Johan Thijs, Group CEO: "2014 continued in a relatively benign global economic environment, with improving consumer and producer confidence and falling unemployment rates. On the other hand, low interest rates and low inflation also reign in Europe. Against this background, KBC posted a net result of 317 million euros for the second quarter, or 287 million euros on an adjusted-profit basis. When compared with the previous quarter, the group managed to post excellent commercial results: net interest income increased, with loan volumes up 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, the Czech Republic and Hungary. The combined ratio for our non-life insurance activities remained strong, despite the higher level of claims, especially related to the hailstorm in Belgium. Sales of life insurance products were also slightly up. The cost/income ratio adjusted for specific items remained robust. Loan loss impairment charges remained relatively low overall, but went up somewhat in Ireland. Our total income remained impacted by negative marked-to-market changes in the value of derivatives used for asset/liability management purposes. More importantly, the negative impact of the provision of 231 million euros, which was booked to cover the consequences of the new Hungarian act on retail loans, has weighed on the result for this quarter. The legal basis of this act will be challenged, with support coming from the opinion of the European Central Bank of 28 July 2014 on this matter and its call for consultation.
In the second quarter of 2014, the Belgium Business Unit generated a net result of 383 million euros, in line with the average figure of 384 million euros for the four preceding quarters. Compared with the previous quarter, the second quarter of 2014 was characterised by flat net interest income, strong net fee and commission income, seasonally higher dividend income, the negative impact of the valuation of ALM derivatives, lower gains on the sale of financial assets, as well as a deterioration in the combined ratio for non-life insurance due to the hailstorm, increased sales of unit-linked life insurance products and higher other net income. Costs were up slightly and impairment charges remained at a low level. The banking activities accounted for 78% of the net result in the quarter under review, and the insurance activities for 22%.
In the quarter under review, the Czech Republic Business Unit posted a net result of 140 million euros, fully in line with the average for the four preceding quarters. Compared with the previous quarter, the results for the second quarter featured slightly higher net interest income, increased net fee and commission income, the absence of realised gains on the sale of financial assets, higher net results from financial instruments, increased other income, a further improvement in the non-life combined ratio and higher sales of unit-linked life insurance products. Costs went up slightly and loan loss impairment remained very low. Banking activities accounted for 95% of the net result in the quarter under review, and the insurance activities for 5%.
In the quarter under review, the International Markets Business Unit recorded a net result of -176 million euros, a small improvement on the average of -198 million euros for the four preceding quarters. The second quarter of 2014 was characterised by higher net interest income, a decline in the result from financial instruments, higher realised gains on bonds, increased net fee and commission income, a deterioration in the non-life combined ratio and increased life insurance sales, as well as the significantly negative impact of the new Hungarian act on retail loans. Cost were lower, as the previous quarter had included the entire bank tax in Hungary being booked for the full year, and loan loss provisions went up, mainly due to Ireland. The guidance for full-year loan loss provisioning in Ireland is at the high end of the 150 to 200 million euro range. Overall, the banking activities accounted for a negative net result of -182 million euros (the positive results in Slovakia and Bulgaria were wiped out by the negative result in Ireland (due to loan loss provisioning) and Hungary (owing to the impact of the new consumer loans act), while the insurance activities accounted for a positive net result of 6 million 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 common equity ratio of 12.9% (Basel III fully loaded under the Danish compromise). In the first half of the year, 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 half-year results and a pro rata provision for the proposed dividend, the coupon on the additional tier-1 instruments and the coupon on the remaining state aid to be paid over 2014. The common equity ratio therefore continues to be well above our target of 10.5%.
KBC wants to build on its strengths and be among the best-performing, retail-focused financial institutions in Europe. This aim will be achieved by strengthening in a highly cost-efficient way its bank-insurance business model for retail, SME and mid-cap clients in its core markets, by focusing on sustainable and profitable growth within the framework of solid risk, capital and liquidity management, and by creating superior client satisfaction via a seamless, multi-channel, client-centric distribution approach. By achieving this, KBC will become the reference in bank-insurance in its core markets."
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