Johan Thijs, Group CEO:
‘Against a background of modest economic growth, low interest rates and low inflation in Europe, KBC started 2014 with a net result of 397 million euros for the first quarter, or 387 million euros on an adjusted-profit basis. When compared with the previous quarter, the group managed to increase net interest income, with loan volumes stable and client deposits growing relative to a decrease in wholesale funding. We also collected higher revenues in the form of fees and commissions particularly in Belgium. Nevertheless, our total income was impacted by negative marked-to-market changes in the value of derivatives used for asset/liability management purposes. The low level of claims ensured that we had an excellent combined ratio for our non-life insurance activities. The cost/income ratio was rather high, owing to the Hungarian bank tax being booked for the full year and the marked-to-market changes just referred to. Loan loss impairment charges were significantly reduced in Ireland, and were very low in the other countries.
In the first quarter of 2014, the Belgium Business Unit generated a net result of 351 million euros, somewhat below the average figure of 393 million euros for the four preceding quarters and due entirely to the negative impact of the marked-to-market valuations in respect of ALM derivatives. Compared with the previous quarter, the first quarter of 2014 was characterised by higher net interest income, net fee and commission income and gains on the sale of shares, as well as a solid combined ratio for non-life insurance. However, sales of interest-guaranteed life products were lower. Costs were down slightly and impairment charges decreased. The banking activities accounted for 74% of the net result in the quarter under review, and the insurance activities for 26%.
In the quarter under review, the Czech Republic Business Unit posted a net result of 138 million euros, in line with the average figure of 139 million euros for the four preceding quarters. Compared with the previous quarter, the results for the first quarter of 2014 rose strongly and were characterised by a further weakening of the Czech koruna, higher net interest income and gains on the sale of bonds, lower net results from financial instruments and from fees and commissions, an increase in what is still a good non-life combined ratio and lower sales of unit-linked life insurance products. Costs improved, as did loan loss impairment charges. Banking activities accounted for 96% of the net result in the quarter under review, and the insurance activities for 4%.
In the first quarter of this year, the International Markets Business Unit recorded a net result of -26 million euros, significantly better than the average of -213 million euros for the four preceding quarters. Were the Hungarian bank tax to be spread over the year, the net result would be slightly positive. The main factor explaining the improvement on the fourth quarter of 2013 was the sharp drop in loan loss provisions at KBC Bank Ireland. The first quarter of 2014 was also characterised by higher net interest income and an improved result from financial instruments, a solid non-life combined ratio, lower net fee and commission income and flat costs, excluding the entire bank tax in Hungary being booked for the full year. Overall, the banking activities accounted for a net result of -33 million euros (the positive results in Slovakia and Bulgaria were eliminated by the negative results in Ireland and in Hungary), while the insurance activities accounted for a net result of 7 million euros.
As announced previously, we collapsed one CDO in the first quarter of 2014, which led to a further decrease in our legacy asset exposure of roughly 2 billion euros in nominal terms.
At the beginning of 2014, we repaid a second instalment (0.5 billion euros, comprising 0.33 billion euros in principal plus a penalty of 50%) to the Flemish Regional Government. This repayment was again ahead of the schedule agreed with the European Commission and was made possible on account of KBC's robust capital position. The remaining state aid now amounts to 2 billion euros.
The liquidity position of our group remains very strong, with both the LCR and NSFR being well above 100%.
Our capital position also continues to be very robust, as illustrated by a pro forma common equity ratio of 12.5% (Basel III fully loaded under the Danish compromise). In the first quarter, the repayment of 0.5 billion euros to the Flemish Regional Government at the beginning of January has been taken into account, as have the quarterly results and a pro rata provision for the proposed dividend to be paid over 2014. Also included in the pro forma calculation is the impact of the divestment of KBC Deutschland and Antwerp Diamond Bank, agreements for which have been signed but not yet approved by the regulators. The common equity ratio therefore continues to be well above our target of 10%.
In conclusion, our strong belief in our core business of bank-insurance in Belgium, the Czech Republic, Slovakia, Hungary and Bulgaria has been confirmed through these results, marking a good start to the year. We are particularly pleased with and truly grateful for the continued trust that clients and stakeholders have placed in our firm and its employees.’
Attached you can find the press release.
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