KBC Group: Second-quarter result of 966 million euros

• Net interest income increased by 6% quarter-on-quarter and by 13% year-on-year. The net interest margin for the quarter under review amounted to 2.11%, up 7 basis points on the previous quarter and 20 basis points on the year-earlier quarter. Loan volumes were up 2% quarter-on-quarter and 4% year-on-year. Deposits excluding debt certificates – and also excluding volatile low-margin short-term deposits at KBC Bank's foreign branches as they are driven by short-term cash management opportunities – were up 0.5% quarter-on-quarter and 2% year-on-year. In the quarter under review, net inflows in term deposits and mutual funds more than offset the net outflows in current accounts and savings accounts. Volume growth figures were calculated on an organic basis (excluding the changes in the scope of consolidation and forex effects).
• Insurance revenues before reinsurance were up 6% and 10% on the previous and year-earlier quarters, respectively. The insurance service result (insurance revenues before reinsurance - insurance service expenses before reinsurance + net result from reinsurance contracts held) amounted to 122 million euros (compared to 111 million euros and 180 million euros in the previous and year-earlier quarters, respectively) and breaks down into 89 million euros for non-life insurance and 34 million euros for life insurance. The non-life combined ratio for the first six months of 2023 amounted to an excellent 84%, compared to 87% for full-year 2022. Non-life insurance sales increased by 13% year-on-year, while life insurance sales were up 52% and 72% on the level recorded in the previous and year-earlier quarters, respectively.
• Net fee and commission income was up 1% and 8% on its level in the previous and year-earlier quarters, respectively. Fees for our management activities rose by 2% quarter-on-quarter, while banking services-related fees were stable on balance. Year-on-year, fees for both our asset management and banking service activities increased by 6% and 9%, respectively.
• Trading & fair value income was up 28% compared to the previous quarter and approximately three times the level recorded in the year-earlier quarter. Net other income was in line with its normal run rate and clearly well down on the previous quarter, as that quarter had included a one-off 405-million-euro gain related to the finalisation of the sale of the loan and deposit portfolios in Ireland. Dividend income was almost four times its level in the previous quarter, as the second quarter traditionally includes the bulk of dividend income for the full year.
• Operating expenses without bank and insurance taxes were up 1% on their level in the previous quarter and 12% on their year-earlier level. The cost/income ratio for the first six months of 2023 came to 49%, the same level as for full-year 2022. In that calculation, certain non-operating items have been excluded and bank and insurance taxes spread evenly throughout the year. Excluding all bank and insurance taxes, the cost/income ratio for the first six months of 2023 amounted to 40%, compared to 45% for full-year 2022.
• The quarter under review included a 23-million-euro net loan loss impairment release, compared to a net release of 24 million euros in the previous quarter and a net charge of 9 million euros in the year-earlier quarter. The credit cost ratio for the first six months of 2023 amounted to -0.04%, compared to 0.08% for full-year 2022. A negative figure implies a positive impact on the result.Our liquidity position remained strong, with an LCR of 152% and NSFR of 145%. Our capital base remained robust, with a fully loaded common equity ratio of 16.5%.

See full press release in attachment.

Johan Thijs, Chief Executive Officer

“We generated an excellent net profit of 966 million euros in the second quarter of 2023. Compared to the previous quarter, our result benefited from higher net interest income, better insurance service results, a higher level of net fee and commission income and higher trading & fair value income, as well as the traditional seasonal spike in dividend income. Net other income fell, however, as the previous quarter had included a significant positive one-off gain related to the sale of our Irish portfolio in February. Costs decreased significantly, due entirely to the fact that the bulk of the bank and insurance taxes for the full year were booked in the previous quarter. We also recorded a small net impairment charge, as opposed to a net release in the previous quarter. Consequently, when adding up the results for the first and second quarters, our net profit for the first half of 2023 amounted to 1 848 million euros, up by 38% year-on-year.

Our solvency position remained strong with a fully loaded common equity ratio of 16.5%. The results of the recent EBA stress test reflect our strong fundamentals in this regard. Our liquidity position remained excellent, as illustrated by an NSFR of 145% and LCR of 152%, both well above the minimum legal target of 100%.

After having received the approval of the ECB, our Board of Directors decided to distribute 1.3 billion euros surplus capital in the form of a share buyback. The share buyback will start as soon as possible and end by August 2024. In line with our general dividend policy, we will also pay out an interim dividend of 1 euro per share in November 2023 as an advance on the total dividend for financial year 2023. We also plan to further optimise our capital structure by filling up our Pillar 2 Requirement with additional tier-1 and tier-2 capital. Lastly, we received a final ECB decision following model reviews of predominantly our Belgian corporate and SME loan portfolio, leading to a RWA add-on of approximately 8.2 billion euros in the third quarter of 2023. However, the impact of this add-on will be mitigated by a 1.7 billion euros RWA release in the third quarter of 2023, an expected RWA relief of approximately 2 billion euros before year-end 2023 due to model simplification and the fact that roughly 4.5 billion euros of the RWA add-on is frontloading of the IRB Basel IV impact in 2025. You can read more about these capital-related items in the section entitled ‘Our guidance’ in our quarterly report.

Last but not least, we celebrated a special anniversary in June 2023. Twenty-five years have passed since the merger between the Kredietbank, CERA Bank and ABB Insurance led to the creation of our group. In that time, we have evolved from a new Belgian bank-insurer to a bank-insurance group with a focus on five European core markets and a frontrunner in digitalisation. More than anything else, it is the story of our thousands of employees who give their best every day to win and keep the trust of our customers and hence constitute the most important factor in the success that our group has become. I’d like to sincerely thank all those employees, as well as all our customers, shareholders and all other stakeholders for their continuing trust and support. We look forward with enthusiasm to the next 25 years.’

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