Komercni - 2Q13 Preview

We expect net interest income to come at 5.24 bln. CZK in 2Q13, 4.7% lower y/y. We think most of the decline in net interest margin (NIM) for this year has already come in 1Q13, further 5 bps decline (q/q) to 2.90% should come in 2Q13 and there could remain for the rest of the year. Net fees & commission income may decline 0.5% to 1.72 bln. CZK. Income from fin. operations is expected to remain weak and reach 700 mln. CZK (down from 1.23 bln. CZK in 2Q12) due to subdued demand for FX and IR hedging and exceptional gains from adjustment of pension fund portfolio in 2Q12.

Total operating costs should be 2.7% lower in 2Q13 and C/I ratio should deteriorate to 42.0% from 38.9% a year ago. As for cost of risk the bank is expected increase provision coverage of the watch classified clients in 2Q13, with an estimated negative impact of CZK 300 mln. This should, however, be partially offset by a stronger quarter in terms of recoveries. Hence, we expect cost of risk to rise 79% y/y to 630 mln. CZK in 2Q13.

We expect bank’s net income down 26.1% y/y at 3.04 bln. CZK, but only -3.4% q/q. We think there is some room for positive surprise in 2Q earnings – especially in provisioning line and banking income.