KBC Group: Strong first-half profit of 1 037 million euros, advanced repayment of 1 750 million euros of Flemish state aid
(Thomson Reuters ONE) -
Press Release
Outside trading hours - Regulated information*
Brussels, 8 August 2013 (07.00 a.m. CEST)
KBC ended the second quarter of 2013 with a net profit of 517 million euros,
compared with a net profit of 520 million euros in the previous quarter and a
loss of 539 million euros a year earlier. For the first six months of the year,
therefore, net profit has come in at 1 037 million euros as opposed to a net
loss of 160 million euros in the first half of last year.
After excluding the impact of the legacy business (CDOs, divestments) and the
valuation of own credit risk, adjusted net profit came to 485 million euros,
compared with 359 million euros in the previous quarter and 343 million euros in
the corresponding quarter of 2012. For the first six months of the year, the
adjusted net profit stood at 843 million euros compared with 844 million euros
in 1H2012.
Johan Thijs, Group CEO:
'KBC continued to benefit from its strong commercial franchise in banking and
insurance in the second quarter and recorded a high 517 million euros in net
profit against an economic background of low growth and low interest rates. At
group level and excluding deconsolidated entities, we managed to maintain levels
of net interest income and net interest margin, while posting robust fee and
commission income for the second quarter in a row, recording a good combined
ratio, achieving an excellent cost/income ratio and reducing impairment.
In this quarter, the Belgium Business Unit generated a net result of 418 million
euros, an even higher figure than the 385 million euros for the previous
quarter. Both our deposit volume and lending to individuals and SMEs rose again.
The quarter under review was characterised by good levels of commercial net
interest income and net fee and commission income, modest unit-linked life
insurance sales and a low non-life combined ratio. The significantly positive
marked-to-market revaluation of our ALM derivatives also boosted the revenue
stream. The excellent cost/income ratio proves that costs are well under control
and the reduced level of loan loss impairment is encouraging. The banking
activities accounted for 79% of the net result in the quarter under review, and
insurance activities for 21%.
The Czech Republic Business Unit posted a net result of 146 million euros this
quarter, slightly above the average figure of 139 million euros for the four
preceding quarters. Compared to the previous quarter, this one had slightly
higher net interest income (excluding FX effects), somewhat lower net fee and
commission income and lower sales of unit-linked life insurance. The impact of
the floods on the results of the non-life business was limited. Roughly flat
costs and lower loan loss impairment contributed to the net result. Banking
activities accounted for 98% of the net result in the quarter under review and
insurance activities for 2%.
The International Markets Business Unit recorded a net result of -23 million
euros for the second quarter, an improvement on the average of -46 million euros
for the four preceding quarters. Quarter-on-quarter, the positive impact was
chiefly attributable to the bank tax for the full year in Hungary being charged
in the first quarter (notwithstanding an additional bank tax burden in the
second quarter) and a decreasing - though still significant - level of loan loss
impairment in Ireland. This impairment is in line with the earlier guidance of
300 to 400 million euros for full-year 2013. Overall, the banking activities
accounted for a net result of -29 million euros (the positive results in
Slovakia, Hungary and Bulgaria were wiped out by the negative result in
Ireland), while the insurance activities accounted for a net result of 6 million
euros.
Following on the announcement at the end of 2012, we completed the sale in May
of our Russian banking subsidiary, Absolut Bank, to a group of Russian companies
that manage the assets of Blagosostoyanie. The deal has freed up 0.3 billion
euros of capital.
We also managed to reduce the remaining CDO exposure to a net exposure of 6.3
billion euros at the end of this quarter. Even when account is taken of both the
costs and benefits of reducing this CDO exposure and of the fee for the
guarantee scheme, the market valuation of this exposure increased by some 0.2
billion euros, post tax.
The liquidity position of our group remained strong, with the LCR and NSFR being
well above 100%.
Our capital position has strengthened further to a tier-1 ratio of 16.8%. When
account is taken of the effects of the transfer of 0.3 billion euros' worth of
shareholder loans, the repayment of 1.17 billion euros of Flemish state aid
(plus the penalty of 0.58 billion euros) and the sale of KBC Banka, the pro
forma ratio stands at 14.9%. Our pro forma common equity ratio under Basel III
at the end of the quarter stood at 11.8% (fully loaded), well above our goal to
maintain a target common equity ratio under Basel III (fully loaded) of 10% as
of 1 January 2013.
We are particularly pleased with the continued trust that clients and
stakeholders have placed in our firm and its employees. Our enduring efforts
have ensured that we are moving - and will continue to move - towards becoming a
strong and independent reference in the European financial sector.'
Impact of the legacy business and valuation of own credit risk:
In order to give a good insight into the ongoing business performance, KBC also
provides adjusted figures that exclude a) the impact of the legacy business,
i.e. the valuation of the remaining CDOs in portfolio (including fees for the
related guarantee agreement with the Belgian State) and the impact of
divestments and b) the impact of the valuation of own credit risk. For the
quarter under review, these items had the following impact:
* CDOs: During the second quarter, corporate and ABS credit spreads tightened
further, as had been the case during previous quarters. When account is
taken of the impact of the fee for the CDO guarantee scheme with the Belgian
Federal Government, the costs and benefits of reducing the CDO exposure and
the improved CVA on MBIA, there was a positive post-tax impact of some 180
million euros.
* Remaining divestments: The closure of the deal to sell Absolut Bank to a
group of Russian companies that manage the assets of Blagosostoyanie had a
negative impact of about -0.1 billion euros on the results, but none on
regulatory capital. An impairment of 20 million euros (post tax) on the 75-
million-euro subordinated loan to NLB has also been recorded under this line
for this quarter.
* Impact of own credit risk valuation: The improvement in the credit spread on
KBC debt between the end of March 2013 and the end of the second quarter
resulted in a negative marked-to-market adjustment of 20 million euros (post
tax), but had no impact on regulatory capital.
Financial highlights for 2Q2013 compared to 1Q2013:
* High level of group profit thanks to continued strong commercial franchise
and positive CDO valuation.
* Attractive return on equity of 15% based on adjusted results.
* Net interest margin stable and net interest income roughly flat on a
comparable basis.
* Stable deposit and loan portfolio.
* Good combined ratio of 91% year-to-date, although uptick of claims.
* Satisfactory level of dealing room income.
* Strong net fee and commission income, comparable to 1Q2013.
* Excellent cost/income ratio of 50% year-to-date, based on adjusted results.
* Credit cost ratio down to 0.75% year-to-date; Ireland's ratio reduced
further to 2.35%.
* Consistently strong liquidity position, with LCR at 125% and NSFR at 107%.
* Solvency: strong capital base: pro forma tier-1 ratio - including the effect
of the repayment of Flemish state aid, the transfer of shareholder loans and
the sale of KBC Banka - at 14.9% (with a core tier-1 ratio of 12.6%). Pro
forma Basel III common equity ratio (fully loaded) at 11.8%, well above the
10% target.
Overview 2Q2012 1Q2013 2Q2013 1H2012 1H2013
KBC Group (consolidated)
| |
Net result, IFRS (in millions | -539 520 517| -160 1 037
of EUR) | |
| |
Basic earnings per share, IFRS| -1.99 1.25 1.24| -1.28 2.49
(in EUR)(1) | |
------------------------------+--------------------+----------------------------
Adjusted net result (in | 343 359 485| 844 843
millions of EUR) | |
| |
Basic earnings per share, | |
based on adjusted net result | 0.49 0.86 1.16| 1.67 2.02
(in EUR)(1) | |
| |
Breakdown by business unit (in| |
millions of EUR)(2) | |
| |
Belgium | 244 385 418| 730 803
| |
Czech Republic | 159 132 146| 318 279
| |
International | -41 -87 -23| -204 -110
Markets | |
| |
Group Centre | -19 -71 -56| 0 -128
------------------------------+--------------------+----------------------------
Parent shareholders' equity | |
per share (in EUR, end of | 28.5 30.0 29.1| 28.5 29.1
period) | |
------------------------------+--------------------+----------------------------
1 Note: If a coupon is expected to be paid on the core-capital securities sold
to the Belgian Federal and Flemish Regional governments, it will be deducted
from the numerator (pro rata). If a penalty has to be paid, it will likewise be
deducted.
2 A new breakdown by business unit entered into force in 2013 (more information
on this breakdown can be found under 'Notes on segment reporting' in the
'Consolidated financial statements' section of the quarterly report). The 2012
reference figures have been restated in order to reflect this new breakdown.
Overview of results according to IFRS
A full overview of the IFRS consolidated income statement and balance sheet is
provided in the 'Consolidated financial statements' section of the quarterly
report. Condensed statements of comprehensive income, changes in shareholders'
equity, and cash flow, as well as several notes to the accounts, are also
available in the same section.
In order to provide a good insight into the ongoing business performance, KBC
also publishes an overview of adjusted results, where the impact of legacy
activities (divestments, CDOs) and of the valuation of own credit risk is
excluded from P/L and summarised in three lines at the bottom of the
presentation (see next section).
Consolidated
income
statement,
IFRS
KBC Group (in
millions of 3Q 3Q 1H
EUR) 1Q 2012 2Q 2012 2012 4Q 2012 1Q 2013 2Q 2013 2013 4Q 2013 2012 1H 2013
| |
Net interest | 1 261 1 190 1 097 1 121 1 068 1 016 - -|2 451 2 084
income | |
| |
Interest| 2 695 2 563 2 493 2 382 2 193 2 109 - -|5 258 4 302
income | 00 |
| |
Interest| -1 434 -1 374 -1 -1 261 -1 125 -1 093 - -| -2 -2 218
expense | 396 00 | 808
| |
Non-life | |
insurance | 204 200 157 61 149 115 - -| 403 264
(before | |
reinsurance) | |
| |
Earned | 438 442 307 313 305 316 - -| 880 621
premiums | |
| |
Technical | -234 -243 -150 -252 -156 -201 - -| -477 -357
charges | |
| |
Life | |
insurance | -72 -67 -79 -22 -59 -62 - -| -139 -122
(before | |
reinsurance) | |
| |
Earned | 446 448 271 310 271 241 - -| 894 512
premiums | |
| |
Technical | -518 -514 -350 -332 -331 -303 - -| -1 -634
charges | | 033
| |
Ceded | |
reinsurance | -14 -1 -12 13 -12 13 - -| -14 1
result | |
| |
Dividend | 6 21 13 5 5 20 - -| 27 25
income | |
| |
Net result | |
from | |
financial | |
instruments | 60 43 275 42 314 425 - -| 103 739
at fair value| |
through | |
profit or | |
loss | |
| |
Net realised | |
result from | |
available- | 32 9 56 85 142 47 - -| 41 189
for-sale | |
assets | |
| |
Net fee and | |
commission | 304 309 343 360 393 385 - -| 613 778
income | |
| |
Fee and | 641 |
commission | 492 479 494 541 00 565 - -| 970 1 206
income | |
| |
Fee and | -248 |
commission | -188 -170 -151 -181 00 -180 - -| -358 -428
expense | |
| |
Other net | 73 368 106 187 76 -20 - -| 441 56
income | |
-------------+----------------------------------------------------------+-------------
Total income | 1 853 2 072 1 954 1 854 2 076 1 938 - -|3 925 4 014
-------------+----------------------------------------------------------+-------------
Operating | -1 132 -1 033 -1 -1 081 -1 039 -931 - -| -2 -1 971
expenses | 003 | 165
| |
Impairment | -273 -1 473 -302 -463 -352 -276 - -| -1 -628
| | 746
| |
on loans| |
and | -261 -198 -283 -330 -295 -255 - -| -459 -550
receivables | |
| |
on | |
available- | -5 -75 -4 -11 -13 -3 - -| -79 -16
for-sale | |
assets | |
| |
on | 0 -414 0 -8 -7 0 - -| -414 -7
goodwill | |
| |
on other| -7 -786 -15 -114 -37 -18 - -| -794 -55
| |
Share in | |
results of | -9 17 -6 1 0 0 - -| 8 0
associated | |
companies | |
-------------+----------------------------------------------------------+-------------
Result before| 439 -417 644 310 684 731 - -| 22 1 415
tax | |
-------------+----------------------------------------------------------+-------------
Income tax | -93 -110 -103 -56 -160 -211 - -| -202 -372
expense | |
| |
Net post-tax | |
result from | 40 -8 0 -6 0 0 - -| 33 0
discontinued | |
operations | |
-------------+----------------------------------------------------------+-------------
Result after | 387 -535 540 249 524 520 - -| -148 1 044
tax | |
-------------+----------------------------------------------------------+-------------
| |
attributable | 7 5 9 9 4 3 - -| 12 7
to minority | |
interests | |
| |
| |
attributable| |
to equity | 380 -539 531 240 520 517 - -| -160 1 037
holders of | |
the parent | |
-------------+----------------------------------------------------------+-------------
Basic | |
earnings per | 0.71 -1.99 1.16 -0.97 1.25 1.24 - -|-1.28 2.49
share (EUR) | |
| |
Diluted | |
earnings per | 0.71 -1.99 1.16 -0.97 1.25 1.24 - -|-1.28 2.49
share (EUR) | |
-------------+----------------------------------------------------------+-------------
Overview of adjusted results
In addition to the figures according to IFRS (previous section), KBC provides
figures aimed at giving more insight into the ongoing business performance.
Hence, in the overview below, the impact of legacy activities (remaining
divestments, CDOs) and of the valuation of own credit risk is excluded from P/L
and summarised in three lines at the bottom of the presentation (in segment
reporting, these items are all included in the Group Centre). Moreover, a
different accounting treatment for capital-market income was applied to the
Belgium Business Unit (all trading results shifted to 'Net results from
financial instruments at fair value'). A full explanation of the differences
between the IFRS and adjusted figures is provided under 'Notes on segment
reporting' in the 'Consolidated financial statements' section of the quarterly
report.
Consolidated | | 1H 1H
income | | 2012 2013
statement, | |
KBC Group (in| |
millions of | 2Q 4Q 4Q|
EUR) |1Q 2012 2012 3Q 2012 2012 1Q 2013 2Q 2013 3Q 2013 2013|
-------------+--------------------------------------------------------+-----------
Adjusted net | |
result | |
(i.e. | |
excluding | |
legacy | |
business and | |
own credit | |
risk) | |
| |
Net interest | 1 217 1 153 1 078 1 084 1 032 990 - -|2 370 2 022
income | |
| |
Non-life | |
insurance | 204 200 157 61 149 115 - -| 403 264
(before | |
reinsurance) | |
| |
Earned | 438 442 307 313 305 316 - -| 880 621
premiums | |
| |
Technical | -234 -243 -150 -252 -156 -201 - -| -477 -357
charges | |
| |
Life | |
insurance | -72 -67 -79 -22 -59 -62 - -| -139 -122
(before | |
reinsurance) | |
| |
Earned | 446 448 271 310 271 241 - -| 894 512
premiums | |
| |
Technical | -518 -514 -350 -332 -331 -303 - -| -1 -634
charges | | 033
| |
Ceded | |
reinsurance | -14 -1 -12 13 -12 13 - -| -14 1
result | |
| |
Dividend | 5 22 10 5 4 19 - -| 27 23
income | |
| |
Net result | |
from | |
financial | |
instruments | 353 58 223 156 218 256 - -| 410 473
at fair value| |
through | |
profit or | |
loss | |
| |
Net realised | |
result from | |
available- | 31 9 55 85 96 46 - -| 40 141
for-sale | |
assets | |
| |
Net fee and | |
commission | 312 309 345 359 385 388 - -| 621 773
income | |
| |
Other net | 22 60 80 89 76 69 - -| 83 145
income | |
-------------+--------------------------------------------------------+-----------
Total income | 2 057 1 743 1 857 1 831 1 890 1 832 - -|3 801 3 722
-------------+--------------------------------------------------------+-----------
Operating | -1 110 -1 -990 -1 -1 029 -921 - -| -2 -1
expenses | 016 068 | 126 950
| |
Impairment | -271 -241 -305 -378 -335 -235 - -| -512 -570
| |
on loans| |
and | -261 -198 -283 -329 -295 -217 - -| -459 -512
receivables | |
| |
on | |
available- | -5 -24 -4 -4 -13 -3 - -| -29 -16
for-sale | |
assets | |
| |
on | 0 0 0 0 -7 0 - -| 0 -7
goodwill | |
| |
on other| -5 -18 -18 -45 -20 -15 - -| -24 -35
| |
Share in | |
results of | -9 -9 -13 1 0 0 - -| -19 0
associated | |
companies | |
-------------+--------------------------------------------------------+-----------
Result before| 667 477 549 385 526 677 - -|1 144 1 202
tax | |
-------------+--------------------------------------------------------+-----------
Income tax | -159 -129 -167 -98 -163 -189 - -| -289 -352
expense | |
-------------+--------------------------------------------------------+-----------
Result after | 508 348 382 287 363 487 - -| 855 850
tax | |
-------------+--------------------------------------------------------+-----------
| |
attributable| 7 5 9 9 4 3 - -| 12 7
to minority | |
interests | |
| |
| |
attributable| |
to equity | 501 343 373 279 359 485 - -| 844 843
holders of | |
the parent | |
-------------+--------------------------------------------------------+-----------
| 486 244 335 295 385 418 - -| 730 803
Belgium | |
| |
| |
Czech | 158 159 149 114 132 146 - -| 318 279
Republic | |
| |
| |
International| -163 -41 -38 -18 -87 -23 - -| -204 -110
Markets | |
| |
| 19 -19 -72 -113 -71 -56 - -| 0 -128
Group Centre | |
-------------+--------------------------------------------------------+-----------
Basic | |
earnings per | 1.19 0.49 0.69 -0.92 0.86 1.16 - -| 1.67 2.02
share (EUR) | |
| |
Diluted | 1.19 0.49 0.69 -0.92 0.86 1.16 - -| 1.67 2.02
earnings per | |
share (EUR) | |
| | |
Legacy | |
business and | |
own credit | |
risk impact | |
(after tax) | |
| |
Legacy - | |
gains/losses | 138 -39 280 46 165 180 - -| 99 346
on CDOs | |
| |
Legacy - | 81 -884 23 3 22 -128 - -| -803 -106
divestments | |
| |
MTM of own | -340 41 -144 -87 -26 -20 - -| -300 -46
credit risk | |
| |
Net result | |
(IFRS) | |
| |
Result after | |
tax, | |
attributable | |
to equity | 380 -539 531 240 520 517 - -| -160 1 037
holders of | |
the parent: | |
IFRS | |
-------------+-----------------------------------------------------+--------------
Analysis of the quarter under review (2Q2013)
Adjusted net result (in millions of EUR)
Adjusted net result by business unit,
2Q 2013 (in millions of EUR)
The net result for the quarter under review amounted to 517 million euros.
Excluding the legacy business and the impact of own credit risk, the adjusted
net result amounted to 485 million euros, compared with 359 million euros in
1Q2013 and 343 million euros in 2Q2012.
Total income (adjusted net result)
* The quarter-on-quarter comparison was partially impacted by the
deconsolidation of Absolut Bank, while the year-on-year performance was
affected in part by the deconsolidation of Kredyt Bank, Warta, Zagiel,
Absolut Bank and certain other sales. These items will be disregarded to
enable a meaningful comparison to be made.
* Net interest income stood at 990 million euros, down 4% quarter-on-quarter
and 14% year-on-year. On a comparable basis, net interest income fell by
just 2% quarter-on-quarter and 7% year-on-year. This was due primarily to
the lower income generated by asset and liability management (lower
reinvestment yields), while commercial margins remained healthy. The net
interest margin came to 1.72% for the quarter under review, a level similar
to the one in the previous quarter, but 6 basis points lower than the level
of the year-earlier quarter. In the Belgium Business Unit, deposit and loan
volumes were flat quarter-on-quarter. On a yearly comparison, the loan book
contracted by 1% (due to the loan book deliberately being reduced at the
foreign branches while the other segments posted growth), while the deposit
base grew by 6%. The loan book in the Czech Republic increased by 8% year-
on-year and by 3% quarter-on-quarter, while deposits rose by 2% year-on-year
and stayed flat quarter-on-quarter. The loan portfolio in the International
Markets Business Unit declined by 5% year-on-year (due to Ireland and
Hungary) and by 1% quarter-on-quarter, while the deposit base grew by 20%
year-on-year (driven by Ireland, Hungary and Slovakia) and by 3% quarter-on-
quarter.
* The life and non-life insurance businesses turned in the following
performance during the quarter under review. Gross earned premiums less
gross technical charges and the ceded reinsurance result totalled 66 million
euros, down 15% quarter-on-quarter and 50% year-on-year. However, when
account is taken of the deconsolidation of Warta, this result was 20% higher
than the year-earlier figure.
Premiums in the non-life segment were 3% higher quarter-on-quarter and 4% higher
year-on-year (on a comparable basis). The claims arising from inter alia the
floods in the Czech Republic resulted in a significantly higher level of
technical charges compared with 1Q2013 and 2Q2012. Nevertheless, the combined
ratio still came to a good 91% year-to-date (95% for the quarter itself).
In the life segment, sales of life insurance products (including unit-linked
products not included in premium income figures) were down 20% on their level in
1Q2013. Year-on-year on a comparable basis, these sales have fallen by as much
as 65%, triggered by a number of factors, including a change in the tax
treatment of unit-linked life insurance contracts in Belgium since the beginning
of 2013 and a shift towards mutual funds.
It should be noted that the second quarter was a good one for investment income
from insurance activities, with the quarter-on-quarter results being boosted by
substantially higher dividend income in the investment portfolio - a typical
effect of the second quarter - and by lower impairment charges. Lastly, the
technical-financial result also benefited from general administrative expenses
being kept strictly under control.
* The net result from financial instruments at fair value amounted to 256
million euros in the quarter under review, higher than the 164-million-euro
average for the last four quarters. This figure is usually defined by
dealing-room income, but this quarter has been influenced primarily by a
positive result of 126 million euros on the marked-to-market valuations in
respect of derivative instruments used in asset and liability management.
* Net realised gains from available-for-sale assets stood at 46 million euros
for the quarter under review, below the 61-million-euro average for the last
four quarters. These gains were realised on the sale of both bonds and
shares, and were lower than the previous quarter, which had benefited
largely from gains on the sale of Belgian government bonds.
* Net fee and commission income continued to grow and amounted to 388 million
euros, up 1% quarter-on-quarter and 26% year-on-year. On a comparable basis,
income was up by as much as 2% quarter-on-quarter and by 23% year-on-year.
The main drivers for this increase were higher management fees on mutual
funds, despite a lower level of transaction fees. Assets under management
stood at 156 billion euros, flat compared to the quarter earlier (net new
inflows were fully offset by the negative investment performance) and up 3%
year-on-year, driven by investment performance.
* Other net income came to 69 million euros, down somewhat on the 76-million-
euro average of the four preceding quarters.
Operating expenses (adjusted net result)
* Operating expenses came to 921 million euros in 2Q2013, down 10% on their
level in the previous quarter and down 9% on their year-earlier level. On a
comparable basis, costs decreased by 8% compared with the previous quarter,
something that was chiefly attributable to the bank tax for the full year in
Hungary being charged in the first quarter (notwithstanding an additional
one-off financial transaction levy in the second quarter), as well as to a
reimbursement in the second quarter relating to the former deposit guarantee
scheme in Belgium. Year-on-year on a comparable basis, costs were 4% higher.
This was due primarily to the new financial transaction levy in Hungary and
higher bank tax in Belgium, partly offset by lower professional fees and the
impact of currency exchanges. The year-to-date cost/income ratio came to
50%, a clear indication that costs remain well under control. However, this
ratio was positively impacted by the high level of marked-to-market
valuations in respect of the derivative instruments used in asset and
liability management.
Impairment charges (adjusted net result)
* Loan loss impairment stood at 217 million euros in 2Q2013, down on the 295
million euros recorded in the previous quarter, but up on the 198 million
euros recorded a year earlier. The figure for 2Q2013 included loan loss
impairment of 88 million euros recorded at KBC Bank Ireland (as opposed to
99 million euros in the previous quarter and 136 million euros in the year-
earlier quarter), as well as 82 million euros in the Belgium Business Unit
(compared with 138 million euros in the first quarter of 2013 and 41 million
euros in the year-earlier quarter). The annualised credit cost ratio stood
at 0.75% year-to-date. This breaks down into 0.49% for the Belgian Business
Unit (up from 0.28% for FY2012 mainly as a result of increased impairment
recorded in the SME & corporate segment), 0.30% in Czech Republic Business
Unit (flat compared with 0.31% for FY2012, but driven by a change in
methodology) and 1.76% for the International Markets Business Unit (down
from 2.26% for FY2012).
* Impairment charges on available-for-sale assets came to 3 million euros and
other impairment charges amounted to 15 million euros in the quarter under
review.
Impact of the legacy business and own credit risk on the result:
* CDOs: During the second quarter, corporate and ABS credit spreads tightened
further, as had been the case during previous quarters. When account is
taken of the impact of the fee for the CDO guarantee scheme with the Belgian
Federal Government, the costs and benefits of reducing the CDO exposure and
the improved CVA on MBIA, there was a positive post-tax impact of some 180
million euros.
* Remaining divestments: The closure of the deal to sell the Russian banking
business, Absolut Bank, to a group of Russian companies that manage the
assets of Blagosostoyanie had a negative impact of about -0.1 billion euros
on the results, but none on regulatory capital. An impairment of 20 million
euros (post tax) on the 75-million-euro subordinated loan to NLB has also
been recorded under this line for this quarter. The total post-tax impact
was a negative 128 million euros.
* Impact of own credit risk valuation: The improvement in the credit spread on
KBC debt between the end of March 2013 and the end of the second quarter
resulted in a negative marked-to-market adjustment of 20 million euros (post
tax), but had no impact on regulatory capital.
Breakdown by business unit
* In 2Q2013, the Belgium Business Unit generated a net result of 418 million
euros, well above the average figure of 315 million euros for the four
preceding quarters. The quarter under review was characterised by sound
levels of commercial net interest income and net fee and commission income,
modest unit-linked life insurance sales, a good non-life combined ratio,
seasonally higher dividend income, significantly positive MtM valuations of
ALM derivatives, low realised gains on the sale of available-for-sale
securities, an excellent cost/income ratio and a reduced level of loan loss
impairment. The banking activities accounted for 79% of the net result in
the quarter under review, and insurance activities for 21%.
* In the quarter under review, the Czech Republic Business Unit generated a
net result of 146 million euros, slightly above the average figure of 139
million euros for the four preceding quarters. Compared with the previous
quarter, 2Q2013 had slightly higher net interest income (excluding FX
effects), a limited flood-related impact on the results of the non-life
insurance business, lower unit-linked life insurance sales, higher MtM
valuations of ALM derivatives, somewhat lower net fee and commission income,
roughly flat costs and lower loan loss impairment charges (driven by changes
in methodology). Banking activities accounted for 98% of the net result in
the quarter under review and insurance activities for 2%.
* In the quarter under review, the International Markets Business Unit
recorded a net result of -23 million euros, an improvement on the average of
-46 million euros for the four preceding quarters. Quarter-on-quarter,
2Q2013 was characterised by higher net interest income, net fee and
commission income and realised gains on available-for-sale securities, some
positive one-off items in other net income, lower costs (related to the
booking of bank tax in Hungary) and more or less flat loan loss impairment
charges (with Ireland still accounting for a significant, though decreasing,
amount). Overall, the banking activities accounted for a negative net result
of 29 million euros (the positive results in Slovakia, Hungary and Bulgaria
were wiped out by the negative result in Ireland), while the insurance
activities accounted for a positive net result of 6 million euros.
* The Group Centre's net result amounted to -24 million in 2Q2013. As
mentioned earlier, this includes not only a number of group items and
results of companies earmarked for divestment, but also the full impact of
the legacy business (CDOs, divestments) and the valuation of own credit
risk. Excluding these items, the Group Centre's adjusted net result was
-56 million euros.
Analysis of the year-to-date period under review (1H2013)
The net result for 1H2013 amounted to 1 037 million euros. Excluding the legacy
business and the impact of own credit risk, the adjusted net result amounted to
843 million euros, compared with 844 million euros in 1H2012.
Total income (adjusted net result)
* The year-on-year performance was affected in part by the deconsolidation of
Kredyt Bank, Warta, Zagiel, Absolut Bank and certain other sales. These
items will be disregarded to enable a meaningful comparison to be made.
* Net interest income stood at 2 022 million euros, down 15% year-on-year. On
a comparable basis, net interest income fell by 8% year-on-year. This was
due primarily to the lower income generated by asset and liability
management (lower reinvestment yields), while commercial margins remained
healthy. The net interest margin came to 1.72% year-to-date, 10 basis point
lower than the high level of a year earlier. In the Belgium Business Unit,
the loan book contracted by 1% year-on-year (due to the loan book being
deliberately reduced at the foreign branches while the other segments posted
growth), while the deposit base grew by 6%. The loan book in the Czech
Republic increased by 8% year-on-year, while deposits rose by 2%. The loan
portfolio in the International Markets Business Unit declined by 5% year-on-
year (due to Ireland and Hungary), while the deposit base grew by 20%
(driven by Ireland, Hungary and Slovakia).
* The life and non-life insurance businesses turned in the following
performance during the first half of 2013. Gross earned premiums less gross
technical charges and the ceded reinsurance result totalled 143 million
euros, down 43% year-on-year. However, when account is taken of the
deconsolidation of Warta, this result was 30% higher than the year-earlier
figure.
Premiums in the non-life segment were 3% higher year-on-year (on a comparable
basis). The claims arising from inter alia the floods in the Czech Republic
resulted in a significantly higher level of technical charges compared with
1H 2012. Nevertheless, the combined ratio still came to a good 91% year-to-date.
In the life segment, and on a comparable basis, sales of life insurance products
(including unit-linked products not included in premium income figures) were
down 55% on their level in 1H2012, triggered by a change in the tax treatment of
unit-linked life insurance contracts in Belgium since the beginning of 2013 and
a shift to mutual funds, amongst other things.
It should be noted that the insurance results were also impacted by lower
investment income, but benefited from general administrative expenses being kept
strictly under control.
* The net result from financial instruments at fair value amounted to 473
million euros in the first half of 2013, compared with 410 million euros for
the first half of the previous year, or 378 million euros on a comparable
basis. This figure is usually defined by dealing-room income, but this first
six-month period has been influenced primarily by a positive result of
211 million euros on the marked-to-market valuations in respect of the
derivative instruments used in asset and liability management.
* Net realised gains from available-for-sale assets stood at 141 million euros
for the period under review, compared with 40 million euros for the first
half of the previous year, or 32 million euros on a comparable basis. The
gains were realised on the sale of both bonds and shares, with the first
quarter benefiting from particularly large gains on the sale of Belgian
government bonds.
* Net fee and commission income amounted to 773 million euros, up 25% year-on-
year. On a comparable basis, income was up 21% year-on-year. The main
drivers for this increase were entry and management fees on mutual funds.
Assets under management stood at 156 billion euros, up 1% since the end of
2012 primarily because of price effects.
* Other net income came to 145 million euros as opposed to 83 million euros in
the year-earlier period, which had been impacted by provisioning for the
5-5-5 product.
Operating expenses (adjusted net result)
* Operating expenses came to 1 950 million euros in 1H2013, down 8% on their
year-earlier level. On a comparable basis, costs increased by 3%, owing in
part to the introduction of the financial transaction levy in Hungary,
higher pension expenses and higher ICT costs. The year-to-date cost/income
ratio came to 50%, a clear indication that costs remain well under control.
However, it was positively impacted by the high level of marked-to-market
valuations in respect of the derivative instruments used in asset and
liability management and by net realised gains from available-for-sale
assets.
Impairment charges (adjusted net result)
* Loan loss impairment stood at 512 million euros in 1H2013, up on the 459
million euros recorded a year earlier. The figure for 1H2013 included loan
loss impairment of 187 million euros recorded at KBC Bank Ireland (as
opposed to 331 million euros in the first six months of 2012), as well as a
relatively high 220 million euros in the Belgium Business Unit. The
annualised credit cost ratio stood at 0.75% year-to-date. This breaks down
into 0.49% for the Belgian Business Unit (up from 0.28% for FY2012), 0.30%
in Czech Republic Business Unit (compared with 0.31% for FY2012) and 1.76%
for the International Markets Business Unit (down from 2.26% for FY2012).
* Impairment charges on available-for-sale assets came to 16 million euros and
other impairment charges amounted to 42 million euros in the six months
under review.
Income tax
* Income tax amounted to 352 million euros for the first six months of 2013.
Impact of the legacy business and own credit risk on the result:
* CDOs: During the first six months of 2013, corporate and ABS credit spreads
tightened further. When account is taken the impact of the fee for the CDO
guarantee scheme with the Belgian Federal Government, the costs and benefits
of reducing the CDO exposure and the improved CVA on MBIA, there was a
positive post-tax impact of some 346 million euros.
* Remaining divestments: The successful placement of KBC's 16.2% participation
in Bank Zachodni WBK through a secondary offering resulted in an additional
capital gain. In contrast, the sale of KBC Banka and the closure of the deal
to sell NLB led to a capital loss. Their combined effect amounted to a
positive 22 million euros (post tax) in the first quarter. In the second
quarter, the closure of the deal to sell the Russian Absolut Bank to a group
of Russian companies that manage the assets of Blagosostoyanie had a
negative impact on the results of about -0.1 billion euros, but none on
regulatory capital. An impairment of 20 million euros (post tax) on the
subordinated loan to NLB was also recorded under this line in 2Q2013. The
total impact of all these items on the net result for the first six months
of 2013 was a negative 106 million euros.
* Impact of own credit risk valuation: The improvement in the credit spread on
KBC debt between the end of 2012 and the end of the second quarter resulted
in a negative marked-to-market adjustment of 46 million euros (post tax),
but had no impact on regulatory capital.
Equity and solvency
* At the end of June 2013, total equity came to 16 billion euros - up 0.1
billion euros on its level at the start of the year - due mainly to the 1H
results (1 billion euros) mitigated by the payment of the dividend and the
payment of the coupon on non-voting core-capital securities subscribed by
the Belgian Federal and Flemish Regional governments (an aggregate -1
billion euros). Repayment of 1.17 billion euros (plus 50% penalty) in
Flemish state aid was made on 3 July 2013 and will be reflected in the
third-quarter figures.
* The group's tier-1 ratio (under Basel II) stood at a strong 16.8% at 30 June
2013 (core tier-1 ratio of 14.5%). Including the effect of the repayment of
Flemish state aid, the transfer of shareholder loans and the sale of KBC
Banka, the pro forma tier-1 ratio was as high as 14.9% (core tier-1 ratio of
12.6%).
* The solvency ratio for KBC Insurance stood at an excellent 304% at 30 June
2013, slightly down from the very high 322% at the end of 2012.
* The pro forma common equity ratio under the current Basel III framework came
to 11.8% (fully loaded, but including the remaining aid from the Flemish
Region) at the end of the second quarter of 2013, well above the targeted
common equity ratio of 10% under Basel III (fully loaded).
Liquidity
* The group's liquidity remains excellent, as reflected in the LCR ratio of
125%, as well as in the NSFR ratio of 107% at the end of the quarter.
Selected balance sheet data
Highlights of
consolidated
balance sheet 31-03-2012 30-06-2012 30-09-2012 31-12-2012 31-03-2013 30-06-2013 30-09-2013 31-12-2013
KBC Group (in
millions of
EUR)
Total assets 290 635 285 848 270 010 256 928° 258 567 253 297 - -
Loans and
advances to 135 980 133 326 131 048 128 492 129 753 131 769 - -
customers*
Securities
(equity and 65 853 64 227 65 171 67 295 65 071 65 722 - -
debt
instruments)*
Deposits from
customers and 166 551 163 685 160 945 159 632 167 994 167 414 - -
debt
certificates*
Technical
provisions, 19 925 19 539 19 637 19 205 18 836 18 805 - -
before
reinsurance*
Liabilities
under
investment 7 871 8 856 9 680 10 853 11 664 11 606 - -
contracts,
insurance*
Parent
shareholders' 10 949 9 687 10 629 12 017° 12 505 12 119 - -
equity
Non-voting
core-capital 6 500 6 500 6 500 3 500 3 500 3 500(+) - -
securities
-----------------------------------------------------------------------------------------------------
* In accordance with IFRS 5, the assets and liabilities of a number of divestments have been
reallocated to 'Non-current assets held for sale and disposal groups' and 'Liabilities associated
with disposal groups', which slightly distorts the comparison between periods.
° Restated based on IAS19 revision as of 1 January 2013.
(+ )On 3 July 2013, 1.17 billion euros of non-voting core-capital securities were redeemed, reducing
the outstanding position in these securities to 2.3 billion euros.
Selected ratios
Selected ratios FY2012 1H2013
KBC Group (consolidated)
Profitability and efficiency (based on
adjusted net result)
--------------------------------------------------------------------------------
Return on equity(1) 9% 15%
Cost/income ratio, banking 57% 50%
Combined ratio, non-life insurance 95% 91%
--------------------------------------------------------------------------------
Solvency
--------------------------------------------------------------------------------
Tier-1 ratio (Basel II) 13.8% 16.8%
Core tier-1 ratio (Basel I
Unternehmensinformation / Kurzprofil:
Datum: 08.08.2013 - 07:01 Uhr
Sprache: Deutsch
News-ID 285826
Anzahl Zeichen: 65563
contact information:
Town:
Brussels
Kategorie:
Business News
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"KBC Group: Strong first-half profit of 1 037 million euros, advanced repayment of 1 750 million euros of Flemish state aid"
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