KBC Group results 1Q2016

We aspire to being much more than just a bank and an insurance company. We want to enable and protect the dreams of our clients and to continue to earn their trust. We continuously strive to provide high-quality service. The strong start to 2016 is a testimony of this. We grew lending and deposit volumes and increased insurance sales, while the low cost of credit also underpinned the net result. Against a background of persisting low interest rates, modest economic growth in Belgium and firmer growth in Central Europe, KBC kicked off 2016 by posting a strong net profit figure of 392 million euros, compared to an exceptional 862 million euros in the preceding quarter and a very strong 510 million euros in the first quarter of 2015. Our result was driven by stable total income in our traditional business activities, lower operating expenses, higher bank taxes being booked upfront and the very low level of loan impairment charges.

Johan Thijs, our group CEO, adds:

‘ The persisting environment of low interest rates poses a real challenge to financial institutions, including our own. However, clients continue to entrust their deposits to us and count on us to help them realise their projects. Once again, lending and deposit volumes increased, as did insurance sales. We are genuinely grateful for this signal of trust from our clients and this proves the success of our bank-insurance model.

The quarter was characterised by stable total income in our core business, lower operating expenses – disregarding the upfront booking of bank taxes – and a very low cost of credit. We can add a good performance of the insurance business to this, particularly in sales. Our bank-insurance approach ultimately generated a strong result of 392 million euros in the first quarter of this year.

The solvency and liquidity positions of KBC Group remain very healthy, which is comforting for our clients, employees and stakeholders alike.

Our goal is to ensure that our clients, shareholders and other stakeholders benefit from our activities, something which all our employees are committed to working towards. For 2016, we are focusing entirely on the further development of our bank-insurance business and on supporting the local economies and clients in the countries in which we operate. We are continuing to invest in the future and to pro-actively roll out our financial technology plans so we can serve our clients even better going forward. The continuing low level of interest rates as well as the volatility on the financial markets present a challenge for the entire financial sector. However, our bank-insurance model, supported by a solid liquidity and capital base, allows us to generate sustainable results.’

Financial highlights for the first quarter of 2016, compared with the fourth quarter of 2015:

• Both the banking and insurance franchises in our core markets and core activities performed well.

• More loans were again granted in Belgium (+1% in just one quarter), the Czech Republic (+3%), Slovakia (+2%) and Bulgaria (+2%), while clients further increased their deposits in most of our countries: Belgium (+3%), the Czech Republic (+1%), Slovakia (+6%) and Ireland (+4%).

• Net interest income was slightly up thanks to rate cuts, volume growth and lower funding costs and despite the environment of low interest rates and a certain amount of pressure on loan margins. Our net interest margin edged up quarter-on-quarter (from 1.95% to 1.96%).

• Sales of non-life insurance products across almost all our markets were up, and the non-life combined ratio stood at 91% year-to-date, significantly impacted by the claims due to terrorist attacks in Brussels. Excluding these claims, the combined ratio stood at an excellent 82%. Aggregate sales of life products increased.

• Clients continued to entrust their assets to KBC, but the markets performed poorly, causing total assets under management of our group to fall slightly to 207 billion euros. Our net fee and commission income dropped by 7%, due mainly to lower management fees stemming from a more cautious investment allocation.

• Excluding the 335 million euros in bank taxes heavily influencing the financial result, costs were down by 7%. The cost/income ratio stood at 71% year-to-date, due to bank taxes being booked upfront. After evenly spreading the bank taxes and excluding exceptional items, the cost/income ratio came to 57%.

• The cost of credit amounted to an unsustainably low 0.01% of our loan portfolio.

• Our liquidity position remains solid, and our capital base – with a common equity ratio of 14.6% (phased-in, Danish compromise) – remains well above the regulators’ target of 10.25% for 2016.