Quarterly Report • Aug 11, 2022
Quarterly Report
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Summary 3 Financial highlights 4 Overview of results and balance sheet 5 Analysis of the quarter 6 Analysis of the year-to-date period 9 Recent ESG developments 10 Risk statement, economic views and guidance 10
Consolidated income statement 13 Consolidated statement of comprehensive income 15 Consolidated balance sheet 16 Consolidated statement of changes in equity 17 Consolidated cash flow statement 19 Notes on statement of compliance and changes in accounting policies 20 Notes on segment reporting 25 Other notes 27
Credit risk 41 Solvency 45 Income statement, volumes and ratios per business unit 51 Details of ratios and terms 59
The expectations, forecasts and statements regarding future developments that are contained in this report are, of course, based on assumptions and are contingent on a number of factors that will come into play in the future. Consequently, the actual situation may turn out to be (substantially) different.
[email protected] KBC Group NV, Investor Relations Office, Havenlaan 2, 1080 Brussels, Belgium
This report contains information that is subject to transparency regulations for listed companies. Date of release: 11 August 2022
'I Luc Popelier, Chief Financial Officer of the KBC Group, certify on behalf of the Executive Committee of KBC Group NV that, to the best of my knowledge, the abbreviated financial statements included in the quarterly report are based on the relevant accounting standards and fairly present in all material respects the financial condition and results of KBC Group NV including its consolidated subsidiaries, and that the quarterly report provides a fair view of the main events, the main transactions with related parties in the period under review and their impact on the abbreviated financial statements, and an overview of the main risks and uncertainties for the remainder of the current year.'
| KBC Group – overview (consolidated, IFRS) | 2Q2022 | 1Q2022 | 2Q2021 | 1H2022 | 1H2021 |
|---|---|---|---|---|---|
| Net result (in millions of EUR) | 811 | 458 | 793 | 1 269 | 1 350 |
| Basic earnings per share (in EUR) | 1.92 | 1.07 | 1.87 | 2.99 | 3.18 |
| Breakdown of the net result by business unit (in millions of EUR)* | |||||
| Belgium | 564 | 227 | 528 | 790 | 908 |
| Czech Republic | 237 | 207 | 168 | 443 | 291 |
| International Markets | 52 | 74 | 140 | 125 | 228 |
| Group Centre | -41 | -49 | -42 | -90 | -76 |
| Parent shareholders' equity per share (in EUR, end of period) | 45.0 | 51.8 | 51.8 | 45.0 | 51.8 |
* At the start of 2022, Ireland was moved from the International Markets Business Unit to the Group Centre in view of the pending sale. Past figures have not been restated.
'Five and a half months have now passed since Russia invaded Ukraine and unfortunately the war still shows no sign of ending. The tragedy unfolding in Ukraine is causing immense human suffering and sending shockwaves throughout the global economy. We express our heartfelt solidarity with all victims of this conflict and we hope that a respectful, peaceful and lasting solution can be achieved as soon as possible. While our direct exposure to Ukraine, Belarus and Russia is very limited, we are of course indirectly affected by the macroeconomic impact of this conflict and other geopolitical and emerging risks, including the effect of high gas and oil prices on inflation and economic growth, and the spillover effects for us, our counterparties and our customers. Given this situation, we have further increased our dedicated reserve for geopolitical and emerging risks, bringing it to 268 million euros at the end of the quarter under review.
Considering these adverse context developments, the past few months have also seen us make further progress in implementing our strategy. As regards the strengthening of our position in our core markets, for instance, we finalised the acquisition of the Bulgarian activities of Raiffeisen Bank International. Raiffeisenbank Bulgaria and our existing Bulgarian subsidiary UBB will merge their operations, allowing us to significantly expand the share of our Bulgarian core market to an estimated 19% in terms of assets. I would like to take this opportunity to warmly welcome all of the new Bulgarian customers and new colleagues who are joining our group. We also took important steps in our digitalisation journey. For example, a year and a half after the successful launch of Kate, the personal digital assistant, we are once again taking the lead in innovation by rolling out the Kate Coin, our proprietary digital coin based on blockchain technology. Private KBC customers in Belgium will soon be able to earn Kate Coins and use them through their Kate Coin wallet in KBC Mobile. Everything takes place in a closed-loop environment, outside of which the Kate Coin has no value. This initiative will initially be implemented within the KBC banking and insurance environment, but over time a whole world of possibilities will open up for application in the wider ecosystem. The first concrete steps are now being taken within KBC in Belgium, and we will eventually roll out the Kate Coin throughout the entire group.
As regards our financial results, we posted an excellent net profit of 811 million euros in the quarter under review. Quarter-on-quarter total income was more or less stable, with the increases in net interest income, technical insurance income, dividend income and net other income being offset by lower trading & fair value income and net fee and commission income. Costs decreased significantly due to the fact that the bulk of the bank taxes for the full year had been recorded in the previous quarter (apart from a new additional tax in Hungary that was booked in the quarter under review). We recorded a small net increase in loan loss impairment, as limited net charges for individual loans (virtually all of which related to the sale transaction in Ireland) and an increase in the reserve for geopolitical and emerging risks were almost entirely offset by the full reversal of the remaining reserve for the coronavirus crisis. Our solvency position remained very solid with a common equity ratio of 15.9% on a fully loaded basis, and our liquidity position was excellent, as illustrated by an NSFR of 142% and an LCR of 158%. In line with our general dividend policy, we will pay out an interim dividend of 1 euro per share in November 2022 as an advance on the total dividend for financial year 2022.
Lastly, our ultimate goal remains to be the reference bank-insurer in all our home markets, thanks to our customer-centric business model and, even more importantly, based on the trust that our customers, employees, shareholders and other stakeholders place in us. That continued trust is truly appreciated and something I wish to thank you for.'
Johan Thijs Chief Executive Officer
• We place our customers at the centre of everything we do
• We look to offer our customers a unique bank-insurance experience
• We focus on our group's long-term development and aim to achieve sustainable and profitable growth • We meet our responsibility to society and local economies
• We build upon the PEARL+ values, while focusing on the joint development of solutions, initiatives and ideas within the group
| Net interest income 1 248 1 200 1 177 1 112 1 094 2 448 2 162 Non-life insurance (before reinsurance) 222 197 181 150 213 419 451 Earned premiums 503 487 486 484 463 990 916 Technical charges -280 -291 -305 -334 -250 -571 -464 Life insurance (before reinsurance) 14 11 10 12 10 24 22 Earned premiums 266 290 375 256 272 556 564 Technical charges -252 -279 -365 -244 -262 -531 -542 Ceded reinsurance result 2 24 15 23 1 26 -12 Dividend income 21 7 9 11 18 28 25 Net result from financial instruments at fair value 89 143 -39 28 29 233 156 through P&L1 Net realised result from debt instruments at fair value -14 -2 1 4 -1 -16 1 through other comprehensive income Net fee and commission income 451 482 479 467 450 934 890 Net other income 90 54 56 77 38 144 91 2 123 2 116 1 887 1 884 1 853 4 239 3 786 Total income Operating expenses -1 071 -1 520 -1 078 -1 025 -972 -2 591 -2 293 Impairment -28 -22 16 45 123 -50 200 Of which: on financial assets at amortised cost and at fair -9 15 62 66 130 6 206 value through other comprehensive income2 Share in results of associated companies & joint -2 -3 -2 -2 1 -5 -1 ventures 1 023 571 823 903 1 005 1 594 1 693 Result before tax Income tax expense -211 -113 -160 -302 -211 -325 -342 811 458 663 601 793 1 269 1 350 Result after tax attributable to minority interests 0 0 0 0 0 0 0 attributable to equity holders of the parent 811 458 663 601 793 1 269 1 350 Basic earnings per share (EUR) 1.92 1.07 1.56 1.41 1.87 2.99 3.18 Diluted earnings per share (EUR) 1.92 1.07 1.56 1.41 1.87 2.99 3.18 |
KBC Group (in millions of EUR) | 2Q2022 | 1Q2022 | 4Q2021 | 3Q2021 | 2Q2021 | 1H2022 | 1H2021 |
|---|---|---|---|---|---|---|---|---|
| KBC Group (in millions of EUR) | 30-06-2022 | 31-03-2022 | 31-12-2021 | 30-09-2021 | 30-06-2021 | |
|---|---|---|---|---|---|---|
| Total assets | 369 807 | 369 903 | 340 346 | 354 336 | 368 596 | |
| Loans & advances to customers, excl. reverse repos | 168 984 | 164 639 | 159 728 | 156 712 | 164 344 | |
| Securities (equity and debt instruments) | 66 703 | 66 789 | 67 794 | 66 269 | 71 098 | |
| Deposits from customers excl. debt certificates & repos | 217 293 | 205 896 | 199 476 | 198 021 | 201 420 | |
| Technical provisions, before reinsurance | 18 817 | 19 092 | 18 967 | 18 971 | 18 976 | |
| Liabilities under investment contracts, insurance | 12 153 | 13 131 | 13 603 | 13 213 | 13 128 | |
| Parent shareholders' equity | 18 739 | 21 608 | 21 577 | 22 096 | 21 600 |
| 1H2022 | FY2021 | |
|---|---|---|
| 13% | 13% | |
| 61% [53%] | 58% [55%] | |
| 85% | 89% | |
| 15.9% [15.1%] | 15.5% [16.8%] | |
| 15.5% [14.8%] | 14.8% [16.1%] | |
| -0.01% | -0.18% | |
| 2.2% | 2.9% | |
| 1.2% | 1.5% | |
| 142% | 148% | |
| 158% | 167% | |
1 Also referred to as 'Trading & fair value income'.
2 Also referred to as 'Loan loss impairment'.
3 15% for the first half of 2022 when bank taxes are spread evenly throughout the year.
4 A negative figure indicates a net impairment release (positively affecting results).
Impact of the still pending sales transaction for KBC Bank Ireland's loan and deposit portfolios on the balance sheet: starting in the third quarter of 2021, all assets and liabilities included in disposal groups were moved to 'Non‐current assets held for sale and disposal groups' on the assets side of the balance sheet and to 'Liabilities associated with disposal groups' on the liabilities side of the balance sheet (derecognition upon closure of the deals). Impact on the income statement: the results of the disposal groups continue to be included in the relevant P&L lines until derecognition (closure of the deals). Impact on credit cost ratio and impaired loans ratio: Irish loan portfolio included until closure of the deals. KBC Bank Ireland belonged to the International Markets Business Unit up to and including the fourth quarter of 2021 and was moved to the Group Centre at the start of the first quarter of 2022.
Total income 2 123 million euros • Total income was more or less stable compared to the previous quarter. • Net interest income, technical insurance income, dividend income and net other income were all up; trading & fair value income and net fee and commission income were down quarter-on-quarter.
Net interest income amounted to 1 248 million euros in the quarter under review, up 4% and 14% on its level in the previous and year-earlier quarters, respectively. Net interest income benefited from factors such as the improving yield environment in eurodenominated countries (quarter-on-quarter, and for the first time in a long while), rate hikes in the Czech Republic and to a lesser extent in Hungary, lending and deposit volume growth (see below), negative interest being charged on more current accounts held by corporations and SMEs, higher income from inflation-linked bonds and the higher number of days in the period under review (quarter-on-quarter only). These factors more than offset the negative effect of a number of other factors, including lower loan margins in virtually all countries and the higher funding cost of participations. The net interest margin for the quarter under review amounted to 1.91%, more or less stable quarter-on-quarter and up 12 basis points on level in the year-earlier quarter.
Customer deposits excluding debt certificates were up 6% quarter-on-quarter and 9% year-on-year on an organic basis (or +1% and +6%, respectively, when excluding volatility in the foreign branches of KBC Bank). The total volume of customer lending rose by 3% quarter-on-quarter and by 9% year-on-year on an organic basis. In the organic growth figures, the forex-related impact and the effects of changes in the scope of consolidation were eliminated.
Technical income from our non-life insurance activities (earned premiums less technical charges, plus the ceded reinsurance result) contributed 224 million euros to total income, up 1% and 5% on its performance in the previous and year-earlier quarters, respectively. Compared to the previous quarter, earned premiums were up and technical charges down (as the decrease in stormrelated claims more than offset the increase in normal and large claims), but these factors were for the largest part offset by a lower ceded reinsurance result (related to the lower storm-related claims referred to above). Compared to the year-earlier quarter, the increase in the technical non-life result was attributable to the increase in premium income more than offsetting the higher technical charges (the reference period was still impacted by the relatively low level of activity due to the coronavirus crisis, among other factors). Overall, the combined ratio for the first six months of 2022 amounted to an excellent 85%, compared to 89% for full-year 2021.
Technical income from our life insurance activities (earned premiums less technical charges, plus the ceded reinsurance result) amounted to 14 million euros, up on the 10 million euros registered in both the previous quarter and the year-earlier quarter. Sales of life insurance products in the quarter under review (426 million euros) were down 22% on the level recorded in the previous quarter, with a decrease in sales of both unit-linked and guaranteed interest life insurance products. Sales were down 14% on their level in the year-earlier quarter, driven entirely by lower sales of unit-linked products. Overall, the share of guaranteed-interest products in our total life insurance sales amounted to 53% in the quarter under review, with unit-linked products accounting for the remaining 47%.
Net fee and commission income amounted to 451 million euros, down 6% on its level in the previous quarter, due to a combination of lower fees for our asset management business (decrease in both management and entry fees, despite net inflows in the quarter under review), slightly lower fees related to banking services (due in part to a drop in securities-related fees and despite higher payment fees) and higher distribution fees paid. Net fee and commission income was more or less at the same level as in the yearearlier quarter, due to a combination of stable fees for asset management services (higher management fees but lower entry fees), higher fees for banking services (mainly for payment services), and offset by an increase in distribution fees paid. At the end of June 2022, our total assets under management amounted to 211 billion euros, down 8% quarter-on-quarter and 7% year-on-year (with net inflows being more than offset by the decrease in asset prices in both cases).
The net result from financial instruments at fair value (trading & fair value income) amounted to 89 million euros, compared to a high 143 million euros in the previous quarter and a very low 29 million euros in the year-earlier quarter. The quarter-on-quarter decrease was caused essentially by lower dealing room & other income (the previous quarter had been very strong) and a lower result related to the insurer's equity portfolio (lower realised gains and higher impairment charges), partly offset by positive changes in market value adjustments of derivatives used for asset/liability management purposes. Year-on-year, the increased trading & fair value result was mainly attributable to a combination of higher dealing room income and positive changes in market value adjustments of derivatives used for asset/liability management purposes, partly offset by lower results related to the insurer's equity portfolio.
The other remaining income items included dividend income of 21 million euros (up 14 million euros quarter-on-quarter as the bulk of dividends is traditionally received in the second quarter), a net realised result from debt instruments at fair value through other comprehensive income of -14 million euros and net other income of 90 million euros. The latter figure was well above the 50-millioneuro normal run rate for this item, due in part to a gain on the sale of a real estate subsidiary (68 million euros), which more than offset losses on the sale of bonds.
| Operating expenses 1 071 million euros |
• | Operating expenses excluding bank taxes were down 3% quarter-on-quarter, but up 4% year-on-year. |
|---|---|---|
| • | Group cost/income ratio for the first six months of 2022 amounted to 53% when certain non-operating items are excluded and bank taxes spread evenly throughout the year. |
Operating expenses in the second quarter of 2022 amounted to 1 071 million euros. They included some 94 million euros in bank taxes, as opposed to 514 million euros in the previous quarter, as the bulk of bank taxes for the entire year is traditionally booked in the first quarter of each year. Compared to the year-earlier quarter, these taxes were also significantly higher though, because the quarter under review included a 78-million-euro charge related to a newly imposed additional bank and insurance tax in Hungary.
Operating expenses excluding bank taxes were down 3% on their level in the previous quarter and up 4% on their year-earlier level. Note that both reference quarters had included significant negative one-off elements such as the 41-million-euro extraordinary staff bonus and accelerated depreciations in Ireland in the previous quarter, and the exceptional 18-million-euro Covid-related bonus for staff in the year-earlier quarter. Disregarding all major one-off items, operating expenses excluding bank taxes were 2% higher than in the previous quarter and 5% higher than in the year-earlier quarter. In both cases, this was caused by a number of factors, including inflationary pressures and wage indexation, and higher ICT costs, professional fees and marketing expenses.
The cost/income ratio for the group came to 61% for the first six months of 2022. When bank taxes are spread evenly throughout the year and certain non-operating items excluded, the ratio amounted to 53%, compared to 55% for full-year 2021. When excluding all bank taxes, the cost-income ratio falls to 47%.
| Loan loss impairment | • | Small net loan loss impairment charge in the quarter under review, including an additional amount for the reserve for geopolitical and emerging risks and the full |
|---|---|---|
| 9-million-euro net charge | reversal of the remaining reserves for the coronavirus crisis. | |
| • | Credit cost ratio for the first six months of 2022 at -0.01%. |
In the quarter under review, we recorded a 9-million-euro net loan loss impairment charge, compared with a net release of 15 million euros and 130 million euros in the previous and year-earlier quarters, respectively. The net impairment charge in the quarter under review included the positive impact of the release of the remaining 50-million euro collective impairment previously recorded for the coronavirus crisis and the negative impact of a net charge of 14 million euros for individual loans (almost entirely related to the sale transaction in Ireland) and an additional 45-million-euro charge for geopolitical and emerging risks (net of approximately 20 million euros recoveries on Russian exposures). As a consequence, the outstanding reserve for geopolitical and emerging risks amounted to 268 million euros at the end of June 2022. We have provided a detailed calculation and background information in Note 1.4 of the 'Consolidated financial statements' section of the quarterly report.
Broken down by country, the net reversal of loan loss impairment in Belgium (25 million euros, partly related to recoveries on Russian exposures) was more than offset by net impairment charges in the other countries (2 million euros in the Czech Republic, 4 million euros in Slovakia, 3 million euros in Hungary, 9 million euros in Bulgaria and 16 million euros for the group Centre, largely related to Ireland).
For the entire group, the credit cost ratio amounted to -0.01% in the first six months of 2022 (-0.02% excluding the amounts recorded for geopolitical and emerging risks and the coronavirus crisis), compared to -0.18% for full-year 2021 (0.09% excluding the amount set aside for the coronavirus crisis). A negative figure implies a positive impact on the result. At the end of June 2022, some 2.2% of our total loan book was classified as impaired ('Stage 3'), compared to 2.9% at year-end 2021. Impaired loans that are more than 90 days past due amounted to 1.2% of the loan book, compared to 1.5% at year-end 2021. The improvement in the impaired loans ratios was largely related to the sale of the bulk of the non-performing Irish mortgage loan book in February 2022.
Impairment on assets other than loans amounted to 19 million euros, compared to 37 million euros in the previous quarter and 6 million euros in year-earlier quarter. The figure for the quarter under review related mainly to the extension of the interest cap regulation in Hungary. The previous quarter's figure had included a one-off impairment on fixed assets of some 24 million euros in Ireland in view of the pending sale there, as well as impairment on real estate in the Belgium Business Unit.
| Net result | Belgium | Czech Republic | International Markets | Group Centre |
|---|---|---|---|---|
| by business unit | ||||
| 564 million euros |
237 million euros |
52 million euros |
-41 million euros |
Belgium: at first sight, the net result (564 million euros) was 148% higher quarter-on-quarter. Excluding bank taxes (the bulk of which are recorded in the first quarter and hence distort the quarter-on-quarter comparison), the result was up 14% on the previous quarter. This was due primarily to the combined effect of higher total income (higher net interest income, dividend income and net other income more than offset lower trading & fair value income and net fee and commission income), somewhat higher costs (due in part to wage drift and indexation, as well as higher marketing expenses) and net impairment releases (as opposed to net charges in the previous quarter).
Czech Republic: the net result (237 million euros) was up 14% on its level for the previous quarter, but down 8% when bank taxes are excluded. This was attributable to a combination of lower total income (higher net interest more than offset by lower trading & fair value income, among other factors), somewhat lower costs and a net impairment charge (compared to a net release in the previous quarter).
International Markets: the 52-million-euro net result breaks down as follows: 28 million euros in Slovakia, -6 million euros in Hungary (see below) and 30 million euros in Bulgaria. While the bulk of bank taxes is traditionally recorded in the first quarter, the current quarter's result was also adversely impacted by an additional tax charge in Hungary (totalling 78 million euros). For the business unit as a whole and disregarding all bank taxes, the net result was down 12% quarter-on-quarter. This was attributable to a combination of slightly lower total income (increased net interest income more than offset by lower trading & fair value income and net other income, among other factors), a decrease in costs and higher net impairment charges.
Group Centre: the net result (-41 million euros) was 8 million euros higher than the figure recorded in the previous quarter. Note that, as of 2022, the Group Centre includes the result for Ireland given the pending sale. The net result for Ireland in the quarter under review amounted to -2 million euros and included -17 million euros in various one-off effects related to the ongoing sale transaction, compared to -15 and -32 million euros in the previous quarter, respectively.
| Belgium Czech Republic |
International Markets1 | |||||||
|---|---|---|---|---|---|---|---|---|
| Selected ratios by business unit | 1H2022 | FY2021 | 1H2022 | FY2021 | 1H2022 | FY2021 | ||
| Cost/income ratio, group (excluding certain non-operating items and evenly spreading the banking tax throughout the year) |
53% | 51% | 43% | 53% | 52% | 63% | ||
| Combined ratio, non-life insurance | 85% | 90% | 85% | 87% | 86% | 86% | ||
| Credit cost ratio2 | -0.04% | -0.26% | -0.04% | -0.42% | 0.22% | 0.36% | ||
| Impaired loans ratio | 1.9% | 2.2% | 1.8% | 1.8% | 2.2% | 5.7% | ||
| 1 At the start of 2022, Ireland was moved from the International Markets Business Unit to the Group Centre in view of the pending sale. Figures are therefore not fully comparable. |
2 A negative figure indicates a net impairment release (positively affecting results). See 'Details of ratios and terms' in the quarterly report.
A full results table is provided in the 'Additional information' section of the quarterly report. A short analysis of the results per business unit is provided in the analyst presentation (available at www.kbc.com).
| Equity, solvency and liquidity |
Total equity |
Common equity ratio (fully loaded) |
Liquidity coverage ratio |
Net stable funding ratio |
|---|---|---|---|---|
| 20.2 billion euros | 15.9% | 158% | 142% |
At the end of June 2022, total equity came to 20.2 billion euros, comprising 18.7 billion euros in parent shareholders' equity and 1.5 billion euros in additional tier-1 instruments. Total equity was down 2.8 billion euros on its level at the end of 2021. This was accounted for by the combined effect of a number of items, including the profit for the first six months (+1.3 billion euros), payment of the final dividend in May (7.60 euros per share or -3.2 billion euros in total), a decrease in the revaluation reserves (-0.9 billion euros) and a number of minor items. We have provided details of these changes under 'Consolidated statement of changes in equity' in the 'Consolidated financial statements' section of the quarterly report.
On 30 June 2022, our fully loaded common equity ratio (Basel III, under the Danish compromise) amounted to 15.9%, compared to 15.5% at the end of 2021. It should be noted that the impact of approximately -1 percentage point on the common equity ratio resulting from the acquisition of Raiffeisenbank Bulgaria will be included as of the third quarter of 2022. The solvency ratio for KBC Insurance under the Solvency II framework was 242% at the end of June 2022, compared to 201% at the end of 2021. We have provided more details and additional information on solvency under 'Solvency' in the 'Additional information' section of the quarterly report.
Our liquidity position remained excellent too, as reflected in an LCR ratio of 158% and an NSFR ratio of 142%, compared to 167% and 148%, respectively, at the end of 2021.
| Net profit | • | Net profit down 6% on the figure for the year-earlier period. |
|---|---|---|
| Total income up 12% thanks to almost all income components. | ||
| 1 269 million euros |
• | Operating expenses (excluding bank taxes) up 8% year-on-year. Bank taxes up 34% year-on-year. |
| • | Small net release of loan loss impairment (6 million euros), compared to a net release of 206 million euros in the year-earlier period. |
Highlights (compared to the first six months of 2021, unless otherwise stated):
In the second quarter, we were able yet again to achieve one of our previously set sustainability ambitions ahead of schedule, with renewables now accounting for 66% of our energy-sector loan portfolio (our target was 65% by 2030). Among our achievements in the first half of 2022 was the closure of three Belgian project finance deals in the wind energy sector. In accordance with our climate commitments, we will set new climate-related targets for a number of key sectors and activities by the end of the third quarter of 2022.
We actively involve our customers in our climate journey. During the first six months of this year, for instance, KBC relationship managers for corporate customers and large SMEs in Belgium were actively engaged in sustainability matters with over 1 300 customers. More and more of these customers also requested and received an estimate of their own carbon footprint from us, as a starting point for drawing up an action plan to define a more sustainable future for their businesses.
We are also taking appropriate steps in this regard in our other core markets. In Bulgaria, for instance, we pioneered an educational programme together with the Economics Faculty of Sofia University, aimed at providing systematic knowledge to KBC employees in Bulgaria on a broad range of ESG topics and also involving a wide range of stakeholders, such as business customers, journalists and students. In June, we successfully completed the first edition of this programme, with the second edition planned to start in September this year.
As we are mainly active in banking, insurance and asset management, we are exposed to a number of typical risks for these financial sectors such as – but not limited to – credit default risk, counterparty credit risk, concentration risk, movements in interest rates, currency risk, market risk, liquidity and funding risk, insurance underwriting risk, changes in regulations, operational risk, customer litigation, competition from other and new players, as well as the economy in general. KBC closely monitors and manages each of these risks within a strict risk framework, but they may all have a negative impact on asset values or could generate additional charges beyond anticipated levels.
At present, a number of factors are considered to constitute the main challenges for the financial sector. These stem primarily from the impact of the war in Ukraine, not just directly, but even more so indirectly due to the resulting increase in energy and commodity prices and supply-side shortages, which were already stressed following the coronavirus pandemic. This has led to a surge in inflation, resulting in upward pressure on interest rates, volatility on financial markets, lower growth prospects (with the increased likelihood of a recession or stagflation scenario) and some concerns on the creditworthiness of counterparties in the economic sectors most exposed. These risks affect global, but especially, European economies, including KBC's home markets. Regulatory and compliance risks (including capital requirements, anti-money laundering regulations and GDPR) also remain a dominant theme for the sector, as does enhanced consumer protection. Digitalisation (with technology as a catalyst) presents both opportunities and threats to the business model of traditional financial institutions, while climate-related risks are becoming increasingly prevalent. Finally, cyber risk has become one of the main threats during the past few years, not just for the financial sector, but for the economy as a whole. The war in Ukraine has again increased vigilance in this area.
We provide risk management data in our annual reports, quarterly reports and dedicated risk reports, all of which are available at www.kbc.com.
After recording negative, quarter-on-quarter real GDP growth (-0.4%) in the first quarter of 2022, the US economy shrunk again in the second quarter, this time by -0.2% quarter-on-quarter due largely to a run-down of inventories and subdued investment activity. However, the latest producer and consumer confidence indicators suggest a further weakening of economic growth in the coming quarters, driven by high inflation and tightening financial conditions. Meanwhile, after strong growth in the first quarter (+0.6% quarteron-quarter), euro area growth in the second quarter even slightly accelerated to +0.7% quarter-on-quarter. This was largely accounted for by the service sector, such as tourism, in Southern European countries. In the second quarter, economic growth slowed in both Belgium and the Czech Republic, but still remained positive at +0.2% quarter-on-quarter. As for the second half of 2022, we expect the war in Ukraine to impact the European economy more severely than its US counterpart. Therefore, economic stagnation in the euro area in the quarters ahead cannot be ruled out.
The main risk to our short-term outlook for European growth relates to the possibility that a severe disruption of Russian gas supplies will cause critical energy shortages. This would lead to an additional upward price shock for energy, further weighing on consumption and business activity, with the additional risk of selective gas rationing and potential sectoral shutdowns. Other risks continue to include general, post-pandemic supply chain disruptions, new waves of Covid infections and vulnerability caused by high levels of debt in what are tightening financing conditions worldwide.
To fight increasing inflationary pressure, the Fed continued to raise its policy rate in the second quarter by 50 basis points in early May and by 75 basis points in mid-June and end-July each. We expect the Fed to continue raising its policy rate in the coming quarters. Moreover, the run-down of the Fed's balance sheet ('Quantitative Tightening') has started in June and will be fully phased in by September. Meanwhile, the ECB also ended net purchases under its general Asset Purchase Programme at the end of June and raised its policy rates at the end of July by 50 basis points to address above-target inflation rates in the euro area. We expect this move to be the start of a cycle of rate normalisation.
Both US and German 10-year yields rose, on balance, by about 50 basis points during the second quarter in a largely synchronised move. By mid-June, yields had risen by as much as approximately 100 basis points, before falling again to their current levels, which are now pricing in the increasing risk of recession. These movements in the second quarter were driven primarily by changing market expectations about how Fed and ECB monetary policy would react to exceptionally high inflation rates. In the second quarter, the euro continued to depreciate against the US dollar, heading towards parity before tentatively stabilising. The weakening euro was the result of widening interest rate differentials and the fact that the European economy is more severely affected by the ongoing energy crisis. Since these factors are likely to persist in the coming quarters, we expect the euro to further depreciate to below parity with the US dollar.
The Czech koruna (CZK) depreciated slightly against the euro in the second quarter. It depreciated sharply for a time in mid-May, but received support through targeted FX interventions by the Czech National Bank (CNB). In its fight against strong inflationary pressures, the CNB raised its policy rate in two steps, increasing it from 5% at the beginning of the second quarter to the current rate of 7%. We expect one more rate hike of 50 basis points, which will probably be the peak of the current tightening cycle. Further targeted FX interventions by the CNB, when necessary, are expected to stabilise the koruna against the euro in the coming quarters.
The Hungarian forint (HUF) depreciated significantly against the euro. The weakness of the HUF is related to significant domestic inflationary pressures, as well as elevated degrees of (global) risk aversion. To address inflation and prevent the HUF from weakening even further (thus adding to the inflationary pressure), the National Bank of Hungary raised its base rate from 4.4% at the beginning of the second quarter to its current level of 10.75%. This tightening cycle is expected to continue in the quarters to come.
Based on our latest set of macroeconomic and business assumptions (impacted by the invasion of Russia in Ukraine, causing major macroeconomic and financial shocks and very volatile markets) we have updated our short-term guidance:
We have also updated our 3-year and long-term financial guidance (IFRS17 impact not taken into account yet):
A full overview, including regulatory solvency targets, is provided in the 'General Investor Presentation 2Q2022', on www.kbc.com
| Upcoming events |
• 3Q2022 results: 9 November 2022 • 4Q2022 results: 9 February 2023 |
|---|---|
| More information on |
• Other events: www.kbc.com / Investor Relations / Financial calendar • Quarterly report: www.kbc.com / Investor Relations / Reports • Company presentation: www.kbc.com / Investor Relations / Presentations |
| 2Q2022 Detailed information on coronavirus & Ukraine crisis |
• Quarterly report, Note 1.4 in 'Consolidated financial statements according to IFRS' • Company presentation |
| Definitions of ratios |
• 'Details of ratios and terms at KBC Group level' in the last section of the quarterly report. |
Consolidated financial statements according to IFRS
2Q 2022 and 1H 2022
Section reviewed by the Auditor
AC: Amortised Cost AFS: Available For Sale (IAS 39) ALM: Asset Liability Management ECL: Expected Credit Loss FA: Financial Assets FV: Fair Value FVO: Fair Value Option (designated upon initial recognition at Fair Value through Profit or Loss) FVOCI: Fair Value through Other Comprehensive Income FVPL: Fair Value through Profit or Loss FVPL – overlay: Fair Value through Profit or Loss - overlay GCA: Gross Carrying Amount HFT: Held For Trading MFVPL: Mandatorily Measured at Fair Value through Profit or Loss (including HFT) OCI: Other Comprehensive Income POCI: Purchased or Originated Credit Impaired Assets SPPI: Solely payments of principal and interest SRB: Single Resolution Board R/E: Retained Earnings
| (in millions of EUR) | Note | 1H 2022 | 1H 2021 | 2Q 2022 | 1Q 2022 | 2Q 2021 |
|---|---|---|---|---|---|---|
| Net interest income | 3.1 | 2 448 | 2 162 | 1 248 | 1 200 | 1 094 |
| Interest income | 3.1 | 4 961 | 3 009 | 2 610 | 2 350 | 1 529 |
| Interest expense | 3.1 | -2 513 | - 847 | -1 363 | -1 150 | - 434 |
| Non-life insurance (before reinsurance) | 3.7 | 419 | 451 | 222 | 197 | 213 |
| Earned premiums | 3.7 | 990 | 916 | 503 | 487 | 463 |
| Technical charges | 3.7 | - 571 | - 464 | - 280 | - 291 | - 250 |
| Life insurance (before reinsurance) | 3.7 | 24 | 22 | 14 | 11 | 10 |
| Earned premiums | 3.7 | 556 | 564 | 266 | 290 | 272 |
| Technical charges | 3.7 | - 531 | - 542 | - 252 | - 279 | - 262 |
| Ceded reinsurance result | 3.7 | 26 | - 12 | 2 | 24 | 1 |
| Dividend income | 28 | 25 | 21 | 7 | 18 | |
| Net result from financial instruments at fair value through profit or loss | 3.3 | 233 | 156 | 89 | 143 | 29 |
| of which result on equity instruments (overlay approach) | 27 | 59 | 4 | 23 | 24 | |
| Net realised result from debt instruments at fair value through OCI | - 16 | 1 | - 14 | - 2 | - 1 | |
| Net fee and commission income | 3.5 | 934 | 890 | 451 | 482 | 450 |
| Fee and commission income | 3.5 | 1 394 | 1 289 | 684 | 710 | 650 |
| Fee and commission expense | 3.5 | - 461 | - 399 | - 233 | - 228 | - 200 |
| Net other income | 3.6 | 144 | 91 | 90 | 54 | 38 |
| TOTAL INCOME | 4 239 | 3 786 | 2 123 | 2 116 | 1 853 | |
| Operating expenses | 3.8 | -2 591 | -2 293 | -1 071 | -1 520 | - 972 |
| Staff expenses | 3.8 | -1 255 | -1 184 | - 616 | - 639 | - 607 |
| General administrative expenses | 3.8 | -1 154 | - 944 | - 371 | - 783 | - 283 |
| Depreciation and amortisation of fixed assets | 3.8 | - 182 | - 164 | - 84 | - 99 | - 83 |
| Impairment | 3.10 | - 50 | 200 | - 28 | - 22 | 123 |
| on financial assets at AC and at FVOCI | 3.10 | 6 | 206 | - 9 | 15 | 130 |
| on goodwill | 3.10 | 0 | 0 | 0 | 0 | 0 |
| other | 3.10 | - 56 | - 5 | - 19 | - 37 | - 6 |
| Share in results of associated companies and joint ventures | - 5 | - 1 | - 2 | - 3 | 1 | |
| RESULT BEFORE TAX | 1 594 | 1 693 | 1 023 | 571 | 1 005 | |
| Income tax expense | - 325 | - 342 | - 211 | - 113 | - 211 | |
| Net post-tax result from discontinued operations | 0 | 0 | 0 | 0 | 0 | |
| RESULT AFTER TAX | 1 269 | 1 350 | 811 | 458 | 793 | |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | |
| of which relating to discontinued operations | 0 | 0 | 0 | 0 | 0 | |
| attributable to equity holders of the parent | 1 269 | 1 350 | 811 | 458 | 793 | |
| of which relating to discontinued operations | 0 | 0 | 0 | 0 | 0 | |
| Earnings per share (in EUR) | ||||||
| Ordinary | 2.99 | 3.18 | 1.92 | 1.07 | 1.87 | |
| Diluted | 2.99 | 3.18 | 1.92 | 1.07 | 1.87 |
We describe the impact of the most significant acquisitions and disposals in 2021 and 2022 (the acquisition of NN's Bulgarian pension and life insurance business, the pending sale of the Irish credit and deposit portfolios and the acquisition of Bulgarian operations of Raiffeisen Bank International) in Note 6.6 further in this report.
The interest income and interest expense have been affected by a presentation change (no impact on net interest income). For more information, see note 3.1 further in this report.
The equity instruments of the insurance companies within the group are designated under the overlay approach. These equity instruments, mainly classified as AFS under IAS 39, would have been measured at fair value through P&L under IFRS 9. The overlay approach reclassifies from the income statement to OCI the extra volatility related to the adoption of IFRS 9 as long as IFRS 17 is not in place, until 31 December 2022.
The extra volatility due to IFRS 9, reclassified out of the net result from financial instruments at fair value through profit or loss to the revaluation reserves of equity instruments (overlay approach) refers to the unrealised fair value fluctuations amounting to -273 million euros in 1H 2022. It can be summarized as the difference between :
| (in millions of EUR) | 1H 2022 | 1H 2021 | 2Q 2022 | 1Q 2022 | 2Q 2021 |
|---|---|---|---|---|---|
| RESULT AFTER TAX | 1 269 | 1 350 | 811 | 458 | 793 |
| Attributable to minority interests | 0 | 0 | 0 | 0 | 0 |
| Attributable to equity holders of the parent | 1 269 | 1 350 | 811 | 458 | 793 |
| OCI THAT MAY BE RECYCLED TO PROFIT OR LOSS | - 1 160 | 124 | - 696 | - 464 | 141 |
| Net change in revaluation reserve (FVOCI debt instruments) | - 992 | - 304 | - 526 | - 466 | - 79 |
| Net change in revaluation reserve (FVPL equity instruments) - overlay |
- 273 | 109 | - 142 | - 131 | 59 |
| Net change in hedging reserve (cashflow hedges) | 184 | 162 | 133 | 51 | 24 |
| Net change in translation differences | - 102 | 200 | - 215 | 113 | 160 |
| Hedge of net investments in foreign operations | 22 | - 42 | 55 | - 33 | - 24 |
| Net change in respect of associated companies and joint | |||||
| ventures | 0 | 0 | 0 | 0 | 0 |
| Other movements | 1 | - 1 | 0 | 1 | 0 |
| OCI THAT WILL NOT BE RECYCLED TO PROFIT OR LOSS | 246 | 302 | 200 | 45 | 97 |
| Net change in revaluation reserve (FVOCI equity instruments) | 0 | 50 | - 1 | 1 | 5 |
| Net change in defined benefit plans | 244 | 255 | 200 | 44 | 91 |
| Net change in own credit risk | 2 | - 2 | 2 | 0 | 0 |
| Net change in respect of associated companies and joint | |||||
| ventures | 0 | 0 | 0 | 0 | 0 |
| TOTAL COMPREHENSIVE INCOME | 355 | 1 777 | 315 | 40 | 1 031 |
| Attributable to minority interests | 0 | 0 | 0 | 0 | 0 |
| Attributable to equity holders of the parent | 355 | 1 777 | 315 | 40 | 1 031 |
The largest movements in other comprehensive income (1H 2022 and 1H 2021):
| (in millions of EUR) | Note | 30-06-2022 | 31-12-2021 |
|---|---|---|---|
| ASSETS | |||
| Cash, cash balances with central banks and other demand deposits with credit institutions | 53 360 | 40 653 | |
| Financial assets | 4.0 | 301 953 | 281 658 |
| Amortised cost | 4.0 | 262 325 | 240 128 |
| Fair value through OCI | 4.0 | 13 294 | 15 824 |
| Fair value through profit or loss | 4.0 | 25 787 | 25 422 |
| of which held for trading | 4.0 | 11 001 | 8 850 |
| Hedging derivatives | 4.0 | 547 | 283 |
| Reinsurers' share in technical provisions, insurance | 242 | 191 | |
| Profit/loss on positions in portfolios hedged for interest rate risk | -3 618 | - 436 | |
| Tax assets | 1 274 | 1 296 | |
| Current tax assets | 234 | 179 | |
| Deferred tax assets | 1 040 | 1 117 | |
| Non-current assets held for sale and disposal groups | 5.11 | 9 023 | 10 001 |
| Investments in associated companies and joint ventures | 34 | 37 | |
| Property, equipment and investment property | 3 505 | 3 568 | |
| Goodwill and other intangible assets | 1 773 | 1 749 | |
| Other assets | 2 260 | 1 630 | |
| TOTAL ASSETS | 369 807 | 340 346 | |
| LIABILITIES AND EQUITY | |||
| Financial liabilities | 4.0 | 326 078 | 291 667 |
| Amortised cost | 4.0 | 302 448 | 268 387 |
| Fair value through profit or loss | 4.0 | 22 889 | 22 187 |
| of which held for trading | 4.0 | 9 533 | 7 271 |
| Hedging derivatives | 4.0 | 741 | 1 094 |
| Technical provisions, before reinsurance | 18 817 | 18 967 | |
| Profit/loss on positions in portfolios hedged for interest rate risk | -1 544 | - 863 | |
| Tax liabilities | 222 | 435 | |
| Current tax liabilities | 75 | 87 | |
| Deferred tax liabilities | 148 | 348 | |
| Liabilities associated with disposal groups | 5.11 | 3 278 | 4 262 |
| Provisions for risks and charges | 286 | 282 | |
| Other liabilities | 2 430 | 2 520 | |
| TOTAL LIABILITIES | 349 568 | 317 269 | |
| Total equity | 5.10 | 20 239 | 23 077 |
| Parent shareholders' equity | 5.10 | 18 739 | 21 577 |
| Additional tier-1 instruments included in equity | 5.10 | 1 500 | 1 500 |
| Minority interests | 0 | 0 | |
| TOTAL LIABILITIES AND EQUITY | 369 807 | 340 346 |
The impact of the most important acquisitions and divestments in 2021 and 2022 is described in Note 6.6.
The increase of the balance sheet total in 1H 2022 can for the largest part be explained by higher repos and demand deposits, leading to higher cash balances with central banks, higher reverse repos and higher loans and advances to customers. This is partly offset by lower profit/loss on positions in portfolios hedged for interest rate risk (both on assets and liabilities) explained by the substantial increase of interest rates in 1H 2022.
| Issued | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| and paid up |
Total | Parent | AT1 instruments |
||||||
| share | Share | Treasury | Retained | revaluation | shareholders' | included in | Minority | Total | |
| (in millions of EUR) 30-06-2022 |
capital | premium | shares | earnings | reserves | equity | equity | interests | equity |
| Balance at the end of the previous period | 1 460 | 5 528 | 0 | 14 272 | 318 | 21 577 | 1 500 | 0 | 23 077 |
| Net result for the period | 0 | 0 | 0 | 1 269 | 0 | 1 269 | 0 | 0 | 1 269 |
| Other comprehensive income for the period | 0 | 0 | 0 | 1 | - 915 | - 914 | 0 | 0 | - 914 |
| Subtotal | 0 | 0 | 0 | 1 270 | - 915 | 355 | 0 | 0 | 355 |
| Dividends | 0 | 0 | 0 | - 3 168 | 0 | - 3 168 | 0 | 0 | - 3 168 |
| Coupon on AT1 | 0 | 0 | 0 | - 25 | 0 | - 25 | 0 | 0 | - 25 |
| Capital increase | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfer from revaluation reserves to retained earnings on realisation |
0 | 0 | 0 | - 1 | 1 | 0 | 0 | 0 | 0 |
| Purchase/sale of treasury shares | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Change in minorities interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total change | 0 | 0 | 0 | - 1 924 | - 914 | - 2 838 | 0 | 0 | - 2 838 |
| Balance at the end of the period | 1 460 | 5 528 | 0 | 12 348 | - 596 | 18 739 | 1 500 | 0 | 20 239 |
| 2021 | |||||||||
| Balance at the end of the previous period | 1 459 | 5 514 | - 1 | 13 146 | - 88 | 20 030 | 1 500 | 0 | 21 530 |
| Net result for the period | 0 | 0 | 0 | 2 614 | 0 | 2 614 | 0 | 0 | 2 614 |
| Other comprehensive income for the period | 0 | 0 | 0 | - 2 | 403 | 401 | 0 | 0 | 401 |
| Subtotal | 0 | 0 | 0 | 2 612 | 403 | 3 015 | 0 | 0 | 3 015 |
| Dividends | 0 | 0 | 0 | - 1 433 | 0 | - 1 433 | 0 | 0 | - 1 433 |
| Coupon on AT1 | 0 | 0 | 0 | - 50 | 0 | - 50 | 0 | 0 | - 50 |
| Capital increase | 1 | 13 | 0 | 0 | 0 | 14 | 0 | 0 | 14 |
| Transfer from revaluation reserves to retained earnings on realisation |
0 | 0 | 0 | - 3 | 3 | 0 | 0 | 0 | 0 |
| Purchase/sale of treasury shares | 0 | 0 | 1 | 0 | 0 | 1 | 0 | 0 | 1 |
| Change in minorities interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total change | 1 | 13 | 1 | 1 126 | 406 | 1 547 | 0 | 0 | 1 547 |
| Balance at the end of the period | 1 460 | 5 528 | 0 | 14 272 | 318 | 21 577 | 1 500 | 0 | 23 077 |
| 30-06-2021 | |||||||||
| Balance at the end of the previous period | 1 459 | 5 514 | - 1 | 13 146 | - 88 | 20 030 | 1 500 | 0 | 21 530 |
| Net result for the period | 0 | 0 | 0 | 1 350 | 0 | 1 350 | 0 | 0 | 1 350 |
| Other comprehensive income for the period | 0 | 0 | 0 | - 1 | 427 | 427 | 0 | 0 | 427 |
| Subtotal | 0 | 0 | 0 | 1 349 | 427 | 1 777 | 0 | 0 | 1 777 |
| Dividends | 0 | 0 | 0 | - 183 | 0 | - 183 | 0 | 0 | - 183 |
| Coupon on AT1 | 0 | 0 | 0 | - 25 | 0 | - 25 | 0 | 0 | - 25 |
| Capital increase | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfer from revaluation reserves to retained earnings on realisation |
0 | 0 | 0 | 5 | - 5 | 0 | 0 | 0 | 0 |
| Purchase/sale of treasury shares | 0 | 0 | 1 | 0 | 0 | 1 | 0 | 0 | 1 |
| Change in minorities interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total change | 0 | 0 | 1 | 1 146 | 422 | 1 570 | 0 | 0 | 1 570 |
| Balance at the end of the period | 1 459 | 5 514 | 0 | 14 293 | 334 | 21 600 | 1 500 | 0 | 23 100 |
The General Meeting of Shareholders approved on 5 May 2022 a gross final dividend of 7.60 euros per share, of which:
The total amount of 3 168 million euros (or 7.60 euros per share) was deducted from retained earnings in 2Q 2022 (paid in May 2022).
The total amount of dividend deducted from retained earnings in 2021 amounts to 1 433 million euros, of which:
| Composition of the 'Total revaluation reserves' column in the previous table (in millions of EUR) | 30-06-2022 | 31-12-2021 | 30-06-2021 |
|---|---|---|---|
| Total | - 596 | 318 | 334 |
| Revaluation reserve (FVOCI debt instruments) | - 349 | 642 | 826 |
| Revaluation reserve (FVPL equity instruments) - overlay | 223 | 496 | 434 |
| Revaluation reserve (FVOCI equity instruments) | 74 | 74 | 59 |
| Hedging reserve (cashflow hedges) | - 924 | -1 108 | -1 132 |
| Translation differences | - 212 | - 110 | - 183 |
| Hedge of net investments in foreign operations | 101 | 79 | 121 |
| Remeasurement of defined benefit plans | 490 | 246 | 210 |
| Own credit risk through OCI | 1 | - 1 | - 1 |
| (in millions of EUR) | Note | 1H 2022 | 1H 2021 |
|---|---|---|---|
| OPERATING ACTIVITIES | |||
| Consolidated | |||
| Result before tax | income statement | 1 594 | 1 693 |
| Adjustments for non-cash items in profit & loss | 1 292 | 47 | |
| Changes in operating assets (excluding cash and cash equivalents) | -6 670 | -1 296 | |
| Changes in operating liabilities (excluding cash and cash equivalents) | 33 476 | 44 216 | |
| Income taxes paid | - 288 | - 235 | |
| Net cash from or used in operating activities | 29 403 | 44 424 | |
| INVESTING ACTIVITIES | |||
| Purchase and proceeds of debt securities at amortised cost | 4.1 | -2 617 | 281 |
| Acquisition of a subsidiary or a business unit, net of cash acquired (including increases in percentage interest held) |
- 4 | 0 | |
| Proceeds from the disposal of a subsidiary or business unit, net of cash disposed of (including decreases in percentage interest held) |
80 | 0 | |
| Purchase and proceeds from the sale of intangible fixed assets (excluding goodwill) | - 18 | - 138 | |
| Purchase and proceeds from the sale of property, plant and equipment (excluding goodwill) | - 7 | - 13 | |
| Other | 28 | 5 | |
| Net cash from or used in investing activities | -2 538 | 135 | |
| FINANCING ACTIVITIES | |||
| Consolidated | |||
| statement of | |||
| Purchase or sale of treasury shares | changes in equity | 0 | 1 |
| Issue or repayment of promissory notes and other debt securities | 4.1 | 641 | - 576 |
| Proceeds from or repayment of subordinated liabilities | 4.1 | - 767 | - 12 |
| Consolidated statement of |
|||
| Proceeds from the issuance of share capital | changes in equity | 0 | 0 |
| Consolidated | |||
| statement of | |||
| Issue of additional tier-1 instruments | changes in equity | 0 | 0 |
| Consolidated statement of |
|||
| Dividends paid | changes in equity | -3 168 | - 183 |
| Consolidated | |||
| statement of | |||
| Coupon additional Tier-1 instruments | changes in equity | - 25 | - 25 |
| Net cash from or used in financing activities | -3 319 | - 795 | |
| CHANGE IN CASH AND CASH EQUIVALENTS | |||
| Net increase or decrease in cash and cash equivalents | 23 546 | 43 764 | |
| Cash and cash equivalents at the beginning of the period | 63 554 | 47 794 | |
| Effects of exchange rate changes on opening cash and cash equivalents | - 120 | 790 | |
| Cash and cash equivalents at the end of the period | 86 980 | 92 348 | |
| COMPONENTS OF CASH AND CASH EQUIVALENTS | |||
| Consolidated | |||
| Cash and cash balances with central banks and other demand deposits with credit institutions | balance sheet | 53 360 | 68 034 |
| Term loans to banks at not more than three months (excl. reverse repos) | 4.1 | 5 007 | 2 407 |
| Reverse repos with credit institutions and investment firms at not more than three months | 4.1 | 35 228 | 28 118 |
| Deposits from banks repayable on demand | 4.1 | -6 615 | -6 211 |
| Cash and cash equivalents belonging to disposal groups | 0 | 0 | |
| Total | 86 980 | 92 348 | |
| of which not available | 0 | 0 |
The net cash from operating activities in 1H 2022 (+29 403 million euros) mainly includes a significant growth of deposits, a.o. thanks to higher demand deposits and repos, slightly offset by an increasing mortgage and term loan portfolio.
The net cash from operating activities in 1H 2021 (+44 424 million euros) mainly includes a significant growth of deposits, amongst others thanks to higher certificates of deposit, demand deposits, repos and deposits from credit institutions and investment firms. 1H 2021 also includes 2.5 billion euros additional TLTRO III funding (bringing the total TLTRO III funding at 24.5 billion euros).
Net cash from (used in) investing activities in 1H 2022 (-2 538 million euros) is mainly explained by additional investments in debt securities at amortised cost.
The net cash from investing activities in 1H 2021 (+135 million euros) is a.o. explained by maturing investments in debt securities at amortised cost.
The net cash flow from financing activities in 1H 2022 (-3 319 million euros) mainly includes the dividend payment (-3 168 million euros), matured covered bond position (-1 billion euros) and the call of a Tier-2 instrument (-750 million euros) being partly compensated by an increase of the volume of Senior Holdco instruments (+1.8 billion euros).
The net cash flow from financing activities in 1H 2021 (-795 million euros) mainly includes matured covered bonds (-1.1 billion euros) and Senior Holdco instruments (-750 million euros), and the dividend payment (-183 million euros) being partly compensated by the issue of Senior Holdco instruments (+1.7 billion euros, including a floating rate note of 450 million euros).
The condensed interim financial statements of the KBC Group for the period ended 30 June 2022 have been prepared in accordance with IAS 34, 'Interim financial reporting'. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2021, which have been prepared in accordance with the International Financial Reporting Standards as adopted for use in the European Union ('endorsed IFRS').
The following IFRS standards were issued but not yet effective in 2022. KBC will apply these standards when they become mandatory.
• IFRS 17:
In May 2017, the IASB issued IFRS 17 (Insurance Contracts), a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 (Insurance Contracts) that was issued in 2005. IFRS 17 applies to all types of insurance contracts, regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by a specific adaptation for contracts with direct participation features (the variable fee approach) and a simplified approach (the premium allocation approach) mainly for short-duration contracts.
The interpretation of the IFRS 17 standard was gradually adjusted where necessary when new information became available from external sources or internal sources. Thus, we also take into account the amendments to the original standard that were published by the IASB in June 2020. On November 23, 2021 the EU regulation of the IFRS 17 standard, including the amendments to the original standard and including a solution for the annual cohort requirement for certain types of insurance contracts was published. As a result, the IFRS 17 standard has been endorsed for use in the European Union.
IFRS 17 will become effective for reporting periods beginning on or after 1 January 2023, with comparative figures being required. KBC launched a group-wide project to implement IFRS 17 in 2018. The project is composed of sub-projects such as data delivery, local reporting, impact on business and strategic implications, guidance and support, consolidated reporting and IFRS 17 calculation tool. The project is driven by the insurance business and Finance together and involves all departments and entities at group and local level that are affected. In 2022, the focus is on the finalization of the implementation of an IFRS17-compliant process for the accounting closing.
• Other:
The IASB published several limited amendments to existing IFRSs and IFRICs. They will be applied when they become mandatory, but their impact is currently estimated to be negligible.
In line with ESMA expectations, KBC provides insights in the main known impacts of introducing IFRS 17 in the text below, which will be further completed in the upcoming quarters.
For Non-Life insurance the main difference with IFRS 4 is that under IFRS 17 the claim reserves are discounted. The IFRS 4 undiscounted claim reserves are replaced by IFRS 17 discounted best estimate of future cash outflows + risk
adjustment (= safety margin).
For Life insurance currently under IFRS 4 paid premiums are recognised as earned premiums. The IFRS 4 Life mathematical reserves are replaced by IFRS 17 discounted best estimate of future cash flows + risk adjustment (= safety margin) + contractual service margin (CSM, similar to unearned profit). IFRS 17 prohibits gains at day one; the CSM on the balance sheet is released over the duration of the contract in revenue based on provided services in the period. The profit over the lifetime of an individual contract will be equal, but the recognition over time will be different. Technical charges under IFRS 4 are presented in IFRS 17 in a more transparent way namely insurance service results including insurance revenue and insurance service expenses and this is separated from insurance finance income or expenses.
When facts and circumstances indicate onerous contracts, the related expected losses are recognised immediately under IFRS 17.
IFRS 17 has no impact on :
IFRS 17 introduces uniform measurement principles for insurance liabilities that take into account the insurance contracts characteristics. In KBC for long term Life insurance contracts the Building Block Approach (BBA) and the Variable Fee Approach (VFA) measurement models are used. The Premium Allocation Approach (PAA) measurement model is applied for the short term Non-Life insurance contracts and for (ceded) reinsurance, when fulfilling the PAA eligibility criteria.
The discount curves for Life insurance are based on the top-down approach (= using a risk-free rate adjusted with a spread based on a reference portfolio of assets and excluding the part not related to the insurance liabilities for discounting), while the bottom-up approach (= risk free rate + illiquidity premium) is used for the discount curves of Non-Life insurance.
IFRS 17 insurance liabilities are valued at current rate. This implies that the impact of the time value of money is revalued each closing period at the current interest rate. An accounting policy choice needs to be made regarding recognising the impact of the changes of current rate either in the Income statement or in OCI. KBC chooses to disaggregate Insurance Finance Income or Expense between the Income statement and Other Comprehensive Income (OCI). This means recognizing in the Income Statement the interest expense on the insurance liability over the reporting period, whereby this interest expense is calculated using the locked-in rate (= rate curve applicable at the inception of the IFRS 17 contract) and recognizing in OCI the impact of changes in market interest rate over the reporting period.
The IFRS 17 insurance liabilities and reinsurance assets are presented separately on the balance sheet on a received basis and not on a written basis. To present appropriately the insurance liabilities on a received basis, a correction is performed by netting of insurance payables and receivables against the Liability for Remaining Coverage (LRC).
When moving from IFRS 4 to IFRS 17 , KBC applies the default Full Retrospective Approach (FRA) for recent years for which the requested historical data is available to perform these FRA transition calculations. Applying FRA for non-recent years is impracticable due to either lack of historical information (data and assumptions set) or due to high costs of making past information available for FRA transition calculations whereby these costs outweigh the benefits and/or due to technical limitations in local source systems. When FRA is impracticable, mainly the Fair Value Approach is applied to determine the CSM at transition date. The Modified Retrospective Approach is rarely used given that the application of this transition approach would be complex to implement with the associated costs outweighing the benefits.
The IFRS 17 calculations are done on an aggregated level and takes into account:
The IFRS 17 group portfolios for Life allow reporting at the level of Non-Unit Linked , Unit-Linked and Hybrid products. For Non-Life, reporting is done on the level of Property, Liability and Personal products. New business is aggregated in annual cohorts. Assigning contracts to a group of contracts happens on the level of a set of insurance contracts that have the same profitability characteristics at initial recognition (policy conclusion).
As a basis, Solvency II cashflows are used to ensure consistencies with IFRS 17. IFRS 17 best estimate of future cashflows deviates from the Solvency II best estimate, based on the following differences:
A summary of the main accounting policies is provided in the group's annual accounts as at 31 December 2021.
| Exchange rate at 30-06-2022 |
Average exchange rate in 1H 2022 | |||
|---|---|---|---|---|
| Changes relative to 31-12-2021 | Changes relative to the average 1H 2021 | |||
| 1 EUR = … | Positive: appreciation relative to EUR | 1 EUR = … | Positive: appreciation relative to EUR | |
| … currency | Negative: depreciation relative to EUR | … currency | Negative: depreciation relative to EUR | |
| CZK | 24.739 | 0% | 24.644 | 5% |
| HUF | 397.04 | -7% | 375.78 | -5% |
We have updated the impact assessment for the risks that could adversely affect our loan portfolio. At the end of 1H 2022, the ECL for the geopolitical and emerging risks amounted to 268 million euros (down from 273 million euros per first quarter of 2022). The figures for 2Q 2022 include a full release of the Covid ECL of 50 million euros which is partly offset by an impairment charge of 45 million euros for the geopolitical and emerging risks.
| Geopolitical, emerging and Covid risks | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| P&L changes: | |||||||||
| Geopolitical & | |||||||||
| Eur m | 1022 | 1H 22 | Covid | emerging risks | |||||
| KBC Group | 273 | 268 | $-50$ | 45 | |||||
| By country: | |||||||||
| Belgium | 122 | 105 | $-5$ | $-12$ | |||||
| Czech Republic | 70 | 71 | -6 | 7 | |||||
| Slovakia | 22 | 25 | $-1$ | 4 | |||||
| Hungary | 41 | 41 | $-37$ | 37 | |||||
| Bulgaria | 12 | 15 | $-1$ | ||||||
| Ireland | 6 | 11 | 5 |
The Covid ECL was fully released in 2Q 2022. This reflects that the current and forward-looking payment indicators for the remaining subset of clients that was expected to be most affected by the containment measures do not indicate repayment issues. The remaining Covid risks in our portfolio are captured by the regular provisioning process through the usual credit risk channels (PD, past due status and forbearance) as these indicators are no longer masked by the moratoria on loan repayments. Specifically for Hungary, the more substantial release this quarter relative to the other countries can be explained by the longer continuation of the moratoria measures by the Hungarian government. The credit risk of the remaining group of Hungarian loans under moratoria is monitored on an individual basis and the collective ECL held for this purpose can be released.
The ECL for geopolitical and emerging risks increased by 45 million euros. The main drivers are the updated impact assessment for 33 million euros and the negative revision of probabilities applied to the macroeconomic scenarios for 32 million partly offset by a reduction in direct transfer risk for 20 million euros. The methodology of the impact assessment for geopolicical and emerging risks and the macroeconomc assumptions considered are further described below.
The Russia-Ukraine war continues to destabilise the global economy and to push commodity prices upwards. These high commodity prices have exacerbated the inflationary shock caused by supply chain issues, heavy fiscal stimulus and the rapid reopening following the Covid pandemic. The increasing inflationary pressures along with tightening labour markets are increasing the pressure on central banks to normalise monetary policy. The combination of higher, more persistent inflation along with tighter monetary policy is expected to provide a hit to economic growth.
In light of these recent developments, we assessed the impact of the main macroeconomic and geopolitical risks on our loan portfolio. In 2Q 2022, this resulted in an impairment charge of 45 million euros which is mainly driven by Hungary, where the emerging risks impact assessment was extended with files previously included in the Covid impact assessment, and the updated macroeconomic scenario probabilities.
The ECL for the geopolitical and emerging risk amounts to 268 million euros, comprising:
| Direct exposure to Russia, Ukraine & Belarus |
ECL for transfer risk exposure to Russia, Ukraine and Belarus amounts to 35 million euros (mainly concentrated in commercial exposures to Russian banks) down from 55 million euros in 1Q 2022 due to recoveries from these counterparties. |
|
|---|---|---|
| -- | ---------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Indirect impact of the | The conflict is expected to impact corporate and SME clients through different channels: |
|---|---|
| military conflict on the credit portfolio |
• Exposure to Corporate and SME clients with material activities in Russia, Ukraine and Belarus or a material dependency on these markets for imports or exports (either directly or indirectly through a client/supplier); • Exposure to Corporate and SME clients with operations specifically vulnerable to a disruption in oil and/or gas supplies. |
| In line with 1Q 2022, the analysis indicates that 2.0 billion euros' worth of stage 1 exposures have suffered a significant increase in credit risk not captured by the regular staging assessment1. The ECL for the indirect impact amounts to 33 million euros in 1H 2022 (also in line with 1Q 2022). |
|
| Emerging risks | KBC identified following subsegments at risk in its portfolio: |
| • Corporate and SME clients active in economic sectors that suffer most from the supply chain issues and increasing commodity and energy prices and already having a higher credit risk (e.g. Automotive, Chemicals and Metals); • Retail clients with limited reserve repayment capacity available to absorb the higher cost of living and/or higher repayments due to increasing interest rates. |
|
| The analysis indicates that 6.3 billion euros' worth of stage 1 exposures have suffered a significant increase in credit risk not captured by the regular staging assessment1 (up from 5.9 billion euros in 1Q 2022). The ECL for the emerging risks amounts to 168 million euros in 1H 2022 (up from 135 million euros in 1Q 2022 mainly due to Hungary). |
|
| Macroeconomic scenarios |
The probabilities applied to the base-case, optimistic and pessimistic macroeconomic scenarios were adjusted from respectively 80%, 10% and 10% to 60%, 5% and 35%. This leads to an additional ECL for the geopolitical and emerging risks of 32 million euros. |
In Hungary, the exceptional geopolitical and macroeconomic circumstances also indirectly lead to:
1 For more information on the impact on staging, see Note 4.2.1
For a description on the management structure and linked reporting presentation, reference is made to note 2.1 in the annual accounts of 2021.
As a result of the pending sale to Bank of Ireland Group of substantially all of KBC Bank Ireland's loan assets and its deposit book, the P&L-lines of KBC Bank Ireland have been transferred from Business Unit International Markets (KBC Group) to Group Centre as of 1 January 2022 (without retroactive restatement).
| Belgium | Czech Republic |
International Markets |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| Business | Business | Business | Of which: | Group | Of which | ||||
| (in millions of EUR) | unit | unit | unit | Hungary | Slovakia | Bulgaria | Centre | Ireland | Total |
| 1H 2022 | |||||||||
| Net interest income | 1 311 | 666 | 380 | 192 | 114 | 74 | 90 | 127 | 2 448 |
| Non-life insurance (before reinsurance) | 226 | 97 | 87 | 29 | 17 | 41 | 9 | 0 | 419 |
| Earned premiums | 617 | 191 | 174 | 72 | 34 | 69 | 8 | 0 | 990 |
| Technical charges | - 391 | - 95 | - 87 | - 42 | - 17 | - 28 | 2 | 0 | - 571 |
| Life insurance (before reinsurance) | - 26 | 29 | 22 | 6 | 7 | 10 | 0 | 0 | 24 |
| Earned premiums | 413 | 84 | 59 | 21 | 15 | 23 | 0 | 0 | 556 |
| Technical charges | - 440 | - 55 | - 37 | - 15 | - 8 | - 13 | 0 | 0 | - 531 |
| Ceded reinsurance result | 47 | - 6 | - 6 | - 1 | - 1 | - 3 | - 10 | 0 | 26 |
| Dividend income | 25 | 1 | 0 | 0 | 0 | 0 | 2 | 0 | 28 |
| Net result from financial instruments at fair value through profit or loss |
87 | 107 | 54 | 33 | 23 | - 2 | - 15 | - 4 | 233 |
| Net realised result from debt instruments at fair value through OCI |
2 | - 11 | - 5 | - 5 | 0 | 0 | - 3 | 0 | - 16 |
| Net fee and commission income | 658 | 112 | 165 | 105 | 36 | 24 | - 2 | 1 | 934 |
| Net other income | 135 | 13 | - 1 | - 4 | 1 | 2 | - 3 | - 7 | 144 |
| TOTAL INCOME | 2 466 | 1 008 | 697 | 354 | 197 | 146 | 69 | 118 | 4 239 |
| Operating expenses | -1 456 | - 475 | - 498 | - 290 | - 128 | - 81 | - 162 | - 115 | -2 591 |
| Impairment | 18 | - 2 | - 39 | - 21 | - 5 | - 13 | - 27 | - 23 | - 50 |
| of which on FA at amortised cost and at fair value through OCI |
25 | 8 | - 24 | - 7 | - 5 | - 13 | - 2 | 1 | 6 |
| Share in results of associated companies and joint ventures |
- 4 | - 1 | 0 | 0 | 0 | 0 | 0 | 0 | - 5 |
| RESULT BEFORE TAX | 1 025 | 529 | 160 | 44 | 64 | 52 | - 120 | - 21 | 1 594 |
| Income tax expense | - 235 | - 86 | - 35 | - 15 | - 15 | - 6 | 31 | 4 | - 325 |
| Net post-tax result from discontinued operations |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| RESULT AFTER TAX | 790 | 443 | 125 | 29 | 50 | 47 | - 90 | - 17 | 1 269 |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| attributable to equity holders of the parent |
790 | 443 | 125 | 29 | 50 | 47 | - 90 | - 17 | 1 269 |
| Belgium | Czech Republic |
International Markets |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| Business | Business | Business | Of which: | Group | |||||
| (in millions of EUR) | unit | unit | unit | Hungary | Slovakia | Bulgaria | Ireland | Centre | Total |
| 1H 2021 | |||||||||
| Net interest income | 1 263 | 435 | 470 | 144 | 115 | 69 | 142 | - 6 | 2 162 |
| Non-life insurance (before reinsurance) | 283 | 73 | 86 | 29 | 20 | 37 | 0 | 9 | 451 |
| Earned premiums | 582 | 160 | 166 | 72 | 29 | 64 | 0 | 7 | 916 |
| Technical charges | - 299 | - 87 | - 80 | - 43 | - 10 | - 27 | 0 | 2 | - 464 |
| Life insurance (before reinsurance) | - 25 | 29 | 19 | 4 | 7 | 8 | 0 | 0 | 22 |
| Earned premiums | 416 | 94 | 54 | 19 | 16 | 19 | 0 | 0 | 564 |
| Technical charges | - 442 | - 65 | - 35 | - 15 | - 9 | - 11 | 0 | 0 | - 542 |
| Ceded reinsurance result | - 4 | 5 | - 9 | - 2 | - 5 | - 2 | 0 | - 5 | - 12 |
| Dividend income | 21 | 1 | 0 | 0 | 0 | 0 | 0 | 3 | 25 |
| Net result from financial instruments at fair value through profit or loss |
158 | 36 | 24 | 24 | 3 | 0 | - 3 | - 62 | 156 |
| Net realised result from debt instruments at fair value through OCI |
2 | - 1 | 0 | 0 | 0 | 0 | 0 | 0 | 1 |
| Net fee and commission income | 649 | 105 | 140 | 92 | 35 | 15 | - 2 | - 3 | 890 |
| Net other income | 74 | 13 | 5 | 1 | 2 | 2 | - 1 | - 1 | 91 |
| TOTAL INCOME | 2 421 | 695 | 735 | 294 | 177 | 129 | 135 | - 65 | 3 786 |
| Operating expenses | - 1 359 | - 415 | - 485 | - 175 | - 128 | - 72 | - 109 | - 33 | - 2 293 |
| Impairment | 121 | 62 | 23 | 19 | 3 | 1 | 0 | - 5 | 200 |
| of which on FA at amortised cost and at fair value through OCI |
118 | 66 | 27 | 22 | 3 | 2 | 0 | - 5 | 206 |
| Share in results of associated companies and joint ventures |
0 | - 1 | 0 | 0 | 0 | 0 | 0 | 0 | - 1 |
| RESULT BEFORE TAX | 1 183 | 340 | 273 | 137 | 51 | 58 | 26 | - 103 | 1 693 |
| Income tax expense | - 275 | - 50 | - 44 | - 20 | - 13 | - 6 | - 5 | 27 | - 342 |
| Net post-tax result from discontinued operations |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| RESULT AFTER TAX | 908 | 291 | 228 | 118 | 38 | 52 | 21 | - 76 | 1 350 |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| attributable to equity holders of the parent |
908 | 291 | 228 | 118 | 38 | 52 | 21 | - 76 | 1 350 |
| (in millions of EUR) | 1H 2022 | 1H 2021 | 2Q 2022 | 1Q 2022 | 2Q 2021 |
|---|---|---|---|---|---|
| Total | 2 448 | 2 162 | 1 248 | 1 200 | 1 094 |
| Interest income | 4 961 | 3 009 | 2 610 | 2 350 | 1 529 |
| Interest income on financial instruments calculated using the effective interest rate method |
|||||
| Financial assets at AC | 3 303 | 2 273 | 1 717 | 1 586 | 1 148 |
| Financial assets at FVOCI | 128 | 147 | 65 | 63 | 73 |
| Hedging derivatives | 713 | 137 | 412 | 300 | 53 |
| Financial liabilities (negative interest) | 298 | 194 | 152 | 146 | 98 |
| Other | 46 | 14 | 28 | 18 | 9 |
| Interest income on other financial instruments | |||||
| Financial assets MFVPL other than held for trading | 16 | 11 | 8 | 8 | 5 |
| Financial assets held for trading | 457 | 233 | 228 | 229 | 142 |
| Of which economic hedges | 405 | 216 | 198 | 207 | 133 |
| Other financial assets at FVPL | 0 | 0 | 0 | 0 | 0 |
| Interest expense | -2 513 | - 847 | -1 363 | -1 150 | - 434 |
| Interest expense on financial instruments calculated using the effective interest rate method |
|||||
| Financial liabilities at AC | - 617 | - 229 | - 335 | - 282 | - 118 |
| Financial assets (negative interest) | - 77 | - 117 | - 18 | - 59 | - 61 |
| Hedging derivatives | - 776 | - 286 | - 443 | - 333 | - 121 |
| Other | - 2 | - 2 | - 1 | - 2 | - 1 |
| Interest expense on other financial instruments | |||||
| Financial liabilities held for trading | -1 029 | - 206 | - 559 | - 470 | - 130 |
| Of which economic hedges | -1 003 | - 187 | - 547 | - 456 | - 120 |
| Other financial liabilities at FVPL | - 11 | - 6 | - 7 | - 4 | - 3 |
| Net interest expense relating to defined benefit plans | - 1 | - 1 | 0 | 0 | 0 |
The vast majority of negative interest on financial liabilities and financial assets relates to transactions with central banks, interbank and professional counterparties as well as the TLTRO (for more information on the TLTRO III, see note 'Financial assets and liabilities: breakdown by portfolio and product' (note 4.1) further in this report).
The increase in interest income and expense from hedging derivatives and financial assets and liabilities held for trading (of which economic hedges) relates to a presentation change of negative interest on derivatives (at KBC Bank, in conformity with Schema A reporting under BGAAP; this results in an increase in interest income as well as interest expense with 339 million euros in 1H 2022, of which respectively 174 and 165 million euros in 1Q and 2Q 2022) as well as to overall increase of interest rates in 1H 2022.
| (in millions of EUR) | 1H 2022 | 1H 2021 | 2Q 2022 | 1Q 2022 | 2Q 2021 |
|---|---|---|---|---|---|
| Total | 233 | 156 | 89 | 143 | 29 |
| Breakdown by driver | |||||
| Market value adjustments (xVA) | 51 | 37 | 25 | 26 | 12 |
| MTM ALM derivatives | 4 | - 59 | 27 | - 23 | - 52 |
| Financial instruments to which the overlay is applied | 27 | 59 | 4 | 23 | 24 |
| Dealing room and other | 151 | 119 | 34 | 117 | 44 |
The result from financial instruments at fair value through profit or loss in 2Q 2022 is 54 million euro lower compared to 1Q 2022. The quarter-on-quarter decrease is attributable to:
Partly compensated by
• Positive MTM ALM derivatives in 2Q 2022 compared to negative MTM ALM derivatives in 1Q 2022, mainly driven by increasing EUR-rates and less negative basis spreads CZK/EUR
The result from financial instruments at fair value through profit or loss in 1H 2022 is 77 million euros higher compared to 1H 2021, for a large part explained by:
Partly offset by
• Lower positive net result on equity instruments (insurance) in 1H 2022, for a large part driven by higher impairments on equity instruments due to weak equity markets.
The realised result from debt instruments at fair value through OCI in 2Q 2022 was impacted by -14 million euros realised loss on the sale of low yielding bonds.
| (in millions of EUR) | 1H 2022 | 1H 2021 | 2Q 2022 | 1Q 2022 | 2Q 2021 |
|---|---|---|---|---|---|
| Total | 934 | 890 | 451 | 482 | 450 |
| Fee and commission income | 1 394 | 1 289 | 684 | 710 | 650 |
| Fee and commission expense | - 461 | - 399 | - 233 | - 228 | - 200 |
| Breakdown by type | |||||
| Asset Management Services | 602 | 572 | 290 | 312 | 288 |
| Fee and commission income | 638 | 608 | 308 | 331 | 308 |
| Fee and commission expense | - 36 | - 36 | - 18 | - 19 | - 19 |
| Banking Services | 492 | 463 | 244 | 247 | 234 |
| Fee and commission income | 710 | 638 | 359 | 351 | 324 |
| Fee and commission expense | - 218 | - 175 | - 114 | - 104 | - 90 |
| Distribution | - 160 | - 145 | - 83 | - 77 | - 72 |
| Fee and commission income | 46 | 43 | 18 | 28 | 19 |
| Fee and commission expense | - 206 | - 188 | - 101 | - 104 | - 91 |
| (in millions of EUR) | 1H 2022 | 1H 2021 | 2Q 2022 | 1Q 2022 | 2Q 2021 |
|---|---|---|---|---|---|
| Total | 144 | 91 | 90 | 54 | 38 |
| of which gains or losses on | |||||
| Sale of financial assets measured at amortised cost | - 32 | - 1 | - 32 | - 1 | - 1 |
| Repurchase of financial liabilities measured at amortised cost | - 1 | 0 | 0 | - 1 | - 2 |
| of which other, including: | 177 | 92 | 122 | 55 | 41 |
| Income from operational leasing activities | 56 | 46 | 27 | 29 | 26 |
| Income from VAB Group | 28 | 28 | 13 | 15 | 13 |
| Legacy legal cases | 7 | 0 | 0 | 7 | 0 |
| Gain on sale real estate subsidiary at KBC Insurance | 68 | 0 | 68 | 0 | 0 |
In 1H 2022:
In 1H 2021: no special items
| (in millions of EUR) Life Non-life account Total 1H 2022 Earned premiums, insurance (before reinsurance) 556 1 000 - 1 556 of which change in provision unearned premiums - 2 - 246 - - 248 Technical charges, insurance (before reinsurance) - 531 - 572 - - 1 103 Claims paid - 675 - 510 - - 1 185 Changes in technical provisions 237 - 54 - 183 Other technical result - 94 - 8 - - 101 Net fee and commission income 0 - 195 - - 195 Ceded reinsurance result - 1 27 - 26 General administrative expenses - 85 - 142 - 1 - 228 Internal claims settlement expenses - 5 - 31 - - 36 Indirect acquisition costs - 16 - 33 - - 49 Administrative expenses - 65 - 77 - - 142 Investment management fees 0 0 - 1 - 1 Technical result - 61 119 - 1 56 Investment Income 213 54 21 288 Technical-financial result 151 173 19 344 Share in results of associated companies and joint ventures - - 0 0 RESULT BEFORE TAX 151 173 19 344 Income tax expense - - - - 58 RESULT AFTER TAX - - - 286 attributable to minority interest - - - 0 - - - attributable to equity holders of the parent 285 1H 2021 Earned premiums, insurance (before reinsurance) 564 925 - 1 490 of which change in provision unearned premiums - 1 - 211 - - 212 Technical charges, insurance (before reinsurance) - 542 - 465 - - 1 007 Claims paid - 565 - 400 - - 966 Changes in technical provisions 1 - 59 - - 58 Other technical result 23 - 6 - 17 Net fee and commission income 0 - 179 - - 180 Ceded reinsurance result - 1 - 12 - - 12 General administrative expenses - 82 - 125 - 1 - 208 Internal claims settlement expenses - 4 - 30 - - 34 Indirect acquisition costs - 15 - 34 - - 48 Administrative expenses - 63 - 62 - - 125 Investment management fees 0 0 - 1 - 1 Technical result - 60 145 - 1 83 Investment Income 198 50 39 286 Technical-financial result 138 194 38 370 Share in results of associated companies and joint ventures - - 0 0 RESULT BEFORE TAX 138 194 38 370 Income tax expense - - - - 69 RESULT AFTER TAX - - - 300 attributable to minority interest - - - 0 attributable to equity holders of the parent - - - 300 |
Non | ||
|---|---|---|---|
| technical | |||
* 1H 2022 Investment income consists of (in millions of EUR): Net interest income (212), Net Dividend income (20), Net result from financial instruments at fair value through profit and loss (29), Impairment (2), Net result from financial instruments at fair value through OCI (-10) and Net other income (35). * 1H 2021 consists of (in millions of EUR): Net interest income (200), Net Dividend income (17), Net result from financial instruments at fair value through profit and loss (68), Net result from financial instruments at fair value through OCI (1) .
The non-technical account includes also results of non-insurance companies such as VAB group and ADD.
Note: Figures for premiums exclude the investment contracts without DPF (Discretionary Participation Features), which roughly coincide with the unit-linked products. Figures are before elimination of transactions between the bank and insurance entities of the group (more information in the 2021 annual accounts).
In 1H 2022, the technical result non-life was negatively impacted by storms mainly in 1Q 2022 in Belgium (-97 million euros before tax, before reinsurance; -49 million euros before tax, after reinsurance) versus mild storm effect in 1H 2021 (-24 million euros, before tax, before reinsurance).
Note: acquisition of certain life and pension insurance policies from NN in Bulgaria (see Note 6.6 further in this report).
The operating expenses for 2Q 2022 include 94 million euros related to bank (and insurance) levies (514 million euros in 1Q 2022; 30 million euros in 2Q 2021).
Application of IFRIC 21 (Levies) has as a consequence that certain levies are taken upfront in expense of the first quarter of the year.
At the beginning of April 2022 the National Deposit Insurance Fund of Hungary (OBA) required an extraordinary contribution fee of all its member banks, due to the revoking of the license of Sberbank Hungary by the Hungarian National Bank at the beginning of March 2022, which triggered the compensation for the deposits of clients up to 100 000 euro from the Deposit Guarantee Fund. For K&H Bank the extraordinary contribution fee amounts to 24 million euros and was included in the result of 1Q 2022.
On 4 June 2022 the Hungarian government has adopted a decree, levying extra profit surtaxes, affecting several sectors, of which also the banking and insurance sector. The extraordinary sectoral tax amounts to 78 million euros and is included in the result of 2Q 2022.
In 1Q 2022 an extraordinary staff bonus was decided for in total 41 million euros (10 million euros in Business Unit Belgium, 12 million euros in Business Unit Czech Republic, 4 million euros in Hungary, 4.5 million euros in Slovakia, 4 million euros in Bulgaria and 6.5 million euros in Group Centre, of which 1 million euros in Ireland).
Note: One-off impact from the pending sale transaction in Ireland (see note 6.6 further in this report).
The impairments on financial assets at AC and at FVOCI in 1H 2022 include a net impairment charge of 13 million euros for the geopolitical, emerging and Covid risks (of which 18 million euros charge in 1Q 2022 and 5 million euros release in 2Q 2022), compared to a release of 155 million euros in 1H 2021 (of which +26m in 1Q 2021 and +129 million euros in 2Q 2021) (the reference periods only related to Covid risks). For more information, see note 1.4 of this report.
The impairments on financial assets at AC and at FVOCI in 1H 2022 include +19 million euros net releases mainly related to a number of corporate and retail files mainly in Czech Republic and Belgium (-14 million euros charges in 2Q 2022 and +33 million euros releases in 1Q 2022) compared to +51 million euros net releases in 1H 2021.
The impairment on other (Other) in 1H 2022 include -14 million euros modification losses, largely related to the interest cap regulation in Hungary (interest cap was extended until year-end 2022) compared to -2 million euros in 1H 2021 also related to modification losses in Hungary on moratoria.
1H 2022 includes -32 million euros related to impairments on property and equipment and intangible assets (of which -24 million euros in Ireland in 1Q 2022). For more information see note 6.6 further in this report.
| MFVPL excl. | Hedging | |||||||
|---|---|---|---|---|---|---|---|---|
| HFT and | deriva | |||||||
| (in millions of EUR) | AC | FVOCI | overlay | Overlay | HFT | FVO | tives | Total |
| FINANCIAL ASSETS, 30-06-2022 | ||||||||
| Loans and advances to credit institutions and | 7 494 | 0 | 0 | 0 | 1 | 0 | 0 | 7 495 |
| investment firms (excl. reverse repos) of which repayable on demand and term loans at not |
||||||||
| more than three months | 5 007 | |||||||
| Loans and advances to customers (excl. reverse repos) | 168 401 | 0 | 583 | 0 | 0 | 0 | 0 | 168 984 |
| Trade receivables | 2 606 | 0 | 0 | 0 | 0 | 0 | 0 | 2 606 |
| Consumer credit | 5 501 | 0 | 404 | 0 | 0 | 0 | 0 | 5 905 |
| Mortgage loans | 70 426 | 0 | 178 | 0 | 0 | 0 | 0 | 70 605 |
| Term loans | 77 421 | 0 | 0 | 0 | 0 | 0 | 0 | 77 421 |
| Finance lease | 5 894 | 0 | 0 | 0 | 0 | 0 | 0 | 5 894 |
| Current account advances | 5 891 | 0 | 0 | 0 | 0 | 0 | 0 | 5 891 |
| Other | 662 | 0 | 0 | 0 | 0 | 0 | 0 | 662 |
| Reverse repos | 35 765 | 0 | 0 | 0 | 1 144 | 0 | 0 | 36 909 |
| with credit institutions and investment firms | 35 647 | 0 | 0 | 0 | 1 144 | 0 | 0 | 36 791 |
| with customers | 118 | 0 | 0 | 0 | 0 | 0 | 0 | 118 |
| Equity instruments | 0 | 321 | 9 | 1 160 | 341 | 0 | 0 | 1 831 |
| Investment contracts (insurance) | 0 | 0 | 13 018 | 0 | 0 | 0 | 0 | 13 018 |
| Debt securities issued by | 49 639 | 12 973 | 15 | 0 | 2 244 | 0 | 0 | 64 872 |
| Public bodies | 43 022 | 8 680 | 0 | 0 | 2 135 | 0 | 0 | 53 836 |
| Credit institutions and investment firms | 3 976 | 1 957 | 0 | 0 | 35 | 0 | 0 | 5 968 |
| Corporates | 2 642 | 2 336 | 15 | 0 | 75 | 0 | 0 | 5 068 |
| Derivatives | 0 | 0 | 0 | 0 | 7 271 | 0 | 547 | 7 817 |
| Other | 1 026 | 0 | 0 | 0 | 0 | 0 | 0 | 1 026 |
| Total | 262 325 | 13 294 | 13 626 | 1 160 | 11 001 | 0 | 547 | 301 953 |
| FINANCIAL ASSETS, 31-12-2021 | ||||||||
| Loans and advances to credit institutions and investment firms (excl. reverse repos) |
7 920 | 0 | 0 | 0 | 1 | 0 | 0 | 7 920 |
| of which repayable on demand and term loans at not more than three months |
3 146 | |||||||
| Loans and advances to customers (excl. reverse repos) | 159 167 | 0 | 560 | 0 | 0 | 0 | 0 | 159 728 |
| Trade receivables | 2 090 | 0 | 0 | 0 | 0 | 0 | 0 | 2 090 |
| Consumer credit | 5 470 | 0 | 381 | 0 | 0 | 0 | 0 | 5 851 |
| Mortgage loans | 67 486 | 0 | 179 | 0 | 0 | 0 | 0 | 67 665 |
| Term loans | 72 998 | 0 | 0 | 0 | 0 | 0 | 0 | 72 998 |
| Finance lease | 5 815 | 0 | 0 | 0 | 0 | 0 | 0 | 5 815 |
| Current account advances | 4 819 | 0 | 0 | 0 | 0 | 0 | 0 | 4 819 |
| Other | 490 | 0 | 0 | 0 | 0 | 0 | 0 | 490 |
| Reverse repos | 24 978 | 0 | 0 | 0 | 0 | 0 | 0 | 24 978 |
| with credit institutions and investment firms | 24 861 | 0 | 0 | 0 | 0 | 0 | 0 | 24 861 |
| with customers | 117 | 0 | 0 | 0 | 0 | 0 | 0 | 117 |
| Equity instruments | 0 | 321 | 8 | 1 366 | 448 | 0 | 0 | 2 144 |
| Investment contracts (insurance) | 0 | 0 | 14 620 | 0 | 0 | 0 | 0 | 14 620 |
| Debt securities issued by | 47 172 | 15 503 | 17 | 0 | 2 958 | 0 | 0 | 65 650 |
| Public bodies | 41 475 | 10 514 | 0 | 0 | 2 517 | 0 | 0 | 54 507 |
| Credit institutions and investment firms | 3 310 | 2 245 | 0 | 0 | 357 | 0 | 0 | 5 912 |
| Corporates | 2 387 | 2 744 | 17 | 0 | 84 | 0 | 0 | 5 232 |
| Derivatives | 0 | 0 | 0 | 0 | 5 443 | 0 | 283 | 5 727 |
| Other | 892 | 0 | 0 | 0 | 0 | 0 | 0 | 892 |
| Total | 240 128 | 15 824 | 15 205 | 1 366 | 8 850 | 0 | 283 | 281 658 |
| Hedging | |||||
|---|---|---|---|---|---|
| (in millions of EUR) | AC | HFT | FVO | derivatives | Total |
| FINANCIAL LIABILITIES, 30-06-2022 | |||||
| Deposits from credit institutions and investment firms (excl. repos) | 37 067 | 0 | 0 | 0 | 37 067 |
| of which repayable on demand | 6 615 | ||||
| Deposits from customers and debt securities (excl. repos) | 240 333 | 89 | 1 203 | 0 | 241 625 |
| Demand deposits | 125 756 | 0 | 0 | 0 | 125 756 |
| Time deposits | 12 306 | 89 | 57 | 0 | 12 452 |
| Savings accounts | 75 662 | 0 | 0 | 0 | 75 662 |
| Special deposits | 3 099 | 0 | 0 | 0 | 3 099 |
| Other deposits | 323 | 0 | 0 | 0 | 323 |
| Subtotal deposits of clients, excl. repos | 217 146 | 89 | 57 | 0 | 217 293 |
| Certificates of deposit | 5 058 | 0 | 0 | 0 | 5 059 |
| Savings certificates | 176 | 0 | 0 | 0 | 176 |
| Non-convertible bonds | 15 771 | 0 | 1 015 | 0 | 16 786 |
| Non-convertible subordinated liabilities | 2 182 | 0 | 130 | 0 | 2 312 |
| Repos | 22 197 | 111 | 0 | 0 | 22 307 |
| with credit institutions and investment firms | 14 006 | 93 | 0 | 0 | 14 099 |
| with customers | 8 190 | 17 | 0 | 0 | 8 208 |
| Liabilities under investment contracts | 0 | 0 | 12 153 | 0 | 12 153 |
| Derivatives | 0 | 7 617 | 0 | 741 | 8 358 |
| Short positions | 0 | 1 716 | 0 | 0 | 1 716 |
| In equity instruments | 0 | 19 | 0 | 0 | 19 |
| In debt securities | 0 | 1 697 | 0 | 0 | 1 697 |
| Other | 2 851 | 0 | 0 | 0 | 2 852 |
| Total | 302 448 | 9 533 | 13 356 | 741 | 326 078 |
| FINANCIAL LIABILITIES, 31-12-2021 | |||||
| Deposits from credit institutions and investment firms (excl. repos) | 38 047 | 0 | 0 | 0 | 38 047 |
| of which repayable on demand | 4 695 | ||||
| Deposits from customers and debt securities (excl. repos) | 224 759 | 21 | 1 312 | 0 | 226 093 |
| Demand deposits | 112 097 | 0 | 0 | 0 | 112 097 |
| Time deposits | 9 106 | 21 | 60 | 0 | 9 187 |
| Savings accounts | 74 801 | 0 | 0 | 0 | 74 801 |
| Special deposits | 2 962 | 0 | 0 | 0 | 2 962 |
| Other deposits | 428 | 0 | 0 | 0 | 428 |
| Subtotal deposits of clients, excl. repos | 199 395 | 21 | 60 | 0 | 199 476 |
| Certificates of deposit | 6 273 | 0 | 0 | 0 | 6 273 |
| Savings certificates | 253 | 0 | 0 | 0 | 253 |
| Non-convertible bonds | 15 892 | 0 | 1 118 | 0 | 17 011 |
| Non-convertible subordinated liabilities | 2 946 | 0 | 134 | 0 | 3 080 |
| Repos | 3 293 | 2 | 0 | 0 | 3 295 |
| with credit institutions and investment firms | 2 888 | 2 | 0 | 0 | 2 890 |
| with customers | 405 | 0 | 0 | 0 | 405 |
| Liabilities under investment contracts | 0 | 0 | 13 603 | 0 | 13 603 |
| Derivatives | 0 | 5 619 | 0 | 1 094 | 6 713 |
| Short positions | 0 | 1 628 | 0 | 0 | 1 628 |
| In equity instruments | 0 | 18 | 0 | 0 | 18 |
| In debt securities | 0 | 1 611 | 0 | 0 | 1 611 |
| Other | 2 288 | 0 | 0 | 0 | 2 288 |
| Total | 268 387 | 7 271 | 14 916 | 1 094 | 291 667 |
Deposits from credit institutions and investment firms: includes funding from the ECB's TLTRO programme (in 2021 an additional amount of 2.5 billion euros was drawn, bringing the total TLTRO III funding at 24.5 billion euros). KBC applies the effective interest rate principle to these deposits, changing it when we would no longer meet the terms (similar to a floating rate instrument) in accordance with IFRS 9 (Section B.5.4.5).
| Carrying value before | Carrying value after | ||
|---|---|---|---|
| (in millions of EUR) | impairment | Impairment | impairment |
| 30-06-2022 FINANCIAL ASSETS AT AMORTISED COST |
|||
| Loans and advances * | 214 113 | - 2 453 | 211 660 |
| Stage 1 (12-month ECL) | 180 841 | - 110 | 180 731 |
| Stage 2 (lifetime ECL) | 29 256 | - 475 | 28 781 |
| Stage 3 (lifetime ECL) | 3 534 | - 1 786 | 1 748 |
| Purchased or originated credit impaired assets (POCI) | 482 | - 82 | 401 |
| Debt Securities | 49 647 | - 8 | 49 639 |
| Stage 1 (12-month ECL) | 49 566 | - 6 | 49 561 |
| Stage 2 (lifetime ECL) | 79 | - 1 | 78 |
| Stage 3 (lifetime ECL) | 2 | - 1 | 1 |
| Purchased or originated credit impaired assets (POCI) | 0 | 0 | 0 |
| FINANCIAL ASSETS AT FAIR VALUE THROUGH OCI | |||
| Debt Securities | 12 978 | - 5 | 12 973 |
| Stage 1 (12-month ECL) | 12 905 | - 3 | 12 902 |
| Stage 2 (lifetime ECL) | 72 | - 2 | 71 |
| Stage 3 (lifetime ECL) | 0 | 0 | 0 |
| Purchased or originated credit impaired assets (POCI) | 0 | 0 | 0 |
| 31-12-2021 | |||
| FINANCIAL ASSETS AT AMORTISED COST | |||
| Loans and advances * | 194 638 | - 2 573 | 192 065 |
| Stage 1 (12-month ECL) | 167 426 | - 104 | 167 322 |
| Stage 2 (lifetime ECL) | 23 131 | - 507 | 22 624 |
| Stage 3 (lifetime ECL) | 3 493 | - 1 848 | 1 645 |
| Purchased or originated credit impaired assets (POCI) | 588 | - 114 | 474 |
| Debt Securities | 47 181 | - 9 | 47 172 |
| Stage 1 (12-month ECL) | 47 155 | - 5 | 47 150 |
| Stage 2 (lifetime ECL) | 24 | - 3 | 21 |
| Stage 3 (lifetime ECL) | 1 | - 1 | 1 |
| Purchased or originated credit impaired assets (POCI) | 0 | 0 | 0 |
| FINANCIAL ASSETS AT FAIR VALUE THROUGH OCI | |||
| Debt Securities | 15 509 | - 6 | 15 503 |
| Stage 1 (12-month ECL) | 15 418 | - 3 | 15 415 |
| Stage 2 (lifetime ECL) | 91 | - 3 | 88 |
| Stage 3 (lifetime ECL) | 0 | 0 | 0 |
| Purchased or originated credit impaired assets (POCI) | 0 | 0 | 0 |
(*) The carrying value after impairment in this note is equal to the sum of the lines Loans and advances to credit institutions and investment firms (excl. reverse repos), Loans and advances to customers (excl. reverse repos) and Reverse repos in note 4.1 (in the column Measured at amortised cost)
The increase in the stage 2 carrying value before impairments from 23.1 billion euros at year-end 2021 to 29.3 billion euros at half-year 2022 is mainly driven by an exposure of 9.0 billion euros transferred to stage 2 based on the collective assessments in 1H 2022, partly compensated by the discontinuation of the collective stage 2 shift of exposures vulnerable to Covid risks (3.1 billion euros of exposure transferred to stage 2 per year-end 2021).
In 1H 2022, a collective shift to stage 2 has been applied or maintained for the stage 1 portfolios that are either:
The remaining Covid risks in our loan portfolio are captured through the regular indicators to assess significant increases in credit risk (probability of default, forbearance and days past due status) which are no longer masked by the moratoria measures.
For more details on how KBC defines and determines (i) fair value and the fair value hierarchy and (ii) level 3 valuations reference is made to notes 4.4 up to and including 4.7 of the annual accounts 2021.
| (in millions of EUR) | 30-06-2022 | 31-12-2021 | ||||||
|---|---|---|---|---|---|---|---|---|
| Fair value hierarchy | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total |
| FINANCIAL ASSETS AT FAIR VALUE | ||||||||
| Mandatorily measured at fair value through profit or loss (other than held for trading) |
13 907 | 221 | 658 | 14 786 | 15 702 | 254 | 615 | 16 572 |
| Held for trading | 2 314 | 7 952 | 736 | 11 001 | 1 970 | 5 915 | 965 | 8 850 |
| Fair value option | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| At fair value through OCI | 10 296 | 2 339 | 659 | 13 294 | 12 284 | 2 964 | 577 | 15 824 |
| Hedging derivatives | 0 | 547 | 0 | 547 | 0 | 283 | 0 | 283 |
| Total | 26 517 | 11 058 | 2 052 | 39 628 | 29 956 | 9 416 | 2 157 | 41 529 |
| FINANCIAL LIABILITIES AT FAIR VALUE | ||||||||
| Held for trading | 1 699 | 6 809 | 1 026 | 9 533 | 1 582 | 4 480 | 1 209 | 7 271 |
| Designated at fair value | 12 153 | 58 | 1 145 | 13 356 | 13 603 | 61 | 1 251 | 14 916 |
| Hedging derivatives | 0 | 531 | 210 | 741 | 0 | 696 | 398 | 1 094 |
| Total | 13 852 | 7 398 | 2 381 | 23 630 | 15 185 | 5 238 | 2 857 | 23 280 |
During 1H 2022, KBC transferred about 198 million euros' worth of financial assets and liabilities out of level 1 and into level 2. It also reclassified approximately 299 million euros' worth of financial assets and liabilities from level 2 to level 1. Most of these reclassifications were carried out due to a change in the liquidity of government and corporate bonds.
In 1H 2022 significant movements in financial assets and liabilities classified in level 3 of the fair value hierarchy included the following:
The pending sale of loans and deposits at KBC Bank Ireland resulted in a shift in 2021 to the items 'Non-current assets held for sale and disposal groups' and 'Liabilities associated with disposal groups' because we consider all IFRS 5 conditions are met.
On 30 July 2021, we completed the acquisition of NN's Bulgarian pension and life insurance business for 77.7 million euros, without any contingent consideration. It concerns an acquisition by DZI (Bulgarian subsidiary of KBC) of all shares of NN Pension Insurance Company EAD (Bulgaria) and all assets and liabilities of NN Insurance Co. Ltd. - Sofia Branch. For more information, see note 6.6 in the annual accounts of 2021.
On 30 August 2021 KBC Bank Ireland sold substantially all of its remaining non-performing mortgage loan portfolio of roughly 1.1 billion euros in a transaction financed by funds managed by CarVal Investors ("CarVal"). Post completion, Pepper Finance Corporation (Ireland) DAC will be managing the loans as Legal Title Holder. Pepper is regulated by the Central Bank of Ireland. The impact on KBC Group's P&L in 2021 is -120 million euros (see table with details further in this note) and +3 million euros in 1Q 2022. The transaction is marginally capital accretive with a combined impact (P&L and RWA) on the CET1 ratio of KBC Group of approximately 2bps, fully in 2021. The risk-weighted assets decreased by 0.8 billion euros (in 3Q 2021). On 7 February 2022, the deal was finalized, leading to a decline of the balance sheet item 'Non-current assets held for sale and disposal groups' with 0.6 billion euros in 1Q 2022.
Following the announcement made on the 16th April 2021 that KBC Bank Ireland had entered into a Memorandum of Understanding (MoU) with Bank of Ireland Group, on 22 October 2021 KBC Bank Ireland entered into a legally binding agreement with Bank of Ireland relating to the sale of substantially all of KBC Bank Ireland's performing loan assets and its deposit book to Bank of Ireland Group. In addition, a small portfolio of non-performing mortgages (NPEs) will also be acquired as part of the transaction.
The acquisition for a total consideration of c. 5.0 billion euros (net of deposits), involves c.8.8 billion euros of performing mortgages, c. 0.1 billion euros of mainly performing commercial and consumer loans, c. 0.3 billion euros of non-performing mortgages, and c. 4.4 billion euros of deposits. The exact size of the portfolio and consideration payable will depend on movements in the portfolio up to completion, but is not expected to materially change.
The transaction remains subject to ministerial approval. On 23 May 2022 the transaction already received approval from the Irish Competition and Consumer Protection Commission (CCPC).
The transaction will have an impact on KBC Group's P&L which has been estimated at +0.2 billion euros at completion. Furthermore, as the transaction would ultimately result in KBC Group's withdrawal from the Irish market, this also triggered a P&L impact of -241 million euros in 2021 (see table with details further in this note) and -53 million euros in 1H 2022. It will further improve KBC's solid capital position on completion of the transaction, with a positive impact of +0.9%pt. on the CET1 ratio primarily by reducing risk-weighted assets, expected in 1H 2023.
As a result of this announcement, the P&L-lines of KBC Bank Ireland have been transferred from Business Unit International Markets (KBC Group) to Group Centre as of 1 January 2022 (without retroactive restatement) (see note 2.2 in this report for more information).
| Sale of non | Sale of loans and deposits to BOI and |
||
|---|---|---|---|
| Impact of transactions relating to Ireland non-recurring items | performing loans | planned wind | |
| (in millions of EUR) | to CarVal | down | Total |
| 1H 2022 | |||
| Total income | 6 | - 2 | 4 |
| Operating expenses | 0 | - 13 | - 13 |
| Impairment | - 2 | - 38 | - 40 |
| on financial assets at AC and at FVOCI | - 2 | - 14 | - 16 |
| other | 0 | - 24 | - 24 |
| Income tax expense | 0 | 0 | 0 |
| RESULT AFTER TAX | 3 | - 53 | - 49 |
| FY 2021 | |||
| Total income | 0 | - 3 | - 3 |
| Operating expenses | - 7 | - 91 | - 97 |
| Impairment | - 129 | - 81 | - 210 |
| on financial assets at AC and at FVOCI | - 129 | - 49 | - 178 |
| other | 0 | - 32 | - 32 |
| Income tax expense | 16 | - 67 | - 51 |
| RESULT AFTER TAX | - 120 | - 241 | - 361 |
On 15 November 2021, KBC Bank and Austria-based Raiffeisen Bank International ('RBI') reached an agreement for KBC Bank to acquire 100% of the shares of Raiffeisenbank (Bulgaria) EAD (RBI's Bulgarian banking operations).
The transaction also includes Raiffeisenbank Bulgaria's fully-owned subsidiaries Raiffeisen Leasing Bulgaria, Raiffeisen Asset Management (Bulgaria), Raiffeisen Insurance Broker (serving Raiffeisenbank Bulgaria's leasing and corporate clients) and Raiffeisen Service.
The deal, involving a total consideration of 1 009 million euros paid in cash, reflects the quality of the Bulgarian operations of Raiffeisen Bank International and the synergies potential.
The transaction was completed on 7 July 2022 and the name of Raiffeisenbank (Bulgaria) EAD was changed into KBC Bank Bulgaria EAD. KBC Bank Bulgaria EAD will be consolidated as of 3Q 2022. The transaction will have a capital impact of around -1pp on KBC Group's CET1 in 3Q 2022.
Significant non-adjusting event between the balance sheet date (30 June 2022) and the publication of this report (11 August 2022):
The main source of credit risk is the loan portfolio of the bank. It includes all the loans and guarantees that KBC has granted to individuals, companies, governments and banks. Debt securities in the investment portfolio are included if they are issued by companies or banks. Government bonds are not included in the table below. The loan portfolio as defined in this section differs from 'Loans and advances to customers' in Note 4.1 of the 'Consolidated financial statements' section of the annual accounts 2021. For more information, please refer to 'Details of ratios and terms on KBC Group level'.
A snapshot of the banking portfolio is shown in the table below. Further on in this chapter, extensive information is provided on the credit portfolio of each business unit.
| Pro forma | Pro forma | |||
|---|---|---|---|---|
| Credit risk: loan portfolio overview | 30-06-2022 | excl. Ireland 30-06-2022 |
31-12-2021 | excl. Ireland 31-12-2021 |
| Total loan portfolio (in billions of EUR) 1 | ||||
| Amount outstanding and undrawn | 247 | 238 | 237 | 226 |
| Amount outstanding | 197 | 188 | 188 | 178 |
| Loan portfolio breakdown by business unit (as a % of the outstanding portfolio) | ||||
| Belgium | 64.3% | 67.4% | 63.4% | 67.1% |
| Czech Republic | 18.8% | 19.8% | 18.8% | 19.9% |
| International Markets | 11.4% | 11.9% | 16.8% | 11.9% |
| Group Centre 2 | 5.5% | 0.9% | 1.0% | 1.1% |
| Loan portfolio breakdown by counterparty sector (as a % of the outstanding portfolio) | ||||
| Private individuals | 43.5% | 40.8% | 44.4% | 41.2% |
| Finance and insurance | 6.0% | 6.3% | 6.0% | 6.3% |
| Governments | 3.2% | 3.4% | 2.8% | 2.9% |
| Corporates | 47.3% | 49.5% | 46.8% | 49.5% |
| Services | 10.0% | 10.5% | 10.3% | 10.9% |
| Distribution | 7.8% | 8.1% | 7.5% | 8.0% |
| Real estate | 6.1% | 6.4% | 6.1% | 6.4% |
| Building & construction | 4.4% | 4.6% | 4.2% | 4.4% |
| Agriculture, farming, fishing | 2.7% | 2.9% | 2.7% | 2.9% |
| Automotive | 2.4% | 2.5% | 2.4% | 2.6% |
| Food Producers | 1.7% | 1.8% | 1.8% | 1.9% |
| Metals | 1.6% | 1.7% | 1.4% | 1.5% |
| Electricity | 1.6% | 1.7% | 1.6% | 1.6% |
| Chemicals | 1.5% | 1.5% | 1.3% | 1.4% |
| Machinery & Heavy equipment | 0.9% | 0.9% | 0.9% | 0.9% |
| Hotels, bars & restaurants | 0.7% | 0.7% | 0.7% | 0.8% |
| Oil, gas & other fuels | 0.7% | 0.7% | 0.6% | 0.7% |
| Shipping | 0.7% | 0.7% | 0.7% | 0.7% |
| Electrotechnics | 0.6% | 0.6% | 0.5% | 0.5% |
| Traders | 0.5% | 0.5% | 0.5% | 0.5% |
| Other 3 | 3.4% | 3.6% | 3.6% | 3.8% |
| Loan portfolio breakdown by region (as a % of the outstanding portfolio) | ||||
| Home countries | 88.7% | 88.1% | 88.7% | 88.1% |
| Belgium | 54.1% | 56.8% | 53.9% | 57.1% |
| Czech Republic | 18.3% | 19.2% | 17.6% | 18.7% |
| Ireland | 4.7% | 0.1% | 5.7% | 0.1% |
| Slovakia | 5.8% | 6.1% | 5.6% | 6.0% |
| Hungary | 3.4% | 3.5% | 3.6% | 3.8% |
| Bulgaria | 2.4% | 2.5% | 2.3% | 2.4% |
| Rest of Western Europe | 7.1% | 7.4% | 6.9% | 7.3% |
| Rest of Central and Eastern Europe | 0.2% | 0.2% | 0.2% | 0.2% |
| of which: Russia and Ukraine | 0.02% | 0.02% | ||
| North America | 1.3% | 1.4% | 1.3% | 1.3% |
| Asia | 1.4% | 1.5% | 1.5% | 1.6% |
| Other | 1.3% | 1.4% | 1.4% | 1.5% |
| Loan portfolio breakdown by counterparty (as % of the outstanding portfolio) | ||||
| Retail | 43.5% | 40.8% | 44.4% | 41.2% |
| of which: mortgages | 40.3% | 37.5% | 41.2% | 37.8% |
| of which: consumer finance | 3.2% | 3.3% | 3.2% | 3.4% |
| SME | 21.2% | 22.2% | 21.5% | 22.8% |
| Corporate | 35.3% | 37.0% | 34.0% | 36.0% |
| 30-06-2022 | Pro forma excl. Ireland 30-06-2022 |
31-12-2021 | Pro forma excl. Ireland 31-12-2021 |
|
|---|---|---|---|---|
| Loan portfolio breakdown by IFRS 9 ECL stage (as % of the outstanding portfolio) | ||||
| Stage 1 (credit risk has not increased significantly since initial recognition) | 81.4% | 80.9% | 83.5% | 83.5% |
| of which: PD 1 - 4 | 62.3% | 64.9% | 62.3% | 65.4% |
| of which: PD 5 - 9 including unrated | 19.1% | 16.0% | 21.2% | 18.1% |
| Stage 2 (credit risk has increased significantly since initial recognition – not credit impaired) incl. POCI 4 | 16.4% | 16.9% | 13.6% | 14.1% |
| of which: PD 1 - 4 | 5.9% | 6.2% | 5.1% | 5.4% |
| of which: PD 5 - 9 including unrated | 10.5% | 10.8% | 8.5% | 8.7% |
| Stage 3 (credit risk has increased significantly since initial recognition – credit impaired) incl. POCI 4 | 2.2% | 2.1% | 2.9% | 2.4% |
| of which: PD 10 impaired loans | 1.0% | 1.0% | 1.4% | 1.1% |
| of which: more than 90 days past due (PD 11+12) | 1.2% | 1.2% | 1.5% | 1.2% |
| Impaired loan portfolio (in millions of EUR) | ||||
| Impaired loans (PD10 + 11 + 12) | 4 278 | 4 029 | 5 454 | 4 198 |
| of which: more than 90 days past due | 2 323 | 2 196 | 2 884 | 2 157 |
| Impaired loans ratio (%) | ||||
| Belgium | 1.9% | 1.9% | 2.2% | 2.2% |
| Czech Republic | 1.8% | 1.8% | 1.8% | 1.8% |
| International Markets | 2.2% | 2.2% | 5.7% | 2.5% |
| Group Centre 2 | 6.3% | 25.2% | 21.5% | 21.5% |
| Total | 2.2% | 2.1% | 2.9% | 2.4% |
| of which: more than 90 days past due | 1.2% | 1.2% | 1.5% | 1.2% |
| Loan loss impairment (in millions of EUR) | ||||
| Loan loss Impairment for Stage 1 portfolio | 136 | 130 | 127 | 123 |
| Loan loss Impairment for Stage 2 portfolio | 512 | 499 | 559 | 528 |
| Loan loss Impairment for Stage 3 portfolio | 2 076 | 1 941 | 2 569 | 2 025 |
| of which: more than 90 days past due | 1 587 | 1 506 | 1 905 | 1 513 |
| Cover ratio of impaired loans (%) | ||||
| Loan loss impairments for stage 3 portfolio / impaired loans | 48.5% | 48.2% | 47.1% | 48.2% |
| of which: more than 90 days past due | 68.3% | 68.6% | 66.1% | 70.2% |
| Cover ratio of impaired loans, mortgage loans excluded (%) | ||||
| Loan loss impairments for stage 3 portfolio / impaired loans, mortgage loans excluded | 50.8% | 50.7% | 50.9% | 50.8% |
| of which: more than 90 days past due | 71.0% | 70.9% | 72.8% | 72.7% |
| Credit cost ratio (%) | ||||
| Belgium | -0.04% | -0.04% | -0.26% | -0.26% |
| Czech Republic | -0.04% | -0.04% | -0.42% | -0.42% |
| International Markets | 0.22% | 0.22% | 0.36% | -0.19% |
| Slovakia | 0.09% | 0.09% | -0.16% | -0.16% |
| Hungary | 0.20% | 0.20% | -0.34% | -0.34% |
| Bulgaria | 0.56% | 0.56% | -0.06% | -0.06% |
| Ireland 2 | 1.43% | |||
| Group Centre | 0.03% | 0.31% | 0.28% | 0.28% |
| o.w. Ireland | -0.02% | |||
| Total | -0.01% | 0.00% | -0.18% | -0.27% |
1 Outstanding portfolio includes all on-balance sheet commitments and off-balance sheet guarantees but excludes off-balance sheet undrawn commitments; the amounts are measured in Gross Carrying Amounts
2 As a result of the pending sale to Bank of Ireland Group of substantially all of KBC Bank Ireland's performing loan assets, its deposit book, and a small portfolio of non-performing mortgages (NPEs), the loan portfolio of KBC Bank Ireland has been transferred from Business Unit International Markets to Group Centre as of 1 January 2022 (without retroactive restatement) 3 Other includes corporate sectors not exceeding 0.5% concentration and unidentified sectors 4 Purchased or originated credit impaired assets
In 1H 2022, a collective shift to stage 2 has been applied for the stage 1 portfolios that are indirectly exposed to Russia, Ukraine and Belarus or vulnerable to the emerging risks (for more information see note 4.2.1). The direct exposure to these countries is 35 million euros or 0.02% of the outstanding loan portfolio.
Impaired loans are loans for which full (re)payment of the contractual cash flows is deemed unlikely. This coincides with KBC's Probability-of-Default-classes 10, 11 and 12 (see annual accounts FY 2021 - section on credit risk for more information on PD classification). These impaired loans are equal to 'non-performing loans' under the definition used by EBA.
Loan portfolio per Business Unit
| 30-06-2022, in millions of EUR | Business Unit Belgium1 | Business Unit Czech Republic | Business Unit International Markets | Business Unit Group Centre2 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total portfolio outstanding | 126 390 | 37 057 | 22 371 | 10 778 | ||||||||
| Counterparty break down | % outst. | % outst. | % outst. | % outst. | ||||||||
| retail | 44 142 | 35% | 21 682 | 59% | 10 645 | 48% | 9 013 | 84% | ||||
| o/w mortgages | 42 493 | 34% | 19 356 | 52% | 8 474 | 38% | 8 929 | 83% | ||||
| o/w consumer finance | 1 649 | 1% | 2 326 | 6% | 2 171 | 10% | 84 | 1% | ||||
| SME | 33 889 | 27% | 5 341 | 14% | 2 362 | 11% | 45 | 0% | ||||
| corporate | 48 359 | 38% | 10 034 | 27% | 9 364 | 42% | 1 720 | 16% | ||||
| Mortgage loans | % outst. | ind. LTV | % outst. | ind. LTV | % outst. | ind. LTV | % outst. | ind. LTV | ||||
| total | 42 439 | 34% | 57% | 19 356 | 52% | 55% | 8 474 | 38% | 61% | 8 929 | 83% | 53% |
| o/w FX mortgages | 0 | 0% | - | 0 | 0% | - | 62 | 0% | 57% | 0 | 0% | - |
| o/w ind. LTV > 100% | 417 | 0% | - | 34 | 0% | - | 133 | 1% | - | 67 | 1% | - |
| Probability of default (PD) | % outst. | % outst. | % outst. | % outst. | ||||||||
| low risk (PD 1-4; 0.00%-0.80%) | 97 729 | 77% | 22 184 | 60% | 12 199 | 55% | 1 933 | 18% | ||||
| medium risk (PD 5-7; 0.80%-6.40%) | 22 552 | 18% | 12 972 | 35% | 8 105 | 36% | 7 546 | 70% | ||||
| high risk (PD 8-9; 6.40%-100.00%) | 3 397 | 3% | 1 216 | 3% | 954 | 4% | 623 | 6% | ||||
| impaired loans (PD 10 - 12) | 2 440 | 2% | 660 | 2% | 501 | 2% | 677 | 6% | ||||
| unrated | 272 | 0% | 24 | 0% | 611 | 3% | 0 | 0% | ||||
| Overall risk indicators | stage 3 imp. | % cover | stage 3 imp. | % cover | stage 3 imp. | % cover | stage 3 imp. | % cover | ||||
| outstanding impaired loans | 2 440 | 1 041 | 43% | 660 | 309 | 47% | 501 | 225 | 45% | 677 | 502 | 74% |
| o/w PD 10 impaired loans | 1 194 | 240 | 20% | 394 | 125 | 32% | 213 | 47 | 22% | 154 | 77 | 50% |
| o/w more than 90 days past due (PD 11+12) | 1 245 | 801 | 64% | 266 | 184 | 69% | 288 | 177 | 61% | 523 | 425 | 81% |
| all impairments (stage 1+2+3) | 1 345 | 470 | 383 | 527 | ||||||||
| o/w stage 1+2 impairments (incl. POCI) | 304 | 162 | 158 | 24 | ||||||||
| o/w stage 3 impairments (incl. POCI) | 1 041 | 309 | 225 | 502 | ||||||||
| 2021 Credit cost ratio (CCR)3 | -0.26% | -0.42% | 0.36% | 0.28% | ||||||||
| 2022 Credit cost ratio (CCR)3 - YTD |
-0.04% | -0.04% | 0.22% | 0.03% |
1 Business Unit Belgium = KBC Bank (all retail and corporate credit lending activities including the foreign branches, part of non-legacy portfolio assigned to BU Belgium), CBC, KBC Lease Belgium,
KBC Immolease and KBC Commercial Finance
2 Business Unit Group Centre = part of non-legacy portfolio assigned to BU Group and activities in wind-down (e.g. ex-Antwerp Diamond Bank)
As a result of the sale to Bank of Ireland Group of substantially all of KBC Bank Ireland's performing loan assets, its deposit book, and a small portfolio of non-performing mortgages (NPEs), the loan portfolio of KBC Bank Ireland has been transferred from Business Unit International Markets to Group Centre as of 1 January 2022 (without retroactive restatement). More detail can be found in the following table.
, pa 3 CCR at country level in local currency
| Loan portfolio Business Unit International Markets and Group Centre | Business Unit International Markets, o.w.: | Group Centre, o.w: | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 30-06-2022, in millions of EUR | Slovakia | Hungary | Bulgaria | Ireland1 | ||||||||
| Total portfolio outstanding | 11 012 | 6 603 | 4 756 | 9 078 | ||||||||
| Counterparty break down | % outst. | % outst. | % outst. | % outst. | ||||||||
| retail | 6 331 | 57% | 2 520 | 38% | 1 794 | 38% | 9 013 | 99% | ||||
| o/w mortgages | 5 796 | 53% | 1 734 | 26% | 945 | 20% | 8 929 | 98% | ||||
| o/w consumer finance | 535 | 5% | 786 | 12% | 850 | 18% | 84 | 1% | ||||
| SME | 1 121 | 10% | 77 | 1% | 1 163 | 24% | 45 | 0% | ||||
| corporate | 3 559 | 32% | 4 006 | 61% | 1 799 | 38% | 19 | 0% | ||||
| Mortgage loans | % outst. | ind. LTV | % outst. | ind. LTV | % outst. | ind. LTV | % outst. | ind. LTV | ||||
| total | 5 796 | 53% | 65% | 1 734 | 26% | 50% | 945 | 20% | 58% | 8 929 | 98% | 53% |
| o/w FX mortgages | 0 | 0% | - | 1 | 0% | 98% | 60 | 1% | 56% | 0 | 0% | - |
| o/w ind. LTV > 100% | 60 | 1% | - | 61 | 1% | 12 | 0% | - | 67 | 1% | - | |
| Probability of default (PD) | % outst. | % outst. | % outst. | % outst. | ||||||||
| low risk (PD 1-4; 0.00%-0.80%) | 7 230 | 66% | 3 603 | 55% | 1 366 | 29% | 782 | 9% | ||||
| medium risk (PD 5-7; 0.80%-6.40%) | 2 409 | 22% | 2 691 | 41% | 3 005 | 63% | 7 424 | 82% | ||||
| high risk (PD 8-9; 6.40%-100.00%) | 605 | 5% | 170 | 3% | 179 | 4% | 623 | 7% | ||||
| impaired loans (PD 10 - 12) | 174 | 2% | 122 | 2% | 206 | 4% | 248 | 3% | ||||
| unrated | 593 | 5% | 18 | 0% | 0 | 0% | 0 | 0% | ||||
| Overall risk indicators | stage 3 imp. | % cover | stage 3 imp. | % cover | stage 3 imp. | % cover | stage 3 imp. | % cover | ||||
| outstanding impaired loans | 174 | 104 | 60% | 122 | 50 | 41% | 206 | 71 | 35% | 248 | 135 | 54% |
| o/w PD 10 impaired loans | 45 | 13 | 29% | 88 | 26 | 30% | 79 | 8 | 10% | 121 | 54 | 45% |
| o/w more than 90 days past due (PD 11+12) | 129 | 90 | 70% | 33 | 23 | 70% | 127 | 63 | 50% | 127 | 81 | 63% |
| all impairments (stage 1+2+3) | 177 | 107 | 98 | 155 | ||||||||
| o/w stage 1+2 impairments (incl. POCI) | 74 | 58 | 27 | 20 | ||||||||
| o/w stage 3 impairments (incl. POCI) | 104 | 50 | 71 | 135 | ||||||||
| 2021 Credit cost ratio (CCR)2 | -0.16% | -0.34% | -0.06% | 1.43% | ||||||||
| 2022 Credit cost ratio (CCR)2 - YTD |
0.09% | 0.20% | 0.56% | -0.02% |
1 Following IFRS 5 included in the balance sheet line 'Non-current assets held for sale and disposal groups'
2 CCR at country level in local currency
KBC reports its solvency at group, banking and insurance level, calculating it on the basis of IFRS figures and the relevant guidelines issued by the competent regulator.
We report the solvency of the group, the bank and the insurance company based on IFRS data and according to the rules imposed by the regulator. For the KBC group, this implies that we calculate our solvency ratios based on CRR/CRD. This regulation entered gradually into force as of 1 January 2014.
KBC makes use of the IFRS 9 transitional measures (applied from the second quarter of 2020). These transitional measures make it possible to add back a portion of the increased impairment charges to common equity capital (CET1), during a transitional period until 31 December 2024.
Based on CRR/CRD, profit can be included in CET1 capital only after the profit appropriation decision by the final decision body, for KBC Group it is the General Meeting. ECB can allow to include interim or annual profit in CET1 capital before the decision by the General Meeting. In that case, the foreseeable dividend should be deducted from the profit that is included in CET1. Considering that our Dividend Policy of "at least 50%" does not include a maximum, KBC Group no longer requests ECB approval to include interim or annual profit in CET1 capital before the decision by the General Meeting. As such, the annual profit of 2021 and the final dividend re. 2021 is recognised in the official (transitional) CET1 of the 1st quarter 2022, which is reported after the General Meeting. The (informal) fully loaded 31-12-2021 figures already fully reflected the 2021 profit and proposed dividend. As regard 1H 2022, the interim profit is included in the fully loaded CET1 (taking into account 50% pay-out in line with our Dividend Policy), while in the official (transitional) CET1 the 1H 2022 interim profit is only included up to the level of the interim dividend.
The general rule under CRR/CRD for insurance participations is that an insurance participation is deducted from common equity at group level, unless the competent authority grants permission to apply a risk weighting instead (Danish compromise). As of the fourth quarter of 2020, the revised CRR/CRD requires the use of the equity method, unless the competent authority allows institutions to apply a different method. KBC Group has received ECB approval to continue to use the historical carrying value for risk weighting (370%), after having deconsolidated KBC Insurance from the group figures.
In addition to the solvency ratios under CRR /CRD, KBC is considered a financial conglomerate since it covers both significant banking and insurance activities. Therefore KBC also has to disclose its solvency position as calculated in accordance with the Financial Conglomerate Directive (FICOD; 2002/87/EC. This implies that available capital is calculated on the basis of the consolidated position of the group and the eligible items recognised as such under the prevailing sectorial rules, which are CRR/CRD for the banking business and Solvency II for the insurance business. The capital requirement for the insurance business based on Solvency II is multiplied by 12.5 to obtain a risk weighted asset equivalent.
The Internal Rating Based (IRB) approach is since its implementation in 2008 the primary approach to calculate KBC's risk weighted assets. This is, based on a full application of all the CRR/CDR rules, used for approximately 91% of the weighted credit risks, of which approx. 87% according to Advanced and approx. 4% according to Foundation approach. The remaining weighted credit risks (ca. 9%) are calculated according to the Standardised approach.
The overall capital requirement (CET1) that KBC is to uphold is set at 11.34% (fully loaded, Danish Compromise which includes the CRR/CRD minimum requirement (4.50%), the Pillar 2 Requirement (1.86%) and the buffers set by national competent authorities (2.50% Capital Conservation Buffer, 1.50% Systemic Buffer, 0.33% sectorial Systemic Risk Buffer and 0.65% Countercyclical Buffer). Furthermore ECB has set a Pillar 2 Guidance of 1.00%.
Distributions (being dividend payments, payments related to additional tier 1 instruments or variable remuneration) are limited in case the combined buffer requirements described above are breached. This limitation is also referred to as "Maximum Distributable Amount" or "MDA" thresholds.
The table below provides an overview of the buffers KBC Group has compared to these thresholds, both on an actuals basis (i.e. versus the regulatory targets that apply at the reporting date) and a fully loaded basis (i.e. versus the regulatory targets that will apply going forward).
In line with CRD Art. 104a(4), ECB allows banks to satisfy the P2R with additional tier-1 instruments (up to [1.5]/8) and tier-2 instruments (up to 2/8) based on the same relative weights as allowed for meeting the 8% Pillar 1 Requirement. KBC currently does not intend to issue additional tier-1 or tier-2 instruments to meet the P2R; KBC may consider this to avoid or mitigate a MDA breach.
| Buffer vs. Overall Capital Requirement (in millions of EUR) |
30-06-2022 | 31-12-2021 | ||
|---|---|---|---|---|
| (consolidated, under CRR, Danish compromise method) | Fully loaded | Actuals | Fully loaded | Actuals |
| CET1 Pillar 1 minimum | 4.50% | 4.50% | 4.50% | 4.50% |
| Pillar 2 requirement to be satisfied with CET1 | 1.05% | 1.05% | 1.05% | 0.98% |
| Capital conservation buffer | 2.50% | 2.50% | 2.50% | 2.50% |
| Buffer for systemically important institutions (O-SII) | 1.50% | 1.50% | 1.50% | 1.50% |
| Systemic Risk Buffer (SRyB) | 0.33% | 0.33% | 0.00% | 0.00% |
| Entity-specific countercyclical buffer | 0.65% | 0.17% | 0.45% | 0.17% |
| Overall Capital Requirement (OCR) - with P2R split, CRD Art. 104a(4) | 10.53% | 10.05% | 10.00% | 9.66% |
| Pillar 2 requirement that can be satisfied with AT1 & AT2 | 0.81% | 0.81% | 0.81% | 0.77% |
| Overall Capital Requirement (OCR) (A)1 no P2R split | 11.34% | 10.86% | 10.81% | 10.42% |
| CET1 used to satisfy shortfall in AT1 bucket (B) | 0.09% | 0.09% | 0.07% | 0.06% |
| CET1 used to satisfy shortfall in T2 bucket (C) 2 | 0.44% | 0.31% | 0.36% | 0.34% |
| CET1 requirement for MDA (A+B+C) | 11.87% | 11.26% | 11.23% | 10.82% |
| CET1 capital | 16 875 | 16 022 | 16 224 | 17 498 |
| CET1 buffer (= buffer compared to MDA) | 4 284 | 4 072 | 4 470 | 6 204 |
(1) A negative figure in AT1 or T2 bucket relates to a surplus above the pillar 1 bucket for these instruments, which is available to partly satisfy the pillar 2 requirement. (2) The fully loaded T2 capital excludes the T2 instruments grandfathered under CRR2; these T2 instruments are included in the actual (transitional) T2 capital for the period of grandfathering, in line with CRR2 and the COREP 3.0 reporting framework (introduced as from 2Q 2021 reporting).
Following table groups the solvency on the level of KBC Group according to different methodologies and calculation methods, including the deduction method.
| Overview of KBC Group's capital ratios | denominator | |||
|---|---|---|---|---|
| (in millions of EUR) | numerator (common |
(total weighted |
||
| 30-06-2022 | equity) | risk volume) | ratio (%) | |
| Common Equity ratio | ||||
| Danish Compromise | Fully loaded | 16 875 | 106 105 | 15.90% |
| Deduction Method | Fully loaded | 16 110 | 101 231 | 15.91% |
| Financial Conglomerates Directive | Fully loaded | 18 289 | 118 211 | 15.47% |
| Danish Compromise | Transitional | 16 022 | 106 091 | 15.10% |
| Deduction Method | Transitional | 15 168 | 100 993 | 15.02% |
| Financial Conglomerates Directive | Transitional | 17 960 | 118 198 | 15.20% |
KBC's fully loaded CET1 ratio of 15.90% at the end of June 2022 represents a solid capital buffer:
| 30-06-2022 | 30-06-2022 | 31-12-2021 | 31-12-2021 | |
|---|---|---|---|---|
| In millions of EUR | Fully loaded | Transitional | Fully loaded | Transitional |
| Total regulatory capital (after profit appropriation) | 20 030 | 19 312 | 19 445 | 20 733 |
| Tier-1 capital | 18 375 | 17 522 | 17 724 | 18 998 |
| Common equity | 16 875 | 16 022 | 16 224 | 17 498 |
| Parent shareholders' equity (after deconsolidating KBC Insurance) | 18 536 | 17 445 | 20 049 | 17 708 |
| Intangible fixed assets, incl deferred tax impact (-) | - 574 | - 574 | - 539 | - 539 |
| Goodwill on consolidation, incl deferred tax impact (-) | - 740 | - 740 | - 746 | - 746 |
| Minority interests | 0 | 0 | 0 | 0 |
| Hedging reserve (cash flow hedges) (-) | 923 | 923 | 1 108 | 1 108 |
| Valuation diff. in financial liabilities at fair value - own credit risk (-) | - 37 | - 37 | - 16 | - 16 |
| Value adjustment due to the requirements for prudent valuation (-) | - 28 | - 28 | - 28 | - 28 |
| Dividend payout (-) | - 610 | - 417 | - 3 168 | 0 |
| Share buyback (part not yet executed) (-) | 0 | 0 | 0 | 0 |
| Coupon of AT1 instruments (-) | - 12 | - 12 | - 12 | - 12 |
| Deduction re. financing provided to shareholders (-) | - 57 | - 57 | - 57 | - 57 |
| Deduction re. Irrevocable payment commitments (-) | - 90 | - 90 | - 72 | - 72 |
| Deduction re NPL backstops (-) | - 75 | - 75 | - 68 | - 68 |
| Deduction re pension plan assets (-) | - 158 | - 158 | 0 | 0 |
| IRB provision shortfall (-) | 0 | 0 | 0 | - 31 |
| Deferred tax assets on losses carried forward (-) | - 204 | - 204 | - 227 | - 227 |
| Transitional adjustments to CET1 | 0 | 46 | 0 | 478 |
| Limit on deferred tax assets from timing differences relying on future profitability and significant participations in financial sector entities (-) |
0 | 0 | 0 | 0 |
| Additional going concern capital | 1 500 | 1 500 | 1 500 | 1 500 |
| CRR compliant AT1 instruments | 1 500 | 1 500 | 1 500 | 1 500 |
| Minority interests to be included in additional going concern capital | 0 | 0 | 0 | 0 |
| Tier 2 capital | 1 655 | 1 790 | 1 721 | 1 735 |
| IRB provision excess (+) | 158 | 157 | 224 | 493 |
| Transitional adjustments to T2 | 0 | - 45 | 0 | - 493 |
| Subordinated liabilities | 1 497 | 1 677 | 1 497 | 1 735 |
| Subordinated loans non-consolidated financial sector entities (-) | 0 | 0 | 0 | 0 |
| Minority interests to be included in tier 2 capital | 0 | 0 | 0 | 0 |
| Total weighted risk volume | 106 105 | 106 091 | 104 646 | 104 362 |
| Banking | 96 812 | 96 798 | 95 120 | 94 836 |
| Insurance | 9 133 | 9 133 | 9 133 | 9 133 |
| Holding activities | 432 | 432 | 396 | 396 |
| Elimination of intercompany transactions | - 272 | - 272 | - 4 | - 4 |
| Solvency ratios | ||||
| Common equity ratio | 15.90% | 15.10% | 15.50% | 16.77% |
| Tier-1 ratio | 17.32% | 16.52% | 16.94% | 18.20% |
| Total capital ratio | 18.88% | 18.20% | 18.58% | 19.87% |
Note: for the composition of the banking RWA, see section 'Solvency banking and insurance activities separately' further in this memo.
Note: the difference between the fully loaded total own funds (20 030 million euros; interim profit after 50% pay-out re. 2022 is included) and the transitional own funds (19 312 million euros; interim profit after 50% pay-out re. 2022 is not included) as at 30-06-2022 is explained by the net result for 2022 (1 091 million euros under the Danish Compromise method), the 50% pay-out (-193 million euros dividend accrual), the impact of the IFRS 9 transitional measures and IRB excess/shortfall (-0.4 million euros) and the grandfathered tier-2 subordinated debt instruments (-180 million euros).
| Leverage ratio KBC Group | 30-06-2022 | 30-06-2022 | 31-12-2021 | 31-12-2021 |
|---|---|---|---|---|
| In millions of EUR | Fully loaded | Transitional | Fully loaded | Transitional |
| Tier-1 capital | 18 375 | 17 522 | 17 724 | 18 998 |
| Total exposures | 357 138 | 357 195 | 326 792 | 292 365 |
| Total Assets | 369 807 | 369 807 | 340 346 | 340 346 |
| Deconsolidation KBC Insurance | -31 182 | -31 182 | -34 026 | -34 026 |
| Transitional adjustment | 0 | 56 | 0 | 617 |
| Adjustment for derivatives | -4 793 | -4 793 | -1 656 | -1 656 |
| Adjustment for regulatory corrections in determining Basel III Tier-1 capital | -1 836 | -1 836 | -1 665 | -1 696 |
| Adjustment for securities financing transaction exposures | 1 214 | 1 214 | 1 016 | 1 016 |
| Central Bank exposure | 0 | 0 | 0 | -35 014 |
| Off-balance sheet exposures | 23 928 | 23 928 | 22 776 | 22 776 |
| Leverage ratio | 5.14% | 4.91% | 5.42% | 6.50% |
At the end of June 2022, the fully loaded leverage ratio slightly decreased compared to December 2021, mainly due to higher total assets (driven by short-term money market and repo opportunities), partly compensated by higher Tier 1 capital (mainly driven by inclusion of 1H2022 profits).
As from 01-04-2022, Central Bank exposures are no longer excluded from the leverage ratio exposure amount in the transitional calculation, causing a decrease in the transitional leverage ratio exposure amount.
As is the case for the KBC group, the solvency of KBC Bank is calculated based on CRR/CRD. The solvency of KBC Insurance is calculated on the basis of Solvency II rules as they became effective on 1 January 2016.
The tables below show the tier-1 and CAD ratios calculated under Basel III (CRR/CRD) for KBC Bank, as well as the solvency ratio of KBC Insurance under Solvency II.
| Regulatory capital requirements KBC Bank (consolidated) | 30-06-2022 | 30-06-2022 | 31-12-2021 | 31-12-2021 |
|---|---|---|---|---|
| (in millions of EUR) | Fully loaded | Transitional | Fully loaded | Transitional |
| Total regulatory capital, after profit appropriation | 17 589 | 17 589 | 18 318 | 17 964 |
| Tier-1 capital | 15 753 | 15 798 | 16 415 | 16 210 |
| Common equity | 14 253 | 14 298 | 14 915 | 14 710 |
| Parent shareholders' equity | 16 672 | 16 672 | 17 047 | 14 912 |
| Solvency adjustments | -2 419 | -2 374 | -2 132 | - 202 |
| Additional going concern capital | 1 500 | 1 500 | 1 500 | 1 500 |
| Tier-2 capital | 1 836 | 1 791 | 1 903 | 1 754 |
| Total weighted risk volume | 96 812 | 96 798 | 95 120 | 94 836 |
| Credit risk | 81 788 | 81 774 | 80 971 | 80 687 |
| Market risk | 3 539 | 3 539 | 2 665 | 2 665 |
| Operation risk | 11 484 | 11 484 | 11 484 | 11 484 |
| Common equity ratio | 14.7% | 14.8% | 15.7% | 15.5% |
| Own Funds | 4 113 | 4 075 |
|---|---|---|
| Tier 1 | 3 613 | 3 574 |
| IFRS Parent shareholders' equity | 2 676 | 3 991 |
| Dividend payout | - 274 | - 525 |
| Deduction intangible assets and goodwill (after tax) | - 191 | - 194 |
| Valuation differences (after tax) | 1 209 | 267 |
| Volatility adjustment | 217 | 43 |
| Other | - 24 | - 8 |
| Tier 2 | 500 | 500 |
| Subordinated liabilities | 500 | 500 |
| Solvency Capital Requirement (SCR) | 1 699 | 2 029 |
| Market risk | 1 178 | 1 581 |
| Non-life | 660 | 626 |
| Life | 930 | 834 |
| Health | 227 | 314 |
| Counterparty | 133 | 114 |
| Diversification | -1 084 | -1 133 |
| Other | - 344 | - 308 |
| Solvency II ratio | 242% | 201% |
Besides the ECB and NBB, which supervise KBC on a going concern basis, KBC is also subject to requirements set by the Single Resolution Board (SRB). The SRB is developing resolution plans for the major banks in the euro area. The resolution plan for KBC is based on a Single Point of Entry (SPE) approach at the level of KBC Group with 'bail-in' as the primary resolution tool. MREL measures the amount of own funds and eligible liabilities that can be credibly and feasibly bailed-in.
In 2Q 2022, the SRB communicated to KBC updated final MREL targets (under BRRD2) for 01-01-2024, expressed as a percentage of Risk Weighted Assets (RWA) and Leverage Ratio Exposure Amount (LRE):
At the end of June 2022, the MREL ratio stands at 27.6% as a % of RWA (same level as at 31-03-2022) and at 8.2% as % of LRE (versus 9.6% as at 31-03-2022). The decrease of the MREL ratio in % of LRE is due to higher Leverage Ratio Exposure (as from 2Q 2022 the exposure to central banks is no longer excluded from the Leverage Ratio Exposure).
Besides a total MREL amount, BRRD2 also requires KBC to maintain a certain part of MREL in subordinated format (i.e. instruments subordinated to liabilities, excluded from bail-in). Before end of 2Q 2022, KBC Group had on its balance sheet a limited amount of liabilities, excluded from bail-in, which ranked pari passu to MREL eligible liabilities. These excluded liabilities were related to critical shared services (e.g. IT). This jeopardized the eligibility of the HoldCo senior debt to be acknowledged by the SRB as subordinated.
To ensure that KBC's HoldCo senior debt is eligible for the subordinated MREL target (i.e., to make sure that no excluded liabilities ranking pari passu or junior with HoldCo senior debt are present in KBC Group NV), KBC Group decided to make KBC Group NV a Clean HoldCo for the purpose of resolution. The Clean HoldCo has been implemented and as at 30-06-2022 and KBC's entire MREL stack is subordinated to excluded liabilities.
The new binding subordinated MREL targets are:
At the end of June 2022, KBC's entire MREL stack is subordinated and the subordinated MREL ratio stands at 27.6% as a % of RWA and at 8.2% as a % of LRE.
(1) Combined Buffer Requirement = Conservation Buffer (2.5%) + O-SII Buffer (1.5%) + Countercyclical Buffer (0.40% for 2022 and 0.65% as from 3Q 2023) + Systemic Risk Buffer (0.33%), comes on top of the MREL target as a percentage of RWA
Details on our segments or business units are available in the company presentation.
Note: The ECB approved to apply the IFRS9 transitional arrangements from 2Q 2020, as such the difference between fully loaded and the transitional measures are assigned to Group Centre. In other words, the RWA, allocated capital and the ROAC of the different countries remain based on fully loaded.
| Business unit Belgium | |||||
|---|---|---|---|---|---|
| (in millions of EUR) | 2Q 2022 | 1Q 2022 | 4Q 2021 | 3Q 2021 | 2Q 2021 |
| Breakdown P&L | |||||
| Net interest income | 677 | 635 | 641 | 629 | 637 |
| Non-life insurance (before reinsurance) | 125 | 102 | 100 | 77 | 143 |
| Earned premiums | 312 | 305 | 308 | 306 | 293 |
| Technical charges | - 188 | - 203 | - 208 | - 229 | - 150 |
| Life insurance (before reinsurance) | - 12 | - 14 | - 16 | - 13 | - 13 |
| Earned premiums | 197 | 216 | 298 | 189 | 194 |
| Technical charges | - 209 | - 230 | - 314 | - 202 | - 207 |
| Ceded reinsurance result | 10 | 37 | 13 | 27 | - 3 |
| Dividend income | 19 | 7 | 8 | 10 | 15 |
| Net result from financial instruments at fair value through profit or loss | 37 | 50 | 34 | 33 | 38 |
| Net realised result from debt instruments at fair value through OCI | 1 | 1 | 0 | 0 | 1 |
| Net fee and commission income | 314 | 345 | 338 | 333 | 322 |
| Net other income | 93 | 42 | 38 | 83 | 33 |
| TOTAL INCOME | 1 263 | 1 204 | 1 154 | 1 179 | 1 173 |
| Operating expenses | - 554 | - 901 | - 558 | - 520 | - 538 |
| Impairment | 25 | - 7 | 43 | 139 | 56 |
| on financial assets at AC and at FVOCI | 25 | - 1 | 51 | 139 | 56 |
| other | 0 | - 7 | - 8 | - 1 | 0 |
| Share in results of associated companies and joint ventures | - 2 | - 2 | - 1 | - 2 | 1 |
| RESULT BEFORE TAX | 731 | 294 | 639 | 796 | 693 |
| Income tax expense | - 167 | - 67 | - 153 | - 193 | - 165 |
| RESULT AFTER TAX | 564 | 227 | 486 | 603 | 528 |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 |
| attributable to equity holders of the parent | 564 | 227 | 486 | 603 | 528 |
| Banking | 418 | 138 | 413 | 522 | 403 |
| Insurance | 146 | 89 | 73 | 81 | 125 |
| Breakdown Loans and deposits | |||||
| Total customer loans excluding reverse repos (end of period) | 114 910 | 111 303 | 108 251 | 106 952 | 105 594 |
| of which Mortgage loans (end of period) | 43 327 | 42 478 | 41 561 | 40 800 | 40 069 |
| Customer deposits and debt certificates excl. repos (end of period) | 153 686 | 142 241 | 142 282 | 151 203 | 159 581 |
| Technical provisions plus unit-linked, life insurance | |||||
| Interest Guaranteed (end of period) | 12 722 | 12 831 | 12 989 | 12 942 | 12 984 |
| Unit-Linked (end of period) | 12 168 | 13 152 | 13 634 | 13 262 | 13 217 |
| Performance Indicators | |||||
| Risk-weighted assets, banking (end of period, Basel III fully loaded) | 55 749 | 57 143 | 55 520 | 54 493 | 54 419 |
| Required capital, insurance (end of period) | 1 357 | 1 580 | 1 708 | 1 648 | 1 651 |
| Allocated capital (end of period) | 7 679 | 7 757 | 7 510 | 7 342 | 7 338 |
| Return on allocated capital (ROAC) | 28% | 12% | 27% | 33% | 29% |
| Cost/income ratio, group | 44% | 75% | 48% | 44% | 46% |
| Combined ratio, non-life insurance | 88% | 82% | 98% | 98% | 83% |
| Net interest margin, banking | 1.59% | 1.57% | 1.60% | 1.61% | 1.63% |
| (in millions of EUR) | 2Q 2022 | 1Q 2022 | 4Q 2021 | 3Q 2021 | 2Q 2021 |
|---|---|---|---|---|---|
| Breakdown P&L | |||||
| Net interest income | 340 | 326 | 292 | 244 | 220 |
| Non-life insurance (before reinsurance) | 46 | 50 | 35 | 34 | 30 |
| Earned premiums | 99 | 92 | 89 | 88 | 82 |
| Technical charges | - 52 | - 42 | - 54 | - 54 | - 52 |
| Life insurance (before reinsurance) | 15 | 14 | 17 | 15 | 14 |
| Earned premiums | 40 | 43 | 47 | 41 | 51 |
| Technical charges | - 26 | - 29 | - 30 | - 27 | - 37 |
| Ceded reinsurance result | - 1 | - 4 | 7 | 4 | 8 |
| Dividend income | 1 | 0 | 0 | 0 | 1 |
| Net result from financial instruments at fair value through profit or loss | 40 | 67 | 35 | 24 | 7 |
| Net realised result from debt instruments at fair value through OCI | - 6 | - 5 | - 3 | 0 | - 2 |
| Net fee and commission income | 55 | 58 | 54 | 56 | 54 |
| Net other income | 2 | 11 | - 10 | 5 | 6 |
| TOTAL INCOME | 491 | 516 | 428 | 383 | 339 |
| Operating expenses | - 206 | - 270 | - 204 | - 183 | - 191 |
| Impairment | - 6 | 4 | 14 | 50 | 50 |
| on financial assets at AC and at FVOCI | - 2 | 10 | 26 | 50 | 53 |
| other | - 4 | - 6 | - 5 | 0 | - 3 |
| Share in results of associated companies and joint ventures | 0 | - 1 | - 1 | - 1 | 0 |
| RESULT BEFORE TAX | 280 | 249 | 237 | 249 | 198 |
| Income tax expense | - 43 | - 42 | - 39 | - 40 | - 30 |
| RESULT AFTER TAX | 237 | 207 | 198 | 209 | 168 |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 |
| attributable to equity holders of the parent | 237 | 207 | 198 | 209 | 168 |
| Banking | 220 | 186 | 176 | 195 | 152 |
| Insurance | 17 | 21 | 22 | 14 | 16 |
| Breakdown Loans and deposits | |||||
| Total customer loans excluding reverse repos (end of period) | 34 169 | 33 972 | 32 671 | 31 288 | 30 551 |
| of which Mortgage loans (end of period) | 18 916 | 18 974 | 18 303 | 17 437 | 17 190 |
| Customer deposits and debt certificates excl. repos (end of period) | 48 366 | 48 729 | 46 239 | 45 108 | 44 650 |
| Technical provisions plus unit-linked, life insurance | |||||
| Interest Guaranteed (end of period) | 673 | 694 | 690 | 676 | 676 |
| Unit-Linked (end of period) | 458 | 518 | 526 | 572 | 594 |
| Performance Indicators | |||||
| Risk-weighted assets, banking (end of period, Basel III fully loaded) | 17 226 | 17 110 | 16 213 | 16 139 | 15 594 |
| Required capital, insurance (end of period) | 178 | 159 | 147 | 149 | 149 |
| Allocated capital (end of period) | 2 132 | 2 008 | 1 841 | 1 835 | 1 778 |
| Return on allocated capital (ROAC) | 46% | 42% | 44% | 47% | 38% |
| Cost/income ratio, group | 42% | 52% | 48% | 48% | 56% |
| Combined ratio, non-life insurance | 86% | 83% | 84% | 92% | 87% |
| Net interest margin, banking | 2.70% | 2.65% | 2.29% | 2.08% | 1.97% |
| Business unit International Markets | |||||
|---|---|---|---|---|---|
| (in millions of EUR) | 2Q 2022 | 1Q 2022 | 4Q 2021 | 3Q 2021 | 2Q 2021 |
| Breakdown P&L | |||||
| Net interest income | 194 | 187 | 249 | 243 | 239 |
| Non-life insurance (before reinsurance) | 45 | 42 | 40 | 34 | 40 |
| Earned premiums | 87 | 87 | 85 | 86 | 83 |
| Technical charges | - 42 | - 45 | - 45 | - 52 | - 43 |
| Life insurance (before reinsurance) | 11 | 11 | 10 | 11 | 9 |
| Earned premiums | 28 | 31 | 30 | 26 | 27 |
| Technical charges | - 18 | - 19 | - 20 | - 15 | - 18 |
| Ceded reinsurance result | - 2 | - 4 | - 4 | - 3 | - 2 |
| Dividend income | 0 | 0 | 0 | 0 | 0 |
| Net result from financial instruments at fair value through profit or loss | 22 | 32 | - 5 | 5 | 13 |
| Net realised result from debt instruments at fair value through OCI | - 5 | 0 | 2 | 0 | 0 |
| Net fee and commission income | 84 | 80 | 87 | 78 | 74 |
| Net other income | - 5 | 4 | - 2 | - 10 | 1 |
| TOTAL INCOME | 343 | 353 | 376 | 358 | 374 |
| Operating expenses | - 246 | - 252 | - 263 | - 299 | - 231 |
| Impairment | - 30 | - 9 | - 41 | - 142 | 23 |
| on financial assets at AC and at FVOCI | - 16 | - 8 | - 15 | - 121 | 26 |
| other | - 14 | 0 | - 26 | - 21 | - 3 |
| Share in results of associated companies and joint ventures | 0 | 0 | 0 | 0 | 0 |
| RESULT BEFORE TAX | 67 | 93 | 72 | - 83 | 166 |
| Income tax expense | - 16 | - 19 | - 16 | - 75 | - 26 |
| RESULT AFTER TAX | 52 | 74 | 56 | - 158 | 140 |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 |
| attributable to equity holders of the parent | 52 | 74 | 56 | - 158 | 140 |
| Banking | 47 | 59 | 53 | - 166 | 127 |
| Insurance | 5 | 15 | 4 | 9 | 13 |
| Breakdown Loans and deposits | |||||
| Total customer loans excluding reverse repos (end of period) | 19 902 | 19 362 | 18 805 | 18 472 | 28 199 |
| of which Mortgage loans (end of period) | 8 362 | 8 036 | 7 800 | 7 658 | 17 515 |
| Customer deposits and debt certificates excl. repos (end of period) | 23 808 | 24 079 | 24 652 | 23 664 | 27 950 |
| Technical provisions plus unit-linked, life insurance | |||||
| Interest Guaranteed (end of period) | 300 | 304 | 305 | 306 | 251 |
| Unit-Linked (end of period) | 393 | 437 | 459 | 450 | 418 |
| Performance Indicators | |||||
| Risk-weighted assets, banking (end of period, Basel III fully loaded) | 17 321 | 17 141 | 21 790 | 21 929 | 23 190 |
| Required capital, insurance (end of period) | 147 | 154 | 154 | 156 | 141 |
| Allocated capital (end of period) | 2 112 | 2 007 | 2 431 | 2 448 | 2 565 |
| Return on allocated capital (ROAC) | 9% | 13% | 9% | -25% | 22% |
| Cost/income ratio, group | 72% | 71% | 70% | 84% | 62% |
| Combined ratio, non-life insurance | 89% | 83% | 90% | 93% | 83% |
| Net interest margin, banking | 2.84% | 2.81% | 2.69% | 2.60% | 2.58% |
As of 1Q 2022, KBC Ireland has been shifted from Business Unit International Markets to Group Center. No restatements have been made.
| Slovakia | |||||
|---|---|---|---|---|---|
| (in millions of EUR) | 2Q 2022 | 1Q 2022 | 4Q 2021 | 3Q 2021 | 2Q 2021 |
| Breakdown P&L | |||||
| Net interest income | 56 | 58 | 56 | 58 | 57 |
| Non-life insurance (before reinsurance) | 8 | 8 | 8 | 8 | 8 |
| Earned premiums | 17 | 16 | 17 | 16 | 15 |
| Technical charges | - 9 | - 8 | - 8 | - 8 | - 7 |
| Life insurance (before reinsurance) | 3 | 3 | 3 | 4 | 3 |
| Earned premiums | 7 | 8 | 8 | 8 | 8 |
| Technical charges | - 4 | - 4 | - 4 | - 4 | - 4 |
| Ceded reinsurance result | 0 | - 1 | - 1 | - 1 | - 1 |
| Dividend income | 0 | 0 | 0 | 0 | 0 |
| Net result from financial instruments at fair value through profit or loss | 12 | 11 | 4 | 1 | 3 |
| Net realised result from debt instruments at fair value through OCI | 0 | 0 | 0 | 0 | 0 |
| Net fee and commission income | 19 | 17 | 18 | 18 | 19 |
| Net other income | 0 | 1 | 3 | 1 | 0 |
| TOTAL INCOME | 98 | 98 | 91 | 88 | 91 |
| Operating expenses | - 60 | - 68 | - 67 | - 64 | - 66 |
| Impairment | - 4 | - 1 | - 2 | 14 | 6 |
| on financial assets at AC and at FVOCI | - 4 | - 1 | - 2 | 14 | 6 |
| other | 0 | 0 | - 1 | 0 | 0 |
| Share in results of associated companies and joint ventures | 0 | 0 | 0 | 0 | 0 |
| RESULT BEFORE TAX | 35 | 29 | 21 | 38 | 30 |
| Income tax expense | - 7 | - 7 | - 3 | - 9 | - 8 |
| RESULT AFTER TAX | 28 | 22 | 18 | 29 | 22 |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 |
| attributable to equity holders of the parent | 28 | 22 | 18 | 29 | 22 |
| Banking | 25 | 20 | 18 | 27 | 20 |
| Insurance | 3 | 2 | 1 | 2 | 2 |
| Breakdown Loans and deposits | |||||
| Total customer loans excluding reverse repos (end of period) | 10 241 | 9 790 | 9 417 | 9 213 | 9 100 |
| of which Mortgage loans (end of period) | 5 734 | 5 332 | 5 117 | 5 000 | 4 904 |
| Customer deposits and debt certificates excl. repos (end of period) | 8 021 | 7 617 | 7 696 | 7 639 | 7 908 |
| Technical provisions plus unit-linked, life insurance | |||||
| Interest Guaranteed (end of period) | 114 | 114 | 115 | 114 | 114 |
| Unit-Linked (end of period) | 56 | 60 | 67 | 69 | 72 |
| Performance Indicators | |||||
| Risk-weighted assets, banking (end of period, Basel III fully loaded) | 6 097 | 6 037 | 5 815 | 5 750 | 5 683 |
| Required capital, insurance (end of period) | 28 | 29 | 30 | 29 | 29 |
| Allocated capital (end of period) | 719 | 682 | 638 | 630 | 623 |
| Return on allocated capital (ROAC) | 16% | 13% | 11% | 18% | 14% |
| Cost/income ratio, group | 61% | 69% | 74% | 73% | 73% |
| Combined ratio, non-life insurance | 88% | 90% | 103% | 93% | 85% |
| Hungary | |||||
|---|---|---|---|---|---|
| (in millions of EUR) | 2Q 2022 | 1Q 2022 | 4Q 2021 | 3Q 2021 | 2Q 2021 |
| Breakdown P&L | |||||
| Net interest income | 99 | 93 | 90 | 76 | 74 |
| Non-life insurance (before reinsurance) | 16 | 14 | 14 | 8 | 14 |
| Earned premiums | 34 | 37 | 34 | 36 | 35 |
| Technical charges | - 19 | - 24 | - 20 | - 28 | - 21 |
| Life insurance (before reinsurance) | 3 | 3 | 2 | 3 | 2 |
| Earned premiums | 10 | 11 | 11 | 9 | 10 |
| Technical charges | - 8 | - 8 | - 9 | - 7 | - 8 |
| Ceded reinsurance result | - 1 | - 1 | 0 | 0 | - 1 |
| Dividend income | 0 | 0 | 0 | 0 | 0 |
| Net result from financial instruments at fair value through profit or loss | 11 | 21 | - 8 | 5 | 11 |
| Net realised result from debt instruments at fair value through OCI | - 5 | 0 | 2 | 0 | 0 |
| Net fee and commission income | 54 | 51 | 55 | 51 | 49 |
| Net other income | - 7 | 3 | 1 | 0 | 1 |
| TOTAL INCOME | 170 | 184 | 155 | 144 | 150 |
| Operating expenses | - 154 | - 136 | - 82 | - 77 | - 81 |
| Impairment | - 17 | - 3 | - 17 | 7 | 16 |
| on financial assets at AC and at FVOCI | - 3 | - 4 | - 12 | 12 | 19 |
| other | - 14 | 0 | - 5 | - 5 | - 3 |
| Share in results of associated companies and joint ventures | 0 | 0 | 0 | 0 | 0 |
| RESULT BEFORE TAX | - 1 | 45 | 56 | 73 | 86 |
| Income tax expense | - 5 | - 10 | - 10 | - 11 | - 11 |
| RESULT AFTER TAX | - 6 | 35 | 46 | 62 | 75 |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 |
| attributable to equity holders of the parent | - 6 | 35 | 46 | 62 | 75 |
| Banking | 0 | 30 | 41 | 61 | 70 |
| Insurance | - 6 | 5 | 5 | 2 | 5 |
| Breakdown Loans and deposits | |||||
| Total customer loans excluding reverse repos (end of period) | 5 274 | 5 436 | 5 413 | 5 457 | 5 304 |
| of which Mortgage loans (end of period) | 1 693 | 1 812 | 1 812 | 1 817 | 1 795 |
| Customer deposits and debt certificates excl. repos (end of period) | 9 235 | 9 897 | 9 759 | 9 045 | 9 139 |
| Technical provisions plus unit-linked, life insurance | |||||
| Interest Guaranteed (end of period) | 41 | 44 | 45 | 45 | 48 |
| Unit-Linked (end of period) | 202 | 237 | 254 | 261 | 270 |
| Performance Indicators | |||||
| Risk-weighted assets, banking (end of period, Basel III fully loaded) | 7 413 | 7 553 | 7 438 | 7 749 | 7 468 |
| Required capital, insurance (end of period) | 49 | 51 | 51 | 49 | 49 |
| Allocated capital (end of period) | 890 | 868 | 828 | 859 | 830 |
| Return on allocated capital (ROAC) | -2% | 16% | 23% | 30% | 37% |
| Cost/income ratio, group | 90% | 74% | 53% | 54% | 54% |
| Combined ratio, non-life insurance | 100% | 85% | 87% | 100% | 87% |
| Bulgaria | |||||
|---|---|---|---|---|---|
| (in millions of EUR) | 2Q 2022 | 1Q 2022 | 4Q 2021 | 3Q 2021 | 2Q 2021 |
| Breakdown P&L | |||||
| Net interest income | 38 | 36 | 36 | 36 | 35 |
| Non-life insurance (before reinsurance) | 21 | 20 | 18 | 18 | 19 |
| Earned premiums | 36 | 33 | 34 | 34 | 33 |
| Technical charges | - 15 | - 13 | - 16 | - 16 | - 14 |
| Life insurance (before reinsurance) | 5 | 5 | 5 | 5 | 4 |
| Earned premiums | 11 | 12 | 11 | 9 | 9 |
| Technical charges | - 6 | - 7 | - 7 | - 5 | - 5 |
| Ceded reinsurance result | - 1 | - 2 | - 2 | - 2 | - 1 |
| Dividend income | 0 | 0 | 0 | 0 | 0 |
| Net result from financial instruments at fair value through profit or loss | - 1 | - 1 | 0 | 0 | 0 |
| Net realised result from debt instruments at fair value through OCI | 0 | 0 | 0 | 0 | 0 |
| Net fee and commission income | 12 | 12 | 13 | 11 | 8 |
| Net other income | 1 | 1 | 1 | 1 | 0 |
| TOTAL INCOME | 75 | 71 | 71 | 68 | 65 |
| Operating expenses | - 32 | - 49 | - 35 | - 33 | - 32 |
| Impairment | - 10 | - 4 | - 4 | 1 | 1 |
| on financial assets at AC and at FVOCI | - 9 | - 3 | - 1 | 2 | 1 |
| other | 0 | 0 | - 2 | 0 | 0 |
| Share in results of associated companies and joint ventures | 0 | 0 | 0 | 0 | 0 |
| RESULT BEFORE TAX | 33 | 19 | 32 | 37 | 33 |
| Income tax expense | - 4 | - 2 | - 3 | - 4 | - 3 |
| RESULT AFTER TAX | 30 | 17 | 29 | 33 | 30 |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 |
| attributable to equity holders of the parent | 30 | 17 | 29 | 33 | 30 |
| Banking | 22 | 9 | 24 | 27 | 23 |
| Insurance | 8 | 8 | 5 | 6 | 7 |
| Breakdown Loans and deposits | |||||
| Total customer loans excluding reverse repos (end of period) | 4 387 | 4 136 | 3 973 | 3 799 | 3 671 |
| of which Mortgage loans (end of period) | 935 | 892 | 870 | 842 | 819 |
| Customer deposits and debt certificates excl. repos (end of period) | 6 551 | 6 565 | 6 257 | 6 017 | 5 919 |
| Technical provisions plus unit-linked, life insurance | |||||
| Interest Guaranteed (end of period) | 145 | 146 | 145 | 147 | 90 |
| Unit-Linked (end of period) | 135 | 140 | 139 | 121 | 77 |
| Performance Indicators | |||||
| Risk-weighted assets, banking (end of period, Basel III fully loaded) | 3 811 | 3 551 | 3 452 | 3 349 | 3 336 |
| Required capital, insurance (end of period) | 70 | 73 | 73 | 78 | 63 |
| Allocated capital (end of period) | 502 | 457 | 434 | 428 | 412 |
| Return on allocated capital (ROAC) | 25% | 15% | 28% | 32% | 30% |
| Cost/income ratio, group | 43% | 68% | 50% | 48% | 50% |
| Combined ratio, non-life insurance | 77% | 81% | 87% | 86% | 77% |
We describe the impact of the acquisition of NN's Bulgarian pension and life insurance business and the acquisition of the 100% shares of Raiffeisenbank (Bulgaria) EAD in note 6.6 in this report.
| (in millions of EUR) | 2Q 2022 | 1Q 2022 | 4Q 2021 | 3Q 2021 | 2Q 2021 |
|---|---|---|---|---|---|
| Operational costs of the Group activities | - 14 | - 21 | - 42 | - 17 | - 11 |
| Capital and treasury management | - 16 | 4 | 0 | - 3 | - 6 |
| Holding of participations | - 10 | - 12 | 29 | 1 | 0 |
| Results companies in rundown | - 4 | - 15 | 4 | - 3 | - 5 |
| Other | 3 | - 4 | - 68 | - 32 | - 20 |
| Total net result for the Group centre | - 41 | - 49 | - 77 | - 53 | - 42 |
| (in millions of EUR) | 2Q 2022 | 1Q 2022 | 4Q 2021 | 3Q 2021 | 2Q 2021 |
|---|---|---|---|---|---|
| Breakdown P&L | |||||
| Net interest income | 37 | 53 | - 5 | - 5 | - 2 |
| Non-life insurance (before reinsurance) | 7 | 3 | 5 | 4 | 0 |
| Earned premiums | 4 | 3 | 4 | 4 | 4 |
| Technical charges | 2 | 0 | 1 | 0 | - 4 |
| Life insurance (before reinsurance) | 0 | 0 | 0 | 0 | 0 |
| Earned premiums | 0 | 0 | 0 | 0 | 0 |
| Technical charges | 0 | 0 | 0 | 0 | 0 |
| Ceded reinsurance result | - 4 | - 5 | - 2 | - 5 | - 2 |
| Dividend income | 2 | 0 | 1 | 1 | 2 |
| Net result from financial instruments at fair value through profit or loss | - 10 | - 6 | - 102 | - 34 | - 29 |
| Net realised result from debt instruments at fair value through OCI | - 4 | 1 | 1 | 4 | 0 |
| Net fee and commission income | - 2 | 0 | 1 | 0 | - 1 |
| Net other income | 1 | - 3 | 30 | 0 | - 2 |
| TOTAL INCOME | 26 | 43 | - 71 | - 35 | - 33 |
| Operating expenses | - 65 | - 97 | - 53 | - 23 | - 12 |
| Impairment | - 17 | - 10 | 0 | - 2 | - 6 |
| on financial assets at AC and at FVOCI | - 16 | 14 | 0 | - 2 | - 6 |
| other | - 1 | - 24 | 0 | 0 | 0 |
| Share in results of associated companies and joint ventures | 0 | 0 | 0 | 0 | 0 |
| RESULT BEFORE TAX | - 56 | - 64 | - 125 | - 60 | - 52 |
| Income tax expense | 15 | 16 | 48 | 6 | 10 |
| RESULT AFTER TAX | - 41 | - 49 | - 77 | - 53 | - 42 |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 |
| attributable to equity holders of the parent | - 41 | - 49 | - 77 | - 53 | - 42 |
| Banking | - 31 | - 38 | - 69 | - 42 | - 43 |
| Holding | - 9 | - 4 | - 22 | - 4 | 2 |
| Insurance | 0 | - 7 | 14 | - 8 | - 1 |
| Breakdown Loans and deposits | |||||
| Total customer loans excluding reverse repos (end of period) | 3 | 3 | 0 | 0 | 0 |
| of which Mortgage loans (end of period) | 0 | 0 | 0 | 0 | 0 |
| Customer deposits and debt certificates excl. repos (end of period) | 15 766 | 15 216 | 12 920 | 12 186 | 11 123 |
| Performance Indicators | |||||
| Risk-weighted assets, banking (end of period, Basel III fully loaded) | 6 675 | 6 729 | 1 990 | 1 939 | 1 904 |
| Risk-weighted assets, insurance (end of period, Basel III fully loaded) | 9 133 | 9 133 | 9 133 | 9 133 | 9 133 |
| Required capital, insurance (end of period) | 17 | - 9 | 20 | 9 | 18 |
| Allocated capital (end of period) | 774 | 718 | 228 | 212 | 217 |
As of 1Q 2022, KBC Ireland has been shifted from Business Unit International Markets to Group Center. No restatements have been made.
| Ireland | |||||
|---|---|---|---|---|---|
| (in millions of EUR) | 2Q 2022 | 1Q 2022 | 4Q 2021 | 3Q 2021 | 2Q 2021 |
| Breakdown P&L | |||||
| Net interest income | 61 | 66 | 68 | 72 | 72 |
| Non-life insurance (before reinsurance) | 0 | 0 | 0 | 0 | 0 |
| Earned premiums | 0 | 0 | 0 | 0 | 0 |
| Technical charges | 0 | 0 | 0 | 0 | 0 |
| Life insurance (before reinsurance) | 0 | 0 | 0 | 0 | 0 |
| Earned premiums | 0 | 0 | 0 | 0 | 0 |
| Technical charges | 0 | 0 | 0 | 0 | 0 |
| Ceded reinsurance result | 0 | 0 | 0 | 0 | 0 |
| Dividend income | 0 | 0 | 0 | 0 | 0 |
| Net result from financial instruments at fair value through profit or loss | - 1 | - 3 | - 1 | - 1 | - 2 |
| Net realised result from debt instruments at fair value through OCI | 0 | 0 | 0 | 0 | 0 |
| Net fee and commission income | - 1 | 2 | 0 | - 1 | - 2 |
| Net other income | - 4 | - 3 | - 7 | - 13 | - 1 |
| TOTAL INCOME | 55 | 63 | 59 | 58 | 69 |
| Operating expenses | - 44 | - 71 | - 79 | - 125 | - 52 |
| Impairment | - 13 | - 10 | - 18 | - 165 | 0 |
| on financial assets at AC and at FVOCI | - 13 | 14 | 0 | - 149 | 0 |
| other | 0 | - 24 | - 18 | - 16 | 0 |
| Share in results of associated companies and joint ventures | 0 | 0 | 0 | 0 | 0 |
| RESULT BEFORE TAX | - 2 | - 18 | - 37 | - 231 | 17 |
| Income tax expense | 0 | 3 | 0 | - 51 | - 4 |
| RESULT AFTER TAX | - 2 | - 15 | - 37 | - 282 | 13 |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 |
| attributable to equity holders of the parent | - 2 | - 15 | - 37 | - 282 | 13 |
| Banking | - 1 | - 11 | - 30 | - 281 | 14 |
| Insurance | - 1 | - 4 | - 7 | - 1 | - 1 |
| Breakdown Loans and deposits | |||||
| Total customer loans excluding reverse repos (end of period) | 3 | 3 | 3 | 3 | 10 124 |
| of which Mortgage loans (end of period) | 0 | 0 | 0 | 0 | 9 996 |
| Customer deposits and debt certificates excl. repos (end of period) | 840 | 974 | 940 | 963 | 4 983 |
| Performance Indicators | |||||
| Risk-weighted assets, banking (end of period, Basel III fully loaded) | 4 855 | 4 962 | 5 084 | 5 080 | 6 704 |
| Allocated capital (end of period) | 551 | 536 | 531 | 531 | 701 |
| Return on allocated capital (ROAC) | -1% | -11% | -23% | -168% | 7% |
| Cost/income ratio, group | 80% | 113% | 132% | 214% | 75% |
We describe the impact of the pending sale transaction of the Irish credit and deposit portfolio in note 5.11 and note 6.6 in this report.
Gives an idea of the amount of profit over a certain period that is attributable to one share (and, where applicable, including dilutive instruments).
| Calculation (in millions of EUR) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Result after tax, attributable to equity holders of the parent (A) |
'Consolidated income statement' | 1 269 | 2 614 | 1 350 |
| - | ||||
| Coupon on the additional tier-1 instruments included in equity (B) |
'Consolidated statement of changes in equity' | - 25 | - 50 | - 25 |
| / | ||||
| Average number of ordinary shares less treasury shares (in millions) in the period (C) |
Note 5.10 | 417 | 417 | 417 |
| or | ||||
| Average number of ordinary shares plus dilutive options less treasury shares in the period (D) |
417 | 417 | 417 | |
| Basic = (A-B) / (C) (in EUR) | 2.99 | 6.15 | 3.18 | |
| Diluted = (A-B) / (D) (in EUR) | 2.99 | 6.15 | 3.18 |
Gives an insight into the technical profitability (i.e. after eliminating investment returns, among other items) of the non-life insurance business, more particularly the extent to which insurance premiums adequately cover claim payments and expenses. The combined ratio takes ceded reinsurance into account.
| Calculation (in millions of EUR or %) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Technical insurance charges, including the internal cost of settling claims (A) |
Note 3.7.1 | 542 | 1 081 | 478 |
| / | ||||
| Earned insurance premiums (B) | Note 3.7.1 | 963 | 1 841 | 895 |
| + | ||||
| Operating expenses (C) | Note 3.7.1 | 315 | 565 | 283 |
| / | ||||
| Written insurance premiums (D) | Note 3.7.1 | 1 086 | 1 875 | 1 007 |
| = (A/B)+(C/D) | 85.3% | 88.9% | 81.6% |
In 1H 2022, the technical insurance charges were negatively impacted by storms mainly in Belgium (-97 million euros before tax, before reinsurance; -49 million euros before tax, after reinsurance) versus storm effect in 1H 2021 (-24 million euros, before tax, before reinsurance). In 2H 2021, the technical insurance charges were severely negatively impacted by several floods in Belgium (estimated impact -87 million euros after reinsurance).
A risk-weighted measure of the group's solvency based on common equity tier-1 capital (the ratios given here are based on the Danish compromise). Changes to the capital rules are gradually being implemented to allow banks to build up the necessary capital buffers. The capital position of a bank, when account is taken of the transition period, is referred to as the 'transitional' view. The capital position based on full application of all the rules – as would be the case after this transition period – is referred to as 'fully loaded'.
A detailed calculation can be found under 'Solvency KBC Group' section.
Gives an impression of the relative cost efficiency (costs relative to income) of the banking, insurance and holding activities.
| Calculation (in millions of EUR or %) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Cost/income ratio | ||||
| Operating expenses of the group activities (A) | Consolidated income statement | 2 591 | 4 396 | 2 293 |
| / | ||||
| Total income of the group activities (B) | Consolidated income statement | 4 239 | 7 558 | 3 786 |
| =(A) / (B) | 61.1% | 58.2% | 60.6% |
Where relevant, we also exclude the exceptional and/or non-operating items when calculating the cost/income ratio. This calculation aims to give a better idea of the relative cost efficiency of the pure business activities. The adjustments include: MTM ALM derivatives (fully excluded), bank and insurance taxes (including contributions to European Single Resolution Fund) are included pro rata and hence spread over all quarters of the year instead of being recognised for the most part upfront (as required by IFRIC 21) and one-off items. The Cost/Income ratio adjusted for specific items is 53% in 1H 2022 (versus 55% in fY 2021 and 54% in 1H 2021 ).
Indicates the proportion of impaired loans (see 'Impaired loans ratio' for definition) that are covered by impairment charges. The numerator and denominator in the formula relate to all impaired loans, but may be limited to impaired loans that are more than 90 days past due (the figures for that particular calculation are given in the 'Credit risk' section.
| Calculation (in millions of EUR or %) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Specific impairment on loans (A) | 'Credit risk: loan portfolio overview' table in the 'Credit risk' section |
2 076 | 2 569 | 2 518 |
| / | ||||
| Outstanding impaired loans (B) | 'Credit risk: loan portfolio overview' table in the 'Credit risk' section |
4 278 | 5 454 | 5 896 |
| = (A) / (B) | 48.5% | 47.1% | 42.7% |
In 1H 2022, the increase of the coverage ratio is mainly driven by the sale of the bulk of non-performing mortgage portfolio in Ireland (for more information see note 6.6).
Gives an idea of loan impairment charges recognised in the income statement for a specific period, relative to the total loan portfolio (see 'Loan portfolio' for definition). In the longer term, this ratio can provide an indication of the credit quality of the portfolio.
| Calculation (in millions of EUR or %) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Net changes in impairment for credit risks (A) |
'Consolidated income statement': component of 'Impairment' |
- 6 | - 329 | - 204 |
| / | ||||
| Average outstanding loan portfolio (B) | 'Credit risk: loan portfolio overview' table in the 'Credit risk' section |
192 492 | 184 640 | 181 694 |
| = (A) (annualised) / (B) | -0.01% | -0.18% | -0.22% |
In 1H 2022, the credit cost ratio without the outstanding ECL for geopolitical and emerging risks, amounts to -0.02% (for more information see note 1.4).
Indicates the proportion of impaired loans in the loan portfolio (see 'Loan portfolio' for definition) and, therefore, gives an idea of the creditworthiness of the portfolio. Impaired loans are loans where it is unlikely that the full contractual principal and interest will be repaid/paid. These loans have a KBC default status of PD 10, PD 11 or PD 12. Where appropriate, the numerator in the formula may be limited to impaired loans that are more than 90 days past due (PD 11 + PD 12). Relevant figures for that calculation are given in the 'Credit Risk' section.
| Calculation (in millions of EUR or %) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Amount outstanding of impaired loans (A) | 'Credit risk: loan portfolio overview' table in the 'Credit risk' section |
4 278 | 5 454 | 5 896 |
| / | ||||
| Total outstanding loan portfolio (B) | 'Credit risk: loan portfolio overview in the 'Credit risk' section |
196 596 | 188 400 | 182 497 |
| = (A) / (B) | 2.2% | 2.9% | 3.2% |
In 1H 2022, the decrease of the impaired loans ratio in mainly driven by the sale of the bulk of non-performing mortgage portfolio in Ireland (for more information see note 6.6).
Gives an idea of the group's solvency, based on a simple non-risk-weighted ratio. A detailed calculation can be found under 'Solvency KBC Group' section.
Gives an idea of the bank's liquidity position in the short term, more specifically the extent to which the group is able to overcome liquidity difficulties over a one-month period. It is the average of 12 end-of-month LCR figures.
| Calculation (in millions of EUR or %) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Stock of high-quality liquid assets (A) | Based on the European Commission's Delegated Act on LCR and the European Banking Authority's guidelines for LCR disclosure |
104 182 | 108 642 | 94 308 |
| / | ||||
| Total net cash outflows over the next 30 calendar days (B) |
66 332 | 65 399 | 56 808 | |
| = (A) / (B) | 158% | 167% | 166% |
Gives an idea of the magnitude of (what are mainly traditional) lending activities.
| Calculation (in millions of EUR or %) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Loans and advances to customers (A) | Note 4.1, component of 'Loans and advances to customers' |
168 984 | 159 728 | 164 344 |
| + | ||||
| Reverse repos (not with Central Banks) (B) | Note 4.1, component of 'Reverse repos with credit institutions and investment firms' |
782 | 719 | 751 |
| + | ||||
| Debt instruments issued by corporates and by credit institutions and investment firms (banking) (C) |
Note 4.1, component of 'Debt instruments issued by corporates and by credit institutions and investment firms' |
5 118 | 4 830 | 5 150 |
| + | ||||
| Other exposures to credit institutions (D) | 4 419 | 4 392 | 4 187 | |
| + | ||||
| Financial guarantees granted to clients and other commitments (E) |
Note 6.1, component of 'Financial guarantees given' |
9 554 | 9 040 | 8 481 |
| + | ||||
| Impairment on loans (F) | Note 4.2, component of 'Impairment' |
2 460 | 2 581 | 3 398 |
| + | ||||
| Insurance entities (G) | Note 4.1, component of 'Loans and advances to customers' |
- 2 031 | - 2 077 | - 2 106 |
| + | ||||
| Non-loan-related receivables (H) | - 499 | - 338 | - 413 | |
| + | ||||
| Other (I) | Component of Note 4.1 | 7 809 | 9 525 | - 1 296 |
| Gross Carrying amount = (A)+(B)+(C)+(D)+(E)+(F)+(G)+(H)+(I) |
196 596 | 188 400 | 182 497 |
As of 3Q 2021, the sale of the Irish loan portfolio resulted in a shift to the line 'Non-current assets held for sale and disposal groups' part of the 'Other' line (for more information see note 5.11 and note 6.6).
Gives an idea of the net interest income of the banking activities (one of the most important sources of revenue for the group) relative to the average total interest-bearing assets of the banking activities.
| Calculation (in millions of EUR or %) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Net interest income of the banking activities (A) | 'Consolidated income statement': component of 'Net interest income' |
2 101 | 3 863 | 1 883 |
| / | ||||
| Average interest-bearing assets of the banking activities (B) | 'Consolidated balance sheet': component of 'Total assets' |
218 548 | 211 020 | 209 785 |
| = (A) (annualised x360/number of calendar days) / (B) | 1.91% | 1.81% | 1.79% |
The net interest margin takes into account the banking group net interest income, excluding dealing room and the net positive impact of ALM FX swaps & repos.
Gives an idea of the bank's structural liquidity position in the long term, more specifically the extent to which the group is able to overcome liquidity difficulties over a one-year period.
| Calculation (in millions of EUR or %) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Available amount of stable funding (A) | Regulation (EU) 2019/876 dd. 20-05-2019 | 214 374 | 218 124 | 222 014 |
| / | ||||
| Required amount of stable funding (B) | 150 767 | 147 731 | 146 226 | |
| = (A) / (B) | 142% | 148% | 152% |
Gives the carrying value of a KBC share, i.e. the value in euros represented by each share in the parent shareholders' equity of KBC.
| Calculation (in millions of EUR or number) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Parent shareholders' equity (A) | 'Consolidated balance sheet' | 18 739 | 21 577 | 21 600 |
| / | ||||
| Number of ordinary shares less treasury shares (at period-end) (B) |
Note 5.10 | 417 | 417 | 417 |
| = (A) / (B) (in EUR) | 44.95 | 51.76 | 51.84 |
Gives an idea of the relative profitability of a business unit, more specifically the ratio of the net result to the capital allocated to the business unit.
| Calculation (in millions of EUR or %) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| BELGIUM BUSINESS UNIT | ||||
| Result after tax (including minority interests) of the business unit (A) |
Note 2.2: Results by segment | 790 | 1 997 | 908 |
| / | ||||
| The average amount of capital allocated to the business unit is based on the risk-weighted assets for the banking activities (under Basel III) and risk-weighted asset equivalents for the insurance activities (under Solvency II) (B) |
7 914 | 7 270 | 7 166 | |
| = (A) annualised / (B) | 20.0% | 27.5% | 25.3% | |
| CZECH REPUBLIC BUSINESS UNIT | ||||
| Result after tax (including minority interests) of the business unit (A) |
Note 2.2: Results by segment | 443 | 697 | 291 |
| / | ||||
| The average amount of capital allocated to the business unit is based on the risk-weighted assets for the banking activities (under Basel III) and risk-weighted asset equivalents for the insurance activities (under Solvency II) (B) |
2 072 | 1 784 | 1 748 | |
| = (A) annualised / (B) | 42.8% | 39.2% | 33.2% | |
| INTERNATIONAL MARKETS BUSINESS UNIT | ||||
| Result after tax (including minority interests) of the business unit (A) |
Note 2.2: Results by segment | 125 | 127 | 228 |
| / | ||||
| The average amount of capital allocated to the business unit is based on the risk-weighted assets for the banking activities (under Basel III) and risk-weighted asset equivalents for the insurance activities (under Solvency II) (B) |
2 278 | 2 509 | 2 556 | |
| = (A) annualised / (B) | 11.0% | 5.1% | 17.9% |
Gives an idea of the relative profitability of the group, more specifically the ratio of the net result to equity.
| Calculation (in millions of EUR or %) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Result after tax, attributable to equity holders of the parent (A) |
'Consolidated income statement' | 1 269 | 2 614 | 1 350 |
| - | ||||
| Coupon on the additional tier-1 instruments included in equity (B) |
'Consolidated statement of changes in equity' | - 25 | - 50 | - 25 |
| / | ||||
| Average parent shareholders' equity, excluding the revaluation reserve for FVOCI instruments and for FVPL equity instruments – overlay approach (C) |
'Consolidated statement of changes in equity' | 19 578 | 19 463 | 19 421 |
| = (A-B) (annualised) / (C) | 12.7% | 13.2% | 13.6% |
In 1H 2022, the return on equity amounts to 15% when including evenly spreading of the bank taxes throughout the year.
Total sales of life insurance compromise life insurance premiums and unit-linked life insurance premiums (as required under IFRS, we use margin deposit accounting for most of these unit-linked contracts, which means they are not recognised under 'Earned insurance premiums').
| Calculation (in millions of EUR or %) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Life Insurance - earned premiums (before reinsurance) (A) | 'Consolidated income statement' | 556 | 1 196 | 564 |
| + | ||||
| Life insurance: difference between written and earned premiums (before reinsurance) (B) |
- | 2 | 1 | 1 |
| + | ||||
| Investment contracts without discretionary participation feature (large part of unit-linked) – margin deposit accounting (C) |
- | 413 | 768 | 400 |
| Total sales Life (A)+ (B) + (C) | 970 | 1 964 | 965 |
Measures the solvency of the insurance business, as calculated under Solvency II.
A detailed calculation can be found under 'Solvency banking and insurance activities separately' section.
Total assets under management (AuM) comprise third-party assets and KBC group assets managed by the group's various asset management companies (KBC Asset Management, ČSOB Asset Management, etc.), as well as assets under advisory management at KBC Bank. The assets, therefore, consist mainly of KBC investment funds and unit-linked insurance products, assets under discretionary and advisory management mandates of (mainly retail, private banking and institutional) clients, and certain group assets. The size and development of total AuM are major factors behind net fee and commission income (generating entry and management fees) and hence account for a large part of any change in this income line. In that respect, the AuM of a fund that is not sold directly to clients but is instead invested in by another fund or via a discretionary/advisory management portfolio, are also included in the total AuM figure, in view of the related work and any fee income linked to them.
| Calculation (in billions of EUR or quantity) | Reference | 1H 2022 | 2021 | 1H 2021 |
|---|---|---|---|---|
| Belgium Business Unit (A) | Company presentation on www.kbc.com | 190 | 216 | 208 |
| + | ||||
| Czech Republic Business Unit (B) | 14 | 14 | 13 | |
| + | ||||
| International Markets Business Unit (C) | 7 | 7 | 6 | |
| A)+(B)+(C) | 211 | 236 | 228 |
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