May 6, 2020 / 10:29 AM / 24 days ago

Komercni Banka cuts 2020 outlook, to spread out bad loan provisions

PRAGUE (Reuters) - Komercni Banka (BKOM.PR) on Wednesday forecast a fall in banking income of up to 10% in 2020 as the coronavirus outbreak hits the Czech economy and interest rates drop but lending should grow and bad loan provisioning will be spread out.

The bank, 60.4% owned by France’s Societe Generale (SOGN.PA), reported higher-than-expected first-quarter attributable net profit of 2.66 billion crowns ($106.33 million), down 16% year-on-year, after provisioning for bad loans came in lower than analysts had expected.

Net banking income was down 1.4% in the quarter to 7.84 billion crowns as net interest income was steady but fee income dropped.

Provisions in the first quarter reached 154 million crowns, below the average estimate of 467 million in a Reuters poll.

Komercni Banka said it would spread out bad loan provisions into 2021 and forecast growth in lending this year at a low single-digit pace. The bank expects retail loans to remain resilient and company borrowing to be shielded by state guarantees the government introduced in response to the coronavirus outbreak.

“We still believe retail lending, despite the slowdown compared to our original baseline, is going to continue. In terms of mortgages, there is a demand slowdown but (lending) continues,” Chief Financial Officer Jiri Sperl said on an earnings call.

“We believe loan growth will be supported by SMEs and financing due to the (state-backed) COVID-3 programme.”

The Czech economy is facing its biggest drop since the 2008-09 global financial crisis. Czech banks made it through that period relatively unscathed and enter this crisis with strong capital buffers.

The government has pledged more than 1 trillion crowns in help for workers and companies, mostly in loan guarantees.

The central bank cut its main policy rate by 125 basis points at two meetings in March to 1.00% CZCBIR=ECI. Markets widely expect another 50 basis point cut when the bank meets again on Thursday.

The central bank has also eased a countercyclical capital buffer requirement for banks.

Komercni Banka in March proposed retaining 2019 profit instead of paying a dividend. It said on Wednesday the board also postponed any decision on 2020 dividends until at least October.

Shares in the bank traded down 0.6% at 537 crowns by midday.

Reporting by Jason Hovet. Editing by Jane Merriman

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