KB Group maintained its sound liquidity, as seen in its ratio of loans to deposits at 67.5% and also in its strong capital position. At year end, capital adequacy stood at 14.1% and the core Tier 1 ratio at 12.7% (not including the net profit of 2009).
Thanks to a 3.3% reduction in operating expenses, operating income declined by just 1.0% to CZK 19,013 million, despite several one-off income items booked in 2008 that weighed on the year-on-year comparison. Adjusting for these influences, the gross operating income rose by 5.0%. The cost-income ratio further improved to 42.5%. The return on average equity in 2009 was 17.0%. The published figures are unaudited consolidated results under IFRS (International Financial Reporting Standards).
On the back of the good 2009 results and a robust capital position, the Board of Directors of Komerční banka has decided to propose to the Supervisory Board a dividend payment of CZK 6,462 million, which is CZK 170 per share and represents a payout ratio of 58.7%.
Standard & Poor's rating agency confirmed its counterparty credit rating of KB at A/A-1 with Stable outlook, at the same level as the rating of the Czech Republic and at the best level among the Czech banks.
Business performance
Komerční banka continued in 2009 to develop its universal banking business model implemented after privatisation in 2001. The model was tested in adverse economic conditions for the first time, and the outcomes were successful.
The total volume of loans provided by KB Group expanded by 3.4% to CZK 386.6 billion, or by 4.0% when adjusted for a one-off writing off of long overdue loans amounting to CZK 2.3 billion that was recorded in November 2009.
Of the total amount of loans, credits to individual clients comprised more than 45%. The portfolio of mortgages to individuals surpassed in 2009 the CZK 100 billion mark, rising by 10.9% to reach CZK 100.4 billion at the end of the year. The Modrá pyramida loan portfolio grew by 16.0% year on year to CZK 45.6 billion. The total value of consumer loans, which are provided by both KB and ESSOX, grew year on year by 2.6% to CZK 29.6 billion.
The Group's business loans reached CZK 206.4 billion, which represents a decrease of 1.4% that was due mainly to lower demand for loans in the uncertain environment. Within this segment, lending to small businesses and entrepreneurs retained its dynamism, growing by 5.5% to CZK 24.5 billion. Loans to corporations (provided by KB and KB Bratislava) declined by 1.6% to CZK 180.1 billion. The volume of receivables financed through factoring decreased by 39.6% to CZK 1.8 billion.
The consolidated volume of deposits remained almost flat in a year-on-year comparison. The total deposits volume slightly decreased by 0.5% to CZK 551.8 billion, mainly due to the deteriorated liquidity positions of business clients, whose deposits declined by 3.5% to CZK 295.1 billion. Deposits from individuals at KB decreased marginally by 0.3% to CZK 153.7 billion. Clients' pension assets at Penzijní fond KB increased by 5.9% to CZK 27.2 billion, and building society Modrá pyramida, with a volume of CZK 67.1 billion, held 2.7% more deposits than a year earlier.
The total number of KB Group's clients exceeded 2.7 million. Within the Group, the consumer finance company ESSOX recorded the fastest growth - of 38% - to reach 312,000 clients. On a net basis, KB registered a slight decrease in the number of clients, by 0.5% to 1,620,000, due to one-off cancellation of some 15,000 non-active accounts. At the end of 2009, standalone Komerční banka registered 1,343,000 individual clients. Modrá pyramida was serving 720,000 customers, and the number of pension insurance participants at Penzijní fond KB had reached 498,000.
In addition to direct banking channels supported by two call centres, Komerční banka's classic distribution network comprised at the end of the year 398 branches and 685 ATMs. Almost 984,000, which is close to 61%, of KB clients were using at least one direct banking channel, such as internet or telephone banking. At the same time, KB's clients held 1,682,000 active payment cards. Of these, 243,000 were credit cards. The number of active credit cards used by ESSOX clients expanded to almost 160,000. Modrá pyramida's customers had at their disposal 262 points of sale and 1,537 advisors.
KB Group's clients can make use of state and international programmes intended to mitigate impacts of the economic recession. In its newest addition to the range of packages intermediated by KB, the bank began offering advantageous loans to Czech companies and businesses with fewer than 250 employees under an agreement concluded with European Investment Bank.
The list of other new products and innovations introduced in the last quarter of 2009 include a new savings account offering an option for early withdrawal without penalty, a new guaranteed fund Forte available with the Vital invest life insurance programmes, and insurance for photovoltaic power plants prepared with Česká pojišťovna as part of newly established strategic co-operation between KB and that insurance company. Another insurance product, Merlin insurance for payment cards developed by Komerční pojišťovna, is now available to holders of cards issued by all banks in the Czech Republic. At the end of 2009, KB prepared a special Christmas offer making it possible for clients to have their shopping insured free of charge, to obtain extended guarantees, to select their own designs for their payment cards, and to change their PINs.
Financial performance
Komerční banka recorded a good result for 2009, given the difficult market conditions throughout the year. Year-on-year comparison was also affected by several one-off income items booked in 2008, such as sale of KB's ownership in the Prague Stock Exchange. Nevertheless, the indicators for business development and financial strength that were achieved put Komerční banka in a good position for the future.
Reported net banking income decreased by 2.0% year on year to CZK 33,041 million, while adjusted for one-off incomes in 2008 it rose by 1.3%. Net interest income, which has the largest share in total revenues, increased by 3.9% to CZK 22,088 million. Growth in lending volumes and wider asset spreads in this area offset declining margins on deposits. Within KB Group, net interest income grew fastest at ESSOX (by 30.5%) and followed by Modrá pyramida (by 19.5%) due to those companies' good business volumes. Income from net fees and commissions was lower by 3.8% year on year, reaching CZK 7,745 million. The decline was due to constrained economic activity that weighed on transaction numbers and sales of mutual funds, as well as continuing competitive pressure. One-off income from settling interchange fees of CZK 205 million recorded in 2008 also impacted the comparison negatively. On the other hand, KB recorded an improvement in income from fees for loans, because of their higher number in the retail segment, as well as for sales of life insurance and for loan syndication. Net profit from financial operations recorded an overall satisfactory result, mainly from proprietary trading, while client demand for trading and mainly for hedging of currency risks was rather subdued due to decline in international trade. Reported profit from financial operations declined by 28.4% to CZK 3,024 million due to the one-off gain from sale of KB's stake in the Prague Stock Exchange (amounting to CZK 485 million) in 2008 and because the Group booked in 2009 a negative one-off impact in Penzijní fond KB from revaluation of securities of CZK 239 million and from sale of securities of CZK 293 million.
Number of cost optimisation measures were adopted throughout 2009, leading to reduction in total operating costs by 3.3% to CZK 14,027 million. The operating cost-to-income ratio further improved to 42.5% in 2009 from 43.0% in 2008. The most significant savings were achieved in general administrative expenses, which recorded a decline by 7.3% to CZK 6,126 million, due predominantly to reduced marketing expenditures, as well as savings on procurement, IT and telecommunications. Personnel expenses grew by 1.8% to CZK 6,434 million as the average number of Group employees remained stable year on year. Depreciation dropped by 7.1% to CZK 1,468 million, as KB continued in selling unused buildings.
Gross operating income decreased by a slight 1.0% from the year-earlier level to CZK 19,013 million. Adjusted for one-off items it increased by 5.0%.
Development in the cost of risk in 2009 was affected by the current global financial and economic recession and its influence on the Czech economy. Total cost of risk in 2009 increased by 82.6% to CZK 5,422 million compared to CZK 2,970 million in 2008. Overall, the consolidated cost of risk grew to 94 basis points at the end of 2009 from 51 basis points in 2008. After sharply increasing risk costs from the second half of 2008, KB registered a stabilisation in this development during the last two quarters of 2009 that was mainly in the corporate segment. The risk profile of loans to individuals did not fully alleviate its deteriorating trend before the end of 2009, however. In light of consistent application of prudent policies and additional measures implemented since 2008, KB forecasts that its cost of risk will be kept safely under control.
Lower gross profit generation and the lower corporate income tax rate resulted in the income tax decreasing by 18.8% to CZK 2,455 million.
KB Group's net profit for the 2009 reached CZK 11,095 million, down by 16.2% in comparison with 2008. Profit attributable to the Bank's shareholders totalled to CZK 11,007 million, less by 16.4%.
The Group's total assets as of 31 December 2009 amounted to CZK 695.0 billion, lower by 0.6% from the end of 2008. The consolidated shareholders' equityrose by 9.2% year on year and totalled CZK 68.8 billion.
KB Group's capital adequacy under Basel II standards stood at a strong level of 14.1% as of the end of December 2009, while the core Tier 1 capital ratio was at 12.7%.