REG - Komercni Banka - Financial Results H1 2022
03/08/2022 07:15
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RNS Number : 6880U Komercni Banka 03 August 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 3 August 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 30 June 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)
Komercni BANKA, a.s.
Results
2Q 2022
Regulatory information
Komerční banka in first half of 2022: revenues recovering, costs growth
tightly controlled
Adequate provisioning and robust capital base address future uncertainties
"The first half of 2022 brought an extraordinary level of uncertainty to the
global as well as domestic economy, often in relation to effects of the war in
Ukraine. Komerční banka has maintained its role as a reliable and
trustworthy pillar of the financial system in the Czech Republic: supporting
its clients in pursuing their plans and ambitions, contributing to fiscal
stability as one the largest taxpayers in the country, facilitating the
economy's transition to a more resilient and sustainable model. KB has
continued its own transformation with an ambition to be a leader in the new
era of digital banking. Predictability and stability in the economic
environment greatly enhances confidence among consumers and businesses.
Policymakers could contribute crucially to this by promoting consistent and
well-informed policies that are long term in their orientation," remarked Jan
Juchelka, KB's Chairman of the Board of Directors and Chief Executive Officer.
Total volume of KB Group's lending to customers expanded by 8.7% year on year
to CZK 769.4 billion. Growth was recorded in retail as well as corporate
lending.
Overall volume of standard client deposits within KB Group was greater by
2.7%, at CZK 1,024.3 billion. Volume of non-bank assets under management
leapt by 4.8% to CZK 205.6 billion.
KB Group as a whole was serving 2,256,000 clients. That is 12,000 more than a
year earlier. Standalone Komerční banka had 1,650,000 customers, up by
29,000 year on year. The number of clients with KB Mobile Banking climbed by
119,000 year on year to 1,099,000 and represents 67% of all KB customers. KB
Klíč (KB Key) authentication application for accessing banking services was
being used by 1,036,000 clients, some 132,000 more than 1 year ago.
Compared with the first half of the previous year, when economic activity had
been affected by pandemic restrictions, KB reported a 29.5% increase in
revenues to CZK 19.2 billion.
Operating expenditures were higher by 7.5%, at CZK 8.4 billion.
Quality of the loan portfolio remained strong. Net creation of credit risk
provisions decreased by (15.9%) to CZK 0.6 billion. Provisioning
concentrated on corporate clients with different types of links to Russian
market. Repayment discipline and recovery performance in retail lending
remained excellent.
Net profit attributable to shareholders improved by 62.3% to
CZK 8.3 billion. Income taxes rose by 64.6% to CZK 2.0 billion.
KB continued to report strong solvency indicators. Volume of regulatory
capital reached CZK 108.5 billion, capital adequacy stood at 20.3%, and the
Core Tier 1 ratio was 20.0%. The ratio of net loans to deposits reached 74.0%.
Komerční banka had 64,384 shareholders (up by 6,533 year on year), of which
58,349 were private individuals from the Czech Republic.
Prague, 3 August 2022 - Komerční banka reported today its unaudited
consolidated results for the first half of 2022.
Total revenues were up by 29.5%, at CZK 19.2 billion, as the comparative
base of the first half of 2021 had been affected by pandemic lockdowns and
extraordinarily low interest rates. Net interest income increased by 42.2% to
CZK 14.2 billion, driven by growing business volumes and higher yields from
reinvestment of liabilities and capital. Net fee and commission income
improved by 6.3% to CZK 3.0 billion because of greater transaction activity,
particularly due to card payments, clients' increased investments in mutual
funds, and heightened demand among corporations for some services, such as for
guarantees. Net profit on financial operations was almost stable (down by
(0.5%) to CZK 1.9 billion), as there continued strong demand from clients
for hedging of financial risks in the volatile and uncertain environment.
Operating expenses were up by 7.5%, at CZK 8.4 billion, mainly driven by a
24% increase in the regulatory levy to the Resolution Fund. Personnel expenses
were higher by 3.3%, even as the average number of employees decreased by
(2.9%) to 7,522 and salaries grew by an average 3% effective from April 2022.
Accruals for variable remuneration had been reduced in the first half of last
year, thus influencing the comparative base. Administrative costs rose by
7.3%, driven by marketing and IT support. Depreciation and amortisation
charges were up by 6.8% year on year, reflecting the ongoing investments in
digitalisation.
Net creation of provisions for the first half of 2022 totalled
CZK 0.6 billion. The provisioning was concentrated mainly on corporate
clients with relationships of various sorts to the Russian market. The Group
also added some prudential provisions for estimated future impacts of the
current high-inflation environment. The repayment discipline and recovery
performance in retail segments remained excellent.
The reported net profit attributable to shareholders improved by 62.3% to
CZK 8.3 billion. Income taxes climbed by 64.6% to CZK 2.0 billion.
Lending to clients went up by 8.7% to CZK 769.4 billion.(( 1 (#_ftn1) ))
The volume of housing loans outstanding from KB and Modrá pyramida expanded
by 8.0%, even as new production of these loans in the first half decreased to
less than half that of a year earlier. This was mainly because the drawing of
loans for construction often extends over several months. Consumer lending by
KB and ESSOX increased by 4.8%. Lending to businesses and other clients was up
by 9.6%, with volumes of working capital financing as well as investment loans
both increasing. Negative contribution from a 2.9% year-on-year appreciation
of the Czech crown against the euro on the reported CZK value of
EUR-denominated loans represented 0.5% of total lending.
Deposits from clients increased by 2.7% year on year to
CZK 1,024.3 billion.(( 2 (#_ftn2) )) Clients were often switching their
deposits from current accounts to better yielding term and savings accounts or
even to mutual funds. The volume of KB Group clients' assets in mutual funds,
pension savings, and life insurance rose by 4.8% to CZK 205.6 billion.
The capital adequacy ratio reached a strong 20.3%, and Core Tier 1 capital
stood at 20.0%. The liquidity coverage ratio was 174%, significantly above the
regulatory minimum of 100%.
The Bank had 64,384 shareholders as of 30 June 2022 (up by 6,533 year on
year), of which 58,349 (greater by 6,203 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.
Market environment (in second quarter 2022)(( 3 (#_ftn3) ))
Economic and social life in 2022's second quarter was scarcely influenced by
the Covid-19 disease, as the latest wave had culminated in late January and
early February. Because that wave was not so serious as earlier waves had been
in terms of the pressure it put on the health care system, no serious
restrictive measures were introduced and life went on about as usual as it
could after 2 years of pandemic. As of 19 July 2022, 65.4% of the Czech
population was fully vaccinated, 40.4% of the population had received booster
vaccine, and some 37% were officially reported to have recovered from
Covid-19.
The consequences and amplification of existing economic obstacles (i.e. supply
chain disruptions) from Russian army's invasion of Ukraine are ever more
sizeable. Besides worsened economic uncertainty and market volatility,
commodity prices surged and thus to stimulated inflationary pressures and
bites into corporate profits and household budgets.
During the second quarter, the Czech economy demonstrated resilience, adding
+0.2% quarter over quarter (+3.6% year on year), as per the flash estimate.
That built upon a positive outcome from the first quarter (+0.9% growth
quarter on quarter, +4.9% year on year). The manufacturing sector, represented
especially by car production, picked up speed in May and June. Final auto
output in the first half of 2022 was down just (8.5%) year over year after
declining by (20.0%) in April. Labour market conditions remain tight. In the
first quarter, wage inflation picked up somewhat to +7.2% year on year (down
by (3.6%) in real terms). The unemployment rate remains one of the lowest
within the EU (standing at 2.5% in May, according to the Eurostat methodology
after seasonal adjustment).(( 4 (#_ftn4) )) More recent data from the Czech
labour ministry show the unemployment rate continued slowlydecreasing in
June.(( 5 (#_ftn5) ))
Weighty pressure from the primary price categories continued in the second
quarter. Dynamics of industrial producer prices averaged 27.7% year on year,
agricultural producer prices 39.0%, and construction work prices 13.1% in the
quarter. Pressure from the primary price categories together with wage cost
dynamics are transmitting through to consumer price inflation. It accelerated
in June to 17.2% year on year, mainly due to housing, water, energy and fuel
prices, as well as food prices. Dynamics of core inflation are gaining, too,
reported at 14.6% in June 2022.
This inflationary environment and further deteriorating inflation expectations
formed the basis for ongoing monetary policy tightening during the second
quarter of this year (+75 bps in May and +125 bps at the end of June). That
brought the main policy rate to 7% at the end of the quarter. Subsequently, as
of 30 June, 3M PRIBOR reached 7.23% (+315 bps year to date) and the 10Y
interest rate swap climbed to 5.15% (+189 bps year to date). Meanwhile, the
interest rate swap curve remained inverted (5Y at 5.69%, +185 bps year to
date) and yields on 10-year Czech government bonds grew to 4.79% (+206 bps
year to date).
By the end of June, the Czech crown's exchange rate had depreciated against
the euro by 1.5% quarter over quarter, reaching CZK 24.7 per euro. The crown
exchange rate was being supported by CNB interventions on the FX market in
order to neutralize the depreciating mood on this market and thereby to limit
transmission of a weakened crown's influence to worsen CPI inflation in
Czechia.
Information on development in residential real estate prices is available for
the first quarter. Growth in the prices continued apace, influenced by
expectations for further rise in interest rates and prices of building
materials, as well as the deployment of excess savings accumulated due to
pandemic restrictions. Prices paid in 2022's first quarter for previously
owned flats were up 27.3% year on year across Czechia and by 19.0% year on
year in Prague. Prices obtained for new flats (in Prague only) were 30.3%
greater than a year earlier.(( 6 (#_ftn6) ))
Total bank lending for the overall market (excluding repo operations) grew by
7.8% year on year through the end of 2022's first half.(( 7 (#_ftn7) ))
Lending expansion was faster in retail banking, with housing loans growth
moving back to single-digit territory as new mortgage production has plummeted
to levels observed in 2019 and 2020, due to rising interest rates, stricter
borrowing conditions as per CNB regulations, and high property prices. Lending
to businesses had increased year on year by 6.9% in June 2022, mainly due to
dynamics of the public sector and financial institutions segment, although the
dynamics of private business corporate loans also were in a positive
territory, 4.9% year on year.
The volume of client deposits in Czech banks expanded by 8.3% year over year
as of June.(( 8 (#_ftn8) )) Individual term deposits more than doubled in
year-on-year terms. Business term deposits added 72.2% over the previous year.
Non-term deposits declined slightly in both segments. Deposits from
individuals in total had grown by 3.8% while the business deposit market grew
by 13.3% year over year.
Maintaining strong momentum in business transformation
During the second quarter of 2022, KB Group pursued several important
initiatives in implementing the vision of the KB Change 2025 strategy.
KB agreed with Moneta Money Bank on sharing the two banks' ATM networks for
clients. This was a first step in an initiative that will lead to clients
having better access to financial services in less densely populated areas, as
well as better sustainability and efficiency in operating the ATM networks of
all participating banks.
On its KB SmartSolutions platform, the Group further developed its ecosystem
of digital, simple, and convenient financial solutions. KB SmartSolutions
boosted its stake in MonkeyData, operator of the Lemonero digital platform for
B2B financing of e-commerce. The capital injection will facilitate expansion
of that service employing advanced data analytics and artificial intelligence.
In order to reinforce its leadership in advisory for energy transition, KB
SmartSolutions also acquired full ownership in Enviros, a leading Czech energy
and environment advisory providing its services to a number of important
companies in Central Europe. Furthermore, KB SmartSolutions boosted its
ownership stake in upvest, a digital platform for crowdfunding of real estate
projects, to 96%.
In co-operation with Heureka, VISA, and Czech Social Responsibility
Association, KB also supports the Udržitelný e-shop (Sustainable e-shop)
project. Out of some 800 applicants, around 100 e-shops are entitled to use
the label upon assessment of their environmental, social, and governance
practices. Visibility of participating e-shops among clients of KB was also
boosted by a campaign providing a cash-back incentive.
Selected recognitions in the second quarter of 2022
During the second quarter of this year, KB Group was honoured with several
recognitions.
In the Zlatá crown (Golden Crown) contest, KB's loan for sustainable
technologies was awarded the Green Crown, KB Profi Auto received a Silver
Crown in the SME Leasing category, the KB Profi loan won a Bronze Crown in the
SME Lending category, and Roger's iPayment was awarded a Silver Crown in the
Fintech category.
In the 2021 VISA Awards, dedicated to innovative solutions in the payments
area, KB was recognised as the #1 sustainable bank, and KB's leader of the
payment methods tribe, Monika Truchlíková, was named #1 woman in payment
systems.
As in previous years, KB was again recognised by the Ministry of Finance among
the Top 20 income taxpayers for 2021 in the Czech Republic. That is despite
the fact that KB had prepaid a part of its tax charges due in 2021 already in
2020 in order to support the country's fiscal condition during the first year
of the pandemic.
Developments in the client portfolio and distribution networks
30 Jun 2021 30 Jun 2022 Change
YoY
KB Group's clients 2,244,000 2,256,000 12,000
Komerční banka 1,621,000 1,650,000 29,000
- individual clients 1,378,000 1,407,000 28,000
- internet banking clients 1,447,000 1,503,000 55,000
- mobile banking clients 980,000 1,099,000 119,000
Modrá pyramida 487,000 472,000 (16,000)
KB Penzijní společnost 523,000 512,000 (11,000)
ESSOX (Group) 142,000 135,000 (7,000)
KB branches (CZ) 243 218 (25)
Modrá pyramida points of sale 200 194 (6)
SGEF branches 9 9 0
ATMs 846 863 17
- of which deposit-taking 477 521 44
- of which contactless 552 641 89
Number of active debit cards 1,408,000 1,456,000 48,000
Number of active credit cards 183,000 188,000 6,000
Number of cards virtualized into payment apps 329,000 449,000 120,000
KB key authentication users 904,000 1,036,000 132,000
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 30 June 2022.
BUSINESS PERFORMANCE
Loans to customers
Total gross volume of lending to clients rose by 8.7% year on year to
CZK 769.4 billion.(( 9 (#_ftn9) ))
In lending to individuals, the overall volume of housing loans grew by 8.0%
from the year earlier. Within this total, the portfolio of mortgages to
individuals expanded by 5.2% to CZK 266.2 billion. Modrá pyramida's loan
portfolio grew by a strong 18.2% to CZK 81.5 billion. New production of
housing loans in the first half decreased by (53.9%) year on year to
CZK 26.2 billion. The volume of KB Group's consumer lending (provided by the
Bank and ESSOX Group in the Czech Republic and Slovakia) was up by 4.8%, at
CZK 34.5 billion.
The total volume of loans to businesses and other lending provided by KB Group
was greater by 9.6% year on year, at CZK 387.2 billion. Lending to small
businesses grew by 1.4% to CZK 47.7 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 (#_ftn10) )) climbed by 11.7% year on
year to CZK 307.8 billion. At CZK 31.7 billion, the total credit and
leasing amounts outstanding at SGEF were up by 4.0% year over year.
Amounts due to customers and assets under management
The volume of standard client deposits within KB Group rose by 2.7% year on
year to CZK 1,024.3 billion.(( 11 (#_ftn11) )) Clients were tending to
switch their funds from current accounts to better yielding term and saving
deposits, as well as to mutual funds. Deposits at Komerční banka from
individual clients were down by (0.8%) from the year earlier, at
CZK 347.0 billion. The deposit book at Modrá pyramida diminished by (4.2%)
to CZK 58.0 billion. Total deposits from businesses and other corporations
climbed by 7.7% to CZK 612.1 billion.
Client assets managed by KB Penzijní společnost were 3.2% greater, at
CZK 71.5 billion. Technical reserves in life insurance at Komerční
pojišťovna were lower by (10.4%) year on year, at CZK 45.6 billion. The
volumes in mutual funds held by KB Group clients grew by 16.3% to
CZK 88.5 billion.
The Group's liquidity as measured by the ratio of net loans(( 12 (#_ftn12) ))
to deposits (excluding repo operations with clients but including debt
securities held by KB and issued by the Bank's clients) stood at 74.0%. The
Group's liquidity coverage ratio stood at 174%, well above the regulatory
limit of 100%.
FINANCIAL PERFORMANCE
Income statement
Komerční banka's revenues (net operating income) for the first half of 2022
improved by 29.5% year on year to reach CZK 19,168 million. This growth was
influenced by the facts that the comparative base from the same period of 2021
had been affected by the severe pandemic restrictions and that interest rates
had previously been at extremely low levels. The increase in net interest
income contributed most to the overall growth in revenues. Net fees and
commissions also improved, and net gains from financial operations were stable
year on year.
Net interest and similar income was up by 42.2%, at CZK 14,157 million, from
the low base of 2021's first half. The loan and deposit volumes were growing
and market interest rates rose significantly year on year, thus supporting the
yields from reinvesting deposits and the Bank's own funds. The net interest
margin for the first half of 2022, computed as the ratio of net interest
income to interest-earning assets reported on the balance sheet, reached 2.2%.
That compares to 1.7% a year earlier, and the same 2.2% as in the prepandemic
2019's first half.
Net fee and commission income grew by 6.3% to CZK 2,969 million. Clients'
transaction activity in the first half of 2022 recovered across all
transaction types compared to the time of the economy's partial lockdown a
year earlier. In particular, payments by card continued gaining popularity
throughout the whole period. Deposit product fees were almost stable in line
with the numbers of clients. Fees from cross-selling were up visibly, driven
mainly by clients' rising investments in mutual funds and sales of insurance
products. Income from loan services was down slightly year over year due to
lower fees for loans to small businesses, consumer loans, and credit cards,
while fees for factoring services and credit lines improved year on year. KB
recorded a modest gain in income from specialised financial services,
primarily due to greater issuance of bank guarantees.
Net profit from financial operations was almost stable (down by (0.5%) to (CZK
1,946 million). Strong demand from clients for hedging of financial risks was
driven by volatility of Czech crown exchange and interest rates. KB was also
successful with its offer of tailored hedging strategies for SME clients,
particularly those based on currency options. Increase in net gains on FX
payment transactions was driven by the return of international travel and
related payments and conversions.
Dividend and other income declined by (5.9%) to CZK 96 million. This line
item primarily comprises revenues from property rental and ancillary services.
Operating expenses rose by 7.5% to CZK 8,423 million. Within that total,
personnel expenses increased by 3.3% to CZK 3,787 million, as salaries
increased by an average 3% effective from April 2022 and bonus accrual had
been limited in the first half of last year. The average number of employees
diminished by (2.9%) to CZK 7,522.(( 13 (#_ftn13) )) General administrative
expenses (not including contributions to the regulatory funds) were up by
7.3%, at CZK 1,866 million, with the higher costs related to marketing,
consultancy, IT support, and other employee costs (such as training and
recruiting) not fully offset by lower real estate costs. The full-year cost of
contributions to the regulatory funds (Deposit Insurance Fund, Resolution
Fund) reached CZK 1,281 million, up 24.2% year on year. The CNB adjusted the
target volume of the Resolution Fund for 2024 and boosted the aggregate annual
contribution from Czech banks in 2022 by 16.2% year on year. Depreciation and
amortisation grew by 6.8% to CZK 1,490 million, driven mainly by new and
upgraded software acquired in pursuit of KB's digitalisation strategy.
The sum of profit before allowances for loan losses, provisions for other
risk, profit on subsidiaries, and income tax (operating profit) was up by
54.1%, at CZK 10,745 million.
Cost of risk reached CZK 562 million, down by (15.9%) in comparison with the
first half of 2022. The provisioning was concentrated mainly on corporate
clients with relationships of various types to the Russian market. The Group
also added some prudential provisions for estimated future impacts of the
current high-inflation environment. The repayment discipline and recovery
performance in retail segments remained excellent. The cost of risk in
relative terms and as measured against the average volume of the lending
portfolio during 2022's first half came to 14 basis points. That compares with
19 basis points for the same period a year earlier.
Income from shares in associated undertakings (i.e. Komerční pojišťovna)
was down (2.8%) year on year, at CZK 103 million, influenced by interest
rates development and the insurance reserves creation and utilisation at KP.
Net profit on other assets reached CZK 120 million, mainly due to gains from
sales of buildings that were partly offset by accelerated depreciation of
technical improvements in leased branches that were closed. In the previous
year, net profit on other assets had been CZK 25 million.
Income tax was higher by 64.6%, at CZK 1,980 million.
KB Group's consolidated net profit for the first half of 2022 reached
CZK 8,426 million, which was higher by 60.3% in comparison with a year
earlier. Of this total, CZK 107 million was profit attributable to the
non-controlling owners of minority stakes in KB's subsidiaries (down by
(18.9%) year on year).
Reported net profit attributable to the Group's equity holders totalled
CZK 8,319 million, which is 62.3% more year on year.
Other comprehensive income, which derives mainly from revaluations and
remeasurements of some hedging, foreign exchange, and securities positions, as
well as from effects of changed interest rates on the value of equity
participation in an associated company, reached CZK (1,415) million.
Consolidated comprehensive income for the first half of 2022 totalled
CZK 7,011 million, of which CZK 107 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 30 June 2022 with the values from the statement of
financial position as of 31 December 2021.
Assets
As of 30 June 2022, KB Group's total assets had grown by 19.7% year to date to
CZK 1,489.0 billion.
Cash and current balances with central banks were down (28.6%), at
CZK 21.4 billion. Financial assets at fair value through profit or loss
(trading securities and derivatives) increased by 32.7% to CZK 54.6 billion.
The fair value of hedging financial derivatives climbed by 57.6% to
CZK 22.6 billion.
Year to date, there was a (12.7%) decline in financial assets at fair value
through other comprehensive income totalling CZK 31.0 billion. This item
consisted mainly of debt securities issued by government institutions.
Financial assets at amortised cost grew by 21.7% to CZK 1,333.9 billion. The
largest portion of this consisted of (net) loans and advances to customers,
which increased year to date by 4.5% to CZK 757.5 billion. A 97.6% share in
the gross amount of client loans was classified in Stage 1 or Stage 2, while
2.4% of the loans were classified in Stage 3 (non-performing loans). The
volume of loss allowances created for amounts due from customers came to
CZK 13.5 billion. Loans and advances to banks grew by 77.0% to
CZK 455.2 billion. The majority of this item consists in reverse repos with
the central bank. The value held in debt securities was up by 6.3% and reached
CZK 121.2 billion at the end of the first half 2022.
Revaluation differences on portfolio hedge items totalled CZK (1.3) billion,
larger by 108.5%. Current and deferred tax assets stood at CZK 0.2 billion.
Other assets and accrued accounts, which include receivables from securities
trading and settlement balances, decreased overall by (14.6%) to
CZK 5.0 billion. Assets held for sale diminished by (86.2%) to
CZK 0.1 billion.
Investments in subsidiaries and associates declined by (10.8%) to
CZK 0.7 billion.
The net book value of tangible assets declined by (3.3%) to CZK 8.7 billion.
Intangible assets grew by 5.8% to reach CZK 8.3 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 22.0% higher in comparison to the end of 2021 and stood
at CZK 1,363.7 billion.
Financial liabilities at amortised cost went up by 19.8% to
CZK 1,266.0 billion. Amounts due to customers comprise the largest
proportion of this total, and these grew by 15.3% to CZK 1,103.6 billion.
This total included CZK 79.4 billion of liabilities from repo operations
with clients and CZK 8.4 billion of other payables to customers. Amounts due
to banks increased in the first half of 2022 by 76.6% to CZK 147.3 billion.
Revaluation differences on portfolios hedge items were negative
CZK (55.5) billion. Current and deferred tax liabilities were steady at
CZK 2.3 billion. Other liabilities and accruals, which include payables from
securities trading and settlement balances, grew by 61.7% to
CZK 20.2 billion.
The provisions balance was 4.4% higher, at CZK 1.4 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 8.7 billion, was up
248.0% year to date, influenced by issuance of loans in order to meet
regulatory minimum requirements for own funds and eligible liabilities (MREL).
Because that debt is issued in euro, the CZK value of this debt reflects also
changes in the Czech crown exchange rate.
Equity
Total equity decreased year to date by (1.2%) to CZK 125.3 billion as the
volume of dividends paid approximatelly matched the volume of net profit
generated during the first half and the Group recognised a decrease in the
value of retained earnings related to Komerční pojišťovna. The value of
non-controlling interests reached CZK 3.1 billion. As of 30 June 2022, 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 108.5 billion as of 30 June 2022. Capital adequacy stood at 20.3%. Core
Tier 1 capital was CZK 106.4 billion, and the Core Tier 1 ratio stood at
20.0%. Tier 2 capital totalled CZK 2.0 billion, which was 0.4% of
risk-weighted assets.
As from 1 July 2022, Komerční banka's overall capital requirements (OCR)
come to approximately 16.1%. The minimum required level of CET 1 is 11.5%, and
the minimum Tier 1 capital ratio stands at 13.5%.
The OCR will rise further by a cumulative 150 bps in three steps during
October 2022, January 2023, and April 2023 due to pre-announced hikes in the
countercyclical buffer requirement. Assuming no further changes, as from 1
April 2023, the minimum OCR will reach 17.6%, the minimum CET1 ratio 13.0%,
and the minimum Tier 1 15.0%.
KB Group's Liquidity Coverage Ratio came to 174% as of 30 June 2022. The
applicable regulatory minimum is 100%.
Effective as of 1 January 2022, KB Group is required to comply with a minimum
requirement for own funds and eligible liabilities (MREL) equal to 14.4% of
the consolidated total risk exposure and 4.46% of the consolidated total
exposure. Based on the CNB general approach,(( 14 (#_ftn14) )) MREL is
expected to reach 21.2% of the consolidated total risk exposure and 5.91% of
the consolidated total exposure effective as of 1 January 2024. 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 5.50% as of 1 July 2022.
With its considerable capital surplus, the Group fulfilled the interim target
level valid from the beginning of 2022. In order to proceed gradually to
meeting the ultimate MREL requirement, KB accepted on 27 June 2022 a senior
non-preferred loan from Société Générale S.A. of EUR 250 million, with a
maturity date of 27 June 2028 and a call option with exercise date on 27 June
2027. The interest rate of the loan is stipulated at 3M EURIBOR plus 2.05%,
using the ACT/360 day count convention.
Developments in the Group's structure
KB has further extended partnerships with fintech providers of value-added
services via its fully owned KB SmartSolutions platform. In June, KB
SmartSolutions increased its share from 11% to 24.989% in MonkeyData.
MonkeyData fully owns a subsidiary, Lemonero, which provides financing to
e-shops utilising an AI-powered scoring model. In July 2022, KB SmartSolutions
acquired 96% of Enviros Group, which comprises the following four companies:
Enviros Global Limited, ENVIROS, s.r.o. (CZ), ENVIROS, s.r.o. (SK), and
ENVIROS d.o.o. Enviros Group provides services in energy and environmental
advisory. In July, KB SmartSolutions increased its participation in the upvest
real estate crowdfunding platform to 96%.
Expected development and main risks to that development in 2022
Note: This outlook updates the outlook presented on 5 May 2022 upon release of
Komerční banka's results for the first quarter of 2022.
KB Group is aware that sharp deterioration of the geopolitical situation
caused by the Russian invasion of Ukraine launched on 24 February 2022 will
significantly impact upon the economies of European countries. Nevertheless,
due to heightened global uncertainty and the turbulent development, a full
assessment and quantification of these impacts is not possible at the current
stage. The Group is continuously monitoring and evaluating potential
influences of the current crisis on its activities and on its clients.
Although its direct exposure to Russia and Ukraine is limited, the Group is
also evaluating indirect impacts (e.g. dependency on energy resources and raw
materials, supply chain disruptions). As may be necessary and appropriate, the
Group will respond to the changing situation by adjusting its policies (e.g.
risk, operational, accounting), including possible adjustments to provisions
and reserves in accordance with the IFRS 9 standard.
Given the high level of uncertainty surrounding the war in Ukraine and the
global pandemic situation that are in addition to the usual risks related to
projecting future business results, investors should exercise caution and
judgement before making their investment decisions while considering these
forward-looking estimates and targets.
In its updated baseline macroeconomic scenario for 2022, KB expects that, due
to the war in Ukraine, shock in commodity prices, continued supply chain
disruptions, and weakened economic confidence, the Czech economy's growth will
slow to 2.5% from 3.5% a year earlier. Due to double-digit inflation, which
dampens household consumption, as well as decreasing global demand for
industrial goods, KB expects a mild recession in the Czech economy in the
second half of 2022. Fixed investments should contribute positively to annual
growth, while net exports will be a drag on economic expansion. Despite the
slower economy, the lack of available labour in the economy will remain a
factor limiting the growth potential. The average inflation rate in 2022 is
expected to reach almost 17%, with year-on-year inflation rates probably
peaking around 20% in the fourth quarter.
The Czech National Bank may continue raising monetary policy rates, as it had
commenced to do in the middle of 2021. The terminal rate for the two-week repo
rate is seen at 7.5%, to be reached towards the end of the year 2022. The
CNB may need to continue intervening in order to prevent depreciation of the
crown during this year.
In the regulatory environment, 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.(( 15 (#_ftn15) )) It decided, too, on increasing
the counter-cyclical capital buffer rate in two steps during 2022 followed by
two additional steps as of 1 January and 1 April 2023. This will take that
rate to 2.5%.(( 16 (#_ftn16) )) The national bank also announced in September
2021 that it would no longer restrict the amount of bank dividends across the
board.(( 17 (#_ftn17) )) After the annual general meeting approved the
dividend payment representing 65% of net profit generated in 2021, the
management aims to address the matter of KB's surplus capital in the second
half of the year and once the results of various regulatory tests will have
been discussed with the regulator. During the second half, KB will 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).
The banking market for loans and deposits entered 2022 on a solid footing, but
it will gradually absorb effects of the higher interest rates, slower-growing
economy, heightened economic uncertainty, and worsened cost-of-living
parameters. Total lending on the market should rise at a mid-single-digit
year-on-year percentage rate. The production of new housing loans will
diminish significantly in comparison with 2021 due to higher costs and
regulatory limitations, but the outstanding volume of these loans should
nevertheless expand modestly. Consumer credit expansion should reach a
mid-single-digit pace, even as it will balance the favourable labour market
situation and rising nominal incomes with increased cost of living and
worsened consumer confidence. Lending to corporations should rise somewhat
faster. Demand for working capital financing is strengthening as companies
need to keep higher inventories of more-costly inputs. Investment lending will
be driven by the developments in business confidence, but it also will be
supported by the government's increased investment activity as supported by
the funds established by the European Union. Growth in the volume of deposits
will slow to mid-single digits, lagging the expansion in loan volumes as the
financial situations of some households and businesses tighten.
Komerční banka will continue implementing the changes in accordance with its
KB Change 2025 programme that had been announced in November 2020. The new
digital bank will be developed in order to reach a marketable level of
maturity in 2023.
In this context, KB management expects that the Group's loan portfolio will
record an upper mid-single-digit growth rate for 2022. Within the total, the
corporate loan book will grow faster. The volume of housing loans outstanding
should still increase at a low- to mid-single digit pace, even though new
sales of these loans will drop in comparison with the record level achieved in
2021. Growth in total deposit balances should reach a low single-digit pace,
while clients are expected to be shifting their deposits to term accounts. The
deposits at Modrá pyramida will probably record a decline in mid-single
digits.
KB Group's total net operating income for 2022 should expand by more than 20%
in comparison with the low base of 2021 that had been affected by the
pandemic. The growth in revenues will be driven mainly by net interest income,
reflecting increase in market rates and business volumes and larger share of
the total margin from hedging services for clients booked in this accounting
line. Net fees and commissions should improve by mid-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, even as demand for hedging of financial risks remains high in the
uncertain environment.
In spite of the elevated inflation and significantly higher regulatory charges
for the Resolution Fund, operating expenses remain under tight control and the
figure for the full year will rise at an upper mid-single-digit pace, thus
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. After raising salaries by an average 3%
effective from April 2022, the management agreed on an additional increase in
average salary by 5% for most employees as from October 2022. KB management
also has decided on further steps in optimising the branch network during
2022. As of 1 April 2022, 25 branches were closed and another 19 branches'
cash services are newly provided only via ATMs. As of 1 July 2022, KB
simplified the management structure of the branch network, including to
replace regional retail divisions with joint segment and line management of
all distribution channels at headquarters level. The selection of branches for
closing was based upon a long-term analysis of branch traffic, coverage and
potential of locations, and clients' changing behaviour reflecting growing
preference for remote sales and assisted services in the digital environment.
Cost of risk will be influenced by several factors, including the slower
economic growth, disruptions to global supply chains, and higher prices and
interest rates. Reflecting the excellent quality of KB's asset portfolio, the
cost of risk in 2022 should remain below the estimated normalised level of
around 30 basis points across the whole business cycle.
The key risks to the expectations described above consist in further
escalation of the war in Ukraine and its economic repercussions, prolonged or
deepened shortages of fuels or key input materials for the Czech economy, and
a return of pandemic restrictions and disruptions. 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 fiscal
or monetary policy.
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.
ANNEX: Consolidated results as of 30 June 2022 under International Financial
Reporting Standards (IFRS)
Reported Recurring
1H 2021 1H 2022 Change 1H 2021 1H 2022 Change
YoY
YoY
(CZK million, unaudited)
Net interest income 9,956 14,157 42.2% 9,956 14,157 42.2%
Net fee and commission income 2,792 2,969 6.3% 2,792 2,969 6.3%
Net profit on financial operations 1,955 1,946 (0.5%) 1,955 1,946 (0.5%)
Dividend and other income 102 96 (5.9%) 102 96 (5.9%)
Net banking income 14,805 19,168 29.5% 14,805 19,168 29.5%
Personnel expenses (3,667) (3,787) 3.3% (3,667) (3,787) 3.3%
General admin. expenses (excl. regulatory funds) (1,739) (1,866) 7.3% (1,739) (1,866) 7.3%
Resolution and similar funds (1,031) (1,281) 24.2% (1,031) (1,281) 24.2%
Depreciation, amortisation and impairment of operating assets (1,395) (1,490) 6.8% (1,395) (1,490) 6.8%
Total operating expenses (7,832) (8,423) 7.5% (7,832) (8,423) 7.5%
Operating profit 6,973 10,745 54.1% 6,973 10,745 54.1%
Impairment losses (693) (486) +/- (693) (486) +/-
Net gain from loans and advances transferred and written off 25 (76) +/- 25 (76) +/-
Cost of risk (668) (562) (15.9%) (668) (562) (15.9%)
Net operating income 6,305 10,183 61.5% 6,305 10,183 61.5%
Income from share of associated companies 106 103 (2.8%) 106 103 (2.8%)
Profit/(loss) attributable to exclusion of companies from consolidation 25 0 n.a. 25 0 n.a.
Net profits on other assets 25 120 >100% 25 120 >100%
Profit before income taxes 6,461 10,406 61.1% 6,461 10,406 61.1%
Income taxes (1,203) (1,980) 64.6% (1,203) (1,980) 64.6%
Net profit for the period 5,258 8,426 60.3% 5,258 8,426 60.3%
Profit attributable to the Non-controlling owners 132 107 (18.9%) 132 107 (18.9%)
Profit attributable to the Group's equity holders 5,126 8,319 62.3% 5,126 8,319 62.3%
Statement of financial 31 Dec 2021 30 Jun 2022 Ytd
position
(CZK million, unaudited)
Assets 1,244,353 1,489,019 19.7%
Cash and current balances with central bank 29,947 21,383 (28.6%)
Loans and advances to banks 257,196 455,150 77.0%
Loans and advances to customers (net) 724,587 757,528 4.5%
Securities and trading derivatives 190,924 207,000 8.4%
Other assets 41,699 47,958 15.0%
Liabilities and shareholders' equity 1,244,353 1,489,019 19.7%
Amounts due to banks 83,372 147,266 76.6%
Amounts due to customers 956,929 1,103,643 15.3%
Securities issued 13,666 12,689 (7.1%)
Subordinated and senior non preferred debt 2,490 8,665 248.0%
Other liabilities 61,114 91,480 49.7%
Total equity 126,782 125,276 (1.2%)
Key ratios and indicators 30 Jun 2021 30 Jun 2022 Change year on year
Capital adequacy (CNB) 23.2% 20.3% q
Tier 1 ratio (CNB) 22.6% 20.0% q
Total risk-weighted assets (CZK billion) 446.7 484.4 8.4%
Risk-weighted assets for credit risk (CZK billion) 387.6 442.3 14.1%
Net interest margin (NII / average interest-bearing assets)III 1.7% 2.2% p
Loans (net) / deposits ratioIV 69.5% 74.0% p
Cost / income ratioV 52.9% 43.9% q
Return on average equity (ROAE)VI 8.8% 13.5% p
Return on average Tier 1 capitalVII 10.1% 16.0% p
Return on average assets (ROAA)VIII 0.8% 1.2% p
Earnings per share (CZK)IX 54.3 88.1 62.3%
Average number of employees during the period 7,748 7,522 (2.9%)
Business performance in retail segment - overview 30-Jun-22 Change year on year
CZK bil.
Mortgages to individuals - volume of loans outstanding 266.2 5.2%
Building savings loans (MPSS) - volume of loans outstanding 81.5 18.2%
Consumer loans (KB + ESSOX + PSA Finance) - volume of loans outstanding 34.5 4.8%
Small business loans - volume of loans outstanding 47.7 1.4%
Insurance premiums written (KP) 4.0 (23.1%)
Financial calendar:
4 November 2022 - 9M and 3Q 2022 results
8 February 2023 - FY and 4Q 2022 results
12 May 2023 - 1Q 2023 results
3 August 2023 - H1 and Q2 2023
3 November 2023 - 9M and Q3 2023
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) 1H 2022 1H 2021
Net interest income income, year-to-date 14,157 9,956
Of which:
Loans and advances at amortised cost 21,995 8,688
Debt securities at amortised cost 1,466 961
Other debt securities 278 349
Financial liabilities at amortised cost (7,477) (653)
Hedging financial derivatives - income 15,034 4,792
Hedging financial derivatives - expense (17,139) (4,180)
(source: Balance Sheet) 30-Jun-22 31-Dec-21 30-Jun-21 31-Dec-20
Cash and current balances with central banks / Current balances with central 10,807 21,455 14,284 15,050
banks
Loans and advances to banks 455,150 257,196 377,833 262,606
Loans and advances to customers 757,528 724,587 692,814 679,956
Financial assets held for trading at fair value through profit or loss / Debt 12,385 8,696 12,311 3,342
securities
Non-trading financial assets at fair value through profit or loss / Debt 135 135 0 279
securities
Financial asset at fair value through other comprehensive income (FV OCI) / 31,004 35,509 38,670 40,151
Debt securities
Debt securities 121,237 114,078 119,024 92,839
Interest-bearing assets (end of period) 1,388,246 1,161,656 1,254,936 1,094,223
Average interest-bearing assets, year‑to-date 1,274,951 1,174,579
NIM year-to-date, annualised 2.22% 1.70%
(( 1 (#_ftnref1) ))
Including debt securities issued by KB's corporate clients. There were no
reverse repo operations with clients to report as of 30 June 2022 or 30 June
2021.
(( 2 (#_ftnref2) )) Excluding repo operations with clients. The total volume
of 'Amounts due to customers' moved up by 6.9% to CZK 1,103.6 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) ))
https://ec.europa.eu/eurostat/documents/2995521/14644611/3-30062022-AP-EN.pdf/25600168-6872-9590-d521-6cc783a7ccf2?t=1656526799665#:~:text=The%20EU%20unemployment%20rate%20was,office%20of%20the%20European%20Union.
(https://ec.europa.eu/eurostat/documents/2995521/14644611/3-30062022-AP-EN.pdf/25600168-6872-9590-d52)
Data up to May 2022.
(( 5 (#_ftnref5) ))
https://www.mpsv.cz/web/cz/mesicni (https://www.mpsv.cz/web/cz/mesicni) . Data
as available up to June 2022.
(( 6 (#_ftnref6) )) Source:
https://www.czso.cz/csu/czso/indices-of-realized-flat-prices-1-quarter-of-2022
(https://www.czso.cz/csu/czso/indices-of-realized-flat-prices-1-quarter-of-2022)
Publication code 014007-22, released 14 June 2022.
(( 7 (#_ftnref7) )) Source of data on banking market developments: ARAD
statistics of the CNB, www.cnb.cz.
(( 8 (#_ftnref8) )) Source of data on banking market developments: ARAD
statistics of the CNB, www.cnb.cz.
(( 9 (#_ftnref9) ))
Including debt securities issued by KB's corporate clients. There were no
reverse repo operations with clients to report as of 30 June 2022 or 30 June
2021.
(( 10 (#_ftnref10) )) Inclusive of factor finance outstanding at Factoring KB
and merchant and car dealers' financing from ESSOX Group.
(( 11 (#_ftnref11) )) Excluding volatile repo operations with clients. The
total volume of 'Amounts due to customers' increased by 6.9% year on year to
CZK 1,103.6 billion.
(( 12 (#_ftnref12) )) Gross volume of loans reduced by the volume of
provisions for loan losses.
(( 13 (#_ftnref13) )) Recalculated to a full-time equivalent number.
(( 14 (#_ftnref14) ))
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/
(( 15 (#_ftnref15) ))
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/
(( 16 (#_ftnref16) ))
https://www.cnb.cz/en/cnb-news/press-releases/CNB-increases-countercyclical-capital-buffer-rate-to-2.5/
(( 17 (#_ftnref17) ))
https://www.cnb.cz/en/cnb-news/press-releases/CNB-comments-on-banks-dividend-payout-plans/
(https://www.cnb.cz/en/cnb-news/press-releases/CNB-comments-on-banks-dividend-payout-plans/)
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