March 25, 2020 / 4:30 PM / 8 days ago

UPDATE 1-Komercni Banka to return capital to shareholders once coronavirus hit clears

(Adds more quotes, details)

PRAGUE, March 25 (Reuters) - Czech lender Komercni Banka faces an earnings hit from the coronavirus outbreak but is equipped for the turbulence ahead and will be ready to return excess capital to shareholders once the situation clears, executives said on Wednesday.

The Czech economy, like others in Europe, is set to contract sharply after shops closed and businesses idled or limited output to contain the spread of the virus.

Komercni Banka has already proposed scrapping its dividend and is putting its earnings outlook under review.

On a conference call, Chief Executive Officer Jan Juchelka said the bank was fully operational and had a strong capital base with which to tackle the crisis.

“We feel very strong and equipped for the turbulence,” he told the call with Reuters and Bloomberg news agencies.

Czech banks are well-capitalised and hold extra counter-cyclical capital buffers that many other European countries do not require. The sector was unscathed by the 2008 global financial crisis although some have said the economic hit from the coronavirus pandemic could be greater.

Komercni Banka, majority owned by France’s Societe Generale , has proposed retaining its 2019 profit instead of paying out 11 billion crowns ($431.00 million), or 74% of net earnings in dividends.

That will put the bank’s capital adequacy at more than 22%, several percentage points above regulatory requirements.

The Czech National Bank had already said it expected banks to refrain from dividend payouts until the immediate and longer-term economic impact of the virus outbreak subsides.

Chief Financial Officer Jiri Sperl said the bank intended to reduce capital adequacy ratio levels “once the situation clears”.

“We are ready to return excess capital to shareholders,” he said.

Sperl said the bank’s revenue guidance will be 3% lower for this year than previously, assuming some normality returns by June.

Risk costs will also rise because of damage to the loan profile from the economic downturn and need for provisioning.

The Czech central bank delivered a surprise 50 basis point cut on March 16 and markets widely expect another 50 basis point move on Thursday.

Sperl said every 25 basis point cut to the country’s main policy rate impacts upcoming 12-month net interest income by around 200 million crowns.

The central bank may also be given more flexibility to buy state-issued bonds from banks on the secondary market, according to legislation in parliament. It can currently only buy instruments with maturities up to 1 year.

“From our perspective, it is very good the market will understand the Czech National Bank has this tool available,” Juchelka said.

$1 = 25.5080 Czech crowns $1 = 25.5220 Czech crowns Reporting by Jason Hovet; Editing by Kirsten Donovan

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