KBC Group : Strong results and completion of divestment programme
(Thomson Reuters ONE) -
Press Release
Outside trading hours - Regulated information*
Brussels, 13 November 2014 (07.00 a.m. CET)
Strong results and completion of divestment programme
KBC ended the third quarter of 2014 with a net profit of 591 million euros,
compared with 317 million euros in the previous quarter and 272 million euros in
the third quarter of 2013.
After excluding the impact of the legacy business (CDOs, divestments) and the
valuation of own credit risk, adjusted net profit came to 477 million euros for
the third quarter of 2014, compared with 287 million euros in the second quarter
of 2014 and 457 million euros in the third quarter of 2013.
Johan Thijs, Group CEO:
'The summer months of 2014 were characterised by a low interest rate environment
and a weakening of the economic recovery that had set in earlier this year
against a background of low inflation. It was in this context that KBC posted a
net result of 591 million euros for the third quarter,
or 477 million euros on an adjusted-profit
basis. The group continued to record excellent commercial results: net interest
income increased, with loan volumes and client deposits growing further. We also
collected higher revenues in the form of fees and commissions particularly in
the asset management activities. The combined ratio for our non-life insurance
activities remained strong and sales of life insurance products were also up.
The cost/income ratio adjusted for specific items remained robust. Loan loss
impairment charges were up somewhat on the previous quarter's level but remained
low overall, with a decrease being recorded in Ireland. Our total income
continued to be impacted slightly by negative marked-to-market changes in the
value of derivatives used for asset/liability management purposes.
Besides these excellent commercial results, the group managed to complete the
divestment programme agreed with the European Commission in 2009. The sale of
KBC Deutschland was completed in September, the activities of Antwerp Diamond
Bank were put into run down and the two remaining CDOs in the portfolio were
collapsed. These operations heralded the completion of the divestment programme.
In the third quarter, the Belgium Business Unit generated a net result of 384
million euros, somewhat above the average figure of 375 million euros for the
four preceding quarters. Compared with the previous quarter, the third quarter
of 2014 was characterised by higher net interest income and net fee and
commission income, a sound combined ratio for non-life insurance and increased
sales of unit-linked life insurance products. Other features of the quarter
under review were the reduced but still negative impact of the valuation of ALM
derivatives, lower gains on the sale of financial assets, seasonally lower
dividend income and a lower level of other net income. Costs were down slightly
and impairment charges were up compared to the low level of the second quarter.
The banking activities accounted for 80% of the net result in the quarter under
review, and the insurance activities for 20%.
In the quarter under review, the Czech Republic Business Unit posted a net
result of 130 million euros, somewhat below the 139-million-euro average for the
four preceding quarters. Compared with the previous quarter, the results for the
third quarter featured (on a comparable basis) flat net interest income and
lower net fee and commission income, a lack of realised gains on the sale of
financial assets, higher net results from financial instruments, a lower level
of other income, a solid non-life combined ratio and increased sales of unit-
linked life insurance products. Costs declined slightly and loan loss impairment
charges were up on the unsustainably low level recorded in the previous quarter.
Banking activities accounted for 95% of the net result in the quarter under
review, and insurance activities for 5%.
In the quarter under review, the International Markets Business Unit recorded a
positive net result of 27 million euros, a significant
improvement on the negative 236-million-euro average for the four preceding
quarters (which had been significantly affected by additional loan loss
provisioning 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 third quarter of 2014 was characterised by slightly higher
net interest income and strong net fee and commission income, a stable result
from financial instruments at fair value and somewhat lower realised gains on
bonds and shares, a deterioration in the non-life combined ratio and lower life
insurance sales. It should be noted that the previous quarter had been
significantly impacted by the new Hungarian act on retail loans. Costs in the
third quarter were flat, and loan loss provisions fell, mainly in Ireland.
Overall, the banking activities accounted for a net result of 23 million euros
(positive results in Slovakia, Hungary and Bulgaria, but negative in Ireland),
while the insurance activities accounted for a net result of 4 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 13.7% (Basel III fully loaded under the Danish
compromise). In the analysis for the first nine months of the year, the
repayment of 0.5 billion euros to the Flemish Regional Government at the
beginning of January has been taken into account, as have the results for this
nine-month period and a pro rata provision for the proposed dividend, the
coupons on the additional tier-1 instruments and on the remaining state aid,
which are all to be paid over 2014. The common equity ratio, therefore,
continues to be well above our target of 10.5%.
This strong capital position has also been confirmed by the results of the
comprehensive assessment carried out by the ECB. KBC exceeded the ECB's asset
quality review and stress test thresholds and maintained a strong buffer of 2.8
percentage points (2.8 billion euros) above the ECB-imposed threshold of 5.5%,
an achievement that reflects KBC's resilience.
The group welcomed the extension of the 'KBC Group anchoring agreements' made by
Cera, KBC Ancora, MRBB and the other stable shareholders. They have confirmed
that they intend to continue acting in concert with respect to KBC Group NV for
another term of 10 years. In doing so, they will ensure continued shareholder
stability and support the further development of the KBC group.
This anchoring agreement 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. This aim will be achieved
by strengthening in a highly cost-efficient way its bank-insurance business
model for retail, SME and mid-cap clients in its core markets, by focusing on
sustainable and profitable growth within the framework of solid risk, capital
and liquidity management, and by creating superior client satisfaction via a
seamless, multi-channel, client-centric distribution approach. The group is
truly grateful for the continued trust that its clients and stakeholders have
placed in the firm and its employees.'
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 third quarter, KBC collapsed the last two CDOs in its
portfolio, which had a slightly negative effect on its results but a
positive impact on capital. The total impact of this item on KBC's third-
quarter income statement amounted to -24 million euros (post tax), account
taken of the movement in credit spreads and guarantee-related fees.
Collapsing these CDOs freed up 0.3 billion
euros of capital and increased KBC's solvency by 0.4%.
* Remaining divestments: A total post-tax positive impact of 132 million euros
was recorded for this quarter, based mainly on a reversal of the impairment
recorded on the participation in Antwerp Diamond Bank in 2012 and 2013.
* Impact of own credit risk valuation: The narrowing of the senior credit
spread combined with the widening of the subordinated credit spread on KBC
debt between the end of June 2014 and the end of September 2014 resulted in
a slight positive marked-to-market adjustment of 6 million euros (post tax),
but had no impact on regulatory capital.
Financial highlights for 3Q2014 compared with 2Q2014:
* Strong commercial net result.
* Net interest income up by 6%.
* Net interest margin up from 2.05% to 2.15%.
* Strong loan and deposit growth in all core countries.
* Excellent non-life combined ratio of 93% year-to-date.
* Higher life insurance sales.
* Net fee and commission income up by 4%, notwithstanding the summer months.
* Cost/income ratio of 59% year-to-date, and 54% when adjusted for specific
items (mainly the impact of marked-to-market valuations in respect of ALM
derivatives, and the Hungarian act on FX retail loans in the previous
quarter).
* Credit cost ratio at a low 0.41% year-to-date.
* Consistently solid liquidity position, with an LCR at 120% and an NSFR at
109%.
* Solvency: strong capital base, with a Basel III common equity ratio (fully
loaded) at 13.7%, well above the 10.5% target.
Overview 3Q2013 2Q2014 3Q2014 9M2013 9M2014
KBC Group (consolidated)
| | |
Net result, IFRS (in millions of EUR) | 272 317 591| 1 309 1 305|
| | |
Basic earnings per share, IFRS (in EUR)(1) | -0.75 0.63 1.28| 1.74 2.35|
--------------------------------------------+--------------------+-------------+
Adjusted net result (in millions of EUR) | 457 287 477| 1 300 1 151|
| | |
Basic earnings per share, based on adjusted| -0.30 0.56 1.00| 1.72 1.99|
net result (in EUR)(1) | | |
| | |
Breakdown by business unit (in millions of | | |
EUR) | | |
| | |
Belgium | 391 383 384| 1 193 1 117|
| | |
Czech Republic | 157 140 130| 435 408|
| | |
International Markets | -12 -176 27| -122 -175|
| | |
Group Centre | -79 -59 -64| -207 -199|
--------------------------------------------+--------------------+-------------+
Parent shareholders' equity per share (in | 28.5 29.5 30.8| 28.5 30.8|
EUR, end of 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 and the
additional tier-1 instruments included in equity, it will be deducted from the
numerator (pro rata). If a penalty has to be paid on the core-capital
securities, it will likewise be deducted.
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 3Q 3Q | 9M 9M
of EUR) 1Q 2013 2Q 2013 2013 4Q 2013 1Q 2014 2Q 2014 2014 4Q 2014| 2013 2014
| |
Net interest| 1 053 1 003 1 014 1 008 1 010 1 056 1 120 -|3 069 3 185
income | |
| |
Interest | 2 161 2 079 2 037 2 067 1 930 1 971 2 010 -|6 276 5 911
income | |
| |
Interest | -1 108 -1 076 -1 -1 060 -920 -915 -890 -| -3 -2
expense | 023 | 207 726
| |
Non-life | |
insurance | 149 115 145 127 149 102 139 -| 409 389
(before | |
reinsurance)| |
| |
Earned | 305 316 321 317 307 315 321 -| 942 944
premiums | |
| |
Technical | -156 -201 -176 -190 -158 -214 -183 -| -533 -555
charges | |
| |
Life | |
insurance | -59 -62 -63 -57 -59 -56 -57 -| -185 -171
(before | |
reinsurance)| |
| |
Earned | 271 241 238 381 308 297 299 -| 750 904
premiums | |
| |
Technical | -331 -303 -302 -438 -367 -353 -355 -| -936 -1
charges | | 075
| |
Ceded | |
reinsurance | -12 13 1 -6 -17 19 4 -| 2 6
result | |
| |
Dividend | 5 20 14 8 14 24 9 -| 39 47
income | |
| |
Net result | |
from | |
financial | |
instruments | |
at fair | 314 425 223 229 40 44 34 -| 962 118
value | |
through | |
profit or | |
loss | |
| |
Net realised| |
result from | |
available- | 142 47 34 29 51 49 28 -| 223 128
for-sale | |
assets | |
| |
Net fee and | |
commission | 389 381 337 362 374 387 402 -|1 107 1 163
income | |
| |
Fee and | |
commission | 636 560 507 564 557 533 579 -|1 704 1 668
income | |
| |
Fee and | |
commission | -247 -179 -170 -202 -182 -147 -177 -| -596 -505
expense | |
| |
Other net | 76 -20 51 15 52 -99 73 -| 107 26
income | |
-------------+-----------------------------------------------------------+-----------
Total income| 2 058 1 921 1 754 1 715 1 615 1 526 1 752 -|5 733 4 892
-------------+-----------------------------------------------------------+-----------
Operating | -1 033 -924 -918 -968 -973 -933 -923 -| -2 -2
expenses | | 875 829
| |
Impairment | -350 -275 -362 -940 -114 -142 -58 -| -987 -313
| |
on loans | |
and | -293 -254 -230 -937 -102 -136 -190 -| -777 -429
receivables | |
| |
on | |
available- | -13 -3 -8 -10 -5 -3 -6 -| -24 -14
for-sale | |
assets | |
| |
on | -7 0 0 0 0 0 0 -| -7 0
goodwill | |
| |
on other | -37 -18 -125 7 -6 -3 139 -| -179 130
| |
Share in | |
results of | |
associated | 8 8 9 6 7 7 6 -| 24 19
companies | |
and joint | |
ventures | |
-------------+-----------------------------------------------------------+-----------
Result | 683 729 483 -187 535 457 777 -|1 895 1 769
before tax | |
-------------+-----------------------------------------------------------+-----------
Income tax | -159 -210 -207 -103 -138 -140 -186 -| -575 -464
expense | |
| |
Net post-tax| |
result from | 0 0 0 0 0 0 0 -| 0 0
discontinued| |
operations | |
-------------+-----------------------------------------------------------+-----------
Result after| 524 520 276 -290 397 317 591 -|1 319 1 305
tax | |
-------------+-----------------------------------------------------------+-----------
| |
attributable| 4 3 4 4 0 0 0 -| 10 0
to minority | |
interests | |
| |
| |
attributable| |
to equity | 520 517 272 -294 397 317 591 -|1 309 1 305
holders of | |
the parent | |
-------------+-----------------------------------------------------------+-----------
Basic | |
earnings per| 1.25 1.24 -0.75 -0.71 0.45 0.63 1.28 -| 1.74 2.35
share (EUR) | |
| |
Diluted | |
earnings per| 1.25 1.24 -0.75 -0.71 0.45 0.63 1.28 -| 1.74 2.35
share (EUR) | |
-------------+-----------------------------------------------------------+-----------
Note that the 2013 reference figures have been adjusted slightly following the
application of the new IFRS 11 standard. This standard stipulates that joint
ventures must be accounted for using the equity method instead of the
proportionate consolidation method. For KBC, this applies to CMSS, a joint
venture of CSOB in the Czech Republic. This change does not affect the net
result, but has an impact on various items in the consolidated income statement.
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 (with all trading results shifting to 'Net result 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 | | 9M 9M
income | | 2013 2014
statement, | |
KBC Group (in| |
millions of | 2Q 4Q 2Q 4Q|
EUR) |1Q 2013 2013 3Q 2013 2013 1Q 2014 2014 3Q 2014 2014|
--------------+------------------------------------------------------+-----------
Adjusted net | |
result | |
(i.e. | |
excluding | |
legacy | |
business and | |
own credit | |
risk) | |
| |
Net interest | 1 018 976 999 996 1 002 1 047 1 109 -|2 993 3 158
income | |
| |
Non-life | |
insurance | 149 115 145 127 149 102 139 -| 409 389
(before | |
reinsurance) | |
| |
Earned | 305 316 321 317 307 315 321 -| 942 944
premiums | |
| |
Technical | -156 -201 -176 -190 -158 -214 -183 -| -533 -555
charges | |
| |
Life | |
insurance | -59 -62 -63 -57 -59 -56 -57 -| -185 -171
(before | |
reinsurance) | |
| |
Earned | 271 241 238 381 308 297 299 -| 750 904
premiums | |
| |
Technical | -331 -303 -302 -438 -367 -353 -355 -| -936 -1
charges | | 075
| |
Ceded | |
reinsurance | -12 13 1 -6 -17 19 4 -| 2 6
result | |
| |
Dividend | 4 19 11 7 11 22 6 -| 34 39
income | |
| |
Net result | |
from | |
financial | |
instruments | 218 256 146 159 17 37 49 -| 620 103
at fair value| |
through | |
profit or | |
loss | |
| |
Net realised | |
result from | |
available- | 96 46 42 29 50 49 27 -| 183 127
for-sale | |
assets | |
| |
Net fee and | |
commission | 382 385 341 365 378 389 404 -|1 108 1 171
income | |
| |
Other net | 76 68 151 47 52 -124 64 -| 296 -8
income | |
--------------+------------------------------------------------------+-----------
Total income | 1 872 1 815 1 773 1 668 1 584 1 485 1 746 -|5 459 4 814
--------------+------------------------------------------------------+-----------
Operating | -1 023 -914 -906 -955 -965 -926 -898 -| -2 -2
expenses | | 843 789
| |
Impairment | -333 -234 -208 -949 -107 -134 -183 -| -775 -424
| |
on loans | |
and | -293 -215 -185 -939 -103 -130 -165 -| -693 -398
receivables | |
| |
on | |
available- | -13 -3 -2 -3 -5 -3 -6 -| -18 -14
for-sale | |
assets | |
| |
on goodwill| -7 0 0 0 0 0 0 -| -7 0
| |
on other | -20 -15 -22 -7 0 0 -12 -| -57 -12
| |
Share in | |
results of | |
associated | 8 8 9 6 7 7 6 -| 24 19
companies and| |
joint | |
ventures | |
--------------+------------------------------------------------------+-----------
Result before| 524 675 667 -230 518 431 671 -|1 866 1 620
tax | |
--------------+------------------------------------------------------+-----------
Income tax | -161 -187 -206 -106 -131 -144 -194 -| -555 -469
expense | |
--------------+------------------------------------------------------+-----------
Result after | 363 487 460 -336 387 288 477 -|1 310 1 152
tax | |
--------------+------------------------------------------------------+-----------
| |
attributable | 4 3 4 4 0 0 0 -| 10 0
to minority | |
interests | |
| |
| |
attributable | |
to equity | 359 485 457 -340 387 287 477 -|1 300 1 151
holders of | |
the parent | |
--------------+------------------------------------------------------+-----------
Belgium | 385 418 391 376 351 383 384 -|1 193 1 117
| |
Czech | 132 146 157 119 138 140 130 -| 435 408
Republic | |
| |
| |
International| -87 -23 -12 -731 -26 -176 27 -| -122 -175
Markets | |
| |
Group | -71 -56 -79 -104 -75 -59 -64 -| -207 -199
Centre | |
--------------+------------------------------------------------------+-----------
Basic | |
earnings per | 0.86 1.16 -0.30 -0.82 0.42 0.56 1.00 -| 1.72 1.99
share (EUR) | |
| |
Diluted | 0.86 1.16 -0.30 -0.82 0.42 0.56 1.00 -| 1.72 1.99
earnings per | |
share (EUR) | |
| | |
Legacy | |
business and | |
own credit | |
risk impact | |
(after tax) | |
| |
Legacy - | |
gains/losses | 165 180 34 65 16 30 -24 -| 380 23
on CDOs | |
| |
Legacy - | 22 -128 -231 -10 -9 8 132 -| -337 131
divestments | |
| |
MTM of own | -26 -20 12 -9 2 -8 6 -| -34 0
credit risk | |
| |
Net result | |
(IFRS) | |
| |
Result after | |
tax, | |
attributable | |
to equity | 520 517 272 -294 397 317 591 -| 1 309 1 305
holders of | |
the parent | |
(IFRS) | |
--------------+----------------------------------------------------+-------------
Note that the 2013 reference figures have been adjusted slightly following the
application of the new IFRS 11 standard. This standard stipulates that joint
ventures must be accounted for using the equity method instead of the
proportionate consolidation method. For KBC, this applies to CMSS, a joint
venture of CSOB in the Czech Republic. This change does not affect the net
result, but has an impact on various items in the consolidated income statement.
Analysis of the quarter under review (3Q2014)
Adjusted net result (in millions of EUR)
Adjusted net result by business unit, 3Q2014 (in millions of EUR)
The net result for the quarter under review amounted to 591 million euros.
Excluding the legacy business and the impact of own credit risk, the adjusted
net result came to 477 million euros, compared with 287 million
euros in 2Q2014 and 457 million euros in 3Q2013.
Total income (adjusted net result)
* Net interest income stood at 1 109 million euros, up 6% quarter-on-quarter
and 11% year-on-year. The net interest margin came to 2.15% for
the quarter under review, 10 basis points higher than the level of the
previous quarter, and 26 basis points higher than the (recalculated) level
of the year-earlier quarter. The increase was driven primarily by sound
commercial margins, lower funding costs and an increased level of repayment
fees. Deposit volumes were up 1% quarter-on-quarter but down 1% year-on-year
(due entirely to maturing wholesale debt). Loan volumes were up 1% both
quarter-on-quarter and year-on-year. The loan book in the Belgium Business
Unit grew by 1% quarter-on-quarter and by 2% year-on-year. Deposits in the
Belgium Business Unit grew by 3% quarter-on-quarter and by 4%
year-on-year. The loan book in the Czech Republic increased by 6% year-on-
year and 2% quarter-on-quarter, while deposits rose by 8% year-on-year and
1% quarter-on-quarter. The loan portfolio in the International Markets
Business Unit declined by 6% year-on-year, owing to the contraction in the
Irish loan portfolio offsetting the strong growth in Bulgaria and Slovakia,
and was almost flat quarter-on-quarter. Its deposit base grew by 1% year-on-
year (driven primarily by Ireland, where there is a successful ongoing
retail campaign), and by 2% 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 86 million
euros, up 32% quarter-on-quarter and 4% year-on-year.
In the non-life segment, earned premiums were up 2% quarter-on-
quarter and flat year-on-year. Claims during the third quarter were
substantially lower (-14%) than their quarter-earlier level (due to the
hailstorms in Belgium in 2Q2014) and were up somewhat (4%) on their level in the
third quarter of 2013. Nevertheless, the combined ratio came to a solid 93%
year-to-date.
In the life segment, sales of life insurance products (including
unit-linked products not included in premium income figures) were up 12% on
their level in 2Q2014, with a significant increase in unit-linked products.
Year-on-year, they were up by 50% on account of the increase in sales of
guaranteed-interest products and unit-linked products.
It should be noted that the third quarter was a decent one for
investment income derived from insurance activities, although down on the level
of the previous quarter, with the quarter-on-quarter results being driven by
higher net interest income quarter-on-quarter, but lower dividend income after a
seasonally strong second quarter, and lower realised gains on available-for-
sales assets in the investment portfolio. 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 49
million euros in the quarter under review, significantly below the 90-
million-euro average for the four preceding quarters. This
figure was driven by dealing-room income, which stood at a modest level in
3Q2014, whilst the quarter under review was impacted by lower negative
marked-to-market valuations in respect of derivative instruments used for
asset/liability management purposes. These valuations came to
-46 million euros in the third quarter (compared to a
quarterly average of +70 million euros in 2013 and to -57 million euros in
the second quarter).
* Net realised gains from available-for-sale assets stood at 27 million euros
for the quarter under review, down on the 43-million-euro average for the
four preceding quarters and lower than the previous quarter. These gains
were realised on the sale of both shares and bonds.
* Net fee and commission income amounted to 404 million euros, up 4% quarter-
on-quarter and 19% year-on-year. The main driver for the
quarter-on-quarter trend was the higher level of management fees for mutual
funds. Assets under management stood at 180 billion euros, up 4% on their
level of the previous quarter (accounted for by the investment performance
(+2%) and net entries (+2%)) and up 13% year-on-year, driven by the
investment performance (+9%) and by net inflows (+4%).
* Other net income came to 64 million euros, substantially higher than the 32-
million-euro average for the four preceding quarters (the latter figure had
been impacted to the tune of -231 million euros by provisioning for the new
Hungarian act on retail loans in 2Q2014).
Operating expenses (adjusted net result)
* Operating expenses came to 898 million euros in 3Q2014, down 3% on their
level in the previous quarter and 1% year-on-year. The quarter-on-quarter
decrease was mainly attributable to timing differences at the Group Centre.
Costs were down 1% year-on-year, with the higher bank tax in Belgium and
Hungary and higher staff expenses and general administrative expenses in
Ireland being offset by lower operating expenses at the Group Centre and a
positive foreign exchange impact.
* The year-to-date cost/income ratio came to a relatively high 59%, but this
was largely caused by the fact that the denominator (total income) suffered
from the negative marked-to-market valuations of the ALM derivatives and the
impact of the new Hungarian act on retail loans. Adjusted for specific items
(inter alia the bank tax, ALM derivatives and Hungarian act), the
cost/income ratio stood at 54%.
Impairment charges (adjusted net result)
* Loan loss impairment stood at 165 million euros in 3Q2014, up on the 130
million euros recorded in the previous quarter but down on the 185 million
euros recorded a year earlier. The quarterly increase was attributable
mainly to a number of corporate loans in the Belgium Business Unit and in
the legacy project finance portfolio. The annualised credit cost ratio for
the whole group stood at 0.41%. This breaks down into a favourable 0.20% for
the Belgium Business Unit (down from 0.37% for FY2013), a very low 0.13% in
the Czech Republic Business Unit (down from 0.26% for FY2013), and 1.09% for
the International Markets Business Unit (an improvement from 4.48% for
FY2013, which had clearly been impacted by the large loan loss impairment
charges in Ireland in 4Q2013).
* Impairment charges on assets other than loans were limited in the quarter
under review, amounting to 18 million euros and relating to available-for-
sale assets and software.
Impact of the legacy business and own credit risk on the result:
* CDOs: During the third quarter, KBC collapsed the last two CDOs in its
portfolio, which had a slightly negative effect on its results but a
positive impact on capital. The total impact of this item on KBC's third-
quarter income statement amounted to -24 million euros (post tax), account
taken of the movement in credit spreads and guarantee-related fees.
Collapsing these CDOs freed up 0.3 billion euros of
capital and increased KBC's solvency by 0.4%.
* Remaining divestments: A total post-tax positive impact of 132 million euros
was recorded for this quarter, based mainly on a reversal of the impairment
recorded on the participation in Antwerp Diamond Bank in 2012 and 2013.
* Impact of own credit risk valuation: The narrowing of the senior credit
spread combined with the widening of the subordinated credit spread on KBC
debt between the end of June 2014 and the end of September 2014 resulted in
a slight positive marked-to-market adjustment of 6 million euros (post tax),
but had no impact on regulatory capital.
Breakdown by business unit
* In 3Q2014, the Belgium Business Unit generated a net result of 384 million
euros, somewhat above the average figure of 375 million euros for the four
preceding quarters. Compared with the previous quarter, 3Q2014 was
characterised by higher net interest income and net fee and commission
income, a sound combined ratio for non-life insurance and increased sales of
unit-linked life insurance products. Other features of the quarter under
review were the reduced but still negative impact of the valuation of ALM
derivatives, lower gains on the sale of financial assets, seasonally lower
dividend income and a lower level of other net income. Costs were down
slightly and impairment charges were up compared to the low level of the
second quarter. The banking activities accounted for 80% of the net result
in the quarter under review, and the insurance activities for 20%.
* In the quarter under review, the Czech Republic Business Unit posted a net
result of 130 million euros, somewhat below the 139-million-euro average for
the four preceding quarters. Compared with the previous quarter, the results
for 3Q2014 featured (on a comparable basis) flat net interest income and
lower net fee and commission income, a lack of realised gains on the sale of
financial assets, higher net results from financial instruments, a lower
level of other income, a solid non-life combined ratio and increased sales
of unit-linked life insurance products. Costs declined slightly and loan
loss impairment charges were up on the unsustainably low level recorded in
the previous quarter. Banking activities accounted for 95% of the net result
in the quarter under review, and insurance activities for 5%.
* In the quarter under review, the International Markets Business Unit
recorded a positive net result of 27 million euros, a significant
improvement on the negative 236-million-euro average for the four preceding
quarters (which had been significantly affected by additional loan loss
provisioning for Ireland in 4Q2013 and by the impact of the new retail loans
act in Hungary in 2Q2014). Compared to the previous quarter, 3Q2014 was
characterised by slightly higher net interest income and strong net fee and
commission income, a stable result from financial instruments at fair value
and somewhat lower realised gains on bonds and shares, a deterioration in
the non-life combined ratio and lower life insurance sales. It should be
noted that the previous quarter had been significantly impacted by the new
Hungarian act on retail loans. Costs in 3Q2014 were flat, and loan loss
provisions fell, mainly in Ireland. Overall, the banking activities
accounted for a net result of 23 million euros (positive results in
Slovakia, Hungary and Bulgaria, but negative in Ireland), while the
insurance activities accounted for a net result of 4 million euros.
* The Group Centre's net result amounted to 50 million in 3Q2014. As stated
earlier, this entity includes not only a number of group items and the
results of companies earmarked for divestment, but also the impact of the
legacy business (CDOs, divestments) and the valuation of own credit risk.
Excluding the legacy business and own credit risk impact, the adjusted net
result amounted to -64 million in 3Q2014.
Analysis of the year-to-date period under review (9M2014)
The net result for 9M2014 amounted to 1 305 million euros. Excluding the legacy
business and the impact of own credit risk, the adjusted net result amounted to
1 151 million euros, compared with 1 300 million euros
in 9M2013.
Total income (adjusted net result)
* The year-on-year performance was affected in part by the deconsolidation of
Absolut Bank and by some minor changes. These items will be disregarded to
enable a meaningful comparison to be made ('on a comparable basis').
* Net interest income stood at 3 158 million euros, up 6% year-on-year. On a
comparable basis, it was up 7% year-on-year. Commercial margins remained
healthy, interest rates on savings accounts were reduced and wholesale
funding costs fell considerably. The net interest margin came to 2.06% year-
to-date, 17 basis points higher than the (recalculated) level of a year
earlier. In the Belgium Business Unit, the loan book grew by 2% year-on-year
and the deposit base by 4%. The loan book in the Czech Republic increased by
6% year-on-year, while deposits rose by 8%. The loan portfolio in the
International Markets Business Unit declined by 6% year-on-year (due to
Ireland), but the deposit base grew by 1% (driven by Ireland).
* The life and non-life insurance businesses turned in the following
performance during the first nine months of 2014. Gross earned premiums less
gross technical charges and the ceded reinsurance result totalled 224
million euros, down 1% year-on-year.
Premiums in the non-life segment were flat year-on-year. The claims
arising from the hailstorms in Belgium resulted in a somewhat higher level of
technical charges compared with 9M2013, which in turn had been affected by
claims relating to flooding in the Czech Republic. Nevertheless, the combined
ratio still came to a solid 93% year-to-date.
In the life segment, sales of life insurance products (including
unit-linked products not included in premium income figures) were up 3% on their
level in 9M2013. The increase in sales of guaranteed interest products exceeded
the contraction in sales of unit-linked products.
It should be noted that the insurance results also benefited from
slightly higher investment income, driven by the higher net realised result from
the sale of available-for-sale assets, lower impairment charges and higher
dividend income, all of which outweighed the lower level of net interest income
and the net result from financial instruments at fair value. General
administrative expenses were kept strictly under control and fell by 5% year-on-
year.
* The net result from financial instruments at fair value amounted to 103
million euros in the first nine months of 2014, compared with 620 million
euros for the corresponding period of the previous year. The first nine
months of this year were influenced primarily by a negative result of 186
million euros on the marked-to-market valuations in respect of the
derivative instruments used for asset/liability management purposes,
compared to a positive 250 million euros for the first nine months of 2013.
* Net realised gains from available-for-sale assets stood at 127 million euros
for the period under review, compared with 183 million euros for the first
nine months of the previous year. Some 43% of the gains were realised on the
sale of bonds and 57% on the sale of shares.
* Net fee and commission income amounted to 1 171 million euros, up 6% year-
on-year (even on a comparable basis). Assets under management stood at 180
billion euros, up 13% since the end of September 2013 because of price
effects (9%) and net entries (4%).
* Other net income came to -8 million euros as opposed to 296 million euros in
the year-earlier period. This item was strongly affected by provisioning in
2Q2014 for the new Hungarian act on retail loans: 'Resolution of certain
issues related to the Supreme Court's (Curia) uniformity decision on
consumer loan agreements concluded by financial institutions' (-231 million
euros).
Operating expenses (adjusted net result)
* Operating expenses came to 2 789 million euros in 9M2014, down 2% on their
year-earlier level. On a comparable basis, costs decreased by 1%, with the
higher bank tax in Belgium and Hungary and higher staff expenses and general
administrative expenses in Ireland being offset by lower operating expenses
at the Group Centre and a positive foreign exchange impact. The year-to-date
cost/income ratio came to a relatively high 59%, but resulted primarily from
the fact that the denominator (total income) suffered from negative marked-
to-market valuations of ALM derivatives and the impact of the new act on
retail loans in Hungary. Adjusted for specific items, the cost/income ratio
stood at 54%.
Impairment charges (adjusted net result)
* Loan loss impairment stood at 398 million euros in 9M2014, well down on the
693 million euros recorded a year earlier. The annualised credit cost ratio
stood at 0.41% year-to-date. This breaks down into 0.20% for the Belgian
Business Unit (down from 0.37% for FY2013), 0.13% in Czech Republic Business
Unit (compared with 0.26% for FY2013) and 1.09% for the International
Markets Business Unit (down from 4.48% for FY2013).
* Other impairment charges came to 26 million euros and were related to
impairment on available-for-sale assets and other items.
Income tax
* Income tax amounted to 469 million euros for the first nine months of 2014.
Impact of the legacy business and own credit risk on the result:
* CDOs: During the first nine months of 2014, KBC collapsed the remaining CDOs
in its portfolio. When account is taken of the impact of the fee for the CDO
guarantee scheme with the Belgian Federal Government, the movement of the
corporate and ABS credit spreads, the reduction in the net exposure to
legacy CDO positions, along with the termination costs, the total impact on
KBC's income statement for 9M2014 came to a positive 23 million euros (post
tax).
* Remaining divestments: A total positive post-tax impact of 131 million euros
was recorded for 9M2014, based mainly on a reversal of the impairment
recorded on the participation in Antwerp Diamond Bank in 2012 and 2013.
* Impact of own credit risk valuation: The comparable levels of credit spreads
on KBC debt at the end of December 2013 and the end of September 2014
resulted in a virtually no marked-to-market adjustments being made in
9M2014.
Equity and solvency
* At the end of September 2014, total equity came to 16.2 billion euros - up
1.7 billion euros on its level at the start of the year - due mainly to the
inclusion of the Additional Tier-1 instrument
(+1.4 billion euros) issued in March. Other
factors impacting total equity in the first nine months of 2014 were the
repayment of 0.5 billion euros (including the 50% penalty) in Flemish state
aid, the inclusion of the 9M2014 results (+1.3 billion euros) and the
calling for redemption of Funding Trust securities (-0.4 billion euros in
minority interests).
* The group's common equity ratio (Basel III, fully loaded, under the Danish
Compromise, including the remaining aid from the Flemish Regional
Government) stood at a strong 13.7% at 30 September 2014.
* The solvency ratio for KBC Insurance was an excellent 329% at 30 September
2014, up from the already high 281% at the end of 2013.
Liquidity
* The group's liquidity remains excellent, as reflected in an LCR ratio of
120% and an NSFR ratio of 109% at the end of the third quarter.
Selected balance sheet data
Highlights of
consolidated
balance sheet
* 31-03-2013 30-06-2013 30-09-2013 31-12-2013 31-03-2014 30-06-2014 30-09-2014 31-12-2014
KBC Group (in
millions of
EUR)
Total assets 255 753 250 557 247 530 238 686 246 179 252 768 251 612 -
Loans and
advances to 127 112 129 179 125 795 120 371 120 810 124 661 125 898 -
customers
Securities
(equity and 64 777 65 435 63 854 64 904 66 313 68 380 69 530 -
debt
instruments)
Deposits from
customers and 164 766 164 213 166 223 161 135 163 838 166 407 166 843 -
debt
certificates
Technical
provisions, 18 836 18 805 18 803 18 701 18 941 19 007 19 065 -
before
reinsurance
Liabilities
under
investment 11 664 11 606 11 684 11 787 11 976 12 322 12 540 -
contracts,
insurance
Parent
shareholders' 12 505 12 119 11 895 11 826 11 968 12 318 12 840 -
equity
Non-voting
core-capital 3 500 3 500 2 333 2 333 2 000 2 000 2 000 -
securities
------------------------------------------------------------------------------------------------------
* Note that the 2013 reference figures have been a
Unternehmensinformation / Kurzprofil:
Datum: 13.11.2014 - 07:01 Uhr
Sprache: Deutsch
News-ID 352143
Anzahl Zeichen: 65566
contact information:
Town:
Brussels
Kategorie:
Business News
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"KBC Group : Strong results and completion of divestment programme"
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