Komerční banka Group reported a net profit of CZK 6,482 million for the first six months of 2010, which is 12.5% more than in the same period of 2009. KB's net profit for the second quarter also improved compared to that from the first three months of the year. KB Group continued to maintain strong liquidity and solvency, the loans-to-deposits ratio as at the end of June reached 69.2%, and capital adequacy rose to 14.7%.

Business activities are supporting the economic recovery

  • Volume of loans to clients increased by 1.1% year on year to CZK 385.6 billion and deposits by 0.8% to CZK 536.5 billion;
  • Volume of mortgages to individuals grew by 8.3% year on year to CZK 104.2 billion. Volume of loans provided by the building society Modrá pyramida rose by 13.4% to CZK 47.6 billion;
  • Komerční pojišťovna became the second most important insurance company on the Czech life insurance market with a market share of 15.1%.* Premium written in life insurance increased by 180.5% to CZK 5,154 million.

Good financial results thanks to sustained discipline

  • Interest income and fee income slightly increased, while total revenues decreased by a slight 2.4% to CZK 16.1 billion due to decline in profit from financial operations compared to the exceptional result from first months of 2009;
  • Reduction in operating costs by 6.3% to CZK 6,247 million thanks to measures improving efficiency;
  • Significant decrease in the cost of risk by 33.6% to CZK 1,765 million, with marked progress among corporate clients but also a slight improvement in the retail segment.

Comment of the CEO

The moderate improvement in macroeconomic indicators is reflected positively in Komerční banka Group's financial and business results. I am very pleased that we are also registering such positive signs in day-to-day contact with our clients. We are seeing a slight rise in demand for loans in business segments and observing similar development also in the area of financing housing needs, as is documented by the increase in KB's market share in mortgage loans. The economy's stabilisation also has favourably influenced development in the cost of risk. We continue to regard the economic recovery as very fragile, however, and it is therefore clear that we will continue to emphasise rigorous management of costs and risks.

Henri Bonnet
Chairman of the Board of Directors and Chief Executive Officer

Comments on business and financial results

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

Business performance of KB group

The total volume of loans provided by KB Group as at the end of June 2010 increased by 1.1% to CZK 385.6 billion compared to the same date in 2009. The underlying growth was higher (approximately 1.9%), as the bank wrote off from its balance sheet long overdue and fully provisioned loans in amounts of CZK 1.8 billion in November 2009 and CZK 1.2 billion in May 2010.

The portfolio of mortgages to individuals expanded by 8.3% to reach CZK 104.2 billion. Mortgage sales were lower than in the first six months of 2009, although the second quarter saw some improvement. KB's market share on the new production of mortgages was close to 25%. The loan portfolio at Modrá pyramida, which mainly finances housing needs of its customers, grew by 13.4% year on year to CZK 47.6 billion. The volume of consumer loans provided by KB and by the consumer finance company ESSOX decreased by 4.2% to CZK 28.4 billion.

The overall volume of business loans decreased by 3.1% year on year to CZK 202.8 billion. The total volume of loans to small businesses declined by 1.3% to CZK 24.6 billion, but the volume of loans rated Standard was flat in this segment. Loans to corporations (provided by Komerční banka and Komerční banka Bratislava) declined by 3.0% to CZK 176.4 billion. Underlying volume of loans to medium-sized corporations increased slightly, but it was down for large corporations.

The consolidated volume of deposits grew by 0.8% to CZK 536.5 billion in a year-on-year comparison. Deposits at Modrá pyramida grew by 7.1% to CZK 68.5 billion. Clients' pension assets at Penzijní fond KB increased by 5.4% to CZK 27.8 billion. In contrast, deposits of business clients at KB and KB Bratislava fell by 1.3% to CZK 281.1 billion. Deposits from individuals at KB decreased by 1.2% to CZK 152.2 billion.

The total insurance premium written by Komerční pojišťovna rose year-on-year by 159.8% to CZK 5,4 billion, of which premium in life insurance amounted to CZK 5.2 billion. KP thus became the second most important insurance company on the Czech life insurance market with a market share of 15.1% (according to data from the Czech Insurance Association).

The total number of KB Group's clients reached 2.7 million. Standalone KB registered 1,598,000 clients, of which 1,326,000 were individuals. The remaining 272,000 customers comprised entrepreneurs, businesses and corporations (including municipalities and associations). Modrá pyramida was serving 712,000 customers and the number of pension insurance participants at Penzijní fond KB reached almost 500,000. ESSOX increased its number of customers to 324,000.

As at the end of June 2010, the clients had at their disposal 395 Komerční banka branches, 676 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 989,000 KB clients, which is almost 62% of the total. At the same time, customers held 1,663,000 active payment cards. Of these, 231,000 were credit cards. The number of active credit cards issued by ESSOX rose to nearly 160,000, and consumer financing at ESSOX was available through its network of 3,600 merchants. Modrá pyramida's customers had at their disposal 255 points of sale and 1,509 advisors.

KB Group improved the availability of its services through the internet. Clients using Komerční banka's internet banking now have the possibility to easily arrange meetings with their relationship managers online via a direct banking channel. Also added to the internet site was a video guide to help clients establish certain services as well as to set up secure access by computer. A new design for Penzijní fond KB's internet site offers its customers online access to their accounts as well as a calculator for savings planning. The innovated website of Komerční pojišťovna facilitates arranging travel insurance, paying premiums in a simple way, and monitoring developments in the value of underlying funds.

In the products area, Komerční banka introduced a new savings account – KB Spořicí účet Bonus – which offers customers a premium for savings of longer duration. For small businesses and entrepreneurs, meanwhile, KB now offers the Profi Spořicí účet Bonus. KB also was promoting its mortgages and the Optimální půjčka loan that is used to consolidate a client's multiple loans and leasing contracts.

Financial performance of KB group

Total net banking income for the first half of the year decreased by 2.4% year on year to CZK 16,139 million. That was due to lower profit from financial operations in comparison with 2009's extraordinary first half.

Net interest income, which has the largest share in total revenues, increased by a slight 1.2% to CZK 10,709 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.

Net income from fees and commissions grew by 1.7% to CZK 3,927 million. Income from loan fees increased in corporate banking, at ESSOX and Modrá pyramida. Transaction fees decreased year on year, but the number of client transactions began rising at the end of the period. Fees from cross-selling benefited from Komerční pojišťovna's successful offer of life insurance, while mutual fund sales were still burdened by the uncertain situation on financial markets. Continuing reduction in average prices and a slight decrease in the number of customers led to a small decline in income from account maintenance.

Due to developments on financial markets, net profit from financial operations slipped by 29.0% in comparison with the exceptionally successful first half of 2009 to CZK 1,449 million.

Rigorous optimisation of operating costs has continued this year. KB reduced total operating costs by 6.3% year on year to CZK 6,247 million thanks to optimisation measures in general administrative expenses, which declined by 7.7% to CZK 2,532 million. There were savings also in personnel costs, which were reduced by 6.9% to CZK 2,971 million. Meanwhile, the average number of Group employees decreased by 3.0% to 8,624. Depreciation and amortisation of fixed assets increased year on year by 1.9% to CZK 743 million.

Gross operating income increased in the first half of 2010 by a slight 0.3% compared to the same period of last year to CZK 9,892 million.

The development in the cost of risk was positively affected by gradual improvement in the macroeconomic situation and by continuous improvements in risk management practices. Viewed in a year-to-year comparison, a marked improvement could be observed in the corporate segment, and particularly at medium-sized and large enterprises. The first quarter of 2009 was nevertheless affected by a significant one-off creation of provisions due to the exceptional failure of a large credit exposure. In the small businesses segment, the cost of risk was stabilising. The trend of gradual deterioration in the risk profile for individual customers also came to a halt. Overall, the cost of risk in the first half of 2010 decreased by 33.6% to CZK 1,765 million, which in terms relative to the average volume of loans and off balance sheet irrevocable commitments stood at 62 basis points versus 93 basis points in the first half of 2009 (including the aforementioned one-off case).

Income tax increased by 8.5% to CZK 1,341 million.

KB Group's net profit for the first half of 2010 reached CZK 6,521 million, which is 12.3% higher than in the previous year. From this amount, CZK 39 million is attributed to the minority interest holders and the profit attributable to the Bank's shareholderswas CZK 6,482 million (up 12.5% year on year).

The comparison period in the balance sheet under IFRS is the end of the previous year. Therefore, the following text provides a comparison with the end of 2009, unless otherwise indicated.

The volume of KB Group's total assets as of 30 June 2010 decreased by 0.3% relative to the end of 2009, to CZK 693.3 billion.

Amounts due from banks declined by 6.1% to CZK 123.2 billion. The largest component of this item is represented by loans provided to central banks as part of reverse repo operations, which diminished by 13.1% to CZK 82.8 billion.

Financial assets at fair value through profit or loss increased by 24.0% to CZK 30.3 billion. The portfolio comprises proprietary trading positions of the Group.

Total net loans and advances declined by 0.2% to CZK 371.4 billion. The gross amount of client loans and advances decreased by a negligible 0.1% to CZK 385.6 billion. The share of standard loans within that total represented 89.7% (CZK 345.8 billion), while the proportion of watch loans was 3.7% (CZK 14.3 billion) and loans under special review (substandard, doubtful, loss) comprised 6.6% of the portfolio with volume of CZK 25.5 billion. The volume of provisions created reached CZK 14.4 billion, which is 4.0% greater than at year's end.

The portfolio of securities available for sale increased by 2.0% to CZK 116.4 billion, the major part of which portfolio consists of debt securities. The book value of shares and participation securities in the portfolio totalled just CZK 0.7 billion.

The volume of securities in the held to maturity portfolio decreased by a slight 0.4% to CZK 6.8 billion. That entire portfolio consists of bonds.

The net book value of tangible fixed assets diminished by 4.5% to CZK 7.4 billion, and intangible fixed assets grew by 1.7% to CZK 3.8 billion. Total goodwill, which primarily derives from the acquisition of Modrá Pyramida, remained at the same level of CZK 3.6 billion.

Total liabilities declined by 0.8% to CZK 621.5 billion. Reflecting seasonality, amounts due to customers decreased by 2.8% to CZK 536.5 billion. The volume of securities issued rose by a slight 0.8% to CZK 18.3 billion. The Group's liquidity as measured by the ratio of net loans to deposits reached a strong 69.2%. The balance of the accepted subordinated debt (excluding the accrued interest) remained unchanged at CZK 6.0 billion.

Shareholders' equity, which grew by 4.3% to CZK 71.8 billion for 2010's first half, was primarily affected by the net profit creation, dividend payment of CZK 6.5 billion, and change in the book value of hedging derivatives and securities available for sale. The revaluation reserve for hedging instruments grew by 163.6% to CZK 6.3 billion, particularly due to the fall in market interest rates. The revaluation of the portfolio of securities available for sale declined by 28.9% to CZK 2.4 billion, reflecting effects of repayment, market rate movement and bond prices.

Regulatory capital for the capital adequacy calculation was CZK 52.3 billion as at the end of June 2010. KB Group's capital adequacy under Basel II standards reached a high level of 14.7% while the core Tier 1 capital ratio stood at 13.5%.


Consolidated results as of 30 June 2010 under International Financial Reporting Standards (IFRS)

Profit and Loss Statement
(CZK million, unaudited)
1H 2009 1H 2010 Change YoY
Net interest income 10,579 10,709 1.2%
Net fees and commissions 3,862 3,927 1.7%
Income from financial operations 2,040 1,449 -29.0%
Other income 51 54 5.9%
Net banking income 16,531 16,139 -2.4%
Personnel expenses -3,192 -2,971 -6.9%
General administrative expenses -2,743 -2,532 -7.7%
Depreciation, impairment and disposal of fixed assets -729 -743 1.9%
Operating costs -6,664 -6,247 -6.3%
Gross operating income 9,867 9,892 0.3%
Cost of risk -2,660 -1,765 -33.6%
Net operating income 7,207 8,127 12.8%
Profit on subsidiaries and associates 37 34 -8,1%
Share of profit of pension scheme beneficiaries -201 -298 48.3%
Profit before income taxes 7,043 7,863 11.6%
Income taxes -1,236 -1,341 8.5%
Net profit 5,806 6,521 12.3%
Minority profit/(loss) 45 39 -13.3%
Net profit attributable to equity holders 5,762 6,482 12.5%


Balance Sheet
(CZK million, unaudited)
31 Dec 2009 30 Jun 2010 Change year-to-date
Assets 695,076 693,270 -0.3%
Cash and balances with central bank 16,271 9,333 -42.6%
Amounts due from banks 131,271 123,230 -6.1%
Loans and advances to customers (net) 372,302 371,403 -0.2%
Securities 145,294 153,428 5.6%
Other assets 29,938 35,876 19.8%
Liabilities and shareholders' equity 695,076 693,270 -0.3%
Amounts due to banks 18,739 19,915 6.3%
Amounts due to customers 551,808 536,528 -2.8%
Securities issued 18,172 18,320 0.8%
Other liabilities 31,563 40,736 29.1%
Subordinated debt 6,001 6,001 0.0%
Shareholders' equity 68,792 71,770 4.3%


Key ratios and indicators 30 Jun 2009 30 Jun 2010 Change YoY
Capital adequacy (CNB) 13.6% 14.7% Growth
Tier 1 ratio (CNB) 12.4% 13.5% Growth
Total capital requirement (CZK billion) 27.3 28.4 3.9%
Capital requirement for credit risk (CZK billion) 23.3 24.2 3.7%
Net interest margin (NII/average interest-bearing assets) 3.4% 3.3% Fall
Loans (net) / deposits ratio 69.2% 69.2% Growth
Cost / income ratio 40.3% 38.7% Fall
Return on average equity (ROAE), annualized 19.4% 18.8% Fall
Return on average assets (ROAA), annualized 1.7% 1.9% Growth
Earnings per share (CZK), annualized 303 341 12.5%
Average number of employees during the period 8,889 8,624 -3.0%
Number of branches (KB standalone) 397 395 -2
Number of ATMs 680 676 -4
Number of clients (KB standalone) 1,636,000 1,598,000 -2.3%


Business performance in retail segment – overview 30 Jun 2010 Change YoY
Mortgages to individuals – volume of outstanding loans CZK 104.2 billion 8%
– number of outstanding loans 86,000 7%
Building loans (MPSS) – volume of outstanding loans CZK 47.6 billion 13%
– number of outstanding loans 154 000 -4%
Consumer loans (KB + ESSOX) – volume of outstanding loans CZK 28.4 billion -4%
Small business loans – volume of outstanding loans CZK 24.6 billion -1%
Total active credit cards – number 231,000 -7%
– of which to individuals 172,000 -8%
Total active debit cards – number 1,432,000 -1%
Premium written (KP) CZK 5.4 billion 160%