REG - Komercni Banka - Annual Financial Report
10/02/2022 07:00
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RNS Number : 2222B Komercni Banka 10 February 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 10 February 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 December 2021.
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
FY 2021
Komerční banka's 2021 results: solid growth in business volumes and
revenues, stable costs, strong asset quality, progress in transformation
"In a year full of challenges, Komerční banka achieved excellent results. We
have recorded very solid growth in the volume of our business with clients,
and this has underpinned an increase in revenues. In spite of the spiking
inflation and higher regulatory levies, we have kept the operating
expenditures stable. The credit profile of the loan portfolio remains very
strong, even though the current environment is tough for many businesses,"
remarked Jan Juchelka, KB's Chairman of the Board of Directors and Chief
Executive Officer.
"In the second pandemic year, these successes were made possible by all those
working within KB Group. They also have put great efforts into implementing
the KB Change 2025 transformation plan. I want to thank all the employees, as
well as our clients, shareholders, and other partners for their trust in
Komerční banka," Jan Juchelka added.
The KB Group as a whole was serving 2,251,000 clients. The standalone Bank
had 1,625,000 customers. The number of clients with KB Mobile Banking
climbed by 102,000 year on year to 1,034,000. Clients' average satisfaction
levels as measured by Net Promoter Score improved to 39 points among
individual clients, 41 points for small businesses, and 45 points among
corporate customers.
Transformation in accordance with the KB Change 2025 plan is proceeding
quickly: KB is testing the new digital bank and streamlining its operations.
The employee engagement index reached 77 points in 2021.
KB Group's lending to customers expanded by 6.9% year on year to
CZK 738.9 billion, growing in retail as well as corporate segments. The
volume of housing loans provided by KB and Modrá pyramida swelled by 9.5%, to
CZK 338.7 billion, as new sales of housing loans leapt by 66.3% in 2021 to
CZK 109.0 billion.
Client deposits were up by 6.2%, at CZK 948.6 billion. The volume of
non-bank assets under management increased by7.0%.
Fourth quarter 2021 (v. 4Q 2020)
Consolidated revenues for 4Q 2021 were up 19.1% year on year, at
CZK 8.7 billion, driven by net interest and fee income. Total operating
expenditures climbed by 5.1%to CZK 3.7 billion. Cost of risk in the quarter
was immaterial, reflecting KB's strong credit profile. Net profit attributable
to shareholders doubled year on year to CZK 4.2 billion, driving a similar
pace of growth in income taxes, which reached CZK 1.0 billion.
Full year 2021 (v. FY 2020)
Consolidated revenues for 2021 improved by 5.7% year on year to
CZK 31.3 billion. All main revenue categories contributed to this gain.
Total operating expenditures rose marginally by 0.7% to CZK 15.1 billion.
Net creation of credit risk provisions (cost of risk) reached
CZK 0.7 billion, lower by (84.0%) year on year. Net profit attributable to
shareholders improved by 56.0% to CZK 12.7 billion. Income taxes increased
by 52.5% to CZK 3.0 billion.
KB Group's capital adequacy ratio reached 21.3%. The liquidity
coverage ratio stood at 148%.
The Board of Directors will propose a dividend of CZK 43.80 per
share, totalling CZK 8.3 billion. This proposal will be subject to a vote by
the General Meeting of KB and also validation by the CNB upon its receipt of
the audited financial statements for 2021. Additional steps in returning
excess capital to shareholders will be considered in the second half of 2022
after completing the regulatory stress test exercise.
The international magazine The Banker has named Komerční banka
Bank of the Year 2021 in the Czech Republic.
Prague, 10 February 2022 - Komerční banka reported today its unaudited
consolidated results for the year 2021.
Total revenues improved by 5.7% to CZK 31.3 billion. Driven by increase in
the volumes of both loans and deposits, and later in the year also by
normalising market interest rates, net interest income was up by 2.0%, at
CZK 21.8 billion. Net fee and commission income grew by 9.6% to
CZK 5.7 billion, underpinned by a broad base of contributing factors,
including clients' greater transaction activity, growth in the volume of
mutual fund investments, and demand from corporations for debt capital markets
and advisory services. Net profit on financial operations grew by 25.9% to
CZK 3.6 billion, driven by strong demand from clients for hedging of
financial risks in the volatile environment.
Operating expenses continued to be managed tightly in spite of the spike in
inflation and increase in regulatory levies, particularly for the Resolution
Fund. Total operating expenditures were higher by 0.7%, at CZK 15.1 billion.
Personnel costs decreased slightly and administrative expenses were almost
flat. The average number of employees declined by (4.6%) to 7,687. Reflecting
investments in digitalisation, depreciation and amortisation charges were
higher year on year. These were partly offset by a shrinking buildings
portfolio.
Net creation of provisions for 2021 totalled CZK 0.7 billion, down by
(84.0%). The provisions creation related to the corporate portfolios, as KB
was able to slightly decrease the volume of provisions associated with the
retail portfolio. That was in accord with the good repayment discipline of
clients and successful recovery performance in all client segments. The Group
also recorded limited reversals reflecting statutory recalibrations of models
in accordance with IFRS 9.
The reported attributable net profit improved by 56.0% to CZK 12.7 billion.
and income taxes were up by 52.5% , at CZK 3.0 billion.
Lending to clients gained by 6.9% to CZK 738.9 billion.(( 1 )) Within that
total, financing of housing from KB and Modrá pyramida expanded by 9.5%.
Consumer lending by KB and ESSOX added 1.9%. Lending to businesses and other
clients was higher by 5.0%. A negative contribution of approximately 0.9
percentage point to the total reported value of loans stemmed from 5.3%
year-on-year appreciation of the Czech crown vis-à-vis the euro. That
affected the crown value of euro-denominated loans, provided almost solely to
corporations.
Deposits from clients climbed by 6.2% year on year to
CZK 948.6 billion.(( 2 )) The growth in deposits was stronger in retail
segments, except for Modrá pyramida. The volume of KB Group clients' assets
in mutual funds, pension savings, and life insurance expanded by 7.0% to
CZK 203.6 billion.
The capital adequacy ratio reached a strong 21.3%, and Core Tier 1 capital
stood at 20.9%. The liquidity coverage ratio was 148%, above the regulatory
minimum of 100%.
With a view to the Czech National Bank's announcement from September 2021 that
it would no longer restrict the amount of bank dividends across the board,
KB's Board of Directors intends to propose to the General Meeting of
Komerční banka, to be held in April, payment of dividends in the volume of
CZK 8.3 billion (CZK 43.80 per share). That would constitute 65% of the 2021
net profit. This proposal is conditioned upon consent from the CNB after
submitting the audited financial statements for 2021.
Additional steps in releasing the excess equity accumulated due to the general
pandemic dividend restrictions in 2020 and 2021 will be considered in the
second half of 2022 upon finalisation of the annual regulatory stress test
exercise.
Further away, KB's Board of Directors intends to resume its standard dividend
policy of paying out 60-70% of net profit generated in the preceding year. The
policy had been suspended in accordance with restrictions applicable for all
Czech banks adopted by the CNB in March 2020 in response to outbreak of the
Covid-19 pandemic. For the year 2022, the Board of Directors approved a
dividend policy (expected dividend payout ratio) of paying out 65% of
consolidated net profit attributable to KB's shareholders to be generated in
2022.
The Bank had 58,444 shareholders as of 31 December 2021 (up by 1,443 year on
year), of which 52,823 were private individuals from the Czech Republic
(greater by 1,379 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 fourth quarter 2021)(( 3 ))
The fourth quarter was marked by another pandemic wave that was by far the
highest to date in terms of incidence (reaching a 7-day rolling average at the
end of November of 1,750 per million people) and prevalence (peaking at 2% of
the population being sick during the first days of December). Nevertheless,
this wave did not surpass the previous waves (spring 2021 and autumn 2020) in
terms of hospitalisations. Vaccination reached 62.3% (fully vaccinated) and
22.5% of the population had received a booster jab by the end of December.
Consequently, the fourth quarter brought no nationwide lockdown or school
closures, although quarantines strongly affected face-to-face schooling and
worker absences. Sport and cultural events were restricted in terms of numbers
in attendance. Restaurants, bars, and the like were required to shut at 10 pm
between 26 November and 26 December. Several restrictions regarding numbers of
people at certain events and hygienic conditions to be followed in public
places were still in place.
Release of economic restrictions created a solid basis for good economic
performance in 2021's fourth quarter (GDP grew by 0.9% quarter over quarter
and 3.6% year on year, according to the initial flash estimate of the Czech
Statistical Office). Tight labour market conditions continue to prevail with
no signs of easing. In the third quarter alone, wage inflation was 5.7% year
on year (1.5% in real terms), driven mainly by public sector increases. During
the fourth quarter, the unemployment rate declined further. Unemployment
remained at one of the lowest national rates within the EU (standing at 2.1%
in December according to the Eurostat methodology after seasonal
adjustment).(( 4 )) More recent data from the Czech labour ministry was
showing a slight upside risk for unemployment rate at the end of the
year.(( 5 ))
The dynamics of industrial producer prices averaged a weighty 12.8% year on
year in 2021's fourth quarter. Pressure from the primary price categories
together with continuous tight labour market conditions transmitted through to
consumer price inflation, which jumped to as high as 6.6% year on year in
December. That was well above the upper bound of the national bank's inflation
target tolerance band. Meanwhile, the Czech crown appreciated as a result of
tightening monetary policy, thereby contributing to taming of inflationary
pressures. In quarter-on-quarter terms, the Czech crown was 2.5% stronger
against the euro, ending 2021 at CZK 24.9 per euro. The crown was 5.3%
stronger in a year-on-year comparison.
Continued expectations for creeping inflation on the monetary policy horizon
and mounting headline as well as core inflation due to domestic factors,
further supported by imported inflation from the global economy, led the CNB
to accelerate its rate-hiking cycle. The national bank raised its two-week
repo rate at the beginning of November by 125 bps and again before Christmas
by 100 bps. That put the 2W repo rate at 3.75% by the end of 2021. This
brought three-month PRIBOR accordingly to 4.08% by the end of December (+372
bps year on year). The 10Y swap rate climbed to 3.26% from the 1.28% as of 31
December 2020 (+198 bps year to date), and the IRS curve inverted again (5Y
at 3.85%, +273 bps year to date). CZK-denominated 10Y Czech government bond
yields gained 143 bps through 2021 to reach 2.73%.
Growth in prices of residential real estate continued apace, influenced by
expectations for further price and interest rate increases, deployment of
excess savings accumulated due to pandemic restrictions, and rising building
material prices. Prices of new development were especially affected. Prices
paid in 2021's third quarter for previously owned flats were up 21% year on
year across Czechia and higher by 15.5% year on year in Prague. Prices
obtained for new flats (in Prague only) were 9.7% greater than a year
earlier.(( 6 ))
Total bank lending for the overall market (excluding repo operations) grew by
6.9% year on year through the end of December.(( 7 )) Lending growth was
faster in retail banking, with housing loan growth continuing to be brisk and
improving dynamics of consumer lending, supported by relatively stable
household incomes as the tight labour market favoured the position of workers.
Business loans outstanding were higher by 3.2% year on year, as some companies
were still postponing their investment plans and year on year appreciation of
the Czech crown technically diminished the reported value of loans denominated
in euros.
The volume of client deposits in Czech banks expanded by 6.6% year on year as
of December.(( 8 )) Deposits from individuals continued to grow substantially
and were up 6.9% year on year. Within the corporate segments (up 6.2% year on
year overall), deposits from most reported categories recorded positive
single-digit growth dynamics in year-on-year terms.
Selected achievements and initiatives in the fourth quarter 2021
In October, the building of the new digital bank with the Temenos Transact
system at its core reached an important phase, wherein a functional bank with
basic features is being tested by some 500 clients from among the Bank's own
employees. KB has concluded with ČEZ a strategic partnership for
sustainability. The two groups will co-operate in reducing their own carbon
footprints as well as the emissions generated by their clients. The first step
is the offer of photovoltaic rooftop installations as a service and purchasing
energy for Komerční banka from renewable sources from ČEZ ESCO. KB has also
launched pilot operation of the Remote Service Centre, where clients meet with
their bankers online or by telephone. Modrá pyramida opened the possibility
of arranging a Quick Loan (Rychloúvěr) for housing via the MP Home mobile
application.
In November, Komerční banka launched the BankID Sign service for guaranteed
signing of documents using the bank identity. ESSOX introduced an online
deferred payment service for e-shop customers. KB, together with Visa,
Heureka, and the Association of Social Responsibility, presented the
"Sustainable e-shop" project to support and motivate sustainable e-shop
business.
Also in November, Komerční banka and its subsidiaries Modrá pyramida and
ESSOX voluntarily joined the Merciful Summer initiative, which aims to help
people in distraint as a result of non-repayment of their loans. Thus, by the
end of January 2022, their clients could repay their defaulted obligations
without additional penalty and costs related to distraint procedure.
The international magazine The Banker named Komerční banka Bank of the Year
2021 in the Czech Republic. The jury had focused upon how banks helped out
customers and the economy in the past year, their abilities to innovate
continuously, and also their approaches to sustainable business.
Among MasterCard Bank of the Year awards for 2021, Komerční banka won first
place in the Corporate Bank of the Year category and in the Sustainable Bank
of the Year category.
Komerční pojišťovna was named the Best Life Insurance Company of the Year
2021 by the daily Hospodářské noviny.
Komerční banka's Private Banking received the Best Performing Private Bank
in Central and Eastern Europe award, given as part of the Global Private
Banking Awards from The Banker and Professional Wealth Management magazines,
both members of the Financial Times publishing house.
Jan Juchelka, CEO and Chairman of the Board of Directors, received the Best
Manager in the Czech Republic in 2019 award from the National Evaluation
Committee of the Czech Management Association of the Czech Republic.
Developments in the client portfolio and distribution networks
31 Dec 2020 31 Dec 2021 Change
YoY
KB Group's clients1), 2) 2,293,000 2,251,000 (43,000)
Komerční banka1) 1,641,000 1,625,000 (17,000)
- individual clients1) 1,389,000 1,383,000 (7,000)
- internet banking clients 1,443,000 1,465,000 22,000
- mobile banking clients 932,000 1,034,000 102,000
Modrá pyramida 485,000 485,000 0
KB Penzijní společnost 525,000 520,000 (5,000)
ESSOX (Group)2) 151,000 137,000 (14,000)
KB branches (CZ) 242 242 0
Modrá pyramida points of sale 201 202 1
SGEF branches 9 9 0
ATMs 809 860 51
of which deposit-taking 429 502 73
of which contactless 304 604 300
Number of active debit cards 1,407,000 1,420,000 13,000
Number of active credit cards 181,000 184,000 3,000
Number of cards virtualized into payment apps 283,000 390,000 108,000
KB key authentication users 812,000 963,000 151,000
1) Year on year decline affected by termination of accounts as a result of
Know-Your-Client remediation process.
2) Year on year decline influenced by termination of non-active credit card
relationships.
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 December 2021.
Business performance
Loans to customers
Total gross volume of lending to clients rose by 6.9% year on year to
CZK 738.9 billion.(( 9 ))
In lending to individuals, the overall volume of housing loans grew by 9.5%
from the year earlier. Within this total, the portfolio of mortgages to
individuals expanded by 7.0% to CZK 262.7 billion. Modrá pyramida's loan
portfolio grew by a strong 18.9% to CZK 76.0 billion. Sales of housing loans
moderated at the end of the year as mortgage pricing was on the rise and
reflected sharp growth in market interest rates. The volume of KB Group's
consumer lending (provided by the Bank and ESSOX Group in the Czech Republic
and Slovakia) was up 1.9%, at CZK 33.3 billion.
The total volume of loans to businesses and other lending provided by KB Group
was higher by 5.0% year on year, at CZK 366.9 billion. Lending to small
businesses increased by 4.3% to CZK 47.9 billion. The overall CZK volume of
credit granted by KB to medium-sized, large corporate, and other clients in
the Czech Republic and Slovakia(( 10 )) improved by 5.6% year on year to
CZK 288.3 billion. At CZK 30.7 billion, the total credit and leasing
amounts outstanding at SGEF were up by 1.1% year over year.
Amounts due to customers and assets under management
The volume of standard client deposits within KB Group rose by 6.2% year on
year to CZK 948.6 billion.(( 11 )) Deposits at Komerční banka from
individual clients grew by 10.2% from the year earlier to CZK 354.9 billion.
The deposit book at Modrá pyramida expanded by 0.2% to CZK 60.9 billion.
Total deposits from businesses and other corporations climbed by 4.4% to
CZK 527.1 billion.
Client assets managed by KB Penzijní společnost were 6.5% greater, at
CZK 71.5 billion. Technical reserves in life insurance at Komerční
pojišťovna were down by (1.3%) year on year, at CZK 49.2 billion. The
volumes in mutual funds held by KB Group clients grew by 13.0% to
CZK 83.0 billion, and this growth predominantly occurred in equity and
balanced funds.
The Group's liquidity as measured by the ratio of net 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 76.4%. The Group's
liquidity coverage ratio was 148%, well above the regulatory limit of 100%.
Financial performance
Income statement
Komerční banka's revenues (net operating income) for the year 2021 increased
by 5.7% year on year to reach CZK 31,346 million. All main revenue
categories contributed to this growth.
Net interest income for the full year was higher by 2.0%, at
CZK 21,795 million, thus rising less than the volumes of loans and deposits,
although the trend in interest income did take a pretty sharp turn during the
year. It had been declining in the first half of the year as a consequence of
the extremely low interest rate environment, but interest income turned
dynamically upward in the second half, supported both by growth in volumes and
quickly normalising market interest rates that underpinned yields from
reinvesting deposits and the Bank's own funds. The net interest margin for the
full year 2021, computed as the ratio of net interest income to
interest-earning assets reported on the balance sheet, reached 1.9%. That
compares to 2.0% a year earlier.
Net fee and commission income rose by 9.6% to CZK 5,711 million, supported
by a broad combination of contributing factors. The clients stepped up their
investments into mutual funds and were switching from fixed income to
equity-linked and balanced products. The clients were also embracing the
account packages comprising a wider selection of services, in particular the
MůjÚčet Plus bundle. The number of transactions executed by cards and by
digital channels climbed strongly, partly offset by continuing drop in cash
and in-branch transactions. The higher income for specialised financial
services to corporate clients was mainly due to strong activity in issuance of
debt instruments for clients, loan syndications, and advisory activities, as
well as issuing of bank guarantees. The net fee income for loan services
decreased due to lower fees from credit cards and loans to small businesses.
Net profit from financial operations improved by 25.9% to CZK 3,630 million.
Demand for hedging of FX risks was strong throughout 2021, while already in
the last months of 2021 interest rate risk hedging activity was affected by
the sharp rate increases, which made the available options less attractive.
Mainly during the first three quarters, the Bank also played leading roles in
several important capital market deals of its corporate clients and often
provided financial hedging to such transactions. Clients even from among small
and medium-sized businesses increasingly were using the eTrading online
platform as well as value-added hedging solutions based on financial
derivatives. A partial recovery in travel and related currency conversions
supported FX gains from payments compared to 2020's low base.
Dividend and other income remained stable (0.0%) at CZK 210 million. This
line item primarily comprises revenues from property rental and ancillary
services.
Operating expenses rose by a slight 0.7% to CZK 15,099 million. Personnel
expenses declined by (1.5%) to CZK 7,539 million, reflecting decrease in the
number of employees by (4.6%) to 7,687.(( 13 )) KB had also agreed with the
trade unions on maintaining stable base salaries in 2021. General and
administrative expenses (not including contributions to the regulatory funds)
were up by 1.1%, at CZK 3,715 million, as lower real estate and
telecommunications costs were offset by higher expenses related to IT and
marketing. The full-year cost of contributions to the regulatory funds
(Deposit Insurance Fund, Resolution Fund) reached CZK 1,041 million, up
10.6% year on year. The CNB had adjusted the target volume of the Resolution
Fund for 2024 and boosted the aggregate annual contribution from Czech banks
by 15.1% year on year. Depreciation, amortisation, and impairment of operating
assets grew by 2.7% to CZK 2,803 million, driven mainly by new and upgraded
software and IT equipment acquired in pursuit of KB's digitalisation strategy,
partly offset by lower depreciation and rights-of-use of buildings.
The profit before allowances for loan losses, provisions for other risk,
profit on subsidiaries, and income tax (operating profit) increased by 10.8%
to CZK 16,247 million.
Cost of risk reached CZK 731 million, lower by (84.0%) in comparison with
the full year 2020. The provisions creation related to corporate portfolios,
where it was concentrated in a small number of client situations, and it also
reflected updates to certain provisioning models and adjustments of buffers
for certain credit exposures, such as terminated moratorium portfolios, loans
provided under Covid guarantee schemes or for selected Covid-sensitive
sectors. The Group was able to slightly reduce the volume of provisions
related to the retail portfolio. That was in accord with the good repayment
discipline of clients and successful recovery performance. The Group recorded
limited net releases of reserves reflecting statutory recalibration of models
in accordance with IFRS 9. The cost of risk in relative terms and as measured
against the average volume of the lending portfolio during 2021 came to 10
basis points. That compares with 68 basis points for the previous year.
Income from shares in associated undertakings (i.e. Komerční pojišťovna)
was down (10.9%) year on year, at CZK 221 million, influenced by the
development of yields.
Profit attributable to exclusion of companies from consolidation totalled
CZK 25 million, and it included KB's decreased participation in Bankovní
identita, a.s.
Net profits on other assets reached CZK 258 million, which result was mainly
due to a release of provisions for buildings in the held-for-sale portfolio
and sales of buildings and finished leases of premises. In the previous year,
this result had been CZK (15) million.
Income tax was higher by 52.5%, at CZK 3,028 million.
KB Group's consolidated net profit for 2021 reached CZK 12,992 million, up
by 56.5% in comparison with the year earlier. Of this total, CZK 265 million
was profit attributable to the non-controlling owners of minority stakes in
KB's subsidiaries (versus CZK 143 million a year earlier).
Reported net profit attributable to the Group's equity holders totalled
CZK 12,727 million, which is 56.0% more year on year.
Other comprehensive income, which derives mainly from revaluations and
remeasurements of some hedging, foreign exchange, and securities positions,
reached CZK 1,078 million, driven by effects of changed interest rates on
revaluation of cash flow hedging instruments and on the value of equity
participation in an associated company. Consolidated comprehensive income for
2021 totalled CZK 14,070 million, of which CZK 259 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 December 2021 with the values from the statement
of financial position as of 31 December 2020.
Assets
As of 31 December 2021, KB Group's total assets had grown by 6.6% year on year
to CZK 1,244.4 billion.
Cash and current balances with central banks were up 27.2%, at
CZK 29.9 billion. This line item is volatile because it is influenced by
liquidity management and fulfilment of the mandatory minimum reserves
requirement. Financial assets at fair value through profit or loss (trading
securities and derivatives) increased by 60.7% to CZK 41.1 billion. The fair
value of hedging financial derivatives gained 7.5% to reach
CZK 14.3 billion.
Year on year, there was an (11.5%) decline in financial assets at fair value
through other comprehensive income totalling CZK 35.6 billion. This item
consisted mainly of public debt securities.
Financial assets at amortised cost grew by 5.8% to CZK 1,095.9 billion. The
largest portion of this item consisted of (net) loans and advances to
customers, which summed year on year 6.6% to CZK 724.6 billion. A 97.5%
share in the gross amount of client loans was classified in Stage 1 or Stage
2, while 2.5% of the loans were classified in Stage 3 (non-performing). The
volume of loss allowances created for amounts due from customers came to
CZK 13.3 billion. Loans and advances to banks decreased by (2.1%) to
CZK 257.2 billion. The majority of this item consists in reverse repos with
the central bank. The value held in debt securities was up by 22.9% and
reached CZK 114.1 billion at the end of 2021.
Revaluation differences on portfolio hedge items totalled a negative
CZK (0.6) billion. 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 13.8% to CZK 5.8 billion. Assets held for sale rose by 375.3% to
CZK 0.7 billion, due to a transfer of buildings from operating assets and
mainly due to a release of allowances for certain buildings.
Investments in subsidiaries and associates declined by (50.5%) to
CZK 0.8 billion, reflecting decreased equity of Komerční pojišťovna due
to revaluation of the bond portfolio and deferred taxes.
The net book value of tangible assets fell by (7.9%) to CZK 9.0 billion. Due
to software acquisition, intangible assets grew by 14.2% to reach
CZK 7.9 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 6.4% higher in comparison to the end of 2020 and stood
at CZK 1,117.6 billion.
Financial liabilities at amortised cost went up by 6.0% to
CZK 1,056.5 billion. Amounts due to customers comprise the largest
proportion of this total, and these grew by 5.6% to CZK 956.9 billion. This
sum included CZK 8.3 billion of liabilities from repo operations with
clients and CZK 6.2 billion of other payables to customers. Amounts due to
banks decreased year on year by (3.7%) to CZK 83.4 billion.
The volume of outstanding securities issued expanded significantly to
CZK 13.7 billion. That reflected the successful EUR 500 million placement of
a first tranche of euro-denominated mortgage covered bonds under the EUR
covered bond programme newly opened in the first quarter of 2021.
Revaluation differences on portfolios hedge items were negative
CZK (31.7) billion. Current and deferred tax liabilities rose to
CZK 1.6 billion. Other liabilities and accruals, which include payables from
securities trading and settlement balances, increased by 9.6% to
CZK 12.5 billion.
The provisions balance was lower by (33.8%), 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 2.5 billion, was down (5.3%) year on year. Because
that debt is issued in euro, the change reflects appreciation of the Czech
crown over the same period.
Equity
Total equity grew year on year by 8.3% to CZK 126.8 billion due to profit
generated and because the volume of dividends paid was limited by CNB
restrictions. The value of non-controlling interests reached
CZK 3.3 billion. As of 31 December 2021, 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 103.2 billion as of 31 December 2021. Capital adequacy stood at 21.3%.
Core Tier 1 capital amounted to CZK 101.1 billion, and the Core Tier 1
ratio reached 20.9%. Tier 2 capital totalled CZK 2.1 billion, which was 0.4%
of risk-weighted assets.
As of today, Komerční banka's overall capital requirements (OCR) come to
approximately 15.2% in relation to the consolidated volume of risk-weighted
assets. The minimum Core Tier 1 capital level is around 11.2%, and the minimum
Tier 1 capital ratio stands at about 13.2%. The regulatory requirements
decreased temporarily on 1 October 2021, from which date Komerční banka is
required to maintain a capital buffer for other systemically important
institutions (so-called O-SII) at 2.0% of the consolidated volume of
risk-weighted assets. Meanwhile, the requirement to maintain a capital buffer
for systemic risk, which had been set at 3.0% since 3 August 2016, was
cancelled.
Komerční banka has received information from the Czech National Bank on the
minimum level of the capital ratio set for it by joint decision of the College
of Supervisors of the Société Générale Group. According to this decision,
Komerční banka is required to maintain a capital ratio on a consolidated
basis at the minimum level of 10.6% (TSCR - Total SREP Capital Ratio)
effective from 1 March 2022, representing an increase by 40 basis points in
comparison with the ratio required today. This requirement includes:
1. Minimum capital requirement according to the Article 92 (1) of the EU
Regulation on prudential requirements for credit institutions and investment
firms, i.e. maintaining a Common Equity Tier 1 capital ratio of 4.5%, a Tier 1
capital ratio of 6% and a total capital ratio of 8%, and
2. Additional requirement of 2.6% set in Pillar 2 above the aforementioned
requirements. This additional requirement must be covered at least from 56.25%
by Common Equity Tier 1 capital and at least from 75% by Tier 1 capital.
The CNB also assessed a need to stipulate an instruction to maintain
additional capital (so called Pillar 2 Guidance (P2G), mainly based on the
supervisory stress testing. The need to determine P2G was identified at zero
level for Komerční banka.
Moreover, credit institutions in the Czech Republic are simultaneously subject
to the combined capital requirements, which are additive to the TSCR
requirement set in the aforementioned joint decision. As of today, KB is
required to maintain a combined capital buffer comprising the capital
conservation buffer at 2.5%, the O-SII capital buffer at 2.0%, and the
countercyclical buffer determined by competent authorities for exposures in
particular country (in the Czech Republic currently at 0.5%). Thus, Komerční
banka's overall capital requirement as of 1 March 2022 will be approximately
15.6% in relation to the volume of risk-weighted assets. The minimum Common
Equity Tier 1 capital level will stand at approximately 10.96% and the minimum
Tier 1 capital ratio at approximately 12.95%.
The CNB will increase further its requirement for countercyclical capital
buffer on exposures in the Czech Republic by 50 basis points from July 2022,
by a further 50 basis points from October 2022, and by an additional 50 basis
points from January 2023 as the regulator announced in May 2021, in August
2021, and in November 2021, respectively.
Thus, assuming no further changes in capital requirements, Komerční banka's
overall capital requirement as of 1 January 2023 would reach approximately
17.1% in relation to the volume of risk-weighted assets. The minimum Common
Equity Tier 1 capital level would stand at approximately 12.46% and the
minimum Tier 1 capital ratio at approximately 14.45%.
Komerční banka will continue to apply prudent assumptions about the future
development of regulatory capital requirements in its capital planning.
KB Group's Liquidity Coverage Ratio reached 148% as of 31 December 2021. The
applicable regulatory minimum is 100%.
Expected development and main risks to that development in 2022
Given the high level of uncertainty surrounding the pandemic situation that is
in addition to the usual risks related to projecting future business results,
investors should exercise caution and judgement before making their investment
decisions while considering these forward-looking estimates and targets.
In its baseline macroeconomic scenario for 2022, valid as of today, KB expects
that the Czech economy should accelerate its growth to 4.9% in anticipation of
an easing of supply chain disruptions as well as of pandemic restrictions and
self-restraint affecting mainly parts of the service sector. The growth should
be driven by recovery in net exports and fixed investments, while household
consumption, too, should continue to contribute positively. The lack of free
labour in the economy will remain a factor limiting the growth potential.
The average inflation rate in 2022 is expected to reach almost 9%, with
year-on-year inflation rates probably peaking in the first half of the year in
double-digit territory. The growth in prices is being driven by a combination
of global as well as domestic factors, mostly related at least indirectly to
the pandemic situation. Unemployment will remain very low, also fuelling
inflation via wage demands.
In order to fight these inflation pressures, the Czech National Bank will
probably continue in sharply raising monetary policy rates, as it had
commenced to do in the middle of 2021. The two-week repo rate will likely peak
visibly above 4% during 2022, and a reversal pf this rate course (i.e. a first
cut) could come as soon as the turn of 2022 and 2023. Short-term CZK interest
rates, such as 3-month PRIBOR, will mirror closely the CNB's policy rate while
long-term rates will rise more modestly, thereby resulting in an inverted
yield curve.
The regulatory environment will see the effects of a reversal of some measures
adopted in reaction to the coronavirus crisis. The CNB has returned to
stricter regulation of mortgage lending, reinstating with effect from 1 April
2022 the limits on the ratios of debt-to-income and debt service-to-income as
well as lowering the maximum loan-to-value ratio.(( 14 )) It also decided on
increase in the counter-cyclical capital buffer rate in two steps during 2022
and an additional step as of 1 January 2023, taking this rate to 2.0%. The
national bank also announced in September 2021 that it would no longer
restrict the amount of bank dividends across the board.(( 15 )) KB aims to
begin gradually taking loans from Société Générale in order to meet the
regulatory requirements for own funds and eligible liabilities (MREL) from the
EU's banks recovery and resolution directive (as the concept of Single Point
of Entry is applied within the SG Group) once the situation of surplus of
capital accumulated during pandemic dividend restrictions is resolved. The
banks will also be subject to some new reporting requirements, particularly in
the field of sustainability.
The banking market will be positively influenced by the recovering economy.
Total lending on the market should increase at a mid-single-digit percentage
rate. The production of new housing loans will diminish in comparison with
2021 due to higher costs and regulatory limitations, but the outstanding
volume of these loans should nevertheless expand modestly. Consumer credit
should accelerate to a mid-single-digit pace as the pandemic subsides. Loans
to corporations should rise once companies gain more confidence and visibility
into the future. Clients' bank deposits should grow still faster than lending,
in both retail and corporate segments, supported by higher nominal incomes.
Komerční banka will continue implementing the changes in accordance with its
KB Change 2025 programme that had been announced in November 2020. The new
digital bank will be developed in order to reach a marketable level of
maturity in 2023. KB management also has decided on further steps in
optimising the branch network during 2022. As of 1 April 2022, 25 branches
will be closed and cash services will be provided only via ATMs. As of 1 July
2022, KB will simplify the management structure of the branch network,
including to replace regional retail divisions with joint segment and line
management of all distribution channels at headquarters level. The selection
of branches for closing was based upon a long-term analysis of branch traffic,
coverage and potential of locations, and changing clients behaviour with
growing preference for remote sales and assisted services in the digital
environment.
In this context, KB management expects that the Group's loan portfolio will
record an upper-to-mid-single-digit growth rate in 2022, in both retail and
corporate lending. Outstanding volume of housing loans should continue to
record gains, even though the new sales of these loans are expected to
diminish in comparison with the record level achieved in 2021. Growth in total
deposit balances should reach a mid-single-digit pace, except that there will
be slower development at Modrá pyramida. Clients are expected to be shifting
their deposits to term accounts.
KB Group's total net operating income for 2022 should expand at a double-digit
pace in comparison with 2021. Net interest income will grow at a double-digit
pace, reflecting increase in market rates and business volumes. Net fees and
commissions should improve by low-single digits, driven again by
cross-selling. The net profit from financial operations will probably decrease
somewhat after having reached an extraordinary level in the past year.
In spite of the elevated inflation and expectation for another significant
increase in regulatory charges for the Resolution Fund, operating expenses
will remain under tight control and will rise by less than the rate of
inflation. The Group will continue its transformation, which consists in
investing into building the new digital infrastructure, overall
simplification, and decreasing the numbers of employees and premises in use,
as described above. Average salary growth will not exceed 3%.
Cost of risk will be influenced by a mix of factors, including the economic
recovery, higher interest rates, appreciation of the Czech crown, and the
beginning of fiscal consolidation. In KB's central scenario, the cost of risk
in 2022 should remain visibly below the estimated normalised level of 30-40
basis points across the whole business cycle.
The key risks to the expectations described above consist in further
prolongation of the pandemic situation, with recurring lockdowns and
shortages of key input materials for the Czech industry, a sudden and sharp
shift from the government's previously expansionary fiscal policy, and a
military escalation of the conflict the Eastern Europe. Generally, the open
Czech economy would be sensitive to a worsening external economic environment,
such as, in particular, further recession in the euro zone.
Management expects that KB's operations will generate sufficient profit in
2022 to cover the Group's capital needs ensuing from its growing volume of
assets as well as to pay out dividends.
Developments in corporate governance (in the fourth quarter 2021)
The Extraordinary General Meeting of KB, held per rollam between 18 October
and 2 November 2021, approved distribution of retained earnings in the amount
of CZK 4.5 billion, representing CZK 23.86 per share before taxation. The
dividend was paid on 3 December 2021.
ANNEX: Consolidated results as of 31 December 2021 under International
Financial Reporting Standards (IFRS)
Reported Recurring
FY 2020 FY 2021 Change FY 2020 FY 2021 Change
YoY
YoY
(CZK million, unaudited)
Net interest income 21,360 21,795 2.0% 21,360 21,795 2.0%
Net fee and commission income 5,210 5,711 9.6% 5,210 5,711 9.6%
Net profit on financial operations 2,884 3,630 25.9% 2,884 3,630 25.9%
Dividend and other income 210 210 0.0% 210 210 0.0%
Net operating income 29,664 31,346 5.7% 29,664 31,346 5.7%
Personnel expenses (7,650) (7,539) (1.5%) (7,650) (7,539) (1.5%)
General admin. expenses (excl. regulatory funds) (3,674) (3,715) 1.1% (3,674) (3,715) 1.1%
Resolution and similar funds (941) (1,041) 10.6% (941) (1,041) 10.6%
Depreciation, amortisation and impairment of operating assets (2,730) (2,803) 2.7% (2,730) (2,803) 2.7%
Total operating expenses (14,995) (15,099) 0.7% (14,995) (15,099) 0.7%
Operating profit 14,669 16,247 10.8% 14,669 16,247 10.8%
Impairment losses (4,701) (775) (64.1%) (4,701) (775) (64.1%)
Net gain from loans and advances transferred and written off 123 44 (64.1%) 123 44 (64.1%)
Cost of risk (4,578) (731) (84.0%) (4,578) (731) (84.0%)
Net operating income 10,091 15,516 53.8% 10,091 15,516 53.8%
Income from share of associated companies 248 221 (10.9%) 248 221 (10.9%)
Profit/(loss) attributable to exclusion of companies from consolidation (40) 25 +/- (40) 25 +/-
Net profits on other assets (15) 258 +/- (15) 258 +/-
Profit before income taxes 10,284 16,020 55.8% 10,284 16,020 55.8%
Income taxes (1,985) (3,028) 52.5% (1,985) (3,028) 52.5%
Net profit for the period 8,299 12,992 56.5% 8,299 12,992 56.5%
Profit attributable to the Non-controlling owners 143 265 85.3% 143 265 85.3%
Profit attributable to the Group's equity holders 8,156 12,727 56.0% 8,156 12,727 56.0%
Statement of financial 31 Dec 2020 31 Dec 2021 Change YoY
position
(CZK million, unaudited)
Assets 1,167,131 1,244,353 6.6%
Cash and current balances with central bank 23,547 29,947 27.2%
Loans and advances to banks 262,606 257,196 (2.1%)
Loans and advances to customers (net) 679,956 724,587 6.6%
Securities and trading derivatives 158,916 190,924 20.1%
Other assets 42,106 41,699 (1.0%)
Liabilities and shareholders' equity 1,167,131 1,244,353 6.6%
Amounts due to banks 86,572 83,372 (3.7%)
Amounts due to customers 906,217 956,929 5.6%
Securities issued 1,148 13,666 1,090.4%
Subordinated debt 2,629 2,490 (5.3%)
Other liabilities 53,507 61,114 14.2%
Total equity 117,058 126,782 8.3%
Key ratios and indicators 31 Dec 2020 31 Dec 2021 Change YoY
Capital adequacy (CNB) 22.3% 21.3% q
Tier 1 ratio (CNB) 21.7% 20.9% q
Total risk-weighted assets (CZK billion) 446.7 484.4 8.4%
Risk-weighted assets for credit risk (CZK billion) 375.9 400.2 6.5%
Net interest margin (NII / average interest-bearing assets)III 2.0% 1.9% q
Loans (net) / deposits ratioIV 76.1% 76.4% p
Cost / income ratioV 50.5% 48.2% q
Return on average equity (ROAE)VI 7.4% 10.7% p
Return on average Tier 1 capitalVII 9.0% 12.8% p
Return on average assets (ROAA)VIII 0.7% 1.1% p
Earnings per share (CZK)IX 43.2 67.4 56.0%
Average number of employees during the period 8,061 7,687 (4.6%)
Business performance in retail segment - overview 31-Dec-21 Change YoY
CZK bil.
Mortgages to individuals - volume of loans outstanding 262.7 7.0%
Building savings loans (MPSS) - volume of loans outstanding 76.0 18.9%
Consumer loans (KB + ESSOX + PSA Finance) - volume of loans outstanding 33.3 1.9%
Small business loans - volume of loans outstanding 47.9 4.3%
Insurance premiums written (KP) 7.3 (2.1%)
Financial calendar:
5 May 2022 Q1 2022 results
3 August 2022 H1 and Q2 2022 results
4 November 2022 9M and Q3 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 'Cost of risk' 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) FY 2021 FY 2020
Net interest income income, year-to-date 21,795 21,360
Of which:
Loans and advances at amortised cost 20,713 19,501
Debt securities at amortised cost 2,065 1,707
Other debt securities 681 683
Financial liabilities at amortised cost (2,288) (2,276)
Hedging financial derivatives - income 11,697 14,240
Hedging financial derivatives - expense (11,074) (12,495)
(source: Balance Sheet) 31-Dec-21 31-Dec-20 31-Dec-19
Cash and current balances with central banks/ Current balances with central 21,455 15,050 7,737
banks
Loans and advances to banks 257,196 262,606 244,561
Loans and advances to customers 724,587 679,956 647,259
Financial assets held for trading at fair value through profit or loss/ Debt 8,696 3,342 4,112
securities
Non-trading financial assets at fair value through profit or loss/ Debt 135 279 0
securities
Financial asset at fair value through other comprehensive income (FV OCI)/ 35,509 40,151 35,682
Debt securities
Debt securities 114,078 92,839 71,581
Interest-bearing assets (end of period) 1,161,656 1,094,223 1,010,932
Average interest-bearing assets, year‑to-date 1,127,939 1,052,578
NIM year-to-date, annualised 1.93% 2.03%
(( 1 )) Excluding volatile reverse repo operations with clients but including
debt securities issued by KB's clients and held by the Bank.
Because the volume of reverse repo operations was nil as of both 31 December
2020 and 31 December 2021, the figures remain unchanged inclusive of reverse
repo operations.
(( 2 )) Excluding repo operations with clients. The total volume of 'Amounts
due to customers' moved up by 5.6% to CZK 956.9 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/2995521/14233878/3-01022022-AP-EN.pdf/cfe71acd-ef6c-b52b-085f-838598dd9a88
(https://ec.europa.eu/eurostat/documents/2995521/14233878/3-01022022-AP-EN.pdf/cfe71acd-ef6c-b52b-085)
Data up to December 2021
(( 5 )) https://www.mpsv.cz/web/cz/mesicni
(https://www.mpsv.cz/web/cz/mesicni) .Data as available up to December 2021.
(( 6 )) Source:
https://www.czso.cz/csu/czso/house-price-index-3-quarter-of-2021
(https://www.czso.cz/csu/czso/house-price-index-3-quarter-of-2021)
Publication code 014005-21, released 29 December 2021.
(( 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 clients and held by the Bank.
Because the volume of reverse repo operations was nil as of both 31 December
2020 and 31 December 2021, the figures remain unchanged inclusive of reverse
repo operations.
(( 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' rose by 5.6% to CZK 956.9 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/
(( 15 ))
https://www.cnb.cz/en/cnb-news/press-releases/CNB-comments-on-banks-dividend-payout-plans/
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