Komerční banka Group Financial Results as of 30 June 2020
Komerční banka reported today its unaudited consolidated results for the first half of 2020.
KB reported an extraordinarily strong capital adequacy in the context of European banking, of 21.9%, even before inclusion of current year’s profit. The liquidity of the Bank remains exceptional too, as net loans represent only 74.3% of the client deposit base. The financial performance was affected by sharp deterioration in economic conditions relating to the Covid-19 global pandemic, measures taken by authorities to contain its spread, and overall weakening in consumer and business confidence. Total revenues decreased by (6.7%) to CZK 15.1 billion. Net interest income was down by (7.8%), at CZK 10.8 billion, mainly due to significant decline in market interest rates that negatively affect yields from reinvested deposits. Net fee and commission income diminished by (11.3%) to CZK 2.6 billion, mainly due to reduced transaction and sales activity but also reflecting impacts from new regulation of fees for crossborder payments. Net profit on financial operations increased by 12.6% to CZK 1.5 billion, boosted by stronger demand from clients for hedging of financial risks in the volatile environment.
Operating expenses were up by 3.1%, at CZK 8.0 billion, driven mainly by greater contribution to the Resolution and Deposit insurance funds and increase in amortisation charges connected to investments in digitalising the Bank and its services. The average number of employees rose by 0.1% to 8,150. KB also has booked a restructuring provision for acceleration of structural changes based on Covid-19 experience (with a net impact on operating expenses of CZK -94 million). Operating expenses adjusted for this one-off provision were higher by 1.9%, at CZK 7.9 billion.
Net creation of provisions for the first half of 2020 totalled CZK 1.7 billion. This amount already includes the first impacts of economic hardship ensuing from the coronavirus pandemic, albeit thus far mainly on an expected-loss basis as envisaged in the IFRS 9 accounting standard, because actual defaulting of clients on their obligations has generally been prevented by implementing payment moratoria.
The reported attributable net profit was down (38.5%), at CZK 4.4 billion. Excluding the one-off items (1), attributable net profit was lower by (37.0%), at CZK 4.5 billion.
Lending to clients increased by 4.9% to CZK 676.3 billion. (2) Within this total, financing of housing from KB and Modrá pyramida expanded by 6.2% and consumer lending from KB and ESSOX grew by 0.9%. Lending to businesses and other clients was up by 4.3%.
Deposits from clients climbed by 7.1% year on year to CZK 898.4 billion. (3) The volume of KB Group clients’ assets in mutual funds, pension savings, and life insurance expanded by 4.9% to CZK 185.4 billion.
The capital adequacy ratio reached a strong 21.9%, and Core Tier 1 capital stood at 21.3%. The liquidity coverage ratio was at 232%, significantly above the regulatory minimum of 100%.
„Komerční banka has honoured its responsibility to be a reliable pillar of the Czech banking system and economy even in difficult times. We have been standing by our clients, and we will contribute our share to the economic recovery. This has been made possible by KB’s strong financial standing and efficiency, and along with its reliable governance and risk management setup. The fact that we have been so well prepared can be attributed also to the transformational steps taken in the recent past. We perceive the ongoing crisis as an opportunity to accelerate our steps towards digital banking. We are preparing a strategic plan that will let us - together with our clients - build a better and sustainable future through responsible and innovative financial solutions.”
1) One-off items: 1H 2019: Settlement of the sale price for Komerční pojišťovna sold in 2006 (CZK 55 million in Profit attributable to exclusion of companies from consolidation)
1H 2020: Restructuring provision for Acceleration of structural changes based on COVID19 experience partly offset by release of residual provision for “KB Change 2020“ (CZK -94 mil. in OPEX, o/w CZK 1 mil. in personnel expenses and CZK -95 mil. in GAE, CZK 18 mil. in Income tax)
2) Excluding volatile reverse repo operations with clients but including debt securities issued by KB’s clients and held by the Bank. Inclusive of repo operations, lending rose by 4.4% year over year to CZK 680.4 billion.
3) Excluding repo operations with clients. The total volume of ‘Amounts due to customers’ moved up by 4.6% to CZK 933.6 billion.