UPDATE 3-Komercni 9-month profit lags forecast, shares drop

(updates with CFO comment from news conference, analyst)

By Marek Petrus

PRAGUE, Nov 9 (Reuters) - Komercni Banka <BKOMsp.PR>, the third largest Czech bank by assets, posted a lower-than-expected 5-percent rise in nine-month net profits on Thursday, prompting investors to wipe out the share price's gains so far this month.

The Czech unit of France's Societe Generale <SOGN.PA> made a net profit of 6.62 billion crowns ($302.1 million) in January through September, up from 6.31 billion a year ago but below the average forecast of 6.97 billion in a Reuters poll.

Income from fees, compressed by fierce competition, lagged market estimates. Expansion of mass-market retail lending, less secured than corporate credit, led the bank to more than double loan-loss provisions, which hurt profits.

"Investors have become used to Komercni meeting or even beating market expectations, so the lower than forecast figure came as a negative surprise," said Jindrich Svatek, equity analyst at Raiffeisenbank.

Shares in the only listed Czech lender reversed a small early gain and fell 2.9 percent to 3,402 crowns by 1443 GMT, underperforming a 0.6 percent rise in the Prague market's blue-chip PX index <.PX>.

The bank's loan portfolio continued to expand strongly. Mortgages surged 34 percent year-on-year and consumer loans rose 21 percent. Lending to small and medium-sized businesses grew 14 percent, while financing of big corporations was up 12 percent.

Komercni has benefited from economic growth of about 6 percent and rising incomes, employment and social transfers in the Czech Republic, which have fuelled a rise in consumer spending and a boom in buying on credit.

Low costs of borrowing, with central bank policy rates holding a record 75 basis points below eurozone benchmarks, have also spurred demand for mortgage loans and consumer credit.

CAUTIOUS OPTIMISM

Robust lending growth drove net interest income up 10.1 percent to 11.08 billion crowns in the first nine months, maintaining the momentum seen earlier this year and nearly matching the analyst forecast of 11.09 billion.

"Net interest income continues to be the main growth driver of the bank," said Komercni Chief Financial Officer Pavel Cejka.

But net fees and commissions showed an unexpected 0.5 percent fall to 6.43 billion crowns, against the 6.53 billion forecast, reflecting competitive pressures on transaction, deposits' maintenance, foreign exchange and other fees.

Cejka said the bank would not manage to make up for the fall in fees in the traditionally strong fourth quarter, but he was cautiously optimistic on the outlook for next year.

"Assuming there is no dramatic drop in transaction prices, we are expecting fees to rise in line or slightly below the inflation rate," Cejka told a news conference. Economists expect about 3.5 percent inflation in 2007.

Komercni trades at slightly more than 14 times forecast 2006 earnings, according to Reuters Estimates, giving a discount to the average of some 18 times on banks focused on central Europe, as shown by data collected by Raiffeisenbank.

((Reporting by Marek Petrus

Editing by Louise Ireland

Reuters messaging

rm://marek.petrus.reuters.com@reuters.net

Email prague.newsroom@reuters.com

marek.petrus@reuters.com

Telephone +420 224 190 477))

Keywords: FINANCIAL CZECH KOMERCNI