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KBC Group: Strong fourth-quarter result of 685 million euros, leading to a full-year profit of 2.4 billion euros

Press Release

Outside trading hours - Regulated information*

Brussels, 9 February 2017 (07.00 a.m. CET)

KBC Group:
Strong fourth-quarter result of 685 million euros, leading to a full-year
profit of 2.4 billion euros

In an environment of persisting low interest rates, firm economic growth in
Central Europe and Ireland, and more modest growth in Belgium, KBC turned in
a strong performance by posting net profit of 685 million euros in the fourth
quarter of 2016, compared with 629 million euros in the preceding quarter and
an exceptional 862 million euros in the fourth quarter of 2015 (or 441
million euros excluding two major one-off items in that quarter). For full
year 2016, our net result amounted to 2 427 million euros, compared with 2
639 million euros for 2015 (2 218 million euros excluding the two main
one-off items). Moreover, our lending and deposit volumes continued to grow
in 2016, as did sales of both non-life and life insurance products. Our
already solid solvency and liquidity positions strengthened further.

Financial highlights for the fourth quarter of 2016, compared with the
previous quarter:

· Both our banking and insurance franchises in our core markets and core
activities continued to perform well.
· Lending to our customers increased by 1%, with volumes going up in all
countries except Ireland. Deposits from our customers went up by 6%.
· Net interest income - our main source of income - continued to be
impacted by the climate of low interest rates, but its quarter-on-quarter
decrease was less than 1% thanks to offsetting factors such as healthy
lending growth and lower funding costs. Our average net interest margin stood
at 1.90% in the fourth quarter, similar to the quarter-earlier level. For
full year 2016, our net interest margin stood at 1.92%.
· The premium income we earned on our non-life insurance products
increased by 2%, while claims fell by 4%. Consequently, the non-life combined
ratio for FY2016 ended up at a good 93%. Following a relatively weak third
quarter, sales of life insurance products increased strongly by 17%,
partially because of seasonal effects.
· Our net fee and commission income went up again, rising by 2% mainly on
account of management fees and loan-related fees. Assets under management
increased further, going up by 2% to 213 billion euros.
· Trading and fair value income more than tripled, thanks to a better
performance in the dealing room, a higher mark-to-market valuation of
derivatives used for asset/liability management purposes and positive changes
in our valuation adjustments.
· Our operating expenses were up 8% on their level in the previous
quarter, due to a one-off expense for early retirement and seasonal effects.
Strict cost management resulted in a cost/income ratio for FY2016 of 55% (57%
adjusted for specific items).
· Loan loss impairment stood at 54 million euros in the quarter under
review, which brought the cost of credit to an excellent, but unsustainably
low, 0.09% of our loan portfolio for full year 2016.
· Our liquidity position remained solid, as did our capital base, with a
common equity ratio of 15.8% (fully loaded, Danish compromise). This compares
positively to the new target of 10.40% set by the regulators to be reached by
2019 (with additional pillar 2 guidance (P2G) of 1.0% CET1).

Johan Thijs, our group CEO, adds:

'Once again KBC continues to perform very well, reflected in an overall
increase in lending, deposits, sales of life and non-life insurance products
and in assets under management in 2016. This shows clients continue to
entrust their deposits and assets to us and count on us to help them realise
and protect their projects. We're firing on all cylinders at KBC and the
results show that our client-centric approach is paying off.

The fourth quarter was characterised by an almost stable level of net interest
income, increased net fee and commission income and significantly higher
trading and fair value income. Costs were up, due in part to a one-off item,
and loan loss impairment increased somewhat on the exceptionally low level of
the previous quarter. Overall, we managed to generate a strong result of 685
million euros in this quarter, which brings our profit for the full year to 2
427 million euros, a fine result indeed and one for which we want to
explicitly thank our staff.

On the strategic front, our acquisition of United Bulgarian Bank and
Interlease will enable CIBANK and DZI Insurance to become the largest
bank-insurance group in Bulgaria, a country in which we look forward to
developing our bank-insurance business further. In addition to this strategic
move, we decided to make Ireland one of our core countries. It is a sound and
attractive market in which we wish to play a more active role.

The solvency and liquidity positions of our group remained strong- even after
paying an interim dividend in November - and comfortably surpassed the new
minimum capital requirements set by the regulators in December, namely a
fully loaded minimum CET1 ratio of 10.40% under Basel III, excluding
additional regulatory guidance of 1%.

Consequently, we will propose to the General Meeting of Shareholders in May to
set the full (gross) dividend for 2016 at 2.80 euros per share, meaning that
- after subtracting the 1 euro interim dividend per share that was paid in
November 2016 - the final gross dividend to be paid in May will be 1.80 euros
per share. This is in line with the dividend payment policy for this year and
the years ahead.

Our aim for 2017 is to build on the momentum of previous years and, in
particular, to maintain our role in society as a client-centric organisation.
Our bank-insurance model, supported by solid liquidity and capital bases,
allows us to generate sustainable results. However, the continuing low level
of interest rates remains a challenge for the entire financial sector. And as
political uncertainty creates volatility on the financial markets, it makes
our fee business more challenging. Fundamentally, we are continuing to invest
in the future and to pro-actively roll out our financial technology plans so
we can serve our clients even better than we already do today.'

Full press release attached.

4Q2016 Press release
4Q2016 Quarterly Report

This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: KBC Groep via Globenewswire

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