KBC Group: Second-quarter result of 745 million euros
Outside trading hours - Regulated information*
Thursday, August 8, 2019
- Commercial bank-insurance franchises in our core markets performed well.
- Lending volumes were up 1% quarter-on-quarter and 4% year-on-year, with
growth recorded in all business units. Deposits including debt certificates
were down 2% quarter-on-quarter and stable year-on-year. The figures have
been calculated on a ‘comparable scope’ basis.
- Net interest income increased slightly compared to the previous quarter and
was up 1% year-on-year. In both cases, it benefited from a number of factors,
including loan volume growth, short-term interest rate increases in the Czech
Republic, the full consolidation of ČMSS since June and lower funding costs
(year-on-year). At the same time, it continued to suffer from pressure on
margins in the outstanding loan portfolio and lower reinvestment yields in our
euro-area core countries.
- Sales of our non-life insurance products were up 8% year-on-year. Technical
income from these non-life insurance activities (premiums less charges, plus
the ceded reinsurance result) went up 14% on its level of the previous quarter
thanks in part to higher earned premiums. It was down 7% year-on-year as
higher premiums were offset by higher claims and charges. The combined
ratio for the first half of the year amounted to 92%, compared to 88% for fullyear
2018. Sales of our life insurance products were up 8% year-on-year and
down 11% on the relatively high level recorded in the previous quarter.
- Net fee and commission income was up 6% quarter-on-quarter, due inter alia
to higher asset management-related fees, higher fees for banking services
and the impact of the full consolidation of ČMSS. Net fee and commission
income was only slightly down on the year-earlier quarter.
- All other remaining income items combined were in line with the figure
recorded in the previous quarter and up 43% year-on-year. The quarter under
review included weak trading and fair value income, as well as a high level
of net other income, which benefited from the positive 82-million-euro oneoff
effect of the revaluation of the 55% participation in ČMSS (related to the
acquisition of the remaining 45% stake in that company). Additionally,
dividend income benefited from its seasonal uptick, as the bulk of dividends
are traditionally received in the second quarter of the year.
- Excluding bank taxes (the bulk of which was recorded in the first quarter of
the year), costs rose 5% quarter-on-quarter, roughly half of which was due to
one-off items and the ČMSS impact. Year-on-year, costs were up 2%. When
non-operating items are excluded and bank taxes evenly spread throughout
the year, the cost/income ratio amounted to 59% in the first half of 2019,
compared to 57% for full-year 2018.
- The quarter under review included a 36-million-euro loan loss impairment
charge, compared to a 67-million-euro charge in the previous quarter and a
net release of impairments of 21 million euros in the year-earlier quarter. The
annualised cost of credit amounted to a benign 0.12% in the first half of 2019,
compared to -0.04% for full-year 2018 (a negative figure indicates a positive
impact on the results).
- Our liquidity position remained strong, as did our capital base, with a common
equity ratio of 15.6%, or 15.9% when including the net result for the half of
the year, taking into account the payout ratio of 59% (dividend + AT1 coupon)
for full-year 2018. Our leverage ratio amounted to 6.1% at the end of June
See the full press release in attachment.
Johan Thijs, Chief Executive Officer
We generated a net profit of 745 million euros in the second quarter of 2019. This is a good result, which – compared to the previous quarter – benefited from increased net fee and commission income, higher non-life insurance results, the seasonal uptick in dividends received, lower costs (due to most of the bank taxes being recorded in the first quarter of the year) and lower loan loss impairment charges. On the one hand, the quarter benefited from a number of positive one-off items, the bulk of which concerned the 82-million euro gain related to the acquisition of the remaining 45% stake in the Czech building savings bank, ČMSS (see further). On the other hand, trading and fair value income was heavily impacted by several factors, including lower long-term interest rates. On a comparable scope basis, our loans to customers increased by 4% year-on-year, and deposits including debt certificates were roughly stable (excluding debt certificates, deposits were up 3%). Sales of our non-life and life insurance products went up year-on-year, each by 8%. Our solvency position, which does not include the profit for the first half of 2019, remained strong too, with a common equity ratio of 15.6%. If we had included the profit for the first half of the year, taking into account the 59% dividend payout ratio of last year, our common equity ratio would have amounted to 15.9%. Lastly, in line with our dividend policy, we decided to pay an interim dividend of 1 euro per share on 15 November 2019 as an advance payment on the total dividend for 2019.
From this solid position, we are at the same time also preparing for the future. With more and more customers opting for digital channels, we are gradually aligning our omni-channel distribution network with this changing customer behaviour. As already announced, we are in the process of converting a number of smaller branches into unstaffed ones and closing some of the existing unstaffed branches in Flanders. At the same time, we continue to invest in our full-service branches, in KBC Live and in our digital channels. We also optimised our group-wide governance model at management level and we are in the process of further improving operational efficiency throughout the entire organisation in order to take customer service to an even higher level. This adaptation is essential in response to the new environment in which organisations are expected to be more agile, take decisions more quickly and thus continue to meet the expectations of customers and society.
In the quarter under review, we finalised two deals that we had announced in the previous quarter. We completed the sale of our Irish subsidiary’s legacy portfolio of performing corporate loans worth roughly 260 million euros, which means that KBC Bank Ireland is now in a position to fully concentrate on its core retail and micro SME customers. That deal had a negligible impact on our profit and capital ratios. We also closed the acquisition of the remaining 45% stake in the Czech building savings bank ČMSS, for 240 million euros. That had an impact of -0.3 percentage points on our common equity ratio. Due to the revaluation of our existing 55% stake in ČMSS, we were able to book a one-off gain of 82 million euros in the second quarter*. Our Czech group company ČSOB now owns 100% of ČMSS and is thus consolidating its position as the largest provider of financial solutions for housing purposes in the Czech Republic.
I’d like to wrap up by repeating that we are truly grateful for the trust that our customers place in our company. The fact that we were named ‘Best Bank in Western Europe’ by Euromoney a few weeks ago is a clear illustration that we are the reference in the financial sector. Rest assured that we will remain fully committed and focused in our efforts to continue to be the reference in customer-centric bank-insurance in all our core countries.
* This news item contains information that is subject to the transparency regulations for listed companies.