KBC Group: Strong fourth-quarter result of 685 million euros, leading to a full-year profit of 2.4 billion euros
In an environment of persisting low interest rates, firm economic growth in Central Europe and Ireland, and more modest growth in Belgium, KBC turned in a strong performance by posting net profit of 685 million euros in the fourth quarter of 2016, compared with 629 million euros in the preceding quarter and an exceptional 862 million euros in the fourth quarter of 2015 (or 441 million euros excluding two major one-off items in that quarter). For full year 2016, our net result amounted to 2 427 million euros, compared with 2 639 million euros for 2015 (2 218 million euros excluding the two main one-off items). Moreover, our lending and deposit volumes continued to grow in 2016, as did sales of both non-life and life insurance products. Our already solid solvency and liquidity positions strengthened further.
(full press release an presentation attached)
Financial highlights for the fourth quarter of 2016, compared with the previous quarter:
Both our banking and insurance franchises in our core markets and core activities continued to perform well.
Lending to our customers increased by 1%, with volumes going up in all countries except Ireland. Deposits from our customers went up by 6%.
Net interest income – our main source of income – continued to be impacted by the climate of low interest rates, but its quarter-on-quarter decrease was less than 1% thanks to offsetting factors such as healthy lending growth and lower funding costs. Our average net interest margin stood at 1.90% in the fourth quarter, similar to the quarter-earlier level. For full year 2016, our net interest margin stood at 1.92%.
The premium income we earned on our non-life insurance products increased by 2%, while claims fell by 4%. Consequently, the non-life combined ratio for FY2016 ended up at a good 93%. Following a relatively weak third quarter, sales of life insurance products increased strongly by 17%, partially because of seasonal effects.
Our net fee and commission income went up again, rising by 2% mainly on account of management fees and loan-related fees. Assets under management increased further, going up by 2% to 213 billion euros.
Trading and fair value income more than tripled, thanks to a better performance in the dealing room, a higher mark-to-market valuation of derivatives used for asset/liability management purposes and positive changes in our valuation adjustments.
Our operating expenses were up 8% on their level in the previous quarter, due to a one-off expense for early retirement and seasonal effects. Strict cost management resulted in a cost/income ratio for FY2016 of 55% (57% adjusted for specific items).
Loan loss impairment stood at 54 million euros in the quarter under review, which brought the cost of credit to an excellent, but unsustainably low, 0.09% of our loan portfolio for full year 2016.
Johan Thijs, our group CEO, adds:
‘Once again KBC continues to perform very well, reflected in an overall increase in lending, deposits, sales of life and non-life insurance products and in assets under management in 2016. This shows clients continue to entrust their deposits and assets to us and count on us to help them realise and protect their projects. We’re firing on all cylinders at KBC and the results show that our client-centric approach is paying off.
The fourth quarter was characterised by an almost stable level of net interest income, increased net fee and commission income and significantly higher trading and fair value income. Costs were up, due in part to a one-off item, and loan loss impairment increased somewhat on the exceptionally low level of the previous quarter. Overall, we managed to generate a strong result of 685 million euros in this quarter, which brings our profit for the full year to 2 427 million euros, a fine result indeed and one for which we want to explicitly thank our staff.
On the strategic front, our acquisition of United Bulgarian Bank and Interlease will enable CIBANK and DZI Insurance to become the largest bank-insurance group in Bulgaria, a country in which we look forward to developing our bank-insurance business further. In addition to this strategic move, we decided to make Ireland one of our core countries. It is a sound and attractive market in which we wish to play a more active role.
The solvency and liquidity positions of our group remained strong– even after paying an interim dividend in November – and comfortably surpassed the new minimum capital requirements set by the regulators in December, namely a fully loaded minimum CET1 ratio of 10.40% under Basel III, excluding additional regulatory guidance of 1%.
Consequently, we will propose to the General Meeting of Shareholders in May to set the full (gross) dividend for 2016 at 2.80 euros per share, meaning that – after subtracting the 1 euro interim dividend per share that was paid in November 2016 – the final gross dividend to be paid in May will be 1.80 euros per share. This is in line with the dividend payment policy for this year and the years ahead.
Our aim for 2017 is to build on the momentum of previous years and, in particular, to maintain our role in society as a client-centric organisation. Our bank-insurance model, supported by solid liquidity and capital bases, allows us to generate sustainable results. However, the continuing low level of interest rates remains a challenge for the entire financial sector. And as political uncertainty creates volatility on the financial markets, it makes our fee business more challenging. Fundamentally, 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 than we already do today.’
* This news item contains information that is subject to the transparency regulations for listed companies. Details of the ratios and terms used are provided at the end of the quarterly report.