Client satisfaction, consumer protection

Satisfaction of clients is a priority for all of KB Group’s member companies. Clients’ loyalty and trust are crucial prerequisites for long-term success and resilience of the Group. Feedback from customers enables the Group to develop and offer relevant and competitive products and services.

Development, helpfulness, and responsibility are the three values characterising the KB brand. Komerční banka aims to be perceived on the market as a bank which, by its helpfulness, responsibility, and commitment to sustainability and progress, contributes meaningfully to the personal and entrepreneurial development of its clients.

Protecting clients and especially consumers

KB Group companies rigorously abide by all rules established for protection of clients, including the regulations for consumer protection and prohibition of certain clauses in consumer contracts.

The procedures applied by KB Group companies to uphold applicable regulatory and internal rules are described mainly in the Risk management / Compliance risk chapter of this annual financial report.

The client comes first for the Group. In managing client relationships, the know-your-customer principle is applied and all aspects of the relationship are taken into account in order to satisfy clients’ needs according to the optimal service and cost conditions and at a professional level. That way, clients’ loyalty and trust in the Bank and the Group are promoted and their legitimate interests respected.

When advising clients, the Group considers each client’s knowledge and experience with the respective products, as well as with the associated risks.

The Group provides its financial services with professional care and refrains from engaging in unfair business practices.

In providing its services, the Group does not discriminate against consumers. Generally in this context, discrimination is understood to mean intentional or negligent differentiation, exclusion, limitation, or favouring of a client based on a discriminatory cause, unless it is objectively justified as pursuit of a legitimate goal and using reasonable and necessary means.

KB Group companies inform consumers about prices of the services provided or they appropriately disclose the information about the prices of services.

When negotiating remotely about contracts on provision of financial services, the Group follows applicable regulations, including the Civil Code. In particular, it provides the consumer with the stipulated set of information in due time ahead of closing the contract or before the consumer submits a binding bid. It also respects the right of the consumer to withdraw from the contract.

The Group companies abide by additional rules under special laws when providing specific financial services, such as the acts on payment systems, on consumer loans, on capital market undertakings, insurance, the circulation of bank notes and coins, and on pension savings.

Komerční banka, of course, develops measures protecting the clients that go far beyond the regulatory requirements.

Payment watch was one of the improvements implemented in 2022: KB will send a text message to a client if 3 days before the planned regular credit card payment there are insufficient funds available on the relevant account. This helps clients not to miss the benefit from using the grace period.

Clients also very often appreciate being alerted by the Bank about unusual situations, such as suspicious or duplicate payment orders, errors in transaction identification symbols, or insufficient funds for direct debits and standing orders.

As an act of helpfulness, the Bank forgives the penalty for the first delay in repayment of a debt to any client who had been properly meeting his or her obligations up to that time.

To clients who have found themselves without funds, for example due to a loss or theft, KB will make an emergency advance of up to CZK 6,500 at any branch.

Ascertaining clients’ satisfaction

Trends in the numbers of clients and sales volumes for individual products and services are a natural source of information about development in client satisfaction.

In order to learn in depth about clients’ expectations and preferences, however, KB Group companies survey their clients on a regular basis, monitor the individual phases of customer journeys, and adjust their offers accordingly. Interviews with clients (so-called user testing) comprise an established step in the development of new products and services. After purchase of a product, KB asks the clients whether they obtained what they should have and in due time, whether they understand the products or if they need assistance with a setup.

KB Group’s most widely used method for measuring clients’ loyalty is the Net Promoter Score (NPS). The NPS methodology compares the number of respondents who would recommend a specific service or a provider to their friends or family (termed “promoters”) with the number of those who would not do so (so-called “detractors”). ¹ NPS thus achieves positive values if the number of promoters exceeds the number of detractors. The measurement provides a consistent time series describing the development in clients’ perceptions towards a certain service, product, distribution channel or method of communication, brand, or company. Moreover, the surveys provide an immense volume of very valuable comments about what clients appreciate and what they would prefer be done differently.

In retail banking, standalone KB acquired in this manner more than 150,000 feedback responses during 2022. KB monitors the development, but it also works with the feedback it receives – reaching out to the clients, investigating causes behind the responses, and looking for ways how client satisfaction may be improved. Most often, the solution comes through adjusting product parameters, informing about new and alternative products, or suggesting a different, more appropriate service.

In case that a client’s discontent cannot be resolved swiftly and greater adjustments or even the development of new products are needed, the customer experience teams formulate proposals to take action. Thanks to comments from the clients, the Group has been adjusting and developing its products in accordance with clients’ needs.

Based upon feedback from clients, KB implemented some 200 improvements in retail banking during 2022. Among the most appreciated was to permit free-of-charge withdrawals from ATMs of other banks in the shared network. Mobile banking was made newly available also in Ukrainian language. In mobile as well as internet banking, clients are now allowed to set separate limits for payments by card in shops and on the internet. Clients have newly available confirmation of account ownership in their internet banking application. An application for early repayment or an extraordinary payment of a consumer loan can be submitted easily via internet banking in 3 minutes. And clients may declare their tax residency via Mobilní banka with no need to visit a branch. Clients of ESSOX newly have information online about the outstanding credit volume available.

Results of client satisfaction measurement in 2022

Clients’ perceptions are influenced by the features of the services being evaluated but also by the relevant environment. While in 2021, clients were responding in the context of pandemic restrictions, the mood in the society during 2022 was being affected by impacts of the war in Ukraine and high inflation. In the times of rapidly increasing costs, customers were even more sensitive about prices than before. Client expectations were also influenced by the elevated market interest rates.

The results in 2022 confirmed how security and stability of their bank is important for the clients. Komerční banka ranks clearly among the strongest banks in this regard. Compared to 2021, satisfaction with mobile banking further improved. Clients also appreciated creation of the shared ATM networks of KB and Moneta, as well as the news later that Air Bank and UniCredit Bank would also join.

A large majority of clients want to manage most of their financial affairs online, but they still want to have an option to get advice at a branch or to discuss with experts through an online meeting.

As traditionally, KB and subsidiaries received high marks from corporate clients. They have appreciated especially the professionalism of relationship managers, safety even in the worst of times, keeping promises, and an ability to adjust the financial solutions to clients’ individual circumstances.

Quality guarantee, complaints management, ombudsman

KB’s quality guarantee is provided for a situation when, despite all efforts, a client is not happy with a service received from KB. A client may claim back the fees charged for such service for up to 1 year from the time he or she began using it. ²

Komerční banka has established a complaints resolution mechanism that is in accordance with regulatory requirements and industry standards. Complaints resolution is conducted in line with the Claim Settlement Rules of KB, which are available to clients both in branches and online via KB’s web page. ³

There are three levels of complaints resolution in KB: at the branch, by the customer experience team, and via the Group Ombudsman.

An independent ombudsman resolves claims of KB Group’s clients in Czechia and Slovakia. The ombudsman’s activities are governed and defined by the Ombudsman’s Charter. A client can contact the ombudsman in case of dissatisfaction with the resolution of a complaints or claim in the second instance (in the case of KB clients, this is in the Quality and Customer Experience Department). Although the ombudsman’s decision is not legally binding on either party, within the conciliation procedure, the companies of Komerční banka Group undertake to respect it.

Since 5 January 2022, the post of KB Group’s ombudsperson has been held by Prof. JUDr. Marie Karfíková, CSc. She is an expert in financial, tax, and insurance law, a long-time attorney, and a lecturer and head of the Department of Financial Law and Financial Science at the Faculty of Law of the Charles University in Prague. Professor Karfíková replaced in this position Mr Joseph Franciscus Vedlich, LLM, who had been KB’s ombudsman since December 2009.

Internal policy sets forth the obligation of the complaints resolution administrator to inform compliance, operational risk, or data protection officers in case of a complaint that is related to their respective areas. An annual report on complaints resolution is provided to the Board of Directors and the Supervisory Board.

Support for clients and access to financial services

Support for refugees from the war in Ukraine

In addition to humanitarian aid, Komerční banka offered already in March an account for war refugees from Ukraine comprising a humanitarian allowance, free-of-charge payments to Ukraine, access to medical and psychological assistance, and further benefits. As of 31 December 2022, more than 18,000 clients were using this account.

Help to clients in financial distress

Komerční banka, ESSOX, and Modrá pyramida joined in 2021 the Merciful Summer initiative, which had run until the first quarter of 2022. The initiative aimed to offer help to clients in distraint and who had not been able to resolve their financial obligations.

The legal framework of the Merciful Summer initiative covered only debts to public institutions or state-owned enterprises. KB Group had extended this offer to all its clients who were natural persons with obligations in distraint. The Group helped 136 clients (104 within KB, 3 at Modrá pyramida, and 29 at ESSOX). Upon the clients’ repayment of principal, the Group had forgiven almost CZK 18 million in interest and penalties, as well as more than CZK 4 million in costs of proceedings.

The Group has not joined the Merciful Summer II initiative. Such initiatives should be only truly exceptional. If applied on a regular basis, the position of certain clients would be unequal, depending on the schedule of their repayments. Some might perceive wrongly that debts would be forgiven also in future. Importantly, KB Group regularly offers assistance to its clients in difficulties, and it is always helping to find appropriate solutions to those clients who actively seek to resolve their situations.

The options for resolving issues with repayments are presented in dedicated sections of the web presentations of individual KB Group’s companies. For KB, these can be found at www.kb.cz/splaceni. An online assistant is available 24/7 to direct clients to the most appropriate method. The Bank alerts clients in arrears by text message and e-mail at no charge and well in advance of sending a reminder of a pending fine or fee. Teams of debt resolution advisors are available by telephone or e-mail, and they also join meetings between relationship managers and clients either remotely or at the branches. Clients may ask for postponement or reduction of instalments even via KB’s web. ⁴

Clients of failed Sberbank CZ

On behalf of the Deposit Insurance Fund of the Czech Republic, Komerční banka has been paying out compensation to clients of the failed Sberbank CZ. As of 31 December 2022, KB had paid out CZK 25.3 billion to 86,350 of the failed bank’s entitled depositors. This amount represented 97% of the total volume of compensations to be paid, according to the Financial Market Guarantee System. KB will be paying compensation to the former clients of Sberbank CZ until 10 March 2025.

Support to business clients affected by the Covid-19 pandemic

Since March 2020, Komerční banka has been supporting entrepreneurs and small businesses affected by the Covid-19 pandemic. The first two government support programmes, COVID II and COVID Prague, were dedicated to financing of operational expenditures, such as wages, rents, and energy costs. These programmes were later extended to investments, and thus companies could finance their purchases of machines, technologies, licences, and other needs.

KB provided the largest volume of loans with support under the COVID III programme, running from 2 June 2020 until 31 December 2021. Through this programme, KB granted financing to 2,619 companies totalling CZK 17.8 billion. That was the largest volume among all participating banks. By the end of 2021, KB had granted under five COVID programmes credit to 3,636 clients in total volume of CZK 25.5 billion.

Overview of loans provided by KB between April 2020 and December 2021 in COVID programmes with guarantees of the National Development Bank or EGAP state insurance company.

Support of businesses, municipalities, and projects with positive social impact

Komerční banka has been participating for a long time in programmes of support for projects and entities with positive impact on society and the environment.

Since 2006, KB has been granting loans supported by programmes of the European Investment Bank (EIB):

• EuroEnergie and Climate Action – support in the forms of lower costs and required collateral for financing of energy savings and climate protection. In 2022, some 100 enterprises participated. The outstanding volume of supported loans as of 31 December 2022 reached almost CZK 1 billion.
• EuroPremium – discounted interest rate on loans for small and medium-sized businesses with as many as 3,000 employees, including those employing young people up to 30 years of age. During 2022, more than 1,100 enterprises benefitted. The outstanding volume of supported loans as of 31 December 2022 reached CZK 6.9 billion.

Since 2013, KB has been helping its clients to benefit from the programmes of the European Investment Fund (EIF):

• COSME – a guarantee at no charge from EIF for loans up to CZK 4 million for small and medium-sized enterprises. Over 2,000 entrepreneurs received the guarantee during 2022. The outstanding volume of guaranteed loans as of 31 December 2022 stood at CZK 1.9 billion.
• EuroInovace – concessionary working capital financing for innovative firms. In 2022, KB granted 89 new financings in total volume of CZK 2.4 billion.
• Microfinance – lower-cost financing for entrepreneurs with less than 10 employees. Eligible are those clients who started up as part-time businesses, had previously been unemployed, or had earned less than 80% of the national wage average in their previous jobs. Some other people disadvantaged on the job market, such as those who are returning from parental leave, disabled, immigrants, and members of national minorities, may also apply, as well as entrepreneurs younger than 30 or older than 60 years of age. In 2022, KB granted more than 1,300 concessionary loans in total volume of CZK 0.5 billion. So far, KB has funded more than 10,000 micro-enterprises through this programme.
• EuroCreative – a guarantee for financing of projects in cultural and creative sectors. In 2022, KB newly supported 18 projects with total financing of CZK 45 million. The projects included book publishing and film projects.

Municipalities received financing at advantageous rates for their development projects thanks to KB’s participation in the EuroMuni programme of EIB together with the Council of Europe Development Bank (CEB). More than 200 municipalities benefited from the guarantee during 2022. The outstanding amount of the guaranteed loans as of 31 December 2022 reached CZK 7.4 billion.

SGEF, too, was bringing to its clients benefits from the programmes of international institutions:

• CEB – EUR 150 million in advantageous financing for creation of new jobs, growth of small businesses, and improvements of public infrastructure in Czechia and Slovakia. The programme facilitates access to long-term funding of investment projects and supports municipalities and providers of public services (public transit in particular). SGEF concluded a contract with the Council of Europe Development Bank in May 2022 for drawing of the funds in 2022 and 2023.
• EIB – EUR 200 million for “green” investments of small and medium-sized enterprises. The European Investment Bank funds will expedite new investments of SGEF’s clients, contribute to better living conditions in less-developed regions, and support projects aimed at climate protection. They will also help to finance the energy transition and recovery after the Covid-19 pandemic. The agreements with EIB were signed in July and November 2022 for drawing in 2022 and 2023.

KB’s Nastartujte se (Start up!) grant programme for recently launched businesses has been around for 10 years already. KB and others of the programme’s partners disbursed more than CZK 1 million in prizes to participants. ⁵

Business model and organisation

Business model

Komerční banka is the parent company and main component of KB Group. Its subsidiaries contribute with their know-how and capacities in specific areas of the financial markets. The Group enhances its offer for the clients in co-operation with external services providers, either in commercial partnerships or by acquiring ownership participations.

Komerční banka Group is active on the financial market in Czechia. Through its branch as well as via activities of some subsidiaries, it also is present in Slovakia.

KB is a universal bank with a multi-channel distribution model. Its business model is founded upon building long‑term relationships with customers and offering relevant solutions for situations occurring during clients’ lives. The business strategy focuses on reinforcing or achieving market‑leading customer satisfaction status in the target client segments. KB differentiates itself in the market by best-in-class advisory, a relevant and comprehensive product offer leveraging the global scale of the Komerční banka and Société Générale groups, and a highly effective model of servicing clients.

The services provided by subsidiaries include building savings and housing loans (from Modrá pyramida), pension savings (Penzijní společnost KB), consumer financing (ESSOX), life and property insurance (KB Pojišťovna), financing of equipment and technologies (SGEF), and factoring (Factoring KB). Another Komerční banka subsidiary, KB Smart Solutions, administers the Group’s participations in several companies mainly from the fintech sector, such as upvest, Roger, Finbricks, ENVIROS, and MonkeyData.

KB is organised into arms, tribes, and separate independent departments. The managers of these units report directly to the Chairman or another member of the Board of Directors, or, in the case of tribes, either to an executive director or these units (arms, tribes, separate independent departments) may be directly managed by a member of the Board of Directors. Allocation of responsibilities among the members of the Board of Directors is stipulated by a decision of the Board.

Those units focused on ensuring the operations of the Bank form its operational (Run) perimeter. Units established for the purpose of developing the Bank, its products and services constitute a change (Agile) perimeter.

Tribes are cross-functional teams working in accordance with the agile@KB methodology. They are dedicated to development of new client or internal solutions. The tribes are structured in such a way that they cover holistic, end-to-end views of specific customer journeys or segment needs rather than focusing on features of individual products. Following initial implementation of the agile@KB method, people responsible for business implementation and IT development work together within the tribes. In the next phase, KB is developing the BizDevOps concept, wherein employees in charge of operations for specific IT applications are also included into the tribes alongside their selling and IT development colleagues.

Principles of business activities and dealing with clients

Business activities of KB Group companies shall be carried out in a transparent, fair, and disciplined manner in compliance with best market practice and be performed within the global framework of Société Générale Group operating rules.

KB shall not participate in transactions which might lead to the breach of any legal regulation or international agreements. However, KB does not rule out any transaction a priori for geographical or sector reasons if the related risks are duly assessed and managed.

Clients come first. Client relations management is conducted in accordance with the know-your-customer principle and takes into account all aspects of a relationship so that the client’s needs will be met under optimal service and cost conditions and at an appropriate professional level in order to promote the client’s loyalty and trust in the Bank while respecting the client’s legitimate interests.

The level of a client’s knowledge and experience with the products and risks associated with a provided product is taken into account in providing advice.

Client and operating segmentation

Komerční banka Group adheres strictly to regulatory requirements in all areas of its activities, and it is developing the “know your client” concept. In KB’s view, knowing the client and the client’s needs reflects the respect, responsibility, and trust the Group has in relation to its clients. Knowledge of its clients also provides a basis to offer appropriate advisory services and services corresponding to clients’ actual needs.

KB Group is developing a system for detailed segmentation of customer relationships. The clients of the Bank are served by the following arms:

• Retail Banking (the arm serves individual clients inclusive of high-net-worth individuals (in Private Banking), entrepreneurs, and small businesses with the indicative criterion being annual revenues up to CZK 60 million);
• Corporate and Municipal Banking (for clients with annual revenues approximately between CZK 60 million and CZK 1.5 billion and further clients according to the volume of their business with KB, as well as public institutions and municipalities of more than 4,000 inhabitants);
• Global Banking (covering clients with an annual turnover greater than CZK 1.5 billion and other clients according to the volume of their business with KB, as well as selected financial institutions).

A set of additional thresholds and sub-segments within these segments is elaborated. The Corporate and Municipal Banking and Global Banking arms are part of Corporate and Investment Banking.

Retail Banking is an operating segment of Komerční banka Group that includes the provision of such products and services to individuals, small businesses, and entrepreneurs as current and savings accounts, term deposits, building savings, pension insurance, overdrafts, credit card loans, personal loans and mortgages, as well as private banking services. Retail banking services are provided primarily through direct banking channels, including contact centres, within a network of branches, or through partnerships with third-party independent sales agents. Besides the services to individual and small business clients of Komerční banka, the Retail Banking operating segment comprises Modrá pyramida, Penzijní společnost KB, ESSOX, and Komerční pojišťovna, as well as some activities of SGEF and Factoring KB.

Corporate and Investment Banking is an organisational part of Komerční banka that includes provision to corporate customers (with turnover exceeding CZK 60 million), various types of public institutions, the non-profit sector, and public institutions of such products and services as current and savings accounts, term deposits, operating or investment loans, other types of loans, specialised foreign trade or investment banking services, cash circulation services, as well as other specialised services provided by KB itself or in co-operation with other partners or Société Générale. Corporate banking services are provided through direct banking channels, a network of Corporate Centres, and banking advisors. The Corporate Banking segment in KB Group includes most activities of SGEF and Factoring KB.

Distribution and client service model

KB is developing a multi-channel distribution model. Subsidiaries sell their services through the distribution network of Komerční banka, and some also have their own networks. Digital banking is an integral part of the multi-channel distribution model, and the Bank aims to reinforce its leadership position on the Czech market in digital banking.

KB perceives its competitive advantage on the banking market as consisting of the value of partnerships with clients; the ability of its banking advisors to provide high-quality advisory; a wide range of relevant and advantageous financial products; proximity to clients via the branch network and advanced, secure direct banking; and its ability to provide services efficiently in accordance with clients’ needs and preferences.

The service model in KB’s retail banking is focused on assisting clients by providing them with professional advisory, preferably at appointments agreed with the client in advance. In creating their recommendations to clients, the relationship managers refer to an analysis of each client’s needs based upon the Bank’s data about that client. This enables the relationship managers to propose a solution most convenient for each client’s circumstances. Rapid service spots have been created in branches for addressing basic service requests, and the relationship managers assist clients so that they are able to execute simple transactions and administer their services by themselves in their mobile banking application or internet banking.

The network of branches will remain a pillar of KB’s omnichannel strategy. Therefore, the Bank is progressively reconstructing its branches in a new design concept that is convenient for advisory and efficient servicing of clients’ various financial needs. Experts in the areas of investments, financing, and debt resolution are available remotely to assist the relationship managers.

Private Banking consists in a specific service model within Retail Banking. Komerční banka offers comprehensive Private Banking services to clients with financial assets exceeding CZK 30 million at its branches in Prague, Brno, and Ostrava. Clients with assets up to CZK 30 million have access to selected Private Banking products in co-operation with KB Premium service. The services provided include mainly portfolio management under mandates, a wide range of investment instruments, complete banking services, real estate and lombard loans to finance the private project as well as needs of clients, investments in funds for qualified investors (real estate funds and private equity), investments in corporate bonds, assistance in selling companies, trust fund services, and other instruments for intergenerational planning.

Servicing of corporate clients is specific, as it is principally based on in-person dealings with relationship managers and seeking individual solutions for client needs. The service model in corporate banking reflects clients’ potential as well as their actual needs for financial services in order to create optimum value for the clients while allocating KB’s resources effectively. The relationships with economically interconnected clients are usually managed by the Bank at the level of the whole group.

In addition to the full range of banking products and services, the Bank provides large corporate clients also with highly specialised services, especially in the areas of investment banking, as well as export, structured, and syndicated financing. At the same time, it brings solutions for transactions unique on the banking market, including the primary issue of bonds, M&A consulting, and real estate services. The offer is complemented by the services of subsidiaries and associated companies providing leasing or factoring services. Membership in a truly global banking group is a significant competitive advantage for KB in this segment, especially in the areas of foreign trade financing, cross-border payments, international cash pooling structures, and investment banking, as the Bank is able to provide corporate clients access to the services of all major global financial centres through SG.

Komerční banka’s sole foreign branch is in Slovakia. It operates on the basis of a single banking licence issued by the CNB. The branch is a trusted financial partner for top corporations in Slovakia, as well as for those corporate clients of the KB and SG groups operating there.

KB’s own distribution network is further complemented by the subsidiaries’ distribution capacities (especially those of Modrá pyramida) and, in the cases of selected products, also by business partners’ networks. Services and products of other KB Group companies are available within their own distribution networks, in the KB branch network and digital channels, and potentially through the business partners.

Development of services and processes in 2022

Digitalisation of processes and services

KB Group continued substantial investments and changes while pursuing its strategic KB2025 plan. In the Bank, this involved mainly building of the New Digital Bank and related banking infrastructure. Modrá pyramida advanced preparation of the One Mortgage Factory in common for both KB and the building society. The other subsidiaries were also implementing changes to strengthen Group synergies, sharing of expertise, as well as simplification and improving access of clients to financial services.

New Digital Bank (NDB) – New era of banking

KB’s New Digital Bank (NDB) is a programme for building a new banking infrastructure and complete overhaul of banking processes. It was started in 2020 as a part of the KB2025 transformation strategy. The services developed in the NDB programme will be introduced to the market under the “New era of banking” brand.

The NDB encompasses the building of a flexible modular infrastructure including the core banking platform, card management system, payment hub, and customer management. On this basis, KB will introduce new, simple digital products and customer relationship management around a single source of information across all channels and systems and supported by elements of artificial intelligence. The uniform sources of operational, business, and financial data will enable highly efficient reporting and analytics. At the same time, KB is building a new omnichannel front-end system for clients and relationship managers, employing a mobile-first approach. The personal contact with clients and the branch network remain pillars of the service model focused on providing professional advisory to customers.

The New Digital Bank will allow for continuous 24/7 real-time processing of transactions, analytics, and lead generation. The innovation cycle will be shortened considerably by a capability for daily releases of software updates. The NDB will serve more effectively the needs of the clients as well as of the Bank, inclusive of its regulatory obligations, reporting, and customer relationship management.

With launch of the NDB, the Bank aims to increase client satisfaction as measured by the Net Promotor Score together with customer numbers and average revenues per user. The share of sales via digital channels should exceed 50%. The communication with clients will be completely paperless and productivity of relationship managers will improve. Once components of the NDB reach sufficient maturity, KB will begin decommissioning certain parts of the original banking infrastructure. This will lead to material savings in operating expenses.

At the beginning of 2021, Komerční banka selected Temenos Transacta as its future core banking platform. Syncordis will deliver and implement the system. In accordance with the agile development method, the NDB is being built in pre-defined increments. In the initial phases, the basic features of the NDB are available to clients from among the Bank’s employees. This should provide relevant feedback for developing useful characteristics into the system and assuring an excellent future user experience.

By the end of 2022, a pilot operation of the new platform was running in a mobile application, internet banking, and dashboards of the relationship managers. In the pilot, some 3,000 clients from employees were able to use a digital onboarding, current account, savings accounts, investments, overdrafts, direct debit, SEPA payments, and standing orders.

In building a part of the NDB for corporate clients, the developers defined 600 customer needs in 30 product areas, and subsequently proposed and tested the optimal ways for meeting these (so-called winning propositions).

In 2023, the NDB will reach a maturity level which will allow introducing “New era of banking” onto the Czech market, onboarding of new clients, and the start of a gradual migration of clients from the old system. The migration will commence in 2023 in the Individuals segment, to be followed in subsequent years by small businesses and completed with corporate clients. This schedule is in accordance, too, with the development of new products and services for the NDB. Completion of the migration will enable decommissioning of components of the existing KB’s infrastructure.

Payment card, payment and other systems

In November 2022, KB switched to a new payment card platform – TSYS Prime – after 26 years of operating the previous system. The new platform is run through an application outsourcing by Global Payments Europe. The change has improved security and efficiency of card payments processing and it offers new options for cards administration.

Komerční banka continued its payment systems transformation and payment processing centralisation into the Payment Hub application from Valantic. The processing of all card transactions was redirected to the Payment Hub application in autumn 2022. Those tasks related to the standing orders processing have been completed, including the connection to and from all bank systems. From the spring of 2023, all requirements for the management of standing orders and the execution of payments from them will be handled only through Payment Hub. Payment Hub also handles new types of messages from CNB’s CERTIS interbank payment system for requests for payment refunds and for communication of unauthorised recipient identification data. Last year, Payment Hub started connecting the first systems for direct debit mandates management and collection processing. In 2023, KB plans to integrate the processing of SEPA and foreign payments into the Payment Hub application, as well as communication with Czech Post during the processing of SIPO direct debit mandates and the implementation of SIPO collections. At the same time, Payment Hub will participate in the migration of all types of payment orders to the NDB.

Komerční banka is also actively preparing for the transition of the SWIFT global payment network to the new XML format, which will enable a significant expansion of data transfer between clients and banks in a more structured and readable form. In addition to standardising processing with the help of expanded payment data and references, it will also facilitate easier real-time tracking of messages across multiple banks and payment systems, thereby improving controls and increasing security.

KB’s branch in Slovakia has launched functionality for changing and signing documents for its corporate clients in its KB SKyline platform.

Processes in the trade finance area were further optimised and digitalised. Clients submit a vast majority of their instructions using the Trade & Finance OnLine portal. Following digitalisation of the bank guarantees issuance, import letters of credit also are newly processed end-to-end digitally.

KB’s investment banking activated during the year its first services under the project for a new trading and risk management system.

ESSOX advanced its digital transformation, founded upon switching to a new SAP S/4HANA enterprise resource planning system. Launched in the second half of 2022, the strategic business initiative will provide a unified view on the clients and facilitate introducing innovations to the market, online data processing, as well as maximum deployment of ready-made business components rather than needing to develop them internally.

Fintech ecosystem and other complementary services

In order to create new sources of revenues, KB is building an ecosystem of ancillary financial services. This pursuit combines internal development, co-operation with starting-up or established service providers, and even acquisition of stakes in fintech companies via the fully owned KB SmartSolutions platform.

In June, KB SmartSolutions acquired full ownership in ENVIROS, a leading Czech energy and environment advisory providing its services to a number of important companies in Central Europe. KB has thus expanded its activities and strengthened its know-how in the fields of advisory and financing of projects directed to the energy transition, sustainability, and ESG.

Furthermore, KB SmartSolutions boosted to 96% its ownership stake in upvest, a digital platform for crowdfunding of real estate projects. Through 2022, some 3,500 investors already had provided funding through the platform in total volume of CZK 1.5 billion for 35 projects.

KB SmartSolutions also boosted its stake in MonkeyData, operator of the Lemonero digital platform for B2B financing of e-commerce. The capital injection will facilitate expansion of that service by employing advanced data analytics and artificial intelligence.

Finbricks, s.r.o., an internal start-up, has become a leading aggregation platform for financial services under the PSD 2 directive in the Czech Republic. In 2022, it has reinforced its position on the home market and was preparing for expansion abroad.

Komerční banka is a co-founder and shareholder in Bankovní identita, a.s., an entity since 2021 providing digital authentication services based upon banking identities of the users. The BankID service enables clients with the KB Key application to sign in to a range of services from private providers, such as energy and other utility companies. Furthermore, they can access public services, including the Portál občana (Citizen’s Portal) operated by the Czech government, digital mail service or, for example, to file a tax return. Since 2022, administration of accounts at several health insurers has also become possible with BankID.

Client services development

The development of client services took place in a different context compared to that in past years. KB Group was responding to the rapid changes ongoing in the business environment, including increased interest rates, high inflation, but also repeal of many pandemic measures, and the arrival of refugees from the war in Ukraine.

KB Group adheres strictly to all relevant regulations and it follows carefully the imposition of sanctions by European and American authorities. After Russia invaded Ukraine in February, KB promptly enhanced monitoring at all levels and restricted provision of services to persons registered on the sanctions lists. The comprehensive review of information about clients conducted during 2019–2021 paid off instantly in this regard.

In accordance with the imposed international sanctions and changed market situation, the Bank in 2022 closed client accounts denominated in Russian roubles. As from 1 March 2023, Komerční banka has decided not to process any payments to Russia or Belarus in any currency – not even those acceptable according to the applicable international sanctions. Payments to these two countries are viewed as constituting an extraordinary security risk.

KB also was able to react swiftly to the snap collapse of Sberbank CZ, a.s., which, as confirmed by an announcement of the CNB, had not been able to meet its obligations since 25 February 2022. At the time the CNB decided to initiate steps toward withdrawing Sberbank CZ’s banking licence it had 25 branches and some 120,000 clients. Already from 9 March, Komerční banka began paying out from its branches compensation from the Deposit Insurance Fund to clients of the failed bank. KB was the only bank in Czechia mandated by the Financial Market Guarantee System of the Czech Republic to pay compensations from the deposit insurance. KB had been selected in a tender during 2019 on the strength of its position as a part of the critical infrastructure of the Czech Republic, but especially as a bank with a comprehensive network of branches and a developed infrastructure of its cash processing centres. These features allowed KB to begin swiftly processing cashless as well as cash payouts to the clients of Sberbank CZ without impacting on the quality and scope of its standard services.

For people coming from Ukraine, KB prepared a package that should ease their start to life in the Czech Republic. It included a humanitarian allowance of CZK 2,000, a banking account and payments to Ukraine free of charge, access to medical and psychological assistance, and many more benefits.

In the contact centres, since August, KB has authenticated the calling clients automatically, so that they do not need to spend time identifying themselves. Customers select the service they need from a voice menu and then verify their identity in the KB Key app. They are then connected with a call centre specialist as fully authenticated.

A new version of the Financial Guide tool was deployed in Retail Banking. It is used for analysis of clients’ finances, and it produces clear diagnostics for the relationship managers, as well as concrete information and recommendations to be made available in the client’s internet banking or via e-mail.

KB’s Private Banking organised several seminars for the clients on investments, including real estate investments and inter-generational planning. Private Banking prepared a programme directed to education and responsibility approaches in managing family wealth. The NextGen Academy 2022 was dedicated to those family members who are preparing to join the management of their family assets.

KB Pojišt’ovna launched a new online magazine on its website at the beginning of the year 2022 ⁶ . The content portal informs clients and other visitors in an accessible way in areas related to insurance.

In the context of high inflation and increased interest rates, clients optimised their deposits. In the corporate segment – and particularly among clients from the public sector, such as municipalities, universities, and institutions dealing with public funds – an offer of notional cash flow pooling with a floating interest rate linked to the CNB repo rate was very successful. This product helped KB to reinforce its strong position in servicing public sector clients.

Clients submit almost 90% of their product applications in the trade finance area through the Trade & Finance OnLine portal. The subsequent communication proceeds in this tool, as well. Following after bank guarantees, import letters of credit, too, are newly processed in this fully digital way.

Supporting digitalisation at clients

KB has prepared a consolidated offer of services for e-shops and other businesses in e-commerce. It encompasses banking, payment, and technological products inclusive of API ⁷ and services according to the PSD2 ⁸ directive, payment gates, support for buy-now-pay-later solutions and instalment sales. ⁹ Assistance from the Bank’s e-commerce specialists is also available to clients.

KB developed and introduced to the market the Valná hromada online (General Meeting Online) application for easier administration of corporations’ general meetings. It supports remote and postal voting in compliance with applicable regulatory requirements. ¹⁰

Together with Worldline Czech Republic, s.r.o., KB extended under the KB SmartPay ¹¹ brand the offer to shop owners of a card payment terminal free of charge for 12 months. It newly covers also a PayPhone mobile payment terminal and a payment gate option. The aim is to promote the acceptance of payment cards by merchants. KB SmartPay has thus contributed to the “Czechia pays by card” project under the auspices of the Ministry of Industry and Trade. ¹²

During 2022, Komerční banka, in co-operation with the Czech National Bank, the Czech Banking Association, and other banks, completed the preparatory phase of the Payment on Contact service, which is expected to be launched into the market in 2023. This service will allow clients of participating banks to send payments to a mobile phone number instead of an account number, making it much easier to send payments between people.

Komerční banka also continued to expand to 156 clients the number of pilot users for sending batch payments via business API (BATCHDA) and further focused on the redesign of PSD2 services to the new API version 2 (AIS – account information service, PIS – payment initiation service). KB also deployed functionality for batch payments in PSD2 API on production and in the sandbox.

New products and services

Financial services and products focused on sustainability

KB Group’s ambition is to be a leader in sustainability on the Czech financial market, as well as to be perceived as a sustainability leader in the Czech Republic.

Detailed information on the development of products and services that meet the above objectives is provided in the Sustainability Report ¹³ , which the Group publishes together with this Annual Financial Report.

As detailed in the Sustainability Report, the Group strives for sustainability in all its activities: in its own operations and relations with employees, in advisory and financial services provided to clients, and in its relations with the communities in which KB Group companies operate through the likes of sponsorship, volunteering, charity, and tax payments. In doing so, the Group follows and implements its ESG strategy that takes into account results of the materiality analysis. ¹⁴

Thus, KB Group takes sustainability into account in the development and offering of all its products. At the same time, it creates financial products and services having to promote sustainability as one of the main reasons for their existence. They are mainly developed in the following areas:

Sustainability-focused investment products – in its retail network, KB distributes Amundi investment products from Amundi Asset Management that comprise a range of investment solutions meeting the requirements of responsible investment. KB Private Banking also develops a range of responsible investment products. In 2022, private banking portfolio managers gained direct access to the MSCI ESG manager tool, allowing them efficiently to assess the ESG characteristics of individual instruments and portfolios. Private Banking has also adjusted the list of admissible investments for managed portfolios to be in line with SG Private Banking rules.

Sustainable financing products in retail banking – Komerční banka provides a loan for sustainable technologies at a discounted, guaranteed interest rate. It is for clients who wish to finance the acquisition of sustainable technology for their housing needs. Similarly, Modrá Pyramida’s clients can obtain favourable financing for photovoltaic power plants, heat pumps, biomass boilers, building insulation, window replacement, heat recovery units, and other more energy-efficient housing solutions thanks to the Rychloúvěr (Quick Loan) for sustainable housing.

Sustainable financing products in corporate banking – Komerční banka has established an Environmental and Social Risk Management (ESRM) system that governs the Bank’s process for assessing these risks when accepting new clients, annually renewing limits for current clients, providing financing to the Bank’s corporate clients, and doing transactions subject to the Equator Principles. Komerční banka and SGEF provide financing to sustainable and socially beneficial projects. Both companies also arrange financing for sustainable projects from European and national institutions. Moreover, KB stands ready to assist corporate clients with the issuance of green bonds or bonds linked to sustainability targets. The Bank has also introduced green loans and sustainability-linked loans. Another product is Fotovoltaika za korunu (Photovoltaics for 1 Koruna), which provides businesses with the opportunity to install a photovoltaic power plant without the need for upfront capital. The product was developed in co-operation among SGEF, KB, and ČEZ ESCO.

Advisory in Retail Banking – KB can direct clients to proven suppliers of sustainable technologies, whether these be home photovoltaics, water conservation technologies, root zone wastewater treatment, or green roofs and facades.

Advisory in corporate banking – KB EU Point team provides comprehensive subsidy advisory services, including application preparation and administration, pre-financing of subsidies and project co-financing using programmes of support, advisory in economic and technical specifics, as well as preparation and implementation of tenders for private and public entities (including sustainable and circular public procurement). KB Advisory and ENVIROS provide advisory in sustainable business, energy efficiency, resources management, subsidy consultancy, and financing of sustainable projects.

Public sharing of information – examples are webinars and the development of the portal www.spolecne-udrzitelne.cz, which contains inspiration and examples of good practice in the field of sustainable business, recordings of webinars on ESG topics, examples of projects implemented by KB clients, and information on subsidies and support.

Support for other sustainability activities – ESSOX, SGEF, and KB’s associate ALD Automotive offer clients a comprehensive range of electromobility products. In 2021, Komerční banka, Visa, Heureka, and the Corporate Social Responsibility Association jointly developed the Sustainable e-shop project to designate e-shops striving for sustainable operations. This is intended to facilitate customer orientation as well as motivate merchants and retailers. In 2022, VISA and KB supported purchases at sustainable e-shops by returning a portion of the purchase money to customers (cash-back).

Sustainability in its own physical products – KB has been gradually replacing its classic plastic payment card with the ECO card made of 85% recycled material. It has issued the first cards made of 100% recycled plastic. In 2023, a vast majority of new cards will be produced from 100% recycled material.

Brand support by sponsorship

At the finals of ice hockey’s World Junior Championship in Canada’s Halifax on 5 January 2023, KB’s logo was prominently displayed on the jersey of the Czech national team players. KB naturally supports sports and is seen in association with sports. It has been the general partner of the Czech ice hockey extra league as well as of the Czech national ice hockey team since 2021. For fans, KB even has payment card designs with ice hockey themes.

Nor has the Bank missed out on the growing phenomenon of electronic sports. Following its successful first edition of payment cards for players and fans in the previous year, KB introduced in 2022 a new set of Mastercard payment cards designs featuring popular characters from the League of Legends. Holders of these cards were also eligible for discounted tickets to Prague Champs, the largest open League of Legends tournament in Czechia.

KB of course supports and partners with a number of important institutions and projects, including the National Gallery in Prague, Zoo in Prague, Zoo in Ostrava, PKF – Prague Philharmonia, Rock for People music festival, and the French Film Festival. Besides presenting its brand next to these institutions, KB also offers unique payment card designs based upon these partnerships.

Business results

Development of client numbers

Komerční banka ranks among the three largest banks in the Czech Republic by number of clients. ¹⁵

KB newly acquired nearly 87,000 clients in the segment of individual clients last year, an increase by 22% from the previous year. The acceleration was influenced by the new clients who had come from Ukraine and also some former clients of Sberbank CZ. That brought the total number of individual clients to 1,408,000. The Bank also maintains a leading position in the segment for children and young people, with more than 325,000 child and student accounts plus scores more for young people with standard accounts.

KB onboarded more than 14,000 new small business clients in 2022, up by 15% year on year. The number of clients in this segment thus increased by 2% to exceed 230,000. The Bank succeeded even in attracting bigger firms that it serves in the Top small business subsegment.

In 2022, KB maintained its leading position in the segment of medium-sized corporations, with approximately 44% of enterprises in this segment using its services. ¹⁶ Komerční banka remains one of the two largest banks in public sector financing with incresing trend. KB now serves 53% of clients in this sector. ¹⁷ The number of corporate and municipal banking clients increased by 5% year on year to 11,400, which was due also to growth of companies that previously had been served within the network for small businesses and entrepreneurs.

Komerční banka maintains a strong position in servicing large companies with turnover exceeding CZK 1.5 billion. The number of clients in the large corporate segment slightly increased in 2022. KB’s clients include about 56% of large companies in Czechia with turnover exceeding CZK 1.5 billion. ¹⁸

The decrease in the number of clients of Modrá pyramida and KB Penzijní společnosti was in accordance with the trend on the market, as it was influenced by clients switching to savings and investment products that respond faster to the increase in interest rates.

Business network and payment tools

1) Number of partners with a valid contract

In 2022, the share of digitally sold products in total sales reached 23.4% in the Individuals segment, of which 16.7% of products were sold in an end-to-end digital manner. End-to-end digital sales of consumer loans expanded by 71.7% year on year to represent 40.8% of total sales. End-to-end digital sales of current accounts were up 60.7% year on year, but still at a relatively modest 8.5% of total sales.

KB had optimised further its branch network during 2022, with regard to the increasing preference of clients to manage their financial affairs online. As of 1 April 2022, KB closed 25 branches and another 19 branches began to provide cash services only via ATMs. The selection of branches for closing was based upon a long-term analysis of branch traffic, coverage and potential of locations, as well as changes in client expectations.

KB2025 strategy plans also reconstructions of branch spaces in a new design that is appropriate for assisted clients service as well as remote advisory. By 31 December 2022, the Bank had refurbished 7 branches, 5 of these during 2022. Even bigger number of branches will be reconstructed in 2023 around Czechia.

KB agreed with Moneta Money Bank on sharing the two banks’ ATM networks for clients from June. This initiative will lead to clients having better access to financial services in less densely populated areas, as well as better sustainability and efficiency in operating the ATM networks of all participating banks. In December 2022, UniCredit Bank and AirBank joined the agreement, too, with effect from February 2023. The joint network of KB, MONETA, Air Bank and UniCredit Bank is the largest in the Czech Republic with more than 2,050 ATMs.

As of 1 July 2022, KB simplified the management structure of the branch network, including replacing regional retail divisions with joint segment and line management of all distribution channels at the headquarters level.

At the same time, the Bank launched 20 new KB Premium centres ¹⁹ with dedicated relationship managers for servicing discerning individual clients. The goal is to enhance satisfaction of affluent clients by harmonising the level of service across the country while sharing expertise and resources. A Premium offer tailored to needs of such clients will be developed further during 2023.

KB is also striving to reinforce its market leadership position in services for corporate clients. In November 2022, it introduced a flatter organisation of the SME & Public Sector banking function for small and medium-sized corporations and public sector entities. This improved clients’ access to the Bank across the Czech Republic, reinforced expert assistance to clients, and supports digital solutions. With the aim to optimise space for servicing of clients and sales activities following the segmentation adjustment, KB created 17 new business teams, including a new position of account officer.

Loans to customers

1) Excluding Other amounts due from customers and repo operations, but including debt securities issued by KB corporate clients.

2) Including loans provided by KB Slovakia.

Total gross volume of lending to clients rose by 6.2% year on year to CZK 784.9 billion. ²⁰

In lending to individuals, the overall volume of housing loans grew by 4.5% from the year earlier. Within this total, the portfolio of mortgages to individuals expanded by 2.3% to CZK 268.7 billion. Modrá pyramida’s loan portfolio swelled by a strong 12.1% to CZK 85.3 billion. The growth in the outstanding volume slowed because new production of housing loans in 2022 decreased by (64.6%) year on year from the extraordinarily high levels of the previous year to CZK 38.5 billion.

The volume of KB Group’s consumer lending (provided by the Bank and ESSOX Group in the Czech Republic and Slovakia) was up by 4.6%, at CZK 34.8 billion. This growth pace was also affected by weakening confidence levels among consumers in the Czech economy.

The total volume of loans to businesses and other lending provided by KB Group was greater by 8.0% year on year, at CZK 396.1 billion. Companies had to finance more expensive inventories and energy for their operations, which boosted demand for loans and guarantees. Expansion was faster in euro-denominated loans, available to businesses with revenues in the European currency.

Lending to small businesses declined by (2.4%) to CZK 46.8 billion. Often having their revenues in Czech crowns, euro-denominated loans, which gained in demand due to interest rate differential, were less accessible to some small businesses. In the environment of higher interest rates, some small business clients also decided to use their excess money to repay loans.

The overall CZK volume of credit granted by KB to medium-sized, large corporate, and other clients in the Czech Republic and Slovakia ²¹ climbed by 10.3% year on year to CZK 317.9 billion.

At CZK 31.5 billion, the total credit and leasing amounts outstanding at SGEF were up by 2.7% year over year.

Deposits and client assets under management

1) Excluding repo operations with clients.

2) Including deposits in KB Slovakia.

3) Assets of KB Group clients managed by third-party asset managers.

4) Komerční pojišťovna is consolidated by the equity method.

The volume of standard client deposits within KB Group decreased by (3.4%) year on year to CZK 916.8 billion. ²² This development was influenced by clients shifting some of their savings to mutual funds or even utilising them to cover the mounting costs of living. The competition for deposits on the market has intensified. Moreover, clients often have been switching their deposits from current accounts to better-yielding term and savings accounts.

Deposits at Komerční banka from individual clients were down by (7.6%) from the year earlier, at CZK 327.8 billion. The deposit book at Modrá pyramida diminished by (8.1%) to CZK 56.0 billion.

Total deposits from businesses and other corporations were smaller by (0.1%), at CZK 526.3 billion.

The volumes in mutual funds held by KB Group clients grew by 18.5% to CZK 98.3 billion. Client assets managed by KB Penzijní společnost were 3.2% greater, at CZK 74.4 billion. Technical reserves in life insurance at Komerční pojišťovna were lower by (7.9%) year on year, at CZK 45.3 billion.

The Group’s liquidity as measured by the ratio of net loans ²³ to deposits (excluding repo operations with clients but including debt securities held by KB and issued by the Bank’s clients) stood at 85.2%. The Group’s liquidity coverage ratio ended the year at 160%, well above the regulatory limit of 100%.

Investment banking

KB’s investment banking increased in 2022 the number of active clients, adjusted its client product offer, and achieved excellent results in trading as well as in the sales area.

Trading performance was driven by increased volume of client transactions in FX markets, trading within the Czech government bond market making as well as by correct positioning of portfolios ahead of the CNB’s expected tightening of monetary policy in the first half of the year.

In the small and medium-sized enterprises segment, performance was driven by clients’ increased use of digital trading platforms for foreign exchange transactions and term deposits in combination with the Bank’s focus on products with higher added value. The number of clients using the KB eTrading ²⁴ platform continued to grow.

Activity in the segment of large corporate clients reflected slowing of the market for hedging interest rate risk and a lower number of capital market transactions in 2022. On the other hand, the numbers of currency hedging operations and money market deals improved markedly.

Results in the financial institutions segment were supported by strong activity on the foreign exchange and money markets, as well as on the market in bonds and repo operations.

Cash payment operations

Thanks to fading of the Covid-19 pandemic and cancellation of preventive measures, certain affected sectors recovered in 2022, mainly the hospitality industry. This reflected an increase in cash revenues that entrepreneurs were depositing on their accounts. The strong rise in inflation was another factor that contributed to increase in cash transactions. The volume of currency in circulation expanded to almost CZK 770 billion during the first half, according to the CNB, ²⁵ only to stabilise at just over CZK 710 billion later in the year.

Even when processing cash operations, KB immediately applied the international sanctions imposed against Russia for its aggression against Ukraine.

In line with the KB2025 strategy, the Bank pursued automation of cash payment operations mainly by utilising the capabilities of ATMs. In this context, KB approached other banks on the platform of the Czech Banking Association with a proposal to share their ATM networks. Sharing should improve accessibility of financial services across Czechia and also sustainability of operating the network.

In the first step, KB agreed with Moneta Money Bank, a.s. in spring 2022. Clients of each bank can thus withdraw money from the ATMs of the other under the same conditions as from their own bank’s devices.

The agreement enabled moving dozens of ATMs to new locations, primarily in small towns and villages. Since the start of cooperation by the end of 2022, some 50 duplicate machines had been removed and 26 ATMs were moved elsewhere. At the end of the year, the agreement was joined by Air Bank and UniCredit Bank, effective from February 2023.

Komerční banka’s initiative for sharing of ATM networks won it the title Banking Innovator 2022 in the VISA Best Bank contest organised by the business newspaper Hospodářské noviny.

Sharing of ATMs allowed KB to optimise their number, location, and replacements. The total number of ATMs operated by KB therefore declined by ten to 850, but the number of machines that allow depositing cash increased to 521.

In 2022, KB mandated maintenance of the whole ATM network (including monitoring, software development, etc.) to a sole supplier. This has improved efficiency of change management in the network and thus client service.

The average deposit made via KB’s ATM network increased year on year by approximately CZK 2,000 to around CZK 30,000. The number of deposit transactions in 2022 increased by half a million to some CZK 3.6 million.

KB realised 56% of the volume and 93% of the number of all client cash transactions (withdrawals + deposits) in 2022 through its ATMs, a share similar to that in 2021.

As of 31 December 2022, KB was operating 217 branches in Czechia, of which 120 offered cashier and foreign exchange services while 71 cashless branches were accepting cash deposits in sealed envelopes.

KB continued providing foreign exchange services.

Non-cash payment operations

The Bank recorded for the second year in a row a significant gain in the number of payments. In domestic payments, the increase was 7.2% year on year. An even greater 8.1% rise was recorded in the number of foreign payments (the increase in outgoing foreign payments reached even 9.5%). The total number of SEPA payments rose by a rapid 14.5% (outgoing SEPA payments by 15.6%). The share of SEPA payments in euro within the total number of foreign payments expanded to 88.2% last year. The number of clients having experience with initiating SEPA or foreign payments also grew significantly.

In 2022, the share of domestic interbank payments processed in real time as immediate payments further gained. Almost every fourth incoming interbank payment (23.7%) is credited to KB’s clients’ accounts as an immediate payment. Every fourth outgoing interbank payment (25.8%) initiated via the Mobilní banka application from KB clients’ accounts was as immediate payment. Clients originate 81.7% of all outgoing immediate payments in Mobilní banka.

Komerční banka was actively providing PSD2 services during 2022 through a total of 36 licensed entities – third-party providers, of which 22 were payment institutions (fintech companies) and 14 were banks. In 2022, KB handled more than 39 million requests sent via the PSD2 API interface from client payment accounts and processed payments with a total value exceeding 126 million crowns. This represents a year-on-year increase by almost 147%).

Payment cards

In 2022, the number and volume of card transactions again increased markedly, this time by more than 20% (number by 23%, volume by 22%). Two trends were apparent: lifestyles were returning to the standards existing prior to the pandemic and the average volume per online transaction was increasing.

The greatest increase was seen in physical (brick-and-mortar) shops, where the number of transactions rose by 26% and their volume by 24%. Contactless payments comprised 94% of these transactions. The share of payments by smart devices expanded to 33% in number and 26% in volume. Most such mobile payments continued to be made by the Apple Pay application, followed by Google Pay.

The number of online purchases was higher by 9%, while their volume was up by 16%.

Again in 2022, the Bank ensured the smooth processing of all card transactions despite their rapid increase. In November 2022, KB switched to a new card management system and migrated to it some 2.4 million payments cards.

Under the KB SmartPay brand, KB continues to develop successfully its business alliance with Worldline in the payment cards area. In the Czechia Pays by Card project, KB SmartPay offers the longest free-of-charge period (at 12 months) for a payment terminal that includes the PayPhone point of sale in a mobile device or the Gopay payment gateway. In 2022, the card acceptance offer was selected by almost 4,000 new merchants. The volume and number of processed card transactions grew by one-third year on year.

Trade finance

Trade finance activities for corporate clients were successful in 2022. The volume of guarantees increased by 2.5% year on year and growth of import letters of credits was in double digits. Net banking income from trade finance transactions expanded by more than one-fifth year on year, despite the still challenging external economic conditions and adverse conditions in Eastern Europe.

Financial results and development of financial position

KB Group reported consolidated and audited net profit attributable to the Group’s equity holders for 2022 at CZK 17,556 million, which is 37.9% more year on year. The improvement in reported net profit was driven by faster growth of revenues compared to operating costs in combination with a well-controlled risk profile. Income taxes climbed by 32.0% to CZK 4.0 billion.

Income statement

Komerční banka Group’s revenues (net operating income) reached CZK 38,632 million, better by 23.2% compared to the year 2021 that had been affected by pandemic lockdowns and extraordinarily low interest rates. The revenues growth was mainly driven by net interest income, which benefitted from expanding business volumes and higher yields from reinvestment of liabilities and capital. Net fee and commission income was also up thanks to greater transaction activity, clients’ increased investments in mutual funds, and heightened demand among corporations for some services, such as for guarantees. Net profit on financial operations remained very strong, driven by recovery in travel-related currency conversions and demand from clients for hedging of financial risks in the volatile and uncertain environment.

Net interest income was up by 31.4%, at CZK 28,632 million, from the low base of the year 2021. The volume of assets increased and market interest rates rose significantly year on year, thus supporting the yields from reinvesting deposits and the Bank’s own funds. Net interest income, however, retreated somewhat in the last quarter of the year due to the increasing costs of deposits. The net interest margin for the whole of 2022, computed as the ratio of net interest income to interest-earning assets reported on the balance sheet, reached 2.4%. That compares to 1.9% a year earlier and was at a level similar to that in pre-pandemic 2019.

Net fee and commission income grew by 7.2% to CZK 6,121 million. Transaction fees contributed most to this growth, as clients’ transaction activity recovered across all transaction types compared to the time of the economy’s partial lockdown a year earlier. In particular, payments by card gained significantly in popularity. Deposit product fees were almost stable in line with the numbers of clients. Fees from cross-selling were up notably, driven mainly by clients’ rising investments in mutual funds and sales of insurance products. Income from loan services was down marginally year over year due to lower fees for loans to small businesses, consumer loans, overdrafts, and credit cards, while fees for factoring services and credit lines improved year on year. KB recorded also an increase in income from specialised financial services, primarily due to greater issuance of bank guarantees.

Net profit on financial operations improved slightly, by 1.0%, to CZK 3,666 million. This excellent result was driven by solid demand from clients for hedging of financial risks in the volatile environment, as well as by recovery in currency conversions related to return of international travel. KB was successful with its offer of tailored hedging strategies for SME clients, particularly those based on currency options.

Dividend and other income was up by 1.4% to CZK 213 million. This line item primarily comprises revenues from property rental and ancillary services.

Operating expenses rose by 6.1% to CZK 16,014 million. Contributions to the regulatory funds (Deposit Insurance Fund, Resolution Fund) constituted the fastest growing component, expanding by 24.1% year on year to CZK 1,292 million. Personnel expenses increased by 2.6% to CZK 7,734 million, as the rise in average salaries was partly offset by a decrease in the average number of employees by (2.4%) to CZK 7,503. ²⁶ General and administrative expenses (not including contributions to the regulatory funds) were up by 6.7%, at CZK 3,965 million, with the costs rising in most categories but remaining below the level of inflation. Relatively faster increase was recorded in costs related to training, recruiting, and travel. Depreciation, amortisation, and impairment of operating assets grew by 7.8% to CZK 3,023 million, driven mainly by new and upgraded software acquired in pursuit of KB’s digitalisation strategy.

The sum of profit before allowances for loan losses, provisions for other risk, profit on subsidiaries, and income tax (operating profit) was up by 39.2%, at CZK 22,618 million.

Cost of risk (impairment losses and provisions for loans and net result from transferred and written-off loans) reached CZK 1,181 million, higher by 61.6% in comparison with the year 2021. The new provisioning mainly related to anticipated future impacts of high inflation on the credit profile, which is in line with the forward-looking principles of the IFRS 9 accounting standard. The Group also released remaining provisions for risks related to the Covid-19 pandemic, as well as others to reflect several successful resolutions in the corporate client segment. The level of new defaults remained relatively low across all client segments. The cost of risk in relative terms and as measured against the average volume of the lending portfolio during the year 2022 came to 15 basis points. That compares with 10 basis points for the same period a year earlier.

Income from shares in associated undertakings (i.e. Komerční pojišťovna) was down (32.1%) year on year, at CZK 150 million, influenced by interest rate developments and the insurance reserves creation and utilisation at Komerční pojišťovna.

Net profit on subsidiaries and associates increased by 192.0% to CZK 73 million, as it included a gain from revaluation of a stake in a subsidiary.

Net profits on other assets reached CZK 111 million, mainly due to gains from sales of buildings that were partly offset by accelerated depreciation of technical improvements in leased branches that had been closed. In the previous year, net profit on other assets had been CZK 258 million.

Income tax was higher by 32.0%, at CZK 3,998 million.

Current tax per country (2022)

* SGEF activities in Slovakia.

KB Group’s consolidated net profit for 2022 reached CZK 17,773 million, which was higher by 36.8% in comparison with the year earlier. Of this total, CZK 217 million was profit attributable to the non-controlling owners of minority stakes in KB’s subsidiaries (down by (18.1%) year on year).

Reported net profit attributable to the Group’s equity holders totalled CZK 17,556 million, which is 37.9% more year on year.

Other comprehensive income, deriving mainly from revaluations and remeasurements of some hedging, foreign exchange, and securities positions, as well as from effects of changed interest rates on the value of equity participation in an associated company, reached CZK (2,153) million. Consolidated comprehensive income for the full year 2022 totalled CZK 15,620 million, of which CZK 213 million was attributable to owners of non-controlling stakes.

Statement of financial position

Assets

As of 31 December 2022, KB Group’s total assets had grown by 4.8% year to date to CZK 1,304.1 billion.

Cash and current balances with central banks were down (52.6%), at CZK 14.2 billion. Financial assets held for trading at fair value through profit or loss (trading securities and derivatives) increased by 39.2% to CZK 57.3 billion. The fair value of hedging financial derivatives climbed by 50.8% to CZK 21.6 billion.

Year to date, there was a (15.2%) decline in financial assets at fair value through other comprehensive income totalling CZK 30.2 billion. This item consisted mainly of debt securities issued by government institutions.

Financial assets at amortised cost grew by 5.3% to CZK 1,154.1 billion. The largest portion of this consisted of (net) loans and advances to customers, which increased year to date by 7.8% to CZK 781.5 billion. A 97.6% share in the gross amount of client loans was classified in Stage 1 or Stage 2, while 2.4% of the loans were classified in Stage 3 (non-performing loans). The volume of loss allowances created for amounts due from customers came to CZK 13.9 billion. Loans and advances to banks declined by (9.3%) to CZK 233.4 billion. The majority of this item consists in reverse repos with the central bank. The value held in debt securities was up by 22.1% and reached CZK 139.3 billion at the end of December 2022.

Revaluation differences on portfolio hedge items totalled CZK (2.6) billion, larger by 305.1%. Current and deferred tax assets stood at CZK 0.3 billion. Prepayments, accrued income, and other assets, which include receivables from securities trading and settlement balances, decreased overall by (0.1%) to CZK 5.8 billion. Assets held for sale diminished by (86.6%) to CZK 0.1 billion.

Investments in associates rose by 79.6% to CZK 1.4 billion, driven mainly by increase in the Group’s share in upvest and increase in shareholders’ equity in Komerční pojišťovna.

The net book value of tangible assets declined by (2.5%) to CZK 8.8 billion. Intangible assets grew by 14.6% to reach CZK 9.0 billion. Goodwill, which primarily derives from the acquisitions of Modrá pyramida, SGEF, and ESSOX, remained unchanged at CZK 3.8 billion.

Liabilities

Total liabilities were 5.6% higher in comparison to the end of 2021 and stood at CZK 1,180.6 billion.

Financial liabilities at amortised cost went down by (0.6%) to CZK 1,050.3 billion. Amounts due to customers comprise the largest proportion of this total, and these declined by (0.7%) to CZK 950.7 billion. This total included CZK 33.9 billion of liabilities from repo operations with clients and CZK 7.5 billion of other payables to customers. Amounts due to banks increased through the year 2022 by 2.2% to CZK 85.2 billion.

Revaluation differences on portfolios hedge items were CZK (52.7) billion. Current and deferred tax liabilities were at CZK 2.6 billion, up by 66.2%. Accruals and other liabilities, which include payables from securities trading and settlement balances, grew by 34.5% to CZK 16.8 billion.

The provisions balance was (14.2%) lower, at CZK 1.2 billion. Provisions for other credit commitments are held to cover credit risks associated with credit commitments issued. The provisions for contracted commitments principally comprise those for ongoing contracted contingent commitments, legal disputes, self-insurance, and the retirement benefits plan.

Subordinated and senior non-preferred debt, at CZK 38.7 billion, was up 1,453.9% year to date, influenced by loans received in order to meet regulatory minimum requirements for own funds and eligible liabilities (MREL). Because those debts are issued in euro, the CZK value of this debt reflects also changes in the Czech crown exchange rate.

Equity

Total equity declined year to date by (2.6%) to CZK 123.4 billion, as it was driven upwards by the volume of net profit generated during the year but downwards by the volume of both tranches of dividends paid in 2022. The Group also recognised a reduction in the value of retained earnings related to Komerční pojišťovna. The value of non-controlling interests reached CZK 3.2 billion. As of 31 December 2022, KB held in treasury 1,193,360 of its own shares constituting 0.63% of the registered capital.

Fulfilment of business and financial targets set for 2022

The development of the economic environment during 2022 in Czechia differed to some extent from the initial assumptions for KB’s business conditions as discussed in the presentation of the outlook for 2022 on 8 February 2023. This was mainly due to Russian aggression against Ukraine, which escalated into a fully fledged war on 24 February. Besides the immense human tragedies, the economic repercussions from the war included additional upward pressures on prices generally and prices of energy and some raw materials in particular, as well as further disruptions in global supply chains. Consequently, the economy grew more slowly and the CNB had to increase its monetary policy rates to a higher level than expected.

KB Group achieved solid business results

Growth in KB Group’s overall loan portfolio reached the level assumed in the published outlook. In comparison with expectations, growth in the retail lending portfolio was slightly slower, as sales of housing loans decreased significantly (on the whole market) and consumer lending was also affected by the worsened consumer confidence. Lending to corporate clients matched the ambition set for 2022. KB again grew its market share year on year in lending to businesses.

Deposit volumes growth was somewhat below expectations, as the marked increase in interest rates further intensified competition on the deposit market. In this situation, KB was offering deposit remuneration commensurate to the sustainable profitability of the deposit base. The growth in the overall volume of clients’ assets under management was satisfactory, mainly thanks to dynamic growth of the investments in mutual funds.

Financial performance slightly better than planned

The consolidated revenues improved slightly more than planned for the year 2022. The main positive difference came from net profit from financial operations, thanks to demand for hedging of financial risks and recovery in currency conversions. Net fees and commissions showed strong recovery in transaction activity and cross-selling. The effect of higher interest rates on reinvestment yield was largely offset by the increased costs of deposits, mainly in the second half.

The Group reported total operating expenditures just marginally above the initial guidance, despite the negative impact from faster inflation that also led to an extraordinary increase in salaries by some 5% effective from October 2022.

Cost of risk finished slightly below the budgeted level, as the Group recorded only limited inflows of loans to the defaulted category, mainly in the corporate segments. KB was also able to release the remaining overlay reserve for risks related to the Covid-19 pandemic.

KB achieved in 2022 a healthy level of profitability, in fact somewhat better than planned. This was thanks to faster growth in revenues compared to operational costs and smaller increase in cost of risk compared to the budget. The Group also maintained its robust capital adequacy – even after paying out a catch-up dividend from 2019 and 2020 results – and strong liquidity.

Expected development and main risks to that development in 2023

Note: This outlook was first presented on 8 February 2023 as part of the presentation of the results of Komerční banka for 2022.

Given the high level of uncertainty and risks related to projecting future business results, investors should exercise caution and judgement before making their investment decisions while considering these forward-looking estimates and targets.

KB Group is continuously monitoring and evaluating potential influences upon its activities and upon its clients of the current crisis caused by Russia’s invasion of Ukraine launched on 24 February 2022. Although its direct exposure to Russia and Ukraine is limited, the Group is also evaluating indirect impacts (e.g. dependency on energy resources and raw materials, supply chain disruptions). As may be necessary and appropriate, the Group will respond to the changing situation by adjusting its policies (e.g. risk, operational, accounting), including possible adjustments to provisions and reserves in accordance with the IFRS 9 standard.

Just before issuing this annual financial report, Komerční banka has been observing increased volatility of share prices and credit spreads of banks in Europe, which followed announcements of failure of some medium-sized banks in the United States and news related to Credit Suisse bank. Komerční banka has no material financial linkages to those institutions. Komerční banka is well equipped with capital and liquidity and it meets rigorous regulatory rules. KB develops its business primarily in the Czech Republic and to a small extent in Slovakia. It operates as an independent institution with regard to its sources of liquidity and capital, including in relation to its majority shareholder, Société Générale. Client deposits are the main funding source, while the volume of deposits exceeds the volume of loans granted. Futhermore, Komerční banka has additional funding sources available, including issuance of covered bonds with the best rating.

After the Czech economy had probably overcome a shallow recession in the second half of 2022, it is expected to grow marginally in 2023. Household consumption, affected by the decline in real wages, will remain weak. On the other hand, fixed investments should expand somewhat, supported by the energy transition and by utilisation of funds of the European Union.

Although inflation will decelerate, its average rate during the year will still be exceeding 10%. Unemployment is expected to increase just slightly and the labour market will remain tight. The growth in nominal wages will accelerate, albeit not enough to match the rise in consumer prices.

The Czech National Bank is likely to keep interest rates at their current levels (7% repo rate) until the second half of the year, when it could start to reduce them gradually.

The CNB announced ²⁷ that it would boost the requirement for countercyclical capital buffer on Czech exposures of banks to the maximum level of 2.5%, effective from April 2023. During 2023, the increase comes in two steps, in January and April, by 50 basis points in each case. KB will also continue gradually taking loans from Société Générale in order to meet the regulatory requirements for own funds and eligible liabilities (MREL) from the EU’s banks recovery and resolution directive (as the concept of single point of entry is applied within the SG Group).

In December 2022, the Parliament approved a bill introducing a new tax impacting several banks, including Komerční banka. This so-called “windfall tax” will be applied to profits of selected banks generated in the years 2023, 2024, and 2025. The windfall tax rate of 60% is constructed as a surcharge on top of the standard 19% tax rate, which means that the effective tax rate for the “windfall” part of the profit is 79%. Windfall is defined as a difference between the income tax base (profit before tax) of the respective year and the average profit before tax in the four years 2018–2021, increased by 20%. The windfall tax is imposed on (standalone) banks with net interest income that had exceeded CZK 6 billion in 2021. Within KB Group, it applies to standalone Komerční banka. Given the income tax base of standalone KB in 2018, 2019, 2020, and 2021, the windfall tax base comes to CZK 15.8 billion. According to the projections for the financial results detailed below, the new tax’s impact in 2023 should be limited.

The banking market for loans will absorb a combination of effects, including quite dynamic nominal indicators but rather sluggish real growth rates. Total lending on the market should decelerate to a mid-single-digit year-on-year percentage rate. The outstanding volumes of housing loans are expected to record only marginal gains as the production of new housing loans dropped significantly during 2022. Consumer credit expansion should slow slightly to a mid-single-digit pace, as the burden from weak consumer confidence levels will be offset by the still favourable labour market situation. Lending to businesses and other corporations should rise at a mid-single-digit pace, driven by investment activity and supported even by partial return of clients to banking loans from debt capital markets.

Growth in the volume of deposits on the market will hover around mid-single digits in total. The pace of expansion in deposits from individuals will be slower, as some households continue to tap their reserves to cover increased costs of living. Businesses, on the other hand, have mostly been able to protect their profitability margins and ability to generate cash. Several players on the market for deposits have adopted aggressive pricing policies, mainly during the second half of 2022. This situation may last as long as the market interest rates stay very high.

Komerční banka will continue implementing the changes in accordance with its KB2025 programme that had been announced in November 2020. An introduction to clients of the new value proposition embodied in KB’s New Digital Bank will constitute a crucial milestone along the transformation journey.

In this context, KB management expects that the Group’s loan portfolio will record a mid-single-digit growth rate for 2023. The outstanding volume of housing loans should still expand slightly, and the volume of new sales of these loans should not fall further in comparison with 2022. Consumer lending should grow faster, with expected return of consumer confidence and improvements in the offer and the sales process. The corporate loan book should grow at a mid-single-digit pace, as KB aims to confirm the gains recently achieved in its market share of business loans.

Total deposit balances are expected to expand at an upper-mid-single-digit pace, slightly faster than do the loans. Deposits of corporate clients may grow somewhat faster than do volumes in the retail segments. The growth in term deposits will probably still outpace that in current accounts by a large margin.

Following a recovery from the pandemic lows in 2022, KB Group’s total net operating income for 2023 should reach a level similar to that in the previous year. Net interest income will probably retreat somewhat, mainly due to higher average costs of deposits. Net fees and commissions should improve by mid-single digits, driven mainly by dynamic development of the volumes in mutual funds. The net profit on financial operations will likely grow meaningfully, propelled by gains from currency conversions related to travelling and hedging of financial risks for clients, but also due to a shifting allocation of trading gains from interest income to financial operations, which reflects movements in interest rates in different currencies.

As ever, operating expenses remain under tight control and the figure for the full year will rise at an upper mid-single-digit pace, thus by much less than the rate of inflation. The Group will continue its transformation, which consists in investing into building the new digital infrastructure, overall simplification, and decreasing the numbers of employees and premises in use. The management has agreed with the trade unions on increasing wages by an average 5% from April 2023 on a constant staff basis. Depreciation and amortisation charges will be growing at a high-single-digit pace, reflecting investments in the digital transformation. Regulatory levies for the Resolution and Deposit insurance funds will be decided by the CNB, but they should reflect the recently decelerated dynamics of deposits in the banking system. Other administrative costs will be offsetting the effects of the high inflation by the ongoing optimisation of operations.

Cost of risk will be influenced by several factors, including in particular the still-high inflation and energy costs, slower economic growth, and higher interest rates. Certain impacts from such environment had already been anticipated in provisioning during 2022. Reflecting the resilient credit profile of KB’s asset portfolio, the cost of risk in 2023 should not exceed the estimated normalised level of around 30 basis points across the whole business cycle.

The key risks to the expectations described above consist in further escalation of the war in Ukraine and its economic repercussions, as well as rapid decline in consumption. Generally, the open Czech economy would be sensitive to a worsening external economic environment, as well as to abrupt changes to relevant exchange and interest rates or to monetary or fiscal policies. The possible disruption of gas supplies remains a risk, but its significance has diminished.

Management expects that KB’s operations will generate sufficient profit in 2023 to cover the Group’s capital needs ensuing from its growing volume of assets as well as to pay out dividends. Considering the current state of affairs, KB’s management intends for 2023 to propose distributing as dividends 65% of attributable consolidated net profit earned in the year.

1  https://www.bain.com/consulting-services/customer-strategy-and-marketing/customer-loyalty/

2 https://www.kb.cz/cs/garance-kvality

3  https://www.kb.cz/en/faq-and-support/relationships-with-customers/complaints-and-claims

4  https://www.kb.cz/cs/obcane/pujcky/odlozeni-splatek

5  https://www.nastartujtese.cz/

6   https://www.kbpojistovna.cz/cs/magazin

7  Application Programming Interface

8  Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market

9   https://www.kb.cz/cs/podnikatele-a-male-firmy/sektorova-nabidka/nabidka-pro-eshopy  

10  https://www.kb.cz/cs/podnikatele-a-male-firmy/ostatni-sluzby/valna-hromada

11  https://www.kbsmartpay.cz/cs/

12  https://www.ceskoplatikartou.cz/

13   https://www.kb.cz/en/non-financial-reporting

14   https://www.kb.cz/en/about-the-bank/everything-about-kb/we-do-business-br-sustainably

15  Source: Statements of individual Czech banks.

16   Sources: The Business Register of the Czech Statistical Office, KB’s client database.

17   Sources: The Business Register of the Czech Statistical Office, KB’s client database.

18 Sources: The Business Register of the Czech Statistical Office, KB’s client database.

19  https://www.kb.cz/en/kb-premium

20 Including debt securities issued by KB’s corporate clients. There were no reverse repo operations with clients to report as of 31 December 2022 or 31 December 2021.

21 Inclusive of factor finance outstanding at Factoring KB and merchant and car dealers’ financing from ESSOX Group.

22 Excluding volatile repo operations with clients. The total volume of ‘Amounts due to customers’ decreased by 0.7% year on year to CZK 950.7 billion.

23 Gross volume of loans reduced by the volume of provisions for loan losses.

24  https://www.kb.cz/en/other/our-applications/applications/kb-etrading

25  https://www.cnb.cz/en/banknotes-and-coins/currency-circulation/currency-in-circulation/

26 Recalculated to a full-time equivalent number.

27   https://www.cnb.cz/en/financial-stability/cnb-board-decision/CNB-Board-decision-on-setting-the-countercyclical-capital-buffer-rate-1646923500000/