The bank has announced a default of a client in the sector of distribution and sale of electric energy, where it has exposure of approximately CZK 1bn, depending on the development of the EUR/CZK exchange rate. There were already provisions created in the fourth quarter for the exposure and additional provisions will be created in the first quarter of 2009. The bank noted that it sees no other default case of similar size and character in its portfolio in 2008 or 2009. Our view: Whilst the announcement is negative news, it appears to come in response to press rumours on the market of a potentially even larger exposure to the above-mentioned corporate client. It is estimated that provisions for the loan in the fourth quarter reached 20% of the exposure. Even considering the possible write-off of a large amount of the remainder, we believe our forecast net provisioning requirement for 2009 (CZK 5.4bn, +91% y/y, or 139bp of average gross loans) is conservative enough at this stage. A rising cost of risk is the main driver of a widely expected 20% decline in earnings this year.