KBC Group: Second-quarter result of 692 million euros

Press Release
Outside trading hours - regulated information

Brussels, 9 August 2018, (07.00 a.m. CEST)

   KBC Group: Second-quarter result of 692 million euros

2Q2018

We recorded a net profit of 692 million euros in the second quarter of 2018. Yet again a good result, thanks, among other things, to a sound level of net interest income, a strong non-life insurance result and seasonally high dividend income, which partly offset the decrease in trading and fair value income, the slight drop in fee and commission income and the negative one-off impact related to the settlement of a legacy legal case. Given seasonal effects, costs remained under control and moreover, we were able yet again to release some loan loss provisions, mainly related to our Irish mortgage book. Adding the result for the second quarter to the 556-million-euro net profit figure for the previous quarter brings our result for the first half of 2018 to a solid 1 248 million euros. Our solvency position remained strong too, with a common equity ratio of 15.8% at the end of June 2018, comfortably surpassing the regulatory minimum levels in this respect.

In April, we successfully issued a new additional tier-1 instrument for an amount of 1 billion euros. And early July, we  completed our announced buyback of 2.7 million own shares for a total consideration of 181 million euros. The cancellation of these shares has reduced the total number of KBC Group shares to 415 897 567. Lastly, in line with our dividend policy, we decided to pay an interim dividend of 1 euro per share on 16 November 2018, as an advance payment on the total dividend for 2018.

We also took important new steps in the implementation of our sustainability strategy. In May, for instance, KBC - as promoter - became the first financial institution in the Belgian market to launch an SRI pension savings fund. The fund in question is managed by KBC Asset Management and is fully compliant with BEAMA sustainability criteria. In June, we published our stricter policies for sustainable banking and insurance and in doing so, are responding to the constantly evolving expectations of our stakeholders and the wider community. And again in June, we were the first Belgian financial institution to launch a green bond. 

On the broader economic front, European economic conditions have remained attractive, though we believe that the growth peak is likely behind us. The risk of further economic de-globalisation, with an escalation of trade conflicts, remains the main factor that could impede European economic growth.

In closing, I'd like to take this opportunity again to thank our clients and other stakeholders for the trust they place in our company and our employees, and to repeat that we remain fully committed and focused in our efforts to become the reference in bank-insurance in all our core countries.

Important non-adjusting post-balance sheet event

I'm also pleased to announce that KBC Bank Ireland reached an agreement with Goldman Sachs to sell a part (approximately 1.9 billion euros) of its legacy loan portfolio. As a result of that transaction, KBC Bank Ireland's impaired loans ratio reduces by roughly 11 percentage points to around 25% pro forma at end 2Q2018. The transaction is expected to result in a net profit impact of +14 million euros (based on 1Q2018 numbers and including all costs related to the transaction), a release of risk-weighted assets of approximately 0.4 billion euros at KBC Group, leading to an improvement of the KBC Group common equity ratio of 7 bps. The transaction is expected to close in the 4th quarter of 2018. 

Johan Thijs

Chief Executive Officer

Important. As of 2018, we have started applying IFRS 9. In simplified terms, this means that the classification of financial assets and liabilities, as well as the impairment methodology, have changed significantly. As a result, some of the profit and loss and balance sheet figures are not fully comparable to the 2017 reference figures (which are still based on IAS 39, as KBC is making use of transition relief for comparative data). In order to enhance transparency, we have also, as of 2018 and in line with IFRS 9, moved interest accruals for FX derivatives in the banking book from 'fair value income' to 'net interest income'. We also shifted network income (income received from margins earned on FX transactions carried out by the network for our customers) from 'trading and fair value income' to 'net fee and commission'. A short overview is provided in the annex. Furthermore, related to IFRS 9, we changed, as of 2018, the definition of our loan portfolio from outstanding to gross carrying amount (i.e. incl. reserved and accrued interests) and slightly amended the scope. In order to enhance comparability, we have added certain comparisons with pro forma (recalculated) figures for 2017 (unaudited) in the analysis below. When this is done, it is indicated by the words 'on a comparable basis'.

Full press release & quarterly report attached