KB’s operating revenues grew modest 1.5% y-to-y. Net income from fees and commissions exceeded our expectations, indicating that the management’s effort to boost this part of revenues is bearing its first results. On the other had dealing profits were hit by losses from derivatives revaluation and foreign exchange options. KB succeeded in reducing its staff and administrative costs, as expected. The impact of the cost savings on the 9M figures was offset by the restructuring charge (CZK 408 mil. in 1-9/2000), but KB estimates a positive CZK 1.9 bil. impact next year. KB’s profit before provisions stood at CZK 6.39 bil., representing a 3.9% increase against restated 9M 1999 results. This figure is in line with our estimate (CZK 6.42 bil.) but below the market consensus (CZK 6.81 bil., Reuters’ poll median).
Provisions reached CZK 6.0 bil. More interesting than the actual interim figure was an estimate made at the analyst presentation by Tomas Spurny, KB’s board member, that KB’s year-end provisioning could stand at CZK 8.6 bil. This is less than KB’s board’s official estimate of CZK 9.6 bil. of provisions, issued on September 13. The new estimate, although it is not an official one, could be considered favorably by the market (in that lower provisioning would cause less damage to equity and hence valuation). We maintain our year-end provisioning projection of CZK 8.8 bil.
KB’s after tax loss reached CZK 969 mil., vs. CZK 4.76 bil.loss reported one year ago. The loss was slightly lower than our projection (CZK -1.04 bil.) as well as the market consensus (CZK -1.08 bil., based on Reuters’ poll.), but we consider the operating profits and the indication of lower provisioning need more important than the bottom-line earnings.
As for the balance sheet, the trends visible in 1-6/2000 continued in Q3. Worth highlighting is the continued increase in customer deposits (CZK 282 bil., up from CZK 279 bil. at the end of June and from CZK 259 bil. at the end of last year). Net loans to customers continued declining in Q3, to CZK 129 bil., from CZK 135 bil. The bank expects to maintain the current level of customer lending for the rest of the year, but hopes to achieve a major increase in lending next year.
The quality of loan portfolio deteriorated further in Q3, the share of classified loans on total increased from 16.7% in June to 18.7% in September. KB expects the amount of NPLs to be still higher at year end.
Following the results and the presentation, we maintain our recommendations (short-term hold, long-term accumulate) and 12M target price of CZK 955.