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Komercni Banka as (BKOMsp.PR)
Downgrading to Hold Prior to 1Q09 Results

 1Q09 Results Preview — Komercni Banka reports 1Q09 earnings this Thursday
7 May at 7:30 UK time, 8:30 CET. We are expecting the bank to report a
sizable decline in net profit to CZK 2,141m (-35% qoq, -29% yoy) driven by a
material increase in loan loss provisioning.

 Operating Performance — We expect reasonable dynamics of operating profit in
1Q09 (+1% qoq, +17% yoy), driven by stable margins (although we expect
increased deposit competition and falling rates to put pressure on margins later
this year), flat fee income developments, continued strong customer-driven
trading income, given volatile currency and securities markets, and continued
tight cost control.

 Provisions to Weigh on Earnings — We anticipate a sharp rise in risk cost to an
annualised rate of 2.50% in 1Q09, up from 1.48% in 4Q08. The sharp increase
in provisioning is expected to be partially driven by the default of one large
client in the energy sector, which we anticipate will account for c 30% of the
provision charge in the quarter.

 Outlook Challenging — We expect the results to refocus investor attention on
slowing volumes, deteriorating asset quality, and the prospect of margin
pressure from falling rates and increased competition for deposits.

 Increase Target Price, Lowering Rating to Hold — We increase our target price
to CZK 2,845m from CZK 2,226 previously as a result of rolling forward the
basis for our valuation to our 2011 earnings forecasts (to harmonize our
valuation approach with the rest of our stock coverage). However, following the
recent strong appreciation of the share price, we believe the stock is
approaching fair value and we downgrade our rating to Hold/Low Risk (2L) from
Buy/Low Risk (1L).