Komercni Banka Profit Declines on Payment to EU Bailout Fund

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Komercni Banka AS’s profit unexpectedly fell in the second quarter as the Czech unit of Societe Generale SA set aside money for its contribution to a bailout fund.

Net income dropped 3.7 percent from a year earlier to 3.2 billion koruna ($128 million) after the country’s third-largest lender made a one-time provision of 409 million koruna for a payment to the European Union’s Bank Resolution Fund, according to a statement on Wednesday. The mean estimate of nine analysts surveyed by Bloomberg was for a profit of 3.4 billion koruna.

“We didn’t expect this negative item to affect the second-quarter results,” Thomas Unger, an analyst at Erste Group Bank AG in Vienna, said in a report. “Without that, profitability would have been stronger than the consensus.”

A Czech economic recovery is boosting demand for loans and helping Komercni Banka counter the negative effects of record-low borrowing costs and tighter regulation. Recoveries of non-performing debt and declining loan defaults have helped cut the company’s cost of risk by 97 percent from the second quarter of last year, according to the statement.

The “exceptionally low” cost of risk won’t be repeated and the figure will “slightly grow” in the second half of the year, Leos Soucek, a Komercni Banka risk manager, said on a conference call with analysts.

Shares Fall

The lender will have to pay to the resolution fund for 10 years, but its contributions to a separate deposit-insurance fund will drop from next year, Chief Financial Officer Jiri Sperl said on the conference call. This will reduce such costs to about 900 million koruna in 2016 from about 1.3 billion koruna this year, he said.

Komercni Banka shares fell 3.2 percent to 5,447 koruna, retreating from the highest level in more than four months and valuing the company at 207 billion koruna. It was among the worst performers in the Stoxx Europe 600 Banks Index, which advanced 1.5 percent on Wednesday.

Net interest income fell 4.5 percent to 5.1 billion koruna in the second quarter, while net operating income slid 6.2 percent to 3.9 billion koruna. Komercni Banka confirmed its earlier forecast for the volume of its loans growing by 6 percent to 7 percent this year.

“I regard the financial results as very good for a period when interest rates reached new all-time lows and when we booked the cost of a new regulatory burden,” Chief Executive Officer Albert Le Dirac’h said in the statement. “We nevertheless are aware of additional headwinds from regulation ahead of us.”

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