KBC Groep NV, Belgium’s biggest bank by market value, said it will set aside as much as 775 million euros ($1.04 billion) to cover doubtful loans in Ireland pending the European Central Bank’s review of bank-asset quality.
Loan-loss provisions in the fourth quarter will include an additional 661 million euros for restructured mortgages and corporate loans in Ireland following a reassessment of the local loan book, Brussels-based KBC said today in a statement. Third-quarter profit excluding some items rose 23 percent to 457 million euros, surpassing the 368 million-euro average of nine analyst estimates compiled by Bloomberg.
KBC starts provisioning for restructured home loans in Ireland, which make up more than 16 percent of the 15.5 billion euros of loans outstanding in the country, before an ECB-led review of European banks’ asset quality next year might show a loan-loss coverage shortfall. While the additional loan impairment won’t leave KBC with a capital shortfall, it may potentially delay an accelerated repayment of the remaining 2.33 billion euros of Flemish state aid.
“This seems in line with market expectations,” said Albert Ploegh, an analyst at ING Groep in Amsterdam who had assumed a one-off charge of 500 million euros to 600 million euros for Ireland. Risk-weighted assets came down 4 percent during the quarter, “explaining in part the strong capital generation.”
KBC said its common equity ratio, assuming full application of the Basel III capital rules, increased to 12.5 percent at the end of September from a pro-forma figure of 11.8 percent in June. With a self-imposed minimum ratio of 10 percent, KBC had about 2.25 billion euros of excess capital before the additional provisions in Ireland, which may also inflate risk-weighted assets.
The bank’s shares rose as much as 3.5 percent on Euronext Brussels and traded 1.36 euros higher at 40.69 euros by 10:24 a.m. local time, extending gains so far this year to 56 percent. That’s the sixth-best performance among the 44 companies in the Bloomberg Europe 500 Banks and Financial Services Index.
KBC also forecast Irish loan loss provisions will decline to about 175 million euros, plus or minus 25 million euros, next year before shrinking to less than 100 million euros in 2015 and forecast its banking unit in the country will be profitable again as of 2016.
The bank’s net interest margin, the difference between what it pays for funds and what it charges for loans, widened to 1.77 percent, a 5 basis-point increase from the preceding quarter and the highest margin in five quarters, led by lower funding costs at group level.
Net income in the three months through September fell to 272 million euros from 531 million euros a year earlier as divestments, including the pending sale of Antwerp Diamond Bank NV, and the transfer of some KBC Ancora CVA loans, curbed profit by 231 million euros.