Komercni Banka Tumbles Most in Five Years on Dividend Reduction

  • New capital requirements curb Czech lender’s payout potential
  • 8.3% drop wipes out $640 million of Komercni Banka stock value

Komercni Banka AS slumped the most in five years after the Czech unit of Societe Generale SA said new regulation was forcing it to scale back its generous dividend policy even as its profit rose.

The stock fell 8.3 percent on Wednesday in Prague after the company said it was reviewing its plan to pay between 80 percent and 100 percent of its 2016 profit to shareholders because of a “significant increase” in capital requirements from the Czech central bank. Net income for the three months ended June 30 jumped 19 percent from a year earlier, helped by a one-time gain from an asset sale, Komercni Banka said in a statement.

“The overall impression is spoiled by increased regulatory requirements and a lower expected dividend,” J&T Banka AS analyst Milan Lavicka said by e-mail. “We consider the reported results neutral.”

Komercni Banka shares fell to 900 koruna at Prague close, the worst performance among the 48 peers in Europe’s Stoxx 600 Banks Index and valuing the company at 171 billion koruna ($7.1 billion).

Lending Growth

The Czech company is relying on lending growth to counter the negative effects of record-low interest rates and tightening regulation on earnings. While its 3.8 billion-koruna profit for the second quarter was in line with the median estimate of analysts polled by Bloomberg, it included a 959 million-koruna gain from the sale of a stake in Visa Europe Ltd.

The central bank now wants Komercni Banka, one of the healthiest banks in Europe with a capital-adequacy ratio of 15.3 percent and a loan-to-deposit ratio of 80 percent, to create additional reserves. This means the company may have to revert to a “normalized” policy it had until 2014 to distribute 60 percent to 70 percent of its profits, Chief Operating Officer Libor Lofler told journalists on Wednesday.

Under the new requirements, the lender must increase its so-called systemic risk buffer to 3 percent from 2.5 percent starting next year while the counter-cyclical capital buffer for the whole industry rises to 0.5 percent from zero. The Czech National Bank’s “stricter interpretation of Basel III rules” will burden Komercni Banka with additional costs, according to the statement.

Returning to the pre-2014 payout level “is expected to allow Komercni Banka to sustain the organic development of its business,” the bank said in its statement.

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