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annual FINANCIAL REPORT 2023

Komerční banka, a.s.

Survey of Results 2019–2023

According to IFRS Accounting Standards

Consolidated data (CZK million) 2 023 2022
restated
1)

2021

2020

2019
Financial results
Net operating income 36,199 38,632 31,346 29,664 32,573
of which Net interest income 25,595 28,632 21,795 21,360 23,591
of which Net fees and commissions 6,414 6,121 5,711 5,210 5,983
of which Net profit on financial operations 3,832 3,666 3,630 2,884 2,804
Total operating expenses (17,321) (16,014) (15,099) (14,995) (14,932)
Profit attributable to the Group’s equity holders 15,612 17,622 12,727 8,156 14,901
Earnings per share (CZK) 82.67 93.31 67.39 43.19 78.90
Balance sheet
Total assets 1,516,302 1,305,304 1,244,353 1,167,131 1,077,334
Loans and advances to customers, net 833,542 781,463 724,587 679,956 647,259
Amounts due to customers 1,127,227 950,693 956,929 906,217 821,507
Total shareholders’ equity 2) 125,058 121,444 123,509 113,816 105,540
Ratios (%) 3)
Return on average equity (ROAE) 12.67 14.39 10.73 7.44 14.50
Return on average assets (ROAA) 1.11 1.38 1.06 0.73 1.39
Net interest margin 1.94 2.42 1.93 2.03 2.35
Cost/income ratio 47.85 41.45 48.17 50.55 45.84
Capital
Capital adequacy (%) 18.78 19.45 21.31 22.34 19.72
Tier 1 ratio (%) 17.68 18.86 20.87 21.73 19.14
Tier 1 99,718 98,616 101,072 97,906 84,062
Tier 2 6,154 3,122 2,136 2,784 2,546
Total regulatory capital 105,872 101,738 103,209 100,690 86,608
Total risk-weighted assets 563,886 522,975 484,372 450,628 439,237
Number of shares issued 190,049,260 190,049,260 190,049,260 190,049,260 190,049,260
Number of outstanding shares 188,855,900 188,855,900 188,855,900 188,855,900 188,855,900
Other data
Number of employees, average 7,551 7,503 7,687 8,061 8,167

Notes

1) Restated to reflect Komerční pojišťovna's transition to the IFRS 17.

2) Excluding Non-controlling interest.

3) According to the Komerční banka methodology.

Definitions of the Alternative Performance Measures mentioned in this annual financial report are provided in the respective section herein.

Credit ratings (as of end of February 2024) 1) Short-term Long-term
Standard & Poor’s A-1 A
Moody’s Prime-1 A1
Fitch F1 A

1) KB was assigned a credit rating by rating agencies registered under Regulation of the European Parliament and Council Regulation (EC) No. 462/2013. KB has considered appointment of rating agencies in accordance with Article 8d of this Regulation and decided not to appoint a rating agency whose market share is smaller than 10%.

Separate data (CZK million) 2023
2022

2021

2020

2019
Financial results
Net operating income 33,187 36,627 28,996 26,288 30,599
of which Net interest income 22,798 25,947 19,100 18,611 20,550
of which Net fees and commissions 5,530 5,277 4,924 4,536 5,313
of which Net profit on financial operations 3,816 3,654 3,629 2,878 2,802
Total operating expenses (15,773) (14,355) (13,581) (13,573) (13,428)
Net profit 14,574 17,572 12,353 6,929 14,816
Balance sheet
Total assets 1,439,074 1,228,892 1,169,147 1,093,508 1,011,519
Loans and advances to customers, net 714,319 668,201 622,178 589,741 567,805
Amounts due to customers 1,076,443 896,663 899,654 849,029 762,157
Total shareholders’ equity 115,103 112,584 115,418 105,196 98,218
Ratios (%) 1)
Return on average equity (ROAE) 12.80 15.41 11.20 6.81 15.52
Return on average assets (ROAA) 1.09 1.47 1.09 0.66 1.47
Net interest margin 1.85 2.37 1.83 1.91 2.20
Cost/income ratio 47.53 39.19 46.84 51.63 43.88
Capital
Capital adequacy (%) 19.61 20.75 23.02 23.82 21.10
Tier 1 ratio (%) 18.42 20.12 22.50 23.13 20.46
Tier 1 94,005 95,443 97,182 93,360 80,982
Tier 2 6,064 3,004 2,236 2,775 2,546
Total regulatory capital 100,069 98,447 99,419 96,135 83,528
Total risk-weighted assets 510,313 474,477 431,973 403,622 395,828
Other data
Number of employees, average 6,499 6,553 6,736 7,104 7,210
Number of points of sale 2) 213 219 243 243 343
Number of clients (thousands) 1,664 1,652 1,625 1,641 1,664
Number of ATMs 796 850 860 809 796

Notes

1) According to the Komerční banka methodology.

2) Including one branch in Slovakia.

Definitions of the Alternative Performance Measures mentioned in this annual financial report are provided in the respective section herein.

Further information

Detailed financial and operational information about Komerční banka Group is available in other publications on KB’s website for shareholders and investors www.kb.cz/investors . Additional information on corporate social responsibility and ethics at KB is available in the ‘About KB’ section at https://www.kb.cz/en/about-bank . Information about KB’s products and services is accessible from the homepage www.kb.cz/en .

This document contains a number of forward-looking statements relating to the targets and strategies of Komerční banka Group. These statements are based on numerous assumptions, both general and specific. As a result, there is a risk that these projections will not be fulfilled. Forward-looking statements are valid only as of the date they are made, and it should not be assumed that they will be revised or updated in the light of new information or future events. Readers are therefore advised not to rely on this information more than is justified, as the Group’s future results are liable to be affected by a number of factors and may therefore differ from current estimates.

Readers are advised to take into account factors of uncertainty and risk when basing their investment decisions on information provided in this document.

Contacts

Komerční banka, a.s.

Na Příkopě 33, 114 07 Prague 1

Telephone: (+420) 485 262 800

Email: mojebanka@kb.cz

Internet: www.kb.cz

Contact for shareholders and investors:

Investor Relations

Telephone: (+420) 955 532 155, 955 532 156, 955 532 734

Internet: www.kb.cz/investors

E-mail: investor_relations@kb.cz

Contents

Profile of Komerční banka Group 7

Komerční banka (Group) profile 7

Identification details and scope of business activities 8

Financial and ESG ratings 9

Selected awards received in 2023 9

Société Générale Group 10

History of Komerční banka 10

Major events of 2023 12

Strategy and Results 14

Purpose of Komerční banka 14

Mission 14

Strategic pillars 14

Principles of activity 14

Environmental, social, and governance (ESG)principles 15

KB2025 strategic plan 17

Market environment 19

Economic and monetary environment in 2023 19

Financial markets developments 21

Performance of KB share 21

Business model and performance 23

Business model and client service organisation 23

Client satisfaction, consumer protection 25

Business performance 28

Development of services and processes in 2023 35

Financial performance 40

Financial results and development of financial position 40

Fulfilment of targets for 2023 and outlook for 2024 43

Fulfilment of business and financial targets set for 2023 43

Expected development in 2024 and main risks to that development 43

Komerční banka Group 46

Basic information on KB Group’s major companies 47

Corporate governance statement 53

Shares, Shareholders, and the General Meeting 56

Board of Directors 59

Organisational chart of Komerční banka 67

Supervisory Board 68

Employee relationships 75

HR vision, corporate culture and values 76

Fair treatment of employees 76

Employee satisfaction and well-being 77

Culture of respect 78

Human capital development 79

Performance evaluation and renumeration 80

Risk management 83

Risk governance 83

Credit risk 85

Capital markets risks 88

Financial risks 89

Operational risk 91

Compliance risk 94

Legal risk 103

Internal audit 103

Statutory audit 103

Capital and liquidity 104

Regulatory framework 104

Capital and risk‑weighted assets 104

Liquidity and funding 109

Financial statements 110

Consolidated Financial Statements 110

Separate Financial Statements 205

Issued securities and debt instruments 296

Shares 296

Bonds 298

Senior non-preferred instruments 300

Debt capital instruments 301

Additional financial information 302

Expenses on research and development 302

Financial and non-financial investments 302

Description of real estate owned by KB Group 302

Trademarks, licences and sub-licences 303

Definitions of the mentioned Alternative Performance Measures 303

Information on remuneration to auditors 305

Information on the base used in calculating the contribution to the Investor Compensation Fund (in the Czech Republic) 305

Report on relations among related entities 306

Relationship structure of the SG Group 333

Affidavits 352

Independent Auditor’s Report 353

Profile of Komerční banka Group

In addition to this Annual Financial Report, Komerční banka Group is issuing the KB Group Sustainability Report 2023, covering environmental and social sustainability and additional non-financial topics. The Sustainability Report is available at www.kb.cz/en/non-financial-reporting .

The full legal names of KB Group companies mentioned in simplified form throughout this annual financial report are listed in the section “Komerční banka Group”.

Komerční banka (Group) profile

Komerční banka, a.s. (hereinafter also “KB” or the “Bank”) is the parent company of KB Group (hereinafter also the “Group”) and a member of the Société Générale international financial group. KB ranks among the leading banking institutions in the Czech Republic, as well as in Central and Eastern Europe. It is a universal bank providing a wide range of services in retail, corporate, and investment banking. Member companies of Komerční banka Group provide additional specialised financial

services, such as pension savings and building society schemes, leasing, factoring, consumer lending, insurance, and fintech services. These are accessible through KB’s branch network, its direct banking channels, the subsidiaries’ own sales networks, or networks of the business partners. The Bank also provides services in the Slovak Republic through its branch focused on serving corporate clients as well as through selected subsidiaries.

Loans to clients – gross loans* Amounts due to customers**
(CZK billion) 31 December 2023 31 December 2022 31 December 2023 31 December 2022
KB Group 827.7 784.9 1,006.2 916.8
KB (including KB Slovakia) 708.4 672.4 954.9 862.6
- Individuals 306.3 296.6 337.9 327.8
- Businesses and other 402.0 375.8 617.1 534.7
- Small businesses 40.2 40.1 238.6 230.6
- Medium corporates and municipalities 126.4 125.9 244.5 196.2
- Top corporates and other (including KB Slovakia) 235.4 209.8 134.0 108.0
Modrá pyramida 92.5 85.3 52.3 56.0
ESSOX (including PSA FINANCE) 20.8 18.4 0.1 0.1
Factoring KB 10.0 10.1 0.8 1.0
SGEF 34.2 31.5 n.a. n.a.
BASTION 1.9 2.0 n.a. n.a.
Consolidation and other adjustments (40.1) (34.8) (2.0) (2.8)

* IFRS numbers entering into consolidation, excluding Other amounts due from customers, but including debt securities issued by KB corporate clients.

** IFRS numbers entering into consolidation, excluding repo operations with clients.

Identification details and scope of business activities

Komerční banka, a.s., entered in the Commercial Register maintained with the Municipal Court in Prague, Section B, File No. 1360

Date of registration:

5 March 1992

Registered office:

Prague 1, Na Příkopě 33, building identification number 969, postal code 114 07

Identification number:

45317054

Legal entity identifier (LEI):

IYKCAVNFR8QGF00HV840

Legal form:

Public limited company

Business activities:

I. The Bank shall carry on business pursuant to Act No. 21/1992 Coll., the Banking Act, as amended. The business activities of the Bank shall include:

a) acceptance of deposits from the public;

b) granting of loans;

c) investing in securities on the Bank’s own account;

d) financial leasing;

e) making and receiving payments and administration of a clearing system;

f) issuing of payment instruments, such as payment cards and traveller’s cheques;

g) provision of guarantees;

h) issuing of letters of credit;

i) provision of collection services;

j) provision of investment services including:

• main investment services of reception and transmission, on behalf of investors, of orders in relation to investment instruments,

• main investment services of execution of orders on behalf of investors in relation to investment instruments,

• main investment services of dealing in investment instruments for the Bank’s own account in relation to investment instruments,

• main investment services of managing portfolios of investments in accordance with mandates given by investors on a discriminatory, client-by-client basis where such portfolios include one or more investment instruments,

• main investment services of underwriting in respect of issues of investment instruments and/or the placing of such issues in relation to investment instruments,

• ancillary services of safekeeping and administration in relation to investment instruments,

• ancillary services of safe custody,

• ancillary services of granting credits or loans to an investor for the purpose of allowing the investor to carry out a transaction in one or more investment instruments wherein the firm granting the credit or loan is involved in the transaction in relation to the investment instrument,

• ancillary services of advice to undertakings on capital structure, industrial strategy and related matters, and advice and service relating to mergers and the purchase of undertakings,

• ancillary services of services related to underwriting in relation to investment instruments,

• ancillary services of investment advice concerning investment instruments in relation to investment instruments, and

• ancillary services of foreign-exchange service where these are connected with the provision of investment services;

k) dealing on the Bank’s own account or on the client’s account in foreign currencies and gold;

l) financial brokerage;

m) foreign exchange operations (purchase of foreign currency);

n) provision of depository services;

o) provision of banking information;

p) renting of safe-deposit boxes;

q) issuing of mortgage bonds; and

r) activities directly related to those mentioned in paragraphs a) – q).

II. Furthermore, the business activities comprise activities carried out for another as long as these activities relate to the operation of the Bank and to the operation of other banks controlled by it, of saving and credit unions, investment companies, insurance and reinsurance companies, financial institutions, and businesses which provide ancillary banking services in the scope specified below:

a) accounting consultancy activities, book-keeping, tax record-keeping;

b) intermediating of trades and services;

c) advisory and consulting activities, preparation of expert studies and reports;

d) administration and maintenance of real property;

e) organisation of specialised courses, training, and other educational programmes, including teaching;

f) provision of software, advisory in information technologies, data processing, hosting and relating activities, and web portals; and

g) administration and organisational services.

Registered capital:

CZK 19,004,926,000; of which paid up: 100%

Method of the Company’s establishment:

In accordance with the privatisation project of the state financial institution Komerční banka, with its registered office at Prague, Na příkopech 28, approved by resolutions of the Government of the Czechoslovak Federative Republic No. 1 of 9 January 1992 and No. 109 of 20 February 1992, the National Property Fund of the Czech Republic, as the sole founder, established the public limited company Komerční banka, a.s., based on a Deed of Incorporation of 3 March 1992 under Section 172 of the Commercial Code.

Foreign branch:

Name: Komerční banka, a.s., pobočka zahraničnej banky

Registered office: Bratislava, Hodžovo námestie 1A, postal code 811 06, Slovak Republic

Financial and ESG ratings

On 19 October 2023, S&P Global Ratings affirmed KB’s rating at ICR A/Stable/A-1 and RCR A+/A-1.

On 12 October 2023, Fitch Rating affirmed Long Term Issuer Default Rating (IDR) at ‘A’ with a Stable Outlook and Viability Rating at ‘a’.

On 6 November 2023, Moody´s Rating affirmed Long Term Deposit rating at ‘A1’.

Komerční banka is included in the FTSE4Good index of companies that demonstrate good sustainability practices. KB defended its rating of 3.7 points (out of a maximum of 5) in 2023.

KB also maintained its AA rating in the MSCI ESG rating, which assesses companies’ management of financially relevant ESG risks and opportunities. The AA rating is reserved for businesses that are leaders in their industries.

KB scored 51 points in the annual S&P Global Corporate Sustainability Assessment, making it one of the world’s leading banks in sustainability measures.

Main economic activity (CZ NACE):

64190 - Other monetary intermediation

Other economic activities (CZ NACE):

63 - Information service activities

74 - Other professional, scientific, and technical activities

461 - Wholesale on a fee or contract basis

649 - Other financial service activities, except insurance and pension funding

702 - Management consultancy activities

711 - Architectural and engineering activities and related technical consultancy

66190 - Other activities auxiliary to financial services, except insurance and pension funding

68320 - Management of real estate on a fee or contract basis

69200 - Accounting, bookkeeping, and auditing activities; tax consultancy

Institutional Sector (ESA 2010)

12203 - Deposit-taking corporations, except the central bank, under foreign control

Selected awards received in 2023

January 2023 Global Finance magazine:
- Komerční banka – The Best Foreign Exchange Provider Bank 2023 in the Czech Republic
February 2023 MasterCard Awards 2023 in the Czech Republic:
- Komerční banka – for building a new generation of banking and card system in the Technology Innovation category
- Komerční banka – for an innovative approach in the field of esports and organization of a unique tournament in the game League of Legends Prague Champs in the Unique Issuing Project Award category
- Monika Truchlíková KB Payment Method Tribe manager – for her significant support of innovation and active role in building the next generation of banking in the Issuing Payments Leader category
March 2023 Hospodářské noviny survey Top Women in the Czech Republic 2022:
- Komerční banka board member Jitka Haubová – 2nd place in the category TOP manager of Czechia 2022
May 2023 Visa Awards 2022:
- Komerční banka – #1 sustainable bank for the photovoltaic power plant and the Sustainable e-shop project
French-Czech Chamber of Commerce:
- Komerční banka – awarded in the Corporate Social Responsibility category for an innovative ATM sharing project
June 2023 Ministry of Finance – the most important corporate income tax payers for 2022 in the Czech Republic:
- Komerční banka – ranking among the top 20 most important payers
July 2023 EcoVadis Sustainability Rating:
SGEF Czech Republic & Slovakia – Silver Sustainability Label
Zlatá koruna (Golden Crown) contest:
- KB Loan for sustainable technologies – Green Crown
- KB Profi Auto – Silver Crown in the SME Leasing category
- KB Mortgage – Bronze Crown in the Mortgage category
- ESSOX Staggered payment – Golden Crown in the Non-bank Loans category
Global Finance magazine:
- Komerční banka – The Best Sub-Custodian Bank in the Czech Republic in 2023
October 2023 Časopis Euromoney:
- Komerční banka – 1st place among banks in the field of cash management within the Czech Republic, receiving the title of Euromoney Best Service
November 2023 Mastercard Bank of the Year 2023:
- Komerční banka – 1st place in the Bank of the Year
- Komerční banka – 1st place in the Corporate Bank of the Year
- Komerční banka – 1st place in the Bank without barriers
- Komerční banka – 2nd place in the Private Bank of the Year
- Komerční banka – 2nd place in the Responsible Bank of the Year
- Lemonero – 2nd place in the FinTech of the Year
Visa Best Insurance Company 2023 of Hospodářské noviny:
- KB Pojišťovna – 1st place in the Best Life Insurance Company category
- KB Pojišťovna – 2nd place in the category Client-friendly life insurance company
Business for Society:
- Komerční banka – TOP responsible large company and TOP responsible company in reporting
National award of the Czech Republic from the Ministry of Industry and Development:
- Komerční banka – 2nd place for social responsibility and sustainable development

Société Générale Group

Komerční banka has been an important part of Société Générale Group’s international retail banking since October 2001. Société Générale is a top tier European Bank with 117,000 employees serving 25 million clients in more than 60 countries across the world. For almost 160 years, Société Générale has been assisting in the growth of our economies by offering a broad range of value-added financial and consulting solutions to our corporate, institutional, and individual clients.

Société Générale’s most fundamental goal is sustainable value creation for all of our stakeholders, and these goals are served by our enduring and reliable client relationships, cutting-edge expertise, distinctive innovation, ESG skills, and industry-leading franchises. These traits are all ingrained in our DNA. The Group is built on three complementary core businesses:

Société Générale aims to take the lead in promoting sustainability in general and the environmental transition in particular. The DJSI (Europe), FTSE4Good (Global and Europe), Bloomberg Gender-Equality Index, Refinitiv Diversity and Inclusion Index, Euronext Vigeo (Europe and Eurozone), STOXX Global ESG Leaders indexes, and the MSCI Low Carbon Leaders Index (World and Europe) are the main socially responsible investment indices in which the Group is included.

History of Komerční banka

Komerční banka was established in 1990 as a state institution, and in 1992 it was transformed into a joint-stock company. KB’s shares have been listed on the Prague Stock Exchange since its inception in 1993, as well as within the RM-SYSTÉM Czech Stock Exchange.

In 2001, the state’s 60% holding in Komerční banka was purchased by Société Générale. Following privatisation, KB began significantly to develop its activities for individual customers and entrepreneurs while continuing to build on its traditionally strong position in the enterprises and municipalities market.

The development of the Bank was based not only on organic growth but also on optimising the Bank’s and Group’s presence on the market in the form of acquisitions. Therefore, in 2004, a short-lived subsidiary of KB and SG, FRANFINANCE CONSUMER CREDIT, was merged with ESSOX and focused on consumer finance. In 2005, Komerční banka sold 100% of its stake in the asset management company Investiční kapitálová společnost KB, a.s. to SG Asset Management and a 51% stake in Komerční pojišťovna to SOGECAP S.A., whereby it retained a 49% minority interest. In 2006, it completed the acquisition of Modrá pyramida by buying the remaining 60% stake, through which the Bank gained full control over the third-largest building savings bank in the Czech Republic. Another significant step in extending the offer to clients was the acquisition of a 50.1% share in SG Equipment Finance Czech Republic s.r.o., the leading provider of asset-backed financing in the Czech Republic, in May 2011. Through a branch, SGEF also is active in Slovakia. In 2016, KB established a business alliance for credit and debit card acceptance whereby it transferred a share of its Cataps subsidiary to Worldline SA/NV. In July 2016, then, ESSOX’s subsidiary completed takeover of a 100% stake in PSA FINANCE ČESKÁ REPUBLIKA, s.r.o. and PSA FINANCE SLOVAKIA, s.r.o.

In 2019, KB established a fully owned subsidiary, KB SmartSolutions s.r.o., as a platform facilitating introduction of new services to the clients. This subsidiary has acquired several stakes in start-up fintech companies. In 2020, KB established Bankovní identita, a.s., a joint venture with Česká spořitelna and Československá obchodní banka, for providing electronic identification and electronic signature services based upon the digital identities of bank clients.

Komerční banka has been operating in Slovakia since 1995, originally in the form of a subsidiary. Komerční banka Bratislava successfully implemented changes connected with the adoption of the euro (EUR) on 1 January 2009. Since 1 January 2011, it has operated as a foreign branch of the Bank.

In 2018, the Bank launched a transformation programme, KB Change, which comprised, among other things, simplification of the management and distribution structures and switching of important central functions to agile working methodology. Komerční banka followed upon full implementation of the transformation steps from that plan by announcing in 2020 a further KB2025 strategic programme, which will assure KB’s leading position in the new era of digital banking.

In April 2023, KB launched "the New Era of Banking”. After more than two years of work on a total technological and business transformation, KB introduced to the market a new customer proposition and new KB+ banking applications for clients, all based on the completely new banking and analytical infrastructure. In accordance with the agile approach, the KB+ app initially included only a simple set of basic products, which will be gradually enhanced. At the same time, onboarding of new clients and transfer of (retail) clients from the legacy system to the new banking proposition was launched.

Major events of 2023

January

Komerční banka became the Official Partner of Czech Para Hockey, thereby complementing the main partnership it has had since 2021 with the ice hockey extra league. KB is also the main partner of the national hockey team.

February

Three MasterCard Awards were presented to Komerční banka for projects in the fields of payments, digitalisation, and innovation. In the category Technology Innovation, KB was recognised for building a new generation of banking and card systems. A Unique Issuing Project Award was won for an innovative approach to e-sports and support of the gaming community. Monika Truchlíková, tribe leader from Payment Methods, received a personal award in the category Issuing Payments Leader of the Year.

March

Jitka Haubová, member of Komerční banka’s Board of Directors responsible for operations, was ranked second within the Manager category in the Top Women of the Czech Republic survey.

April

The General Meeting held on 20 April 2023 approved the reported financial statements for 2022 and the proposal for distribution of profit, including dividend payment in the amount of CZK 11.5 billion. It also approved the consolidated financial statements for 2022 and the Remuneration Report for 2022. The General Meeting elected Ms Marie Doucet and Ms Petra Wendelová as members of the Supervisory Board. Ms Wendelová was elected, too, as a member of the Audit Committee. The General Meeting also decided to appoint Deloitte Audit s.r.o. to perform the statutory audit for 2023.

The building of the new digital bank had reached such advanced level as to allow introducing the “New Era of Banking Written by KB” onto the Czech market, onboarding of new clients to the new platform, and the start of a gradual migration of clients from the old system.

Part of the OneGroup project to integrate certain subsidiaries into the Bank’s internal structure is the incorporating of Factoring KB. Moving to outsource its factoring activities to KB, all employees of Factoring KB were transferred to Komerční banka on 1 April 2023.

Komerční banka signed a referral agreement with BNP Paribas Personal Finance SA (BNPP PF) on re-contracting of selected deposit customers of the Czech BNPP PF franchise operating under the Hello bank! brand. The referral agreement does not concern credit products offered by Hello bank!

May

KB was awarded the title #1 Sustainable Bank in the 2022 VISA Awards. It was recognised especially for its project supporting sustainable e-shops and for photovoltaic installations on the roof of its headquarters in Prague–Stodůlky.

At the awards ceremony of the French–Czech Chamber of Commerce, KB took home an award in the Corporate Social Responsibility category. The jury praised its activities in the field of sustainability, especially the innovative ATM sharing project.

June

As in previous years, KB was again recognised by the Ministry of Finance as being among the Top 20 income taxpayers in the Czech Republic for 2022.

Jan Juchelka, Chairman of the Board of Directors and Chief Executive Officer of Komerční banka, was elected by the member banks as President of the Czech Banking Association. The CBA represents the banking industry vis-à-vis the public, government agencies, and international bodies. Furthermore, it supports financial education, crime prevention, sustainability, and digitalisation of financial and public services. During his 3-year mandate, Mr Juchelka aims to promote further dialogue between the state, regulatory authorities, and the private sector while focusing especially on digitalisation, innovations, sustainability, and investments directed to supporting the Czech Republic’s long-term prosperity.

Komerční banka set up a new fully owned subsidiary, KB Poradenstvi, s.r.o. The firm was established in relation to the intended development of KB Group’s distribution model based on the network of Modrá pyramida’s financial advisors. It will become an integral part of KB Group’s distribution network so that, within the New Era of KB, clients will have the full range of KB Group products and services across all distribution channels, including digital platforms.

As part of the OneGroup program, KB Group is concentrating complete know-how and expertise in the field of housing finance into Modrá pyramida, including the transfer of KB specialists to MPSS. Within the KB Group, Modrá pyramida will provide complete processing of mortgage loans as well as product development for all housing products, including mortgages.

KB Smart Solutions, a full owned subsidiary of Komerční banka, increased to 28.256% from 24.989% its stake in MonkeyData s.r.o. MonkeyData fully owns a subsidiary, Lemonero, s.r.o., which provides financing to e-shops utilising an AI-powered scoring model.

July

SGEF Czech Republic & Slovakia was awarded a silver rating from EcoVadis, a provider of business sustainability assessments. The international rating confirms that SGEF follows the principles of sustainability and successfully fulfils its global vision and ambition to be a worldwide partner for integrated equipment solutions creating a sustainable and positive impact on the planet.

August

Komerční banka introduced the Mortgage for Sustainable Housing, a mortgage loan with an advantageous interest rate tailored for financing energy-efficient real estate.

September

KB Smart Solutions further increased its stake in MonkeyData s.r.o. to 33.171% from 28.256%.

October

As part of the OneMortgage Factory project, Komerční banka and Modrá pyramida deployed new joint systems in pilot operation to handle the entire process of providing a mortgage – from verifying the client’s creditworthiness, through real estate valuation and mortgage approval, to drawing of the mortgage, settling the monthly repayment instalments, and resolving mortgages in default.

Komerční banka introduced further innovations in its New Era of Banking for disadvantaged clients with various types of handicaps. The new KB+ application is accessible also to people with visual impairments. To enable reading, it offers font enlargement and a high-contrast mode. In co-operation with Mastercard, KB introduced a new card design standard for visually impaired clients. Its Touch Card, with unique tactile notches, lets cardholders identify their cards by touch.

Twenty-five years have passed since the establishment of Nadace Komerční banka. During that time, the foundation has supported almost 1,600 projects and distributed more than CZK 250 million. Since inception, it has been dedicated to supporting health, social, and environmental projects while actively assisting in the development of civil society and a sustainable future. Through the past quarter century, the foundation has participated in improving quality of life for families and individuals.

The Czech National Bank decided to discontinue paying interest with effect from 5 October 2023 on required minimum reserves held by banks at the CNB. Until that time, the required minimum reserves had earned the central bank’s announced two-week repo rate.

November

Komerční banka was one of the initiators in launching the Payment per Contact service into the Czech banking market. The service allows one to send money without knowing the counterparty’s bank account number.

In a vote of economists, analysts, and banking experts, Komerční banka was named winner in the 22nd year of the prestigious MasterCard Bank of the Year survey. KB thus repeated its success from the previous year. In addition to the main prize, it also won first place for Corporate Bank of the Year and Bank without Barriers, as well as second place for Private Bank of the Year and Sustainable Bank of the Year.

In the VISA Best Insurance Company 2023 awards, Komerční pojišťovna held onto its title, once again being named Best Life Insurer 2023.

KB defended the previous year’s award from the Business for Society platform in the category TOP Responsible Large Company and TOP Responsible Company in reporting within the field of sustainability. Furthermore, KB won the National Award of the Czech Republic for social responsibility.

December

The Czech National Bank kept rates unchanged for almost all of 2023 due to concerns about persistent inflationary pressures. The first 25 bps cut was made only in December. The base repo rate thus fell to 6.75% after being stuck at 7% for a year and a half.

Strategy and Results

The following chapter summarises KB Group’s strategy and describes how Komerční banka Group looks after its customers, how it organises its business activities, and what it has done in 2023 to further improve its customer experience and market position. It also describes the evolution of the market environment, summarises the business and financial results, including a comparison with the targets set for 2023, and provides an outlook for 2024.

The KB Group Sustainability Report 2023 provides a detailed description of the Group’s activities to meet its environmental and social objectives and commitments.

Purpose of Komerční banka

Building together with our clients a better and sustainable future through responsible and innovative financial solutions.

Mission

Be a leader in the new era of banking for 2 million active clients.

Strategic pillars

Growth, helpfulness, responsibility.

Principles of activity

The principles of Komerční banka’s activities constitute a part of KB’s governance. KB shall respect legal regulations, inclusive of international conventions to which it adheres. In its operations, KB shall respect, among others, the following general principles:

KB’s activities shall be conducted with respect for fundamental human rights and the rights of workers. No discrimination of any kind with regard to employees, job seekers, customers, business partners, or suppliers shall be permitted.

KB shall respect intellectual property rights, and special emphasis shall be placed upon the honouring of software product licences.

KB shall respect the rules of economic competition in its activities and, especially, in its contacts with the representatives and employees of other banks and financial institutions.

KB shall comply with the rules for disclosure of information to the shareholders, investors in financial markets, and the general public. KB shall publish the information regarding its current situation and expected development in a timely manner, in an accessible form, sufficiently, and proportionally.

KB shall be active in performing its duties in fighting corruption, money laundering, and the financing of terrorism.

KB shall respect the privacy of its customers, business partners, and employees. Therefore, it shall request and use only such information about its customers, business partners, and employees as is needed to serve these, to enhance the quality of KB’s services, to manage KB’s human resources, and to comply with the obligations specified by legal regulations.

KB applies recognised and proven principles and procedures of corporate governance (so-called recognised standards) that it has chosen as well as policies that the controlling company, Société Générale, requires to be applied in its subsidiaries. On a standalone basis, KB applies the Code of Corporate Governance that is based upon principles of the Organisation for Economic Co-operation and Development (OECD) 1 and the Guidelines on internal governance of credit institutions issued by the European Banking Authority (EBA Guidelines).

KB shall co-operate with the Czech National Bank and other regulatory bodies responsible for supervising KB’s activities. It shall provide correct, complete, current, and transparent information about its activities.

KB supports the principle of social responsibility. It shall seek to minimise the impact of its activities on the environment and use natural resources and energy in a conservative manner. KB is governed by international conventions to which it has acceded or which were acceded to by the SG Group.

KB shall maintain political neutrality. It shall not back any political party or political movement through donations or any other kind of support.

KB continuously strives for long-term creation of value for its shareholders.

Moreover, KB respects a range of principles relating to specific areas, including principles regarding business conduct, dealing with clients, the management and control system, and remuneration.

Environmental, social, and governance (ESG)principles

Komerční banka and its subsidiaries act responsibly in their relationships with clients, employees, shareholders, and other stakeholders and partners. KB perceives that such behaviour is in accordance with the interests and expectations of the main stakeholders, as well as with applicable regulations. Responsibility is the basis of every partnership, and it is also a precondition for long-term successful business.

KB Group's environmental, social, and governance (ESG) strategy 2 is based on a materiality assessment that identifies the ESG factors most important to the Group’s stakeholders, as well as for the Group’s growth and risk outlook. KB’s ESG strategy is fully aligned with the purpose, mission, and overall strategy of KB as formulated in the KB2025 plan. The implementation of changes in the ESG area is closely co-ordinated with Société Générale and takes place within the SG group’s “ESG by Design” programme.

KB Group has been gradually applying a holistic approach to ESG regulations and embedding further ESG impacts into its core operations and policies. KB Group is gradually increasing its ability to collect, measure, and disclose ESG data.

KB develops responsible business in economic, environmental, and societal areas through a variety of activities at all levels and as an integral aspect of the entire organisation. KB Group has very little to no appetite to develop business with the following sectors: political parties, economic sectors that are prohibited under the CSR policy, or any activities likely to create compliance or reputational risks.

Detailed non-financial information on Komerční banka’s environmental, social, and governance activities and results is provided in KB Group Sustainability Report 2023, 3 which will be issued along with this annual financial report. In accordance with Sec. 32g (7) of the Act 563/1991 Coll., on Accounting, KB is not disclosing certain non-financial information provided by Société Générale as a consolidating entity. 4 The Group has been preparing for meeting disclosure obligations according to the EU’s Corporate Sustainability Reporting Directive (CSRD).

Information on Komerční banka’s activities in the areas of respect for human rights and social and employment relations is provided in the Employee Relationships chapter of this annual financial report. Information on improving clients’ satisfaction and introducing service improvements and innovations is provided in the following text of this chapter. Information about fighting against corruption and bribery is presented in the Risk Management chapter of this annual financial report.

Sustainable development

KB’s strategic ambition is to be a leader in sustainable banking on the Czech financial market and within the SG Group, as well as to be perceived as a green bank in the Czech Republic.

Komerční banka is aware of the influence that its activities have on the surroundings wherein it operates, and it considers responsible behaviour to be important. Therefore, it adopts adequate measures that on the one hand should eliminate negative influences on the environment and on the other contribute to its protection and improvement. KB monitors the impact of its activities on the environment and identifies those areas upon which it needs to focus. Komerční banka then adopts measures directed towards effectively reducing its environmental impact.

Corporate culture

KB’s strategic vision in managing human resources is to build professional relationships with employees based upon trust, respect, mutual communication, equal opportunities, and the offer of interesting professional and career growth. KB strives to create an inspiring and supportive environment where people want to work, succeed, and become ambassadors of the KB brand. Mutual co-operation among employees is then based upon four basic values or principles of behaviour: team spirit, innovation, commitment, and responsibility. Together, these form the basis of the corporate culture upon which KB is building its future.

Corporate governance

Komerční banka acceded to and upholds all the principal standards of the Code of Corporate Governance of the Czech Republic (2018) 5 issued by the Institute of Administrative Bodies on the basis of international standards of corporate governance, in particular the G20/OECD Principles of Corporate Governance from 2015. Komerční banka’s Board of Directors applies and develops the aforementioned principles of corporate governance in a spirit of transparency, accountability, and with a view to the long term, and it translates these best practices into its internal procedures and regulations.

Code of conduct

Only by taking an ethical approach to doing business and providing financial services can Komerční banka hope to maintain and even strengthen its market position over the long term. A fundamental prerequisite to successfully developing the company consists in professional conduct and behaviour on the part of its employees, as exemplified in particular by fostering and preserving direct and open relationships with clients and by fortifying mutual trust. Komerční banka expects all its employees to be fully aware of and committed to their obligation to act in accordance with the ethical standards set forth in its Code of Ethics and to endeavour always to adhere to those standards.

Tax policy

Komerční banka ensures that all KB Group companies fully respect the tax rules of all countries wherein the Group operates. Within its tax policy, Komerční banka complies with all applicable reporting obligations. Komerční banka does not encourage or promote tax evasion for itself or its clients and refrains from operations whose main purpose is tax-motivated unless this is consistent with the intention of the law.

Komerční banka strictly respects correct tax procedures and maintains open and transparent relations with tax authorities while guarding its good reputation. KB adheres to the SG Group Tax Code of Conduct, 6 and all of KB’s employees are obliged to comply with this Code. Tax policy is internally supervised by the Internal Audit arm. External oversight in relation to Czech tax law is performed by the Specialised Tax Office.

1 https://www.mfcr.cz/cs/o-ministerstvu/odborne-studie-a-vyzkumy/2019/kodex-spravy-a-rizeni-spolecnosti-cr-201-34812

2 https://www.kb.cz/en/about-the-bank/everything-about-kb/we-do-business-br-sustainably

3 https://www.kb.cz/en/about-bank/we-do-business-sustainably/sustainability-report-archive

4 https://www.societegenerale.com/en/publications-documents

5 https://www.mfcr.cz/cs/o-ministerstvu/odborne-studie-a-vyzkumy/2019/kodex-spravy-a-rizeni-spolecnosti-cr-201-34812

6 https://www.kb.cz/getmedia/7632c13e-f17b-4383-a0b7-05c84489cbca/tax_code_of_conduct_of_societe_generale_group_uk.pdf

KB2025 strategic plan

On 5 November 2020, Komerční banka presented its KB2025 plan updating strategic directions and addressing the emerging challenges and opportunities for creating a strong, client-focused bank. 1 Together with its clients, the Bank aims to build a better and sustainable future through responsible and innovative financial solutions. KB aspires to be a leader in a new era of banking for 2 million active clients.

The strategy builds upon the pillars of helpfulness, growth, and responsibility, and with specific objectives established in nine programme areas.

KB is building a new digital bank founded on new technological and process infrastructure, introducing new services and new partners, and supported by smart innovations.

The new digital KB is rebalancing its organisation towards fully digital sales and services. As a data-driven company, KB will maximise the business value extracted from data in the digital world even as it assures the privacy of its clients’ data. The Bank is developing a new advisory model supported by data analytics.

To evolve its agile, adaptive, and effective organisation, the Bank is implementing DevOps (develop–operate) practices as well as the Smart Office concept of workplace organisation. Both methodologies are expected also to support employee engagement at high levels.

The Group’s position on the housing finance market is being reinforced by building up a single mortgage factory delivering solutions for clients of both KB and Modrá pyramida.

KB is striving to reinforce its market leadership position in services for corporate clients. It aims to protect KB’s already best-in-market level of client satisfaction in corporate and investment banking by focusing on speed, predictability, and efficiency of corporate customer journeys.

With digitisation and automation incorporating artificial intelligence and data science components as well as advanced fraud prevention, KB’s risk management is directed to identifying emerging risks and containing risk losses in the new world of digital banking and within a volatile environment. As part of its risk management framework, KB has been developing its environmental and social risk management system, including climate vulnerability assessment of clients, and it is building a data collection and analytical infrastructure for indicators related to clients’ ESG factors.

The overall productivity increase; centralisation of support functions, services, and premises across KB Group; as well as branch network and sourcing optimisation will enable the Group to reaffirm its leading position in operational efficiency within the CEE region.

Komerční banka is positioning itself as a green bank and a sustainability leader in the Czech financial market and within Société Générále Group.

Operational targets

The KB2025 strategic plan’s operational targets, which are formulated for the standalone bank, have been affirmed.

KB aims to increase the level of client satisfaction as measured by Net Promoter Score (NPS) in the retail clients and small and medium-sized enterprises segments while stabilising that satisfaction at the already very high level (above 50 points) within the large corporations segment.

Based upon organic growth, the clients’ seamless omnichannel experience should help the Bank to achieve its target of 1,850,000 clients by 2025.

The upgraded working and management methods are leading to employee empowerment and effective teamwork across the entity. KB is maintaining the Smart Office concept of hybrid work from office and home, developing the Mojevitalita programme promoting and supporting healthy life styles, and offering medical assistance as well as legal and life counselling for all colleagues. Effective leadership should help to achieve further gains in employee engagement levels as measured by a proprietary blended index to the level of 83 points from the already strong 78 points recorded in 2019.

Optimisation of operations through digitalisation, branch reduction and switching to cashless banking, automation of middle- and back-office and support functions, and deploying robotics means that the standalone bank’s full operations and services will be handled by approximately 5,500 employees. This compares with 7,210 employees in the Bank as of 31 December 2019.

KB believes that pursuing sustainability in business and operations generates long-term benefits in delivering new business and value for shareholders as well as in complying with future Czech and European regulations. As measures of its maturity in the environmental, social, and governance areas, KB has selected two globally recognised indices: the FTSE4Good index of sustainably managed companies, with a target to exceed the level of 4 points; and MSCI ESG, with a target rating at the ‘AA’ level that is reserved for companies leading their respective industries in managing the most significant ESG risks and opportunities.

Financial targets

Financial targets have been set on a KB Group basis, and management is striving to reach these targets despite several headwinds unforeseen at the time of setting these goals in 2020.

For 2025, the cost-to-income ratio is targeted to approach 40%. Based upon organic growth, the Group’s revenues should accelerate mainly in 2025. By that time, KB’s new digital bank will be fully operational for retail clients, a boost will come through digital sales and an advisory model supported by data analytics, and new revenue sources will be coming online.

Operating expenditures in 2025 will be at a level similar to that in 2023 and will reflect ongoing efficiency measures, a lower number of employees, as well as a smaller expected regulatory charge in 2025 for the Resolution Fund. Savings from decommissioning old components of the banking infrastructure should begin to accrue mainly from 2026.

The potential for increase in the Group’s net profitability has been severely limited, however, by imposition of the so-called “windfall tax” at an incremental 60% rate. Thus, any profits exceeding a defined threshold would be taxed at a 79% rate (81% from 2024) that is the sum of the 19% (21% from 2024) statutory rate plus the “windfall tax” rate.

With a view to reinforcing the scale of KB’s existing business and thus optimising efficiency and competitiveness, KB’s management remains ready to consider enhancing its performance with non-organic growth elements. Nevertheless, visibility regarding potential accretive acquisition opportunities is limited at the time of releasing this report. The minimum ambition for the number of bank clients inclusive of the non-organic growth component has been set at 2,000,000.

The Group will grow the volume of risk-weighted assets at a pace that is optimal from the perspective of creating shareholder value. The volume and structure of regulatory capital will be further optimised, even as it will at all times safely and assuredly meet the applicable and expected regulatory requirements.

Assuming all those factors as described above, KB Group targets ROE to come in around 15% for 2025.

Key risks to these targets include significant worsening of the geopolitical situation (in particular, escalation of the war in Ukraine), deterioration in the macroeconomic development, unexpected increase in regulatory requirements and bank levies, and adverse competitive dynamics.

1  Komerční banka ' s Consolidated Annual Report 2020, pages 10 and following.

Market environment

Economic and monetary environment in 2023

The Czech economy’s performance remained subdued during 2023. Gross domestic product fell by 0.4% through the year, failing even to return to its pre-pandemic level. Quite the contrary, it fell even further behind, lagging that level by 1.4% in the fourth quarter. The main drag on the economy last year was household consumption, which suffered considerably as the result of deep decline in real wages to a level last seen at the end of 2017. Thus, low-income households faced budget constraints in 2023 even as high-income households increased their precautionary savings or shifted funds towards savings products with longer maturities or riskier investment instruments in order to achieve higher returns and offset inflationary losses. The real level of consumer spending was thus in line with that from the turn of 2016 to 2017.

On the other hand, foreign demand had a positive impact on economic development. This reflected a fading of the subcontracting problem, as automotive manufacturers in particular were able to complete work-in-progress goods and support foreign trade by exporting them. This, then, was reflected in lower inventory build-up. At the same time, weak domestic demand also contributed to weak inventory build-up due to entrepreneurs’ low expectations. The development of gross value added benefited in particular from that of manufacturing and of information and communication activities in 2023. The trade, transport, accommodation, and food services group of activities had a negative impact. 1

Inflation and monetary policy

Inflation slowed rapidly during the year. Although it was still averaging 16.4% in the first quarter, price increases had fallen to just 7.6% by the final quarter. In particular, core inflation slowed considerably, declining from an average of nearly 12% in the first quarter to 3.9% in the fourth quarter. This development was due not only to a higher comparison base but also to strongly subdued domestic demand. Month-on-month annualised core inflation was thus already close to the central bank’s 2% target. Headline inflation in 2023 mainly reflected price increases in the housing, food, and non-alcoholic beverages segments. By contrast, price developments in the transport segment contributed most to decline in the general price level. 2

The central bank kept rates unchanged for almost all of 2023 due to concerns about persistent inflationary pressures. The first 25 bps cut was implemented only in December. The base repo rate thus fell to 6.75% after being stuck at 7% for a year and a half. The rate-cut decision was unanimous, with all seven board members voting in favour of the 25 bps move. 3

Real economy

Average nominal wages rose by 6.3% year on year in 2023’s fourth quarter after recording 7.1% growth in the third quarter. Tensions in the labour market, combined with the still sound financial situation among firms, contributed to the continued rise in nominal wages within the business sector. In the non-business sphere, the year-on-year dynamics continued to be influenced by, among other things, the increase in salaries of security forces (e.g. police and fire protection) employees from the beginning of 2023. Real wages were down by 1.2% from the fourth quarter of 2022 (after 0.8% in third quarter). Overall, however, average real wages in 2023 were broadly in line with those from the end of 2017. The recovery in real wages was therefore very modest, reaching −2.9% in 2023, reflecting the continued marked slowing in household consumption. 4

Retail sales for the whole of last year showed a decline of 4.1% in real terms. Food sales fell by 5.3%, while non-food sales were down by 5.2%. In contrast, consumers spent 4.9% more on fuel. Sales and repair of motor vehicles were up by 4.2%, with sales of motor vehicles (including spare parts) climbing by 4.7% and motor vehicle repair by 2.3%. 5

Industrial production was 0.4% lower year over year in 2023, with decline in the other non-metallic mineral products and basic metals, metallurgy, and foundry sectors contributing significantly to this result. Compared to 2022, electricity generation also decreased. The overall decline was not offset by recovery in the production of motor vehicles and other transport equipment. The value of new industrial orders also fell year on year, by 1.7%. 6

The unemployment rate remained at low levels during 2023. According to the general unemployment rate (ILO), the unemployment rate stayed below 3%, while the proportion of unemployed continued under 4% (as reported by the Ministry of Labour and Social Affairs). The number of job vacancies decreased modestly, with one job open for every unemployed person. Compared to other EU countries, the Czech Republic continued to have the lowest unemployment rates of all. 7

Crown exchange rate development

In an environment of narrowing interest rate differentials, emerging market currencies did not fare well last year. The crown’s exchange rate peaked in April at CZK 23.3 to the euro. The Czech currency has been weakening since that time and closed the year at CZK 24.7 to the euro. In global foreign exchange markets, on the other hand, the US dollar continued to strengthen its position, reflecting the surprising resilience of the US economy. In addition to global influences, the CNB’s announcement at its August meeting that it was ending the intervention regime that had been supporting the domestic currency contributed to the weakening of the crown. Weaker data from the Czech economy in general and, in our estimation, the crown’s persistent overvaluation relative to fundamentals also impacted adversely on the currency. 8

Fiscal and tax policy

The state budget closed 2023 with a deficit of CZK 288.5 billion. This deficit was CZK 71.9 billion smaller year on year and CZK 6.5 billion better than the approved target of CZK 295 billion. Spending in 2023 increased by CZK 217.8 billion (+11%) year on year, mainly driven by a rise in the most important social benefits category (by CZK 100.1 billion), especially reflecting an increase in pensions (by CZK 97.1 billion). The pension insurance system itself reached a record deficit of CZK 73 billion (after ending 2022 CZK 21 billion in deficit). Compensation to households and firms for high energy prices, greater investments, more expensive servicing of the national debt, increased outlays for salaries of primary and secondary school employees, as well as higher payments for state insurers also contributed to the year-on-year increase in spending. Total revenues since the beginning of the year were CZK 289.7 billion higher year on year and by 17.8% in relative terms. The main contributors to the increase in revenues were extraordinary taxes in the form of windfall tax and the levy on excess revenues of electricity producers, EU funds (the National Recovery Plan), social and health insurance premiums, corporate tax, and the dividend from CEZ. On the other hand, collection of the second most important revenue item by weight, VAT, with its full-year increase of only 5.8%, reflected the decline in household consumption due to the fall in real wages and the persistently high savings rate. The 33.1% year-on-year gain in corporate tax collections (excluding the windfall tax), which exceeded the full-year target by a significant 28.3%, confirmed the solid profitability of firms. 9

Banking market development

Total bank lending across the market as a whole (apart from repo operations) grew by a 6.9% 10 annual rate through the end of 2023. Loans to individuals in December increased by 5.0% year on year. Consumer loans expanded by 7.9% annually, while housing lending resumed its upward trajectory and in December we saw 4.2% growth year over year, as falling real estate prices renewed client interest in new mortgage loans to a certain extent. The volume of lending to corporations and other businesses expanded by 8.9%.

In December the total of deposits in Czech banks was higher by 14.4% 11 from the year earlier. Deposits from households had increased by 6.9%, whilst market deposits from businesses had risen year on year by 23.8%. In comparison to December of the year earlier, the volumes in savings accounts had climbed by 21.6% and those in term deposits by 55.1%. Meanwhile, current account volumes were down by –3.4%.

1 https://www.czso.cz/csu/czso/ari/gdp-resources-and-uses-4th-quarter-of-2023

2 https://www.czso.cz/csu/czso/ari/consumer-price-indices-inflation-december-2023

3 https://www.cnb.cz/en/monetary-policy/bank-board-decisions/CNB-Board-decisions-1703174400000/?tab=statement

4 https://www.czso.cz/csu/czso/ari/average-wages-4-quarter-of-2023

5 https://www.czso.cz/csu/czso/ari/retail-trade-december-2023

6 https://www.czso.cz/csu/czso/ari/industry-december-2023

7 https://www.mpsv.cz/mesicni (only in Czech)

8 https://www.cnb.cz/en/financial-markets/foreign-exchange-market/central-bank-exchange-rate-fixing/central-bank-exchange-rate-fixing/

9 https://www.mfcr.cz/cs/ministerstvo/media/tiskove-zpravy/2024/pokladni-plneni-sr-54299 (only in Czech)

10  Source of data on banking market developments: ARAD statistics of the CNB, https://www.cnb.cz/arad/#/en/home

11  Source of data on banking market developments: ARAD statistics of the CNB, https://www.cnb.cz/arad/#/en/home

Financial markets developments

Global stock market performance

Recently, there seems to have been a regular alternation in stock markets performance between positive and negative years. Last year, 2023, equity indices closed near record highs.

Among those elements most strongly impacting stock markets and beyond were a robustness of the global economy, which did not fall into the predicted recession; a modest impact from high interest rates on demand for financing because many companies had sufficient funds or preferred just to let their savings earn the higher interest rates; better corporate results, especially in the USA; and a wave of smaller bank failures in the USA causing negative sentiment to spill over into Europe’s banking sector. Then, too, excitement over artificial intelligence influenced the markets positively. In Europe, meanwhile, the negative effects of high energy prices reverberated across the continent.

European equities, as measured by the STOXX Europe 600 index, closed out 2023 stronger by +12.7% year on year (at 479.0 points, 15.4% in CZK terms), just below the index’s all-time high of 494.4 points from January 2022.

Arguably the world’s most followed stock index, the S&P 500, rose by +24.2% last year (to 4,769.8 points, by 22.9% in CZK terms). Again, this is just below its all-time high of January 2022 (4,796.6 points). Similarly, the Dow Jones Industrial Average finished 2023 stronger by 13.7% (at 37,689.5 points, +12.5% in CZK terms), marking another record high. The technology-heavy NASDAQ index added 43.4% in 2023 (reaching 15,011.4 points, +41.9% in CZK terms).

The MSCI ACWI Global Index, which includes equities from 47 developed and emerging markets, rose by 20.1% in USD terms (to 727.0 points, +18.8% in CZK terms) in 2023.

The stock index of European banks (the STOXX Europe 600 Banks) gained 20.3% (by 169.0 points, +23.4% in CZK terms). Despite the sluggish economy, European bank shares were supported by resilient asset quality, higher interest rates in the euro zone, and solid capital generation. The STOXX Eastern European Bank 300 index rose by 50.7% (by 53.7 points, 54.5% in CZK terms), erasing the losses recorded in 2022 when international investors’ risk aversion in relation to European emerging markets had brought the index down.

Prague stock exchanges development

The main index of the Prague Stock Exchange, the PX, rose by +17.7% (to 1,414.0 points) last year. Total performance, inclusive of dividends, was as high as +28.3% during the year. The index closed only a few points below the year’s high of 1,421.4 points touched on 1 March 2023. It thus made up for 2022’s decline of –15.7%, which had been due in part to Russia’s launch of aggression towards Ukraine and the resulting sharp rise in energy prices and inflation. The Prague Stock Exchange fell in only four months last year, rising in all other months.

With two exceptions, all major stocks traded on the Prague Stock Exchange saw their share prices rise. The best performing stock of the year was Erste Group. With a strong finish to the year, it outperformed the previous leader, ČEZ, and for the year as a whole Erste rose by +25.8%. ČEZ had rocketed in the first four months of the year, boosted by visions of restructuring. This, of course, had a positive effect on the entire PX index. ČEZ gained +24.5% for the year. Moneta was also up by more than one-fifth, adding +23.2%, thanks in part to very good results and several increases in its full-year guidance. Just below the 20% level was the insurer VIG, which gained +19.7%. Kofola posted decent growth of +13.1% on strong results. It has been acquiring breweries and other traditional drinks brands and, like Moneta, it is likely to beat full-year guidance. Komerční banka shares gained 10.6% last year. At the very end of the year 2023, Gevorkyan moved from the Prague Stock Exchange’s Start Market to the Prime Market. For the whole year, it provided investors +16.5% appreciation (+12.8% in December alone).

In 2023, only Philip Morris ČR (–6.6%) and Colt CZ (–3.8%) declined slightly.

The economy was a high interest rate environment during 2023. This may have caused investors to choose assets safer than stocks but still promising strong appreciation in such an environment. Moreover, financing for active stock trading is expensive in a high interest rate environment. These may be reasons why total trading volume on the Prague Stock Exchange fell by 25.7% year on year to CZK 123.5 billion. Liquidity decreased for all major securities. Trading in bank stocks fell by more than 30% (KB –32.7%, Erste –46.6%, Moneta –30.4%). Trading volume in insurance company VIG was also down (–33.4%), as was that in shares of Colt (–24.1%) Philip Morris CR (–15.8%), and Kofola (–13.7%). The smallest decline in traded volume was for ČEZ shares, which saw a decline of “only” –7.5%.

None of the companies trading on the PSE were delisted in 2023.

Performance of KB share

KB share price development

The KB shares closed out trading in 2023 at a price of CZK 724.5, up by 10.6% from the previous year’s ending price. As of 31 December 2023, Komerční banka’s market capitalisation stood at CZK 136.8 billion (EUR 5.5 billion), ranking KB third by capitalisation among those titles listed on the PSE’s Prime Market.

KB’s share price had opened 2023 at CZK 657.5 and was initially supported by growth momentum continuing from late 2022. The stock reached its first peak of 2023 on 8 March, whereupon uncertainty in the US banking sector cause by several bankruptcies spilled over into Europe and European banking shares also lost value. When the financial markets realised that the problem was limited to just some US banks, KB’s share price quickly corrected back upward and then reached its 2023 high of CZK 762.5 on April 24. With the ex-dividend date (end of April), the share price moved back to its early-2023 levels (the 2023 low was reached on May 19 at CZK 652.5), where it remained through the autumn despite the general strengthening in the summer months. KB’s share price began to strengthen again in early November and continued to do so during December, closing the year at CZK 724.5 overall. This was 10.6% higher year on year from the end of 2022.

Return for shareholders

Komerční banka’s dividend policy aims to ensure appropriate remuneration of shareholders for their investments while also maintaining solid and safe capital adequacy and with a view to potential growth opportunities and currently applicable as well as anticipated regulatory requirements. This general principle of KB’s dividend policy could not be followed fully during 2020–2021, however, due to restrictions on dividend payments and share buybacks that the regulator imposed as one of its measures responding to the uncertainty and crisis caused by the Covid-19 pandemic. Since these restrictions were generally lifted in 2022, KB has been able to return to its long-term strategic policy of paying out 60–70% of profit as dividends. The dividend is paid once a year after the regular shareholders meeting in spring.

Hence, the Annual General Meeting in April 2023 approved distribution of a dividend from 2022 net profit of CZK 11.5 billion, which was CZK 60.42 per share before taxation. This distribution brought the dividend payout ratio to 65%.

The corresponding total gross dividend yield based on 2022’s closing share price was therefore 9.2%. The total return from holding KB shares in 2023 was thus 19.3%, assuming reinvestment of the net dividend on the payment day.

Business model and performance

Business model and client service organisation

Business model

Komerční banka is the parent company and main component of KB Group. Its subsidiaries contribute with their know-how and capacities in specific areas of the financial markets. The Group enhances its offer for the clients in co-operation with external services providers, either in commercial partnerships or by acquiring ownership participations.

Komerční banka Group is active on the financial market in Czechia. Through its branch as well as via activities of some subsidiaries, it also is present in Slovakia.

KB is a universal bank with a multi-channel distribution model. Its business model is founded upon building long‑term relationships with customers and offering relevant solutions for situations occurring during clients’ lives. The business strategy focuses on reinforcing or achieving market‑leading customer satisfaction status in the target client segments. KB differentiates itself in the market by best-in-class advisory, a relevant and comprehensive product offer leveraging the global scale of the Komerční banka and Société Générale groups, and a highly effective model of servicing clients.

The services provided by subsidiaries include housing loans and building savings (Modrá pyramida), pension savings (Penzijní společnost KB), consumer financing (ESSOX), life and property insurance (Komerční pojišťovna), financing of equipment and technologies (SGEF), and factoring (Factoring KB). Another Komerční banka subsidiary, KB Smart Solutions, administers the Group’s participations in several companies mainly from the fintech sector, such as upvest, Roger, Finbricks, ENVIROS, and MonkeyData.

KB is organised into arms, tribes, and separate independent departments. The managers of these units report directly to the Chairman or another member of the Board of Directors. In the cases of tribes, either they report to a member of top management or these units may be directly managed by a member of the Board of Directors. Allocation of responsibilities among the individual members of the Board of Directors is stipulated by a decision of the Board.

Those units focused on ensuring the operations of the Bank form its operational (Run) perimeter. Units established for the purpose of developing the Bank, its products and services constitute a change (Agile) perimeter.

Tribes are cross-functional teams working in accordance with the agile@KB methodology. They are dedicated to development of new client or internal solutions. The tribes are structured in such a way that they cover holistic, end-to-end views of specific customer journeys or segment needs rather than focusing on specific features of individual products. Following initial implementation of the agile@KB method, people responsible for business implementation and IT development work together within the tribes. In the next phase, KB is developing the BizDevOps concept, wherein employees in charge of operations for specific IT applications are also included into the tribes alongside their selling and IT development colleagues.

Principles of business activities and dealing with clients

Business activities of KB Group companies shall be carried out in a transparent, fair, and disciplined manner in compliance with best market practice and be performed within the global framework of Société Générale Group operating rules.

KB shall not participate in transactions which might lead to the breach of any legal regulation or international agreements. KB does not, however, rule out any transaction a priori for geographical or sector reasons if the related risks are duly assessed and managed.

Clients come first. Client relations management is conducted in accordance with the know-your-customer principle and takes into account all aspects of a relationship so that the client’s needs will be met under optimal service and cost conditions and at an appropriate professional level in order to promote the client’s loyalty and trust in the Bank while respecting the client’s legitimate interests.

The level of a client’s knowledge and experience with the products and risks associated with a provided product is taken into account in providing advice.

Client and operating segmentation

KB Group is developing a system for detailed segmentation of customer relationships. The clients of the Bank are served by the following arms:

A set of additional thresholds and sub-segments within these segments is elaborated. The Corporate and Municipal Banking and Global Banking arms are part of Corporate and Investment Banking.

Retail Banking is an operating segment of Komerční banka Group that includes the provision of such products and services to individuals, small businesses, and entrepreneurs as current and savings accounts, term deposits, building savings, pension insurance, overdrafts, credit card loans, personal loans and mortgages, as well as private banking services.

Besides the services to individual and small business clients of Komerční banka, the Retail Banking operating segment comprises Modrá pyramida, Penzijní společnost KB, ESSOX, and Komerční pojišťovna, as well as some activities of SGEF and Factoring KB.

Retail banking services are provided through direct banking channels, including contact centres; within a network of branches, including the remote branch; via distribution networks of other members of KB Group; or through partnerships with third-party independent sales agents.

Corporate and Investment Banking is an organisational part of Komerční banka that includes provision to corporate customers (with turnover exceeding CZK 60 million), various types of public institutions, the non-profit sector, and public institutions of such products and services as current and savings accounts, term deposits, operating or investment loans, other types of loans, specialised foreign trade or investment banking services, cash circulation services, as well as other specialised services provided by KB itself or in co-operation with other partners or Société Générale.

The Corporate Banking segment in KB Group includes most activities of SGEF and Factoring KB.

Corporate banking services are provided by teams of relationship managers and specialised experts in Corporate Centres, via distribution networks of other members of KB Group, or through direct banking channels.

Distribution and client service model

KB is developing a multi-channel distribution model. Subsidiaries sell their services through the distribution network of Komerční banka, and some also have their own networks. Digital banking is an integral part of the multi-channel distribution model, and the Bank aims to reinforce its leadership position on the Czech market in digital banking.

KB perceives its competitive advantage on the banking market as consisting in the value of partnerships with clients; the ability of its banking advisors to provide high-quality advisory; a wide range of relevant and advantageous financial products; proximity to clients via the branch network and advanced, secure direct banking; and its ability to provide services efficiently in accordance with clients’ needs and preferences.

The service model in KB’s retail banking is focused on assisting clients by providing them with professional advisory, preferably at appointments agreed with the client in advance. In creating their recommendations to clients, the relationship managers refer to an analysis of each client’s needs based upon the Bank’s data about that client. This enables the relationship managers to propose a solution most convenient for each client’s circumstances. Rapid service spots have been created in branches for addressing basic service requests, and the relationship managers assist clients so that they are able to execute simple transactions and administer their services by themselves in their mobile banking application or internet banking.

The network of branches remains a pillar of KB’s omnichannel strategy. Therefore, the Bank is progressively reconstructing its branches in a new design concept that is convenient for advisory and efficient servicing of clients’ various financial needs. Experts in the areas of investments, financing, and debt resolution are available remotely to assist the relationship managers.

In KB Premium Centres, senior bankers provide individualised services to discerning clients based on KB's Top Offer. 1 It includes a premium current account with prestigious payment cards, exclusive investment opportunities, and more favourable interest rates.

Private Banking 2 consists in a specific service model within Retail Banking. Komerční banka offers comprehensive Private Banking services to clients with financial assets exceeding CZK 30 million at its branches in Prague, Brno, and Ostrava. Clients with assets up to CZK 30 million have access to selected Private Banking products in co-operation with KB Premium service. The services provided include mainly portfolio management under mandates, a wide range of investment instruments, complete banking services, real estate and lombard loans to finance the private projects as well as needs of clients, investments in funds for qualified investors (real estate funds and private equity), investments in corporate bonds, assistance in selling companies, trust fund services, and other instruments for intergenerational planning.

KB Poradenství is a new channel for servicing individual clients built upon the agent distribution network of Modrá pyramida. KB Group clients have thus gained access to more contact points and to mobile bankers capable of providing banking services in the New KB Era.

KB Business Centres are key elements in servicing small business clients. Their expertise and specialisation enable the Business Centres to provide quality advisory and individual solutions meeting clients’ needs.

Servicing of corporate clients is specific, as it is based principally on in-person dealings with relationship managers and seeking individual solutions for client needs. The service model in corporate banking reflects clients’ potential as well as their actual needs for financial services in order to create optimum value for the clients while allocating KB’s resources effectively. The relationships with economically interconnected clients are usually managed by the Bank at the level of the whole group.

In addition to the full range of banking products and services, the Bank provides large corporate clients also with highly specialised services, especially in the areas of investment banking, as well as export, structured, and syndicated financing. At the same time, it brings solutions for transactions unique on the banking market, including the primary issue of bonds, M&A consulting, and real estate services. The offer is complemented by the services of subsidiaries and associated companies providing leasing or factoring services.

Membership in a truly global banking group is a significant competitive advantage for KB in this segment, especially in the areas of foreign trade financing, cross-border payments, international cash pooling structures, and investment banking, as the Bank is able to provide corporate clients access to the services of all major global financial centres through SG.

Komerční banka’s sole foreign branch is in Slovakia. It operates on the basis of a single banking licence issued by the CNB. The branch is a trusted financial partner for top corporations in Slovakia, as well as for those corporate clients of the KB and SG groups operating there.

KB’s own distribution network is further complemented by the subsidiaries’ distribution capacities (especially those of Modrá pyramida) and, in the cases of selected products, also by business partners’ networks. Services and products of other KB Group companies are available within their own distribution networks, in the KB branch network and digital channels, and potentially through the business partners.

Client satisfaction, consumer protection

Satisfaction of clients is a priority for all of KB Group’s member companies. Clients’ loyalty and trust are crucial prerequisites for long-term success and resilience of the Group. Feedback from customers enables the Group to develop and offer relevant and competitive products and services.

Development, helpfulness, and responsibility are the three values characterising the KB brand. Komerční banka aims to be perceived on the market as a bank which, by its helpfulness, responsibility, and commitment to sustainability and progress, contributes meaningfully to the personal and entrepreneurial development of its clients.

Protecting clients and especially consumers

KB Group companies rigorously abide by all rules established for protection of clients, including the regulations for consumer protection and prohibition of certain clauses in consumer contracts.

The procedures applied by KB Group companies to uphold applicable regulatory and internal rules are described mainly in the Risk management / Compliance risk chapter of this annual financial report.

The client comes first for the Group. In managing client relationships, the know-your-customer principle is applied and all aspects of the relationship are taken into account in order to satisfy clients’ needs according to the optimal service and cost conditions and at a professional level. That way, clients’ loyalty and trust in the Bank and Group are promoted and their legitimate interests respected.

When advising clients, the Group considers each client’s knowledge and experience with the respective products, as well as with the associated risks.

The Group provides its financial services with professional care and refrains from engaging in unfair business practices.

In providing its services, the Group does not discriminate against consumers. Generally in this context, discrimination is understood to mean intentional or negligent differentiation, exclusion, limitation, or favouring of a client based on a discriminatory cause, unless it is objectively justified as pursuit of a legitimate goal and using reasonable and necessary means.

KB Group companies inform consumers about prices of the services provided or they appropriately disclose the information about the prices of services.

When negotiating remotely about contracts on provision of financial services, the Group follows applicable regulations, including the Civil Code. In particular, it provides the consumer with the stipulated set of information in due time ahead of closing the contract or before the consumer submits a binding bid. It also respects the right of the consumer to withdraw from the contract.

The Group companies abide by additional rules under special laws when providing specific financial services, such as the acts on payment systems, on consumer loans, on capital market undertakings, insurance, the circulation of bank notes and coins, and on pension savings.

Komerční banka, of course, develops measures protecting the clients that go far beyond the regulatory requirements.

Ascertaining clients’ satisfaction

All staff members at KB Group strive to enhance satisfaction of clients. Client satisfaction is investigated, measured, and evaluated at KB by the Customer Experience team, connected via ambassadors throughout the head office, contact centre, and distribution networks.

Trends in the numbers of clients and sales volumes for individual products and services are a natural source of information about development in client satisfaction.

In order to learn in depth about clients’ expectations and preferences, however, KB Group companies survey their clients on a regular basis, test user experience when developing new products in all client segments, monitor the individual phases of customer journeys, and adjust their offers accordingly.

The Group also measures clients’ satisfaction following introduction of new products to the market. If a customer is not fully happy, a client support specialist will call the client back and explain the new product once again, perhaps adjust the products, or even suggest different, more advantageous ones. The feedback thus obtained is then shared with development teams so that they can fine-tune every detail. After purchase of a product, KB asks the clients whether they obtained what they should have and in due time, whether they understand the products, or if they will need assistance with a setup.