KBC Group: Second-quarter result of 210 million euros
Outside trading hours - Regulated information*
Thursday, August 6, 2020 — The result of the quarter under review was significantly impacted by the recording of loan loss impairment charges related to the pandemic. That aside, costs were reduced significantly, the non-life insurance result was excellent and trading & fair value income recovered following the initial drop in the first quarter. Net interest income and fee and commission went down compared to the previous quarter.
- Net interest income decreased by 9% quarter-on-quarter and by 4% year-on-year, mainly on
account of the effect of interest rates being cut by the CNB in the Czech Republic, the depreciation of the Czech koruna and Hungarian forint against the euro, low reinvestment
yields in general, lower portfolio lending margins in most core countries (except Belgium) and
the lower netted positive impact of ALM FX swaps. Year-on-year, these negative effects were
partially offset by good loan volume growth, the beneficial effect of ECB tiering, lower funding
costs, a larger bond portfolio (also quarter-on-quarter) and the full consolidation of ČMSS
since June 2019. Loan volumes remained more or less stable quarter-on-quarter and were
up 4% year-on-year, with year-on-year growth recorded in all business units. Deposits
excluding debt certificates grew by 5% quarter-on-quarter and 11% year-on-year, again with
year-on-year growth in all business units. - Technical income from our non-life insurance activities (premiums less charges, plus the
ceded reinsurance result) was up 40% on its level in the year-earlier quarter, due mainly to
lower technical charges (largely related to the effect of the lockdown on economic activity).
Consequently, the combined ratio for the first half of 2020 amounted to an excellent 83%.
Sales of our life insurance products were up 32% and 22% on their respective levels in the
previous and year-earlier quarters, thanks to increased sales of unit-linked products. - Net fee and commission income was 10% and 11% lower than the figure recorded in the
previous and year-earlier quarters, respectively, due to a combination of lower fees from our
asset management activities (both entry and management fees) and lower fees in relation to
banking services (lower payment fees due mainly to the lockdown). - Trading and fair value result rebounded quite strongly to 253 million euros after the
significantly negative figure (-385 million euros) of the previous quarter, which had been
severely impacted by the initial effects of the outbreak of the coronavirus pandemic. The
recovery in the second quarter was due to, among other things, rising stock markets and
decreasing counterparty credit spreads and KBC funding spread. - Net other income was more or less in line with the figure recorded in the previous quarter, but
down year-on-year as the year-earlier quarter had benefited from a 82-million-euro one-off
gain on the revaluation of the 55% participation in ČMSS (related to the acquisition of the
remaining stake in that company). - Costs excluding bank taxes – the bulk of which is recorded in the first quarter – were down
6% and 8% on the figures recorded in the previous and year-earlier quarters, respectively,
thanks to the announced cost savings and the foreign exchange effect. When certain nonoperating items are excluded and the bank taxes spread evenly throughout the year, the
cost/income ratio amounted to 59% for the first half of 2020, compared to 58% for full-year
2019. - Loan loss impairment charges amounted to 845 million euros in the quarter under review,
with almost 90% of this figure relating to collective impairment charges for the coronavirus
crisis. As a consequence, the credit cost ratio for the first six months of the year amounted to
0.64%, up from 0.12% for full-year 2019. - Our liquidity position remained strong with an LCR of 136% and NSFR of 142%. Our capital
base remained robust as well, with a fully loaded common equity ratio of 16.6%.
See the full press release in attachment.
Johan Thijs, Chief Executive Officer
The quarter under review started with the society in lockdown due to the coronavirus crisis. Over and above the human suffering caused by the pandemic itself, this also triggered unprecedented economic consequences. Even though society is now gradually reopening, it is clear that the coronavirus crisis will have a significant impact, especially in particular sectors. However, the various relief measures implemented in our home countries may help contain the overall impact going forward. Obviously, the long-term impact on the economy also depends on the occurrence and intensity of new outbreaks of the virus now and in the coming months.
Since the start of the coronavirus crisis, we have been working hard with government agencies to support all customers impacted by coronavirus, by efficiently instituting relief measures – including loan deferrals – and adapting or extending these measures where necessary. In these difficult times, we have also managed to continue providing our customers in all our home markets with a high level of service, thanks in the main to the efforts and investments we have made over the past few years on the digital transformation front, in combination with the expertise and commitment of our employees in all our home countries. Meanwhile we will continue to work on solutions to proactively make life easier for our customers. The interaction between human and machine, between branch and digital app, supported by artificial intelligence and data analysis, plays a prominent role here. We will be communicating on this and other topics in more depth during a strategy update session on 12 November.
We believe that the world emerging from the coronavirus crisis will have to be a more sustainable one and we are working tirelessly to contribute to such a scenario. With that in mind, we successfully launched our second green bond in June for the amount of 500 million euros. By issuing green bonds, we aim to create a closer link with socially responsible investors, to provide finance to customers directly involved in sustainable projects and to contribute to the development of a liquid and efficient green bond market, which would help to finance the transition to a low-carbon economy.
As regards our financial results, we generated a net profit of 210 million euros in the second quarter of 2020. The result was significantly impacted by the recording of 845 million euros in loan loss impairment charges, the bulk of which related to the potential economic consequences of the coronavirus crisis. In this regard, we wish to reiterate our guidance for full-year 2020, i.e. an estimated 1.1 billion euros in loan loss impairment charges. As expected, net interest income and net fee and commission income fell in the second quarter, while our non-life insurance result, on the other hand, was very solid and our life insurance business witnessed strong sales in the second quarter. What’s more, our trading and fair value result, which had been hit hard during the first quarter of the year, recovered to a large extent in the quarter under review. Last but not least, our strict cost control measures, together with the additional cost savings announced when the first quarter results were published, helped reduce our operating expenses (excluding bank taxes) by 6% quarteron- quarter and by 8% year-on-year.
Our solvency position remained very strong, with a common equity ratio of 16.6% on a fully loaded basis, well above the current minimum capital requirement of 7.95%. Our liquidity position remained solid too, with an LCR of 136% and an NSFR of 142% at the end of June 2020. As a result, our current capital and liquidity buffers allow us to face today's challenges with confidence. It should also be noted that, in line with the recent ECB recommendation, we cannot execute our usual dividend policy. As a consequence, no interim dividend will be paid out in November 2020.
In closing, I would like to take this opportunity to explicitly thank all those stakeholders who have continued to put their trust in us. I can assure you that, in these challenging times, we remain fully committed to maintaining our position as the reference in bank-insurance in all our home markets.
* This news item contains information that is subject to the transparency regulations for listed companies.
