Johan Thijs, Group CEO: ‘The final months of 2014 were characterised by a continued low interest rate environment and modest economic growth, with slightly lower unemployment rates being observed against a background of low inflation. In this context, KBC posted a strong net result of 457 million euros for the last quarter of 2014, which translates into 477 million euros on an adjusted-profit basis. On a comparable basis, net interest income increased, with the net interest margin edging up and loan volumes and client deposits growing further in the majority of our core markets. Just like the previous quarter, we earned higher fees and commissions particularly in the asset management activities. The combined ratio for our non-life insurance activities remained robust and sales of life insurance products were comparable to their level in the third quarter. Our total income was affected much less by negative marked-to-market changes in the value of derivatives used for asset/liability management purposes. The cost/income ratio adjusted for specific items continued to be strong, illustrating the validity of our business model. Loan loss impairment charges were moderate, although they were up somewhat on the previous quarter’s level.
In the fourth quarter, the Belgium Business Unit generated a net result of 399 million euros, somewhat above the average figure of 374 million euros for the four preceding quarters. Compared with the previous quarter, the quarter was characterised by strong net interest income and net fee and commission income, seasonally higher gross non-life technical charges, increased sales of guaranteed-interest life insurance products, and a reduced – but still negative – impact of ALM derivative valuations. Gains on the sale of financial assets were down, whereas other net income was up, as were costs and impairment charges. The banking activities accounted for 85% of the net result in the quarter under review, and the insurance activities for 15%.
In the quarter under review, the Czech Republic Business Unit posted a net result of 121 million euros, somewhat below the 132-million-euro average for the four preceding quarters. Compared with the previous quarter, the results for this quarter featured flat net interest income, slightly higher net fee and commission income, lower net results from financial instruments, higher non-life premiums, a higher level of other income, a solid non-life combined ratio, but a drop in sales of unit-linked life insurance products. Costs increased and loan loss impairment charges edged up, but were still at a moderate level. Banking activities accounted for 93% of the net result in the quarter under review, and insurance activities for 7%.
In the last quarter of 2014, the International Markets Business Unit recorded a slightly negative net result of -7 million euros, a vast improvement on the negative -227-million-euro average for the four preceding quarters, which had been significantly affected by the additional loan loss provisions for Ireland in the fourth quarter of 2013 and by the impact of the new retail loans act in Hungary in the second quarter of 2014. Compared to the previous quarter, the quarter was characterised by lower net interest income and stable net fee and commission income, a lower result from financial instruments at fair value, a reduction in realised gains on bonds and shares and a decline in other income. There was also a sharp improvement in the non-life combined ratio and an increase in life insurance sales. Costs in this quarter were up, and loan loss provisions slightly down. Overall, the banking activities accounted for a net result of -12 million euros, with positive results in Slovakia, Hungary and Bulgaria, but negative in Ireland, while the insurance activities accounted for a net result of 5 million euros.
The liquidity position of our group remains very strong, with both the LCR and NSFR being well above 100%.
Our capital position also continues to be very robust, as illustrated by a common equity ratio of 14.3%
(Basel III fully loaded under the Danish compromise), well above our target of 10.5%. We further optimised the capital structure of the group when KBC Insurance bought back 203 million euros’ worth of its shares from KBC Group before year-end 2014 and also through the replacement of shareholder capital by an intra-group tier-2 loan in the amount of 500 million euros, which KBC Group will subscribe to in the first quarter of 2015. As a result of the proposed transactions, the common equity ratio of the group will improve further whilst the solvency of KBC Insurance will remain exceptionally solid.
For 2014 as a whole, KBC generated a profit of 1 762 million euros. On an adjusted basis, this figure stood at 1 629 million euros. When account is taken of the repayment penalty of 167 million euros paid to the Flemish Regional Government at the beginning of January 2014, and the coupon of 212 million euros to be paid on the core capital securities sold to the Flemish Regional Government and the additional tier-1 instruments, our adjusted earnings per share come to 3.00 euros, while reported earnings per share amount to
3.32 euros. Given our strong solvency position – as reflected in our common equity ratio of 14.3% – we will propose to the Annual General Meeting of Shareholders that a dividend of 2.00 euros per share be paid this year.
We also intend not to pay a dividend in respect of 2015, which means that no coupon will be paid to the Flemish Regional Government either. Taking all factors into account, the return that the Flemish Region will receive on the core capital securities will still be higher than 10% per year. As of 2016, the target for the dividend pay-out ratio is at least 50%, including the coupon paid on the core capital securities and the additional tier-1 instruments.
All this will help KBC realise its ambition of being among the best-performing, retail-focused financial institutions in Europe and becoming the reference in bank-insurance in its core markets. The results for 2014 reaffirm our strong belief in our core business of bank-insurance in Belgium, the Czech Republic, Slovakia, Hungary and Bulgaria. Our goal is to ensure that our clients, shareholders and other stakeholders benefit from our activities, something which all our employees are committed to working towards. We are truly grateful for the trust that continues to be placed in the company and its employees.’
* This news item contains information that is subject to the transparency regulations for listed companies.