KBC Group: Second-quarter result of 692 million euros
Outside trading hours - Regulated information*
Thursday, August 9, 2018
- Good performance delivered by the commercial bank-insurance franchises in our core markets and core activities.
- Lending volumes were up 3% quarter-on-quarter and 5% year-on-year, with increases in all business units. Deposits excluding debt certificates rose by 3% quarter-on-quarter and by 6% year-on-year, again with increases in all business units.
- Net interest income was relatively stable (-1%) quarter-on-quarter, but improved by 2% year-on-year (on a comparable basis). Net interest income benefited from lower funding costs, higher repo rates in the Czech Republic, loan volume growth and the positive year-on-year effect of the consolidation of UBB/Interlease in Bulgaria, but continued to suffer from loan margin pressure and low reinvestment yields, among other things.
- Technical income from our non-life insurance activities increased 11% compared to the year-earlier quarter, thanks to higher earned premiums. The resulting combined ratio for the first six months of the year amounted to an excellent 88%, fully in line with the figure for full-year 2017. Sales of our life insurance products fell by 14% on the previous quarter (partly a seasonal effect), but were up 3% on their level of the second quarter of 2017.
- On a comparable basis, our net fee and commission income was down 3% and 4%, respectively, on its quarter-earlier and year-earlier levels. This was due essentially to lower asset management-related entry fees.
- All other income items combined were down 37% quarter-on-quarter, owing to lower trading and fair value income and lower other net income (impacted by a negative one-off item) and partly offset by seasonally higher dividend income, among other factors. Year-on-year, all other income items combined fell by more than half – on a comparable basis – due primarily to a significantly lower level of trading and fair value income.
- The quarter-on-quarter comparison of costs is distorted by the fact that the bulk of special bank taxes for full-year 2018 is booked in the first quarter. Disregarding these taxes, costs were up 2% quarter on-quarter. Year-on-year, costs increased by 6% though that was caused in part by the inclusion of UBB/Interlease. When bank taxes are spread evenly throughout the year, the cost/income ratio amounted to 56% in the first half of 2018, more or less in line with the figure recorded for full-year 2017 (55%).
- The quarter benefited from a 21-million-euro release of loan loss provisions mainly thanks to Ireland. Consequently, our annualised cost of credit amounted to a very favourable -0.10% (a negative figure indicates a positive impact on the results), compared to the -0.06% registered for full-year 2017. Without Ireland, the credit cost ratio would have come to 0.00%, compared to 0.09% for full-year 2017.
- Our liquidity position remained strong, as did our capital base, with a common equity ratio of 15.8% (fully loaded, Danish compromise).
See the full press release in attachment.
Johan Thijs, Chief Executive Officer:
We recorded a net profit of 692 million euros in the second quarter of 2018. Yet again a good result, thanks, among other things, to a sound level of net interest income, a strong non-life insurance result and seasonally high dividend income, which partly offset the decrease in trading and fair value income, the slight drop in fee and commission income and the negative one-off impact related to the settlement of a legacy legal case. Given seasonal effects, costs remained under control and moreover, we were able yet again to release some loan loss provisions, mainly related to our Irish mortgage book. Adding the result for the second quarter to the 556-million-euro net profit figure for the previous quarter brings our result for the first half of 2018 to a solid 1 248 million euros. Our solvency position remained strong too, with a common equity ratio of 15.8% at the end of June 2018, comfortably surpassing the regulatory minimum levels in this respect.
In April, we successfully issued a new additional tier-1 instrument for an amount of 1 billion euros. And early July, we completed our announced buyback of 2.7 million own shares for a total consideration of 181 million euros. The cancellation of these shares has reduced the total number of KBC Group shares to 415 897 567. Lastly, in line with our dividend policy, we decided to pay an interim dividend of 1 euro per share on 16 November 2018, as an advance payment on the total dividend for 2018.
We also took important new steps in the implementation of our sustainability strategy. In May, for instance, KBC – as promoter – became the first financial institution in the Belgian market to launch an SRI pension savings fund. The fund in question is managed by KBC Asset Management and is fully compliant with BEAMA sustainability criteria. In June, we published our stricter policies for sustainable banking and insurance and in doing so, are responding to the constantly evolving expectations of our stakeholders and the wider community. And again in June, we were the first Belgian financial institution to launch a green bond.
On the broader economic front, European economic conditions have remained attractive, though we believe that the growth peak is likely behind us. The risk of further economic de-globalisation, with an escalation of trade conflicts, remains the main factor that could impede European economic growth.
In closing, I'd like to take this opportunity again to thank our clients and other stakeholders for the trust they place in our company and our employees, and to repeat that we remain fully committed and focused in our efforts to become the reference in bank-insurance in all our core countries.
Important non-adjusting post-balance sheet event
I’m also pleased to announce that KBC Bank Ireland reached an agreement with Goldman Sachs to sell a part (approximately 1.9 billion euros) of its legacy loan portfolio. As a result of that transaction, KBC Bank Ireland’s impaired loans ratio reduces by roughly 11 percentage points to around 25% pro forma at end 2Q2018. The transaction is expected to result in a net profit impact of +14 million euros (based on 1Q2018 numbers and including all costs related to the transaction), a release of risk-weighted assets of approximately 0.4 billion euros at KBC Group, leading to an improvement of the KBC Group common equity ratio of 7 bps. The transaction is expected to close in the 4th quarter of 2018.
* This news item contains information that is subject to the transparency regulations for listed companies.
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