Komercní banka : 2023 Half-yearly Report

Half-yearly report 2023

Komerční banka, a.s.

Contents

Company profile	3
Highlights from 2023's first half	4
Macroeconomic development	5
Sustainable banking	7
Business performance	9
Financial performance	11
Definitions of the performance indicators mentioned herein	14
Expected development and main risks to that development in 2023	16
Events in corporate governance	18
Changes in Group structure	18
Related parties	19
Report of financial results as of 30 June 2023	22
- Consolidated Income Statement and Statement of Comprehensive Income	23
- Consolidated Statement of Financial Position	24
- Consolidated Statement of Changes in Shareholders' Equity	25
- Consolidated Cash Flow Statement	27
- Notes to the Consolidated Financial Statements	29
Ratings	39
Shareholder structure	39
Management affidavit	40

Further information

Detailed financial and operational information about Komerční banka Group is available in other publications on KB's website for shareholders and investors, www.kb.cz/investors. Additional information on corporate social responsibility and ethics at KB as well as KB's corporate governance is available at www.kb.cz/ en/about-bank. Information about KB's products and services is accessible from the homepage, www.kb.cz/en.

This document contains a number of forward-looking statements relating to the targets and strategies of Komerční banka Group. These statements are based on numerous assumptions, both general and specific. As a result, there is a risk that these

projections will not be fulfilled. Forward-looking statements are valid only as of the date they are made, and it should not be assumed that they will be revised or updated in the light of new information or future events. Readers are therefore advised not to rely on this information more than is justified, as the Group's future results are liable to be affected by a number of factors and may therefore differ from current estimates.

Readers are advised to take into account factors of uncertainty and risk when basing their investment decisions on information provided in this document.

Contacts
Komerční banka, a.s.	Contact for shareholders and investors:
Na Příkopě 33, 114 07 Prague 1	Investor Relations
Telephone: [phone]	Telephone: [phone]
Email: [e-mail]	Internet: www.kb.cz/investors
Internet: www.kb.cz	E-mail: [e-mail]

2	Komerční banka, a.s.  |Half-Yearly Report 2023

Company profile

Komerční banka, a.s. (hereinafter also "KB" or the "Bank") is the parent company of KB Group (hereinafter also the "Group") and a member of the Société Générale international financial group. KB ranks among the leading banking institutions in the Czech Republic, as well as in Central and Eastern Europe. It is a universal bank providing a wide range of services in retail, corporate, and investment banking. Member companies of Komerční banka Group provide additional specialised financial services, such as pension savings and building society schemes, leasing, factoring, consumer lending, insurance and fintech services. These are accessible through KB's branch network, its direct banking channels, the subsidiaries' own sales networks or networks of the business partners. The Bank also provides services in the Slovak Republic through its branch focused on serving corporate clients as well as through selected subsidiaries.

	Loans to clients - gross loans*	Amounts due to customers**
CZK billion	30 June 2023	30 June 2022	30 June 2023	30 June 2022
KB Group	794.6	769.4	994.7	1,024.3
KB (including KB Slovakia)	679.5	660.2	941.5	968.4
- Individuals	300.8	293.7	323.7	347.0
- Businesses and other	378.7	366.5	617.7	621.4
- Small businesses	40.4	41.0	244.4	240.5
- Medium corporates and municipalities	130.2	122.2	248.1	229.8
- Top corporates and other (including KB Slovakia)	208.1	203.2	125.2	151.1
Modrá pyramida	88.5	81.5	53.9	58.0
ESSOX (including PSA FINANCE)	20.3	18.5	0.1	0.2
Factoring KB	9.4	10.3	1.0	1.1
SGEF	32.5	31.7	n.a.	n.a.
BASTION	1.8	2.0	n.a.	n.a.
Consolidation and other adjustments	(37.4)	(34.8)	(1.9)	(3.4)

• IFRS numbers entering into consolidation, excluding Other amounts due from customers, but including debt securities issued by KB corporate clients.
• IFRS numbers entering into consolidation, excluding repo operations with clients.

Komerční banka was established in 1990 as a state institution, and in 1992 it was transformed into a joint-stock company.

In 2018, the Bank launched a transformation programme, KB Change, which comprised, among other things, simplification of the management and distribution structures and switching of important central functions to agile working methodology. Komerční banka followed upon full implementation of the transformation steps from that plan by announcing in 2020 a further KB2025 strategic programme, which will assure KB's leading position in the new era of digital banking.

Komerční banka is a vibrant promoter of green financing and at the same time is focusing ever more comprehensively on the environmental, social, and governance (ESG) aspects of its own operations. As a result, Komerční banka is a constituent company in the FTSE4Good Index Series of companies demonstrating strong ESG practices.

KB's shares have been listed on the Prague Stock Exchange since its inception in 1993, as well as within the RM-SYSTÉM Czech Stock Exchange. As of 30 June 2023, Komerční banka had 72,303 shareholders (up by 7,919 year on year), of which 66,179 (greater by 7,830 from the year earlier) were private individuals from the Czech Republic. Strategic shareholder Société Générale maintained its 60.4% stake while minority shareholders owned 39.0% and KB held 0.6% of the registered capital in treasury.

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Highlights from 2023's first half

January

Since 2021, Komerční banka has been the main partner of the ice hockey extra league and at the same time main partner of the national hockey team. Support of Czech Para Hockey was added to this partnership when KB became the Official Partner of Czech Para Hockey.

February

Komerční banka received three MasterCard Awards for projects in the fields of payments, digitalisation, and innovation. In the Technology Innovation category, KB was recognised for building a new generation of banking and card systems. A Unique Issuing Project Award was won for an innovative approach to e-sports and support of the gaming community. Monika Truchlíková, tribe leader from Payment Methods, received a personal award in the Issuing Payments Leader of the Year category.

March

Jitka Haubová, member of the Board of Directors of Komerční banka responsible for operations, took second place in the Manager category in the Top Women of the Czech Republic survey.

May

KB was awarded the title #1 Sustainable Bank in the 2022 VISA Awards, especially recognising its project of supporting sustainable e-shops and for photovoltaic installations on the roof of its headquarters in Prague-Stodůlky.

At the awards ceremony of the French-Czech Chamber of Commerce, KB took home an award in the Corporate Social Responsibility category. The jury praised activities in the field of sustainability, especially the innovative ATM sharing project.

April

The General Meeting held on 20 April 2023 approved the reported financial statements for 2022 and the proposal for distribution of profit, including dividend payment in the amount of CZK 11.5 billion. It also approved the consolidated financial statements for 2022 and the Remuneration Report for 2022. The General Meeting elected Ms Marie Doucet and Ms Petra Wendelová as members of the Supervisory Board. Ms Wendelová was elected, too, as a member of the Audit Committee. The General Meeting also decided to appoint Deloitte Audit s.r.o. to perform the statutory audit for 2023.

The building of the new digital bank had reached such an advanced level as to allow introducing the "New Era of Banking Written by KB" onto the Czech market, onboarding of new clients to the new platform, and the start of a gradual migration of clients from the old system. The migration that has commenced in the Individuals segment will be followed in subsequent years by small businesses and completed with corporate clients. This schedule is in accordance, too, with the development of new products and services for the "New Era of Banking Written by KB". Completion of the migration will enable eventual decommissioning of components making up KB's existing infrastructure.

Komerční banka signed a referral agreement with BNP Paribas Personal Finance SA (BNPP PF) on re-contracting of selected deposit customers of the Czech BNPP PF franchise operating under the Hello bank! brand. The referral agreement does not concern credit products offered by Hello bank!

June

As in previous years, KB was again recognised by the Ministry of Finance among the Top 20 income taxpayers in the Czech Republic for 2022.

Jan Juchelka, Chairman of the Board of Directors and Chief Executive Officer of Komerční banka, was elected by the member banks as President of the Czech Banking Association. The CBA represents the banking industry vis-à-vis the public, governmental offices, and international bodies. Furthermore, it supports financial education, crime prevention, sustainability, and digitalisation of financial and public services. During his three- year mandate, Mr. Juchelka aims to promote further dialogue between the state, regulatory authorities, and private sector while focusing especially on digitalisation, innovations, sustainability, and investments directed to supporting the Czech Republic's long-term prosperity.

Komerční banka has founded a new fully owned subsidiary, KB Poradenství, s.r.o. KB Poradenství was established in relation to the intended development of KB Group's distribution model. The company's registered scope of business includes intermediation of consumer loans, intermediation of insurance and reinsurance, intermediation of supplementary pension savings, and investment brokerage. In order to be authorised to conduct these business activities, the company needs to obtain additional licenses.

KB Smart Solutions, a full owned subsidiary of Komerční banka, increased to 28.256% from 24.989% its stake in MonkeyData s.r.o. MonkeyData fully owns a subsidiary, Lemonero, s.r.o., which provides financing to e-shops utilising an AI-powered scoring model.

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Macroeconomic development

The domestic economy had stagnated quarter on quarter in the first three months of 2023 and then did not decline further, as it had during the technical recession in the second half of 2022.

That said, there was no recovery either. Household consumption was a negative surprise, recording its sixth consecutive quarterly decrease in 2023's first quarter and coming in 9.6% lower in real terms than in the pre-pandemic fourth quarter of 2019. Its level was roughly in line with that from the second half of 2016. The steep drop in household spending was mostly due to the fall in real wages, which had been similarly pronounced. Fixed investment was lower quarter on quarter, too. In this case, it was the third quarter-on-quarter decline in a row, the pace of which accelerated significantly (to -1.1% in first quarter 2023). Overall, this year's first quarter was marked by weak domestic demand. This was offset, however, by significantly higher net exports compared with the previous quarter, mainly due to the completion and subsequent export of production in progress. In fact, components that earlier had been unobtainable were again available thanks to the renewed functioning of global supply chains. That had a positive effect on the automotive industry. This scenario is illustrated, too, by the fact that the positive contribution of net exports to GDP growth was largely offset by a negative contribution from change in inventories.1)

The economy grew by 0.1% quarter on quarter in the second quarter. In annual terms, it continued to decline, by 0.6% year on year, after falling by 0.5% year to year in the first quarter. This was mainly due to two consecutive quarter-on-quarter contractions in GDP in the second half of last year, which had plunged the economy into a technical recession. Although the detailed structure of GDP is not known at the time of publishing this report, KB estimates that household consumption continued to be the main contributor to the economic downturn. The evolution of retail sales and services so far points to a further quarter-on- quarter drop, the main reason being lower household spending due to the continuing fall in real wages. Fixed investment was also likely to have been down again in relation to uncertain demand developments. Higher net exports saved the economy from a quarter-on-quarter decline, according to KB's estimate. KB expects the economy to grow by just 0.1% for the whole of 2023, with this accelerating to 1.8% next year. This year's weak result should be driven mainly by stagnation of the economy in the first half of the year even as GDP resumes growth in quarter- on-quarter terms in the second half of 2023. This should be due mainly to a recovery in household consumption.2)

The second quarter of this year brought retreat in inflationary pressures. Annual headline inflation slowed from an average of 16.5% in the first quarter of 2023 to 11.1% in the second quarter.

1. https://www.czso.cz/csu/czso/ari/gdp-resources-and-uses-1st-quarter-of-2023
2. https://www.czso.cz/csu/czso/ari/gdp-preliminary-estimate-2nd-quarter-of-2023

The most surprising development was in the core component, which is traditionally the most persistent. Annual core inflation fell from an average of 11.9% in 2023's first quarter to 8.7% in the second quarter. Annual inflation was also pushed downwards in all of its components by the base effect of last year. In June, year-on-year inflation slipped into single-digit territory for the first time since January 2022 (9.7% year on year) and was the lowest since December 2021. After reaching 11% in 2023, KB looks for inflation to come down significantly in 2024, to 1.3%. By contrast, the core component is expected to remain relatively high. KB expects it to fall from 7.6% in 2023 to 3.9% in 2024, due to a recovery in demand together with dissipation of accumulated savings in an environment of persistent labour market tightness and higher wage growth. The resulting partial recovery in core price pressures means core inflation might well return to the 2% target only in 2025.3)

The labour market continued to see significant workforce shortages in the first half of this year, with unemployment remaining minimal. The headline unemployment rate (ILO methodology) held steady at 2.7% (seasonally adjusted) in the second quarter, where it had been during the first quarter. The share of unemployed persons (MLSA methodology) remained at 3.6% (seasonally adjusted). The seasonally adjusted ratio of the number of registered unemployed to the number of job vacancies offered through employment offices declined slightly from 0.95 in first quarter 2023 to 0.92 in the second quarter. KB believes that unemployment will remain very low over the forecast horizon. The general unemployment rate should stay below 3% and the share of unemployed persons under 4%.4)

Despite the tight labour market, real wages continued to fall in year-on-year terms. Dropping 6.6% in the first quarter of 2023, this decline has continued for six quarters in a row. Compared to the pre-pandemic fourth quarter 2019, average real wages fell by 8.9% to the level of the second half of 2017. This decrease in household purchasing power was held back only by a rise in old- age pensions and social benefits, which were inflation-linked.5)

The Czech National Bank kept interest rates unchanged throughout the first half of this year. It left the base repo rate at 7%, where it has been since June 2022. KB expects rates to remain there until the end of this year, with a rapid reduction commencing next year. The 2W repo rate should reach 5% in the middle of next year and fall to 4% at the end of 2024. The CNB also had been supporting the domestic currency verbally throughout the first half of this year, and it has not intervened since October 2022. CNB officially announced the end of the

1. https://www.czso.cz/csu/czso/ari/consumer-price-indices-inflation-june-2023
2. https://www.mpsv.cz/web/en/information-on-unemployment
3. https://www.czso.cz/csu/czso/ari/average-wages-1-quarter-of-2023

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