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KBC Plans to Repay More Aid This Year, Issues Token Dividend

KBC Groep NV, Belgium’s biggest bank and insurer by market value, plans further repayments of state aid this year after writedowns on Greek bonds and mounting loan losses in Ireland and Hungary led the bank to cut its dividend.

Shareholders will receive a “symbolic” dividend of 1 cent a share, a condition for interest payments on the government funds, Brussels-based KBC said today in a statement. Fourth-quarter profit excluding some items fell to 161 million euros ($214 million) from 168 million euros a year earlier after KBC made the biggest additions to loan-loss provisions in two years. Analysts projected earnings of 244 million euros, the average of 11 estimates compiled by Bloomberg.

KBC said it’s making “considerable progress” with the planned sale of Kredyt Bank SA after the disposal of its Polish insurance business will help boost its core Tier 1 ratio to 12 percent from 10.6 percent at the end of last year. The Belgian bank agreed with the European Commission to reimburse 4.67 billion euros, net of penalty payments, of the 7 billion euros in state aid received by December 2013. KBC has until the end of this year to repay a remaining 3 billion euros of federal government funds before the penalty rate increases to 20 percent from 15 percent.

“Overall results look a bit light driven by impairments,” Albert Ploegh, an analyst at ING Groep NV in Amsterdam, wrote in an investor note. “Including state aid outstanding by 2013, KBC could report a core Tier 1 slightly over 9 percent on our forecasts, which could reassure the market further.”

No Deadline

KBC gained 1.38 euros, or 8.2 percent, to 18.07 euros at 5:40 p.m. on Euronext Brussels, the highest closing value since Oct. 13. The shares have lost 41 percent in the past 12 months, which compares with a 29 percent decline in the 49-company Stoxx 600 Banks Index in the same period.

Chief Financial Officer Luc Popelier said on a conference call with analysts today that KBC doesn’t face a deadline of repaying all outstanding state aid by Nov. 18, 2014, when a European Union-imposed ban on acquisitions expires.

Extending reimbursement over time minimizes the risk of a dilutive share sale to meet tougher capital rules as KBC got assurances from the Belgian national bank that the government rescue funds will continue to be considered as common equity.

KBC already reimbursed 500 million euros of federal government aid last month and made a 75 million-euro penalty payment. It has to repay the 3.5 billion euros of Flemish government rescue funds at a penalty rate of 50 percent.

Structured Notes

Profit was held back in the fourth quarter by an additional 85 million-euro pretax impairment on Greek government bonds and a further 71 million-euro provision to compensate clients who bought structured notes linked to government bonds of five euro-area nations including Greece for a potential payment default.

KBC sold an additional 1.7 billion euros of Italian government bonds during the quarter. Holdings of Greek, Portuguese, Irish, Italian and Spanish sovereign debt fell to 4.8 billion euros by the end of December from 10 billion euros a year earlier. KBC’s government-bond portfolio now totals about 51 billion euros.

The bank forecast loan losses in Ireland could increase to as much as 600 million euros this year from 510 million euros last year and 525 million euros in 2010. It faced arrears of at least three months on almost 18 percent of its 16.7 billion euros of loans in the country at the end of last year, up from 15 percent three months earlier.

Three-Year Loans

KBC converted 300 million euros of subordinated debt into equity to bolster KBC Bank Ireland Plc’s capital following a 268 million-euro loss last year. The bank also said it took 3.2 billion euros in three-year loans from the European Central Bank, mostly backed by Irish mortgages, to make its subsidiary in the country less dependent on group funding.

An additional 100 million euros of three-year loans was drawn from the ECB by KBC’s bank unit in the Slovak Republic, Popelier said on the call. At the same time, KBC had 6.1 billion euros of deposits at the ECB as of Dec. 31, according to a presentation on its website.

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