Komerční banka reported today that for the first three months of 2010 it had earned a net profit of CZK 3,209 million, which is 12.8 % more than in the same period of the previous year. Further significant reduction in operating expenses and a marked decrease in the cost of risk contributed to the good results. Due to the lingering economic recession, development in the first quarter continued to be burdened by clients' subdued business and investment activities although the volume of loans provided to clients went up by 1.0% to CZK 382.0 billion and the deposits volume grew by a slight 0.4% to CZK 541.2 billion, compared to the same period of 2009.

KB Group maintained its excellent liquidity, as expressed by its loans-to-deposit ratio of 68.0%. Capital adequacy reached 14.1%. Return on average equity in the first three months of 2010 was 18.5%. Its strong position and healthy management will allow Komerční banka to continue to support its clients and participate in financing the development of the Czech economy.

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

Business performance

The economic environment was not yet favourable in the first quarter, although there were some early signs to indicate the possibility of reviving economic activity and consumer and business confidence in the Czech Republic. Despite the short-term fluctuations in the economy, Komerční banka plans to invest in the future with the ultimate goal of best serving the needs of its customers.

The total volume of loans provided by KB Group as at the end of March 2010 compared to the same date last year increased by 1.0% to CZK 382.0 billion, of which loans to individual clients comprised 46%. The portfolio of mortgages to individuals expanded by 9.9% to reach CZK 101.7 billion. Mortgage sales in the first quarter remained 14.4% lower than in the first quarter of 2009, but these improved relative to the final quarter of last year. The loan portfolio at Modrá pyramida, which became the second largest building society in the Czech Republic according to loans volume, grew by 14.5% year on year to CZK 46.4 billion. The consumer finance company ESSOX continued its dynamic production of loans, growing its portfolio by 20.0% to CZK 9.5 billion.

Persistent uncertainty among enterprises led to a reduction in business loans by 3.8% year on year to CZK 202.9 billion. Within the business segment, underlying growth of loans to small enterprises reached 4.9%. The volume of loans to small businesses reached CZK 24.8 billion. Loans to corporations (provided by Komerční banka and Komerční banka Bratislava) declined by 4.0% to CZK 176.6 billion.

The consolidated volume of deposits grew by 0.4% to CZK 541.2 billion in a year-on-year comparison. The biggest share in the growth was recorded at Modrá pyramida, where customer deposits grew by 5.0% to CZK 68.0 billion. Clients' pension assets at Penzijní fond KB increased by 5.8% to CZK 27.5 billion. In contrast, deposits of business clients at KB and KB Bratislava fell by a slight 0.5% to CZK 284.6 billion. Deposits from individuals at KB decreased by 2.6% to CZK 152.8 billion.

The total number of KB Group's clients exceeded 2.7 million. Standalone KB registered 1,609,000 clients, of which 1,334,000 were individual clients. The remaining 275,000 customers included entrepreneurs, firms and corporations, as well as municipalities and associations. Modrá pyramida was serving 714,000 customers and the number of pension insurance participants at Penzijní fond KB reached 498,000. ESSOX increased its number of customers to 315,000.

As at the end of March 2010, the clients had at their disposal 398 branches of Komerční banka, 688 ATMs, and full-featured direct banking channels supported by two call centres. At least one direct banking channel, such as internet or telephone banking, was being used by 985,000 of KB clients, which is 61% of the total. At the same time, customers held 1,667,000 active payment cards. Of these, 236,000 were credit cards. The number of active credit cards issued by ESSOX rose to nearly 157,000, and consumer financing at ESSOX was available through its network of 3,200 merchants. Modrá pyramida's customers had at their disposal 247 points of sale and 1,470 advisors.

KB increased the attractiveness of its product portfolio, including to offer a term account with a guarantee of early withdrawal without penalty in case of adversely changed life situations. On the lending side, the Bank lowered the interest rate for its mortgages. Among new products, there is a new and advantageous loan to purchase agricultural land with an interest rate supported by the Support and Guarantee Agricultural and Forestry Fund by up to 5 percentage points.

Financial performance

Komerční banka improved its bottom line results in the first quarter of 2010 in a year-on-year, as well as in a quarter-on-quarter comparison and thus showed a good resilience to the difficult economic situation. The increase in net profit was mainly the result of ongoing reduction in operating expenses and lower costs for credit risk. Revenues compared to the first three months of last year declined slightly, primarily due to the extraordinary level of profit from financial operations achieved in the first half of 2009.

In comparing the first three months of the years 2010 and 2009, reported net banking income decreased by 3.5% to CZK 8,022 million. The largest share in total revenues was that of net interest income, which increased by 1.3% to CZK 5,294 million. Contributing to this growth was a moderate gain in loan volumes and deposits, while the continued low level of market interest rates adversely affected the interest margin. Income from net fees and commissions recorded a reversal in its trend, whereby it increased by a slight 0.7% to CZK 1,929 million. A higher number of retail loans increased the income from loan fees, successful sales of life insurance were reflected in the income from cross-selling, while continuing reductions in average prices led to a decline in income from account maintenance. Net profit from financial operations achieved a satisfactory level, but, in comparison with the exceptional first quarter of last year, it slipped by 32.3% to CZK 774 million.

KB continued rigorously to optimise operating costs, and, after declining significantly in 2009, these were further reduced in the first quarter of 2010 by 7.8% to CZK 3,026 million year on year. The savings were about equally divided between personnel costs, which decreased by 9.3% to CZK 1,457 million, and general administrative expenses, which were diminished by 8.0% to CZK 1,222 million. Meanwhile, the average number of Group employees decreased by 3.0% to 8,659. Depreciation and amortisation remained stable year on year at CZK 348 million.

Gross operating income slipped by a slight 0.7% to CZK 4,996 million for the period.

Viewed in a year-to-year comparison, the development in the cost of risk showed a marked improvement in the corporate segment, and particularly at medium and large enterprises. The first quarter of 2009 was nevertheless affected by a significant one-off adjustment due to the exceptional failure of a large credit exposure. In the small businesses segment, the cost of risk was stabilising, although for loans to individual customers there still continued a trend of gradual deterioration in the risk profile. Overall, the cost of risk in the first quarter of 2010 decreased by 36.2% to CZK 951 million, which in terms relative to the average volume of loans and off balance sheet irrevocable commitments stood at 66 basis points versus 106 basis points in the first quarter of 2009 (including the aforementioned one-off case).

KB Group's net profit for the first quarter reached CZK 3,231 million, which is 12.8% higher in comparison with the previous year. Profit attributable to the Bank's shareholders also increased by 12.8% to CZK 3,209 million.

The volume of KB Group's total assets as of 31 March 2010 grew by 1.5% to reach CZK 695.7 billion. Consolidated shareholders' equity rose by 16.5% year on year and totalled CZK 72.8 billion.

KB Group's capital adequacy under Basel II standards was at a solid level of 14.1% as of the end of March 2010, while the core Tier 1 capital ratio stood at 12.8%. The Group's liquidity measured by net loans to deposits ratio reached a strong 68,0% level.


Consolidated results as of 31 March 2010 under International Financial Reporting Standards (IFRS)

(CZK million) 1 Jan - 31 Mar 2010
not audited
1 Jan - 31 Mar 2009
not audited
Year on year change
Net banking income 8,022 8,312 -3.5%
Operating costs 3,026 3,281 -7.8%
Gross operating income 4,996 5,031 -0.7%
Cost of risk 951 1,490 -36.2%
Income taxes 683 624 9.5%
Net profit attributable to equity holders 3,209 2,844 12.8%
Total assets 695,674 685,593 1.5%
Loans and advances to customers, net 367,773 365,449 0.6%
Amounts due to customers 541,151 538,831 0.4%
Total shareholders' equity 72,771 62,456 16.5%
  31 March 2010 31 March 2009 Year on year change
Capital adequacy (CNB) 14.1% 12.1% Growth
Tier 1 ratio (CNB) 12.8% 10.7% Growth
Risk-weighted assets for credit risk (CZK billion) 287.8 289.2 -0.5%
ROAE 18.5% 18.5% Fall
Cost-to-income ratio 37.7% 39.5% Fall
Net interest margin 3.3% 3.3% Fall
Earnings per share (CZK) 338 299 12.8%
Average number of employees 8,659 8,930 -3.0%
Number of branches (KB standalone) 398 397 +1
Number of ATMs 688 679 +9
Number of clients (KB standalone) 1,609,000 1,632,000 -1.5%
Business performance in the retail segment – overview 31 March 2010 Year on year change
Mortgages to individuals - volume of outstanding loans CZK 101.7 billion 10%
– number of outstanding loans 84,000 8%
Consumer loans
– volume of outstanding loans CZK 28.7 billion 0%
Small business loans - volume of outstanding loans CZK 24.8 billion 2%
Total active credit cards - number 236,000 -3%
- of which to individuals 176,000 -4%
Total active debit cards - number 1,431,000 -1%
Gaudeamus - number of youth and student packages 172,000 2%
- volume of Gaudeamus loans CZK 484 million -7%
Children's accounts - total number 171,000 -1%