Johan Thijs, Group CEO: ‘Although the global economy dipped in the first quarter of 2015, the economies in our Central European markets and Ireland were relatively strong. The persistence of low interest rates remained a challenge for the whole financial sector. Against this backdrop, KBC posted an exceptionally good net result of 510 million euros for the first quarter of 2015. We earned substantially higher fees and commissions, particularly in our asset management activities, and assets under management have now surpassed 200 billion euros. Besides an increase in sales of non-life insurance products, the combined ratio was excellent. Sales of unit-linked life insurance products were flat compared with their level in the fourth quarter and sales of guaranteed-interest life insurance products fell. As expected, net interest income decreased, with the net interest margin narrowing, but loan volumes and client deposits grew further in the majority of our core markets. Operating expenses were heavily distorted by the application of IFRIC21 as a result of which a significant proportion of the special bank taxes for the full year had to be taken in the first quarter of 2015 (264 million euros). The cost/income ratio adjusted for specific items continued to be very strong. Impairment charges were very low, probably in an unsustainable way.
In the first quarter, the Belgium Business Unit generated a net result of 330 million euros, up on the 304 million euros recorded in the first quarter of 2014, but since – in application of IFRIC 21 – the bulk of special bank taxes for the full year 2015 was recognised in the first quarter of the year, obviously below the previous quarter’s result. Compared with that previous quarter, the quarter under review was characterised by increased net fee and commission income and lower net interest income, a very good combined ratio for non-life insurance thanks to a low claims level, a decrease in sales of life insurance products, lower trading and fair value income, high realised gains on the sale of bonds and shares, and lower other net income. Costs were impacted by the posting of a significant proportion of the special bank taxes for the full year. Excluding those taxes, costs went down, as did impairment charges. The banking activities accounted for two-thirds of the net result in the quarter under review, and the insurance activities for one-third. Lastly, the first quarter was also impacted by one-off negative tax adjustments.
In the quarter under review, the Czech Republic Business Unit posted a net result of 143 million euros, higher than the 132-million-euro average for the four preceding quarters. Compared with the previous quarter, the results for the first quarter of 2015 featured (on a comparable basis) more or less stable net interest income despite the low interest rate environment, an increase in the net interest margin, slightly lower net fee and commission income, higher net results from financial instruments and from the sale of bonds and shares, a good non-life combined ratio, and a drop in sales of life insurance products. Costs were impacted by the recognition in the quarter under review of a significant proportion of the special bank taxes for the full year; excluding those taxes, costs went down. Loan loss impairment charges were extremely low. Banking activities accounted for 97% of the net result in the quarter under review, and insurance activities for 3%.
In the quarter under review, the International Markets Business Unit recorded a positive net result of
24 million euros, a vast improvement on the -46-million-euro average for the four preceding quarters (which had been affected by provisions related to the new retail loans act in Hungary (Curia provision) and by loan loss impairments in Ireland). Compared with the previous quarter, the first quarter of 2015 was characterised by slightly higher net interest income, lower net fee and commission income, a strong result from financial instruments at fair value, and an increase in other income due to a partial release of a provision set aside at an earlier stage for the Curia law regarding retail loans. There was also an improvement in the non-life combined ratio and an increase in life insurance sales. Costs were impacted by the posting of a significant proportion of the special bank taxes for the full year in the first quarter; excluding those taxes, costs went down. Loan loss provisions were down significantly on the previous quarter. Overall, the banking activities accounted for a net result of 18 million euros (positive results in Slovakia and Bulgaria, but negative results in Hungary and Ireland), while the insurance activities accounted for a net result of 6 million euros.
The liquidity position of our group remains very strong, with both the LCR and NSFR well above 100%.
Our capital position also continues to be very robust, as illustrated by a common equity ratio of 14.9% (Basel III fully loaded under the Danish compromise) and 15.4% (under the FICOD method). This figure is well above the regulator’s double solvency target of 10.5%. We further optimised the capital structure of the group through the replacement of shareholder capital at KBC Insurance by an intra-group tier-2 loan in the amount of 500 million euros, which KBC Group NV subscribed to in the quarter under review. The leverage ratio for the Group (Basel III fully loaded) stood at 6.4%.
Our ambition is to be among the best-performing, retail-focused financial institutions in Europe and to become the reference in bank-insurance in our core markets. 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.
Our goal is to ensure that our clients, shareholders and other stakeholders benefit from our activities and all our employees are very committed to working towards this goal. We are truly grateful for the trust that continues to be placed in our company and our employees.’
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