KBC Groep Profit Tops Estimates as Solvency Gets Tax-Asset Boost

KBC Groep NV, Belgium’s biggest bank by market value, reported second-quarter profit that beat analyst estimates as lower funding costs following debt redemptions boosted its net interest margin.

Net income excluding some items fell 41 percent to 287 million euros ($384 million), the Brussels-based bank and insurer said today in a statement. That surpassed the 252.5 million-euro median estimate of six analysts compiled by Bloomberg. Total income of 1.49 billion euros on an adjusted basis also exceeded estimates, led by a 7 percent increase in net interest income.

Lower saving rates, a reduction of senior debt outstanding and the redemption of 8 percent hybrid notes in May and June reduced funding costs and increased KBC’s net interest margin by five basis points to 2.05 percent from the preceding quarter. An increase in the bond revaluation reserve and the recognition of additional deferred tax assets boosted the bank’s common equity ratio to 12.9 percent, leaving a cushion of 2.21 billion euros in excess capital above the self-imposed minimum of 10.5 percent.

“The second quarter confirms our view that lower funding costs on deposits will be a major driver of net interest income,” Benoit Petrarque, an analyst at Kepler Capital Markets in Amsterdam who advises buying KBC, wrote in an investor note. “Core markets were strong.”

Loan Provisions

KBC advanced as much as 4 percent on Euronext Brussels and traded 1.29 euros higher at 40.89 euros by 9:59 a.m. local time, giving a market value of 17.1 billion euros. The stock has fallen 0.9 percent so far this year, compared with a 4 percent drop for the Stoxx Europe 600 Banks Index in the same period.

Loan loss provisions fell 43 percent to 134 million euros, almost half of which were booked in Ireland. The share on non-performing loans at KBC Bank Ireland Plc rose to 29.7 percent, boosting KBC’s overall NPL-ratio to 6.2 percent from 5.9 percent at the end of March.

KBC maintained its forecast that Irish loan-loss provisions won’t exceed 200 million euros this year, before dropping to no more than 100 million euros in 2015 and 2016, as arrears declined for a fifth consecutive month in July.

The Belgian bank and insurer also provisioned 231 million euros for Hungary’s law on retail loans, which states that customers need to be compensated for spread charges on foreign-currency loans and unilateral changes in interest rates and fees on all retail loans. KBC said its Budapest-based subsidiary K&H Bank Rt.’s capital adequacy ratio remains above the 11 percent regulatory threshold.

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