Economy starting to recover After last year’s contraction of 0.2%, we expect GDP growth of 1.4% this year and an acceleration to 2.2% next year. The recovery should be driven by renewed growth in domestic demand, both consumption and investment. Continued increases in real wages should help boost household spending. In contrast, industrial activity will remain weak this year.

Inflation to remain close to central bank’s 2% target We expect headline inflation to reach 2.1% this year and fall to 1.8% next year. While food prices should decline this year, core and regulated price growth are likely to remain above 2%. In 2025, monetary tightening will be fully reflected in core inflation and lower wholesale energy prices in regulated prices.

Economy starting to recover After last year’s contraction of 0.2%, we expect GDP growth of 1.4% this year and an acceleration to 2.2% next year. The recovery should be driven by renewed growth in domestic demand, both consumption and investment. Continued increases in real wages should help boost household spending. In contrast, industrial activity will remain weak this year.

Inflation to remain close to central bank’s 2% target We expect headline inflation to reach 2.1% this year and fall to 1.8% next year. While food prices should decline this year, core and regulated price growth are likely to remain above 2%. In 2025, monetary tightening will be fully reflected in core inflation and lower wholesale energy prices in regulated prices.

CNB to continue its gradual rate cuts The bank board attributes its ongoing cautious approach to the rapid rise in services prices and the weaker koruna. We expect a 50bp cut at each of the next three meetings. By the end of the year, we expect the repo rate to be at 3.5%, which should be the terminal rate for the current monetary cycle.

Market interest rates unlikely to fall too far Higher terminal interest rates for the ECB, the Fed and the CNB will prevent a more pronounced decline in CZK market interest rates and thus also in CZGB yields.

The koruna may appreciate slightly over the rest of the year We expect renewed appreciation vs the euro, mainly in connection with improving domestic economic fundamentals. However, global sentiment will continue to favour the US dollar.

Moneta reported 1Q24 earnings growth. The results beat the market consensus by +9.8% on net income. The results were positively impacted by higher Fee and Commission income, lower regulatory fees and lower administrative expenses. Moneta reported a net profit of CZK1.3bn (+5.8% y/y) on operating income of CZK3.1bn (+9.6% y/y) in 1Q24. Moneta has a strong capital position of 19.6%. Today is the last trading day for Moneta shares with the right to receive the approved dividend of CZK9 per share.

Moneta reported 1Q24 earnings growth. The results beat the market consensus by +9.8% on net income. The results were positively impacted by higher Fee and Commission income, lower regulatory fees and lower administrative expenses. Moneta reported a net profit of CZK1.3bn (+5.8% y/y) on operating income of CZK3.1bn (+9.6% y/y) in 1Q24. Moneta has a strong capital position of 19.6%. Today is the last trading day for Moneta shares with the right to receive the approved dividend of CZK9 per share.

Net interest income increased by +2.2% year-on-year to CZK2.1bn. Higher yields on incremental liquidity and the loan portfolio were partially offset by high funding costs. The net interest margin was 1.8% in 1Q24 (2.1% in 1Q23). Net Fee and Commission income amounted to CZK0.74bn. The growth of +20.1% y/y was mainly driven by the sale of third-party products (insurance, investment funds). Other income increased by +53.3% y-o-y to CZK0.3bn due to foreign currency transactions and the sale of part of the loan portfolio. Total operating income of CZK3.1bn (+9.6% y/y) were +3.8% above market expectations. Operating expenses of CZK-1.5bn (-3.8% y/y) decreased slightly due to lower regulatory fees and administrative expenses. However, personnel expenses increased. The cost/income ratio was 47.7%. The increase in total income and the decrease in costs resulted in an increase in operating income of +25.6% to CZK1.6bn. The cost of risk is CZK135m. NPL ratio is low at 1.4% due to good payment morale. Net profit of CZK1.3bn (+5.8% y/y) beat consensus by +9.8%.

Customer deposits grew by +15.9% yoy to CZK405.7bn. Loans were almost unchanged y/y at CZK267.4bn (-0.1% y/y). New loans increased by +23.8% y/y due to the recovery of demand.

Moneta's capital position is strong. The capital adequacy ratio reached 19.6% (Moneta's target is 15.55%). The Tier 1 reached 15.4%. Excess capital over Tier 1 amounts to CZK4.6bn (CZK9 per share). Moneta retains 90% of net profit for future dividend payments.

FY guidance remains unchanged. Moneta expects net profit for the year to be at least CZK5.2bn.  Operating income should reach at least CZK12.4bn and costs should remain below CZK5.8bn. The cost of risk should be in the range of 10-30bps.

Dividend: Today (April 25, 2024) is the last trading day with dividend rights from last year's earnings. As expected, shareholders approved a dividend of CZK9 per share at the Annual General Meeting on Tuesday. This represents a gross yield of +8.7%. The payout period starts on May 21, 2024.