KBC Group: Third-quarter result of 697 million euros
Outside trading hours - Regulated information*
Thursday, November 12, 2020
- Commercial bank-insurance franchises in our core markets performed well.
- Net interest income increased by 4% quarter-on-quarter and decreased by 4% year-on-year. The quarter-on-quarter increase was due mainly to the positive impact of TLTRO III, a positive one-off item related to inflation-linked bonds (insurance), higher margins on the new production of mortgage loans than the margins on the outstanding portfolios in Belgium, the Czech Republic and Slovakia, and the higher netted impact of ALM FX swaps. These items more than offset the negative impact of past rate cuts made by the CNB in the Czech Republic and the lower reinvestment yields in general. Year-on-year, the decrease was mainly related to the past CNB rate cuts in the Czech Republic, the year-on-year depreciation of the Czech koruna and Hungarian forint against the euro and the negative impact of lower reinvestment yields, which could not be fully offset by the positive impact of TLTRO III, the abovementioned positive one-off item, ECB tiering and a larger loan and bond portfolio.
- Loan volumes were up 1% quarter-on-quarter and 4% year-on-year, with year-on-year growth recorded in all business units. The volume of granted loans with payment holidays in the various relief schemes amounted to 13.7 billion euros by the end of September 2020 (EBA definition). Deposits excluding debt certificates grew by 1% quarter-on-quarter and 9% year-on-year, 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 down 9% on its level in the previous quarter, which had included significantly lower technical charges related to the effect of the lockdown. It was up 22% year-on-year, thanks to a combination of higher premium income and lower technical charges. Consequently, the combined ratio for the first nine months of 2020 amounted to an excellent 83%. Sales of our life insurance products were down 25% on the level recorded in the previous quarter and up 4% on their level in the year-earlier quarter.
- Net fee and commission income was slightly higher (1%) than the level recorded in the previous quarter and down 12% year-on-year. Quarter-on-quarter, the positive effect of higher asset management fees was partly offset by the higher level of distribution fees paid. Yearon-year, both asset management fees and banking service fees were down, while distribution fees were up.
- The trading and fair value result amounted to 85 million euros, down on the very high level recorded in the previous quarter, and up year-on-year. On the whole, the huge drop in the trading and fair value result in the first quarter of the year has now been offset for a large part by the positive trading and fair value result recorded in the two subsequent quarters.
- All other income items combined were 31% and 19% lower than the figures recorded in the previous and year-earlier quarters, respectively, primarily because the quarter under review included a negative one-off item related to the tracker mortgage review in Ireland, and lower dividend income.
- Costs have been reduced. Excluding bank taxes, they were down 4% compared to the yearearlier quarter as a result of cost-saving measures. Compared to the low level recorded in the previous quarter, costs were up 3%. The resulting cost/income ratio amounted to 59% for the first nine months of the year, compared to 58% for full-year 2019 (when certain non-operating items are excluded and bank taxes spread evenly throughout the year).
- Loan loss impairment charges amounted to 52 million euros in the quarter under review, well down on the 845-million-euro charge in the previous quarter, which had incorporated 746 million euros’ worth of collective impairment charges for the coronavirus crisis. As a consequence, the credit cost ratio for the first nine months of the year amounted to 0.61%, up from 0.12% for full-year 2019.
- Our liquidity position remained strong with an LCR of 142% and NSFR of 146%. Our capital base remained robust as well, with a fully loaded common equity ratio of 16.6%.
Johan Thijs, Chief Executive Officer
During the third consecutive quarter of facing up to the challenges of the pandemic, the harsh reality that coronavirus is still far from being eradicated has become very clear. It is still causing human suffering all over the world and unprecedented economic upheaval. However, the various government relief measures should help control the overall impact going forward. Obviously, the long-term impact of the coronavirus crisis on society will be significant. It will also depend on the number and intensity of any new outbreaks, as well as on the timing of developing and distributing a vaccine or cure.
Meanwhile, we have been working hard with government agencies to support all customers impacted by coronavirus, by efficiently implementing various relief measures, including loan deferrals. In our six home countries combined, we have granted a total of 13.7 billion euros in loan payment deferrals by the end of September 2020 (according to the EBA definition) and have also granted 0.6 billion euros’ worth of loans under public corona guarantee schemes. At the same time, we have continued providing a high level of service to our customers in all our core markets, thanks to the expertise and commitment of our employees, in combination with the efforts and investments we have made over the past few years on the digital transformation front. Given that the pandemic has accelerated the trend to digitalisation, we are clearly benefiting from our digital transformation efforts. We will continue to work on solutions to proactively make life easier for our customers, thanks in part to the extensive use of artificial intelligence and data analysis. We will be communicating on this and other topics in more depth during a separate strategy session today, with the accompanying press release being issued at 1 p.m. CET.
As regards our financial results, we generated a net profit of 697 million euros in the third quarter of 2020, leading to a return on equity of 15% in the third quarter of 2020 (when bank taxes are spread evenly throughout the year). The third quarter profit is well above the 210 million euros recorded in the previous quarter, which had included 746 million euros in collective impairment charges for the coronavirus crisis. Our net interest income went up quarter-on-quarter, while our trading and fair value result fared well too, though it was down on the exceptionally high level recorded in the previous quarter. In the current lower-for-longer interest rate environment, this quarterly result is also clearly benefiting from the diversification achieved through KBC’s integrated bank-insurance model. This was reflected in a strong non-life result (good premium growth and an excellent combined ratio of 83% year-to-date), as well as higher net fee and commission income. Costs remained clearly under control. Adding the result for this quarter to the one for the first half of the year brings our net profit for the first nine months of 2020 to 902 million euros.
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 142% and an NSFR of 146% at the end of September 2020. Consequently, our current capital and liquidity buffers allow us to face today's challenges with confidence.
In closing, I would like to take this opportunity to explicitly thank all stakeholders who have continued to put their trust in us. I also wish to express my sincere thanks to all colleagues who have expended huge efforts to serve our customers and support the sound functioning of the group in these challenging times.
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