Earnings Statement KBC Group, 3Q2012 and 9m 2012
2012-11-08 07:07:18 -
Regulated information* - 8 November 2012 (07.00 a.m. CET)
* This news release contains information that is subject to transparency
regulations for listed companies.
Date of release: 8 November 2012, 7 a.m. CET.
Summary: Strategy guidelines set, capital strengthened, risks reduced, profit
sustained.
IFRS-based net profit reported for the quarter under review came to 531 million
euros, compared with a net loss of 539 million euros in the previous quarter and
a net loss of 1 579 million euros in the year-earlier quarter. This means the
group has generated a total net profit of 372 million euros for the first nine
months of 2012, as opposed to a net loss of 424 million euros for the
corresponding period of 2011.
Excluding all exceptional and non-operating items, KBC ended the third quarter
of 2012 with an underlying net profit of 406 million euros, compared with a net
profit of 372 million euros in the previous quarter and a net loss of 248
million euros in the corresponding quarter of 2011. The underlying results for
the first nine months of 2012 amounted to 1 233 million euros, compared to 937
million euros for the corresponding period in 2011.
Johan Thijs, Group CEO:
'Good business performance, significant derisking and a further strengthening of
our capital and liquidity position were the main features of the third quarter
for KBC, a period in which we recorded 406 million euros in underlying net
profit.
In terms of operating income, our underlying result went up by 10% on a
comparable basis this quarter, driven by the good commercial performance of our
strategic banking and insurance business model in our home markets in Belgium
and Central and Eastern Europe. Net interest income continued to contract,
although this was due primarily to the lower income from asset and liability
management as well as the deconsolidation of various companies. Loans and
deposits, on the other hand, continued to grow at a good rate in our core
markets. Fee income was up and commercial insurance results remained good. The
quarter also featured an excellent (hence low) combined ratio but slightly
higher levels of loan loss impairments. These impairments are mainly the result
of loan loss provisioning in Ireland.
We have also closed the divestment of KBL epb, Zagiel and KBC Lease Deutschland.
In addition, we lowered our exposure to Southern European government bonds, and
the volatility of our profit by further reducing exposure to CDOs. These actions
have led to a further reduction in the risk profile of our company.
We have improved our already strong liquidity position, with a loan-to-deposit
ratio of 82% at the end of September. We have covered all funding needs for
2012 and are looking forward to issuing covered bonds in the foreseeable future.
At the beginning of the fourth quarter we successfully placed 350 million worth
of treasury shares in the market, pushing up our solvency ratios even further.
Our tier-1 capital ratio has risen further, bringing it to 15.3% in the third
quarter of 2012. This ratio amounts to 16.8% on a pro forma basis when the sale
of Kredyt Bank - which has been signed, but not yet closed - as well as the sale
of the treasury shares are included. Our estimated common equity ratio under
Basel III at the end of 2013 stands at 10.2% (fully loaded).
We are continuing our efforts to ensure that 4.67 billion euros in state aid
(before any penalty) is reimbursed by the end of 2013, as set out in the plan
agreed with the European Commission, with the aim of paying back a substantial
part before the end of 2012.
At the beginning of October we announced our updated strategy for the group for
2013 and beyond. Our goal is to become more agile and efficient and thus more
competitive. In doing so, we will not only adapt to changing client behaviour
but will also meet the legitimate expectations from society as a whole, to the
benefit of our clients, employees, shareholders and other stakeholders.'
Main exceptional and non-operating items impacting the reported IFRS result for
3Q2012:
A number of exceptional items were not part of the normal course of business and
were therefore excluded from the underlying results. Their combined impact in
3Q2012 amounted to 0.1 billion euros. Apart from some smaller items, the main
non-operating items in 3Q2012 were a valuation mark-up of 0.3 billion euros on
CDO exposure (resulting mainly from a tightening of corporate and ABS credit
spreads) and a negative 0.1 billion euros marked-to-market adjustment in
relation to KBC's own credit risk.
Financial highlights for 3Q2012 compared to 2Q2012:
* Good commercial results.
* Decline in net interest income due to lower reinvestment yield and
deconsolidation of Warta.
* Growth in loan and deposit volumes in our core markets.
* Excellent combined ratio at 90% year-to-date.
* Robust sales of unit-linked life products.
* Net fee and commission income up 1% on a comparable basis.
* Strong gains from financial instruments at fair value, mainly driven by
positive CVA changes.
* Underlying cost/income ratio at 57% year-to-date.
* Credit cost ratio up slightly, to 0.63% year-to-date. Excluding Ireland,
this ratio stands at 0.27%.
* Further reduction in exposure to Southern European government bonds (by
almost one-third in this quarter).
* Strong liquidity with an excellent loan-to-deposit ratio of 82%.
* Solvency: continued strong capital base: pro forma tier-1 ratio - including
the effect of the sale of Kredyt Bank, which has been signed, but not yet
closed, and the sale of treasury shares - at approximately 16.8% (with a
core tier-1 ratio of 14.7%).
Overview 3Q2011 2Q2012 3Q2012 Cumul. 9M2011 Cumul. 9M2012
KBC Group (consolidated)
Net result, IFRS (in -1 579 -539 531 -424 372
millions of EUR)
Basic earnings per share, -5.08 -1.99 1.16 -2.56 -0.13
IFRS (in EUR)(1)
-------------------------------------------------------------------------------
Underlying net result (in -248 372 406 937 1 233
millions of EUR)
Underlying basic earnings -1.17 0.69 0.79 1.45 2.41
per share (in EUR)(1)
Breakdown of underlying
net result per business
unit (in millions of
EUR)
Belgium 32 226 290 551 782
Central & -40 188 169 229 475
Eastern Europe
Merchant -196 -65 10 43 -12
Banking
Group Centre -44 23 -64 114 -11
-------------------------------------------------------------------------------
Parent shareholders'
equity per share (in EUR, 28.9 28.5 31.3 28.9 31.3
end of period)
-------------------------------------------------------------------------------
The IFRS and underlying income statement summary tables are provided below in
this earnings statement.
1 Note: If a coupon is expected to be paid on the core-capital securities sold
to the Belgian and Flemish governments, it will be deducted from the numerator
(pro rata). If a penalty has to be paid, it will likewise be deducted.
Underlying results
Highlights of 3Q2012 (excluding exceptional and non-operating items)
In addition to the figures according to IFRS (next section), KBC provides
'underlying' figures aimed at giving more insight into the business performance.
The differences with the IFRS figures relate to the exclusion of exceptional or
non-operating items and a different accounting treatment of certain hedging
results and capital-market income.
A full explanation of the differences between the IFRS and underlying figures is
provided in the 'Consolidated financial statements' section of the quarterly
report, under 'Notes on segment reporting'. A reconciliation table for the net
result is provided below.
Consolidated Cumul Cumul
income 9M2011 9M2012
statement,
underlying
KBC Group (in
millions of 4Q 4Q
EUR) 1Q 2011 2Q 2011 3Q 2011 2011 1Q 2012 2Q 2012 3Q 2012 2012
Net interest 1 374 1 390 1 342 1 298 1 211 1 150 1 087 - 4 106 3 448
income
Earned
premiums,
insurance 1 141 975 972 1 033 884 890 578 - 3 088 2 352
(before
reinsurance)
Technical
charges,
insurance -1 016 -843 -817 -880 -752 -757 -499 - -2 676 -2 009
(before
reinsurance)
Ceded
reinsurance -17 -8 -18 -1 -14 -1 -12 - -43 -27
result
Dividend 8 37 14 15 5 21 10 - 59 36
income
Net result
from financial
instruments at 259 102 10 138 326 113 256 - 371 695
fair value
through profit
or loss
Net realised
result from 53 42 11 85 31 6 57 - 106 95
available-for-
sale assets
Net fee and
commission 399 394 367 374 306 310 349 - 1 161 965
income
Other net 73 72 -210 12 -8 53 74 - -64 120
income
------------------------------------------------------------------------------------------
Total income 2 274 2 161 1 673 2 075 1 989 1 786 1 900 - 6 107 5 676
------------------------------------------------------------------------------------------
Operating -1 227 -1 155 -1 172 -1 -1 110 - 1 016 -990 - -3 553 -3 116
expenses 133
Impairment - 105 -333 -740 -730 -271 -241 -305 - -1 179 -816
on loans
and -97 -164 -475 -599 -261 -198 -283 - -736 -742
receivables
on
available-for- -6 -135 -228 -85 -5 -24 -4 - -369 -33
sale assets
on 0 0 0 0 0 0 0 - 0 0
goodwill
on other -2 -35 -38 -46 -5 -18 -18 - -75 -41
Share in
results of 1 0 -23 -35 -9 -9 -13 - -22 -32
associated
companies
------------------------------------------------------------------------------------------
Result before 943 673 -262 177 599 520 592 - 1 353 1 711
tax
------------------------------------------------------------------------------------------
Income tax - 271 -138 22 -9 -136 -144 -177 - -388 -457
expense
------------------------------------------------------------------------------------------
Result after 671 534 -240 167 463 376 415 - 966 1 254
tax
------------------------------------------------------------------------------------------
attributable 14 6 8 7 7 5 9 - 28 21
to minority
interests
attributable
to equity 658 528 -248 161 455 372 406 - 937 1 233
holders of the
parent
------------------------------------------------------------------------------------------
280 238 32 251 266 226 290 - 551
782
Belgium
Central & 123 146 -40 98 118 188 169 - 229 475
Eastern Europe
Merchant 177 63 -196 -153 42 -65 10 - 43 -12
Banking
77 81 -44 -35 30 23 -64 - 114
-11
Group Centre
------------------------------------------------------------------------------------------
Basic earnings
per share 1.50 1.11 -1.17 -0.19 0.93 0.69 0.79 - 1.45 2.41
(EUR)
Diluted 1.50 1.11 -1.17 -0.19 0.93 0.69 0.79 - 1.45 2.41
earnings per
share (EUR)
------------------------------------------------------------------------------------------
Reconciliation
of underlying
and IFRS
result
KBC Group (in
millions of 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Cumul Cumul
EUR) 2011 2011 2011 2011 2012 2012 2012 2012 9M2011 9M2012
Result after
tax,
attributable
to equity 658 528 -248 161 455 372 406 - 937 1 233
holders of the
parent:
UNDERLYING
-------------------------------------------------------------------------------------------
+ MTM of
derivatives 96 -77 -245 -46 45 -29 -33 - -226 -16
for ALM
hedging
+ gains/losses 114 -108 -628 154 149 -32 274 - -621 391
on CDOs
+ impairment 0 -17 -57 -41 0 -16 0 - -74 -16
on goodwill
+ result on
legacy
structured 14 43 5 -12 -11 -7 6 - 62 -13
derivative
business (KBC
FP)
+ MTM of own -16 -25 185 215 -340 41 -144 - 144 -444
debt issued
+ results on -45 -12 -591 8 81 -868 23 - -647 -764
divestments
-------------------------------------------------------------------------------------------
Result after
tax,
attributable 821 333 -1 579 437 380 -539 531 - -424 372
to equity
holders of the
parent: IFRS
-------------------------------------------------------------------------------------------
The underlying net result for the quarter under review amounted to 406 million
euros, compared to 372 million euros in 2Q2012 and -248 million euros in 3Q2011.
Gross income up by 10% quarter-on-quarter on a comparable basis.
* Underlying net interest income stood at 1 087 million euros, down 19% year-
on-year and 5% quarter-on-quarter. The year-on-year performance was
accounted for partly by the deconsolidation of KBL epb, Warta, Zagiel and
Fidea, the quarter-on-quarter performance by the deconsolidation of Warta
and Zagiel. Leaving these items out, net interest income was down by 13%
year-on-year and 4% quarter-on-quarter. This was due primarily to the lower
income from asset and liability management. The net interest margin came to
1.74% for the quarter under review, 8 basis points lower than in the
previous quarter and 25 basis points less than the high level of a year
earlier. In the Belgium Business Unit, both deposit and credit volumes were
up quarter-on-quarter and year-on-year (credit: +6% year-on-year and +1%
quarter-on-quarter; deposits: +4% year-on-year and 1% quarter-on-quarter).
The loan book in the CEE Business Unit increased by 6% year-on-year
(attributable to the Czech Republic and Slovakia), and by 2% quarter-on-
quarter, while deposits rose by 3% year-on-year and 1% quarter-on-quarter.
The loan portfolio in the Merchant Banking Business Unit was down 4% year-
on-year and 5% quarter-on-quarter, while the deposit base shrunk by 25%
year-on-year (primarily in the last quarter of 2011, caused mainly by
reduced short-term deposits in our New York branch and at KBC Bank Ireland),
and 4% quarter-on-quarter. The reduction was in line with the building down
of our overseas balance sheet in the Merchant Banking business.
* Both the life and non-life insurance businesses performed well during the
quarter under review. In total, gross earned premiums less gross technical
charges and the ceded reinsurance result came to 67 million euros, down 51%
year-on-year and 49% quarter-on-quarter. However, when account is taken of
the deconsolidation of Fidea, VITIS and Warta, this result was up 22%
quarter-on-quarter and down 3% year-on-year.
The non-life segment was characterised by a good level of premiums and
relatively low claims. The combined ratio for the year to date came to an
excellent 90%.
In the life segment and on a comparable basis, sales of life insurance products
fell by 24% quarter on quarter (compared to the very successful second quarter).
Year-on-year, these sales rose by as much as 17%.
It should be noted that the strong insurance results were also driven by good
investment income, as well as by strict control of general administrative
expenses.
* The net result from financial instruments at fair value amounted to 256
million euros in the quarter under review, well up on the figure for the
previous quarter and on the year-earlier figure. This item was impacted by a
significant positive CVA adjustment in the third quarter.
* Net realised gains from available-for-sale assets stood at 57 million for
the quarter under review, well above the 33-million-euro average for the
last four quarters. This item was characterised by significant gains on the
sale of shares as well as lower losses on the sale of bonds.
* Net fee and commission income amounted to 349 million euros, up 12% quarter-
on-quarter but down 5% year-on-year. The year-on-year performance was
accounted for partly by the deconsolidation of KBL epb, Warta, Zagiel and
Fidea, the quarter-on-quarter performance by the deconsolidation of Warta
and Zagiel. Leaving these items out, income was up by 7% year-on-year and
1% quarter-on-quarter. Assets under management stood at 155 billion euros,
up 3% on the year-earlier figure and on the figure for the second quarter of
2012, thanks to a positive investment performance.
* Other net income came to 74 million euros, 44 million euros of which was
recovered with respect to the KBC Lease UK fraud case.
Operating expenses well under control.
* Operating expenses came to 990 million euros in the third quarter of 2012,
down 3% on their level in the previous quarter and 15% on their year-earlier
level. The year-on-year performance was accounted for partly by the
deconsolidation of KBL epb, Warta, Zagiel and Fidea, the quarter-on-quarter
performance by the deconsolidation of Warta and Zagiel. Excluding
deconsolidated companies, underlying costs increased by 1% compared to the
previous quarter but decreased by 2% compared to the year-earlier quarter.
The amount recovered under the Belgian deposit guarantee scheme (partly
offsetting the additional bank tax in Belgium) in the second quarter is the
main explanation of the quarterly increase. The year-to-date cost/income
ratio came to 57%, a clear indication that costs remain well under control.
Low credit cost ratios overall; loan loss provisions for Ireland still sizeable
and increase in corporate credit cost ratio.
* Loan loss impairment stood at 283 million euros in the third quarter, up on
the 198 million euros recorded in the previous quarter, but down on the 475
million euros recorded a year earlier. The quarterly increase was accounted
for by the fact that loan loss impairment of 129 million euros was recorded
at KBC Bank Ireland, as well as 49 million euros at KBC Finance Ireland with
a few large files. The credit cost ratios were low in the other business
activities, resulting in an annualised credit cost ratio of 0.63% year-to-
date. This breaks down into a very low 0.06% for the Belgian retail book
(compared to 0.10% for FY2011), 0.40% in Central and Eastern Europe (down
from 1.59% for FY2011, which had been adversely affected by Hungary and
Bulgaria) and 1.38% for Merchant Banking (marginally up from 1.36% for
FY2011). Excluding Ireland, the credit cost ratio for Merchant Banking stood
at 0.24% (down from 0.59% for FY2011).
* Impairment charges on available-for-sale assets came to 4 million euros and
other impairment charges amounted to 18 million euros in the quarter under
review.
Strong solvency capital position under Basel II.
* The group's tier-1 ratio (under Basel II) increased to a strong 15.3% at 30
September 2012 (core tier-1 ratio of 13.4%). Including the effect of the
sale of Kredyt Bank, which has been signed, but not yet closed, as well as
the sale of treasury shares, the pro forma tier-1 ratio was as high as
16.8% (core tier-1 ratio of 14.7%).
* The solvency ratio for KBC Insurance stood at an excellent 365% at 30
September 2012, up from 314% at the end of the previous quarter.
Highlights of underlying performance per business unit.
* The Belgium Business Unit contributed 290 million euros to profit in
3Q2012, compared to 226 million euros in the previous quarter. The quarter
was characterised by lower net interest income due to lower reinvestment
yields, good insurance sales and a very good combined ratio, stable fee
income, a low level of loan impairment and a high level of realised gains on
shares. Operating expenses remained very well under control.
* The CEE Business Unit (Czech Republic, Slovakia, Hungary and Bulgaria)
posted a profit of 169 million euros in 3Q2012, compared to 188 million
euros in the previous quarter, partly driven by somewhat higher impairment
on loans and receivables. Overall, impairment levels in the third quarter
remained low.
* The Merchant Banking Business Unit recorded a profit of 10 million euros in
3Q2012, compared to a loss of 65 million euros in 2Q2012. Profit was
impacted in part by the high - although decreasing - level of loan
impairment in Ireland, as well as by the large positive CVA at KBC Bank
Belgium, the satisfactory dealing room results and a recovery of an amount
related to the fraud case at KBC Lease UK. Excluding KBC Bank Ireland, net
profit for the Merchant Banking Business Unit in 3Q2012 would be 101 million
euros.
* It should be noted that all planned divestments in the KBC group are not
included in the respective business units, but have been grouped together in
the Group Centre in order to clearly indicate the financial performance of
the long-term activities and the planned divestments separately. In 3Q2012,
the Group Centre's net result came to a negative 64 million euros, compared
to 23 million euros in the previous quarter. This result was driven largely
by the impairments in a small number of files in the project finance
portfolio of KBC Finance Ireland.
Exceptional and non operating items.
The quarter also featured a number of exceptional items that were not part of
the normal course of business and were therefore excluded from the underlying
results. Their combined impact in 3Q2012 amounted to 0.1 billion euros. Apart
from some smaller items, the main non-operating items in 3Q2012 were:
* a valuation mark-up of 0.3 billion euros on CDO exposure (resulting
mainly from a tightening of corporate and ABS credit spreads);
* a negative 0.1 billion euros marked-to-market adjustment in relation to
KBC's own credit risk.
A full overview of the IFRS consolidated income statement and balance sheet is
provided in the 'Consolidated Financial Statements' section of this 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
underlying business performance, KBC also publishes its 'underlying' results
(see above).
IFRS result
Highlights of 9M2012
Consolidated
income
statement,
IFRS
KBC Group (in
millions of 3Q 3Q Cumul Cumul
EUR) 1Q 2011 2Q 2011 2011 4Q 2011 1Q 2012 2Q 2012 2012 4Q 2012 9M2011 9M2012
Net interest 1 395 1 406 1 341 1 337 1 261 1 190 1 097 - 4 142 3 548
income
Interest 3 047 3 195 2 910 2 732 2 695 2 563 2 493 - 9 151 7 752
income
Interest -1 651 -1 789 - -1 395 -1 434 -1 374 -1 - -5 009 -4 204
expense 1 569 396
Earned
premiums,
insurance 1 141 974 972 1 033 884 890 578 - 3 087 2 352
(before
reinsurance)
Technical
charges,
insurance -1 012 -840 -812 -877 -752 - 757 -499 - -2 665 -2 009
(before
reinsurance)
Ceded
reinsurance -17 -8 -18 -1 -14 -1 -12 - -43 -27
result
Dividend 12 41 17 15 6 21 13 - 70 39
income
Net result
from
financial
instruments 472 -194 -892 436 60 43 275 - -613 378
at fair value
through
profit or
loss
Net realised
result from
available- 34 42 10 83 32 9 56 - 86 97
for-sale
assets
Net fee and
commission 300 297 281 287 304 309 343 - 877 955
income
Fee and
commission 518 530 480 514 492 479 494 - 1 529 1 464
income
Fee and
commission -218 -233 -200 -227 -188 -170 -151 - -651 -509
expense
Other net 92 110 -149 3 73 368 106 - 53 547
income
----------------------------------------------------------------------------------------
Total income 2 416 1 829 749 2 317 1 853 2 072 1 954 - 4 994 5 879
----------------------------------------------------------------------------------------
Operating -1 143 -1 081 -1 -1 043 -1 132 -1 033 -1 - -3 301 -3 167
expenses 077 003
Impairment -105 -332 -940 -746 -273 -1 473 -302 - -1 377 -2 048
on loans
and -97 -164 -473 -599 -261 -198 -283 - -733 -742
receivables
on
available- -6 -118 -223 -71 -5 -75 -4 - -347 -83
for-sale
assets
on 0 -17 -62 -41 0 -414 0 - -79 -414
goodwill
on other -2 -33 -183 -35 -7 -786 -15 - -218 -809
Share in
results of 1 0 -23 -35 -9 17 -6 - -22 2
associated
companies
----------------------------------------------------------------------------------------
Result before 1 170 416 -1 492 439 -417 644 - 294 666
tax 292
----------------------------------------------------------------------------------------
Income tax -334 -76 165 -75 -93 -110 -103 - -245 -306
expense
Net post-tax
result from 0 0 -445 26 40 -8 0 - -445 33
discontinued
operations
----------------------------------------------------------------------------------------
Result after 835 340 -1 443 387 -535 540 - -396 392
tax 571
----------------------------------------------------------------------------------------
attributable 14 6 8 6 7 5 9 - 28 21
to minority
interests
attributable -1
to equity 821 333 579 437 380 -539 531 - -424 372
holders of
the parent
----------------------------------------------------------------------------------------
385 158 -348 226 489 204 321 - 196 1 014
Belgium
Central & 141 145 -91 94 119 171 182 - 195 472
Eastern
Europe
Merchant 203 69 -255 -225 17 -65 -8 - 17 -56
Banking
92 -39 -885 342 -246 -849 37 - -831 -1 059
Group Centre
----------------------------------------------------------------------------------------
Basic
earnings per 1.98 0.54 -5.08 0.63 0.71 -1.99 1.16 - -2.56 -0.13
share (EUR)
Diluted
earnings per 1.98 0.54 -5.08 0.63 0.71 -1.99 1.16 - -2.56 -0.13
share (EUR)
----------------------------------------------------------------------------------------
IFRS net result for 9M2012 at 372 million euros, compared to -424 million euros
a year earlier.
* Net interest income amounted to 3 548 million euros, compared to 4 142
million euros a year earlier. The decline was caused primarily by the
deconsolidation of KBL epb, Warta, Zagiel and Fidea and lower re-investment
yields. Year-on-year, credit volumes grew by 2%. Customer deposits expanded
by 4% in Belgium and by 3% in Central Europe, while the deposit base at
Merchant Banking contracted by 25% (primarily in 4Q2011). The net interest
margin shrunk to 1.83%, year-to-date, 14 basis points lower than the high
figure a year ago.
* Gross earned premiums less gross technical charges and the ceded reinsurance
result came to 316 million euros, down 17% year-on-year, primarily because
of the deconsolidation of VITIS, Warta and Fidea.
For the non-life activities, the year-to-date combined ratio came to an
excellent 90% (87% in Belgium, 97% in CEE), an improvement on the 92% for
FY2011. For the life activities and on a comparable basis, there was a 42% year-
on-year increase in the sale of life insurance products (thanks to higher sales
of unit-linked products). It should be noted that the insurance results are also
affected by investment income and charges, as well as by general administrative
expenses. Investment income, in particular, was good for both the life and non-
life businesses.
* Net fee and commission income amounted to 955 million euros in the first
three quarters of 2012, up 9% on its level a year ago, thanks, inter alia,
to the successful sale of unit-linked products. Assets under management
stood at 155 billion euros up 3% on the year-earlier figure, due to a
positive investment performance.
* The net result from financial instruments at fair value (trading and fair
value income) came to 378 million euros in the first nine months of 2012,
compared to a negative 613 million euros a year earlier. On an underlying
basis (i.e. excluding exceptional items such as value adjustments to
structured credit, fair valuing of the group's own debt, results related to
the activities of KBC Financial Products that are being wound down, and
after shifting all trading-related income items to this income statement
line), trading and fair value income amounted to 695 million euros on 30
September 2012, almost double the year-earlier figure, due to the very good
performance turned in by the dealing room, especially in the first quarter,
and the positive CVA in the third quarter.
* The remaining income components were as follows: dividend income from equity
investments amounted to 39 million euros, the net realised result from
available-for-sale assets (bonds and shares) stood at 97 million euros and
other net income totalled 547 million euros, accounted for primarily by the
capital gain realised on the closure of the Warta divestment in the second
quarter.
* Operating expenses amounted to 3 167 million euros in the first three
quarters of 2012, 4% lower than the year-earlier figure. This was caused by
the divestments, but offset somewhat by such factors as inflation and wage
indexation. The underlying cost/income ratio for banking - a measure of cost
efficiency - stood at 57% at the end of September 2012, an improvement on
the 60% recorded for FY2011.
* Total impairment stood at 2 048 million euros for the first nine months of
2012. Impairment on loans and receivables amounted to 742 million euros,
comparable to the 733 million euros recorded in the same period in 2011,
essentially due to the high level recorded for Ireland. As a result, the
annualised credit cost ratio for 2012 came to 0.63%, which is still an
improvement on the figure of 0.82% for FY2011. Impairment on available-for-
sale assets stood at 83 million euros. Impairment on goodwill totalled 414
million euros and other impairment charges 809 million euros. These
impairment charges were accounted for by the planned divestment files
(primarily NLB, Absolut Bank, Antwerp Diamond Bank, KBC Banka and KBC Bank
Deutschland) and were recorded in the second quarter.
* Income tax amounted to 306 million euros for the first nine months of 2012.
* At the end of September 2012, total equity came to 17.7 billion euros - up
0.9 billion euros on its level at the start of the year - due mainly to the
inclusion of the net profit for the first three quarters of 2012 (0.4
billion euros), the substantial change in the available-for-sale revaluation
reserve (1.2 billion euros), as well as the deduction of the coupon on non-
voting core capital securities subscribed by the Federal and Flemish
governments (-0.6 billion euros). The group's tier-1 capital ratio - a
measure of financial strength - stood at a sound 15.3% at 30 September
2012. Including the effect of divestments for which an agreement has so far
been signed (Kredyt Bank) as well as the sale of treasury shares, the pro
forma tier-1 ratio is as high as approximately 16.8% (core tier-1 ratio of
14.7%).
Selected balance sheet data
Highlights of
consolidated
balance sheet 31-03-2011 30-06-2011 30-09-2011 31-12-2011 31-03-2012 30-06-2012 30-09-2012
31-12-2012
KBC Group (in
millions of
EUR)
Total assets 322 493 312 899 305 109 285 382 290 635 285 848 270 010
-
Loans and
advances to 147 625 143 182 143 451 138 284 135 980 133 326 131 048
-
customers*
Securities
(equity and 88 839 85 144 74 062 65 036 65 853 64 227 65 171
-
debt
instruments)*
Deposits from
customers and 192 412 188 116 184 453 165 226 166 551 163 685 160 945
-
debt
certificates*
Technical
provisions, 23 870 24 084 21 064 19 914 19 925 19 539 19 637
-
before
reinsurance*
Liabilities
under
investment 6 568 6 638 6 787 7 014 7 871 8 856 9 680
-
contracts,
insurance*
Parent
shareholders' 11 011 11 500 9 834 9 756 10 949 9 687 10
629 -
equity
Non-voting
core-capital 7 000 7 000 7 000 6 500 6 500 6 500 6 500
-
securities
------------------------------------------------------------------------------------------------------
* Note: in accordance with IFRS 5, the assets and liabilities of a number of divestments
were moved
to 'Non-current assets held for sale and assets associated with disposal groups' and
'Liabilities
associated with disposal groups', which slightly distorts the comparison between
periods.
Selected ratios
Selected ratios FY2011 9M2012
KBC Group (consolidated)
Profitability and efficiency (based on
underlying results)
-------------------------------------------------------------------------------
Return on equity* 5% 11%
Cost/income ratio, banking 60% 57%
Combined ratio, non-life insurance 92% 90%
-------------------------------------------------------------------------------
Solvency
-------------------------------------------------------------------------------
Tier-1 ratio 12.3% 15.3%
Core tier-1 ratio 10.6% 13.4%
-------------------------------------------------------------------------------
Credit risk
-------------------------------------------------------------------------------
Credit cost ratio 0.82% 0.63%
Non-performing ratio 4.9% 5.5%
-------------------------------------------------------------------------------
* Note: If a coupon is expected to be paid on the core-capital securities sold
to the Belgian and Flemish governments, it will be deducted from the numerator
(pro rata). If a penalty has to be paid, it will likewise be deducted.
Strategy highlights and main events
KBC's core strategy remains centred around bancassurance in Belgium and a
selection of countries in Central and Eastern Europe (Czech Republic, Slovakia,
Hungary and Bulgaria). In line with its strategic plan, the group has made
considerable progress in the sale or run-down of a number of (non-core)
activities (see below).
In 3Q2012 to date, we advanced substantially in the implementation of our
strategic refocusing plan.
* On 2 July 2012, after very careful and thorough consideration and in
consultation with all relevant parties, KBC decided not to participate in
the capital increase proposed by NLB and the Republic of Slovenia.
* On 31 July 2012, KBC finalised the sale, announced on 10 October 2011, of
its private banking subsidiary KBL European Private Bankers to Precision
Capital S.A. for a total consideration of approximately 1 billion euros. The
sale released a substantial amount of capital (approximately 0.7 billion
euros) for KBC, increasing its tier-1 ratio by 0.7% in the third quarter of
2012.
* On 31 July 2012, after having received all the necessary regulatory
approvals, KBC Bank finalised the sale of 100% of the shares of Zagiel, its
consumer finance business in Poland, to Santander Consumer Finance S.A., the
Polish consumer finance subsidiary of Santander Group, for a total purchase
price of 10 million Polish zloty. The impact on KBC's earnings and capital
is negligible given the size of the activities.
* On 19 September 2012, KBC Lease Holding NV completed the management buy-out
deal for its subsidiary KBC Lease Deutschland. The impact of this deal on
KBC's earnings and capital is negligible given the size of the activities.
* On 8 October 2012, the group's CEO presented its updated strategy and
explained how KBC will address the challenges presented by the changed
business environment. He also presented KBC's major financial targets for
2015, setting the course for the group to become the reference in bank-
insurance in its core markets.
* On 16 October 2012, KBC Group NV and KBC Bank announced the successful
completion of the private placement of 18.2 million treasury shares. The
gross proceeds from the transaction amounted to 350 million euros.
* A number of companies are still scheduled for divestment. The divestment
processes for KBC Bank Deutschland, KBC Banka, Antwerp Diamond Bank and
Absolut Bank are in progress.
Other main events in 9M2012
* On 2 January 2012, KBC repaid 500 million euros in state aid
(plus a 15% penalty) to the Belgian Federal Government. KBC's
main objective in this respect is and remains to implement the
strategic plan approved by the European Commission within the
agreed timeframe and to repay the Belgian authorities in a
timely manner. KBC aims to repay a substantial part of the aid
received from the federal government before the end of this
year.
* On 3 October 2012, the European Banking Authority and National
Bank of Belgium announced the final assessment of the capital
exercise and fulfillment of the EBA December 2011
Recommendation, which showed that KBC Bank meets the 9% core
tier-1 ratio including the sovereign buffer as stated in the EBA
December 2011 recommendation.
* In Ireland, growth is still driven by exports but signs of
emerging stabilisation in parts of the domestic economy have
been accompanied by an improvement in financial sentiment
towards Ireland. Slightly better than expected tax revenues,
broadly flat unemployment and a range of surveys point towards a
tentative turning point in domestic activity of late. There are
indications that the housing market may have bottomed out in
terms of prices and transaction levels. However, the Irish
domestic market remains a challenging environment for commercial
customers. A loan loss provision of 129 million euros was
recorded in 3Q2012. Impairment charges at KBC Bank Ireland for
the full year are estimated to end between 500 and 600 million
euros.
* As has been the case in previous quarters, KBC has acted to
reduce volatility in its results, and further reduced its
exposure to Southern European government bonds in the third
quarter by almost a third, mainly through cutting back its
holdings of Spanish and Italian government bonds.
* KBC reduced the profit and loss sensitivity of its CDO portfolio
significantly through de-risking activities.
Statement of risk
* Mainly active in banking, insurance and asset management, KBC is exposed to
a number of typical risks such as - but not exclusively - credit default
risk, movements in interest rates, capital markets risk, currency risk,
liquidity risk, insurance underwriting risk, operational risk, exposure to
emerging markets, changes in regulations, customer litigation, as well as
the economy in general. It is part of the business risk that the
macroeconomic environment and the ongoing restructuring plans may have a
negative impact on asset values or could generate additional charges beyond
anticipated levels.
* Risk management data are provided in KBC's annual reports, the extended
quarterly reports and the dedicated risk reports, all of which are available
at www.kbc.com.
* Significant progress has been made towards stabilising the euro area over
the past few months, both on the political and financial front, with the
plan to create a banking union as a possible game changer. The very
accommodating monetary policy in the EMU ('OMT') and the US ('QE3')
should
help to overcome an austerity-induced recession in the EMU and the post-
election 'fiscal cliff' in the US, and therefore restore economic confidence
and growth in the early months of 2013.
Financial calendar
* The financial calendar, including analyst and investor meetings, is
available at www.kbc.com/ir/calendar.
Contact details:
- Wim Allegaert, General Manager, Investor Relations, KBC Group
Tel 32 2 429 40 51 wim.allegaert@kbc.be
- Viviane Huybrecht, General Manager, Group Communication/Spokesperson, KBC
Group
Tel 32 2 429 85 45 pressoffice@kbc.be
Note for the editor:
Follow KBC via Twitter on www.twitter.com/kbc_group
KBC Group - Quarterly report 3Q2012:
hugin.info/133947/R/1655950/535233.pdf
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Source: KBC Groep via Thomson Reuters ONE
[HUG#1655950]
