KBC Groep NV, Belgium’s biggest bank by market value, reported first-quarter profit that beat analyst estimates as loan-loss provisions fell to the lowest level in three years following a cleanup of the loan book last year.
Net income declined to 397 million euros ($544 million) compared with 520 million euros a year earlier as last year’s gains on interest rate derivatives reversed, the Brussels-based bank and insurer said today in a statement. Analysts had seen net income of 323 million euros, based on the median of four estimates compiled by Bloomberg. Revenue of 1.58 billion euros missed most analyst projections.
KBC set aside 103 million euros to cover loan losses, the smallest amount in 3 years, as the share of non-performing loans stabilized in all markets except Ireland, where KBC added record provisions in the preceding quarter. The Belgian bank said its common equity Tier 1 ratio was unchanged at 12.5 percent when taking into account pending divestments and including 2 billion euros of state aid, leaving a cushion of about 2.3 billion euros in excess capital above the self-imposed minimum of 10 percent.
“The first-quarter credit cost ratio of 0.29 percent shouldn’t be extrapolated for the year,” Chief Executive Officer Johan Thijs told investors and analysts on a conference call. “It’s not sustainable.”
While loss provisions currently cover 50 percent of loans for which payments are more than 90 days in arrears, KBC said the inclusion of all impaired loans would add 6.14 billion euros to non-performing loans, leaving a coverage ratio of only 40 percent.
In Ireland, KBC added an additional 271 million euros of home loans to the lowest-quality basket of performing loans after granting easier repayment terms to more borrowers during the quarter. Including those, non-performing mortgages in Ireland increased to 5.66 billion euros from 5.27 billion euros at the end of last year.
KBC fell as much as 5.5 percent on Euronext Brussels and traded 2.29 euros lower, or 5.1 percent, at 42.67 euros by 11:21 a.m. local time. The shares have advanced 3.4 percent so far this year, which compares with the Stoxx 600 Banks Index’s 2.1 percent gain in the same period.
Net interest income, KBC’s biggest source of revenue, rose less than 1 percent from the preceding quarter as higher margins on new loans and lower funding costs were offset by a weakening Czech koruna and lower reinvestment yields in the insurance business.
Risk-weighted assets, the denominator for KBC’s self-imposed 10 percent capital requirement, increased by 2.8 billion euros to 94.2 billion euros at the end of March as KBC began accounting for the risk associated with domestic sovereign bonds held by its units in the respective countries, inflating assets mostly in Hungary.