepared according to IFRS Accounting Standards as adopted by the European Union 152 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 CONTENT 155 | 1. GENERAL INFORMATION 155 | 1.1 ESEF 155 | 2. BASIS OF PREPARATION 155 | 2.1 BASIS OF PRESENTATION 155 | 2.2 GOING CONCERN 156 | 2.3 FUNCTIONAL AND PRESENTATION CURRENCY 156 | 2.4 MEASUREMENT 156 | 3. USE OF ESTIMATESAND JUDGEMENTS 156 | 4. NEW IFRS ACCOUNTING STANDARDS AND INTERPRETATIONS 156 | 4.1 STANDARDS AND AMENDMENTS EFFECTIVE AFTER 31 DECEMBER 2023 ISSUED BY THE IASB AND ENDORSED BY THE EU 157 | 4.2 STANDARDS AND AMENDMENTS EFFECTIVE AFTER 31 DECEMBER 2023 ISSUED BY THE IASB AND NOT ENDORSED BY THE EU 157 | 5. SUMMARY OF MATERIAL ACCOUNTING POLICIES 157 | 5.1 CHANGES IN ACCOUNTING POLICIES – NEWLY EFFECTIVE AND ENDORSED IFRS ACCOUNTING STANDARDS 157 | 5.2 FOREIGN CURRENCY 157 | 5.3 BASIS OF CONSOLIDATION 157 | 5.3.1 Business Combinations 158 | 5.3.2 Non-Controlling Interests 158 | 5.3.3 Subsidiaries 158 | 5.3.4 Associates 158 | 5.3.5 Loss of Control 158 | 5.3.6 Transactions Eliminated on Consolidation 158 | 5.4 INTEREST 159 | 5.5 FEES AND COMMISSIONS 160 | 5.6 DIVIDENDS 160 | 5.7 FINANCIAL ASSETS AND FINANCIAL LIABILITIES 160 | 5.7.1 Recognition 160 | 5.7.2 Classification of Financial Assets 161 | 5.7.3 Classification of Financial Liabilities 161 | 5.7.4 Reclassification 161 | 5.7.5 Derecognition 161 | 5.7.6 Modifications 162 | 5.7.7 Offsetting 162 | 5.7.8 Amortised Cost Measurement 162 | 5.7.9 Derivatives and Hedge Accounting 163 | 5.7.10 Impairment of Financial Assets 165 | 5.8 REPURCHASE AND REVERSE REPURCHASE AGREEMENTS 165 | 5.9 FAIR VALUE MEASUREMENT 165 | 5.10 PROVISIONS 165 | 5.11 LEASES 167 | 5.12 PROPERTY AND EQUIPMENT 167 | 5.13 IMPAIRMENT OF GOODWILL 168 | 5.14 INTANGIBLE ASSETS 168 | 5.15 IMPAIRMENT OF NON-FINANCIAL ASSETS 168 | 5.16 EMPLOYEE BENEFITS 169 | 5.17 CASH AND CASH BALANCES WITH THE CENTRAL BANK 169 | 5.18 INCOME TAX AND DEFERRED TAX 170 | 5.19 SEGMENT REPORTING 170 | 5.20 FINANCIAL GUARANTEES AND LOAN COMMITMENTS 170 | 5.21 SUBORDINATED LIABILITIES 170 | 5.22 MORTGAGE-BACKED BONDS 171 | 5.23 OTHER ISSUED BONDS 171 | 6. NET INTEREST INCOME 173 | 7. NET FEE AND COMMISSION INCOME 173 | 8. DIVIDEND INCOME 173 | 9. NET INCOME FROM FINANCIAL OPERATIONS 153 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 173 | 10. OTHER OPERATING INCOME 173 | 11. PERSONNEL EXPENSES 174 | 12. ADMINISTRATIVE EXPENSES 174 | 13. REGULATORY CHARGES 174 | 14. DEPRECIATION AND AMORTISATION 174 | 15. OTHER OPERATING EXPENSES 174 | 16. NET IMPAIRMENTOF FINANCIAL ASSETS 175 | 17. TAXES ON INCOME 176 | 18. EARNINGS PER SHARE 176 | 19. CASH AND BALANCES WITH THE CENTRAL BANK 176 | 20. CASH AND CASH EQUIVALENTS 177 | 21. TRANSFER OF FINANCIAL ASSETS – REPURCHASE TRANSACTIONS 178 | 22. LOANS AND RECEIVABLES TO BANKS 178 | 23. LOANS AND RECEIVABLES TO CUSTOMERS 179 | 24. INVESTMENT SECURITIES 180 | 25. ISSUED BONDS 181 | 26. SUBORDINATED LIABILITIES 181 | 27. FINANCIAL DERIVATIVES 183 | 28. INTANGIBLE ASSETS 184 | 29. PROPERTY AND EQUIPMENT 185 | 30. CURRENT TAX ASSETS AND CURRENT TAX LIABILITIES 185 | 31. DEFERRED TAX ASSETS AND LIABILITIES 185 | 32. OTHER ASSETS 185 | 33. DUE TO BANKS 186 | 34. DUE TO CUSTOMERS 186 | 35. PROVISIONS 187 | 36. OTHER LIABILITIES 187 | 37. CONSOLIDATION GROUP 188 | 38. EQUITY 188 | 38.1 SHARE CAPITAL OF THE GROUP 189 | 38.2 STATUTORY RESERVE AND RESERVE FROM REVALUATION OF FINANCIAL ASSETS OF THE GROUP 190 | 38.3 DIVIDENDS PER SHARE 190 | 39. BONUSES TIED TO THE EQUITY 190 | 40. CONTINGENT LIABILITIES 190 | 40.1 LOAN COMMITMENTS AND ISSUED GUARANTEES 190 | 40.2 LEGAL DISPUTES 190 | 41. LEASES 193 | 42. TRANSACTIONS WITH RELATED PARTIES 194 | 42.1 REMUNERATION TO MEMBERS OF SUPERVISORY BOARD, MANAGEMENT BOARD AND OTHER KEY EXECUTIVE MANAGERS 194 | 43. SEGMENT REPORTING 196 | 44. RISK MANAGEMENT 196 | 44.1 CAPITAL MANAGEMENT 197 | 44.2 CREDIT RISK 197 | 44.2.1 Credit Risk Management 200 | 44.2.2 Categorisation of Exposures 200 | 44.2.3 Collateral Assessment 201 | 44.2.4 Allowances Calculation 206 | 44.2.5 Credit Concentration Risk 209 | 44.2.6 Credit Portfolio and its Quality 212 | 44.2.7 Modified Financial Assets 214 | 44.3 INTEREST RATE RISK 216 | 44.4 FOREIGN EXCHANGE RISK 218 | 44.5 LIQUIDITY RISK 223 | 44.6 OPERATIONAL RISK 224 | 44.6.1 Legal Risk 224 | 45. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES 226 | 46. MANDATORY PUBLISHED INFORMATION 226 | 47. SUBSEQUENT EVENTS 154 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 155 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 1. GENERAL INFORMATION MONETA (the “Group“) consists of the parent company MONETA Money Bank, a.s. (the “Bank“), and its subsidiaries and associates listed in note 37. The latest available list of entities recorded in the registry of book-entry shares of the Bank kept by the Central Securities Depository in Prague (Centrální depozitář cenných papírů, a.s.) with a shareholding interest of more than 1% of the Bank’s registered share capital is available in the investor relations section of the Bank’s website at: https://investors. moneta.cz/shareholder-structure. Such entities may not necessarily be the beneficial shareholders of the Bank but may hold shares of the Bank for the beneficial shareholders (such as securities brokers, banks, custodians or nominees). Please refer to chapter 1.4 of the Annual financial report to the section “Shareholder structure” for the information on the shareholder structure of the Bank as at 31 December 2023. As far as the Bank is aware, no shareholder was a controlling entity of the Bank as at 31 December 2023. The Bank’s registered office is at Vyskočilova 1442/1b, Michle, 140 00 Prague 4, post code 140 28, Czech Republic and its ID number is 25672720, ISIN number: CZ0008040318. As at 31 December 2023 the Group consists of the following entities, which are further described in note 37: Name Business activity MONETA Auto, s.r.o. Auto financing (Loans and Leases) MONETA Leasing, s.r.o. Financing of loans and leasing MONETA Money Bank, a.s. Providing loan and deposit products MONETA Stavební Spořitelna, a.s. Building savings and bridging loans The Group operates in the Czech Republic and focuses primarily on secured and unsecured consumer lending, commercial financing and building savings. The consumer portfolio consists of secured and unsecured lending. Unsecured lending products include consumer and auto loans, credit cards, personal overdrafts, building savings loans and bridging loans. Secured lending is provided in the form of mortgages and finance leases. Commercial lending products range from working capital, investment loans, finance leases, auto loans, inventory financing, financing of small businesses and entrepreneurs through guarantees, letters of credits and foreign exchange transactions. The Group provides a wide range of deposit and transactional products to retail and commercial customers. T he Group issues debit and credit cards in cooperation with VISA 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. The Group’s consolidated financial statements were authorised for issue by the Management Board on 18 March 2024, examined by Supervisory Board and recommended to be published on 19 March 2024. In addition, the financial statements are subject to approval at the General Meeting of shareholders. All press releases, financial reports and other information are available on the Bank’s website: www.moneta.cz. 1.1 ESEF Due to the technical limitations inherent in the block-tagging of the consolidated financial statements according to the European single electronic format, the content of certain tags in the notes may not be rendered identically to the accompanying consolidated financial statements. To improve readability, the Group uses in a space as a thousands separator in the Czech language version, which may impair readability in the case of machine-readable XBRL markups. 2. BASIS OF PREPARATION 2.1 BASIS OF PRESENTATION The financial statements contained herein are consolidated financial statements of the Group prepared in accordance with IFRS Accounting Standards as adopted by the European Union (IFRS® Accounting Standards). IFRS Accounting Standards as adopted by the European Union comprise accounting standards issued or adopted by the International Accounting Standards Board (IASB) as well as interpretations issued or adopted by the IFRS Interpretations Committee (IFRIC). These financial statements were not prepared for any special purpose such as potential merger or acquisition. 2.2 GOING CONCERN The consolidated financial statements are prepared on a going concern basis, as the Management Board is satisfied that the Group has the resources to continue in business for the foreseeable future. In making this 156 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 assessment, the Management Board has considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources. 2.3 FUNCTIONAL AND PRESENTATION CURRENCY The Group’s financial statements are presented in the Czech Koruna (CZK), which is the Group’s functional currency. All amounts have been rounded to the nearest million, except where otherwise indicated. 2.4 MEASUREMENT The consolidated financial statements have been prepared on a historical cost basis, except for investment securities measured at fair value through other comprehensive income (FVTOCI), investment securities measured at fair value through profit or loss (FVTPL) and derivative financial instruments which have been measured at fair value. The carrying values of recognised assets that are hedged items in fair value hedges, and otherwise carried at amortised cost, are adjusted to record changes in fair value attributable to the risks that are being hedged, and this adjustment is either reported on a separate line of the statement of financial position in the case of the application of portfolio fair value hedges, or is directly adjusting carrying value of the hedged item in the case of micro hedges. 3. USE OF ESTIMATES AND JUDGEMENTS The preparation of the Group’s financial statements in conformity with IFRS Accounting Standards requires the use of estimates and judgements about future conditions. In view of the inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of the items listed below, it is possible that the outcomes in the next financial year could differ from those on which management’s estimates are based, resulting in materially different conclusions from those reached by management for the purposes of the 2023 Consolidated Financial Statements. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about critical judgements and estimates in applying accounting policies that have the most significant effect on the amounts recognised in the Group’s financial statements is included in the following notes: • Deferred tax assets and liabilities – note 31; • Impairment of financial assets – notes 16 and 44; • Provisions – note 35; • Fair value – note 45; • Classification of leases – note 5.11; • Classification of financial assets – note 5.7. Significant estimates related to future development of prepayments of the loan’s notional amount were made by the management of the Group in the area of expected cash flows from loan receivables which are used for determination of amortised cost of the debt financial assets. Impact of the current macroeconomic environment Significant judgements made by the management in applying the Group’s accounting policies and the key sources of uncertainty estimation were significantly impacted mainly by macroeconomic effects of a high-inflation and high interest-rate environment which were reflected in the loan loss allowances level through management overlays. Further description of these impacts is provided in the following notes: • Net impairment of financial assets – note 16; • Credit Risk – note 44.2. 4. NEW IFRS ACCOUNTING STANDARDS AND INTERPRETATIONS 4.1 STANDARDS AND AMENDMENTS EFFECTIVE AFTER 31DECEMBER 2023 ISSUED BY THE IASB AND ENDORSED BY THE EU (a) New standards and amendments to the existing standards with a significant impact on the Group None. (b) New standards and amendments to the existing standards with a minor or no impact on the Group • Amendments to IAS 1 Presentation of Financial Statements – Classification of Liabilities as Current or Non-Current and Classification of Liabilities as Current or Non-Current – Deferral of Effective Date (effective for annual periods beginning on or after 1 January 2024); • Amendments to IAS 1 Presentation of Financial Statements – Non-Current Liabilities with Covenants (effective for annual periods beginning on or after 1 January 2024); 157 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 • Amendments to IFRS 16 Leases – Lease Liability in a Sale and Leaseback (effective for annual periods beginning on or after 1 January 2024). 4.2 STANDARDS AND AMENDMENTS EFFECTIVE AFTER 31DECEMBER 2023 ISSUED BY THE IASB AND NOT ENDORSED BY THE EU The below listed new accounting standards and amendments to the existing standards have been published by the IASB that are not mandatory for reporting periods ended 31 December 2023 and have not been adopted by the European Union. The Group intends to adopt these standards and amendments, if applicable, when they become effective as endorsed by the EU. The Group’s assessment of the impact of these new standards and amendments is set out below. (a) New standards and amendments to the existing standards with a significant impact on the Group None. (b) New standards and amendments to the existing standards with a minor or no impact on the Group: • Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures – Supplier Finance Arrangements (effective for annual periods beginning on or after 1 January 2024); • Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates – Lack of Exchangeability (effective for annual periods beginning on or after 1 January 2025); • Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective date deferred indefinitely by the IASB). 5. SUMMARY OF MATERIAL ACCOUNTING POLICIES The Group applies accounting policies consistently with the exception described in chapter 5.1 Changes in accounting policies. These changes resulted from the adoption of new standards or amendments as listed below. However, none of those standards or amendments have a material impact on the Group’s financial statements. 5.1 CHANGES IN ACCOUNTING POLICIES – NEWLY EFFECTIVE AND ENDORSED IFRS ACCOUNTING STANDARDS The following amendments to the existing standards issued by the International Accounting Standards Board (IASB) and adopted by the EU are effective for the current reporting period. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements. • Amendments to IAS 1 and IFRS Practice Statement 2 – Disclosure of Accounting Policies (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Accounting Estimates (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 12 Income Taxes – Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 12 Income taxes – International Tax Reform (effective for annual periods beginning on or after 1 January 2023); • IFRS 17 Insurance Contracts including amendments to IFRS 17 (effective for annual periods beginning on or after 1 January 2023); • Amendments to IFRS 17 Insurance contracts – Initial Application of IFRS 17 and IFRS 9 – Comparative Information (effective for annual periods beginning on or after 1 January 2023). 5.2 FOREIGN CURRENCY The consolidated financial statements are presented in the Czech Koruna (CZK), which is also the Group’s functional currency. Transactions in foreign currencies are translated into the functional currency of the Group at the exchange rates published by the Czech National Bank at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognised in the profit or loss in “Net income from financial operations”. 5.3 BASIS OF CONSOLIDATION 5.3.1 Business Combinations Business combinations are accounted for using the acquisition method as at the acquisition date – i.e. when the change of control occurs. The consideration transferred in the acquisition is measured at the fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment (see note 5.13). Goodwill is measured as the excess of the aggregate of the consideration transferred, 158 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 the amount of any non-controlling interest and the fair value of any previously held equity interest in the acquiree, if any, over the net of the fair values of the identifiable assets and liabilities assumed. Any gain on a bargain purchase is recognised in profit or loss immediately. Acquisition-related costs are recognised as an expense in the profit or loss in the period in which they are incurred. Any contingent consideration payable is measured at fair value at the acquisition date. If the acquisition occurs within the current period, prior period figures (comparatives) are not adjusted by preacquisition balances of the acquiree (i.e. acquired entity). Thus reported figures shall be read in such context. As there is no specific guidance in IFRS Accounting Standards for business combinations under common control, the Group applies method within the assets and liabilities that these are measured by using the acquirer’s book values, i.e., book values from consolidated financial statements of the Group. 5.3.2 Non-Controlling Interests Non-controlling interests are measured at the proportionate share on the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. 5.3.3 Subsidiaries Subsidiaries are investees controlled by the Group. The Group controls an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date when control ceases. 5.3.4 Associates Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20-50% of the voting rights. The consolidated financial statements of the Group also include the attributable share of the results and other comprehensive income of associates determined using the equity method and based on either financial statements for the annual period ended 31 December or on pro-rated amounts adjusted for any material transactions or events occurring between the date of the financial statements available and 31 December. 5.3.5 Loss of Control When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary and any related non-controlling interests and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. 5.3.6 Transactions Eliminated on Consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. 5.4 INTEREST Interest income or expense from all interest-bearing financial instruments recognised using the effective interest rate is reported in the profit or loss in the line items “Interest and similar income” and “Interest expense and similar charges” respectively as part of revenue and expenses from continuing operations. Additionally, interest income and expense from hedging derivatives is reported in the same lines. The effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability. The effective interest rate is a rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or financial liability to their carrying amount. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument and includes transaction costs and fees paid or received that are an integral part of the effective interest rate but excludes future credit losses. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Interest income and expense presented in the profit or loss include: • Interest on financial assets and financial liabilities measured at amortised cost calculated on an effective interest rate basis; 159 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 • Interest on interest rate derivatives designated as hedging derivatives using the contractual interest rate of the corresponding derivative. If the financial asset is considered impaired, the interest income representing the time value of money between the impairment event and the estimated recovery date continues to be recognised using the effective interest rate method (unwinding) and the effective interest rate is applied on the financial asset’s net carrying amount. The Group calculates the unwinding for the period using an individual deal-by-deal approach and individual effective interest rates. 5.5 FEES AND COMMISSIONS Fee and commission income from contracts with customers is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a service to a customer. The following is a description of principal activities of the Group from including their nature and timing of the satisfaction of performance obligation in contracts with customers, as well as significant payment terms and related revenue recognition policies. The Group provides banking, lending and leasing services to retail and commercial customers, such as account management, provision of overdraft facilities, foreign currency transactions, credit cards, lending services, inventory financing, financial leases, building savings, distributing asset management and insurance products. Fees and commissions paid or received that are directly attributable to the issue or acquisition of a financial asset or financial liability are an integral part of the effective interest rate on that financial asset or financial liability and are included in the measurement of the effective interest rate. Revenue from commission-based fees for arranging the sale of third party insurance and investment products is recognised at the point in time when the respective contract is concluded. The Group has evaluated that it acts as an agent as the Group does not control the provided services that are transferred to the customer (the Group does not integrate the related services and does not have discretion in establishing the price). Therefore, the Group recognises only the net amount of expected consideration as revenue. The commission fee is typically derived from the volume of arranged contract as well as the respective contract performance. The Group has evaluated that the performance-based fee shall not be included in the measurement of transaction price as variable consideration, because collection of the fee is highly susceptible to factors outside Group’s influence. The Group recognises performance-based fees when confirmed by the respective third party. Commission fees that are subject to claw-back are recognised only to the extent that it is highly probable that a significant reversal in the amount of revenue will not occur (historical data are used for evaluation). The Group has concluded that respective liability does not give rise to accounting of a significant financing component because it arises for reasons other than the provision of finance to the Group. Revenue from servicing fees and fees for ongoing deposit and lending account maintenance are charged to customer’s account on a regular basis and recognised over time as the customer simultaneously consumes the respective benefits. The Group applies different fees for each customer segment and service level. Revenue from servicing fees is recognised on a straight-line basis. The contracts, with the exception of term deposits, do not have a minimal committed duration period. In the case of contracts with the Group’s clients, the fees are settled from their accounts or through the regular periodic repayments. In the case of third parties the Group applies the standard payment conditions for the financial industry sector. The Group does not provide service incentives (such as temporary service discounts) that would give rise to recognition of a contract asset. The Group does not receive any non-refundable upfront payments from its customers that would give rise to recognition of a respective contract liability or customer option or significant financing component. Incremental distribution costs paid for the acquisition of deposit contracts (current accounts and savings accounts) are recognised as an asset and amortised over the period for which a customer is expected to receive the respective services. The Group has evaluated the expected amortisation period to five years. Commissions paid for the origination of building savings and term deposits and respective opening fees are part of the amortised cost of the financial liability to customers and are linearly amortised (linear amortisation is used due to immaterial difference to effective interest rate method in the case of deposit products) until the allotment or the expiry of the term deposit in the profit or loss line item “Interest expense and similar charges”. Revenue from transaction-based fees is given mainly by interchange fees related to card transactions, foreign currency transactions and other payment transactions. The revenue is recognised at a point in time when the related transaction is performed. 160 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 Fee income on impaired financial assets is recognised on receipt of cash or performance of the service obligation, whichever is later. The Group has decided to apply practical expedient IFRS 15.121 and is not disclosing information on the aggregated amount of the remaining transaction price for servicing and commission revenues as the enforceable duration of the respective contract is less than one year and the right to consideration for servicing and commission contracts corresponds directly with the value provided to customer. 5.6 DIVIDENDS Dividend income is recognised when the right to receive the payment is established. Dividend income is reported in the profit or loss in the line item “Dividend income”. 5.7 FINANCIAL ASSETS AND FINANCIAL LIABILITIES 5.7.1 Recognition The Group initially recognises financial assets measured at amortised cost on the date on which they originate. 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 recognised at their fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. 5.7.2 Classification of Financial Assets 5.7.2.1 Debt Instruments Debt instruments include loans and receivables (disclosed especially in the lines “Loans and receivables to banks”, “Loans and receivables to customers”) and debt securities (disclosed in the line “Investment 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 the contractual cash flow characteristics of the instrument. The Group has defined its business models as follows: • Held to collect (HTC) - the business model for financial assets acquired with the intention of being held until maturity and to collect contractual cash flows. Sales which are insignificant or infrequent, related to the management of increased credit risk of the asset, or close to maturity of the financial assets are considered to be consistent with the HTC business model. • Held to collect and sell (HTCS) - the 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 models for financial assets neither classified as HTC nor HTCS. Currently, the Group holds all debt financial assets within the HTC business model except an insignificant portion of securities measured at fair value through profit or loss (FVTPL). Contractual cash flow characteristics are assessed by analysing the contractual features of the financial asset to determine whether they are connected with cash flows consistent with a basic lending arrangement, i.e. comprising solely payments of principal and interest from the principal amount outstanding (SPPI test). Principal is the fair value of a financial asset at the initial recognition and it changes due to repayments over time. Interest represents a consideration for the time value of money, profit margin, credit risk and other basic lending risks. If a financial asset does not pass the SPPI test it is measured at fair value through profit or loss (FVTPL). Debt instruments measured at amortised cost Debt instruments are measured at amortised 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 the initial measurement, debt instruments in this category are carried at amortised 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. Amortised 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”. Allowances on debt instruments measured at amortised cost are calculated using the expected 161 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 credit loss approach. Loans and receivables and debt securities measured at amortised 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 sell (HTCS), where the assets’ cash flows represent payments that are solely payments of principal and interest. Subsequent to initial recognition, unrealised gains and losses on debt instruments measured at FVTOCI (excl. the related expected credit losses which are directly recognised in the profit or loss) are recorded in other comprehensive income (OCI). Upon derecognition, realised gains and losses are reclassified from OCI to profit or loss. Currently, the Group did not classify any debt instrument as FVTOCI. 5.7.2.2 Equity instruments Equity instruments are disclosed in the line “Investment securities”. They 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 recognised in the profit or loss in the line “Net income from financial operations”. For equity instruments for which the Group decided for 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 derecognised 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”. 5.7.2.3 Derivatives Derivatives are measured at FVTPL, changes in fair value are recognised in the profit or loss in the line “Net income from financial operations”. For more details see note 5.7.9. 5.7.3 Classification of Financial Liabilities The Group classifies its non-derivative financial liabilities, other than financial guarantees and loan commitments, at amortised cost. Non-derivative financial liabilities are contractual arrangements resulting in the Group having an obligation to either deliver cash or another financial asset to the holder. Classification of derivative financial liabilities is presented in note 5.7.9. 5.7.4 Reclassification Generally, the Group does not reclassify any financial asset or liabilities after initial recognition. 5.7.5 Derecognition The Group derecognises a financial asset when the contractual rights to receive cash flows from the financial assets expire or the rights to receive the contractual cash flows and substantially all the risks and rewards of ownership have been transferred, or when substantially modified. On derecognition, the difference between the carrying amount of the asset and the sum of the consideration received and any cumulative gain or loss recognised in other comprehensive income is recognised in profit or loss. Any cumulative gain or loss recognised in other comprehensive income relating to equity investment securities designated at FVTOCI is not recognised in profit or loss on the derecognition but remains recognised in other comprehensive income. A financial liability is derecognised when the obligation under the liability as specified in the contract is discharged, cancelled or expired. 5.7.6 Modifications In terms of modification of conditions of a financial asset (e.g. change in interest rate not at refix date, renegotiation of the contractual terms, or as a result of loan repayment moratorium) the Group evaluates whether the cash flows of the modified financial asset are substantially different. If they are substantially different (net present value of the modified financial asset differs by more than 5% from net present value of the original financial asset) then the original financial asset is derecognised and the new financial asset is recognised. The fees that are considered in determining the fair value of the new asset and fees that represent reimbursement of eligible transaction costs are included in the initial measurement of the asset; and other fees are included in profit or loss as part of the gain or loss on derecognition. When modification results in derecognition, a new loan is recognised and allocated to a stage as per risk management assessment. If the cash flows of a modified financial asset are not substantially different from cash flows from the original financial asset, then the original financial asset remains to be recognised but the gross carrying amount is recalculated using the modified cash flows using the original effective interest rate of the asset. The resulting difference between the original gross carrying amount and the recalculated gross carrying amount is recognised as modification gain or loss in profit or loss. 162 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 5.7.7 Offsetting Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position when, and only when, the Group has a legal right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under IFRS Accounting Standards. 5.7.8 Amortised Cost Measurement The amortised cost of a financial asset or financial liability is the amount at which the asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any allowance for expected credit losses. 5.7.9 Derivatives and Hedge Accounting Derivatives are initially recognised, and are subsequently remeasured, at fair value. Fair values of derivatives are obtained by using valuation techniques. The Group designates at inception certain derivatives as hedging instruments according to IAS 39 (the Group continues to apply the hedge accounting requirements of IAS 39 as allowed by IFRS 9) and other derivatives are held for trading despite being held for risk management purposes rather than speculative purposes. (a) Derivatives classified as held for trading A derivative that is not designated and effective as a hedging instrument measured at fair value through profit or loss and reported in the line “Derivative financial instruments with positive/negative fair values” (derivatives with positive fair values within assets, derivatives with negative fair values within liabilities). These derivatives include currency and interest rate derivatives (swaps and forwards) and are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in derivatives’ fair values and all interest revenues and expenses are reported in the profit or loss line “Net income from financial operations”. Derivatives which are not designated as hedging instruments are presented in the statement of financial position in the lines “Derivative financial instruments with positive/negative fair values“(derivatives with positive fair values within assets, derivatives with negative fair values within liabilities). (b) Derivatives designated as hedging instruments The Group continues to apply the hedge accounting requirements of IAS 39 as allowed by IFRS 9. Hedge accounting is applied if, and only if, all of the following conditions are met: • The hedge is in-line with the approved Group Hedging Strategy; • The hedging relationship is formally documented at the inception; • The hedge effectiveness can be objectively and reliably measured; • The hedge is expected to be highly effective at inception and throughout its life. Fair value hedges on interest rate risk and foreign exchange risk The Group designates at initial recognition interest rate swap or cross-currency interest rate swap derivatives as hedging instruments. Either to hedge its exposure to the change in the fair value of a defined part of the portfolio of loans to customers, loan commitments or customer deposits related to interest rate risk that could affect profit or loss or to hedge issued liabilities denominated in foreign currencies eventually purchased bonds using cross-currency interest rate swaps. On the designation of the hedge, the Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedge relationship at the inception and on an ongoing basis. The Group applies for hedge relationships a fair value hedge of the defined hedged item (micro hedge) as well as a portfolio fair value hedge (macro hedge). The hedge is considered to be effective when a change in the fair value of the hedged item compared to the change in the fair value of the hedging instrument is within a range of 80-125%. Change in clean fair value excluding accrued interest of a derivative which is designated as a fair value hedge is booked daily to the profit or loss and presented in the line “Net income from financial operations” to match the change in fair value of the hedged portfolio. Accrued interest from hedging derivatives is recognised in the profit or loss in the line “Interest and similar income” to match the interest income from the hedged portfolio or the hedged item. In the case of hedging foreign currency risk change in fair value attributable to risk being hedged is booked to the profit or loss and presented in the line “Net income from financial operations“. 163 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 In the statement of financial position, derivatives with positive fair values (total fair value including accrued interest) are presented in the line item “Hedging derivatives with positive fair values”, derivatives with negative fair values (total fair value including accrued interest) are presented in the line “Hedging derivatives with negative fair values”. If the hedging instrument expires, is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting, the hedge relationship is discontinued. In this case, the fair value adjustment to the carrying amount of the hedged item is amortised to profit or loss on a straight-line basis under the line “Interest and similar income”. Cash flow hedges of interest rate risk The Group uses pay-float/receive-fix interest rate swaps to hedge the interest rate risks in respect of the benchmark interest rate (mainly PRIBOR) from its floating-rate bearing assets. The Group hedges interest rate risk to the extent of benchmark interest rate exposure on its floating-rate bearing assets to mitigate variability in its cash flows. Hedge accounting is applied where economic hedge relationships meet the hedge accounting criteria. On the initial recognition of the hedge, the Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedge relationship at the inception and on an ongoing basis. The Group determines whether a relationship exists between the cash flows of the hedged item and hedging instrument based on an evaluation of the qualitative characteristics of these items and the hedged risk that is supported by a quantitative analysis. The Group considers whether the critical terms of the hedged item and hedging instrument closely align when assessing the presence of a relationship. The Group evaluates whether the cash flows of the hedged item and the hedging instrument respond similarly to the hedged risk, such as the benchmark interest rate. The Group assesses hedge effectiveness using the hypothetical derivative method, which creates a derivative instrument to serve as a proxy for the hedged transaction. The terms of the hypothetical derivative match the critical terms of the hedged item and it has a fair value of zero at inception. The Group assesses the effectiveness of the hedging relationship (prospectively and retrospectively), i.e. whether the derivative designated in each hedging relationship is expected to be and has been highly effective in offsetting changes in cash flows of the hedged item. The hedge is considered to be effective when a change in the fair value of the hedged item compared to the change in the fair value of the hedging instrument is within a range of 80-125%. When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in OCI and presented in the “Other reserves” within equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. The amount recognised in the hedging reserve is reclassified from OCI to profit or loss as a reclassification adjustment in the same period when the hedged cash flows affect profit or loss. If the highly probable forecast transaction is considered a non-financial asset, then the amount accumulated in the hedging reserve adjusts the carrying amount of that acquired non- financial asset. If the hedging derivative expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for cash flow hedge accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively. If the hedged cash flows are no longer expected to occur, then the Group immediately reclassifies the amount in the hedging reserve from OCI to profit or loss. For terminated hedging relationships, if the hedged cash flows are still expected to occur, then the amount accumulated in the hedging reserve is not reclassified until the hedged cash flows affect profit or loss; if the hedged cash flows are expected to affect profit or loss in multiple reporting periods, then the Group reclassifies the amount in the hedging reserve from OCI to profit or loss in the line “Net income from financial operations” on a straight-line basis. 5.7.10 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: • Amortised cost financial assets; • Debt securities classified as measured at FVTOCI; • Undrawn loan commitments. Financial assets migrate through the three stages based on the change in credit risk since initial recognition. Expected credit loss impairment model The Group’s allowance for credit loss calculations are outputs of models with a number of underlying 164 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 assumptions regarding the choice of variable inputs and their interdependencies. The expected credit loss impairment model reflects the present value of all cash shortfalls related to default events either (i) over the following twelve months or (ii) over the expected life of a financial instrument depending on credit deterioration from inception. The allowance for credit losses reflects an unbiased, probability-weighted outcome which considers multiple scenarios based on reasonable and supportable forecasts. The impairment model measures credit loss allowances using a three-stage approach based on the extent of credit deterioration since origination: • Stage 1 – If there has not been a significant increase in credit risk (SICR) since initial recognition of a financial instrument, a loss allowance at an amount equal to 12-month expected credit losses (expected credit losses that result from those default events on the financial instrument that are possible within 12 months after the reporting date) is recorded. Interest revenue is recognised using the effective interest rate method applied on the financial asset’s gross carrying amount. • Stage 2 – When a financial instrument experiences a SICR subsequent to origination but is not considered to be in default, a loss allowance at an amount equal to full lifetime expected credit losses (expected credit losses that result from all possible default events over the life of the financial instrument) is recorded. Interest revenue is recognised using the effective interest rate method applied on the financial asset’s gross carrying amount. • Stage 3 – Financial instruments that are considered to be in default are included in this stage. Similarly to Stage 2, a loss allowance at an amount equal to the full lifetime expected credit losses is recorded. Interest revenue is recognised using the effective interest rate method applied on the financial asset’s net carrying amount. Measurement of expected credit loss The probability of default (PD), exposure at default (EAD), and loss given default (LGD) inputs used to estimate expected credit losses are modelled based on macroeconomic variables that are most closely related to credit losses in the relevant portfolio. Details of these statistical parameters/inputs are as follows: • PD – The probability of default is an estimate of the likelihood of default over a given time horizon. • EAD – The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities, and accrued interest from missed payments. • LGD – The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realisation of any collateral. The measurement of expected credit losses for each stage and the assessment of significant increases in credit risk considers information about past events and current conditions as well as reasonable and supportable forecasts of future events and economic conditions. The estimation and application of forward-looking information require significant judgement. Presentation of allowance for credit losses (ACL) in the statement of financial position • Financial assets measured at amortised cost: ACL is deducted from the gross carrying amount of the financial assets; • Debt instruments measured FVTOCI: no ACL is recognised in the statement of financial position because the carrying value of these assets is their fair value. However, the ACL is presented in the accumulated OCI; • Off-balance sheet credit risks (e.g. credit cards with undrawn limit): In the case that the determined expected credit loss exceeds the gross carrying value of the financial asset the excess is recognised as a provision. Purchased or originated credit-impaired financial assets (POCI) Financial assets classified as POCI are always subject to lifetime allowance for credit losses. At initial recognition expected credit loss is initially reflected in the credit-adjusted effective interest rate. As a result, no loss allowance is recognised at inception. Subsequently, only negative changes in lifetime expected credit losses are recognised as allowance for credit losses, whilst positive changes are recognised as impairment gains increasing the gross carrying amount of such financial assets. Management overlay Management overlay allows management of the Bank to override results of ECL models in the case that these models are not able to timely respond to changes in economic environment. Application of management overlay is subject of approval process, detail documentation and monitoring. 165 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 5.8 REPURCHASE AND REVERSE REPURCHASEAGREEMENTS The Group enters into contracts to sell and buy back financial instruments at a specific future date (repo) or to buy and sell back financial instruments at a specific future date (reverse repo). In repo transactions the securities provided by the Group continue to be recognised and reported in the statement of financial position as the Group retains substantially all the risks and rewards of ownership together with all coupons and other income payments received during the period of the repo transaction. The corresponding cash received is recognised in the statement of financial position and a corresponding obligation to return it (including accrued interest) is recorded as a liability. Securities purchased as a reverse repo transaction are not recognised in the statement of financial position. The consideration paid (including accrued interest) is recorded in the statement of financial position as “Loans and receivables to banks” or “Loans and receivables to customers”. The Group is allowed to provide securities received in reverse repo transactions as collateral or sell them, even in the absence of default by their owner. The difference between the sale and repurchase price or between the purchase and resale price is treated as interest and recognised in net interest income over the life of the agreement. 5.9 FAIR VALUE MEASUREMENT Fair value is the price the Group would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Group’s market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy: • Level 1 – Quoted prices for identical instruments in active markets. • Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. • Level 3 – Significant inputs to the valuation model are unobservable. The Group maintains policies and procedures to value instruments. In addition, the Group has risk management teams that review valuation, including independent price validation for certain instruments (e.g. treasury bills). With regard to Level 3 valuations, the Group performs a variety of procedures to assess the reasonableness of the valuations. Such reviews, which may be performed quarterly, monthly or weekly, include an evaluation of instruments whose fair value change exceeds predefined thresholds (and/or does not change) and consider the current interest rate, currency and credit environment, as well as other published data, such as rating agency market reports and current appraisals. Fair values of financial assets and liabilities that are not presented in the Group’s balance sheet at fair values are shown in note 45. 5.10 PROVISIONS A provision is recognised by the Group when: • It has a present obligation (legal or constructive) as a result of a past event; and • It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and • The Group can reliably estimate the amount of the obligation. Provisions are reported in the statement of financial position and include provisions for expected credit losses (loan commitments) and provisions for litigation and other obligations. Gains and losses related to provisions are reported based on their substance. Provisions are disclosed in note 35. 5.11 LEASES At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16. 166 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 (i) Group as a Lessee At initiation or modification date of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. The Group accounts for each lease component within the contract separately i.e. lease and non-lease components of the contract are separated, unless practical expedient is applied. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term or over the useful life of the underlying asset (in case the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option). In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is at initial recognition measured at the present value of fixed and variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date net of cash lease incentives that are not paid at the commencement date, discounted using the rate implicit in the lease contract, and where not available, using incremental borrowing rate. The Group determines its incremental borrowing rate based on market conditions for which it would obtain additional credit financing (loan or debt securities). Subsequently, the lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. In case the lease liability is subject to the above mentioned remeasurement, a corresponding adjustment is made to the carrying amount of the right-of-use asset, and it is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Group presents right-of-use assets that do not meet the definition of investment property in “Property and equipment” and lease liabilities in “Other liabilities” in the statement of financial position. The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets (up to CZK 100 thousand) and short-term leases (up to 12 months), including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The Group has not entered any long-term agreement of purchase of goods or services exclusively produced for the Group such as Power Purchase Agreement (PPA). (ii) Group as a Lessor At inception or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset. The Group accounts for sub-lease contracts separately from the master lease. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the master lease, not with reference to the underlying asset. If a master lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sub-lease as an operating lease. Until August 2022, the Group only sub-leased former Acquired entities headquarters premises. The sub-lease was classified as a finance lease. Financial receivable resulting from the sub-lease was recognised in “Other assets”, original lease liability in “Other liabilities” in the statement of financial position. Related interest income and expense were recognised in the lines “Interest and similar income” and “Interest expense and similar charges” respectively in the statement of profit or loss. 167 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 If an arrangement contains lease and non-lease components, then the Group applies IFRS 15 to allocate the consideration in the contract. The Group applies the derecognition and impairment requirements in accordance with IFRS 9 to the net investment in the lease. See note 5.7.10. The amount due from the lessee under a finance lease is recognised in the Group’s statement of financial position as a receivable at an amount equal to the lessor’s net investment in the lease and presented in “Loans and receivables to customers” with exception of real estate sub-leases presented in “Other assets”. The underlying asset is not recognised on the balance sheet. The finance income from finance leases is recognised in “Interest and similar income” based on a pattern reflecting a constant periodic rate of return on the net investment, i.e. using the effective interest method. Payments received by the Group as a lessor under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease in “Other operating income”. Any lease incentives paid are recognised as an integral part of the total lease income over the term of the lease. The assets provided under operating leases are recognised in the statement of financial position of the Group in “Property and Equipment” and corresponding depreciation is recorded in the statement of profit or loss line “Amortisation and depreciation”. 5.12 PROPERTY AND EQUIPMENT Items of property and equipment are measured at cost less accumulated depreciation less impairment losses over their estimated useful lives. Cost includes the purchase price of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, and the initial estimate of the costs of dismantling and removing the item. Property and equipment is depreciated on a straight-line basis over their estimated useful lives as follows: Technical Improvements related to real estate 5-15 years 1) Furniture 4-10 years Equipment 5-10 years Cars 8 years Computers and servers 5-7 years ATMs 10 years 1) Based on the estimated duration of use in accordance with the IFRS 16 lease agreement. Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease terms or their remaining useful lives. Assets leased by the Group to third parties under operating lease contracts are depreciated over the estimated useful lives in the same way as other Property and equipment. Assets’ residual values and useful lives are monitored and adjusted if appropriate at each financial statement date. Property and equipment are subject to quarterly impairment reviews (see note 5.15). If the carrying amount of the asset exceeds its estimated recoverable amount, the asset is adjusted accordingly. Its estimated recoverable amount is the higher of fair value including costs to sell and its value in use. The Group presents right-of-use assets resulting from lease agreements that do not meet the definition of investment property in the statement of financial position in line “Property and equipment”. Gains and losses on disposals are determined by deducting the carrying value from the consideration received. Any gain/loss on sale is recognised in the profit or loss. 5.13 IMPAIRMENT OF GOODWILL The Group tests goodwill for impairment as at each reporting date or whenever there is an indication of possible impairment during the year. The impairment test involves determination of the recoverable amount for a cash-generating unit (CGU). A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. The recoverable amount is the higher of its fair value less costs of disposal and its value in use. The Group determines the recoverable amount of a CGU as a value in use which is estimated using the income approach based on the present value of estimated future cash flows discounted at an appropriate risk- adjusted rate. The Group uses internal forecasts to estimate future cash flows and includes an estimate of long-term future growth rates based on the most recent views of the long-term outlook for each business. Actual results may differ from those assumed in the forecasts. For the purposes of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer’s CGUs that is expected to benefit from the synergies of the combination. 168 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 An impairment loss is recognised if the carrying amount of a CGU exceeds its recoverable amount. In other words, the recoverable amount of a CGU is compared with the sum of the carrying amount of the CGU for the purposes of consolidation and the relevant goodwill. The impairment loss shall • First, reduce the carrying amount of any goodwill allocated to a CGU; and • Then to other assets of the CGU pro rata on the basis of the carrying amount of each asset in the CGU. The impairment test consists of two steps: in step one, the carrying value of the cash-generating unit is compared with its recoverable amount; in step two, which is applied when the carrying value of the cash-generating unit is more than its recoverable amount, the amount of goodwill impairment, if any, is derived by deducting the recoverable amount of the cash-generating unit from the carrying value of the cash-generating unit including the amount of goodwill. Since 2018, the Group has not reported any goodwill. 5.14 INTANGIBLE ASSETS Software Software acquired by the Group is measured at cost less accumulated amortisation and any accumulated impairment losses. Expenditure on internally developed software is recognised as an asset when the Group is able to demonstrate its intention and ability to complete the development and use the software to generate future economic benefits and the costs to complete the development can be reliably measured. Internally developed software is stated at capitalised cost less accumulated amortisation and impairment. Purchased software and internally developed software is amortised over its expected useful life that is usually considered to be 5 years when recognised initially. During its useful life, development is performed on the software. This development prolongs the useful life of the software. The following table shows the weighted average of the remaining useful life of software assets: Core systems 6 years Data warehouses 7 years Infrastructure 6 years Distribution channels 6 years Enterprise software 4 years Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. Core deposit intangible (CDI) Core deposit intangible resulting from the Acquisition represents the benefit of having a low-cost, stable funding source, and in times when alternative sources of funds have higher rates, core deposits have greater worth to an acquirer. CDI can be also interpreted as an intangible asset recorded upon acquisitions to capture the value of the customer relationships the acquired deposits represent. The Group amortises CDI linearly over 60 months. Assessment whether circumstances triggering potential impairment is done annually. If such circumstances are identified CDI is tested for impairment in line with note 5.15. 5.15 IMPAIRMENT OF NON-FINANCIAL ASSETS At the end of each reporting date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any such indication exists then the assets recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s fair value less costs of disposal and its value in use. An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the profit or loss in the “Other operating expenses” (see note 15). An impairment loss may be reversed to the extent it does not exceed the carrying amount that would have been determined if no impairment loss had been recognised. The Group regularly monitors potential impacts resulting from climate changes that could result into impairment of non-financial assets. Currently there are no such impairment indicators. 5.16 EMPLOYEE BENEFITS Employee benefits include short-term bonus payments, flexible benefits (Cafeteria), remuneration for loyalty, retention bonuses and other unclaimed components of remuneration. In 2017, a remuneration policy relevant for the Management Board members and other Material Risk Takers that is subject to the terms and conditions described in the Executive Variable Incentive Plan (EVIP) has been introduced under which bonuses are partly linked to the share price and the dividend (shareholder’s return). Remuneration of other employees is governed by the Group Employee Remuneration Policy. 169 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 In August 2018, the Supervisory Board of the Bank adopted the Rules of Long-Term Incentive Plan internal policy (LTIP). Members of the Management Board are eligible to receive the LTIP awards in the form of actual shares in the Bank as part of their variable remuneration, where the proportion of the award that vests is conditional on the satisfaction of medium-term performance targets set by the Supervisory Board. So far, no awards have been made under the LTIP. Executive Variable Incentive Plan (EVIP) for the Management Board members and other Material Risk Takers The amount of the variable compensation that a participant receives under the EVIP incentive programme is based on the basis of the participant’s performance and the Bank’s performance; including the achievement of goals and objectives set by the Supervisory Board and the Chief Executive Officer (whereas the Chief Executive Officer is not involved in the decision-making regarding the setting of his own goals and objectives). A portion of the remuneration is paid in cash (part in the year after the assessment year and part is deferred up to five annual instalments in the following years) and the remainder is linked to the total shareholders return (TSR) and spread over also up to five annual instalments. This part of the deferred bonus represents a share-based payment and is disclosed in line with IFRS 2 Share-based payments, specifically as cash settled share-based payments. For more details about this programme see the Remuneration Report for 2023. Bonus payments are accrued over time when earned in the amount of the estimated future pay-out. Sales, collection and customer service incentives Sales incentives represent a performance-based remuneration to retail and commercial employees at branches. The volume of the sales incentives depends on the fulfilment of quantitative and qualitative performance targets, which are evaluated and paid quarterly. Employees providing sales and service over the phone or working on selected support departments are evaluated and paid on a monthly basis. Incentives in the Structure Finance unit are paid on an annual basis. Collection incentives represent a performance remuneration for employees participating in the collection of debts. The frequency of evaluation of performance and payments of incentives is on a monthly (retail receivables) or on a quarterly basis (commercial receivables). The Group recognises a liability as at the reporting date representing the sum of the sales incentives in the fourth quarter and the amounts deferred from the previous reporting periods. Flexible benefits (Cafeteria) Each employee of the Bank selects from flexible benefit offer upon his/her preference (including meal allowance) or contribution to pension / life insurance, eventually its combination. Costs of flexible benefits are recognised in the profit or loss line “Personnel expenses“ on a straight-line basis over the reporting period. Retention programme Employees involved in important projects or having a significant influence on the operation of critically important processes can receive a motivation award under predetermined conditions. The liability is accrued on a monthly basis into expenses on the part of remuneration to which the claim has already arisen taking into account the probability of payment. 5.17 CASH AND CASH BALANCES WITH THE CENTRAL BANK Cash and balances with the central bank include current accounts and time deposits with the Czech National Bank (CNB), cash in ATMs and in branches. Cash and balances are reported in the statement of financial position in “Cash and balances with the central bank”. The Group’s mandatory minimum reserve held by the CNB is also included within “Cash and balances with the central bank”. 5.18 INCOME TAX AND DEFERRED TAX Income tax expense comprises current and deferred tax. It is recognised in the profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income. Current Tax Current tax represents the tax expected to be payable on the taxable profit for the year, calculated using tax rates enacted or substantively enacted by the balance sheet date, and any adjustment to tax payable in respect of previous years. Current tax assets and liabilities are offset when the Group intends to settle on a net basis and the legal right to offset exists. Deferred Tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the statement of financial position and the amounts attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are generally recognised for all taxable temporary differences and 170 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. Significant temporary and timing differences arise mainly from different accounting and tax value adjustments to receivables, provisions, different accounting and tax economic useful life of tangible and intangible assets and from the revaluation of financial assets. 5.19 SEGMENT REPORTING The Group’s operating businesses are organised based on the nature of markets and customers. Operating segments are reported in accordance with the internal reports prepared on a regular basis and presented to the members of the Management Board. The Group has identified the following segments: • Commercial clients – includes individually and portfolio managed commercial loans, finance leases. Clients are mainly small and medium entrepreneurs. • Retail clients – this segment covers most of the Group’s consumer products (consumer loans, mortgages, building savings, auto financing, etc.). Products in the Group’s consumer portfolio have similar characteristics. They consist mainly of term loans offered through a network of individual branches, call centres, online channels and external partners. The products are primarily targeted at consumers and households. • Treasury/Other – includes mainly investment banking and equity investments and other areas that are not included in the above segments. The Management Board of the Bank (the chief operating decision maker) does not use the above described segmental view on all items of the Consolidated Statement of Profit or Loss. For this reason, Operating expenses, Taxes and consequently Profit for the year before tax and Profit for the year after tax are not reported in segments but only on the Total level. Information about the reported segments is described in note 43. 5.20 FINANCIAL GUARANTEES AND LOANCOMMITMENTS Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss that it incurs because a specified debtor fails to make payment when it is due in accordance with the terms of a debt instrument. Loan commitments are firm commitments to provide credit under pre-specified terms and conditions. Liabilities under financial guarantee contracts are recorded initially at their fair value, which is generally the fee received or present value of the fee receivable. Financial guarantee liabilities are subsequently measured at the higher of the initial fair value, less cumulative amortisation and the amount equalling the expected credit loss determined in accordance with IFRS 9 (see note 5.7.10). The provided guarantees are shown in note 40. 5.21 SUBORDINATED LIABILITIES Subordinated liabilities (bonds and deposits) are subordinated to all other liabilities of the Bank. As at 31 December 2023, it forms a fully or partially part of the Tier 2 capital of the Bank as defined by the CNB for the purposes of determination of its capital adequacy. These instruments are initially measured at fair value minus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest method. 5.22 MORTGAGE-BACKED BONDS Mortgage-backed bonds are covered by mortgages provided to clients of the Group. These instruments were purchased as a part of the Acquisition and initially measured at fair value and subsequently measured at their amortised cost using the effective interest method. Mortgage-backed bonds are presented in the statement of financial position in the line “Issued bonds”. Internally Issued Mortgage-Backed Bonds (on own books) The mortgage-backed bonds are covered by mortgage loans provided to the Group’s clients. The purpose of the issuance of these bonds is only resolution of eventual liquidity crisis when bonds would be used as collateral for a lombard loan or repo operations with the Czech National Bank or other financial institution. As at 31 December 2023, the Group did not realise 171 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 any of these above-mentioned operations, therefore, these bonds are not recognised in the Statement of financial position. 5.23 OTHER ISSUED BONDS Other issued bonds are represented by the senior preferred bonds which are in compliance with the minimum requirement for own funds and eligible liabilities (“MREL”) requirement which was set for the Bank by the Czech National Bank. These instruments are initially measured at fair value minus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest method. Other issued bonds are presented in the statement of financial position in the line “Issued bonds”. 6. NET INTEREST INCOME CZK m 2023 2022 Interest income from financial assets measured at amortised cost 1) 19,040 13,979 Loans to customers 2) 12,449 11,108 out of which: interest income from impaired loans 162 168 out of which: penalty interest 24 23 out of which: EIR amortisation, modification/derecognition and amortisation of acquisition FV adjustments (530) (607) Loans to banks 3,906 1,624 out of which arising from repurchase and reverse repurchase agreements 3) 3,867 1,611 Cash and deposit with the central bank and other banks 6) 363 338 Interest income from investment securities at amortised cost 2,308 895 Other interest income 4) 14 14 Interest from hedging derivatives 3,006 1,612 Interest income and similar income 22,046 15,591 Interest expense from financial liabilities measured at amortised cost 1) (12,852) (5,734) Due to banks (159) (364) Due to customers (12,085) (5,031) out of which: arising from repurchase agreements - (18) out of which: amortisation of acquisition FV adjustments 18 52 Subordinated liabilities (282) (167) Mortgage-backed bonds (55) (114) Other issued bonds 5) (175) (46) Other interest expense 4) (96) (12) Interest from hedging derivatives (584) (527) Interest expense on lease liabilities (33) (19) Interest expense and similar expense (13,469) (6,280) Net interest income 8,577 9,311 1) All interest income and expense from financial instruments at amortised cost are calculated using the effective interest method. There are no FVTOCI interest- bearing instruments. 2) Of which Interest Income from repurchase agreements with a negative interest rate at CZK 0 million in 2023 (2022: CZK 0 million). 3) Of which Interest Income from repurchase agreements with a negative interest rate at CZK 0 million in 2023 (2022: CZK 0 million). 4) Represents interest income or expense respectively from received or provided collateral resulting from Credit Support Annex (CSA). 5) MREL requirement eligible bonds are included. 6) The Bank Board of the CNB decided in September 2023 that it would discontinue remuneration of the mandatory minimum reserves. The decision became effective on 5 October 2023; prior to that, the mandatory minimum reserves were remunerated using the 2-week repo rate. 172 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 Analysis of deferred costs and fees directly attributable to the origination of new loan products that are an integral part of the effective interest rate and fair value adjustment resulting from the revaluation of acquired financial assets: Year ended 31 Dec 2023 CZK m Balance at beginning of period Amortisation Derecognitions/ Modifications Additions to deferred fees 1) Additions to deferred costs Balance at end of period Consumer Loans 150 (5) (2) (64) 58 137 Mortgages 1,639 (143) (8) (4) 18 1,502 Credit Cards & Overdrafts 12 (9) - - 7 10 Auto Loans and Finance Leases 192 (102) (5) - 113 198 Retail loans deferrals 1,993 (259) (15) (68) 196 1,847 Investment Loans 508 (83) (3) (14) 33 441 Working Capital (3) 9 - (18) 4 (8) Auto & Equipment Loans and Finance Leases 231 (145) - - 148 234 Unsecured Instalment Loans and Overdrafts 98 (34) - (8) 46 102 Commercial loans deferrals 834 (253) (3) (40) 231 769 Total loan deferrals 2,827 (512) (18) (108) 427 2,616 1) The majority is the loan account opening fee. Year ended 31 Dec 2022 CZK m Balance at beginning of period Amortisation Derecognitions/ Modifications Additions to deferred fees 1) Additions to deferred costs Balance at end of period Consumer Loans 125 (28) (4) (58) 115 150 Mortgages 1,605 (219) (3) (13) 269 1,639 Credit Cards & Overdrafts 16 (11) - - 7 12 Auto Loans and Finance Leases 165 (95) (5) - 127 192 Retail loans deferrals 1,911 (353) (12) (71) 518 1,993 Investment Loans 536 (55) 1 (15) 41 508 Working Capital (1) 2 - (8) 4 (3) Auto & Equipment Loans and Finance Leases 223 (149) - - 157 231 Unsecured Instalment Loans and Overdrafts 92 (41) - (7) 54 98 Commercial loans deferrals 850 (243) 1 (30) 256 834 Total loan deferrals 2,761 (596) (11) (101) 774 2,827 1) The majority is the loan account opening fee. 173 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 7. NET FEE AND COMMISSION INCOME CZK m 2023 2022 Insurance 1) 1,212 799 Investment funds 2) 331 302 Penalty fees (incl. early termination fees) 277 288 Deposit servicing fees 387 404 Lending servicing fees 229 215 Transactional and other fees 781 724 Fee and commission income 3,217 2,732 Fee and commission expense (593) (434) Net fee and commission income 2,624 2,298 1) The line “Insurance” includes especially commissions on payment protection insurance, car insurance (Casco and third party liability insurance), travel insurance, accident insurance, life insurance and pension funds. 2) The amount of received fees serves as the base for the calculation of contribution of the Group to the Investor Compensation Fund. 8. DIVIDEND INCOME CZK m 2023 2022 Dividends from investments in associates 1) 3 4 Dividend income 3 4 1) Represents dividends from associate CBCB - Czech Banking Credit Bureau, a.s. received or accrued. 9. NET INCOME FROM FINANCIAL OPERATIONS CZK m 2023 2022 Net gain/(loss) from hedging instruments (4,915) 1,335 Net gain/(loss) from hedged instruments 5,009 (1,212) Net gain/(loss) from financial assets and liabilities at FVTPL 43 (297) out of which: revaluation of FVTPL securities to fair value 6 - out of which: expense on derivative instruments (118) (557) out of which: income from derivative instruments 155 260 Net income from sale of investment securities 3) 26 - Exchange rate differences 726 531 Net income from financial operations 889 357 1) The sale of investment securities was considered in line with the business model, inwhich they hadbeen hold. Furtherdetail is describedin note 24. 10. OTHER OPERATING INCOME CZK m 2023 2022 Income from leases 1) 1 2 Rent income 1 5 Other collection income 2) 19 27 Other income 33 112 Total other operating income 54 146 1) The line “Income from leases “ includes income from operating lease contracts provided by MONETA Leasing, s.r.o. Assets leased under operating leases are shown in the category “Assets leased under operating lease” (see note 29). 2) The line “Other collection income” includes the balance of CZK 10 million for 2023 (2022: CZK 14 million) which represents recoveries arising from written-off receivables exceeding the write-off which is recognised in the line “Net impairment of financial assets” out of which CZK 4 million for 2023 (CZK 4 million in 2022) results from legacy NPL sales. The residual amount represents legal costs paid by clients being under collection proceedings by solicitor offices. 11. PERSONNEL EXPENSES 2023 2022 The average number of employees during the period 1) 2,493 2,801 Number of Management Board members 5 5 Number of Supervisory Board members 9 9 Number of other Key Executive Managers 4 3 Physical number of employees at the end of the period 2,580 2,726 CZK m 2023 2022 Salaries and bonuses 2) (1,854) (1,839) out of which: salaries and bonuses actuals (1,630) (1,664) out of which: salaries and bonuses accruals (224) (175) Social security and health insurance (581) (571) Restructuring costs 25 (26) Other employee-related expenses (94) (92) Total personnel expenses (2,504) (2,528) 1) The average number of employees during the period is an average of the figures reported to the Czech Statistical Authority (CSA) on a monthly basis in accordance with Article 15 of Czech Act No. 518/2004. The figures reported to the CSA equal the quotient of the following nominator and the followingdenominator. The nominator is defined as all hours worked by all employees, their related leaves/holidays and their related sick days. The denominator represents the standard working hours per employee and month. 2) Remuneration to members of Supervisory Board, Management Board and other Key Executive Managers are described in note 42.1. 174 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 12. ADMINISTRATIVE EXPENSES CZK m 2023 2022 IT and software expense (638) (612) Rent expense 1) (55) (28) Rent-related services (182) (178) Advisory services (22) (30) Auditor’s fees (27) (26) Marketing (205) (213) Travel cost (33) (28) Other expenses 2) (471) (408) out of which: ATM expense (53) (47) out of which: legal expense (27) (33) out of which: office supplies (8) (17) out of which: transport of cash (95) (88) Total administrative expenses (1,633) (1,523) 1) The line “Rent expense” includes only leases whose term ends within twelve months from the date of initial application or from the lease start date (short-term leases) and leases of assets with a purchase price lower than CZK 100 thousand (low-value assets). 2) The line “Other expenses“ comprises expenses on other services provided by 3rd parties not disclosed separately, e.g. subscription fees, support of ATMs, transport of cash, postage, training, cleaning services, car expense, etc In 2022, the Group was reimbursed by PPF Group for the cost incurred in relation to the terminated Acquisition process of Air Bank and Home Credit Czech and Slovak businesses (Air Bank Group) in the amount of CZK 113 million. The reimbursement was recognised as a credit to Administrative expenses. CZK 50 million represents reimbursement of expenses incurred in 2022, the remainder relates to 2021. 13. REGULATORY CHARGES CZK m 2023 2022 Contributions to Deposit Insurance Fund (171) (109) Contributions to Resolution and Recovery Fund (130) (116) Contributions to Investor Compensation Fund (6) (4) Total regulatory charges (307) (229) 14. DEPRECIATION AND AMORTISATION CZK m 2023 2022 Depreciation of property and equipment (532) (570) out of which: right-of-use assets (319) (336) Amortisation of intangible assets (701) (679) Total depreciation and amortisation (1,233) (1,249) Impairment losses are shown in note 15. 15. OTHER OPERATING EXPENSES CZK m 2023 2022 Damages (8) (8) Unrecoverable VAT (2) (2) Other expenses (43) (55) out of which: impairment of non-financial assets (4) (13) Total other operating expenses (53) (65) 16. NET IMPAIRMENT OF FINANCIAL ASSETS CZK m 2023 2022 Additions and release of loan loss allowances (327) (55) Additions and release of allowances/provisions to unused commitments 32 1 Use of loan loss allowances associated with written-off receivables 710 659 Income from previously written-off receivables 56 37 Write-offs of uncollectable receivables (727) (680) Change in allowances to Investment securities (4) (11) Change in allowances to operating receivables (4) (5) Collection costs (41) (36) Net impairment of financial assets (305) (90) Line “Income from previously written-off receivables” includes in 2023 CZK 40 million (2022: CZK 11 million) representing recovery resulting from NPL sales. The overall profit or loss impact of the NPL sales in 2023 is CZK 307 million (2022: CZK 243 million) representing recovery, release of related unused Loan Loss Allowances and Other income (see note 10). If loss given default (LGD) (in either the individual assessment or statistical models) changes by +/- 10% in relative terms, then the loan loss allowances would change by +/- CZK 482 million as at 31 December 2023 and by +/- CZK 483 million as at 31 December 2022. The Group reflects external collection costs in determining the impairment loss of loans and receivables and these costs are disclosed in the line “Net impairment of financial assets” when they are incurred. An estimate of these costs also reduces the present value of recovery cash flows expected from related, defaulted receivables. At each financial statement date, financial assets not measured at fair value through profit or loss are assessed for impairment. The Group determines whether as a result of an event or events occurring alone or in combination, a financial asset is considered in default. 175 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 For further details, see note 44.2.2. Calculation of loan loss allowances is performed in line with IFRS 9. For further details, see note 44.2.4. Impacts of the current macroeconomic environment Significant uncertainty regarding the future macroeconomic developments in connection with the environment of high interest rates and high inflation remained during 2023. The Group continued to take these risk factors, which are not adequately reflected in the current IFRS 9 model of expected credit losses, into account through the management overlay framework, which was continuously updated during 2023. In December 2023, the management overlay framework was reviewed with the aim of reflecting outcomes of assumptions back testing. As at 31 December 2023, the total management overlay amount stood at CZK 643 million. Macroeconomic assumptions in the IFRS 9 model were updated in November 2023. The scenarios of the main macroeconomic variables of the model (unemployment rate and GDP growth) were constructed based on the latest available forecasts provided by the Czech National Bank. The potential negative development of these drivers is reflected via the adverse IFRS 9 macroeconomic scenario. The following table shows an overview of internal scenarios based on the prognoses of the MFCR and the CNB: GDP Growth MFCR (1/2023) MFCR (4/2023) MFCR (8/2023) MFCR (11/2023) CNB (2/2023) CNB (5/2023) CNB (8/2023) CNB (11/2023) IFRS 9 MODELYear 2023 (0.5%) 0.1% (0.2%) (0.5%) (0.3%) 0.5% 0.1% (0.4%) (0.4%) 2024 3.0% 3.0% 2.3% 1.9% 2.2% 3.0% 2.3% 1.2% 1.2% 2025 2.7% 2.8% 2.8% Unemployment MFCR (1/2023) MFCR (4/2023) MFCR (8/2023) MFCR (11/2023) CNB (2/2023) CNB (5/2023) CNB (8/2023) CNB (11/2023) IFRS 9 MODELYear 2023 3.2% 3.0% 2.8% 2.7% 2.7% 2.5% 2.7% 2.7% 2.7% 2024 3.0% 2.8% 2.7% 2.8% 3.3% 2.8% 2.8% 3.0% 3.0% 2025 3.0% 3.0% 3.0% Management overlay Throughout 2023, the management overlay framework was subject to regular reviews and updates in line with the pre-defined governance framework. In March 2023, the management overlay framework was extended to reflect risks associated with exposures secured by COVID-19 guarantees expiring within 12 consequent months. In the fourth quarter of 2023, the management overlay framework was reviewed with the aim of reflecting outcomes of assumptions back testing. This resulted in a decrease of overlay amount. As at 31 December 2023, the total management overlay amount stood at CZK 643 million. 17. TAXES ON INCOME Tax expense from the Group’s profit before tax can be analysed as follows: CZK m 2023 2022 Current income tax for the year (934) (1,144) Income tax related to prior years (12) 11 Change in deferred tax position recognised in profit or loss 34 (112) Taxes on income (912) (1,245) 176 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 The table below shows the reconciliation of the actual tax charge and the tax charge based on applying the standard corporate income tax rate according to the Czech Republic’s income tax law: CZK m 2023 2022 Profit for the period before tax 6,112 6,432 Theoretical income tax accounted for into expenses, calculated at the rate of 19% (1,161) (1,222) Tax related to the prior years (12) 11 Impact of the tax non-deductible expenses (37) (58) Impact of the tax-exempt income 296 70 Impact of windfall tax on deferred tax 46 (46) Impact of change in the income tax rate from 19% to 21% (effective from 1 January 2024) (44) - Taxes on income (912) (1,245) Effective income tax rate 1) 15.0% 19.4% 1) The decrease in effective interest rate in 2023 was influenced by higher tax-exempt income, mainly income from Government bonds issued after 1 January 2021. The Group is not aware of any uncertain tax treatment as defined in IFRIC 23 Uncertainty over Income Tax Treatments, thus calculation of current and deferred tax is not influenced by extra judgements and estimates, which requires separate disclosure. The Bank shall be subject to the windfall tax imposed by the Government on Banks that report net interest income higher than CZK 6 billion in 2021, Power and Fuel industry for tax periods from 2023 to 2025. The Windfall tax base is positive excess over the individual Bank’s four-year average tax base (2018 to 2021) increased by 20 percent and its actual tax base of the given tax period. Such excess if any is subject to an additional 60 percent taxation. In 2022 the windfall tax impacted only deferred tax. This impact was reversed in 2023. In 2023, based on the current operating plan, the Bank only reflects an increase in corporate income tax rate from 19 percent to 21 percent. 18. EARNINGS PER SHARE Earnings per share amounts are calculated by dividing the net profit for the year after tax attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year. CZK m 2023 2022 Profit for the year after tax attributable to the equity holders 5,200 5,187 Weighted average of ordinary shares (millions of shares) 511 511 Basic earnings per share (CZK ) 10.18 10.15 As the Group has not issued any potentially dilutive instruments, the basic earnings per share equal the diluted earnings per share. 19. CASH AND BALANCES WITH THE CENTRAL BANK CZK m 31 Dec 2023 31 Dec 2022 Cash and cash in transit 3,206 3,727 Mandatory minimum reserve and clearing account with the central bank 7,665 8,740 Total cash and balances with the central bank 10,871 12,467 The Group includes a mandatory minimum reserve with the Czech National Bank into “Cash and balances with the central bank”. The Group may draw funds from the mandatory minimum reserve at any point in time provided that the average balance over the relevant period meets the minimum levels required according to the regulations of the Czech National Bank. 20. CASH AND CASH EQUIVALENTS For the purposes of the consolidated statement of cash flows, cash and cash equivalents comprise the following balances with maturities from the acquisition of less than 3 months: CZK m 31 Dec 2023 31 Dec 2022 Cash and deposits with the central bank 10,871 12,467 Loans and receivables to banks 67,392 37,634 Total cash and cash equivalents 78,263 50,101 177 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 21. TRANSFER OF FINANCIAL ASSETS – REPURCHASE TRANSACTIONS 31 Dec 2023 CZK m Carrying amount of transferred assets Carrying amount of associated liabilities Fair value of transferred assets Fair value of associated liabilities Liabilities arising from repurchase agreements with clients - - - - with banks - 2,531 - 2,531 Total liabilities arising from repurchase agreements - 2,531 - 2,531 Financial assets transferred as collateral in repurchase agreements Financial assets measured at amortised cost 2,824 - 3,229 - Financial assets received in reverse repos - - - - Total financial assets transferred as collateral in repurchase agreements 2,824 - 3,229 - 31 Dec 2022 CZK m Carrying amount of transferred assets Carrying amount of associated liabilities Fair value of transferred assets Fair value of associated liabilities Liabilities arising from repurchase agreements with clients - - - - with banks - - - - Total liabilities arising from repurchase agreements - - - - Financial assets transferred as collateral in repurchase agreements Financial assets measured at amortised cost - - - - Financial assets received in reverse repos - - - - Total financial assets transferred as collateral in repurchase agreements - - - - Liabilities from repurchase agreements represent the obligation to repay the borrowing and are shown in the lines “Due to banks” (see note 33) and “Due to customers” (see note 34). Financial assets transferred as collateral consist of Government bonds (see note 24) measured at amortised cost of CZK 2,824 million as at 31 December 2023 (31 December 2022: CZK 0 million). 178 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 22. LOANS AND RECEIVABLES TO BANKS Loans and receivables to banks include: CZK m 31 Dec 2023 31 Dec 2022 Current accounts at banks 260 446 Overnight deposits 392 482 Term deposits in banks payable within 3 months - 453 Receivables arising from reverse repurchase agreements 1) 66,740 36,253 Cash collateral granted 2) 2,238 251 Other 3) 2 1 Included in cash equivalents 67,392 37,634 Total loans and receivables to banks 69,632 37,886 1) The Group provides reverse repo operations with the Czech National Bank. The collateral received as at 31 December 2023 of CZK 65,422 million (31 December 2022 CZK 35,526 million) is represented by treasury bills that are not recognised in the statement of financial position. 2) Comprises collateral granted for repo operations and derivative transactions. 3) Represents an unsolicited dividend for the years 2020, 2021 and 2022 transferred to Komerční banka, a.s. that is administering the payment. The Group estimated expected credit loss resulting from loans and receivables to banks at 31 December 2023 in the amount of CZK 0 million (31 December 2022: CZK 0 million). 23. LOANS AND RECEIVABLES TO CUSTOMERS (a) Loans and receivables to customers by sector CZK m 31 Dec 2023 31 Dec 2022 Financial organisations 1,551 3,703 Non-financial organisations 52,052 52,867 Government sector 171 191 Non-profit organisations 80 75 Entrepreneurs 20,699 19,630 Resident individuals 187,088 194,581 Non-residents 6,105 2,813 Gross carrying amount of Loans and receivables to customers 267,746 273,860 Less Loss allowance for Loans and receivables to customers (4,682) (5,108) Net book value of Loans and receivables to customers 263,064 268,752 Gross carrying amount of Loans and receivables to customers in Stage 1 and 2 263,897 270,072 Loss allowance for Loans and receivables to customers in Stage 1 and 2 (2,839) (3,084) Net book value of Loans and receivables to customers in Stage 1 and 2 261,058 266,988 (b) Loans and receivables to customers by product 31 Dec 23 31 Dec 22 CZK m Gross carrying amount Allowances Carrying amount Gross carrying amount Allowances Carrying amount Retail loan balances Consumer Loans 48,702 (2,144) 46,558 50,348 (2,600) 47,748 Mortgages 1) 128,604 (658) 127,946 133,930 (592) 133,338 Credit Cards & Overdrafts 2,470 (200) 2,270 2,570 (233) 2,337 Auto Loans and Financial Leases 2,560 (89) 2,471 2,623 (75) 2,548 Other 8 (8) - 10 (10) - Total Retail 182,344 (3,099) 179,245 189,481 (3,510) 185,971 Commercial loan balances Investment Loans 45,364 (291) 45,073 46,341 (311) 46,030 Working Capital 15,519 (193) 15,326 14,333 (195) 14,138 Auto & Equipment Loans and Financial Leases 9,069 (204) 8,865 9,730 (244) 9,486 Unsecured Instalment Loans and Overdraft 14,380 (881) 13,499 12,930 (829) 12,101 Inventory Financing and Other 1,070 (14) 1,056 1,045 (19) 1,026 Total Commercial 85,402 (1,583) 83,819 84,379 (1,598) 82,781 Total Loans and receivables to customers 267,746 (4,682) 263,064 273,860 (5,108) 268,752 1) Part of the mortgage portfolio is an underlying asset for mortgage-backed bonds. 179 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 (c) Loss allowances for loans and receivables to customers by sectors CZK m Financial organisations Non-financial organisations Non-profit organisations Entrepreneurs Resident individuals Non-residents Total 1 Jan 2023 45 718 6 773 3,480 86 5,108 Net change of allowances recognised in Statement of Financial position (38) 42 (4) 152 102 25 279 Effect of written- off receivables - (74) - (104) (517) (15) (710) Exchange rate variances - 2 - - - 3 5 31 Dec 2023 7 688 2 821 3,065 99 4,682 CZK m Financial organisations Non-financial organisations Non-profit organisations Entrepreneurs Resident individuals Non-residents Total 1 Jan 2022 17 859 3 745 4,030 74 5,728 Net change of allowances recognised in Statement of Financial position 28 (44) 3 78 (46) 24 43 Effect of written- off receivables - (93) - (50) (504) (12) (659) Exchange rate variances - (4) - - - - (4) 31 Dec 2022 45 718 6 773 3,480 86 5,108 24. INVESTMENT SECURITIES CZK m 31 Dec 2023 31 Dec 2022 Debt securities measured at amortised cost 104,297 57,879 out of which: government bonds 101,070 54,479 out of which: corporate bonds 3,227 3,400 Debt securities measured at FVTPL 30 46 Equity securities measured at FVTOCI 1 1 Equity securities measured at FVTPL 25 25 Total investment securities 104,353 57,951 By listing: - listed 104,297 57,879 - unlisted 56 72 Debt securities measured at amortised cost are held with the objective to hold the assets and collect contractual cash flow, thus presented under the Hold to Collect business model. Expected credit losses related to Debt securities measured at amortised cost at 31 December 2023 amount to CZK 23 million (31 December 2022: CZK 18 million). In 2023, there were two sales of corporate bonds from the portfolio measured at amortised cost held within the business model Hold to Collect in the amount of CZK 1,186 million (2022: CZK 0 million). The bond sale was considered as infrequent sale of insignificant value according to the business model assessment. Equity securities measured at FVTOCI include i nvestment in SWIFT. The Group elected the irrevocabl e option provided by IFRS 9 to classify its investment in SWIFT as at the date of transition to IFRS 9 as FVTOCI as the Group intends to hold these in the long term and they were measured in the same way according to IAS 39 and IFRS 9. Since transitioning to IFRS 9, all gains and losses resulting from FVTOCI equity instruments, including when derecognised or sold, are recorded in OCI and are not subsequently reclassified to profit or loss. The Group did not receive any dividends relating to FVTOCI equity instruments in 2023 and 2022. There have been no disposals from FVTOCI equity securities in periods 2023 and 2022. In April 2021, the Group purchased a 10% share of Bankovní identita, a.s. The share is classified as an equity instrument measured at FVTPL. The reason for purchasing the share was to closely participate in the provision of identity verification services provided by Bankovní identita, a.s. The total investment into Bankovní identita, a.s., amounts to CZK 25.2 million. 180 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 Debt securities measured at FVTPL consist of the VISA Preferred Stock Series C securities that can be sold in the future when it is possible and VISA Series A Convertible Participating Preferred Stock that can be converted into marketable shares. As at 31 December 2023, Debt securities measured at amortised cost with a carrying amount of CZK 2,824 million are transferred as collateral under repurchase transactions (31 December 2022: CZK 0 million). 25. ISSUED BONDS Mortgage-Backed Bonds As at 31 December 2023, the Group did not maintain any tranche of mortgage-backed securities issued externally. Below listed tranches were repaid by third parties during the year 2023. ISIN Issue date Currency Maturity date Interest rate Total nominal amount CZK m CZ0002005564 23 May 2018 CZK 23 May 2023 1.72% p.a. 650 CZ0002005689 4 Jul 2018 CZK 04 Jul 2023 7.35% p.a. 1) 1,250 1) Floating rate linked to 6M PRIBOR. Amortised cost of the outstanding mortgage-backed bonds held by external owners: CZK m 31 Dec 2023 31 Dec 2022 Mortgage-backed bonds at amortised cost - 1,948 Total - 1,948 The Group did not report any defaults of principal or interest or other breaches with respect to mortgage-backed bonds during the years 2023 and 2022. Other Issued Bonds The Bank issued the senior preferred bonds in the total nominal amount of CZK 1,500 million and EUR 100 million. The EUR tranche was settled on 3 February 2022 and the CZK tranche was settled on 15 December 2022. The Bank issued the bonds as a part of compliance with the minimum requirement for own funds and eligible liabilities (“MREL”) requirement which was set for the Bank by the CNB. These instruments are initially measured at fair value minus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest rate method. ISIN Issue date Currency Maturity date Interest rate Call option Total nominal amount outstanding EUR m/CZK m XS2435601443 3 Feb 2022 EUR 3 Feb 2028 1.625% p.a. after 5 years 100 CZ0003707671 15 Dec 2022 CZK 15 Dec 2026 8.00% p.a. after 3 years 1,500 Amortised cost of the outstanding Other issued bonds: CZK m 31 Dec 2023 31 Dec 2022 Other issued bonds at amortised cost 3,808 3,572 Total 3,808 3,572 The Group did not report any defaults of principal or interest or other breaches with respect to other issued bonds during the years 2023 and 2022. 181 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 26. SUBORDINATED LIABILITIES Issued Subordinated Debt Securities Subordinated debt securities were issued to strengthen regulatory capital on a consolidated as well as individual level. These liabilities are subordinated to all other liabilities of the Bank. As at 31 December 2023, they form a part of the Tier 2 capital of the Bank as defined by the CNB for the purposes of determination of its capital adequacy. These instruments are initially measured at fair value minus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest rate method. The Bank issued debt securities in the total nominal amount of CZK 4,602 million. ISIN Issue date Currency Maturity date Interest rate Call option Total nominal amount at issue date CZK m MB 3.30/29 CZ0003704918 25 Sep 2019 CZK 25 Sep 2029 3.30% p.a. after 5 years 2,001 MB 3.79/30 CZ0003705188 30 Jan 2020 CZK 30 Jan 2030 3.79% p.a. after 5 years 2,601 Amortised cost of the outstanding subordinated debt securities: CZK m 31 Dec 2023 31 Dec 2022 Subordinated debt securities at amortised cost 4,690 4,687 Total 4,690 4,687 The Group did not report any defaults of principal or interest or other breaches with respect to subordinated liabilities during the years 2023 and 2022. Subordinated Deposits In the second quarter of 2023, the Bank strengthened its capital and eligible liabilities through a subordinated deposit offering. The Bank has received subordinated deposits in the amount of CZK 2.9 billion. The term of the subordinated deposit is set at five years with a guaranteed interest rate of 7 percent for the entire term. As at 31 December 2023, they form in the partial amount of CZK 2.6 billion a part of the Tier 2 capital of the Bank as defined by the CNB for the purposes of determination of its capital adequacy (see note 44.1). CZK m 31 Dec 2023 31 Dec 2022 Subordinated deposits at amortised cost 2,914 - Total 2,914 - 27. FINANCIAL DERIVATIVES Financial derivatives include Over the Counter (OTC) derivatives. The Group enters into foreign exchange derivatives (currency swaps, currency forwards) to economically hedge its foreign currency risk but these derivatives are not designated at initial recognition as hedging derivatives, they are held under Other business model (Derivatives classified as held for trading) and measured at FVTPL and presented in the lines “Derivative financial instruments with positive/negative fair value” (derivatives with positive fair values within assets, derivatives with negative fair values within liabilities). The Group designates at initial recognition interest rate swaps derivatives as hedging instruments according to IAS 39, in order to hedge its exposure to the change of the fair value of a defined part of portfolio of loans to customers or loan commitments related to interest rate risk (see note 5.7.9). The Group designated at initial recognition certain interest rate swaps derivatives as hedging instruments according to IAS 39, in order to hedge its exposure to interest rate risks from its floating-rate bearing assets. The Group hedges interest rate risk to the extent of benchmark interest rate exposure on its floating-rate bearing assets to mitigate variability in its cash flows. 182 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 In the statement of financial position, derivatives with positive fair values (total fair value including accrued interest) are presented in the line item “Hedging derivatives with positive fair values”, derivatives with negative fair values (total fair value including accrued interest) are disclosed in the line “Hedging derivatives with negative fair values”. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in OCI and accumulated in the “Other reserves”. The effective portion of changes in the fair value of the derivative that is recognised in OCI is limited to the cumulative change in the fair value of the hedged item, determined on a present value basis, from the inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss “Net income from financial operations”. The amount accumulated in the hedging reserve is reclassified to profit or loss in the same period or periods during which the hedged expected future cash flows affect profit or loss. In years 2023 and 2022, immaterial ineffectiveness on hedging relationship was recognised in profit or loss. Financial derivatives classified as held for trading: 31 Dec 2023 Nominal value Fair value CZK m Assets Liabilities Assets Liabilities CURRENCY DERIVATIVES Currency swaps 1,734 1,745 1 13 Currency forwards 2,617 2,612 66 61 Cross currency interest rate swaps - discontinued fair value hedges 732 729 19 27 INTEREST RATE DERIVATIVES Interest rate swaps - discontinued fair value hedges 7,673 7,673 458 422 Total derivatives for trading 12,756 12,759 544 523 31 Dec 2022 Nominal value Fair value CZK m Assets Liabilities Assets Liabilities CURRENCY DERIVATIVES Currency swaps 912 916 - 3 Currency forwards 3,017 3,011 86 81 INTEREST RATE DERIVATIVES Interest rate swaps - discontinued fair value hedges 5,200 5,200 675 663 Total derivatives for trading 9,129 9,127 761 747 Financial derivatives designated at initial recognition as hedging derivatives: 31 Dec 2023 Nominal value Fair value CZK m Assets Liabilities Assets Liabilities INTEREST RATE DERIVATIVES Interest rate swaps designated as fair value hedges 1) 120,564 120,564 2,701 4,490 CURRENCY DERIVATIVES Cross currency interest rate swaps designed as fair value hedges 1,996 2,055 - 58 Total hedging derivatives 122,560 122,619 2,701 4,548 1) The increase in nominal value of hedging derivatives in 2023 compared to 2022 is mainly driven by purchases of Government bonds being hedged. 183 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 Nominal value Fair value CZK m Assets Liabilities Assets Liabilities INTEREST RATE DERIVATIVES Interest rate swaps designated as fair value hedges 63,981 63,981 4,919 845 CURRENCY DERIVATIVES Cross currency interest rate swaps designed as fair value hedges 1,457 1,447 23 - Total hedging derivatives 65,438 65,428 4,942 845 28. INTANGIBLE ASSETS CZK m Software purchased Software internally developed Core deposit intangible (CDI) Intangibles not yet activated Total Carrying amount as at 31 Dec 2021 268 2,446 125 345 3,184 Additions to assets 133 782 - 887 1,802 Activated assets during period - - - (915) (915) Amortisation for period (125) (516) (38) - (679) Impairment of assets - - (13) - (13) Carrying amount as at 31 Dec 2022 276 2,712 74 317 3,379 Additions to assets 76 548 - 654 1,278 Activated assets during period - - - (624) (624) Amortisation for period (117) (551) (33) - (701) Impairment of assets - - - - - Carrying amount as at 31 Dec 2023 235 2,709 41 347 3,332 CZK m Software purchased Software internally developed Core deposit intangible (CDI) Intangibles not yet activated Total Cost as at 31 Dec 2021 1,506 7,023 220 345 9,094 Accumulated Amortisation and Impairment 2021 (1,238) (4,577) (95) - (5,910) Carrying amount as at 31 Dec 2021 268 2,446 125 345 3,184 Cost as at 31 Dec 2022 1,496 7,236 220 317 9,269 Accumulated Amortisation and Impairment 2022 (1,220) (4,524) (146) - (5,890) Carrying amount as at 31 Dec 2022 276 2,712 74 317 3,379 Cost as at 31 Dec 2023 1,589 7,771 189 347 9,896 Accumulated Amortisation and Impairment 2023 (1,354) (5,062) (148) - (6,564) Carrying amount as at 31 Dec 2023 235 2,709 41 347 3,332 Annual costs related to research and development (that did not meet capitalisation criteria) amounted to CZK 108 million in 2023 (2022: CZK 107 million). 184 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 29. PROPERTY AND EQUIPMENT CZK m Capital improvements of leased assets Equipment and machinery Fixtures and other tangibles Assets leased under operating lease Right-of-use assets – real estates Right-of-use assets – other assets Property and equipment not yet activated Total Carrying amount as at 31 Dec 2021 378 561 44 4 1,640 1 3 2,631 Additions to assets 25 81 3 - 165 2 295 571 Disposals/ Activated assets during period - (17) - (2) - - (276) (295) Depreciation for period (76) (140) (17) (1) (335) (1) - (570) Impairment of assets 1) (1) - - - (16) (2) - (19) Carrying amount as at 31 Dec 2022 326 485 30 1 1,454 - 22 2,318 Additions to assets 60 148 7 - 481 2) - 686 1,382 Disposals/ Activated assets during period (4) (33) - - - - (696) (733) Depreciation for period (65) (135) (12) (1) (319) - - (532) Impairment of assets 1) - (3) - - (32) - - (35) Carrying amount as at 31 Dec 2023 317 462 25 - 1,584 - 12 2,400 1) Impairment of assets related to “Right-of-use assets – real estates” results from ATMs and branches terminations. 2) Increase of amount in 2023 is mainly driven by prolonging the lease term of the Prague Headquarters building by 2 years. CZK m Capital improvements of leased assets Equipment and machinery Fixtures and other tangibles Assets leased under operating lease Right-of-use assets – real estates Right-of-use assets – other assets Property and equipment not yet activated Total Cost as at 31 Dec 2021 1,077 1,423 138 27 2,580 10 3 5,258 Accumulated Depreciation 2021 (699) (862) (94) (23) (940) (9) - (2,627) Carrying amount as at 31 Dec 2021 378 561 44 4 1,640 1 3 2,631 Cost as at 31 Dec 2022 1,050 1,449 140 7 2,679 - 22 5,347 Accumulated Depreciation 2022 (724) (964) (110) (6) (1,225) - - (3,029) Carrying amount as at 31 Dec 2022 326 485 30 1 1,454 - 22 2,318 Cost as at 31 Dec 2023 1,054 1,325 140 1 3,025 - 12 5,557 Accumulated Depreciation 2023 (737) (863) (115) (1) (1,441) - - (3,157) Carrying amount as at 31 Dec 2023 317 462 25 - 1,584 - 12 2,400 185 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 30. CURRENT TAX ASSETS AND CURRENT TAX LIABILITIES CZK m 31 Dec 2023 31 Dec 2022 Current tax assets 76 6 Current tax liabilities 54 482 Corporate income tax advances were offset with current income tax payable in the 2022 tax return and the difference was settled with the tax authority in 2023. 31. DEFERRED TAX ASSETS AND LIABILITIES Deferred tax is determined based on all temporary and timing differences between the tax residual values of assets and liabilities and their residual book values in the Group’s financial statements. Deferred tax is determined using the tax rate enacted by the balance sheet date. The tax rate used also considers the impact of the Windfall tax (relevant only for the Bank). For the determination of deferred tax assets and liabilities as at 31 December 2023, a tax rate of 21% is used (31 December 2022: 20.74%). The estimation is based on the current operating plan and reflects increase in corporate income tax rate from 19% to 21%. The recognition of deferred tax assets relies on an assessment of the probability and sufficiency of future taxable profits, future reversals of existing taxable temporary differences and ongoing tax planning strategies. Deferred tax assets and liabilities consist of the following differences: CZK m 31 Dec 2023 31 Dec 2022 Deferred tax liabilities (623) (612) Loss allowances for loans and receivables to customers (132) (154) Difference between book value and tax residual value of long-lived assets (491) (456) Other temporary variances - (2) Deferred tax assets 161 116 Loss allowances for loans and receivables to customers 11 40 Difference between book value and tax residual value of long-lived assets 33 21 Other temporary variances 117 55 Net deferred tax at the end of period 1) (462) (496) 1) The Group is offsetting deferred tax asset and deferred tax liability on the subsidiaries level, however, on the consolidated level deferred tax resulting from subsidiaries level is not being offset. The following table shows the movement of the net deferred tax asset: CZK m 2023 2022 Net deferred tax at the beginning of period (496) (384) Change in net deferred tax - total profit or loss impact 34 (112) - Loss allowances for loans and receivables to customers (7) (9) - Difference between book value and tax residual value of long-lived assets (23) (77) - Other temporary variances 64 (26) Change in net deferred tax - equity impact - - - Cash flow hedge reserve – effective portion of changes in FV - - Net deferred tax at the end of period (462) (496) 32. OTHER ASSETS CZK m 31 Dec 2023 31 Dec 2022 Accounts receivable 156 78 Advances and guarantees for rent related services 200 200 Other receivables net of allowances 36 40 out of which: allowances (32) (31) Prepayments 299 325 Other accruals 395 492 Total other assets 1,086 1,135 33. DUE TO BANKS The Group has the following liabilities to other banks: CZK m 31 Dec 2023 31 Dec 2022 Deposits on demand 598 334 Liabilities arising from repurchase agreements 1) 2,531 - Cash collateral received 2) 563 3,931 Other due to banks 3) 1,731 1,688 Total due to banks 5,423 5,953 Type of rate: Fixed interest rate 4,261 1,688 Floating interest rate 1,162 4,265 1) For more details about financial assets granted as collateral for Liabilities arising from repurchase agreements see note 21. 2) Cash collaterals received represent Credit Support Annex (CSA) Collaterals of banks for derivative transactions in the amount of CZK 563 million as at 31 December 2023 (CZK 3,931 million as at 31 December 2022). 3) Other due to banks comprises loan provided by European Investment Bank to MONETA Money Bank, a.s. This loan amounts to CZK 1,731 million as at 31 December 2023 (CZK 1,688 million as at 31 December 2022). 186 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 34. DUE TO CUSTOMERS Breakdown of due to customers by sector: CZK m 31 Dec 2023 31 Dec 2022 Financial organisations 2,006 7,799 Non-financial organisations 43,824 38,493 Insurance organisations 655 650 Government sector 8,372 6,399 Non-profit organisations 12,141 6,992 Entrepreneurs 17,223 15,636 Resident individuals 312,460 255,850 Non-residents 2,816 2,432 Total Due to customers 399,497 334,251 Rate type: Fixed interest rate 81,475 71,080 Floating interest rate 1) 317,235 262,152 Non-interest-bearing 2) 787 1,019 Total due to customers 399,497 334,251 1) This item principally includes client deposits where the Group has the option to reset interest rates and hence, they are not sensitive to interest rate changes. Generally, it is the rate declared by the Group. 2) From 2023 this item includes liability from interest bonus accrual to customers. For the purpose of comparability, the previous period has been adjusted. Breakdown of due to customers by product is as follows: CZK m 31 Dec 2023 31 Dec 2022 Retail Current Accounts 52,592 57,786 Retail Savings Accounts and Term Deposits 233,612 169,602 Retail Building Savings 26,794 28,664 Commercial Current Accounts 41,624 43,437 Commercial Savings Accounts and Term Deposits 43,018 32,474 Commercial Building Savings 1,167 1,323 Cash collateral received 270 491 Other liabilities towards customers 420 474 Total due to customers 399,497 334,251 35. PROVISIONS CZK m 2023 2022 Provisions for undrawn loan commitments 1) 1 Jan 131 119 Additions to provisions 301 363 Use of provisions - - Release of unused provisions (331) (351) 31 Dec 101 131 Provisions for legal claims 1 Jan - - Additions to provisions - - Use of provisions - - Release of unused provisions - - 31 Dec - - Other provisions 1 Jan 175 115 Additions to provisions 134 157 Use of provisions (134) (94) Release of unused provisions (10) (3) 31 Dec 165 175 Total provisions 266 306 1) Majority of the balance results from overdraft facilities and working capital and is usually settled up to 1 year. Provisions for undrawn loan commitments are created for irrevocable loan commitments (refer to note 40). The Group created other provisions for the legal obligation of the Group associated with the retirement of the premises leased for operation, for commissions claw-back and for collection services. Other provisions CZK m 31 Dec 2023 31 Dec 2022 Provisions for assets retirement obligation 1) 34 36 Provisions for restructuring 2 33 Provisions for commissions claw- back 2) 118 92 Othe 11 14 Total other provisions 165 175 1) Settlement is driven by abandonment of leased property. Lease term of such contracts is shown in note 41. 2) Commission claw-back is applicable over 60 months from origination of the contract. 187 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 36. OTHER LIABILITIES CZK m 31 Dec 2023 31 Dec 2022 Trade payables 267 306 Payables to employees 132 141 Payables for social and health insurance 60 62 Payables to the state 219 125 Accruals for uninvoiced services/ goods 513 539 Accruals for employees bonuses 1) 310 237 Clearing account of payment settlement 2) 621 708 Deferred income and accrued expenses 33 38 Lease liabilities 1,501 1,315 Other 3) 77 99 Total other liabilities 3,733 3,570 1) Accruals for employee bonuses as at 31 December 2023 include bonuses to members of the Management Board under the EVIP policy of CZK 148 million (2022: CZK 102 million) described in note 39 and other management, retention or sales bonuses. 2) Line “Clearing account of payment settlement” comprises especially balances from settlement of card transactions and payments transactions processed via the CNB clearing system. The line may result either as an asset or liability. In the case, the closing balance is an asset, it is recognised within “Other assets”. 3) Line “Other” as at 31 December 2023 includes an unsolicited dividend for the years 2019 – 2023 in the amount ofCZK 2 million (2022: CZK 1 million). 37. CONSOLIDATION GROUP The definition of the consolidation group as at 31 December 2023 has not changed compared to the last Consolidated Annual Financial Statements. Apart from the Bank, the Group’s companies included in the consolidation group as at 31 December 2023 together with the ownership were as follows: 31 Dec 2023 CZK m Name Registered office Business activity Equity as at 31 Dec 2023 Bank’s share of equity Method of consolidation MONETA Auto, s.r.o. Vyskočilova 1442/1b, 140 00 Prague 4 Auto financing (Loans and Leases) 672 100% Full MONETA Leasing, s.r.o. Vyskočilova 1442/1b, 140 00 Prague 4 Financing of loans and leasing 233 2) 100% Full MONETA Stavební Spořitelna, a.s. Vyskočilova 1442/1b, 140 00 Prague 4 Building savings and bridging loans 2,832 100% Full CBCB - Czech Banking Credit Bureau, a.s. 1 ⁾ Štětkova 1638/18 140 00 Prague 4 Banking Credit Register 3 2),3) 20% Equity 1) The Group holds its share in CBCB - Czech Banking Credit Bureau, a.s. in order to obtain information related to the credit quality of current and potential customers. 2) Equity according to IFRS Accounting Standards - unaudited. 3) Share of equity belonging to the Group. 188 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 CZK m Name Registered office Business activity Equity as at 31 Dec 2022 Bank’s share of equity Method of consolidation MONETA Auto, s.r.o. Vyskočilova 1442/1b, 140 00 Prague 4 Auto financing (Loans and Leases) 799 100% Full MONETA Leasing, s.r.o. Vyskočilova 1442/1b, 140 00 Prague 4 Financing of loans and leasing 249 2) 100% Full MONETA Stavební Spořitelna, a.s. Vyskočilova 1442/1b, 140 00 Prague 4 Building savings and bridging loans 2,824 100% Full CBCB - Czech Banking Credit Bureau, a.s. 1 ⁾ Štětkova 1638/18 140 00 Prague 4 Banking Credit Register 3 2),3) 20% Equity 1) The Group holds its share in CBCB - Czech Banking Credit Bureau, a.s. in order to obtain information related to the credit quality of current and potential customers. 2) Equity according to IFRS Accounting Standards - unaudited. 3) Share of equity belonging to the Group. 38. EQUITY 38.1 SHARE CAPITAL OF THE GROUP All of the Bank’s shares are ordinary freely transferable shares with no special rights or restrictions attached. The ordinary shares carry, among other rights provided for in law and the Bank’s Articles of Association, the right to participate in the General Meeting of the Bank through exercising voting rights (with one vote per share) and the right to share in profits. Since 23 November 2015, the registered capital of the Bank had been CZK 511 million, was fully paid up and is presented as “Share capital” in the statement of financial position. On 11 April 2016, 511 ordinary registered book-entry shares in the Bank with a par value of CZK 1,000,000 each were split into 511,000,000 fully paid ordinary registered book-entry shares with a par value of CZK 1.00 each. On 26 November 2019 the increase in the registered share capital was approved by shareholders of the Bank at the General Meeting and was accomplished exclusively through the increase of the nominal value of the shares from the original nominal value of CZK 1.00 to CZK 20.00. The registered share capital currently consists of 511,000,000 fully paid ordinary registered book-entry shares with a par value of CZK 20.00 each. Since then, the Bank has not issued any ordinary or other shares. The Group did not acquire any of its own shares. The latest available list of entities recorded in the registry of book-entry shares of the Bank kept by the Central Securities Depository Prague (Centrální depozitář cenných papírů, a.s.) with a shareholding interest of more than 1% of the Bank’s registered share capital is available in the investor relations section of the Bank’s website at: https://investors. moneta.cz/shareholder-structure. Such entities may not necessarily be the beneficial shareholders of the Bank but may hold shares of the Bank for the beneficial shareholders (as securities brokers, banks, custodians or nominees). Please refer to chapter 1.4 of the Annual financial report to the section “Shareholder structure” for the information on the shareholder structure of the Bank as at 31 December 2023. As far as the Bank is aware, no shareholder was a controlling entity of the Bank as at 31 December 2023. 189 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 Overview of related parties holding shares of the Bank as at 31 December 2023: Shareholder 2023 2022 Number of shares Ownership in % Number of shares Ownership in % Tanemo a.s., Entity with significant influence on MONETA 153,000,000 29.941% 153,000,000 29.941% Tomáš Spurný, Chairman of the Management Board 304,839 0.060% 304,839 0.060% Jan Friček, Member of the Management Board 35,000 0.007% 35,000 0.007% Jan Novotný, Member of the Management Board 23,300 0.005% 23,300 0.005% Carl Normann Vökt, Vice-Chairman of the Board 25,122 0.005% 22,222 0.004% Tatiana Eichler, closely related to the Chairman of the Supervisory Board 100,000 0.020% 100,000 0.020% Michal Petrman, Member of the Supervisory Board and Chairman of the Audit Committee 15,610 0.003% 15,610 0.003% No other related person or other related party with a relationship to the Bank held any shares of the Bank as at 31 December 2023 or 31 December 2022. 38.2 STATUTORY RESERVE AND RESERVE FROM REVALUATION OF FINANCIAL ASSETS OF THE GROUP Statutory reserve The reserve fund stood at CZK 102 million as at 31 December 2023 (31 December 2022: CZK 102 million) represents Legal and statutory reserve of MONETA Money Bank, a.s. Reserve from revaluation of FVTOCI (presented in “Other reserves”) CZK m Debt instruments Equity instruments Deferred Tax Total 1 Jan 2023 - 1 - 1 Gains and losses in the period recognised in the income statement - - - - Gains and losses in the period recognised in Reserve from revaluation of FVTOCI - - - - 31 Dec 2023 - 1 - 1 CZK m Debt instruments Equity instruments Deferred Tax Total 1 Jan 2022 - 1 - 1 Gains and losses in the period recognised in the income statement - - - - Gains and losses in the period recognised in Reserve from revaluation of FVTOCI - - - - 31 Dec 2022 - 1 - 1 190 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 38.3 DIVIDENDS PER SHARE The following table shows dividends per share paid to owners: CZK 2023 2022 Paid dividends per share within period 8.00 10.00 1) 1) The General Meeting held on 20 December 2021 approved the dividend payment of CZK 3 per share which was paid on 17 January 2022. The General Meeting held on 26 April 2022 approved the dividend payment of CZK 7 per share which was paid on 25 May 2022. On 2 February 2024, the Bank’s Management Board announced that it will propose to shareholders a dividend for the year 2023 in the amount of CZK 9 per share for approval at the Annual General Meeting, which will be held on 23 April 2024. The total amount of the distributed dividend will reach CZK 4,599 million. 39. BONUSES TIED TO THE EQUITY Executive Variable Incentive Plan (EVIP) In 2017, the Supervisory Board adopted the Executive Variable Incentive Plan (EVIP) remuneration policy relevant for the Management Board members and other Material Risk Takers for performance in (fiscal) year 2017 and onward. The total balance of accrual for EVIP disclosed in “Other liabilities” as at 31 December 2023 is CZK 147.7 million (31 December 2022: CZK 101.6 million), of which CZK 63.1 million (31 December 2022: CZK 37.1 million) relates to cash settled share based payment remuneration that will be paid in the following years in three to five cash instalments as defined in EVIP conditions regardless of potential termination of the membership of the Management Board. This variable part of EVIP bonuses is tied to the total shareholder return (TSR), hence the amount paid will vary according to changes in the market price of the Bank’s shares and profit distributions of the Bank (dividend paid). For more details about EVIP (esp. total benefits awarded and paid in 2018 to 2023) see Remuneration Report 2023 (remuneration documents have been published and are available on the investors website in the Remuneration section at https://investors.moneta. cz/dokumenty-spolecnosti). 40. CONTINGENT LIABILITIES 40.1 LOAN COMMITMENTS AND ISSUED GUARANTEES CZK m 31 Dec 2023 31 Dec 2022 Loan commitment 23,903 30,659 Issued guarantees 864 879 Credit limits on issued guarantees 1) 1,372 1,199 Issued letter of credit 5 5 Total loan commitments and issued guarantees - gross carrying value 26,144 32,742 Provisions to expected credit losses (115) (147) Total loan commitments and issued guarantees – net carrying value 26,029 32,595 1) This line represents committed limits on guarantees that can be withdrawn by customers. 40.2 LEGAL DISPUTES The Group is not a party of any significant legal disputes. 41. LEASES The Group as a Lessee The major lease contracts of the Group are leases of administrative premises in Prague, Ostrava, leases of branches’ premises and space for ATM’s across the Czech Republic. The Group determines the lease term as specified in the contract (for definite period leases) or the best estimate made by management (for all other contracts) based on historical experience and branch management strategy. The Group assesses the lease term at commencement date and reassesses it on annual basis or if there is a significant event or significant change in circumstances or branch management strategy. The lease payments vary with the location of premises and are payable either in CZK or EUR. Some of the leases are indexed annually, depending on development of inflation. The Group leases IT equipment, ATMs and advertising spaces, which are expected to be closed within 12 months. These leases are short-term and/or leases of low-value items. The Group has elected not to recognise right-of-use assets and lease liabilities for these leases. 191 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 Movement of Right-of-use resulting from leases for which the Group is a lessee is presented below: CZK m Buildings Space under ATMs Parking place IT Hardware Total Balance at 1 January 2023 1,372 67 15 - 1,454 Depreciation charge for the year (295) (20) (4) - (319) Additions and modifications to right-of-use assets 459 1) 15 7 - 481 Derecognition of right-of-use assets (29) (1) (2) - (32) Balance at 31 December 2023 1,507 61 16 - 1,584 1) The increase in 2023 is driven by the extension of the lease term of the Prague Headquarters building by 2 years. CZK m Buildings Space under ATMs Parking place IT Hardware Total Balance at 1 January 2022 1,536 90 14 1 1,641 Depreciation charge for the year (309) (21) (5) (1) (336) Additions and modifications to right-of-use assets 159 - 6 2 167 Derecognition of right-of-use assets (14) (2) - (2) (18) Balance at 31 December 2022 1,372 67 15 - 1,454 Information about lease term of particular leased assets categories are presented below: 31 Dec 2023 CZK m Right-of-use Minimum lease term (in months) Maximum lease term (in months) Buildings 1,507 23 145 Space under ATMs 61 8 97 Parking place 16 15 142 IT Hardware - - - Total 1,584 31 Dec 2022 CZK m Right-of-use Minimum lease term (in months) Maximum lease term (in months) Buildings 1,372 20 130 Space under ATMs 67 25 97 Parking place 15 8 130 IT Hardware - - - Total 1,454 192 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 Minimum lease payments reconciliation: CZK m Minimum lease payments under all leases as at 31 December 2023 1,643 Recognition exemption for short-term and low- value leases 25 Effect from discounting at the incremental borrowing rate 1) (142) Liabilities from leases as at 31 December 2023 1,501 1) The weighted average of the borrowing rate used for discounting lease liabilities for 2023 is 2.71% (2022: 2.25%) for contracts denominated in CZK and 3.76% (2022: 0.79%) for contracts denominated in EUR. CZK m Minimum lease payments under all leases as at 31 December 2022 1,383 Recognition exemption for short-term and low- value leases 8 Effect from discounting at the incremental borrowing rate 1) (68) Liabilities from leases as at 31 December 2022 1,315 1) The weighted average of the borrowing rate used for discounting lease liabilities for 2023 is 2.71% (2022: 2.25%) for contracts denominated in CZK and 3.76% (2022: 0.79%) for contracts denominated in EUR. There were no leases with residual value guarantees or leases not yet commenced to which the Group is committed. Some property leases contain early termination or extension option exercisable by the Group up to one year before the end of the non-cancellable contract period. Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility. The extension options held are exercisable only by the Group and not by the lessors. The Group assesses at lease commencement date whether it is reasonably certain to exercise the extension options. The Group reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant changes in circumstances within its control. A maturity analysis of lease liabilities: CZK m Total cash outflow for leases 1) in 2023 (as at 31 December 2023) 325 Future expected cash outflows - undiscounted 1,643 out of which: less than one year 322 out of which: between one and three years 554 out of which: more than three years 768 Effect from discounting at the incremental borrowing rate (142) Total lease liabilities as at 31 December 2023 1,501 1) The figure also includes interest payment of CZK 27 million (2022: CZK 19 million). CZK m Total cash outflow for leases in 2022 (as at 31 December 2022) 396 Future expected cash outflows - undiscounted 1,383 out of which: less than one year 305 out of which: between one and three years 489 out of which: more than three years 589 Effect from discounting at the incremental borrowing rate (68) Total lease liabilities as at 31 December 2022 1,315 Finance leases – the Group as a Lessor Minimum Lease Payments – Finance leases CZK m 31 Dec 2023 31 Dec 2022 No later than one year 172 403 Between one and two years 66 167 Between two and three years 33 65 Between three and four years 15 31 Between four and five years 7 14 Later than five years 10 12 Total minimum lease payments 303 692 Less unearned interest income (14) (31) Present value of lease receivable 289 661 Less allowances for credit losses (14) (41) Carrying value of lease receivable 275 620 The carrying value of lease receivable is presented under “Loans and receivables to customers” in the consolidated statement of financial position. The Group mainly leases machinery, vehicles and equipment to SMEs or entrepreneurs with typical lease term between 3 and 6 years. Operating leases - The Group as a Lessor Operating leases are provided by the Group to commercial customers. The carrying value of leased assets is shown in note 29. Minimum Lease Payments - Operating leases CZK m 31 Dec 2023 31 Dec 2022 No later than one year - 1 Between one and two years - - Between two and three years - - Between three and four years - - Between four and five years - - Later than five years - - Total minimum lease payments - 1 193 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 42. TRANSACTIONS WITH RELATED PARTIES The Group’s related parties include entities with significant influence on MONETA, associates, key management personnel, Supervisory Board and their close family members. Transactions provided by the Group to related parties represent bank services (esp. loans and interest-bearing deposits); expenses from transactions with related parties comprise remuneration to members of the Supervisory Board, Management Board and other Key Executive Managers. Transactions with related parties are carried out in the normal course of business operations and conducted under normal market conditions. The balances at year-end are unsecured. Transactions with related parties: 2023 CZK m Related parties with significant influence on MONETA Associates Key members of the management 1) and Supervisory Board Total Statement of financial position Loans and receivables to customers - - 37 37 Derivative financial instruments with positive fair values 41 - - 41 Hedging derivatives with positive fair values 317 - - 317 Due to customers 30 - 20 50 Due to banks 289 - - 289 Derivative financial instruments with negative fair values 47 - - 47 Hedging derivatives with negative fair values 335 - - 335 Statement of profit or loss Interest and similar income 251 - - 251 Interest expense and similar charges (32) - - (32) Fee and commission income 6 - - 6 Fee and commission expense (11) - - (11) Net income from financial operations (470) - - (470) Operating expenses (48) 2) (24) (124) (196) Dividend income - 3 - 3 1) Includes members of the Management Board and other Key Executive Managers. 2) Comprises mainly telecommunication services. 2022 CZK m Related parties with significant influence on MONETA Associates Key members of the management 1) and Supervisory Board Total Statement of financial position Loans and receivables to customers - - 38 38 Derivative financial instruments with positive fair values 65 - - 65 Hedging derivatives with positive fair values 542 - - 542 Due to customers 20 - 20 40 Due to banks 512 - - 512 Derivative financial instruments with negative fair values 77 - - 77 Hedging derivatives with negative fair values 21 - - 21 Statement of profit or loss Interest and similar income 131 - - 131 Interest expense and similar charges (14) - - (14) Fee and commission income 2 - - 2 Fee and commission expense (6) - - (6) Net income from financial operations 183 - - 183 Operating expenses 62 2) (19) (134) (91) Dividend income - 3 - 3 1) Includes members of the Management Board and other Key Executive Managers. 2) Comprises mainly telecommunication services. In 2022, it also comprises reimbursement of cost of canceled Acquisition. 194 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 The line “Operating expenses” from transactions with key members of the management and Supervisory Board includes fixed remuneration paid and variable remuneration recognised to members of the Management Board, Supervisory Board and other Key Executive Managers during the year. Tanemo a.s., a subsidiary of PPF Group, became a related party with significant influence on MONETA in 2021, thus transactions with entities from PPF Group are considered as related parties transactions in 2023 and 2022. 42.1 REMUNERATION TO MEMBERS OF SUPERVISORYBOARD, MANAGEMENT BOARDAND OTHER KEY EXECUTIVE MANAGERS The following remuneration was paid to the key members of the management and Supervisory Board during the year: CZK m 2023 2022 Short-term employee benefits, including: 97 99 Members of the Management Board and Other Key Executive Managers 85 87 Members of the Supervisory Board 12 12 Other long-term employee benefits, including: 27 35 Members of the Management Board and Other Key Executive Managers 27 35 Total remuneration 124 134 This table shows wages, compensation, benefits, and payments relating to retention programmes that were paid to members of the Management Board, Supervisory Board, and other Key Executive Managers during the year. It also includes long-term benefits paid during the year that were granted in previous years. 43. SEGMENT REPORTING The segment reporting is prepared in accordance with IFRS 8 Operating segments. Operating segments are reported in a manner consistent with reporting to the Management Board and other Key Executive Managers who are responsible for allocating resources and assessing performance of operating segments. The Group’s operating segments are the following: Commercial, Retail, Other/Treasury. The Commercial segment consists of deposits, investment loans, revolving products, financing of real estate, finance leases and other services related to transactions with small and medium-sized enterprises, corporate clients, financial institutions, and public sector institutions. Services are provided through the branch network, online channels, external sales channels or tight agents. The Retail segment focuses on deposits, loans, revolving products, credit cards, mortgages, building savings and other transactions with retail customers. Retail customers are comprised of private individuals, the Group’s employees and employees of Group’s partners. This segment provides services to citizens through the branch network, online channels, external sales channels and tight agents. The Other/Treasury segment provides primarily the treasury function. The focus of this segment is on foreign exchange transactions, interest rate swaps, investment in debt securities, equity investments, other non–interest-bearing assets and other operations that cannot be associated with the above-mentioned segments. The Group has no client or economic group for which the proceeds of realised transactions exceeded 10% of the income of the Group (except the Czech National Bank which is not considered as a separate segment). The segment reported revenues, below, represent only revenues realised with external customers. The Group uses transfer prices between segments where treasury income and expenses are allocated based on actual interest rates conditions. This allocation process aims to provide a fair representation of the contribution of each segment to the overall profitability of net interest income. Interest income and interest expense are reported on net basis within the line “Net interest income” as this indicator is regularly reported to the management. Management board allocates the resources among segments on the basis of net interest income achieved by particular segment. The Group’s income is generated within the territory of the Czech Republic. 195 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 CZK m Commercial Retail Other/ Treasury Total 2023 Net interest income 3,138 5,449 (10) 8,577 Net fee and commission income 610 2,042 (28) 2,624 Dividend income - - 3 3 Net income from financial operations 210 519 160 889 Other operating income 17 37 - 54 Total operating income 3,975 8,047 125 12,147 Net impairment of financial assets (160) (145) - (305) Total operating income after net impairment of financial assets 3,815 7,902 125 11,842 Total operating expenses (5,730) Profit for the year before tax 6,112 Taxes on income (912) Profit for the year after tax 5,200 Net value of loans and receivables to customers 83,819 179,245 - 263,064 Total customer deposits 86,068 313,158 - 399,226 CZK m Commercial Retail Other/ Treasury Total 2022 Net interest income 1) 2,977 6,045 289 9,311 Net fee and commission income 604 1,698 (4) 2,298 Dividend income - - 4 4 Net income from financial operations 185 377 (205) 357 Other operating income 32 114 - 146 Total operating income 3,798 8,234 84 12,116 Net impairment of financial assets (98) 8 - (90) Total operating income after net impairment of financial assets 3,700 8,242 84 12,026 Total operating expenses (5,594) Profit for the year before tax 6,432 Taxes on income (1,245) Profit for the year after tax 5,187 Net value of loans and receivables to customers 82,782 185,970 - 268,752 Total customer deposits 1) 77,498 256,262 - 333,760 1) In 2023, the Group changed the segment reporting methodology, which includes the use of transfer pricing between segments. For the purpose of comparability, the previous period has been adjusted. 196 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 44. RISK MANAGEMENT The Group aims to achieve competitive returns at an acceptable risk level as part of its business activities. Risk management covers the control of risks associated with all business activities in the environment in which the Group operates and ensures that the risks taken are in compliance with regulatory limits, as well as falling within its risk appetite. When managing risks, the Group relies on three pillars: • people (the qualifications and experience of its employees); • risk governance (including well-defined information flows, processes, model governance and responsibilities); and • risk data (including the use of sophisticated analytical instruments and technologies). This combination has supported the Group’s success and the stability of its economic results. The Group’s risk management processes are underpinned by advanced analytics based on an enterprise-wide data warehouse and centralised underwriting process. This allows the Group to price on a risk basis, according to its in-house scoring and rating models. The level of risk is measured in terms of its impact on the value of assets and/or capital as well as on the profitability of the Group. To determine this, the Group evaluates potential effects on its business of changes in political, economic, market and operational conditions, as well as changes in clients’ creditworthiness. The Bank provides centralised risk management for the Group wherever possible and practical. It does this primarily through outsourcing or by providing methodology guidance to other Group members. 44.1 CAPITAL MANAGEMENT The framework used for capital management involves monitoring and complying with the capital adequacy limit in accordance with the Basel III rules codified in Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012, as amended (hereafter “CRR”), Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, as amended (hereafter “CRD”), and Directive (EU) 2014/59 of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms, as amended (hereafter “BRRD”), and their implementing measures. This European regulatory framework was significantly amended in 2019. Furthermore, from a local perspective, the regulatory framework is given mainly by Banking Act No. 21/1992 Coll., as amended, the CNB Decree No. 163/2014 Coll., as amended, and Act No. 374/2015 Coll., on recovery and resolution in the financial market, as amended. On a consolidated basis, the Group manages its capital in order to meet the regulatory capital adequacy requirements prescribed in the abovementioned regulations and allow the Group to continue its operations on a going concern basis while maximising the return to shareholders through the optimisation of the Debt-to-Equity Ratio. The minimum regulatory capital requirement (Pillar I) is equal to 8% of risk weighted assets. Additionally, in 2023, the Bank was obliged to maintain on a consolidated basis the Pillar II capital requirement in the amount of 2.6% (from 1 March 2022). The Bank and Building Savings Bank were also obliged to maintain a mandatory capital conservation buffer of 2.5% and a countercyclical capital buffer (of 2% from 1 January 2023, of 2.5% from 1 April 2023, of 2.25% from 1 July 2023 and of 2% from 1 October 2023) that were applied for the whole Czech banking sector. Therefore, the overall minimum regulatory capital requirement for the Bank and Building Savings Bank on an individual basis was 12.5% and for the Bank on a consolidated basis 15.1% as at 31 December 2023. From 1 January 2024, the Bank is obliged to maintain the Pillar II capital requirement on a consolidated basis in the amount of 2.3%, which means the overall minimum regulatory capital requirement for the Bank on a consolidated basis decreased to 14.8% from 1 January 2024. The Group decided to maintain as a target a capital adequacy ratio at one percentage point above the overall regulatory minimum capital requirement both on an individual and a consolidated basis. This internal target is subject to an ongoing re-assessment by the Management Board of the Bank based on business results, regulatory changes and development needs. According to the Recovery and Resolution Act implementing BRRD, banks in the Czech Republic must comply with the Minimum Requirement for Own Funds and Eligible Liabilities (hereafter “MREL“). The Bank must fulfil the MREL requirement on an individual basis of 17.2% of its total risk exposure and 4.92% of its total exposure by 31 December 2023 at the latest and was obliged to fulfil the interim target level of the 197 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 MREL requirement of 13.5% of its total risk exposure and 3.93% of its total exposure by 1 January 2022. The MREL requirement is applied for the Bank only on the individual level and no MREL requirement has been applied for the Building Savings Bank. To calculate the regulatory capital requirement for credit risk, both on an individual and a consolidated basis, the Bank and the Building Savings Bank use the standardised approach. To calculate the capital requirement for operational risk, the Bank used the alternative standardised approach on an individual basis until the end of 2022. However, the Czech National Bank has prescribed that the capital requirement for operational risk must not fall below 75% of the capital requirement for operational risk per the standardised approach. The standardised approach is used to calculate the capital requirement for operational risk on a consolidated basis for the rest of the Group and on an individual basis for the Building Savings Bank. From 2023, the Bank uses the standardised approach also on an individual basis. The Group has calculated regulatory capital requirements against market risk of the Trading book since 3Q 2018. In addition to the Pillar I and to ensure a robust capital management framework, the Group performs under the Pillar II a calculation of internal capital requirements, regular capital planning and stress testing. To calculate the internal capital requirement, the Group applied methods similar to advanced approaches according to regulatory the Pillar I on a probability level at least 99.9%. The Group creates a mid-term capital outlook on a regular basis which predicts capital adequacy based on the predicted development of external environment, financial markets and the Group’s portfolio characteristics. Next to the base capital plan, the Group assesses the capital position under several stress scenarios. These are usually based on a worsening of the macroeconomic environment and key risks, which are identified during the Pillar II workshop with members of the Bank’s Management Board, selected senior managers of the Bank and key Executive representatives of subsidiaries. The Group’s capital on a consolidated basis primarily consists of share capital, share premium and unallocated profit from prior years that is the highest quality Common Equity Tier 1 capital, and issued Tier 2 capital. The Group incorporates into Common Equity Tier 1 capital periodically (subject to permissions from the CNB) portion of its quarterly net profit lowered by expected dividend payments. The Group met all regulatory requirements regarding capital adequacy on an individual and a consolidated basis in 2023. Regulatory capital on a consolidated basis and its components: CZK m 31 Dec 2023 31 Dec 2022 Common Equity Tier 1 capital CET 1 Subscribed share capital 10,220 10,220 Share premium - - Statutory reserve and Retained earnings including eligible profit for the year 17,383 16,782 Reserve from revaluation of FVTOCI 1 1 Items deductible from Tier 1 capital (1,270) (661) Tier 2 capital Qualifying subordinated liabilities 7,249 4,602 Total Regulatory Capital 33,583 30,944 44.2 CREDIT RISK Credit risk is the risk of loss for a party resulting from the failure of a counterparty to meet its obligations arising from the terms and conditions of the contract under which the party became the creditor of this counterparty. The Group is exposed to credit risk in particular in the case of credits granted, unallowed debits, guarantees provided, letters of credit issued, bonds purchased, derivatives and interbank deals. In 2022 the Group started analytical work on quantification of impact of climate change risk on overall portfolio credit risk. So far, the results have not indicated any impact on expected credit losses. 44.2.1 Credit Risk Management Credit risk management is organised along the following approval processes: Individually-managed exposures represent exposures to entrepreneurs and SMEs where loans and lines of credit are approved based on an individual assessment of the borrower’s creditworthiness in connection with the loan size. Portfolio-managed exposures include exposures to natural persons, natural persons acting as entrepreneurs, and SMEs where loans and lines of credit are approved using an automated credit scoring process. Mortgages, bridging loans and building savings loans have a specific position as these form a part of the retail exposures (usually portfolio managed) but a number of the processes and methods used fall within the category of individually-managed exposures. The exposures to counterparties on the financial markets include the exposures to financial institutions and governments. These exposures primarily arise 198 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 as a part of liquidity management and market risks management. Transactions on financial markets are performed only by the Bank and the Building Savings Bank. Other companies in the Group have only insignificant receivables to banks in respect of current account balances. The credit risk of these exposures is managed through limits to countries and counterparties approved mainly based on external ratings. Individually-managed exposures (a) Internal Rating The Group uses internal statistical and expert judgement- based rating models, which use the most recent available qualitative and quantitative information to estimate the probability that a commercial borrower will default in the following 12 months. The rating calculation is based on an assessment of financial, behavioural, quantitative and qualitative information about the customer’s business. The rating models assign an obligor rating (OR) grade from zero to twenty-one to borrowers that are not in default. Borrowers in default are given the internal rating grade twenty-two (OR22). External ratings are also calibrated to the OR scale. The 23 ORs and their associated default probabilities representing the rating grade: • OR 0 to 5: 0% to 0.07%; • OR 6 to 10: 0.08% to 0.39%; • OR 11 to 15: 0.59% to 3.03%; • OR 16 to 21: 4.55% to 35.00%; • OR 22: 100%. For the clients with double entry book-keeping and yearly turnover above predefined threshold, the internal statistical rating model estimating level of credit risk based on customer’s financials is extended with an expert judgement-based qualitative and ESG module. The qualitative module considers qualitative criteria such as evaluation of the company owner, management, market position, product, supplier/ customers, chain, etc. ESG module considers the impact of environmental, social and governance factors to the credit risk. The outputs from these modules modify the rating derived from the internal statistical rating model. For commercial real estate (“CRE“) clients, the Bank uses an expert judgement-based model considering project information, sponsor track record, risk associated with the construction and the location of the project. The rating grades assigned by the model cover only a subset of the abovementioned OR scale. For commercial clients, the Building Savings Bank uses the internal rating model based on external rating provided by CRIF – Czech Credit Bureau, a.s., which is based on the client’s financial and non-financial information. The model output is calibrated to a subset of the rating grades presented above. In order to ensure methodological and factualaccuracy, models are monitored on a regular basis. Internal rating is used inter alia for the definition of approval authorities and categorisation (see note 44.2.2). (b) Underwriting The approval process is based on an individual evaluation of a borrower and is executed at the Bank for products of the Bank, MONETA Auto and MONETA Leasing. Exposures of the Building Savings Bank are approved by it provided that exposures exceeding certain level require prior consent of the Bank. Approval authorities are set on an individual basis and are determined by combining the level of exposure, the borrower’s internal rating, maturity, product and collateral. As part of the approval process, the Group assesses the financial situation of the prospective borrower, the persons economically related to the borrower and the collateral being offered using internal and external data sources, including credit registers. The implemented IT solutions support the process of SME credit approval and administration facilitating the preparation of credit applications, linking them with data warehouses, document storage and the subsequent production of contract documentation. The system enables access to financial analysis tools including internal ratings. (c) Monitoring and Reporting All SME clients are monitored both individually and on a portfolio basis. Reports on the quality of the commercial portfolio across the Group are discussed monthly by the Credit Committee (CRCO) and relevant parts by the Management Board of the Building Savings Bank. Individually-managed exposures above a certain threshold are also subject to at least a yearly credit review, which follows the approval process similar to new exposures. (d) Collection The Group manages the Group’s loans where recoverability of the exposure is not reasonably assured with the aim of achieving maximum recovery. The Group engages affected borrowers with a view to recovering the Group’s exposure. This may involve taking legal action against the borrower, restructuring the loans, taking relevant legal steps 199 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 to realise collateral, debt sale or representing the Group in insolvency proceedings. The Group also uses the assistance of external agencies in collecting their receivables. The Bank is in charge of the collection process for individually managed exposures of the Group and decides on collection activities in MONETA Auto and MONETA Leasing. Collection activities toward third parties are always executed by collection departments of a particular entity. Portfolio-managed exposures (a) Scoring Instruments When approving and monitoring portfolio-managed exposures, internal scoring models are used. These statistical models classify individual borrowers into categories of homogeneous exposures using socio-demographic and behavioural data as well as information from the credit bureau. The calculated score for the commercial portfolio-managed exposures is, similarly to individually managed exposures, mapped to the OR scale. The calculated score for retail portfolio-managed performing exposures is grouped into five credit rating (CR) grades with associated OR grades and bands of probabilities of default in the following 12 months as outlined below: • CR1: OR 13 and better (1.3% and lower); • CR2: OR 14–OR 15 (1.3% to 3.2%); • CR3: OR 16–OR 17 (3.2% to 7.7%); • CR4: OR 18–OR 19 (7.7% to 15.8%); • CR5: OR 20–OR 22 (15.8% and greater). The Building Savings Bank uses for underwriting internal scoring models based on socio-demographic data and records from an external credit bureau where calculated score is grouped into three rating grades (red, yellow and green). For the purpose of monitoring, the Building Savings Bank uses internal scoring models. These statistical models classify individual borrowers into categories of homogenous exposures using socio-demographic and behavioural data including information from the credit bureau. Identical rating grades as presented above are used. In order to ensure methodological and factualaccuracy, models are monitored on a regular basis. (b) Underwriting The approval process is based on the use of internally or externally developed scoring models and access to external data sources (in particular credit registers). Approval strategies for the Bank and MONETA Auto are set by the Bank and for the Building Savings Bank by the Building Savings Bank. The Bank underwriters may approve individual exposures that do not pass the automatic approval process. For auto financing products, more than 50% of loans are approved automatically, the rest of the approvals is supplemented with individual assessment. Mortgages, bridging loans and building savings loans are mostly approved based on an individual assessment of the prospective borrower supported by input from internally-developed or external scoring models with approval required from an authorised underwriter from the respective entity (the Bank or the Building Savings Bank). (c) Monitoring and Reporting The Group regularly monitors segments of the portfolio managed exposures, which are reported monthly to the Credit Committee (CRCO) and relevant parts also to the Management Board of the Building Savings Bank and quarterly to the Supervisory Boards of the Bank’s subsidiaries. (d) Collection The Group has a comprehensive collection process which includes an automated collection system. The Group optimises its overall recovery capacity and performance by using external capabilities (collection agencies and law offices) as well as debt sales of non-performing receivables usually within 24 months after the default. The Bank is in charge of the collection process for portfolio managed exposures of the Group and decides on collection activities in MONETA Auto. Collection activities toward third parties are always executed by collection departments of a particular entity. Within the collection process, the portfolio approach is taken for all Retail customers and Small Business customers in the early collections process (the Bank, the Building Savings Bank and MONETA Auto) and for all unsecured exposures in the pre-legal and legal collections process (the Bank, the Building Savings Bank and MONETA Auto). The individual approach is taken for mortgages and other secured exposures in the pre-legal and legal process (the Bank and the Building Savings Bank). Counterparties in the Financial Market (a) External Rating The main tool for measuring the credit risk of countries and counterparties (financial institutions and governments) with respect to transactions in financial markets is the rating set by international rating agencies: Standard & Poor’s, Moody’s and Fitch. The 200 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 Group sets individual limits for individual countries and counterparties for which it requires a minimum short- term rating of A-1/P-1/F1 (exceptions must be properly approved). (b) Approval Process The Bank decides on maximum limits to countries and counterparties and their allocation among the Group’s entities. The approval of limits is based on an individual assessment with approval required from the Chief Risk Officer (CRO) or an authorised approver from the Bank. The approval levels are determined individually and are based primarily on the combination of the limit, external rating, maturity and product. In selected cases, the prior approval of the Credit Committee (CRCO) is required. The Building Savings Bank decides on its limits in the framework approved by the Bank. Decision-making body is the Management Board, which may delegate the approval authority to the CRO. (c) Monitoring and Reporting All counterparties and countries with a determined limit are monitored individually. The subject of the monitoring is primarily the external rating. Remedial measures (in particular a decrease/cancellation of the limit, categorisation of receivables) are approved by an authorised approver from the Bank. The Bank and Building Savings Bank monitor compliance with respective limits. Any breach of limits is escalated to the respective Senior Manager Treasury and CRO. In addition, breaches over a certain level are escalated also to the members of the respective Asset & Liability Committee (ALCO). 44.2.2 Categorisation of Exposures The Group assigns exposures to individual categories in compliance with CNB Decree No. 163/2014 Coll. The categorisation is used mainly for regulatory reporting and calculation of loan loss allowances. The categorisation is as follows: • exposures without borrower default are classified as performing; • exposures where the borrower has defaulted are classified as non-performing. A default of a borrower is recognised if, given the borrower’s financial and economic situation, full repayment of exposures toward such a borrower is unlikely. This definition is in line with the definition of default according to EBA guidelines on the application of the definition of default under Article 178 of Regulation (EU) No. 575/2013 (EBA/GL/2016/07). The Group considers a borrower to be in default mainly if: • the material part of principal, interest or fees of borrower’s exposure is more than 90 days past due; • any material exposure was restructured or categorised as non-performing forborne in past 12 months due to a deterioration in the borrower’s financial situation; • the borrower’s internal rating is OR 22; • a competent court has issued a decision on settling the borrower’s bankruptcy via a discharge from debts or reorganisation; • a borrower is subject to bankruptcy or settlement proceedings. 44.2.3 Collateral Assessment The Group determines the nature and extent of collateral that is required either by individually assessing a prospective borrower’s creditworthiness or as an integral part of the given credit product. The Group considers the following types of collateral acceptable for mitigating the credit risk on a loan or line of credit: • cash/deposits; • securities; • account receivables; • bank guarantees; • guarantee of a reliable third party; • insurance; • real estate properties; and • movable assets (machinery, equipment, breeding stock). For mortgages, bridging loans and building savings loans (if secured) primarily real estate collateral is used, for Auto loans and financial leases mainly movable assets are used as collateral, for commercial loans all types of collateral may be used. Retail consumer loans, credit cards and overdrafts are unsecured. To determine the realisable value of a collateral, the Group uses internal and external expert appraisals. Internal appraisals are processed by the AML & Anti-Fraud & Collateral Management department of the Bank’s Risk Management Division, which is a department operating independently of the Group’s sales and underwriting departments. The ultimate realisable value of the collateral is then set by applying collateral acceptance ratios reflecting the Group’s ability to realise the collateral in case of default. Maximum values of collateral acceptance ratios are approved by the Credit Committee (CRCO). In determining the realisable value, MONETA Leasing uses a discount on the acquisition cost derived from model depreciation curves (describing the relation between fair value as a percentage of acquisition cost and time) for individual asset classes. Curves are reassessed regularly and approved by the Credit Committee (CRCO). 201 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 Vehicles securing MONETA Auto car financing exposures are valuated according to either the purchase price (new cars) or the market prices derived from external sources (used cars, new cars). For reporting purposes, these exposures are treated as unsecured. 44.2.4 Allowances Calculation Allowances for credit losses are determined using an expected credit loss approach as required under IFRS 9. The measurement of expected credit losses and the assessment of significant increases in credit risk considers information about past events and current conditions as well as reasonable and supportable forecasts of future events and economic conditions. The estimation and application of forward-looking information requires significant judgement. To calculate allowances, the portfolio is divided into three Stages and POCI (Purchased or Originated as Credit Impaired). The portfolio is further segmented into commercial and retail exposures by product. POCI includes exposures of the Acquired entities which were non-performing at the time of acquisition as well as exposures originated as credit impaired. These represent modified financial assets where material concessions were granted to obligors in default. Exposures which do not qualify for POCI are assigned to Stage 1, Stage 2 or Stage 3. Non-performing exposures belong to Stage 3. Performing exposures are assigned to Stage 2 when a significant increase in credit risk (SICR) occurred compared to their origination. Exposures that are not assigned to Stage 3 or 2 belong to Stage 1. The Group considers mainly the following situations as SICR: • customer’s days past due are higher than 30; or • qualitative criteria including behavioural risk indicators suggest deterioration in credit risk; or • absolute remaining lifetime probability of default (PD) at reporting is higher than the specified threshold and any of the following conditions is met: 1. the relative change of the absolute and annualised remaining lifetime PD at reporting compared to origination is higher than the specified relative threshold; 2. the absolute increase of the absolute remaining lifetime PD at reporting compared to origination is higher than the specified absolute threshold. The Group estimates a 12-month expected credit loss (ECL) for Stage 1 exposures and lifetime expected credit loss for Stage 2, Stage 3 and POCI. The Group also uses multiple macroeconomic forecasts for estimation of future losses, thus the future developmentof macroeconomic variables is reflected in risk parameters. The sensitivity of the ECL model is differentiated across the portfolio segments with a sufficient level of homogeneity in relation to the underlying credit risk. The main factors influencing the level of ECL are unemployment rate and rate of GDP growth. The Group uses three macroeconomic scenarios derived from the base macroeconomic trajectory with assigned probabilities: optimistic (25%), base (50%) and adverse (25%). The calculation of allowances is based on statistical models. These models are used for the calculation of the probability of default (PD), loss given default (LGD), exposure at default (EAD) and the cure rate (CR). Loan loss allowances for some non-performing commercial individually managed exposures are set individually based on expected discounted cash flows. In situations where the statistical models used for the calculation of allowances do not sufficiently capture the forward-looking risks at the ECL level, management overlays are applied. Management overlays are described in detail below. PD and CR calculation PD and CR are calculated based on the transition matrices model. Transition matrices track migration between rating grades, defaulted and cured status. They provide an intuitive and comprehensive overview of portfolio movements across time. From these matrices through-the-cycle (TTC) matrices are created for each segment that are independent of the economy’s position within the macroeconomic cycle. PIT (point-in-time) matrices for each segment and month are created by conditioning the TTC matrices with an adjustment for the current and expected state of the macroeconomy. PD and CR are then derived from PIT matrices. LGD calculation For the majority of exposures without collateral and for an unsecured part of the collateralised exposures, models reflecting historical recoveries discounted by the original effective interest rate are used to derive LGD parameters. LGD for the collateralised part of the exposure is based on forward-looking expectations regarding the future collateral value based on macroeconomic scenarios. EAD calculation The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by a contract or otherwise, expected drawdowns on committed facilities, and accrued interest from missed payments. 202 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 There is a provision created for undrawn loan commitments by using estimate of utilisation in case of default that determines the amount of loan drawn. Impact of Macroeconomic Environment Deterioration on AllowanceCalculation To reflect the implications of macroeconomic environment evolution, the Group continuously monitored the economic outlooks of the CNB and the Ministry of Finance of the Czech Republic and based on these outlooks, macroeconomic forecasts for estimation of future losses from financial assets were formulated. The latest update of the forward-looking macroeconomic scenarios took place in November 2023. Throughout 2023, the inflation and interest rates remained at unprecedented levels. For this reason, the Group continued to maintain the framework of management overlays to compensate for the lack of sensitivity of the IFRS 9 model to the high-inflation and high-interest rate environment. In March 2023, the Group extended the existing framework of management overlays (pool-managed and commercial individually managed exposures) with an additional management overlay addressing increased level of expected credit losses associated with exposures secured by COVID-19 guarantee expiring within 12 consequent months. Management overlay – Pool-Managed Exposures The purpose of this management overlay was to account for the impact of the high-interest rate and high-inflation environment on expected credit losses. Throughout 2023, the Group continuously monitored and updated the existing management overlay for the portfolio of performing mortgages, consumer loans and small business loans. As a part of these reviews, an evaluation of application and activation conditions was performed. Application conditions describe a macroeconomic environment where a lack of IFRS 9 model sensitivity can be assumed due to the specificity of the environment of high inflation and high interest rates. Meeting these conditions is a pre-requisite to the application of the management overlay. Deterioration of the portfolio credit quality in association with the environment of high inflation and high interest rates is evaluated based on activation conditions. In case these conditions are met, a decrease in the overlay amount can be considered to offset the credit loss materialisation. Evaluation of application and activation conditions is discussed by the Credit Committee (CRCO) as a part of the regular quarterly report. In case of activation conditions violation or in case the activation conditions are met, the CRCO decides about the release plan of the overlay amount based on the evaluation of the current macroeconomic situation and the forward-looking outlook. The amount of the management overlay was determined based on the identification of the exposures exposed to the potential credit loss materialisation in connection with the high-inflation and high-interest rates environment. The potentially vulnerable exposures were identified according to the available information about the income/revenue of clients accounting for increased costs associated with the high inflation and interest rate level. The amount of the management overlay was derived as the amount of loan loss allowances required to offset assumed share of these potentially vulnerable exposures defaulting. Based on outcomes from back testing of this assumption using historical data, the Group decreased the assumption of the default rate from 20% to 15%. As a result, the management overlay amount decreased to CZK 490 million as at 31 December 2023 compared to CZK 700 million as at 31 December 2022. The sensitivity of the management overlay amount to the change of the assumed default rate by 1% (increase from 15% to 16%) stood at CZK 64 million as at 31 December 2023. Management overlay – Commercial Individually Managed Exposures The purpose of this management overlay was to account for the risks associated with the impact of the high-interest rate environment on expected credit losses. Throughout 2023, the Group continuously monitored and updated the existing management overlay for the portfolio of performing commercial individually managed exposures of the Bank and MONETA Leasing. As a part of these reviews, an evaluation of application and activation conditions was performed. Application conditions describe a macroeconomic environment where a lack of IFRS 9 model sensitivity can be assumed due to the specificity of the environment of high inflation and high interest rates. Meeting these conditions is a pre-requisite to the application of the management overlay. Deterioration of the portfolio credit quality in association with the environment of high inflation and high interest rates is evaluated based on activation conditions. In case these conditions 203 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 are met, a decrease in the overlay amount can be considered to offset the credit loss materialisation. Evaluation of application and activation conditions is discussed by the Credit Committee (CRCO) as a part of the regular quarterly report. In case of activation conditions violation or in case the activation conditions are met, the CRCO decides about the release plan of the overlay amount based on the evaluation of the current macroeconomic situation and the forward-looking outlook. The amount of the management overlay was determined based on the identification of the exposures exposed to the potential credit loss materialisation in connection with the high-interest rate environment. The potentially vulnerable exposures were identified assuming that clients with high levels of debt/EBITDA ratio are more prone to the high-interest rate environment if their CZK loans are with floating rate or with recent or upcoming re-fixation to much higher interest rate. The amount of the management overlay was derived as the amount of loan loss allowances required to offset assumed share of these potentially vulnerable exposures defaulting. Based on outcomes from back testing of this assumption using historical data, the Group decreased the assumption of the default rate from 20% to 15%. Additionally, since the activation conditions indicating the materialisation of the credit risk in the commercial individually managed segment were triggered, proportionate amount of the overlay was deducted from the final overlay amount. As a result, the management overlay amount decreased to CZK 83 million as at 31 December 2023 compared to CZK 147 million as at 31 December 2022. The sensitivity of the management overlay amount to the change of the assumed default rate by 1% (increase from 15% to 16%) stood at CZK 7 million as at 31 December 2023. Management overlay – Exposures with Expiring COVID-19 Guarantee In March 2023, the management overlay framework was extended to reflect risks associated with exposures secured by COVID-19 guarantees expiring within 12 consequent months. Credit risk of these exposures, initially covered by the respective guarantee, increased due to its expiration and was insufficiently reflected by the current IFRS 9 model. The Group continuously monitored and updated the existing management overlay. As a part of these reviews, an evaluation of application and activation conditions was performed. Application conditions describe a macroeconomic environment where a lack of IFRS 9 model sensitivity can be assumed due to the specificity of the environment of high inflation and high interest rates. Meeting these conditions is a pre-requisite to the application of the management overlay. Deterioration of the portfolio credit quality in association with the environment of high inflation and high interest rates is evaluated based on activation conditions. In case these conditions are met, a decrease in the overlay amount can be considered to offset the credit loss materialisation. Evaluation of application and activation conditions is discussed by the Credit Committee (CRCO) as a part of the regular quarterly report. In case of activation conditions violation or in case the activation conditions are met, the CRCO decides about the release plan of the overlay amount based on the evaluation of the current macroeconomic situation and the forward-looking outlook. The amount of the management overlay was derived from the balance of exposures where the guarantees had expired in the past three months or would expire in the upcoming 12 months, as the amount of loan loss allowances required to offset 15% of these exposures defaulting. As at 31 December 2023, the management overlay stood at CZK 70 million. The sensitivity of the management overlay amount to the change of the assumed default rate by 1% (increase from 15% to 16%) stood at CZK 5 million as at 31 December 2023. Write-off principles Write-off is applied when one of the below criteria is met: • Zero or negligible cash flow is expected to be received; • Collection process has been cancelled and as a consequence the Group does not expect any cash flow (e.g. collection cost would be higher than expected recovery); • Finished insolvency procedure; • Inheritance proceedings ended without a legal successor (where the receivable was part of the inheritance); • Fraudulent loan; • Stopped execution of the receivable; • Liquidation of the debtor (legal person). 204 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 Rebuttable presumption “zero or negligible cash flow is expected to be received“ is driven by defined term after default, where the term is defined separately for each product. Presumption may be rebutted e.g. if recovery is expected to be received or there is still collateral that may be sold and its value is not zero or negligible. The following table shows reconciliations from the opening to the closing balance of allowances to loans and receivables to customers: CZK m Stage 1 Stage 2 Stage 3 POCI Total Retail Balance 1 January 2023 747 1,323 1,464 (24) 3,510 Originations 245 95 19 (2) 357 Derecognition and maturities (117) (143) (303) 5 (558) Transfer to (out) Stage 1 626 (570) (56) - - Transfer to (out) Stage 2 (143) 433 (290) - - Transfer to (out) Stage 3 (19) (357) 376 - - Remeasurements, changes in models and methods (825) 523 627 (3) 322 Use of allowances (write-offs) - - (531) (1) (532) out of which: debt sales - - (436) (1) (437) Foreign exchange adjustments - - - - - Balance 31 December 2023 514 1,304 1,306 (25) 3,099 Commercial Balance 1 January 2023 699 347 557 (5) 1,598 Originations 404 42 27 - 473 Derecognition and maturities (34) (36) (131) - (201) Transfer to (out) Stage 1 165 (142) (23) - - Transfer to (out) Stage 2 (65) 112 (47) - - Transfer to (out) Stage 3 (10) (157) 167 - - Remeasurements, changes in models and methods (538) 261 163 - (114) Use of allowances (write-offs) - - (178) - (178) out of which: debt sales - - (122) - (122) Foreign exchange adjustments 5 - - - 5 Balance 31 December 2023 626 427 535 (5) 1,583 Total Balance 31 December 2023 1) 1,140 1,731 1,841 (30) 4,682 1) The Group did not recognise any allowances to Loans and receivables to banks during 2023 and 2022, as such exposures are short-term only and impact is immaterial. 205 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 CZK m Stage 1 Stage 2 Stage 3 POCI Total Retail Balance 1 January 2022 1,030 658 2,402 (16) 4,074 Originations 286 77 30 - 393 Derecognition and maturities (261) (239) (143) 6 (637) Transfer to (out) Stage 1 457 (246) (211) - - Transfer to (out) Stage 2 (171) 1,036 (865) - - Transfer to (out) Stage 3 (64) (12) 76 - - Remeasurements, changes in models and methods (530) 49 691 (14) 196 Use of allowances (write-offs) - - (516) - (516) out of which: debt sales - - (260) - (260) Foreign exchange adjustments - - - - - Balance 31 December 2022 747 1,323 1,464 (24) 3,510 Commercial Balance 1 January 2022 719 193 747 (5) 1,654 Originations 531 24 18 - 573 Derecognition and maturities (127) (39) (46) - (212) Transfer to (out) Stage 1 149 (80) (69) - - Transfer to (out) Stage 2 (56) 247 (191) - - Transfer to (out) Stage 3 (21) (38) 59 - - Remeasurements, changes in models and methods (493) 40 183 - (270) Use of allowances (write-offs) - - (143) - (143) out of which: debt sales - - (54) - (54) Foreign exchange adjustments (3) - (1) - (4) Balance 31 December 2022 699 347 557 (5) 1,598 Total Balance 31 December 2022 1,446 1,670 2,021 (29) 5,108 There have been no material movements in allowances to other financial assets (such as Debt securities at amortised cost or operating receivables) for the years 2023 and 2022 than those disclosed above. 206 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 44.2.5 Credit Concentration Risk As part of managing credit risk, the Group regularly monitors and actively manages the credit concentration risk of the Group through the limits to countries, counterparties, collateral providers and economic sectors. Regional concentration is not relevant as most income is generated within the territory of the Czech Republic. The main collateral providers (via guarantees) are Národní rozvojová banka, a.s., the European Investment Fund and Exportní garanční a pojišťovací společnost, a.s. (a) The exposures to top 10 groups of customers CZK m 31 Dec 2023 31 Dec 2022 Top 10 exposures 1) 13,986 11,507 1) Exposure includes gross loans and receivables, unused commitments including credit lines, guarantees and letters of credit. (b) The structure of the Group’s commercial credit portfolio by economic sectors 31 Dec 2023 31 Dec 2022 Sector CZK m 1) % CZK m 1) % 1 Agriculture 22,420 26% 22,729 27% 2 Mining 16 0% 20 0% 3 Food industry 1,207 1% 1,210 1% 4 Textile industry 223 0% 226 0% 5 Wood processing industry 549 1% 558 1% 6 Chemical industry 1,107 1% 1,156 1% 7 Metal processing industry 3,085 4% 2,338 3% 8 Electric and optical equipment 188 0% 228 0% 9 Manufacturing of equipment, including transportation 1,208 1% 1,480 2% 10 Construction industry and construction modifications 6,022 7% 5,905 7% 11 Wholesale 4,622 5% 4,813 6% 12 Retail sale 4,648 5% 4,036 5% 13 Transport and telecommunication 2,326 3% 2,571 3% 14 Finance 763 1% 1,728 2% 15 Services 14,051 16% 12,424 15% 16 Public sector 338 0% 258 0% 17 Health industry 1,001 1% 979 1% 18 Power sector 3,429 4% 1,104 1% 19 Real estate activities 18,193 21% 20,608 24% Total 85,396 100% 84,371 100% 1) The amounts represent the relevant gross loans and receivables to customers. Exposures of unallowed debits which are fully provided by allowances are excluded. 207 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 (c) Maximum credit risk exposure 31 Dec 2023 CZK m Statement of financial position Off-balance sheet Total credit risk exposure Available collateral 1) Cash and balances with the central bank 10,871 - 10,871 - Derivative financial instruments 544 - 544 829 3) Investment securities measured at FVTPL 55 - 55 - Equity investments 25 - 25 - Debt investments 30 - 30 - Investment securities measured at FVTOCI 1 - 1 - Equity investments 1 - 1 - Investment securities measured at amortised cost 104,297 - 104,297 - Government and corporate bonds 104,297 - 104,297 - Hedging derivatives with positive fair values 2,701 - 2,701 - Interest rate swaps 2,701 - 2,701 - Cross currency interest rate swaps - - - - Change in fair value of items hedged on portfolio basis 122 - 122 - Loans and receivables to banks 69,632 - 69,632 65,422 Current accounts at banks 260 - 260 - Overnight deposits 392 - 392 - Term deposits in banks payable within 3 months - - - - Receivables arising from reverse repurchase agreements 66,740 - 66,740 65,422 2) Cash collaterals granted 2,238 - 2,238 - Other 2 - 2 - Loans and receivables to customers 263,064 23,903 286,967 170,066 Consumer authorised overdrafts and credit cards 2,270 4,223 6,493 - Consumer loans 46,558 149 46,707 2,726 Mortgages 127,946 2,249 130,195 126,274 Commercial loans 73,898 16,912 90,810 39,315 Auto & Equipment Financial Lease 276 - 276 240 Commercial 276 - 276 240 Retail - - - - Auto & Equipment Loans 12,116 370 12,486 1,511 Commercial 9,645 370 10,015 1,511 Retail 2,471 - 2,471 - Issued guarantees and credit limits on guarantees - 2,236 2,236 415 Issued letter of credit - 5 5 - Remaining assets 6,897 - 6,897 - 1) Available collateral represents realisable value of collateral relevant for each loan exposure. The realisable value of collateral is capped up to the Total exposure presented in the statement of financial position on a loan-by-loan basis for the purpose of the presentation in these breakdowns. 2) Thereof securities obtained in reverse repurchase agreements as collateral in the amount of CZK 0 million were transferred as collateral according to repurchase agreements as at 31 December 2023 (31 Dec 2022:CZK 0 million). 3) From 2023 this item also includes available collateral from customers. For the purpose of comparability, the previous period has been adjusted. 208 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 CZK m Statement of financial position Off-balance sheet Total credit risk exposure Available collateral 1) Cash and balances with the central bank 12,467 - 12,467 - Derivative financial instruments 761 - 761 4,422 3) Investment securities measured at FVTPL 71 - 71 - Equity investments 25 - 25 - Debt investments 46 - 46 - Investment securities measured at FVTOCI 1 - 1 - Equity investments 1 - 1 - Investment securities measured at amortised cost 57,879 - 57,879 - Government and corporate bonds 57,879 - 57,879 - Hedging derivatives with positive fair values 4,942 - 4,942 - Interest rate swaps 4,919 - 4,919 - Cross currency interest rate swaps 23 - 23 - Change in fair value of items hedged on portfolio basis (2,090) - (2,090) - Loans and receivables to banks 37,886 - 37,886 35,526 Current accounts at banks 445 - 445 - Overnight deposits 482 - 482 - Term deposits in banks payable within 3 months 453 - 453 - Receivables arising from reverse repurchase agreements 36,254 - 36,254 35,526 2) Cash collaterals granted 251 - 251 - Other 1 - 1 - Loans and receivables to customers 268,752 30,661 299,413 174,135 Consumer authorised overdrafts and credit cards 2,337 4,342 6,679 - Consumer loans 47,748 431 48,179 2,837 Mortgages 133,338 7,039 140,377 130,986 Commercial loans 72,269 18,432 90,701 37,414 Auto & Equipment Financial Lease 620 1 621 532 Commercial 620 - 620 532 Retail - 1 1 - Auto & Equipment Loans 12,440 416 12,856 2,366 Commercial 9,892 416 10,308 2,366 Retail 2,548 - 2,548 - Issued guarantees and credit limits on guarantees - 2,078 2,078 282 Issued letter of credit - 5 5 - Remaining assets 6,841 - 6,841 - 1) Available collateral represents realisable value of collateral relevant for each loan exposure. The realisable value of collateral is capped up to the Total exposure presented in the statement of financial position on a loan-by-loan basis for the purpose of the presentation in these breakdowns. 2) Thereof securities obtained in reverse repurchase agreements as collateral in the amount of CZK 0 million were transferred as collateral according to repurchase agreements as at 31 December 2023 (31 Dec 2022:CZK 0 million). 3) From 2023 this item also includes available collateral from customers. For the purpose of comparability, the previous period has been adjusted. 209 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 (d) Quantitative information about available collateral for impaired financial assets (Stage 3 and non-performing POCI) CZK m 2023 2022 Retail Commercial Total Retail Commercial Total LTV 1) lower than 50% 282 36 318 256 40 296 LTV 1) 51–70% 353 36 389 357 33 390 LTV 1) more than 70% 483 257 740 443 199 642 Total 1,118 329 1,447 1,056 272 1,328 1) The LTV (Loan to Value) represents ratio of gross carrying value of loan to fair value of collateral available at the reporting date. 44.2.6 Credit Portfolio and its Quality (a) Break down of allowances and provisions according to loan type and stages The following table comprises information about allowances to Loans and receivables to customers and provisions to off-balance sheet items according to type of loan/off-balance sheet position and related stage: 31 Dec 2023 Gross carrying amount Allowance/Provision CZK m Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Net book value Retail loans 160,796 18,697 2,797 54 182,344 (514) (1,304) (1,306) 25 (3,099) 179,245 Consumer Loans 39,142 7,922 1,645 (7) 48,702 (260) (900) (1,006) 22 (2,144) 46,558 Mortgages 117,460 10,059 1,024 61 128,604 (146) (300) (215) 3 (658) 127,946 Credit Cards & Overdrafts 1,981 408 81 - 2,470 (76) (69) (55) - (200) 2,270 Auto Loans and Financial Leases 2,211 308 41 - 2,560 (30) (35) (24) - (89) 2,471 Other 2 - 6 - 8 (2) - (6) - (8) - Commercial loans 79,990 4,373 1,040 (1) 85,402 (626) (427) (535) 5 (1,583) 83,819 Investment Loans 44,091 1,117 157 (1) 45,364 (164) (68) (64) 5 (291) 45,073 Working Capital 14,473 960 86 - 15,519 (104) (48) (41) - (193) 15,326 Auto & Equipment Loans and Financial Leases 8,381 547 141 - 9,069 (83) (50) (71) - (204) 8,865 Unsecured Instalment Loans and Overdraft 12,284 1,557 539 - 14,380 (273) (259) (349) - (881) 13,499 Inventory Financing and Other 761 192 117 - 1,070 (2) (2) (10) - (14) 1,056 Total loans 240,786 23,070 3,837 53 267,746 (1,140) (1,731) (1,841) 30 (4,682) 263,064 Debt instruments measured at amortised costs 104,320 - - - 104,320 (23) - - - (23) 104,297 Total loans and securities 345,106 23,070 3,837 53 372,066 (1,163) (1,731) (1,841) 30 (4,705) 367,361 Financial guarantees 1,593 647 1 - 2,241 (8) (6) - - (14) 2,227 Loan commitments - Retail 6,285 287 49 - 6,621 (41) (12) - - (53) 6,568 Loan commitments - Commercial 16,881 361 40 - 17,282 (40) (8) - - (48) 17,234 Total off-balance sheet items 24,759 1,295 90 - 26,144 (89) (26) - - (115) 26,029 Previously written-off receivables amount to CZK 184 million as at 31 December 2023 (31 December 2022: CZK 259 million). 210 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 Gross carrying amount Allowance/Provision CZK m Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Net book value Retail loans 171,656 14,933 2,827 65 189,481 (747) (1,323) (1,464) 24 (3,510) 185,971 Consumer Loans 42,248 6,379 1,728 (7) 50,348 (531) (931) (1,162) 24 (2,600) 47,748 Mortgages 125,020 7, 890 948 72 133,930 (113) (290) (189) - (592) 133,338 Credit Cards & Overdrafts 2,021 445 104 - 2,570 (74) (81) (78) - (233) 2,337 Auto Loans and Financial Leases 2,365 219 39 - 2,623 (27) (21) (27) - (75) 2,548 Other 2 - 8 - 10 (2) - (8) - (10) - Commercial loans 79,998 3,444 937 - 84,379 (699) (347) (557) 5 (1,598) 82,781 Investment Loans 45,519 737 85 - 46,341 (254) (40) (22) 5 (311) 46,030 Working Capital 13,532 707 94 - 14,333 (142) (38) (15) - (195) 14,138 Auto & Equipment Loans and Financial Leases 9,055 477 198 - 9,730 (86) (40) (118) - (244) 9,486 Unsecured Instalment Loans and Overdraft 11,125 1,255 550 - 12,930 (214) (223) (392) - (829) 12,101 Inventory Financing and Other 767 268 10 - 1,045 (3) (6) (10) - (19) 1,026 Total loans 251,654 18,377 3,764 65 273,860 (1,446) (1,670) (2,021) 29 (5,108) 268,752 Debt instruments measured at amortised costs 57,897 - - - 57,897 (18) - - - (18) 57, 879 Total loans and securities 309,551 18,377 3,764 65 331,757 (1,464) (1,670) (2,021) 29 (5,126) 326,631 Financial guarantees 1,946 137 - - 2,083 (11) (5) - - (16) 2,067 Loan commitments - Retail 11,296 483 32 - 11,811 (43) (17) - - (60) 11,751 Loan commitments - Commercial 18,647 192 9 - 18,848 (66) (5) - - (71) 18,777 Total off-balance sheet items 31,889 812 41 - 32,742 (120) (27) - - (147) 32,595 211 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 (b) Loans and receivables to banks and customers according to the categorisation according to internal rating grade and stages The following table sets out information about credit quality of financial assets measured at amortised cost classified according to the internal credit rating grade and stages: CZK m 31 Dec 2023 31 Dec 2022 Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Loans and receivables to customers at amortised costs CR 1 221,477 10,382 - 27 231,886 227,570 8,282 - 25 235,877 CR 2 10,957 3,922 - 6 14,885 19,493 4,132 - 8 23,633 CR 3 7,624 3,673 - 4 11,301 4,224 2,162 - 1 6,387 CR 4 465 2,763 - 4 3,232 241 2,200 - 2 2,443 CR 5 259 2,330 - 1 2,590 124 1,601 - 4 1,729 Not graded 4 - - - 4 2 - - - 2 NPL - - 3,837 11 3,848 - - 3,764 25 3,789 Gross carrying amount 240,786 23,070 3,837 53 267,746 251,654 18,377 3,764 65 273,860 Allowance (1,140) (1,731) (1,841) 30 (4,682) (1,446) (1,670) (2,021) 29 (5,108) Net book value 239,646 21,339 1,996 83 263,064 250,208 16,707 1,743 94 268,752 Loans and receivables to banks at amortised cost without rating 1) Gross carrying amount 69,632 - - - 69,632 37,886 - - - 37,886 Allowance - - - - - - - - - - Net book value 69,632 - - - 69,632 37,886 - - - 37,886 Debt investment securities at amortised cost CR 1 104,320 - - - 104,320 57,897 - - - 57,897 Gross carrying amount 104,320 - - - 104,320 57, 897 - - - 57,897 Allowance (23) - - - (23) (18) - - - (18) Net book value 104,297 - - - 104,297 57,879 - - - 57,879 Other receivables from operating activities without rating 1) Gross carrying amount 124 4 32 - 160 60 9 31 - 100 Allowance - - (32) - (32) - - (31) - (31) Net book value 124 4 - - 128 60 9 - - 69 Loan commitments CR 1 21,598 293 - - 21,891 28,816 433 - - 29,249 CR 2 1,001 98 - - 1,099 877 97 - - 974 CR 3 560 111 - - 671 242 65 - - 307 CR 4 3 136 - - 139 8 63 - - 71 CR 5 4 10 - - 14 - 17 - - 17 Not graded - - - - - - - - - - NPL - - 89 - 89 - - 41 - 41 Gross carrying amount 23,166 648 89 - 23,903 29,943 675 41 - 30,659 Provision (81) (20) - - (101) (109) (22) - - (131) Net book value 23,085 628 89 - 23,802 29,834 653 41 - 30,528 212 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 CZK m 31 Dec 2023 31 Dec 2022 Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Financial guarantee contracts CR 1 1,592 628 - - 2,220 1,946 108 - - 2,054 CR 2 1 11 - - 12 - 14 - - 14 CR 3 - 4 - - 4 - 2 - - 2 CR 4 - 4 - - 4 - 11 - - 11 CR 5 - - - - - - 2 - - 2 NPL - - 1 - 1 - - - - - Gross carrying amount 1,593 647 1 - 2,241 1,946 137 - - 2,083 Provision (8) (6) - - (14) (11) (5) - - (16) Net book value 1,585 641 1 - 2,227 1,935 132 - - 2,067 1) Loans and receivables to banks and Other receivables from operating activities are not subject to an internal grading system. 44.2.7 Modified Financial Assets The following table provides information about financial assets with a loss allowance at an amount equal to full lifetime expected credit losses that were modified during the accounting period: CZK m 2023 2022 Financial assets modified during the period Amortised cost before modification 346 314 Net modification gain/loss (1) 2 Financial assets modified since initial recognition Gross carrying amount at 31 Dec of financial assets for which loss allowance has changed to 12-month measurement during the period 61 100 The modification in the form of the forbearance is reflected in the categorisation of receivables in accordance with the exposures categorisation rules (see note 44.2.2). Forborne Receivables Forborne receivables are receivables for which the Group provided the debtor with relief as it assessed that it would likely incur a loss if it did not do so. For economic or legal reasons associated with the debtor’s financial position, the Group granted it relief that the Group would not otherwise have granted. Reliefs primarily include reworking the repayment plan, a decrease in the interest rate,a waiver of default interest, a deferral of principal or accrued interest repayments. Forborne receivables do not include receivables arising from the roll-over of a short-term loan for current assets if the debtor met all of its payment and non-payment obligations arising from the loan contract. The Group applies the following general principles for forbearance: • the customer lost the ability to repay the loan according to the original loan contract; • the customer demonstrates a willingness and ability to pay his/her debts; • specific product/customer criteria must be met. Forbearance measures provided to clients take a form of modification of the existing contract or origination of a new loan contract, where the customer’s original credit is, by entering into this new contract, repaid and closed. In this case, a new (restructured) loan with different monthly instalments, interest rate and maturity is then opened. According to the rules for categorisation of exposures, the new or modified loan is treated as non-performing at least 12 months after restructuring. Forborne classification is assigned also during the 24 month probation period, which applies from the moment when the client was upgraded to the performing status. 213 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 (a) All gross loans and receivables to customers with forbearance: 31 Dec 2023 CZK m Mortgage loans Consumer loans Commercial loans Commercial auto and equipment financial leases Commercial auto and equipment loans Retail auto and equipment loans Total Forborne receivables 1,040 1,202 264 2 47 16 2,571 Total 1,040 1,202 264 2 47 16 2,571 31 Dec 2022 CZK m Mortgage loans Consumer loans Commercial loans Commercial auto and equipment financial leases Commercial auto and equipment loans Retail auto and equipment loans Total Forborne receivables 961 1,344 327 5 61 10 2,708 Total 961 1,344 327 5 61 10 2,708 (b) Impaired loans out of all gross loans and receivables to customers with forbearance: 31 Dec 2023 CZK m Mortgage loans Consumer loans Commercial loans Commercial auto and equipment financial leases Commercial auto and equipment loans Retail auto and equipment loans Total Forborne receivables 471 564 117 - 27 12 1,191 Total 471 564 117 - 27 12 1,191 31 Dec 2022 CZK m Mortgage loans Consumer loans Commercial loans Commercial auto and equipment financial leases Commercial auto and equipment loans Retail auto and equipment loans Total Forborne receivables 409 611 157 2 26 5 1,210 Total 409 611 157 2 26 5 1,210 (c) Loans and receivables to customers forborne within the reporting year 2023 Mortgage loans Consumer loans Commercial loans Commercial auto and equipment financial leases Commercial auto and equipment loans Retail auto and equipment loans Total Number of incrementally forborne receivables within the reporting year 153 1,650 246 1 39 28 2,117 Balance of the incrementally forborne gross receivables within the reporting year measured at the end of the reporting year (CZK m) 296 348 65 - 19 11 739 2022 Mortgage loans Consumer loans Commercial loans Commercial auto and equipment financial leases Commercial auto and equipment loans Retail auto and equipment loans Total Number of incrementally forborne receivables within the reporting year 147 1,680 226 1 39 9 2,102 Balance of the incrementally forborne gross receivables within the reporting year measured at the end of the reporting year (CZK m) 286 326 83 - 15 2 712 214 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 44.3 INTEREST RATE RISK Interest rate risk is the risk of a loss arising from changes in interest rates on financial markets. The Group is exposed to interest rate risk as interest- bearing assets and liabilities have different maturity periods or interest rate repricing periods. The Bank strives to minimise the Group’s interest rate risk by setting limits and keeping positions within these limits. The interest rate risk management activities are aimed at reducing the risk of losses. The Group’s interest rate risk management is centralised in the Bank. Only certain client products (FX swap, FX forward, FX spot) of the Bank are included in the Trading book; all other positions of the Group are included in the Banking book. The Group’s interest rate risk for the Trading and Banking book is managed separately. The interest rate risk of the Trading book is managed by the requirement to close each FX swap and FX forward transaction on a back-to-back basis. To monitor and measure the interest rate risk of the Banking book, a model of interest rate sensitivity is used which serves to determine the sensitivity of the Group to changes in the market interest rates. The model is based on the inclusion of interest-sensitive assets and liabilities into relevant time bands. The Group prefers to use behavioural features of cash flows rather than those that are purely contractual. All behavioural assumptions are approved by the ALCO. The model works with 1-month time bands up to 240 months. The Bank carries out stress testing of the Group’s Banking book positions in all currencies that account for more than 5% of the Group’s assets or liabilities (both on an individual and consolidated basis) based on stress scenarios for management of interest rate risk arising from non-trading activities in line with the relevant European Banking Authority Guideline EBA/GL/2018/02. As at 31 December 2023, only the portfolios denominated in the Czech Koruna exceeded a 5% share of the Group’s assets/liabilities. The set of limits is used to manage and monitor the impacts of all stress scenarios stipulated in the Guideline. The results of stress testing are presented to ALCO on a monthly basis. To manage the discrepancy between the interest sensitivity of assets and liabilities, interest rate derivatives are used in line with the interest rate hedging strategy for hedge accounting approved by ALCO. The tables below show the sensitivity of the Group to changes in interest rates. CZK % change in annual net interest income 31 Dec 2023 31 Dec 2022 Impact of an interest rate movement +200 basis points 7.45% 11.47% Impact of an interest rate movement -200 basis points (4.27)% (0.31)% Change in economic value of equity as a % of capital 31 Dec 2023 31 Dec 2022 Impact of an interest rate movement +200 basis points 1.20% (1.73)% Impact of an interest rate movement -200 basis points 1.33% 5.41% EUR % change in annual net interest income 31 Dec 2023 31 Dec 2022 Impact of an interest rate movement +200 basis points (0.57)% 1.16% Impact of an interest rate movement -200 basis points 0.58% (0.48)% Change in economic value of equity as a % of capital 31 Dec 2023 31 Dec 2022 Impact of an interest rate movement +200 basis points (0.47)% (0.26)% Impact of an interest rate movement -200 basis points 0.54% 0.31% The percentage change in annual net interest income shows the impact of interest rate movements on net interest income on a 12-month horizon. The change in the economic value of equity shows the impact of interest rate movements on the difference between the present value of assets and liabilities (i.e. the economic value of equity), so this metric works with a long-term horizon. Given the mentioned differences between the two metrics, the two kinds of impact can have different signs and follow different trends. 215 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 The below table summarises the Group’s exposure to interest rate risk. Balances are allocated to the buckets based on the following parameters: for assets, the next repricing date or principal payment dates, whichever occurs earlier; for non-maturity deposits, the expected maturity/repricing behaviour; and for term deposits, the maturity date. 31 Dec 2023 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Cash and balances with the central bank 10,871 - - - - - 10,871 Derivative financial instruments with positive fair values 2 4 33 125 380 - 544 Hedging derivatives with positive fair values 2) 8 14 144 995 1,540 - 2,701 Change in fair value of items hedged on portfolio basis (2) (13) (66) 191 12 - 122 Investment securities - 299 1,424 31,213 71,361 56 104,353 Loans and receivables to banks 67,392 - - - - 2,240 69,632 Loans and receivables to customers 29,422 13,876 46,826 155,765 17,175 - 263,064 Remaining assets 179 - 620 4 3 6,091 6,897 Total assets 107,872 14,180 48,981 188,293 90,471 8,387 458,184 Due to banks 2,329 - 2,531 - - 563 5,423 Due to customers 148,811 18,286 68,211 114,674 49,245 270 399,497 Derivative financial instruments with negative fair values 14 3 31 106 369 - 523 Hedging derivatives with negative fair values 2) 3 2 128 2,214 2,201 - 4,548 Change in fair value of items hedged on portfolio basis (2) (7) (31) 103 - - 63 Issued bonds - 37 5 3,766 - - 3,808 Subordinated liabilities 92 - 18 7,494 - - 7,60 4 Remaining liabilities 2,140 14 294 921 300 846 4,515 Total liabilities 153,387 18,335 71,187 129,278 52,115 1,679 425,981 Net balance sheet interest rate exposure (45,515) (4,155) (22,206) 59,015 38,356 6,708 32,203 Off-balance sheet assets 14,194 2,931 2,356 4,139 282 - 23,903 Off-balance sheet liabilities - - - - - - - Interest rate swaps assets 1) 15,670 85,827 11,020 12,819 2,900 - 128,236 Interest rate swaps liabilities 1) 6,868 9,696 11,880 55,281 44,511 - 128,236 Net off-balance sheet interest rate exposure 22,996 79,062 1,496 (38,323) (41,329) - 23,903 Total net interest rate exposure (22,519) 74,907 (20,710) 20,692 (2,973) 6,708 56,106 1) In case of interest rate swaps, the notional amounts are used instead of accounting balances. 2) Since 2023, balance of notional amounts of cross currency interest rate swaps has been shown on the lines of the Statement of Financial Position “Hedging derivatives with positive fairvalues“, or “Hedging derivativeswithnegativefair values“instead ofoff-balancelinesas had been reported in the previousperiod. 216 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Cash and balances with the central bank 12,467 - - - - - 12,467 Derivative financial instruments with positive fair values 4 8 31 43 675 - 761 Hedging derivatives with positive fair values 5 3 253 1,927 2,754 - 4,942 Change in fair value of items hedged on portfolio basis - (5) (249) (1,376) (460) - (2,090) Investment securities - 187 888 21,116 35,688 72 57,951 Loans and receivables to banks 37,634 - - - - 252 37, 886 Loans and receivables to customers 32,671 10,311 42,920 162,061 20,789 - 268,752 Remaining assets 99 - 651 10 1 6,080 6,841 Total assets 82,880 10,504 44,494 183,781 59,447 6,404 387,510 Due to banks 334 - - 1,688 - 3,931 5,953 Due to customers 87,631 18,345 52,625 121,306 53,853 491 334,251 Derivative financial instruments with negative fair values 6 8 29 41 663 - 747 Hedging derivatives with negative fair values - 11 288 540 6 - 845 Change in fair value of items hedged on portfolio basis - (11) (233) (194) - - (438) Issued bonds 46 36 1,907 1,148 2,383 - 5,520 Subordinated liabilities 91 - 18 4,578 - - 4,687 Remaining liabilities 2,098 24 735 871 168 958 4,854 Total liabilities 90,206 18,413 55,369 129,978 57,073 5,380 356,419 Net balance sheet interest rate exposure (7,326) (7,909) (10,875) 53,803 2,374 1,024 31,091 Off-balance sheet assets 16,325 1,558 2,747 8,969 1,056 - 30,655 Off-balance sheet liabilities - - - - - - - Interest rate swaps assets 1) 6,359 31,148 14,452 14,422 2,800 - 69,181 Interest rate swaps liabilities 1) 7,270 9,952 9,123 27, 561 15,276 - 69,182 Net off-balance sheet interest rate exposure 15,414 22,754 8,076 (4,170) (11,420) - 30,654 Total net interest rate exposure 8,088 14,845 (2,799) 49,633 (9,046) 1,024 61,745 1) In case of interest rate swaps, the notional amounts are used instead of accounting balances. The data for the individual time buckets except the “Unspecified” column follow the interest rate gap from the model of interest rate sensitivity. 44.4 FOREIGN EXCHANGE RISK Foreign exchange risk covers the risk of a loss due to changes in exchange rates. The Group is exposed to foreign exchange risk primarily due to the provision of foreign exchange loan products to commercial borrowers and foreign exchange deposits. The management of the Group’s foreign exchange risk is centralised in the Bank. The Bank strives to minimise the foreign exchange risk of the Group. For this purpose, the Bank maintains a balance of assets and liabilities in foreign currencies (by using a mix of FX spots, forwards and swaps transactions). To measure the foreign exchange risk on an individual basis, the Bank calculates, on a daily basis, net currency positions and an FX Value at Risk (maximum expected loss per business day for the foreign currency portfolio at the 99% confidence level). The Bank uses the limits for the following metrics: • ratio of the absolute value of the net currency position to capital for each foreign currency; • ratio of the absolute value of the net currency position in Czech Koruna to capital; • ratio of the absolute value of the total net currency position to capital; • absolute value of the net currency position for each foreign currency; and • FX VaR. On top of that, the foreign exchange risk of Trading book is managed by limits (intraday and end-of-day) for open FX spot position and by requirement to close each FX swap and FX forward transaction on a back-to-back basis. 217 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 As MONETA Auto and Building Savings Bank provide loans only in CZK and MONETA Leasing in EUR and CZK, the Bank measures on a consolidated basis only the net currency position in EUR (monthly frequency). The foreign exchange risk at MONETA Leasing at an individual level is managed primarily by the funding structure (natural hedging due to EUR funding) and MONETA Leasing regularly closes its open FX position with the Bank. The table below shows the FX VaR of the Bank. CZK ths 31 Dec 2023 Average of daily values in 2023 31 Dec 2022 Average of daily values in 2022 FX VaR 4,177 2,909 2,578 4,278 The following table shows exposure of the Group to foreign exchange risk: 31 Dec 2023 CZK m CZK EUR USD Other currencies Total CZK Cash and balances with the central bank 10,607 162 65 37 10,871 Derivative financial instruments with positive fair values 113 431 - - 544 Investment securities 100,315 4,008 30 - 104,353 Hedging derivatives with positive fair values 1) 2,652 49 - - 2,701 Change in fair value of items hedged on portfolio basis 122 - - - 122 Loans and receivables to banks 66,742 2,545 325 20 69,632 Loans and receivables to customers 247,101 15,918 45 - 263,064 Remaining assets 6,916 (19) - - 6,897 Total assets 434,568 23,094 465 57 458,184 Due to banks 21 5,393 9 - 5,423 Due to customers 388,280 9,838 1,264 115 399,497 Derivative financial instruments with negative fair values 102 421 - - 523 Hedging derivatives with negative fair values 1) 2,100 2,448 - - 4,548 Subordinated liabilities 7,60 4 - - - 7,604 Remaining liabilities 5,128 3,233 20 5 8,386 Equity 32,203 - - - 32,203 Total liabilities and Equity 435,438 21,333 1,293 120 458,184 Net exchange rate balance sheet position (870) 1,761 (828) (63) - Receivables from spot and derivatives 2,193 1,232 1,064 71 4,560 Liabilities from spot and derivatives 1,412 3,076 77 - 4,565 Net exchange rate off-balance sheet position 781 (1,844) 987 71 (5) Net exchange rate position (89) (83) 159 8 (5) 1) Since 2023, balance of notional amounts of cross currency interest rate swaps has been shown on the lines of the Statement of Financial Position “Hedging derivatives with positive fairvalues“, or “Hedging derivativeswithnegativefair values“instead ofoff-balancelinesas had been reported in the previousperiod. 218 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 CZK m CZK EUR USD Other currencies Total CZK Cash and balances with the central bank 12,169 158 92 48 12,467 Derivative financial instruments with positive fair values 761 - - - 761 Investment securities 53,743 4,162 46 - 57,951 Hedging derivatives with positive fair values 5,023 (81) - - 4,942 Change in fair value of items hedged on portfolio basis (2,090) - - - (2,090) Loans and receivables to banks 36,259 1,094 486 47 37,886 Loans and receivables to customers 254,801 13,910 41 - 268,752 Remaining assets 6,810 31 - - 6,841 Total assets 367,476 19,274 665 95 387,510 Due to banks 17 5,933 3 - 5,953 Due to customers 323,911 9,120 1,096 124 334,251 Derivative financial instruments with negative fair values 747 - - - 747 Hedging derivatives with negative fair values 568 277 - - 845 Subordinated liabilities 4,687 - - - 4,687 Remaining liabilities 6,970 2,952 13 1 9,936 Equity 31,091 - - - 31,091 Total liabilities and Equity 367,991 18,282 1,112 125 387,510 Net exchange rate balance sheet position (515) 992 (447) (30) - Receivables from spot and derivatives 1,628 1,723 743 58 4,152 Liabilities from spot and derivatives 2,473 1,546 128 5 4,152 Net exchange rate off-balance sheet position (845) 177 615 53 - Net exchange rate position (1,360) 1,169 168 23 - 44.5 LIQUIDITY RISK Liquidity risk represents the risk of inability to meet financial liabilities when due or to finance increase in assets. The liquidity risk of subsidiaries is managed by the Bank (providing funding if needed). For liquidity and liquidity risk management, the banks in the Group (the Bank and the Building Savings Bank) created a liquidity sub-group. The Czech National Bank provided to the banks in the liquidity sub-group an exemption from certain liquidity requirements on individual levels, and so in 2023, the Czech National Bank supervised the Bank and the Building Savings Bank as the only liquidity sub-group for liquidity purposes. The Group has access to diversified sources of financing, which include deposits, issued bonds, loans taken, as well as the Group’s equity. The bond and money markets are used to further diversify sources of liquidity and to deposit excess cash (see chapter 5). To manage liquidity risk, the Bank applies a system of limits applied on the following metrics: • Liquidity positions in selected time buckets (on a daily basis); • Loan to Deposit Ratio (on a monthly basis); • Liquidity Coverage Ratio (on a monthly basis); • Net Stable Funding Ratio (on a monthly basis); • Liquidity Buffer (based on liquidity stress tests); • Time to wall for selected scenarios (idiosyncratic, systemic and combined) (on a monthly basis); • Concentration in deposits (on a monthly basis); • Interbank Borrowing to Total Assets Ratio (on a monthly basis). The Group also monitors a chosen set of Early Warning Indicators. For the purpose of liquidity management under extraordinary circumstances, the Group has a contingency plan containing measures for recovering liquidity. The Bank’s Treasury & ALM department regularly reviews the contingency plan and forwards it to the ALCO for approval. 219 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 (a) The table below summarises the remaining maturity of carrying amounts of assets, liabilities and equity according to their contractual maturity. 31 Dec 2023 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Cash and balances with the central bank 10,871 - - - - - 10,871 Derivative financial instruments with positive fair values 2 4 33 125 380 - 544 Investment securities - 299 1,424 31,213 71,361 56 104,353 Hedging derivatives with positive fair values 8 14 144 995 1,540 - 2,701 Change in fair value of items hedged on portfolio basis (2) (13) (66) 191 12 - 122 Loans and receivables to banks 67,392 - - - - 2,240 69,632 Loans and receivables to customers 1), 5) 9,301 5,442 23,551 82,447 136,750 5,573 263,064 Investments in associates - - - - - 3 3 Current tax assets - - 76 - - - 76 Deferred tax assets - - - - - - - Remaining assets 179 - 544 4 3 6,088 6,818 Total Assets 87,751 5,746 25,706 114,975 210,046 13,960 458,184 Due to banks 2,329 - 2,531 - - 563 5,423 Due to customers 323,787 21,374 40,124 12,650 1,292 270 399,497 Derivative financial instruments with negative fair values 14 3 31 106 369 - 523 Hedging derivatives with negative fair values 3 2 128 2,214 2,201 - 4,548 Provisions - - - - - 266 266 Current tax liabilities - - 54 - - - 54 Change in fair value of items hedged on portfolio basis (2) (7) (31) 103 - - 63 Deferred tax liabilities - - - - - 462 462 Issued bonds - 37 5 3,766 - - 3,808 Subordinated liabilities 92 - 18 2,913 4,581 - 7,60 4 Other liabilities 2,140 14 240 921 300 118 3,733 Equity - - - - - 32,203 32,203 Total liabilities and equity 328,363 21,423 43,100 22,673 8,743 33,882 458,184 Net liquidity position of assets and liabilities and equity 2) (240,612) (15,677) (17,394) 92,302 201,303 (19,922) - Issued guarantees and credit limits on guarantees 3) 1,119 - - - - - 1,119 Loan commitments 4) 3,538 4 19 183 - - 3,744 1) Loans and receivables to customers presented under the “Unspecified” category as at 31 December 2023 of CZK 5,573 million (31 December 2022: CZK 5,709 million) represent mainly the loans and receivables from Inventory Financing, loans and receivables that are overdue more than 1 month, allowances and deferred cost and fees that are an integral part of the effective interest rate and fair value adjustment resulting from the revaluation of acquired financial assets. 2) Net liquidity position of assets and liabilities and equity within 1 month of CZK (240,612) million as at 31 December 2023 (as at 31 December 2022 at CZK (215,825) million) is primarily due to the fact that contractual maturity of current accounts falls within 1 month. 3) Contents irrevocable Issued guarantees and credit limits on guarantees. 4) The loan commitments represent irrevocable loan commitments only relating to commercial investment loans, commercial auto & equipment loans, commercial auto & equipment leases and mortgages. Total undrawn commitments on credit cards are not included in the table above as, historically, average limit usage is significantly below 100% and this behaviour is expected to continue. 5) Since 2023, balance of loans and receivables from Inventory Financing has been shown in the “Unspecified” category instead of the “Within 1 month” category as had been reported in previous periods. 220 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Cash and balances with the central bank 12,467 - - - - - 12,467 Derivative financial instruments with positive fair values 4 8 31 43 675 - 761 Investment securities - 187 888 21,116 35,688 72 57,951 Hedging derivatives with positive fair values 5 3 253 1,927 2,754 - 4,942 Change in fair value of items hedged on portfolio basis - (5) (249) (1,376) (460) - (2,090) Loans and receivables to banks 37,634 - - - - 252 37, 886 Loans and receivables to customers 1), 5) 8,681 5,581 23,204 87,052 138,525 5,709 268,752 Investments in associates - - - - - 3 3 Current tax assets - - 6 - - - 6 Deferred tax assets - - - - - - - Remaining assets 99 - 645 10 1 6,077 6,832 Total Assets 58,890 5,774 24,778 108,772 177,183 12,113 387,510 Due to banks 334 - - 1,688 - 3,931 5,953 Due to customers 272,140 24,292 23,034 12,625 1,669 491 334,251 Derivative financial instruments with negative fair values 6 8 29 41 663 - 747 Hedging derivatives with negative fair values - 11 288 540 6 - 845 Provisions - - - - - 306 306 Current tax liabilities - - 482 - - - 482 Change in fair value of items hedged on portfolio basis - (11) (233) (194) - - (438) Deferred tax liabilities - - - - - 496 496 Issued bonds 46 36 1,907 1,148 2,383 - 5,520 Subordinated liabilities 91 - 18 - 4,578 - 4,687 Other liabilities 2,098 24 253 870 169 156 3,570 Equity - - - - - 31,091 31,091 Total liabilities and equity 274,715 24,360 25,778 16,718 9,468 36,471 387,510 Net liquidity position of assets and liabilities and equity 2) (215,825) (18,586) (1,000) 92,054 167,715 (24,358) - Issued guarantees and credit limits on guarantees 3) 1,113 - - - - - 1,113 Loan commitments 4) 10,527 - - 693 - - 11,220 1) Loans and receivables to customers presented under the “Unspecified” category as at 31 December 2023 of CZK 5,573 million (31 December 2022: CZK 5,709 million) represent mainly the loans and receivables from Inventory Financing, loans and receivables that are overdue more than 1 month, allowances and deferred cost and fees that are an integral part of the effective interest rate and fair value adjustment resulting from the revaluation of acquired financial assets. 2) Net liquidity position of assets and liabilities and equity within 1 month of CZK (240,612) million as at 31 December 2023 (as at 31 December 2022 at CZK (215,825) million) is primarily due to the fact that contractual maturity of current accounts falls within 1 month. 3) Contents irrevocable Issued guarantees and credit limits on guarantees. 4) The loan commitments represent irrevocable loan commitments only relating to commercial investment loans, commercial auto & equipment loans, commercial auto & equipment leases and mortgages. Total undrawn commitments on credit cards are not included in the table above as, historically, average limit usage is significantly below 100% and this behaviour is expected to continue. 5) Since 2023, balance loans and receivables from of Inventory Financing has been shown in the “Unspecified” category instead of the “Within 1 month” category as had been reported in previous periods. 221 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 (b) The table below shows the remaining contractual maturity of non-derivative financial liabilities and issued financial guarantees and loan commitments held for the Group’s liquidity management purposes. The amounts include contractual non-discounted cash flows. 31 Dec 2023 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Due to banks 2,329 - 2,596 - - 563 5,488 Due to customers 2) 323,787 21,507 41,318 13,377 1,293 270 401,552 Issued bonds - 40 120 4,373 - - 4,533 Subordinated liabilities 99 - 66 4,508 4,865 - 9,538 Other liabilities 2,140 14 240 921 300 118 3,733 Total non-derivative financial liabilities 328,355 21,561 44,340 23,179 6,458 951 424,844 Issued guarantees and credit limits on guarantees 1,119 - - - - - 1,119 Loan commitments 1) 3,538 4 19 183 - - 3,744 31 Dec 2022 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Due to banks 334 - - 1,688 - 3,931 5,953 Due to customers 2) 272,140 24,418 23,924 13,285 1,675 491 335,933 Issued bonds 47 39 2,077 2,016 2,431 - 6,610 Subordinated liabilities 99 - 66 658 5,030 - 5,853 Other liabilities 2,098 24 253 870 169 156 3,570 Total non-derivative financial liabilities 274,718 24,481 26,320 18,517 9,305 4,578 357,919 Issued guarantees and credit limits on guarantees 1,113 - - - - - 1,113 Loan commitments 1) 10,527 - - 693 - - 11,220 1) The loan commitments represent irrevocable loan commitments only relating to commercial investment loans, commercial auto & equipment loans, commercial auto & equipment leases and mortgages. 2) In 2023, the Group revised the methodology of reporting amounts of contractual non-discounted cash flows in line “Due to customers“ reported on a subsidiary level. For the purpose of comparability, the previous period has been adjusted. (c) The table below shows the remaining contractual maturity of liabilities from financial derivatives: 31 Dec 2023 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Total Held for trading derivatives Currency swaps 13 - - - - 13 Interest rate swaps - - - 53 369 422 Currency forwards 1 3 31 26 - 61 Cross currency interest rate swaps - - - 27 - 27 Hedging derivatives Interest rate swaps 3 2 128 2,156 2,201 4,490 Cross currency interest rate swaps - - - 58 - 58 Total financial derivatives 17 5 159 2,320 2,570 5,071 31 Dec 2022 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Total Held for trading derivatives Currency swaps 3 - - - - 3 Interest rate swaps - - - - 663 663 Currency forwards 3 8 29 41 - 81 Hedging derivatives Interest rate swaps - 11 288 540 6 845 Total financial derivatives 6 19 317 581 669 1,592 222 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 (d) The table below shows the remaining expected maturity of assets and liabilities as follows: 31 Dec 2023 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Cash and balances with the central bank 10,871 - - - - - 10,871 Derivative financial instruments with positive fair values 2 4 33 125 380 - 544 Investment securities 101,070 2) - 23 3,004 200 56 104,353 Hedging derivatives with positive fair values 8 14 144 995 1,540 - 2,701 Change in fair value of items hedged on portfolio basis (2) (13) (66) 191 12 - 122 Loans and receivables to banks 67,392 - - - - 2,240 69,632 Loans and receivables to customers 9,650 11,832 45,454 122,163 71,431 2,534 263,064 Investments in associates - - - - - 3 3 Current tax assets - - 76 - - - 76 Deferred tax assets - - - - - - - Remaining assets 179 - 544 4 3 6,088 6,818 Total Assets 189,170 11,837 46,208 126,482 73,566 10,921 458,184 Due to banks 2,329 - 2,531 - - 563 5,423 Due to customers 1) 52,655 20,414 78,547 176,986 70,625 270 399,497 Derivative financial instruments with negative fair values 14 3 31 106 369 - 523 Hedging derivatives with negative fair values 3 2 128 2,214 2,201 - 4,548 Provisions - - - - - 266 266 Current tax liability - - 54 - - - 54 Change in fair value of items hedged on portfolio basis (2) (7) (31) 103 - - 63 Deferred tax liability - - - - - 462 462 Issued bonds - 37 5 3,766 - - 3,808 Subordinated liabilities 92 - 18 2,913 4,581 - 7,60 4 Other liabilities 2,140 14 240 921 300 118 3,733 Equity - - - - - 32,203 32,203 Total liabilities and equity 57,231 20,463 81,523 187,009 78,076 33,882 458,184 Net liquidity position 131,939 (8,626) (35,315) (60,527) (4,510) (22,961) - 1) Balances are allocated to the buckets based on the expected maturity of non-maturity deposits and contractual maturity date of term deposits. Expected maturity of non-maturity deposits is a function of deposits’ volatility and the average life of the non-volatile part. 2) Balance reported within 1 month represents Government bonds which may be used as a collateral in repo transactions. 223 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Cash and balances with the central bank 12,467 - - - - - 12,467 Derivative financial instruments with positive fair values 4 8 31 43 675 - 761 Investment securities 54,478 2) - 28 3,173 200 72 57,951 Hedging derivatives with positive fair values 5 3 253 1,927 2,754 - 4,942 Change in fair value of items hedged on portfolio basis - (5) (249) (1,376) (460) - (2,090) Loans and receivables to banks 37,634 - - - - 252 37, 886 Loans and receivables to customers 8,706 11,405 43,474 131,214 70,693 3,260 268,752 Investments in associates - - - - - 3 3 Current tax assets - - 6 - - - 6 Deferred tax assets - - - - - - - Remaining assets 99 - 645 10 1 6,077 6,832 Total Assets 113,393 11,411 44,188 134,991 73,863 9,664 387,510 Due to banks 334 - - 1,688 - 3,931 5,953 Due to customers 1) 30,611 18,225 59,026 156,084 69,814 491 334,251 Derivative financial instruments with negative fair values 6 8 29 41 663 - 747 Hedging derivatives with negative fair values - 11 288 540 6 - 845 Provisions - - - - - 306 306 Current tax liability - - 482 - - - 482 Change in fair value of items hedged on portfolio basis - (11) (233) (194) - - (438) Deferred tax liability - - - - - 496 496 Issued bonds 46 36 1,907 1,148 2,383 - 5,520 Subordinated liabilities 91 - 18 - 4,578 - 4,687 Other liabilities 2,098 24 253 870 169 156 3,570 Equity - - - - - 31,091 31,091 Total liabilities and equity 33,186 18,293 61,770 160,177 77,613 36,471 387,510 Net liquidity position 80,207 (6,882) (17,582) (25,186) (3,750) (26,807) - 1) Balances are allocated to the buckets based on the expected maturity of non-maturity deposits and contractual maturity date of term deposits. Expected maturity of non-maturity deposits is a function of deposits’ volatility and the average life of the non-volatile part. 2) Balance reported within 1 month represents Government bonds which may be used as a collateral in repo transactions. 44.6 OPERATIONAL RISK Operational risk represents the risk of a loss resulting from inadequate or failed internal processes, people or systems, or from external events, including the risk of loss due to a breach of, or failure to comply with, a legal or regulatory requirement, or a threat to the Group’s reputation. It also includes legal and outsourcing risk. The Group implemented standardised tools and processes for operational risk management, including Risk & Control Self-Assessment (RCSA), Loss Data Collection of actual internal operational risk losses, monitoring of external operational risk events, Key Risk Indicators, scenario analyses, and Issue management that is used to record, monitor and report identified risks and issues. The Issue management system is also used for monitoring the relevant action plans, if applicable, and is closely linked to the RCSA process. The Group continually develops and improves these tools and processes. The Bank’s Management Board specifically approves the operational risk governance structure and framework, and the Group’s objectives for operational risk management and decides about acceptance of major risks if there are no feasible remedial measures. The Operational Risk Committee (ORCO) oversees the Group’s operational risk management process and approves methods, limits and Key Risk Indicators, monitors adherence to approved limits and Key Risk Indicators and approves principal changes in the insurance programme. More details about operational risk and its management are comprised in section 5.5 of the Annual financial report. 224 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 44.6.1 Legal Risk Dealing with legal risk and managing it means minimising uncertainty associated with enforcement and interpretation of applicable law, contracts and regulations. In addition to standard legal functions in the various areas such as contract, banking and corporate law, the main tasks of the Group’s lawyers during 2023 consisted of keeping both the retail and commercial contractual documentation aligned with both the business strategy and various needs of the business departments of the Group, as well as new regulations. The Group continuously monitors legal disputes and provision is created for the estimated amount of payment if it is more probable than not that the cash outflow will have to be made. 45. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The following table shows the carrying value and fair values of financial assets and liabilities that are not presented at fair value in the Group’s consolidated statement of financial position. The fair value includes also anticipated future losses. The Group uses the following inputs and techniques to estimate the fair value for asset and liability categories: • Cash and balances with the central bank The carrying value of cash and balances with the central bank approximates their fair value. • Loans and receivables to banks The carrying value of receivables to banks approximates their fair values due to the short maturity of those receivables. • Loans and receivables to customers The fair value of loans is estimated on the basis of discounted future expected cash flows using the interest rate common for loans with similar credit risk and interest risk conditions profile and maturity dates (discounted rate technique according to IFRS 13). For impaired loans the present value of future expected cash flows including the expected proceeds from a collateral foreclosure, if any. • Due to banks The carrying value of Due to banks in principle approximates their fair value due to the short maturity of these deposits. • Due to customers The fair value of deposits repayable on demand at request and term deposits bearing a variable interest rate are equal to their carrying value as at the balance sheet date. The fair value of term deposits with a fixed interest rate is estimated on the basis of discounted cash flows using the market interest rates. • Investment securities at amortised cost The difference between fair value and carrying value of investment securities measured at amortised cost is mainly driven by different market and effective interest rates of government bonds included in this portfolio. • Subordinated liabilities, Mortgage-backed bonds and Other issued bonds The difference between fair value and carrying value of subordinated debt securities, subordinated liabilities, mortgage-backed bonds and other issued bonds measured at amortised cost is determined on the basis of discounted cash flows using the market interest rates. 31 Dec 2023 31 Dec 2022 CZK m Carrying value Fair value Carrying value Fair value FINANCIAL ASSETS Cash and balances with the central bank 10,871 10,871 12,467 12,467 Investment securities at amortised cost 1) 104,297 97,58 0 57,879 47,538 Loans and receivables to banks 69,632 69,632 37,886 37,886 Loans and receivables to customers 263,064 256,840 268,752 254,681 FINANCIAL LIABILITIES Due to banks 5,423 5,423 5,953 5,899 Due to customers 399,497 399,497 334,251 334,251 Mortgage-backed bonds - - 1,948 1,939 Other issued bonds 3,808 4,100 3,572 3,905 Subordinated debt securities 4,690 4,546 4,687 4,313 Subordinated deposits 2,914 3,042 - - 1) Difference between fair value and carrying value is mainly driven by different market and effective interest rates of the Government bonds. 225 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 Investment securities measured at amortised cost are classified as level 1 because fair value is based on quoted prices on active market. Cash and balances with the central bank, Loans and receivables to banks and Due to banks are classified as level 2 and all other fair values presented above are classified as level 3 as the data used for the estimation of the discount rate are not based on the data from the active market. There are assumptions applied for the estimation of the cash flows used for discounting taking into account expected repayment profile of the particular pool or product. The discount rates used for discounting are based on the rates of the major competitors or other benchmark rates for similar type of assets. The following table summarises the hierarchy of fair values of financial assets and financial liabilities that are carried at fair value in the statement of financial position: 31 Dec 2023 31 Dec 2022 CZK m Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 FINANCIAL ASSETS Derivative financial instruments with positive fair values - 544 - - 761 - Debt securities measured at FTVPL - - 30 - - 46 Equity securities measured at FVTPL - - 25 - - 25 Equity securities measured at FVTOCI - - 1 - - 1 Hedging derivatives with positive fair values - 2,701 - - 4,942 - Change in fair value of items hedged on portfolio basis - - 122 - - (2,090) FINANCIAL LIABILITIES Derivative financial instruments with negative fair values - 523 - - 747 - Hedging derivatives with negative fair values - 4,548 - - 845 - Change in fair value of items hedged on portfolio basis - - 63 - - (438) There were no transfers between level 1 and 2 during the year 2023 nor 2022. The Group uses the following inputs and techniques to determine fair value under level 2 and level 3: The level 2 assets include mainly financial derivatives, corporate bonds and treasury bills. For derivative exposures the fair value is estimated using the present value of the cash flows resulting from the transactions taking into account market inputs like FX spot and forward rates, benchmark interest rates, swap rates, etc. The fair value of corporate bonds, treasury bills is calculated as the present value of cash flows using the benchmark interest rates. The level 3 assets include equity instruments not traded on the market where the fair value is calculated using the valuation techniques including expert appraisals. Movement analysis of level 3 financial assets and liabilities: CZK m As at 1 Jan 2023 Purchases/ Sales in the period Total gains and losses in the period recognised in the income statement Total gains and losses in the period recognised in OCI As at 31 Dec 2023 Investment securities at FVTOCI 1 - - - 1 Investment securities at FVTPL 71 (23) 7 - 55 Total 72 (23) 7 - 56 CZK m As at 1 Jan 2022 Purchases/ Sales in the period Total gains and losses in the period recognised in the income statement Total gains and losses in the period recognised in OCI As at 31 Dec 2022 Investment securities at FVTOCI 1 - - - 1 Investment securities at FVTPL 62 9 - - 71 Total 63 9 - - 72 226 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual Financial Report 2023 46. MANDATORY PUBLISHED INFORMATION The Group quarterly publishes the mandatory information according to CNB Decree No. 163/2014 Coll. and Part 8 of Regulation of the European Parliament and the Council (EU) No. 575/2013 of 26 June 2013 on its website in the section Mandatory information at the following address: https://investors.moneta.cz/ financni-vysledky#mandatory-disclosures. 47. SUBSEQUENT EVENTS There have been no subsequent events arising after 31 December 2023 that would have a material impact on these consolidated financial statements. Signature of statutory representatives In Prague, on 18 March 2024 Tomáš Spurný Chairman of the Management Board and CEO MONETA Money Bank, a.s. Jan Friček Member of the Management Board and CFO MONETA Money Bank, a.s. We thrive with MONETA Married couple Markéta and Pavel Novák have been engaged in the family stonemasonry business for several decades. They pride themselves on honest work and they personally choose the natural stone from their suppliers. Even as far as Italy or India. They create unique exterior and interior elements with an extraordinary appearance. And they even breathe new life into worn and dingy stone! We are honoured to be a part of it! Markéta aPavel Novákovi Stonemasonry Jatvar SEPARATE FINANCIAL STATEMENTS 229Annual Financial Report 2023 SEPARATE FINANCIAL STATEMENTS OF MONETA MONEY BANK, a.s. As at and for the Year Ended 31 December 2023 Prepared according to IFRS Accounting Standards as adopted by the European Union SEPARATE FINANCIAL STATEMENTS 230 Annual Financial Report 2023 SEPARATE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 31 December 2023 CZK m Note 2023 2022 Interest and similar income 1) 20,490 14,157 Interest expense and similar charges (13,351) (6,223) Net interest income 6 7,139 7,934 Fee and commission income 2,961 2,455 Fee and commission expense (579) (413) Net fee and commission income 7 2,382 2,042 Dividend income 8 1,294 709 Net income from financial operations 9 878 358 Other operating income 10 132 200 Total operating income 11,825 11,243 Personnel expenses 11 (2,428) (2,431) Administrative expenses 12 (1,578) (1,456) Regulatory charges 13 (287) (212) Depreciation and amortisation 14 (1,189) (1,199) Other operating expenses 15 (50) (61) Total operating expenses (5,532) (5,359) Profit for the period before tax and net impairment of financial assets 6,293 5,884 Net impairment of financial assets 16 (268) (238) Profit for the period before tax 6,025 5,646 Taxes on income 17 (645) (959) Profit for the period after tax 5,380 4,687 Items that will not be reclassified to profit or loss - Change in fair value of Investment securities recognised in OCI - - Items that may be reclassified subsequently to profit or loss - Movement in hedging reserve: - - - Cash flow hedges – effective portion of changes in fair value - - - Deferred tax 38.2 - - Other comprehensive income, net of tax - - Total comprehensive income attributable to the equity holders 5,380 4,687 Profit for the year after tax attributable to the equity holders 5,380 4,687 Profit for the year after tax attributable to the equity holders per share Weighted average of ordinary shares (millions of shares) 511 511 Basic earnings per share (in CZK) 18 10.53 9.17 Diluted earnings per share (in CZK) 18 10.53 9.17 1) Calculated using the effective interest method with the exception of hedging derivatives. SEPARATE FINANCIAL STATEMENTS 231Annual Financial Report 2023 SEPARATE STATEMENT OF FINANCIAL POSITION as at 31 December 2023 CZK m Note 31 Dec 2023 31 Dec 2022 Assets Cash and balances with the central bank 19 10,534 12,008 Derivative financial instruments with positive fair values 27 544 761 Investment securities 24 100,825 54,391 Hedging derivatives with positive fair values 27 2,701 4,942 Change in fair value of items hedged on portfolio basis 122 (2,090) Loans and receivables to banks 22 69,232 38,563 Loans and receivables to customers 23 245,881 250,642 Intangible assets 28 3,158 3,185 Property and equipment 29 2,398 2,314 Investments in subsidiaries and associates 30 4,466 4,466 Current tax assets 31 57 - Other assets 33 967 994 TOTAL ASSETS 440,885 370,176 Liabilities Derivative financial instruments with negative fair values 27 523 747 Due to banks 34 5,451 5,967 Due to customers 35 371,574 304,374 Hedging derivatives with negative fair values 27 4,548 845 Change in fair value of items hedged on portfolio basis 63 (438) Issued bonds 25 14,294 18,258 Subordinated liabilities 26 7,60 4 4,687 Provisions 36 266 302 Current tax liabilities 31 - 434 Deferred tax liabilities 32 327 320 Other liabilities 37 3,511 3,248 Total liabilities 408,161 338,744 Equity Share capital 38 10,220 10,220 Statutory reserve 38 102 102 Other reserves 1 1 Retained earnings 22,022 20,730 Effect of business combination under common control 379 379 Total equity 32,724 31,432 TOTAL LIABILITIES AND EQUITY 440,885 370,176 SEPARATE FINANCIAL STATEMENTS 232 Annual Financial Report 2023 SEPARATE STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2023 CZK m Share capital Share premium Statutory reserve Reserve from revaluation of FVTOCI CF hedge reserve Share based payment reserve Retained earnings Effect of business combination under common control Total Balance as reported 1 January 2023 10,220 - 102 1 - - 20,730 379 31,432 Transactions with owners of the company - Dividends - - - - - - (4,088) - (4,088) Total comprehensive income Profit for the year after tax - - - - - - 5,380 - 5,380 Other comprehensive income after tax - Change in fair value of FVTOCI investment securities - - - - - - - - - - Cash-flow hedges – effective portion of changes in fair value - - - - - - - - - - Deferred tax - - - - - - - - - Balance 31 December 2023 10,220 - 102 1 - - 22,022 379 32,724 SEPARATE STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2022 CZK m Share capital Share premium Statutory reserve Reserve from revaluation of FVTOCI CF hedge reserve Share based payment reserve Retained earnings Effect of business combination under common control Total Balance as reported 1 January 2022 10,220 - 102 1 - - 19,620 379 30,322 Transactions with owners of the company - Dividends - - - - - - (3,577) - (3,577) Total comprehensive income Profit for the year after tax - - - - - - 4,687 - 4,687 Other comprehensive income after tax - Change in fair value of FVTOCI investment securities - - - - - - - - - - Cash-flow hedges – effective portion of changes in fair value - - - - - - - - - - Deferred tax - - - - - - - - - Balance 31 December 2022 10,220 - 102 1 - - 20,730 379 31,432 SEPARATE FINANCIAL STATEMENTS 233Annual Financial Report 2023 SEPARATE STATEMENT OF CASH FLOWS For the year ended 31 December 2023 CZK m Note 2023 2022 Cash flows from operating activities Profit for the year after tax 5,380 4,687 Adjustments for: Depreciation and amortisation 14 1,189 1,199 Net impairment of financial assets (excl. cash collection and recovery) 16 279 234 Net gain on revaluation of investment securities 9 (6) - Accrued coupon, amortisation of discount/premium of investment securities 6 550 515 Accrued interest income from derivatives 6 955 (103) Net gain/loss from revaluation of hedging derivatives 9 4,915 (1,335) Net gain/loss from revaluation of items hedged on portfolio basis 9 (5,009) 1,212 Net gain/loss from unrealised FX (7) (138) Change in provisions not recognised in depreciation and amortisation (8) 68 Net gain/loss on sale of investment securities (26) - Net loss on sale and other disposal of tangible and intangible assets 28, 29 5 6 Dividend income 8 (1,294) (709) Tax expense 17 645 959 7,568 6,595 Changes in: Loans and receivables to customers and banks 22, 23 2,476 (11,419) Other assets 33 27 (179) Due to banks 34 (516) (7,773) Due to customers 35 67,191 51,238 Other liabilities 37 84 (925) 76,830 37,537 Income taxes paid (1,130) (423) Net cash used in operating activities 75,700 37,114 Cash flows from investing activities Acquisition of investment securities (45,320) (9,116) Proceeds from investment securities 1,817 - Acquisition of property and equipment and intangible assets 28, 29 (775) (978) Proceeds from the sale of property and equipment and intangible assets 28, 29 36 11 Dividends received 1,294 709 Net cash used in investing activities (42,948) (9,374) SEPARATE FINANCIAL STATEMENTS 234 Annual Financial Report 2023 CZK m Note 2023 2022 Cash flows from financing activities Proceeds from issued bonds - 7,827 Repayment of issued bonds (4,125) (2,925) Proceeds from subordinated deposits 2,922 - Payments of lease liabilities 1) (298) (369) Dividends paid (4,088) (5,110) Net cash used in financing activities (5,589) (577) Net change in cash and cash equivalents 27,163 27,163 Cash and cash equivalents at beginning of period 20 50,319 23,162 Effect of exchange rate fluctuations on cash and cash equivalents held 44 (6) Cash and cash equivalents at end of period 20 77,526 50,319 Interest received 2) 24,785 15,268 Interest paid 2) (16,138) (6,298) 1) The Bank decided to disclose the change of lease liabilities on a separate line of the Statement of Cash Flows. For the purpose of comparability, the previous period has been adjusted. 2) Lines “Interest received“ and “Interest paid“ represent interest paid by customers and counterparties and received from customers and counterparties, respectively, and are included in cash flows from operating activities. 235 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 NOTES TO SEPARATE FINANCIAL STATEMENTS OF MONETA MONEY BANK, a.s. As at and for the Year Ended 31 December 2023 Prepared according to IFRS Accounting Standards as adopted by the European Union 236 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 CONTENT 239 | 1. GENERAL INFORMATION 239 | 2. BASIS OF PREPARATION 239 | 2.1 BASIS OF PRESENTATION 239 | 2.2 GOING CONCERN 239 | 2.3 FUNCTIONAL AND PRESENTATION CURRENCY 239 | 2.4 MEASUREMENT 240 | 3. USE OF ESTIMATES AND JUDGEMENTS 240 | 4. NEW IFRS ACCOUNTING STANDARDS AND INTERPRETATIONS 240 | 4.1 STANDARDS AND AMENDMENTS EFFECTIVE AFTER 31 DECEMBER 2023 ISSUED BY THE IASB AND ENDORSED BY THE EU 240 | 4.2 STANDARDS AND AMENDMENTS EFFECTIVE AFTER 31 DECEMBER 2023 ISSUED BY THE IASB AND NOT ENDORSED BY THE EU 241 | 5. SUMMARY OF MATERIAL ACCOUNTING POLICIES 241 | 5.1 CHANGES IN ACCOUNTING POLICIES – NEWLY EFFECTIVE AND ENDORSED IFRS ACCOUNTING STANDARDS 241 | 5.2 FOREIGN CURRENCY 241 | 5.3 INTEREST 242 | 5.4 FEES AND COMMISSIONS 243 | 5.5 DIVIDENDS 243 | 5.6 FINANCIAL ASSETS AND FINANCIAL LIABILITIES 243 | 5.6.1 Recognition 243 | 5.6.2 Classification of Financial Assets 244 | 5.6.3 Classification of Financial Liabilities 244 | 5.6.4 Reclassification 244 | 5.6.5 Derecognition 244 | 5.6.6 Modifications 244 | 5.6.7 Offsetting 245 | 5.6.8 Amortised Cost Measurement 245 | 5.6.9 Derivatives and Hedge Accounting 246 | 5.6.10 Impairment of Financial Assets 247 | 5.7 REPURCHASE AND REVERSE REPURCHASE AGREEMENTS 248 | 5.8 FAIR VALUE MEASUREMENT 248 | 5.9 PROVISIONS 248 | 5.10 LEASES 249 | 5.11 PROPERTY AND EQUIPMENT 250 | 5.12 INTANGIBLE ASSETS 250 | 5.13 INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES 250 | 5.14 IMPAIRMENT OF NON-FINANCIAL ASSETS 250 | 5.15 EMPLOYEE BENEFITS 251 | 5.16 CASH AND CASH BALANCES WITH THE CENTRAL BANK 251 | 5.17 INCOME TAX AND DEFERRED TAX 252 | 5.18 SEGMENT REPORTING 252 | 5.19 FINANCIAL GUARANTEES AND LOAN COMMITMENTS 252 | 5.20 SUBORDINATED LIABILITIES 252 | 5.21 MORTGAGE-BACKED BONDS 252 | 5.22 OTHER ISSUED BONDS 253 | 5.23 BUSINESS COMBINATIONS UNDER COMMON CONTROL 253 | 6. NET INTEREST INCOME 254 | 7. NET FEE AND COMMISSION INCOME 254 | 8. DIVIDEND INCOME 255 | 9. NET INCOME FROM FINANCIAL OPERATIONS 255 | 10. OTHER OPERATING INCOME 255 | 11. PERSONNEL EXPENSES 255 | 12. ADMINISTRATIVE EXPENSES 256 | 13. REGULATORY CHARGES 256 | 14. DEPRECIATION AND AMORTISATION 256 | 15. OTHER OPERATING EXPENSES 256 | 16. NET IMPAIRMENT OF FINANCIAL ASSETS 237 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 257 | 17. TAXES ON INCOME 258 | 18. EARNINGS PER SHARE 258 | 19. CASH AND BALANCES WITH THE CENTRAL BANK 258 | 20. CASH AND CASH EQUIVALENTS 259 | 21. TRANSFER OF FINANCIAL ASSETS – REPURCHASE TRANSACTIONS 260 | 22. LOANS AND RECEIVABLES TO BANKS 260 | 23. LOANS AND RECEIVABLES TO CUSTOMERS 261 | 24. INVESTMENT SECURITIES 262 | 25. ISSUED BONDS 263 | 26. SUBORDINATED LIABILITIES 264 | 27. FINANCIAL DERIVATIVES 265 | 28. INTANGIBLE ASSETS 266 | 29. PROPERTY AND EQUIPMENT 267 | 30. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES 268 | 31. CURRENT TAX ASSETS AND CURRENT TAX LIABILITIES 268 | 32. DEFERRED TAX ASSETS AND LIABILITIES 269 | 33. OTHER ASSETS 269 | 34. DUE TO BANKS 269 | 35. DUE TO CUSTOMERS 270 | 36. PROVISIONS 270 | 37. OTHER LIABILITIES 270 | 38. EQUITY 270 | 38.1 SHARE CAPITAL 271 | 38.2 STATUTORY RESERVE AND RESERVE FROM REVALUATION OF FINANCIAL ASSETS 272 | 38.3 DIVIDENDS PER SHARE 272 | 39. BONUSES TIED TO THE EQUITY 272 | 40. CONTINGENT LIABILITIES 272 | 40.1 LOAN COMMITMENTS AND ISSUED GUARANTEES 272 | 40.2 LEGAL DISPUTES 272 | 41. LEASES 275 | 42. TRANSACTIONS WITH RELATED PARTIES 277 | 42.1 REMUNERATION TO MEMBERS OF SUPERVISORY BOARD, MANAGEMENT BOARD AND OTHER KEY EXECUTIVE MANAGERS 277 | 43. RISK MANAGEMENT 277 | 43.1 CAPITAL MANAGEMENT 278 | 43.2 CREDIT RISK 278 | 43.2.1 Credit Risk Management 280 | 43.2.2 Categorisation of Exposures 281 | 43.2.3 Collateral Assessment 281 | 43.2.4 Allowances Calculation 286 | 43.2.5 Credit Concentration Risk 289 | 43.2.6 Credit Portfolio and its Quality 292 | 43.2.7 Modified Financial assets 294 | 43.3 INTEREST RATE RISK 297 | 43.4 FOREIGN EXCHANGE RISK 298 | 43.5 LIQUIDITY RISK 303 | 43.6 OPERATIONAL RISK 304 | 43.6.1 Legal Risk 304 | 44. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES 306 | 45. MANDATORY PUBLISHED INFORMATION 306 | 46. SUBSEQUENT EVENTS 238 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 239 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 1. GENERAL INFORMATION MONETA Money Bank (the “Bank“) is a joint-stock company incorporated and domiciled in the Czech Republic, its registered office and principal place of business is Vyskočilova 1442/1b, Michle, 140 00 Prague 4, Delivery number 140 28, Czech Republic, ID Number: 25672720, incorporated in the Commercial Register by the Municipal Court in Prague, Section B, Entry No. 5403, ISIN number: CZ0008040318. The latest available list of entities recorded in the registry of book-entry shares of the Bank kept by the Central Securities Depository in Prague (Centrální depozitář cenných papírů, a.s.) with a shareholding interest of more than 1% of the Bank’s registered share capital is available in the investor relations section of the Bank’s website at: https://investors. moneta.cz/shareholder-structure. Such entities may not necessarily be the beneficial shareholders of the Bank but may hold shares of the Bank for the beneficial shareholders (such as securities brokers, banks, custodians or nominees). Please refer to chapter 1.4 of the Annual financial report to the section “Shareholder structure” for the information on the shareholder structure of the Bank as at 31 December 2023. As far as the Bank is aware, no shareholder was a controlling entity of the Bank as at 31 December 2023. The Bank operates in the Czech Republic and focuses primarily on secured and unsecured consumer lending and commercial financing. The consumer portfolio consists of secured and unsecured lending. Unsecured lending products include consumer loans, credit cards and personal overdrafts. Secured lending is provided in the form of mortgages. Commercial lending products range from working capital, investment loans, financing of small businesses and entrepreneurs through guarantees, letters of credits and foreign exchange transactions. The Bank provides a wide range of deposit and transactional products to retail and commercial customers. The Bank issues debit and credit cards in cooperation with VISA and cooperates with EVO Payments International in acquiring services. In addition, the Bank intermediates additional payment protection insurance which covers the customer’s monthly loan payment in the event of unemployment, accident or sickness. The Bank also acts as the intermediary to provide its customers with other insurance and investment products. The Bank’s separate financial statements were authorised for issue by the Management Board on 18 March 2024, examined by Supervisory Board and recommended to be published on 19 March 2024. In addition, the financial statements are subject to approval at the General Meeting of shareholders. All press releases, financial reports and other information are available on the Bank’s website: www.moneta.cz. The Bank has not prepared a separate annual financial report, because the Bank includes the respective information in the consolidated annual financial report. 2. BASIS OF PREPARATION 2.1 BASIS OF PRESENTATION The financial statements contained herein are separate financial statements of the Bank prepared in accordance with IFRS Accounting Standards as adopted by the European Union (IFRS® Accounting Standards). IFRS Accounting Standards as adopted by the European Union comprise accounting standards issued or adopted by the International Accounting Standards Board (IASB) as well as interpretations issued or adopted by the IFRS Interpretations Committee (IFRIC). These financial statements were not prepared for any special purpose such as potential merger or acquisition. 2.2 GOING CONCERN The separate financial statements are prepared on a going concern basis, as the Management Board is satisfied that the Bank has the resources to continue in business for the foreseeable future. In making this assessment, the Management Board has considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources. 2.3 FUNCTIONAL AND PRESENTATION CURRENCY The Bank’s financial statements are presented in the Czech Koruna (CZK) which is the Bank’s functional currency. All amounts have been rounded to the nearest million, except where otherwise indicated. 2.4 MEASUREMENT The separate financial statements have been prepared on a historical cost basis, except for, investment securities measured at fair value through other comprehensive income (FVTOCI), investment securities measured at fair value through profit or loss (FVTPL) and derivative 240 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 financial instruments which have been measured at fair value. The carrying values of recognised assets that are hedged items in fair value hedges, and otherwise carried at amortised cost, are adjusted to record changes in fair value attributable to the risks that are being hedged, and this adjustment is either reported on a separate line of the statement of financial position in the case of the application of portfolio fair value hedges, or is directly adjusting carrying value of the hedged item in the case of micro hedges. 3. USE OF ESTIMATES AND JUDGEMENTS The preparation of the Bank’s financial statements in conformity with IFRS Accounting Standards requires the use of estimates and judgements about future conditions. In view of the inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of the items listed below, it is possible that the outcomes in the next financial year could differ from those on which management’s estimates are based, resulting in materially different conclusions from those reached by management for the purposes of the 2023 Separate Financial Statements. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about critical judgements and estimates in applying accounting policies that have the most significant effect on the amounts recognised in the Bank’s financial statements is included in the following notes: • Deferred tax assets and liabilities – note 32; • Impairment of financial assets – notes 16 and 43; • Provisions – note 36; • Fair value – note 44; • Classification of leases – note 5.10; • Classification of financial assets – note 5.6. Significant estimates related to future development of prepayments of the loan’s notional amount were made by the management of the Bank in the area of expected cash flows from loan receivables which are used for determination of amortised cost of the debt financial assets. Impact of the current macroeconomic environment Significant judgements made by the management in applying the Bank’s accounting policies and the key sources of uncertainty estimation were significantly impacted mainly by macroeconomic effects of a high-inflation and high interest-rate environment which were reflected in the loan loss allowances level through management overlays. Further description of these impacts is provided in the following notes: • Net impairment of financial assets – note 16; • Credit Risk – note 43.2. 4. NEW IFRS ACCOUNTING STANDARDS AND INTERPRETATIONS 4.1 STANDARDS AND AMENDMENTS EFFECTIVE AFTER31DECEMBER 2023 ISSUED BY THE IASB AND ENDORSED BY THE EU (a) New standards and amendments to the existing standards with a significant impact on the Bank None. (b) New standards and amendments to the existing standards with a minor or no impact on the Bank • Amendments to IAS 1 Presentation of Financial Statements – Classification of Liabilities as Current or Non-Current and Classification of Liabilities as Current or Non-Current – Deferral of Effective Date (effective for annual periods beginning on or after 1 January 2024; • Amendments to IAS 1 Presentation of Financial Statements – Non-Current Liabilities with Covenants (effective for annual periods beginning on or after 1 January 2024); • Amendments to IFRS 16 Leases – Lease Liability in a Sale and Leaseback (effective for annual periods beginning on or after 1 January 2024). 4.2 STANDARDS AND AMENDMENTS EFFECTIVE AFTER31DECEMBER 2023 ISSUED BY THE IASB AND NOT ENDORSED BY THE EU The below listed new accounting standards and amendments to the existing standards have been published by the IASB that are not mandatory for reporting periods ended 31 December 2023 and have not been adopted by the European Union. The Bank intends to adopt these standards and amendments, if applicable, when they become effective as endorsed by the EU. The Bank’s assessment of the impact of these new standards and amendments is set out below. (a) New standards and amendments to the existing standards with a significant impact on the Bank None. 241 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 (b) New standards and amendments to the existing standards with a minor or no impact on the Bank • Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures – Supplier Finance Arrangements (effective for annual periods beginning on or after 1 January 2024); • Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates – Lack of Exchangeability (effective for annual periods beginning on or after 1 January 2025); • Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective date deferred indefinitely by the IASB). 5. SUMMARY OF MATERIAL ACCOUNTING POLICIES The Bank applies accounting policies consistently with the exception described in chapter 5.1 Changes in accounting policies. These changes resulted from the adoption of new standards or amendments as listed below. However, none of those standards or amendments have material impact on the Bank’s financial statements. 5.1 CHANGES IN ACCOUNTING POLICIES – NEWLY EFFECTIVE AND ENDORSED IFRS ACCOUNTING STANDARDS The following amendments to the existing standards issued by the International Accounting Standards Board (IASB) and adopted by the EU are effective for the current reporting period. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements. • Amendments to IAS 1 and IFRS Practice Statement 2 – Disclosure of Accounting Policies (effective for annual periods beginning on or after 1 January 2023; • Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Accounting Estimates (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 12 Income Taxes – Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 12 Income taxes – International Tax Reform (effective for annual periods beginning on or after 1 January 2023); • IFRS 17 Insurance Contracts including amendments to IFRS 17 (effective for annual periods beginning on or after 1 January 2023); • Amendments to IFRS 17 Insurance contracts – Initial Application of IFRS 17 and IFRS 9 – Comparative Information (effective for annual periods beginning on or after 1 January 2023). 5.2 FOREIGN CURRENCY The separate financial statements are presented in the Czech Koruna (CZK), which is also the Bank’s functional currency. Transactions in foreign currencies are translated into the functional currency of the Bank at the exchange rates published by the Czech National Bank at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are recognised in the profit or loss in “Net income from financial operations“. 5.3 INTEREST Interest income or expense from all interest-bearing financial instruments recognised using the effective interest rate is reported in the profit or loss in the line items “Interest and similar income“ and “Interest expense and similar charges“ respectively as part of revenue and expenses from continuing operations. Additionally, interest income and expense from hedging derivatives is reported in the same lines. The effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability. The effective interest rate is a rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or financial liability to their carrying amount. When calculating the effective interest rate, the Bank estimates future cash flows considering all contractual terms of the financial instrument and includes transaction costs and fees paid or received that are an integral part of the effective interest rate but excludes future credit losses. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Interest income and expense presented in the profit or loss include: • Interest on financial assets and financial liabilities measured at amortised cost calculated on an effective interest rate basis; • Interest on interest rate derivatives designated as hedging derivatives using the contractual interest rate of the corresponding derivative. 242 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 If the financial asset is considered impaired, the interest income representing the time value of money between the impairment event and the estimated recovery date continues to be recognised using the effective interest rate method (unwinding) and the effective interest rate is applied on the financial asset’s net carrying amount. The Bank calculates the unwinding for the period using an individual deal-by-deal approach and individual effective interest rates. 5.4 FEES AND COMMISSIONS Fee and commission income from contracts with customers is measured based on the consideration specified in a contract with a customer. The Bank recognises revenue when it transfers control over a service to a customer. The following is a description of principal activities of the Bank from including their nature and timing of the satisfaction of performance obligation in contracts with customers, as well as significant payment terms and related revenue recognition policies. The Bank provides banking and lending services to retail and commercial customers, such as account management, provision of overdraft facilities, foreign currency transactions, credit cards, lending services and inventory financing, distributing asset management and insurance products. Fees and commissions paid or received that are directly attributable to the issue or acquisition of a financial asset or financial liability are an integral part of the effective interest rate on that financial asset or financial liability and are included in the measurement of the effective interest rate. Revenue from commission-based fees for arranging the sale of third party insurance and investment products is recognised at the point in time when the respective contract is concluded. The Bank has evaluated that it acts as an agent as the Bank does not control the provided services that are transferred to the customer (the Bank does not integrate the related services and does not have discretion in establishing the price). Therefore, the Bank recognises only the net amount of expected consideration as revenue. The commission fee is typically derived from the volume of arranged contract as well as the respective contract performance. The Bank has evaluated that the performance-based fee shall not be included in the measurement of transaction price as variable consideration, because collection of the fee is highly susceptible to factors outside Bank’s influence. The Bank recognises performance-based fees when confirmed by the respective third party. Commission fees that are subject to claw-back are recognised only to the extent that it is highly probable that a significant reversal in the amount of revenue will not occur (historical data are used for evaluation). The Bank has concluded that respective liability does not give rise to accounting of a significant financing component because it arises for reasons other than the provision of finance to the Bank. Revenue from servicing fees and fees for ongoing deposit and lending account maintenance are charged to customer’s account on a regular basis and recognised over time as the customer simultaneously consumes the respective benefits. The Bank applies different fees for each customer segment and service level. Revenue from servicing fees is recognised on a straight-line basis. The contracts, with the exception of term deposits, do not have a minimal committed duration period. In the case of contracts with the Bank’s clients, the fees are settled from their accounts or through the regular periodic repayments. In the case of third parties the Bank applies the standard payment conditions for the financial industry sector. The Bank does not provide service incentives (such as temporary service discounts) that would give rise to recognition of a contract asset. The Bank does not receive any non-refundable upfront payments from its customers that would give rise to recognition of a respective contract liability or customer option or significant financing component. Incremental distribution costs paid for the acquisition of deposit contracts (current accounts and savings accounts) are recognised as an asset and amortised over the period for which a customer is expected to receive the respective services. The Bank has evaluated the expected amortisation period to five years. Commissions paid for the origination of term deposits and respective opening fees are part of the amortised cost of the financial liability to customers and are linearly amortised (linear amortisation is used due to immaterial difference to effective interest rate method in the case of deposit products) until the expiry of the term deposit in the profit or loss line item “Interest expense and similar charges”. Revenue from transaction-based fees is given mainly by interchange fees related to card transactions, foreign currency transactions and other payment transactions. The revenue is recognised at a point in time when the related transaction is performed. Fee income on impaired financial assets is recognised on receipt of cash or performance of the service obligation, whichever is later. The Bank has decided to apply practical expedient IFRS 15.121 and is not disclosing information on the aggregated amount of the remaining transaction 243 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 price for servicing and commission revenues as the enforceable duration of the respective contract is less than one year and the right to consideration for servicing and commission contracts corresponds directly with the value provided to customer. 5.5 DIVIDENDS Dividend income is recognised when the right to receive the payment is established. Dividend income is reported in the profit or loss in the line item “Dividend income“. 5.6 FINANCIAL ASSETS AND FINANCIAL LIABILITIES 5.6.1 Recognition The Bank initially recognises financial assets measured at amortised cost on the date on which they originate. All other financial instruments are recognised on the trade date which is the date the Bank becomes a party to the contractual provisions of the instrument. All financial instruments are initially recognised at their fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. 5.6.2 Classification of Financial Assets 5.6.2.1 Debt Instruments Debt instruments include loans and receivables (disclosed especially in the lines “Loans and receivables to banks“, “Loans and receivables to customers“) and debt securities (disclosed in the line “Investment 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 the contractual cash flow characteristics of the instrument. The Bank has defined its business models as follows: • Held to collect (HTC) - the business model for financial assets acquired with the intention of being held until maturity and to collect contractual cash flows. Sales, which are insignificant or infrequent, related to the management of increased credit risk of the asset, or close to maturity of the financial assets are considered to be consistent with the HTC business model. • Held to collect and sell (HTCS) - the 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 Bank’s liquidity needs. • Other business models for financial assets neither classified as HTC nor HTCS. Currently, the Bank holds all debt financial assets within the HTC business model except an insignificant portion of securities measured at fair value through profit or loss (FVTPL). Contractual cash flow characteristics are assessed by analysing the contractual features of the financial asset to determine whether they are connected with cash flows consistent with a basic lending arrangement, i. e. comprising solely payments of principal and interest from the principal amount outstanding (SPPI test). Principal is the fair value of a financial asset at the initial recognition and it changes due to repayments over time. Interest represents a consideration for the time value of money, profit margin, credit risk and other basic lending risks. If a financial asset does not pass the SPPI test it is measured at fair value through profit or loss (FVTPL). Debt instruments measured at amortised cost Debt instruments are measured at amortised 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 the initial measurement, debt instruments in this category are carried at amortised 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. Amortised 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“. Allowances on debt instruments measured at amortised cost are calculated using the expected credit loss approach. Loans and receivables and debt securities measured at amortised cost are presented net of the allowance for credit losses in the statement of financial position. 244 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 Debt instruments measured at FVTOCI Debt instruments are measured at FVTOCI if they are held within a business model held to collect and sell (HTCS), where the assets’ cash flows represent payments that are solely payments of principal and interest. Subsequent to initial recognition, unrealised gains and losses on debt instruments measured at FVTOCI (excl. the related expected credit losses which are directly recognised in the profit or loss) are recorded in other comprehensive income (OCI). Upon derecognition, realised gains and losses are reclassified from OCI to profit or loss. Currently, the Bank did not classify any debt instrument as FVTOCI. 5.6.2.2 Equity instruments Equity instruments are disclosed in the line “Investment securities“. They 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 recognised in the profit or loss in the line “Net income from financial operations“. For equity instruments for which the Bank decided for 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 derecognised 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“. 5.6.2.3 Derivatives Derivatives are measured at FVTPL, changes in fair value are recognised in the profit or loss in the line “Net income from financial operations“. For more details see note 5.6.9. 5.6.3 Classification of Financial Liabilities The Bank classifies its non-derivative financial liabilities, other than financial guarantees and loan commitments, at amortised cost. Non-derivative financial liabilities are contractual arrangements resulting in the Bank having an obligation to either deliver cash or another financial asset to the holder. Classification of derivative financial liabilities is presented in note 5.6.9. 5.6.4 Reclassification Generally, the Bank does not reclassify any financial asset or liabilities after initial recognition. 5.6.5 Derecognition The Bank derecognises a financial asset when the contractual rights to receive cash flows from the financial assets expire or the rights to receive the contractual cash flows and substantially all the risks and rewards of ownership have been transferred or when substantially modified. On derecognition the difference between the carrying amount of the asset and the sum of the consideration received and any cumulative gain or loss recognised in other comprehensive income is recognised in profit or loss. Any cumulative gain or loss recognised in other comprehensive income relating to equity investment securities designated at FVTOCI is not recognised in profit or loss on the derecognition but remains recognised in other comprehensive income. A financial liability is derecognised when the obligation under the liability as specified in the contract is discharged, cancelled or expired. 5.6.6 Modifications In terms of modification of conditions of a financial asset (e.g. change in interest rate not at refix date, renegotiation of the contractual terms, or as a result of loan repayment moratorium) the Bank evaluates whether the cash flows of the modified financial asset are substantially different. If they are substantially different (net present value of the modified financial asset differs by more than 5% from net present value of the original financial asset) then the original financial asset is derecognised and the new financial asset is recognised. The fees that are considered in determining the fair value of the new asset and fees that represent reimbursement of eligible transaction costs are included in the initial measurement of the asset; and other fees are included in profit or loss as part of the gain or loss on derecognition. When modification results in derecognition, a new loan is recognised and allocated to a stage as per risk management assessment. If the cash flows of a modified financial asset are not substantially different from cash flows from the original financial asset, then the original financial asset remains to be recognised but the gross carrying amount is recalculated using the modified cash flows using the original effective interest rate of the asset. The resulting difference between the original gross carrying amount and the recalculated gross carrying amount is recognised as modification gain or loss in profit or loss. 5.6.7 Offsetting Financial assets and financial liabilities are offset and the net amount is presented in the statement of 245 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 financial position when, and only when, the Bank has a legal right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under IFRS Accounting Standards. 5.6.8 Amortised Cost Measurement The amortised cost of a financial asset or financial liability is the amount at which the asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any allowance for expected credit losses. 5.6.9 Derivatives and Hedge Accounting Derivatives are initially recognised, and are subsequently remeasured, at fair value. Fair values of derivatives are obtained by using valuation techniques. The Bank designates at inception certain derivatives as hedging instruments according to IAS 39 (the Bank continues to apply the hedge accounting requirements of IAS 39 as allowed by IFRS 9) and other derivatives are held for trading despite being held for risk management purposes rather than speculative purposes. (a) Derivatives classified as held for trading A derivative that is not designated and effective as a hedging instrument measured at fair value through profit or loss and reported in the line “Derivative financial instruments with positive/negative fair values“ (derivatives with positive fair values within assets, derivatives with negative fair values within liabilities). These derivatives include currency and interest rate derivatives (swaps and forwards) and are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in derivatives’ fair values and all interest revenues and expenses are reported in the profit or loss line “Net income from financial operations“. Derivatives which are not designated as hedging instruments are presented in the statement of financial position in the lines “Derivative financial instruments with positive/negative fair values“ (derivatives with positive fair values within assets, derivatives with negative fair values within liabilities). (b) Derivatives designated as hedging instruments The Bank continues to apply the hedge accounting requirements of IAS 39 as allowed by IFRS 9. Hedge accounting is applied if, and only if, all of the following conditions are met: • The hedge is in-line with the approved Bank’s Hedging Strategy; • The hedging relationship is formally documented at the inception; • The hedge effectiveness can be objectively and reliably measured; • The hedge is expected to be highly effective at inception and throughout its life. Fair value hedges on interest rate risk and foreign exchange risk The Bank designates at initial recognition interest rate swap or cross-currency interest rate swap derivatives as hedging instruments. Either to hedge its exposure to the change in the fair value of a defined part of the portfolio of loans to customers, loan commitments or customer deposits related to interest rate risk, that could affect profit or loss or to hedge issued liabilities denominated in foreign currencies eventually purchased bonds using cross-currency interest rate swaps. On the designation of the hedge, the Bank formally documents the relationship between the hedging instrument and hedged item, including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedge relationship at the inception and on an ongoing basis. The Bank applies for hedge relationships a fair value hedge of the defined hedged item (micro hedge) as well as a portfolio fair value hedge (macro hedge). The hedge is considered to be effective when a change in the fair value of the hedged item compared to the change in the fair value of the hedging instrument is within a range of 80-125%. Change in clean fair value excluding accrued interest of a derivative, which is designated as a fair value hedge is booked daily to the profit or loss and presented in the line “Net income from financial operations“ to match the change in fair value of the hedged portfolio. Accrued interest from hedging derivatives is recognised in the profit or loss in the line “Interest and similar income“ to match the interest income from the hedged portfolio or the hedged item. In the case of hedging foreign currency risk change in fair value attributable to risk being hedged is booked to the profit or loss and presented in the line “Net income from financial operations“. In the statement of financial position, derivatives with positive fair values (total fair value including accrued interest) are presented in the line item “Hedging derivatives with positive fair values“, derivatives with negative fair values (total fair value including accrued interest) are presented in the line “Hedging derivatives with negative fair values“. 246 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 If the hedging instrument expires, is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting, the hedge relationship is discontinued. In this case, the fair value adjustment to the carrying amount of the hedged item is amortised to profit or loss on a straight-line basis under the line “Interest and similar income“. Cash flow hedges of interest rate risk The Bank uses pay-float/receive-fix interest rate swaps to hedge the interest rate risks in respect of the benchmark interest rate (mainly PRIBOR) from its floating-rate bearing assets. The Bank hedges interest rate risk to the extent of benchmark interest rate exposure on its floating-rate bearing assets to mitigate variability in its cash flows. Hedge accounting is applied where economic hedge relationships meet the hedge accounting criteria. On the initial recognition of the hedge, the Bank formally documents the relationship between the hedging instrument and hedged item, including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedge relationship at the inception and on an ongoing basis. The Bank determines whether a relationship exists between the cash flows of the hedged item and hedging instrument based on an evaluation of the qualitative characteristics of these items and the hedged risk that is supported by a quantitative analysis. The Bank considers whether the critical terms of the hedged item and hedging instrument closely align when assessing the presence of a relationship. The Bank evaluates whether the cash flows of the hedged item and the hedging instrument respond similarly to the hedged risk, such as the benchmark interest rate. The Bank assesses hedge effectiveness using the hypothetical derivative method, which creates a derivative instrument to serve as a proxy for the hedged transaction. The terms of the hypothetical derivative match the critical terms of the hedged item and it has a fair value of zero at inception. The Bank assesses the effectiveness of the hedging relationship (prospectively and retrospectively), i.e. whether the derivative designated in each hedging relationship is expected to be and has been highly effective in offsetting changes in cash flows of the hedged item. The hedge is considered to be effective when a change in the fair value of the hedged item compared to the change in the fair value of the hedging instrument is within a range of 80-125%. When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in OCI and presented in the “Other reserves“ within equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. The amount recognised in the hedging reserve is reclassified from OCI to profit or loss as a reclassification adjustment in the same period when the hedged cash flows affect profit or loss. If the highly probable forecast transaction is considered a non-financial asset, then the amount accumulated in the hedging reserve adjusts the carrying amount of that acquired non-financial asset. If the hedging derivative expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for cash flow hedge accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively. If the hedged cash flows are no longer expected to occur, then the Bank immediately reclassifies the amount in the hedging reserve from OCI to profit or loss. For terminated hedging relationships, if the hedged cash flows are still expected to occur, then the amount accumulated in the hedging reserve is not reclassified until the hedged cash flows affect profit or loss; if the hedged cash flows are expectedto affect profit or loss in multiple reporting periods, then the Bank reclassifies the amount in the hedging reserve from OCI to profit or loss in the line “Net income from financial operations“ on a straight-line basis. 5.6.10 Impairment of Financial Assets The Bank measures allowance for credit losses, using an expected credit loss approach as required under IFRS 9, for the following categories of financial instruments: • Amortised cost financial assets; • Debt securities classified as measured at FVTOCI; • Undrawn loan commitments. Financial assets migrate through the three stages based on the change in credit risk since initial recognition. Expected credit loss impairment model The Bank’s allowance for credit loss calculations are outputs of models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. The expected credit loss impairment model reflects the present value of all cash shortfalls related to default events either (i) over the following twelve months or (ii) over the expected life of a financial instrument depending on credit deterioration from inception. The allowance for credit losses reflects an unbiased, probability-weighted outcome which considers multiple scenarios based on reasonable and supportable forecasts. 247 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 The impairment model measures credit loss allowances using a three-stage approach based on the extent of credit deterioration since origination: • Stage 1 – If there has not been a significant increase in credit risk (SICR) since initial recognition of a financial instrument, a loss allowance at an amount equal to 12-month expected credit losses (expected credit losses that result from those default events on the financial instrument that are possible within 12 months after the reporting date) is recorded. Interest revenue is recognised using the effective interest rate method applied on the financial asset’s gross carrying amount. • Stage 2 – When a financial instrument experiences a SICR subsequent to origination but is not considered to be in default, a loss allowance at an amount equal to full lifetime expected credit losses (expected credit losses that result from all possible default events over the life of the financial instrument) is recorded. Interest revenue is recognised using the effective interest rate method applied on the financial asset’s gross carrying amount. • Stage 3 – Financial instruments that are considered to be in default are included in this stage. Similarly to Stage 2, a loss allowance at an amount equal to the full lifetime expected credit losses is recorded. Interest revenue is recognised using the effective interest rate method applied on the financial asset’s net carrying amount. Measurement of expected credit loss The probability of default (PD), exposure at default (EAD), and loss given default (LGD) inputs used to estimate expected credit losses are modelled based on macroeconomic variables that are most closely related to credit losses in the relevant portfolio. Details of these statistical parameters/inputs are as follows: • PD – The probability of default is an estimate of the likelihood of default over a given time horizon. • EAD – The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities, and accrued interest from missed payments. • LGD – The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realisation of any collateral. The measurement of expected credit losses for each stage and the assessment of significant increases in credit risk considers information about past events and current conditions as well as reasonable and supportable forecasts of future events and economic conditions. The estimation and application of forward-looking information require significant judgement. Presentation of allowance for credit losses (ACL) in the statement of financial position • Financial assets measured at amortised cost: ACL is deducted from the gross carrying amount of the financial assets; • Debt instruments measured FVTOCI: no ACL is recognised in the statement of financial position because the carrying value of these assets is their fair value. However, the ACL is presented in the accumulated OCI; • Off-balance sheet credit risks (e.g. credit cards with undrawn limit): In the case that the determined expected credit loss exceeds the gross carrying value of the financial asset the excess is recognised as a provision. Purchased or originated credit-impaired financial assets (POCI) Financial assets classified as POCI are always subject to lifetime allowance for credit losses. At initial recognition expected credit loss is initially reflected in the credit-adjusted effective interest rate. As a result, no loss allowance is recognised at inception. Subsequently only negative changes in lifetime expected credit losses are recognised as allowance for credit losses, whilst positive changes are recognised as impairment gains increasing the gross carrying amount of such financial assets. Management overlay Management overlay allows management of the Bank to override results of ECL models in the case that these models are not able to timely respond to changes in economic environment. Application of management overlay is subject of approval process, detail documentation and monitoring. 5.7 REPURCHASE AND REVERSE REPURCHASEAGREEMENTS The Bank enters into contracts to sell and buy back financial instruments at a specific future date (repo) or to buy and sell back financial instruments at a specific future date (reverse repo). In repo transactions the securities provided by the Bank continue to be recognised and reported in the 248 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 statement of financial position as the Bank retains substantially all the risks and rewards of ownership together with all coupons and other income payments received during the period of the repo transaction. The corresponding cash received is recognised in the statement of financial position and a corresponding obligation to return it (including accrued interest) is recorded as a liability. Securities purchased as a reverse repo transaction are not recognised in the statement of financial position. The consideration paid (including accrued interest) is recorded in the statement of financial position as “Loans and receivables to banks“ or “Loans and receivables to customers“. The Bank is allowed to provide securities received in reverse repo transactions as collateral or sell them, even in the absence of default by their owner. The difference between the sale and repurchase price or between the purchase and resale price is treated as interest and recognised in net interest income over the life of the agreement. 5.8 FAIR VALUE MEASUREMENT Fair value is the price the Bank would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date in the principal or, in its absence, the most advantageous market to which the Bank has access at that date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Bank’s market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy: • Level 1 – Quoted prices for identical instruments in active markets. • Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. • Level 3 – Significant inputs to the valuation model are unobservable. The Bank maintains policies and procedures to value instruments. In addition, the Bank has risk management teams that review valuation, including independent price validation for certain instruments (e.g. treasury bills). With regard to Level 3 valuations, the Bank performs a variety of procedures to assess the reasonableness of the valuations. Such reviews, which may be performed quarterly, monthly or weekly, include an evaluation of instruments whose fair value change exceeds predefined thresholds (and/or does not change) and consider the current interest rate, currency and credit environment, as well as other published data, such as rating agency market reports and current appraisals. Fair values of financial assets and liabilities that are not presented in the Bank’s balance sheet at fair values are shown in note 44. 5.9 PROVISIONS A provision is recognised by the Bank when: • It has a present obligation (legal or constructive) as a result of a past event; and • It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and • The Bank can reliably estimate the amount of the obligation. Provisions are reported in the statement of financial position and include provisions for expected credit losses (loan commitments) and provisions for litigation and other obligations. Gains and losses related to provisions are reported based on their substance. Provisions are disclosed in note 36. 5.10 LEASES At inception of a contract, the Bank assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Bank uses the definition of a lease in IFRS 16. (i) Bank as a Lessee At initiation or modification date of a contract that contains a lease component, the Bank allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. The Bank accounts for each lease component within the contract separately i.e. lease and non-lease components of the contract are separated, unless practical expedient is applied. 249 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 The Bank recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term or over the useful life of the underlying asset (in case the lease transfers ownership of the underlying asset to the Bank by the end of the lease term or the cost of the right-of-use asset reflects that the Bank will exercise a purchase option). In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is at initial recognition measured at the present value of fixed and variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date net of cash lease incentives that are not paid at the commencement date, discounted using the rate implicit in the lease contract, and where not available, using incremental borrowing rate. The Bank determines its incremental borrowing rate based on market conditions for which it would obtain additional credit financing (loan or debt securities). Subsequently, the lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Bank’s estimate of the amount expected to be payable under a residual value guarantee, if the Bank changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. In case the lease liability is subject to the above mentioned remeasurement, a corresponding adjustment is made to the carrying amount of the right-of-use asset, and it is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Bank presents right-of-use assets that do not meet the definition of investment property in “Property and equipment“ and lease liabilities in “Other liabilities“ in the statement of financial position. The Bank has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets (up to CZK 100 thousand) and short-term leases (up to 12 months), including IT equipment. The Bank recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The Bank has not entered any long-term agreement of purchase of goods or services exclusively produced for the Bank such as Power Purchase Agreement (PPA). (ii) Bank as a Lessor The Bank only subleases office premises to other entities (Bank’s subsidiaries). Those sub-leases are classified as operating lease. Rentals receivable from subsidiaries with operating leases are spread on a straight-line basis over the lease periods and are recognised in “Other operating income“. 5.11 PROPERTY AND EQUIPMENT Items of property and equipment are measured at cost less accumulated depreciation less impairment losses over their estimated useful lives. Cost includes the purchase price of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item. Property and equipment is depreciated on a straight-line basis over their estimated useful lives as follows: Technical Improvements related to real estate 5-15 years 1) Furniture 4-10 years Equipment 5-10 years Cars 8 years Computers and servers 5-7 years ATMs 10 years 1) Based on the estimated duration of use in accordance with the IFRS 16 lease agreement. Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease terms or their remaining useful lives. Assets’ residual values and useful lives are monitored and adjusted if appropriate at each financial statement date. Property and equipment are subject to quarterly impairment reviews (see note 5.14). If the carrying amount of the asset exceeds its estimated recoverable amount, the asset is adjusted accordingly. Its estimated recoverable amount is the higher of fair value including costs to sell and its value in use. 250 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 The Bank presents right-of-use assets resulting from lease agreements that do not meet the definition of investment property in the statement of financial position in line “Property and equipment”. Gains and losses on disposals are determined by deducting the carrying value from the consideration received. Any gain/loss on sale is recognised in the profit or loss. 5.12 INTANGIBLE ASSETS Software Software acquired by the Bank is measured at cost less accumulated amortisation and any accumulated impairment losses. Expenditure on internally developed software is recognised as an asset when the Bank is able to demonstrate its intention and ability to complete the development and use the software to generate future economic benefits and the costs to complete the development can be reliably measured. Internally developed software is stated at capitalised cost less accumulated amortisation and impairment. Purchased software and internally developed software is amortised over its expected useful life that is usually considered to be 5 years when recognised initially. During its useful life development is performed on the software. This development prolongs the useful life of the software. The following table shows the weighted average of the remaining useful life of software assets: Core systems 7 years Data warehouses 7 years Infrastructure 6 years Distribution channels 6 years Enterprise software 4 years Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. Core deposit intangible (CDI) Core deposit intangible resulting from the Merger represents the benefit of having a low-cost, stable funding source, and in times when alternative sources of funds have higher rates, core deposits have greater worth to an acquirer. CDI can be also interpreted as an intangible asset recorded upon acquisitions to capture the value of the customer relationships the acquired deposits represent. The Bank amortises CDI linearly over 60 months beginning with initial recognition. Assessment whether circumstances triggering potential impairment is done annually. If such circumstances are identified CDI is tested for impairment in line with note 5.14. 5.13 INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES A subsidiary is an entity in which the Bank has control, i.e. it directly or indirectly owns more than 50% of the voting rights or has the power to govern this entity as a result of another circumstances. An associate is an entity in which the Bank has significant influence, i.e. it directly or indirectly owns 20% to 50% of the voting rights. If the Bank owns directly or indirectly less than 20% of the voting rights the investment is disclosed in the line “Investment securities“. Investments in subsidiaries and associates are measured at historical cost decreased by potential accumulated impairment losses. The Bank assesses regularly whether there is any impairment loss by comparing the carrying values of the investment with its recoverable amount. If the recoverable amount is lower, the Bank recognises the impairment loss. 5.14 IMPAIRMENT OF NON-FINANCIAL ASSETS At the end of each reporting date, the Bank reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any such indication exists then the assets recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s fair value less costs of disposal and its value in use. An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the profit or loss in the “Other operating expenses“ (see note 15). An impairment loss may be reversed to the extent it does not exceed the carrying amount that would have been determined if no impairment loss had been recognised. The Bank regularly monitors potential impacts resulting from climate changes that could result into impairment of non-financial assets. Currently there are no such impairment indicators. 5.15 EMPLOYEE BENEFITS Employee benefits include short-term bonus payments, flexible benefits (Cafeteria), remuneration for loyalty, 251 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 retention bonuses and other unclaimed components of remuneration. In 2017, a remuneration policy relevant for the Management Board members and other Material Risk Takers that is subject to the terms and conditions described in the Executive Variable Incentive Plan (EVIP) has been introduced under which bonuses are partly linked to the share price and the dividend (shareholder’s return). Remuneration of other employees is governed by the Group Employee Remuneration Policy. In August 2018, the Supervisory Board of the Bank adopted the Rules of Long-Term Incentive Plan internal policy (LTIP). Members of the Management Board are eligible to receive the LTIP awards in the form of actual shares in the Bank as part of their variable remuneration, where the proportion of the award that vests is conditional on the satisfaction of medium-term performance targets set by the Supervisory Board. So far, no awards have been made under the LTIP. Executive Variable Incentive Plan (EVIP) for the Management Board members and other Material Risk Takers The amount of the variable compensation that a participant receives under the EVIP incentive programme is based on the basis of the participant’s performance and the Bank’s performance; including the achievement of goals and objectives set by the Supervisory Board and the Chief Executive Officer (whereas the Chief Executive Officer is not involved in the decision-making regarding the setting of his own goals and objectives). A portion of the remuneration is paid in cash (part in the year after the assessment year and part is deferred up to five annual instalments in the following years) and the remainder is linked to the total shareholders return (TSR) and spread over also up to five annual instalments. This part of the deferred bonus represents a share- based payment and is disclosed in line with IFRS 2 Share- based payments, specifically as cash settled share-based payments. For more details about this programme see the Remuneration Report for 2023. Bonus payments are accrued over time when earned in the amount of the estimated future pay-out. Sales, collection and customer service incentives Sales incentives represent a performance-based remuneration to retail and commercial employees at branches. The volume of the sales incentives depends on the fulfilment of quantitative and qualitative performance targets, which are evaluated and paid quarterly. Employees providing sales and service over the phone or working on selected support departments are evaluated and paid on a monthly basis. Incentives in the Structure Finance unit are paid on an annual basis. Collection incentives represent a performance remuneration for employees participating in the collection of debts. The frequency of evaluation of performance and payments of incentives is on a monthly (retail receivables) or on a quarterly basis (commercial receivables). The Bank recognises a liability as at the reporting date representing the sum of the sales incentives in the fourth quarter and the amounts deferred from the previous reporting periods. Flexible benefits (Cafeteria) Each employee of the Bank selects from flexible benefit offer upon his/her preference (including meal allowance) or contribution to pension / life insurance, eventually its combination. Costs of flexible benefits are recognised in the profit or loss line “Personnel expenses“ on a straight-line basis over the accounting period. Retention programme Employees involved in important projects or having a significant influence on the operation of critically important processes can receive a motivation award under predetermined conditions. The liability is accrued on a monthly basis into expenses on the part of remuneration to which the claim has already arisen taking into account the probability of payment. 5.16 CASH AND CASH BALANCES WITH THE CENTRAL BANK Cash and balances with the central bank include current accounts and time deposits with the Czech National Bank (CNB), cash in ATMs and in branches. Cash and balances are reported in the statement of financial position in “Cash and balances with the central bank“. The Bank’s mandatory minimum reserve held by the CNB is also included within “Cash and balances with the central bank“. 5.17 INCOME TAX AND DEFERRED TAX Income tax expense comprises current and deferred tax. It is recognised in the profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income. Current Tax Current tax represents the tax expected to be payable on the taxable profit for the year, calculated using tax rates enacted or substantively enacted by the balance sheet date, and any adjustment to tax payable 252 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 in respect of previous years. Current tax assets and liabilities are offset when the Bank intends to settle on a net basis and the legal right to offset exists. Deferred Tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the statement of financial position and the amounts attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. Significant temporary and timing differences arise mainly from different accounting and tax value adjustments to receivables, provisions, different accounting and tax economic useful life of tangible and intangible assets and from the revaluation of financial assets. 5.18 SEGMENT REPORTING The Bank reports segment reporting in the notes to consolidated financial statements that are part of this Annual financial report. 5.19 FINANCIAL GUARANTEES AND LOAN COMMITMENTS Financial guarantees are contracts that require the Bank to make specified payments to reimburse the holder for a loss that it incurs because a specified debtor fails to make payment when it is due in accordance with the terms of a debt instrument. Loan commitments are firm commitments to provide credit under pre-specified terms and conditions. Liabilities under financial guarantee contracts are recorded initially at their fair value, which is generally the fee received or present value of the fee receivable. Financial guarantee liabilities are subsequently measured at the higher of the initial fair value, less cumulative amortisation and the amount equalling the expected credit loss determined in accordance with IFRS 9 (see note 5.6.10). The provided guarantees are shown in note 40. 5.20 SUBORDINATED LIABILITIES Subordinated liabilities (bonds and deposits) are subordinated to all other liabilities of the Bank. As at 31 December 2023, it forms a fully or partially part of the Tier 2 capital of the Bank as defined by the CNB for the purposes of determination of its capital adequacy. These instruments are initially measured at fair value minus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest method. 5.21 MORTGAGE-BACKED BONDS Mortgage-backed bonds are covered by mortgages provided to clients of the Bank. These instruments were taken over as a part of the Merger. In the case of new issuance, these instruments are initially measured at fair value minus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest method. Mortgage-backed bonds are presented in the statement of financial position in the line “Issued bonds”. Internally Issued Mortgage-Backed Bonds (on own books) The mortgage-backed bonds are covered by mortgage loans provided to the Bank’s clients. The purpose of the issuance of these bonds is only resolution of eventual liquidity crisis when bonds would be used as collateral for a lombard loan or repo operations with the Czech National Bank or other financial institution. As at 31 December 2023, the Bank did not realise any of these above-mentioned operations, therefore, these bonds are not recognised in the Statement of financial position. 5.22 OTHER ISSUED BONDS Other issued bonds are represented by the senior preferred bonds which are in compliance with the minimum requirement for own funds and eligible liabilities (“MREL”) requirement which was set for the Bank by the Czech National Bank. These instruments are initially measured at fair value minus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest method. Other issued bonds are presented in the statement of financial position in the line “Issued bonds”. 253 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 5.23 BUSINESS COMBINATIONS UNDER COMMONCONTROL As there is no specific guidance in IFRS Accounting Standards for business combinations under common control, the Bank applies method within the assets and liabilities that these are measured by using the acquirer’s book values, i.e., book values from consolidated financial statements of the Group. 6. NET INTEREST INCOME CZK m 2023 2022 Interest income from financial assets measured at amortised cost 1) 17,484 12,545 Loans to customers 2) 10,941 9,749 out of which: interest income from impaired loans 145 149 out of which: penalty interest 12 9 out of which: EIR amortisation, modification/derecognition and amortisation of merger FV adjustments (211) (300) Loans to banks 3,975 1,644 out of which arising from repurchase and reverse repurchase agreements 3) 3,867 1,607 Cash and deposit with the central bank and other banks 6) 349 323 Interest income from investment securities at amortised cost 2,205 815 Other interest income 4) 14 14 Interest from hedging derivatives 3,006 1,612 Interest income and similar income 20,490 14,157 Interest expense from financial liabilities measured at amortised cost 1) (12,734) (5,677) Due to banks (168) (391) Due to customers (11,632) (4,604) out of which: arising from repurchase agreements - (18) out of which: amortisation of merger FV adjustments - 27 Subordinated liabilities (282) (167) Mortgage-backed bonds (381) (457) Other issued bonds 5) (175) (46) Other interest expense 4) (96) (12) Interest from hedging derivatives (584) (527) Interest expense on lease liabilities (33) (19) Interest expense and similar expense (13,351) (6,223) Net interest income 7,139 7,934 1) All interest income and expense from financial instruments at amortised cost are calculated using the effective interest method. There are no FVTOCI interest- bearing instruments. 2) Of which Interest Income from repurchase agreements with a negative interest rate at CZK 0 million in 2023 (2022: CZK 0 million). 3) Of which Interest Income from repurchase agreements with a negative interest rate at CZK 0 million in 2023 (2022: CZK 0 million). 4) Represents interest income or expense respectively from received or provided collateral resulting from Credit Support Annex (CSA). 5) MREL requirement eligible bonds are included. 6) The Bank Board of the CNB decided in September 2023 that it would discontinue remuneration of the mandatory minimum reserves. The decision became effective on 5 October 2023; prior to that, the mandatory minimum reserves were remunerated using the 2-week repo rate. 254 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 Analysis of deferred costs and fees directly attributable to the origination of new loan products that are an integral part of the effective interest rate and fair value adjustment of financial assets taken over as part of the Merger: Year ended 31 Dec 2023 CZK m Balance at beginning of period Amortisation Derecognitions/ Modifications Additions to deferred fees 1) Additions to deferred costs Balance at end of period Consumer Loans 63 (7) (2) (63) 48 39 Mortgages 1,639 (143) (8) (4) 18 1,502 Credit Cards & Overdrafts 12 (9) - - 7 10 Retail loans deferrals 1,714 (159) (10) (67) 73 1,551 Investment Loans 73 (12) (5) (14) 33 75 Working Capital (3) 9 - (18) 4 (8) Unsecured Instalment Loans and Overdrafts 98 (34) - (8) 46 102 Commercial loans deferrals 168 (37) (5) (40) 83 169 Total loan deferrals 1,882 (196) (15) (107) 156 1,720 1) The majority is the loan account opening fee. Year ended 31 Dec 2022 CZK m Balance at beginning of period Amortisation Derecognitions/ Modifications Additions to deferred fees 1) Additions to deferred costs Balance at end of period Consumer Loans 73 (16) (4) (58) 68 63 Mortgages 1,605 (219) (3) (13) 269 1,639 Credit Cards & Overdrafts 16 (11) - - 7 12 Retail loans deferrals 1,694 (246) (7) (71) 344 1,714 Investment Loans 62 (10) 2 (16) 35 73 Working Capital (1) 2 - (8) 4 (3) Unsecured Instalment Loans and Overdrafts 92 (41) - (7) 54 98 Commercial loans deferrals 153 (49) 2 (31) 93 168 Total loan deferrals 1,847 (295) (5) (102) 437 1,882 1) The majority is the loan account opening fee. 7. NET FEE AND COMMISSION INCOME CZK m 2023 2022 Insurance 1) 1,149 728 Investment funds 2) 331 302 Penalty fees (incl. early termination fees) 221 219 Deposit servicing fees 252 262 Lending servicing fees 216 204 Transactional and other fees 792 740 Fee and commission income 2,961 2,455 Fee and commission expense (579) (413) Net fee and commission income 2,382 2,042 1) The line “Insurance“ includes especially commissions on payment protection insurance, car insurance (Casco and third party liability insurance), travel insurance, accident insurance, life insurance and pension funds. 2) The amount of received fees serves as the base for the calculation of contribution of the Bank to the Investor Compensation Fund. 8. DIVIDEND INCOME CZK m 2023 2022 Dividends from investments in subsidiaries and associates 1) 1,294 709 Dividend income 1,294 709 1) Dividends from investments in subsidiaries MONETA Leasing, s.r.o. in the amount of CZK 133 million in 2023 (2022: CZK 219 million) MONETA Auto, s.r.o. in the amount of CZK 600 million in 2023 (2022: CZK 267 million) and MONETA Stavební Spořitelna, a.s, in the amount of CZK 557 million in 2023 (2022: CZK 220 million) as described in note 30. 255 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 9. NET INCOME FROM FINANCIAL OPERATIONS CZK m 2023 2022 Net gain/(loss) from hedging instruments (4,915) 1,335 Net gain/(loss) from hedged items 5,009 (1,212) Net gain/(loss) from financial assets and liabilities at FVTPL 43 (297) out of which: revaluation of FVTPL securities to fair value 6 - out of which: expense on derivative instruments (118) (557) out of which: income from derivative instruments 155 260 Net income from sale of investment securities 1) 26 - Exchange rate differences 715 532 Net income from financial operations 878 358 1) The sale of investment securities was considered in line with the business model, inwhich they hadbeen hold. Furtherdetail is describedin note 24. 10. OTHER OPERATING INCOME CZK m 2023 2022 Income from services and leases 1) 71 85 Rent income 2) 16 17 Other collection income 3) 14 22 Other income 31 76 Total other operating income 132 200 1) The line “Income from services and leases“ includes primarily services provided by the Bank to its subsidiaries MONETA Auto, s.r.o., MONETA Leasing, s.r.o., and MONETA Stavební Spořitelna. 2) The line “Rent income“ comprises results from operating leases of property provided to subsidiaries. 3) The line “Other collection income“ includes the balance of CZK 8 million for 2023 (2022: CZK 11 million) which represents recoveries arising from written-off receivables exceeding the write-off which is recognised in the line “Net impairment of financial assets“ out of which CZK 4 million for 2023(CZK 4 million in 2022)results from legacy NPL sales. The residual amount represents legal costs paid by clients being under collection proceedings by solicitor offices. 11. PERSONNEL EXPENSES 2023 2022 The average number of employees during the period 1) 2,399 2,673 Number of Management Board members 5 5 Number of Supervisory Board members 9 9 Number of other Key Executive Managers 4 3 Physical number of employees at the end of the period 2,492 2,611 CZK m 2023 2022 Salaries and bonuses 2) (1,797) (1,770) out of which: salaries and bonuses actuals (1,578) (1,602) out of which: salaries and bonuses accruals (219) (168) Social security and health insurance (564) (550) Restructuring costs 23 (23) Other employee related expenses (90) (88) Total personnel expenses (2,428) (2,431) 1) The average number of employees during the period is an average of the figures reported to the Czech Statistical Authority (CSA) on a monthly basis in accordance with Article 15 of Czech Act No. 518/2004. The figures reported to the CSA equal the quotient of the following nominator and the followingdenominator. The nominator is defined as all hours worked by all employees, their related leaves/holidays and their related sick days. The denominator represents the standard working hours per employee and month. 2) Remuneration to members of Supervisory Board, Management Board and other Key Executive Managers are described in note 42.1. 12. ADMINISTRATIVE EXPENSES CZK m 2023 2022 IT and software expense (614) (582) Rent expense 1) (51) (29) Rent-related services (181) (165) Advisory services (22) (29) Auditor´s fees (18) (20) Marketing (201) (205) Travel cost (31) (26) Other expenses 2) (460) (400) out of which: services provided by subsidiaries (17) (16) out of which: ATM expense (53) (47) out of which: legal expense (24) (33) out of which: office supplies (8) (17) out of which: transport of cash (95) (88) Total administrative expenses (1,578) (1,456) 1) The line “Rent expense“ includes only leases whose term ends within twelve months from the date of initial application or from the lease start date (short-term leases) and leases of assets with purchase price lower than CZK 100 thousand (low-value assets). 2) The line “Other expenses“ comprises expenses on other services provided by 3rd parties not disclosed separately, e.g. subscription fees, support of ATMs, transport of cash, postage, training, cleaning services, car expense, etc. 256 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 In 2022 the Bank was reimbursed by PPF Group for the cost incurred in relation to the terminated Acquisition process of Air Bank and Home Credit Czech and Slovak businesses (Air Bank Group) in the amount of CZK 113 million. The reimbursement was recognised as a credit to Administrative expenses. CZK 50 million represents reimbursement of expenses incurred in 2022, the remainder relates to 2021. 13. REGULATORY CHARGES CZK m 2023 2022 Contributions to Deposit Insurance Fund (151) (92) Contributions to Resolution and Recovery Fund (130) (116) Contributions to Investor Compensation Fund (6) (4) Total regulatory charges (287) (212) 14. DEPRECIATION AND AMORTISATION CZK m 2023 2022 Depreciation of property and equipment (531) (565) out of which: right-of-use assets (319) (336) Amortisation of intangible assets (658) (634) Total depreciation and amortisation (1,189) (1,199) Impairment losses are shown in note 15. 15. OTHER OPERATING EXPENSES CZK m 2023 2022 Damages (8) (8) Unrecoverable VAT (2) (2) Other expenses (40) (51) out of which: impairment of non-financial assets (4) (13) Total other operating expenses (50) (61) 16. NET IMPAIRMENT OF FINANCIAL ASSETS CZK m 2023 2022 Additions and release of loan loss allowances (291) (202) Additions and release of allowances/provisions to unused commitments 30 (4) Use of loan loss allowances associated with written-off receivables 637 602 Income from previously written-off receivables 49 28 Write-offs of uncollectable receivables (650) (618) Change in allowances to Investment securities (4) (11) Change in allowances to operating receivables (1) (1) Collection costs (38) (32) Net impairment of financial assets (268) (238) Line “Income from previously written-off receivables“ includes in 2023 CZK 34 million (2022: CZK 4 million) representing recovery resulting from NPL sales. The overall profit or loss impact of the NPL sales in 2023 is CZK 303 million (2022: CZK 236 million) representing recovery, release of related unused Loan Loss Allowances and Other income (see note 10). If loss given default (LGD) (in either the individual assessment or statistical models) changes by +/-10% in relative terms, then the loan loss allowances would change by +/- CZK 432 million as at 31 December 2023 and by +/- CZK 442 million as at 31 December 2022. The Bank reflects external collection costs in determining the impairment loss of loans and receivables and these costs are disclosed in the line “Net impairment of financial assets“ when they are incurred. An estimate of these costs also reduces the present value of recovery cash flows expected from related defaulted receivables. At each financial statement date, financial assets not measured at fair value through profit or loss are assessed for impairment. The Bank determines whether as a result of an event or events occurring alone or in combination, a financial asset is considered in default. For further details, see note 43.2.2. Calculation of loan loss allowances is performed in line with IFRS 9 standard. For further details, see note 43.2.4. 257 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 Impacts of the current macroeconomic environment Significant uncertainty regarding the future macroeconomic developments in connection with the environment of high interest rates and high inflation remained during 2023. The Bank continued to take these risk factors, which are not adequately reflected in the current IFRS 9 model of expected credit losses, into account through the management overlay framework, which was continuously updated during 2023. In December 2023, the management overlay framework was reviewed with the aim of reflecting outcomes of assumptions back testing. As at 31 December 2023, the total management overlay amount stood at CZK 638 million. Macroeconomic assumptions in the IFRS 9 model were updated in November 2023. The scenarios of the main macroeconomic variables of the model (unemployment rate and GDP growth) were constructed based on the latest available forecasts provided by the Czech National Bank. The potential negative development of these drivers is reflected via the adverse IFRS 9 macroeconomic scenario. The following table shows an overview of internal scenarios based on the prognoses of the MFCR and the CNB: GDP Growth MFCR (1/2023) MFCR (4/2023) MFCR (8/2023) MFCR (11/2023) CNB (2/2023) CNB (5/2023) CNB (8/2023) CNB (11/2023) IFRS 9 MODELYear 2023 (0.5%) 0.1% (0.2%) (0.5%) (0.3%) 0.5% 0.1% (0.4%) (0.4%) 2024 3.0% 3.0% 2.3% 1.9% 2.2% 3.0% 2.3% 1.2% 1.2% 2025 2.7% 2.8% 2.8% Unemployment MFCR (1/2023) MFCR (4/2023) MFCR (8/2023) MFCR (11/2023) CNB (2/2023) CNB (5/2023) CNB (8/2023) CNB (11/2023) IFRS 9 MODELYear 2023 3.2% 3.0% 2.8% 2.7% 2.7% 2.5% 2.7% 2.7% 2.7% 2024 3.0% 2.8% 2.7% 2.8% 3.3% 2.8% 2.8% 3.0% 3.0% 2025 3.0% 3.0% 3.0% Management overlay Throughout 2023, the management overlay framework was subject to regular reviews and updates in line with the pre-defined governance framework. In March 2023, the management overlay framework was extended to reflect risks associated with exposures secured by COVID-19 guarantees expiring within 12 consequent months. In the fourth quarter of 2023, the management overlay framework was reviewed with the aim of reflecting outcomes of assumptions back testing. This resulted in a decrease in the overlay amount. As at 31 December 2023, the total management overlay amount stood at CZK 638 million. 17. TAXES ON INCOME Tax expense from the Bank’s profit before tax can be analysed as follows: CZK m 2023 2022 Current income tax for the year (638) (871) Income tax related to prior years - 13 Change in deferred tax position recognised in profit or loss (7) (101) Taxes on income (645) (959) 258 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 The table below shows the reconciliation of the actual tax charge and the tax charge based on applying the standard corporate income tax rate according to the Czech Republic’s income tax law: CZK m 2023 2022 Profit for the period before tax 6,025 5,646 Theoretical income tax accounted for into expenses, calculated at the rate of 19% (1,145) (1,073) Tax related to the prior years - 13 Impact of the tax non-deductible expenses (22) (45) Impact of the tax-exempt income 507 192 Impact of windfall tax on deferred tax 46 (46) Impact of change in the income tax rate from 19% to 21% (effective from 1 January 2024) (31) - Taxes on income (645) (959) Effective income tax rate 1) 10.7% 17.0% 1) The decrease in effective interest rate in 2023 was influenced by higher tax-exempt income, mainly income from Government bonds issued after 1 January 2021 and higher received dividends from subsidiaries in comparison to 2022. The Bank is not aware of any uncertain tax treatment as defined in IFRIC 23 Uncertainty over Income Tax Treatments, thus calculation of current and deferred tax is not influenced by extra judgements and estimates, which requires separate disclosure. The Bank shall be subject to the windfall tax imposed by the Government on Banks that report net interest income higher than CZK 6 billion in 2021, Power and Fuel industry for tax periods from 2023 to 2025. The Windfall tax base is positive excess over the Bank’s four-year average tax base (2018 to 2021) increased by 20 percent and its actual tax base of the given tax period. Such excess if any is subject to an additional 60 percent taxation. In 2022 the windfall tax impacted only deferred tax. This impact was reversed in 2023. In 2023, based on the current operating plan, the Bank only reflects an increase in corporate income tax rate from 19 percent to 21 percent. 18. EARNINGS PER SHARE Earnings per share amounts are calculated by dividing the net profit for the year after tax attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year. CZK m 2023 2022 Profit for the year after tax attributable to the equity holders 5,380 4,687 Weighted average of ordinary shares (millions of shares) 511 511 Basic earnings per share (CZK) 10.53 9.17 As the Bank has not issued any potentially dilutive instruments, the basic earnings per share equal the diluted earnings per share. 19. CASH AND BALANCES WITH THE CENTRAL BANK CZK m 31 Dec 2023 31 Dec 2022 Cash and cash in transit 3,206 3,728 Mandatory minimum reserve and clearing account with the central bank 7,328 8,280 Total cash and balances with the central bank 10,534 12,008 The Bank includes a mandatory minimum reserve with the Czech National Bank into “Cash and balances with the central bank“. The Bank may draw funds from the mandatory minimum reserve at any point in time provided that the average balance over the relevant period meets the minimum levels required according to the regulations of the Czech National Bank. 20. CASH AND CASH EQUIVALENTS For the purposes of the separate statement of cash flows, cash and cash equivalents comprise the following balances with maturities from the acquisition of less than 3 months: CZK m 31 Dec 2023 31 Dec 2022 Cash and deposits with the central bank 10,534 12,008 Loans and receivables to banks 66,992 38,311 Total cash and cash equivalents 77,526 50,319 259 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 21. TRANSFER OF FINANCIAL ASSETS – REPURCHASE TRANSACTIONS 31 Dec 2023 CZK m Carrying amount of transferred assets Carrying amount of associated liabilities Fair value of transferred assets Fair value of associated liabilities Liabilities arising from repurchase agreements with clients - - - - with banks - 2,531 - 2,531 Total liabilities arising from repurchase agreements - 2,531 - 2,531 Financial assets transferred as collateral in repurchase agreements Financial assets measured at amortised cost 2,824 - 3,229 - Financial assets received in reverse repos - - - - Total financial assets transferred as collateral in repurchase agreements 2,824 - 3,229 - 31 Dec 2022 CZK m Carrying amount of transferred assets Carrying amount of associated liabilities Fair value of transferred assets Fair value of associated liabilities Liabilities arising from repurchase agreements with clients - - - - with banks - - - - Total liabilities arising from repurchase agreements - - - - Financial assets transferred as collateral in repurchase agreements Financial assets measured at amortised cost - - - - Financial assets received in reverse repos - - - - Total financial assets transferred as collateral in repurchase agreements - - - - Liabilities from repurchase agreements represent the obligation to repay the borrowing and are shown in the lines “Due to banks“ (see note 34) and “Due to customers“ (see note 35). Financial assets transferred as collateral consist of Government bonds (see note 24) measured at amortised cost of CZK 2,824 million as at 31 December 2023 (31 December 2022: CZK 0 million). 260 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 22. LOANS AND RECEIVABLES TO BANKS Loans and receivables to banks include: CZK m 31 Dec 2023 31 Dec 2022 Current accounts at banks 260 432 Overnight deposits 392 482 Term deposits in banks payable within 3 months - 1,144 Receivables arising from reverse repurchase agreements 1) 66,340 36,253 Cash collateral granted 2) 2,238 251 Other 3) 2 1 Included in cash equivalents 66,992 38,311 Total loans and receivables to banks 69,232 38,563 1) The Bank provides reverse repo operations with the Czech National Bank. The collateral received as at 31 December 2023 of CZK 65,030 million (31 December 2022: CZK 35,526 million) is represented by treasury bills that are not recognised in the statement of financial position. 2) Comprises collateral granted for repo operations and derivative transactions. 3) Represents an unsolicited dividend for the years 2020, 2021 and 2022 transferred to Komerční banka, a.s. that is administering the payment. The Bank estimated expected credit loss resulting from loans and receivables to banks at 31 December 2023 in the amount of CZK 0 million (31 December 2022: CZK 0 million). 23. LOANS AND RECEIVABLES TO CUSTOMERS (a) Loans and receivables to customers by sector CZK m 31 Dec 2023 31 Dec 2022 Financial organisations 1) 13,008 15,753 Non-financial organisations 44,128 44,214 Government sector 104 122 Non-profit organisations 53 49 Entrepreneurs 17,697 16,584 Resident individuals 169,059 175,773 Non-residents 6,103 2,809 Gross carrying amount of Loans and receivables to customers 250,152 255,304 Less Loss allowance for Loans and receivables to customers (4,271) (4,662) Net book value of Loans and receivables to customers 245,881 250,642 Gross carrying amount of Loans and receivables to customers in Stage 1 and 2 246,770 251,938 Loss allowance for Loans and receivables to customers in Stage 1 and 2 (2,608) (2,863) Net book value of Loans and receivables to customers in Stage 1 and 2 244,162 249,075 1) The balance of gross loans and receivables to financial organisations includes exposures to MONETA Leasing, s.r.o., and MONETA Auto, s.r.o. in the total amount of CZK 11,479 million as at 31 December 2023 (as at 31 December 2022 CZK 12,079 million). (b) Loans and receivables to customers by product 31 Dec 23 31 Dec 22 CZK m Gross carrying amount Allowances Carrying amount Gross carrying amount Allowances Carrying amount Retail loan balances Consumer Loans 37,782 (2,045) 35,737 39,018 (2,507) 36,511 Mortgages 1) 128,604 (658) 127,946 133,930 (592) 133,338 Credit Cards & Overdrafts 2,470 (200) 2,270 2,570 (233) 2,337 Other 8 (8) - 10 (10) - Total Retail 168,864 (2,911) 165,953 175,528 (3,342) 172,186 Commercial loan balances Investment Loans 51,188 (281) 50,907 52,316 (290) 52,026 Working Capital 15,715 (193) 15,522 14,524 (195) 14,329 Unsecured Instalment Loans and Overdraft 14,380 (881) 13,499 12,930 (829) 12,101 Inventory Financing and Other 5 (5) - 6 (6) - Total Commercial 81,288 (1,360) 79,928 79,776 (1,320) 78,456 Total Loans and receivables to customers 250,152 (4,271) 245,881 255,304 (4,662) 250,642 1) Part of the mortgage portfolio is an underlying asset for mortgage-backed bonds. 261 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 (c) Loss allowances for loans and receivables to customers by sectors CZK m Financial organisations Non-financial organisations Non-profit organisations Entrepreneurs Resident individuals Non-residents Total 1 Jan 2023 44 528 5 706 3,293 86 4,662 Net change of allowances recognised in Statement of Financial position (38) 52 (4) 137 69 25 241 Effect of written off receivables - (29) - (98) (495) (15) (637) Exchange rate variances - 2 - - - 3 5 31 Dec 2023 6 553 1 745 2,867 99 4,271 CZK m Financial organisations Non-financial organisations Non-profit organisations Entrepreneurs Resident individuals Non-residents Total 1 Jan 2022 16 577 2 664 3,750 74 5,083 Net change of allowances recognised in Statement of Financial position 28 3 3 91 35 24 184 Effect of written off receivables - (49) - (49) (492) (12) (602) Exchange rate variances - (3) - - - - (3) 31 Dec 2022 44 528 5 706 3,293 86 4,662 24. INVESTMENT SECURITIES CZK m 31 Dec 2023 31 Dec 2022 Debt securities measured at amortised cost 100,769 54,319 out of which: government bonds 97,542 50,919 out of which: corporate bonds 3,227 3,400 Debt securities measured at FVTPL 30 46 Equity securities measured at FVTOCI 1 1 Equity securities measured at FVTPL 25 25 Total investment securities 100,825 54,391 By listing: - listed 100,769 54,319 - unlisted 56 72 Debt securities measured at amortised cost are held with the objective to hold the assets and collect contractual cash flow, thus presented under the Hold to Collect business model. Expected credit losses related to Debt securities measured at amortised cost at 31 December 2023 amount to CZK 22 million (31 December 2022: CZK 18 million). In 2023, there were two sales of corporate bonds from the portfolio measured at amortised cost held within the business model Hold to Collect in the amount of CZK 1,186 million (2022: CZK 0 million). The bond sale was considered as infrequent sale of insignificant value according to the business model assessment. Equity securities measured at FVTOCI include investment in SWIFT. The Bank elected the irrevocable option provided by IFRS 9 to classify its investment in SWIFT as at the date of transition to IFRS 9 as FVTOCI as the Bank intends to hold these in the long term and they were measured in the same way according to IAS 39 and IFRS 9. Since transitioning to IFRS 9, all gains and losses resulting from FVTOCI equity instruments, including when derecognised or sold, are recorded in OCI and are not subsequently reclassified to profit or loss. The Bank did not receive any dividends relating to FVTOCI equity instruments in 2023 and 2022. There have been no disposals from FVTOCI equity securities in periods 2023 and 2022. In April 2021, the Bank purchased a 10% share of Bankovní identita, a.s. The share is classified as an equity instrument measured at FVTPL. The reason for purchasing the share was to closely participate in the provision of identity verification services provided by Bankovní identita, a.s. The total investment into Bankovní identita, a.s., amounts to CZK 25.2 million. Debt securities measured at FVTPL consist of the VISA Preferred Stock Series C securities that can be sold in the future when it is possible and VISA Series A Convertible Participating Preferred Stock that can be converted into marketable shares. As at 31 December 2023, Debt securities measured at amortised cost with a carrying amount of CZK 2,824 million are transferred as collateral under repurchase transactions (31 December 2022: CZK 0 million). 262 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 25. ISSUED BONDS Mortgage-Backed Bonds The Bank maintained 10 tranches of mortgage-backed securities in the total nominal amount of CZK 10,250 million for funding purposes. ISIN Issue date Currency Maturity date Interest rate Total nominal amount outstanding CZK m CZ0002005127 19 Jul 2017 CZK 19 Jul 2024 1.63% p.a. 625 CZ0002006380 10 Jul 2019 CZK 10 Jun 2024 1.81% p.a. 625 CZ0002007636 16 Apr 2021 CZK 16 Apr 2024 1.61% p.a. 1,300 CZ0002007594 16 Apr 2021 CZK 16 Apr 2025 1.82% p.a. 1,200 CZ0002007628 16 Apr 2021 CZK 16 Apr 2026 1.96% p.a. 1,100 CZ0002007602 16 Apr 2021 CZK 16 Apr 2028 2.05% p.a. 900 CZ0002007610 16 Apr 2021 CZK 16 Apr 2031 2.13% p.a. 500 CZ0002008477 25 Feb 2022 CZK 25 Feb 2024 5.03% p.a. 500 CZ0002008485 25 Feb 2022 CZK 25 Feb 2025 4.74% p.a. 1,500 CZ0002008493 25 Feb 2022 CZK 25 Feb 2026 4.57% p.a. 2,000 The all of issued securities are held by MONETA Stavební Spořitelna, a.s. Amortised cost of the outstanding mortgage-backed bonds: CZK m 31 Dec 2023 31 Dec 2022 Mortgage-backed bonds at amortised cost 10,486 14,686 Total 10,486 14,686 The Bank did not report any defaults of principal or interest or other breaches with respect to mortgage-backed bonds during the years 2023 and 2022. Other Issued Bonds The Bank issued the senior preferred bonds in the total nominal amount of CZK 1,500 million and EUR 100 million. The EUR tranche was settled on 3 February 2022 and the CZK tranche was settled on 15 December 2022. The Bank issued the bonds as a part of compliance with the minimum requirement for own funds and eligible liabilities (“MREL”) requirement which was set for the Bank by the CNB. These instruments are initially measured at fair value minus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest rate method. ISIN Issue date Currency Maturity date Interest rate Call option Total nominal amount outstanding EUR m/CZK m XS2435601443 3 Feb 2022 EUR 3 Feb 2028 1.625% p.a. after 5 years 100 CZ0003707671 15 Dec 2022 CZK 15 Dec 2026 8.00% p.a. after 3 years 1,500 263 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 Amortised cost of the outstanding Other issued bonds: CZK m 31 Dec 2023 31 Dec 2022 Other issued bonds at amortised cost 3,808 3,572 Total 3,808 3,572 The Bank did not report any defaults of principal or interest or other breaches with respect to other issued bonds during the years 2023 and 2022. 26. SUBORDINATED LIABILITIES Issued Subordinated Debt Securities Subordinated debt securities were issued to strengthen regulatory capital. These liabilities are subordinated to all other liabilities of the Bank. As at 31 December 2023, they form a part of the Tier 2 capital of the Bank as defined by the CNB for the purposes of determination of its capital adequacy. These instruments are initially measured at fair value minus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest rate method. The Bank issued debt securities in the total nominal amount of CZK 4,602 million. ISIN Issue date Currency Maturity date Interest rate Call option Total nominal amount at issue date CZK m MB 3.30/29 CZ0003704918 25 Sep 2019 CZK 25 Sep 2029 3.30% p.a. after 5 years 2,001 MB 3.79/30 CZ0003705188 30 Jan 2020 CZK 30 Jan 2030 3.79% p.a. after 5 years 2,601 Amortised cost of the outstanding subordinated debt securities: CZK m 31 Dec 2023 31 Dec 2022 Subordinated debt securities at amortised cost 4,690 4,687 Total 4,690 4,687 The Bank did not report any defaults of principal or interest or other breaches with respect to subordinated liabilities during the years 2023 and 2022. Subordinated Deposits In the second quarter of 2023, the Bank strengthened its capital and eligible liabilities through a subordinated deposit offering. The Bank has received subordinated deposits in the amount of CZK 2.9 billion. The term of the subordinated deposit is set at five years with a guaranteed interest rate of 7 percent for the entire term. As at 31 December 2023, they form in the partial amount of CZK 2.6 billion a part of the Tier 2 capital of the Bank as defined by the CNB for the purposes of determination of its capital adequacy (see note 43.1). CZK m 31 Dec 2023 31 Dec 2022 Subordinated deposits at amortised cost 2,914 - Total 2,914 - 264 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 27. FINANCIAL DERIVATIVES Financial derivatives include Over the Counter (OTC) derivatives. The Bank enters into foreign exchange derivatives (currency swaps, currency forwards) to economically hedge its foreign currency risk but these derivatives are not designated at initial recognition as hedging derivatives, they are held under Other business model (Derivatives classified as held for trading) and measured at FVTPL and presented in the lines “Derivative financial instruments with positive/ negative fair value“ (derivatives with positive fair values within assets, derivatives with negative fair values within liabilities). The Bank designates at initial recognition interest rate swaps derivatives as hedging instruments according to IAS 39, in order to hedge its exposure to the change of the fair value of a defined part of portfolio of loans to customers or loan commitments related to interest rate risk (see note 5.6.9). The Bank designated at initial recognition certain interest rate swaps derivatives as hedging instruments according to IAS 39, in order to hedge its exposure to interest rate risks from its floating-rate bearing assets. The Bank hedges interest rate risk to the extent of benchmark interest rate exposure on its floating-rate bearing assets to mitigate variability in its cash flows. In the statement of financial position, derivatives with positive fair values (total fair value including accrued interest) are presented in the line item “Hedging derivatives with positive fair values“, derivatives with negative fair values (total fair value including accrued interest) are disclosed in the line “Hedging derivatives with negative fair values“. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in OCI and accumulated in the “Other reserves“. The effective portion of changes in the fair value of the derivative that is recognised in OCI is limited to the cumulative change in the fair value of the hedged item, determined on a present value basis, from the inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss “Net income from financial operations“. The amount accumulated in the hedging reserve is reclassified to profit or loss in the same period or periods during which the hedged expected future cash flows affect profit or loss. In years 2023 and 2022, immaterial ineffectiveness on hedging relationship was recognised in profit or loss. Financial derivatives classified as held for trading: 31 Dec 2023 Nominal value Fair value CZK m Assets Liabilities Assets Liabilities CURRENCY DERIVATIVES Currency swaps 1,734 1,745 1 13 Currency forwards 2,617 2,612 66 61 Cross currency interest rate swaps - discontinued fair value hedges 732 729 19 27 INTEREST RATE DERIVATIVES Interest rate swaps - discontinued fair value hedges 7,673 7,673 458 422 Total derivatives for trading 12,756 12,759 544 523 31 Dec 2022 Nominal value Fair value CZK m Assets Liabilities Assets Liabilities CURRENCY DERIVATIVES Currency swaps 912 916 - 3 Currency forwards 3,017 3,011 86 81 INTEREST RATE DERIVATIVES Interest rate swaps - discontinued fair value hedges 5,200 5,200 675 663 Total derivatives for trading 9,129 9,127 761 747 265 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 Financial derivatives designated at initial recognition as hedging derivatives: 31 Dec 2023 Nominal value Fair value CZK m Assets Liabilities Assets Liabilities INTEREST RATE DERIVATIVES Interest rate swaps designated as fair value hedges 1) 120,564 120,564 2,701 4,490 CURRENCY DERIVATIVES Cross currency interest rate swaps designed as fair value hedges 1,996 2,055 - 58 Total hedging derivatives 122,560 122,619 2,701 4,548 1) The increase in nominal value of hedging derivatives in 2023 compared to 2022 is mainly driven by purchases of Government bonds being hedged. 31 Dec 2022 Nominal value Fair value CZK m Assets Liabilities Assets Liabilities INTEREST RATE DERIVATIVES Interest rate swaps designated as fair value hedges 63,981 63,981 4,919 845 CURRENCY DERIVATIVES Cross currency interest rate swaps designed as fair value hedges 1,457 1,447 23 - Total hedging derivatives 65,438 65,428 4,942 845 28. INTANGIBLE ASSETS CZK m Software purchased Software internally developed Core Deposit Intangible (CDI) Intangibles not yet activated Total Carrying amount as at 31 Dec 2021 162 2,395 92 338 2,987 Additions to assets 111 762 - 845 1,718 Activated assets during period - - - (873) (873) Amortisation for period (100) (506) (28) - (634) Impairment of assets - - (13) - (13) Carrying amount as at 31 Dec 2022 173 2,651 51 310 3,185 Additions to assets 62 537 - 631 1,230 Activated assets during period - - - (599) (599) Amortisation for period (92) (543) (23) - (658) Impairment of assets - - - - - Carrying amount as at 31 Dec 2023 143 2,645 28 342 3,158 CZK m Software purchased Software internally developed Core Deposit Intangible (CDI) Intangibles not yet activated Total Cost as at 31 Dec 2021 985 6,889 144 338 8,356 Accumulated Amortisation and Impairment 2021 (823) (4,494) (52) - (5,369) Carrying amount as at 31 Dec 2021 162 2,395 92 338 2,987 Cost as at 31 Dec 2022 954 7,082 144 310 8,490 Accumulated Amortisation and Impairment 2022 (781) (4,431) (93) - (5,305) Carrying amount as at 31 Dec 2022 173 2,651 51 310 3,185 Cost as at 31 Dec 2023 1,015 7,620 138 342 9,115 Accumulated Amortisation and Impairment 2023 (872) (4,975) (110) - (5,957) Carrying amount as at 31 Dec 2023 143 2,645 28 342 3,158 Annual costs related to research and development (that did not meet capitalisation criteria) amounted to CZK 107 million in 2023 (2022: CZK 106 million). 266 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 29. PROPERTY AND EQUIPMENT CZK m Capital improvements of leased assets Equipment and machinery Fixtures and other tangibles Right-of-use assets – real estates Right-of-use assets – other assets Property and equipment not yet activated Total Carrying amount as at 31 Dec 2021 372 561 44 1,638 1 3 2,619 Additions to assets 26 80 3 165 2 295 571 Disposals/Activated assets during period - (16) - - - (276) (292) Depreciation for period (72) (140) (17) (335) (1) - (565) Impairment of assets 1) (1) - - (16) (2) - (19) Carrying amount as at 31 Dec 2022 325 485 30 1,452 - 22 2,314 Additions to assets 58 148 7 481 2) - 684 1,378 Disposals/Activated assets during period (1) (33) - - - (694) (728) Depreciation for period (65) (135) (12) (319) - - (531) Impairment of assets 1) - (3) - (32) - - (35) Carrying amount as at 31 Dec 2023 317 462 25 1,582 - 12 2,398 1) Impairment of assets related to “Right-of-use assets – real estates“ results from ATMs and branches terminations. 2) Increase of amount in 2023 is mainly driven by prolonging the lease term of the Prague Headquarters building by 2 years. CZK m Capital improvements of leased assets Equipment and machinery Fixtures and other tangibles Right-of-use assets – real estates Right-of-use assets – other assets Property and equipment not yet activated Total Cost as at 31 Dec 2021 1,035 1,416 138 2,572 10 3 5,174 Accumulated Depreciation 2021 (663) (855) (94) (934) (9) - (2,555) Carrying amount as at 31 Dec 2021 372 561 44 1,638 1 3 2,619 Cost as at 31 Dec 2022 1,048 1,447 139 2,676 - 22 5,332 Accumulated Depreciation 2022 (723) (962) (109) (1,224) - - (3,018) Carrying amount as at 31 Dec 2022 325 485 30 1,452 - 22 2,314 Cost as at 31 Dec 2023 1,054 1,322 140 3,023 - 12 5,551 Accumulated Depreciation 2023 (737) (860) (115) (1,441) - - (3,153) Carrying amount as at 31 Dec 2023 317 462 25 1,582 - 12 2,398 267 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 30. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES 31 Dec 2023 CZK m Name Registered office Business activity Equity 31 Dec 2023 Share of voting rights Share in equity Cost Book value MONETA Auto, s.r.o. Vyskočilova 1442/1b, 140 00 Prague 4 Auto financing (Loans and Leases) 672 100% 100% 6,787 1,860 MONETA Leasing, s.r.o. Vyskočilova 1442/1b, 140 00 Prague 4 Financing of loans and leasing 233 2) 100% 100% 2,938 3 MONETA Stavební Spořitelna, a.s. Vyskočilova 1442/1b, 140 00 Prague 4 Building savings and bridging loans 2,832 100% 100% 2,603 2,603 CBCB - Czech Banking Credit Bureau, a.s. 1) Štětkova 1638/18 140 00 Prague 4 Banking Credit Register 3 2),3) 20% 20% - - Total investments in subsidiaries and associates as at 31 Dec 2023 12,328 4,466 1) The Bank holds its share in CBCB - Czech Banking Credit Bureau, a.s. in order to obtain information related to the credit quality of current and potential customers. 2) According to IFRS Accounting Standards - unaudited. 3) Share of equity belonging to the Bank. 31 Dec 2022 CZK m Name Registered office Business activity Equity 31 Dec 2022 Share of voting rights Share in equity Cost Book value MONETA Auto, s.r.o. Vyskočilova 1442/1b, 140 00 Prague 4 Auto financing (Loans and Leases) 799 100% 100% 6,787 1,860 MONETA Leasing, s.r.o. Vyskočilova 1442/1b, 140 00 Prague 4 Financing of loans and leasing 249 2) 100% 100% 2,938 3 MONETA Stavební Spořitelna, a.s. Vyskočilova 1442/1b, 140 00 Prague 4 Building savings and bridging loans 2,824 100% 100% 2,603 2,603 CBCB - Czech Banking Credit Bureau, a.s. 1) Štětkova 1638/18 140 00 Prague 4 Banking Credit Register 3 2),3) 20% 20% - - Total investments in subsidiaries and associates as at 31 Dec 2022 12,328 4,466 1) The Bank holds its share in CBCB - Czech Banking Credit Bureau, a.s. in order to obtain information related to the credit quality of current and potential customers. 2) According to IFRS Accounting Standards - unaudited. 3) Share of equity belonging to the Bank. In 2023, the Bank provided tests of these investments for potential impairment. The assessments for MONETA Auto, s.r.o., and MONETA Stavební Spořitelna, a.s., have been made with the following assumptions: value in use (recoverable amount) has been determined using cash flow predictions based on financial budgets covering a five-year period, with a terminal growth rate of 2% applied thereafter (2022: 2%). The forecast cash flows have been discounted at an after-tax rate of 12% (2022: 13%) and the resulting net present value of future cash flows was compared to the carrying value of these investments. No impairment loss was identified in years 2023 and 2022. The assessments for MONETA Leasing, s.r.o., have been made with the following assumptions: value in use (recoverable amount) has been determined using cash flow predictions based on financial budgets covering a five-year period. The forecast cash flows have been discounted at an after-tax rate of 12% (2022: 13%) and the resulting net present value of future cash flows was compared to the carrying value of this investment. No impairment was identified in 2023 (2022: CZK 0 million). Since November 2022, MONETA Leasing, s.r.o., ceased to provide new financing and started only maintaining existing loan and lease contracts. In line with IFRS 5 MONETA Leasing, s.r.o., shall not be reported as a discontinued operation. Information about financial results of subsidiaries is available in the investor relations section of the Bank’s website at: http://investors.moneta.cz. 268 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 Changes in investments in subsidiaries and associates in 2023 CZK m Book value 1 Jan 2023 Change Book value 31 Dec 2023 MONETA Auto, s.r.o. 1,860 - 1,860 MONETA Leasing, s.r.o. 3 - 3 MONETA Stavební Spořitelna, a.s. 2,603 - 2,603 CBCB - Czech Banking Credit Bureau, a.s. 1) - - - Total 4,466 - 4,466 1) The book value of CBCB - Czech Banking Credit Bureau is CZK 240,000 as at 31 December 2023 (as at 31 December 2022: CZK 240,000). Changes in investments in subsidiaries and associates in 2022 CZK m Book value 1 Jan 2022 Change Book value 31 Dec 2022 MONETA Auto, s.r.o. 1,860 - 1,860 MONETA Leasing, s.r.o. 3 - 3 MONETA Stavební Spořitelna, a.s. 2,603 - 2,603 CBCB - Czech Banking Credit Bureau, a.s. 1) - - - Total 4,466 - 4,466 1) The book value of CBCB - Czech Banking Credit Bureau is CZK 240,000 as at 31 December 2023 (as at 31 December 2022: CZK 240,000). 31. CURRENT TAX ASSETS AND CURRENT TAX LIABILITIES CZK m 31 Dec 2023 31 Dec 2022 Income tax receivable 57 - Income tax liabilities - 434 Corporate income tax advances were offset with current income tax payable in the 2022 tax return and the difference was settled with the tax authority in 2023. 32. DEFERRED TAX ASSETS AND LIABILITIES Deferred tax is determined based on all temporary and timing differences between the tax residual values of assets and liabilities and their residual book values in the Bank’s financial statements. Deferred tax is determined using the tax rate enacted by the balance sheet date. The tax rate used akso considers the impact of the Windfall tax. For the determination of deferred tax assets and liabilities as at 31 December 2023, a tax rate of 21% is used (31 December 2022: 20.74%). The estimation is based on the current operating plan and reflects increase in corporate income tax rate from 19% to 21%. The recognition of deferred tax assets relies on an assessment of the probability and sufficiency of future taxable profits, future reversals of existing taxable temporary differences and ongoing tax planning strategies. Deferred tax assets and liabilities consist of the following differences: CZK m 31 Dec 2023 31 Dec 2022 Deferred tax liabilities (457) (436) Difference between book value and tax residual value of long-lived assets (457) (436) Deferred tax assets 130 116 Loss allowances for loans and receivables to customers 10 40 Difference between book value and tax residual value of long- lived assets 33 21 Other temporary variances 87 55 Net deferred tax at the end of period 1) (327) (320) 1) The Bank is offsetting deferred tax asset and deferred tax liability and reports net deferred tax. 269 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 The following table shows the movement of the net deferred tax asset: CZK m 2023 2022 Net deferred tax at the beginning of period (320) (219) Change in net deferred tax - total profit or loss impact (7) (101) - Loss allowances for loans and receivables to customers (30) (13) - Difference between book value and tax residual value of long- lived assets (9) (77) - Other temporary variances 32 (11) Change in net deferred tax - equity impact - - - Cash flow hedge reserve – effective portion of changes in FV - - Net deferred tax at the end of period (327) (320) 33. OTHER ASSETS CZK m 31 Dec 2023 31 Dec 2022 Accounts receivable 113 19 Advances and guarantees for rent related services 182 181 Other receivables net of allowances 34 34 out of which: allowances (17) (16) Prepayments 297 319 Other accruals 341 441 Total other assets 967 994 34. DUE TO BANKS The Bank has the following liabilities to other banks: CZK m 31 Dec 2023 31 Dec 2022 Deposits on demand 626 348 Liabilities arising from repurchase agreements 1) 2,531 - Cash collateral received 2) 563 3,931 Other due to banks 3) 1,731 1,688 Total due to banks 5,451 5,967 Type of rate: Fixed interest rate 4,262 1,688 Floating interest rate 1,189 4,279 1) For more details about financial assets granted as collateral for Liabilities arising from repurchase agreements see note 21. 2) Cash collaterals received represent Credit Support Annex (CSA) Collaterals of banks for derivative transactions in the amount of CZK 563 million as at 31 December 2023 (CZK 3,931 million as at 31 December 2022). 3) Other due to banks comprises loan provided by European Investment Bank. This loan amounts to CZK 1,731 million as at 31 December 2023 (CZK 1,688 million as at 31 December 2022). 35. DUE TO CUSTOMERS Breakdown of due to customers by sector: CZK m 31 Dec 2023 31 Dec 2022 Financial organisations 2,141 8,032 Non-financial organisations 43,623 38,210 Insurance organisations 655 650 Government sector 8,353 6,381 Non-profit organisations 12,141 6,992 Entrepreneurs 17,202 15,615 Resident individuals 284,643 226,062 Non-residents 2,816 2,432 Total Due to customers 371,574 304,374 Rate type: Fixed interest rate 53,588 41,132 Floating interest rate 1) 317,370 262,384 Non-interest-bearing 616 858 Total Due to customers 371,574 304,374 1) This item principally includes client deposits where the Bank has the option to reset interest rates and hence, they are not sensitive to interest rate changes. Generally, it is the rate declared by the Bank. Breakdown of due to customers by product is as follows: CZK m 31 Dec 2023 31 Dec 2022 Retail Current Accounts 52,592 57,787 Retail Savings Accounts and Term Deposits 233,605 169,594 Commercial Current Accounts 41,759 43,669 Commercial Savings Accounts and Term Deposits 43,018 32,474 Cash collateral received 270 491 Other liabilities towards customers 330 359 Total Due to customers 371,574 304,374 270 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 36. PROVISIONS CZK m 2023 2022 Provisions for undrawn loan commitments 1) 1 Jan 129 113 Additions to provisions 299 349 Use of provisions - - Release of unused provisions (327) (333) 31 Dec 101 129 Provisions for legal claims 1 Jan - - Additions to provisions - - Use of provisions - - Release of unused provisions - - 31 Dec - - Other provisions 1 Jan 173 106 Additions to provisions 134 155 Use of provisions (133) (88) Release of unused provisions (9) - 31 Dec 165 173 Total provisions 266 302 1) Majority of the balance results from overdraft facilities and working capital and is usually settled up to 1 year. Provisions for undrawn loan commitments are created for irrevocable loan commitments (refer to note 40). The Bank created other provisions for the legal obligation of the Bank associated with the retirement of the premises leased for operation, for commissions claw-back and for collection services. Other provisions CZK m 31 Dec 2023 31 Dec 2022 Provisions for assets retirement obligation 1) 34 36 Provisions for restructuring 2 30 Provisions for commissions claw-back 2) 118 92 Other 11 15 Total other provisions 165 173 1) Settlement is driven by abandonment of leased property. Lease term of such contracts is shown in note 41. 2) Commission claw-back is applicable over 60 months from origination of the contract. 37. OTHER LIABILITIES CZK m 31 Dec 2023 31 Dec 2022 Trade payables 261 262 Payables to employees 127 135 Payables for social and health insurance 58 59 Payables to the state 158 63 Accruals for uninvoiced services/goods 394 383 Accruals for employees bonuses 1) 298 223 Clearing account of payment settlement 2) 621 693 Deferred income and accrued expenses 27 29 Lease liabilities 1,500 1,314 Other 3) 67 87 Total other liabilities 3,511 3,248 1) Accruals for employee bonuses as at 31 December 2023 include bonuses to members of the Management Board under the EVIP policy of CZK 142 million (2022: CZK 96 million) described in note 39 and other management, retention or sales bonuses. 2) Line “Clearing account of payment settlement“ comprises especially balances from settlement of card transactions and payments transactions processed via the CNB clearing system. The line may result either as an asset or liability. In the case, the closing balance is an asset, it is recognised within “Other assets“. 3) Line “Other“ as at 31 December 2023 includes an unsolicited dividend for the years 2019 – 2023 in the amount ofCZK 2 million (2022: CZK 1 million). 38. EQUITY 38.1 SHARE CAPITAL All of the Bank’s shares are ordinary freely transferable shares with no special rights or restrictions attached. The ordinary shares carry, among other rights provided for in law and the Bank’s Articles of Association, the right to participate in the General Meeting of the Bank through exercising voting rights (with one vote per share) and the right to share in profits. Since 23 November 2015, the registered capital of the Bank had been CZK 511 million, was fully paid up and is presented as Share capital in the statement of financial position. On 11 April 2016, 511 ordinary registered book-entry shares in the Bank with a par value of CZK 1,000,000 each were split into 511,000,000 fully paid ordinary registered book-entry shares with a par value of CZK 1.00 each. On 26 November 2019 the increase in the registered share capital was approved by shareholders of the Bank at the General Meeting and was accomplished exclusively through the increase of the nominal value of the shares from the original nominal value of CZK 1.00 to CZK 20.00. The registered share capital currently consists of 511,000,000 fully paid ordinary registered book-entry shares with a par value of CZK 20.00 each. Since then, the Bank has not issued any ordinary or other shares. The Bank did not acquire any of its own shares. 271 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 The latest available list of entities recorded in the registry of book-entry shares of the Bank kept by the Central Securities Depository Prague (Centrální depozitář cenných papírů, a.s.) with a shareholding interest of more than 1% of the Bank’s registered share capital is available in the investor relations section of the Bank’s website at: https://investors. moneta.cz/shareholder-structure. Such entities may not necessarily be the beneficial shareholders of the Bank but may hold shares of the Bank for the beneficial shareholders (as securities brokers, banks, custodians or nominees). Please refer to chapter 1.4 of the Annual financial report to the section “Shareholder structure” for the information on the shareholder structure of the Bank as at 31 December 2023. As far as the Bank is aware, no shareholder was a controlling entity of the Bank as at 31 December 2023. Overview of related parties holding shares of the Bank as at 31 December 2023: Shareholder 2023 2022 Number of shares Ownership in % Number of shares Ownership in % Tanemo a.s., Entity with significant influence on MONETA 153,000,000 29.941% 153,000,000 29.941% Tomáš Spurný, Chairman of the Management Board 304,839 0.060% 304,839 0.060% Jan Friček, Member of the Management Board 35,000 0.007% 35,000 0.007% Jan Novotný, Member of the Management Board 23,300 0.005% 23,300 0.005% Carl Normann Vökt, Vice-Chairman of the Board 25,122 0.005% 22,222 0.004% Tatiana Eichler, closely related to the Chairman of the Supervisory Board 100,000 0.020% 100,000 0.020% Michal Petrman, Member of the Supervisory Board and Chairman of the Audit Committee 15,610 0.003% 15,610 0.003% No other related person or other related party with a relationship to the Bank held any shares of the Bank as at 31 December 2023 or 31 December 2022. 38.2 STATUTORY RESERVE AND RESERVE FROM REVALUATION OF FINANCIAL ASSETS Statutory reserve The reserve fund stood at CZK 102 million as at 31 December 2023 (31 December 2022: CZK 102 million) represents Legal and statutory reserve of MONETA Money Bank, a.s. Reserve from revaluation of FVTOCI (presented in “Other reserves“) CZK m Debt instruments Equity instruments Deferred Tax Total 1 Jan 2023 - 1 - 1 Gains and losses in the period recognised in the income statement - - - - Gains and losses in the period recognised in Reserve from revaluation of FVTOCI - - - - 31 Dec 2023 - 1 - 1 CZK m Debt instruments Equity instruments Deferred Tax Total 1 Jan 2022 - 1 - 1 Gains and losses in the period recognised in the income statement - - - - Gains and losses in the period recognised in Reserve from revaluation of FVTOCI - - - - 31 Dec 2022 - 1 - 1 272 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 38.3 DIVIDENDS PER SHARE The following table shows dividends per share paid to owners: CZK 2023 2022 Paid dividends per share within period 8.00 10.00 1) 1) The General Meeting held on 20 December 2021 approved the dividend payment of CZK 3 per share which was paid on 17 January 2022. The General Meeting held on 26 April 2022 approved the dividend payment of CZK 7 per share which was paid on 25 May 2022. On 2 February 2024, the Bank’s Management Board announced that it will propose to shareholders a dividend for the year 2023 in the amount of CZK 9 per share for approval at the Annual General Meeting, which will be held on 23 April 2024. The total amount of the distributed dividend will reach CZK 4,599 million. 39. BONUSES TIED TO THE EQUITY Executive Variable Incentive Plan (EVIP) In 2017, the Supervisory Board adopted the Executive Variable Incentive Plan (EVIP) remuneration policy relevant for the Management Board members and other Material Risk Takers for performance in (fiscal) year 2017 and onward. The total balance of accrual for EVIP disclosed in “Other liabilities“ as at 31 December 2023 is CZK 142.1 million (31 December 2022: CZK 96.2 million), of which CZK 59.7 million (31 December 2022: CZK 34.9 million) relates to cash settled share based payment remuneration that will be paid in the following years in three to five cash instalments as defined in EVIP conditions regardless of potential termination of the membership of the Management Board. This variable part of EVIP bonuses is tied to the total shareholder return (TSR), hence the amount paid will vary according to changes in the market price of the Bank’s shares and profit distributions of the Bank (dividend paid). For more details about EVIP (esp. total benefits awarded and paid in 2018 to 2023) see Remuneration Report 2023 (remuneration documents have been published and are available on the investors website in the Remuneration section at https://investors.moneta. cz/dokumenty-spolecnosti). 40. CONTINGENT LIABILITIES 40.1 LOAN COMMITMENTS AND ISSUED GUARANTEES CZK m 31 Dec 2023 31 Dec 2022 Loan commitment 24,101 30,301 Issued guarantees 864 879 Credit limits on issued guarantees 1) 1,372 1,199 Issued letter of credit 5 5 Total loan commitments and issued guarantees – gross carrying value 26,342 32,384 Provisions to expected credit losses (115) (145) Total loan commitments and issued guarantees – net carrying value 26,227 32,239 1) This line represents committed limits on guarantees that can be withdrawn by customers. 40.2 LEGAL DISPUTES The Bank is not a party of any significant legal disputes. 41. LEASES The Bank as a Lessee The major lease contracts of the Bank are leases of administrative premises in Prague, Ostrava, leases of branches’ premises and space for ATM’s across the Czech Republic. The Bank determines the lease term as specified in the contract (for definite period leases) or the best estimate made by management (for all other contracts) based on historical experience and branch management strategy. The Bank assesses the lease term at commencement date and reassesses it on annual basis or if there is a significant event or significant change in circumstances or branch management strategy. The lease payments vary with the location of premises and are payable either in CZK or EUR. Some of the leases are indexed annually, depending on development of inflation. The Bank leases IT equipment, ATMs and advertising spaces, which are expected to be closed within 12 months. These leases are short-term and/or leases of low-value items. The Bank has elected not to recognise right-of-use assets and lease liabilities for these leases. 273 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 Movement of Right-of-use resulting from leases for which the Bank is a lessee is presented below: CZK m Buildings Space under ATMs Parking place IT Hardware Total Balance at 1 January 2023 1,370 67 15 - 1,452 Depreciation charge for the year (295) (20) (4) - (319) Additions and modifications to right-of-use assets 459 1) 15 7 - 481 Derecognition of right-of-use assets (30) (1) (1) - (32) Balance at 31 December 2023 1,504 61 17 - 1,582 1) The increase in 2023 is driven by the extension of the lease term of the Prague Headquarters building by 2 years. CZK m Buildings Space under ATMs Parking place IT Hardware Total Balance at 1 January 2022 1,534 90 14 1 1,639 Depreciation charge for the year (309) (21) (5) (1) (336) Additions and modifications to right-of-use assets 159 - 6 2 167 Derecognition of right-of-use assets (14) (2) - (2) (18) Balance at 31 December 2022 1,370 67 15 - 1,452 Information about lease term of particular leased assets categories are presented below: 31 Dec 2023 CZK m Right-of-use assets Minimum lease term (in months) Maximum lease term (in months) Buildings 1,504 23 145 Space under ATMs 61 8 97 Parking place 17 15 142 IT Hardware - - - Total 1,582 31 Dec 2022 CZK m Right-of-use assets Minimum lease term (in months) Maximum lease term (in months) Buildings 1,370 20 130 Space under ATMs 67 25 97 Parking place 15 8 130 IT Hardware - - - Total 1,452 274 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 Minimum lease payments reconciliation: CZK m Minimum lease payments under all leases as at 31 December 2023 1,642 Recognition exemption for short-term and low- value leases 25 Effect from discounting at the incremental borrowing rate 1) (142) Liabilities from leases as at 31 December 2023 1,500 1) The weighted average of the borrowing rate used for discounting lease liabilities for 2023 is 2.72% (2022: 2.25%) for contracts denominated in CZK and 3.76% (2022: 0.79%) for contracts denominated in EUR. CZK m Minimum lease payments under all leases as at 31 December 2022 1,381 Recognition exemption for short-term and low- value leases 8 Effect from discounting at the incremental borrowing rate 1) (67) Liabilities from leases as at 31 December 2022 1,314 1) The weighted average of the borrowing rate used for discounting lease liabilities for 2023 is 2.72% (2022: 2.25%) for contracts denominated in CZK and 3.76% (2022: 0.79%) for contracts denominated in EUR. There were no leases with residual value guarantees or leases not yet commenced to which the Bank is committed. Some property leases contain early termination or extension option exercisable by the Bank up to one year before the end of the non-cancellable contract period. Where practicable, the Bank seeks to include extension options in new leases to provide operational flexibility. The extension options held are exercisable only by the Bank and not by the lessors. The Bank assesses at lease commencement date whether it is reasonably certain to exercise the extension options. The Bank reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant changes in circumstances within its control. A maturity analysis of lease liabilities: CZK m Total cash outflow for leases 1) in 2023 (as at 31 December 2023) 325 Future expected cash outflows - undiscounted 1,642 out of which: less than one year 321 out of which: between one and three years 553 out of which: more than three years 767 Effect from discounting at the incremental borrowing rate (142) Total lease liabilities as at 31 December 2023 1,500 1) The figure also includes interest payment of CZK 27 million (2022: CZK 19 million). CZK m Total cash outflow for leases in 2022 (as at 31 December 2022) 387 Future expected cash outflows - undiscounted 1,381 out of which: less than one year 304 out of which: between one and three years 489 out of which: more than three years 588 Effect from discounting at the incremental borrowing rate (67) Total lease liabilities as at 31 December 2022 1,314 The Bank as a Lessor The Bank leases out its leased premises that have been presented as part of a right of use asset to its subsidiaries in the form of operating leasing. 275 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 42. TRANSACTIONS WITH RELATED PARTIES The Bank’s related parties include entities with significant influence on MONETA, subsidiaries, associates, key management personnel, Supervisory Board and their close family members. Transactions provided by the Bank to related parties represent bank services (esp. loans and interest-bearing deposits) and other services such as administrative support, finance, risk or compliance function. Expenses from transactions with related parties comprise remuneration to members of the Supervisory Board, Management Board and other Key Executive Managers. Transactions with related parties are carried out in the normal course of business operations and conducted under normal market conditions. The balances at year end are unsecured. Transactions with related parties: 2023 CZK m Related parties with significant influence on MONETA Subsidiaries Associates Key members of the management 1) and Supervisory Board Total Statement of financial position Loans and receivables to customers - 11,479 - 34 11,513 Derivative financial instruments with positive fair values 41 - - - 41 Hedging derivatives with positive fair values 317 - - - 317 Other assets - 73 - - 73 Due to customers 30 129 - 20 179 Due to banks 289 28 - - 317 Issued bonds - 10,486 - - 10,486 Derivative financial instruments with negative fair values 47 - - - 47 Hedging derivatives with negative fair values 335 - - - 335 Other liabilities - 1 - - 1 Statement of profit or loss Interest and similar income 251 70 - - 321 Interest expense and similar charges (32) (335) - - (367) Fee and commission income 6 16 - - 22 Fee and commission expense (11) - - - (11) Net income from financial operations (470) - - - (470) Operating expenses (48) 2) (33) (24) (124) (229) Dividend income - 1,291 3 - 1,294 Other operating income - 91 - - 91 1) Includes members of the Management Board and other Key Executive Managers. 2) Comprises mainly telecommunication services. 276 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 2022 CZK m Related parties with significant influence on MONETA Subsidiaries Associates Key members of the management 1) and Supervisory Board Total Statement of financial position Loans and receivables to customers - 12,079 - 36 12,115 Loans and receivables to banks - 691 - - 691 Derivative financial instruments with positive fair values 65 - - - 65 Hedging derivatives with positive fair values 542 - - - 542 Other assets - 82 - - 82 Due to customers 20 226 - 20 266 Due to banks 512 14 - - 526 Issued bonds - 12,738 - - 12,738 Derivative financial instruments with negative fair values 77 - - - 77 Hedging derivatives with negative fair values 21 - - - 21 Other liabilities - 1 - - 1 Statement of profit or loss Interest and similar income 131 24 - - 155 Interest expense and similar charges (14) (371) - - (385) Fee and commission income 2 18 - - 20 Fee and commission expense (6) - - - (6) Net income from financial operations 183 - - - 183 Operating expenses 63 2) (34) (19) (134) (124) Dividend income - 705 3 - 708 Other operating income - 114 - - 114 1) Includes members of the Management Board and other Key Executive Managers. 2) Comprises mainly telecommunication services. In 2022, it also comprises reimbursement of cost of canceled Acquisition. Loans and receivables to customers in the amount of CZK 11,479 million as at 31 December 2023 (31 December 2022: CZK 12,079 million) represent intercompany loans to the Bank’s subsidiaries (MONETA Leasing, s.r.o., MONETA Auto, s.r.o.). The line “Operating expenses“ from transactions with key members of the management and Supervisory Board includes fixed remuneration paid and variable remuneration recognised to members of the Management Board, Supervisory Board and other Key Executive Managers during the year. Tanemo a.s., a subsidiary of PPF Group, became a related party with significant influence on MONETA in 2021, thus transactions with entities from PPF Group are considered as related parties transactions in 2023 and 2022. 277 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 42.1 REMUNERATION TO MEMBERS OF SUPERVISORYBOARD, MANAGEMENT BOARDAND OTHER KEY EXECUTIVE MANAGERS The following remuneration was paid to the key members of the management and Supervisory Board during the year: CZK m 2023 2022 Short-term employee benefits, including: 97 99 Members of the Management Board and Other Key Executive Managers 85 87 Members of the Supervisory Board 12 12 Other long-term employee benefits, including: 27 35 Members of the Management Board and Other Key Executive Managers 27 35 Total remuneration 124 134 This table shows wages, compensation, benefits, and payments relating to retention programmes that were paid to members of the Management Board, Supervisory Board, and other Key Executive Managers during the year. It also includes long-term benefits paid during the year that were granted in previous years. 43. RISK MANAGEMENT The Bank aims to achieve competitive returns at an acceptable risk level as part of its business activities. Risk management covers the control of risks associated with all business activities in the environment in which the Bank operates and ensures that the risks taken are in compliance with regulatory limits, as well as falling within its risk appetite. When managing risks, the Bank relies on three pillars: • people (the qualifications and experience of its employees); • risk governance (including well-defined information flows, processes, model governance and responsibilities); and • risk data (including the use of sophisticated analytical instruments and technologies). This combination has supported the Bank’s success and the stability of its economic results. The Bank’s risk management processes are underpinned by advanced analytics based on an enterprise-wide data warehouse and centralised underwriting process. This allows the Bank to price on a risk basis, according to its in-house scoring and rating models. The level of risk is measured in terms of its impact on the value of assets and/or capital as well as on the profitability of the Bank. To determine this, the Bank evaluates potential effects on its business of changes in political, economic, market and operational conditions, as well as changes in clients’ creditworthiness. 43.1 CAPITAL MANAGEMENT The framework used for capital management involves monitoring and complying with the capital adequacy limit in accordance with the Basel III rules codified in Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012, as amended (hereafter “CRR“), Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, as amended (hereafter “CRD“), and Directive (EU) 2014/59 of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms, as amended (hereafter “BRRD“), and their implementing measures. This European regulatory framework was significantly amended in 2019. Furthermore, from a local perspective, the regulatory framework is given mainly by Banking Act No. 21/1992 Coll., as amended, the CNB Decree No. 163/2014 Coll., as amended, and Act No. 374/2015 Coll., on recovery and resolution in the financial market, as amended. The Bank manages its capital in order to meet the regulatory capital adequacy requirements prescribed in the abovementioned regulations and allow the Bank to continue its operations on a going concern basis while maximising the return to shareholders through the optimisation of the Debt-to-Equity Ratio. The minimum regulatory capital requirement (Pillar I) is equal to 8% of risk weighted assets. Additionally, in 2023, the Bank was obliged to maintain on a consolidated basis the Pillar II capital requirement in the amount of 2.6% (from 1 March 2022). The Bank was also obliged to maintain a mandatory capital conservation buffer of 2.5% and a countercyclical capital buffer (of 2% from 1 January 2023, of 2.5% from 1 April 2023, of 2.25% from 1 July 2023 and of 2% from 1 October 2023) that were applied for the whole Czech banking sector. Therefore, the overall minimum regulatory capital requirement on an individual basis was 12.5% and on a consolidated basis 15.1% as at 31 December 2023. From 1 January 2024, the Bank is obliged to maintain the Pillar II capital requirement on a consolidated basis in the amount of 278 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 2.3%, which means the overall minimum regulatory capital requirement for the Bank on a consolidated basis decreased to 14.8% from 1 January 2024. The Bank decided to maintain as a target a capital adequacy ratio at one percentage point above the overall regulatory minimum capital requirement both on an individual and a consolidated basis. This internal target is subject to an ongoing re-assessment by the Management Board of the Bank based on business results, regulatory changes and development needs. According to the Recovery and Resolution Act implementing BRRD, banks in the Czech Republic must comply with the Minimum Requirement for Own Funds and Eligible Liabilities (hereafter “MREL“). The Bank must fulfil the MREL requirement on an individual basis of 17.2% of its total risk exposure and 4.92% of its total exposure by 31 December 2023 at the latest and was obliged to fulfil the interim target level of the MREL requirement of 13.5% of its total risk exposure and 3.93% of its total exposure by 1 January 2022. The MREL requirement is applied for the Bank only on the individual basis. To calculate the regulatory capital requirement for credit risk on an individual basis the Bank uses the standardised approach. To calculate the capital requirement for operational risk, the Bank used the alternative standardised approach on an individual basis until the end of 2022. However, the Czech National Bank has prescribed that the capital requirement for operational risk must not fall below 75% of the capital requirement for operational risk per the standardised approach. From 2023, the Bank uses the standardised approach also on an individual basis. The Bank has calculated regulatory capital requirements against market risk of the Trading book since 3Q 2018. In addition to the Pillar I and to ensure a robust capital management framework, the Bank performs under the Pillar II a calculation of internal capital requirements, regular capital planning and stress testing. To calculate the internal capital requirement, the Bank applied methods similar to advanced approaches according to regulatory the Pillar I on a probability level at least 99.9%. The Bank creates a mid-term capital outlook on a regular basis, which predicts capital adequacy based on the predicted development of external environment, financial markets and the Bank’s portfolio characteristics. Next to the base capital plan, the Bank assesses the capital position under several stress scenarios. These are usually based on a worsening of the macroeconomic environment and key risks, which are identified during the Pillar II workshop with members of the Bank’s Management Board, selected senior managers of the Bank and key Executive representatives of subsidiaries. The Bank’s capital primarily consists of share capital, share premium and retained earnings that is the highest quality Common Equity Tier 1 capital, and issued Tier 2 capital. The Bank incorporates into Common Equity Tier 1 capital periodically (subject to permissions from the CNB) portion of its quarterly net profit lowered by expected dividend payments. The Bank met all regulatory requirements regarding capital adequacy in 2023. Regulatory capital on an individual basis and its components: CZK m 31 Dec 2023 31 Dec 2022 Common Equity Tier 1 capital CET 1 Subscribed share capital 10,220 10,220 Share premium - - Statutory reserve and Retained earnings including eligible profit for the year 17,905 17,123 Reserve from revaluation of FVTOCI 1 1 Items deductible from Tier 1 capital (1,195) (567) Tier 2 capital Qualifying subordinated liabilities 7,249 4,602 Total Regulatory Capital 34,180 31,379 43.2 CREDIT RISK Credit risk is the risk of loss for a party resulting from the failure of a counterparty to meet its obligations arising from the terms and conditions of the contract under which the party became the creditor of this counterparty. The Bank is exposed to credit risk in particular in the case of credits granted, unallowed debits, guarantees provided, letters of credit issued, bonds purchased, derivatives and interbank deals. In 2022 the Bank started analytical work on quantification of impact of climate change risk on overall portfolio credit risk. So far, the results have not indicated any impact on expected credit losses. 43.2.1 Credit Risk Management Credit risk management is organised along the following approval processes: Individually managed exposures represent exposures to entrepreneurs and SMEs where loans and lines of credit are approved based on an individual assessment of the borrower’s creditworthiness in connection with the loan size. Portfolio managed exposures include exposures to natural persons, natural persons acting as entrepreneurs, 279 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 and SMEs where loans and lines of credit are approved using an automated credit scoring process. Mortgages have a specific position as mortgages form a part of the retail exposures (usually portfolio managed) but a number of the processes and methods used fall within the category of individually managed exposures. The exposures to counterparties on the financial markets include the exposures to financial institutions and governments. These exposures primarily arise as a part of liquidity management and market risks management. The credit risk of these exposures is managed through limits to countries and counterparties approved mainly based on external ratings. Individually managed exposures (a) Internal Rating The Bank uses internal statistical and expert judgement-based rating models, which use the most recent available qualitative and quantitative information, to estimate the probability that a commercial borrower will default in the following 12 months. The rating calculation is based on an assessment of financial, behavioural, quantitative and qualitative information about the customer’s business. The rating models assign an obligor rating (OR) grade from zero to twenty-one to borrowers that are not in default. Borrowers in default are given the internal rating grade twenty-two (OR22). External ratings are also calibrated to the OR scale. The 23 ORs and their associated default probabilities representing the rating grade: • OR 0 to 5: 0% to 0.07%; • OR 6 to 10: 0.08% to 0.39%; • OR 11 to 15: 0.59% to 3.03%; • OR 16 to 21: 4.55% to 35.00%; • OR 22: 100%. For the clients with double entry book-keeping and yearly turnover above predefined threshold, the internal statistical rating model estimating level of credit risk based on customer’s financials is extended with an expert judgement-based qualitative and ESG module. The qualitative module considers qualitative criteria such as evaluation of the company owner, management, market position, product, supplier/customers chain, etc. ESG module considers the impact of environmental, social and governance factors to the credit risk. The outputs from these modules modify the rating derived from the internal statistical rating model. For commercial real estate (“CRE“) clients, the Bank uses an expert judgement-based model considering project information, sponsor track record, risk associated with the construction and the location of the project. The rating grades assigned by the model cover only a subset of the abovementioned OR scale. In order to ensure methodological and factualaccuracy, models are monitored on a regular basis. Internal rating is used inter alia for the definition of approval authorities and categorisation (see note 43.2.2). (b) Underwriting The approval process is based on an individual evaluation of a borrower and is executed at the Bank. Approval authorities are set on an individual basis and are determined by combining the level of exposure, the borrower’s internal rating, maturity, product and collateral. As part of the approval process, the Bank assesses the financial situation of the prospective borrower, the persons economically related to the borrower and the collateral being offered using internal and external data sources, including credit registers. The implemented IT solutions support the process of SME credit approval and administration facilitating the preparation of credit applications, linking them with data warehouses, document storage and the subsequent production of contract documentation. The system enables access to financial analysis tools including internal ratings. (c) Monitoring and Reporting All SME clients are monitored both individually and on a portfolio basis. Reports on the quality of the commercial portfolio are discussed by the Credit Committee (CRCO) each month. Individually-managed exposures above a certain threshold are also subject to at least a yearly credit review, which follows the approval process similar to new exposures. (d) Collection The Bank manages the Bank’s loans where recoverability of the exposure is not reasonably assured with the aim of achieving maximum recovery. The Bank engages affected borrowers with a view to recovering the Bank’s exposure. This may involve taking legal action against the borrower, restructuring the loans, taking relevant legal steps to realise collateral, debt sale or representing the Bank in insolvency proceedings. Portfolio managed exposures (a) Scoring Instruments When approving and monitoring portfolio-managed exposures, internal scoring models are used. These statistical models classify individual borrowers 280 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 into categories of homogeneous exposures using socio-demographic and behavioural data as well as information from the credit bureau. The calculated score for the commercial portfolio managed exposures is, similarly to individually managed exposures, mapped to the OR scale. The calculated score for retail portfolio managed performing exposures is grouped into five credit rating (CR) grades with associated OR grades and bands of probabilities of default in the following 12 months as outlined below: • CR1: OR 13 and better (1.3% and lower); • CR2: OR 14–OR 15 (1.3% to 3.2%); • CR3: OR 16–OR 17 (3.2% to 7.7%); • CR4: OR 18–OR 19 (7.7% to 15.8%); • CR5: OR 20–OR 22 (15.8% and greater). In order to ensure methodological and factual accuracy, models are monitored on a regular basis. (b) Underwriting The approval process is based on the use of internally or externally developed scoring models and access to external data sources (in particular credit registers). Approval strategies are set by the Bank. The Bank underwriters may approve individual exposures that do not pass the automatic approval process. Mortgages are mostly approved based on an individual assessment of the prospective borrower supported by input from internally-developed scoring models with approval required from an authorised underwriter from the Bank. (c) Monitoring and Reporting The Bank regularly monitors segments of the portfolio managed exposures, which are reported monthly to the Credit Committee (CRCO). (d) Collection The Bank has a comprehensive collection process which includes an automated collection system. The Bank optimises its overall recovery capacity and performance by using external capabilities (collection agencies and law offices) as well as debt sales of non-performing receivables usually within 24 months after the default. Within the collection process, the portfolio approach is taken for all Retail customers and Small Business customers in the early collections process and for all unsecured exposures in the pre-legal and legal collections process. The individual approach is taken for mortgages and other secured exposures in the pre-legal and legal process. Counterparties in the Financial Market (a) External Rating The main tool for measuring the credit risk of countries and counterparties (financial institutions and governments) with respect to transactions in financial markets is the rating set by international rating agencies: Standard & Poor’s, Moody’s and Fitch. The Bank sets individual limits for individual countries and counterparties, for which it requires a minimum short-term rating of A-1/P-1/F1 (exceptions must be properly approved). (b) Approval Process The approval of limits is based on an individual assessment with approval required from the Chief Risk Officer (CRO) or an authorised approver from the Bank. The approval levels are determined individually and are based primarily on the combination of the limit, external rating, maturity and product. In selected cases, the prior approval of the Credit Committee (CRCO) is required. (c) Monitoring and Reporting All counterparties and countries with a determined limit are monitored individually. The subject of the monitoring is primarily the external rating. Remedial measures (in particular a decrease/cancellation of the limit, categorisation of receivables) are approved by an authorised approver from the Bank. The Bank monitors compliance with limits. Any breach of limits is escalated to the Senior Manager Treasury and CRO. In addition, breaches over certain level are escalated also to the members of the Asset & Liability Committee (ALCO). 43.2.2 Categorisation of Exposures The Bank assigns exposures to individual categories in compliance with CNB Decree No. 163/2014 Coll. The categorisation is used mainly for regulatory reporting and calculation of loan loss allowances. The categorisation is as follows: • exposures without borrower default are classified as performing; • exposures where the borrower has defaulted are classified as non-performing. A default of a borrower is recognised if, given the borrower’s financial and economic situation, full repayment of exposures toward such a borrower is unlikely. This definition is in line with the definition of default according to EBA guidelines on the application of the definition of default under Article 178 of 281 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 Regulation (EU) No. 575/2013 (EBA/GL/2016/07). The Bank considers a borrower to be in default mainly if: • the material part of principal, interest or fees of any borrower’s exposure is more than 90 days past due, • any material exposure was restructured or categorised as non-performing forborne in past 12 months due to a deterioration in the borrower’s financial situation, • the borrower’s internal rating is OR 22, • a competent court has issued a decision on settling the borrower’s bankruptcy via a discharge from debts or reorganisation, • a borrower is subject to bankruptcy or settlement proceedings. 43.2.3 Collateral Assessment The Bank determines the nature and extent of collateral that is required either by individually assessing a prospective borrower’s creditworthiness or as an integral part of the given credit product. The Bank considers the following types of collateral acceptable for mitigating the credit risk on a loan or line of credit: • cash/deposits; • securities; • account receivables; • bank guarantees; • guarantee of a reliable third party; • insurance; • real estate properties; and • movable assets (machinery, equipment, breeding stock). For mortgages primarily real estate collateral is used, for commercial loans all types of collateral may be used. Retail consumer loans, credit cards and overdrafts are unsecured. To determine the realisable value of a collateral, the Bank uses internal and external expert appraisals. Internal appraisals are processed by the AML & Anti-Fraud & Collateral management department of the Risk Management Division, which is a department operating independently of the Bank’s sales and underwriting departments. The ultimate realisable value of the collateral is then set by applying collateral acceptance ratios reflecting the Bank’s ability to realise the collateral in case of default. Maximum values of collateral acceptance ratios are approved by the Credit Committee (CRCO). 43.2.4 Allowances Calculation Allowances for credit losses are determined using an expected credit loss approach as required under IFRS 9. The measurement of expected credit losses and the assessment of significant increases in credit risk considers information about past events and current conditions as well as reasonable and supportable forecasts of future events and economic conditions. The estimation and application of forward-looking information requires significant judgement. To calculate allowances, the portfolio is divided into three Stages and POCI (Purchased or Originated as Credit Impaired). The portfolio is further segmented into commercial and retail exposures by product. POCI includes exposures originated as credit impaired. These represent modified financial assets where material concessions were granted to obligors in default. Exposures which do not qualify for POCI are assigned to Stage 1, Stage 2 or Stage 3. Non-performing exposures belong to Stage 3. Performing exposures are assigned to Stage 2 when a significant increase in credit risk (SICR) occurred compared to their origination. Exposures that are not assigned to Stage 3 or 2 belong to Stage 1. The Bank considers mainly the following situations as SICR: • customer’s days past due are higher than 30; or • qualitative criteria including behavioural risk indicators suggest deterioration in credit risk; or • absolute remaining lifetime probability of default (PD) at reporting is higher than the specified threshold and any of the following conditions is met: 1. the relative change of the absolute and annualised remaining lifetime PD at reporting compared to origination is higher than the specified relative threshold; 2. the absolute increase of the absolute remaining lifetime PD at reporting compared to origination is higher than the specified absolute threshold. The Bank estimates a 12-month expected credit loss (ECL) for Stage 1 exposures and lifetime expected credit loss for Stage 2, Stage 3 and POCI. The Bank also uses multiple macroeconomic forecasts for estimation of future losses; thus the future developmentof macroeconomic variables is reflected in risk parameters. The sensitivity of the ECL model is differentiated across the portfolio segments with a sufficient level of homogeneity in relation to the underlying credit risk. The main factors influencing the level of ECL are unemployment rate and rate of GDP growth. The Bank uses three macroeconomic scenarios derived from the base macroeconomic trajectory with assigned probabilities: optimistic (25%), base (50%) and adverse (25%). The calculation of allowances is based on statistical models. These models are used for the calculation of 282 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 the probability of default (PD), loss given default (LGD), exposure at default (EAD) and the cure rate (CR). Loan loss allowances for some non-performing commercial individually managed exposures are set individually based on expected discounted cash flows. In situations, where the statistical models used for the calculation of allowances do not sufficiently capture the forward- looking risks at the ECL level, management overlays are applied. Management overlays are described in detail below. PD and CR calculation PD and CR are calculated based on the transition matrices model. Transition matrices track migration between rating grades, defaulted and cured status. They provide an intuitive and comprehensive overview of portfolio movements across time. From these matrices through-the-cycle (TTC) matrices are created for each segment that are independent of the economy’s position within the macroeconomic cycle. PIT (point-in-time) matrices for each segment and month are created by conditioning the TTC matrices with an adjustment for the current and expected state of the macroeconomy. PD and CR are then derived from PIT matrices. LGD calculation For the majority of exposures without collateral and for an unsecured part of the collateralised exposures, models reflecting historical recoveries discounted by the original effective interest rate are used to derive LGD parameters. LGD for the collateralised part of the exposure is based on forward -looking expectations regarding the future collateral value based on macroeconomic scenarios. EAD calculation The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by a contract or otherwise, expected drawdowns on committed facilities, and accrued interest from missed payments. There is a provision created for undrawn loan commitments by using estimate of utilisation in case of default that determines the amount of loan drawn. Impact of Macroeconomic Environment Deterioration on AllowanceCalculation To reflect the implications of macroeconomic environment evolution, the Bank continuously monitored the economic outlooks of the CNB and the Ministry of Finance of the Czech Republic and based on these outlooks, macro-economic forecasts for estimation of future losses from financial assets were formulated. The latest update of the forward-looking macroeconomic scenarios took place in November 2023. Throughout 2023, the inflation and interest rates remained at unprecedented levels. For this reason, the Bank continued to maintain the framework of management overlays to compensate for the lack of sensitivity of the IFRS 9 model to the high-inflation and high-interest rate environment. In March 2023, the Bank extended the existing framework of management overlays (pool-managed and commercial individually managed exposures) with an additional management overlay addressing increased level of expected credit losses associated with exposures secured by COVID-19 guarantee expiring within 12 consequent months Management overlay – Pool Managed Exposures The purpose of this management overlay was to account for the impact of the high-interest rate and high-inflation environment on expected credit losses. Throughout 2023, the Bank continuously monitored and updated the existing management overlay for the portfolio of performing mortgages, consumer loans and small business loans. As a part of these reviews, an evaluation of application and activation conditions was performed. Application conditions describe a macroeconomic environment where a lack of IFRS 9 model sensitivity can be assumed due to the specificity of the environment of high inflation and high interest rates. Meeting these conditions is a pre-requisite to the application of the management overlay. Deterioration of the portfolio credit quality in association with the environment of high inflation and high interest rates is evaluated based on activation conditions. In case these conditions are met, a decrease in the overlay amount can be considered to offset the credit loss materialisation. Evaluation of application and activation conditions is discussed by the Credit Committee (CRCO) as a part of the regular quarterly report. In case of activation conditions violation or in case the activation conditions are met, the CRCO decides about the release plan of the overlay amount based on the evaluation of the current macroeconomic situation and the forward-looking outlook. The amount of the management overlay was determined based on the identification of the exposures exposed to the potential credit loss materialisation in connection with the high-inflation and high-interest rates environment. The potentially vulnerable exposures were identified according to the 283 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 available information about the income/revenue of clients accounting for increased costs associated with the high inflation and interest rate level. The amount of the management overlay was derived as the amount of loan loss allowances required to offset assumed share of these potentially vulnerable exposures defaulting. Based on outcomes from back testing of this assumption using historical data, the Bank decreased the assumption of the default rate from 20% to 15%. As a result, the management overlay amount decreased to CZK 490 million as at 31 December 2023 compared to CZK 700 million as at 31 December 2022. The sensitivity of the management overlay amount to the change of the assumed default rate by 1% (increase from 15% to 16%) stood at CZK 64 million as at 31 December 2023. Management overlay – Commercial Individually Managed Exposures The purpose of this management overlay was to account for the risks associated with the impact of the high-interest rate environment on expected credit losses. Throughout 2023, the Bank continuously monitored and updated the existing management overlay for the portfolio of performing commercial individually managed exposures. As a part of these reviews, an evaluation of application and activation conditions was performed. Application conditions describe a macroeconomic environment where a lack of IFRS 9 model sensitivity can be assumed due to the specificity of the environment of high inflation and high interest rates. Meeting these conditions is a pre-requisite to the application of the management overlay. Deterioration of the portfolio credit quality in association with the environment of high inflation and high interest rates is evaluated based on activation conditions. In case these conditions are met, a decrease in the overlay amount can be considered to offset the credit loss materialisation. Evaluation of application and activation conditions is discussed by the Credit Committee (CRCO) as a part of the regular quarterly report. In case of activation conditions violation or in case the activation conditions are met, the CRCO decides about the release plan of the overlay amount based on the evaluation of the current macroeconomic situation and the forward-looking outlook. The amount of the management overlay was determined based on the identification of the exposures exposed to the potential credit loss materialisation in connection with the high-interest rate environment. The potentially vulnerable exposures were identified assuming that clients with high levels of debt/ EBITDA ratio are more prone to the high-interest rate environment if their CZK loans are with floating rate or with recent or upcoming re-fixation to much higher interest rate. The amount of the management overlay was derived as the amount of loan loss allowances required to offset assumed share of these potentially vulnerable exposures defaulting. Based on outcomes from back testing of this assumption using historical data, the Group decreased the assumption of the default rate from 20% to 15%. Additionally, since the activation conditions indicating the materialisation of the credit risk in the commercial individually managed segment were triggered, proportionate amount of the overlay was deducted from the final overlay amount. As a result, the management overlay amount decreased to CZK 79 million as at 31 December 2023 compared to CZK 135 million as at 31 December 2022. The sensitivity of the management overlay amount to the change of the assumed default rate by 1% (increase from 15% to 16%) stood at CZK 7 million as at 31 December 2023. Management overlay – Exposures with Expiring COVID-19 Guarantee In March 2023, the management overlay framework was extended to reflect risks associated with exposures secured by COVID-19 guarantees expiring within 12 consequent months. Credit risk of these exposures, initially covered by the respective guarantee, increased due to its expiration and was insufficiently reflected by the current IFRS 9 model. The Bank continuously monitored and updated the existing management overlay. As a part of these reviews, an evaluation of application and activation conditions was performed. Application conditions describe a macroeconomic environment where a lack of IFRS 9 model sensitivity can be assumed due to the specificity of the environment of high inflation and high interest rates. Meeting these conditions is a pre-requisite to the application of the management overlay. Deterioration of the portfolio credit quality in association with the environment of high inflation and high interest rates is evaluated based on activation conditions. In case these conditions are met, a decrease in the overlay amount can be considered to offset the credit loss materialisation. Evaluation of application and activation conditions is discussed by the Credit Committee (CRCO) as a part of the regular quarterly report. In case of activation conditions violation or in case the activation conditions are met, the CRCO decides about the release plan of the overlay amount based on the evaluation of the current macroeconomic situation and the forward-looking outlook. The amount of the management overlay was derived from the balance of exposures where the guarantees had expired in the past three months or would expire 284 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 in the upcoming 12 months, as the amount of loan loss allowances required to offset 15% of these exposures defaulting. As at 31 December 2023, the management overlay stood at CZK 69 million. The sensitivity of the management overlay amount to the change of the assumed default rate by 1% (increase from 15% to 16%) stood at CZK 5 million as at 31 December 2023. Write-off principles Write-off is applied when one of the below criteria is met: • Zero or negligible cash flow is expected to be received; • Collection process has been cancelled and as a consequence the Bank does not expect any cash flow (e.g. collection cost would be higher than expected recovery); • Finished insolvency procedure; • Inheritance proceedings ended without a legal successor (where the receivable was part of the inheritance); • Fraudulent loan; • Stopped execution of the receivable; • Liquidation of the debtor (legal person). Rebuttable presumption “zero or negligible cash flow is expected to be received“ is driven by defined term after default, where the term is defined separately for each product. Presumption may be rebutted e.g. if recovery is expected to be received or there is still collateral that may be sold and its value is not zero or negligible. The following table shows reconciliations from the opening to the closing balance of allowances to loans and receivables to customers: CZK m Stage 1 Stage 2 Stage 3 POCI Total Retail Balance 1 January 2023 706 1,281 1,355 - 3,342 Originations 224 89 14 - 327 Derecognition and maturities (107) (134) (292) - (533) Transfer to (out) Stage 1 589 (549) (40) - - Transfer to (out) Stage 2 (134) 397 (263) - - Transfer to (out) Stage 3 (18) (351) 369 - - Remeasurements, changes in models and methods (792) 514 565 (2) 285 Use of allowances (write offs) - - (509) (1) (510) out of which debt sales - - (419) (1) (420) Balance 31 December 2023 468 1,247 1,199 (3) 2,911 Commercial Balance 1 January 2023 584 301 435 - 1,320 Originations 364 41 27 - 432 Derecognition and maturities (30) (33) (120) - (183) Transfer to (out) Stage 1 140 (126) (14) - - Transfer to (out) Stage 2 (60) 99 (39) - - Transfer to (out) Stage 3 (9) (124) 133 - - Remeasurements, changes in models and methods (468) 217 164 - (87) Use of allowances (write offs) - - (127) - (127) out of which debt sales - - (103) - (103) Foreign exchange adjustments 5 - - - 5 Balance 31 December 2023 526 375 459 - 1,360 Total Balance 31 December 2023 1) 994 1,622 1,658 (3) 4,271 1) The Bank did not recognise any allowances to Loans and receivables to banks during 2023 and 2022, as such exposures are short-term only and impact is immaterial. 285 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 CZK m Stage 1 Stage 2 Stage 3 POCI Total Retail Balance 1 January 2022 942 594 2,266 9 3,811 Originations 257 75 22 - 354 Derecognition and maturities (243) (231) (133) (1) (608) Transfer to (out) Stage 1 402 (214) (188) - - Transfer to (out) Stage 2 (154) 985 (831) - - Transfer to (out) Stage 3 (62) (5) 67 - - Remeasurements, changes in models and methods (436) 77 655 (7) 289 Use of allowances (write offs) - - (503) (1) (504) out of which debt sales - - (242) (1) (243) Balance 31 December 2022 706 1,281 1,355 - 3,342 Commercial Balance 1 January 2022 573 164 535 - 1,272 Originations 480 23 17 - 520 Derecognition and maturities (112) (37) (42) - (191) Transfer to (out) Stage 1 121 (71) (50) - - Transfer to (out) Stage 2 (46) 197 (151) - - Transfer to (out) Stage 3 (18) (32) 50 - - Remeasurements, changes in models and methods (411) 57 174 - (180) Use of allowances (write offs) - - (98) - (98) out of which debt sales - - (41) - (41) Foreign exchange adjustments (3) - - - (3) Balance 31 December 2022 584 301 435 - 1,320 Total Balance 31 December 2022 1,290 1,582 1,790 - 4,662 There have been no material movements in allowances to other financial assets (such as Debt securities at amortised cost or operating receivables) for the years 2023 and 2022 than those disclosed above. 286 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 43.2.5 Credit Concentration Risk As part of managing credit risk, the Bank regularly monitors and actively manages the credit concentration risk of the Bank through the limits to countries, counterparties, collateral providers and economic sectors. Regional concentration is not relevant as most income is generated within the territory of the Czech Republic. The main collateral providers (via guarantees) are Národní rozvojová banka, a.s., the European Investment Fund and Exportní garanční a pojišťovací společnost, a.s. (a) The exposures to top 10 groups of customers CZK m 31 Dec 2023 31 Dec 2022 Top 10 exposures 1) 13,946 11,482 1) Exposure includes gross loans and receivables, unused commitments including credit lines, guarantees and letters of credit. Exposures to subsidiaries of the Bank are not included. (b) The structure of the Bank’s commercial credit portfolio by economic sectors Sector 31 Dec 2023 31 Dec 2022 CZK m 1) % CZK m 1) % 1 Agriculture 20,222 29% 20,817 31% 2 Mining 12 0% 9 0% 3 Food industry 1,085 2% 1,094 2% 4 Textile industry 191 0% 186 0% 5 Wood processing industry 461 1% 446 1% 6 Chemical industry 965 1% 985 1% 7 Metal processing industry 2,763 4% 1,957 3% 8 Electric and optical equipment 159 0% 184 0% 9 Manufacturing of equipment, including transportation 1,106 2% 1,358 2% 10 Construction industry and construction modifications 4,818 7% 4,599 7% 11 Wholesale 3,986 6% 3,976 6% 12 Retail sale 3,016 4% 2,498 4% 13 Transport and telecommunication 1,406 2% 1,369 2% 14 Finance 702 1% 1,684 2% 15 Services 11,933 17% 10,104 15% 16 Public sector 246 0% 171 0% 17 Health industry 827 1% 760 1% 18 Power sector 3,394 5% 1,073 2% 19 Real estate activities 12,513 18% 14,418 21% Total 69,805 100% 67,688 100% 1) The amounts represent the relevant gross loans and receivables to customers excluding the exposures to Bank’s subsidiaries. Exposures of unallowed debits which are fully provided by allowances are excluded. 287 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 (c) Maximum credit risk exposure 31 Dec 2023 CZK m Statement of financial position Off-balance sheet Total credit risk exposure Available collateral 1) Cash and balances with the central bank 10,534 - 10,534 - Derivative financial instruments 544 - 544 829 3) Investment securities measured at FVTPL 55 - 55 - Equity investments 25 - 25 - Debt investments 30 - 30 - Investment securities measured at FVTOCI 1 - 1 - Equity investments 1 - 1 - Investment securities measured at amortised cost 100,769 - 100,769 - Government and corporate bonds 100,769 - 100,769 - Hedging derivatives with positive fair values 2,701 - 2,701 - Interest rate swaps 2,701 - 2,701 - Cross currency interest rate swaps - - - - Change in fair value of items hedged on portfolio basis 122 - 122 - Loans and receivables to banks 69,232 - 69,232 65,030 Current accounts at banks 260 - 260 - Overnight deposits 392 - 392 - Term deposits in banks payable within 3 months - - - - Receivables arising from reverse repurchase agreements 66,340 - 66,340 65,030 2) Cash collaterals granted 2,238 - 2,238 - Other 2 - 2 - Loans and receivables to customers 245,881 24,102 269,983 164,117 Consumer authorised overdrafts and credit cards 2,270 4,223 6,493 - Consumer loans 35,737 41 35,778 - Mortgages 127,946 2,249 130,195 126,274 Commercial loans 79,928 17,589 97,517 37,843 Issued guarantees and credit limits on guarantees - 2,236 2,236 415 Issued letter of credit - 5 5 - Remaining assets 11,046 - 11,046 - 1) Available collateral represents realisable value of collateral relevant for each loan exposure. The realisable value of collateral is capped up to the Total exposure presented in the statement of financial position on a loan- by-loan basis for the purpose of the presentation in these breakdowns. 2) Thereof securities obtained in reverse repurchase agreements as collateral in the amount of CZK 0 million were transferred as collateral according to repurchase agreements as at 31 December 2023 (31 Dec 2022: CZK 0 million). 3) From 2023 this item also includes available collateral from customers. For the purpose of comparability, the previous period has been adjusted. 288 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 CZK m Statement of financial position Off-balance sheet Total credit risk exposure Available collateral 1) Cash and balances with the central bank 12,008 - 12,008 - Derivative financial instruments 761 - 761 4,422 3) Investment securities measured at FVTPL 71 - 71 - Equity investments 25 - 25 - Debt investments 46 - 46 - Investment securities measured at FVTOCI 1 - 1 - Equity investments 1 - 1 - Investment securities measured at amortised cost 54,319 - 54,319 - Government and corporate bonds 54,319 - 54,319 - Hedging derivatives with positive fair values 4,942 - 4,942 - Interest rate swaps 4,919 - 4,919 - Cross currency interest rate swaps 23 - 23 - Change in fair value of items hedged on portfolio basis (2,090) - (2,090) - Loans and receivables to banks 38,563 - 38,563 35,526 Current accounts at banks 431 - 431 - Overnight deposits 482 - 482 - Term deposits in banks payable within 3 months 1,144 - 1,144 - Receivables arising from reverse repurchase agreements 36,254 - 36,254 35,526 2) Cash collaterals granted 251 - 251 - Other 1 - 1 - Loans and receivables to customers 250,642 30,301 280,943 166,774 Consumer authorised overdrafts and credit cards 2,337 4,342 6,679 - Consumer loans 36,511 49 36,560 - Mortgages 133,338 7,039 140,377 130,986 Commercial loans 78,456 18,871 97,327 35,788 Issued guarantees and credit limits on guarantees - 2,078 2,078 282 Issued letter of credit - 5 5 - Remaining assets 10,959 - 10,959 - 1) Available collateral represents realisable value of collateral relevant for each loan exposure. The realisable value of collateral is capped up to the Total exposure presented in the statement of financial position on a loan- by-loan basis for the purpose of the presentation in these breakdowns. 2) Thereof securities obtained in reverse repurchase agreements as collateral in the amount of CZK 0 million were transferred as collateral according to repurchase agreements as at 31 December 2023 (31 Dec 2022: CZK 0 million). 3) From 2023 this item also includes available collateral from customers. For the purpose of comparability, the previous period has been adjusted. 289 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 (d) Quantitative information about available collateral for impaired financial assets (Stage 3 and non- performing POCI) CZK m 2023 2022 Retail Commercial Total Retail Commercial Total LTV 1) lower than 50% 278 34 312 246 39 285 LTV 1) 51–70% 344 36 380 353 31 384 LTV 1) more than 70% 413 243 656 362 175 537 Total 1,035 313 1,348 961 245 1,206 1) The LTV (Loan to Value) represents ratio of gross carrying value of loan to fair value of collateral available at the reporting date. 43.2.6 Credit Portfolio and its Quality (a) Break down of allowances and provisions according to loan type and stages The following table comprises information about allowances to Loans and receivables to customers and provisions to off-balance sheet items according to type of loan/off-balance sheet position and related stage: 31 Dec 2023 Gross carrying amount Allowance/Provision CZK m Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Net book value Retail loans 148,661 17,561 2,581 61 168,864 (468) (1,247) (1,199) 3 (2,911) 165,953 Consumer Loans 29,218 7,094 1,470 - 37,782 (244) (878) (923) - (2,045) 35,737 Mortgages 117,460 10,059 1,024 61 128,604 (146) (300) (215) 3 (658) 127,946 Credit Cards & Overdrafts 1,981 408 81 - 2,470 (76) (69) (55) - (200) 2,270 Other 2 - 6 - 8 (2) - (6) - (8) - Commercial loans 76,868 3,634 786 - 81,288 (526) (375) (459) - (1,360) 79,928 Investment Loans 49,915 1,117 156 - 51,188 (149) (68) (64) - (281) 50,907 Working Capital 14,669 960 86 - 15,715 (104) (48) (41) - (193) 15,522 Unsecured Instalment Loans and Overdraft 12,284 1,557 539 - 14,380 (273) (259) (349) - (881) 13,499 Inventory Financing and Other - - 5 - 5 - - (5) - (5) - Total loans 225,529 21,195 3,367 61 250,152 (994) (1,622) (1,658) 3 (4,271) 245,881 Debt instruments measured at amortised costs 100,791 - - - 100,791 (22) - - - (22) 100,769 Total loans and securities 326,320 21,195 3,367 61 350,943 (1,016) (1,622) (1,658) 3 (4,293) 346,650 Financial guarantees 1,593 647 1 - 2,241 (8) (6) - - (14) 2,227 Loan commitments - Retail 6,179 284 49 - 6,512 (41) (12) - - (53) 6,459 Loan commitments - Commercial 17,242 339 8 - 17,589 (40) (8) - - (48) 17,541 Total off-balance sheet items 25,014 1,270 58 - 26,342 (89) (26) - - (115) 26,227 Previously written-off receivables amount to CZK 153 million as at 31 December 2023 (31 December 2022: CZK 228 million). 290 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 Gross carrying amount Allowance/Provision CZK m Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Net book value Retail loans 158,858 13,996 2,602 72 175,528 (706) (1,281) (1,355) - (3,342) 172,186 Consumer Loans 31,815 5,661 1,542 - 39,018 (517) (910) (1,080) - (2,507) 36,511 Mortgages 125,020 7, 890 948 72 133,930 (113) (290) (189) - (592) 133,338 Credit Cards & Overdrafts 2,021 445 104 - 2,570 (74) (81) (78) - (233) 2,337 Other 2 - 8 - 10 (2) - (8) - (10) - Commercial loans 76,342 2,700 734 - 79,776 (584) (301) (435) - (1,320) 78,456 Investment Loans 51,494 738 84 - 52,316 (228) (40) (22) - (290) 52,026 Working Capital 13,723 707 94 - 14,524 (142) (38) (15) - (195) 14,329 Unsecured Instalment Loans and Overdraft 11,125 1,255 550 - 12,930 (214) (223) (392) - (829) 12,101 Inventory Financing and Other - - 6 - 6 - - (6) - (6) - Total loans 235,200 16,696 3,336 72 255,304 (1,290) (1,582) (1,790) - (4,662) 250,642 Debt instruments measured at amortised costs 54,337 - - - 54,337 (18) - - - (18) 54,319 Total loans and securities 289,537 16,696 3,336 72 309,641 (1,308) (1,582) (1,790) - (4,680) 304,961 Financial guarantees 1,946 137 - - 2,083 (11) (5) - - (16) 2,067 Loan commitments - Retail 10,923 475 32 - 11,430 (43) (17) - - (60) 11,370 Loan commitments - Commercial 18,707 155 9 - 18,871 (64) (5) - - (69) 18,802 Total off-balance sheet items 31,576 767 41 - 32,384 (118) (27) - - (145) 32,239 291 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 (b) Loans and receivables to banks and customers according to the categorisation according to internal rating grade and stages The following table sets out information about credit quality of financial assets measured at amortised cost classified according to the internal credit rating grade and stages: CZK m 31 Dec 2023 31 Dec 2022 Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Loans and receivables to customers at amortised costs CR 1 207,532 9,965 - 30 217,527 213,373 7,947 - 26 221,346 CR 2 10,222 3,196 - 6 13,424 17,622 3,536 - 9 21,167 CR 3 7,148 3,287 - 4 10,439 3,936 1,913 - 1 5,850 CR 4 402 2,615 - 5 3,022 191 1,892 - 3 2,086 CR 5 223 2,132 - 1 2,356 76 1,408 - 4 1,488 Not graded 1) 2 - - - 2 2 - - - 2 NPL - - 3,367 15 3,382 - - 3,336 29 3,365 Gross carrying amount 225,529 21,195 3,367 61 250,152 235,200 16,696 3,336 72 255,304 Allowance (994) (1,622) (1,658) 3 (4,271) (1,290) (1,582) (1,790) - (4,662) Net book value 224,535 19,573 1,709 64 245,881 233,910 15,114 1,546 72 250,642 Loans and receivables to banks at amortised cost without rating 1) Gross carrying amount 69,232 - - - 69,232 38,563 - - - 38,563 Allowance - - - - - - - - - - Net book value 69,232 - - - 69,232 38,563 - - - 38,563 Debt investment securities at amortised cost CR 1 100,791 - - - 100,791 54,337 - - - 54,337 Gross carrying amount 100,791 - - - 100,791 54,337 - - - 54,337 Allowance (22) - - - (22) (18) - - - (18) Net book value 100,769 - - - 100,769 54,319 - - - 54,319 Other receivables from operating activities without rating Gross carrying amount 124 4 17 - 145 60 9 16 - 85 Allowance - - (17) - (17) - - (16) - (16) Net book value 124 4 - - 128 60 9 - - 69 292 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 CZK m 31 Dec 2023 31 Dec 2022 Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Loan commitments CR 1 21,910 292 - - 22,202 28,565 432 - - 28,997 CR 2 973 88 - - 1,061 843 85 - - 928 CR 3 532 98 - - 630 220 56 - - 276 CR 4 2 137 - - 139 2 42 - - 44 CR 5 4 8 - - 12 - 15 - - 15 Not graded 1) - - - - - - - - - - NPL - - 57 - 57 - - 41 - 41 Gross carrying amount 23,421 623 57 - 24,101 29,630 630 41 - 30,301 Provision (81) (20) - - (101) (107) (22) - - (129) Net book value 23,340 603 57 - 24,000 29,523 608 41 - 30,172 Financial guarantee contracts CR 1 1,592 628 - - 2,220 1,946 108 - - 2,054 CR 2 1 11 - - 12 - 14 - - 14 CR 3 - 4 - - 4 - 2 - - 2 CR 4 - 4 - - 4 - 11 - - 11 CR 5 - - - - - - 2 - - 2 NPL - - 1 - 1 - - - - - Gross carrying amount 1,593 647 1 - 2,241 1,946 137 - - 2,083 Provision (8) (6) - - (14) (11) (5) - - (16) Net book value 1,585 641 1 - 2,227 1,935 132 - - 2,067 1) Loans and receivables to banks and Other receivables from operating activities are not subject to internal grading system. Other receivables from operating activities do not include receivables from subsidiaries that are immaterial. 43.2.7 Modified Financial assets The following table provides information about financial assets with a loss allowance at an amount equal to full lifetime expected credit losses that were modified during the accounting period: CZK m 2023 2022 Financial assets modified during the period Amortised cost before modification 337 308 Net modification gain/loss (1) 2 Financial assets modified since initial recognition Gross carrying amount at 31 Dec of financial assets for which loss allowance has changed to 12-month measurement during the period 60 99 The modification in the form of the forbearance is reflected in the categorisation of receivables in accordance with the exposures categorisation rules (see note 43.2.2). Forborne Receivables Forborne receivables are receivables for which the Bank provided the debtor with relief as it assessed that it would likely incur a loss if it did not do so. For economic or legal reasons associated with the debtor’s financial position, the Bank granted it relief that the Bank would not otherwise have granted. Reliefs primarily include reworking the repayment plan, a decrease in the interest rate, a waiver of default interest, a deferral of principal or accrued interest repayments. Forborne receivables do not include receivables arising from the roll-over of a short-term loan for current assets if the debtor met all of its payment and non-payment obligations arising from the loan contract. The Bank applies the following general principles for forbearance: • the customer lost the ability to repay the loan according to the original loan contract; • the customer demonstrates a willingness and ability to pay his/her debts; • specific product/customer criteria must be met. 293 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 Forbearance measures provided to clients take a form of modification of the existing contract or origination of a new loan contract, where the customer´s original credit is, by entering into this new contract, repaid and closed. In this case, a new (restructured) loan with different monthly instalments, interest rate and maturity is then opened. According to the rules for categorisation of exposures, the new or modified loan is treated as non-performing at least 12 months after restructuring. Forborne classification is assigned also during the 24 month probation period, which applies from the moment when the client was upgraded to the performing status. (a) All gross loans and receivables to customers with forbearance 31 Dec 2023 CZK m Mortgage loans Consumer loans Commercial loans Total Forborne receivables 1,024 1,142 264 2,430 Total 1,024 1,142 264 2,430 31 Dec 2022 CZK m Mortgage loans Consumer loans Commercial loans Total Forborne receivables 954 1,288 327 2,569 Total 954 1,288 327 2,569 (b) Impaired loans out of all gross loans and receivables to customers with forbearance 31 Dec 2023 CZK m Mortgage loans Consumer loans Commercial loans Total Forborne receivables 459 540 117 1,116 Total 459 540 117 1,116 31 Dec 2022 CZK m Mortgage loans Consumer loans Commercial loans Total Forborne receivables 405 586 157 1,148 Total 405 586 157 1,148 (c) Loans and receivables to customers forborne within the reporting year 2023 Mortgage loans Consumer loans Commercial loans Total Number of incrementally forborne receivables within the reporting year 149 1,620 246 2,015 Balance of the incrementally forborne gross receivables within the reporting year measured at the end of the reporting year (CZK m) 288 333 65 686 2022 Mortgage loans Consumer loans Commercial loans Total Number of incrementally forborne receivables within the reporting year 145 1,658 226 2,029 Balance of the incrementally forborne gross receivables within the reporting year measured at the end of the reporting year (CZK m) 281 316 83 680 294 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 43.3 INTEREST RATE RISK Interest rate risk is the risk of a loss arising from changes in interest rates on financial markets. The Bank is exposed to interest rate risk as interest-bearing assets and liabilities have different maturity periods or interest rate repricing periods. The Bank strives to minimise its interest rate risk by setting limits and keeping positions within these limits. The interest rate risk management activities are aimed at reducing the risk of losses. Only certain client products (FX swap, FX forward, FX spot) of the Bank are included in the Trading book; all other positions are included in the Banking book. The Bank’s interest rate risk for the Trading and Banking book is managed separately. The interest rate risk of the Trading book is managed by the requirement to close each FX swap and FX forward transaction on a back-to-back basis. To monitor and measure the interest rate risk of the Banking book, a model of interest rate sensitivity is used which serves to determine the sensitivity of the Bank to changes in the market interest rates. The model is based on the inclusion of interest-sensitive assets and liabilities into relevant time bands. The Bank prefers to use behavioural features of cash flows rather than those that are purely contractual. All behavioural assumptions are approved by the ALCO. The model works with 1-month time bands up to 240 months. The Bank carries out stress testing of the Banking book positions in all currencies that account for more than 5% of the Group’s assets or liabilities (both on an individual and consolidated basis) based on stress scenarios for management of interest rate risk arising from non-trading activities in line with the relevant European Banking Authority Guideline EBA/GL/2018/02. As at 31 December 2023, only the portfolios denominated in the Czech Koruna exceeded a 5% share of the Group’s assets/liabilities. The set of limits is used to manage and monitor the impacts of all stress scenarios stipulated in the Guideline. The results of stress testing are presented to ALCO on a monthly basis. To manage the discrepancy between the interest sensitivity of assets and liabilities, interest rate derivatives are used in line with the interest rate hedging strategy for hedge accounting approved by ALCO. The tables below show the sensitivity of the Bank to changes in interest rates. CZK % change in annual net interest income 31 Dec 2023 31 Dec 2022 Impact of an interest rate movement +200 basis points 6.93% 12.36% Impact of an interest rate movement -200 basis points (4.52)% (0.14)% Change in economic value of equity as a % of capital 31 Dec 2023 31 Dec 2022 Impact of an interest rate movement +200 basis points 0.94% (1.85)% Impact of an interest rate movement -200 basis points 1.39% 5.20% EUR % change in annual net interest income 31 Dec 2023 31 Dec 2022 Impact of an interest rate movement +200 basis points (0.65)% 1.41% Impact of an interest rate movement -200 basis points 0.66% (1.41)% Change in economic value of equity as a % of capital 31 Dec 2023 31 Dec 2022 Impact of an interest rate movement +200 basis points (0.43)% (0.36)% Impact of an interest rate movement -200 basis points 0.49% 0.43% The percentage change in annual net interest income shows the impact of interest rate movements on net interest income on a 12-month horizon. The change in the economic value of equity shows the impact of interest rate movements on the difference between the present value of assets and liabilities (i.e. the economic value of equity), so this metric works with a long-term horizon. Given the mentioned differences between the two metrics, the two kinds of impact can have different signs and follow different trends. 295 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 The below table summarises the Bank’s exposure to interest rate risk. Balances are allocated to the buckets based on the following parameters: for assets, the next repricing date or principal payment dates, whichever occurs earlier; for non-maturity deposits, the expected maturity/repricing behaviour; and for term deposits, the maturity date. 31 Dec 2023 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Cash and balances with the central bank 10,534 - - - - - 10,534 Derivative financial instruments with positive fair values 2 4 33 125 380 - 544 Hedging derivatives with positive fair values 2) 8 14 144 995 1,540 - 2,701 Change in fair value of items hedged on portfolio basis (2) (13) (66) 191 12 - 122 Investment securities - 249 1,417 30,201 68,902 56 100,825 Loans and receivables to banks 66,992 - - - - 2,240 69,232 Loans and receivables to customers 29,952 12,029 45,221 145,541 13,138 - 245,881 Remaining assets 126 - 579 4 3 10,334 11,046 Total assets 107,612 12,283 47,328 177,057 83,975 12,630 440,885 Due to banks 2,357 - 2,531 - - 563 5,451 Due to customers 146,764 17,765 65,771 99,738 41,266 270 371,574 Derivative financial instruments with negative fair values 14 3 31 106 369 - 523 Hedging derivatives with negative fair values 2) 3 2 128 2,214 2,201 - 4,548 Change in fair value of items hedged on portfolio basis (2) (7) (31) 103 - - 63 Issued bonds - 697 2,631 10,466 500 - 14,294 Subordinated liabilities 92 - 18 7,494 - - 7,604 Remaining liabilities 1,951 13 216 920 301 703 4,104 Total liabilities 151,179 18,473 71,295 121,041 44,637 1,536 408,161 Net balance sheet interest rate exposure (43,567) (6,190) (23,967) 56,016 39,338 11,094 32,724 Off-balance sheet assets 14,065 2,801 2,223 4,021 240 - 23,350 Off-balance sheet liabilities - - - - - - - Interest rate swaps assets 1) 15,670 85,827 11,020 12,819 2,900 - 128,236 Interest rate swaps liabilities 1) 6,868 9,696 11,880 55,281 44,511 - 128,236 Net off-balance sheet interest rate exposure 22,867 78,932 1,363 (38,441) (41,371) - 23,350 Total net interest rate exposure (20,700) 72,742 (22,604) 17,575 (2,033) 11,094 56,074 1) In case of interest rate swaps, the notional amounts are used instead of accounting balances. 2) Since 2023, balance of notional amounts of cross currency interest rate swaps has been shown on the lines of the Statement of Financial Position “Hedging derivatives with positive fairvalues“, or “Hedging derivativeswithnegativefair values“instead ofoff-balancelinesas had been reported in the previousperiod. 296 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Cash and balances with the central bank 12,008 - - - - - 12,008 Derivative financial instruments with positive fair values 4 8 31 43 675 - 761 Hedging derivatives with positive fair values 5 3 253 1,927 2,754 - 4,942 Change in fair value of items hedged on portfolio basis - (5) (249) (1,376) (460) - (2,090) Investment securities - 145 882 20,098 33,194 72 54,391 Loans and receivables to banks 37,620 691 - - - 252 38,563 Loans and receivables to customers 32,469 8,824 41,381 151,389 16,579 - 250,642 Remaining assets 31 - 622 10 1 10,295 10,959 Total assets 82,137 9,666 42,920 172,091 52,743 10,619 370,176 Due to banks 348 - - 1,688 - 3,931 5,967 Due to customers 84,151 17,646 50,069 105,404 46,613 491 304,374 Derivative financial instruments with negative fair values 6 8 29 41 663 - 747 Hedging derivatives with negative fair values - 11 288 540 6 - 845 Change in fair value of items hedged on portfolio basis - (11) (233) (194) - - (438) Issued bonds 46 958 3,474 9,997 3,783 - 18,258 Subordinated liabilities 91 - 18 4,578 - - 4,687 Remaining liabilities 1,832 13 653 869 168 769 4,304 Total liabilities 86,474 18,625 54,298 122,923 51,233 5,191 338,744 Net balance sheet interest rate exposure (4,337) (8,959) (11,378) 49,168 1,510 5,428 31,432 Off-balance sheet assets 16,720 1,529 2,632 8,524 897 - 30,302 Off-balance sheet liabilities - - - - - - - Interest rate swaps assets 1) 6,359 31,148 14,452 14,422 2,800 - 69,181 Interest rate swaps liabilities 1) 7,270 9,952 9,123 27,561 15,276 - 69,182 Net off-balance sheet interest rate exposure 15,809 22,725 7,961 (4,615) (11,579) - 30,301 Total net interest rate exposure 11,472 13,766 (3,417) 44,553 (10,069) 5,428 61,733 1) In case of interest rate swaps, the notional amounts are used instead of accounting balances. The data for the individual time buckets except the “Unspecified“ column follow the interest rate gap from the model of interest rate sensitivity. 297 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 43.4 FOREIGN EXCHANGE RISK Foreign exchange risk covers the risk of a loss due to changes in exchange rates. The Bank is exposed to foreign exchange risk primarily due to the provision of foreign exchange loan products to commercial borrowers and foreign exchange deposits. The Bank strives to minimise the foreign exchange risk. For this purpose, the Bank maintains a balance of assets and liabilities in foreign currencies (by using a mix of FX spots, forwards and swaps transactions). To measure the foreign exchange risk, the Bank calculates, on a daily basis, net currency positions and an FX Value at Risk (maximum expected loss per business day for the foreign currency portfolio at the 99% confidence level). The Bank uses the limits for the following metrics: • ratio of the absolute value of the net currency position to capital for each foreign currency; • ratio of the absolute value of the net currency position in Czech Koruna to capital; • ratio of the absolute value of the total net currency position to capital; • absolute value of the net currency position for each foreign currency; and • FX VaR . On top of that, the foreign exchange risk of Trading book is managed by limits (intraday and end-of-day) for open FX spot position and by requirement to close each FX swap and FX forward transaction on a back-to-back basis. The table below shows the FX VaR of the Bank. CZK ths 31 Dec 2023 Average of daily values in 2023 31 Dec 2022 Average of daily values in 2022 FX VaR 4,177 2,909 2,578 4,278 The following table shows exposure of the Bank to foreign exchange risk: 31 Dec 2023 CZK m CZK EUR USD Other currencies Total CZK Cash and balances with the central bank 10,270 162 65 37 10,534 Derivative financial instruments with positive fair values 113 431 - - 544 Investment securities 96,787 4,008 30 - 100,825 Hedging derivatives with positive fair values 1) 2,652 49 - - 2,701 Change in fair value of items hedged on portfolio basis 122 - - - 122 Loans and receivables to banks 66,341 2,546 325 20 69,232 Loans and receivables to customers 229,893 15,943 45 - 245,881 Remaining assets 11,043 3 - - 11,046 Total assets 417,221 23,142 465 57 440,885 Due to banks 48 5,394 9 - 5,451 Due to customers 360,351 9,843 1,265 115 371,574 Derivative financial instruments with negative fair values 103 420 - - 523 Hedging derivatives with negative fair values 1) 2,100 2,448 - - 4,548 Subordinated liabilities 7,604 - - - 7,6 04 Remaining liabilities 15,204 3,232 20 5 18,461 Equity 32,724 - - - 32,724 Total liabilities and Equity 418,134 21,337 1,294 120 440,885 Net exchange rate balance sheet position (913) 1,805 (829) (63) - Receivables from spot and derivatives 2,193 1,232 1,064 71 4,560 Liabilities from spot and derivatives 1,412 3,076 77 - 4,565 Net exchange rate off-balance sheet position 781 (1,844) 987 71 (5) Net exchange rate position (132) (39) 158 8 (5) 1) Since 2023, balance of notional amounts of cross currency interest rate swaps has been shown on the lines of the Statement of Financial Position “Hedging derivatives with positive fairvalues“, or “Hedging derivativeswithnegativefair values“instead ofoff-balancelinesas had been reported in the previousperiod. 298 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 CZK m CZK EUR USD Other currencies Total CZK Cash and balances with the central bank 11,709 158 93 48 12,008 Derivative financial instruments with positive fair values 761 - - - 761 Investment securities 50,183 4,162 46 - 54,391 Hedging derivatives with positive fair values 5,023 (81) - - 4,942 Change in fair value of items hedged on portfolio basis (2,090) - - - (2,090) Loans and receivables to banks 36,945 1,085 486 47 38,563 Loans and receivables to customers 236,663 13,937 42 - 250,642 Remaining assets 10,954 5 - - 10,959 Total assets 350,148 19,266 667 95 370,176 Due to banks 30 5,934 3 - 5,967 Due to customers 294,034 9,120 1,096 124 304,374 Derivative financial instruments with negative fair values 747 - - - 747 Hedging derivatives with negative fair values 568 277 - - 845 Subordinated liabilities 4,687 - - - 4,687 Remaining liabilities 19,160 2,950 13 1 22,124 Equity 31,432 - - - 31,432 Total liabilities and Equity 350,658 18,281 1,112 125 370,176 Net exchange rate balance sheet position (510) 985 (445) (30) - Receivables from spot and derivatives 1,628 1,723 743 58 4,152 Liabilities from spot and derivatives 2,473 1,546 128 5 4,152 Net exchange rate off-balance sheet position (845) 177 615 53 - Net exchange rate position (1,355) 1,162 170 23 - 43.5 LIQUIDITY RISK Liquidity risk represents the risk of inability to meet financial liabilities when due or to finance increase in assets. For liquidity and liquidity risk management, the banks in the Group (the Bank and the Building Savings Bank) created a liquidity sub-group. The Czech National Bank provided to the banks in the liquidity sub-group an exemption from certain liquidity requirements on individual levels, and so in 2023 the Czech National Bank supervised the Bank and Building Savings Bank as the only liquidity sub-group for liquidity purposes. The Bank has access to diversified sources of financing, which include deposits, issued bonds, loans taken, as well as the Bank’s equity. The bond and money markets are used to further diversify sources of liquidity and to deposit excess cash (see chapter 5). To manage liquidity risk, the Bank applies a system of limits applied on the following metrics: • Liquidity positions in selected time buckets (on a daily basis); • Loan to Deposit Ratio (on a monthly basis); • Liquidity Coverage Ratio (on a monthly basis); • Net Stable Funding Ratio (on a monthly basis); • Liquidity buffer (based on liquidity stress tests); • Time to wall for selected scenarios (idiosyncratic, systemic and combined) (on a monthly basis); • Concentration in deposits (on a monthly basis); • Interbank Borrowing to Total Assets Ratio (on a monthly basis). The Bank also monitors a chosen set of Early Warning Indicators. For the purpose of liquidity management under extraordinary circumstances, the Bank has a contingency plan containing measures for recovering liquidity. The Treasury & ALM department regularly reviews the contingency plan and forwards it to the ALCO for approval. 299 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 (a) The table below summarises the remaining maturity of carrying amounts of assets, liabilities and equity according to their contractual maturity. 31 Dec 2023 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Cash and balances with the central bank 10,534 - - - - - 10,534 Derivative financial instruments with positive fair values 2 4 33 125 380 - 544 Investment securities - 249 1,417 30,201 68,902 56 100,825 Hedging derivatives with positive fair values 8 14 144 995 1,540 - 2,701 Change in fair value of items hedged on portfolio basis (2) (13) (66) 191 12 - 122 Loans and receivables to banks 66,992 - - - - 2,240 69,232 Loans and receivables to customers 1) 10,228 4,071 22,928 75,203 129,945 3,506 245,881 Investments in subsidiaries and associates - - - - - 4,466 4,466 Current tax assets - - 57 - - - 57 Remaining assets 126 - 522 4 3 5,868 6,523 Total Assets 87,888 4,325 25,035 106,719 200,782 16,136 440,885 Due to banks 2,357 - 2,531 - - 563 5,451 Due to customers 323,440 10,569 37,211 84 - 270 371,574 Derivative financial instruments with negative fair values 14 3 31 106 369 - 523 Hedging derivatives with negative fair values 3 2 128 2,214 2,201 - 4,548 Provisions - - - - - 266 266 Current tax liabilities - - - - - - - Change in fair value of items hedged on portfolio basis (2) (7) (31) 103 - - 63 Deferred tax liabilities - - - - - 327 327 Issued bonds - 697 2,631 10,466 500 - 14,294 Subordinated liabilities 92 - 18 2,913 4,581 - 7,604 Other liabilities 1,951 13 216 920 301 110 3,511 Equity - - - - - 32,724 32,724 Total liabilities and equity 327,855 11,277 42,735 16,806 7,952 34,260 440,885 Net liquidity position of assets and liabilities and equity 2) (239,967) (6,952) (17,700) 89,913 192,830 (18,124) - Issued guarantees and credit limits on guarantees 3) 1,119 - - - - - 1,119 Loan commitments 4) 3,538 - - - - - 3,538 1) Loans and receivables to customers presented under the “Unspecified“ category as at 31 December 2023 of CZK 3,506 million (31 December 2022: CZK 3,814 million) represent mainly the loans and receivables that are overdue more than 1 month, allowances and deferred cost and fees that are an integral part of the effective interest rate and fair value adjustment taken over as part of the Merger. 2) Net liquidity position of assets and liabilities and equity within 1 month as at 31 December 2023 of CZK (239,967) million (31 December 2022: CZK (214,973) million) is primarily due to the fact that contractual maturity of current accounts falls within 1 month. 3) Contents irrevocable Issued guarantees and credit limits on guarantees. 4) The loan commitments represent irrevocable loan commitments only relating to commercial investment loans and mortgages. Total undrawn commitments on credit cards are not included in the table above as, historically, average limit usage is significantly below 100% and this behaviour is expected to continue. 300 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Cash and balances with the central bank 12,008 - - - - - 12,008 Derivative financial instruments with positive fair values 4 8 31 43 675 - 761 Investment securities - 145 882 20,098 33,194 72 54,391 Hedging derivatives with positive fair values 5 3 253 1,927 2,754 - 4,942 Change in fair value of items hedged on portfolio basis - (5) (249) (1,376) (460) - (2,090) Loans and receivables to banks 37,620 691 - - - 252 38,563 Loans and receivables to customers 1) 9,427 4,289 21,527 78,944 132,641 3,814 250,642 Investments in subsidiaries and associates - - - - - 4,466 4,466 Current tax assets - - - - - - - Remaining assets 31 - 622 10 1 5,829 6,493 Total Assets 59,095 5,131 23,066 99,646 168,805 14,433 370,176 Due to banks 348 - - 1,688 - 3,931 5,967 Due to customers 271,745 10,571 21,378 189 - 491 304,374 Derivative financial instruments with negative fair values 6 8 29 41 663 - 747 Hedging derivatives with negative fair values - 11 288 540 6 - 845 Provisions - - - - - 302 302 Current tax liabilities - - 434 - - - 434 Change in fair value of items hedged on portfolio basis - (11) (233) (194) - - (438) Deferred tax liabilities - - - - - 320 320 Issued bonds 46 958 3,474 9,997 3,783 - 18,258 Subordinated liabilities 91 - 18 - 4,578 - 4,687 Other liabilities 1,832 13 219 869 168 147 3,248 Equity - - - - - 31,432 31,432 Total liabilities and equity 274,068 11,550 25,607 13,130 9,198 36,623 370,176 Net liquidity position of assets and liabilities and equity 2) (214,973) (6,419) (2,541) 86,516 159,607 (22,190) - Issued guarantees and credit limits on guarantees 3) 1,113 - - - - - 1,113 Loan commitments 4) 10,454 - - - - - 10,454 1) Loans and receivables to customers presented under the “Unspecified“ category as at 31 December 2023 of CZK 3,506 million (31 December 2022: CZK 3,814 million) represent mainly the loans and receivables that are overdue more than 1 month, allowances and deferred cost and fees that are an integral part of the effective interest rate and fair value adjustment taken over as part of the Merger. 2) Net liquidity position of assets and liabilities and equity within 1 month as at 31 December 2023 of CZK (239,967) million (31 December 2022: CZK (214,973) million) is primarily due to the fact that contractual maturity of current accounts falls within 1 month. 3) Contents irrevocable Issued guarantees and credit limits on guarantees. 4) The loan commitments represent irrevocable loan commitments only relating to commercial investment loans and mortgages. Total undrawn commitments on credit cards are not included in the table above as, historically, average limit usage is significantly below 100% and this behaviour is expected to continue. 301 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 (b) The table below shows the remaining contractual maturity of non-derivative financial liabilities and issued financial guarantees and loan commitments held for the Bank’s liquidity management purposes. The amounts include contractual non-discounted cash flows. 31 Dec 2023 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Due to banks 2,357 - 2,596 - - 563 5,516 Due to customers 323,439 10,668 38,195 85 - 270 372,657 Issued bonds - 728 2,785 11,508 532 - 15,553 Subordinated liabilities 99 - 66 4,508 4,865 - 9,538 Other liabilities 1,951 13 216 920 301 110 3,511 Total non-derivative financial liabilities 327,846 11,409 43,858 17,021 5,698 943 406,775 Issued guarantees and credit limits on guarantees 1,119 - - - - - 1,119 Loan commitments 1) 3,538 - - - - - 3,538 31 Dec 2022 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Unspecified Total Due to banks 348 - - 1,688 - 3,931 5,967 Due to customers 271,745 10,655 22,093 195 - 491 305,179 Issued bonds 47 992 3,700 11,574 3,892 - 20,205 Subordinated liabilities 99 - 66 658 5,030 - 5,853 Other liabilities 1,832 13 219 869 168 147 3,248 Total non-derivative financial liabilities 274,071 11,660 26,078 14,984 9,090 4,569 340,452 Issued guarantees and credit limits on guarantees 1,113 - - - - - 1,113 Loan commitments 1) 10,454 - - - - - 10,454 1) The loan commitments represent irrevocable loan commitments only relating to commercial investment loans and mortgages. (c) The table below shows the remaining contractual maturity of liabilities from financial derivatives: 31 Dec 2023 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Total Held for trading derivatives Currency swaps 13 - - - - 13 Interest rate swaps - - - 53 369 422 Currency forwards 1 3 31 26 - 61 Cross currency interest rate swaps - - - 27 - 27 Hedging derivatives Interest rate swaps 3 2 128 2,156 2,201 4,490 Cross currency interest rate swaps - - - 58 - 58 Total financial derivatives 17 5 159 2,320 2,570 5,071 31 Dec 2022 CZK m Within 1 month 1 – 3 months 3 – 12 months 1 – 5 years More than 5 years Total Held for trading derivatives Currency swaps 3 - - - - 3 Interest rate swaps - - - - 663 663 Currency forwards 3 8 29 41 - 81 Hedging derivatives Interest rate swaps - 11 288 540 6 845 Total financial derivatives 6 19 317 581 669 1,592 302 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 (d) The table below shows the remaining expected maturity of assets and liabilities as follows: 31 Dec 2023 CZK m Within 1 month 1 - 3 months 3 - 12 months 1 - 5 years More than 5 years Unspecified Total Cash and balances with the central bank 10,534 - - - - - 10,534 Derivative financial instruments with positive fair values 2 4 33 125 380 - 544 Investment securities 97,542 2) - 23 3,004 200 56 100,825 Hedging derivatives with positive fair values 8 14 144 995 1,540 - 2,701 Change in fair value of items hedged on portfolio basis (2) (13) (66) 191 12 - 122 Loans and receivables to banks 66,992 - - - - 2,240 69,232 Loans and receivables to customers 10,275 9,973 43,765 112,040 67,396 2,432 245,881 Investments in subsidiaries and associates - - - - - 4,466 4,466 Current tax assets - - 57 - - - 57 Remaining assets 126 - 522 4 3 5,868 6,523 Total Assets 185,477 9,978 44,478 116,359 69,531 15,062 440,885 Due to banks 2,357 - 2,531 - - 563 5,451 Due to customers 1) 51,359 19,879 76,030 163,367 60,669 270 371,574 Derivative financial instruments with negative fair values 14 3 31 106 369 - 523 Hedging derivatives with negative fair values 3 2 128 2,214 2,201 - 4,548 Provisions - - - - - 266 266 Current tax liability - - - - - - - Change in fair value of items hedged on portfolio basis (2) (7) (31) 103 - - 63 Deferred tax liability - - - - - 327 327 Issued bonds - 697 2,631 10,466 500 - 14,294 Subordinated liabilities 92 - 18 2,913 4,581 - 7,604 Other liabilities 1,951 13 216 920 301 110 3,511 Equity - - - - - 32,724 32,724 Total liabilities and equity 55,774 20,587 81,554 180,089 68,621 34,260 440,885 Net liquidity position 129,703 (10,609) (37,076) (63,730) 910 (19,198) - 1) Balances are allocated to the buckets based on the expected maturity of non-maturity deposits and contractual maturity date of term deposits. Expected maturity of non-maturity deposits is a function of deposits’ volatility and the average life of the non-volatile part. 2) Balance reported within 1 month represents Government bonds which may be used as a collateral in repo transactions. 303 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 31 Dec 2022 CZK m Within 1 month 1 - 3 months 3 - 12 months 1 - 5 years More than 5 years Unspecified Total Cash and balances with the central bank 12,008 - - - - - 12,008 Derivative financial instruments with positive fair values 4 8 31 43 675 - 761 Investment securities 50,919 2) - 28 3,234 138 72 54,391 Hedging derivatives with positive fair values 5 3 253 1,927 2,754 - 4,942 Change in fair value of items hedged on portfolio basis - (5) (249) (1,376) (460) - (2,090) Loans and receivables to banks 37,620 691 - - - 252 38,563 Loans and receivables to customers 9,537 9,915 41,920 120,560 66,484 2,226 250,642 Investments in subsidiaries and associates - - - - - 4,466 4,466 Current tax assets - - - - - - - Remaining assets 31 - 622 10 1 5,829 6,493 Total Assets 110,124 10,612 42,605 124,398 69,592 12,845 370,176 Due to banks 348 - - 1,688 - 3,931 5,967 Due to customers 1) 29,338 17,64 4 56,637 143,092 57,172 491 304,374 Derivative financial instruments with negative fair values 6 8 29 41 663 - 747 Hedging derivatives with negative fair values - 11 288 540 6 - 845 Provisions - - - - - 302 302 Current tax liability - - 434 - - - 434 Change in fair value of items hedged on portfolio basis - (11) (233) (194) - - (438) Deferred tax liability - - - - - 320 320 Issued bonds 46 958 3,474 9,997 3,783 - 18,258 Subordinated liabilities 91 - 18 - 4,578 - 4,687 Other liabilities 1,832 13 219 869 168 147 3,248 Equity - - - - - 31,432 31,432 Total liabilities and equity 31,661 18,623 60,866 156,033 66,370 36,623 370,176 Net liquidity position 78,463 (8,011) (18,261) (31,635) 3,222 (23,778) - 1) Balances are allocated to the buckets based on the expected maturity of non-maturity deposits and contractual maturity date of term deposits. Expected maturity of non-maturity deposits is a function of deposits’ volatility and average life of the non-volatile part. 2) Balance reported within 1 month represents Government bonds which may be used as a collateral in repo transactions. 43.6 OPERATIONAL RISK Operational risk represents the risk of a loss resulting from inadequate or failed internal processes, people or systems, or from external events, including the risk of loss due to a breach of or failure to comply with a legal or regulatory requirement or a threat to the Bank’s reputation. It also includes legal and outsourcing risk. The Bank implemented standardised tools and processes for operational risk management, including Risk & Control Self-Assessment (RCSA), Loss Data Collection of actual internal operational risk losses, monitoring of external operational risk events, Key Risk Indicators, scenario analyses and Issue management that is used to record, monitor and report identified risks and issues. The Issue management system is also used for monitoring the relevant action plans, if applicable, and is closely linked to the RCSA process. The Bank continually develops and improves these tools and processes. The Bank’s Management Board specifically approves the operational risk governance structure and framework, and the Bank’s objectives for operational risk management and decides about acceptance of major risks if there are no feasible remedial measures. The Operational Risk Committee (ORCO) oversees the Bank’s operational risk management process and approves methods, limits and Key Risk Indicators, monitors adherence to approved limits and Key Risk Indicators and approves principal changes in the insurance programme. More details about operational risk and its management are comprised in section 5.5 of the Annual financial report. 304 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 43.6.1 Legal Risk Dealing with legal risk and managing it means minimising uncertainty associated with enforcement and interpretation of applicable law, contracts and regulations. In addition to standard legal functions in the various areas such as contract, banking and corporate law, the main tasks of the Bank’s lawyers during 2023 consisted of keeping both the retail and commercial contractual documentation aligned with both the business strategy and various needs of the business departments of the Bank, as well as new regulations. The Bank continuously monitors legal disputes and provision is created for the estimated amount of payment if it is more probable than not that the cash outflow will have to be made. 44. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The following table shows the carrying value and fair values of financial assets and liabilities that are not presented at fair value in the Bank’s individual statement of financial position. The fair value includes also anticipated future losses. The Bank uses the following inputs and techniques to estimate the fair value for asset and liability categories: • Cash and balances with the central bank The carrying value of cash and balances with the central bank approximates their fair value. • Loans and receivables to banks The carrying value of receivables to banks approximates their fair values due to the short maturity of those receivables. • Loans and receivables to customers The fair value of loans is estimated on the basis of discounted future expected cash flows using the interest rate common for loans with similar credit risk and interest risk conditions profile and maturity dates (discounted rate technique according to IFRS 13). For impaired loans the present value of future expected cash flows including the expected proceeds from a collateral foreclosure, if any. • Due to banks The carrying value of Due to banks in principle approximates their fair value due to the short maturity of these deposits. • Due to customers The fair value of deposits repayable on demand at request and term deposits bearing a variable interest rate are equal to their carrying value as at the balance sheet date. The fair value of term deposits with a fixed interest rate is estimated on the basis of discounted cash flows using the market interest rates. • Investment securities at amortised cost The difference between fair value and carrying value of investment securities measured at amortised cost is mainly driven by different market and effective interest rates of government bonds included in this portfolio. • Subordinated liabilities, Mortgage-backed bonds and Other issued bonds The difference between fair value and carrying value of subordinated debt securities, subordinated liabilities , mortgage-backed bonds and other issued bonds measured at amortised cost is determined on the basis of discounted cash flows using the market interest rates. CZK m 31 Dec 2023 31 Dec 2022 Carrying value Fair value Carrying value Fair value FINANCIAL ASSETS Cash and balances with the central bank 10,534 10,534 12,008 12,008 Investment securities at amortised cost 1) 100,769 94,415 54,319 44,637 Loans and receivables to banks 69,232 69,232 38,563 38,563 Loans and receivables to customers 245,881 241,413 250,642 238,114 FINANCIAL LIABILITIES Due to banks 5,451 5,450 5,967 5,899 Due to customers 371,574 371,574 304,374 304,374 Mortgage-backed bonds 10,486 10,234 14,686 13,876 Other issued bonds 3,808 4,100 3,572 3,905 Subordinated debt securities 4,690 4,546 4,687 4,313 Subordinated deposits 2,914 3,042 - - 1) Difference between fair value and carrying value is mainly driven by different market and effective interest rates of the Government bonds. 305 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 Investment securities measured at amortised cost are classified as level 1 because fair value is based on quoted prices on active market. Cash and balances with the central bank, Loans and receivables to banks and Due to banks are classified as level 2 and all other fair values presented above are classified as level 3 as the data used for the estimation of the discount rate are not based on the data from the active market. There are assumptions applied for the estimation of the cash flows used for discounting taking into account expected repayment profile of the particular pool or product. The discount rates used for discounting are based on the rates of the major competitors or other benchmark rates for similar type of assets. The following table summarises the hierarchy of fair values of financial assets and financial liabilities that are carried at fair value in the statement of financial position: CZK m 31 Dec 2023 31 Dec 2022 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 FINANCIAL ASSETS Derivative financial instruments with positive fair values - 544 - - 761 - Debt securities measured at FVTPL - - 30 - - 46 Equity securities measured at FVTPL - - 25 - - 25 Equity securities measured at FVTOCI - - 1 - - 1 Hedging derivatives with positive fair values - 2,701 - - 4,942 - Change in fair value of items hedged on portfolio basis - - 122 - - (2,090) FINANCIAL LIABILITIES Derivative financial instruments with negative fair values - 523 - - 747 - Hedging derivatives with negative fair values - 4,548 - - 845 - Change in fair value of items hedged on portfolio basis - - 63 - - (438) There were no transfers between level 1 and 2 during the year 2023 nor 2022. The Bank uses the following inputs and techniques to determine fair value under level 2 and level 3: The level 2 assets include mainly financial derivatives, corporate bonds and treasury bills. For derivative exposures the fair value is estimated using the present value of the cash flows resulting from the transactions taking into account market inputs like FX spot and forward rates, benchmark interest rates, swap rates, etc. The fair value of corporate bonds, treasury bills is calculated as the present value of cash flows using the benchmark interest rates. The level 3 assets include equity instruments not traded on the market where the fair value is calculated using the valuation techniques including expert appraisals. Movement analysis of level 3 financial assets and liabilities: CZK m As at 1 Jan 2023 Purchases/ Sales in the period Total gains and losses in the period recognised in the income statement Total gains and losses in the period recognised in OCI As at 31 Dec 2023 Investment securities at FVTOCI 1 - - - 1 Investment securities at FVTPL 71 (23) 7 - 55 Total 72 (23) 7 - 56 CZK m As at 1 Jan 2022 Purchases/ Sales in the period Total gains and losses in the period recognised in the income statement Total gains and losses in the period recognised in OCI As at 31 Dec 2022 Investment securities at FVTOCI 1 - - - 1 Investment securities at FVTPL 62 9 - - 71 Total 63 9 - - 72 306 NOTES TO SEPARATE FINANCIAL STATEMENTS Annual Financial Report 2023 45. MANDATORY PUBLISHED INFORMATION The Bank quarterly publishes the mandatory information according to CNB Decree No. 163/2014 Coll. and Part 8 of Regulation of the European Parliament and the Council (EU) No. 575/2013 of 26 June 2013 on its website in the section Mandatory information at the following address: https://investors.moneta.cz/ financni-vysledky#mandatory-disclosures. 46. SUBSEQUENT EVENTS There have been no subsequent events arising after 31 December 2023 that would have a material impact on these separate financial statements. Signature of statutory representatives In Prague, on 18 March 2024 Tomáš Spurný Chairman of the Management Board and CEO MONETA Money Bank, a.s. Jan Friček Member of the Management Board and CFO MONETA Money Bank, a.s. We thrive with MONETA “Everything you do with your heart brings satisfaction to everyone,” says Ladislav Pártl, who, together with his wife Marie, took over the Polná Brewery. It is said to have been the inspiration for Bohumil Hrabal to write the famous Postřižiny. The 1865 brewery required extensive reconstruction, but today, it houses a modern restaurant, a cosy guesthouse and a small wellness centre. However, the original Ringhofer steam boiler from 1905 has been preserved, and Ladislav Pártl plans to bring back the brewing to the site. There are extensive cellars underground, which are perfect for brewing the liquid bread. We are honoured to be a part of it! Ladislav Pártl Polná Brewery 309 ADDITIONAL DISCLOSURES Annual Financial Report 2023 10. ADDITIONAL DISCLOSURES 10.1 GOVERNING LAW The activities of the Group are subject to, in particular, the following Czech and EU laws and regulations, as amended, including, where relevant, their implementing measures: • EU Regulation No. 575/2013 on Prudential Requirements for Credit Institutions and Investment Firms; • EU Regulation No. 600/2014 on Markets in Financial Instruments; • EU Regulation No. 2017/1129 on the Prospectus to be Published when Securities are Offered to the Public or Admitted to Trading on a Regulated Market; • Act No. 21/1992 Coll., on Banks; • CNB Decree No. 163/2014 Coll., on the Performance of the Activities of Banks, Credit Unions and Investment Firms; • Act No. 374/2015 Coll., on Recovery and Resolution in the Financial Market; • Act No. 256/2004 Coll., on Capital Market Business (Capital Markets Act); • Act No. 15/1998 Coll., on Supervision in the Capital Markets; • EU Regulation No. 596/2014 on Market Abuse (Market Abuse Regulation); • CNB Decree No. 234/2009 Coll., on Protection against Market Abuse and on Transparency; • Act No. 90/2012 Coll., on Business Corporations and Co-operatives (Business Corporations Act); • Act No. 257/2016 Coll., on Consumer Credit; • Act No. 370/2017 Coll., the Payment Systems Act; • Act No. 191/1950 Coll., the Bill of Exchange and Cheque Act; • Act No. 170/2018 Coll., on Insurance and Reinsurance Distribution, which with effect from 1 December 2018 repealed and replaced Act No. 38/2004 Coll., on Insurance Intermediaries and Independent Loss Adjusters and on Amending the Trade Licensing Act; • Act No. 253/2008 Coll., on Certain Measures against the Legalization of Proceeds from Criminal Activity and the Financing of Terrorism; • Act No. 563/1991 Coll., on Accounting; • EU Regulation No. 1126/2008 on Adopting Certain International Accounting Standards in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and of the Council; • EU Regulation No. 537/2014 on Specific Requirements regarding Statutory Audit of Public-Interest Entities; • Act No. 93/2009 Coll., on Auditors; • Act No. 110/2019 Coll., on Processing of Personal Data; • EU Regulation No. 2016/679 on Protection of Natural Persons with Regard to the Processing of Personal Data and on the Free Movement of such Data; • Act No. 143/2001 Coll., on Protection of Economic Competition; • Act No. 136/2011 Coll., on the Circulation of Banknotes and Coins; • Act No. 190/2004 Coll., on Bonds; • Act No. 240/2013 Coll., on Investment Companies and Investment Funds; • Act No. 89/2012 Coll., the Civil Code; • Act No. 90/2012 Coll., on Business Corporations; • Act No. 99/1963 Coll., the Code of Civil Procedure; • Act No. 292/2013 Coll., on Special Court Proceedings; • Act No. 182/2006 Coll., on Insolvency and Methods for its Resolution; • Act No. 277/2013 Coll., on Foreign Exchange Activities; • Act No. 634/1992 Coll., on Consumer Protection; and • EU Regulation No. 2020/852 (Taxonomy) on the establishment of a framework to facilitate sustainable investment. 310 ADDITIONAL DISCLOSURES Annual Financial Report 2023 10.2 SIGNIFICANT INVESTMENTS MONETA Investments 1 (in CZK m) 31 Dec 2023 31 Dec 2022 Tangible assets 2,400 2,318 Intangible assets 3,332 3,379 Total 5,732 5,697 Investments in intangible assets made in 2023 in the amount of CZK 654 million were primarily focused on digitalisation and IT platform. Within tangible assets, MONETA invested additional CZK 205 million, especially into the electric car fleet and branch network. 10.3 TRADEMARKS, LICENCES AND SUB-LICENCES In 2023, the Bank used trademarks for labelling its products and services in the Czech Republic. The Bank registered a total number of 46 trademarks with the Czech Intellectual Property Office and one trademark with the European Union Intellectual Property Office. The Bank also registered six community designs with the European Union Intellectual Property Office under EU Regulation No. 6/2002 of 12 December 2001 on Community designs. In some cases, the Bank is also a licensee and sublicensee, typically in relation to providers of IT services. 10.4 EXPENSES ON RESEARCH AND DEVELOPMENT In 2023, the Group incurred expenses of CZK 50 million for research and development (CZK 60 million in 2022). These expenses were financed from MONETA’s own sources. Most of these expenses were linked to expanding MONETA’s digital capabilities. 10.5 INTELLECTUAL PROPERTY The Group has procured a number of SW and IT technology licences which are needed to run its banking and financial business in the areas of primary banking, treasury, IFRS calculation, statistics and analytics for risk, AML and CRM management, card payment management, accounting, etc. The Group uses, owns, or otherwise relies on the right to the MONETA name, brand and logo. 1 Excluding financial investments. 10.6 DESCRIPTION OF REAL ESTATE OWNED AND LEASED BY THE GROUP Description of property owned by the Bank is described in Notes to Consolidated Financial Statements (Note 5.12 Property and Equipment). The Group leased two headquarter premises set out in the table below as at 31 December 2023: Lessee Location Function Bank BB C HQ, Prague 4, Vyskočilova 1442/1b, 140 28 Registered office and headquarters of the Bank, MONETA Auto, MONETA Leasing and the Building Savings Bank Bank Ostrava, CTPark Ostrava — AXIS A and B including parking, Na Rovince 871, 720 00 Shared Services and Call Centre MONETA also leases its 134 branches (as at 31 December 2023) throughout the Czech Republic. MONETA is not aware of any significant environmental issues or other constraints that would materially impact the intended use of the Group’s facilities. 10.7 MEMBERSHIPS IN INDUSTRY AND OTHER ASSOCIATIONS The Bank or other entities from the Group are members of the following industry or other associations: • Czech Banking Association (“CBA“); • Czech Leasing and Financial Association (“CLFA“); and • Czech Capital Market Association (“AKAT CR“). Entities of the Group adopted following codices: CLFA Memorandum on consumer protection in providing consumer loans, CBA Financial Market Ethical Code and Code of Conduct of CLFA members. 10.8 MATERIAL CONTRACTS In 2018, the Bank entered into a lease contract with BB C - Building A, s.r.o., with registered office at Želetavská 1525/1, Michle, 140 00 Prague 4, ID No. 25147072, (whose assets were transferred to PASSERINVEST BBC 3, s.r.o., with registered office at Želetavská 1525/1, Michle, 140 00 Prague 4, IČO 06629580), for new HQ premises located at Vyskočilova 1442/1b, Michle, 140 28 Prague 4, initally for at least the next 10 years. The contract was extended by additional two years in 2023. We thrive with MONETA The family gardening business of Alena and Václav Bošek was started 40 years ago as an extra income from selling home-grown vegetables in a South Bohemian market. Today, the Střítež Boškovi Horticulture spreads over 20,000 m 2 . Visitors can also stroll past ornamental fish ponds and stop by the aviaries with parrots or the pen with Dutch goats. We are honoured to be a part of it! Alena aVáclav Boškovi Střítež Boškovi Horticulture 313 ALTERNATIVE PERFORMANCE MEASURES Annual Financial Report 2023 11. ALTERNATIVE PERFORMANCE MEASURES In this chapter, certain financial data and measures are presented which are not calculated pursuant to any accounting standard and which are therefore non-IFRS measures and alternative performance measures as defined in the European Securities and Markets Authority Guidelines on Alternative Performance Measures. All alternative performance measures included in this document are calculated for the specified period. These alternative performance measures are included to (i) extend the financial disclosure also to metrics which are used, along with IFRS measures, by the management for evaluation of the Group’s performance, and (ii) provide to investors further basis, along with IFRS measures, for measuring the Group’s performance. Because of the discretion that the Group has in defining these measures and calculating the reported amounts, care should be taken in comparing these various measures with similar measures used by other companies. These measures should not be used as a substitute for evaluating the performance of the Group based on the Consolidated Financial Statements of the Group. Non-IFRS measures have limitations as analytical tools, and investors should not consider them in isolation, or as a substitute for an analysis of the Group’s results as reported under IFRS and set out in the Consolidated Financial Statements of the Group, and investors should not place any undue reliance on non-IFRS measures. Non-IFRS measures presented in this Annual Financial Report should not be considered as measures of discretionary cash available to the Group to invest in the growth of the business, or as measures of cash that will be available to the Group to meet its obligations. Investors should rely primarily on the Group’s IFRS results and use the non-IFRS measures only as supplemental means for evaluating the performance of the Group. Definitions of alternative performance measures used in the Annual Financial Report: Capital Adequacy Ratio/CAR/Total Capital Ratio Regulatory capital expressed as a percentage of risk weighted assets (RWA, calculated pursuant to CRR) CET 1/CET 1 Capital Common equity Tier 1 capital represents regulatory capital which consists of capital instruments and other items provided in the Article 26 of CRR, such as paid-up registered share capital, share premium, retained profits, disclosed reserves and reserves for general banking risks, which must be netted off against accumulated losses, certaindeferredtax assets, certain intangible assets and shares held by the Bank in itself (calculated pursuant to CRR) CET 1 Capital Ratio/CET1 ratio CET 1 capital as a percentage of risk weighted assets (RWA, calculated pursuant to CRR) Core NPL coverage Ratio (expressed as a percentage) of allowances for losses created to NPL receivables to total amount of NPL receivables. MONETA uses the Core NPL Coverage measure because it shows the degree to which its Stage 3 loan portfolio is covered by allowances for losses created for the Stage 3 loans Cost of funds on customer deposits Interest expense and similar charges on customer deposits for the period divided by average balance of customer deposits Cost of risk/CoR Net impairment of loans and receivables for the period divided by the average balance of net loans to customers. MONETA uses the Cost of Risk measure because it describes the development of the credit risk in relative terms to its average loan portfolio balance Cost to income ratio Ratio (expressed as a percentage) of total operating expenses for the reported period to total operating income for the reported period. MONETA uses the cost to income ratio measure because it reflects the cost efficiency in relative terms to generated revenues Customer deposits Due to customers excluding repo operations and Credit Support Annex operations “CSA” Dividend yield Dividend yield is calculated as a ratio (expressed as a percentage) of the dividend per share paid in the financial year to the closing share price of the first trading day of the financial year. MONETA uses this ratio as it represents the annualised return on a share which MONETA pays out in the form of dividends in relative terms to the share price Excess capital Capital exceeding the management target capital ratio. MONETA uses the excess capital measure because it describes MONETA’s capital in excess of capital held to maintain its target capital adequacy ratio and represents the amount of capital which could potentially beusedfor growth,bothorganic andinorganic,orbe paidoutto MONETA’sshareholders Excess liquidity Liquidity above the regulatory requirement for Liquidity Coverage Ratio of at least 100% as introduced by CRR effective from 1 January 2018. MONETA uses the excess liquidity to show high-quality liquid assets available above the minimum level needed to comply with the regulatory requirement 314 ALTERNATIVE PERFORMANCE MEASURES Annual Financial Report 2023 Gross loans coverage Ratio (expressed as a percentage) of total loan portfolio allowances to total gross loan receivables Gross performing receivables Gross carrying amount of performing loans and receivables to customers as determined in accordance with MONETA’s loan receivables categorisation rules (Standard, Watch) High quality liquid assets/HQLA According to Basel III regulation, assets that are easily and immediately converted into cash at little or no loss of value. MONETA considers as HQLA its cash balances, balances held in the central bank and Czech government bonds Leverage Ratio calculated in accordance with CRR, as amended by CRR 2, as Group’s Tier 1 capital divided by Group’s total exposure Liquidity Coverage Ratio/LCR Liquidity Coverage Ratio represents the ratio (expressed as a percentage) of MONETA’s balance of high-quality liquid assets to its projected net liquidity outflows over a 30-day stress period, as calculated in accordance with CRR and EU Regulation 2015/61. MONETA uses this ratio to show its liquidity position Liquid assets Liquid assets are defined by the Group as cash and balances with the central bank, loans and receivables to banks and investment securities regardless of the purpose those assets are held by the Group Liquidity buffer Liquid assets that the Bank holds in compliance with CRR and EU Regulation 2015/61 Loan to deposit ratio Loan to deposit ratio calculated as net loans and receivables to customers divided by customer deposits (excluding repo operations and CSA). MONETA uses loan to deposit ratio measure to assess its liquidity level Loan to value/LTV Loan to Value (LTV) ratio represents the ratio of gross carrying value of loan to fair value of collateral available at the reporting date Net interest earning assets Cash and balances with the central bank, investment securities, loans and receivables to banks, loans and receivables to customers and prior to the transition to IFRS 9 also financial assets at fair value through profit and loss, financial assets available for sale, financial assets held to maturity. Including encumbered assets and excluding hedging derivatives Net interest margin/NIM Net interest and similar income divided by the average balance of net interest earning assets. MONETA uses the net interest margin measure because this metric represents the primary measure of profitability showing margin between interest earned on interest earning assets (e.g. loans to customers) and paid on interest bearing liabilities (e.g. customer deposits) in relative terms to the average balance of interest earning assets Net non-interest income Total operating income less Net interest income for the period. MONETA uses the net non-interest income measure as it is an important metric for assessing and controlling the diversity of revenue streams New production/new volume Aggregate of loan principal disbursed in the period for non-revolving loans. MONETA uses new volume/production metrics as it reflects performance of its distribution network and ability of the Group to generate new loans, which is key for the loan portfolio growth Non-performing loans/NPL Non-performing loans as determined in accordance with the Bank’s loan receivables categorisation rules as Substandard, Doubtful or Loss (Stage 3 according to IFRS 9) and gross loans from Stage POCI per IFRS 9 categorised as non-performing NPL ratio Ratio (expressed as a percentage) of NPL to Gross loans and receivables to customers. MONETA uses the NPL ratio measure because it’s the key indicator of portfolio quality and allows comparison to the market and peers Online sales/origination/production/ volume New Online volume/sale represents volume from leads initiated through digital channels and disbursed either through digital channels or branches. MONETA uses the online sales/origination/production/volume because it reflects the production of MONETA’s digital/online distribution channels Opportunistic repo operations Repo transactions with counterparties which are closed on a back-to-back basis by reverse repo transactions with the CNB. MONETA uses this measure to show them separately from other repo operations Performing receivables Performing Receivables as determined in accordance with MONETA’s loan receivables categorisation rules (Standard, Watched) Return on Average Assets/RoAA Return on average assets calculated as profit for the period after tax for the year divided by the average balance of total assets. The average balance of total assets is calculated as a two-point average from total assets as at the end of the reported year and prior year (31 December). MONETA uses the RoAA measure because it is one of the key performance indicators used to assess MONETA’s rentability of assets Return on Average Equity/RoAE Return on average equity calculated as profit for the period after tax for the year divided by average Tier 1 equity. The average balance of Tier 1 equity is calculated as a five-point average. Return on Equity/or RoE Return on equity calculated as profit for the period after tax for the period divided by total equity Return on Tangible Equity/RoTE Profit for the period after tax divided by tangible equity. MONETA uses the RoTE measure because it is one of the key indicators used to assess MONETA’s rentability and performance Risk adjusted yield (% avg. net customer loans) Interest and similar income from loans to customers less net impairment of financial assets divided by the average balance of net loans to customers. MONETA uses this metrics to show interest generated on the loan portfolio separately without credit risk in relative terms to its average balance 315 ALTERNATIVE PERFORMANCE MEASURES Annual Financial Report 2023 Risk weighted assets/RWA Risk weighted assets (calculated pursuant to CRR) Tangible equity Calculated as total equity less intangible assets and goodwill Total NPL coverage Ratio (expressed as a percentage) of total Loss allowances created for loans and receivables to customers to the amount of NPL receivables. MONETA uses the Total NPL Coverage measure because it shows the degree to which its non- performing loan portfolio is covered by total allowances created for credit losses Total operating income after net impairment of financial assets Calculated as total operating income less Net impairment of financial assets Total shareholder return Per Bloomberg methodology calculated as a ratio of difference between closing and opening share price to opening share price including reinvested dividend Yield on net customer loans (% avg. net customer loans)/Loan portfolio yield Interest and similar income from loans to customer divided by the average balance of net loans to customers. MONETA uses the yield on the net customer loans measure as it represents interest generated on the loan portfolio in relative terms to its average balance and is one of the key performance indicators of the lending activities předěl info Viktor Valas We thrive with MONETA Originally, Viktor Valas had his sights set on university, but he could not choose the right one, so he dropped out repeatedly. In the end, he decided to retrain as a stove maker. Today, his Valas Stove Shop is renowned in the region. Viktor Valas himself is a sought-after specialist in stoves of all kinds – from rustic tiled stoves to modern heaters. His biggest and most difficult commission to date was the construction of a communal bread oven in Úsilné in the České Budějovice region. Last year, he was also awarded third place in the regional round of the prestigious competition Živnostník roku (Entrepreneur of the Year). We are honoured to be a part of it! Viktor Valas Stove Shop Valas 319 INFORMATION ABOUT CAPITAL AND CAPITAL REQUIREMENTS Annual Financial Report 2023 12. INFORMATION ABOUT CAPITAL AND CAPITAL REQUIREMENTS Informationaccording to Decree No. 163/2014Coll., on the Performance of the Activities of Banks, Credit Unions and Investment Firms, as amended. Information about Capital and Capital Requirements pursuant to Article 437 (1) (a) of Regulation (EU) 575/2013, as amended. Capital (in CZK m) 31 Dec 2023 Group 31 Dec 2023 Bank 31 Dec 2022 Group 31 Dec 2022 Bank Capital 33,583 34,180 30,944 31,379 Tier 1 (T1) Capital 26,334 26,931 26,342 26,777 Common Equity Tier 1 (CET 1) Capital 26,334 26,931 26,342 26,777 Instruments eligible as CET 1 Capital 10,220 10,220 10,220 10,220 Subscribed CET 1 instruments 10,220 10,220 10,220 10,220 Retained earnings 17,281 17,803 16,680 17,022 Retained earnings from previous periods 16,680 17,022 15,581 16,423 Other reserve funds 102 102 102 102 Accumulated other comprehensive income 1 1 1 1 Items deductible from Tier 1 Capital (1,830) (1,732) (1,668) (1,545) (-) CET 1 capital adjustments due to the application of prudential filters (9) (9) (10) (10) (-) Value adjustments due to the requirements for prudent valuation (9) (9) (10) (10) (-) Other intangible assets (1,822) (1,723) (1,658) (1,535) (-) Other intangible assets - carrying amount (2,225) (2,103) (2,010) (1,881) Deferred tax liabilities associated to other intangible assets 404 380 352 346 Other transitional adjustments to CET 1 capital 560 537 1,007 978 Tier 2 (T2) Capital 7,249 7,249 4,602 4,602 Subordinated liabilities 7,249 7,249 4,602 4,602 Figures in the table may not add up to the total due to rounding differences. Information about Capital and Capital Requirements pursuant to Article 438 (c) to (f) of Regulation (EU) 575/2013. A detailed overview of the development of the regulatory capital requirement is available in Chapter 3 “Capital and Liquidity” of this Annual Financial Report. 320 INFORMATION ABOUT CAPITAL AND CAPITAL REQUIREMENTS Annual Financial Report 2023 Capital Allocation (in CZK m) 31 Dec 2023 Group 8% 1 31 Dec 2023 Group 15.1% 2 31 Dec 2023 Bank 8% 1 31 Dec 2023 Bank 15.1% 2 31 Dec 2022 Group 8% 1 31 Dec 2022 Group 14.6% 2 31 Dec 2022 Bank 8% 1 31 Dec 2022 Bank 14.6% 2 Total capital allocation requirement 13,384 25,262 12,780 24,123 13,737 25,071 13,217 24,122 Capital allocation requirement for credit, counterparty credit and dilution risks and free deliveries 11,818 22,306 11,464 21,637 12,288 22,426 11,945 21,800 Standardised approach (SA) capital allocation requirement 11,818 22,306 11,464 21,637 12,288 22,426 11,945 21,800 SA exposure classes excluding securitisation positions capital allocation requirement 11,818 22,306 11,464 21,637 12,288 22,426 11,945 21,800 Capital allocation requirement to central governments or central banks - - - - - - - - Capital allocation requirement to regional governments or local authorities 2 5 2 3 3 6 2 4 Capital allocation requirement to institutions 64 120 62 118 66 120 75 137 Capital allocation requirement to corporates 2,199 4,152 2,728 5,149 2,305 4,206 2,905 5,301 Capital allocation requirement to Retail exposures 4,587 8,658 3,436 6,485 4,920 8,980 3,688 6,731 Capital allocation requirement to public sector entities 1 1 1 1 1 1 1 1 Capital allocation requirement to exposures in default 168 318 140 265 144 262 127 232 Capital allocation requirement to items associated with particular high risk 14 26 14 26 17 31 17 31 Capital allocation requirement to equity exposures 180 340 537 1 138 252 495 904 Capital allocation requirement to covered bonds - - - - - - - - Capital allocation requirement other items 394 744 380 718 411 750 394 719 Capital allocation requirement to exposures secured by mortgages on immovable property 4,208 7,942 4,164 7, 859 4,284 7,818 4,241 7,740 Total capital allocation requirement to Operational Risk (OpR) 1,523 2,875 1,274 2,404 1,395 2,546 1,217 2,222 OpR Standardised/Alternative Standardised approaches capital allocation requirement 1,523 2,875 1,274 2,404 1,395 2,546 1,217 2,222 Capital allocation requirement for credit valuation adjustment risk 43 81 43 81 55 100 55 100 Capital allocation requirement for Credit valuation adjustment Standardised approach 43 81 43 81 55 100 55 100 Total capital allocation requirement for positions risk, FX risk and commodity risk - - - - - - - - Figures in the table may not add up to the total due to rounding differences. The capital allocation requirement is calculated as Risk-weighted assets for the given category (represented by the rows) multiplied by the given percentage (represented by the columns). 1 Based on article 438 point c) of Capital Requirement Regulation. 2 Based on the OCR = Overall Capital Requirement. The OCR comprises the Total SREP Capital Requirement (Pillar I and Pillar II Requirement) plus the combined buffer requirements (capital conservation buffer and countercyclical buffer). 321 INFORMATION ABOUT CAPITAL AND CAPITAL REQUIREMENTS Annual Financial Report 2023 Reconciliation of Accounting and Regulatory Capital (in CZK m) 31 Dec 2023 Group 31 Dec 2023 Bank 31 Dec 2022 Group 31 Dec 2022 Bank Accounting Equity 32,203 32,724 31,091 31,432 (-) Current year profit or loss (5,200) (5,380) (5,187) (4,687) (+) Current year profit or loss eligible 601 781 1,099 599 (-) Intangible assets (1,822) (1,723) (1,658) (1,535) (+/-) Other items 552 529 997 968 Common Equity Tier 1 (CET 1) Capital 26,334 26,931 26,342 26,777 Tier 2 Capital 7,249 7,249 4,602 4,602 Subordinated liabilities 7,249 7,249 4,602 4,602 Total Regulatory Capital 33,583 34,180 30,944 31,379 Capital ratios 31 Dec 2023 Group 31 Dec 2023 Bank 31 Dec 2022 Group 31 Dec 2022 Bank CET 1 Capital Ratio 15.7% 16.9% 15.3% 16.2% Tier 1 Capital Ratio 15.7% 16.9% 15.3% 16.2% Total Capital Ratio 20.1% 21.4% 18.0% 19.0% Other indicators 31 Dec 2023 Group 31 Dec 2023 Bank 31 Dec 2022 Group 31 Dec 2022 Bank RoAE 3 19.7% 19.9% 20.6% 18.0% RoAA 4 1.2% 1.3% 1.4% 1.3% Total operating expenses per employee (CZK thousand) 5 1,659 1,670 1,446 1,454 Total assets per employee (CZK thousand) 183,788 183,779 138,347 138,487 Net profit per employee (CZK thousand) 2,086 2,243 1,852 1,753 Number of employees 6 2,493 2,399 2,801 2,673 3 Calculated as a five-point average of Tier 1 regulatory capital. 4 Calculated as a five-point average of total assets. 5 Calculated as a sum of Personnel and Administrative expenses divided by the number of employees. 6 Average recalculated number of employees for the period (see note 11 in the Notes to the Separate Financial Statements and Notes to the Consolidated Financial Statements). We thrive with MONETA Kateřina Kopová started 11 years ago in a garage in Hustopeče, a town with the largest almond orchards in Central Europe. Today, she owns three almond cafes and produces almond liqueur according to a historically proven recipe. And what will delight your taste buds in the café? Almond coffee, tea or chocolate served with a delicious almond dessert and, in winter, perhaps an almond brew. You can take home a traditional coffee or cherry almond liqueur. “The best gift is what you drink or eat,” says the owner of the family business Mandlarna.cz. We are honoured to be a part of it! Kateřina Kopová Hustopečská mandlárna s.r.o. 325 FORWARD-LOOKING STATEMENTS Annual Financial Report 2023 13. FORWARD-LOOKING STATEMENTS 1 Source: CNB forecast published in February 2024, https://www.cnb.cz/en/monetary-policy/monetary-policy-reports/Monetary-Policy-Report-Winter-2024/. This Annual Financial Report may contain projections, estimates, forecasts, targets, opinions, prospects, results, returns and forward-looking statements with respect to the management’s medium-term guidance, profitability, costs, assets, capital position, financial condition, results of operations, dividend and business of the Group (together, “forward-looking statements”). 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 realised or that such matters 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 any 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 forward-looking 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 any reliance on, and are cautioned about relying on, any forward-looking statements. 13.1 MACROECONOMIC OUTLOOK 1 The macroeconomic outlook for the Czech economy for 2024 is mildly optimistic. The shallow recession that the domestic economy was carrying over from 2022 into 2023 disappeared, and the economy should continue to recover. The CNB‘s February 2024 forecast expects the Czech economy‘s GDP to grow by 0.6% in 2024, followed by a growth of 2.4% in 2025. Unlike in 2023, the domestic economy should be driven by household consumption in 2024. This will be enabled by shrinking inflation, which will enable an increase in real wages and thus in the purchasing power of the population. According to the CNB‘s forecast, inflation is expected to reach 2.6% on average in 2024. The economy could also be supported by recovering foreign demand, which will allow for relatively good export growth. In addition, the economy will be supported by significant cuts in interest rates during the whole of 2024. On the other hand, fiscal restrictions approved in 2023 will result in decreasing government consumption, and thus, economic growth will be negatively influenced in 2024 by the consolidation of state finances. Given the overall economic improvement, the labour market, which has not recorded any significant turbulences, should remain stabilized with a stably low unemployment level of 3% in 2024. The low unemployment rate will therefore still be an important barrier to further production expansion but will also provide the economy a cushion in the case economic risks materialise. The recovery of the Czech economy and the return to economic growth is not entirely without risks. The main one lies in geopolitical developments, which are very difficult to predict. Should the war in Ukraine or other increasing geopolitical tensions escalate, the Czech economy could face a new wave of difficulties that could prolong and deepen the domestic recession. In addition, the state of public finance does not allow for wide support of the economy, and thus, the government sector will not contribute to economic growth. 326 FORWARD-LOOKING STATEMENTS Annual Financial Report 2023 13.2 MATERIAL ASSUMPTIONS FOR MEDIUM-TERM GUIDANCE FOR 2024–2028 A number of economic, market, operational and regulatory assumptions were made by MONETA in preparing the medium-term guidance (see below). MONETA’s medium-term guidance, which was published on 2 February 2024, relies on the internal macroeconomic outlook and projections derived from the CNB forecast published in November 2023 2 . The outlook expects GDP to return to moderate growth of around 2.5% annually by 2025. The inflation measured as the Consumer Price Index is expected to gradually return to the CNB’s inflation target of 2% by 2025. The unemployment rate is assumed to remain at or below the level of 3% in the 5-year period. The projection of a two-week repo rate expects a gradual decrease to 3% by the end of 2025. Metrics 2024 2025 2026 2027 2028 GDP 2 1.2% 2.8% 2.8% 2.7% 2.5% Unemployment rate 2 3.0% 3.0% 2.9% 2.7% 2.5% Inflation projection (CPI) 2 2.6% 2.1% 2.0% 2.0% 2.0% Two-week repo rate 3 5.2% 3.3% 3.0% 3.0% 3.0% 1M PRIBOR 3 5.4% 3.4% 3.1% 3.1% 3.1% CZK/EUR 2 24.6 24.1 24.0 24.0 24.0 Based on the medium-term macroeconomic outlook presented above, MONETA assumes that the gross performing loan balance will grow at an annual growth rate of 3.4% while the customer deposit base is assumed to expand by 4.6% CAGR over five years. GROSS PERFORMING LOANS AND CUSTOMER DEPOSITS DEVELOPMENT ASSUMPTIONS 4 (in CZK bn) 2023 2024F 2025F 2026F 2027F 2028F 2023–2028 CAGR Gross performing loans Retail 179.5 178.8 180.9 183.2 192.1 206.1 2.8% Commercial 84.4 87.5 91.3 95.7 101.7 105.9 4.6% Total 263.9 266.4 272.2 278.9 293.8 311.9 3.4% Customer deposits Retail 313.2 321.3 333.9 353.7 372.1 391.1 4.5% Commercial 86.1 94.0 97.6 101.1 104.7 108.3 4.7% Total 399.2 415.3 431.5 454.9 476.7 499.4 4.6% Figures in the table may not add up to the total due to rounding differences. 2 Source: 2024–2025 CNB forecast published in November 2023 (https://www.cnb.cz/en/monetary-policy/forecast/cnb-forecast-archive/CNB-forecast-Autumn-2023/), 2026–2028 internal assumptions. 3 Source: Internal assumptions. 4 F – represents MONETA forecast for respective year. We thrive with MONETA Milan Směšný, a conservator and sculptor, is largely devoted to the restoration of sacred monuments such as memorial crosses, wayside shrines, monuments and memorials, or other sculptural works with motifs of saints not only in the Pilsen region. His work can be admired, for example, at the castle in Nebílovy, for which he restored rococo stone vases. And if your travels lead you to Vlčí, Švihov, Nezvěstice, Stod or Soběkury, you can admire the memorial crosses that he restored to their lost beauty. We are honoured to be a part of it! Milan Směšný Conservator and sculptor 329 THE LIST OF SIGNIFICANT INTERNAL POLICIES Annual Financial Report 2023 ANNEX THE LIST OF SIGNIFICANT INTERNAL POLICIES Audit • MONETA Internal Audit Charter Compliance • Charter and Rules of Procedure of Compliance & Anti-Fraud Committee • Client Personal Data Processing • Compliance Charter • Contacts with Regulator and Competition • MONETA Internal Policy Rulebook • Policy on Assessing the Suitability of Members of Elected Bodies and Key Function Holders in MONETA Money Bank, a.s. • Prevention of Improper Payments • Process for Processing of Serious Complaints and Regulatory Requests within MONETA • Protection of Bank Secrecy and Trade Secret • Rules for Prevention and Management of Conflict of Interest • Rules for Receiving and Handling Whistleblowing Notifications Communication • MONETA Corporate Social Responsibility (CSR) Rules • MONETA External Communication Rules • Procedure for processing applications of the MONETA Clementia Foundation Finance • Charter and Rules of Procedure of Assets & Liability Committee • Charter and Rules of Procedure of Business Review Committee • MONETA Financial Reporting Standards • Investor relations in MONETA Money Bank a.s. • MONETA Crisis Liquidity Management and Contingency Plan • MONETA Funding and Management of the Market Risk in Non-banking Entities • Preparation and approval of the strategy for capital management and compliance with MREL requirements in MONETA Group • Rules for the Protection of Inside Information and Disposition of Investment Instruments in MONETA Money Bank, a.s. Human Resources • Charter and Rules of Procedure of Compensation Committee • Charter and Rules of Procedure of the MON FAIR Committee • Charter and Rules of Procedure of Sustainability Committee • Extension of Leave/Time Off Work Provided in Case of Significant Personal Obstacles to Work • Identification of Employees Classified as Material Risk Takers in MONETA • MONETA Code of Ethics • MONETA Employee Remuneration Policy • MONETA Principles of Planning and Recording the Working Hours of the Employees • Remuneration Policy of the Audit Committee of MONETA Money Bank, a.s. • Remuneration Policy of Material Risk Takers in MONETA • Remuneration Policy of the Supervisory Board of MONETA Money Bank, a.s. 330 THE LIST OF SIGNIFICANT INTERNAL POLICIES Annual Financial Report 2023 Legal • MONETA Management • Organization of the General Meeting and Distribution of Profit Share (Dividend) in MONETA Money Bank, a.s. • Organizational Order of MONETA Money Bank, a.s. • Rules for Submitting Proposals and Distribution of Minutes from the Management Board Meetings of MONETA Money Bank, a.s. • Signature Rules of MONETA Money Bank, a.s. Retail • Handling of claims and complaints in MONETA • Rules and procedures for the post-sales controls process Risk • Charter and Rules of Procedure of Credit Committee • Charter and Rules of Procedure of Enterprise Risk Management Committee • Charter and Rules of Procedure of Operational Risk Committee • Market Risk Management Regulation in MONETA • Measures in the Area of Prevention of Legitimisation of Proceeds of Crime and Financing of Terrorism • Measures to Separate Credit Transactions and Transactions within Investment Instruments • MONETA ICAAP Regulation • MONETA Liquidity Risk and Funding Management • MONETA Outsourcing Management • MONETA Recovery Plan and Processes in Case of Failure • Operational Risk Management Regulation • Procedure for Preparation and Approval of Risk Management Strategies in MONETA • System of Internal Principles Procedures and Control Measures to Meet the Obligations Set out by the Act No. 253/2008 Coll., on Selected Measures against Legitimisation of Proceeds of Crime and Financing of Terrorism, and Other Related Laws in MONETA Money Bank, a.s. • Vendor Risk Management Cyber Security/IT • Application Development Process and Implementation of Other Changes in MONETA • Applications Operation • Control of Access to Systems • Cyber Security Incident Management • Cyber Security Risk Management • Incident and Problem Management • Information Security • Principles of Information Security • Principles of Using Information Sources • Rules for Personal Data Anonymisation • Third Party Access to Information of MONETA • User Account Management Shared Services • Business Continuity Management Programme • Charter and Rules of Procedure of Business Continuity Management Committee • Organisation of Occupational Health and Safety Protection and Fire Protection • Waste Management in MONETA We thrive with MONETA Dana Kozáková has been creating clothing for 20 years, and during that time, her models under the Smiling Sun brand, inspired by folk and technical motifs, have found many satisfied customers. “My wish is for women, men and children to feel comfortable in our clothes and that they last as long as possible. We make our clothes with an emphasis on individuality. You could say that each piece is unique,” says the designer, whose studio can be found in Ústí nad Orlicí but whose models are also sold through the FLER platform. We are honoured to be a part of it! Dana Kozáková Clothing studio Smiling Sun 333 2023 KEY PERFORMANCE INDICATORS OF THE MANAGEMENT BOARD AND KEY EXECUTIVE MANAGERS Annual Financial Report 2023 2023 KEY PERFORMANCE INDICATORS OF THE MANAGEMENT BOARD AND KEY EXECUTIVE MANAGERS TOMÁŠ SPURNÝ, Chief Executive Officer CARL NORMANN VÖKT, Chief Risk Officer JAN FRIČEK, Chief Financial Officer JAN NOVOTNÝ, Chief Commercial Banking Officer KLÁRA STARKOVÁ, Chief Operating Officer ANDREW GERBER, Chief Product & Marketing Officer ALEŠ SLOUPENSKÝ, Chief Retail Banking Officer JIŘÍ HUML, Chief Shared Services Officer JAKUB VALENTA, Chief Digital Officer 334 2023 KEY PERFORMANCE INDICATORS OF THE MANAGEMENT BOARD AND KEY EXECUTIVE MANAGERS Annual Financial Report 2023 CHIEF EXECUTIVE OFFICER – TOMÁŠ SPURNÝ Quantitative targets Total weight 70% Qualitative targets Total weight 30% Nr. Objective Weight Target Floor/Cap Nr. Objective 01. Net profit (CZK bn) 25% ≥4.3 4.3 01. Digital strategy implementation 02. Total operating income (CZK bn) 10% ≥12.0 12.0 02. Implementation of Environmental, Social and Governance strategy – development and strategic review of action plan, meeting carbon reduction target and improve gender diversity 03. Total OPEX (CZK bn) 10% ≤5.7 5.7 03. Management of relationship with the regulator 04. RoTE (%) 10% ≥15.0 15.0 04. Talent and succession planning programme implementation and corporate culture 05. Loan to deposit ratio (%) 10% ≤77.5 79.4 05. Engagement with investors 06. Investment budget (CAPEX) (CZK bn) 5% ≤0.8 0.85 CHIEF RISK OFFICER –CARL NORMANN VÖKT Quantitative targets Total weight 70% Qualitative targets Total weight 30% Nr. Objective Weight Target Floor/Cap Nr. Objective 01. Net profit (CZK bn) 20% ≥4.3 4.3 01. Timely completion of regulatory milestones and requirements 02. Cost of risk (bps) 20% ≤30 45 02. Improvement of risk model, system capabilities and portfolio management 03. Loan to deposit ratio (%) 20% ≤77.5 79.4 03. Implementation of Environmental, Social and Governance strategy – deliver all tasks under approved strategy, implement roadmap in line with strategy, deliver all regulatory reporting requirements and further enhance ESG related data collection 04. NPL ratio (%) 10% ≤2.2 2.5 CHIEF FINANCIAL OFFICER – JAN FRIČEK Quantitative targets Total weight 70% Qualitative targets Total weight 30% Nr. Objective Weight Target Floor/Cap Nr. Objective 01. Net profit (CZK bn) 15% ≥4.3 4.3 01. Finance area operational excellence for MONETA 02. Total operating income (CZK bn) 15% ≥12.0 12.0 02. Engagement with investors 03. Total OPEX (CZK bn) 15% ≤5.7 5.7 03. Management of relationship with the regulator 04. RoTE (%) 10% ≥15.0 15.0 04. Implementation of Environmental, Social and Corporate Governance strategy – maintain MONETA’s rating by MSCI index 05. Loan to deposit ratio (%) 10% ≤77.5 79.4 06. Investment budget (CAPEX) (CZK bn) 5% ≤0.8 0.85 Note: All presented figures were rounded. 335 2023 KEY PERFORMANCE INDICATORS OF THE MANAGEMENT BOARD AND KEY EXECUTIVE MANAGERS Annual Financial Report 2023 CHIEF COMMERCIAL BANKING OFFICER – JAN NOVOTNÝ Quantitative targets Total weight 70% Qualitative targets Total weight 30% Nr. Objective Weight Target Floor/Cap Nr. Objective 01. Net profit (CZK bn) 15% ≥4.3 4.3 01. Restructuring of SME distribution capabilities and further development of SmartFinance team 02. Gross lending income 1 (Commercial) (CZK bn) 15% ≥5.0 4.7 02. Migration of legal entities into new model in Internet and Smart banka 03. Non-interest income 2 (Commercial) (CZK bn) 15% ≥0.92 0.86 03. Implementation of Environmental, Social and Governance strategy – implement and improve reporting in Commercial Division 04. Current account balance (Commercial) (CZK bn) 15% ≥41.0 39.0 04. Further development of sales networks – improve efficiency 05. Loan to deposit ratio 3 (Commercial) (%) 10% ≤118.6 124.5 05. Delivery of SME digital plan 06. Safe and controlled run-off on real estate, BD/SVJ 4 and Leasing portfolio CHIEF OPERATING OFFICER – KLÁRA STARKOVÁ Quantitative targets Total weight 70% Qualitative targets Total weight 30% Nr. Objective Weight Target Floor/Cap Nr. Objective 01. Personnel expenses (COO Division) (CZK bn) 20% ≤0.46 0.46 01. Integration: achieve 95% traffic in WSO2 and complete first phase of TIF migration 02. Operating expenses 5 (COO Division) (CZK bn) 20% ≤2.1 2.1 02. Strategic initiatives: prepare outsourcing of selected functions, achieve improvement of front-end system and prepare for next phase of cloud solution 03. Net profit (CZK bn) 15% ≥4.3 4.3 03. Prepare deposit ATM sharing and achieve productivity target 04. Investment budget (CAPEX, COO Division) (CZK bn) 15% ≤0.36 0.38 04. Proceed with client data quality and complete SZR 6 initiative 05. Achieve Environmental, Social and Governance targets 1 Represents gross interest income on commercial loans including MONETA Auto retail. 2 Represents commercial net fee and commission income and FOREX income including MONETA Auto retail. 3 Excluding large term deposits managed by Treasury. 4 BD = housing cooperatives, SVJ = condominiums. 5 Operating expenses excluding Personnel expenses. 6 SZR = The Administration of Basic Registers. Note: All presented figures were rounded. 336 2023 KEY PERFORMANCE INDICATORS OF THE MANAGEMENT BOARD AND KEY EXECUTIVE MANAGERS Annual Financial Report 2023 CHIEF PRODUCT &MARKETINGOFFICER–ANDREW GERBER Quantitative targets Total weight 70% Qualitative targets Total weight 30% Nr. Objective Weight Target Floor/Cap Nr. Objective 01. Gross lending income 7 (Retail) (CZK bn) 15% ≥7.39 7.01 01. Improve brand value by minimum 10% 02. Non-interest income 8 (Retail) (CZK bn) 15% ≥2.55 2.42 02. Implementation of insurance exclusivity agreement 03. OPEX (Products & Marketing) (CZK bn) 15% ≤0.63 0.63 03. Deliver sufficient sale of subordinated term deposit 04. Current account balance (Retail) (CZK bn) 15% ≥56.6 53.7 04. Improve coss-sell ratio by minimum 10% on mortgage and savings account clients 05. Loan to deposit ratio (Retail) (%) 10% ≤70.0 71.8 05. Improve cybersecurity on digital channels CHIEF RETAIL BANKING OFFICER –ALEŠ SLOUPENSKÝ Quantitative targets Total weight 70% Qualitative targets Total weight 30% Nr. Objective Weight Target Floor/Cap Nr. Objective 01. Gross lending income 7 (Retail) (CZK bn) 15% ≥7.39 7.01 01. Deliver sufficient sale of subordinated term deposit 02. Non-interest income 8 (Retail) (CZK bn) 15% ≥2.55 2.42 02. Achieve targeted sales of pension funds 03. Personnel expenses (Retail) (CZK bn) 15% ≤0.89 0.89 03. Achieve targeted sales of life insurance 04. Current account balance 9 (Retail) (CZK bn) 15% ≥56.6 53.7 04. Achieve targeted sales of asset management 05. Loan to deposit ratio (Retail) (%) 10% ≤70.0 71.8 05. Maintain operating excellence CHIEF SHARED SERVICES OFFICER – JIŘÍ HUML Quantitative targets Total weight 70% Qualitative targets Total weight 30% Nr. Objective Weight Target Floor/Cap Nr. Objective 01. OPEX (Shared Services) (CZK bn) 20% ≤0.9 0.9 01. Prepare conditions for shared deposit ATM network 02. Lease costs (CZK bn) 20% ≤0.34 0.34 02. Reduce company car fleet in line with the approved Environmental, Social and Governance strategy to less than 220 cars 03. Net profit (CZK bn) 10% ≥4.3 4.3 03. Propose further productivity improvement measures 04. Net fee & commission from transactions (CZK bn) 10% ≥0.5 0.49 04. Stable cash balance and transport of cash 05. Investment budget (CAPEX, Shared Service Division) (CZK bn) 10% ≤0.15 0.15 7 Represents gross interest income on retail loans excluding MONETA Auto retail. 8 Represents retail net fee and commission income and FOREX income excluding MONETA Auto retail. 9 Without material changes of interest rates. Note: All presented figures were rounded. 337 2023 KEY PERFORMANCE INDICATORS OF THE MANAGEMENT BOARD AND KEY EXECUTIVE MANAGERS Annual Financial Report 2023 CHIEF DIGITAL OFFICER – JAKUB VALENTA Quantitative targets Total weight 70% Qualitative targets Total weight 30% Nr. Objective Weight Target Floor/Cap Nr. Objective 01. OPEX (Digital) (CZK m) 25% ≤192 192 01. Establish new Digital Office organization 02. Investment budget (CAPEX, Digital) (CZK m) 25% ≤127 127 02. Establish new teams for Entitlement Model and SME implementation + prepare implementation roadmap 03. Net profit (CZK bn) 20% ≥4.3 4.3 03. Improve monitoring of business performance of individual processes Note: All presented figures were rounded. We thrive with MONETA The family-run Bošina Ecofarm manages 410 hectares in a protected landscape area near the Broumov and Adršpach-Teplice Rocks. They breed mainly beef cows and Mangalica pigs. However, you can also find poultry on the farm. You can taste the local delicacies in the local restaurant Stodola, buy them in the farm shop and entertain your children at the Children‘s Farm, where they can see many other animals. We are honoured to be a part of it! Lucie aJan Bošin Bošina Ecofarm 341 GLOSSARY Annual Financial Report 2023 GLOSSARY Definition ACCA The Association of Chartered Certified Accountants Act on Auditors Act No. 93/2009 Coll., on auditors, as amended ALCO Asset & Liability Committee AML/CTF Anti-Money Laundering and Counter-Terrorist Financing Strategy AML/CFT Act Act No. 253/2008 Coll., on selected measures against the legitimization of proceeds of crime and the financing of terrorism, as amended Annualised Adjusted so as to reflect the relevant rate on the full year basis APR Annual Percentage Rate ARAD Public database that is part of the information service of the Czech National Bank. It is a uniform system of presenting a time series of aggregated data for individual statistics and financial market areas ASA Alternative standardised approaches for the calculation of the operational risk component of Regulatory Capital ATM Automated Teller Machine Average balance of due to banks and due to customers Two-point average of the beginning and ending balances of Due to banks and Due to customers for the period Average balance of net interest earning assets Two-point average of the beginning and ending balances of Net Interest Earning Assets for the period Average balance of net loans to customers Two-point average of the beginning and ending balances of Loans and receivables to customers for the period Average balance of total assets Two-point average of the beginning and ending balances of Total Assets for the period Bank MONETA Money Bank, a.s. Banking book All positions not included in Trading book Basel III The package of capital and liquidity requirements published by the Basel Committee intended to establish minimum liquidity requirements for credit institutions Bn Billion Boards The Management Board and the Supervisory Board Bps Basis points BRRD Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms, as amended Building Savings Bank MONETA Stavební Spořitelna, a.s. (formerly Wüstenrot stavební spořitelna a.s.) Business Corporations Act Act No. 90/2012 Coll., on business companies and co-operatives (Business Corporations Act), as amended CAFC Compliance & Anti-Fraud Committee CAGR Compound Annual Growth Rate CAPEX Capital Expenditures Capital Adequacy Ratio/CAR/Total Capital Ratio Regulatory Tier 1 and Tier 2 capital expressed as a percentage of risk weighted assets (RWA, calculated pursuant to CRR) Capital Markets Act Act No. 256/2004 Coll., on Capital Market Business, as amended CDP Carbon Disclosure Project CEO Chief Executive Officer CET 1 Capital Ratio/CET 1 ratio CET 1 capital as a percentage of risk weighted assets (RWA, calculated pursuant to CRR) CET 1/CET 1 Capital Common equity Tier 1 capital represents regulatory capital which mainly consists of capital instruments and other items provided in the Article 26 of CRR, such as paid-up registered share capital, share premium, retained profits, disclosed reserves and reserves for general banking risks, which must be netted off against accumulated losses, certain deferred tax assets, certain intangible assets and shares held by the Bank in itself (calculated pursuant to CRR) CFO Chief Financial Officer CMMC Credit Monitoring and Management Committee 342 GLOSSARY Annual Financial Report 2023 CNB Czech National Bank CNB Decree No. 163/2014 Coll. CNB Decree No. 163/2014 Coll. on the performance of the activity of banks, credit unions and investment firms, as amended Core NPL coverage Ratio (expressed as a percentage) of Loss Allowances created for NPL receivables to total amount of NPL receivables. MONETA uses the Core NPL Coverage measure because it shows the degree to which its non-performing loan portfolio is covered by allowances for losses created for the Stage 3 loans Cost of funds (% Avg Deposits) Interest expense and similar charges for the period (excl. deposit interest rate swaps and opportunistic repo interest expenses) divided by average balance of Due to banks, Due to customers, Issued bonds and Subordinated liabilities, excl. opportunistic repo operations and CSA. MONETA uses the cost of funds measure because it represents a relative measure of MONETA’s cost of funding to its overall funding base comprised primarily of customer deposits Cost of funds on customer deposits (% Avg Deposits) Interest expense and similar charges on customer deposits for the period divided by the average balance of customer deposits. MONETA uses the cost of funds measure because it represents a relative measure of MONETA’s cost of funding of core customer deposits to its average balance of customer deposits Cost of risk/CoR (% Avg net customer loans) Net impairment of financial assets (loans and receivables) for the period divided by the average balance of net loans to customers. MONETA uses the cost of risk measure because it describes the development of the credit risk in relative terms to its average loan portfolio balance Cost to income ratio Ratio (expressed as a percentage) of total operating expenses for the reported period to total operating income for the reported period. MONETA uses the cost to income ratio measure because it reflects the cost efficiency in relative terms to generated revenues CR Cure Rate CRA Regulation (EU) No. 462/2013 of the European Parliament and of the Council of 21 May 2013 amending Regulation (EC) No. 1060/2009 on credit rating agencies, as amended CRCO Credit Committee CRD Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, as amended Credit Valuation Adjustment/CVA The difference between the risk-free portfolio value and the fair value of the portfolio that takes into account the possibility of a counterparty’s default (calculated in accordance with CRR) CRO Chief Risk Officer CRR Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012, as amended CRR 2 Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No 648/2012 CSA Credit Support Annex is a legal document which regulates credit support (collateral) for derivative transactions Customer deposits Due to customers excluding repo operations and CSA CZK Czech Koruna CZSO Czech Statistical Office Dividend yield Dividend yield calculated as the ratio (expressed as a percentage) of the dividend per share paid in the financial year to the closing share price of the first trading day of the financial year. MONETA uses this ratio as it represents the annualised return on a share which MONETA pays out in the form of dividends in relative terms to the share price DLP Data Loss Prevention DoS Denial-of-Service EAD Exposure at Default Early Warning Indicators Early Warning Indicators represent a set of daily measurements aimed at early identification of possible liquidity issues of MONETA EBA European Banking Authority EC European Commission ECAP Model for calculation of internal capital requirement ECL Expected Credit Loss 343 GLOSSARY Annual Financial Report 2023 EIB European Investment Bank EMIR regulation European Market Infrastructure Regulation No 648/2012 of the European Parliament and of the council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories Encumbered assets Assets owned by the Group on which external parties reserve the right to make a valid claim for example on the basis of pledge or other security or otherwise ERMC Enterprise Risk Management Committee ESG Environmental, Social and Corporate Governance ETR Effective Tax Rate EU European Union EU Regulation No. 537/2014 Regulation (EU) No. 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC EVIP Executive Variable Incentive Plan EVP Executive Vice-President Excess capital Capital exceeding the management target capital ratio. MONETA uses the excess capital measure because it describes MONETA’s capital in excess of capital held to maintain its target Capital Adequacy Ratio and represents the amount of capital which could potentially be used for growth, both organic and inorganic, or be paid out to its shareholders Excess liquidity Liquidity above the regulatory requirement for Liquidity Coverage Ratio of at least 100% as introduced by CRR effective from 1 January 2018. MONETA uses the excess liquidity to show high-quality liquid assets available above the minimum level needed to comply with the regulatory requirement Forborne receivables Forborne receivables are receivables for which the Group provided the debtor with relief as it assessed that it would likely incur a loss if it did not do so FVTOCI Financial assets measured at fair value through other comprehensive income FVTPL Financial assets measured at fair value through profit or loss GDP Gross Domestic Product GDPR Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) GRI Global Reporting Initiative Sustainability Standards - International Framework for Sustainability Reporting Gross Loans Coverage/Overall portfolio coverage Ratio (expressed as a percentage) of total loan portfolio allowances to total gross loan receivables Gross performing receivables Gross carrying amount of performing loans and receivables to customers as determined in accordance with the Bank’s loan receivables categorisation rules (Standard, Watch) Group Bank and its consolidated subsidiaries H Half-year High quality liquid assets/HQLA According to Basel III regulation, assets that are easily and immediately converted into cash at little or no loss of value. MONETA considers as HQLA its cash balances, balances held in the central bank and Czech government bonds HQ Headquarter HTC Held To Collect HTCS Held To Collect and Sell ICAAP Internal Capital Adequacy Assessment Process ICAAP report The Bank’s report on the internal capital adequacy assessment process IDD Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution IFRS International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board, the International Accounting Standards (IASs) adopted by the International Accounting Standards Board, the Standing Interpretation Committee abstracts (SICs) and the International Financial Reporting Interpretation Committee abstracts (IFRICs) as adopted or issued by the International Financial Reporting Interpretation Committee, in each case, as codified in the Commission Regulation (EC) No. 1126/2008 of 3 November 2008 adopting certain international accounting standards in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and of the Council, as amended, or otherwise endorsed for use in the European Union ILAAP Internal Liquidity Adequacy Assessment Process Interest (and similar) income from loans to customers Interest and similar income from loans to customers per note 6 to the Consolidated Financial Statements 344 GLOSSARY Annual Financial Report 2023 Investment securities Equity and debt securities in the Group’s portfolio, consist of securities measured at amortised cost, fair value through other comprehensive income (FVTOCI) and fair value through profit or loss (FVTPL) Interim Dividend Pay out of part of the planned annual Dividend for the period approved by shareholders IPO Initial Public Offering of shares in the Bank to institutional investors by GE Capital Issued bonds Mortgage backed bonds and MREL bonds k Thousands KPI Key Performance Indicator Leverage Ratio calculated in accordance with CRR, as amended by CRR 2, as Group's Tier 1 capital divided by Group’s total exposure LGD Loss Given Default Liquid assets Liquid assets are defined by the Group as cash and balances with the central bank, loans and receivables to banks and investment securities regardless of the purpose those assets are held by the Group Liquidity buffer Liquid assets that the Bank holds in compliance with CRR and EU Regulation 2015/61 Liquidity Coverage Ratio/LCR Liquidity Coverage Ratio represents the ratio (expressed as a percentage) of MONETA‘s balance of high-quality liquid assets to its projected net liquidity outflows over a 30-day stress period, as calculated in accordance with CRR and EU Regulation 2015/61. MONETA uses this ratio to show its liquidity position Loan to deposit ratio/L/D Ratio Loan to deposit ratio calculated as net loans and receivables to customers divided by customer deposits. MONETA uses loan to deposit ratio measure to assess its liquidity level Loss Absorption Amount For the purpose of MREL equals to Pillar I and Pillar II capital requirement LTIP Long Term Incentive Plan LTV/Loan to Value The Loan to Value ratio (LTV) represents the ratio of gross carrying value of loan to fair value of collateral available at the reporting date M Millions Management capital buffer Management capital buffer represents a voluntary commitment of the Bank’s management to be more prudent and to keep the minimum capital adequacy ratio 100bps above the regulatory binding overall capital minimum requirement Material Risk Takers Employees with highly material influence and material influence on the overall risk profile of the Group, identified pursuant to Commission Delegated Regulation (EU) No. 604/2014 of 4 March 2014 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution's risk profile Materials for the supervisory review and evaluation process Summary of reports required by the regulator for the execution of the supervisory review and evaluation process. It includes mainly ICAAP report, ILAAP report, and Report about Stress Testing for Risk Management MONETA Bank and its consolidated subsidiaries MONETA Auto MONETA Auto, s.r.o. MONETA Leasing MONETA Leasing, s.r.o. MONETA’s/Bank’s management Management Board of MONETA Money Bank, a.s. MONETA Money Bank MONETA Money Bank, a.s. Moody’s Moody’s Deutschland GmbH MREL Minimum Requirement for own funds and eligible liabilities, the term used in EU legislation (BBRD, as transposed into Czech law by Act No. 374/2015 Coll., on recovery and resolution in the financial market) for the loss absorbing capital (LAC) of certain financial institutions MROC Model Risk Oversight Committee NASDAQ National Association of Securities Dealers Automated Quotes system Net customer Loans Net loans and receivables to customers per Financial Statements Net Income or Profit after Tax or Net profit Profit for the period after tax, on a consolidated basis unless this report states otherwise Net Interest Earning Assets Cash and balances with the central bank, investment securities, loans and receivables to banks, loans and receivables to customers and prior to the transition to IFRS 9 also financial assets at fair value through profit and loss, financial assets available for sale, financial assets held to maturity. Including encumbered assets and excluding hedging derivatives Net Non-Interest Income Total operating income less Net interest income for the period. MONETA uses the net non-interest income measure because this is an important metric for assessing and controlling the diversity of revenue streams 345 GLOSSARY Annual Financial Report 2023 New volume/production Aggregate of loan principal disbursed in the period for non-revolving loans. MONETA uses new volume/production metrics as it reflects performance of its distribution network and ability of the Group to generate new loans, which is key for the loan portfolio growth NIM or Net Interest Margin (% Avg Int Earning Assets) Net interest and similar income divided by the average balance of net interest earning assets. MONETA uses the net interest margin measure because this metric represents the primary measure of profitability showing margin between interest earned on interest earning assets (mainly loans to customers) and paid on interest bearing liabilities (mainly customer deposits) in relative terms to the average balance of interest earning assets No. Number Non performing clients Clients with exposures classified as Stage 3 according to IFRS 9 NPL Ratio/Non-performing loan ratio Ratio (expressed as a percentage) of NPL to Gross loans and receivables to customers. MONETA uses the NPL ratio measure because it’s the key indicator of portfolio quality and allows comparison to the market and peers NPL/Non-Performing Loans Non-performing loans as determined in accordance with the Bank’s loan receivables categorisation rules (Substandard, Doubtful, Loss), Stage 3 according to IFRS 9 and gross loans from Stage POCI per IFRS 9 categorised as non-performing NPS Net promoter score is the difference between the % of promoters and the % of detractors. Based on a survey on consumer products NSFR Net Stable Funding Ratio calculated pursuant to “Basel III: the net stable funding ratio” published by Basel Committee on Banking Supervision in October 2014 Number of employees/FTEs The average recalculated number of employees during the period is an average of the figures reported to the Czech Statistical Authority (CSA) on a monthly basis in accordance with Article 15 of Czech Act No. 518/2004. The figures reported to CSA equal to quotient of the following nominator and the following denominator. The nominator is defined as all hours worked by all employees, their related leaves/holidays and their related sick days. The denominator represents a standard working hour per employee and month. The number of employees includes members of the Management Board of MONETA Money Bank NYSE New York Stock Exchange OCI Other Comprehensive Income Online/Fully online volume/sales/ origination/production Online volume/sale represents volume from leads initiated through digital channels and disbursed either through digital channels or branches; fully online volume/sales = volume from leads both initiated and disbursed in digital channels; online initiated = volume from leads initiated in digital channels but disbursed at a branch. MONETA uses the online sales/origination/production/volume because it reflects the production of MONETA’s digital/online distribution channels Opportunistic repo operations Repo transactions with counterparties which are closed on a back-to-back basis by reverse repo transactions with the CNB. MONETA uses this measure to show them separately from other repo operations OpR Operational risk OR Obligor’s rating assigned to a borrower with respect to an individually managed exposure expressing the probability that the borrower will default in the following 12 months. As regards the portfolio managed exposures, the OR is designated as a credit rating (CR) PD Probability of Default Performing receivables Performing Receivables as determined in accordance with MONETA’s loan receivables categorisation rules (Standard, Watched) Phantom shares Cash-settled share-based remuneration arrangement awarded to Material Risk Takers as part of their variable remuneration under EVIP PIT Point-in-time matrices relevant for the calculation of PD and CR PLC Problem Loan Committee POCI Purchased or originated credit-impaired assets Prague Stock Exchange Burza cenných papírů Praha, a.s. Primary banking customers Retail customer with credit income of more than CZK 7 thousand on a current account at least twice in the last 3 months and commercial customers with at least nine initiated debit transactions in the previous 3 months or a client with an active not delinquent loan product PSD 2 Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No. 1093/2010, and repealing Directive 2007/64/EC PX Index The PX index is the official price index of the Prague Stock Exchange. It is a free float weighted price index made up of the most liquid stocks Q Quarter RCSA Risk & Control Self Assessment Recapitalisation amount Range of 0% to 100% of Loss Absorption Amount (Pillar I and Pillar II requirement) taking into account proportion of insured deposits on total liabilities and Tier 1 Capital 346 GLOSSARY Annual Financial Report 2023 Recovery and Resolution Act Act No. 374/2015 Coll on recovery and resolution of crisis on the financial market as amended Regulatory Capital CET 1 (calculated pursuant to CRR) Reported profit after tax Profit for the period after tax, on a consolidated basis unless this report states otherwise Retail unsecured instalment loans/Consumer loans/Unsecured consumer loans Non-purpose, unsecured and non-revolving loan to retail clients including Building savings and Bridging loans Return on Average Assets/RoAA Return on average assets calculated as profit after tax for the year divided by the Average balance of total assets. The average balance of total assets is calculated as a two point average from total assets as at the end of the reported year and prior year (31 December). MONETA uses RoAA measure because it is one of the key performance indicators used to assess MONETA’s rentability of assets Return on Average Equity /RoAE Return on average equity calculated as profit for the period after tax for the year divided by average Tier 1 equity. The average balance of Tier 1 equity is calculated as a five-point average. Return on Equity/RoE Return on equity calculated as profit after tax for the period divided by total equity Return on Tangible Equity/RoTE/Reported RoTE Consolidated profit after tax divided by tangible equity. MONETA uses the RoTE measure because it is one of the key performance indicators used to assess MONETA’s rentability and performance Risk Adjusted Yield (% Avg Net Customer Loans) Interest and similar income from loans to customers less net impairment of financial assets divided by the average balance of net loans to customers. MONETA uses this metrics to show interest generated on the loan portfolio separately without credit risk in relative terms to its average balance Risk-Weighted Assets/RWA/risk exposure Risk weighted assets (calculated pursuant to CRR) SHG Share Holding Guidelines SICR Significant Increase in Credit Risk SIEM Security Information and Event Management system Small business Entrepreneurs and small companies with an annual turnover of up to CZK 60 million Small business (new) production New Volume of unsecured instalment loans and receivables to customers SME An enterprise with an annual turnover of up to CZK 200 million SME lending franchise Investment loan and working capital SOC Security Operations Center Spontaneous awareness A percentage of people who express knowledge of a brand or product without prompting SREP Supervisory Review and Evaluation Process Tangible Equity Calculated as total equity less intangible assets and goodwill Ths Thousands Tier 1 Capital The aggregate of CET 1 capital and Additional Tier 1 capital Tier 1 Capital Ratio Tier 1 capital as a percentage of RWA Tier 2 Capital Regulatory capital which consists of capital instruments, subordinated loans and other items (including certain unsecured subordinated debt obligations with payment restrictions) provided in Article 62 of CRR Total NPL Coverage Ratio (expressed as a percentage) of total Loss allowances created for loans and receivables to customers to the amount of NPL receivables. MONETA uses the Total NPL Coverage measure because it shows the degree to which its Stage 3 loan portfolio is covered by total allowances created for credit losses Total operating income after net impairment of financial assets Calculated as total operating income less Net impairment of financial assets Trading book Trading book according to Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012, as amended (article 4, para 86) TSR/Total Shareholder Return Per Bloomberg methodology calculated as a ratio of difference between closing and opening share price to opening share price including reinvested dividend TTC Through-the-cycle matrices relevant for the calculation of PD and CR VaR Value at Risk VAT Value Added Tax Yield on net customer loans (% Avg Net Customer Loans) Interest and similar income from loans to customer divided by the Average balance of net loans to customers. MONETA uses the yield on the net customer loans measure because it represents interest generated on the loan portfolio in relative terms to its average balance and is one of the key performance indicators of its lending activities We thrive with MONETA Václav Kafka runs the COMIX Kitchen & Bar restaurant, where the main role is played by certified aged beef from Czech farmers and USDA Prime meat. The menu is full of specialities ranging from delicious burgers to tender steak specialities such as rib-eye, rump, T-bone steak, ribs and roast beef. Aged meats prepared using the dry-ageing method are more tender, milder and have intense flavour. However, ageing requires care and, above all, patience. “Come and see for yourself that the result is worth it,” the owner invites you to his restaurant. We are honoured to be a part of it! Václav Kafka COMIX GASTRONOMY s.r.o. www.moneta.cz