Komerční banka reported today that for the first three quarters of 2009 it had earned a net profit of CZK 8,438 million, which represents by 14.5% less than in the same period of 2008. Notwithstanding the significant economic downturn, KB Group managed to achieve solid results by developing long-term relationships with its clients, including continuous lending activity, and by maintaining tight cost control and careful risk management.

KB Group's capital adequacy stood at 13.9% as of the end of September. The Bank also maintains excellent liquidity, measured by loans-to-deposits ratio that was at the level of 70.2%. The volume of loans to clients increased year on year by 5.3% to CZK 383.5 billion. Total revenues rose by 2.7% to CZK 25.1 billion while operating costs were reduced by 3.0% to CZK 10.3 billion. Operating efficiency as measured by the cost-to-income ratio reached an excellent 41.2%.

The published figures are unaudited consolidated results under IFRS (International Financial Reporting Standards).

Business Performance

Business results reflected the very challenging economic conditions in the Czech Republic originated by the global economic downturn. Nevertheless, the total volume of loansprovided by KB Group continued to rise by 5.3% to reach CZK 383.5 billion. The share of loans to individual clients exceeded 45%.Out of these, the portfolio of mortgages to individuals grew by 13.7% to CZK 98.3 billion and the volume of building society loans provided by Modrá pyramida expanded by 17.3% to CZK 44.0 billion. The total value of consumer loans, which are provided by KB and also by ESSOX, grew by 9.1% to CZK 31.0 billion.

Lending to companies and entrepreneurs was substantially affected by the economic recession. The total volume of business loans decreased by 1.3% year on year to CZK 205.9 billion. Within this segment, lending to small businesses and entrepreneurs retained a solid dynamism, growing by 9.6% to CZK 24.6 billion.

The consolidated volume of deposits as of the end of September 2009 decreased year on year by 4.8% to CZK 524.9 billion, reflecting the deteriorated liquidity position of business clients. Corporate deposits declined by 9.7% to CZK 276.9 billion. Deposits from individuals in KB grew marginally by 1.3% to CZK 153.7 billion. Clients' pension assets at Penzijní fond KB increased by 6.8% to CZK 26.7 billion, and building society Modrá pyramida recorded 0.8% more deposits year on year to reach CZK 64.4 billion.

The total number of KB Group's clientscontinued to rise. The fastest growth was recorded by the consumer finance company ESSOX. It had more than 294,000 customers at the end of September, which represents growth by a half year on year. On a standalone basis, Komerční banka registered a net increase by 19,000 clients year on year to almost 1,638,000 clients, out of which the number of individual customers reached 1,358,000. Modrá pyramida was serving 717,000 customers. The number of supplementary pension insurance participants at Penzijní fond KB reached 493,000. Overall, the total number of Group customers (adjusted for shared clients within the Group) exceeded 2.7 million.

More and more clients are using direct banking channels to manage their financial needs for the advantages it offers in terms of convenience and cost efficiency. As of the end of the third quarter, at least one direct banking channel (such as internet or telephone banking) was being used by more than 972,000 clients, which represents more than 59% of all KB clients. For more complex issues as well as personnel bankers' advisory, KB customers have at their disposal one of the Bank's 398 branches. Modrá pyramida's advisors network is 1,599 strong. A network of 682 ATMs are complemented by numerous retail stores locations that offer cardholders the cash back service. The total number of active payment card customers reached 1,707,000 (+1.4% year on year), of which 247,000 were credit cards (+6.4%). The number of active credit cards used by clients of ESSOX expanded strongly to almost 160,000 (+55.0%), driven by the success of the new co branded credit card with T-Mobile.

KB Group continued in the third quarter also in its efforts to improve its wide range of products and servicesfor clients. Among the principal innovations on the Czech market was a new term account that permits the client to make an early withdrawal of up to CZK 1 million without penalty in the event of an adverse life situation, such as loss of employment. This term account is offering an annual interest rate of up to 3.6%, depending on its maturity. Komerční banka also co-operates with Česká pojišťovna, whose property insurance offering will complement the range of life insurance products from Komerční pojišťovna. With the new co-operation agreement, Komerční banka and Česká pojišťovna also unveiled a new joint product, giving an insurance coverage for photovoltaic equipment available both for large operators and for small household units. In addition, a new preferential loan programme from the European Investment Bank may help small and medium-sized enterprises amongst KB clients to get through the economic recession. Trade Finance OnLine platform, a new secure Internet service for processing bank guarantees and documentary payments in domestic and international trade, is available to the corporate customers since October.

Financial Performance

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%.


Consolidated results as at 30 September 2009, under International Financial Reporting Standards (IFRS)

(CZK million) 1 Jan - 30 Sep 2009
not audited
1 Jan - 30 Sep 2008
not audited
Year-on-year change
Net banking income 25,114 24,445 2.7%
Operating costs 10,343 10,658 -3.0%
Gross operating income 14,771 13,788 7.1%
Cost of risk 4,160 1,642 153.3%
Income taxes 1,823 2,253 -19.1%
Net profit attributable to equity holders 8,438 9,873 -14.5%
Total assets 657,317 688,330 -4.5%
Loans and advances to customers, net 368,540 355,084 3.8%
Amounts due to customers 524,874 551,125 -4.8%
Total shareholders' equity 62,661 57,596 8.8%


  30 September 2009 30 September 2008 Year-on-year change
ROAE 18.1% 24.5% Fall
Capital adequacy (CNB) 13.9% 12.5% Growth
Tier 1 ratio (CNB) 12.6% 11.1% Growth
Risk-weighted assets for credit risk (CZK billion) 290.4 276.5 5.0%
Cost-to-income ratio 41.2% 43.6% Fall
Net interest margin 3.5% 3.3% Growth
Earnings per share (CZK, annualised) 296 346 Fall
Average number of employees 8,843 8,788 0.6%
Number of branches (KB standalone) 398 391 +7
Number of ATMs 682 666 +16
Number of clients (KB standalone) 1,638,000 1,619,000 1.2%


Business performance in the retail segment - overview 30 September 2009 Year-on-year change
Mortgages to individuals - volume of outstanding loans CZK 98.3 billion 14%
- number of outstanding loans 82,000 9%
Consumer loans
- volume of outstanding loans CZK 31.0 billion 9%
Small business loans - volume of outstanding loans CZK 24.6 billion 10%
Total active credit cards - number 247,000 6%
- of which to individuals 187,000 8%
Total active debit cards - number 1,460,000 1%
Gaudeamus - number of youth and student packages 181,000 6%
- volume of Gaudeamus loans CZK 512 million -6%
Children's accounts - total number 172,000 1%