KBC Group: exceptionally strong result of 855 million euros in the second quarter.
Against the background of strong economic growth, low inflation, an appreciating euro and low interest rates, KBC delivered an exceptionally strong performance in the second quarter of 2017, posting a net profit of 855 million euros. The quarter under review included robust total income and significant loan loss impairment releases. This brought our net result for the first half of the year to 1 485 million euros, one-third higher than the 1 113 million euros recorded in the first half of 2016. Moreover, our lending and deposit volumes continued to grow in the second quarter of 2017, and our solvency and liquidity position remained strong. In line with our dividend policy, we will pay an interim dividend of 1 euro per share on 17 November 2017.
Financial highlights for the second quarter of 2017
• Both our banking and insurance franchises in our core markets and core activities continued to perform strongly.
• On a comparable basis, lending to and deposits received from our clients continued to increase in all business units. Lending and deposits each went up by 2% quarter-on-quarter and by a respective 4% and 8% year-on-year.
• Net interest income – our main source of income – was slightly higher (+0.3%) than in the previous quarter (even after a technical shift to trading and fair value income), but was down 4% on its year-earlier level. The net interest margin came to 1.86%, down 2 basis points quarter-on-quarter and 8 basis points year-on-year.
• Year-on-year, the premium income we earned on our non-life insurance products increased by 6% while claims fell by 9%. Consequently, our non-life combined ratio for the first half of 2017 ended up at an exceptional 84%. Sales of our life insurance products decreased by some 12% quarter-on-quarter and were down 26% on the high level recorded a year ago.
• Our net fee and commission income remained strong: it went up 19% year-on-year, thanks in the main to our asset management services. Compared to the previous quarter, net fee and commission income slightly decreased by 2%.
• Our other income items combined rose 15% quarter-on-quarter and 4% year-on-year, thanks primarily to high trading and fair value income.
• Our operating expenses were significantly down on their level in the first quarter, which had included the upfront booking of most of the bank taxes for the full year. Excluding these taxes, expenses increased by 3% quarter-on-quarter and 5% year-on-year. As a consequence, when the bank taxes are evenly spread throughout the year and certain non-operating items excluded, our adjusted cost/income ratio for the first half of 2017 stands at a comfortable 53%.
• The quarter under review included 78 million euros in net loan loss impairment releases. This was due essentially to 87 million euros in impairment releases in Ireland, combined with a generally very low level of impairment in all other countries. Consequently, our cost of credit amounted to a very favourable -0.10% in the first half of 2017 (a negative figure indicates a positive impact on profit).
• Our liquidity position remained strong, as did our capital base, with a common equity ratio of 15.7% (fully loaded, Danish compromise), despite the first-time consolidation of United Bulgarian Bank and Interlease.
Johan Thijs, our Group CEO, says:
‘We have continued where we left off in the first quarter, delivering another excellent performance in the second quarter on the back of robust revenues – including resilient net interest income, solid net fee and commission income and high trading and fair value results – and the release of loan loss provisions, especially in Ireland. This resulted in an exceptionally strong 855 million euros of net profit being posted in the quarter under review. Combined with the 630 million euros recorded in the first quarter, this brings our net result for the first half of 2017 to 1 485 million euros, a 33% increase on the figure for the comparable period of 2016.
The second quarter was also an important one on the strategic front. First of all, we finalised the acquisition of United Bulgarian Bank and Interlease, which has enabled us to take a quantum leap in Bulgaria, one of our six core countries. We have now become a strong market player in this core market and will be able to make a significant positive impact on the banking, insurance, asset management and leasing businesses that we will pursue there.
Secondly, we fleshed out our ‘Digital First’ strategy in Ireland at an Investor Visit event in Dublin on 21 June. We also provided an update of our group strategy, our capital deployment plan and our financial guidance. We have summarised our updated strategy in the slogan ‘more of the same but differently’. This means that we will leave our highly successful business model and strategy largely unchanged, but adapt it to the new digital reality. In all of this, our clients will drive the pace of action and change.
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. In closing, I'd like to take this opportunity again to thank all the stakeholders who have put their trust in us to help them achieve their goals and dreams.’
Overview KBC Group (consolidated, IFRS)
2Q2017 1Q2017 2Q2016 1H2017 1H2016
Net result (in millions of EUR) 855 630 721 1 485 1 113
Basic earnings per share (in EUR) 2.01 1.47 1.69 3.49 2.60
Breakdown of the net result by business unit (in millions of EUR)
Belgium 483 301 371 785 579
Czech Republic 183 181 191 364 320
International Markets 177 114 123 292 183
Group Centre 12 33 37 45 31
Parent shareholders’ equity per share (in EUR, end of period)
39.8 39.4 35.5 39.8 35.5
The core of our strategy
Our core strategy remains focused on providing bank-insurance products and services to retail, SME and mid-cap clients in our core countries of Belgium, Bulgaria, the Czech Republic, Hungary, Ireland and Slovakia.
Our strategy consists of four interacting cornerstones:
• We put our clients’ interests at the heart of what we do and strive to offer them high quality service and relevant solutions at all times.
• We strive to offer our clients a unique bank-insurance experience.
• We develop our group with a long-term perspective in order to achieve sustainable and profitable growth.
• We take our responsibility towards society and local economies very seriously and aim to reflect that in our everyday activities.
We are convinced that our strategy – powered by our culture and the efforts of our people – helps us earn, keep and grow trust day by day and, therefore, gives us the capacity to become the reference in our core markets.
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