Komercni Banka reported better than expected 1Q 2005 unconsolidated IFRS results. Net profit fell only 3.2% to CZK 1,934m compared to the expected CZK 1,800 thanks to lower costs and lower provisioning than market expected. Compared to our forecast, results showed stronger revenues than projected due to higher interest income. Despite the January rate cut of 25bps the net interest income rose almost 15% y/y thanks to growing loan portfolio. Loan growth at all segments accelerated in 1Q05, and it is expected to remain strong for rest of the year. Net fees were just slightly lower than expected. Thanks to rising revenues and declining costs (-1% y/y) operating profit improved a strong 12% y/y and the cost/income ratio dropped to 50%. The significant decline in pre-tax profit was due to the booking of an extraordinary profit from the sale of a stake in MUZO in 1Q 2004. Provisioning was also lower than generally expected due to improving quality of the large corporates. The decline in the bottom line was also mitigated by lower income tax, as the effective tax rate dropped to the regulatory 26%. On Friday the management also said that no large negative impact is expected by the recent rate cuts, as the bank is almost fully hedged. Management said to be confident to maintain net interest margin at current 3.2%.