KB Group achieved a net profit of CZK 2,819 million in the first quarter of 2009. Komerční banka increased its net banking revenues year on year and reduced operating costs, whereby it mitigated to a large extent rising cost of risk driven by the current tough economic conditions in the Czech Republic.

The bank continued its lending activities to both business sector and individual clients. The volume of loans provided to clients grew by 15.3% year on year to CZK 378.9 billion and loan-to-deposit ratio reached 67.8% at the end of the quarter. Prudent financial management led to achieving capital adequacy of 12.1% as of the end of March. The operating cost-income ratio, an indicator of operating efficiency, reached the excellent figure of 40.2%.

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

Business performance

KB Group successfully continued to increase its number of clients. The total number of Group customers neared 2.7 million, of which Komerční banka itself accounted for 1,632,000 clients at the end of March, an increase of 43,000 as compared with the first quarter of 2008. Of this number, individual customers comprised 1,349,000 while the Bank had 283,000 clients among businesses.

Modrá pyramida stavební spořitelna (Modrá pyramida) served 731,000 customers. At 492,000, the number of supplementary pension insurance participants at Penzijní fond KB approached the half-million mark. The number of active clients of the consumer financing company ESSOX increased to 244,000 as of the end of March.

An excellent capital and liquidity position enabled Komerční banka to continue in prudent development of its lending activities. The total value of granted loans increased by 15.3% year-on-year to CZK 378.9 billion, of which loans to individual clients accounted for 43%. The volume of mortgages to individuals continued to grow and reached CZK 92.6 billion, an 18.8% increase year on year, even though sales of new mortgages decreased by approximately 32% due to lower demand. Modrá pyramida's loan portfolio expanded by 18.2% year on year to CZK 40.5 billion. Consumer loans provided by KB and ESSOX grew by 14.7% to CZK 29.3 billion.

The volume of the Group's loans to companies and entrepreneurs expanded by 13.1% to CZK 210.9 billion. Loans provided by KB to small businesses and entrepreneurs rose by 15.3% to CZK 23.4 billion, and loans to corporations climbed by 13.2% to CZK 184.9 billion. As of the end of March, the volume of receivables financed by Factoring KB had dropped by 9.2% to CZK 2.6 billion.

Deposits remained stable year on year and totalled CZK 538.8 billion. The share of deposits from individuals in the Group's total deposits reached 46%. Individual clients' deposits in KB increased by 7.0% to CZK 156.9 billion. Modrá pyramida customers' savings rose by 1.7% to CZK 64.8 billion, while Penzijní fond clients' assets grew by 11.6% to CZK 26.0 billion. In the first quarter, corporations and entrepreneurs were drawing upon their deposit reserves and their deposits in the Group thus fell by 2.2% to CZK 286.0 billion.

The financial crisis continued to limit clients' interest in mutual funds. Sales of IKS/SGAM funds in the KB Group network decreased year on year by 33.8% to CZK 2.0 billion, while the volume of assets under management in these funds fell by 14.8% to CZK 36.5 billion.

The Platinum payment card belongs among the most interesting innovations in the first quarter. This card has been designed for the most demanding clients and brings its holders an exceptional range of advantages, including assistance services and superior travel insurance that also covers against the risk of theft or damage of commonly used business trip items such as notebooks, PDAs, mobile handsets or commercial samples, as well as golf and skiing equipment. Improved features of travel insurance has also been attached to other types of cards since February. The insurance coverage limits have been increased, the variety of insured risks have been widened and the travel insurance from now on covers family members. The "Hypotéka bez obav" mortgage product allows customers to flexibly increase or decrease the monthly instalment amount or to defer payment for up to three months. It is also possible to arrange insurance against inability to pay.

KB's distribution network meanwhile continued limited expansion towards the target of 400 branches. At the end of March, the number of branches thus reached 397. New branches were opened at the start of the year, one in Olomouc and two in Brno. At the same time, 58.7% of clients were using at least one direct banking channel, such as internet and telephone banking. The number of sales representatives serving the customers of Modrá pyramida reached 1,619.

Compared to the first quarter of last year, the number of payment cards used by KB customers increased by 3.5% to 1,693,000. Of these, credit cards accounted for 243,000 (growth by 13.9%). ESSOX registered 135,000 active credit cards, a 41.7% increase year on year.

In February 2009, Komerční banka received the prestigious "Best Deal of 2008" award from Global Trade Review for an export buyer's credit financing the delivery and installation of health care equipment for a clinic in Almaty, Kazakhstan.

Financial performance

In a challenging business environment, KB recorded an excellent result for operating revenues and costs as well as solid level of return on equity. The year-on-year development of net profit was affected by growing risk costs, as KB business segment customer portfolio began to feel the impact of the slowing-down Czech economy.

Net interest income, the most significant revenue item, rose by 6.8% to CZK 5,420 million, benefiting primarily from loan growth. The market pressure on margins shifted from loans to deposits. Total net fees and commissionsdropped by 3.0% to CZK 1,896 million, despite the increase in the number of clients. The drop was driven by limited customer activities while pricing remained flat, and one-off income in 2008. Net profit on financial operations climbed by 47.4% to CZK 1,129 million, driven by successful trading on the Bank's own account and strong demand from clients for such financial market products as hedging of currency and interest rate risks.

KB Group reduced its total operating costs by 4.3% year-on-year to CZK 3,413 million, thereby improving the cost-income ratio to 40.2% from 45.5% in the previous year. Among these costs, personnel expenses rose 7.4% to CZK 1,606 million in connection with growth in the average number of employees by 2.9% to 8,930. General administrative expenses recorded a sharp year-on-year drop by 9.0% to CZK 1,459 million. Depreciation, impairments and disposals of fixed assets fell by 26.0% to CZK 348 million. The year-to-year comparison was influenced by one-off creation of a provision for the impairment of a building in the first quarter of last year.

The modest growth in total revenues and prudent control of operating expenses led to an increase of gross operating income by 18.7% to CZK 5,077 million.

The development of the cost of risk in the first quarter of 2009 was determined by the sharp deterioration of the economic environment in the Czech Republic. The cost of risk totalled CZK 1,580 million, which represents an increase of 244.2% compared to the same period of the previous year. The growth especially related to corporate clients, but the expected worsening of the risk profile was observed to some extent in the retail banking segment as well. Overall, the consolidated cost of credit risk increased from 89 basis points for Q4 2008 to 108 basis points for the first quarter of 2009.

Income tax dropped by 10.7% to CZK 624 million due to lower net profit generation and the reduction in the corporate income tax rate.

KB Group's net profit for the first three months of 2009 reached CZK 2,819 million, which is 7.5% less than in the same period of 2008.

The Group's total assets as of 31 March 2009 amounted to CZK 685.6 billion, which represents an increase of 1.0% compared to the end of March 2008 but a 1.9% decline compared to the end of the year 2008. The consolidated shareholders' equity rose by 14.9% year on year, but decreased by 0.9% from the start of the year, to reach CZK 62.4 billion.

KB Group's capital adequacy under Basel II standards was 12.1%, while the Tier 1 core capital ratio came to 10.7%.


Consolidated results as at 31 March 2009, under International Financial Reporting Standards (IFRS)

(CZK million) 31 March 2009
not audited
31 March 2008
Year-on-year change
Net banking income 8,489 7,845 8.2%
Operating costs 3,413 3,568 -4.3%
Gross operating income 5,077 4,276 18.7%
Cost of risk 1,580 459 244.2%
Income taxes 624 699 -10.7%
Net profit 2,819 3,048 -7.5%
Total assets 685,554 679,101 1.0%
Loans and advances to customers, net 365,449 318,882 14.6%
Amounts due to customers 538,831 539,533 -0.1%
Total shareholders' equity 62,416 54,345 14.9%


  31 March 2009 31 March 2008 Year-on-year change
ROAE 18.0% 23.2% Fall
Capital adequacy (CNB) 12.1% 11.6% Growth
Tier 1 ratio (CNB) 10.7% 10.7% Growth
Risk-weighted assets for credit risk (CZK billion)* 289,2 265,6 8.9%
Cost-to-income ratio 40.2% 45.5% Fall
Net interest margin 3.4% 3.3% Growth
Earnings per share (CZK, annualised) 297 321 -7,5 %
Average number of employees 8,930 8,679 2.9%
Number of branches (KB standalone) 397 389 +8
Number of ATMs 679 663 +16
Number of clients (KB standalone) 1 632 000 1 590 000 2,7 %


Business performance in the retail segment – overview 31 March 2009 Year-on-year change
Mortgages to individuals - volume of outstanding loans CZK 92.6 billion 19%
- number of outstanding loans 78 000 13%
Consumer loans
- volume of outstanding loans CZK 29.3 billion 15%
Small business loans - volume of outstanding loans CZK 23.4 billion 15%
Total active credit cards - number 243 000 14%
- of which to individuals 183 000 15%
Total active debit cards - number 1 450 000 2%
Gaudeamus - number of youth and student packages 169 000 9%
- volume of Gaudeamus loans CZK 522 billion -4%
Children's accounts - total number 173 000 4%