REG - Komercni Banka - 1st Quarter Results
12/05/2023 07:00
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RNS Number : 1786Z Komercni Banka 12 May 2023
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 12 May 2023 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 2023.
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)
Regulatory Information
Results
Q1 2023
Entering its new era, Komerční banka reports solid results in the first
quarter of 2023
"The activities in the first quarter of 2023 were directed towards an
important step in implementing the KB2025 transformation strategy: opening of
a new digital bank for new customers and beginning the migration of clients
from the legacy infrastructure. We passed this milestone in April, and we
continue transforming Komerční banka Group to be a leader in the new era of
banking with emphasis on the simple, innovative, and sustainable while
combining digital tools and physical presence in a way that is convenient for
clients," remarked Jan Juchelka, KB's Chairman of the Board of Directors and
Chief Executive Officer.
"The results from the first quarter," he added, "were affected by subdued
levels of confidence among consumers and businesses, as well as by stiff
competition in the banking market. The overall results were nevertheless
solid, the clients have shown very good discipline in repaying their credits,
and we even observed signs of improving demand for housing and consumer loans,
hopefully marking an improvement in people's optimism."
· KB Group's lending to customers up by 5.1% year on year, at
CZK 789.1 billion.
· Deposits from clients decreased by (3.5%) year on year to
CZK 979.5 billion.
· Volume of non-bank assets (mutual funds, pension funds, life
insurance) under management leapt by 9.8% to CZK 227.0 billion.
· KB Group was serving 2,232,000 clients. Standalone Komerční
banka had 1,656,000 customers, up by 20,000 year on year.
· Total revenues were down by (5.5%), at CZK 9.0 billion.
Operating expenditures rose by 5.0% to CZK 5.0 billion. The Group reported a
CZK 0.4 billion net release of provisions for credit risk. Net profit
attributable to the Group's equity holders, at CZK 3.6 billion, was better
by 1.4% year on year.
· Volume of regulatory capital reached CZK 103.8 billion, capital
adequacy stood at 19.8%, and the Core Tier 1 ratio was 19.2%.
· KB had 71,447 shareholders (greater by 10,590 year on year), of
which 65,147 were private individuals from the Czech Republic.
· In April, Komerční banka unveiled to the market its new banking
proposition based on state-of-the-art banking technologies and tools. KB's new
era of banking is simple, innovative, sustainable, and it combines digital
tools and physical presence in a way that is convenient for the clients.
Prague, 12 May 2023 - Komerční banka reported today its unaudited
consolidated results for the first quarter of 2023.
Financial and business performance
Total revenues reached CZK 9.0 billion, lower by (5.5%) compared to the
first quarter of the previous year. Net interest income declined, mainly due
to increased average cost of deposits. Net fee and commission income was up
modestly, reflecting especially clients' greater transaction activity with
payment cards. Net profit on financial operations remained strong, despite
that the slow economy and volatile financial conditions somewhat dampened
clients' hedging and trading activity.
Operating expenses were up by 5.0%, at CZK 5.0 billion. Personnel expenses
were higher by 3.9%, as the increase in average salaries was partly offset by
year-on-year lower average number of employees. The estimated full-year levy
to the regulatory funds decreased because the CNB adjusted down its target
volume for the Resolution Fund and the aggregate contribution from Czech banks
to this fund for 2023. Increase in administrative costs was driven by higher
expenses related to real estate and software maintenance. Greater depreciation
and amortisation charges reflected the ongoing investments into
digitalisation.
Cost of risk reached a negative CZK (0.4) billion, i.e. a net release of
credit risk allowances. This was possible thanks to generally low rates of
default in corporate and retail segments and successful recovery on several
larger corporate exposures.
Reported net profit attributable to shareholders for 2023's first quarter
improved by 1.4% year on year to CZK 3.6 billion. Income taxes reached
CZK 0.8 billion.
Lending to clients went up by 5.1% to CZK 789.1 billion.(( 1 (#_ftn1) ))
The volume of housing loans outstanding grew by 3.8%, with lending from Modrá
pyramida building society expanding faster than did KB's mortgage portfolio.
New production of housing loans recorded a certain rebound in March after a
large decline in sales during 2022. The growth in consumer lending accelerated
as KB improved its sales process and consumer confidence in the economy began
improving from low levels. Lending to businesses, and mainly to larger
corporations, continued to grow at a solid pace, although this expansion was
still concentrated in euro rather than crowns.
Deposits from clients decreased by (3.5%) year on year to
CZK 979.5 billion.(( 2 (#_ftn2) )) On the other hand, the volume of KB
Group clients' assets in mutual funds, pension savings, and life insurance
rose by 9.8% to CZK 227.0 billion. The clients were looking for greater
returns on their money in saving and term accounts and in mutual funds. The
competition for deposits on the market has remained intense.
Shareholders, capital, and dividends
KB's capital adequacy ratio reached a strong 19.8%, and Core Tier 1 capital
stood at 19.2%. The liquidity coverage ratio was 162%, significantly above the
regulatory minimum of 100%.
The Annual General Meeting held on 20 April approved a dividend payment of CZK
11.5 billion, or CZK 60.42 per share before tax. This represents 65% of
attributable consolidated net profit generated by KB in 2022. The dividend can
be claimed by every shareholder holding a Komerční banka share as of 2 May
2023. The dividend's payment date is 22 May 2023.
The approved dividend is in line with the long-term capital management plan,
which calls for maintaining capital adequacy at a level appropriate to the
risks assumed under the given economic conditions in the Czech Republic and
with respect to the Bank's business opportunities. It also maintains adequate
scope for Komerční banka Group's future business growth. Considering the
current state of affairs, KB's management intends for 2023 to propose
distributing as dividends 65% of attributable consolidated net profit earned
in the year.
As of 31 December 2022, Komerční banka had 71,447 shareholders (up by 10,590
year on year), of which 65,147 (greater by 9,995 from the year earlier) were
private individuals from the Czech Republic. 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.
Achievements and awards
KB Group achieved an important milestone in implementing its strategic KB2025
programme, announced in November 2020. Over the last more than 2 years, KB has
been developing a new banking infrastructure, including a new core banking
system, the KB+ mobile application, internet banking, a card management
system, and analytical tools allowing an upgraded client proposition.
By April 2023, the building of this new digital bank had reached such an
advanced level as to allow introducing the "New era of banking written by KB"
onto the Czech market, onboarding of new clients to the new platform, and the
start of a gradual migration of clients from the old system. The migration
that has commenced in the Individuals segment will be followed in subsequent
years by small businesses and completed with corporate clients. This schedule
is in accordance, too, with the development of new products and services for
the "New era of banking written by KB". Completion of the migration will
enable decommissioning of components making up KB's existing infrastructure.
On 28 April, Komerční banka signed a referral agreement with BNP Paribas
Personal Finance SA (BNPP PF) on re-contracting of selected deposit customers
of the Czech BNPP PF franchise operating under the Hello bank! brand. The
referral agreement does not concern credit products offered by Hello bank! As
of 26 April 2023, Hello bank! registered some 39,000 customers in the Czech
Republic, with 13,000 current accounts and 35,000 saving accounts. The volume
of client deposits at Hello bank! totalled CZK 1.7 billion. The referral
agreement with BNPP PF is in accordance with Komerční banka's announced
ambition to reinforce the scale of its existing business with non-organic
growth elements.
Komerční banka positions itself as a green bank and sustainability leader in
the Czech financial market and within Société Générále Group. KB was
awarded the title #1 Sustainable Bank in the 2022 VISA Awards, especially
recognising its project of supporting sustainable e-shops and for photovoltaic
installations on the roof of its headquarters in Prague-Stodůlky.
Market environment (in first quarter 2023)(( 3 (#_ftn3) ))
Unsettling economic phenomena from last year were to a certain extent already
tamed during first quarter 2023, as energy prices declined to near or at
pre-invasion levels and therefore did not feed further into inflation
pressures. That provided a bit of relief to tight household budgets. Hence, it
eased pressures for further monetary policy tightening. The direct
consequences of some supply chain disruptions from the Russian aggression
towards Ukraine had already been downgraded to limited importance in previous
quarters. The most important news during first quarter 2023, therefore, was
fragility in the US banking sector, the consequences of which were visible in
a European context, as well, albeit with no apparent spillovers to the real
economy.
The Czech economy left behind the shallow recession that had occurred in the
second half of 2022, as real GDP grew by 0.1% in first quarter 2023 but came
in at (0.2%) smaller in year-on-year terms, as per the flash estimate. The
manufacturing sector was slightly up on average as seen in monthly data,
driven mainly by the important automotive sector that is further gaining
momentum. Car production in 2023's first quarter was up by 31% year over year
and by 16% quarter on quarter. Labour market conditions remained tight, but
nominal wage growth did not keep up with rising consumer prices.(( 4 (#_ftn4)
)) The unemployment rate remains one of the lowest within the EU, standing at
just 2.6% in March 2023 (according to the Eurostat methodology after seasonal
adjustment).(( 5 (#_ftn5) )) The Czech labour ministry reported basically
stagnation in the unemployment rate during March.(( 6 (#_ftn6) ))
Pressure from the primary price categories was fading. In first quarter 2023,
the growth dynamics of industrial producer prices averaged 15.1% year on year
and 4.1% quarter on quarter due to increase of some prices at the beginning of
the year. Agricultural producer prices were higher by 19.3% year on year (but
down (2.6%) quarter on quarter), and construction work prices were up 10.4%
(1.7% higher quarter on quarter). Fading pressure from the primary price
categories together with only decent wage cost dynamics as well as retreating
energy prices did not feed further consumer price inflation pressures.
Consumer prices decelerated in March to 15.0% year on year. The year-over-year
rise was driven especially by housing, water, and energy costs and also by
prices of food and non-alcoholic beverages. The dynamics of core inflation
slowed to 11.3% in March from 13.3% in December.(( 7 (#_ftn7) ))
The CNB had left the main 2W monetary policy repo rate on hold at 7% since 23
June 2022. As of 31 March 2023, 3M PRIBOR reached 7.18% (+212 bps year on
year, down (8) bps year to date) and the 10Y interest rate swap hit 4.46% (+59
bps year on year, down (32) bps year to date). The interest rate swap curve
remained inverted, with the 5Y at 4.89% (+44 bps year on year but down (34)
bps year to date) and yields on 10-year Czech government bonds stabilised at
4.68% (+96 bps year on year, down (35) bps year to date).
By the end of March, the Czech crown had appreciated against the euro by 2.6%
year to date and 3.7% year on year, reaching CZK 23.5 per euro. In view of
this market development, the CNB's support of the crown exchange rate via
interventions on the FX market was not needed at all.
Information on development in residential real estate prices is now available
for the fourth quarter. Prices growth slowed significantly and even turned
negative in quarter-over-quarter terms. Price dynamics for second-hand homes
in Prague slowed significantly to 0.4% quarter on quarter, 8.4% year on year.
Second-hand flats in the rest of the country were down by (1.4%) quarter on
quarter, 15.3% year on year. Prices of newly developed flats in Prague were
down quarter on quarter for the second consecutive quarter, slipping by (4.3%)
in fourth quarter 2022, but were higher by 2.9% from the same quarter one year
earlier.(( 8 (#_ftn8) )) As documented by the European house price index,
real estate prices fell quarter on quarter by (2.2%) and the year-on-year
dynamics also slowed.(( 9 (#_ftn9) ))
Total bank lending for the overall market (excluding repo operations) grew by
4.8% year on year as of 31 March 2023.(( 10 (#_ftn10) )) Lending expansion
was somewhat slower in retail banking (3.7% year over year), with housing
loans growing 3.4% year on year as new mortgage production did not yet recover
from the drop in 2022, interest rates were up, and real estate prices starting
to correct. Lending to businesses increased year on year by 6.0% in March
2023, as seen in the dynamics across all main segments, including
non-financial corporates, the public sector, and financial institutions.
Growth in business lending occurred mainly in euro-denominated loans.
The volume of client deposits in Czech banks expanded by 7.3% year over year
as of March 2023.(( 11 (#_ftn11) )) Deposits from individuals had grown in
total by 5.4% while the business deposit market grew by 9.3% year over year. A
clear switch from current to term and saving deposits continued, as individual
term deposits were in aggregate 87.3% larger year on year. Business term
deposits added 44.6% over the previous year. Non-term deposits declined in
both segments: by (2.4%) year over year in the individuals segment and (10.6%)
in the business segment.
Developments in the client portfolio and distribution networks
31 Mar 2022 31 Mar 2023 Change
YoY
KB Group's clients 2,253,000 2,232,000 (21,000)
Komerční banka 1,636,000 1,656,000 20,000
- individual clients 1,393,000 1,412,000 20,000
- internet banking clients 1,484,000 1,523,000 39,000
- mobile banking clients 1,066,000 1,169,000 103,000
Modrá pyramida 478,000 451,000 (27,000)
KB Penzijní společnost 517,000 500,000 (17,000)
ESSOX (Group) 136,000 133,000 (3,000)
KB branches (CZ) 240 217 (23)
Modrá pyramida points of sale 203 201 (2)
SGEF branches 9 9 0
ATMs (KB network) 861 855 (6)
- of which deposit-taking 514 533 19
- of which contactless 626 662 36
ATMs (Total shared network) 861 2,052 1,191
Number of active debit cards 1,445,000 1,490,000 46,000
Number of active credit cards 186,000 202,000 17,000
Number of cards virtualized into payment apps 419,000 547,000 128,000
KB key authentication users 999,000 1,116,000 117,000
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 2023.
BUSINESS PERFORMANCE
Loans to customers
Total gross volume of lending to clients rose by 5.1% year on year to
CZK 789.1 billion.(( 12 (#_ftn12) ))
In lending to individuals, the overall volume of housing loans grew by 3.8%
from the year earlier. Within this total, the portfolio of mortgages to
individuals expanded by 2.0% to CZK 269.6 billion. Modrá pyramida's loan
portfolio grew even faster, by 9.8% to CZK 86.5 billion. The growth in the
outstanding volume was affected by a drop in new production of housing loans
by (60.5%) year on year from the still-strong levels of 2022's first quarter,
at CZK 6.4 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 6.6%,
at CZK 35.9 billion. This growth pace was also influenced by improvements in
the granting process and successful offer of loans consolidation.
The total volume of loans to businesses and other lending provided by KB Group
was greater by 6.2% year on year, at CZK 397.0 billion. Expansion was faster
in euro-denominated loans, available to businesses with revenues in the
European currency. Lending to small businesses declined by (0.7%) to
CZK 46.8 billion. In the environment of higher interest rates, some small
business clients decided to use their excess money to repay loans. The overall
CZK volume of credit granted by KB to medium-sized, large corporate, and other
clients in the Czech Republic and Slovakia(( 13 (#_ftn13) )) climbed by 7.8%
year on year to CZK 318.7 billion. At CZK 31.5 billion, the total credit
and leasing amounts outstanding at SGEF were up by 1.7% year over year.
The volume of loans denominated in euro expanded by 31.2% year on year, and
these loans represented 22.1% of the overall portfolio.
Amounts due to customers and assets under management
The volume of standard client deposits within KB Group decreased by (3.5%)
year on year to CZK 979.5 billion.(( 14 (#_ftn14) )) This development was
influenced by clients shifting some of their savings to mutual funds. The
competition in the market for deposits remained intense. Moreover, clients
often have been switching their deposits from current accounts to
better-yielding term and savings accounts. Deposits at Komerční banka from
individual clients were down by (9.0%) from the year earlier to
CZK 320.3 billion. The deposit book at Modrá pyramida diminished by (8.1%)
to CZK 54.2 billion. Total deposits from businesses and other corporations
were up by 0.1% to CZK 597.8 billion.
The volumes in mutual funds held by KB Group clients grew by 23.6% to
CZK 108.3 billion. Client assets managed by KB Penzijní společnost were
2.4% greater, at CZK 73.3 billion. Technical reserves in life insurance at
Komerční pojišťovna were lower by (4.5%) year on year, at
CZK 45.4 billion.
The Group's liquidity as measured by the ratio of net loans(( 15 (#_ftn15) ))
to deposits (excluding repo operations with clients but including debt
securities held by KB and issued by the Bank's clients) stood at 80.5%. The
Group's liquidity coverage ratio ended the year at 162%, well above the
regulatory limit of 100%.
FINANCIAL PERFORMANCE
Income statement
Komerční banka's revenues (net operating income) reached
CZK 8,958 million, down by (5.5%) compared to the first quarter of 2022. Net
interest income declined as the impact from higher average costs of deposits
was not offset by expanding loan volumes. Net fee and commission income was up
slightly, mainly thanks to greater transaction activity with payment cards.
Net profit on financial operations remained very strong but still below the
record-high level of last year's first quarter.
Net interest income was down by (7.4%), at CZK 6,349 million. The volume of
loans expanded, but the average lending spreads declined in retail segments.
Deposit volumes switching from current accounts to savings and term deposits,
together with higher rates paid on deposit products, led to significantly
higher average costs of deposits. Contribution to net interest income from
investment banking activities diminished due to smaller differences between
Czech crown interest rates and those in other currencies. Net interest margin
for the first quarter of 2023, computed as the ratio of net interest income to
interest-earning assets reported on the balance sheet, reached 2.0%. That
compares to 2.2% a year earlier.
Net fee and commission income grew by 1.5% to CZK 1,515 million. Transaction
fees contributed most to this growth, as clients' transaction activity was
greater for most transaction types but mainly in card payments. The exception
was for cash and in-branch transactions, which were declining. Deposit product
fees were up slightly as some clients were upgrading their account packages.
Fees from cross-selling were down slightly, with smaller contribution from
mutual and pension funds but better income from insurance products. Income
from loan services improved mainly thanks to expanding consumer lending.
Clients' activity on debt capital markets was smaller year on year, thus
generating less income from the related services.
Net profit on financial operations decreased by (7.5%) from the record-high
result of last year's first quarter to a still-strong CZK 1,000 million. The
result was achieved in spite of challenging conditions inasmuch as client
currency risk hedging activity was affected by the mostly appreciating Czech
crown and subdued levels of business confidence. The slow economy and volatile
financial conditions also limited the number of larger transactions concluded
by corporate and institutional clients. Small and medium-sized corporate
clients continued to appreciate tailored hedging strategies, and particularly
those based on currency options. Gains from foreign exchange payments were
stable year on year, as the number of transactions was growing, albeit with
some negative seasonality after a strong end of year.
Dividend and other income was up by 97.9% to CZK 93 million. This line item
primarily comprises revenues from property rental and ancillary services.
Operating expenses rose by 5.0% to CZK 5,007 million. Personnel expenses
increased by 3.9% to CZK 1,944 million as the rise in average salaries was
partly offset by a decrease in the average number of employees by (0.3%) to
7,541(( 16 (#_ftn16) )).General and administrative expenses (not including
contributions to the regulatory funds) were up by 23.4%, at
CZK 1,102 million. Growth in this category was driven mainly by software and
IT maintenance, as well as costs related to real estate, including energies,
and marketing. The Group estimated lower full-year charge to the regulatory
funds (Deposit Insurance Fund, Resolution Fund), by (8.0%) year on year to
CZK 1,166 million, because the CNB adjusted the target volume of the
Resolution Fund and the Czech banks' aggregate contribution to the Fund in
2023. Depreciation, amortisation, and impairment of operating assets grew by
7.7% to CZK 795 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 down by
(16.1%), at CZK 3,951 million.
Cost of risk (impairment losses, provisions for loans, and net result from
transferred and written-off loans) reached CZK (432) million (i.e. a net
release of provisions) compared to net provisions creation of CZK 278 million
a year earlier. This was possible mainly due to improved situation or
successful recovery relating to several exposures in the corporate client
segment. The level of new defaults stayed relatively low across all client
segments. Net provisioning in retail segments remained low. The Group also
released a part of provisions created in the previous year for anticipated
impacts of high inflation on the credit profile. The cost of risk in relative
terms and as measured against the average volume of the lending portfolio
during the first quarter of 2023 came to (21) basis points. That compares with
15 basis points for the same period a year earlier.
Income from shares in associated undertakings (i.e. Komerční pojišťovna)
was up by 29.2% year on year, at CZK 62 million, influenced by interest rate
developments, creation and utilisation of the insurance reserves, and
implementation of IFRS 17 accounting standard at Komerční pojišťovna.
Net profits on other assets reached CZK (1) million. In the previous year,
net profit on other assets had been CZK (33) million.
Income tax was lower by (4.1%), at CZK 833 million.
KB Group's consolidated net profit for the first quarter of 2023 reached
CZK 3,611 million, which was higher by 1.0% in comparison with the year
earlier. Of this total, CZK 50 million was profit attributable to the
non-controlling owners of minority stakes in KB's subsidiaries (down by
(21.9%) year on year).
Reported net profit attributable to the Group's equity holders totalled
CZK 3,561 million, which is 1.4% more year on year.
Other comprehensive income reached CZK (45) million. This derived mainly
from revaluation of some cash flow hedging positions. Consolidated
comprehensive income for the first 3 months of 2023 totalled
CZK 3,566 million, of which CZK 47 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 2023 with the values from the statement of
financial position as of 31 December 2022.
Assets
As of 31 March 2023, KB Group's total assets had grown by 9.6% year to date to
CZK 1,431.1 billion.
Cash and current balances with central banks were up by 19.6%, at
CZK 17.0 billion. Financial assets held for trading at fair value through
profit or loss (trading securities and derivatives) decreased by (3.2%) to
CZK 55.4 billion. The fair value of hedging financial derivatives declined
by (8.1%) to CZK 19.8 billion.
Year to date, there was a (4.3%) decline in financial assets at fair value
through other comprehensive income totalling CZK 28.9 billion. This item
consisted mainly of debt securities issued by government institutions.
Financial assets at amortised cost grew by 11.0% to CZK 1,281.0 billion. The
largest portion of this consisted of (net) loans and advances to customers,
which increased year to date by 0.9% to CZK 788.2 billion. A 97.8% share in
the gross amount of client loans was classified in Stage 1 or Stage 2 while
2.2% 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 13.4 billion. Loans and advances to banks climbed by 45.3% to
CZK 339.1 billion. The majority of this item consists in reverse repos with
the central bank. The value held in debt securities was up by 10.4% and
reached CZK 153.7 billion at the end of March 2023.
Revaluation differences on portfolio hedge items totalled CZK (2.1) billion,
lower by (16.8%). Current and deferred tax assets stood at CZK 0.2 billion.
Prepayments, accrued income, and other assets, which include receivables from
securities trading and settlement balances, decreased overall by 5.2% to
CZK 6.1 billion. Assets held for sale diminished by (14.2%) to
CZK 0.1 billion.
Due to transition to the IFRS 17 standard by Komerční pojišťovna,
investments in associates rose by 2.7% to CZK 2.7 billion compared to the
2022 year-end restated value of CZK 2.7 billion.
The net book value of tangible assets declined by (0.9%) to CZK 8.7 billion.
Intangible assets grew by 3.6% to reach CZK 9.4 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 10.3% higher in comparison to the end of 2022 and stood
at CZK 1,302.8 billion.
Financial liabilities at amortised cost went up by 12.0% to
CZK 1,176.0 billion. Amounts due to customers comprise the largest
proportion of this total, and these climbed by 13.6% to CZK 1,079.8 billion.
This total included CZK 100.3 billion of liabilities from repo operations
with clients and CZK 7.6 billion of other payables to customers. Amounts due
to banks decreased through 2022 by (3.6%) to CZK 82.1 billion.
Revaluation differences on portfolios hedge items were CZK (47.5) billion.
Current and deferred tax liabilities ended at CZK 2.7 billion, up by 1.6%.
Accruals and other liabilities, which include payables from securities trading
and settlement balances, grew by 0.4% to CZK 16.9 billion.
The provisions balance was (18.2%) lower, at CZK 0.9 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 and senior non-preferred debt, at CZK 37.7 billion, was down
(2.5%) year to date, as KB issued no new loans in first quarter 2023 to meet
regulatory minimum requirements for own funds and eligible liabilities (MREL).
Equity
Total equity climbed year to date by 2.9% to CZK 128.2 billion, driven
upwards by the volume of capital and reserve funds and retained earnings.
Value of retained earnings as well as income from share of associated
undertakings were restated as of the end of 2022 as a result of Komerční
pojišťovna's adopting the IFRS 17 standard. The value of non-controlling
interests reached CZK 3.3 billion. As of 31 March 2023, KB held in
treasury 1,193,360 of its own shares constituting 0.63% of the registered
capital.
Regulatory capital and other regulatory requirements
Total regulatory capital for the capital adequacy calculation came to
CZK 103.8 billion as of 31 March 2023. Capital adequacy stood at 19.8%. Core
Tier 1 (CET1) capital totalled CZK 100.9 billion and the Core Tier 1 ratio
was 19.2%. Tier 2 capital summed to CZK 2.9 billion, which was 0.5% of
risk-weighted assets.
As of 1 April 2023, Komerční banka's overall capital requirements (OCR) were
at approximately 17.9%. The minimum required level of CET1 is 13.1%, and the
minimum Tier 1 capital ratio stands at 15.2%.
KB Group's Liquidity Coverage Ratio came to 162% as of 31 March 2022. The
applicable regulatory minimum is 100%.
Effective from 1 January 2023, KB Group is recommended to comply with a
minimum requirement for own funds and eligible liabilities (MREL) equal to
17.4% of the consolidated total risk exposure and 5.18% of the consolidated
total exposure. Based on the CNB general approach,(( 17 (#_ftn17) )) MREL is
expected to reach 21.2% of the consolidated total risk exposure and 5.91% of
the consolidated total exposure with effect as of 31 December 2023. The MREL
requirement is defined as a sum of the amount of loss absorption and
recapitalisation. In addition to the MREL, expressed as a percentage of
risk-weighted assets, the Group must also fulfil the combined capital buffer.
According to current regulations and the criteria from the supervisor, this
requirement stands at 7.00% as of 1 April 2023.
Pursuing the so-called "single point of entry" resolution strategy, KB intends
to fulfil its MREL requirements by taking on senior non-preferred loans from
Société Générale S.A. As of 31 March, KB accepted such loans in a total
principal volume of EUR 1.5 billion.(( 18 (#_ftn18) ))
Developments in corporate governance
The General Meeting held on 20 April 2023 approved the reported financial
statements for 2022 and the proposal for distribution of profit, including
dividend payment in the amount of CZK 11.5 billion. It also approved the
consolidated financial statements for 2022 and the Remuneration Report for
2022. The General Meeting elected Ms. Marie Doucet and Ms. Petra Wendelová as
members of the Supervisory Board. Ms. Wendelová was elected, too, as a member
of the Audit Committee. The General Meeting also decided to appoint Deloitte
Audit s.r.o. to perform the statutory audit for 2023.
Expected development and main risks to that development in 2023
Note: This outlook updates and thus replaces the outlook presented on 8
February 2023 on the occasion of Komerční banka's announcing its results for
the year 2022. Given the high level of uncertainty and 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.
After the Czech economy had probably overcome a shallow recession in the
second half of 2022, it is expected to grow marginally in 2023, with positive
contribution from net exports. Fixed investments should expand somewhat, too,
supported by the energy transition and by utilisation of European Union funds.
On the other hand, household consumption, affected by the decline in real
wages, is expected again to contribute negatively to growth.
Although inflation will decelerate, its average rate during the year will
still exceed 10%. Unemployment is expected to increase just slightly and the
labour market will remain tight. The growth in nominal wages will accelerate,
albeit not enough to match the rise in consumer prices.
The Czech National Bank is likely to keep interest rates at their current
levels (7% repo rate) until the second half of the year, when it could start
to reduce them gradually.
KB is not aware of further changes in capital requirements during 2023 after
the CNB boosted the requirement for countercyclical capital buffer on Czech
exposures of banks to the maximum level of 2.5%, effective from April 2023. In
May, the CNB announced increase in the levy for the Deposit Insurance Fund in
2023 to 5.9 basis points from 4.4 basis points relative to the volume of
covered deposits. KB will also continue 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).
In December 2022, the Parliament approved a bill introducing a new tax
impacting several banks, including Komerční banka. This so-called "windfall
tax" will be applied to profits of selected banks generated in the years 2023,
2024, and 2025. The windfall tax rate of 60% is constructed as a surcharge on
top of the standard 19% tax rate, which means that the effective tax rate for
the "windfall" part of the profit is 79%. Windfall is defined as a difference
between the income tax base (profit before tax) of the respective year and the
average profit before tax in the four years 2018-2021, increased by 20%. The
windfall tax is imposed on (standalone) banks with net interest income that
had exceeded CZK 6 billion in 2021. Within KB Group, it applies to standalone
Komerční banka. Given the income tax base of standalone KB in 2018, 2019,
2020, and 2021, the windfall tax base comes to CZK 15.8 billion. According to
the projections for the financial results detailed below, the new tax's impact
in 2023 should be limited. Podle níže uvedených projekcí finančních
výsledků by měl být dopad nové daně v roce 2023 omezený. The government
of the Czech Republic intends to adopt measures focused on reduction of the
deficit of public finance. The effects of such measures were not known at the
time of preparation of this announcement.
The banking market for loans will absorb a combination of effects, including
quite dynamic nominal indicators but rather sluggish real growth rates. Total
lending on the market should decelerate to a mid-single-digit year-on-year
percentage rate. The outstanding volumes of housing loans are expected to
record only marginal gains as the production of new housing loans dropped
significantly during 2022. Consumer credit expansion should reach a
mid-single-digit pace, as the burden from weak consumer confidence levels will
be offset by the still-favourable labour market situation. Lending to
businesses and other corporations should rise at a low- to mid-single-digit
pace, affected by cooling demand for working capital financing (due to less
need in industry to keep high inventories).
Growth in the volume of deposits on the market will reach mid- to high-single
digits in total. The pace of expansion in deposits from individuals will be
slower, as some households continue to tap their reserves to cover increased
costs of living. Businesses, on the other hand, have mostly been able to
protect their profitability margins and ability to generate cash. Several
players on the market for deposits have adopted aggressive pricing policies.
This situation may last as long as the market interest rates stay high.
Komerční banka will continue implementing the changes in accordance with its
KB2025 programme that had been announced in November 2020. Among other
initiatives, it will continue a gradual migration of individual clients to the
new digital bank, commenced in April 2023.
In this context, KB management expects that the Group's loan portfolio will
record a mid-single-digit growth rate for 2023. The outstanding volume of
housing loans should still expand slightly, and the volume of new sales of
these loans should not fall further in comparison with 2022. Consumer lending
should grow faster, with expected return of consumer confidence and
improvements in the offer and the sales process. The corporate loan book
should grow at a mid-single-digit pace, as KB aims to confirm the gains
recently achieved in its market share of business loans.
Total deposit balances are expected to expand at a mid-single-digit pace.
Deposits of corporate clients may grow somewhat faster than do volumes in the
retail segments. The growth in term deposits will probably still outpace that
in current accounts by a large margin.
KB Group's total net operating income for 2023 will probably decline slightly
compared to the previous year. Net interest income will retreat at a
high-single-digit pace, mainly due to higher average costs of deposits. Net
fees and commissions should improve by mid-single digits, driven mainly by
dynamic development of the volumes in mutual funds. The net profit on
financial operations will likely grow meaningfully, propelled by gains from
currency conversions related to travelling and hedging of financial risks for
clients, but also due to a shifting allocation of trading gains from interest
income to financial operations, which reflects movements in interest rates in
different currencies.
As ever, operating expenses remain under tight control and the figure for the
full year will rise at an upper mid-single-digit pace, thus by much 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.
The management has agreed with the trade unions on increasing wages by an
average 5% from April 2023 on a constant staff basis. Depreciation and
amortisation charges will be growing at a high-single-digit pace, a reflection
of the investments in digital transformation. Total regulatory levies for the
Resolution and Deposit insurance funds will likely decrease, as per the lower
aggregate contribution required of Czech banks by the CNB in this year. Other
administrative costs will be offsetting the effects of high inflation through
ongoing optimisation of operations.
Cost of risk will be influenced by several factors, including in particular
the still-high inflation and energy costs, slower economic growth, and higher
interest rates. Certain impacts from such environment had already been
anticipated in provisioning during 2022. Reflecting the resilient credit
profile of KB's asset portfolio, the cost of risk in 2023 should remain
visibly below the estimated normalised level 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, as well as
rapid decline in aggregate consumption or significant changes in parameters of
financial schemes supported by the state. Generally, the open Czech economy
would be sensitive to a worsening external economic environment, as well as to
abrupt changes to relevant exchange and interest rates or to monetary or
fiscal policies.
Management expects that KB's operations will generate sufficient profit in
2023 to cover the Group's capital needs ensuing from its growing volume of
assets as well as to pay out dividends.
ANNEX: Consolidated results as of 31 March 2023 under International Financial
Reporting Standards (IFRS)
Profit and Loss Statement Reported Recurring
1Q 2022 1Q 2023 Change 1Q 2022 1Q 2023 Change
YoY
YoY
(CZK million, unaudited)
Net interest income 6,856 6,349 (7.4%) 6,856 6,349 (7.4%)
Net fee and commission income 1,493 1,515 1.5% 1,493 1,515 1.5%
Net profit on financial operations 1,081 1,000 (7.5%) 1,081 1,000 (7.5%)
Dividend and other income 47 93 97.9% 47 93 97.9%
Net banking income 9,477 8,958 (5.5%) 9,477 8,958 (5.5%)
Personnel expenses (1,871) (1,944) 3.9% (1,871) (1,944) 3.9%
General admin. expenses (excl. regulatory funds) (893) (1,102) 23.4% (893) (1,102) 23.4%
Resolution and similar funds (1,267) (1,166) (8.0%) (1,267) (1,166) (8.0%)
Depreciation, amortisation and impairment of operating assets (738) (795) 7.7% (738) (795) 7.7%
Total operating expenses (4,768) (5,007) 5.0% (4,768) (5,007) 5.0%
Operating profit 4,709 3,951 (16.1%) 4,709 3,951 (16.1%)
Impairment losses (158) 447 +/- (158) 447 +/-
Net gain from loans and advances transferred and written off (120) (15) (87.6%) (120) (15) (87.6%)
Cost of risk (278) 432 +/- (278) 432 +/-
Net operating income 4,431 4,384 (1.1%) 4,431 4,384 (1.1%)
Income from share of associated companies 48 62 29.2% 48 62 29.2%
Net profit/(loss) on subsidiaries and associates 0 0 n.a. 0 0 n.a.
Net profits on other assets (33) (1) (97.0%) (33) (1) (97.0%)
Profit before income taxes 4,446 4,444 (0.0%) 4,446 4,444 (0.0%)
Income taxes (869) (833) (4.1%) (869) (833) (4.1%)
Net profit for the period 3,577 3,611 1.0% 3,577 3,611 1.0%
Profit attributable to the Non-controlling owners 64 50 (21.9%) 64 50 (21.9%)
Profit attributable to the Group's equity holders 3,513 3,561 1.4% 3,513 3,561 1.4%
Statement of financial 31 Dec 2022 31 Mar 2023 Ytd
position
(CZK million, unaudited)
Assets 1,305,304 1,431,062 9.6%
Cash and current balances with central bank 14,190 16,967 19.6%
Loans and advances to banks 233,398 339,065 45.3%
Loans and advances to customers (net) 781,463 788,248 0.9%
Securities and trading derivatives 226,848 238,118 5.0%
Other assets 49,404 48,664 (1.5%)
Liabilities and shareholders' equity 1,305,304 1,431,062 9.6%
Amounts due to banks 85,176 82,094 (3.6%)
Amounts due to customers 950,692 1,079,799 13.6%
Securities issued 12,156 11,832 (2.7%)
Subordinated and senior non preferred debt 38,694 37,713 (2.5%)
Other liabilities 93,910 91,378 (2.7%)
Total equity 124,676 128,246 2.9%
Key ratios and indicators 31 Mar 2022 31 Mar 2023 Change year on year
Capital adequacy (CNB) 20.2% 19.8% q
Tier 1 ratio (CNB) 19.8% 19.2% q
Total risk-weighted assets (CZK billion) 512.3 525.0 2.5%
Risk-weighted assets for credit risk (CZK billion) 425.8 429.1 0.8%
Net interest margin (NII / average interest-bearing assets)(III) 2.2% 2.0% q
Loans (net) / deposits ratio(IV) 72.8% 80.5% p
Cost / income ratio(V) 50.3% 55.9% p
Return on average equity (ROAE)(VI) 11.2% 11.6% p
Return on average Tier 1 capital(VII) 13.9% 14.3% p
Return on average assets (ROAA)(VIII) 1.1% 1.0% q
Earnings per share (CZK)(IX) 74.4 75.4 1.4%
Average number of employees during the period 7,564 7,541 (0.3%)
Business performance in retail segment - overview 31-Mar-23 Change year on year
CZK bil.
Mortgages to individuals - volume of loans outstanding 269.6 2.0%
Building savings loans (MPSS) - volume of loans outstanding 86.5 9.8%
Consumer loans (KB + ESSOX + PSA Finance) - volume of loans outstanding 35.9 6.6%
Small business loans - volume of loans outstanding 46.8 (0.7%)
Insurance premiums written (KP) 2.1 (5.8%)
Senior non-preferred loans as of 31 March 2023:
Issue Principal Call option date* Interest rate (ACT/360)
27 Jun 2022 EUR 250m 28 Jun 2027 3M Euribor + 2.05%
21 Sep 2022 EUR 250m 21 Sep 2026 1M Euribor + 1.82%
21 Sep 2022 EUR 250m 21 Sep 2029 1M Euribor + 2.13%
9 Nov 2022 EUR 250m 9 Nov 2025 1M Euribor + 2.05%
9 Nov 2022 EUR 250m 9 Nov 2027 1M Euribor + 2.23%
9 Nov 2022 EUR 250m 9 Nov 2028 3M Euribor + 2.28%
(*) Maturity date is one year after the call option excercise date.
Subordinated debt as of 31 March 2023:
Issue Principal Call option date* Interest rate (ACT/360)
10 Oct 2022 EUR 100m 11 Oct 2027 3M Euribor + 3.79%
(*) Maturity date is five years after the call option excercise date.
Financial calendar:
3 August 2023 1H and 2Q 2023 results
3 November 2023 9M and 3Q 2023 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 2023 1Q 2022
Net interest income income, year-to-date 6,349 6,856
Of which:
Loans and advances at amortised cost 14,472 9,438
Debt securities at amortised cost 1,045 658
Other debt securities 136 138
Financial liabilities at amortised cost (7,842) (2,458)
Hedging financial derivatives - income 11,533 6,499
Hedging financial derivatives - expense (12,995) (7,419)
(source: Balance Sheet) 31-Mar-23 31-Dec-22 31-Mar-22 31-Dec-21
Cash and current balances with central banks / Current balances with central 9,384 6,167 47,865 21,455
banks
Loans and advances to banks 339,065 233,398 349,137 257,196
Loans and advances to customers 788,248 781,463 738,500 724,587
Financial assets held for trading at fair value through profit or loss / Debt 12,413 9,968 9,052 8,696
securities
Non-trading financial assets at fair value through profit or loss / Debt 129 132 132 135
securities
Financial asset at fair value through other comprehensive income (FV OCI) / 28,826 30,119 33,368 35,509
Debt securities
Debt securities 153,700 139,276 131,481 114,078
Interest-bearing assets (end of period) 1,331,765 1,200,524 1,309,536 1,161,656
Average interest-bearing assets, year‑to-date 1,266,144 1,235,596
NIM year-to-date, annualised 2.01% 2.22%
(( 1 (#_ftnref1) ))
Including debt securities issued by KB's corporate clients. The volume of
reverse repo operations with clients as of 31 March 2023 as well as of 31
March 2022 was nil.
(( 2 (#_ftnref2) )) Excluding repo operations with clients. The total volume
of 'Amounts due to customers' moved up by 2.7% to CZK 1,079.8 billion.
(( 3 (#_ftnref3) )) Unless stated otherwise, data sources for this section:
Czech Statistical Office, Czech National Bank, KB Economic Research.
Comparisons are year on year.
(( 4 (#_ftnref4) )) The latest available data for the fourth quarter showed
wage inflation picking up to +7.9% year on year (down by (6.7%) in real
terms).
(( 5 (#_ftnref5) ))
https://ec.europa.eu/eurostat/databrowser/view/EI_LMHR_M/default/table?lang=en&category=euroind.ei_lm
(https://ec.europa.eu/eurostat/databrowser/view/EI_LMHR_M/default/table?lang=en&category=euroind.ei_l)
Data as of March 2022.
(( 6 (#_ftnref6) )) https://www.mpsv.cz/web/cz/mesicni
(https://www.mpsv.cz/web/cz/mesicni) . Data as of March 2022.
(( 7 (#_ftnref7) )) Source: ARAD statistics of the CNB, www.cnb.cz.
(( 8 (#_ftnref8) )) Source:
https://www.czso.cz/csu/czso/indices-of-realized-flat-prices-4-quarter-of-2022
(https://www.czso.cz/csu/czso/indices-of-realized-flat-prices-3-quarter-of-2022)
Publication code 014007-22, released 16 March 2023.
(( 9 (#_ftnref9) )) Source:
https://ec.europa.eu/eurostat/databrowser/view/prc_hpi_q/default/table?lang=en
(https://ec.europa.eu/eurostat/databrowser/view/prc_hpi_q/default/table?lang=en)
(( 10 (#_ftnref10) )) Source of data on banking market developments: ARAD
statistics of the CNB, www.cnb.cz.
(( 11 (#_ftnref11) )) Source of data on banking market developments: ARAD
statistics of the CNB, www.cnb.cz.
(( 12 (#_ftnref12) )) Including debt securities issued by KB's corporate
clients. There were no reverse repo operations with clients to report as of 31
March 2023 or 31 March 2022.
(( 13 (#_ftnref13) )) Inclusive of factor finance outstanding at Factoring KB
and merchant and car dealers' financing from ESSOX Group.
(( 14 (#_ftnref14) )) Excluding volatile repo operations with clients. The
total volume of 'Amounts due to customers' increased by 2.7% year on year to
CZK 1,079.8 billion.
(( 15 (#_ftnref15) )) Gross volume of loans reduced by the volume of
provisions for loan losses.
(( 16 (#_ftnref16) )) Recalculated to a full-time equivalent number.
(( 17 (#_ftnref17) ))
https://www.cnb.cz/en/resolution/general-approach-of-the-czech-national-bank-to-setting-a-minimum-requirement-for-own-funds-and-eligible-liabilities-mrel/
(( 18 (#_ftnref18) )) An overview of senior non-preferred tranches to meet
the MREL requirements is provided in the Annex.
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