REG - Komercni Banka - 1st Quarter Results
05/05/2022 07:00
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RNS Number : 3745K Komercni Banka 05 May 2022
Komercni banka, a.s. http://www.kb.cz/en (http://www.kb.cz/en)
Prague 1, Na Prikope 33, building identification number 969, Post Code 114 07
Identification No.: 45 31 70 54
LEI Code: IYKCAVNFR8QGF00HV840
incorporated in the Commercial Register maintained with the Municipal Court in
Prague,
section B, insert 1360
Disclosed on 5 May 2022 at 7:00 a.m. CET
Pursuant to Prague Stock Exchange Rules part III subsection 7(6)(a) and Act
256/2004 (Czech) Coll. subsections 125(1) Komercni banka, a.s. discloses
obligatory published information - Financial Results as of 31 March 2022.
Detailed information is available at the following
link: https://www.kb.cz/en/about-the-bank/for-investors-directory
(https://www.kb.cz/en/about-the-bank/for-investors-directory)
Results
Q1 2022
Komerční banka reports strong recovery in revenues, with operational and
risk costs under control
"The Czech economy had been on track in the first weeks of 2022 to reach quite
soon its pre-pandemic levels of activity and even gradually to tame the
inflation pressures. The beginning of the war in Ukraine on 24 February,
however, changed the trajectory completely. Now, economic growth will be
slower and inflation will remain higher for longer. Our sympathies are with
the innocent Ukrainian victims of the war. We hope that the world will soon
return to the path of peace and democracy. As Komerční banka, we continue to
reinforce our resilience vis-à-vis current and future challenges by acting
ethically and in full compliance with the laws and regulations, by
contributing to the well-being of the communities within which we operate, as
well as by helping to preserve the natural environment of our planet,"
remarked Jan Juchelka, KB's Chairman of the Board of Directors and Chief
Executive Officer.
· The total volume of KB Group's lending to customers expanded by
8.1% year on year to CZK 750.7 billion. Growth was recorded in retail as
well as corporate lending.
· The overall volume of standard client deposits within KB Group
was up by 3.0%, at CZK 1,015.1 billion. The volume of non-bank assets under
management leapt up by 7.6% to CZK 206.9 billion.
· The number of users of the KB Klíč (KB Key) authentication
application for accessing banking services crossed the 1,000,000 mark only on
4 April 2022. So, as of 31 March, KB Key was being used by 999,000 clients,
some 133,000 more than a year ago. The number of clients with KB Mobile
Banking climbed by 107,000 year on year to 1,066,000, representing 65% of all
KB 1,636,000 customers. The KB Group as a whole was serving 2,253,000 clients.
· Compared with the first quarter of the previous year that was
influenced by significant restrictions on people's mobility and on some
business activities, KB reported a 27.7% increase in revenues. Operating
expenditures were higher by 9.8%, mainly due to significantly higher
regulatory levies. Net creation of credit risk provisions decreased by
(52.6%), reflecting continued strong quality of assets. Net profit
attributable to shareholders improved by 75.9% to CZK 3.5 billion.
· Indicators of KB Group's capital adequacy and liquidity continue
to exceed the applicable regulatory requirements. Capital adequacy reached
20.2%, and the Core Tier 1 ratio was at 19.8%. The ratio of net loans to
deposits reached 72.8%.
· The Annual General Meeting held on 20 April 2022 approved the
audited financial statements for 2021 and the proposal for the distribution of
profit, including a dividend payment in the amount of CZK 8.3 billion, which
represents CZK 43.8 per share.
· Further steps to address the matter of excess equity accumulated
due to the pandemic dividend restrictions in 2020 and 2021 will be considered
in the second half of 2022 after finalisation of the annual regulatory stress
tests.
Prague, 5 May 2022 - Komerční banka reported today its unaudited
consolidated results for the first quarter of 2022.
Total revenues increased by 27.7% to CZK 9.5 billion from the low base of
the first quarter of 2021 that had been affected by pandemic lockdowns and
extraordinarily low interest rates. Net interest income was up by 37.0%, at
CZK 6.9 billion, driven by growing business volumes and higher yields from
reinvestment of liabilities and capital. Net fee and commission income
improved by 8.7% to CZK 1.5 billion due to normalisation of transaction
activity, strong inflows to mutual funds, and increased demand for some
services for corporate clients, such as for guarantees. Net profit on
financial operations rose by 7.9% to CZK 1.1 billion, boosted by strong
demand from clients for hedging of financial risks in the volatile and
uncertain environment.
Operating expenses were up by 9.8%, at CZK 4.8 billion, mainly driven by a
26% increase in the regulatory levy to the Resolution Fund. Personnel expenses
were higher by 2.6%, even as the average number of employees decreased by
(3.3%) to 7,564. Administrative costs rose by 9.4% and depreciation and
amortisation charges were up by 6.6% year on year, reflecting the ongoing
investments in digitalisation.
Net creation of provisions for the first quarter of 2022 totalled
CZK 0.3 billion. The provisioning reflected continued low default intensity
and strong recovery performance of the retail and non-retail portfolios. It
also included new provisions on exposures related to Russia following a
detailed portfolio review.
The reported attributable net profit improved by 75.9% to CZK 3.5 billion.
Lending to clients climbed by 8.1% to CZK 750.7 billion.(( 1 )) The volume
of outstanding housing loans from KB and Modrá pyramida expanded by 9.0%,
even as the new production of these loans in the first quarter decreased by
37.7% year on year. This was mainly because the drawing of loans for
construction often extends over several months. Consumer lending by KB and
ESSOX increased by 4.8%. Lending to businesses and other clients was up by
7.5%. Demand for working capital financing was boosted as companies were
building up inventories of more expensive inputs. Investment loans grew as
well. The negative contribution from 6.7% year-on-year appreciation of the
Czech koruna against the euro on the reported CZK value of EUR-denominated
loans represented 1.2% of total lending.
Deposits from clients increased by 3.0% year on year to
CZK 1,015.1 billion.(( 2 )) The clients were often switching their deposits
from current accounts to better yielding term and savings accounts or even to
mutual funds. The volume of KB Group clients' assets in mutual funds, pension
savings, and life insurance rose by 7.6% to CZK 206.9 billion.
The capital adequacy ratio reached a strong 20.2%, and Core Tier 1 capital
stood at 19.8%. The liquidity coverage ratio was at 151%, significantly above
the regulatory minimum of 100%.
The Annual General Meeting of Komerční banka held on 20 April 2022 approved
the audited financial statements for 2021 and the proposal for the
distribution of profit, including a dividend payment in the amount of CZK 8.3
billion, which represents CZK 43.8 per share, before taxation, and 65% of the
net profit from 2021. The dividend can be claimed by shareholders who held the
shares as of 29 April 2022. The dividend will be paid on 23 May 2022. Further
steps to address the excess equity accumulated due to the pandemic dividend
restrictions in 2020 and 2021 will be considered in the second half of 2022
after finalisation of the annual regulatory stress tests.
The Bank had 60,857 shareholders as of 31 March 2022 (up by 3,552 year on
year), of which 55,152 were private individuals from the Czech Republic 55,152
(greater by 3,398 from the year earlier). Strategic shareholder Société
Générale maintained its 60.4% stake while minority shareholders owned 39.0%
and KB held 0.6% of the registered capital in treasury.
Market environment (in first quarter 2022)(( 3 ))
Economic and social life in first quarter 2022 was significantly impacted by
two phenomena. First, another Covid-19 wave culminated in late January and
early February. By far the largest in terms of people infected, it
nevertheless was not so serious as earlier waves in terms of the pressure it
put on the health care system. No serious restrictive measures (e.g. distance
learning in schools or travel bans) were introduced, and after this wave
peaked remaining measures were quickly phased out. As of 24 April 2022, 65.3%
of the Czech population was fully vaccinated, 39.4% of the population had
received booster vaccine, and some 37% were officially reported to have
recovered from Covid-19.
Second, on 24 February the Russian army invaded Ukraine, once again bringing
immeasurable suffering to Europe and, subsequently, various economic impacts
upon the global, European, as well as Czech economy. A jump in economic
uncertainty and market volatility, drop in economic confidence indicators, and
increase in commodity prices were unsurprising first-order impacts. A very
important second-order economic impact was to worsen the already fragile
situation in disrupted global supply chains. Macro- and microeconomic impacts
were exacerbated by the various export and import exposures and the imposition
of international sanctions.
During the first quarter, the Czech economy demonstrated resilience, adding
0.7% quarter over quarter (+4.6% year on year), as per the flash estimate.
That built upon the positive outcome from the fourth quarter (+0.8% quarter on
quarter, 3.6% year on year). Labour market conditions remain tight. In the
fourth quarter, wage inflation slowed to +4.0% year on year (-2.0% in real
terms). At the same time, the unemployment rate is still low and remains one
of the lowest within the EU (standing at 2.4% in February, according to the
Eurostat methodology after seasonal adjustment).(( 4 )) More recent data from
the Czech labour ministry show the unemployment rate to be stable.(( 5 ))
The dynamics of industrial producer prices averaged a weighty 21.8% year on
year in 2022's first quarter. Pressure from the primary price categories
together with robust wage cost dynamics transmitted through to consumer price
inflation, which accelerated at the end of the first quarter. As of March, it
reached 12.7% year on year, mainly due to housing, water, energy, and fuel
prices. Core inflation climbed to double-digit territory already in February
2022. The Czech koruna's exchange rate appreciated through the end of March
against the euro by a slight 1.9%, reaching CZK 24.4 per euro versus the CZK
24.9 per euro in December. The koruna exchange rate depreciated against the
euro to CZK 25.9 in the early days after the Russian invasion of Ukraine, but,
as the situation clarified, the koruna returned to its earlier strengthening
trend.
The CNB had begun its rate hiking cycle already in June 2021, increasing its
2W repo rate in 5 steps by a cumulative 350 bps before the end 2021 to a level
of 3.75%. Another two steps were added in the first quarter of 2022 (+75 bps
in February and +50 bps at the end of March), which brought the main policy
rate to 5%. Subsequently, as of 31 March, the 3M PRIBOR reached 5.06% (+98 bps
year to date) and the 10Y interest rate swap 3.87% (+62 bps year to date)
while the interest rate swap curve remained inverted (5Y at 4.44%, +60bps year
to date) and yields on 10-year Czech government bonds climbed to 3.72% (+99
bps year to date).
Growth in prices of residential real estate continued apace, influenced by
expectations for further rise in prices and interest rates, deployment of
excess savings accumulated due to pandemic restrictions, and rising prices for
building materials. Prices of new development were especially affected. Prices
paid in 2021's fourth quarter for previously owned flats were up 25.2% year on
year across Czechia and by 20.0% year on year in Prague. Prices obtained for
new flats (in Prague only) were 26.5% greater than a year earlier.(( 6 ))
Total bank lending for the overall market (excluding repo operations) grew
7.8% year on year at the end of first quarter.(( 7 )) Lending expansion was
faster in retail banking, with mortgage growth staying in double-digit
territory. New mortgage production has plummeted, however, with increasing
interest rates, stricter borrowing conditions due to CNB regulation, and
further growth in property prices. Lending to businesses had increased year on
year by 4.6% in March 2022, reflecting heightened uncertainty.
The volume of client deposits in Czech banks had expanded by 4.7% year over
year as of March.(( 8 )) Term-deposits were showing stronger dynamics as
compared to non-term deposits. Deposits from individuals had grown by 3.9%
while the business deposit market grew by 5.6%. Deposits from most reported
categories recorded positive single-digit growth dynamics in year-on-year
terms.
Reinforcing resilience by acting responsibly
The new situation shaped first by the Covid-19 pandemic and more recently by
the war in Ukraine highlights the necessity for the Bank, and indeed the
entire KB Group, to build a robust and resilient business model, one that is
able to cope well in adverse conditions and to take advantage of opportunities
brought about by the changing environment.
The strategy of Komerční banka includes such factors supporting long-term
resilience as a solid capital base, strong liquidity, and prudent risk
management, as well as responsible conduct in accordance with the accepted
principles for environmental protection, social development, and corporate
governance. KB's policies regarding responsibility are implemented through
numerous concrete activities in daily life.
KB is aware of the risks stemming from climate change and it has committed to
contribute in mitigating that change, including by reducing its direct
emissions (scopes 1 and 2) in accordance with the 1.5°C scenario from the
Paris Agreement. Greenhouse gas emissions by KB decreased by 32.5% as of 2021
compared to 2019, the first year of measurement, to 23,090 tonnes of CO2
equivalent. That represents 14.7 kg per client. This result has been audited
by the Preferred by Nature agency.
During the first quarter of 2022, KB put into operation at its premises 89
charging stations for electric cars. The total planned number of KB's charging
stations across the Czech Republic is 170. Moreover, KB signed a contract to
purchase 131 Skoda Enyaq iV battery-powered electric vehicles. The electric
cars will be shared by the management and employees for their business as well
as private trips.
As of 31 March 2022, the total volume of loans with sustainable positive
impact provided by KB and SGEF reached CZK 29.7 billion. The newly
contracted volume during 2022's first quarter totalled CZK 5.0 billion.
KB Group has been supporting civilian victims of the war in Ukraine. It has
donated CZK 20 million, including CZK 5 million raised by the employees, for
humanitarian aid in Ukraine and for Ukrainian refugees in Czechia (who
currently number approximately 300,000, including mostly women and children).
KB has also provided its lodging facilities in Prague and some other towns for
sheltering refugees. The Bank is offering a special account for citizens of
Ukraine that includes a signing bonus, free-of-charge payments to Ukraine,
telemedicine assistance, and other benefits.
Meanwhile, KB Jistota Foundation has continued in its other activities and
long-term projects. In the first quarter, it launched a grant call for support
of single parents. Opened together by KB Penzijní společnost and the
environmental foundation Nadace Partnerství, another call is running for
support of planting tree alleys across the country. KB's bankers were again
visiting schools with seminars on improving financial literacy as part of the
Czech Banking Association's Bankers to the Schools programme.
On behalf of the Deposit Insurance Fund of the Czech Republic, Komerční
banka is also paying out compensation to clients of the failed Sberbank CZ. As
of 30 April 2022, KB had paid out CZK 22.3 billion to 65,000 depositors of the
failed bank.
KB has been consistently developing rigorous governance and compliance
standards and processes, including in the anti-money-laundering and
know-your-client areas. In the context of heightened cyber security risks, it
has enhanced its security protections and anti-fraud measures.
KB also updated its rules for asserting the Bank's interests with public
authorities (lobbying). It continues to follow a course of political
neutrality and refrains from supporting political organisations or activities.
Selected awards in the first quarter 2022
KB Group products have been honoured with several recognitions. KB was
recognised in the Innovation category of the MasterCard Awards for its
marketing and product innovations, including limited card editions and
campaigns in sports and e-sports. KB SmartPay received a Special Mention in
the MasterCard Awards for its "Czechia pays by card" campaign. In the TOP APP
Award organised by Byzkids, Mobilní banka ranked second in the evaluation of
mobile banking applications on the Czech market. MůjÚčet Plus received a
bronze-level award in the Finparada.cz Best current account survey.
Developments in the client portfolio and distribution networks
31 Mar 2021 31 Mar 2022 Change
YoY
KB Group's clients(1)) 2,286,000 2,253,000 (32,000)
Komerční banka(1)) 1,641,000 1,636,000 (5,000)
- individual clients(1)) 1,391,000 1,393,000 1,000
- internet banking clients 1,450,000 1,484,000 34,000
- mobile banking clients 959,000 1,066,000 107,000
Modrá pyramida 486,000 478,000 (8,000)
KB Penzijní společnost 525,000 517,000 (8,000)
ESSOX (Group) 145,000 136,000 (9,000)
KB branches (CZ) 242 240 (2)
Modrá pyramida points of sale 199 203 4
SGEF branches 9 9 0
ATMs 823 861 38
of which deposit-taking 449 514 65
of which contactless 421 626 205
Number of active debit cards 1,413,000 1,445,000 32,000
Number of active credit cards 182,000 186,000 4,000
Number of cards virtualized into payment apps 306,000 419,000 113,000
KB key authentication users 867,000 999,000 133,000
1) Year on year decline affected by termination of accounts as a
result of Know-Your-Client remediation process.
Comments on business and financial results
The financial data published below are from unaudited consolidated results
compiled under IFRS (International Financial Reporting Standards). Unless
stated otherwise, the data are as of 31 March 2022.
BUSINESS PERFORMANCE
Loans to customers
Total gross volume of lending to clients rose by 8.1% year on year to
CZK 750.7 billion.(( 9 ))
In lending to individuals, the overall volume of housing loans grew by 9.0%
from the year earlier. Within this total, the portfolio of mortgages to
individuals expanded by 6.3% to CZK 264.4 billion. Modrá pyramida's loan
portfolio grew by a strong 19.2% to CZK 78.8 billion. The new production of
housing loans in the first quarter decreased by 37.7% year on year to CZK 16.1
billion. The volume of KB Group's consumer lending (provided by the Bank and
ESSOX Group in the Czech Republic and Slovakia) was up by 4.8%, at
CZK 33.7 billion.
The total volume of loans to businesses and other lending provided by KB Group
was greater by 7.5% year on year, at CZK 373.8 billion. Lending to small
businesses grew by 2.5% to CZK 47.2 billion. The overall CZK volume of
credit granted by KB to medium-sized, large corporate, and other clients in
the Czech Republic and Slovakia(( 10 )) climbed by 8.8% year on year to
CZK 295.7 billion. At CZK 31.0 billion, the total credit and leasing
amounts outstanding at SGEF were up by 3.4% year over year.
Amounts due to customers and assets under management
The volume of standard client deposits within KB Group rose by 3.0% year on
year to CZK 1,015.1 billion.(( 11 )) Clients were switching their funds from
current accounts to better yielding term and saving deposits, as well as to
mutual funds. Deposits at Komerční banka from individual clients grew by
3.8% from the year earlier to CZK 352.1 billion. The deposit book at Modrá
pyramida decreased by (2.6%) to CZK 58.9 billion. Total deposits from
businesses and other corporations climbed by 5.1% to CZK 597.1 billion.
Client assets managed by KB Penzijní společnost were 5.0% greater, at
CZK 71.6 billion. Technical reserves in life insurance at Komerční
pojišťovna were lower by (5.5%) year on year, at CZK 47.6 billion. The
volumes in mutual funds held by KB Group clients grew by 19.1% to
CZK 87.6 billion.
The Group's liquidity as measured by the ratio of net loans(( 12 )) to
deposits (excluding repo operations with clients but including debt securities
held by KB and issued by the Bank's clients) stood at 72.8%. The Group's
liquidity coverage ratio stood at 151%, well above the regulatory limit of
100%.
FINANCIAL PERFORMANCE
Income statement
Komerční banka's revenues (net operating income) for the first quarter of
2022 improved by 27.7% year on year to reach CZK 9,477 million. This growth
was influenced by the facts that the comparative base from the same period of
2021 was affected by the severe pandemic restrictions and that interest rates
were at extremely low levels. The increase in net interest income contributed
most to the overall growth of revenues. Net fees and commissions and net gains
from financial operations also improved.
Net interest and similar income was up by 37.0%, at CZK 6,856 million, from
the low base of 2021's first quarter. The loan and deposit volumes were
growing and market interest rates increased significantly year on year, thus
supporting the yields from reinvesting deposits and the Bank's own funds. The
net interest margin for the first quarter of 2022, computed as the ratio of
net interest income to interest-earning assets reported on the balance sheet,
reached 2.2%. That compares to 1.7% a year earlier.
Net fee and commission income grew by 8.7% to CZK 1,493 million. Clients'
transaction activity in the first quarter of 2022 recovered in all transaction
types compared to the time of the economy's partial lockdown a year ago.
Deposit product fees were almost stable in line with the numbers of clients.
Fees from cross-selling were up strongly, driven mainly by rising sales and
volumes in mutual funds. Income from loan services was up slightly year over
year, mainly thanks to growing fees from factoring services and overdrafts,
while fees from retail loans were down. KB recorded a modest gain in income
from specialised financial services, primarily due to higher issuance of bank
guarantees.
Net profit from financial operations improved by 7.9% to CZK 1,081 million.
Strong demand from clients for hedging of financial risks was driven by
volatility of Czech koruna exchange and interest rates caused by the CNB's
rapid monetary tightening and first implications of Russia's invasion of
Ukraine. Net gains on FX payment transactions were much higher year on year
with the return of international travel and a boost in related payments.
Dividend and other income declined by 11.9% to CZK 47 million. This line
item primarily comprises revenues from property rental and ancillary services.
Operating expenses rose by 9.8% to CZK 4,768 million. Within that total,
personnel expenses increased by 2.6% to CZK 1,871 million, as the bonus
accrual had been limited in the first half of last year. The average number of
employees diminished by (3.3%) to CZK 7,564.(( 13 )) General administrative
expenses (not including contributions to the regulatory funds) were up by
9.4%, at CZK 893 million, as the higher costs related to marketing, IT
support, and other employee costs (such as training and recruiting) were not
compensated by lower real estate costs. The estimated full-year cost of
contributions to the regulatory funds (Deposit Insurance Fund, Resolution
Fund) reached CZK 1,267 million, up 25.6% year on year. The CNB adjusted the
target volume of the Resolution Fund for 2024 and boosted the aggregate annual
contribution from Czech banks in 2022 by 16.2% year on year. Depreciation and
amortisation grew by 6.6% to CZK 738 million, driven mainly by new and
upgraded software acquired in pursuit of KB's digitalisation strategy.
The sum of profit before allowances for loan losses, provisions for other
risk, profit on subsidiaries, and income tax (operating profit) was up by
52.8%, at CZK 4,709 million.
Cost of risk reached CZK 278 million, down by (52.6%) in comparison with
CZK 586 million in the first quarter of 2021. The net creation of
provisioning reflected continued low intensity of inflows into default and
strong recovery performance of the retail and non-retail portfolios. It also
included new provisions on exposures related to Russia, determined in detailed
portfolio reviews. The cost of risk in relative terms and as measured against
the average volume of the lending portfolio during 2022's first quarter came
to 15 basis points. That compares with 33 basis points for the same period a
year earlier.
Income from shares in associated undertakings (i.e. Komerční pojišťovna)
was down (15.8%) year on year, at CZK 48 million, influenced by interest
rates development and the timing of insurance reserves creation and
utilisation at KP.
Net loss on other assets reached CZK (33) million due to accelerated
depreciation of technical improvements in closed leased branches. In the
previous year, net profit on other assets had been CZK 5 million.
Income tax was higher by 76.6%, at CZK 869 million.
KB Group's consolidated net profit for the first quarter of 2022 reached
CZK 3,577 million, which was higher by 73.3% in comparison with a year
earlier. Of this total, CZK 64 million was profit attributable to the
non-controlling owners of minority stakes in KB's subsidiaries (down by (4.5%)
year on year).
Reported net profit attributable to the Group's equity holders totalled
CZK 3,513 million, which is 75.9% more year on year.
Other comprehensive income, which derives mainly from revaluations and
remeasurements of some hedging, foreign exchange, and securities positions, as
well as from effects of changed interest rates on the value of equity
participation in an an associated company, reached CZK (808) million.
Consolidated comprehensive income for the first quarter of 2022 totalled
CZK 2,769 million, of which CZK 62 million was attributable to owners of
non-controlling stakes.
Statement of financial position
Unless indicated otherwise, the following text provides a comparison of the
balance sheet values as of 31 March 2022 with the values from the statement of
financial position as of 31 December 2021.
Assets
As of 31 March 2022, KB Group's total assets had grown by 12.4% year to date
to CZK 1,398.3 billion.
Cash and current balances with central banks were up 92.0%, at
CZK 57.5 billion. Financial assets at fair value through profit or loss
(trading securities and derivatives) increased by 6.0% to CZK 43.6 billion.
The fair value of hedging financial derivatives climbed by 20.7% to
CZK 17.3 billion.
Year to date, there was a (6.0%) decline in financial assets at fair value
through other comprehensive income totalling CZK 33.4 billion. This item
consisted mainly of debt securities issued by government insitutions.
Financial assets at amortised cost grew by 11.2% to CZK 1,219.1 billion. The
largest portion of this consisted of (net) loans and advances to customers,
which increased year to date by 1.9% to CZK 738.5 billion. A 97.6% share in
the gross amount of client loans was classified in Stage 1 or Stage 2, while
2.4% of the loans were classified in Stage 3 (non-performing loans). The
volume of loss allowances created for amounts due from customers came to
CZK 13.3 billion. Loans and advances to banks grew by 35.7% to
CZK 349.1 billion. The majority of this item consists in reverse repos with
the central bank. The value held in debt securities was up by 15.3% and
reached CZK 131.5 billion at the end of the first quarter.
Revaluation differences on portfolio hedge items totalled CZK (0.8) billion,
higher by 31.5%. Current and deferred tax assets stood at CZK 0.1 billion.
Other assets and accrued accounts, which include receivables from securities
trading and settlement balances, increased overall by 11.5% to
CZK 6.5 billion. Assets held for sale diminished by (50.6%) to
CZK 0.3 billion.
Investments in subsidiaries and associates declined by (29.9%) to
CZK 0.6 billion.
The net book value of tangible assets declined by (2.8%) to CZK 8.7 billion.
Intangible assets grew by 2.2% to reach CZK 8.1 billion. Goodwill, which
primarily derives from the acquisitions of Modrá pyramida, SGEF, and ESSOX,
remained unchanged at CZK 3.8 billion.
Liabilities
Total liabilities were 13.5% higher in comparison to the end of 2021 and stood
at CZK 1,268.7 billion.
Financial liabilities at amortised cost went up by 12.7% to
CZK 1,190.4 billion. Amounts due to customers comprise the largest
proportion of this total, and these grew by 9.9% to CZK 1,051.3 billion.
This total included CZK 36.2 billion of liabilities from repo operations
with clients and CZK 8.3 billion of other payables to customers. Amounts due
to banks increased in the first quarter of 2022 by 48.8% to
CZK 124.1 billion.
Revaluation differences on portfolios hedge items were negative
CZK (41.3) billion. Current and deferred tax liabilities were steady at
CZK 1.8 billion. Other liabilities and accruals, which include payables from
securities trading and settlement balances, grew by 74.5% to
CZK 21.8 billion.
The provisions balance was (1.1%) lower, at CZK 1.3 billion. Provisions for
other credit commitments are held to cover credit risks associated with credit
commitments issued. The provisions for contracted commitments principally
comprise those for ongoing contracted contingent commitments, legal disputes,
self-insurance, and the retirement benefits plan.
Subordinated debt, at CZK 2.4 billion, was down (1.9%) year to date. Because
that debt is issued in euro, the change reflects appreciation of the Czech
koruna over the same period.
Equity
Total equity expanded year to date by 2.2% to CZK 129.6 billion. The value
of non-controlling interests reached CZK 3.3 billion. As of 31 March 2022,
KB held in treasury 1,193,360 of its own shares constituting 0.63% of the
registered capital.
Regulatory capital and requirements
Total regulatory capital for the capital adequacy calculation came to
CZK 103.4 billion as of 31 March 2022. Capital adequacy stood at 20.2%. The
Core Tier 1 capital amounted to CZK 101.4 billion, and the Core Tier 1
ratio stood at 19.8%. Tier 2 capital totalled CZK 2.0 billion, which was
0.4% of risk-weighted assets.
As of 1 April 2022, Komerční banka's overall capital requirements (OCR) come
to 15.60%, the minimum required level of CET 1 is at 10.96%, and the minimum
Tier 1 capital ratio stands at 12.95%.
The OCR will rise by cumulative 200 bps in four steps in July 2022, October
2022, January 2023, and April 2023 due to pre-announced increases in the
countercyclical buffer requirement. Assuming no further changes, as from 1
April 2023, the minimum OCR would reach 17.60%, minimum CET1 ratio 12.96%, and
minimum Tier 1 14.95%.
KB Group's Liquidity Coverage Ratio came to 151% as of 31 March 2022. The
applicable regulatory minimum is 100%.
Expected development and main risks to that development in 2022
Note: This outlook updates and replaces the outlook first presented on 10
February 2022 upon release of Komerční banka's results for the full year
2021. It factors in recent development in economic conditions, as well as the
assumed economic consequences of the Russian invasion of Ukraine launched on
24 February 2022.
KB Group is aware that the sharply deteriorated geopolitical situation will
significantly impact upon the economies of European countries. Nevertheless,
due to heightened global uncertainty and the turbulent development, a full
assessment and quantification of these impacts is impossible 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 its 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.
Given the high level of uncertainty surrounding the war in Ukraine and the
global 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 updated baseline macroeconomic scenario for 2022, KB expects that, due
to the war in Ukraine, continued supply chain disruptions, and higher energy
prices, the Czech economy's growth will slow to 1.8% from 3.4% a year ago, and
this full year summary figure will include also a shallow recession in the
second and third quarters. Household consumption and fixed investments should
contribute positively to the annual growth, while net exports will be a drag
on economic expansion. Despite the slower economy, the lack of available
labour in the economy will remain a factor limiting the growth potential. The
average inflation rate in 2022 is expected to reach almost 13%, with
year-on-year inflation rates probably peaking in the middle of the year.
In order to fight the inflation pressures, the Czech National Bank is expected
to continue raising monetary policy rates, as it had commenced to do in the
middle of 2021. The two-week repo rate will likely peak at 5.5%, and it will
stay at this level at least until the end of the year. The CNB is not expected
to intervene toward stronger koruna in this year.
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.(( 14 )) It decided, too, on
increasing the counter-cyclical capital buffer rate in two steps during 2022
and two additional steps as of 1 January and 1 April 2023. This will take that
rate to 2.5%.(( 15 )) The national bank also announced in September 2021 that
it would no longer restrict the amount of bank dividends across the
board.(( 16 )) After the annual general meeting approved the dividend payment
representing 65% of net profit generated in 2021, the management aims to
address the matter of KB's surplus capital in the second half of the year,
after the results of various regulatory tests will have been discussed with
the regulator. In the situation of excess capital, KB may postpone the
beginning of 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).
The banking market for loans and deposits entered the year on a solid footing,
but it will gradually absorb the effects of the higher interest rates, slower
economy, heightened economic uncertainty, and worsened cost-of-living
parameters. Total lending on the market should rise at a mid-single-digit
year-on-year 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 reach a mid-single-digit
pace, even as it will balance the favourable labour market situation and
rising nominal incomes with worsened consumer confidence. Lending to
corporations should rise at a high single-digit pace. Demand for working
capital financing strengthens as companies need to keep higher inventories of
more-costly inputs. Investment lending will be driven by the developments in
business confidence, but it also will be supported by the increased investment
activity of the government as supported by the funds established by the
European Union. Growth in the volume of deposits will slow to mid-single
digits, lagging the expansion in loans volumes as the financial situation of
some households and businesses tightens.
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 a mid-single-digit growth rate for 2022. Within the total, the
corporate loan book may grow somewhat faster. The volume of housing loans
outstanding should continue to increase slightly, even though the new sales of
these loans will drop in comparison with the record level achieved in 2021.
Growth in total deposit balances should reach a low single-digit pace, while
clients are expected to be shifting their deposits to term accounts. The
deposits at Modrá pyramida will probably record a decline in mid-single
digits.
KB Group's total net operating income for 2022 should expand at a double-digit
pace in comparison with 2021. Net interest income will probably improve by
more than a quarter, 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 significantly higher regulatory charges
for the Resolution Fund, operating expenses will remain under tight control
and will rise at a mid-single-digit pace, thus 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 reach low single digits. KB management also has
decided on further steps in optimising the branch network during 2022. As of 1
April 2022, 25 branches were closed and at another 19 branches cash services
are newly 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 clients' changing behaviour reflecting growing preference for
remote sales and assisted services in the digital environment.
Cost of risk will be influenced by several factors, including the slower
economic growth, disruptions to global supply chains, and higher prices and
interest rates. Reflecting the excellent quality of KB's asset portfolio, the
cost of risk in 2022 should, in the central scenario, still remain 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
escalation of the war in Ukraine and its economic repercussions, prolonged or
deepened shortages of key input materials for Czech industry, or a return of
pandemic restrictions and disruptions. 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.
Developments in corporate governance
The General Meeting held on April 20 approved the reported financial
statements for 2021 and the proposal for the distribution of profit, including
dividend payment in the amount of CZK 8.3 billion. The General Meeting also
approved the consolidated financial statements for 2021, the new conditions
for the acquisition of the Bank's own ordinary shares, and the Remuneration
Report for 2021. It also decided to appoint an auditor to perform the
statutory audit for 2022.
ANNEX: Consolidated results as of 31 March 2022 under International Financial
Reporting Standards (IFRS)
Profit and Loss Statement Reported Recurring
1Q 2021 1Q 2022 Change 1Q 2021 1Q 2022 Change
YoY
YoY
(CZK million, unaudited)
Net interest income 5,004 6,856 37.0% 5,004 6,856 37.0%
Net fee and commission income 1,374 1,493 8.7% 1,374 1,493 8.7%
Net profit on financial operations 1,002 1,081 7.9% 1,002 1,081 7.9%
Dividend and other income 42 47 11.9% 42 47 11.9%
Net banking income 7,422 9,477 27.7% 7,422 9,477 27.7%
Personnel expenses (1,824) (1,871) 2.6% (1,824) (1,871) 2.6%
General admin. expenses (excl. regulatory funds) (816) (893) 9.4% (816) (893) 9.4%
Resolution and similar funds (1,009) (1,267) 25.6% (1,009) (1,267) 25.6%
Depreciation, amortisation and impairment of operating assets (692) (738) 6.6% (692) (738) 6.6%
Total operating expenses (4,341) (4,768) 9.8% (4,341) (4,768) 9.8%
Operating profit 3,081 4,709 52.8% 3,081 4,709 52.8%
Impairment losses (598) (158) +/- (598) (158) +/-
Net gain from loans and advances transferred and written off 12 (120) +/- 12 (120) +/-
Cost of risk (586) (278) (52.6%) (586) (278) (52.6%)
Net operating income 2,495 4,431 77.6% 2,495 4,431 77.6%
Income from share of associated companies 57 48 (15.8%) 57 48 (15.8%)
Profit/(loss) attributable to exclusion of companies from consolidation 0 0 n.a. 0 0 n.a.
Net profits on other assets 5 (33) +/- 5 (33) +/-
Profit before income taxes 2,557 4,446 73.9% 2,557 4,446 73.9%
Income taxes (492) (869) 76.6% (492) (869) 76.6%
Net profit for the period 2,064 3,577 73.3% 2,064 3,577 73.3%
Profit attributable to the Non-controlling owners 67 64 (4.5%) 67 64 (4.5%)
Profit attributable to the Group's equity holders 1,997 3,513 75.9% 1,997 3,513 75.9%
Statement of financial 31 Dec 2021 31 Mar 2022 Ytd
position
(CZK million, unaudited)
Assets 1,244,353 1,398,297 12.4%
Cash and current balances with central bank 29,947 57,491 92.0%
Loans and advances to banks 257,196 349,137 35.7%
Loans and advances to customers (net) 724,587 738,500 1.9%
Securities and trading derivatives 190,924 208,665 9.3%
Other assets 41,699 44,504 6.7%
Liabilities and shareholders' equity 1,244,353 1,398,297 12.4%
Amounts due to banks 83,372 124,097 48.8%
Amounts due to customers 956,929 1,051,287 9.9%
Securities issued 13,666 12,626 (7.6%)
Subordinated debt 2,490 2,442 (1.9%)
Other liabilities 61,114 78,288 28.1%
Total equity 126,782 129,556 2.2%
Key ratios and indicators 31 Mar 2021 31 Mar 2022 Change year on year
Capital adequacy (CNB) 22.5% 20.2% q
Tier 1 ratio (CNB) 21.8% 19.8% q
Total risk-weighted assets (CZK billion) 446.7 484.4 8.4%
Risk-weighted assets for credit risk (CZK billion) 374.3 425.8 13.8%
Net interest margin (NII / average interest-bearing assets)(III) 1.7% 2.2% p
Loans (net) / deposits ratio(IV) 68.9% 72.8% p
Cost / income ratio(V) 58.5% 50.3% q
Return on average equity (ROAE)(VI) 7.0% 11.3% p
Return on average Tier 1 capital(VII) 8.2% 13.9% p
Return on average assets (ROAA)(VIII) 0.7% 1.1% p
Earnings per share (CZK)(IX) 42.3 74.4 75.9%
Average number of employees during the period 7,820 7,564 (3.3%)
Business performance in retail segment - overview 31 Mar 22 Change year on year
CZK bil.
Mortgages to individuals - volume of loans outstanding 264.4 6.3%
Building savings loans (MPSS) - volume of loans outstanding 78.8 19.2%
Consumer loans (KB + ESSOX + PSA Finance) - volume of loans outstanding 33.7 4.8%
Small business loans - volume of loans outstanding 47.2 2.5%
Insurance premiums written (KP) 2.2 (17.5%)
Financial calendar:
3 August 2022 - 1H and 2Q 2022 results
4 November 2022 - 9M and 3Q 2022 results
Definitions of the performance indicators mentioned herein:
I. Housing loans: mortgages to individuals provided by KB + loans to
clients provided by Modrá pyramida;
II. Cost of risk in relative terms: annualised 'Allowances for loan
losses' divided by the average of 'Gross amount of client loans and advances',
year to date;
III. Net interest margin (NIM): 'Net interest income' divided by average
interest-earning assets (IEA) year to date (IEA comprise 'Cash and current
balances with central banks' ('Current balances with central banks' only),
'Loans and advances to banks', 'Loans and advances to customers', ,'Financial
assets held for trading at fair value through profit or loss' [debt securities
only], 'Non-trading financial assets at fair value through profit or loss'
[debt securities only], 'Financial assets at fair value through other
comprehensive income' [debt securities only], and 'Debt securities');
IV. Net loans to deposits: ('Net loans and advances to customers'
inclusive of debt securities held by KB and issued by the Bank's clients less
'reverse repo operations with clients') divided by the quantity ('Amounts due
to customers' less 'repo operations with clients');
V. Cost to income ratio: 'Operating costs' divided by 'Net operating
income';
VI. Return on average equity (ROAE): annualised 'Net profit attributable
to the Group's equity holders' divided by the quantity average group
'shareholders' equity' less 'Minority equity', year to date;
VII. Return on average Tier 1 capital: annualised 'Net profit attributable to
the Group's equity holders'' divided by average group 'Tier 1 capital', year
to date;
VIII. Return on average assets (ROAA): annualised 'Net profit attributable to
the Group's equity holders'' divided by average 'Total assets', year to date;
IX. Earnings per share: annualised 'Net profit attributable to the Group's
equity holders'' divided by the quantity average number of shares issued minus
average number of own shares in treasury.
Reconciliation of 'Net interest margin' calculation, (CZK million,
consolidated, unaudited):
(source: Profit and Loss Statement) 1Q 2022 1Q 2021
Net interest income income, year-to-date 6,856 5,004
Of which:
Loans and advances at amortised cost 9,438 4,326
Debt securities at amortised cost 658 443
Other debt securities 138 179
Financial liabilities at amortised cost (2,458) (312)
Hedging financial derivatives - income 6,499 2,408
Hedging financial derivatives - expense (7,419) (2,040)
(source: Balance Sheet) 31-Mar-22 31-Dec-21 31-Mar-21 31-Dec-20
Cash and current balances with central banks / Current balances with central 47,865 21,455 16,003 15,050
banks
Loans and advances to banks 349,137 257,196 368,290 262,606
Loans and advances to customers 738,500 724,587 679,531 679,956
Financial assets held for trading at fair value through profit or loss / Debt 9,052 8,696 10,757 3,342
securities
Non-trading financial assets at fair value through profit or loss / Debt 132 135 0 279
securities
Financial asset at fair value through other comprehensive income (FV OCI) / 33,368 35,509 39,981 40,151
Debt securities
Debt securities 131,481 114,078 104,495 92,839
Interest-bearing assets (end of period) 1,309,536 1,161,656 1,219,056 1,094,223
Average interest-bearing assets, year‑to-date 1,235,596 1,156,640
NIM year-to-date, annualised 2.22% 1.73%
(( 1 )) Excluding volatile reverse repo operations with clients but including
debt securities issued by KB's clients and held by the Bank.
Inclusive of repo operations, lending rose by 7.9% year over year to CZK 750.7
billion.
(( 2 )) Excluding repo operations with clients. The total volume of 'Amounts
due to customers' moved up by 3.8% to CZK 1,051.3 billion.
(( 3 )) Unless stated otherwise, data sources for this section: Czech
Statistical Office, Czech National Bank, KB Economic Research. Comparisons are
year on year.
(( 4 )) https://ec.europa.eu/eurostat/documents/2995521/14358254/3-31032022-AP-EN.pdf/56d0f0a6-de1f-9099-63e2-a2cbf543e4c2?t=1648654477051#:~:text=In%20February%202022%2C%20the%20euro,from%207.5%25%20in%20February%202021.
(https://ec.europa.eu/eurostat/documents/2995521/14358254/3-31032022-AP-EN.pdf/56d0f0a6-de1f-9099-63e2-a2cbf543e4c2?t=1648654477051#:~:text=In%20February%202022%2C%20the%20euro,from%207.5%25%20in%20February%202021.)
Data up to February 2022.
(( 5 )) https://www.mpsv.cz/web/cz/mesicni
(https://www.mpsv.cz/web/cz/mesicni) . Data as available up to March 2022.
(( 6 )) Source:
https://www.czso.cz/csu/czso/indices-of-realized-flat-prices-4-quarter-of-2021
(https://www.czso.cz/csu/czso/indices-of-realized-flat-prices-4-quarter-of-2021)
Publication code 014007-21, released 16 March 2022.
(( 7 )) Source of data on banking market developments: ARAD statistics of the
CNB, www.cnb.cz.
(( 8 )) Source of data on banking market developments: ARAD statistics of the
CNB, www.cnb.cz.
(( 9 )) Excluding volatile reverse repo operations with clients but including
debt securities issued by KB's corporate clients.
If reverse repo operations are included, gross lending increased by 7.9% to
CZK 750.7 billion.
(( 10 )) Inclusive of factor finance outstanding at Factoring KB and merchant
and car dealers' financing from ESSOX Group.
(( 11 )) Excluding volatile repo operations with clients. The total volume of
'Amounts due to customers' increased by 3.8% to CZK 1,051.3 billion.
(( 12 )) Gross volume of loans reduced by the volume of provisions for loan
losses.
(( 13 )) Recalculated to a full-time equivalent number.
(( 14 ))
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/
(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/%0d)
(( 15 ))
https://www.cnb.cz/en/cnb-news/press-releases/CNB-increases-countercyclical-capital-buffer-rate-to-2.5/
(https://www.cnb.cz/en/cnb-news/press-releases/CNB-increases-countercyclical-capital-buffer-rate-to-2.5/%0d)
(( 16 ))
https://www.cnb.cz/en/cnb-news/press-releases/CNB-comments-on-banks-dividend-payout-plans/
(https://www.cnb.cz/en/cnb-news/press-releases/CNB-comments-on-banks-dividend-payout-plans/%0d)
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