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Survey of Results 2017–2021

According to International Financial Reporting Standards (IFRS)

Consolidated data (CZK million)
2021

2020

2019

2018
restated
1)
2017
restated
2)
Financial results
Net operating income 31,346 29,664 32,573 32,203 31,060
of which Net interest income 21,795 21,360 23,591 22,704 20,985
of which Net fees and commissions 5,711 5,210 5,983 6,025 6,284
of which Net profit on financial operations 3,630 2,884 2,804 3,209 3,576
Total operating expenses (15,099) (14,995) (14,932) (14,635) (14,510)
Profit attributable to the Group’s equity holders 12,727 8,156 14,901 14,846 14,930
Earnings per share (CZK) 67.39 43.19 78.90 78.61 79.05
Balance sheet
Total assets 1,244,353 1,167,131 1,077,334 1,059,932 1,001,652
Loans and advances to customers, net 724,587 679,956 647,259 624,954 593,639
Amounts due to customers 956,929 906,217 821,507 812,451 762,043
Total shareholders’ equity 3) 123,509 113,816 105,540 99,931 94,450
Ratios (%) 4)
Return on average equity (ROAE) 5) 10.73 7.44 14.50 15.28 15.07
Return on average assets (ROAA) 5) 1.06 0.73 1.39 1.44 1.55
Net interest margin 5) 1.93 2.03 2.03 2.33 2.33
Cost/income ratio 48.17 50.55 45.84 45.45 46.72
Capital 6)
Capital adequacy (%) 21.31 22.34 19.72 18.48 18.63
Tier 1 ratio (%) 20.87 21.73 19.14 17.91 18.02
Tier 1 101,072 97,906 84,062 80,788 76,525
Tier 2 2,136 2,784 2,546 2,578 2,560
Total regulatory capital 103,209 100,690 86,608 83,366 79,084
Total risk-weighted assets 484,372 450,628 439,237 451,052 424,566
Other data
Number of employees, average 7,687 8,061 8,167 8,413 8,492

Notes

1) As from 1 January 2019, Komerční banka reclassified charges for reservation of funds (commitment fees) from ‘Net fee and commission income’ to ‘Net interest income’. The data for 2018 were restated.

2) Comparative data has been restated to reflect the presentation of the year 2018 and reclassifications in the Consolidated Financial Statements. Balance sheet items presented as of 1 January 2018 including effect of IFRS 9 implementation.

3) Excluding Non-controlling interest.

4) According to the Komerční banka methodology.

5) Ratios for 2018–2020 based on figures according to IFRS 9; ratios for 2017 based on figures according to IAS 39.

6) According to Basel III.

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

Credit ratings (as of end of February 2022) 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)
2021

2020

2019

2018
restated
1)
2017
restated
2)
Financial results
Net operating income 28,996 26,288 30,599 30,707 29,216
of which Net interest income 19,100 18,611 20,550 19,694 17,756
of which Net fees and commissions 4,924 4,536 5,313 5,390 5,702
of which Net profit on financial operations 3,629 2,878 2,802 3,181 3,570
Total operating expenses (13,581) (13,573) (13,428) (13,155) (13,058)
Net profit 12,353 6,929 14,816 15,238 14,914
Balance sheet
Total assets 1,169,147 1,093,508 1,011,519 1,001,504 944,230
Loans and advances to customers, net 622,178 589,741 567,805 553,888 531,085
Amounts due to customers 899,654 849,029 762,157 755,039 702,053
Total shareholders’ equity 115,418 105,196 98,218 92,721 87,004
Ratios (%) 3)
Return on average equity (ROAE) 4) 11.20 6.81 15.52 16.96 16.42
Return on average assets (ROAA) 4) 1.09 0.66 1.47 1.57 1.64
Net interest margin 4) 1.83 1.91 2.20 2.17 2.13
Cost/income ratio 46.84 51.63 43.88 42.84 44.69
Capital 5)
Capital adequacy (%) 23.02 23.82 21.10 19.60 19.41
Tier 1 ratio (%) 22.50 23.13 20.46 18.97 18.75
Tier 1 97,182 93,360 80,982 77,769 72,622
Tier 2 2,236 2,775 2,546 2,578 2,560
Total regulatory capital 99,419 96,135 83,528 80,347 75,181
Total risk-weighted assets 431,973 403,622 395,828 409,958 387,330
Other data
Number of employees, average 6,736 7,104 7,210 7,458 7,551
Number of points of sale 6) 243 243 343 365 387
Number of clients (thousands) 1,625 1,641 1,664 1,668 1,664
Number of ATMs 860 809 796 776 764

Notes

1) As from 1 January 2019, Komerční banka reclassified charges for reservation of funds (commitment fees) from ‘Net fee and commission income’ to ‘Net interest income’. The data for 2018 were restated.

2) Comparative data has been restated to reflect the presentation of the year 2018 and reclassifications in the Consolidated Financial Statements. Balance sheet items presented as of 1 January 2018 including effect of IFRS 9 implementation.

3) According to the Komerční banka methodology.

4) Ratios for 2018–2021 based on figures according to IFRS 9; ratios for 2017 based on figures according to IAS 39.

5) According to Basel III.

6) Including one branch in Slovakia.

Definitions of the Alternative Performance Measures mentioned in this annual 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-the-bank/about-kb . 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 KB

History 7

ESG ratings 7

Société Générale Group 7

Company profile 8

The Bank’s identification details as of 31 December 2021 9

Strategy and business performance

Report of the Board of Directors 10

Purpose, Mission and Strategy 10

– Principles of activity 10

– Environmental, social, and governance (ESG) principles 10

– Major events of 2021 12

– Economic and monetary environment in 2021 14

– KB Change 2025 strategic plan 15

– Fulfilment of business and financial targets set for 2021 17

– Expected development and main risks to that development in 2022 18

– KB Group clients and their service 20

Komerční banka Group 35

Corporate governance 42

Shareholders and the General Meeting 43

Additional information in accordance with the Act on Capital Market Undertakings 46

Board of Directors 46

Organisational chart of Komerční banka 53

Supervisory Board 54

Employee relationships 58

Risk management 65

Risk governance 65

Credit risk 66

Capital markets risks 69

Financial risks 69

Operational risk 70

Compliance risk 73

Governing law 80

Legal risk 81

Internal audit 81

Internal control and approach to risks in the process of accounting and preparing financial statements 81

Capital and liquidity

Regulatory framework 83

Capital and risk‑weighted assets 83

Liquidity and funding 88

Financial performance

Comments on the IFRS consolidated financial results 89

Consolidated Financial Statements 94

Separate Financial Statements 189

Securities issued by Komerční banka 282

Information on remuneration to auditors 287

Contribution to the Investor Compensation Fund (in the Czech Republic) 287

Relations among related entities

and affidavits

Report on Relations among Related Entities 288

The structure of relationships within whole SG Group 309

Report of the Supervisory Board 327

Management affidavit 327

Independent Auditor’s Report 328

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

History

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 Bankovni 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 KB Change 2025 strategic programme, which will assure KB’s leading position in the new era of digital banking.

ESG ratings

Komerční banka is a constituent company in the FTSE4Good Index Series of companies demonstrating strong environmental, social, and governance (ESG) practices, and it is rated BBB in MSCI ESG ratings measuring companies’ resilience to long-term, industry material ESG risks.

Société Générale Group

Komerční banka has been an important part of Société Générale Group’s international retail banking since October 2001. Société Générale is one of the leading European financial services groups. Based on a diversified and integrated banking model, the SG Group combines financial strength and proven expertise in innovation with a strategy of sustainable and responsible growth. Committed to the positive transformations of the world’s societies and economies, Société Générale and its teams seek to build, day after day, together with its clients, a better and sustainable future through responsible and innovative financial solutions.

Active in the real economy for over 150 years, with a solid position in Europe and connected to the rest of the world, Société Générale has over 133,000 staff members in 61 countries and supports on a daily basis 30 million individual clients, businesses and institutional investors around the world by offering a wide range of advisory services and tailored financial solutions. The Group is built on three complementary core businesses:

Société Générale is included in the principal socially responsible investment indices DJSI (World and Europe), FTSE4Good (Global and Europe), Bloomberg Gender-Equality Index, Refinitiv Diversity and Inclusion index, Euronext Vigeo (Europe and Eurozone), STOXX Global ESG Leaders indices, and MSCI Low Carbon Leaders Index (World and Europe).

Company 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, and insurance. These are accessible through KB’s branch network, its direct banking channels, and the subsidiaries’ own sales networks. 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 2021 31 December 2020 31 December 2021 31 December 2020
KB Group 738.9 691.4 948.6 893.0
KB (including KB Slovakia) 635.4 599.6 890.2 835.1
- Individuals 289.2 271.7 354.9 322.0
- Businesses and other 346.2 327.9 535.3 513.2
- Small businesses 41.3 39.8 234.9 218.9
- Medium corporates and municipalities 116.8 110.2 196.1 190.9
- Top corporates and other (including KB Slovakia) 188.1 178.0 104.3 103.3
Modrá pyramida 76.0 63.9 60.9 60.8
ESSOX (including PSA FINANCE) 17.3 17.7 0.2 0.2
Factoring KB 11.4 8.3 0.7 0.8
SGEF 30.7 30.3 n.a. n.a.
BASTION 2.2 2.5 n.a. n.a.
Consolidation and other adjustments (34.2) (31.0) (3.3) (3.9)

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

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

The Bank’s identification details as of 31 December 2021

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 resolution 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

Report of the Board of Directors

on the Bank’s and Group’s business activities

and financial position

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 with respect to 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 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 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 KB Change 2025 plan. The ESG strategy is under review at the time of publishing this annual report and an updated document will be released during 2022.

KB Group is prepared to apply in future a holistic approach to ESG regulations and to further embed 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’s 2021 Sustainability Report, 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 entity2. 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 chapter on KB Group Clients and Their Service within this annual report. Information about fighting against corruption and bribery is presented in the Risk Management chapter of this annual 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, which are 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)3 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,4 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.

Major events of 2021

January

From January 2021, ESSOX became the exclusive partner for financing of Hyundai and Kia cars. Alongside its partnership with PSA Group (Peugeot, Citroen), existing already since 2016, this significantly reinforces ESSOX’s position on the market for financing new cars.

Komerční banka successfully sold the inaugural issue of mortgage bonds in the amount of EUR 500,000,000 issued under its newly established EUR 5 billion mortgage bonds programme. The bonds are rated AAA (Fitch), have a maturity of 5 years with the possibility for extension by 1 year (so-called soft bullet), and are traded on the Luxembourg Stock Exchange.

KB selected Transact, an innovative core banking platform, from Temenos, the world’s leading supplier of banking software, for the processing of banking transactions. The simplified and consolidated internal IT environment will help Komerční banka to bring innovative products and services to the Czech market at a quicker pace.

In co-operation with Direct Fidoo a.s., KB offered its corporate clients a modern application for digitising the processing and billing of all corporate outlays, including to use Fidoo prepaid cards to simplify accounting for cash advances, card payments, and travel orders.

Komerční banka launched a new generation of its digital Open Banking platform, which makes KB’s and its partners’ products available in the ‘Bank-as-a-Platform’ and ‘Bank-as-a-Service’ modes. This additionally expanded services using banking identities.

The Bank started providing complete assistance in processing subsidies from the EU Modernisation Fund, which helps national energy companies in transitioning to clean resources.

February

It became possible to arrange a personal loan in a fully digital manner via mobile banking (Mobilní banka) or internet banking. This means clients can have money in their accounts within just minutes. This product was awarded 1st place in the unsecured consumer loan category of the Financial Product of the Year awards organised by the specialised web portal Finparada.cz.

ESSOX offered a new cash loan, the closing of which takes place completely online at www.CashShop.cz.

KB’s MojeBanka internet banking was enabled with full-text search capabilities.

To owners of G2 student accounts, the Bank began issuing ecological payment cards produced from 85% recycled materials.

Komerční banka Group received a number of other awards, including 1st place recognition in the banking and investment category in the “Best Employer” survey of university students, organised by the Association of Students and Alumni and conducted by the public opinion research agency GfK. KB Mobilní banka ranked 1st in the TOP APP Award’s independent evaluation of mobile applications on the Czech and Slovak banking market.

Harvard Business School published a case study entitled Enterprise Agility at Komerční banka.5

March

Building upon the KB Key tool, the Bank launched electronic authentication based upon banking identity for clients to access public services.

KB inaugurated a new Sustainably Together (Společně udržitelně) web portal that provides examples of good practice and advice on transition to more sustainable business models.

With a focus on developing the circular economy, KB Jistota Foundation started new long-term co-operation with INCIEN (Institute for the Circular Economy). The Foundation also launched a campaign of support for single parents in difficult life and health situations.

A new service, ‘Investment Specialist via Skype for the Living Room’, was launched. It will help the clients with investments while at the same time saving them the trip to the branch.

KB SmartSolutions established Finbricks, s.r.o., a wholly owned subsidiary with registered capital of CZK 1.5 million. Finbricks operates an aggregation platform for financial services offered under the PSD 2 directive.

April

The General Meeting approved the Board of Directors’ report on the Bank’s business activities and the state of its assets for the year 2020, as well as the individual and consolidated financial statements for 2020. It also decided to transfer the entire profit to the account of retained earnings of previous years. On the proposal of the Nomination Committee, the General Meeting elected Mr Petr Dvořák, Mr Alvaro Huete Gomez, Mr Giovanni Luc Somo, and Mrs Jarmila Špůrová as members of the Supervisory Board. Mr Somo was also elected a member of the Audit Committee. The General Meeting furthermore approved an amendment to the Articles of Association and the Remuneration Report.

Komerční banka became the first bank in the Czech Republic to join the Covered Bond Label, an international designation emphasising the security, transparency, and quality of covered bond programmes.

In accordance with its initial strategy, Komerční banka reduced its ownership stake in Bankovní identita, a.s. to 17%, thus enabling other banks to enter this national platform for the provision of digital identification services.

May

Komerční banka started accepting applications for new Covid Invest investment loans with guarantee of the Bohemian–Moravian Guarantee and Development Bank (ČMZRB) from companies with up to 500 employees.

In addition to its strategic steps with a view to reaching carbon neutrality in its own operations by 2026, Komerční banka has committed to progressively reduce to zero by 2030 its exposure to projects actively associated with the coal sector.

June

Within the Société Générale Group, KB committed itself to an action plan contributing to gender diversity. The Group strives to achieve the fundamental goal of having at least a 30% share of women in the Group’s governing bodies by 2023.

KB SmartSolutions s.r.o. increased its stake in upvest s.r.o. from the previous 18.9% to 31.06%.

With respect to the discontinuation of LIBOR and EONIA, KB implemented successor risk-free rates for relevant currencies and introduced interest rate hedging products linked to these rates.

July

KB deployed a new OLEG omnichannel lead generation technology that supports consistent and clear communication with clients across channels, improved reactivity to client demands, and more effective targeting of the Bank’s offer.

For its inaugural issue in January of euro-denominated mortgage bonds, Komerční banka received a prestigious international award in the Pioneer category of The Covered Bond Report Awards for Excellence 2021.

August

Michael Pupala became the new Chairman of the Board and CEO of Modrá pyramida from the beginning of August.

KB established via its KB Smart Solutions platform a partnership with the iÚčto cloud-based system, which makes accounting, tax and management reporting, invoicing, and inventories record-keeping easier for small businesses.

September

The Bank began offering authentication services via banking identity for commercial service providers.

Komerční banka became the main partner for both the ice hockey Extraliga and the national hockey team.

The Expert Jury Prize for Reporting in the SDG Awards of the Czech Social Responsibility Association was awarded to KB for its Sustainability Report in 2020.

October

The first 500 clients from among KB employees began testing services of the new digital bank, a key project of the KB Change 2025 strategic plan.

KB launched pilot operation of the Remote Service Centre, whereby clients meet with their bankers online or by telephone.

Modrá pyramida opened the possibility for arranging a Quick Loan (Rychloúvěr) for housing via the MP Home mobile application.

KB concluded with ČEZ a strategic partnership supporting sustainability. They will co-operate in reducing their own carbon footprints as well as the emissions produced by clients. A first step was to offer photovoltaic rooftop installations as a service and Komerční banka’s purchase of renewable energy from ČEZ ESCO.

November

Komerční banka introduced the BankID Sign service for guaranteed signing of documents using banking identity.

ESSOX launched an online deferred payment service for e-shop customers.

KB, together with Visa, Heureka, and the Association of Social Responsibility, presented the “Sustainable e-shop” project to support and motivate sustainable e-shop business.

ESSOX selected Unicorn and SAP for its transition to a new-generation enterprise IT system (SAP S / 4HANA).

Among the MasterCard Bank of the Year awards for 2021, Komerční banka won first place in the Corporate Bank of the Year and Sustainable Bank of the Year categories.

Komerční pojišťovna was named Best Life Insurance Company in Hospodářské noviny’s Best Insurance Company of the Year 2021 competition.

The Best Performing Private Bank in Central and Eastern Europe award went to Komerční banka’s private banking. The recognition was among the Global Private Banking Awards from the Financial Times media group’s magazines The Banker and Professional Wealth Management.

Jan Juchelka, CEO and Chairman of the Board of Directors, was named Best Manager in the Czech Republic by the National Evaluation Committee of the Czech Management Association. He also was recognised by the Business for Society alliance as Top Responsible Leader of the Year in the sustainability category.

Komerční banka and its subsidiaries Modrá pyramida and ESSOX voluntarily joined the legislative initiative called Merciful Summer, which aims to help people in distraint as a result of non-payment of their loans. Thus, by the end of January 2022, their clients could repay their defaulted obligations without additional penalty and execution costs.

December

The prestigious magazine The Banker named Komerční banka Bank of the Year 2021 in the Czech Republic. The jury had focused upon how banks had helped their customers and the economy in the past year, their ability to innovate continuously, and also the sustainability of their approaches to business.

Economic and monetary environment in 2021

The development of the Czech economy in 2021 was very volatile. The first months of the year were marked by another pandemic wave, accompanied by strong limitations on economic life. The second quarter, by contrast, brought significant improvement in the pandemic situation, and thus, contrary to expectations, a rapid easing of restrictive measures. This led to a reversal in the development of the real economy, and the resumption of economic activity began to yield very good economic data. In addition, it was technically supported by the base effect, which was extremely low due to anti-pandemic measures in 2020. The optimism did not last long, however, and in the second half of the year the Czech economy was hit hard by a shortage of production components, especially microchips, which made it impossible to complete the production of cars, in particular. Even with the beginning of 2021’s final quarter the situation did not improve – quite the opposite. Outages in the automotive industry continued in mid-October. A lack of chips was only part of the problem, however, as raw materials were in short supply for most industries and in construction. Labour shortages were also a problem. Indications that these problems might subside did not begin to appear until the end of last year.

According to a preliminary estimate by the Czech Statistical Office, the Czech economy grew by 3.3% in 2021. Growth was supported by final consumption spending and change in inventories, while net exports played a negative role. The growth of gross value added was most significantly influenced by developments in industry, in the segment including trade, transport, accommodation, and hospitality, and in the group of general government, education, and health and social work.6

The situation of Czech industry in 2021 was not the most rosy. Although plant closures were no longer being applied due to the pandemic situation, companies reduced production due to a lack of production components. While industrial production still grew decently during March, in April and May there was significant deterioration in its performance. For the rest of the year, the results were variable, depending upon the current sufficiency or shortage of components. For the whole of last year, industrial production increased by 6.4%. Revenues from industrial activity at current prices were 20% higher year on year in 2021, and new orders rose by 14.9%.7

Household consumption grew rapidly after the easing of anti-pandemic measures in the spring of 2021. Its quarter-on-quarter real growth was 7.4% in the second quarter and 4.0% in the third quarter. However, a drop in consumer confidence in the autumn of last year in connection with a sharp rise in energy prices and, in part, increased pandemic risks cause consumption to slow. Retail sales (excluding motor vehicles) adjusted for calendar effects for the whole of 2021 increased by 4.5% year on year at constant prices, and without adjustment for these effects by 4.4%.8 Sales grew across all categories of non-food goods, with sales via the internet or by mail order growing the most.

The economic recovery led to a further reduction in the unemployment rate last year. Seasonally adjusted unemployment rate reached its peak in April (at 4.2%) and has been gradually declining since then. The seasonally adjusted unemployment rate in the MLSA methodology was 3.5% in December. In a year-on-year comparison, it was a half percentage point lower. This was due to recovery of the domestic economy and strong workforce demand. The number of job vacancies reached a local low in October 2020 and thereafter rose to a record 360,000 in September 2021. Its subsequent decline was due only to the onset of winter and the associated end of seasonal work. On the contrary, after seasonal adjustment, the number of vacancies increased slightly.9

However, the slowdown in economic activity and stronger demand stemming from savings stimulated when households could not spend met with crippled supply, magnified by the shortage of raw materials. A special category was energy and gas prices, which joined the factors negatively affecting supply (unfavourable weather in Germany, lower gas supplies from Russia) with structural changes caused by the transition to greener energy. The result was a sharp rise in inflation, which reached 6.6% at the end of last year.10 The average inflation rate reached 3.8% in 2021, which was 0.6 percentage points more than in 2020. Throughout the year, the annual inflation growth rate gradually increased in individual quarters (from 2.2% in Q1 to 6.2% in Q4). The development of inflation was mainly influenced by rising prices in the categories of transport, housing, alcoholic beverages, and tobacco, but prices grew in most categories of the consumer basket.11 Prices in the primary sector of the economy also jumped upwards. Those at industrial producers rose by an average 7.1% in 2021, which was the most since 1995. Agricultural producer prices were on average 6.9% higher. Prices of construction work also rose (5.1% year on year), while prices of materials and products used in construction increased on average by 10.9% for the whole of 2021.12

The Czech National Bank did not take long to react. It first tightened monetary conditions in June of last year, raising its base repo rate from 0.25% to 0.5%. It continued to tighten monetary policy in a series of five steps at each monetary policy meeting. At its last meeting of the year, in December, it raised the base repo rate by a full percentage point to a final 3.75%. At the same time, it decided to increase by the same amount the discount rate (to 2.75%) and the Lombard rate (to 4.75%). Last year, interest rates thus rose by a total of 350 basis points.13

Like the development of the Czech economy, that of the crown’s exchange rate was quite turbulent. The first quarter in the regional financial markets was marked by the peak of the pandemic, and this was reflected also in the development of exchange rates. In March, the crown weakened to 26.4 CZK per euro. The second quarter brought a post-pandemic calm, with the Czech National Bank raising interest rates for the first time. This helped the domestic currency to strengthen to a CZK 1 stronger level (25.4 CZK/EUR). The beginning of summer holidays broke this trend, however, and the combination of traditionally low liquidity, global concerns about further coronavirus mutations, and strengthening of the US dollar prevented the crown from making further gains. The rest of the year was marked by surprisingly rapidly rising inflation accompanied by an unexpectedly aggressive tightening of domestic monetary policy on the one hand and a weakening euro against the US dollar on the other. Nonetheless, the record-breaking interest rate differential still prevailed and the crown thus fought its way below the level of 25.00 CZK / EUR at the close of 202114

The pandemic situation was also reflected in the government’s budget, which ended last year with a deficit of CZK 419.7 billion (6.9% of GDP). Total revenues increased by 0.8% year on year, but outlays by 3.5%. On the revenue side, the collection of corporate and VAT taxes improved, but this was largely offset by lower personal income taxes due to abolition of the super-gross wage and an increase in the taxpayer’s rebate. Growth on the expenditure side was mainly due to social benefits. Transfers to health insurance companies also grew significantly, and the impact of support programs related to the pandemic was also significant.15

KB Change 2025 strategic plan

Komerční banka had presented on 5 November 2020 its KB Change 2025 plan updating strategic directions and addressing the emerging challenges and opportunities for creating a strong, client-focused bank.16 Komerční banka aims to build together with its clients 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, with specific objectives established in ten thematic areas.

KB will build a new digital bank founded on new technological and process infrastructure, introducing new services and new partners, and supported by smart innovations. 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 the client data. The Bank will develop a new advisory model supported by data analytics. To evolve its agile, adaptive, and effective organisation, the Bank will implement 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 new digital KB will rebalance its organisation towards fully digital sales and services. Its position on the housing finance market will be reinforced by creating a single mortgage factory delivering solutions for clients of both KB and Modrá pyramida. KB will aim to protect its 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 will aim to identify emerging risks and contain risk losses in the new world of digital banking and within a volatile environment. 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 will furthermore position itself as a green bank and a sustainability leader in the Czech financial market and within Société Générále Group.

The strategy’s financial targets have been set on a KB Group basis, and the management is confident about at least reaching these targets. Based upon organic growth, and after bottoming out due to the pandemic in 2021, the Group’s revenues should record a dynamic average growth rate up to the 2025 horizon. Revenue growth will be driven mainly by rising business volumes, digital sales, the advisory model supported by data analytics, and new sources of revenues. The normalisation of interest rates – faster than initially assumed – should contribute positively towards fulfilment of the revenue target. Operating expenses will grow at a much slower pace than that for revenues, and also slower than inflation. These positive operating jaws will be powered by savings from simplification and decommissioning of old technologies and decrease in the numbers of branches and employees. The cost-to-income ratio is targeted to move below 40%, with significant improvement during 2024–2025 driven by new revenues and savings from rolling out the new digital bank. With a view to reinforcing the scale of KB’s existing business and thus optimising efficiency and competitiveness in high-potential business segments within the 2025 planning horizon, KB will consider to enhance its performance with non-organic growth elements. Implementation of any such ambition will be subject to further careful assessments and validations. The minimum ambition for the number of bank clients inclusive of the non-organic growth component has been set at 2,000,000. The targeted cost-to-income ratio below 40% is valid also for the scenario of non-organic growth. Upon successful implementation of non-organic growth components, and assuming normalisation in the cost of risk levels at 25 basis points, KB Group targets ROE above 15% for 2025.

Progress in implementing the KB Change 2025 strategic plan during 2021

By the end of 2021, the Bank had already delivered tangible progress in the ten areas covered by KB Change 2025.

The building of a new digital bank with the Temenos Transact system at its core has already achieved a Drop 1 phase, wherein a functional bank with basic features is being tested by 500 clients from among KB employees. KB and Modrá pyramida together are also building a new joint infrastructure and front-end system for housing finance. Because the branch remains an important building block of KB’s omnichannel strategy, a new design concept was created that is appropriate for advisory and effectively serving clients’ various financial needs. The first new outlet was opened in July 2021 in Prague–Dejvice. Moreover, clients can newly obtain several additional products in their mobile banking application, such as a consumer loan, property insurance, savings account, overdraft, or wallet insurance. The share of consumer loans sales made completely through digital channels rose to 29% in 2021 compared to 11% in 2019. Moreover, 19% of MůjÚčet accounts were opened digitally, up from 4% in 2019, and some 15% of frameworks for investments in mutual funds were agreed fully online during 2021.

In order to procure new revenue sources, KB has been building an ecosystem of complementary financial services by a combination of internal development, co-operation with start-up as well as established providers, and even acquiring participations in fintech companies via its fully owned platform KB Smart Solutions. Among many examples, these include establishment of Finbricks, s.r.o., an aggregation platform for financial services under the PSD 2 Directive; increasing KB’s stake in Upvest s.r.o., a crowdfunding platform for real estate projects; launch of digital identification services for government services by Bankovní identita, a.s.; and a joint offering with ČEZ ESCO for installation of photovoltaic plants on the roofs of residential houses as well as industrial factories.

KB is striving to reinforce its market leadership position in services for corporate clients. It has introduced spolecne-udrzitelne.cz (Sustainably Together), an advisory portal for sustainable development and transformation of businesses. Business clients have also appreciated a new Trade & Finance Online platform for administration of documentary payments, guarantees, and other services. In a year-over-year comparison, KB’s market share in lending to businesses improved by some 0.5 percentage points to 17.6% as of December 2021.

Komerční banka intends to do its part to protect the climate by supporting a fair, environmentally friendly, and inclusive energy transition, even as it acknowledges that not all sources of energy are equivalent in their costs to consumers and that the energy sector represents thousands of jobs. The Bank is committed to limiting global warming and to reducing its direct emissions (scopes 1 and 2) in accordance with a 1.5°C scenario from the Paris Agreement. KB will contribute to carbon removal projects with a view to reaching carbon neutrality by 2026. In 2020, total emissions decreased by 35% year on year to 25,050 tonnes of CO2 equivalent, 15.2 kilograms per client. Measurement is audited on a yearly basis by the non-profit Preferred by Nature. The audited volume of greenhouse gases emitted during 2021 will be disclosed in April 2022. During 2021, the Bank contracted CZK 21.9 billion in financing of projects with sustainable positive impact, and it has unveiled new products compatible with environmental and social targets, such as mutual funds investing in companies compliant with environmental, social, and governance (ESG) standards; advisory and financing of projects for energy savings and renewable energy sources; and payment cards made of recycled plastics. Furthermore, Komerční banka has committed to progressively reducing to zero by 2030 its exposure to projects actively associated with the coal sector. On this basis, the Bank is no longer providing new financial products to clients having more than 50% of their revenues linked to coal. For current clients who have more than 25% of their revenues linked to the thermal coal sector, KB refrains from providing new products or services unless there is a public, time-bound transition plan to exit this sector.

As part of its risk management framework, KB has completed a review and update of its client data in order to ensure compliance with the latest regulations. KB has also further enhanced its capabilities in the areas of cyber security and fraud prevention. In the credit risk area, tools utilising machine learning algorithms have been implemented for identifying and assessing early warning signals regarding corporate exposures, thereby allowing analysts to save time on routine monitoring and to focus on more complicated cases. Deployment of new risk modules supports automation and digitisation of loan granting activities.

The capacity to introduce product innovations and responsiveness to client requirements or alerts was supported by increase in the average frequency of software releases to 11 per year per product. Agile and effective collaboration and consistent target-setting were reinforced by implementation across the Bank of the Objectives and Key Results (OKR) methodology. In order to improve efficiency and strengthen its internal know-how, KB has also created several dozen new job positions for tasks that previously had been procured from external suppliers.

Along with centralisation of main support functions across KB Group, the head offices of all remaining subsidiaries were moved to the Group’s headquarters in Prague-Stodůlky, with the exception of ESSOX, which remains managed from České Budějovice. The average number of employees in 2021 decreased by 4.6% compared to a year earlier.

The 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 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. The measurements in retail segments during 2021 showed a gain in NPS among individual clients to 39 points from 32 in 2019, among small businesses to 41 from 32, and among the clients of corporate and investment banking to 45 points. Based upon organic growth, the clients’ seamless omnichannel experience should help the Bank to achieve its target of 1,850,000 clients by 2025. As of 31 December 2021, KB was serving 1,625,000 clients and the whole KB Group had 2,251,000 clients. The development in the past year was influenced by cancellation of several tens of thousands of client accounts when clients did not provide sufficient information to meet upgraded know-your-customer requirements.

The branch will remain an important contact point for clients, but, as the trend in providing services increasingly involves migration to digital channels, the Bank aims to have just 200 branches by the strategy’s horizon. KB accelerated planned reduction of branch network to reflect the shift of client traffic from branches to digital channels during the pandemic. As of 31 December 2021, the number of branches stood at 242, down from 342 as of 31 December 2019. Optimisation of operations through digitalisation, branch reduction and switching to cashless banking, automation of middle- and back-office and support functions, and robotics deployment will mean that the standalone bank’s full operations and services will be handled by approximately 5,500 employees. This compares to 7,210 employees in the Bank in 2019, and 6,736 employees in 2021.17 The upgraded working and management methods will lead to employee empowerment and effective teamwork across the entity. Motivation, sense of importance, and recognition will improve, and 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 a strong 78 points in 2019. KB has introduced the Smart Office concept of hybrid work from office and home, launched the Mojevitalita programme promoting and supporting healthy life style, is offering legal and life counselling for all colleagues, and has implemented support measures for those populations most vulnerable to the pandemic threat. The employee engagement index’s 2021 measurement stood at 77 points.

KB believes that pursuing sustainability in business and operations generates long-term benefits in delivering new business and value for shareholders as well as compliance with future Czech and European regulations. As a measure of maturity in the environmental, social, and governance areas, KB has selected the globally recognised FTSE4Good index of sustainably managed companies. Its target will be to exceed the level of 4 points. In June, KB’s membership in the FTSE4Good index was affirmed, with a score of 3.3, the same level as a year earlier. Moreover, in November 2021, KB ranked in the 73rd percentile (among the 27% best-ranked banks) in the S&P Global ESG Score – Corporate Sustainability Assessment.

Perceived by Komerční banka as attesting to the right direction of its strategy, the prestigious magazine The Banker has named KB the best bank in the Czech Republic for 2021. The jury focused on the Bank’s help to customers and the economy in the past year, its ability to innovate continuously, and also its sustainability approach. The Banker’s award was the crown among those recognitions received by KB Group companies in 2021, which included, among others, the titles MasterCard Corporate Bank of the Year and Sustainable Bank of the Year for Komerční banka, and The Best Life Insurer for Komerční pojišťovna in a contest held by Hospodářské noviny daily.

Fulfilment of business and financial targets set for 2021

The development of the economic environment in the Czech Republic during 2021 differed somewhat from the initial assumptions for KB’s business conditions as discussed in the presentation of the outlook for 2021 on 10 February 2021. The main differences were due to repeating waves of the Covid-19 pandemic, which have exacerbated disruptions in global supply chains and been reflected in shortages of various input materials and components even as demand was being supported by governmental anti-crisis programmes. Producer price as well as consumer price inflation thus rose much faster than the financial markets had expected. Consequently, the CNB began normalising its monetary policy rates sooner than expected.

KB Group achieved good business results

Growth in KB Group’s loan portfolio reached the level assumed in the published outlook. In comparison with expectations, housing loans grew faster (across the whole market) but this was offset by a slower-than-expected increase in the portfolio of consumer loans. Retail lending by KB Group expanded slightly more slowly than did the Czech retail loans market. Lending to corporate clients matched the ambition set for 2021, despite the still cautious sentiment of businesses towards new investment projects and the negative effect of Czech crown appreciation on the CZK value of the portfolio of business loans, often denominated in EUR. KB grew its market share year on year in lending to businesses.

Deposit volumes grew even slightly above expectations, particularly in the individual clients segment, where KB even gained further market share in 2021. The Group also managed to accelerate growth in clients’ non-banking assets (mutual funds, pension funds, life insurance), and expansion in mutual funds volumes was accompanied by a gradual shift to equity-linked products, in accordance with KB’s strategy.

Financial performance significantly better than planned

The consolidated revenues improved more than planned for the year 2021, essentially on all lines. Net interest income was up slightly, driven by volume growth and the earlier beginning of interest rates normalisation. Net fees and commissions benefitted from the successful development of mutual funds sales and assistance provided to corporate clients on the very active debt capital markets. Ability to offer relevant and thus highly demanded hedging solutions in an uncertain environment and KB’s helping clients with several large DCM transactions were additional reasons for the outperformance in net profit from financial operations.

The Group reported total operating expenditures in line with the initial guidance, as higher-than-expected regulatory contribution to the Resolution Fund was offset mainly by savings in general administrative expenses, even despite high inflation.

Cost of risk guidance was progressively lowered during the year, as the Group recorded satisfactory performance of its assets, including of portfolios previously in credit moratoria and exposures in sectors sensitive to the Covid-19 pandemic.

KB achieved in 2021 a healthy level of profitability and maintained its robust capital adequacy and strong liquidity.

Expected development and main risks to that development in 2022

Note: This outlook was first presented on 10 February 2022 upon release of Komerční banka’s results for the full year 2021. On 24 February 2022, the risk of military escalation in Eastern Europe materialised as the Russian Federation invaded Ukraine. The Group is aware that the sharply deteriorating geopolitical situation will have a significant impact on the economies of European countries. Nevertheless, due to heightened global uncertainty and the turbulent development, it is impossible to fully assess and quantify the impacts at the current stage. The Group is continuously monitoring and evaluating potential influences of the current crisis on its activities and on its clients. Although the Group’s direct exposure to Russia and Ukraine is limited, the Group is also evaluating indirect impacts (e.g. dependency on raw materials, supply chain disruption). As may be necessary and appropriate, the Group will respond to the changing situation by adjusting its policies (e.g. risk, operational, accounting), including possible adjustments to provisions and reserves in accordance with the IFRS 9 standard.

The following outlook is based on assumptions valid at the time of its first publication on 10 February 2022. As of the date of this annual report’s release, KB Group has not elaborated another outlook fully factoring in consequences of the war in Ukraine on the economic situation in Europe and the Czech Republic. In comparison to the expectations described below, growth of the Czech economy may be slower and inflation faster. Societal changes triggered by the conflict may also influence demand for some financial products and services, as well as the levels of certain parameters in financial markets. The geopolitical developments were very dynamic in the days preceding release of this report, and this situation did not allow for reliable and comprehensive review of the assumptions and expectations for the rest of 2022. Nevertheless, the management still believes that the outlook described below provides the best available estimate as to the main trends in development of the Group’s business and financial performance, including, in particular, faster growth of revenues compared to operating expenses and a maintaining of cost of risk under control.

Given the high level of uncertainty surrounding the conflict in Ukraine and the pandemic situation that are in addition to the usual risks related to projecting future business results, investors should exercise caution and judgement before making their investment decisions while considering these forward-looking estimates and targets.

In its baseline macroeconomic scenario for 2022, KB expects that the Czech economy should accelerate its growth to 4.9% in anticipation of an easing of supply chain disruptions as well as of pandemic restrictions and self-restraint affecting mainly parts of the service sector. The growth should be driven by recovery in net exports and fixed investments; household consumption, too, should continue to contribute positively. The lack of free labour in the economy will remain a factor limiting the growth potential.

The average inflation rate in 2022 is expected to reach almost 9%, with year-on-year inflation rates probably peaking in the first half of the year in double-digit territory. The growth in prices is being driven by a combination of global as well as domestic factors, mostly related at least indirectly to the pandemic situation. Unemployment will remain very low, also fuelling inflation via wage demands.

In order to fight these inflation pressures, the Czech National Bank will probably continue in sharply raising monetary policy rates, as it had commenced to do in the middle of 2021. The two-week repo rate will likely peak visibly above 4% during 2022, and a reversal of this rate course (i.e. a first cut) could come as soon as the turn of 2022 and 2023. Short-term CZK interest rates, such as 3-month PRIBOR, will mirror closely the CNB’s policy rate while long-term rates will rise more modestly, thereby resulting in an inverted yield curve.

The regulatory environment will see the effects of a reversal of some measures adopted in reaction to the coronavirus crisis. The CNB has returned to stricter regulation of mortgage lending, reinstating with effect from 1 April 2022 the limits on the ratios of debt-to-income and debt service-to-income as well as lowering the maximum loan-to-value ratio.18 It decided, too, on increasing the counter-cyclical capital buffer rate in two steps during 2022 and an additional step as of 1 January 2023, which will take this rate to 2.0%. The national bank also announced in September 2021 that it would no longer restrict the amount of bank dividends across the board.19 KB aims to begin gradually taking loans from Société Générale in order to meet the regulatory requirements for own funds and eligible liabilities (MREL) from the EU’s banks recovery and resolution directive (as the concept of Single Point of Entry is applied within the SG Group) once the situation of surplus capital accumulated during pandemic dividend restrictions is resolved. Banks will also be subject to some new reporting requirements, particularly in the field of sustainability.

The banking market will be positively influenced by the recovering economy. Total lending on the market should rise at a mid-single-digit percentage rate. The production of new housing loans will diminish in comparison with 2021 due to higher costs and regulatory limitations, but the outstanding volume of these loans should nevertheless expand modestly. Consumer credit expansion should accelerate to a mid-single-digit pace as the pandemic subsides. Loans to corporations should rise once companies gain more confidence and visibility into the future. Clients’ bank deposits should grow still faster than lending, in both retail and corporate segments, supported by higher nominal incomes.

Komerční banka will continue implementing the changes in accordance with its KB Change 2025 programme that had been announced in November 2020. The new digital bank will be developed in order to reach a marketable level of maturity in 2023.

In this context, KB management expects that the Group’s loan portfolio will record an upper-to-mid-single-digit growth rate for 2022 in both retail and corporate lending. Outstanding volume of housing loans should continue to record gains, even though the new sales of these loans are expected to diminish in comparison with the record level achieved in 2021. Growth in total deposit balances should reach a mid-single-digit pace, except that there will be slower development at Modrá pyramida. Clients are expected to be shifting their deposits to term accounts.

KB Group’s total net operating income for 2022 should expand at a double-digit pace in comparison with 2021. Net interest income will grow at a double-digit pace, reflecting increase in market rates and business volumes. Net fees and commissions should improve by low-single digits, driven again by cross-selling. The net profit from financial operations will probably decrease somewhat after having reached an extraordinary level in the past year.

In spite of the elevated inflation and expectation for another significant increase in regulatory charges for the Resolution Fund, operating expenses will remain under tight control and will rise by less than the rate of inflation. The Group will continue its transformation, which consists in investing into building the new digital infrastructure, overall simplification, and decreasing the numbers of employees and premises in use. Average salary growth will not exceed 3%. KB management also has decided on further steps in optimising the branch network during 2022. As of 1 April 2022, 25 branches will be closed and at another 19 branches cash services will be provided only via ATMs. As of 1 July 2022, KB will simplify the management structure of the branch network, including to replace regional retail divisions with joint segment and line management of all distribution channels at headquarters level. The selection of branches for closing was based upon a long-term analysis of branch traffic, coverage and potential of locations, and changing clients behaviour with growing preference for remote sales and assisted services in the digital environment.

Cost of risk will be influenced by a mix of factors, including the economic recovery, higher interest rates, appreciation of the Czech crown, and the beginning of fiscal consolidation. In KB’s central scenario, the cost of risk in 2022 should remain visibly below the estimated normalised level of 30–40 basis points across the whole business cycle.

The key risks to the expectations described above consist in further prolongation of the pandemic situation, with recurring lockdowns and shortages of key input materials for Czech industry, a sudden and sharp shift from the government’s previously expansionary fiscal policy, and a military escalation of the conflict in Eastern Europe. Generally, the open Czech economy would be sensitive to a worsening external economic environment, such as, in particular, further recession in the euro zone.

Management expects that KB’s operations will generate sufficient profit in 2022 to cover the Group’s capital needs ensuing from its growing volume of assets as well as to pay out dividends.

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

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

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

4  https://www.kb.cz/getmedia/7ba00421-a9c9-420f-9041-7727aba5973b/sg-tax-code-of-conduct.pdf.aspx

5 https://www.hbs.edu/faculty/Pages/item.aspx?num=59771

6  https://www.czso.cz/csu/czso/ari/gdp-preliminary-estimate-4th-quarter-of-2020

7  https://www.czso.cz/csu/czso/ari/industry-december-2021

8  https://www.czso.cz/csu/czso/ari/retail-trade-december-2021

9 https://www.mpsv.cz/web/cz/mesicni

10  https://www.czso.cz/csu/czso/ari/consumer-price-indices-inflation-december-2021

11 https://www.czso.cz/csu/czso/ari/analysis-consumer-price-indices-4th-quarter-of-2020

12  https://www.czso.cz/csu/czso/ari/producer-price-indices-december-2021

13  https://www.cnb.cz/en/monetary-policy/bank-board-decisions/CNB-Board-decisions-1640188080000/

14  Bloomberg

15  https://www.mfcr.cz/cs/aktualne/tiskove-zpravy/2022/pokladni-plneni-sr-44160

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

17  Average recalculated number of employees.

18  https://www.cnb.cz/en/cnb-news/press-releases/CNB-to-reintroduce-LTV-DTI-and-DSTI-limits-on-mortgage-loans-and-increase-countercyclical-capital-buffer-rate-to-2/

19  https://www.cnb.cz/en/cnb-news/press-releases/CNB-comments-on-banks-dividend-payout-plans/

KB Group clients and their service

Business model

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 throughout each client’s entire lifespan. 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 its ability to provide better service in a simple and efficient way with tailored financial solutions.

Komerční banka proactively seeks options for improving the experience and value it delivers to customers, including through partnerships with external providers of services that may enrich KB’s offer. The development of client and internal solutions is organised in cross-functional teams applying the agile@KB working method.

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.

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 mobile banking.

The service model in KB’s retail banking is focused on assisting clients by providing them 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 service approach in corporate banking reflects clients’ potential as well as their actual needs for financial services in order to create optimum value for clients and allocate KB's resources effectively. The relationships with economically interconnected clients are usually managed by the Bank at the level of the whole group.

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.

KB is organised into arms, tribes, and separate independent departments. The arms are managed directly by members of the Board of Directors or by executive directors, themselves reporting to the Chairman or members of the Board. The tribes, whose aim is to enable faster and better identification and fulfilment of client needs through implementing changes, are managed by tribe leaders. Executive directors and tribe leaders report to the Chairman or members of the Board.

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 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 a 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.

Komerční banka adheres strictly to regulatory requirements in all areas of its activities, and it is developing the “know your client” concept. In KB’s view, knowing the client and the client’s needs is an integral part of the business relationship with the customers and a process reflecting the respect, responsibility, and trust the Bank has in relation to its clients. Knowledge of its clients also provides a basis for the Bank to offer appropriate advisory services and services corresponding to clients’ actual needs. In this sense, the concept is a selling activity directly influencing the customer experience. In this area, Komerční banka is dedicating increased attention to employee training and continuous updates of business processes so that they adequately serve to maximise business efficiency while ensuring compliance with evolving regulatory demands.

Komerční banka is developing a system for detailed segmentation of customer relationships. The highest-level segments in the Bank are the following:

A set of additional thresholds and sub-segments within these segments is elaborated.

New Digital Bank

KB’s New Digital Bank (NDB) is a programme for building a new banking infrastructure and complete overhaul of banking processes. It was started in 2020 as a part of the KB Change 2025 transformation strategy.

The NDB comprises building of a flexible modular infrastructure including the core banking platform, card management system, payment hub, and customer management. On this basis, KB will introduce new simple digital products and customer relationship management around a single source of information across all channels and systems and supported by elements of artificial intelligence. The uniform sources of operational, business, and financial data will enable highly efficient reporting and analytics. At the same time, KB is building a new omnichannel front-end system for clients and relationship managers, employing a mobile-first approach. The personal contact with clients and the branch network remain pillars of the service model focused on providing professional advisory to the customers.

The New Digital Bank will allow for continuous 24/7 real-time processing of transactions, analytics, and lead generation. The innovation cycle will be shortened considerably by an ability for daily releases of software updates. The NDB will serve more effectively the needs of the clients as well as of the Bank, including regulatory duties, reporting, and customer relationship management. The subsequent decommissioning of certain parts of the original banking infrastructure will lead to material savings in operating expenses.

With launch of the NDB, the Bank aims for increase in client satisfaction as measured by the Net Promotor Score along with rising customer numbers and average revenues per user. The share of sales via digital channels should exceed 50%. The communication with clients will be completely paperless and productivity of relationship managers will improve.

At the beginning of 2021, Komerční banka selected Temenos Transacta as its future core banking platform. Syncordis will deliver and implement the system. In accordance with the agile development method, the NDB is being built in pre-defined increments. In the initial phase, which began in October 2021, the basic features of the NDB are available to some 500 clients from among the Bank’s employees. This should provide relevant feedback for developing useful characteristics into the system and assuring an excellent future user experience. In 2023, the NDB will reach a maturity level to allow introducing the New Digital Bank onto the Czech market, onboarding of new clients, and the start of a gradual migration of clients from the old system. The migration will commence in the Individuals segment, to be followed by small businesses and completed with corporate clients. This schedule is in accordance, too, with the development of new products and services for the NDB. Completion of the migration is planned for 2026, which will enable decommissioning components of the existing KB infrastructure.

Client satisfaction

Development and growth of Komerční banka’s customers (private and business), helpfulness towards the clients, and responsibility are the three value pillars of the KB brand. These express how the Bank wants to be perceived on the market and what values ​​it professes. The pillars of the KB brand are its essence. Komerční banka wants to be perceived by its clients as a Bank which, with its helpfulness, responsibility, and emphasis on sustainability, makes a significant contribution to their personal and business development. Client satisfaction is thus one of KB’s main priorities.

KB’s customers are regularly interviewed, the individual phases of the customer journey are also monitored, and, based upon the feedback, the Bank adjusts and sets its offers so that they are as user-friendly as possible. Interviews with clients (so-called user testing) are part of the development of new products and services. The Bank asks customers about their satisfaction after purchasing a product with regard to whether the client got everything he or she wanted at the right time, understands everything, or needs any help with setup. KB also monitors the evaluation of individual service channels, such as branch, contact centre, and mobile or internet banking. All these measurements take place continuously throughout the year. In addition to these individual interactions with Komerční banka, the Net Promoter Score (NPS) value also is measured, determining whether the client would recommend KB to friends or family. Over time, this indicator shows the affinity of clients for the Komerční banka brand.

In this way, more than 200,000 pieces of feedback are collected annually. In addition to time series and individual indices, satisfaction surveys generate a huge number of very valuable comments on what clients value or what is not set up optimally for them. This feedback is processed in two ways. First, clients who have expressed dissatisfaction are contacted by branches or the contact centre and KB employees deal with the situation directly within 48 hours of completing the questionnaire. The solution to this situation usually involves reconfiguring the product, explaining its use, or recommending another, more advantageous service. If the situation cannot be resolved immediately and requires a comprehensive adjustment of services, the customer experience team gathers these suggestions and requests improvements across the Bank. As a result of such suggestions, almost 100 specific adjustments to the existing offers were prepared last year. Based upon feedback from clients, in 2021, for example, KB unified and expanded the opening hours of branches.

It is key for the Bank to bring added value to clients and alleviate their daily worries. KB’s key competitive advantages exist across many areas: from everyday banking, through financing to investing. For example, clients can use a student account with KB for as long as 30 years and with no administration fee. Instant payments are offered to all clients at no extra charge. Security is extremely important, so the Bank monitors clients’ payments for suspicious or unusual transactions. In case a suspicious activity in an account or by card occurs, a Bank employee immediately calls the client and resolves the situation. KB wants to help its clients reduce costs, so the credit card for entrepreneurs returns 1% of each payment to their current accounts. There exist a number of such benefits that clients appreciate and consider attractive.

KB’s efforts to measure, analyse, and follow up on its client offerings are reflecting in continuous growth of the NPS index. A main driver of this improvement is the high satisfaction with staff at branches and contact points. Clients value the Bank’s employees for their professionalism, helpfulness, and efforts to find appropriate solutions. Very important aspects of why clients recommend KB are a sense of security and the quality of digital channels, especially of mobile banking.

Customer satisfaction is significantly influenced, too, by perception as to the value of Komerční banka’s services. KB has long strived to ensure that clients get the best value for the price they pay for the service. Prices are fair, transparent, and very competitive compared to those of other banks on the market.

Pricing at KB gives consideration also to sustainability. In setting price levels for services, KB motivates clients to use electronic and digital services, which are more environmentally friendly and at the same time more affordable for clients. If, despite all efforts, a client is not satisfied with any Komerční banka service, the client can request that the service fees be refunded through the Satisfaction Guarantee offer.

Komerční banka has established a complaints resolution mechanism that is in line with regulatory requirements and industry standards. Complaints resolution is conducted in line with the Claim Settlement Rules of KB, which are available to clients both in branches and online via KB’s web page.1

There are three levels of complaints resolution in KB: at the branch, by the customer experience team, and via the Group Ombudsman.

An independent ombudsman resolves claims of KB Group’s clients in Czechia and Slovakia. The ombudsman’s activities are governed and defined by the Ombudsman’s Charter. Clients can contact the ombudsman in case of dissatisfaction with the resolution of their complaints or complaints in the second instance (in the case of KB clients, the Customer Experience Department). Although the ombudsman’s decision is not legally binding on either party, within the conciliation procedure, the companies of the Komerční banka Group undertake to respect it.

Since 5 January 2022, the post of KB Group’s ombudsman has been held by Prof. JUDr. Marie Karfíková, CSc. She is an expert in financial, tax, and insurance law, a long-time attorney, and a lecturer and head of the Department of Financial Law and Financial Science at the Faculty of Law of the Charles University in Prague. Professor Karfíková replaced in this position Mr Joseph Franciscus Vedlich, LLM, who had been KB’s ombudsman since December 2009.

Internal policy sets forth the obligation of the complaints resolution administrator to inform compliance, operational risk, or data protection officers in case a complaint is related to their respective areas. An annual report on complaints resolution is provided to the Board of Directors and the Supervisory Board.

Selected business indicators
Distribution network 31 December 2021 31 December 2020
KB branches (CZ) 242 242
Modrá pyramida points of sale 202 201
SGEF branches 9 9
ESSOX group – points of sale 1) 1,943 1,843
ATMs 860 809
of which: deposit taking 502 429
contactless 604 304

1) Number of partners with a valid contract

Number of clients 31 December 2021 31 December 2020
KB Group's clients 1) 2,251,000 2,293,000
Komerční banka 1,625,000 1,641,000
– individual clients 1,383,000 1,389,000
– internet banking clients 1,465,000 1,443,000
– mobile banking clients 1,034,000 932,000
Modrá pyramida 485,000 485,000
KB Penzijní společnost 520,000 525,000
ESSOX (incl. PSA FINANCE) 2) 137,000 151,000

1) Year-on-year decline affected by termination of accounts as a result of know-your-client remediation process.

2) Year-on-year decline influenced by termination of non-active credit card relationships.

Cards and wallets 31 December 2021 31 December 2020
KB Payment cards active 1,604,000 1,588,000
– debit cards 1,420,000 1,407,000
– credit cards 184,000 181,000
ESSOX credit cards – active 55,000 61,000
Number of cards virtualised into payment apps 390,000 283,000
KB Key – number of clients with active authentication app 963,000 812,000
Loans to clients – gross loans
(CZK billion)
1)
31 December 2021 31 December 2020
KB Group 738.9 691.4
KB – total loan portfolio 635.4 599.6
– Loans to individuals 289.2 271.7
– Volume of KB’s mortgages 262.7 245.5
–  Volume of KB’s consumer and other loans 26.6 26.2
– Loans to small businesses 41.3 39.8
Loans to medium corporates and municipalities 116.8 110.2
Loans to top corporates and other loans 2) 188.1 178.0
Modrá pyramida – total loan portfolio 76.0 63.9
ESSOX – total loan portfolio (including PSA FINANCE) 17.3 17.7
Factoring KB – total loan portfolio 11.4 8.3
SGEF – total loan portfolio 30.7 30.3
BASTION – total loan portfolio 2.2 2.5
Consolidation and other adjustments (34.2) (31.0)

1) Excluding Other amounts due from customers and repo operations, but including debt securities issued by KB corporate clients.

2) Including loans provided by KB Slovakia.

Amounts due to customers and assets under management (CZK billion) 31 December 2021 31 December 2020
KB Group deposits 1) 948.6 893.0
KB deposits 890.2 835.1
–  individuals 354.9 322.0
–  small business 234.9 218.9
– MEM corporates 196.1 190.9
–  top corporates and other deposits 2) 104.3 103.3
Modrá pyramida – building savings 60.9 60.8
ESSOX 0.2 0.2
Factoring KB 0.7 0.8
Consolidation and other adjustments (3.3) (3.9)
Non-bank assets under management 20 4.3 191.8
Assets under management in mutual funds 3) 83.0 73.4
Clients assets managed by KB Penzijní společnost 72.1 68.6
KP life insurance technical reserves 4) 49.2 49.8

1) Excluding repo operations with clients.

2) Including deposits in KB Slovakia.

3) Assets of KB Group clients managed by third-party asset managers.

4) Komerční pojišťovna is consolidated by the equity method.

New products and services
January 2021 In co-operation with Direct Fidoo a.s. modern applications for digitising the processing and billing of all corporate outlays, including a pre-paid Fidoo card to simplify administration of cash advances, card payments , and travel orders.
KB a new generation of its digital Open Banking platform, which makes produ c ts of the Bank and its partners available in ‘Bank-as-a-Platform’ and ‘Bank-as-a-Service’ modes . T his additionally expanded services using banking identities.
KB Savings Account Bonus Invest. This savings account motivates clients to protect their savings from inflation by investing . Clients invest half of the funds and the other half earns an attractive rate of interest (in 2021 it was 3%) .
February 2021 ESSOX a new cash loan, the closing of which takes place completely online at www.CashShop.cz.
KB MojeBanka Internet Banking enabled full-text search .
KB a fully digital process for granting consumer loan s to existing clients in mobile banking . Funds appear i n the client’s current account within 5 minutes from signing the credit contract .
March 2021 KB an electronic authentication based on banking identity for access to public services.
KB Factoring and Roger a new s upply c hain f inancing (SCF) product . Reverse factoring helps customers optimis e working capital without the need to modify their internal processes and limit external financing . Using the SCF platform that is connected to existing ERP systems, the customers can help strengthen the financial stability of their suppliers by shortening the maturity of their receivables and ensuring immediate payment through factoring financing.
KB in co-opera tion with partners (Innogy, ČEZ , and others) a consumer loan for investments in sustainable technologies, with benefits for individual solutions provided by their suppliers , who are KB partners. In line with KB s Green retail strategy.
April 2021 KB a new network of insurance specialists. They offer free insurance optimis ation and arranging of new insurance protections in the area s of life and non-life insurance, both physically at KB branches and remotely.
May 2021 Modrá pyramida drawing a Quick Loan (Rychloúvěr) and Hypo Loan (Hypúvěr) for housing via the MP Home mobile application.
KB and the National Development Bank COVID Invest investment loans with support of the Czech Moravian Guarantee and Development Bank (now the National Development Bank) for companies with up to 500 employees.
KB Online portfolio , an application newly enabling trading on Prague Stock Exchange (PSE).
June 2021 KB New Risk-Free Rates for individual currencies and interest rate hedging products linked to these rates, replacing the discontinuing LIBOR and EONIA rates.
KB Investiční portál , a new branch front-end application for the offer of investment funds and investment advice.
KB Financial g uide (Finanční průvodce) , a form of financial advice based on detailed diagnosis of the client s financial situation. It simplifies bankers’ preparation for s ales meeting s and helps to conduct a dvisory session in a structured way while assist i ng
the client to better orient one self in his or her finances.
August 2021 KB and iÚčto a tool for entrepreneur clients for online accounting and invoicing, as well as processing of tax records, payments, reporting , and inventory records.
September 2021 KB authentication services for commercial service providers through banking identity.
October 2021 Modrá pyramida online arrangement of the
Quick Loan (Rychloúvěr) product .
KB a new interest rate hedging product wherein one component of the price is based up on fulfillment of objectives in the area of environmental, social , and corporate responsibility.
SGEF, KB , and ČEZ ESCO Fotovoltaika za korunu (Photovoltaics for 1 c rown) , makes it significantly easier for companies and municipalities to acquire rooftop photovoltaic power plant s . SGEF finances a solution that ČEZ ESCO designs exactly according to the needs of the individual client.
November 2021 KB together with other banks BankID Sign , guaranteed signature of a contract or document in
PDF format based on the bank identity.
ESSOX Rozložená platba (Divided payment) , allows e-shop customers to spread the payment of a purchase price across as many as four instalment s. A rrangement of the transaction takes place online.
December 2021 ESSOX Carolina , a new version of the popular motoring application . I n addition to other improvements, it creates the possibility for arrang ing an online cash loan of up to CZK 500,000 or insurance directly in the application.
Selected awards
January 2021 Magazine Global Banking & Finance:
Factoring KB named best factoring company in the Czech Republic in 2020
Komerční banka , a mong World s Best Treasury & Cash Management Banks and Providers 2021 in the Czech Republic
February 2021 Finparada.cz Financial Product of the Year awards:
Komerční banka awarded 1st place for KB ’s Personal L oan in the unsecured consumer loan category
Modrá pyramida recognised with 3rd place for Wise Savings (Moudré spoření) product in the building savings category
Top Employer survey among university students organised by the Students and Graduates Association and conducted by GfK:
Komerční banka ranked in 1st place as an employer in the banking and investments category
TOP APP Award an independent award for the best mobile applications in the Czech Republic and Slovakia given by Byzkids company:
Komerční banka awarded 1st place for KB Mobilní banka in the banking category within the Czech R epublic
April 2021 MasterCard Awards 2020 for the Czech Republic:
Komerční banka ’s 4U credit card named
The Fastest Growing Card
Worldline and KB SmartPay recognised with
Special Mention for the ‘Czechia pays by card’ project during the pandemic
May 2021 FocusEconomics:
Komerční banka awarded 2nd place in category
Best Overall Forecaster Czech Republic
Komerční banka a warded 2nd place in category Exchange Rate Forecaster – Czech Republic
Komerční banka a warded 3rd place in category
Fiscal Balance Forecaster – Slovakia
July 2021 The Covered Bond Report , a publication dedicated to the covered bond market:
Komerční banka recognised with a prestigious international award in the Pioneer category of The Covered Bond Report Awards for Excellence 2021 for its inaugural issue in January of euro-denominated mortgage bonds
September 2021 Association of Social Responsibility:
Komerční banka , for its Sustainability Report 2020 , honoured with Expert Jury Award for Reporting
November 2021 Sodexo Employer of the Year:
Komerční banka awarded 3rd place in the category of companies employing more than 5,000 employees
Global Private Banking Awards of The Banker and Professional Wealth Management magazines:
KB Private Banking named Best Performing Private Bank in CEE
National Evaluation Committee of the Czech Management Association :
CEO and Chairman of the Board of Directors of KB Jan Juchelka recognised as Best Manager in the Czech Republic
Business for Society:
CEO and Chairman of the Board of Directors of KB, Jan Juchelka named Top Responsible Leader of the Year for Sustainability
Hospodářské noviny Best Insurer award:
Komerční pojišťovna ranked in 1st place in the
Best Life Insurance Company category
Komerční pojišťovna ranked in 2nd place in the category Client-friendly life insurance company
Hospodářské noviny Competition Banking Innovator 2021:
Komerční banka awarded 2nd place for Dashboard Security in Mobilní banka
MasterCard Bank of the Year 2021:
Komerční banka awarded 1st place in the
Corporate Bank of the Year category
Komerční banka awarded 1st place in the
Sustainable Bank of the Year category
Komerční banka awarded 3rd place in the Mortgage of the Year and Private Bank of the Year categories
Results of annual Responsible Lending Index announced by the non-profit organization People in Need:
ESSOX recognised as repetitive leader in the area of credit costs and cash loan
Euromoney magazine:
Komerční banka named 1st among banks in the field of cash management within the Czech Republic, receiving the title of Euromoney Market Leader
Flema Media Awards media campaigns competition on the Czech and Sl o vak market:
Komerční banka and its advertising agencies PHD and PUSE recognised with award for the show Cesty z dluhů (Journey from Indebtedness) in the Best Use of television category
December 2021 The Banker magazine – Bank of the Year:
Komerční banka named Bank of the Year in the Czech Republic
Top Innovations r esearch by the agency IPSOS :
Komerční banka ranked in 1st place for the eco card made of recycled plastic

Indicators of business performance

Loans to customers

Total gross volume of lending to clients rose by 6.9% year on year to CZK 738.9 billion.2

In lending to individuals, the overall volume of housing loans grew by 9.5% from the year earlier. Within this total, the portfolio of mortgages to individuals expanded by 7.0% to CZK 262.7 billion. Modrá pyramida’s loan portfolio grew by a strong 18.9% to CZK 76.0 billion. Sales of housing loans moderated at the end of the year as mortgage pricing was on the rise and reflected sharp growth in market interest rates. The volume of KB Group’s consumer lending (provided by the Bank and ESSOX Group in the Czech Republic and Slovakia) was up 1.9%, at CZK 33.3 billion.

The total volume of loans to businesses and other lending provided by KB Group was higher by 5.0% year on year, at CZK 366.9 billion. Lending to small businesses increased by 4.3% to CZK 47.9 billion. The overall CZK volume of credit granted by KB to medium-sized, large corporate, and other clients in the Czech Republic and Slovakia3 improved by 5.6% year on year to CZK 288.3 billion. At CZK 30.7 billion, the total credit and leasing amounts outstanding at SGEF were up by 1.1% year over year.

Amounts due to customers and assets under management

The volume of standard client deposits within KB Group rose by 6.2% year on year to CZK 948.6 billion.4 Deposits at Komerční banka from individual clients grew by 10.2% from the year earlier to CZK 354.9 billion. The deposit book at Modrá pyramida expanded by 0.2% to CZK 60.9 billion. Total deposits from businesses and other corporations climbed by 4.3% to CZK 535.3 billion.

Client assets managed by KB Penzijní společnost were 5.1% greater, at CZK 72.1 billion. Technical reserves in life insurance at Komerční pojišťovna were down by (1.3%) year on year, at CZK 49.2 billion. The volumes in mutual funds held by KB Group clients grew by 13.0% to CZK 83.0 billion, and this growth predominantly occurred in equity and balanced funds.

The Group’s liquidity as measured by the ratio of net loans5 to deposits (excluding repo operations with clients but including debt securities held by KB and issued by the Bank’s clients) stood at 76.4%. The Group’s liquidity coverage ratio was 148%, well above the regulatory limit of 100%.

Retail banking

Retail banking is an operating segment of the 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. Retail banking services are provided primarily through direct banking channels, including contact centres, within a network of branches, or through partnerships with third-party independent sales agents.

Sustainable retail banking

KB strives to reduce direct environmental impacts of its activities. It wants to support and positively motivate its clients on the way to a sustainable future. The Bank aims to be a partner to clients who helps them to orient themselves even better in sustainability areas, including to minimise environmental impact; in matters of economic rates of return and savings; and, as appropriate, in the potential for public support in this area. KB Group’s product offering includes sustainable investment opportunities as well as financing of sustainable technologies.

In the area of day-to-day banking, KB strives towards maximising digitisation of its services. The Bank wants to save clients’ time and money, but also the environment. Clients can also use KB’s banking identity free of charge for easier communication with government agencies and companies.

Disclosure of sustainability information in the advisory and distribution of financial products

Komerční banka has also implemented Regulation of the European Parliament and of the Council of the EU on Disclosure of Sustainability-Related Information in the Financial Services Sector (SFDR) and publishes specific information on its approach to integrating sustainability risks and taking into account adverse sustainability impacts in its financial advisory activities, portfolio management, and distribution of financial products.6 A link to these statements is included in the pre-contractual product information documents. Sustainability risks are also taken into account in the Bank’s remuneration policy. The Bank will update this information in accordance with regulatory developments.

Responsible investing

Clients can contribute to a sustainable future by investing with a view to the environmental and social impacts of specific companies. Clients can choose from several ESG funds and invest in selected areas, such as water resources, nutrition for future generations, or climate protection. In 2021, KB’s retail clients invested almost CZK 2.5 billion in sustainable funds, which were included into the autumn offer with zero entry fees and represent more than 16% of total new investments into mutual funds. The offer of ESG sustainable funds will be constantly expanded.

Sustainable Technology Loan

Households can benefit from an advantageous financing offer for sustainable technologies, such as photovoltaic power plants, heat pumps, heat recovery units, grey water recycling and rainwater harvesting units, constructed wetlands, as well as green roofs and facades.

Together with proven partners, KB has prepared turnkey projects for clients planning to purchase new technologies for more economical living and greater self-sufficiency. The partners will ensure full implementation, from project design to installation, including settlement of the subsidy, and KB will provide advantageous financing for these projects. This means the Bank’s clients are able not only to reduce their dependence on external water and energy supplies, but also significantly to reduce energy costs. In 2021, KB co-operated with ČEZ and Innogy in assisting clients to acquire photovoltaic power plants, as well as with ASIO and Kořenovky in the area of ​​sustainable water and wastewater management. From March 2021, KB began offering an advantageous loan for sustainable technologies. It was used by 147 clients in a total volume of more than CZK 35.5 million. The average loan amount was approximately CZK 240,000.

Individuals

Komerční banka ranks among the three largest banks in the Czech Republic by number of individual clients. 7 KB newly acquired nearly 72,000 clients in this segment last year, an increase by 44% from the previous year. That brought the total number of individual clients to 1,383,000. The Bank also maintains a leading position in the segment for children and young people, with more than 352,000 child and student accounts plus scores more of young people with standard accounts.

During 2021, KB concluded its thorough review of the client portfolio in terms of obtaining all information about clients needed to prevent misuse of the Bank for illegal activities (“know your customer”, KYC) in accordance with applicable regulations. Some clients were not able to meet the Bank’s stricter requirements. As a consequence, the business relationships with such clients were terminated. At the same time, the Bank ended contractual relationships with some clients whose non-performing receivables were sold.

In lending to individuals, the overall volume of housing loans grew by 9.5% from the year earlier. Within this total, the portfolio of mortgages to individuals expanded by 7.0% to CZK 262.7 billion. Modrá pyramida’s loan portfolio grew by a strong 18.9% to CZK 76.0 billion. The volume of KB Group’s consumer lending (provided by the Bank and ESSOX Group in the Czech Republic and Slovakia) was up 1.9%, at CZK 33.3 billion.

Deposits at Komerční banka from individual clients grew by 10.2% from the year earlier to CZK 354.9 billion. The deposit book at Modrá pyramida increased by 0.2% to CZK 60.9 billion. Total deposits from businesses and other corporations climbed by 4.4% to CZK 527.1 billion.

Client assets managed by KB Penzijní společnost were 5.1% greater, at CZK 72.1 billion. Technical reserves in life insurance at Komerční pojišťovna were down by 3.9% year on year, at CZK 49.2 billion. The volumes in mutual funds held by KB Group clients increased by 13.0% to CZK 83.0 billion, as sales of mutual funds recovered in 2021 from the pandemic drop.

According to an independent client satisfaction survey based upon a representative sample of the entire Czech population, the Net Promoter Score in the individuals segment improved in 2021 to 39 points. Clients continue to appreciate the quality of service provided by relationship managers in branches and from the contact centres. Clients also reported better satisfaction with stability of the digital banking channels.

Unfortunately, the year 2021 was again affected by the pandemic situation. The Bank further developed its remote servicing tools and it focused upon continuous improvements in the quality of service provided by relationship managers in branches or remotely. KB implemented a new service model leading to a better customer experience and at the same time increased utilisation of digital channels. During meetings, the bankers review with clients their financial circumstances while assisted by a new tool, Financial Guide, which helps to find the most effective solutions to the clients’ needs.

During 2021, Komerční banka succeeded in increasing the number of clients communicating with their bank through online channels. By the end of 2021, some 963,000 individual clients had acquired KB Klíč, which facilitates secure access to the Bank, confirming 3DSecure payments on the internet, but also identity authentication in relation to government institutions and business service providers.

Entrepreneurs and small businesses

Many entrepreneurs and small businesses were hit in 2021 by impacts of the Covid-19 pandemic, shortages of materials and other inputs for their production, constraints upon their customers and business partners, and, during the year, also by growing costs and rising inflation, both locally as well as on foreign markets. As a consequence, many business owners have terminated or suspended their operations, and that reflected negatively in development of the client portfolio. Even though more than 12,000 small businesses newly opened accounts with KB (up by 11% year on year), their total number declined by (4%) to 230,000.

Client account balances of entrepreneurs and small businesses grew by 7.3% to CZK 234.9 billion. The total volume of financing provided by KB to small businesses increased by 3.8% year on year to CZK 41.3 billion.

KB continued in developing and improving its online services, which led to an improvement in the NPS for the segment to 41 points despite decreasing the number of branches. Contributing particularly to the higher score were reliability of the banking systems, KB’s ability to provide relevant advisory, and improved responsiveness. The clients appreciated continuous access to financing options for working capital as well as investment needs, including credit limits through credit cards for entrepreneurs just starting up, authorised overdrafts to cover extraordinary expenditures, as well as standard business loans. Through the whole year, KB assisted clients in utilising guarantee programmes of the National Development Bank (NDB, formerly the CMZRB Bohemian–Moravian Guarantee and Development Bank) or European Investment Fund (EIF). KB granted 39% of the total volume of loans in NDB’s largest, COVID III, guarantee programme.

In addition to the Bank’s offer, clients actively took advantage of financing possibilities at other KB Group companies, such as loans and leasing from SGEF and ESSOX or receivables factoring from Factoring KB. Over CZK 200 million was financed by the new Roger Platba factoring service. For e-shop operators, a simple and fast online financing offer from Lemonero was introduced.

More than 3,000 companies benefitted from the preferential offer in the Czechia Pay by Card campaign and began accepting card payments from their customers. Businesses can optimise and digitise expenses management with an advantageous solution from the partner company Fidoo that includes integration with the current account and payment cards from KB. A solution for online accounting and related needs of KB's clients is available at preferential conditions from iÚčto.

Along with using KB’s dedicated services, companies just starting up could join the Nastartujte se! (Start up!) grant programme, already in its ninth year. During 2021, projects from 43 companies in various sectors were enrolled.

In 2022, the Bank will focus on improving accessibility of its services and advisory at the branches, in Business Centres, as well as online. Expanded options to use the banking digital identity will bring greater convenience and efficiency to the clients’ enterprises. With a new campaign system, KB will be able to better identify the individual needs of clients and communicate proactively. Preparation will continue for switching to simpler digital services by small businesses in the New Digital Bank. Already at the beginning of 2022, KB introduced a new service called PayPhone, a payment terminal in a mobile device, which will facilitate acceptance of card payments by artisans and smaller providers of various services.

Private 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 in excess of CZK 3 million have access to selected Private Banking products. 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 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 transfer of assets. Investment products and underlying assets taking into account environmental, social, and governance (ESG) criteria are gaining in importance in the Private Banking offer. In 2021, KB adopted the so-called ESG Universe, which is being prepared by SG Private Banking, for the managed portfolios. It narrows the list of eligible equity investments only to companies that meet defined ESG criteria. Direct equity investments already are made only in listed companies having a minimum required ESG rating and no serious negative controversy. Sustainability factors in the managed portfolios are also taken into account in the evaluation itself and setting of target share prices by SG Cross Asset Research. KB Private banking clients can thus benefit even more from the extensive analytical apparatus and expertise of the SG Group, which significantly supports sustainable investment. In 2021, partnerships were deepened with renowned global asset managers and a number of sustainable funds classified according to Article 9 SFDR (Sustainable Finance Disclosure Regulation) were included into KB Private Banking’s offer. For the first time in its history, Komerční banka’s Private Banking received the award for the Best Performing Private bank in Central and Eastern Europe, given as part of the Global Private Banking Awards. The international jury awarding this price was appointed by representatives of the renowned financial magazines The Banker and Professional Wealth Management, which belong to the Financial Times media group. The Bank puts great on value on ​​these awards, which confirm Komerční banka’s strong position and the quality of its private banking services. Already in the past 4 years, KB has been at the forefront as a leading private bank in the Czech Republic, and this year the jury selected KB as the winner also in the regional context. Among the priorities for 2022 will continue to be further development of portfolio management services, investment advice in open architecture, and the continued development of digital services. In addition, private banking will focus on the development of private services for large and medium-sized business owners in connection with the sale of a company, intergenerational asset structuring, trust fund manager services, building a portfolio of financial assets and deposits, and structured financing of private projects. A key topic the aspects of which will continue to be developed in KB’s private banking concerns sustainability and responsible investment and strengthening the importance of ESG criteria within the investment process. At the same time, the forthcoming initiatives will significantly exceed the new EU regulatory requirements.

Corporate and investment banking

Corporate banking is an organisational part of Komerční banka that includes the 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. Corporate banking services are provided through direct banking channels, a network of Corporate Centres, and banking advisors.

Support to business clients affected by the Covid-19 pandemic

Since March 2020, Komerční banka has been supporting entrepreneurs and small businesses affected by the Covid-19 pandemic. The first two government support programmes, COVID II and COVID Prague, were dedicated to financing of operational expenditures, such as wages, rents, and energy costs. These programmes were later extended to investments, and thus companies could finance their purchases of machines, technologies, licences, and other needs.

KB provided the largest support, however, within the COVID III programme, running from 2 June 2020 until 31 December 2021. Through this programme, KB granted financing to 2,619 companies amounting to CZK 17.8 billion. That was the largest volume among all participating banks. By the end of 2021, KB had granted under five COVID programmes credit to 3,636 clients in total volume of CZK 25.5 billion.

Overview of loans provided by KB between April 2020 and December 2021 in COVID programmes with guarantees of the National Development Bank or EGAP state insurance company.

Programme Number of contracts Loan volume
Covid II  920  CZK 4.0 bil.
Covid Pra g ue 64  CZK 0.4 bil.
Covid Plus  20  CZK 3.1 bil.
Covid Invest  13  CZK 0.2 bil.
Covid III  2 , 619  CZK 17 . 8 bil.

KB also intermediated other sources of support. Through its long-time co-operation with European Investment Fund it granted new financing under the EIF COSME programme (3,002 loans in total amount of CZK 4.1 billion) and, specifically for the culture sector, within the EIF Eurocreative programme (28 loans totalling CZK 123 million).

Sustainable corporate banking

A framework for sustainable strategy defines the main areas upon which KB will give priority focus within corporate banking:

In order to support the interest of companies and the public sector in the area of sustainable finance, the Bank has expanded the package of services supporting clients’ sustainable investments. In addition to comprehensive financial and subsidy advisory, KB now offers clients:

Komerční banky supports financing of environmentally and socially beneficial project. Since April 2021, investment loans provided by the Bank are described in terms of whether they have value added in terms of ESG. This ESG description is based upon EU taxonomy and categorisation used by Société Générale. If a loan is described as ESG, the Bank uses support in the form of a preferential interest rate subsidised from a special ESG envelope.

In 2019, Société Générale became a signatory to the Principles of Responsible Banking, committing itself and its whole group to sustainable financing in all its activities, and adopted its own goals in support of the Paris Climate Agreement. In this context, and in order to build a long-term sustainable business and its own reputation, Komerční banka has implemented the ensuing principles into its activities.

KB contributes to meeting ESG goals of the Société Générale Group in the area of environmental and social risks linked with the clients’ projects that KB finances. At the beginning of 2020, KB implemented in its corporate banking a system for management of environmental and social risks (ESRM) that also takes into account requirements of the Equator Principles, which consist of a set of voluntary regulations for evaluation of larger industrial and infrastructure projects, and it ensures compliance with the sectoral policies of SG Group. In 2020, the Bank began evaluating the so-called Climate Vulnerability Indicators for larger corporate clients operating in sectors potentially generating climate risks (e.g. energy, transport, metallurgy, mining, oil and gas).

The assessment of environmental and social (E&S) aspects in KB’s corporate banking has become part of the due diligence for all new transactions and in screening new clients as part of the KYC process. The assessment of E&S aspects includes checking against the list of excluded entities and the list of sensitive activities and projects, checking against the exclusion criteria of E&S sector policies (e.g. non-financing of clients and transactions related to the coal mining and coal energy sector, non-financing of certain arms exports), and verification of reputational client risks related to E&S aspects. For clients in sectors with increased E&S risk, they and their transactions are assessed by a KB E&S risk expert. Through banking advisors, the Bank communicates its E&S standards to clients, especially in sensitive sectors, and seeks to support clients in complying with these rules. This relates mostly to energy transformation and the Bank’s climate commitments. ESG risk categorisation is performed for all clients in corporate, municipal, and global banking. For clients with annual turnover exceeding a certain limit, who operate in sensitive sectors, and who are categorised as clients with increased E&S risk, KB’s E&S experts perform detailed ESG reviews. The results of an ESG check indicating a client to have high risk or requiring corrective action from the client are validated by staff of the Compliance Department or they are escalated to the headquarters of Société Générale. In cases where ESG risk poses both potential and credit risk, the ESG review is always validated.

In 2021, 24% of actively financed clients in the Global Banking segment were subjects of detailed ESG risk assessment.

During implementation of the ESRM system in 2020, all bank advisors and credit analysts in the Corporate and Municipality segments were given mandatory training in the ESRM system and such training will take place at least every 2 years. In addition, employees of the Corporate and Municipal banking and Global banking divisions were required during 2021 to complete an online course in environmental and social risk management prepared by Société Générale.

In 2021, KB provided financing to two projects subject to assessment according to the Equator Principles rules. Both projects were category C – logistics centre projects.

KB has been actively involved in financing projects closely related to climate change mitigation. In 2021, the Bank provided financing to ten renewable energy projects and a project to modernise municipal heating plants and their transition from coal fuels to biomass and gas.

KB has set up a special advisory team within KB Advisory to provide consulting services in the areas of subsidies, energy, renewable resources, circular economics, and waste management.

With the aim of supporting sustainable growth among clients and Czech industry, KB has launched a new website, Společně udržitelně (Sustainable together; spolecne-udrzitelne.cz). This website includes information from fields encompassing the environment, circular economy, the broader economy, and the social domain. Articles and real-life examples offer ESG inspiration, particularly for corporates. Once per two weeks a newsletter is sent out with selections of the most interesting news. The web content is provided in joint co-operation between the Bank and experts from CIRA Advisory.

Komerční banka, Visa, Heureka, and the Association of Social Responsibility together introduced the project of Sustainable e-shop. Its goal is to identify and label e-shops aiming to achieve sustainable operations and are attentive about the impacts of their operations. This enables clients for whom the sustainable criterion is important to make easier choices while shopping. This project should motivate and support sellers in transition towards sustainable business models.

Digital corporate banking

New products or services are prepared by KB in co-operation with fintech companies on the platform of its KB Smart Solutions subsidiary. In 2021, KB Smart Solutions also established a start-up project called Finbricks, which is being further tested on the market. It is an open banking service that helps clients obtain access to basic banking operations at all their banking institutions through a single and simple interface. In the past 12 months, the company has grown significantly and currently covers the services of 11 key Czech banks. It is working to cover Slovakia, where it already has connected 5 banks.

The fintech Roger, into which KB entered at the end of 2020 and began providing services to companies in 2021, started preparations for expanding digital tools for corporate clients (supply chain financing).

Last year, the connection between KB and Direct Fidoo, which brings clients digitisation and subsequent automation of internal processes through the Fidoo application, was further improved by KB in 2021. KB is the only bank in the Czech Republic offering the connection of corporate bank cards directly to this application, which further simplifies internal accounting processes in companies.

During 2021, the Bank continued along the trend of digitised exchange of documents between the Bank and clients. Using not only KB methods but also a qualified signature, almost 44,000 documents were exchanged in the field of corporate banking between the Bank and its clients. In January, KB expanded the possibilities for clients to send a Bank Report for audit purposes, as the electronic Application for a Bank Report was modified, newly made available in electronic banking, and included electronic signatures of the Bank. In April, after a year in development, the Bank launched a new FINSTA application into pilot and subsequently into live operation. In future, this will become the only entry point for the management of financial statements. The application has implemented robotic processing of delivered documents, which allows most reports to be processed without the need for manual typing.

A turning point not only within KB but in the entire banking market was launch of BankID, a unified platform for electronic identity. From March 2021, KB made it possible to use BankID for its individual clients, who have the opportunity to log into the Citizen’s Portal (includes various public services or information) via the KB key. Last year, BankID could be used for tax returns and the national population census. At the end of September 2021, KB also launched BankID services for its corporate clients. That means BankID can now be used for the services of commercial entities.

Economic environment for Czech corporations

The whole of 2021 was marked by the pandemic situation, which was exacerbated by the disruption of global production and supply chains. The rapid spring easing of anti-pandemic measures boosted the economy for a while, but the first complications in the form of raw materials and other input shortages (especially of chips) came already in summer for most industries. Additionally, rapid rise in prices, driven mainly by energy, appeared at the end of the year. Uncertainty and constraints stemming from the conflict in Ukraine, growing inflation, and rising CNB interest rates are factors that will affect the corporate economic environment in 2022. These factors combine with volatility in financial markets may continue to dampen investment activity, which has been affected since the pandemic began in 2020.

Corporates and Municipalities

Competition in corporate banking remained very intense in 2021. KB nevertheless maintained its leading position in this segment, with approximately 45% of small and medium-sized enterprises using its services.8 Komerční banka remains one of the two largest banks in public sector financing and is on a growth trend. KB now serves 52% of clients in this sector.9 The number of clients increased by 6% year on year to 10,900, which was due also to growth of companies that were previously served within the network for small businesses and entrepreneurs.

In 2021, deposits strengthened further, with their volume expanding by 2.7% year on year to CZK 196.1 billion. Despite the pandemic situation, the market for loans to companies and corporations grew and KB also benefited from this thanks to its initiative and support in distributing state aid in the form of guaranteed loans. The volume of financing provided by the Bank increased by 6% compared to the previous year to CZK 116.8 billion. Public sector funding is also growing, with EU national structural funds contributing to infrastructure investment.

Client satisfaction in the segment as expressed by the Net Promoter Score rose to 44. The situation was similar in municipalities, where it achieved 43 on a scale from −100 to 100. Clients appreciated, in particular, the Bank’s transparency, honouring of its commitments, its ability to respond to their needs, and the offer of suitable products and services. Finally, the relationship with bank advisors was also highly valued.

A product through which the Bank responded to the growing interest of companies in commercial installations of photovoltaic power plants within their business operations was the launch of “Photovoltaics for 1 crown”. This was prepared jointly by KB, SGEF, and ČEZ ESCO and was launched in October 2021. Through this product, companies can install PV panels, on the roofs of their industrial or warehouse facilities, for example, with no initial investment and no worries about operation of the power plant inclusive of related administrative and technical matters. The company then repays the investment costs in the revenues from electricity taken from their photovoltaic power plants, which become their property after 15 years for a price of CZK 1.

Global banking10

Komerční banka maintains a strong position in servicing and financing large companies with turnover exceeding CZK 1.5 billion. The portfolio and number of clients in the large corporate segment is relatively stable. KB’s clients include about 56% of large companies in the Czech Republic with turnover exceeding CZK 1.5 billion.11

The Bank provides to clients in this segment the full range of banking products and services, including highly specialised ones, and especially in the areas of investment banking, as well as export, structured, and syndicated financing. At the same time, it brings solutions for unique transactions on the banking market, including in the areas of primary issue of bonds, M&A consulting, and real estate services. The offer is complemented by the services of subsidiaries and sister companies providing leasing or factoring services. Clients can rely on the professional approach and knowledge of KB’s stable team of bank advisors as well as experience and contacts in the Société Générale Group’s international network, especially in the areas of foreign trade financing, cross-border payments, international cash pooling structures, and investment banking. Membership in a truly global banking group is a significant competitive advantage for KB in this segment, as the Bank is able to provide corporate clients access to the services of all major global financial centres through SG.

Satisfaction of large corporate clients with KB remains high. The NPS indicator in this segment increased in 2021, reaching the value of 60. That represents a gain of 8 points compared to 2020. Services and the breadth of their offer, as well as the advice of bank advisors continue to be rated highest.

Deposits increased by 0.5% year over year in 2021, reaching CZK 94.5 billion. The total volume of loans (excluding reverse repo operations) in the Top Corporations segment rose by 8.1% year over year to CZK 158.0 billion.

Komerční banka, a.s., pobočka zahraničnej banky (KB SK)

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

The year 2021 continued to pose challenges associated with impacts of the ongoing Covid-19 pandemic, but the economy had recovered in 2021 in comparison to 2020. GDP growth turned positive for 2021 and further improvement is expected for 2022. Nevertheless, economic confidence remains shaken in Slovakia and investors hesitant, and such sentiments probably will be only strengthened by the ongoing war in Ukraine.

The performance of KB SK in 2021 reflects the situation on the Slovak market, and shaken investors’ confidence translated into lower total loan volumes provided to clients in comparison with previous years. A gradual shift of KB SK’s focus towards more structured client transactions has been ongoing already for a couple of years. This has helped to mitigate the impact of narrowing margins on standard corporate financing in Slovakia and allowed KB SK to report a year-over-year increase in net interest income generated. Disciplined management of operating outlays remained essential and reconfirmed a leading cost-to-income ratio relative to other banks operating in Slovakia. The cost of risk during 2021 remained affected by the pandemic and its impact on the overall economy, as well as by cyclicality of certain sectors and surging energy prices that were impacting businesses of the Bank’s clients. Their year-over-year decrease nevertheless confirms the better state of the economy and brighter outlook for coming months and years. Even though KB SK clients went through another challenging year, the branch experienced very good payment discipline in its portfolio, thereby confirming the prudence of KB SK’s internal approval processes and very close relationship with its clients. KB SK delivered improved net profitability with notable contribution of fee revenues from one-off transactions.

Being at the forefront in financing green transformation, KB SK is proud to have extended together with another four local and international banks its co-operation with U.S. Steel Košice via an unsecured sustainability-linked revolving credit facility in 2021.

KB SK’s team remained stable, and its professionals delivered services to clients at a high quality standard. Client satisfaction was reconfirmed on very high level, as 78% of business clients would promote the Bank to their counterparts or colleagues. KB SK regularly collects feedback from clients using objective external channels, then evaluates and prioritises that data while implementing it into its tailor-made client solutions. For 2021, KB SK further strengthened its image as a bank that keeps its promises and values partnership. It was praised for the strong involvement of its advisors in the business success of clients. The Bank achieved excellent promoters score results across the board (keeps promises, transparency, support, and solutions). Clients’ satisfaction and the effort to exceed their expectations remain central to KB SK’s efforts.

KB SK’s investments into its systems and processes during 2021 addressed regulatory requirements and group internal standards in order to remain a secure financial partner to its clients. At the same time, the Bank’s spending plans prioritised solutions increasing comfort for clients in remote communication with KB SK. Staff safety also remained a priority, and thus the Bank operated in a hybrid mode during the whole year while focusing on uninterrupted service for clients without posing health risks to its employees.

Investment banking

Developments on financial markets in 2021 were strongly affected by the recurring waves of the Covid-19 pandemic. These waves were consequently reflected in an alternation between optimism and pessimism on financial markets, and especially in emerging markets. These include the Czech crown market, which thus recorded unusually high volatility in 2021. It was the weakest in March, when the economy felt the strongest level of restrictions relating to the pandemic, and at one point the crown traded at EUR/CZK 26.40. After that, however, the currency gradually strengthened, albeit with short breaks, to below EUR/CZK 25 at the end of 2021. Appreciation to stronger levels was supported by economic recovery, as Czech GDP grew at a decent quarter-on-quarter rate of around 1% from 2Q through 4Q. The strengthening of the crown against the euro, however, was mostly due to a significant increase in Czech interest rates and the related widening of the interest rate differential against the euro. The Czech National Bank raised its key interest rate by 3.5 percentage points from the end of June to reach 3.75% at the end of 2021. The unprecedented speed and size of rate hikes had been prompted by an unexpectedly strong rise in inflation, which already had been reflected in rising inflation expectations. According to the data for December 2021, consumer prices grew 6.6% year on year.

All stocks traded on the Prague Stock Exchange saw price growth last year, and the main PX Index knew practically no other direction but up. For the year as a whole, it corrected slightly in only two months (January and June). In total, it strengthened 38.8% (if dividends are included, by 45.3%) after a loss of 7.9% in 2020). The markets in Europe and America performed very well, repeatedly surpassing all-time highs. The STOXX Europe 600 index rose by 22.2% last year (total return was 25.8%) and the world’s most watched stock indicator, the S&P 500, closed the year 26.9% stronger (total return was 28.7%), marking its third annual gain in a row. The best stock on the PSE in the last year was a relative newcomer, Ceska zbrojovka. In the first complete year of trading, its share price increased by 72.8%. The reasons for this growth relate to its acquisition of the legendary company Colt and massive demand for its products, especially on the overseas market, which is crucial for the company. CEZ finished in second place, as high electricity prices pulled its share price up by 60.6%. The financial sector also performed very well, gaining more than 50% in 2021. A significant corporate action among the banks was the approval of a merger between Moneta and the Air Bank Group, which will take place this year. The total volume of trade on the Prague Stock Exchange increased by 12.1% to CZK 140.5 billion last year. Unfortunately, in the past year the shares of PF Nonwovens (formerly Pegas, +7.5% in 2021) and also Stock Spirits (+42.3% in 2021) were delisted from the PSE. This year will see O2 CR meet a similar fate, as the majority owner, the PPF group, will squeeze out minority shareholders. Moreover, shares of Avast, which will merge with NortonLifeLock, also will cease to be traded.

In the context of volatile fixed income and currency markets, gradual reopening of the economy, and economic recovery, clients’ activity on financial markets recovered strongly, and especially in the second half of the year. These opportunities allowed KB Investment Banking to achieve extraordinary results for 2021 in both trading and sales activities.

The trading performance came from establishing portfolios in anticipation of tightening monetary policy and thereby benefiting from the strengthening currency and appreciating stocks in the context of rising interest rates as well as execution of increased client flow and market making on Czech government bonds.

In the large corporate segment, the performance came mainly from extraordinary Czech rates hedging activity linked to capital markets transactions of KB’s clients and renewed business flow.

In the SME segment, use of digital platforms for foreign exchange transactions and term deposits in combination with a focus on value-added products led to an outstanding performance in this client segment.

As for the Financial Institutions Sales Desk, despite lower market activities in comparison to 2020 and intensified competition from large international banking groups entering the Czech market, the desk managed to deliver a better performance in 2021, thanks mainly to several significant debt capital markets transactions. In addition to these business results, diminished tensions observed in the credit markets resulted in release of reserves for counterparty risk (Credit Value Adjustment).

The year 2021 confirmed that the trend of customers’ growing appetite for digital channels was not a one-off event boosted by the COVID situations. Rather, this trend is here to stay.

Again in 2021, a rising number of clients were actively using KB’s eTrading platform for foreign exchange transactions and term deposits. That translated into a significant increase of revenue generated through this channel.

In addition, in May 2021, KB launched its new digital platform, Online Portfolio, enabling clients to place orders online for securities listed on the Prague Stock Exchange. After half a year of operations, this digital platform already has become the main channel through which KB’s clients use the Bank’s securities brokerage services on the Prague Stock Exchange. KB will continue in the years to come to promote and invest in expanding the offering and functionalities of digital platforms for market activities.

KB Investment Banking has embarked on a multi-year journey of modernising and digitising its technological platform to improve the customer experience, expand its product offering, and boost the quality of its services. As such, a major project for replacement of its core trading and risk management system was launched in 2021. From 2022, KB Investment Banking will work on integrating its products and services into KB’s New Digital Bank.

Transaction and payment services

Cash payment operations

Compared to the previous year, cash payments were slightly less affected by the ongoing pandemic situation, as there was a certain easing and recovery of the economy in the business sector, especially in the middle of the year. The most critical period from the viewpoint of securing money circulation was during March, which was in the lockdown period when the population was restricted from moving between districts.

Due to the leap upward in the inflation rate, and especially in comparison to the Czech National Bank’s 2% target rate, the volume of currency in circulation continued to grow (by CZK 19.2 billion in 2021 to more than CZK 731 billion as of 31 December 2021), yet KB’s total cash operations did not yet reach 2019 levels.

In the course of 2021, the KB Change 2025 strategic plan began to be fulfilled in the area of increasing the automation of cash payments. In the middle of the year, a newly reconstructed branch in Prague–Dejvická was opened with a newly designed service concept for clients, the so-called “New Digital Bank”. It includes a self-service client cash zone accessible 24 hours a day, 7 days a week. In pilot mode, the zone was newly equipped not only with two recycling ATMs but also with three new types of devices for automated client service – the coin deposit terminal for coin deposits, payboxes enabling cash withdrawals via closed packages, and fully automated machine processing for exchanging banknotes for coins.

Within the Czech Republic, KB operated a total of 242 branches (as in the previous year), of which 139 were branches with cash and currency exchange services and 63 were non-cash branches (from a total 202 branches) authorised to accept cash deposits via closed packages.

KB continued to strengthen its ATM network, increasing its number to 860 in 2021, in comparison with 809 in the previous year. The number of deposit ATMs has already exceeded 500, and KB has confirmed its role as a leader within the entire Czech Republic in this area. Compared to in 2020, there are 73 more devices enabling the deposit of Czech currency banknotes, and, out of the total number of deposit ATMs at the end of 2021, 32 devices were equipped with so-called banknote recycling functions, which allow KB to ensure even higher efficiency of ATM operations.

KB operates ATMs from two suppliers. In 2021, KB began migrating some of its devices so that the entire ATM network was managed by a single company. In 2022, the migration will be completed. The benefit of this step is greater efficiency in implementing changes applied to the entire network, as well as better services for clients.

The average deposit made via KB’s ATM network increased year on year and was at the level of CZK 28,000. Compared to 2020, that marks an increase by CZK 3,000. The number of deposit transactions at the end of 2021 exceeded 3 million. By comparison with 2020, the number of deposit transactions increased by almost 170,000.

KB has already realised 56% of the volume and 93% of the number of all client cash transactions (withdrawals + deposits) from 2021 through its ATMs.

The importance of cash in case of an unprecedented natural disaster was proven in the affected area of South Moravia at the end of June, especially in the regions Břeclav and Hodonín. Within a matter of moments, a tornado devastated several thousand residents, who lost not only shelter but in many cases also their personal property, documents, and means of payment. Komerční banka fulfilled here its role as part of the state’s critical infrastructure, when, based upon a requirement by government authorities to provide cash subsidies for the payment of material assistance to citizens affected by the tornado, it ensured extraordinary cash transport to the affected region, specifically for the KB Hodonín branch and the relevant regional labour office.

In the area of foreign exchange services, KB continued as a traditional and trustworthy institution providing this service to our citizens and was thus able to provide, for example, Croatian kunas on holiday to a popular Adriatic destination. Although total numbers and volumes were not at the level from before the pandemic (e.g. as in 2019), the service remained profitable for KB.

Non-cash payment operations

The Bank recorded a significant 6.3% year-on-year increase in the number of domestic payments, an even greater 10% gain in the number of foreign payments (12.8% increase in outgoing foreign payments), and a rapid 17% rise in the number of SEPA payments (outgoing SEPA payments by 20.3%). The share of SEPA payments in euro within the total number of foreign payments remained slightly greater than 87% last year. The number of clients sending SEPA or foreign payments also grew significantly.

In 2021, the share of domestic interbank payments, which are processed in real time as an immediate payment, further increased. For incoming payments, more than every fifth payment is credited to KB’s clients’ accounts as an immediate payment. Similarly, in Mobilní banka, almost every fifth outgoing payment is made from KB clients’ accounts as an immediate payment, although the client still has to choose to process the payment in the form of an immediate payment. During the first half of 2022, KB plans to process automatically outgoing payments to other domestic banks that support the receipt of immediate payments without the client having to choose this type himself.

Since the autumn of 2021, Komerční banka has been enabling clients to use the “Pay me” function, which generates a QR code that simplifies initiation of an immediate payment order by downloading it onto a mobile phone, where the order is filled out. At the same time, KB can read and process these QR codes containing the flag of immediate payment not only in mobile phones but also via internet banking, as required.

The share of SEPA and foreign payments in euro, US dollars, Czech crowns, British pounds, Swiss francs, Danish, Norwegian and Swedish crowns and Canadian dollars, which KB will credit to the beneficiary’s bank account on the same day the client enters the payment, has increased. Komerční banka thus processed 39.1% of SEPA payments and 30.4% of foreign payments in selected currencies in the faster mode during 2021.

In addition to displaying the amount of fees for making domestic conversion, foreign currency, foreign, or SEPA payments, KB also displays to our payers information on how much they will pay for the exchange rate margin when entering an online payment via mobile and internet banking.

KB clients can now import batches in XML format not only for SEPA, but also for foreign and domestic payments in MojeBanka Business and Profibanka internet banking.

As part of the transformation and digitisation, we have switched the processing of all outgoing and incoming interbank payments handled via the CERTIS payment system of the Czech National Bank from our original accounting system to a new central payment processing (i.e. in the internal Payment Hub application, which provides centralised payment processing in KB).

Through Payment Hub, we also were able to connect payment processing to the MultiCore solution application, which ensures the correct posting of payments to one of the Bank’s two existing core accounting systems within which the client’s account is maintained.

In 2021, the Payment Hub application began processing outgoing and incoming domestic payments for the New Digital Bank. We also laid the foundations for processing standing orders there. In 2022, KB plans to integrate all client standing orders into the Payment Hub application, as well as processing of card transactions.

In the area of payments and open banking, Komerční banka continued in 2021 to further develop the platform under the EU Payment Services Directive (PSD2) and to prepare other Open Banking API payment services, specifically Batch Payment Initiation Service via API, which was launched as a nonpublic pilot. KB also provided PSD2 services for the NDB (the New Digital Bank) and underwent a professional external audit of PSD2 security methods based on strong (2-factor) authentication. In 2021, Komerční banka actively provided PSD2 services through a total of 27 licensed entities, of which 14 were payment institutions (fintech companies) and 13 banks. In 2021, KB processed more than 28 million requests sent via the PSD2 API interface from KB’s client payment accounts and it processed payments with a total value exceeding CZK 50.6 million.

By the end of 2022, the Czech banks and Czech National Bank will implement the “Mobile Payment” project, which will make it easier for clients to enter payments using the beneficiary’s mobile phone number instead of having to know the beneficiary’s account number directly.

Payment cards

Even in 2021, there was a significant rise in the number and volume of card transactions – by almost 20%. The largest increase is again seen in online purchases, where the volume expanded by 39% and the number by 33%. This time, there is significant growth in card transactions also at brick-and-mortar shops, where the volume increased by 15% and the number by 16%. Contactless payments were made in 92% of these transactions. The share of mobile payments via smartphones and watches continued to grow, their number reaching 26% last year and volume reaching 22%. Most mobile payments are still made through Apple Pay, followed by Google Pay. Even in 2021, the Bank ensured the smooth processing of all card transactions, despite their extreme increase.

KB in 2021 launched an exclusive League of Legend edition of designer payment cards associated with a unique event of searching for statues of heroes from this most popular e-sports game. The Bank received an award from the Dobrý den Pelhřimov Agency for creating Greatest Encryption Game and Greatest Encryption Online game. Within this edition, KB is the only bank on the Czech market to offer card designs featuring five selected heroes: Senna, Aatrox, Orianna, Aphelios, and Nidalee. The Bank continues also to offer other unique payment card designs, including with such of its partners as Prague Zoo, Ostrava Zoo, National Gallery in Prague, and PKF - Prague Philharmonia. The Bank also offers totally new card designs aiming to support Czech hockey.

In August 2021, the Bank began issuing a card for the ECO student account made with 85% recycled material. This trend will continue in 2022.

In the credit cards area, the 4U card with a revolutionary low interest rate and a specific proposition remains completely unique in the Czech Republic.

Under the KB SmartPay brand, KB continues to successfully develop a business alliance with Worldline in the payment cards area. In the Czechia Pays by Card project, KB SmartPay’s offers are among the most successful in terms of acquisition; in 2021, over 5,000 new merchants were contracted. Thanks to the development in the field of e-commerce, this alliance achieved a 32% year-on-year increase in the number of processed card transactions. At the end of 2021, the PayPhone service was launched, enabling the acceptance of cards by a certified mobile application (i.e. without the need to use a payment terminal).

Trade finance and cash management

The Bank confirmed its traditionally strong position in providing financing services to corporate clients. Trade finance sales volumes increased by more than half. The Bank recorded gains across all segments, the highest growth being in the segment of large corporates. Despite continuing unfavourable external economic conditions, the Bank returned to the growth trend in terms of net banking income from trade finance transactions, which increased by almost 10%.

Investments in further digitisation of processes, both within the Bank and in relation to clients, contributed to the excellent results. A brand new modern application for online communication with the Bank brings clients a complete digital solution, especially in the area of bank guarantees. Simultaneously, with the new client trade finance portal, KB replaced the internal system, thus enabling the optimisation of processes, and, since the second half of the year, the process of issuing bank guarantees has been almost paperless.

Komerční banka’s cash management services and products maintain a high standard in comparison to the competition on the domestic market. This was confirmed by the Cash Management Market Leader 2021 Award from Euromoney Magazine for the third time already. On an international scale, KB gained additional valuable experience in servicing international groups, where the Bank had a major organisational and communication role within the Société Générale Group in the case of Czech multinational clients.

Selected indicators on payment services
Komerční banka (Bank only) 31 December 2021 31 December 2020 Year-on-year change (%)
Number of payment cards in circulation 1,604,000 1,588,000 1.0%
– debit cards 1,420,000 1,407,000 0.9%
– credit cards 184,000 181,000 1.7%
Volume of payments using KB cards (CZKm) 163,000 136,000 19.9%
Number of payments using KB cards 229,606,000 193,682,000 18.5%
Volume of cash withdrawals (CZKm) 196,000 199,000 (1.5%)
– via ATM 132,000 126,000 4.8%
– via non-ATM 64,000 72,000 (11.1%)
Volume of cash deposits (CZKm) 201,000 204,000 (1.5%)
– via ATM 89,000 75,000 18.7%
– via non-ATM 112,000 129,000 (13.2%)
Number of cash withdrawals 19,892,000 20,584,000 (3.4%)
– via ATM 19,345,000 19,907,000 (2.8%)
– via non-ATM 547,000 677,000 (19.2%)
Number of cash deposits 4,399,000 4,697,000 (6.3%)
– via ATM 3,100,000 2,934,000 5.7%
– via non-ATM 1,299,000 1,763,000 (26.3%)

1  https://www.kb.cz/en/faq-and-support/relationships-with-customers/complaints-and-claims

2 Excluding volatile reverse repo operations with clients but including debt securities issued by KB’s clients and held by the Bank. Because the volume of reverse repo operations was nil as of both 31 December 2020 and 31 December 2021, the figures remain unchanged inclusive of reverse repo operations.

3 Inclusive of factor finance outstanding at Factoring KB and merchant and car dealers’ financing from ESSOX Group.

4 Excluding volatile repo operations with clients. The total volume of ‘Amounts due to customers’ rose by 5.6% to CZK 956.9 billion.

5 Gross volume of loans reduced by the volume of provisions for loan losses.

6 https://www.kb.cz/en/about-the-bank/everything-about-kb/we-do-business-br-sustainably/economic-br-sustainability#sfdr

7  Source: Statements of individual Czech banks.

8 Sources: The Business Register of the Czech Statistical Office, KB’s client database.

9 Sources: The Business Register of the Czech Statistical Office, KB’s client database.

10  This part covers servicing of clients in the Czech Republic. Activities of KB in Slovakia are discussed in the following part.

11 Sources: The Business Register of the Czech Statistical Office, KB’s client database.

Komerční banka Group

As of 31 December 2021, Komerční banka had 11 subsidiaries, where KB had majority shareholdings, and 1 associate where it held minority interest: (i) Komerční pojišťovna (49% share). In addition to these ownership interests, KB held strategic interests of 20% or less in the following companies: (i) Czech Banking Credit Bureau, a.s. (20%), (ii) Worldline Czech Republic, s.r.o. (1%), and (iii) Bankovní identita, a.s. (17%).

Again in 2021, the Group continued in deepening co-operation among individual companies in both business and operational areas. Since the end of 2021, for example, the Prague headquarters of KB and other Group companies in Prague share common office spaces owned by the Group. The Bank further strengthened business co-operation with start-up and fintech companies, specifically through its subsidiary KB SmartSolutions, s.r.o. and that company’s own subsidiaries.

In March 2021, KB SmartSolutions established Finbricks, s.r.o., funding it with CZK 1.5 million of equity. Finbricks develops payment solutions based on PSD2.

In April, the Bank sold 490 shares of Bankovní identita, a.s. to seven other banks (Air Bank a.s., Equa bank a.s., Fio banka, a.s., mBank S.A., MONETA Money Bank, a.s., Raiffeisenbank a.s., and UniCredit Bank Czech Republic and Slovakia, a.s.). The Bank currently holds a 17% share in Bankovní identita.

In June, KB SmartSolutions increased shareholder’s equity of upvest s.r.o. by CZK 14 million and grew its ownership share from the previous 18.9% to the current 31.06%.

Information on values and changes in equity investments is provided in the Separate Financial Statements according to IFRS, Note 24 ‘Investments in subsidiaries and associates’ .

Summary of the results of major companies in Komerční banka Group

Group Holding (%)* Total assets Shareholders’ equity Net profit Consolidation method
CZK million, IFRS 2021 2020 2021 2020 2021 2020
Domestic participations
Modrá pyramida stavební spořitelna, a.s. 100.00 96,412 89,284 6,182 6,228 466 327 Full
Komerční pojišťovna, a.s. 49.00 54,656 56,667 1,362 3,048 453 510 Equity
KB Penzijní společnost, a.s. 100.00 3,344 2,865 2,648 2,343 305 249 Full
SG Equipment Finance Czech Republic s.r.o. 50.10 32,648 32,518 3,228 2,919 308 91 Full
ESSOX s.r.o. 50.93 16,786 16,745 3,379 3,638 206 186 Full
Factoring KB, a.s. 100.00 12,271 9,206 1,650 1,671 45 70 Full
Protos, uzavřený investiční fond, a.s. 100.00 6,333 6,270 6,327 6,269 72 90 Full
KB Real Estate, s.r.o. 100.00 865 896 529 530 18 15 Full
VN 42, s.r.o. 100.00 1,862 1,867 1,804 1,828 (7) 19 Full
STD2, s.r.o. 100.00 536 561 219 217 18 16 Full
KB SmartSolutions, s.r.o. 100.00 168 129 165 125 (7) (48) Full
My Smart Living, s.r.o.** 100.00 2 2 2 26 0 (24) -***
KB Advisory, s.r.o.** 100.00 1 1 2 2 (1) (1) -***
upvest s.r.o.** 31.06 23 n.a. 22 n.a. (2) n.a. -***
Platební instituce Roger, a.s.** 24.83 53 66 27 27 0 - -***
Finbricks, s. r. o.** 100.00 10 n.a. 12 n.a. (2) n.a. -***
Foreign participations
BASTION EUROPEAN INVESTMENT S.A. 99.98 2,797 3,130 559 626 0 - Full
ESSOX FINANCE, s.r.o.
(100% subsidiary of ESSOX s.r.o.)
50.93 1,529 2,245 268 261 21 13 Full

Note: The data on consolidated entities are after consolidation adjustments.

* KB direct and indirect holding.

** Figures for the year 2020 were corrected according to the final audited financial statements. Amounts for the years 2021 represents unaudited amounts.

*** My Smart Living, s.r.o., KB Advisory, s.r.o., Platební instituce Roger, a.s., upvest, s.r.o., a Finbricks, s.r.o. are currently not consolidated due to insignificant impact on the financial statements.

KB Group companies conduct their business in the Czech Republic, except for ESSOX FINANCE, which operates in the Slovak Republic, and BASTION, which is financing an EU project in Belgium. Komerční banka is also active in Slovakia through a branch. SGEF operates in Czechia as well as Slovakia. Detailed information on the activities of KB Group companies is provided in the following text of this chapter.

Basic information on Komerční banka Group’s major companies

Komerční banka, a.s., pobočka zahraničnej banky

In Slovakia, Komerční banka serves corporate clients through its branch, Komerční banka, a.s., pobočka zahraničnej banky (KB SK). KB’s branch in the Slovak Republic serves large and medium-sized enterprises with turnover of EUR 40 million or more. The position of KB SK in its market niche is a strong one, underpinned by know-how of the parent KB and utilising the synergies of the KB and SG groups to provide its clients with comprehensive financial solutions. KB SK offers standard banking services, including cash management, direct banking, payment cards, financing, and investment banking products, as well as trade finance solutions.

Financial summary

(IFRS, CZK thousand) 31 Dec 2021 31 Dec 2020
Total assets 30,716,289 30,163,621
Shareholder’s equity 194,785 151,315
Loans to clients (gross) 19,734,560 22,594,756
Volume of deposits 4,719,284 4,180,152
Net operating income 507,104 451,455
Tax (82,072) (69,254)
Net profit 221,291 145,828
Average number
of FTEs
42 42
Number of points
of sale
1 1
State support 0 0

Contact:

Hodžovo námestie 1A

P. O. BOX 137

811 06 Bratislava

ID: 47231564

Phone: +421 259 277 328, 329

Fax: +421 252 961 959

E-mail: koba@koba.sk

Modrá pyramida stavební spořitelna, a.s.

Modrá pyramida is a fully owned subsidiary of KB. This second-largest building savings bank in the Czech Republic as measured by loan volume has a 23% market share. 1 Main products offered by Modrá pyramida include state-subsidised savings accounts, bridging loans, and building savings loans. With its 618 advisors, Modrá pyramida’s distribution network provides such additional products of KB Group as mortgages and KB bank services, supplementary pension saving, mutual funds, as well as life and non-life insurance.

Financial summary

(IFRS*, CZK thousand) 31 Dec 2021 31 Dec 2020
Total assets 96,436,904 89,311,435
Shareholder’s equity 6,206,829 6,256,374
Loans to clients (gross) 76,982,213 64,371,840
Volume of deposits 60,843,861 60,718,392
Net operating income 1,149,714 1,161,47 4
Tax (73,522) (13,235)
Net profit 463,388 323,238
Average number
of FTEs
323 327
Number of points
of sale
20 2 201
State support 0 0

* Not audited.

Contact:

Modrá pyramida stavební spořitelna, a.s.

Bělehradská 128, č. p. 222

120 21 Prague 2

ID: 60192852

Phone: +420 222 824 111

E-mail: info@modrapyramida.cz

Internet: www.modrapyramida.cz

KB Penzijní společnost, a.s.

A fully owned subsidiary of Komerční banka, KB Penzijní společnost’s core business is to collect contributions and manage them in pension funds pursuant to the Supplementary Pension Savings Act and as supplementary pension insurance in the Transformed Fund.

By number of participants, this pension company has a 13% share in the supplementary pension savings market (3rd pillar) and an 11% share in the pension insurance market (Transformed Fund). 2

Financial summary

(CAS*, CZK thousand) 31 Dec 2021 31 Dec 2020 ***
Assets under
management**
72,053,247 68,551,091
of which
in Transformed Fund 59,567,307 58,856,537
Shareholder's equity 2,542,121 2,128,243
Net operating income 517,193 436,660
Tax (74,509) (58,391)
Net profit 311,709 249,545
Average number
of FTEs
49 47
State support 0 0

* CAS: Czech Accounting Standards, not audited.

** Total volume on client accounts.

*** Based on the amendment to Decree No. 501/2002 Coll. the company has been complying with international financial reporting standards since 1 January 2021 for the purpose of reporting financial instruments

Contact:

KB Penzijní společnost, a.s.

náměstí Junkových 2772/1

155 00 Prague 5

ID: 61860018

Phone: +420 955 525 999

E-mail: kbps@kbps.cz

Internet: www.kbps.cz

SG Equipment Finance Czech Republic s.r.o.

SGEF is owned by Komerční banka (50.1%) and SGEF SA (49.9%). Through KB and its own network of seven branches in the Czech Republic and two in Slovakia, this company provides financing of equipment, agricultural and forestry technology, vehicles for transportation of goods and passengers, high-technology, real estate, and special projects by leasing and lending.

SGEF has a 12% market share in the non-bank financing market in the Czech Republic as measured by the financed amount (excluding consumer loans). 3

Financial summary

(CAS * , CZK thousand) 31 Dec 2021 31 Dec 2020
Total assets 34,825,744 33,459,590
Shareholder s equity 3,547,217 2,879,221
Volume of new financing 14,937,400 12,413,392
Net operating income 1,221,428 144,798
Tax (159,297) (19,660)
Net profit 668,059 15,960
Average number
of FTEs
142 142
State support 0 0

* CAS: Czech Accounting Standards, not audited.

Contact:

SG Equipment Finance Czech Republic s.r.o.

náměstí Junkových 2772/1,

155 00 Prague 5

ID: 61061344

Phone: +420 955 526 700

E-mail: info@sgef.cz

Internet: https://equipmentfinance.societegenerale.cz/

ESSOX s.r.o.

Owned by Komerční banka (50.93%) and SG FINANCIAL SERVICES HOLDING (49.07%), ESSOX is a non‑bank provider of consumer loans and financial leasing for consumers and performs activities of payment institutions within the scope of payment services under a licence from CNB.

ESSOX has a 20% market share in consumer lending provided to households by companies associated in the Czech Leasing and Finance Association. 4 Main products include financing of consumer goods and automobiles, general purpose loans, and revolving credit (credit cards).

Financial summary

(CAS * , CZK thousand) 31 Dec 2021 31 Dec 2020
Total assets 16,635,935 16,580,213
Shareholder s equity 3,238,350 3,497,535
Amounts due from clients (gross) 15,798,990 15,476,280
Net operating income 837,912 885,311
Tax (41,874) (53,107)
Net profit 205,761 185,545
Average number
of FTEs
356 359
State support 0 0

* CAS: Czech Accounting Standards, not audited.

Contact:

ESSOX s.r.o.

F. A. Gerstnera 52

370 01 České Budějovice

ID: 26764652

Phone: +420 389 010 111

E-mail: essox@essox.cz

Internet: www.essox.cz

ESSOX Finance s.r.o.

ESSOX Finance (formerly PSA FINANCE SLOVAKIA, s.r.o.), a fully owned subsidiary of ESSOX, providing its services through the Peugeot and Citroën brands. Financial and insurance services include financial leasing, consumer credit, accident insurance for motor vehicles, liability insurance for motor vehicles, loss insurance, and operational leasing (the last of which is outsourced). The company also provides inventory financing to authorised dealers selling new Peugeot and Citroën cars.

Financial summary

(SAS * , EUR thousand) 31 Dec 2021 31 Dec 2020
Total assets 61,541 85,280
Shareholder’s equity 10,457 9,757
Amounts due from clients (gross) 60,757 84,234
Net operating income 3,294 3,349
Tax (43) (69)
Net profit 701 312
Average number
of FTEs
34 32
State support 0 0

* SAS: Slovak Accounting Standards, not audited.

Contact:

ESSOX Finance, s.r.o.

Karadžičova 16

821 08 Bratislava, Slovakia

ID: 35846968

Phone: +421 5348 37 50

Internet: http://www.essoxfin.sk

Factoring KB, a.s.

Factoring KB is a fully owned subsidiary of Komerční banka and is the largest factoring company in the Czech Republic. It has a 27% share on the Czech factoring market according to the volume of receivables transferred. 5

Through its own and KB’s networks, the company provides the following products: domestic factoring, export factoring, import factoring, modified factoring, and receivables management.

Financial summary

(CAS * , CZK thousand) 31 Dec 2021 31 Dec 2020
Total assets 19,874,006 15,022,150
Shareholder’s equity 1,650,368 1,671,510
Factoring turnover 63,276,526 49,849,164
Amounts due from clients (gross) 19,010,120 14,141,255
Net operating income 162,720 153,064
Tax (12,695) (17,819)
Net profit 45,319 70,623
Average number of FTEs 42 42
State support 0 932

* CAS: Czech Accounting Standards, not audited.

Contact :

Factoring KB, a.s.

náměstí Junkových 2772/1

155 00 Prague 5

ID: 25148290

Phone: +420 955 526 906

E-mail: info@factoringkb.cz

Internet: www.factoringkb.cz

Komerční pojišťovna a.s.

The shareholders of Komerční pojišťovna are SOGECAP (51%) and Komerční banka (49%). This insurance company has a 3% share in the life insurance market (according to the methodology of the Czech Insurers Association, measured by premiums written). 6

Main products include: savings life insurance, risk lif