Komerční banka posted audited unconsolidated net profit of CZK 9.3 billion for 2004

Prague, 29 March 2005 – Komerční banka released today its audited unconsolidated financial results under IFRS (International Financial Reporting Standards), thereby confirming its preliminary results released at the end of February.

The Bank reported net profit of CZK 9.302 billion. KB managed to increase its high level of profitability from the previous year as the net result increased by 1.5% on a comparable basis. Very good business performance in both retail and corporate banking, as well as efficient cost control, led to a like-to-like growth in net operating income of 9.2%.

BUSINESS PERFORMANCE

Continuous improvements in products, services and relations with customers resulted in a successful acquiring of new customers. The number of clients increased year on year by 90,000, i.e. by 7% to 1,421,000, mainly due to the increased number of private customers. Out of this total 1,130,000 were individual clients and 291,000 were corporate clients and entrepreneurs.

The Bank is serving its clients in 337 points of sale throughout the Czech Republic, 37 centres for medium enterprises and municipalities and eight business centres for large corporations. Furthermore, KB provides its services through 568 ATMs, a call centre operating day and night, as well as internet banking. The number of clients using direct banking channels increased by 34.6% to 870,000, thus taking in nearly two-thirds of all KB clients. The number of active payment cards kept growing as well: at the end of December these totalled 1,221,000, reflecting a 20% rise from 2003.

The year 2004 brought significantly greater sales of loan products, especially of mortgage loans and SME loans. The volume of outstanding mortgages to individuals increased by 40% to CZK 31.0 billion year on year, and outstanding consumer loans rose by 17% to CZK 10.6 billion. The number of active credit cards grew again in 2004. By 31 December KB had issued 66,000 active credit cards, which is a year-on-year increase of 79%. Dynamic growth continued also in financing of small and medium enterprises, as the volume of outstanding loans to that segment grew year on year by 25% to CZK 46 billion. As the market leader in financing small and medium enterprises, KB also launched a special programme called PONTE, an offer of complex financing services related to the opportunity to receive contributions from the EU Structural Funds dedicated to medium enterprises and municipalities. Total loans to large corporations rose by 3% to CZK 67.6 billion.

As part of KB strategic focus on the multichannel sales network, in order to provide KB customers with a more comprehensive offer and to enhance cross-selling, Komerční banka is strongly emphasising co-operation within the KB / Société Générale Group as well as with other strategic partners. In the second half of 2004 and beginning of 2005, KB launched the MAX I. - III. guaranteed funds, enabling KB clients to benefit from the growth potential of the world's key securities markets while providing a guarantee of return on investment. To date, CZK 1.8 billion have been invested into these products. Sales of life and pension insurance products continued to grow in 2004. During the year almost 50,000 KB clients purchased life insurance policies and more than 33,000 clients set up pension insurance through KB. In October a new co-operation with Allianz Insurance Company was begun in order to provide the Bank's clients with such non-life insurance products as auto, household and property insurance directly in the branches. By the year's end more than 3,200 KB clients had purchased these products at KB branches. A very important part of KB's offer to corporate clients are factoring and leasing services. The total turnover of factoring services more than doubled to CZK 7.1 billion. Through KB FleetLease, a product dedicated to car leasing, more than 1,500 cars were provided to KB customers, while KB Leasing, which is used to finance big-ticket items, attracted transactions of CZK 1.3 billion. As a result the cross-selling ratio for individual clients increased year on year from 3.96 to 4.46 products per current account at the end of 2004.

Integral to its continuous efforts to enhance the quality of services, KB created a specialised centre for fast and proper processing of clients' complaints in January 2004. Furthermore, Komerční banka became the first bank in the Czech Republic to appoint an independent ombudsman, thus providing its clients the possibility to resolve potential disputes in an independent and amicable way. Prof. Vojtěch Cepl was named as KB's first ombudsman. The Bank has committed itself to respect his decisions, even though they are not legally binding.

During the year, and as a part of the "Renaissance" programme launched in the first half of 2003, the Bank finalised rationalisation of its back offices. A selected part of support activities was outsourced, domestic payments processing was centralised into two national centres, and the Bank's operations were further optimised. As a result the average number of employees declined year on year by 11% to 7,309 in December and the Bank realised remarkable cost savings.

Confirming its prominent market position, Komerční banka was awarded the main prize in the "Bank of the Year 2004" competition for the Czech Republic. It was the third year of that prestigious competition, sponsored by MasterCard.

FINANCIAL PERFORMANCE

The Bank's total revenues in 2004 were CZK 22.7 billion, which represents an increase of 4.4% on a like-to-like basis. Net interest income grew more dynamically, recording an upturn to rise by 6.9% to CZK 12.8 billion. Significant growth in volumes of client loans, and especially of retail and SME loans, led to an improved asset structure, and stable development of customer deposits offset continuously increasing competition in the market resulting in a constant pressure on credit spreads. Net fees and commissions amounted to CZK 8.9 billion in 2004, which is a year-on-year increase of 2.0%. Within this item non-FX fees and commissions of CZK 7.1 billion were higher by 5% year on year, driven by increasing volumes of granted loans and growing utilisation of payment cards and direct banking channels. FX fees and commissions represent 20% of the total fee income and continued in their downward trend from the previous period. These declined by 8.4% to CZK 1.8 billion. Net profit from financial operations comprises the result of trading in securities, as well as FX and derivatives' operations. It amounted to CZK 605 million, mainly due to profit from client FX operations.

Operating costs totalled CZK 11.8 billion and were stable compared to 2003. This confirms the successful cost management and increasing efficiency of the Bank. Personnel expenses decreased by 11.4% to CZK 4.8 billion. KB finalised rationalisation of its back offices, a selected part of support activities was outsourced, domestic payments processing was centralised into two national centres and the Bank's operations were further optimised. As a result the average number of employees declined year on year by 11% to 7,309 in December 2004. The level of general administrative expenses stood at CZK 5.3 billion. The year-on-year increase of 9.9% reflected to a large extent additional costs dedicated to the insurance of deposits. The Bank's expenses were also negatively influenced by the increases in the value-added tax from January and May 2004. Komerční banka nevertheless succeeded in realising further internal cost savings that stemmed mainly from the rationalisation of its operations. The total charge for depreciation, impairment and disposal of fixed assets amounted to CZK 1.7 billion.

Very good business performance in both retail and corporate banking and efficient cost control led to a like-to-like growth in net operating income of 9.2% to CZK 10.9 billion. The cost-income ratio decreased year on year from 54.0% to 51.9%.

Cost of risk includes provisions for loan losses, for impairment of securities and provisions for other risk expenses. For 2004 it amounted to a net release of CZK 1.3 billion, which compares to the net release of CZK 2.5 billion in 2003. The net release of provisions and reserves for loan losses of CZK 1.6 billion was impacted mainly by release of general tax-deductible provisions of CZK 2.4 billion in the fourth quarter of the year. In 2003, CZK 2.8 billion of general tax-deductible provisions had been released. Considered in the context of growth in the loan portfolio, the cost of credit risk, at 37 bp, remained unchanged compared to the end of 2003. Provisions for impairment of securities amounted to a charge of CZK 85 million and were connected solely to development in the CDO portfolio. That compares to a charge of CZK 74 million in 2003. Provisions for other risk expenses is a new line created In 2004 and that is dedicated to legal and operational risks. As at the end of the year CZK 131 million was charged in this line compared to CZK 35 million in 2003.

Profit from subsidiaries and associates stood at CZK 889 million and was driven by the sale of the Bank's stake in the company MUZO in the first half of the year.

The total income tax amounted to CZK 3.9 billion, positively influenced by the decrease in the statutory corporate income tax from 31% to 28%.

Komerční banka's net profit for 2004 came to CZK 9.3 billion. KB maintained its high level of profitability from the previous year as the net result increased by 1.5% on a comparable basis. Lower one-off gains in 2004 compared to 2003 were more than offset by successful business performance and strict cost control.

Total assets of the Bank remained stable on the level of CZK 448.3 billion. Net loans and advances to clients grew significantly by 17.4% to CZK 153.8 billion, while total amounts due to customers increased by 3.6% to CZK 362.0 billion. KB shareholders' equity grew on a like-to-like basis by 7.9% to CZK 43.7 billion, which includes the 2004 net profit of CZK 9.3 billion.

Results under International Financial Reporting Standards (IFRS)

* Pro forma restatement of the fair value changes of available-for-sale securities, which had been included in the profit and loss statement through the end 2003. Since 1 January 2004 they started to be reported in the equity. The 2003 was restated to be comparable with 2004 result.

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