KB 3Q13 preview - results due tomorrow Nov-7 B/MKT

Conference call, Thursday Nov 7 @ 4:30 pm CET

We expect net interest income to come at 5.26 bln. CZK in 3Q13, 3.6% lower y/y. We think most of the decline in net interest margin (NIM) for this year has already come in 1H13, however, for the third quarter we expect minor 3 bps decline (q/q) to 2.95% as guided by KB (4810 CZK, 0,84%). Consensus seems to be a bit more optimistic on NIM. Both net fees & commission income and income from fin. operations may improve by 5,8% y/y to 1,76 bln. CZK and 20% y/y to 0,75 bln. CZK, respectively.

Total operating costs should be 2.1% lower in 3Q13 and C/I ratio should improve to 41.7% from 42.7% a year ago. As for cost of risk, we expect an increase in provisions in the corporate sector as strong recoveries from previous quarters should not repeat in 3Q13. Retail cost of risk likely continued to decline in y/y terms due to low inflows into default and good payment discipline, but should be higher compared to 1H13. Hence, we expect cost of risk to rise 45.2% y/y to 530 mln. CZK.

We expect bank’s net income to come down 5.0% y/y at 3.15 bln. CZK (flat q/q). Investors should mostly focus on NIM development and cost of risk. Consensus for interest income seems to be set quite high. On the other hand, cost of risk could again positively surprise in case of further recoveries in the corporate segment. Any disappointment could trigger negative market reaction after recent rally while upside is limited, in our view.