In the difficult environment, KB continued its lending activities in all customer segments. On a year-on-year basis, the volume of loans increased by 9.1% to CZK 382.5 billion. The growth was driven by mortgages and lending to small businesses that increased by 17.1% and 10.5%, respectively. KB Group's liquidity and capital position remain strong. Capital adequacy, as measured by the Tier 1 ratio, is at an excellent 12.4% and the loan-to-deposit ratio stands at 69.2%. In order to partially offset the rising cost of risk, the Bank continued in its tight cost control. The cost-to-income ratio, an indicator of operating efficiency, is at an excellent level of 40.8%.
The published figures are unaudited consolidated results under IFRS (International Financial Reporting Standards).
Business results were driven by continued lending activities, although the overall loan portfolio growth did not reach double-digit levels, as was the case in previous years. The total value of loans provided by KB Group rose by 9.1% to reach CZK 382.5 billion, of which loans to individual clients accounted for 44%. KB did particularly well on the mortgage market, where its competitive offer led to its securing a 30% market share for new sales in the second quarter. Due to the somewhat slower overall mortgage market, however, sales of new mortgages decreased by 24% in comparison with the record first half of 2008 and the total mortgage portfolio increased by 17.1% to CZK 96.3 billion year on year. At building society Modrá pyramida, the loan portfolio expanded by the same 17.1% to reach CZK 42.0 billion. The volume of consumer loans, which in the Group are provided by both KB and ESSOX, grew by 11.8% to CZK 30.4 billion.
While lending to companies and entrepreneurs was hindered by the economic recession, the total volume of business loans increased by 3.4% year on year to CZK 209.3 billion. Within this segment, loans provided to small businesses and entrepreneurs grew by 10.5% to CZK 24.0 billion.
Deposits remained stable year on year and totalled CZK 532.1 billion at 30 June 2009. KB bank's deposits from individuals expanded by 4.6% to CZK 154.0 billion. Clients' pension assets at Penzijní fond KB rose by 8.3% to CZK 26.4 billion, and customers' savings at Modrá pyramida grew by 0.2% to CZK 64.0 billion. In the business segment, firms' use of cash reserves in the tough economic environment led to a decline in corporate deposits by 1.5% to CZK 284.7 billion.
KB Group's number of clients continued to rise.Standalone Komerční banka registered an increase of 30,000 year on year to 1,636,000 clients. Of this number, 1,355,000 were individual customers while the Bank serves 281,000 business clients. Modrá pyramida served 722,000 customers. The number of supplementary pension insurance participants at Penzijní fond KB reached 496,000. Total active clients of the consumer financing company ESSOX rose to almost 275,000 as at the end of June. The total number of Group customers (adjusted for shared group clients) exceeded 2.7 million.
Of KB clients, 59% (i.e. more than 966,000) were using at least one direct banking channel, such as internet and telephone banking. The number of the Bank's branches reached 397, while Modrá pyramida's sales force is 1,662 strong. Clients of KB were using 1,698,000 active payment cards (+2.1% year on year), of which 248,000 were credit cards (+10.2%). The number of active credit cards used by clients of ESSOX expanded strongly to almost 156,000 (+53.6%), driven by success of the new co-branded credit card with T-Mobile.
The broad portfolio of products and servicesavailable to KB Group's clients was further enhanced in the second quarter of 2009. KB and Modrá pyramida won jointly a tender by the State Environmental Protection Fund to distribute subsidies under the "Green for Savings" scheme, which aims at improving energy efficiency of residential buildings. Under the scheme, clients can benefit from government subsidies while obtaining KB funds from a new dedicated range of ECO loans. A new Brouček insurance scheme tailored for children offers both life/accident insurance and a savings option. Given the ever-increasing demand of business clients for consultations with the experts at KB EU Points as to the possibilities of EU co-financing, Komerční banka created the "EU Point Index" to promptly inform professionals, media and general public about current developments in the uptake of EU funding.
Based upon voting by CFOs at the 100 leading companies in the Czech Republic, Komerční banka was in June once again awarded the title Corporate Bank of the Year 2009 in the competition sponsored by Czech Top 100 and MasterCard Europe.
Despite the difficult market conditions, KB recorded a very good result for operating revenues and costs as well as solid bottom-line profitability. The current economic recession, however, led to a significant increase in the cost of risk that is seen first in the business segment, but gradually rising costs of risk can be observed also in the individuals segment. Due to the consistent application of prudent policies, however, risk costs remain under control and Komerční banka is positioned to perform well even in the current challenging environment.
Total net banking income increased by 4.9% in comparison with the same period of 2008 to CZK 16,972 million. Net interest income rose by 6.9% to CZK 11,020 million, benefiting primarily from loans growth. Even as spreads on commercial lending widened, margins on deposits declined due to heightened market pressure as liquidity worsened on the interbank market. Net fees and commissions dropped by 5.9% to CZK 3,821 million as a result of decreased economic activity and one-off income of CZK 162 million recorded in the first half of 2008 from reimbursement among banks for interchange fees incorrectly charged in the previous years. A successful trading performance and higher demand from clients for interest rate hedging led to a rise in net profit from financial operations by 18.4% to CZK 2,040 million. This item was also underpinned by the sale of MasterCard shares with the accounting result of CZK 64 million.
KB Group continued in tight control of its operating expenses. Total operating costs decreased by 3.7% year on year to CZK 6,933 million, which resulted in improving the cost-income ratio to 40.8% from 44.5% in the first six months of the previous year. Among these expenses, personnel expenses rose by 4.6%. General administrative expenses - which were the main focus of the cost efficiency initiatives - dropped by 7.5% year on year to CZK 3,012 million. Depreciation, impairments and disposals of fixed assets recorded a decline by 18.4% to CZK 729 million, influenced by a negative impact of the one-off impairment for a building of CZK 57 million in 2008 and by a positive impact from sales of unused buildings in 2009 of CZK 39 million.
The modestly growing total revenues and reduced operating expenses led to an increase of gross operating income by 11.8% to CZK 10,039 million.
The development of the cost of risk in the first half of 2009 was driven by the sharp deterioration in the Czech Republic's economic environment. The cost of risk rose by 210.3% to CZK 2,833 million. The risk costs in the second quarter declined by 20.8% compared to the previous quarter, because the result of the first three months of 2009 was significantly impacted by one case of default by a corporate client. The quarterly cost of risk decreased between those periods from 110 basis points to 88 basis points. The corporate segment saw a deterioration of the risk profile while first warning signals were observed also in retail segments, as the recession started to affect the portfolio of loans to small business clients and consumer loans. In year on year comparison, the consolidated cost of risk increased from 35 basis points for the first half of 2008 to 99 basis points for 1H 2009.
Income tax decreased by 15.3% to CZK 1,236 million due to lower net profit generation and the reduction in the corporate income tax rate.
KB Group's net profit for the first half of 2009 reached CZK 5,806 million, which is 10.1% less than in the same period of 2008.
The Group's total assets as of 30 June 2009 amounted to CZK 675.1 billion, which represents a decline by 0.3% from the end of June 2008 and by 3.4% in comparison with the end of 2008. The consolidated shareholders' equity rose by 19.5% year on year, but it decreased by 7.9% from the start of the year mainly due to the payment of dividends, which were distributed in June and totalled CZK 57.9 billion.
KB Group's capital adequacy under Basel II standards was 13.6% at the end of the first half, while the Tier 1 core capital ratio stood at a very strong 12.4%.