KBC Group: Fourth-quarter result of 538 million euros
Outside trading hours - Regulated information*
Thursday, February 11, 2021
- Commercial bank-insurance franchises in our core markets performed well.
- Net interest income decreased by 5% quarter-on-quarter and by 10% year-on-year. The quarter-on-quarter decline was due mainly to the negative impact of lower reinvestment yields and a lower positive one-off item related to inflation-linked bonds (insurance). These items more than offset the positive impact of higher margins on the new production of mortgage loans, which exceeded the margins on the outstanding portfolios in Belgium, the Czech Republic and Slovakia. Year-on-year, the decrease was mainly related to the negative impact of past CNB rate cuts in the Czech Republic, the year-on-year depreciation of the Czech koruna and Hungarian forint against the euro and the negative effect of lower reinvestment yields, all of which was only partly offset by the positive impact of TLTRO III and ECB deposit tiering, more extensive charging of negative interest rates on certain current accounts held by corporate entities and SMEs and a larger loan and government bond portfolio.
- Loan volumes stabilised quarter-on-quarter and were up 3% year-on-year, with year-on-year growth recorded in all business units. The volume of granted loans with payment holidays in the various relief schemes amounted to 13.4 billion euros by the end of December 2020 (EBA definition), with schemes covering 8.7 billion euros of that figure expiring by the end of 2020.
Deposits excluding debt certificates grew by 2% quarter-on-quarter and 11% year-on-year, with year-on-year growth in all business units. The figures have been calculated on a ‘comparable scope’ basis. - Technical income from our non-life insurance activities (premiums less charges, plus the ceded reinsurance result) was down 10% on its level in the previous quarter, primarily because of higher technical charges (claims gradually returning to more normal levels and the impact of major claims and storm claims in the fourth quarter). It was down 7% year-on-year, due to higher premium income being more than offset by higher technical charges. Overall, the combined ratio for full-year 2020 amounted to an excellent 85%. Sales of our life insurance products were up 39% on the level recorded in the previous quarter and up 23% on their level in the year-earlier quarter.
- Net fee and commission income was higher (3%) than the level recorded in the previous quarter but down 10% year-on-year. Quarter-on-quarter, the positive effect of higher asset management fees and banking service fees was partly offset by the higher level of distribution fees paid. Year-on-year, asset management fees and banking service fees were both down, while distribution fees were stable.
- The trading and fair value result amounted to 80 million euros, down 6% on the level recorded in the previous quarter, and down 39% year-on-year. On the whole, the huge drop in the trading and fair value result in the first quarter of the year has been more than offset by the positive trading and fair value result recorded in the three subsequent quarters.
- All other income items combined were 6% and 27% lower than the figures recorded in the previous and year-earlier quarters, respectively, primarily because the quarter under review included a negative one-off item related to a legacy legal file in the Czech Republic and an additional effect relating to tracker mortgage review in Ireland.
- As a result of cost-saving measures, costs (excluding bank taxes), were down 6% compared to the year-earlier quarter. Compared to the previous quarter, however, costs were up 4%. The resulting cost/income ratio amounted to 59% for full-year 2020, compared to 58% for full-year 2019 (when certain non-operating items are excluded).
- Loan loss impairment charges amounted to 57 million euros in the quarter under review compared to 52 million euros in the previous quarter and 75 million euros in the year-earlier quarter. In the fourth quarter, the collective impairment charges for the coronavirus crisis were adjusted slightly (reduced by 1 million euros, following updated macroeconomic forecasts and management overlay). This brought these collective impairment charges for the full-year to 783 million euros. As a consequence, the credit cost ratio for full-year 2020 amounted to 0.60%, up from 0.12% for full-year 2019. Impairment on assets other than loans included a one-off software impairment of 59 million euros in the quarter under review.
- Our liquidity position remained strong with an LCR of 147% and NSFR of 146%. Our capital base remained equally as robust, with a fully loaded common equity ratio of 17.6% (i.e. after deduction of the proposed dividend of 0.44 euros per share).
Johan Thijs, Chief Executive Officer
In 2020, we were confronted with the outbreak and challenges of the pandemic, a situation causing human suffering all over the world and unprecedented economic upheaval. Recently, some countries have started rolling out vaccination programmes, which could bring some degree of relief going forward. We have taken responsibility in safeguarding the health of our staff and customers, while ensuring that services continue to be provided. We have worked closely with government agencies to support all customers impacted by coronavirus, by efficiently implementing various relief measures, including loan deferrals. In our six home countries combined, we had granted a total of 13.4 billion euros in loan payment deferrals by the end of December 2020 (according to the EBA definition), as well as 0.8 billion euros’ worth of loans under public guarantee schemes introduced in response to the pandemic. As a result of the lockdowns, which led to a far-reaching digital boost, our digital sales increased significantly. In that respect, the significant investments we made in digital transformation over the past few years are clearly paying off. With our renewed strategy ‘Differently, the next level’ – in which Kate, our new personal AI-enabled digital assistant, plays an important role – we are now going one step further by making our customer interactions even more proactive and future-proof, through the use of data and artificial intelligence. We plan to invest an additional 1.4 billion euros in digitalisation in the period 2021-2023.
As regards our financial results, we generated a net profit of 538 million euros in the last quarter of 2020. In the quarter under review, our net interest income decreased, whereas our trading and fair value result fared well. In the current lower-for-longer interest rate environment, this quarterly result has also been clearly benefiting from the diversification achieved through KBC’s integrated bank-insurance model. This was reflected in higher net fee and commission income and a good non-life result (good premium growth and an excellent combined ratio of 85% for the full year). Costs were tightly managed. On a full year basis, operating expenses excluding bank taxes fell by 4.2% compared to last year, due chiefly to the announced cost savings triggered by the pandemic. Adding the result for this quarter to the one for the first nine months of the year brings our net profit for fullyear 2020 to 1 440 million euros.
Our solvency position remained very strong with a common equity ratio of 17.6%. In line with the ECB recommendation of 15 December 2020 which limits dividend payments, we will propose to the General Meeting of Shareholders in May of this year a (gross) dividend of 0.44 euros per share for the accounting year 2020, payable in May 2021. Additionally, it is the intention of the Board of Directors to distribute an extra gross dividend of 2 euros per share over the accounting year 2020 in the fourth quarter of 2021. For the latter, the final decision of the Board of Directors is subject to restrictions on dividends being lifted by the ECB.
On top of that, our dividend policy as of 2021 entails a payout ratio of at least 50% of the consolidated profit of the accounting year, of which an interim dividend of 1 euro per share, payable in November. On top of the payout ratio of at least 50% of consolidated profit, all capital which exceeds the reference capital position (a pre-Basel IV fully loaded common equity ratio of 14.5%) plus the 1% management buffer will be considered for distribution to the shareholders. Each year, the Board of Directors will take this decision at its discretion when announcing the full-year results.
Lastly, we have also updated our long-term financial guidance. Between 2020 and 2023, we are aiming to achieve a compound annual growth rate of approximately 2% for total income and approximately 1% for operating expenses (excluding bank taxes). Besides that, we also want to achieve a combined ratio below or equal to 92% by 2023.
In closing, I would like to take this opportunity to explicitly thank all stakeholders who have continued to put their trust in us. I also wish to express my utmost appreciation to all our staff, who have continued to serve our customers and support the sound functioning of the group from their homes and other remote locations.
* This news item contains information that is subject to the transparency regulations for listed companies.
