The management has slightly worsened its outlook for operating figs. Now it expects decline in NBI (net banking income) by some 6% y/y which could be partly offset by declining operating expenses this year (-3 % y/y). Overall operating income should thus be lower this year. Previously the bank expected flat NBI and operating expenses this year. As for NIM (net interest margin), most of the decline (-11 bps) for this year has already come in 1Q13, further 3-5 bps decline should come in 2Q13 and there should remain for the rest of the year. Net fees and commission income should decline by some 1%.
/SLIGHTLY NEGATIVE, reported NBI fell by 9.3% in 1Q13 and operating expenses were lower by 2.9%, so the improvement should come later in 2013 as the bank sees mild recovery in 2H13. We think there is more downside risk for 2013 NBI target/
Cost of risk
Q1 corporate cost of risk was concentrated on the limited number of mid-size tickets and stood under the bank’s long-term guidance of mid-cycle level of 40 to 50 bps. They do not see currently any sign that they may overshoot this target in the upcoming quarters. Although in Q2 2013 the bank plans to increase provision coverage of the watch classified clients, with an estimated impact of CZK300 mln. This should, however, be partially offset by a stronger quarter in terms of recoveries and does not influence their long-term guidance. As for retail, cost of risk has been going down on a y/y basis, mainly driven by still improving payment discipline on individuals. Although they remain prudent with respect to the persisting economic environment, they do not expect retail cost of risk to be above 60 bps in Q2 2013 - so on the lowest side of the guidance.
/NEUTRAL, slightly improved rhetoric on corporate cost of risk was offset by expected higher (although one-off) 2Q13 cost of risk in the segment. Guidance for cost of risk in retail segments was slightly better/
Exposure to Italy
In 1Q13 Komercni divested part of its Italian government bonds which were maturing in 2017. The remaining Italian government bond exposure represents 4.9 bln. CZK equivalent (down from 7.9 bln. CZK at the end of 2012), which is maturing in 2019. Divestment had neutral impact on P&L in 1Q13. The bank expects some minor (cca 70 mln. CZK per year) indirect negative impact on future profits from lower reinvestment opportunities. /NEUTRAL/