KBC Group: First-quarter result of -5 million euros
Outside trading hours - Regulated information*
Thursday, May 14, 2020
- Sharply lower stock markets, widening credit spreads and lower long-term interest rates as aconsequence of the coronavirus pandemic had a considerable negative impact on our netresult from financial instruments at fair value through P&L (trading and fair value income),which fell from 130 million euros and 99 million euros in the previous and year-earlier quarters,respectively, to -385 million in the quarter under review.
- The impact of the coronavirus crisis on the other profit and loss lines (see below) was lesspronounced in the quarter under review.
- Net interest income increased by 1% quarter-on-quarter and by 6% year-on-year. The yearon-year increase was – in addition to a number of one-off items – due to factors such as loanvolume growth, the positive impact of ECB tiering, the full consolidation of ČMSS since June2019, and earlier rate hikes in the Czech Republic. On the other hand, it continued to sufferfrom low reinvestment yields in our euro-area core countries and from ongoing pressure onloan portfolio margins (despite a recovery of the margin on new mortgage and SME loanproduction in Belgium). Loan volumes were up 3% quarter-on-quarter and 6% year-on-year,with growth recorded in all business units. Deposits including debt certificates grew by 4%quarter-on-quarter and 5% year-on-year. The growth figures were calculated on acomparable scope basis.
- Technical income from our non-life insurance activities (premiums less charges, plus theceded reinsurance result) was up 12% on its level in the year-earlier quarter, due mainly toan increase in earned premium income (+7%). The combined ratio for the first quarter of 2020amounted to an excellent 90%. Sales of our life insurance products were down 9% and 17%on their respective levels in the previous and year-earlier quarters.
- Net fee and commission income was 4% lower than the figure recorded in the previousquarter (related in part to the decrease in average assets under management and to lowerfees relating to banking services). Net fee and commission income was up 5% on the year-earlier quarter (due to increased asset-management-related fees and higher bankingservices-related fees, including the ČMSS impact).
- Costs excluding bank taxes – the bulk of which is paid in the firstquarter – were down 6% on the figure recorded in the previous quarter and up 2% year-onyear,with the year-on-year increase largely accounted for by the ČMSS impact. When certainnon-operating items are excluded and the bank taxes spread evenly throughout the year, thecost/income ratio amounted to 69%, up on the 58% recorded for full-year 2019, as it wasimpacted by the drop in total income (in ‘trading and fair value income’) in the quarter underreview.
- The quarter under review included a 121-million-euro loan loss impairment charge, comparedto the 75-million-euro charge in the previous quarter and 67 million euros in the year-earlierquarter. The figure for the quarter under review included 43 million euros specifically relatedto the coronavirus crisis, based on our exposure to sectors we believe will be affected mostby the crisis. This caused the credit cost ratio to increase to 0.27% in the first quarter of 2020,compared to 0.12% for full-year 2019. Impaired loans accounted for 3.3% of the loan portfolioat the end of the quarter, compared to 3.5% three months earlier.
- Our liquidity position remained strong with an LCR of 135% and NSFR of 134%, as did ourcapital base, with a fully loaded common equity ratio of 16.3%.
Johan Thijs, Chief Executive Officer
‘In the quarter under review, we were confronted with the outbreak and spread of the coronavirus, the long-term impact of which on the economy remains quite uncertain at this moment in time. As an employer and service provider, we reacted quickly to try to safeguard the health of our staff and clients, while ensuring that services continue to be provided. As many staff as possible are working from home and we are providing our clients with advice through a wide range of phone and digital channels. We have been working hard with government agencies of our core countries to support all customers impacted by coronavirus by processing loan deferral requests promptly, and efficiently instituting other relief measures. We are clearly benefiting from the efforts and investments we have made over the past few years on the digital transformation front. These efforts and investments, along with the expertise and motivation of our employees in all our home countries and the strength of our multichannel distribution network, allow us to provide our customers with a level of service that is very close to pre-coronavirus crisis levels.
As regards our financial results, we incurred a net loss of 5 million euros in the first quarter of 2020, caused mainly by the impact of the worldwide coronavirus outbreak on our trading and fair value result and the upfront booking of bank taxes.In the quarter under review, our trading and fair value result came to a negative 0.4 billion euros, as a result of a number of marketdriven factors, such as sharply lower stock markets, widening credit spreads and lower long-term interest rates.
The impact of the coronavirus crisis on the other profit and loss lines in the quarter under review was less pronounced. Compared to the year-earlier quarter, our core income lines, i.e. net interest income, net fee & commission income and the technical insurance result,
performed quite well. Costs were kept well under control, too. They decreased slightly year-on-year after excluding the impact of the consolidation of ČMSS, bank taxes (the bulk of the full-year amount of these taxes is usually recorded in the first quarter) and some one-off items. Loan loss provisions increased in the quarter under review and included an additional 43 million euros specifically related to the coronavirus crisis, based on our exposure to sectors we believe will be affected most by the crisis. For full-year 2020, we estimate impairments to amount to roughly 1.1 billion euros (base scenario).
Generally speaking, volumes held up well year-on-year: on a comparable scope basis, loans and advances increased by 6%, deposits by 5% and earned non-life insurance premiums by 7%. On the other hand, sales of life insurance products fell by 17% year-on-year.
Our solvency position remained very strong, with a common equity ratio of 16.3% on a fully loaded basis, well above the current minimum capital requirement of 8.05%. This minimum requirement takes into account the various announced ECB and National Banks’ measures which have provided significant temporary relief on the minimum capital requirements. Our liquidity position remained solid too, with an LCR of 135% and an NSFR of 134% at the end of March 2020. We are especially pleased that the hard work in recent years has paid off in making our group strong and healthy. As a result, our current capital and liquidity buffers allow us to face today's challenges with confidence.
Ultimately, our goal remains the same: to ensure that our customers are at the centre of everything we do, something which our employees are committed to in their day-to-day work. I wish to express my utmost appreciation to all colleagues who have expended huge efforts to serve our customers and support the sound functioning of the group from home offices and other remote locations. In closing, I would also like to take this opportunity to explicitly thank all those stakeholders who have – in these challenging times - continued to put their trust in us.’
* This news item contains information that is subject to the transparency regulations for listed companies.