KBC GROUPE NV Press Release
Outside trading hours - Regulated information*
Brussels, 11 August 2016 (07.00 a.m. CEST)
KBC Group: Strong first-half profit of 1.1 billion euros. Interim dividend of 1 euro to be paid in November. Against a background of persisting low interest rates, modest economic growth in Belgium and firmer growth in Central Europe, KBC posted a strong net profit figure of 721 million euros in the second quarter of 2016, up on the 392 million euros recorded in the preceding quarter and above the 666 million euros returned in the second quarter of 2015. As proof of our clients' trust in us, we again increased our lending and deposit volumes in the second quarter. Our result was driven by a good level of total income in our traditional business activities, flat operating expenses (disregarding bank taxes) and what is still a very low level of loan impairment charges. It was also boosted by the one-off positive impact of our sale of Visa Europe shares. Added to the 392 million euros net profit realised in the first quarter, this brings our result for the first six months of the year to 1 113 million euros, compared to 1 176 million euros for the same period in 2015. The results were complemented by strong fundamentals relating to our solvency and liquidity positions. The Board of Directors approved a new dividend policy for KBC Group. Starting this year, and barring exceptional or unforeseen circumstances, KBC will pay each year an interim dividend of 1 euro in November of the accounting year as well as a final dividend after the Annual Shareholders' Meeting. The interim dividend will be an advance payment on the total dividend. The current policy of paying a total dividend (and additional tier-1 coupon) of at least 50% of the annual consolidated profit is confirmed. The interim dividend of 1 euro per share for the accounting year 2016 will be paid on 18 November 2016.Financial highlights for the second quarter of 2016, compared with the previous quarter:
Both our banking and insurance franchises in our core markets and core activities performed well.
Our lending volume was up in Belgium (+1%), the Czech Republic (+2%), Slovakia (+3%) and Bulgaria (+3%), while clients further increased their deposits in all countries: Belgium (+5%), the Czech Republic (+3%), Slovakia (+4%), Hungary (+4%), Bulgaria (+1%) and Ireland (+2%).
Our net interest income was more or less unchanged quarter-on-quarter, with the negative impact of low interest rates being offset by positive elements such as growth in both current account and lending volumes, lower funding costs and rate cuts on saving accounts. The group's net interest margin was down slightly quarter-on-quarter, from 1.96% to 1.94% driven by lower reinvestment yields and pressure on commercial margins.
Premium income earned on our non-life insurance products was up 2%, but claims rose to a greater extent (by 6%), due to the inclement weather and floods in Belgium and the Czech Republic. Our non-life combined ratio ended up at 95% year-to-date.
Our total assets under management stood at 207 billion euros. This was roughly the same level as in the first quarter, since the small net outflow of assets was offset by a small price increase. Following the decrease in the first quarter, our net fee and commission income went up again (by 4%), due mainly to higher management fees on mutual funds and higher credit fees.
The sale of our Visa Europe shareholding resulted in one-off additional income of 99 million euros (pre- tax), or 84 million euros (after tax).
At 904 million euros, costs fell by 24%, since the bulk of bank taxes were booked in the first quarter of the year. Disregarding these taxes, costs remained unchanged quarter-on-quarter. The cost/income ratio stood at 59% year-to-date. After evenly spreading the bank taxes and excluding specific items, the cost/income ratio came to 56%.
The year-to-date cost of credit amounted to an excellent but unsustainably low 0.07% of our loan portfolio. Lowered guidance for Irish loan impairment charges towards 0-40 million euros for the full year.
Our liquidity position remained solid, and our capital base - with a common equity ratio of 14.9% (phased-in, Danish compromise) - remained well above the regulators' target of 10.25% for 2016.
Johan Thijs, our group CEO, adds:
'The continuing low level of interest rates, together with volatility on the financial markets, present a challenge for all financial institutions, including our own. In these demanding economic circumstances, we continue to be the bank-insurer that puts its clients centre stage. We see our
clients as our partners, with whom we can work together to help build society and create sustainable economic growth. Clients continue to entrust their deposits to us and count on us to help them realise and protect their projects. This quarter, lending and deposit volumes increased again, as did premium income earned in our non-life insurance business. The second quarter was characterised by a good level of total income in our core business, flat operating expenses and a continuing low cost of credit. The one-off gain on the sale of our Visa Europe shareholding added to the result. Our bank- insurance concept ultimately generated a strong result of 721 million euros in the second quarter of this year.
The solvency and liquidity positions of KBC Group remain very solid, as reflected in the actual ratios but also in the July stress test results published by EBA. This is reassuring to clients, employees and stakeholders alike. The Board of Directors approved a new dividend policy for KBC Group. Starting this year, and barring exceptional or unforeseen circumstances, KBC will pay each year an interim dividend of 1 euro in November of the accounting year as well as a final dividend after the Annual Shareholders' Meeting. The interim dividend will be an advance payment on the total dividend. The current policy of paying a total dividend (and additional tier-1 coupon) of at least 50% of the annual consolidated profit is confirmed. The interim dividend of 1 euro per share for the accounting year 2016 will be paid on 18 November 2016.
Ultimately, 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. The Euromoney Best Bank Awards for Belgium and Hungary which we received in July are not only an encouraging signal for us, they also fill us with pride. We are genuinely grateful for the trust our clients place in us and this yet again illustrates the success of our bank-insurance model.'
Overview KBC Group (consolidated) | 2Q2015 | 1Q2016 | 2Q2016 | 1H2015 | 1H2016 |
Net result, IFRS (in millions of EUR) | 666 | 392 | 721 | 1 176 | 1 113 |
Basic earnings per share, IFRS (in EUR)* | 1.56 | 0.91 | 1.69 | 2.75 | 2.60 |
Breakdown of the net result, IFRS, by business unit (in millions of EUR) | |||||
Belgium | 528 | 209 | 371 | 858 | 579 |
Czech Republic | 127 | 129 | 191 | 271 | 320 |
International Markets | 68 | 60 | 123 | 92 | 183 |
Group Centre | -57 | -6 | 37 | -44 | 31 |
Parent shareholders' equity per share (in EUR, end of period) | 32.5 | 34.3 | 35.5 | 32.5 | 35.5 |
* Note: if a coupon were paid on the core-capital securities sold to the Flemish Regional Government (in 2015) and a coupon is paid on the additional tier-1 instruments included in equity, it will be deducted from the numerator (pro rata). If a penalty had to be paid on the core-capital securities (in 2015), it will likewise be deducted.
Highlights in the quarter under review
Our core strategy remains focused on providing bank-insurance products and services to retail, SME and mid-cap clients in Belgium, the Czech Republic, Slovakia, Hungary and Bulgaria.
On the macroeconomic front, the most significant economic risk to the euro-area economy, the Brexit, materialised after the referendum in the UK on 23 June. This initially increased volatility on the financial markets and weighed on both producer and consumer sentiment. So far, however, the overall real impact has still been limited. Nevertheless, it will have a negative effect on the economic recovery in the euro area. In particular, it will emphasise the main source of fragility, i.e. the relative weakness of investment growth. The Brexit decision occurred against the background of relatively favourable economic data. The strong first-quarter growth of real GDP in the euro area, which accelerated to 0.6%, had supported a somewhat optimistic view. However, this robust performance could not be sustained in the second quarter, when growth came to just 0.3%. This is more in line with the potential growth rate of the euro area. As a result, the euro area unemployment rate continued its slow but steady decline to 10.1% in June. Economic growth in the second quarter was surprisingly weak in the US too (0.3% not annualised), despite the strong increase in private consumption. The weakness was due mainly to disappointing investment growth and a decline in inventories. In the meantime, global inflation remains subdued. In the US, inflation has reached relatively normal levels. In the euro area, on the other hand, the latest core inflation rate is still only half the target rate set by the European Central Bank (2%). The underlying reasons for this include the still high rate of unemployment, subdued nominal wage growth, and the trade-weighted appreciation of the euro, making import price inflation even more negative.
We remained adequately capitalised under the 2016 EU-wide EBA stress test, as announced by the European Banking Authority (EBA) at the end of July. The impact of the stress test on our fully loaded Common Equity Tier-1 ratio (common equity ratio: 14.9% at year-end 2015) increased this ratio by 1.3 percentage points to 16.2% under the baseline scenario (+1.0 percentage points on a transitional basis). Under the adverse scenario, our fully loaded common equity ratio would fall by 3.6 percentage points to 11.3% (-3.9 percentage points on a transitional basis, likewise falling to 11.3%). So we remain adequately capitalized even in an adverse scenario. Our leverage ratio, which stood at 6.32% at the end of 2015, would increase to 7.4% under the baseline scenario and only decrease to 5.7% under the adverse scenario. The outcome of the exercise provided a reassuring signal to all stakeholders placing their trust in us that our institution is well capitalised. We will continue to ensure that appropriate levels of capital are maintained.
We are continuing to pro-actively roll out our financial technology plans so we can serve our clients even better going forward. In June 2016, we announced that clients of ČSOB and Era Poštovní spořitelna (Postal Savings Bank) would be able to pay for their shopping by mobile phone, courtesy of a new app called ČSOB NaNákupy (Mobile Wallet). This is the first mobile wallet in the Czech Republic to support both MasterCard and Visa. Another plus point for the app is that it can be used without the need for a new bank card or SIM. By the end of the year, additional features will be provided. The mobile app will allow payments over the Internet, card management and enable the transaction history to be viewed. Users will have the option of downloading their loyalty cards, receipts or using shared shopping lists in their devices.
In July 2016, we announced the launch of a trial ground-breaking blockchain application for SMEs. Together with IT specialist Cegeka and various other companies, we are the first in the market to successfully test Digital Trade Chain (DTC), a blockchain solution that facilitates secure international trade between SMEs. Large companies use documentary credit as a way of reducing the risks involved in doing business, but this solution is not always suitable for SMEs. We are continuing to develop DTC and are negotiating with additional parties to make the platform more widely available and easier to access. In July 2016, we announced that we were cooperating with ING on an integrated payment and loyalty solution in Belgium. In doing so, we are responding to the rapidly changing digital experience of clients. These user-friendly and cost-effective solutions are already being used in the Belgian market by over a million Qustomer, CityLife and Payconiq users at more than 6 500 stores. This network will continue to expand in the months to come.
In July 2016, KBC in Belgium and K&H in Hungary won the Euromoney Award for 'Best Bank' in their respective countries. Euromoney welcomed 600 senior bankers from around the world to celebrate the 25th anniversary of its Awards for Excellence. The awards are based on year-round monitoring of market share and customer-satisfaction data compiled by Euromoney's industry-leading surveys department. These awards clearly demonstrate that our client-oriented approach is working.
Overview of our results and balance sheet
We provide a full overview of our IFRS consolidated income statement and balance sheet in the 'Consolidated financial statements' section of the quarterly report. Condensed statements of comprehensive income, changes in shareholders' equity, as well as several notes to the accounts, are also available in the same section.
Consolidated income statement, IFRS KBC Group (in millions of EUR) | 2Q 2015 | 3Q 2015 | 4Q 2015 | 1Q 2016 | 2Q2016 | 1H2015 | 1H2016 |
Net interest income | 1 092 | 1 062 | 1 066 | 1 067 | 1 070 | 2 183 | 2 137 |
Interest income | 1 804 | 1 770 | 1 725 | 1 720 | 1 654 | 3 654 | 3 375 |
Interest expense | -712 | -708 | -659 | -653 | -585 | -1 471 | -1 238 |
Non-life insurance (before reinsurance) | 155 | 142 | 147 | 145 | 141 | 322 | 286 |
Earned premiums | 326 | 335 | 338 | 341 | 349 | 646 | 690 |
Technical charges | -172 | -193 | -191 | -196 | -208 | -324 | -404 |
Life insurance (before reinsurance) | -51 | -51 | -51 | -35 | -38 | -99 | -73 |
Earned premiums | 265 | 289 | 445 | 426 | 402 | 567 | 827 |
Technical charges | -316 | -340 | -496 | -461 | -440 | -666 | -901 |
Ceded reinsurance result | -7 | 0 | -10 | -8 | -13 | -18 | -21 |
Dividend income | 39 | 13 | 12 | 10 | 36 | 51 | 46 |
Net result from financial instruments at fair value through P&L | 179 | 47 | -68 | 93 | 154 | 236 | 247 |
Net realised result from available-for-sale assets | 36 | 44 | 30 | 27 | 128 | 116 | 155 |
Net fee and commission income | 465 | 383 | 371 | 346 | 360 | 924 | 706 |
Fee and commission income | 634 | 547 | 533 | 507 | 517 | 1 267 | 1 024 |
Fee and commission expense | -169 | -164 | -162 | -161 | -157 | -343 | -318 |
Other net income | 105 | 96 | 47 | 51 | 47 | 154 | 98 |
Total income | 2 013 | 1 736 | 1 543 | 1 697 | 1 885 | 3 868 | 3 581 |
Operating expenses | -941 | -862 | -962 | -1 186 | -904 | -2 066 | -2 090 |
Impairment | -149 | -49 | -472 | -28 | -71 | -226 | -99 |
on loans and receivables | -138 | -34 | -78 | -4 | -50 | -211 | -54 |
on available-for-sale assets | -7 | -15 | -21 | -24 | -20 | -9 | -43 |
on goodwill | 0 | 0 | -344 | 0 | 0 | 0 | 0 |
other | -5 | 0 | -29 | -1 | -1 | -6 | -2 |
Share in results of associated companies and joint ventures | 8 | 6 | 5 | 7 | 6 | 14 | 13 |
Result before tax | 930 | 831 | 114 | 489 | 916 | 1 589 | 1 405 |
Income tax expense | -264 | -231 | 749 | -97 | -194 | -413 | -292 |
Net post-tax result from discontinued operations | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Result after tax | 666 | 600 | 863 | 392 | 721 | 1 176 | 1 113 |
attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
attributable to equity holders of the parent | 666 | 600 | 862 | 392 | 721 | 1 176 | 1 113 |
Basic earnings per share (EUR)* | 1.56 | 1.41 | -0.36 | 0.91 | 1.69 | 2.75 | 2.60 |
Diluted earnings per share (EUR)* | 1.56 | 1.41 | -0.36 | 0.91 | 1.69 | 2.75 | 2.60 |
* Note: if a coupon is paid on the core-capital securities sold to the Flemish Regional Government and a coupon is paid on 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.
KBC Group NV published this content on 11 August 2016 and is solely responsible for the information contained herein.
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