PRAGUE (Reuters) - Czech lender Komercni Banka expects shrinking risk costs and a strengthening recovery in corporate lending to keep its net profit steady on the year in 2014, its chief financial officer told Reuters.
Komercni Banka, 60 percent-owned by France’s Societe Generale, has had its income from interest squeezed like other Czech lenders by official rates near zero and central bank efforts to keep the crown currency weak until 2016.
While the export-reliant Czech economy grew 2.5 percent year-on-year in the second quarter, loan demand growth has been slower to recover.
Komercni Banka had earlier scaled back its expectations for growing the loan book but its CFO, Libor Lofler, told the Reuters Eastern European Investment Summit that he was confident in the bank’s outlook for 3 percent loan growth in 2014.
“Maybe why I‘m a bit more confident... is that we saw and can see improvement on the corporate side (of loan demand),” he said. “In the second quarter and even the third quarter, corporate demand for lending is increasing. We said we expected that, but we were not sure about the time lag and the magnitude.”
The Czech banking sector has survived the global financial crisis that hit emerging Europe’s markets in 2008 largely unscathed. While banks in Hungary and Romania are still feeling the effect, Czech banks remain well-capitalized, face low loan risks and are substantial profit generators for their western parents.
Komercni Banka forecasts its cost of risk, reflecting provisions against losses from loans and investments, to drop this year due to unexpected releases, helping profit.
“In terms of net profit, we should be flat year-on-year,” Lofler said. The bank’s previous full-year profit forecast saw around a 1.5 percent drop from last year’s 12.5 billion crowns.
Lofler added, though, that the bank’s low risk costs - seen at 30 basis points this year - were unsustainable. “The (cost of risk) level is low... It will go up (next year) because we will grow lending,” he said.
Lending is seen up 5 to 6 percent in 2015, he said, leading to flat revenue. Revenue is likely to drop up to 2 percent this year.
Komercni shares have climbed to record highs in recent months, and traded down a touch on the day at 5,167 crowns per share on Wednesday.
The bank, which is the third largest in the country, may consider a change to its dividend policy in the future to reflect high capital generation. At the moment the bank sees itself sticking to the top of its current range of paying out 60-70 percent of net profit, Lofler said.
“(It is) not yet decided, but we are aware and conscious... that we generate more capital, simply said, than we need to even finance a relatively dynamic growth of our balance sheet,” Lofler said.
The considered change could involve possible issuance of alternative Tier 1 capital, although there is not yet legislation in place for this in the Czech Republic.
Komercni Banka has a total capital adequacy ratio and Tier 1 ratio of 16.7 percent as of the end of June, well above a 13.9 percent requirement set by Czech central bank regulations.
The European Central Bank is due to release results of health checks on euro zone banks in the coming weeks. While the four main Czech banks are owned by western European banks, local units are not directly part of the Asset Quality Review (AQR).
Still, the European Bank for Reconstruction and Development’s new regional banking expert, Lucyna Stanczak-Wuczynska, told the Reuters Summit on Tuesday that the tests could force some lenders to rethink their strategy in central and eastern Europe.
Any market shake-up, though, would likely be in the Balkans and southeastern Europe, she said.
Lofler also expects little impact on the healthier Czech banking sector, saying banks were profitable and contributed positively to their parents. “It doesn’t make sense to reshuffle stakes on the (Czech) market,” he said.
He said the crisis in Ukraine was unlikely to derail the Czech economy or cause any major issue for the bank’s own loan portfolio.
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Additional reporting by Laura Noonan in London and Michael Shields in Vienna; Editing by Hugh Lawson/Ruth Pitchford