KB prezent. angl - Komerční banka

Provisions and reserves
With regard to the creation of provisions and reserves, the Bank has ensured the fulfilment of all the requirements laid down
under CNB Provision No. 9/2002.
The level of provisions has been influenced inter alia by a more stringent approach in cases where pledged property has not
been insured, the individual level of provisions approved by the Provisions Committees, the release of provisions due to the
sale of receivables to GE Capital Corporation, and the development of the portfolio covered by the State Guarantee.
In terms of reserves, the Bank acted in accordance with legal requirements by continuing its release of tax deductible
reserves created before the end of 2001; by law, the Bank must reduce this reserve by a minimum of 25% each year until
2005. The Bank has created new reserves only for un-drawn loans and selected off-balance sheet items that fulfil legal
requirements.
Risk receivable management and the State Guarantee for the coverage of losses from the Bank’s risk assets
In 2003, the Bank continued its successful recovery of non-performing assets. The total volume of resolved receivables
amounted to CZK 22.2 billion, of which CZK 15.5 billion was linked to the sale of risk receivables to GE Capital Corporation, an
operation launched in 2002.
Under the Guarantee Agreement between Komerční banka and Konsolidační banka, concluded at the end of 2000, further to
a decision of the government of the Czech Republic of 18 December 2000, the force of the State Guarantee expired on
31 December 2003. The Guarantee covered net exposures (i.e. the nominal value less the specific provisions created) of
non-performing assets classified as substandard, doubtful and loss as at 31 December 2000, reduced by the cash recovered
up to 31 December 2003. The guarantee covers losses only up to an accumulated amount of CZK 20 billion.
The original nominal volume of guaranteed assets, totalling CZK 61 billion, had decreased by 31 December 2003 to a balance
of CZK 1.3 billion as a consequence of paid instalments, sales, write-offs and the exclusion of part of the assets from the
State guarantee regime. This balance includes CZK 535 million in accounts receivable from bankrupt clients, for which
the Czech Consolidation Agency (CKA) used its purchase option at the end of 2003. These receivables will be transferred in
the first half of 2004.
Based on the contractual terms and conditions, the guarantee will be settled by the end of June 2004. Komerční banka is
managing the portfolio intended for transfer to CKA in accordance with the agreed regime. Under the contract, the Czech
Consolidation Agency made a prepayment of CZK 5.862 billion to KB at the beginning of December 2003 as part of the
settlement agreed under the State Guarantee.
In accordance with the original plan to close down the Remedial Management unit after a set time, this department’s headcount
was reduced by 54% during 2003. As the volume of the portfolio of risk receivables continues to shrink, the number of
employees at this unit will decrease until the unit is dissolved when the transaction with CKA has been completed.
In April 2003 the Distressed Loans department was established within the Risk Management unit with the goal of helping
points of sale to find timely solutions to the loan exposure for clients where the Bank has identified warning signals indicating
an increased risk. This new approach allows for the timely implementation of measures that will help alleviate the Bank’s risk
while preserving the existing business co-operation.
Foreign exposure
Komerční banka’s operations are conducted mostly with domestic clients, although the Bank also reports substantial
exposures from its business with foreign entities. They include loans to clients and financial institutions, and interest-bearing
investments together with other on-balance sheet and off-balance sheet items; most exposure, however, is represented by
transactions with international financial institutions on the inter-bank market. Foreign exposures are managed through
a system of limits applied to different counterparties and countries. The Bank manages the economical and political risk
through the regular monitoring of these limits.