In the difficult market conditions during the first nine months of 2009, KB recorded good results for revenues, operating costs, and bottom-line profitability. Cost of risk was at a higher level compared to the previous year and given the ongoing economic slowdown significant improvement of KB Group risk costs is not expected in the near future. Nevertheless, good client relationships, prudent cost and risk management policies as well as professional and committed staff put the Bank in a good position for future development.
Total net banking income increased by 2.7% in comparison with the same period of 2008 to CZK 25,114 million. Representing its most significant part, net interest income rose by 5.9% to CZK 16,504 million. This benefited especially from loans growth and wider loan spreads, which compensate for the margins on deposits that have been declining due to the competitive market situation. Net fees and commissions dropped by 5.1% to CZK 5,739 million as a result of constrained economic activity and the effect of one-off income recorded in 2008. Net profit from financial operations, which rose by 2.2% to CZK 2,739 million, benefited from a successful trading performance for the Bank's own account and demand from clients especially for interest rate hedging. Recent months also saw a slow recovery in demand for new foreign exchange hedging positions, which area had earlier suffered with declining foreign trade. This item was also underpinned in the second quarter by sale of the Bank's MasterCard shares, with an accounting result of CZK 64 million.
Total operating costs were reduced by 3.0% year on year to CZK 10,343 million through a tight control and long-term optimisation measures. The operating costs-to-income ratio improved from 43.6% in the first three quarters of 2008 to 41.2%. Personnel expenses rose by 3.6% to CZK 4,821 million, whereas the average number of employees increased by 0.6% to 8,843. KB Group achieved savings in most areas of general administrative expenses, which dropped by 7.6% year on year to CZK 4,412 million. Depreciation, impairments and disposals of fixed assets recorded a decline by 9.5% to CZK 1,110 million, influenced by a positive impact from sales of unused buildings of CZK 71 million.
Due to the modest growth of total revenues but benefiting from the reduction in operating expenses, Komerční banka increased its gross operating income by 7.1% to CZK 14,771 million.
Sharp deterioration in the economic situation in the Czech Republic and in neighbouring countries that are its trading partners led to an increase in the cost of riskduring the first nine months of 2009 by 153.3% compared to the same period last year, reaching CZK 4,160 million. From an initial increase observed in the corporate loans segment, the moderately rising risk costs have been now recorded in the entrepreneurs and individuals sectors. The Bank expects further deterioration in the risk profile of loans to individuals, as the growth in unemployment has not yet reached its peak, which is currently expected in mid-2010. Due to the consistent application of prudent policies and additional measures implemented since 2008, KB is forecasting a cost of risk safely kept under control.
The consolidated cost of risk increased from the below-average 38 basis points for the period from January to September 2008 to 97 basis points for the same period this year.
Lower gross profit generation and reduction in the corporate income tax rate resulted in the income taxdecrease by 19.1% to CZK 1,823 million.
KB Group's net profit for the first nine months of 2009 reached CZK 8,508 million, which is 14.4% less than in the same period of 2008. Profit attributable to the Bank's shareholders amounted to CZK 8,438 million, down by 14.5%.
The Group's total assets as of 30 September 2009 amounted to CZK 657.3 billion, lower by 4.5% from the end of September 2008 and by 6.0% in comparison with the end of 2008. The consolidated shareholders' equity rose by 8.8% year on year and totalled CZK 62.7 billion. This represents a decrease of 0.5% from the start of 2009, mainly due to the CZK 6.8 billion payment of dividends in June 2009.
KB Group's capital adequacy under Basel II standards stood at 13.9% as of the end of September, while the Tier 1 core capital ratio was at a very strong level of 12.6%.