Komercni Banka KMCA 3rd Quarter Results - comments

  Komercni Banka (KMCA) - 3rd Quarter Results - comments

RNS Number : 5911Q
Komercni Banka
08 November 2012

          Komerční banka gains in deposit balances and loans volume

      NetprofitreachedCZK10.9 billion for first three quarters 2012

Prague, 8 November 2012 - In  an environment where individuals and  businesses 
were seeking certainty and stability in their financial affairs, the volume of
Komerční banka Group's business activities  continued to increase through  the 
first nine months of 2012.  The volume of loans  provided to KB Group  clients 
rose by  6.2% year  on year  to CZK  462.3 billion.  Growth in  the volume  of 
deposits from clients  reached 3.1% year  on year, bringing  the total to  CZK 
568.3 billion. KB Group reported a solid level of free liquidity which  allows 
it to provide continuous  support to the clients.  Total net banking  revenues 
climbed by  a slight  1.5% to  CZK  24.7 billion,  reflecting growth  in  KB's 
business as well as certain one-off  items. Operating costs grew by just  0.4% 
to CZK 9.9 billion.  Quality of the lending  portfolio remained high, and  the 
cost of risk from lending  was at a low CZK  1.3 billion, representing a  3.5% 
increase. KB Group reported  a net profit  of CZK 10.9  billion for the  first 
nine months of 2012, which was a  significant gain of 55.1% as the prior  year 
result had been affected by the impairment of Greek government bonds.

Main events of third quarter 2012

· Komerční banka's  business grew  successfully, deposit  and loan  volumes 

· Number of clients  in Penzijní fond  KB increased by 5%  year on year  to 

· The Czech  National Bank awarded  Penzijní fond KB  a licence to  provide 
services related to individual retirement savings as well as the  supplemental 
pension savings in the reformed pension system effective in the Czech Republic
from 1 January 2013.

· Komerční banka enabled its clients  to pay for their purchases by  mobile 
telephone using NFC technology or by contactless credit cards, thus  providing 
the fastest and most comfortable payment means ever.

· KB won several awards, including the title Best Bank 2012 from the  daily 
newspaper Hospodářské  noviny. Komerční  pojišťovna and  Modrá pyramida,  too, 
were recognised with significant awards.

Comment of the CEO

KB Group's performance was generally successful in the challenging
macroeconomic context. In response to the uncertainty caused by slowing export
demand and turbulence in domestic politics, Czech customers and business are
more cautious. Clients often are postponing long-term investments and plans,
thus reducing the demand for loans despite the extremely low interest rates.

Due to stable and long-term relationships with its clients, KB continues to
strengthen its position on the Czech market and helps clients in financing
their export activities as well. It is clear that in order to restore
confidence in the economy the prepared structural reforms should be finalised
and implemented promptly so that they begin to manifest their benefits as soon
as possible and halt the rise in costs to businesses induced by regulation.
From KB's perspective, a proper start of the new pension system from 1 January
2013 is especially important. That step will create conditions to improve
people's financial security in old age even as it boosts the capital strength
of the Czech economy.

Henri Bonnet

Chairman of the Board of Directors and Chief Executive Officer

Comments on business and financial results

The  published  data  are  from  unaudited  consolidated  results  under  IFRS 
(International Financial Reporting Standards).


Although the Czech economy did not  suffer problems with its external  balance 
through the first three quarters of 2012, the demand for its exports did  slow 
gradually due to the situation in  Western Europe and domestic demand did  not 
yet begin its  recovery. During  the first  nine months,  Czech National  Bank 
lowered its  two-week  repo rate  twice,  in  June and  September,  to  0.25%, 
followed by a further cut  in November, to 0.05%.  Also yields from the  Czech 
government bonds reached their all-time  lows. Perceived as a relatively  safe 
currency, Czech koruna (CZK) appreciated by  more than 3% against USD and  EUR 
since the beginning of the year.  In this environment, volume growth in  loans 
was stable year on year because the healthy Czech banking sector presented  no 
obstacles to funding viable projects.  Quite the contrary, growth in  deposits 
was underpinned  by clients'  desire to  boost their  reserves against  future 
risks and to accumulate funds for future implementation of projects  presently 
on hold.

Development of clients portfolio and distribution networks

As of the end of September 2012, KB Group was serving 2.5 million clients on a
consolidated basis. Standalone  KB recorded 1,605,000  clients (+0.5% year  on 
year), of which  1,343,000 were individuals.  The remaining 261,000  customers 
comprised entrepreneurs, businesses and corporations (including municipalities
and associations).Modrá pyramida was attending to 616,000 customers, and  the 
number of pension  insurance participants  at Penzijní  fond reached  521,000. 
ESSOX's services were being used by 273,000 active clients.

Komerční banka's clients had at their disposal 400 banking branches (including
one in  Bratislava),  702  ATMs, and  full-featured  direct  banking  channels 
supported by two call centres. The number of clients using at least one direct
banking channel (such as internet  or telephone banking) reached 1,104,000  at 
the end of September 2012 and  corresponds to 68.8% of all clients.  Customers 
held 1,635,000 active payment cards, of  which 209,000 were credit cards.  The 
number of active credit  cards issued by ESSOX  came to 152,000, and  consumer 
financing  from   ESSOX   was  available   through   its  network   of   2,800 
merchants.Modrá pyramida's customers had at their disposal 225 points of sale
and 1,260  advisors. SG  Equipment Finance  (SGEF) was  providing its  leasing 
services through nine  branches (two  of which are  in Slovakia),  as well  as 
through KB's network.

Loans to customers

Total gross volume of loans provided by KB Group expanded year on year by 6.2%
to CZK 462.3 billion.  Lending to individuals grew,  as did that to  corporate 
clients and small businesses.

The increase in  lending to individuals  was driven by  demand for  mortgages, 
which remained  solid  thanks to  the  extraordinarily good  affordability  of 
housing that  is attributable  to  a combination  of  low interest  rates  and 
diminished property prices. The overall  mortgage portfolio enlarged by  10.6% 
to CZK 130.5 billion.  Sales by Modrá  pyramida's network contributed  to 
the mortgage growth following enhancement of the product portfolio offered  by 
agents of Modrá pyramida  with mortgages. This effect  was partly offset by  a 
slight 2.8% decline in the volume  of Modrá pyramida's loan portfolio, to  CZK 
49.8 billion. The outstanding  volume of consumer lending  provided by KB  and 
ESSOX continued to  decrease (by  1.0% to CZK  27.4 billion),  but there  were 
signs that the  bank's consumer  financing may  have bottomed  out during  the 
first half of the year.

The overall volume  of loans provided  by KB Group  to businesses expanded  by 
6.6% to CZK 249.9 billion. Of this amount, lending to small businesses rose by
5.9% to CZK  28.7 billion. The  volume of  credit granted by  KB to  corporate 
clients in  the Czech  Republic and  Slovakia  climbed by  7.2% to  CZK  198.5 
billion. Factor finance outstanding at Factoring  KB grew by 17.6% to CZK  2.8 
billion, and SGEF's  credit and  leasing totals outstanding  declined by  0.2% 
year over year to CZK 19.9 billion.

Amounts due to customers and assets under management

The total volume of deposits rose by  3.1% year on year to CZK 568.3  billion. 
Deposits at KB from individual clients increased by 2.3% to CZK 160.5 billion,
and deposits from  businesses expanded by  2.5% to CZK  298.5 billion.  Saving 
accounts  constituted  the  most  dynamic  product  in  the  overall  deposits 

Client assets with  Penzijní fond KB  grew by  6.1% to CZK  31.7 billion.  The 
deposits book at Modrá  pyramida gained 1.7%  year on year  to reach CZK  70.9 
billion. The  volume  of technical  reserves  in life  insurance  at  Komerční 
pojišťovna rose by 19.7% to CZK 27.6 billion.

The ratio of net loans to deposits reached 78.4%.

New products and services (in third quarter 2012)

The Czech National Bank awarded alicence to Penzijní fond Komerční banky  for 
the business of KB Penzijní společnost, a.s. Komerční banka Group is ready for
the start of the reformed pension system in the Czech Republic effective  from 
January 2013.  KB  Penzijní  společnost  will  offer  systematic  savings  for 
pensions in the second and third pillars of the pension system with the aim of
enhancing clients' welfare in their retirement years.

In the banking  technologies area,  Komerční banka  advanced substantially  in 
contactless payments. Since August,  KB has enabled clients  to pay for  their 
purchases  using  mobile  telephones   with  NFC  technology.  In   September, 
contactless versions of all  credit cards were included  into the offer,  thus 
allowing users to pay at merchants swiftly  just by waving their cards over  a 
reader at the point  of sale. KB has  been gradually equipping merchants  with 
new terminals accepting both contactless cards  as well as payments by  mobile 

In co-operation with Rosbank from Société Générale Group in Russia, KB started
to offer its  clients the made-to-measure  'Russian payment' current  account. 
This  account  provides  favourable  conditions  for  incoming  and   outgoing 
payments, and it guarantees same-day crediting for selected types of  payments 
between KB and Rosbank.

Recognitions and awards (from third quarter 2012)

KB Group  companies were  presented several  honours that  they appreciate  as 
confirming their reference position on  the Czech financial market. Among  the 
most  important  is  the  title  Best  Bank  2012  from  the  daily  newspaper 
Hospodářské noviny. In this same competition,  Komerční banka took a place  on 
the podium also in the category Friendliest Bank 2012 while both KB and  Modrá 
pyramida ranked amongst the top three in the category Banking Innovator  2012. 
In the Sodexo  Employer of the  Year competition, students  named KB the  Most 
Desired Employer of the Decade.

Komerční pojišťovna was named the Best Insurance Company in the Czech Republic
for 2012  by the  magazine World  Finance, following  the earlier  success  of 
Penzijní fond KB in the pension funds category.


Total net banking income increased by a  slight 1.5% year on year through  the 
first nine months of 2012 to CZK  24,730 million. Growth was driven by  income 
from financial  operations, which  itself was  influenced by  several  one-off 
items. Interest income remained  almost at the same  level as last year  while 
fee income continued to decline.

Interest income was driven  by higher loan and  deposit volumes. On the  other 
hand, the net interest margin slipped to  3.2% from 3.3% in the previous  year 
under the pressure of continuing  downward movement in market interest  rates. 
Some negative  effects were  seen,  too, due  to aggressive  competition,  and 
particularly in  the  area  of  savings accounts.  Net  interest  income  thus 
remained almost stable, diminishing  by just 0.1% year  on year to CZK  16,500 

Net income  from fees  and commissions  slid  by 5.7%  to CZK  5,264  million. 
Influenced by rollout of  the MojeOdměny reward  scheme, lower average  prices 
and higher acquisition  commissions related  to strong sales  of pension  fund 
policies in the current pension scheme,  fees for account maintenance and  for 
transactions decreased.  Loan  fees increased,  boosted  by rising  number  of 
mortgages. Revenues from trade finance services rose slightly.

Net gains from financial  operations improved by 30.4%  to CZK 2,870  million, 
driven by solid demand from clients for hedging of financial risks and in  the 
area of debt  capital markets. The  overall result, however,  was affected  by 
one-off items that had been recorded in the first half, among which there were
positive impacts from an adjustment in the portfolio of Penzijní fond KB  made 
in the first  quarter, which reflected  changes brought about  by the  pension 
reform, as  well  as  selling  of the  equity  interest  in  Bohemian-Moravian 
Guarantee and Development Bank (CMZRB) in the second quarter. On the contrary,
sale of the  remaining Greek  and Portuguese  government bonds  in the  second 
quarter had a negative effect.

Operating costs were up by  a slight 0.4% year on  year to CZK 9,861  million. 
Within these, personnel costs grew by 2.6% to CZK 5,066 million as the average
number of employees  rose by  1.0% to 8,776.  General administrative  expenses 
decreased by 1.8% to CZK 3,513  million. Savings were achieved in many  areas, 
most notably in information technology and communications costs. In September,
a network was completed of seven  centres for centralised processing of  cash. 
Spaced across the  Czech Republic,  these help  to improve  the efficiency  of 
processing and  transporting  cash  within KB.  Depreciation,  impairment  and 
disposal of fixed assets was lower  by 1.5%, totalling CZK 1,282 million,  due 
to lower amortisation of certain intangible assets.

Gross operating income in the first  three quarters of 2012 increased by  2.1% 
year on year to CZK 14,869 million.

Overall risk costs diminished by a significant 76.0% year on year to CZK 1,345
million, due to the fact that the impairment of Greek government bonds of  CZK 
4,299 million had been recorded in the second and third quarters of 2011.  The 
total cost  of  risk  in  relative  terms decreased  to  40  basis  points  in 
comparison with 181 basis points from  2011's first nine months. Net  creation 
of provisions  for  loan  losses grew  by  1.8%,  affected by  growth  in  the 
portfolio's overall  size as  well as  by the  continued improvement  in  loan 
portfolio quality. KB had succeeded in both comparison periods to  restructure 
certain defaulted corporate  exposures, and  that had  led to  release of  the 
relevant provisions.

Income from  shares in  associated undertakings  climbed by  40.6% to  CZK  90 
million. The share in the profit  of pension scheme beneficiaries was down  by 
13.7% to CZK 427  million. This item will  next year cease to  be part of  the 
consolidated income statement, because, as part of the pension reform,  assets 
of the clients in pension funds will be separated from those assets  belonging 
to pension companies.

Income taxes rose by 57.4% to CZK 2,075 million.

KB Group's  consolidated net  profit  for the  first  three quarters  of  2012 
reached CZK 11,113 million, which was 54.1% more than in the previous year. Of
this amount, CZK 195  million was profit attributable  to holders of  minority 
stakes in  KB's  subsidiaries  (+14.7%). Profit  attributable  to  the  Bank's 
shareholders amounted to CZK 10,918 million (55.1% higher year on year).

The comparison  period in  the balance  sheet under  IFRS is  the end  of  the 
previous year.  Therefore,  unless  otherwise indicated,  the  following  text 
provides a comparison with the close of 2011.

KB Group's total assets as of 30 September 2012 increased by 2.2% year to date
to CZK 771.5 billion.

Amounts due from  banks decreased by  23.0% to CZK  78.0 billion. The  largest 
component of this item is loans provided  to central banks as part of  reverse 
repo operations, which were lower by 42.7% at CZK 33.8 billion.

Financial assets at fair  value through profit  or loss grew  by 48.0% to  CZK 
51.7  billion.  That  portfolio  comprises  the  Group's  proprietary  trading 

Total net loans and advances expanded by 2.5% to CZK 445.4 billion. The  gross 
amount of client loans  and advances increased by  6.2% to CZK 462.3  billion. 
The share of  standard loans  within that total  climbed to  91.9% (CZK  424.8 
billion) while the  proportion of  watch loans  was 2.4%  (CZK 11.3  billion). 
Loans under special review (substandard, doubtful and loss) comprised 5.7%  of 
the portfolio  with volume  of  CZK 26.2  billion.  The volume  of  provisions 
created for loans reached CZK 17.4 billion, which is 4.7% more than at the end
of 2011.

The portfolio of available-for-sale securities expanded by 11.6% to CZK  140.6 
billion. The  book  value  of  shares  and  participation  securities  in  the 
available-for-sale portfolio is negligible  since KB's second-quarter sale  of 
its stake  in  CMZRB.  From  the  CZK  140.6  billion  total  volume  of  debt 
securities, Czech government  bonds represented CZK  95.6 billion and  foreign 
government bonds CZK 24.3 billion.

The volume of securities in the held-to-maturity portfolio was down by 1.9% to
CZK 3.3 billion. This portfolio consists entirely of bonds.

The net  book value  of tangible  fixed assets  climbed by  14.3% to  CZK  7.9 
billion, primarily  due  to  recognising the  new  KB  headquarters  building. 
Intangible fixed  assets decreased  by a  moderate 0.1%  to CZK  3.8  billion. 
Goodwill, which primarily derives from the acquisitions of Modrá pyramida  and 
SGEF, remained unchanged at CZK 3.8 billion.

Total liabilities increased by 0.5% in comparison with the end of 2011 to  CZK 
676.3 billion. Amounts due to customers grew by 1.4% to CZK 568.3 billion. The
outstanding volume of issued securities rose by 4.8% to CZK 19.2 billion.  The 
Group's liquidity, as measured by the ratio of net loans to deposits,  reached 
78.4% (82.9% excluding client assets in Penzijní fond KB).

Shareholders' equity,  which  expanded year  to  date  by 16.3%  to  CZK  95.2 
billion, was primarily affected by the  generation of net profit, increase  in 
the available-for-sale portfolio revaluation reserve by CZK 5.0 billion, and a
CZK 3.3 billion rise in hedging instruments. As of 30 September 2012, KB  held 
in treasury 238,672 of  its own shares, representing  0.63% of the  registered 

Comprising solely of core tier 1  capital, regulatory capital for the  capital 
adequacy calculation reached CZK 53.9 billion as of the end of September 2012.
KB Group's capital adequacy, as  well as the core  tier 1 capital ratio  under 
Basel II standards, stood at a high level of 14.5%.

Annualised return on average equity for the first three quarters of 2012  came 
to 17.0% while annualised return on average assets was 1.9%.

Net profit adjusted  for one-off  effectsdeclined by  1.5%. Excluding  one-off 
items, adjusted annualised  return on  average equity was  15.3% and  adjusted 
annualised return on average assets 1.8%. 

Changes to the Corporate Governance in third quarter 2012

The composition of  Komerční banka's  Board of Directors  changed with  effect 
from 1 August 2012. The Supervisory Board elected Pavel Čejka and Karel  Vašák 
as new members of the Board of Directors. Pavel Čejka is in charge of Strategy
and Finance,  Operations,  Information Technology,  Project  Organisation  and 
Management, Support Services, and  Investment Banking Operations. Karel  Vašák 
is in charge of Top Corporations and Investment Banking. The former members of
the Board of Directors, Jan Juchelka and Patrice Taillandier-Thomas, moved  to 
pursue other duties within the Société Générale Group.

With effect from 1August  2012, Komerční banka  broadened the competences  of 
its ombudsman, who addresses contentious  issues between certain companies  in 
the  KB  Group  and  their  clients.  Clients  of  Komerční  banka,   Komerční 
pojišťovna, Modrá pyramida stavební spořitelna, Penzijní fond Komerční  banky, 
ESSOX and (newly)  Factoring KB and  SG Equipment Finance  Czech Republic  can 
seek help  from  the  ombudsman.  Komerční  banka's  ombudsman  is  Dr  Joseph 
Franciscus Vedlich, LLM.

ANNEX: Consolidated results as of 30 September 2012 under International
Financial Reporting Standards (IFRS)

Profit and Loss Statement                         9M 2012 9M 2011    Change
(CZK million, unaudited)                                          year on year
Net interest income                               16,500 16,519       -0.1%
Net fees and commissions                           5,264  5,585       -5.7%
Net gains from financial operations                2,870  2,201       30.4%
Other income                                          96     71       35.2%
Net banking income                                24,730 24,376        1.5%
Personnel expenses                                -5,066 -4,940        2.6%
General administrative expenses                   -3,513 -3,576       -1.8%
Depreciation, impairment and disposal of fixed
assets                                            -1,282 -1,302       -1.5%
Operating costs                                   -9,861 -9,818        0.4%
Gross operating income                            14,869 14,558        2.1%
Cost of risk                                      -1,345 -5,598      -76.0%
Net operating income                              13,524  8,960       50.9%
Profit on subsidiaries and associates                 90     64       40.6%
Share in profit of pension scheme beneficiaries     -427   -495      -13.7%
Profit before income taxes                        13,187  8,529       54.6%
Income taxes                                      -2,075 -1,318       57.4%
Net profit                                        11,113  7,211       54.1%
Minority profit/(loss)                               195    170       14.7%
Net profit attributable to the Bank's
shareholders                                      10,918  7,041       55.1%

Balance Sheet                         30 Sep  31 Dec     Change
(CZK million, unaudited)                 2012       2011   year to date
Assets                                   771,470 754,810        2.2%
Cash and balances with central bank        8,557  16,980      -49.6%
Amounts due from banks                    78,045 101,393      -23.0%
Loans and advances to customers (net)    445,428 434,386        2.5%
Securities                               195,587 164,260       19.1%
Other assets                              43,853  37,791       16.0%
Liabilities and shareholders' equity     771,470 754,810        2.2%
Amounts due to banks                      34,660  37,454       -7.5%
Amounts due to customers                 568,329 560,700        1.4%
Securities issued                         19,217  18,338        4.8%
Other liabilities                         54,109  50,465        7.2%
Subordinated debt                              0   6,002      Repaid
Shareholders' equity                      95,155  81,850       16.3%

Key ratios and indicators                      30 Sep    30 Sep      Change
                                                2012      2011    year on year
Capital adequacy (CNB, Basel II)                  14.5%     16.0%      q
Tier 1 ratio (CNB, Basel II)                      14.5%     14.7%      q
Total capital requirement (CZK billion)           29.6     28.4     4.5%
Capital requirement for credit risk (CZK
billion)                                          25.0     23.6     5.8%
Net interest margin (NII/average
interest-bearing assets), annualised               3.2%      3.3%      q
Loans (net) / deposits ratio                      78.4%     76.1%      p
Loans (net) / deposits ratio excluding
pension fund client assets                        82.9%     80.3%      p
Cost / income ratio                               39.9%     40.3%      q
Return on average equity (ROAE), annualised       17.0%     12.2%      p
Return on average assets (ROAA), annualised        1.9%      1.3%      p
Earnings per share (CZK), annualised               385      247    55.8%
Average number of employees during the period    8,776    8,688     1.0%
Number of branches (KB standalone in the
Czech Republic)                                     399       396      +3
Number of ATMs                                      702       690     +12
Number of clients (KB standalone)             1,605,000 1,597,000    +0.5%

Business performance in retail segment - overview        30 Sep 2012   year on
                                                             CZK 130.5
Mortgages to individuals - volume of loans outstanding         billion     11%
 - number of
loans outstanding                                              108,000     10%
Building society loans (MPSS) - volume of loans               CZK 49.8
outstanding                                                    billion     -3%
number of loans outstanding                                    128,000    -10%
Consumer loans (KB + ESSOX) - volume of loans                 CZK 27.4
outstanding                                                    billion     -1%
                                                              CZK 28.7
Small business loans - volume of loans outstanding             billion      6%
Total active credit cards - number                             209,000     -3%
 - of which to
individuals                                                    160,000     -1%
Total active debit cards - number                            1,425,000     -2%
Insurance premiums written (KP)                        CZK 4.8 billion    -11%

Financial calendar for 2013:

13 February 2013: Publication of FY 2012 and 4Q 2012 results

7 May 2013:  Publication of 1Q 2013 results

1 August 2013:  Publication of 1H 2013 and 2Q 2013 results

7 November 2013:  Publication of 9M 2013 and 3Q 2013 results

                     This information is provided by RNS
           The company news service from the London Stock Exchange


QRTLLFFRLVLDIIF -0- Nov/08/2012 07:00 GMT
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