Komerční banka Group Financial Results as of 30 September 2020 and Strategic Update for 2025 horizon
Komerční banka Group is continuing to support its clients, employees, and society throughout the difficult time brought on by the global Covid-19 pandemic while contributing to the economic recovery.
KB has announced its strategic directions for the time horizon to 2025. The Bank aims to be a leader in the new era of digital banking for 2 million active clients. Its strategy builds upon the pillars of helpfulness, growth, and responsibility while setting specific objectives in several defined areas. These include erecting a new digital bank and being a data-driven company, maintaining its leadership position in services to corporations, creating an agile and effective organisation to achieve outstanding operational efficiency and sustainability, finding new revenue sources, and further upgrading its advanced risk management.
With total capital adequacy at 21.6%, Komerční banka maintains a robust capital base. Ample liquidity is based upon customer deposits, and the volume of net loans granted corresponds to 73.2% of the client deposit base.
The total volume of the Group’s lending to customers expanded by 5.9% year on year to CZK 692.3 billion. The clients entrusted KB Group with CZK 930.4 billionin deposits, up by 8.2% from a year ago. Non-deposit assets under management, at CZK 187.1 billion, were higher by 4.0%CZK 930.4 billion year on year.
Since mid-March, KB Group has been offering repayment holidays for up to six months to its clients affected by the crisis. As of 30 September, KB Group companies were postponing instalments on loans totalling CZK 58.5 billion, including CZK 26.6 billion in relation to mortgages, CZK 3.0 billion to consumer
loans, CZK 4.1 billion to financing of small businesses and CZK 24.7 billion to lending to corporations. Furthemore, KB has granted CZK 11.7 billion in financing to 1,864 clients through the Covid guarantee programmes launched by the Czech Republic.
The financial performance remained healthy despite significant impacts from the economic shock brought about by the pandemic. The Group reported a (8.6%) decline in revenues and 1.9% increase in operating expenditures. Net creation of credit risk provisions reached CZK 3.4 billion. Net profit attributable to shareholders decreased by (45.0%) to CZK 6.1 billion. Recurring net profit attributable to shareholders was down by (44.0%), at CZK 6.2 billion.
As part of the country’s infrastructure, Komerční banka continues providing all its services to the clients. KB reported a healthy set of performance and solvency indicators. The capital adequacy, at 21.6%, is extremely strong even before inclusion of the current year’s profit. The Bank’s liquidity remains xceptional, too, as net loans correspond to just 73.2%of the client deposit base. The financial performance was resilient in spite of sharp deterioration in economic conditions relating to the Covid-19 global pandemic. Total revenues decreased by (8.6%) to CZK 22.3 billion. Net interest income was down by (8.9%), at CZK 16.1 billion, mainly due to significant decline in market interest rates that negatively affect yields from reinvested deposits. Net fee and commission income slipped by (13.1%) to CZK 3.9 billion, chiefly due to reduced transaction and sales activity but also reflecting impacts from new regulation of fees for cross-border payments. Net profit on financial operations increased by 1.9% to CZK 2.2 billion, as clients’ demand for hedging of financial risks increased in the volatile environment.
Operating expenses were up by 1.9%, at CZK 11.4 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 declined by (0.7%) to 8,099. KB also has booked a restructuring provision anticipating accelerated structural changes based on Covid-19 experience. The net impact on operating expenses is CZK –94 million). Operating expenses adjusted for this one-off provision were higher by 1.0%, at CZK 11.3 billion.
Net creation of provisions for the first nine months of 2020 totalled CZK 3.4 billion. This amount includes charges for some expected losses caused by economic hardship ensuing from the coronavirus pandemic, as envisaged in the IFRS 9 accounting standard, as well as increased provisions for clients with deteriorated credit risk profile in a situation when actual defaulting of clients on their obligations has generally been prevented by payment moratoria.
The reported attributable net profit was down (45.0%), at CZK 6.1 billion. Excluding the one-off items,1) attributable net profit was lower by (44.0%), at CZK 6.2 billion.
Lending to clients increased by 5.9% to CZK 692.3 billion.2) Within this total, financing of housing from KB and Modrá pyramida expanded by 7.8% and consumer lending from KB and ESSOX grew by 1.3%. Lending to businesses and other clients was up by 4.8%.
As of 30 September, KB Group companies were postponing instalments on loans totalling CZK 58.5 billion, including CZK 26.6 billion in relation to mortgages, CZK 3.0 billion to consumer loans, CZK 4.1 billion to financing of small businesses and CZK 24.7 billion to lending to corporations. Furthemore, KB has granted CZK 11.7 billion in financing to 1,864 clients through the Covid guarantee programmes launched by the Czech Republic.
Deposits from clients climbed by 8.2% year on year to CZK 930.4 billion. (3) The volume of KB Group clients’ assets in mutual funds, pension savings, and life insurance expanded by 4.0% to CZK 187.1 billion.
The capital adequacy ratio reached a strong 21.6%, and Core Tier 1 capital stood at 20.9%. The liquidity coverage ratio was at 230%, significantly above the regulatory minimum of 100%.
„I would like to wish all the best to all people affected by the pandemic and to sincerely thank all those who are helping others during this crisis, and especially of course health care workers, caregivers, and other people on the front lines. Within KB, I would like to particularly thank my colleagues from the contact centres who have been supporting the health authorities with epidemiological tracing of the infection spread. Ongoing crisis will have long-term consequences, but it will reinforce our resilience and we need to look forward and beyond it. I am proud that we were able even in the midst of this situation to formulate an ambitious but achievable strategic plan that will enable the new KB to succeed in the era of digital banking.”
1) One-off items: 9M 2019: Settlement of the sale price for Komerční pojišťovna sold in 2006 (CZK 55 million in ‘Profit attributable to exclusion of companies from consolidation’)
9M 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 million in ‘Operating expenses’, of which CZK 1 million in personnel expenses and CZK –95 million in ‘General administrative expenses’, and CZK 18 million 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 5.8% year over year to CZK 695.3 billion.
3) Excluding repo operations with clients. The total volume of ‘Amounts due to customers’ moved up by 7.4% to CZK 966.1billion.