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Komercni Banka looks to consumers, small business to expand loan book
June 3, 2016 / 9:40 AM / a year ago

Komercni Banka looks to consumers, small business to expand loan book

PRAGUE (Reuters) - Komercni Banka is looking to increase market share in consumer finance and small-business lending in a search for yield in a low interest rate environment while keeping deposit growth in check, its chief financial officer said.

A logo of KB (Komercni Banka) bank is seen in central Prague January 18, 2011. REUTERS/David W Cerny

Near-zero interest rates are helping the Czech Republic’s economy to expand, but this also means banks have to increase lending to compensate for the pressure on profit margins from the low rates.

Komercni Banka, 60.4 percent owned by France’s Societe Generale, has outpaced the lending market, raising volumes by 6.8 percent in 2015, while deposits grew 3.3 percent.

But in the first quarter, deposits rose 6 percent, nearly matching the increase in lending.

The bank’s CFO Jiri Sperl told the Reuters Eastern Europe Investment Summit the bank’s plan to keep deposit growth to low single digits this year was getting tougher.

“We are fighting for higher growth (than the overall market) on the asset side, so we say high single digits in loan growth. At the same time, not to grow as fast on the deposit side,” he said.

“We say (deposit growth this year) of low single digits... but it is becoming challenging.”

Options to invest the deposits are limited, with many Czech government bonds showing negative yields this year. Banks are parking more money at the central bank, where the main two-week repo rate has been at 0.05 percent since 2012.

Sperl said Komercni Banka, the country’s third biggest bank by assets, was looking to grow market share in consumer finance and small business loans, targeting market share of 13 percent in three years in the former, up from around 10 percent.

“To gain 1 percentage point in (an) under-represented market is cheaper and more efficient than to fight for 1 percentage point in large corporates where we already have 25-30 percent market share,” he said.

Czech banks maintain low loan-to-deposit ratios and high profitability, but margins are being squeezed and this will continue, Sperl said.

Komercni Banka’s net profit fell 16 percent in the first quarter to 2.9 billion crowns ($119.68 million) due to full-year contributions to resolution and deposit insurance funds. Without those costs, profit was down 1.8 percent.

For all of 2016 it expects net interest income to dip while net fees to stay stable.


One wild card in 2017 will be the central bank’s potential exit from a weak-crown policy that it has used to help to meet inflation targets.

Komercni Banka now expects the central bank will cut rates to negative for a short time to discourage speculation when it exits the policy, Sperl said.

He said the impact on Komercni’s earnings would not be dramatic based on a scenario of a -0.25 percent rate applied on balances at the central bank. This would translate into an up to 1 percent hit to net interest income, he said, adding though that the bank’s baseline case envisaged the central bank not applying such a move to all balances.

“We would not like it but we could live with that,” he said.

Komercni has paid out around 80-100 percent of profit as dividends in the past few years and plans the same for this year.

Sperl said this plan was still its intention but “subject to confirmation” given discussions with the central bank on capital requirements.

The central bank has set a new counter-cyclical capital buffer on banks at 0.5 percent valid from 2017. Komercni Banka believes that should at least partially offset other requirements rather than raise the overall minimum capital level.

Editing by Jane Merriman

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