13 September 2000
REVISION OF ANTICIPATED LEVELS OF RESERVES AND PROVISIONS FOR THE YEAR
ENDING 31 DECEMBER 2000
In response to the recommendations of its auditors, Deloitte & Touche, arising
from the 1999 audit, the Board of Komercni banka instigated in June of this
year a thorough internal management review of its loan portfolio. As a result of
this internal review and in conjunction with further analysis on the loan
portfolio carried out by Deloitte & Touche, the Board has today revised its
current estimate for the creation of specific provisions and reserves for the
year ending 31 December 2000.
The anticipated level of new specific provisions against the loan portfolio
(which will be charged against income for the year) has been increased by 2
billion CZK to 9.6 billion CZK from the previously reported figure of 7.6
billion CZK. The previously anticipated level for specific provisions was based
on an underlying analysis of the loan portfolio carried out in the early part
of this year and prior to the appointment of the current Board. The Board now
takes the view that it is prudent to adopt a more realistic provisioning policy
in the light of the prevailing economic conditions affecting many of the
companies in its loan portfolio and such policy will involve the re
classification of up to 27 billion CZK of loans by the end of this year.
In addition to the creation of specific provisions, the Board anticipates a need
for general reserves in the range of 3%-4% of the customer loan portfolio
(standard classification) in order to absorb potential further adverse
developments related to exposures to large industrial clients of the Bank. The
level of such general reserves for the year is now anticipated to be in the
region of 4.5 - 6 billion CZK.
These anticipated levels for specific provisions and general reserves are
provisional estimates and will be revised further in the course of the year in
the light of developments to the underlying assets. The Board feels that it is
premature at this stage to comment on the overall effect that such provisions
may have on the final year end results.
As a result of its internal and external reviews and in conjunction with these
revised estimates for provisioning levels, the Board has implemented
fundamental changes in the classification methodology and related credit risk
procedures within the Bank. These changes are already under way and will have
been fully implemented before the end of this year.
The above mentioned initiatives reflect the Bank's commitment to strengthening
overall credit risk management and are core components of the restructuring
effort currently under way.