Quarterly Report • Aug 7, 2014
Quarterly Report
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KBC Group Extended Quarterly Report
'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.'
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.
Combined ratio (non-life insurance): [technical insurance charges, including the internal cost of settling claims / earned premiums] + [operating expenses / written premiums] (after reinsurance in each case).
Common equity ratio: [common equity tier-1 capital] / [total weighted risks]. The calculation is based on the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD IV) approved and published by the EU, and includes in the numerator the core-capital securities sold to the government that are grandfathered by the regulator, as well as latent gains (revaluation reserve for available-for-sale assets). The minimum target set by the regulator for the common equity ratio does not take account of these latent gains.
Cost/income ratio (banking): [operating expenses of the banking activities of the group] / [total income of the banking activities of the group].
Cover ratio: [impairment on loans] / [outstanding non-performing loans]. For a definition of 'non-performing', see 'Non-performing loan ratio'. Where appropriate, the numerator may be limited to individual impairment on non-performing loans.
Credit cost ratio: [net changes in individual and portfolio-based impairment for credit risks] / [average outstanding loan portfolio]. Note that, inter alia, government bonds are not included in this formula.
Basic earnings per share: [result after tax, attributable to equity holders of the parent)] / [average number of ordinary shares, less treasury shares]. If a coupon is expected to be paid on the core-capital securities sold to the Belgian Federal and Flemish Regional governments and the additional tier-1 instruments included in equity, it will be deducted from the numerator (pro rata). If a penalty on the core-capital securities has to be paid, it will likewise be deducted.
Diluted earnings per share: [result after tax, attributable to equity holders of the parent, adjusted for interest expense (after tax) for nonmandatorily convertible bonds] / [average number of ordinary shares, less treasury shares, plus non-mandatorily convertible bonds]. If a coupon is expected to be paid on the core-capital securities sold to the Belgian Federal and Flemish Regional governments and the additional tier-1 instruments included in equity, it will be deducted from the numerator (pro rata). If a penalty on the core-capital securities has to be paid, it will likewise be deducted.
Liquidity Coverage Ratio (LCR): [stock of high quality liquid assets] / [total net cash outflow over the next 30 calendar days].
Net interest margin of the group: [net interest income of the banking activities] / [average interest-bearing assets of the banking activities]. To more closely reflect the scope of business, the definition has been reworked since 2014 (and applied retroactively) to exclude all divestments and all volatile short-term assets used for liquidity management.
Net stable funding ratio (NSFR): [available amount of stable funding] / [required amount of stable funding].
Non-performing loan ratio: [amount outstanding of non-performing loans (loans for which principal repayments or interest payments are more than 90 days in arrears or overdrawn)] / [total outstanding loan portfolio]
Parent shareholders' equity per share: [parent shareholders' equity] / [number of ordinary shares, less treasury shares (at period-end)].
Return on allocated capital (ROAC) for a particular business unit: [result after tax, including minority interests, of a business unit] / [average capital allocated to the business unit]. The capital allocated to a business unit is based on risk-weighted assets for banking (based on Basel III) and risk-weighted asset equivalents for insurance (based on Solvency I).
Return on equity: [result after tax, attributable to equity holders of the parent] / [average parent shareholders' equity, excluding the revaluation reserve for available-for-sale assets]. If a coupon is expected to be paid on the core-capital securities sold to the Belgian Federal and Flemish Regional governments and the additional tier-1 instruments included in equity, it will be deducted from the numerator (pro rata).
Solvency ratio, insurance: [consolidated available capital of KBC Insurance] / [minimum required solvency margin of KBC Insurance].
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KBC Group NV, Investor Relations Office, Havenlaan 2, BE 1080 Brussels, Belgium
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KBC Group Report for 2Q2014 and 1H2014
KBC Group I Extended Quarterly Report – 2Q2014 4 This press release contains information that is subject to transparency regulations for listed companies. Date of release: 7 August 2014
KBC ended the second quarter of 2014 with a net profit of 317 million euros, compared with 397 million euros in the previous quarter and 517 million euros in the second quarter of 2013.
After excluding the impact of the legacy business (CDOs, divestments) and the valuation of own credit risk, adjusted net profit came to 287 million euros for the second quarter of 2014, compared with 387 million euros in the first quarter of 2014 and 485 million euros in the second quarter of 2013.
'2014 continued in a relatively benign global economic environment, with improving consumer and producer confidence and falling unemployment rates. On the other hand, low interest rates and low inflation also reign in Europe. Against this background, KBC posted a net result of 317 million euros for the second quarter, or 287 million euros on an adjusted-profit basis. When compared with the previous quarter, the group managed to post excellent commercial results: net interest income increased, with loan volumes up and client deposits growing relative to a decrease in wholesale funding. We also collected higher revenues in the form of fees and commissions particularly in Belgium, the Czech Republic and Hungary. The combined ratio for our non-life insurance activities remained strong, despite the higher level of claims, especially related to the hailstorm in Belgium. Sales of life insurance products were also slightly up. The cost/income ratio adjusted for specific
items remained robust. Loan loss impairment charges remained relatively low overall, but went up somewhat in Ireland. Our total income remained impacted by negative marked-to-market changes in the value of derivatives used for asset/liability management purposes. More importantly, the negative impact of the provision of 231 million euros, which was booked to cover the consequences of the new Hungarian act on retail loans, has weighed on the result for this quarter. The legal basis of this act will be challenged, with support coming from the opinion of the European Central Bank of 28 July 2014 on this matter and its call for consultation.
In the second quarter of 2014, the Belgium Business Unit generated a net result of 383 million euros, in line with the average figure of 384 million euros for the four preceding quarters. Compared with the previous quarter, the second quarter of 2014 was characterised by flat net interest income, strong net fee and commission income, seasonally higher dividend income, the negative impact of the valuation of ALM derivatives, lower gains on the sale of financial assets, as well as a deterioration in the combined ratio for non-life insurance due to the hailstorm, increased sales of unit-linked life insurance products and higher other net income. Costs were up slightly and impairment charges remained at a low level. The banking activities accounted for 78% of the net result in the quarter under review, and the insurance activities for 22%.
In the quarter under review, the Czech Republic Business Unit posted a net result of 140 million euros, fully in line with the average for the four preceding quarters. Compared with the previous quarter, the results for the second quarter featured slightly higher net interest income, increased net fee and commission income, the absence of realised gains on the sale of financial assets, higher net results from financial instruments, increased other income, a further improvement in the non-life combined ratio and higher sales of unit-linked life insurance products. Costs went up slightly and loan loss impairment remained very low. Banking activities accounted for 95% of the net result in the quarter under review, and the insurance activities for 5%.
In the quarter under review, the International Markets Business Unit recorded a net result of -176 million euros, a small improvement on the average of -198 million euros for the four preceding quarters. The second quarter of 2014 was characterised by higher net interest income, a decline in the result from financial instruments, higher realised gains on bonds, increased net fee and commission income, a deterioration in the non-life combined ratio and increased life insurance sales, as well as the significantly negative impact of the new Hungarian act on retail loans. Cost were lower, as the previous quarter had included the entire bank tax in Hungary being booked for the full year, and loan loss provisions went up, mainly due to Ireland. The guidance for full-year loan loss provisioning in Ireland is at the high end of the 150 to 200 million euro range. Overall, the banking activities accounted for a negative net result of -182 million euros (the positive results in Slovakia and Bulgaria were wiped out by the negative result in Ireland (due to loan loss provisioning) and Hungary (owing to the impact of the new consumer loans act), while the insurance activities accounted for a positive net result of 6 million euros.
The liquidity position of our group remains very strong, with both the LCR and NSFR being well above 100%.
Our capital position also continues to be very robust, as illustrated by a common equity ratio of 12.9% (Basel III fully loaded under the Danish compromise). In the first half of the year, the repayment of 0.5 billion euros to the Flemish Regional Government at the beginning of January has been taken into account, as have the half-year results and a pro rata provision for the proposed dividend, the coupon on the additional tier-1 instruments and the coupon on the remaining state aid to be paid over 2014. The common equity ratio therefore continues to be well above our target of 10.5%.
KBC wants to build on its strengths and be among the best-performing, retail-focused financial institutions in Europe. This aim will be achieved by strengthening in a highly cost-efficient way its bank-insurance business model for retail, SME and mid-cap clients in its core markets, by focusing on sustainable and profitable growth within the framework of solid risk, capital and liquidity management, and by creating superior client satisfaction via a seamless, multi-channel, client-centric distribution approach. By achieving this, KBC will become the reference in bank-insurance in its core markets.'
In order to give a good insight into the ongoing business performance, KBC also provides adjusted figures that exclude a) the impact of the legacy business, i.e. the valuation of the remaining CDOs in portfolio (including fees for the related guarantee agreement with the Belgian State) and the impact of divestments, and b) the impact of the valuation of own credit risk. For the quarter under review, these items had the following impact:
Net interest income up by 5%.
Net interest margin up from 2.00% to 2.05%.
| Overview KBC Group (consolidated) |
2Q2013 | 1Q2014 | 2Q2014 | 1H2013 | 1H2014 |
|---|---|---|---|---|---|
| Net result, IFRS (in millions of EUR) | 517 | 397 | 317 | 1 037 | 714 |
| Basic earnings per share, IFRS (in EUR)1 | 1.24 | 0.45 | 0.63 | 2.49 | 1.08 |
| Adjusted net result (in millions of EUR) | 485 | 387 | 287 | 843 | 675 |
| Basic earnings per share, based on adjusted net result (in EUR)1 | 1.16 | 0.42 | 0.56 | 2.02 | 0.98 |
| Breakdown by business unit (in millions of EUR) | |||||
| Belgium | 418 | 351 | 383 | 803 | 734 |
| Czech Republic | 146 | 138 | 140 | 279 | 277 |
| International Markets | -23 | -26 | -176 | -110 | -202 |
| Group Centre | -56 | -75 | -59 | -128 | -135 |
| Parent shareholders' equity per share (in EUR, end of period) | 29.1 | 28.7 | 29.5 | 29.1 | 29.5 |
1 Note: If a coupon is expected to be paid on the core-capital securities sold to the Belgian Federal and Flemish Regional governments and the additional tier-1 instruments included in equity, it will be deducted from the numerator (pro rata). If a penalty has to be paid on the core-capital securities, it will likewise be deducted.
1 Note that the negative impact of marked-to-market valuations of ALM derivatives has been more than offset by the positive impact of the revaluation reserves of the available-for-sale assets through changes in equity.
A full overview of the IFRS consolidated income statement and balance sheet is provided in the 'Consolidated financial statements' section of the quarterly report. Condensed statements of comprehensive income, changes in shareholders' equity, and cash flow, as well as several notes to the accounts, are also available in the same section.
In order to provide a good insight into the ongoing business performance, KBC also publishes an overview of adjusted results, where the impact of legacy activities (divestments, CDOs) and of the valuation of own credit risk is excluded from P/L and summarised in three lines at the bottom of the presentation (see next section).
| Consolidated income statement, IFRS KBC Group (in millions of EUR) |
1Q 2013 |
2Q 2013 |
3Q 2013 |
4Q 2013 |
1Q 2014 |
2Q 2014 |
3Q 2014 |
4Q 2014 |
1H 2013 |
1H 2014 |
|---|---|---|---|---|---|---|---|---|---|---|
| Net interest income | 1 053 | 1 003 | 1 014 | 1 008 | 1 010 | 1 056 | - | - | 2 056 | 2 065 |
| Interest income | 2 161 | 2 079 | 2 037 | 2 067 | 1 930 | 1 971 | - | - | 4 239 | 3 901 |
| Interest expense | -1 108 | -1 076 | -1 023 | -1 060 | -920 | -915 | - | - | -2 184 | -1 835 |
| Non-life insurance (before reinsurance) | 149 | 115 | 145 | 127 | 149 | 102 | - | - | 264 | 251 |
| Earned premiums | 305 | 316 | 321 | 317 | 307 | 315 | - | - | 621 | 623 |
| Technical charges | -156 | -201 | -176 | -190 | -158 | -214 | - | - | -357 | -372 |
| Life insurance (before reinsurance) | -59 | -62 | -63 | -57 | -59 | -56 | - | - | -122 | -114 |
| Earned premiums | 271 | 241 | 238 | 381 | 308 | 297 | - | - | 512 | 606 |
| Technical charges | -331 | -303 | -302 | -438 | -367 | -353 | - | - | -634 | -720 |
| Ceded reinsurance result | -12 | 13 | 1 | -6 | -17 | 19 | - | - | 1 | 3 |
| Dividend income | 5 | 20 | 14 | 8 | 14 | 24 | - | - | 25 | 38 |
| Net result from financial instruments at fair value through profit or loss |
314 | 425 | 223 | 229 | 40 | 44 | - | - | 739 | 84 |
| Net realised result from available-for-sale assets | 142 | 47 | 34 | 29 | 51 | 49 | - | - | 189 | 100 |
| Net fee and commission income | 389 | 381 | 337 | 362 | 374 | 387 | - | - | 771 | 761 |
| Fee and commission income | 636 | 560 | 507 | 564 | 557 | 533 | - | - | 1 197 | 1 090 |
| Fee and commission expense | -247 | -179 | -170 | -202 | -182 | -147 | - | - | -426 | -329 |
| Other net income | 76 | -20 | 51 | 15 | 52 | -99 | - | - | 56 | -47 |
| Total income | 2 058 | 1 921 | 1 754 | 1 715 | 1 615 | 1 526 | - | - | 3 979 | 3 141 |
| Operating expenses | -1 033 | -924 | -918 | -968 | -973 | -933 | - | - | -1 957 | -1 906 |
| Impairment | -350 | -275 | -362 | -940 | -114 | -142 | - | - | -625 | -255 |
| on loans and receivables | -293 | -254 | -230 | -937 | -102 | -136 | - | - | -547 | -238 |
| on available-for-sale assets | -13 | -3 | -8 | -10 | -5 | -3 | - | - | -16 | -8 |
| on goodwill | -7 | 0 | 0 | 0 | 0 | 0 | - | - | -7 | 0 |
| on other | -37 | -18 | -125 | 7 | -6 | -3 | - | - | -55 | -9 |
| Share in results of associated companies and joint ventures |
8 | 8 | 9 | 6 | 7 | 7 | - | - | 15 | 13 |
| Result before tax | 683 | 729 | 483 | -187 | 535 | 457 | - | - | 1 412 | 992 |
| Income tax expense | -159 | -210 | -207 | -103 | -138 | -140 | - | - | -368 | -278 |
| Net post-tax result from discontinued operations | 0 | 0 | 0 | 0 | 0 | 0 | - | - | 0 | 0 |
| Result after tax | 524 | 520 | 276 | -290 | 397 | 317 | - | - | 1 044 | 714 |
| attributable to minority interests | 4 | 3 | 4 | 4 | 0 | 0 | - | - | 7 | 0 |
| attributable to equity holders of the parent | 520 | 517 | 272 | -294 | 397 | 317 | - | - | 1 037 | 714 |
| Basic earnings per share (EUR) | 1.25 | 1.24 | -0.75 | -0.71 | 0.45 | 0.63 | - | - | 2.49 | 1.08 |
| Diluted earnings per share (EUR) | 1.25 | 1.24 | -0.75 | -0.71 | 0.45 | 0.63 | - | - | 2.49 | 1.08 |
Note that the 2013 reference figures have been adjusted slightly following the application of the new IFRS 11 standard. This standard stipulates that joint ventures must be accounted for using the equity method instead of the proportionate consolidation method. For KBC, this applies to ČMSS, a joint venture of ČSOB in the Czech Republic. This change does not affect the net result, but has an impact on various items in the consolidated income statement.
In addition to the figures according to IFRS (previous section), KBC provides figures aimed at giving more insight into the ongoing business performance. Hence, in the overview below, the impact of legacy activities (remaining divestments, CDOs) and of the valuation of own credit risk is excluded from P/L and summarised in three lines at the bottom of the presentation (in segment reporting, these items are all included in the Group Centre). Moreover, a different accounting treatment for capitalmarket income was applied to the Belgium Business Unit (with all trading results shifting to 'Net result from financial instruments at fair value'). A full explanation of the differences between the IFRS and adjusted figures is provided under 'Notes on segment reporting' in the 'Consolidated financial statements' section of the quarterly report.
| Consolidated income statement, KBC Group (in millions of EUR) |
1Q 2013 |
2Q 2013 |
3Q 2013 |
4Q 2013 |
1Q 2014 |
2Q 2014 |
3Q 2014 |
4Q 2014 |
1H 2013 |
1H 2014 |
|---|---|---|---|---|---|---|---|---|---|---|
| Adjusted net result | ||||||||||
| (i.e. excluding legacy business and own credit risk) Net interest income |
1 018 | 976 | 999 | 996 | 1 002 | 1 047 | - | - | 1 994 | 2 049 |
| Non-life insurance (before reinsurance) | 149 | 115 | 145 | 127 | 149 | 102 | - | - | 264 | 251 |
| Earned premiums | 305 | 316 | 321 | 317 | 307 | 315 | - | - | 621 | 623 |
| Technical charges | -156 | -201 | -176 | -190 | -158 | -214 | - | - | -357 | -372 |
| Life insurance (before reinsurance) | -59 | -62 | -63 | -57 | -59 | -56 | - | - | -122 | -114 |
| Earned premiums | 271 | 241 | 238 | 381 | 308 | 297 | - | - | 512 | 606 |
| Technical charges | -331 | -303 | -302 | -438 | -367 | -353 | - | - | -634 | -720 |
| Ceded reinsurance result | -12 | 13 | 1 | -6 | -17 | 19 | - | - | 1 | 3 |
| Dividend income | 4 | 19 | 11 | 7 | 11 | 22 | - | - | 23 | 33 |
| Net result from financial instruments at fair value through | 218 | 256 | 146 | 159 | 17 | 37 | - | - | 473 | 54 |
| profit or loss Net realised result from available-for-sale assets |
96 | 46 | 42 | 29 | 50 | 49 | - | - | 141 | 99 |
| Net fee and commission income | 382 | 385 | 341 | 365 | 378 | 389 | - | - | 767 | 766 |
| Other net income | 76 | 68 | 151 | 47 | 52 | -124 | - | - | 145 | -72 |
| Total income | 1 872 | 1 815 | 1 773 | 1 668 | 1 584 | 1 485 | - | - | 3 686 | 3 069 |
| Operating expenses | -1 023 | -914 | -906 | -955 | -965 | -926 | - | - | -1 936 | -1 891 |
| Impairment | -333 | -234 | -208 | -949 | -107 | -134 | - | - | -567 | -241 |
| on loans and receivables | -293 | -215 | -185 | -939 | -103 | -130 | - | - | -509 | -233 |
| on available-for-sale assets | -13 | -3 | -2 | -3 | -5 | -3 | - | - | -16 | -8 |
| on goodwill | -7 | 0 | 0 | 0 | 0 | 0 | - | - | -7 | 0 |
| on other | -20 | -15 | -22 | -7 | 0 | 0 | - | - | -35 | 0 |
| Share in results of associated companies and joint ventures |
8 | 8 | 9 | 6 | 7 | 7 | - | - | 15 | 13 |
| Result before tax | 524 | 675 | 667 | -230 | 518 | 431 | - | - | 1 199 | 950 |
| Income tax expense | -161 | -187 | -206 | -106 | -131 | -144 | - | - | -349 | -275 |
| Result after tax | 363 | 487 | 460 | -336 | 387 | 288 | - | - | 850 | 675 |
| attributable to minority interests | 4 | 3 | 4 | 4 | 0 | 0 | - | - | 7 | 0 |
| attributable to equity holders of the parent | 359 | 485 | 457 | -340 | 387 | 287 | - | - | 843 | 675 |
| Belgium | 385 | 418 | 391 | 376 | 351 | 383 | 803 | 734 | ||
| Czech republic | 132 | 146 | 157 | 119 | 138 | 140 | 279 | 277 | ||
| International Markets | -87 | -23 | -12 | -731 | -26 | -176 | -110 | -202 | ||
| Group Centre | -71 | -56 | -79 | -104 | -75 | -59 | -128 | -135 | ||
| Basic earnings per share (EUR) Diluted earnings per share (EUR) |
0.86 0.86 |
1.16 1.16 |
-0.30 -0.30 |
-0.82 -0.82 |
0.42 0.42 |
0.56 0.56 |
2.02 2.02 |
0.98 0.98 |
||
| Legacy business and own credit risk impact (after tax) | ||||||||||
| Legacy – gains/losses on CDOs | 165 | 180 | 34 | 65 | 16 | 30 | 346 | 46 | ||
| Legacy – divestments | 22 | -128 | -231 | -10 | -9 | 8 | -106 | -1 | ||
| MTM of own credit risk | -26 | -20 | 12 | -9 | 2 | -8 | -46 | -6 | ||
| Net result (IFRS) | ||||||||||
| Result after tax, attributable to equity holders of the parent (IFRS) |
520 | 517 | 272 | -294 | 397 | 317 | - | - | 1 037 | 714 |
Note that the 2013 reference figures have been adjusted slightly following the application of the new IFRS 11 standard. This standard stipulates that joint ventures must be accounted for using the equity method instead of the proportionate consolidation method. For KBC, this applies to ČMSS, a joint venture of ČSOB in the Czech Republic. This change does not affect the net result, but has an impact on various items in the consolidated income statement.
The net result for the quarter under review amounted to 317 million euros. Excluding the legacy business and the impact of own credit risk, the adjusted net result came to 287 million euros, compared with 387 million euros in 1Q2014 and 485 million euros in 2Q2013.
In the non-life segment, earned premiums were up 3% quarter-on-quarter and flat year-on-year. Claims during the second quarter were substantially higher (35%) than their quarter-earlier level (due to the storms in Belgium in 2Q2014 and a mild winter in 1Q2014) and were up somewhat (6%) on their level in the second quarter of 2013, which had also been impacted by storms. Nevertheless, the combined ratio came to a solid 93% year-to-date.
In the life segment, sales of life insurance products (including unit-linked products not included in premium income figures) were up 2% on their level in 1Q2014, boosted by the increase in unit-linked products. Year-on-year, they fell by 1%, with the increase in sales of guaranteed-interest products offsetting the decline in sales of unit-linked products.
It should be noted that the second quarter was a good one for investment income derived from insurance activities, with the quarter-on-quarter results being driven by the seasonal effect of dividend income, stable net interest income and lower – but still decent – realised gains on available-for-sales assets in the investment portfolio. Lastly, the technical-financial result also benefited from general administrative expenses being kept strictly under control.
The net result from financial instruments at fair value amounted to 37 million euros in the quarter under review, significantly below the 145-million-euro average for the four preceding quarters. This figure was driven by dealing-room income, which stood at a respectable level in 2Q2014, but the quarter under review was quite badly impacted by negative marked-tomarket valuations in respect of derivative instruments used for asset/liability management purposes. These adjustments came to -57 million euros (compared to a quarterly average of +70 million euros in 2013).
The net result for 1H2014 amounted to 714 million euros. Excluding the legacy business and the impact of own credit risk, the adjusted net result amounted to 675 million euros, compared with 843 million euros in 1H2013.
Premiums in the non-life segment were flat year-on-year. The claims arising from the storms in Belgium resulted in a somewhat higher level of technical charges compared with 1H2013, which had been affected by claims relating to the floods in the Czech Republic. Nevertheless, the combined ratio still came to a solid 93% year-to-date.
In the life segment, sales of life insurance products (including unit-linked products not included in premium income figures) were down 13% on their level in 1H2013. The increase in sales of guaranteed interest products was more than offset by a contraction in sales of unit-linked products.
It should be noted that the insurance results also benefited from higher investment income, driven by higher dividend income and a higher net realised result from the sale of available-for-sale assets. General administrative expenses were kept strictly under control and fell by 5% year-on-year.
Operating expenses came to 1 891 million euros in 1H2014, down 2% on their year-earlier level. On a comparable basis, costs decreased by 1%, owing in part to a negative foreign exchange impact in the Czech Republic and Hungary and partly offset by higher expenses at KBC Ireland. The year-to-date cost/income ratio came to a relatively high 63%, but resulted primarily from the bank tax being charged for the full year in Hungary and the fact that the denominator (total income) suffered from negative marked-to-market valuations of ALM derivatives and the impact of the new act on retail loans in Hungary. Adjusted for specific items, the cost/income ratio stood at 55%.
Income tax amounted to 275 million euros for the first six months of 2014.
The group's liquidity remains excellent, as reflected in an LCR ratio of 123% and an NSFR ratio of 109% at the end of the second quarter.
| Highlights of consolidated balance sheet * KBC Group (in millions of EUR) |
31-03- 2013 |
30-06- 2013 |
30-09- 2013 |
31-12- 2013 |
31-03- 2014 |
30-06- 2014 |
30-09- 2014 |
31-12- 2014 |
|---|---|---|---|---|---|---|---|---|
| Total assets | 255 753 | 250 557 | 247 530 | 238 686 | 246 179 | 252 768 | - | - |
| Loans and advances to customers | 127 112 | 129 179 | 125 795 | 120 371 | 120 810 | 124 661 | - | - |
| Securities (equity and debt instruments) | 64 777 | 65 435 | 63 854 | 64 904 | 66 313 | 68 380 | - | - |
| Deposits from customers and debt certificates | 164 766 | 164 213 | 166 223 | 161 135 | 163 838 | 166 407 | - | - |
| Technical provisions, before reinsurance | 18 836 | 18 805 | 18 803 | 18 701 | 18 941 | 19 007 | - | - |
| Liabilities under investment contracts, insurance | 11 664 | 11 606 | 11 684 | 11 787 | 11 976 | 12 322 | - | - |
| Parent shareholders' equity | 12 505 | 12 119 | 11 895 | 11 826 | 11 968 | 12 318 | - | - |
| Non-voting core-capital securities | 3 500 | 3 500 | 2 333 | 2 333 | 2 000 | 2 000 | - | - |
* Note that the 2013 reference figures have been adjusted slightly following the application of the new IFRS 11 standard. This standard stipulates that joint ventures must be accounted for using the equity method instead of the proportionate consolidation method. For KBC, this applies to ČMSS, a joint venture of ČSOB in the Czech Republic. This change does not affect equity, but has an impact on various items in the consolidated balance sheet. Moreover, in accordance with IFRS 5, the assets and liabilities of a number of divestments have been reallocated to 'Non-current assets held for sale and disposal groups' and 'Liabilities associated with disposal groups', which slightly distorts the comparison between periods.
| Selected ratios KBC Group (consolidated) |
FY2013 | 1H2014 |
|---|---|---|
| Profitability and efficiency (based on adjusted net result) | ||
| Return on equity* | 9% | 11% |
| Cost/income ratio, banking | 52% | 63% |
| Combined ratio, non-life insurance | 94% | 93% |
| Solvency | ||
| Common equity ratio (Basel III, fully loaded, including remaining state aid) | 12.8% | 12.9% |
| Credit risk | ||
| Credit cost ratio | 1.21% | 0.34% |
| Non-performing ratio | 5.9% | 6.2% |
* If a coupon is expected to be paid on the core-capital securities sold to the Belgian Federal and Flemish Regional governments and the additional tier-1 instruments included in equity, it will be deducted from the numerator (pro rata).
Note: a number of ratios have been affected (with retroactive application) by changes due to the implementation of IFRS11, Basel III and the abolished carve-out of the zero weighting of domestic government bonds.
Mainly active in banking, insurance and asset management, KBC is exposed to a number of typical risks such as – but not exclusively – credit default risk, movements in interest rates, capital markets risk, currency risk, liquidity risk, insurance underwriting risk, operational risk, exposure to emerging markets, changes in regulations, customer litigation, as well as the economy in general. It is part of the business risk that the macroeconomic environment and the ongoing divestment plans may have a negative impact on asset values or could generate additional charges beyond anticipated levels.
KBC Group Analysis of 2Q2014 results by business unit
In the segment reporting presentation, the segments, or business units, are essentially:
A more detailed definition is provided in the sections per business unit below.
In addition to the figures according to IFRS, KBC provides figures aimed at giving more insight into the ongoing business performance. This means that, over and above the IFRS income statement, an adjusted income statement is provided in which a limited number of non-operating items is excluded from P/L and summarised in three lines at the bottom of the reporting presentation. Segment reporting is based on this reworked presentation.
The items in question are:
In the segment reporting presentation, these items are all assigned to the Group Centre (hence, for the other business units, there is no additional 'adjusted' net result total).
The Belgium Business unit includes the activities of KBC Bank NV and KBC Insurance NV, as well as their Belgian subsidiaries (CBC Banque, KBC Asset Management, KBC Lease Group, KBC Securities, KBC Group Re, etc.). Results related to legacy businesses and the valuation of own credit risk have been moved to the Group Centre.
| Income statement, Belgium Business Unit (in millions of EUR) |
1Q2013 | 2Q2013 | 3Q2013 | 4Q2013 | 1Q2014 | 2Q2014 | 3Q2014 | 4Q2014 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 658 | 640 | 670 | 680 | 696 | 697 | - | - |
| Non-life insurance (before reinsurance) | 117 | 96 | 111 | 86 | 118 | 66 | - | - |
| Earned premiums | 234 | 239 | 241 | 241 | 236 | 240 | - | - |
| Technical charges | -117 | -143 | -130 | -155 | -118 | -174 | - | - |
| Life insurance (before reinsurance) | -69 | -69 | -70 | -66 | -65 | -65 | - | - |
| Earned premiums | 195 | 180 | 162 | 295 | 255 | 234 | - | - |
| Technical charges | -263 | -249 | -232 | -361 | -320 | -299 | - | - |
| Ceded reinsurance result | -10 | 4 | 0 | -1 | -17 | 22 | - | - |
| Dividend income | 4 | 18 | 11 | 7 | 11 | 20 | - | - |
| Net result from financial instruments at fair value through profit or loss |
135 | 201 | 83 | 125 | -19 | -6 | - | - |
| Net realised result from available-for-sale assets | 85 | 30 | 40 | 15 | 42 | 33 | - | - |
| Net fee and commission income | 291 | 288 | 240 | 241 | 278 | 283 | - | - |
| Other net income | 66 | 49 | 124 | 53 | 42 | 104 | - | - |
| Total income | 1 278 | 1 257 | 1 210 | 1 141 | 1 086 | 1 154 | - | - |
| Operating expenses | -575 | -544 | -568 | -562 | -555 | -567 | - | - |
| Impairment | -140 | -98 | -65 | -59 | -38 | -36 | - | - |
| on loans and receivables | -138 | -82 | -43 | -65 | -34 | -34 | - | - |
| on available-for-sale assets | -2 | -2 | -1 | -2 | -5 | -3 | - | - |
| on goodwill other |
0 1 |
0 -14 |
0 -21 |
0 7 |
0 0 |
0 1 |
- - |
- - |
| Share in results of associated companies and joint ventures |
0 | 0 | 0 | 0 | -1 | 0 | - | - |
| Result before tax | 562 | 615 | 577 | 519 | 492 | 551 | - | - |
| Income tax expense | -176 | -198 | -186 | -142 | -142 | -168 | - | - |
| Result after tax | 386 | 417 | 391 | 377 | 351 | 383 | - | - |
| attributable to minority interests | 1 | -1 | 0 | 0 | 0 | 0 | - | - |
| attributable to equity holders of the parent | 385 | 418 | 391 | 376 | 351 | 383 | - | - |
| Banking | 300 | 329 | 307 | 319 | 261 | 297 | - | - |
| Insurance | 85 | 89 | 83 | 57 | 90 | 86 | - | - |
| Risk-weighted assets banking (end of period, Basel III) | 42 287 | 40 947 | 38 491 | 40 307 | 40 858 | 41 032 | - | - |
| Required capital insurance (end of period, Solvency I) | 839 | 842 | 846 | 850 | 851 | 854 | - | - |
| Allocated capital (end of period) | 5 697 | 5 569 | 5 330 | 5 518 | 5 575 | 5 597 | - | - |
| Return on allocated capital (ROAC) | 26% | 29% | 29% | 28% | 25% | 27% | - | - |
| Cost/income ratio, banking | 46% | 44% | 49% | 49% | 53% | 51% | - | - |
| Combined ratio, non-life insurance | 85% | 93% | 90% | 103% | 88% | 98% | - | - |
| Net interest margin, banking | 1.78% | 1.72% | 1.81% | 1.87% | 1.98% | 1.96% | - | - |
Note that in the IFRS accounts, income related to trading activities is split across different components. In the figures for the Belgium Business Unit, all trading income components related to KBC Bank Belgium have been recognised under 'Net result from financial instruments at fair value'. This shift does not apply to the other business units for reasons of materiality.
In 2Q2014, the Belgium Business Unit generated a net result of 383 million, in line with the average figure of 384 million for the four preceding quarters. Compared with the previous quarter, 2Q2014 was characterised by flat net interest income, strong net fee and commission income, seasonally higher dividend income, the negative impact of the valuation of ALM derivatives, lower gains on the sale of financial assets, a deterioration in the combined ratio for non-life insurance due to the hailstorm, increased sales of unit-linked life insurance products and higher other net income thanks to a one-off item. Costs were up slightly and impairment charges remained at a low level. The banking activities accounted for 78% of the net result in the quarter under review, and the insurance activities for 22%.
Net interest income stood at 697 million in the quarter under review, in line with the previous quarter and up 9% on the year-earlier quarter. Quarter-on-quarter, net interest income benefited from higher lending-related income, a wider margin on saving accounts (a rate cut in April) and a higher volume of current accounts. It was also impacted by a lower level of prepayment fees and lower reinvestment yields in general. The 9% year-on-year increase resulted from, inter alia, higher lending-related income, a wider margin on saving accounts (interest rates were cut in November 2013 and April 2014), lower reinvestment yields, a bigger banking bond portfolio, and a number of miscellaneous items.
At the end of June 2014, the Belgium Business Unit's loan book ('Loans and advances to customers, excluding reverse repos') amounted to 84 billion, up 2% quarter-on-quarter and more or less unchanged year-on-year. The latter was still impacted by the intentional decrease in lending at KBC Bank's foreign branches and the reduction in shareholder loans (excluding these items, loans went up by some 2% year-on-year). Deposits ('Deposits from customers and debt certificates, excluding repos') stood at 101 billion, slightly up (+0.4%) on the previous quarter's level and up approximately 1% year-on-year.
On the whole, the net interest margin at KBC Bank in Belgium narrowed slightly by 2 basis points quarter-onquarter and widened by 24 basis points year-on-year, amounting to 196 basis points in 2Q2014.
In the non-life business, premium income stood at 240 million, up 2% quarter-on-quarter (partly due to more days in 2Q than in 1Q) and up 1% year-on-year, whereby a 2% increase of direct business sales - chiefly on account of the 'fire' and 'motor' classes - was partly offset by a decrease at Group Re. Technical non-life charges were at a high 174 million, up 48% quarter-on-quarter and 21% year-on-year, as 2Q2014 included the effect of the Pentecost hailstorm in Belgium. After taking into account the effect of ceded reinsurance, earned premiums less technical charges stood at 88 million in the quarter under review, down on the 101 million in 1Q2014 and the 100 million in 2Q2013. As a result, the combined ratio came to a relatively high 98% in the quarter under review, which – in view of the favourable performance in the first quarter – still amounted to a good 93% year-to-date, fully in line with the figure recorded for FY2013.
In the life business, insurance sales (including unit-linked products which are not included in the premium figures under IFRS) remained at a relatively low 376 million in 2Q2014, comparable to the 380 million recorded in the previous quarter and the 382 million recorded in the year-earlier quarter. In the quarter under review, unit-linked products accounted for some 38% of total life sales (up quarter-on-quarter thanks to commercial actions and new products), while guaranteed interest products accounted for 62%.
At the end of June 2014, the life reserves of the Belgium Business Unit (including the liabilities under unit-linked contracts) amounted to 26 billion (up 3% year-on-year).
Note that the life and non-life insurance results described above only relate to premiums and technical charges. The insurance bottom line is also clearly impacted by investment income, costs, taxes, etc., all of which are analysed from a group perspective (i.e. banking and insurance together) in this section.
Total net fee and commission income amounted to 283 million in the quarter under review, up 2% compared to the previous quarter, but down 2% compared to a year earlier. Quarter-on-quarter, the increase was due primarily to higher management fee income on mutual funds (more AUM), while entry fees on mutual funds declined (sales down after the traditional head start in the first quarter). The 2% year-on-year drop in net fee and commission income was essentially due to lower commission income on the sale of unit-linked life insurance products and lower securities-related fees (cf. issuance of KBC Group notes in the reference quarter), which were only partially offset by the higher management fee income from mutual funds.
Assets under management in this business unit stood at 160 billion at the end of June 2014, up 3% on the level recorded three months previously, roughly 1% of which was due to net inflows and the remainder to a positive price effect. AUM were up by as much as 10% on the year-earlier level, some 3% of which was attributable to net inflows and 8% to a positive price effect.
Trading and fair value income (recorded under 'Net result from financial instruments at fair value through profit or loss') came to -6 million in the quarter under review, significantly below the positive 98 million average for the four preceding quarters. The 2Q2014 figure includes a negative MTM valuation of ALM derivatives arising partly as a result of decreasing long-term IRS rates (impact of -63 million in 2Q2014, compared to a positive 27 million on average for the four preceding quarters). Dividend income stood at 20 million, up on the 18 million recorded in the year-earlier quarter (higher volume in the share portfolio) and significantly more than the 11 million recorded in 1Q2014, as dividends are traditionally received in the second quarter of the year. The realised result from available-for-sale assets amounted to 33 million, in line with the average figure of 32 million for the four preceding quarters. It included 26 million resulting from the sale of shares, mainly at KBC Insurance (attractive market conditions) and 7 million from the sale of bonds. Other net income amounted to 104 million, well up on the 67 million average for the four preceding quarters, thanks to a recuperation related to a legal case, as well as to real estate gains.
The operating expenses of the Belgium Business Unit totalled 567 million in the quarter under review, up 2% on the previous quarter. This came about primarily because of higher marketing expenses, provisioning for invoices related to the AQR exercise and higher variable staff remuneration, while ICT and facilities expenses and longterm employee benefits fell. Compared to the year-earlier quarter, costs rose by 4%, relating predominantly to the higher bank tax (as the reference quarter benefited from a reimbursement from the old deposit guarantee fund), higher variable staff remuneration and the costs related to the AQR exercise referred to above.
The cost/income ratio in the quarter under review amounted to a sound 51%, or 52% year-to-date, as opposed to an excellent 47% in FY2013. Note, however, that the numerator of this ratio included significantly negative MTM valuations of ALM derivatives in 1Q2014 and 2Q2014, while the ratio benefited from large positive MTM valuations of such derivatives in 2013. Excluding that item, as well as some exceptional items, the 'sustainable' cost/income ratio stood at 50% in both 2Q2014 and 1H2014, i.e. in line with the 51% recorded for FY2013.
Impairment on loans and receivables (loan loss provisions) amounted to a relatively low 34 million in 2Q2014, in line with the figure recorded for the previous quarter, and well down on the 82 million recorded for 2Q2013 (a decrease in both the retail and corporate segments). As a result, the credit cost ratio for 1H2014 stood at a favourable 15 basis points, an improvement on the 37 basis points recorded in FY2013.
At the end of 2Q2014, some 2.6% of the Belgian loan book was non-performing, slightly up on the 2.5% recorded three months earlier.
All other impairment charges combined totalled to 2 million in the quarter under review and mostly related to available-for-sale securities in portfolio.
The Czech Republic Business Unit includes all of KBC's activities in the Czech Republic. This encompasses the ČSOB group (operating mainly under the brands ČSOB, Era, Postal Savings Bank, Hypotečni banka and ČMSS), the insurance company ČSOB Pojišt'ovna, ČSOB Asset Management and Patria Finance.
| Income statement, Czech Republic Business Unit (in millions of EUR) |
1Q2013 | 2Q2013 | 3Q2013 | 4Q2013 | 1Q2014 | 2Q2014 | 3Q2014 | 4Q2014 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 230 | 232 | 230 | 214 | 219 | 220 | - | - |
| Non-life insurance (before reinsurance) | 16 | 3 | 17 | 26 | 16 | 19 | - | - |
| Earned premiums | 41 | 42 | 43 | 43 | 39 | 41 | - | - |
| Technical charges | -25 | -39 | -27 | -17 | -23 | -21 | - | - |
| Life insurance (before reinsurance) | 7 | 5 | 7 | 6 | 6 | 6 | - | - |
| Earned premiums | 48 | 36 | 53 | 61 | 32 | 41 | - | - |
| Technical charges | -41 | -30 | -47 | -55 | -26 | -35 | - | - |
| Ceded reinsurance result | -1 | 10 | 0 | -4 | -1 | -3 | - | - |
| Dividend income | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Net result from financial instruments at fair value through profit or loss |
16 | 28 | 24 | 14 | 10 | 13 | - | - |
| Net realised result from available-for-sale assets | 7 | 6 | 0 | 4 | 8 | 0 | - | - |
| Net fee and commission income | 47 | 43 | 45 | 49 | 45 | 48 | - | - |
| Other net income | 3 | 2 | 8 | -4 | 2 | 8 | - | - |
| Total income | 325 | 330 | 330 | 305 | 303 | 312 | - | - |
| Operating expenses | -158 | -156 | -150 | -158 | -145 | -148 | - | - |
| Impairment | -20 | -7 | -6 | -16 | -2 | -2 | - | - |
| on loans and receivables | -20 | -8 | -6 | -13 | -2 | -2 | - | - |
| on available-for-sale assets | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| on goodwill | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Other Share in results of associated companies and joint |
0 | 0 | 0 | -3 | 0 | 0 | - | - |
| ventures | 7 | 7 | 8 | 6 | 6 | 6 | - | - |
| Result before tax | 155 | 174 | 183 | 136 | 163 | 167 | - | - |
| Income tax expense | -22 | -28 | -26 | -17 | -25 | -28 | - | - |
| Result after tax | 132 | 146 | 157 | 119 | 138 | 140 | - | - |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| attributable to equity holders of the parent | 132 | 146 | 157 | 119 | 138 | 140 | - | - |
| Banking | 128 | 143 | 150 | 109 | 132 | 133 | - | - |
| Insurance | 5 | 3 | 7 | 10 | 6 | 7 | - | - |
| Risk-weighted assets banking (end of period, Basel III) | 12 234 | 13 119 | 13 164 | 12 563 | 12 618 | 12 453 | - | - |
| Required capital insurance (end of period, Solvency I) | 72 | 72 | 73 | 69 | 69 | 68 | - | - |
| Allocated capital (end of period) | 1 349 | 1 438 | 1 444 | 1 378 | 1 382 | 1 364 | - | - |
| Return on allocated capital (ROAC) | 38% | 44% | 43% | 35% | 40% | 41% | - | - |
| Cost/income ratio, banking | 48% | 46% | 45% | 52% | 47% | 47% | - | - |
| Combined ratio, non-life insurance | 99% | 104% | 97% | 84% | 94% | 92% | - | - |
| Net interest margin, banking | 3.31% | 3.33% | 3.28% | 3.09% | 3.29% | 3.20% | - | - |
Note that the 2013 reference figures have been adjusted slightly following the application of the FRS 11 standard. This standard stipulates that joint ventures must be accounted for using the equity method instead of (until now) the proportionate consolidation method. For KBC, this applies to ČMSS, a joint venture of ČSOB in the Czech Republic. This change does not affect the net result, but has an impact on various items in the consolidated income statement.
In the quarter under review, the Czech Republic Business Unit posted a net result of 140 million, fully in line with the average for the four preceding quarters. Compared with the previous quarter, the results for 2Q2014 featured slightly higher net interest income, increased net fee and commission income, the absence of realised gains on the sale of financial assets, higher net results from financial instruments, increased other income, a further improvement in the non-life combined ratio and higher sales of unit-linked life insurance products. Costs went up slightly and loan loss impairment remained very low. Banking activities accounted for 95% of the net result in the quarter under review, and insurance activities for 5%.
Net interest income generated in this business unit amounted to 220 million in the quarter under review. Excluding the effect of the exchange rate (the Czech koruna weakened only marginally compared to 1Q2014, but has depreciated by 6% on its 2Q2013 level), net interest income was up 1% both quarter-on-quarter and year-onyear. In both cases, net interest income benefited from volume growth and external rate cuts on saving accounts, but remained under pressure due to the lower reinvestment yield. Additionally, interest income related to lending also went up year-on-year (volumes and margins).
Disregarding the FX effect, the group's Czech loan book (16 billion in 'Loans and advances to customers, excluding reverse repos' at 30 June 2014) was up 1% quarter-on-quarter and 3% year-on-year. The latter performance was driven mainly by the growth of mortgage loans and, to a lesser extent, loans to corporations and SMEs. The deposit base (22 billion in 'Deposits from customers and debt certificates, excluding repos') was up 2% quarter-on-quarter and 8% year-on-year.
The overall net interest margin of the ČSOB group in the Czech Republic amounted to 3.20% in the quarter under review, i.e. down 9 and 13 basis points, respectively, on the previous and year-earlier quarters.
In the non-life business, premium income stood at 41 million, up 5% quarter-on-quarter and 2% year-on-year (disregarding the FX impact in both cases). At 21 million, technical charges were down 7% on 1Q2014, which had been negatively impacted by one big claim, and down 42% on 2Q2013, which had been heavily impacted by flooding (disregarding the FX impact in both cases). When account is also taken of the impact of reinsurance, earned premiums less technical charges went up by 1 million quarter-on-quarter and by 3 million year-on-year. The combined ratio for the quarter under review stood at a good 92%, compared to 94% in 1Q2014. Year-to-date, the 1H2014 combined ratio hence stood at 93%, an improvement on the FY2013 figure of 96%.
In the life business, sales amounted to 41 million in the quarter under review, significantly up on the previous quarter (32 million) and year-earlier quarter (36 million). Both the quarter-on-quarter and year-on-year increases in life sales were attributable almost entirely to the rise in sales of unit-linked products (Maximal Invest Life products), and as a consequence, these products accounted for almost two-thirds of life sales in the quarter under review. At the end of June 2014, the outstanding life reserves (including the liabilities under unit-linked products) in this business unit stood at 1 billion, down 10% year-on-year.
Note that the life and non-life insurance results described above only relate to premiums and technical charges. The insurance bottom line is also clearly impacted by investment income, costs, taxes, etc., all of which are analysed from a group perspective (i.e. banking and insurance together) in this section.
Net fee and commission income stood at a strong 48 million in the quarter under review, a 7% increase compared with the previous quarter and up by as much as 19% on its 2Q2013 level (disregarding FX effects in both cases). The quarter-on-quarter increase was caused primarily by higher fees related to the mutual fund business, higher fee income from financial markets activities and increased transaction fees related to the card business. Year-onyear, the growth was driven by higher mutual-fund-related fees, lower fees paid to distribution (Czech Post) and higher fee income from financial markets activities, among other things. Total assets under management in this business unit came to roughly 7 billion at quarter-end, up 5% quarter-on-quarter (3% owing to net entries and 2% due to a positive price effect) and up 9% year-on-year (6% due to net entries and 3% owing to a positive price effect).
Trading and fair value income (recorded under 'Net result from financial instruments at fair value through profit or loss') came to 13 million, lower than the average figure of 19 million for the four preceding quarters. The net
realised result from available-for-sale assets stood at virtually zero, down on the 5 million average for the last four quarters (note: 1Q2014 included 8 million in gains on the sale of bonds, while 2Q2013 included 5 million in gains on the sale of shares). Other net income totalled 8 million in the quarter under review, up on the 2 million average for the four preceding quarters.
The operating expenses of this business unit came to 148 million, a 2% increase (disregarding FX effects) compared with 1Q2014, due to higher facilities and marketing expenses (new retail campaign, among other things). Compared to 2Q2013, costs increased by 1% (disregarding FX effects), due to somewhat higher staff expenses, and increased marketing and ICT costs.
Consequently, the cost/income ratio of the Czech Republic Business Unit came to 47%, unchanged on the previous quarter, and the resultant 1H2014 year-to-date ratio likewise came to 47%, comparable to the level recorded for FY2013.
Impairment on loans and receivables (loan loss provisions) stood at a very favourable 2 million in the quarter under review, down on the 8 million recorded in the year-earlier quarter and in line with the sound figure recorded in the previous quarter. The quarter under review benefited from some impairment releases, and the previous quarter from model-related changes and impairment releases. As a result, the 1H2014 credit cost ratio of this business unit amounted to a fine 4 basis points, a further improvement on what is already a good 26 basis points for FY2013. At the end of the quarter under review, non-performing loans accounted for some 3.1% of the Czech loan book, the same level as three months earlier.
There were no impairment charges on assets other than loans and receivables in the quarter under review.
The International Markets Business Unit mainly includes the activities in the other (i.e. non-Czech) Central and Eastern European core markets (ČSOB Bank and ČSOB Poist'ovňa in Slovakia, K&H Bank and K&H Insurance in Hungary, CIBank and DZI Insurance in Bulgaria) and KBC Bank Ireland.
| Income statement, International Markets Business Unit (in millions of EUR) |
1Q2013 | 2Q2013 | 3Q2013 | 4Q2013 | 1Q2014 | 2Q2014 | 3Q2014 | 4Q2014 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 155 | 160 | 163 | 155 | 160 | 173 | - | - |
| Non-life insurance (before reinsurance) | 21 | 19 | 20 | 20 | 19 | 19 | - | - |
| Earned premiums | 39 | 38 | 39 | 39 | 37 | 38 | - | - |
| Technical charges | -18 | -20 | -19 | -18 | -18 | -19 | - | - |
| Life insurance (before reinsurance) | 2 | 0 | 0 | 2 | 1 | 4 | - | - |
| Earned premiums | 25 | 20 | 18 | 19 | 22 | 22 | - | - |
| Technical charges | -23 | -21 | -18 | -17 | -21 | -19 | - | - |
| Ceded reinsurance result | -2 | -2 | -2 | -4 | -2 | -2 | - | - |
| Dividend income | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Net result from financial instruments at fair value through profit or loss |
21 | 22 | 29 | 17 | 25 | 17 | - | - |
| Net realised result from available-for-sale assets | 2 | 8 | 2 | 1 | 2 | 7 | - | - |
| Net fee and commission income | 41 | 45 | 50 | 68 | 49 | 51 | - | - |
| Other net income | 2 | 19 | 1 | -2 | 0 | -227 | - | - |
| Total income | 242 | 272 | 262 | 258 | 253 | 44 | - | - |
| Operating expenses | -210 | -176 | -156 | -173 | -216 | -166 | - | - |
| Impairment | -127 | -116 | -119 | -827 | -64 | -84 | - | - |
| on loans and receivables | -117 | -114 | -118 | -821 | -64 | -84 | - | - |
| on available-for-sale assets | -10 | 0 | 0 | 0 | 0 | 0 | - | - |
| on goodwill | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| other Share in results of associated companies and joint |
-1 | -1 | 0 | -6 | 0 | -1 | - | - |
| ventures | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Result before tax | -95 | -19 | -12 | -742 | -27 | -207 | - | - |
| Income tax expense | 8 | -4 | 0 | 11 | 1 | 31 | - | - |
| Result after tax | -87 | -23 | -12 | -731 | -26 | -176 | - | - |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| attributable to equity holders of the parent | -87 | -23 | -12 | -731 | -26 | -176 | - | - |
| Banking | -82 | -29 | -17 | -735 | -33 | -182 | - | - |
| Insurance | -6 | 6 | 6 | 4 | 7 | 6 | - | - |
| Risk-weighted assets banking (end of period, Basel III) | 16 963 | 16 356 | 16 110 | 16 247 | 18 484 | 17 506 | - | - |
| Required capital insurance (end of period, Solvency I) | 43 | 42 | 42 | 44 | 44 | 44 | - | - |
| Allocated capital (end of period) | 1 772 | 1 710 | 1 684 | 1 702 | 1 925 | 1 828 | - | - |
| Return on allocated capital (ROAC) | -19% | -5% | -3% | -176% | -6% | -37% | - | - |
| Cost/income ratio, banking | 88% | 65% | 59% | 67% | 88% | - | - | - |
| Combined ratio, non-life insurance | 87% | 98% | 97% | 103% | 89% | 99% | - | - |
| Net interest margin, banking | 2.06% | 2.10% | 2.11% | 2.07% | 2.26% | 2.46% | - | - |
In the quarter under review, the International Markets Business Unit recorded a net result of -176 million, a slight improvement on the average of -198 million for the four preceding quarters. 2Q2014 was characterised by higher net interest income, a decline in the result from financial instruments, higher realised gains on bonds, increased net fee and commission income, a deterioration in the non-life combined ratio and increased life insurance sales, as well as the significantly negative impact of the new Hungarian act on retail loans. Costs were lower as the previous quarter had included the entire bank tax in Hungary being booked for the full year, and loan loss provisions went up, mainly due to Ireland.
Overall, the banking activities accounted for a negative net result of -182 million (the positive results in Slovakia and Bulgaria were wiped out by the negative result in Ireland (loan loss provisioning) and Hungary (impact of new consumer loan act), while the insurance activities accounted for a positive net result of 6 million.
Net interest income stood at 173 million in 2Q2014, up 8% on the figures for 1Q2014 and 2Q2013. Both quarteron-quarter and year-on-year, net interest income rose in Ireland (lower reserved interest charges quarter-onquarter), Hungary and Slovakia (growth of mortgage portfolio, etc.).
The total loan portfolio of the International Markets Business Unit (21 billion in 'Loans and advances to customers, excluding reverse repos' at 30 June 2014) was down slightly (-0.4%) quarter-on-quarter and down 6% year-onyear. This year-on-year decline was almost entirely attributable to Ireland (-13%; matured and impaired loans surpassing new production and the corporate loan portfolio is being deleveraged), which more than offset loan growth in Slovakia (+6%) and Bulgaria (+14%). Customer deposits for the entire business unit (14 billion in 'Deposits from customers and debt certificates, excluding repos') decreased by 1% in the quarter under review (down in Hungary, but up in Ireland), but grew by 2% compared to the situation a year ago. Almost the entire year-on-year increase was accounted for by Ireland (+21%, owing to the ongoing retail deposit campaign in that country), while deposits rose moderately (+1%) in both Slovakia and Bulgaria and declined by 9% in Hungary.
On a weighted basis, the net interest margin of this business unit amounted to 246 basis points in the quarter under review, up 20 basis points quarter-on-quarter and 36 basis points year-on-year. The net interest margin in 2Q2014 amounted to 326 basis points in Slovakia, 385 basis points in Hungary, 478 basis points in Bulgaria and 117 basis points in Ireland.
In the non-life business, earned insurance premiums in the quarter under review (which relate solely to Hungary, Slovakia and Bulgaria, as there are no direct insurance activities in Ireland) amounted to 38 million, up 2% on the quarter-earlier figure and in line with 2Q2013. At 19 million, technical insurance charges in the non-life segment were up 5% compared with the previous quarter, but were down 2% year-on-year. Overall, this caused the nonlife combined ratio for the quarter under review to deteriorate to 99%, compared with 89% in 1Q2014. Consequently, the ratio stood at 93% for 1H2014, still an improvement on the 95% recorded for FY2013. The combined ratio for 1H2014 breaks down into 90% for Hungary, 85% for Slovakia (further release of claims reserves, etc.) and 99% for Bulgaria.
Life sales, including insurance products not recognised as earned premiums under IFRS, amounted to 32 million in the quarter under review, in line with the level recorded in the year-earlier quarter and up some 5 million on 1Q2014 (increase mainly in unit-linked products in Hungary). For the business unit as a whole, sales of unit-linked products accounted for almost 60% of total life insurance sales in the quarter under review, and interestguaranteed products for the remainder. At the end of June 2014, the business unit's outstanding life reserves (including the liabilities under unit-linked products) stood at 0.5 billion, up 4% year-on-year.
The other income components totalled -152 million in the quarter under review. This included net fee and commission income of 51 million, down slightly on the average of 53 million in the four preceding quarters. Trading and fair value income (recorded under 'Net result from financial instruments at fair value through profit or loss') came to 17 million, down on the average figure of 23 million for the four preceding quarters (half of which was accounted for by the more negative impact of the marked-to-market valuation of ALM derivatives). The net realised result from available-for-sale financial assets amounted to 7 million and was almost entirely related to the sale of government bonds in Hungary. Other net income stood at -227 million, a significant deterioration on the positive 5 million average for the four preceding quarters, because the quarter under review includes the impact of provisioning for the new Hungarian act on retail loans, i.e. the so-called 'Resolution of certain issues related to the Supreme Court's (Curia) uniformity decision on consumer loan agreements concluded by financial institutions'.
The scope of the act includes retail loans in both foreign currency and Hungarian forints. According to the act, the use of foreign-exchange-rate margins in consumer loans denominated in foreign currency is void and, therefore, bid-ask spreads applied to those foreign currency loans need to be retroactively corrected. Furthermore, as regards all consumer loans, the act repeals unilateral changes to interest rates and fees applied by the banks. KBC set aside one-off provisions of 231 million euros (pre-tax) in the second quarter of 2014 for both the correction to bid-offer spreads and the unilateral changes to interest rates.
Operating expenses in the quarter under review amounted to 166 million, at first sight down 23% on the previous quarter, but this was due entirely to the 2014 Hungarian bank tax being charged in full as usual in the first quarter (51 million). Costs were down 6% year-on-year, the increase in Ireland (where the number of FTEs has increased due to recruitment related to the retail programme and for the arrears support unit) being more than offset by lower costs in Hungary (as the reference quarter included 27 million for an additional one-off financial transaction levy related charge).
As a consequence, and taking into account the significant drop in total income, the cost/income ratio for the business unit as a whole increased to 140% for the first six months of the year, compared to 69% for FY2013 (excluding the main exceptional items, the 'sustainable' ratio would have been 67% in 1H2014, as opposed to 68% in FY2013). The 1H2014 cost/income ratio of 140% breaks down as follows per country: 102% for Ireland, 62% for Slovakia, 590% for Hungary (owing to the impact of the new retail loans law and the full-year bank tax being charged in 1Q2014; 64% on a sustainable basis) and 65% for Bulgaria.
Impairment on loans and receivables (loan loss provisions) amounted to 84 million, compared to 64 million in 1Q2014 and 114 million in 2Q2013. The 2Q2014 figures includes 62 million for Ireland (lower than the 88 million recorded in 2Q2013, but up on the 1Q2014 figure of 48 million), and 6 million in loan loss provisions for Slovakia, 13 million for Hungary and 3 million for Bulgaria.
Consequently, the 1H2014 credit cost ratio for the entire business unit improved to 114 basis points, down from a high 448 basis points for FY2013. Broken down by country, it was 144 basis points for Ireland (672 basis points in FY2013), 96 basis points for Hungary (150 basis points in FY2013), 40 basis points for Slovakia (60 basis points in FY2013) and 117 basis points for Bulgaria (119 basis points for FY2013). At the end of June 2014, 20.8% of the International Markets Business Unit's loan book was non-performing, up on the 19.7% recorded three months earlier. The business unit's figure continues to be impacted by the high non-performing ratio of 29.7% for Ireland.
Impairment charges on assets other than on loans and receivables for this business unit amounted to a mere 1 million in the quarter under review.
The net result of the International Markets Business Unit (-176 million) breaks down as follows: 17 million for Slovakia, -139 million for Hungary, 3 million for Bulgaria and -57 million for Ireland. A detailed results table and brief comments per country are provided below.
| IRELAND | 1Q2013 | 2Q2013 | 3Q2013 | 4Q2013 | 1Q2014 | 2Q2014 | 3Q2014 | 4Q2014 |
|---|---|---|---|---|---|---|---|---|
| Income statement (in millions of EUR) Net interest income |
35 | 33 | 32 | 24 | 31 | 38 | - | - |
| Non-life insurance (before reinsurance) | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Earned premiums | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Technical charges | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Life insurance (before reinsurance) | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Earned premiums | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Technical charges | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Ceded reinsurance result | 0 | 0 | 0 | 0 | 0 | - | - | |
| Dividend income | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Net result from financial instruments at fair value through profit or loss |
-3 | 0 | 0 | -3 | 0 | -6 | - | - |
| Net realised result from available-for-sale assets | 0 | 1 | 0 | 0 | 0 | 0 | - | - |
| Net fee and commission income | -1 | -2 | 0 | -2 | -1 | -1 | - | - |
| Other net income | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Total income | 32 | 31 | 32 | 19 | 30 | 31 | - | - |
| Operating expenses | -21 | -22 | -25 | -35 | -29 | -33 | - | - |
| Impairment | -99 | -88 | -98 | -773 | -48 | -62 | - | - |
| on loans and receivables | -99 | -88 | -98 | -773 | -48 | -62 | - | - |
| on available-for-sale assets | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| on goodwill | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Other Share in results of associated companies and joint |
0 | 0 | 0 | 0 | 0 | 0 | - | - |
| ventures | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Result before tax | -88 | -79 | -92 | -789 | -47 | -64 | - | - |
| Income tax expense | 11 | 10 | 11 | 23 | 7 | 6 | - | - |
| Result after tax | -77 | -69 | -80 | -766 | -40 | -57 | - | - |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| attributable to equity holders of the parent | -77 | -69 | -80 | -766 | -40 | -57 | - | - |
| Banking | -77 | -69 | -80 | -766 | -40 | -57 | - | - |
| Insurance | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Risk-weighted assets banking (end of period, Basel III) | 7 653 | 7 248 | 6 952 | 7 357 | 6 558 | 5 650 | - | - |
| Required capital insurance (end of period, Solvency I) | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Allocated capital (end of period) | 765 | 725 | 695 | 736 | 656 | 565 | - | - |
| Return on allocated capital (ROAC) | -39% | -36% | -45% | -444% | -23% | -35% | - | - |
| Cost/income ratio, banking | 65% | 69% | 79% | 183% | 98% | 106% | - | - |
| Combined ratio, non-life insurance | - | - | - | - | - | - | - | - |
The net result in 2Q2014 was -57 million euros, compared to an average figure of -239 million for the four preceding quarters (clearly impacted by the high loss recorded in 4Q2013).
Total income (31 million) increased by 4% quarter-on-quarter, due mainly to higher net interest income (largely related to a reduction in the reserved interest charge compared to 1Q2014), but partially offset by the negative impact of a change in accounting methodology for swaps used to hedge structured deposits.
Costs (33 million) were up 13% on the previous quarter, due in part to the higher number of FTEs. The 1H2014 cost/income ratio stood at 102%, compared with 90% for FY2013.
Loan loss impairment (62 million) was higher than the 48 million recorded in 1Q2014. The 2Q2014 figure breaks down into 27 million for corporate loans (up on 1Q2014) and 35 million for retail loans (in line with 1Q2014). The credit cost ratio amounted to 144 basis points in 1H2014.
| HUNGARY Income statement (in millions of EUR) |
1Q2013 | 2Q2013 | 3Q2013 | 4Q2013 | 1Q2014 | 2Q2014 | 3Q2014 | 4Q2014 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 64 | 69 | 68 | 68 | 68 | 72 | - | - |
| Non-life insurance (before reinsurance) | 7 | 7 | 7 | 5 | 7 | 6 | - | - |
| Earned premiums | 14 | 15 | 16 | 14 | 13 | 14 | - | - |
| Technical charges | -7 | -8 | -8 | -9 | -6 | -8 | - | - |
| Life insurance (before reinsurance) | -1 | -4 | -3 | -2 | -2 | -1 | - | - |
| Earned premiums | 3 | 3 | 3 | 4 | 3 | 4 | - | - |
| Technical charges | -5 | -7 | -7 | -5 | -6 | -5 | - | - |
| Ceded reinsurance result | 0 | -1 | -1 | -1 | -1 | -1 | - | - |
| Dividend income | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Net result from financial instruments at fair value through profit or loss |
18 | 18 | 25 | 16 | 20 | 20 | - | - |
| Net realised result from available-for-sale assets | 2 | 5 | 0 | 0 | 1 | 7 | - | - |
| Net fee and commission income | 30 | 34 | 37 | 58 | 38 | 40 | - | - |
| Other net income | 2 | 13 | 0 | -4 | 1 | -228 | - | - |
| Total income | 121 | 141 | 134 | 141 | 132 | -84 | - | - |
| Operating expenses | -130 | -97 | -73 | -78 | -128 | -74 | - | - |
| Impairment | -11 | -11 | -13 | -43 | -12 | -13 | - | - |
| on loans and receivables | -10 | -10 | -12 | -43 | -11 | -13 | - | - |
| on available-for-sale assets | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| on goodwill Other |
0 -1 |
0 -1 |
0 0 |
0 0 |
0 0 |
0 -1 |
- - |
- - |
| Share in results of associated companies and joint | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| ventures | ||||||||
| Result before tax | -20 | 33 | 48 | 20 | -8 | -171 | - | - |
| Income tax expense | 1 | -7 | -5 | -4 | 0 | 32 | - | - |
| Result after tax | -19 | 26 | 43 | 16 | -8 | -139 | - | - |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| attributable to equity holders of the parent | -19 | 26 | 43 | 16 | -8 | -139 | - | - |
| Banking | -22 | 24 | 41 | 15 | -11 | -141 | - | - |
| Insurance | 3 | 2 | 2 | 1 | 3 | 2 | - | - |
| Risk-weighted assets banking (end of period, Basel III) | 4 919 | 4 759 | 4 827 | 4 434 | 7 562 | 7 440 | - | - |
| Required capital insurance (end of period, Solvency I) | 13 | 13 | 12 | 14 | 14 | 14 | - | - |
| Allocated capital (end of period) | 515 | 499 | 504 | 469 | 781 | 769 | - | - |
| Return on allocated capital (ROAC) | -14% | 20% | 34% | 13% | -5% | -72% | - | - |
| Cost/income ratio, banking | 112% | 70% | 55% | 54% | 100% | - | - | - |
| Combined ratio, non-life insurance | 82% | 100% | 95% | 120% | 82% | 102% | - | - |
The net result in 2Q2014 was a negative 139 million euros, down on the positive 19 million average for the four preceding quarters.
Total income (a negative 84 million) was down 215 million quarter-on-quarter, which was caused entirely by the booking (under 'Other net income') of the provision for the new Hungarian act on retail loans (pre-tax impact of -231 million, and post-tax impact of -183 million: see press release of 8 July 2014 at www.kbc.com). That aside, total income in 2Q2014 was characterised by a good level of net interest income, healthy net fee and commission income and realised gains on the sale of government bonds. The 1H2014 combined ratio for non-life insurance stood at an excellent 90%, compared with 97% in FY2013. Life insurance sales (including unit-linked products) went up by around 50% quarter-on-quarter, thanks to a significant increase in the sale of unit-linked life insurance products.
| SLOVAKIA | 1Q2013 | 2Q2013 | 3Q2013 | 4Q2013 | 1Q2014 | 2Q2014 | 3Q2014 | 4Q2014 |
|---|---|---|---|---|---|---|---|---|
| Income statement (in millions of EUR) Net interest income |
46 | 49 | 52 | 52 | 51 | 53 | - | - |
| Non-life insurance (before reinsurance) | 5 | 5 | 6 | 6 | 4 | 5 | - | - |
| Earned premiums | 6 | 6 | 7 | 7 | 7 | 7 | - | - |
| Technical charges | -1 | -1 | -1 | 0 | -2 | -2 | - | - |
| Life insurance (before reinsurance) | 3 | 2 | 2 | 3 | 3 | 3 | - | - |
| Earned premiums | 16 | 14 | 12 | 12 | 13 | 15 | - | - |
| Technical charges | -14 | -11 | -9 | -9 | -11 | -12 | - | - |
| Ceded reinsurance result | 0 | 0 | 0 | -1 | 0 | 0 | - | - |
| Dividend income | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Net result from financial instruments at fair value through profit or loss |
6 | 4 | 5 | 4 | 4 | 3 | - | - |
| Net realised result from available-for-sale assets | 0 | 3 | 0 | 0 | 1 | 0 | - | - |
| Net fee and commission income | 11 | 11 | 11 | 11 | 11 | 11 | - | - |
| Other net income | 2 | 6 | 1 | 1 | -1 | 1 | - | - |
| Total income | 72 | 81 | 76 | 76 | 73 | 76 | - | - |
| Operating expenses | -46 | -44 | -44 | -46 | -46 | -45 | - | - |
| Impairment | -4 | -15 | -7 | -5 | -4 | -6 | - | - |
| on loans and receivables | -4 | -14 | -7 | -2 | -4 | -6 | - | - |
| on available-for-sale assets | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| on goodwill other |
0 0 |
0 0 |
0 0 |
0 -3 |
0 0 |
0 0 |
- - |
- - |
| Share in results of associated companies and joint ventures |
0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Result before tax | 23 | 23 | 25 | 25 | 23 | 24 | - | - |
| Income tax expense | -5 | -6 | -6 | -8 | -6 | -7 | - | - |
| Result after tax | 17 | 16 | 19 | 17 | 18 | 17 | - | - |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| attributable to equity holders of the parent | 17 | 16 | 19 | 17 | 18 | 17 | - | - |
| Banking | 15 | 14 | 17 | 15 | 15 | 15 | - | - |
| Insurance | 3 | 2 | 3 | 2 | 3 | 2 | - | - |
| Risk-weighted assets banking (end of period, Basel III) | 3 780 | 3 715 | 3 689 | 3 776 | 3 725 | 3 772 | - | - |
| Required capital insurance (end of period, Solvency I) | 15 | 15 | 15 | 15 | 15 | 15 | - | - |
| Allocated capital (end of period) | 403 | 397 | 395 | 404 | 398 | 403 | - | - |
| Return on allocated capital (ROAC) | 17% | 16% | 19% | 17% | 17% | 18% | - | - |
| Cost/income ratio, banking | 64% | 54% | 58% | 61% | 64% | 60% | - | - |
| Combined ratio, non-life insurance | 65% | 77% | 81% | 83% | 82% | 89% | - | - |
The net result in 2Q2014 totalled 17 million euros, more or less in line with the 18 million average for the four preceding quarters.
Total income (76 million) increased by 3 million quarter-on-quarter, thanks mainly to increased net interest income (expanding mortgage book, maturing LT deposits at higher external rates being replaced by bank deposits at lower rates, some one-off items). The 1H2014 combined ratio for non-life insurance stood at 85%, compared with 76% for FY2013 (including releases of claims reserves in both cases). Life sales (including unit-linked products) were up on their level for 1Q2014, thanks to the successful sale of the single premium product 'maximal'.
Costs (45 million) were virtually flat quarter-on-quarter. The 1H2014 cost/income ratio stood at 62%, as opposed to 59% for FY2013.
Loan loss impairment (6 million) rose by 2 million compared with the previous quarter. The credit cost ratio amounted to 40 basis points in 1H2014.
| BULGARIA Income statement (in millions of EUR) |
1Q2013 | 2Q2013 | 3Q2013 | 4Q2013 | 1Q2014 | 2Q2014 | 3Q2014 | 4Q2014 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 10 | 10 | 10 | 11 | 10 | 10 | - | - |
| Non-life insurance (before reinsurance) | 8 | 7 | 7 | 9 | 8 | 8 | - | - |
| Earned premiums | 18 | 18 | 17 | 18 | 17 | 18 | - | - |
| Technical charges | -10 | -11 | -10 | -9 | -10 | -10 | - | - |
| Life insurance (before reinsurance) | 1 | 1 | 1 | 1 | 1 | 1 | - | - |
| Earned premiums | 5 | 3 | 3 | 4 | 5 | 4 | - | - |
| Technical charges | -4 | -2 | -2 | -3 | -4 | -2 | - | - |
| Ceded reinsurance result | -1 | -1 | -1 | -1 | -1 | -1 | - | - |
| Dividend income | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Net result from financial instruments at fair value through profit or loss |
0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Net realised result from available-for-sale assets | 1 | 0 | 1 | 1 | 0 | 0 | - | - |
| Net fee and commission income | 0 | 0 | 1 | 0 | 0 | 0 | - | - |
| Other net income | -2 | 1 | 0 | 0 | 0 | 0 | - | - |
| Total income | 16 | 18 | 20 | 21 | 18 | 19 | - | - |
| Operating expenses | -13 | -13 | -13 | -14 | -12 | -13 | - | - |
| Impairment | -13 | -2 | -1 | -6 | -1 | -3 | - | - |
| on loans and receivables | -4 | -2 | -1 | -2 | -1 | -3 | - | - |
| on available-for-sale assets | -10 | 0 | 0 | 0 | 0 | 0 | - | - |
| on goodwill | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Other Share in results of associated companies and joint |
0 | 0 | 0 | -3 | 0 | 0 | - | - |
| ventures | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| Result before tax | -10 | 4 | 6 | 1 | 5 | 3 | - | - |
| Income tax expense | 1 | 0 | 0 | 0 | 0 | 0 | - | - |
| Result after tax | -9 | 3 | 6 | 1 | 5 | 3 | - | - |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 | - | - |
| attributable to equity holders of the parent | -9 | 3 | 6 | 1 | 5 | 3 | - | - |
| Banking | 2 | 2 | 5 | 0 | 4 | 1 | - | - |
| Insurance | -11 | 1 | 1 | 1 | 1 | 2 | - | - |
| Risk-weighted assets banking (end of period, Basel III) | 595 | 620 | 627 | 668 | 626 | 632 | - | - |
| Required capital insurance (end of period, Solvency I) | 15 | 15 | 15 | 15 | 15 | 15 | - | - |
| Allocated capital (end of period) | 86 | 88 | 88 | 93 | 89 | 89 | - | - |
| Return on allocated capital (ROAC) | -40% | 16% | 27% | 5% | 22% | 14% | - | - |
| Cost/income ratio, banking | 57% | 67% | 61% | 61% | 64% | 65% | - | - |
| Combined ratio, non-life insurance | 101% | 103% | 104% | 97% | 99% | 99% | - | - |
The net result in 2Q2014 came to 3 million, down on the 4 million average for the four preceding quarters.
Total income (19 million) was up 8% on the previous quarter. Despite the floods, the non-life combined ratio amounted to 99% for 1H2014, comparable with 101% for FY2013. Total life insurance sales were down roughly 30% on their level for 1Q2014 (partly a seasonal effect).
Costs (13 million) went up 5% quarter-on-quarter, due to a number of factors, including higher marketing expenses and variable staff remuneration. The 1H2014 cost/income ratio stood at 65%, compared to 61% for FY2013.
Loan loss impairment charges stood at 3 million, up on the 1 million in 1Q2014, due to one-off impairment charges in the legacy portfolio. The credit cost ratio amounted to 117 basis points in 1H2014.
The Group Centre incorporates the results of the holding company KBC Group NV, some results that are not attributable to the other business units, the elimination of intersegment transactions and the results of the remaining companies that have still to be divested and activities in run-off. It also includes results related to the legacy businesses (CDOs, divestment results) and the valuation of own credit risk.
| Income statement, Group Centre (in millions of EUR) |
1Q2013 | 2Q2013 | 3Q2013 | 4Q2013 | 1Q2014 | 2Q2014 | 3Q2014 | 4Q2014 |
|---|---|---|---|---|---|---|---|---|
| Adjusted net result (i.e. excluding legacy and own credit risk impact) |
||||||||
| Net interest income | -24 | -57 | -63 | -52 | -73 | -43 | - | - |
| Non-life insurance (before reinsurance) | -4 | -3 | -3 | -5 | -4 | -3 | - | - |
| Earned premiums | -8 | -4 | -3 | -5 | -5 | -4 | - | - |
| Technical charges | 4 | 1 | 1 | 0 | 1 | 0 | - | - |
| Life insurance (before reinsurance) | 0 | 1 | 0 | 1 | 0 | 0 | - | - |
| Earned premiums | 4 | 5 | 5 | 5 | 0 | 0 | - | - |
| Technical charges | -3 | -3 | -5 | -4 | 0 | 0 | - | - |
| Ceded reinsurance result | 1 | 0 | 2 | 2 | 3 | 2 | - | - |
| Dividend income | 0 | 0 | 0 | 0 | 0 | 1 | - | - |
| Net result from financial instruments at fair value through profit or loss |
45 | 4 | 10 | 3 | 2 | 12 | - | - |
| Net realised result from available-for-sale assets | 2 | 1 | 0 | 9 | -1 | 9 | - | - |
| Net fee and commission income | 2 | 10 | 5 | 7 | 7 | 6 | - | - |
| Other net income | 5 | -2 | 18 | 0 | 8 | -9 | - | - |
| Total income | 28 | -44 | -30 | -36 | -59 | -24 | - | - |
| Operating expenses | -79 | -39 | -33 | -61 | -49 | -45 | - | - |
| Impairment | -46 | -12 | -18 | -46 | -3 | -11 | - | - |
| on loans and receivables | -18 | -11 | -17 | -40 | -3 | -11 | - | - |
| on available-for-sale assets | -1 | -1 | -1 | -1 | 0 | -1 | - | - |
| on goodwill Other |
-7 -20 |
0 0 |
0 0 |
0 -5 |
0 0 |
0 0 |
- - |
- - |
| Share in results of associated companies and joint | ||||||||
| ventures | 0 | 0 | 0 | 0 | 1 | 1 | - | - |
| Result before tax | -97 | -95 | -81 | -143 | -110 | -80 | - | - |
| Income tax expense | 29 | 42 | 6 | 42 | 34 | 21 | - | - |
| Result after tax | -68 | -53 | -75 | -101 | -75 | -59 | - | - |
| attributable to minority interests | 3 | 4 | 4 | 4 | 0 | 0 | - | - |
| attributable to equity holders of the parent | -71 | -56 | -79 | -104 | -75 | -59 | - | - |
| Banking | 17 | -44 | -49 | -60 | -46 | -25 | - | - |
| Insurance Group |
-11 -78 |
-1 -12 |
-7 -23 |
-3 -41 |
-1 -28 |
-2 -32 |
- - |
- - |
| Adjustments | ||||||||
| Legacy – gains/losses on CDOs | 165 | 180 | 34 | 65 | 16 | 30 | - | - |
| Legacy – divestments | 22 | -128 | -231 | -10 | -9 | 8 | - | - |
| MTM of own credit risk | -26 | -20 | 12 | -9 | 2 | -8 | - | - |
| Net result | 90 | -24 | -264 | -58 | -65 | -30 | ||
| Risk-weighted assets banking (end of period, Basel III) | 16 813 | 13 141 | 12 189 | 11 031 | 11 145 | 11 814 | - | - |
| Risk-weighted assets, insurance (end of period, Basel III Danish compromise) |
11 068 | 11 068 | 11 068 | 11 068 | 11 068 | 11 068 | - | - |
| Required capital insurance (end of period, Solvency I) | 16 | 15 | 9 | 4 | 2 | 2 | - | - |
| Allocated capital (end of period) | 1 709 | 1 341 | 1 234 | 1 111 | 1 118 | 1 185 | - | - |
The Group Centre's net result amounted to -30 million in 2Q2014. As stated earlier, this entity includes not only a number of group items and the results of companies earmarked for divestment, but also the impact of the legacy business (CDOs, divestments) and the valuation of own credit risk. Excluding the legacy and own credit risk impact, the adjusted net result amounted to -59 million in 2Q2014.
Following the reduction in the remaining legacy CDO portfolio and the virtual completion of the divestment programme, the net impact of these two legacy items was relatively limited in 2Q2014, namely a positive 30 million CDO-related impact and a positive 8 million divestment-related impact. The impact of the MTM of own credit risk (changes in the fair value of own debt instruments) was likewise limited in the quarter under review (a negative 8 million), given the narrowing of credit spreads on KBC debt.
Accounted for a total of -59 million in 2Q2014. This item includes the operational costs of the holding activities of the group (-18 million in total, in line with the previous quarter), certain capital and liquidity management-related costs (for the purpose of reaching solvency and liquidity targets at group level, such as the subordination cost of subordinated loans: -12 million in total, an improvement on the previous quarter thanks to lower subordinated debt costs, among other things), costs related to the holding of participations (mainly funding costs: -26 million in total, compared to -21 million in the previous quarter), the results of the remaining companies or activities earmarked for divestment or in run-down (KBC Bank Deutschland, Antwerp Diamond Bank, KBC Finance Ireland, etc.: -8 million in total, as opposed to 6 million in the previous quarter) and 4 million in other items.
KBC Group Consolidated financial statements according to IFRS 2Q 2014 and 1H 2014
Reviewed by the auditors
| In millions of EUR | Note | 2Q 2013 | 1Q 2014 | 2Q 2014 | 1H 2013 | 1H 2014 |
|---|---|---|---|---|---|---|
| Net interest income | 3 | 1 003 | 1 010 | 1 056 | 2 056 | 2 065 |
| Interest income | 3 | 2 079 | 1 930 | 1 971 | 4 239 | 3 901 |
| Interest expense | 3 | - 1 076 | - 920 | - 915 | - 2 184 | - 1 835 |
| Non-life insurance before reinsurance | 9 | 115 | 149 | 102 | 264 | 251 |
| Earned premiums Non-life | 11 | 316 | 307 | 315 | 621 | 623 |
| Technical charges Non-life | 9 | - 201 | - 158 | - 214 | - 357 | - 372 |
| Life insurance before reinsurance | 9 | - 62 | - 59 | - 56 | - 122 | - 114 |
| Earned premiums Life | 10 | 241 | 308 | 297 | 512 | 606 |
| Technical charges Life | 9 | - 303 | - 367 | - 353 | - 634 | - 720 |
| Ceded reinsurance result | 9 | 13 | - 17 | 19 | 1 | 3 |
| Dividend income | 4 | 20 | 14 | 24 | 25 | 38 |
| Net result from financial instruments at fair value through profit or loss | 5 | 425 | 40 | 44 | 739 | 84 |
| Net realised result from available-for-sale assets | 6 | 47 | 51 | 49 | 189 | 100 |
| Net fee and commission income | 7 | 381 | 374 | 387 | 771 | 761 |
| Fee and commission income | 7 | 560 | 557 | 533 | 1 197 | 1 090 |
| Fee and commission expense | 7 | - 179 | - 182 | - 147 | - 426 | - 329 |
| Net other income | 8 | - 20 | 52 | - 99 | 56 | - 47 |
| TOTAL INCOME | 1 921 | 1 615 | 1 526 | 3 979 | 3 141 | |
| Operating expenses | 12 | - 924 | - 973 | - 933 | - 1 957 | - 1 906 |
| Staff expenses | 12 | - 576 | - 556 | - 559 | - 1 170 | - 1 115 |
| General administrative expenses | 12 | - 282 | - 352 | - 311 | - 652 | - 664 |
| Depreciation and amortisation of fixed assets | 12 | - 66 | - 65 | - 63 | - 135 | - 128 |
| Impairment | 14 | - 275 | - 114 | - 142 | - 625 | - 255 |
| on loans and receivables | 14 | - 254 | - 102 | - 136 | - 547 | - 238 |
| on available-for-sale assets | 14 | - 3 | - 5 | - 3 | - 16 | - 8 |
| on goodwill | 14 | 0 | 0 | 0 | - 7 | 0 |
| on other | 14 | - 18 | - 6 | - 3 | - 55 | - 9 |
| Share in results of associated companies and joint ventures | 15 | 8 | 7 | 7 | 15 | 13 |
| RESULT BEFORE TAX | 729 | 535 | 457 | 1 412 | 992 | |
| Income tax expense | 16 | - 210 | - 138 | - 140 | - 368 | - 278 |
| Net post-tax result from discontinued operations | 46 | 0 | 0 | 0 | 0 | 0 |
| RESULT AFTER TAX | 520 | 397 | 317 | 1 044 | 714 | |
| Attributable to minority interest | 3 | 0 | 0 | 7 | 0 | |
| of which relating to discontinued operations | 0 | 0 | 0 | 0 | 0 | |
| Attributable to equity holders of the parent | 517 | 397 | 317 | 1 037 | 714 | |
| of which relating to discontinued operations | 0 | 0 | 0 | 0 | 0 | |
| Earnings per share (in EUR) | 17 | |||||
| Basic | 17 | 1.24 | 0.45 | 0.63 | 2.49 | 1.08 |
| Diluted | 17 | 1.24 | 0.45 | 0.63 | 2.49 | 1.08 |
Due to the application of IFRS 11 as from 1 January 2014, the reference figures of the consolidated income statement have been restated to account for the different treatment of the joint venture ČMSS in the Czech Business Unit (from proportionate consolidation to equity method - for more information see note 1a).
| In millions of EUR | 2Q 2013 | 1Q 2014 | 2Q 2014 | 1H 2013 | 1H 2014 |
|---|---|---|---|---|---|
| RESULT AFTER TAX | 520 | 397 | 317 | 1 044 | 714 |
| attributable to minority interest | 3 | 0 | 0 | 7 | 0 |
| attributable to equity holders of the parent | 517 | 397 | 317 | 1 037 | 714 |
| Other comprehensive income - to be recycled to P&L | |||||
| Net change in revaluation reserve (AFS assets) - Equity | - 35 | - 37 | 18 | - 7 | - 19 |
| Net change in revaluation reserve (AFS assets) - Bonds | - 171 | 167 | 234 | - 291 | 401 |
| Net change in revaluation reserve (AFS assets) - Other | 0 | 0 | - 1 | 0 | - 1 |
| Net change in hedging reserve (cash flow hedge) | 195 | - 180 | - 192 | 256 | - 372 |
| Net change in translation differences | - 20 | - 13 | 13 | - 30 | 0 |
| Other movements | 1 | 0 | 0 | 2 | 0 |
| Other comprehensive income - not to be recycled to P&L | |||||
| Net change in defined benefit plans | - 12 | - 19 | - 23 | - 5 | - 43 |
| TOTAL COMPREHENSIVE INCOME | 477 | 315 | 365 | 969 | 679 |
| attributable to minority interest | 2 | 0 | 0 | 7 | 0 |
| attributable to equity holders of the parent | 475 | 315 | 365 | 962 | 679 |
| ASSETS (in millions of EUR) | Note | 31-12-2013 | 30-06-2014 |
|---|---|---|---|
| Cash and cash balances with central banks | 4 294 | 6 047 | |
| Financial assets | 18 - 26 | 222 887 | 234 975 |
| Held for trading | 16 885 | 12 717 | |
| Designated at fair value through profit or loss | 16 441 | 19 284 | |
| Available for sale | 27 307 | 30 730 | |
| Loans and receivables | 130 153 | 140 660 | |
| Held to maturity | 31 323 | 30 574 | |
| Hedging derivatives | 777 | 1 010 | |
| Reinsurers' share in technical provisions | 146 | 172 | |
| Fair value adjustments of hedged items in portfolio hedge of interest rate risk | 120 | 155 | |
| Tax assets | 1 723 | 1 656 | |
| Current tax assets | 242 | 80 | |
| Deferred tax assets | 1 481 | 1 576 | |
| Non-current assets held for sale and assets associated with disposal groups | 46 | 3 769 | 3 774 |
| Investments in associated companies and joint ventures | 182 | 188 | |
| Investment property | 598 | 579 | |
| Property and equipment | 2 457 | 2 260 | |
| Goodwill and other intangible assets | 1 277 | 1 274 | |
| Other assets | 1 233 | 1 689 | |
| TOTAL ASSETS | 238 686 | 252 768 |
| LIABILITIES AND EQUITY (in millions of EUR) | Note | 31-12-2013 | 30-06-2014 |
|---|---|---|---|
| Financial liabilities | 18 - 26 | 199 421 | 211 157 |
| Held for trading | 13 119 | 10 448 | |
| Designated at fair value through profit or loss | 24 931 | 25 962 | |
| Measured at amortised cost | 159 693 | 172 412 | |
| Hedging derivatives | 1 678 | 2 335 | |
| Technical provisions, before reinsurance | 18 701 | 19 007 | |
| Fair value adjustments of hedged items in portfolio hedge of interest rate risk | - 2 | 114 | |
| Tax liabilities | 518 | 650 | |
| Current tax liabilities | 109 | 122 | |
| Deferred tax liabilies | 409 | 528 | |
| Liabilities associated with disposal groups | 46 | 2 027 | 2 156 |
| Provisions for risks and charges | 523 | 717 | |
| Other liabilities | 2 983 | 3 252 | |
| TOTAL LIABILITIES | 224 172 | 237 054 | |
| Total equity | 39 | 14 514 | 15 715 |
| Parent shareholders' equity | 39 | 11 826 | 12 318 |
| Non-voting core-capital securities | 39 | 2 333 | 2 000 |
| Additional Tier-1 instruments included in equity | 39 | 0 | 1 400 |
| Minority interests | 354 | - 3 | |
| TOTAL LIABILITIES AND EQUITY | 238 686 | 252 768 |
In line with IFRS 5, the assets and liabilities of the remaining divestments have been moved from various balance sheet lines towards the lines 'Non-current assets held for sale and assets associated with disposal groups' and 'Liabilities associated with disposal groups'. More information on divestments can be found in note 46.
Due to the application of IFRS 11 as from 1 January 2014, the reference figures of the consolidated balance sheet have been restated to account for the different treatment of the joint venture ČMSS in the Czech Business Unit (from proportionate consolidation to equity method - for more information see note 1a).
| Issued and paid up |
Revaluation reserve |
Hedging reserve |
Remeasurement | Parent share |
Non-voting | Additional Tier-1 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| share | Share | Treasury | (AFS | (cashflow | of defined benefit | Translation | holders' | core-capital | instruments | Minority | |||
| In millions of EUR 30-06-2013 |
capital | premium | shares | assets) | hedges) | obligations | Reserves | differences | equity | securities | included in equity | interests Total equity | |
| Balance at the beginning of the period (31-12-2012) | 1 450 | 5 388 | - 1 | 1 263 | - 834 | 0 | 5 192 | - 360 | 12 099 | 3 500 | 0 | 362 | 15 961 |
| First time application IAS19 Revised | 0 | 0 | 0 | 0 | 0 | - 71 | - 11 | 0 | - 82 | 0 | 0 | 0 | - 82 |
| Adjusted balance at the beginning of the period | 1 450 | 5 388 | - 1 | 1 263 | - 834 | - 71 | 5 182 | - 360 | 12 017 | 3 500 | 0 | 362 | 15 879 |
| Net result for the period | 0 | 0 | 0 | 0 | 0 | 0 | 1 037 | 0 | 1 037 | 0 | 0 | 7 | 1 044 |
| Other comprehensive income for the period | 0 | 0 | 0 | - 298 | 256 | - 5 | 2 | - 30 | - 75 | 0 | 0 | 0 | - 75 |
| Total comprehensive income | 0 | 0 | 0 | - 298 | 256 | - 5 | 1 038 | - 30 | 962 | 0 | 0 | 7 | 969 |
| Dividends | 0 | 0 | 0 | 0 | 0 | 0 | - 961 | 0 | - 961 | 0 | 0 | 0 | - 961 |
| Capital increase | 0 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 0 | 0 | 1 |
| Repayment of non-voting core-capital securities | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Sales of treasury shares | 0 | 0 | 1 | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 0 | 0 | 1 |
| Impact business combinations | 0 | 0 | 0 | 0 | 0 | 0 | - 3 | 0 | - 3 | 0 | 0 | 0 | - 3 |
| Change in minorities | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - 6 | - 6 |
| Change in scope | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 102 | 102 | 0 | 0 | - 4 | 97 |
| Total change | 0 | 1 | 1 | - 298 | 256 | - 5 | 75 | 72 | 102 | 0 | 0 | - 4 | 98 |
| Balance at the end of the period | 1 450 | 5 390 | 0 | 965 | - 578 | - 76 | 5 257 | - 288 | 12 119 | 3 500 | 0 | 358 | 15 977 |
| of which revaluation reserve for shares of which revaluation reserve for bonds of which revaluation reserve for other assets than bonds and shares |
199 766 0 |
||||||||||||
| of which relating to non-current assets held for sale and disposal groups | 4 | 1 | - 38 | - 33 | - 33 | ||||||||
| 30-06-2014 | |||||||||||||
| Balance at the beginning of the period (31-12-2013) | 1 452 | 5 404 | 0 | 1 094 | - 497 | 65 | 4 648 | - 340 | 11 826 | 2 333 | 0 | 354 | 14 514 |
| Net result for the period | 0 | 0 | 0 | 0 | 0 | 0 | 714 | 0 | 714 | 0 | 0 | 0 | 714 |
| Other comprehensive income for the period | 0 | 0 | 0 | 381 | - 372 | - 43 | 0 | 0 | - 35 | 0 | 0 | 0 | - 35 |
| Total comprehensive income | 0 | 0 | 0 | 381 | - 372 | - 43 | 714 | 0 | 679 | 0 | 0 | 0 | 679 |
| Dividends | 0 | 0 | 0 | 0 | 0 | 0 | - 14 | 0 | - 14 | 0 | 0 | 0 | - 14 |
| Capital increase | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Repayment of non-voting core-capital securities | 0 | 0 | 0 | 0 | 0 | 0 | - 167 | 0 | - 167 | - 333 | 0 | 0 | - 500 |
| Issue of additional Tier-1 instruments included in equity | 0 | 0 | 0 | 0 | 0 | 0 | - 6 | 0 | - 6 | 0 | 1 400 | 0 | 1 394 |
| Impact business combinations | 0 | 0 | 0 | 0 | 0 | 0 | - 1 | 0 | - 1 | 0 | 0 | 0 | - 1 |
| Change in minorities | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Change in scope | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - 358 | - 358 |
| Total change | 0 | 0 | 0 | 381 | - 372 | - 43 | 526 | 0 | 492 | - 333 | 1 400 | - 358 | 1 201 |
| Balance at the end of the period | 1 452 | 5 404 | 0 | 1 474 | - 869 | 23 | 5 175 | - 340 | 12 318 | 2 000 | 1 400 | - 3 | 15 715 |
| of which revaluation reserve for shares of which revaluation reserve for bonds of which revaluation reserve for other assets than bonds and shares |
304 1 171 - 1 |
||||||||||||
| of which relating to non-current assets held for sale and disposal groups | 5 | 1 | 0 | - 3 | 3 | 3 |
The changes in equity do not include any dividend or coupon for 2013 as none is paid out. For 2014, KBC foresees a dividend of up to 2 euros per share. On 8 January 2014, KBC repaid 0.33 billion euros (plus a penalty of 50% or 0.17 billion euros) worth of core-capital securities to the Flemish Regional Government.
In 1Q 2014, the placement of an additional tier-1 instrument for an amount of 1.4 billion euros positively contributed to the total equity. The quarterly coupon on this additional tier-1 instrument is presented as dividend (-14 million euros after tax in 2Q 2014).
During 2Q 2014, KBC executed a call on all of its Trust preferred securities which negatively influences the minority interests in equity for an amount of approximately -358 million euros. In 1H 2014, revaluation reserves (AFS assets) increased by 381 million euros mainly due to decreasing interest rates which positively contributed to reserves on bonds to the tune of 401 million euros (of which 234 million euros in 2Q 2014). This was offset by a slightly negative impact on reserves on shares to the tune of -19 million euros. A negative effect, also for a large part linked to decreasing interest rates, of -372 million euros (of which -192 million euros in 2Q 2014) was noted on hedging reserves (cashflow hedges).
| In millions of EUR | 1H 2013 | 1H 2014 |
|---|---|---|
| Net cash from (used in) operating activities | 9 342 | 6 364 |
| Net cash from (used in) investing activities | - 2 497 | 931 |
| Net cash from (used in) financing activities | - 345 | - 4 916 |
| Change in cash and cash equivalents | ||
| Net increase or decrease in cash and cash equivalents | 6 500 | 2 379 |
| Cash and cash equivalents at the beginning of the period | 982 | 8 803 |
| Effects of exchange rate changes on opening cash and cash equivalents | - 134 | - 28 |
| Cash and cash equivalents at the end of the period | 7 347 | 11 154 |
The sale of KBC Bank Deutschland (announced on 24 September 2013) and Antwerp Diamond Bank (announced on 19 December 2013) will have no material impact on cash flows at the level of KBC Group.
On 8 January 2014, KBC repaid 0.33 billion euros principal (plus a penalty of 50% or 0.17 billion euros) to the Flemish Regional Government. This has had an influence in the first quarter of 2014 on the net cash from financing activities to the tune of -0.5 billion euros.
In the first quarter of 2014, the issue of an additional tier-1 instrument in March 2014 has had an influence on the net cash from financing activities to the tune of +1.4 billion euros. However, maturing senior unsecured debt and subordinated debt, more than counterbalanced this positive influence.
During the second quarter of 2014 a number of subordinated instruments were called which led to a negative impact of approximately -2.3 billion euros on net cash from financing activities.
The consolidated financial statements of the KBC Group have been prepared in accordance with the International Financial Reporting Standards (IAS 34) as adopted for use in the European Union ('endorsed IFRS'). The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2013.
IFRS 10, 11 and 12 are the new consolidation standards that became effective in the European Union on or after 1 January 2014. IFRS 10 includes a new definition of control, which could, but at KBC did not lead to changes in the scope of consolidation. Under IFRS 11 (Joint Arrangements), it is specified that joint ventures must be accounted for using the equity method and no longer by proportionate consolidation. IFRS 12 combines all the disclosure requirements for subsidiaries, joint arrangements, associates and structured entities (the new name for Special Purpose Entities).The main change for KBC is the application of the equity method instead of proportionate consolidation for Českomoravská Stavební Spořitelna (ČMSS), a jointly owned subsidiary of ČSOB. This change does not affect the result after tax or parent shareholders' equity, but it has an impact on various items in the consolidated income statement and balance sheet. The disclosure requirements will be added to the annual report for 2014.
IFRIC 21 (Levies) was endorsed by the European Union in June 2014 with application date as from 1 January 2015 and with retroactive application. As a result KBC may have to restate its comparable quarterly figures for 2014 (relates solely to movements between quarters and has no impact on the figures for the full year). The main consequence of the application of IFRIC 21 in 2015 will be that certain levies will need to be taken upfront which will negatively impact the first quarter results in 2015.
A summary of the main accounting policies is provided in the Group's annual financial statements as at 31 December 2013.
KBC is structured and managed according to a number of segments (called 'business units'). For reporting purposes, the business units are:
Up until 1 May 2014, the management structure of the group also included an International Product Factories Business Unit. From 1 May 2014 onward, this is merged with the International Markets Business Unit. The results of the activities of the former International Product Factories Business Unit have always been and will continue to be included in the results of the business units based on geography. This merger, therefore will not influence the results of the International Markets Business Unit as compared to the situation before the merger.
Inter-segment transactions are presented at arm's length.
The figures of the segment reporting have been prepared in accordance with the general KBC accounting policies (see note 1) and are thus in compliance with the International Financial Reporting Standards as adopted for use in the European Union (endorsed IFRS).
In addition to the figures according to IFRS, KBC provides figures aimed at giving more insight into the ongoing business performance. The resulting figures are called 'adjusted net result' and are the current basis for the segment reporting.
This means that, over and above the IFRS profit and loss account, a reworked profit and loss account is provided, in which a limited number of non-operational items is excluded from the P/L and summarised into three lines at the bottom of the reporting presentation. Segment reporting is based on this reworked presentation.
These non-operational items are:
In the segment reporting presentation, these items are all assigned to the Group Centre.
In the IFRS accounts, income related to trading activities is split across different components. While trading gains are recognised under 'net result from financial instruments at fair value', the funding costs and commissions paid in order to realise these trading gains are recognised respectively under 'net interest income' and 'net fee and commission income'. Moreover, part of the 'dividend income', 'net realised result on available-for-sale assets' and 'other net income' are also related to trading income. In the net adjusted result of the Belgian Business Unit (KBC Bank Belgium), all trading income components within investment banking are recognised under 'net result from financial instruments at fair value', without any impact on net profit. This recognition is not done for the other business units due to materiality.
| Group | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Business | Centre excl | |||||||||
| Business unit |
Business unit Czech |
unit Interna tional |
of which: | of which: | of which: | of which: | inter segment |
Inter segment |
KBC | |
| In millions of EUR | Belgium | Republic | Markets | Hungary | Slovakia | Bulgaria | Ireland | eliminations | eliminations | Group |
| 1H 2013 | ||||||||||
| Net interest income | 1 298 | 462 | 315 | 132 | 96 | 19 | 68 | - 80 | - 2 | 1 994 |
| Non-life insurance before reinsurance | 212 | 19 | 40 | 14 | 11 | 15 | 0 | 3 | - 10 | 264 |
| Earned premiums Non-life | 473 | 84 | 77 | 29 | 12 | 36 | 0 | - 2 | - 10 | 621 |
| Technical charges Non-life | - 260 | - 64 | - 37 | - 15 | - 2 | - 21 | 0 | 5 | 0 | - 357 |
| Life insurance before reinsurance | - 138 | 12 | 2 | - 5 | 5 | 2 | 0 | 3 | - 1 | - 122 |
| Earned premiums Life Technical charges Life |
374 - 512 |
84 - 71 |
45 - 43 |
7 - 12 |
30 - 25 |
8 - 7 |
0 0 |
10 - 7 |
- 1 0 |
512 - 634 |
| Ceded reinsurance result | - 5 | 8 | - 4 | - 1 | - 1 | - 2 | 0 | 2 | 0 | 1 |
| Dividend income | 22 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 23 |
| Net result from financial instruments at fair value through profit or loss | 336 | 44 | 44 | 36 | 10 | 1 | - 3 | 49 | 0 | 473 |
| Net realised result from available-for-sale assets | 115 | 12 | 11 | 6 | 3 | 1 | 1 | 4 | 0 | 141 |
| Net fee and commission income | 579 | 90 | 86 | 64 | 22 | 1 | - 3 | 7 | 4 | 767 |
| Net other income | 115 | 5 | 21 | 14 | 8 | - 2 | 0 | 0 | 3 | 145 |
| TOTAL INCOME | 2 534 | 655 | 514 | 261 | 153 | 34 | 63 | - 11 | - 6 | 3 686 |
| Operating expenses | - 1 119 | - 314 | - 386 | - 227 | - 89 | - 25 | - 42 | - 123 | 6 | - 1 936 |
| Impairment | - 238 | - 27 | - 243 | - 22 | - 18 | - 15 | - 187 | - 58 | 0 | - 567 |
| on loans and receivables on available-for-sale assets |
- 220 - 5 |
- 27 0 |
- 231 - 10 |
- 20 0 |
- 18 0 |
- 6 - 10 |
- 187 0 |
- 29 - 2 |
0 0 |
- 509 - 16 |
| on goodwill | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - 7 | 0 | - 7 |
| on other | - 13 | 0 | - 2 | - 2 | 0 | 0 | 0 | - 20 | 0 | - 35 |
| Share in results of associated companies and joint ventures | 0 | 15 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 15 |
| RESULT BEFORE TAX | 1 177 | 329 | - 114 | 13 | 45 | - 6 | - 167 | - 192 | 0 | 1 199 |
| Income tax expense | - 374 | - 50 | 4 | - 6 | - 12 | 1 | 21 | 71 | 0 | - 349 |
| Net post-tax result from discontinued operations | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| RESULT AFTER TAX | 803 | 279 | - 110 | 7 | 34 | - 5 | - 146 | - 121 | 0 | 850 |
| Attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 7 | 0 | 7 |
| ADJUSTED NET RESULT Legacy CDOs |
803 0 |
279 0 |
- 110 0 |
7 0 |
34 0 |
- 5 0 |
- 146 0 |
- 128 346 |
0 0 |
843 346 |
| Own credit risk | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - 46 | 0 | - 46 |
| Divestments | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - 106 | 0 | - 106 |
| NET RESULT | 803 | 279 | - 110 | 7 | 34 | - 5 | - 146 | 66 | 0 | 1 037 |
| 1H 2014 | ||||||||||
| Net interest income | 1 393 | 438 | 333 | 139 | 104 | 21 | 69 | - 118 | 3 | 2 049 |
| Non-life insurance before reinsurance | 185 | 35 | 38 | 13 | 9 | 15 | 0 | 2 | - 10 | 251 |
| Earned premiums Non-life | 476 | 79 | 75 | 27 | 13 | 35 | 0 | 1 | - 10 | 623 |
| Technical charges Non-life | - 292 | - 44 | - 37 | - 14 | - 4 | - 19 | 0 | 1 | 0 | - 372 |
| Life insurance before reinsurance | - 130 | 11 | 5 | - 3 | 6 | 2 | 0 | 1 | - 1 | - 114 |
| Earned premiums Life | 489 | 73 | 44 | 7 | 28 | 9 | 0 | 1 | - 1 | 606 |
| Technical charges Life | - 619 | - 61 | - 39 | - 10 | - 22 | - 7 | 0 | 0 | 0 | - 720 |
| Ceded reinsurance result Dividend income |
5 31 |
- 4 0 |
- 3 0 |
- 1 0 |
- 1 0 |
- 2 0 |
0 0 |
5 1 |
0 0 |
3 33 |
| Net result from financial instruments at fair value through profit or loss | - 26 | 23 | 42 | 40 | 8 | 1 | - 6 | 14 | 0 | 54 |
| Net realised result from available-for-sale assets | 75 | 8 | 9 | 8 | 1 | 0 | 0 | 7 | 0 | 99 |
| Net fee and commission income | 561 | 93 | 100 | 78 | 22 | 0 | - 2 | 16 | - 2 | 766 |
| Net other income | 146 | 9 | - 227 | - 227 | 0 | 0 | 0 | - 5 | 5 | - 72 |
| TOTAL INCOME | 2 240 | 615 | 297 | 48 | 149 | 37 | 61 | - 77 | - 6 | 3 069 |
| Operating expenses | - 1 122 | - 293 | - 383 | - 203 | - 91 | - 25 | - 62 | - 99 | 6 | - 1 891 |
| Impairment | - 74 | - 4 | - 149 | - 25 | - 10 | - 4 | - 110 | - 15 | 0 | - 241 |
| on loans and receivables | - 67 | - 3 | - 148 | - 24 | - 10 | - 4 | - 110 | - 14 | 0 | - 233 |
| on available-for-sale assets | - 7 | 0 | 0 | 0 | 0 | 0 | 0 | - 1 | 0 | - 8 |
| on goodwill on other |
0 1 |
0 0 |
0 - 1 |
0 - 1 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
| Share in results of associated companies and joint ventures | - 1 | 13 | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 13 |
| RESULT BEFORE TAX | 1 043 | 330 | - 234 | - 179 | 48 | 8 | - 111 | - 190 | 0 | 950 |
| Income tax expense | - 309 | - 53 | 32 | 32 | - 13 | 0 | 13 | 55 | 0 | - 275 |
| Net post-tax result from discontinued operations | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| RESULT AFTER TAX | 734 | 277 | - 202 | - 148 | 35 | 8 | - 98 | - 135 | 0 | 675 |
| Attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| ADJUSTED NET RESULT | 734 | 277 | - 202 | - 148 | 35 | 8 | - 98 | - 135 | 0 | 675 |
| Legacy CDOs | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 46 | 0 | 46 |
| Own credit risk | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - 6 | 0 | - 6 |
| Divestments NET RESULT |
0 734 |
0 277 |
0 - 202 |
0 - 148 |
0 35 |
0 8 |
0 - 98 |
- 1 - 95 |
0 0 |
- 1 714 |
Legacy CDO's: Over the first half of 2014, improvements in market price of corporate credit as reflected in tightened credit default swap spreads generated a value mark-up of KBC's CDO exposure, both in 1Q and 2Q 2014. This was to a small extent offset by the further de-risking of the legacy CDO portfolio in the first quarter of 2014. The total result also includes the impact of the government guarantee and the related fee, and the coverage (60%) of the CDO-linked counterparty risk against MBIA, a US monoline insurer.
In the first half of 2014, there was only limited influence on the results due to 'own credit risk' and 'divestments'.
In the table below, an overview is provided of a number of balance sheet items divided by segment.
| Business | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Business | Business | unit Interna | |||||||
| unit | unit Czech | tional | of which: | of which: | of which: | of which: | Group | KBC | |
| In millions of EUR | Belgium | Republic | Markets | Hungary | Slovakia | Bulgaria | Ireland | Centre | Group |
| 31-12-2013 | |||||||||
| Deposits from customers & debt certificates excl. repos | 97 051 | 21 834 | 14 472 | 5 878 | 4 583 | 544 | 3 466 | 17 123 | 150 480 |
| Loans & advances to customers excluding reverse repos | 81 673 | 15 684 | 21 261 | 3 864 | 4 248 | 612 | 12 537 | 1 080 | 119 698 |
| Term loans excl. Reverse repos | 40 566 | 6 279 | 5 612 | 1 772 | 1 488 | 242 | 2 111 | 1 048 | 53 506 |
| Mortgage loans | 31 146 | 6 522 | 13 925 | 1 548 | 1 722 | 236 | 10 419 | 24 | 51 617 |
| Current accounts advances | 1 847 | 19 | 586 | 262 | 324 | 0 | 0 | 0 | 2 451 |
| Finance leases | 3 200 | 359 | 484 | 92 | 385 | 0 | 7 | 0 | 4 044 |
| Consumer credit | 1 251 | 1 538 | 533 | 112 | 287 | 134 | 0 | 0 | 3 322 |
| Other | 3 663 | 967 | 121 | 80 | 41 | 0 | 0 | 8 | 4 758 |
| 30-06-2014 | |||||||||
| Deposits from customers & debt certificates excl. repos | 100 910 | 22 390 | 14 248 | 5 175 | 4 547 | 553 | 3 973 | 13 231 | 150 778 |
| Loans & advances to customers excluding reverse repos | 83 542 | 15 586 | 21 038 | 3 916 | 4 436 | 623 | 12 064 | 1 096 | 121 262 |
| Term loans excl. Reverse repos | 40 976 | 5 688 | 5 361 | 1 839 | 1 472 | 246 | 1 804 | 1 041 | 53 067 |
| Mortgage loans | 31 347 | 6 747 | 13 844 | 1 511 | 1 862 | 235 | 10 236 | 24 | 51 963 |
| Current accounts advances | 2 381 | 16 | 686 | 311 | 357 | 0 | 18 | 0 | 3 083 |
| Finance leases | 3 157 | 402 | 497 | 89 | 402 | 0 | 6 | 0 | 4 056 |
| Consumer credit | 1 211 | 1 592 | 545 | 98 | 305 | 141 | 0 | 0 | 3 348 |
| Other | 4 469 | 1 141 | 105 | 67 | 38 | 0 | 0 | 30 | 5 745 |
| In millions of EUR | 2Q 2013 | 1Q 2014 | 2Q 2014 | 1H 2013 | 1H 2014 |
|---|---|---|---|---|---|
| Total | 1 003 | 1 010 | 1 056 | 2 056 | 2 065 |
| Interest income | 2 079 | 1 930 | 1 971 | 4 239 | 3 901 |
| Available-for-sale assets | 216 | 194 | 185 | 440 | 380 |
| Loans and receivables | 1 219 | 1 068 | 1 143 | 2 517 | 2 211 |
| Held-to-maturity investments | 259 | 232 | 262 | 514 | 494 |
| Other assets not at fair value | 7 | 4 | 1 | 6 | 5 |
| Subtotal, interest income from financial assets not measured at fair value | |||||
| through profit or loss | 1 701 | 1 498 | 1 592 | 3 478 | 3 089 |
| Financial assets held for trading | 239 | 225 | 198 | 492 | 423 |
| Hedging derivatives | 115 | 139 | 132 | 216 | 271 |
| Other financial assets at fair value through profit or loss | 24 | 69 | 49 | 53 | 118 |
| Interest expense | -1 076 | - 920 | - 915 | -2 184 | -1 835 |
| Financial liabilities measured at amortised cost | - 581 | - 431 | - 462 | -1 194 | - 893 |
| Other | - 1 | - 1 | - 1 | - 3 | - 2 |
| Subtotal, interest expense for financial liabilities not measured at fair value | |||||
| through profit or loss | - 582 | - 432 | - 463 | -1 197 | - 895 |
| Financial liabilities held for trading | - 290 | - 270 | - 259 | - 576 | - 530 |
| Hedging derivatives | - 167 | - 179 | - 151 | - 337 | - 331 |
| Other financial liabilities at fair value through profit or loss | - 35 | - 37 | - 40 | - 70 | - 77 |
| Net interest expense on defined benefit plans | - 2 | - 2 | - 1 | - 5 | - 3 |
In 1H 2014, the result from financial instruments at fair value through profit or loss was influenced by:
| In millions of EUR | 2Q 2013 | 1Q 2014 | 2Q 2014 | 1H 2013 | 1H 2014 |
|---|---|---|---|---|---|
| Total | 47 | 51 | 49 | 189 | 100 |
| Breakdown by portfolio | |||||
| Fixed-income securities | 22 | 16 | 23 | 88 | 39 |
| Shares | 24 | 35 | 26 | 101 | 62 |
In 1H 2014, the net realised result from available-for-sale assets is for the largest part related to sales of shares at KBC Insurance.
| In millions of EUR | 2Q 2013 | 1Q 2014 | 2Q 2014 | 1H 2013 | 1H 2014 |
|---|---|---|---|---|---|
| Total | 381 | 374 | 387 | 771 | 761 |
| Fee and commission income | 560 | 557 | 533 | 1 197 | 1 090 |
| Securities and asset management | 275 | 278 | 290 | 556 | 568 |
| Margin on deposit accounting (life insurance investment contracts w ithout DPF) |
31 | 20 | 22 | 78 | 42 |
| Commitment credit | 61 | 59 | 60 | 126 | 119 |
| Payments | 128 | 130 | 127 | 260 | 257 |
| Other | 65 | 71 | 34 | 177 | 104 |
| Fee and commission expense | - 179 | - 182 | - 147 | - 426 | - 329 |
| Commission paid to intermediaries | - 77 | - 73 | - 71 | - 150 | - 144 |
| Other | - 102 | - 109 | - 76 | - 276 | - 184 |
| In millions of EUR | 2Q 2013 | 1Q 2014 | 2Q 2014 | 1H 2013 | 1H 2014 |
|---|---|---|---|---|---|
| Total | - 20 | 52 | - 99 | 56 | - 47 |
| Of which net realised result following | |||||
| The sale of loans and receivables | - 7 | 0 | 2 | - 4 | 2 |
| The sale of held-to-maturity investments | 0 | 0 | 0 | 0 | 0 |
| The repurchase of financial liabilities measured at amortised | |||||
| cost | 0 | 0 | 0 | - 1 | 0 |
| Other: of which: | - 13 | 52 | - 101 | 61 | - 49 |
| Income concerning leasing at the KBC Lease-group | 22 | 24 | 16 | 44 | 40 |
| Income from Group VAB | 17 | 18 | 16 | 35 | 35 |
| Realised gains or losses on divestments | - 91 | - 2 | 16 | - 94 | 14 |
| New law on retail loans (Hungary) | 0 | 0 | - 231 | 0 | - 231 |
| Legal settlement in 2Q14 of an old credit file | 0 | 0 | 31 | 0 | 31 |
In 2Q 2014,:there was an impact to the tune of -231 million euros pre tax (-183 million euros after tax) due to the on 4 July by the Hungarian parliament adopted act 'Resolution of certain issues related to the Supreme Court's (Curia) uniformity decision on consumer loan agreements concluded by financial institutions' and the guidelines issued by the Hungarian Central Bank at the end of July. For more information, see KBC's press release from 8 July 2014 on www.kbc.com.
| Non-technical | ||||
|---|---|---|---|---|
| In millions of EUR | Life | Non-life | account | TOTAL |
| 1H 2013 | ||||
| Earned premiums, insurance (before reinsurance) | 513 | 631 | - | 1 144 |
| Technical charges, insurance (before reinsurance) | - 634 | - 357 | - | - 991 |
| Net fee and commission income | - 18 | - 114 | 34 | - 98 |
| Ceded reinsurance result | - 1 | 2 | 0 | 1 |
| Operating expenses | - 63 | - 123 | - 1 | - 186 |
| Internal costs claim paid | - 4 | - 30 | - | - 34 |
| Administration costs related to acquisitions | - 17 | - 36 | - | - 52 |
| Administration costs | - 42 | - 57 | - | - 99 |
| Management costs investments | 0 | 0 | - 1 | - 1 |
| Technical result | - 202 | 39 | 33 | - 129 |
| Net interest income | 354 | 354 | ||
| Dividend income | 16 | 16 | ||
| Net result from financial instruments at fair value | 139 | 139 | ||
| Net realised result from AFS assets | 28 | 28 | ||
| Net other income | - 9 | - 9 | ||
| Impairments | - 43 | - 43 | ||
| Allocation to the technical accounts | 353 | 57 | - 411 | 0 |
| Technical-financial result | 151 | 97 | 107 | 355 |
| Share in results of associated companies and joint ventures | 0 | 0 | ||
| RESULT BEFORE TAX | 151 | 97 | 107 | 355 |
| Income tax expense | - 116 | |||
| Net post-tax result from discontinued operations | 0 | |||
| RESULT AFTER TAX | 240 | |||
| attributable to minority interest | 0 | |||
| attributable to equity holders of the parent | 239 | |||
| 1H 2014 | ||||
| Earned premiums, insurance (before reinsurance) | 607 | 633 | - | 1 240 |
| Technical charges, insurance (before reinsurance) | - 720 | - 372 | - | - 1 092 |
| Net fee and commission income | - 6 | - 114 | - | - 120 |
| Ceded reinsurance result | - 1 | 3 | 0 | 3 |
| Operating expenses | - 61 | - 119 | 0 | - 180 |
| Internal costs claim paid | - 4 | - 29 | - | - 33 |
| Administration costs related to acquisitions | - 14 | - 37 | - | - 51 |
| Administration costs | - 43 | - 53 | - | - 96 |
| Management costs investments | 0 | 0 | 0 | 0 |
| Technical result | - 180 | 31 | 0 | - 150 |
| Net interest income | 334 | 334 | ||
| Dividend income | 30 | 30 | ||
| Net result from financial instruments at fair value | 27 | 27 | ||
| Net realised result from AFS assets | 64 | 64 | ||
| Net other income | 1 | 1 | ||
| Impairments | - 7 | - 7 | ||
| Allocation to the technical accounts | 335 | 57 | - 392 | 0 |
| Technical-financial result | 155 | 88 | 57 | 299 |
| Share in results of associated companies and joint ventures | 1 | 1 | ||
| RESULT BEFORE TAX | 155 | 88 | 58 | 301 |
| Income tax expense | - 78 | |||
| Net post-tax result from discontinued operations | 0 | |||
| RESULT AFTER TAX | 223 | |||
| attributable to minority interest | 0 | |||
| attributable to equity holders of the parent | 223 |
Note: Figures for premium income exclude the investment contracts without DPF, 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 2013 annual report).
The results of 2Q 2014 were negatively influenced for an amount of -41 million euros after reinsurance (pre tax) by severe hailstorms in Belgium in June 2014. Any additional claims will have no further impact as these are covered by reinsurance.
| In millions of EUR | 2Q 2013 | 1Q 2014 | 2Q 2014 | 1H 2013 | 1H 2014 |
|---|---|---|---|---|---|
| Total | - 275 | - 114 | - 142 | - 625 | - 255 |
| Impairment on loans and receivables | - 254 | - 102 | - 136 | - 547 | - 238 |
| Breakdown by type | |||||
| Specific impairments for on-balance-sheet lending | - 239 | - 150 | - 189 | - 496 | - 339 |
| Provisions for off-balance-sheet credit commitments | 0 | - 2 | 20 | - 8 | 18 |
| Portfolio-based impairments | - 15 | 49 | 33 | - 44 | 82 |
| Breakdown by business unit | |||||
| Business unit Belgium | - 82 | - 34 | - 34 | - 220 | - 67 |
| Business unit Czech Republic | - 8 | - 2 | - 2 | - 27 | - 3 |
| Business unit International Markets | - 114 | - 64 | - 84 | - 231 | - 148 |
| of which: Hungary | - 10 | - 11 | - 13 | - 20 | - 24 |
| of which: Slovakia | - 14 | - 4 | - 6 | - 18 | - 10 |
| of which: Bulgaria | - 2 | - 1 | - 3 | - 6 | - 4 |
| of which: Ireland | - 88 | - 48 | - 62 | - 187 | - 110 |
| Group Centre | - 50 | - 3 | - 17 | - 68 | - 20 |
| Impairment on available-for-sale assets | - 3 | - 5 | - 3 | - 16 | - 8 |
| Breakdown by type | |||||
| Shares | - 3 | - 5 | - 3 | - 7 | - 8 |
| Other | 0 | 0 | 0 | - 10 | 0 |
| Impairment on goodwill | 0 | 0 | 0 | - 7 | 0 |
| Impairment on other | - 18 | - 6 | - 3 | - 55 | - 9 |
| Intangible assets, other than goodwill | 0 | 0 | 0 | 0 | 0 |
| Property and equipment and investment property | - 14 | 0 | 0 | - 14 | - 1 |
| Held-to-maturity assets | 0 | 1 | 0 | 0 | 1 |
| Associated companies and joint ventures | 0 | 0 | 0 | 0 | 0 |
| Other | - 3 | - 7 | - 2 | - 40 | - 9 |
| Held for | Designated at | Available for | Loans and | Held to | Hedging | Measured at | ||
|---|---|---|---|---|---|---|---|---|
| (In millions of EUR) | trading | fair value | sale | receivables | maturity | derivatives | amortised cost | Total |
| FINANCIAL ASSETS, 31-12-2013 | ||||||||
| Loans and advances to credit institutions and investment firms a | 5 100 | 1 596 | 0 | 9 571 | - | - | - | 16 267 |
| Loans and advances to customers b | 706 | 774 | 0 | 118 892 | - | - | - | 120 371 |
| Excluding reverse repos | 703 | 200 | 0 | 118 796 | - | - | - | 119 698 |
| Discount and acceptance credit | 0 | 0 | 0 | 605 | - | - | - | 605 |
| Consumer credit | 0 | 0 | 0 | 3 322 | - | - | - | 3 322 |
| Mortgage loans | 0 | 34 | 0 | 51 583 | - | - | - | 51 617 |
| Term loans | 696 | 697 | 0 | 52 786 | - | - | - | 54 179 |
| Finance leasing | 0 | 0 | 0 | 4 044 | - | - | - | 4 044 |
| Current account advances | 0 | 0 | 0 | 2 451 | - | - | - | 2 451 |
| Securitised loans | 0 | 0 | 0 | 0 | - | - | - | 0 |
| Other | 10 | 43 | 0 | 4 101 | - | - | - | 4 154 |
| Equity instruments | 283 | 8 | 1 579 | - | - | - | - | 1 870 |
| Investment contracts (insurance) | - | 12 745 | - | - | - | - | - | 12 745 |
| Debt securities issued by | 2 974 | 1 319 | 25 728 | 1 690 | 31 323 | - | - | 63 034 |
| Public bodies | 2 385 | 771 | 17 337 | 118 | 29 630 | - | - | 50 240 |
| Credit institutions and investment firms | 268 | 195 | 3 289 | 154 | 1 040 | - | - | 4 946 |
| Corporates | 321 | 353 | 5 102 | 1 418 | 654 | - | - | 7 848 |
| Derivatives | 7 823 | - | - | - | - | 777 | - | 8 600 |
| Total carrying value | 16 885 | 16 441 | 27 307 | 130 153 | 31 323 | 777 | 0 | 222 887 |
| a Of which reverse repos |
||||||||
| b Of which reverse repos | 8 483 673 |
|||||||
| FINANCIAL ASSETS, 30-06-2014 | ||||||||
| Loans and advances to credit institutions and investment firms a | 330 | 1 110 | 0 | 18 166 | - | - | - | 19 606 |
| Loans and advances to customers b | ||||||||
| 189 | 3 242 | 0 | 121 230 | - | - | - | 124 661 | |
| Excluding reverse repos | 21 | 135 | 0 | 121 106 | - | - | - | 121 262 |
| Trade receivables | 0 | 0 | 0 | 3 026 | - | - | - | 3 026 |
| Consumer credit | 0 | 0 | 0 | 3 348 | - | - | - | 3 348 |
| Mortgage loans Term loans |
0 168 |
34 3 208 |
0 0 |
51 929 53 090 |
- - |
- - |
- - |
51 963 56 466 |
| Finance leasing | 0 | 0 | 0 | 4 056 | - | - | - | 4 056 |
| Current account advances | 0 | 0 | 0 | 3 083 | - | - | - | 3 083 |
| Securitised loans | 0 | 0 | 0 | 0 | - | - | - | 0 |
| Other | 21 | 0 | 0 | 2 698 | - | - | - | 2 719 |
| Equity instruments | 302 | 5 | 1 639 | - | - | - | - | 1 945 |
| Investment contracts (insurance) | - | 13 201 | - | - | - | - | - | 13 201 |
| Debt securities issued by | 3 778 | 1 726 | 29 091 | 1 265 | 30 574 | - | - | 66 435 |
| Public bodies | 3 215 | 1 160 | 17 768 | 37 | 29 089 | - | - | 51 269 |
| Credit institutions and investment firms | 241 | 171 | 5 432 | 155 | 882 | - | - | 6 881 |
| Corporates | 322 | 395 | 5 892 | 1 073 | 604 | - | - | 8 285 |
| Derivatives | 8 117 | - | - | - | - | 1 010 | - | 9 127 |
| Total carrying value | 12 717 | 19 284 | 30 730 | 140 660 | 30 574 | 1 010 | 0 | 234 975 |
| a Of which reverse repos |
||||||||
| b Of which reverse repos | 11 228 | |||||||
| 3 399 |
As of 2Q 2014, in order to provide a more transparent product view, factoring is no longer included in the other loans and advances to customers (total impacted amount of 2.4 billion euros), but – together with the discount and acceptance credits – combined in trade receivables.
| Held for | Designated at | Available for | Loans and | Held to | Hedging | Measured at | ||
|---|---|---|---|---|---|---|---|---|
| (In millions of EUR) | trading | fair value | sale | receivables | maturity | derivatives | amortised cost | Total |
| FINANCIAL LIABILITIES, 31-12-2013 | ||||||||
| Deposits from credit institutions and investment firms a | 939 | 896 | - | - | - | - | 12 884 | 14 719 |
| Deposits from customers and debt certificates b | 3 634 | 12 248 | - | - | - | - | 145 253 | 161 135 |
| Excluding repos | 319 | 5 292 | - | - | - | - | 144 869 | 150 480 |
| Deposits from customers | 3 348 | 7 836 | - | - | - | - | 120 538 | 131 722 |
| Demand deposits | 0 | 50 | - | - | - | - | 38 999 | 39 049 |
| Time deposits | 3 347 | 7 786 | - | - | - | - | 43 837 | 54 970 |
| Savings deposits | 0 | 0 | - | - | - | - | 34 990 | 34 990 |
| Special deposits | 0 | 0 | - | - | - | - | 1 335 | 1 335 |
| Other deposits | 0 | 0 | - | - | - | - | 1 378 | 1 378 |
| Debt certificates | 286 | 4 412 | - | - | - | - | 24 715 | 29 413 |
| Certificates of deposit | 0 | 6 | - | - | - | - | 3 540 | 3 546 |
| Customer savings certificates | 0 | 0 | - | - | - | - | 473 | 473 |
| Convertible bonds | 0 | 0 | - | - | - | - | 0 | 0 |
| Non-convertible bonds | 286 | 3 763 | - | - | - | - | 14 869 | 18 919 |
| Convertible subordinated liabilities | 0 | 0 | - | - | - | - | 0 | 0 |
| Non-convertible subordinated liabilities | 0 | 643 | - | - | - | - | 5 832 | 6 475 |
| Liabilities under investment contracts | - | 11 787 | - | - | - | - | 0 | 11 787 |
| Derivatives | 8 161 | - | - | - | - | 1 678 | - | 9 838 |
| Short positions | 386 | 0 | - | - | - | - | - | 386 |
| in equity instruments | 40 | 0 | - | - | - | - | - | 40 |
| in debt instruments | 345 | 0 | - | - | - | - | - | 345 |
| Other | 0 | 0 | - | - | - | - | 1 556 | 1 556 |
| Total carrying value | 13 119 | 24 931 | - | - | - | 1 678 | 159 693 | 199 421 |
| a Of which repos | 1 672 | |||||||
| b Of which repos |
10 655 | |||||||
| FINANCIAL LIABILITIES, 30-06-2014 | ||||||||
| Deposits from credit institutions and investment firms a | 554 | 1 473 | - | - | - | - | 16 587 | 18 614 |
| Deposits from customers and debt certificates b | 931 | 12 167 | - | - | - | - | 153 309 | 166 407 |
| Excluding repos | 331 | 3 192 | - | - | - | - | 147 256 | 150 778 |
| Deposits from customers | 615 | 9 756 | - | - | - | - | 131 169 | 141 541 |
| Demand deposits | 0 | 0 | - | - | - | - | 43 815 | 43 815 |
| Time deposits | 615 | 9 717 | - | - | - | - | 47 766 | 58 098 |
| Savings deposits | 0 | 0 | - | - | - | - | 36 394 | 36 394 |
| Special deposits | 0 | 0 | - | - | - | - | 1 751 | 1 751 |
| Other deposits | 0 | 39 | - | - | - | - | 1 445 | 1 484 |
| Debt certificates | 316 | 2 412 | - | - | - | - | 22 139 | 24 866 |
| Certificates of deposit | 0 | 4 | - | - | - | - | 4 043 | 4 047 |
| Customer savings certificates | 0 | 0 | - | - | - | - | 712 | 712 |
| Convertible bonds | 0 | 0 | - | - | - | - | 0 | 0 |
| Non-convertible bonds | 316 | 1 882 | - | - | - | - | 14 109 | 16 307 |
| Convertible subordinated liabilities | 0 | 0 | - | - | - | - | 0 | 0 |
| Non-convertible subordinated liabilities | 0 | 526 | - | - | - | - | 3 276 | 3 801 |
| Liabilities under investment contracts | - | 12 322 | - | - | - | - | 0 | 12 322 |
| Derivatives | 8 527 | 0 | - | - | - | 2 335 | - | 10 861 |
| Short positions | 437 | 0 | - | - | - | - | - | 437 |
| in equity instruments | 50 | 0 | - | - | - | - | - | 50 |
| in debt instruments | 386 | 0 | - | - | - | - | - | 386 |
| Other | 0 | 0 | - | - | - | - | 2 517 | 2 517 |
| Total carrying value | 10 448 | 25 962 | - | - | - | 2 335 | 172 412 | 211 157 |
| a Of which repos | 1 987 | |||||||
| b Of which repos |
15 629 | |||||||
| In millions of EUR | 30-06-2013 | 30-09-2013 | 31-12-2013 | 31-03-2014 | 30-06-2014 |
|---|---|---|---|---|---|
| Total customer loans excluding reverse repo | |||||
| Business unit Belgium | 83 453 | 82 472 | 81 673 | 81 967 | 83 542 |
| Business unit Czech Republic | 15 972 | 16 026 | 15 684 | 15 424 | 15 586 |
| Business unit International Markets | 22 561 | 22 471 | 21 261 | 21 119 | 21 038 |
| of which: Hungary | 4 019 | 4 103 | 3 864 | 3 863 | 3 916 |
| of which: Slovakia | 4 187 | 4 247 | 4 248 | 4 342 | 4 436 |
| of which: Bulgaria | 546 | 566 | 612 | 603 | 623 |
| of which: Ireland | 13 808 | 13 556 | 12 537 | 12 311 | 12 064 |
| Group Centre | 1 323 | 1 261 | 1 080 | 1 095 | 1 096 |
| KBC Group | 123 309 | 122 231 | 119 698 | 119 606 | 121 262 |
| Mortgage loans | |||||
| Business unit Belgium | 30 891 | 31 042 | 31 146 | 31 183 | 31 347 |
| Business unit Czech Republic | 6 611 | 6 805 | 6 522 | 6 633 | 6 747 |
| Business unit International Markets | 14 730 | 14 591 | 13 925 | 13 833 | 13 844 |
| of which: Hungary | 1 618 | 1 598 | 1 548 | 1 520 | 1 511 |
| of which: Slovakia | 1 629 | 1 668 | 1 722 | 1 780 | 1 862 |
| of which: Bulgaria | 246 | 239 | 236 | 234 | 235 |
| of which: Ireland | 11 236 | 11 086 | 10 419 | 10 299 | 10 236 |
| Group Centre | 27 | 26 | 24 | 24 | 24 |
| KBC Group | 52 259 | 52 465 | 51 617 | 51 674 | 51 963 |
| Customer deposits and debt certificates excl. | |||||
| repos | |||||
| Business unit Belgium | 99 672 | 100 071 | 97 051 | 100 471 | 100 910 |
| Business unit Czech Republic | 21 885 | 22 330 | 21 834 | 22 025 | 22 390 |
| Business unit International Markets | 14 300 | 14 730 | 14 472 | 14 390 | 14 248 |
| of which: Hungary | 5 958 | 6 214 | 5 878 | 5 442 | 5 175 |
| of which: Slovakia | 4 506 | 4 508 | 4 583 | 4 555 | 4 547 |
| of which: Bulgaria | 550 | 534 | 544 | 547 | 553 |
| of which: Ireland | 3 287 | 3 474 | 3 466 | 3 846 | 3 973 |
| Group Centre | 17 786 | 17 578 | 17 123 | 14 152 | 13 231 |
| KBC Group | 153 643 | 154 709 | 150 480 | 151 039 | 150 778 |
| Technical provisions, Life Insurance In millions of EUR |
30-06-2013 | 30-09-2013 | 31-12-2013 | 31-03-2014 | 30-06-2014 | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| Interest Guaranteed |
Unit Linked |
Interest Guaranteed |
Unit Linked |
Interest Guaranteed |
Unit Linked |
Interest Guaranteed |
Unit Linked |
Interest Guaranteed |
Unit Linked |
|
| Business unit Belgium | 13 483 | 11 673 | 13 493 | 11 754 | 13 493 | 11 864 | 13 589 | 12 052 | 13 630 | 12 402 |
| Business unit Czech Republic | 573 | 569 | 570 | 578 | 530 | 546 | 527 | 526 | 520 | 507 |
| Business unit International Markets | 228 | 261 | 228 | 266 | 228 | 272 | 221 | 271 | 219 | 292 |
| of which: Hungary | 5 4 |
189 | 5 4 |
189 | 5 4 |
193 | 5 3 |
186 | 5 3 |
199 |
| of which: Slovakia | 138 | 6 9 |
139 | 7 4 |
139 | 7 8 |
133 | 8 4 |
129 | 9 2 |
| of which: Bulgaria | 3 6 |
2 | 3 5 |
2 | 3 5 |
1 | 3 6 |
1 | 3 6 |
1 |
| Group Centre | 4 8 |
6 4 |
5 2 |
6 2 |
5 4 |
6 5 |
0 | 0 | 0 | 0 |
| KBC Group | 14 332 | 12 566 | 14 342 | 12 660 | 14 304 | 12 747 | 14 338 | 12 848 | 14 369 | 13 201 |
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 23 up to and including 26 of the annual accounts 2013.
| Fair value hierarchy | 31-12-2013 | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of EUR | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total |
| Financial assets measured at fair value | ||||||||
| Held for trading | 2 556 | 11 846 | 2 483 | 16 885 | 3 115 | 6 952 | 2 650 | 12 717 |
| Designated at fair value | 13 444 | 2 615 | 382 | 16 441 | 14 213 | 4 645 | 426 | 19 284 |
| Available for sale | 21 444 | 4 091 | 1 772 | 27 307 | 25 720 | 2 949 | 2 061 | 30 730 |
| Hedging derivatives | 0 | 777 | 0 | 777 | 0 | 1 010 | 0 | 1 010 |
| Total | 37 444 | 19 330 | 4 637 | 61 411 | 43 047 | 15 556 | 5 137 | 63 740 |
| Financial liabilities measured at fair value | ||||||||
| Held for trading | 374 | 10 088 | 2 658 | 13 119 | 441 | 7 174 | 2 833 | 10 448 |
| Designated at fair value | 11 787 | 12 600 | 543 | 24 931 | 12 321 | 13 281 | 360 | 25 962 |
| Hedging derivatives | 0 | 1 678 | 0 | 1 678 | 0 | 2 335 | 0 | 2 335 |
| Total | 12 161 | 24 365 | 3 201 | 39 728 | 12 762 | 22 790 | 3 193 | 38 745 |
In the first half of 2014, an approximate total amount of 0.3 billion euros in financial instruments at fair value was transferred from level 1 to level 2. KBC also transferred around 1.3 billion euros in financial instruments at fair value from level 2 to level 1.
| Movements table of assets and liabilities valued in level 3 of the fair value hierarchy – situation at 30-06-2014, in millions of EUR | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| LEVEL 3 FINANCIAL ASSETS | ||||||||||||
| Held for trading | Designated at fair value | Available for sale | Hedging derivatives |
|||||||||
| Loans and advances |
Equity instruments |
Investment contracts |
Debt | securities Derivatives | Loans and advances |
Equity instruments |
Investment contracts |
Debt securities |
Equity instruments |
Debt | securities Derivatives | |
| Opening balance | 0 | 1 | 0 | 342 | 2 141 | 24 | 5 | 0 | 352 | 300 | 1 472 | 0 |
| Total gains/losses | 0 | 0 | 0 | 13 | 351 | 1 | 1 | 0 | 25 | 16 | 14 | 0 |
| in profit and loss* | 0 | 0 | 0 | 13 | 351 | 1 | 1 | 0 | 25 | 0 | 4 | 0 |
| in other comprehensive income | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 16 | 10 | 0 |
| Acquisitions | 0 | 0 | 0 | 2 | 120 | 0 | 0 | 0 | 21 | 15 | 761 | 0 |
| Sales | 0 | 0 | 0 | - 10 | - 85 | 0 | - 5 | 0 | - 2 | - 4 | - 54 | 0 |
| Settlements | 0 | 0 | 0 | - 16 | - 181 | - 1 | 0 | 0 | 0 | 0 | - 461 | 0 |
| Transfers into level 3 | 0 | 0 | 0 | 1 | 0 | 0 | 0 | 0 | 5 | 0 | 142 | 0 |
| Transfers out of level 3 | 0 | 0 | 0 | - 31 | 0 | 0 | 0 | 0 | - 20 | 0 | - 187 | 0 |
| Tranfers from/to non-current assets held for sale | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Translation differences | 0 | 0 | 0 | 1 | 1 | 0 | 0 | 0 | 3 | 0 | 0 | 0 |
| Changes in scope | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 17 | 47 | 0 | 0 |
| Closing balance | 0 | 1 | 0 | 302 | 2 347 | 24 | 1 | 0 | 401 | 375 | 1 686 | 0 |
| Total gains/losses for the period included in profit and loss for assets held at the end of the period |
0 | 0 | 0 | 14 | 346 | 1 | 1 | 0 | 32 | 0 | 4 | 0 |
| LEVEL 3 FINANCIAL LIABILITIES |
| Held for trading | Designated at fair value | Hedging derivatives | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Deposits from credit institutions |
Deposits from customers and debt certificates |
Liabilities under investment |
contracts Derivatives | Short positions |
Other | Deposits from credit institutions |
Deposits from customers and debt certificates |
Liabilities under investment contracts |
Other | ||
| Opening balance | 0 | 102 | 0 | 2 542 | 13 | 0 | 0 | 543 | 0 | 0 | 0 |
| Total gains/losses | 0 | 0 | 0 | 283 | 0 | 0 | 0 | - 8 | 0 | 0 | 0 |
| in profit and loss* | 0 | 0 | 0 | 283 | 0 | 0 | 0 | - 8 | 0 | 0 | 0 |
| in other comprehensive income | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Issues | 0 | 0 | 0 | 134 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Repurchases | 0 | - 2 | 0 | - 2 | 0 | 0 | 0 | - 177 | 0 | 0 | 0 |
| Settlements | 0 | - 20 | 0 | - 207 | - 13 | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfers into level 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfers out of level 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Tranfers from/to financial liabilities regarding disposal groups | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Translation differences | 0 | 1 | 0 | 2 | 0 | 0 | 0 | 2 | 0 | 0 | 0 |
| Changes in scope | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Closing balance | 0 | 81 | 0 | 2 752 | 0 | 0 | 0 | 360 | 0 | 0 | 0 |
| Total gains/losses for the period included in profit and loss for liabilities held at the end of the period |
0 | 0 | 0 | 283 | 0 | 0 | 0 | - 8 | 0 | 0 | 0 |
* Recognised primarily in 'Net result from financial instruments at fair value through profit or loss', 'Net realised result from available-for-sale assets' and 'Impairment on available-for-sale assets'.
Mostly thanks to the further de-risking of the legacy CDO portfolio in 1H 2014, the P/L sensitivity of this portfolio to a +50% credit spread widening decreased from -92 million euros as at 31 December 2013 to -44 million euros at 30 June 2014.
| in number of shares | 31-12-2013 | 30-06-2014 |
|---|---|---|
| Ordinary shares | 417 364 358 | 417 364 358 |
| of which ordinary shares that entitle the holder to a dividend payment | 417 364 358 | 417 364 358 |
| of which treasury shares | 802 | 2 |
| Non-voting core-capital securities | 79 096 044 | 67 796 608 |
| Other information | ||
| Par value per ordinary share (in EUR) | 3.48 | 3.48 |
| Number of shares issued but not fully paid up | 0 | 0 |
The ordinary shares of KBC Group NV have no nominal value and are quoted on NYSE Euronext (Brussels) and on the Luxembourg Stock Exchange.
Non-voting core-capital securities: since the end of 2008, KBC Group NV has issued 7 billion euros in perpetual, nontransferable, non-voting core-capital securities that have equal ranking (pari passu) with ordinary shares upon liquidation. These have been subscribed by the Belgian State (the Federal Holding and Investment Company) and Flemish Region (each in the amount of 3.5 billion euros). The other features of the transactions are dealt with under 'Capital transactions and guarantee agreements with the government in 2008 and 2009' in the 'Additional information' section of the annual report 2013.
In 2012, KBC repaid all of the securities held by the Belgian State to the tune of 3.5 billion euros including a 15% penalty (525 million euros in total).
On 3 July 2013, KBC repaid 1.17 billion euros worth of non-voting core capital securities held by the Flemish Regional Government including a 50% penalty (583 million euros in total). On 8 January 2014, KBC repaid 0.33 billion euros (plus a penalty of 50% or 0.17 billion euros) worth of core-capital securities to the Flemish Regional Government.
On 13 March 2014, KBC placed CRD IV-compliant additional tier-1 securities for a total consideration of 1.4 billion euros. These securities qualify as additional tier-1 capital under the Basel III standards (as transposed in CRD IV) and therefore positively influence KBC's tier-1 capital. The securities are perpetual with an optional call from year 5 onwards. Following the instruments' classification as equity, the coupon of 5.625% per annum, payable each quarter is accounted for as dividend. This transaction has no impact on the number of shares.
During the second quarter of 2014, KBC called all its Trust preferred securities for a total amount of 0.4 billion euros. On top of this, KBC also called two other classic subordinated Tier-1 securities, both from KBC Bank NV and for a total consideration of 1.95 billion euros (included in non-convertible subordinated liabilities – see note 18).
On 8 January 2014, KBC repaid 0.33 billion euros (plus a penalty of 50% or 0.17 billion euros) worth of core-capital securities to the Flemish Regional Government.
Over 2013 results, KBC does not pay a coupon on the remaining non-voting core capital securities, given that no dividend is paid on ordinary shares. For 2014, KBC intends to pay a dividend on ordinary shares and therefore also intends to pay a coupon (payment in 2015) on the remaining non-voting core capital securities.
| Company | Consolidation method |
Ownership percentage at group level |
Comments | |
|---|---|---|---|---|
| For income statement comparison | 2Q 2013 | 2Q 2014 | ||
| Additions | ||||
| None | ||||
| Exclusions | ||||
| Absolut Bank | Full | ------ | ------ | Sold in 2Q 2013 |
| KBC Banka A.D. | Full | 100% | ------ | Sold in 4Q 2013 |
| Name Changes | ||||
| None | ||||
| Changes in ownership percentage and internal mergers | ||||
| KBC Global Services NV | Full | 100% | ------ | Merged with KBC Group NV on 1 July 2013 |
| KBC Consumer Finance NV | Full | 100% | ------ | Merged with KBC Bank NV on 1 January 2014 |
| For balance sheet comparison | 31/12/2013 | 30/06/2014 | ||
| Additions None |
||||
| Exclusions | ||||
| None | ||||
| Name Changes | ||||
| None | ||||
| Changes in ownership percentage and internal mergers | ||||
| KBC Consumer Finance NV | Full | 100% | ------ | Merged with KBC Bank NV on 1 January 2014 |
Due to the application of IFRS 11 as from 1 January 2014, the reference figures throughout the consolidated financial statement have been restated to account for the different treatment of the joint venture ČMSS in the Czech Business Unit (from proportionate consolidation to equity method - for more information see note 1a).
On 30 June 2014, following planned divestments fulfill the criteria of IFRS 5:
The assets and liabilities of these divestments are shown separately on the balance sheet (Non-current assets held for sale and assets associated with disposal groups on the asset side and Liabilities associated with disposal groups on the liability side): see table below for more details.
| Group Centre |
|---|
| On 19 December 2013, KBC has reached an agreement with the Shanghai-based Yinren Group for the sale of its subsidiary Antwerp Diamond Bank (ADB). The sale had only a negligible upfront impact on the KBC group's earnings. The deal will free up around 0.1 billion euros of capital for KBC, primarily by reducing risk-weighted assets, which will ultimately improve KBC's tier-1 ratio (Basel II) by almost 0.2% (pro forma impact calculated based on 30 September 2013 data). Before the deal is closed, part of ADB's loan portfolio – primarily the higher risk and non-performing loans with a net book value of 0.4 billion euros (out of a loan portfolio of 1.2 billion euros in total) – will be transferred to KBC Bank N.V. and put in ordinary run-down. After closure of the deal, KBC will also provide funding to ADB totalling 0.2 billion euros for a maximum period of two years and on a secured basis. Closing of the transaction is subject to the customary regulatory approvals and closure can be expected in the coming quarters. |
| Activity: | Banking |
|---|---|
| Segment: | Group Centre |
| Other information: | On 24 September 2013, KBC has reached an agreement to sell KBC Bank Deutschland AG, a wholly-owned subsidiary of KBC Bank NV, to several investors including affiliates of Teacher Retirement System of Texas (TRS), Apollo Global Management, LLC (NYSE: APO), Apollo Commercial Real Estate Finance, Inc. (NYSE: ARI), and Grovepoint Capital LLP (Grovepoint). This deal will free up around 0.1 billion euros of capital for KBC, primarily by reducing risk-weighted assets and will have no material impact on KBC's financial results. This will result in an improvement |
of KBC's solvency position with roughly 15bp (impact calculated at the time of signing). The agreement allows KBC to continue supporting its homemarket corporate customers requiring
financial services for their German business activities.
Closing of the transaction is subject to the customary regulatory approvals and closure can be expected in the coming quarters.
| NON-CURRENT ASSETS HELD FOR SALE AND ASSETS ASSOCIATED WITH DISPOSAL GROUPS AND LIABILITIES ASSOCIATED WITH DISPOSAL GROUPS |
||
|---|---|---|
| 31-12-2013 | 30-06-2014 | |
| Assets | ||
| Cash and cash balances with central banks | 57 | 39 |
| Financial assets | 3 627 | 3 650 |
| Fair value adjustments of hedged items in portfolio hedge of interest rate risk | 0 | 0 |
| Tax assets | 49 | 46 |
| Investments in associated companies and joint ventures | 0 | 0 |
| Investment property and property and equipment | 22 | 30 |
| Goodwill and other intangible assets | 2 | 2 |
| Other assets | 13 | 7 |
| Total assets | 3 769 | 3 774 |
| Liabilities | ||
| Financial liabilities | 1 977 | 2 107 |
| Technical provisions insurance, before reinsurance | 0 | 0 |
| Tax liabilities | 11 | 13 |
| Provisions for risks and charges | 10 | 5 |
| Other liabilities | 28 | 30 |
| Total liabilities | 2 027 | 2 156 |
| Other comprehensive income | ||
| Available-for-sale reserve | - 3 | - 2 |
| Deferred tax on available-for-sale reserve | 0 | 0 |
| Cash flow hedge reserve | 0 | 1 |
| Translation differences | 0 | 0 |
| Total other comprehensive income | - 4 | - 2 |
Significant events between the balance sheet date (30 June 2014) and the publication of this report (7 August 2014):
There were no non-adjusting post balance sheet events.
.
KBC Group Risk and capital management 2Q 2014 and 1H 2014
The main source of credit risk is the loan portfolio of the bank. A snapshot of the banking portfolio is shown in the table below. It includes all payment credit, guarantee credit (except for confirmations of letters of credit and similar export-/import-related commercial credit), standby credit and credit derivatives, granted by KBC to private persons, companies, governments and banks. Bonds held in the investment portfolio are included if they are corporate- or bank-issued, hence government bonds and trading book exposure are not included. Further on in this chapter, extensive information is provided on the credit portfolio of each business unit. Structured credit exposure is described separately. Information specifically on sovereign bonds can be found under 'note 47 (in the annual accounts 2013)'. Following entities have been recognized as 'disposal groups' under IFRS 5 and have been excluded from the figures since 30-06-2012: Antwerp Diamond Bank and KBC Bank Deutschland. Moreover, the reference figures of the loan portfolio have been restated to account for the different treatment of the joint venture ČMSS in the Czech Business Unit (from proportional consolidation to equity method - for more information see note 1a of the Consolidated financial statements of this interim report.).
| Total loan portfolio (in billions of EUR) Amount granted 159 Amount outstanding1 134 Total loan portfolio, by business unit (as a % of the portfolio of credit outstanding) Belgium 65% Czech Republic 13% International Markets 19% Group Centre 3% Total 100% Impaired loans (in millions of EUR or %) Amount outstanding 13 641 Specific loan impairments 5 423 Portfolio-based loan impairments 279 Credit cost ratio, per business unit3 Belgium 0.37% Czech Republic 0.26% International Markets 4.48% Slovakia 0.60% Hungary 1.50% |
30-06-2014 |
|---|---|
| 160 | |
| 136 | |
| 64% | |
| 13% | |
| 19% | |
| 3% | |
| 100% | |
| 14 110 | |
| 5 478 | |
| 199 | |
| 0.15% | |
| 0.04% | |
| 1.14% | |
| 0.40% | |
| 0.96% | |
| Bulgaria 1.19% |
1.17% |
| Ireland 6.72% |
1.44% |
| Group Centre2 2.90% |
0.37% |
| Total2 1.22% |
0.33% |
| Non-performing (NP) loans (in millions of EUR or %) | |
| Amount outstanding 7 878 |
8 393 |
| Specific loan impairments for NP loans 3 868 |
4 111 |
| Non-performing ratio, per business unit | |
| Belgium 2.5% |
2.6% |
| Czech Republic 3.1% |
3.1% |
| International Markets 19.2% |
20.8% |
| Group Centre 5.9% |
4.5% |
| Total 5.9% |
6.2% |
| Cover ratio | |
| Specific loan impairments for NP loans / Outstanding NP loans 49% |
49% |
| Idem, excluding mortgage loans 60% |
61% |
| Specific and portfolio-based loan impairments for performing and NP loans / outstanding NP loans 72% |
68% |
| Idem, excluding mortgage loans 90% |
82% |
Including IFRS 5 entities the CCR per 30-06-2014 would be 0.52% for Group Centre and 0.34% for the Total.
Annualized credit cost.
In the table above non-performing loans (NPL) are based on the current definition (i.e. PD 11 & 12, see annual report FY 2013 - section on credit risk for more information on PD classification). When applying the new definition (includes PD 10) which was aligned with the European Banking Authority's definition and which will be implemented as from 3Q14, the total NPL amount outstanding would increase to 14 110 million EUR and the NPL ratio to 10.4%. This would also reduce the cover ratio of 'specific and portfolio-based loan impairments for performing and NPL/outstanding NPL' from 68% to 40%.
Legend:
| Loan portfolio Business Unit Belgium 30-06-2014, in millions of EUR |
Belgium | Foreign branches | Total Business Unit Belgium | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Total outstanding amount | 82 286 | 5 241 | 87 526 | ||||||
| Counterparty break down | % outst. | % outst. | % outst. | ||||||
| SME / corporate | 22 594 | 27.5% | 5 241 | 100.0% | 27 835 | 31.8% | |||
| retail | 59 691 | 72.5% | 0 | 0.0% | 59 691 | 68.2% | |||
| o/w private | 32 370 | 39.3% | 0 | 0.0% | 32 370 | 37.0% | |||
| o/w companies | 27 322 | 33.2% | 0 | 0.0% | 27 322 | 31.2% | |||
| Mortgage loans (1) | % outst. | ind. LTV | % outst. | ind. LTV | % outst. | ||||
| total | 31 320 | 38.1% | 59% | 0 | 0.0% | - | 31 320 | 35.8% | |
| o/w FX mortgages | 0 | 0.0% | - | 0 | 0.0% | - | 0 | 0.0% | |
| o/w vintage 2007 and 2008 | 2 897 | 3.5% | - | 0 | 0.0% | - | 2 897 | 3.3% | |
| o/w ind. LTV > 100% | 1 541 | 1.9% | - | 0 | 0.0% | - | 1 541 | 1.8% | |
| Probability of default (PD) | % outst. | % outst. | % outst. | ||||||
| low risk (pd 1-4; 0.00%-0.80%) | 60 515 | 73.5% | 2 988 | 57.0% | 63 503 | 72.6% | |||
| medium risk (pd 5-7; 0.80%-6.40%) | 16 246 | 19.7% | 1 309 | 25.0% | 17 555 | 20.1% | |||
| high risk (pd 8-10; 6.40%-100.00%) | 3 421 | 4.2% | 635 | 12.1% | 4 056 | 4.6% | |||
| non-performing loans (pd 11 - 12) | 2 021 | 2.5% | 261 | 5.0% | 2 281 | 2.6% | |||
| unrated | 8 3 |
0.1% | 4 9 |
0.9% | 132 | 0.2% | |||
| Other risk measures | % outst. | % outst. | % outst. | ||||||
| outstanding non-performing loans (NPL) | 2 021 | 2.5% | 261 | 5.0% | 2 281 | 2.6% | |||
| provisions for NPL | 1 073 | 173 | 1 246 | ||||||
| all provisions (specific + portfolio based) | n.a. | n.a. | 1 698 | ||||||
| cover NPL by all provisions (specific + portfolio) | n.a. | n.a. | 74% | ||||||
| 2013 Credit cost ratio (CCR) | n.a. | n.a. | 0.37% | ||||||
| YTD 2014 CCR | n.a. | n.a. | 0.15% | ||||||
Remarks
Belgium = KBC Bank (all retail and coporate credit lending activities except for the foreign branches), CBC, KBC Lease part Belgium, KBC Commercial Finance, KBC Credit Investments (part of non-legacy portfolio assigned to BU Belgium)
(1) mortgage loans: only to private persons (as opposed to the accounting figures)
* Following entities have been recognized as 'disposal groups' under IFRS 5 and have been excluded from the figures: Antwerp Diamond Bank and KBC Bank Deutschland as from 30-06-2012.
| Loan portfolio Business Unit Czech Republic | For information: CMSS (consolidated via equity-method as from 1Q14) |
|||||
|---|---|---|---|---|---|---|
| 30-06-2014, in millions of EUR | Czech republic | Czech Rep (CMSS) (3) | ||||
| Total outstanding amount | 18 148 | 2 507 | ||||
| Counterparty break down | % outst. | % outst. | ||||
| SME / corporate retail |
6 521 11 626 |
35.9% 64.1% |
6 8 2 438 |
2.7% 97.3% |
||
| o/w private | 8 178 | 45.1% | 2 424 | 96.7% | ||
| o/w companies | 3 448 | 19.0% | 1 5 |
0.6% | ||
| Mortgage loans (1) | % outst. | ind. LTV | % outst. | ind. LTV | ||
| total | 7 424 | 40.9% | 67% | 1 874 | 74.8% | 66% |
| o/w FX mortgages | 0 | 0.0% | - | 0 | 0.0% | - |
| o/w vintage 2007 and 2008 | 1 348 | 7.4% | - | 171 | 6.8% | - |
| o/w ind. LTV > 100% | 269 | 1.5% | - | 140 | 5.6% | - |
| Probability of default (PD) | % outst. | % outst. | ||||
| low risk (pd 1-4; 0.00%-0.80%) | 12 568 | 69.3% | 1 447 | 57.7% | ||
| medium risk (pd 5-7; 0.80%-6.40%) | 4 217 | 23.2% | 824 | 32.9% | ||
| high risk (pd 8-10; 6.40%-100.00%) | 676 | 3.7% | 186 | 7.4% | ||
| non-performing loans (pd 11 - 12) | 557 | 3.1% | 5 0 |
2.0% | ||
| unrated | 129 | 0.7% | 0 | 0.0% | ||
| Other risk measures (2) | % outst. | % outst. | ||||
| outstanding non-performing loans (NPL) | 557 | 3.1% | 5 0 |
2.0% | ||
| provisions for NPL | 343 | 2 4 |
||||
| all provisions (specific + portfolio based) | 399 | 3 0 |
||||
| cover NPL by all provisions (specific + portfolio) | 72% | 60% | ||||
| 2013 Credit cost ratio (CCR) | 0.26% | n/a | ||||
| YTD 2014 CCR | 0.04% | n/a |
Remarks
(1) mortgage loans: only to private persons (as opposed to the accounting figures)
(2) individual CCR in local currency
(3) CMSS: pro-rata figures, corresponding with KBC's 55%-participation in CMSS
| Loan portfolio Business Unit International Markets 30-06-2014, in millions of EUR |
Ireland (3) | Slovakia | Hungary (4) | Bulgaria | Total Int Markets | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total outstanding amount | 14 951 | 4 860 | 5 070 | 757 | 25 774 | ||||||||||
| Counterparty break down | % outst. | % outst. | % outst. | % outst. | % outst. | ||||||||||
| SME / corporate | 2 901 | 19.4% | 2 039 | 42.0% | 2 694 | 53.1% | 314 | 41.5% | 8 084 | 31.4% | |||||
| retail | 12 050 | 80.6% | 2 820 | 58.0% | 2 377 | 46.9% | 443 | 58.5% | 17 690 | 68.6% | |||||
| o/w private | 12 050 | 80.6% | 2 256 | 46.4% | 1 919 | 37.8% | 269 | 35.6% | 16 494 | 64.0% | |||||
| o/w companies | 0 | 0.0% | 565 | 11.6% | 458 | 9.0% | 174 | 22.9% | 1 196 | 4.6% | |||||
| Mortgage loans (1) | % outst. | ind. LTV | % outst. | ind. LTV | % outst. | ind. LTV | % outst. | ind. LTV | % outst. | ||||||
| total | 12 050 | 80.6% | 113% | 1 876 | 38.6% | 58% | 1 740 | 34.3% | 95% | 125 | 16.5% | 70% | 15 791 | 61.3% | |
| o/w FX mortgages | 0 | 0.0% | - | 0 | 0.0% | - | 1 342 | 26.5% | 105% | 7 6 |
10.1% | 70% | 1 418 | 5.5% | |
| o/w vintage 2007 and 2008 | 4 435 | 29.7% | - | 183 | 3.8% | - | 898 | 17.7% | - | 4 0 |
5.3% | - | 5 556 | 21.6% | |
| o/w ind. LTV > 100% | 7 088 | 47.4% | - | 0 | 0.0% | - | 720 | 14.2% | - | 1 1 |
1.5% | - | 7 820 | 30.3% | |
| Probability of default (PD) | % outst. | % outst. | % outst. | % outst. | % outst. | ||||||||||
| low risk (pd 1-4; 0.00%-0.80%) | 2 634 | 17.6% | 2 851 | 58.7% | 1 964 | 38.7% | 8 6 |
11.4% | 7 553 | 29.3% | |||||
| medium risk (pd 5-7; 0.80%-6.40%) | 3 601 | 24.1% | 1 369 | 28.2% | 1 939 | 38.3% | 298 | 39.3% | 7 196 | 27.9% | |||||
| high risk (pd 8-10; 6.40%-100.00%) | 4 282 | 28.6% | 383 | 7.9% | 600 | 11.8% | 6 0 |
7.9% | 5 454 | 21.2% | |||||
| non-performing loans (pd 11 - 12) | 4 434 | 29.7% | 161 | 3.3% | 562 | 11.1% | 200 | 26.5% | 5 358 | 20.8% | |||||
| unrated | 0 | 0.0% | 9 6 |
2.0% | 4 | 0.1% | 112 | 14.8% | 213 | 0.8% | |||||
| Other risk measures (2) | % outst. | % outst. | % outst. | % outst. | % outst. | ||||||||||
| outstanding non-performing loans (NPL) | 4 434 | 29.7% | 161 | 3.3% | 562 | 11.1% | 200 | 26.5% | 5 358 | 20.8% | |||||
| provisions for NPL | 1 925 | 8 6 |
328 | 9 3 |
2 433 | ||||||||||
| all provisions (specific + portfolio based) | 2 824 | 118 | 411 | 9 6 |
3 449 | ||||||||||
| cover NPL by all provisions (specific + portfolio) | 64% | 74% | 73% | 48% | 64% | ||||||||||
| 2013 Credit cost ratio (CCR) | 6.72% | 0.60% | 1.50% | 1.19% | 4.48% | ||||||||||
| YTD 2014 CCR | 1.44% | 0.40% | 0.96% | 1.17% | 1.14% | ||||||||||
Remarks
Ireland = KBC Bank Ireland (incl. former KBC Homeloans)
Total Int Markets: outstanding additionally includes small amount of KBC internal risk sharings which were eliminated at country level
(1) mortgage loans: only to private persons (as opposed to the accounting figures); For Ireland: only KBC Homeloans exposure
(2) individual CCR in local currency
(3) Non-performing loans (NPL) as based on the current definition (i.e. PD 11 & 12, see annual report FY 2013 - section on credit risk for more information on PD classification). When applying the new definition (includes PD 10) which was aligned with the European Banking Authority's definition and which will be implemented as from 3Q14, the total NPL amount outstanding would increase to 7 925 million EUR. This change in definition would also reduce the cover ratio of 'specific and portfolio-based loan impairments for performing and NPL/outstanding NPL' from 64% to 36%.
(4) Non-performing loans (NPL) as based on the current definition (i.e. PD 11 & 12, see annual report FY 2013 - section on credit risk for more information on PD classification). When applying the new definition (includes PD 10) which was aligned with the European Banking Authority's definition and which will be implemented as from 3Q14, the total NPL amount outstanding would increase to 746 million EUR. This change in definition would also reduce the cover ratio of 'specific and portfolio-based loan impairments for performing and NPL/outstanding NPL' from 73% to 55%.
| Loan portfolio Group Centre | Total Group Centre | For information: entities marked as 'disposal groups' under IFRS 5 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 30-06-2014, in millions of EUR | (mainly KBC Finance Ireland and KBC Credit Investments) |
Belgium (Antwerp Diamond Bank) | Western Europe (KBC Deutschland) | |||||||
| Total outstanding amount | 4 329 | 1 358 | 2 338 | |||||||
| Counterparty break down | % outst. | % outst. | % outst. | |||||||
| SME / corporate | 4 329 | 100.0% | 1 358 | 100.0% | 2 338 | 100.0% | ||||
| retail | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% | ||||
| o/w private | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% | ||||
| o/w companies | 0 | 0.0% | 0 | 0.0% | 0 | 0.0% | ||||
| Mortgage loans (1) | % outst. | ind. LTV | % outst. | ind. LTV | % outst. | ind. LTV | ||||
| total | 0 | 0.0% | - | 0 | 0.0% | - | 0 | 0.0% | - | |
| o/w FX mortgages | 0 | 0.0% | - | 0 | 0.0% | - | 0 | 0.0% | - | |
| o/w vintage 2007 and 2008 | 0 | 0.0% | - | 0 | 0.0% | - | 0 | 0.0% | - | |
| o/w ind. LTV > 100% | 0 | 0.0% | - | 0 | 0.0% | - | 0 | 0.0% | - | |
| Probability of default (PD) | % outst. | % outst. | % outst. | |||||||
| low risk (pd 1-4; 0.00%-0.80%) | 2 105 | 48.6% | 4 8 |
3.6% | 1 020 | 43.6% | ||||
| medium risk (pd 5-7; 0.80%-6.40%) | 1 395 | 32.2% | 944 | 69.5% | 936 | 40.0% | ||||
| high risk (pd 8-10; 6.40%-100.00%) | 563 | 13.0% | 140 | 10.3% | 234 | 10.0% | ||||
| non-performing loans (pd 11 - 12) | 197 | 4.5% | 212 | 15.6% | 144 | 6.2% | ||||
| unrated | 6 9 |
1.6% | 1 3 |
1.0% | 3 | 0.1% | ||||
| Other risk measures (2) | % outst. | % outst. | % outst. | |||||||
| outstanding non-performing loans (NPL) | 197 | 4.5% | 212 | 15.6% | 144 | 6.2% | ||||
| provisions for NPL | 8 9 |
179 | 115 | |||||||
| all provisions (specific + portfolio based) | 131 | 189 | 144 | |||||||
| cover NPL by all provisions (specific + portfolio) | 67% | 89% | 100% | |||||||
| 2013 Credit cost ratio (CCR) | 2.90% | 0.97% | 1.31% | |||||||
| YTD 2014 CCR | 0.37% | 0.71% | 0.66% |
Remarks
Total Group Centre = KBC Finance Ireland, KBC Credit Investments (legacy & and part of non-legacy portfolio assigned to BU Group), KBC FP (ex-Atomium assets), KBC Lease UK, KBC Bank part Group
(1) mortgage loans: only to private persons (as opposed to the accounting figures); for Ireland: only KBC Homeloans exposure
(2) individual CCR in local currency
(figures exclude all expired, unwound or terminated CDO positions and after settled credit events)
Since 2008 KBC has a tight strategy in place related to structured credit products and gradually imposed a moratorium on all origination and investment activity in CDOs and ABS. Prior to 2008, KBC acted as an originator of and investor in structured credit transactions. The remainder of the investments from before 2008 are referred to as 'legacy exposure'. Three categories of legacy investments are distinguished:
In 4Q13, KBC decided to lift the strict moratorium on investments in ABS and to allow treasury investments ('treasury ABS exposure' in the table) in high quality ABS (incl. e.g. cash CLOs). This allows a further diversification of the investment portfolios.
Important to note is that the moratorium on investments in synthetic securitizations or re-securitisations continues to exist.
| KBC investments in structured credit products (CDOs and ABS), in billions of EUR | 30-06-2014 |
|---|---|
| Total net exposure | 5.7 |
| o/w legacy CDO exposure protected with MBIA | 3.2 |
| o/w other legacy CDO exposure | 1.0 |
| o/w other legacy ABS exposure | 0.8 |
| o/w treasury ABS exposure | 0.7 |
| Cumulative value markdowns on outstanding legacy investments (mid 2007 to date)* | -0.2 |
| Value markdowns | -0.2 |
| for other legacy CDO exposure | -0.1 |
| for other legacy ABS exposure | -0.1 |
| Credit value adjustment (CVA) on MBIA cover (related to legacy CDO exposure) | -0.0 |
| Cumulative value markdowns on treasury ABS | 0.0 |
* Note that, value adjustments to KBC's CDOs are accounted for via profit and loss (instead of directly via shareholders' equity), since the group's CDOs are mostly of a synthetic nature (meaning that the underlying assets are derivative products such as credit default swaps on corporate names). Their synthetic nature is also the reason why KBC's CDOs are not eligible for accounting reclassification under IFRS in order to neutralise their impact.
In the second quarter of 2014, the net CDO and ABS legacy exposure remained nearly status quo as a reduction in the legacy ABS portfolio as a result of redemptions was almost completely offset by an increase in the legacy CDO exposure following outof-court settlements with clients. In KBC's treasury portfolio, investments to the tune of 188 million euros were done in RMBS and other ABS assets.
As stated above, KBC bought credit protection from MBIA for a large part of the (super senior) CDOs it originated.
Moreover, the remaining risk related to MBIA's insurance coverage is to a large extent mitigated as it is included in the scope of the Guarantee Agreement that was agreed with the Belgian State on 14 May 2009. The contract with the Belgian State has a remaining nominal value of 3.8 billion euros, down from 20.0 billion euros at inception, of which 3.2 billion euros relates to the exposure insured by MBIA. For the positions insured by MBIA, a counterparty credit risk provision is in place. Based on a fundamental internal analysis the provisioning rate is determined. Per end June 2014 it was kept constant at 60%. The remaining 0.6 billion euros of exposure covered by the contract with the Belgian State relates to part of the 'other legacy CDO exposure'. Of this portfolio (i.e. other legacy CDO exposure not covered by credit protection by MBIA) the super senior assets have also been included in the scope of the Guarantee Agreement with the Belgian State.
| Details on the CDO exposure protected with MBIA (insurance for CDO-linked risks received from MBIA), in billions of EUR | 30-06-2014 |
|---|---|
| Total insured amount (notional amount of super senior swaps)* | 3.2 |
| Details for MBIA insurance coverage | |
| - Fair value of insurance coverage received (modelled replacement value, after taking the Guarantee Agreement into account) | 0.0 |
| - CVA for counterparty risk, MBIA | -0.0 |
| (as a % of fair value of insurance coverage received) | 60% |
| * The amount insured by MBIA is included in the Guarantee Agreement with the Belgian State (14 May 2009). |
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 Belgian regulator.
Under Basel III (CRDIV/CRR), which is the applicable guideline as from 1 January 2014 onward, for group solvency the insurance participation is to be deducted from common equity at KBC Group level, unless the competent authority grants the permission to apply a risk weighting instead. KBC received this permission from the National Bank of Belgium (NBB) and will allocate a 370% weighting to the holdings of own funds instruments of the insurance company, after having deconsolidated KBC Insurance from the KBC Group consolidated figures. This is the so-called 'Danish compromise'.
In addition to this calculation method, KBC has to disclose also the capital adequacy ratio as calculated in accordance with the 'building block' method. This entails comparing group regulatory capital (i.e. parent shareholders' equity less intangible assets and a portion of the revaluation reserve for available-for-sale assets, plus subordinated debt, etc.) with the sum of the separate minimum regulatory solvency requirements for KBC Bank, the holding company (after deduction of intercompany transactions between these entities) and KBC Insurance. The total risk-weighted volume of insurance companies is calculated as the required solvency margin under Solvency I divided by 8%.
The NBB has confirmed to KBC that the non-voting core capital securities will be fully grandfathered as common equity under CRDIV.
KBC's own minimum target for the common equity ratio is 10.5% on a fully loaded basis (presuming full implementation of all CRDIV/CRR rules and including the remaining Flemish government support until 2018). KBC's fully loaded common equity ratio stood at 12.86% as at the end of June 2014.
Moreover, the supervisory authorities, with the NBB as the consolidating supervisor, have requested KBC to minimally uphold a fully loaded common equity ratio, excluding latent gains, of 9.25%. According to this calculation, KBC's fully loaded common equity ratio stood at 12.38% as at the end of June 2014.
The Internal Rating Based (IRB) approach is since its implementation in 2008 the primary approach to calculated KBC's risk weighted assets. This is, based on a full application of all the CRD IV/CRR rules, used for approximately 81% of the weighted credit risks, of which approx. 61% according to Advanced and approx. 20% according to Foundation approach. Note that, retail exposure treated under IRB is always subject to an Advanced approach. The remaining weighted credit risks (ca. 20%) are calculated according to the Standardised approach. The latter, under the Danish Compromise, includes the 370% risk-weighted holdings of own funds instruments of the insurance company.
| In millions of EUR | 31-12-2013 | 30-06-2014 |
|---|---|---|
| Danish compromise - Fully loaded | ||
| Total regulatory capital, KBC Group (after profit appropriation) | 16 258 | 14 886 |
| Tier-1 capital | 11 711 | 13 468 |
| Common equity | 11 711 | 12 068 |
| Parent shareholders' equity (after deconsolidating KBC Insurance) | 11 361 | 11 711 |
| Non-voting core capital securities | 2 333 | 2 000 |
| Intangible fixed assets (incl deferred tax impact) (-) | - 341 | - 346 |
| Goodwill on consolidation (incl deferred tax impact) (-) | - 950 | - 774 |
| Minority interests | - 3 | - 3 |
| Hedging reserve (cash flow hedges) (-) | 497 | 901 |
| Valuation diff. in fin. liabilities at fair value - own credit risk (-) | - 6 | - 4 |
| Equalization reserve (-) | - 131 | - |
| Dividend payout (-) | 0 | - 417 |
| Renumeration of government securities (-) | 0 | - 85 |
| Renumeration of AT1 instruments (-) | 0 | - 2 |
| Deduction re. financing provided to shareholders (-) | - 176 | - 159 |
| IRB provision shortfall (-) | - 225 | - 288 |
| Deferred tax assets on losses carried forward (-) | - 648 | - 467 |
| Limit on deferred tax assets from timing differences relying on future profitability and | ||
| significant participations in financial sector entities (-) | 0 | 0 |
| Additional going concern capital | 0 | 1 400 |
| Grandfathered innovative hybrid tier-1 instruments | 0 | 0 |
| Grandfathered non-innovative hybrid tier-1 instruments | 0 | 0 |
| CRR compliant AT1 instruments | 0 | 1 400 |
| Minority interests to be included in additional going concern capital | 0 | 0 |
| Tier 2 capital | 4 547 | 1 418 |
| IRB provision excess (+) | 342 | 367 |
| Subordinated liabilities1 | 4 206 | 1 051 |
| Subordinated loans non-consolidated financial sector entities (-) | 0 | 0 |
| Minority interests to be included in tier 2 capital | 0 | 0 |
| Capital requirement | ||
| Total weighted risk volume2,3,4 | 91 216 | 93 874 |
| Banking | 80 189 | 82 692 |
| Insurance | 11 068 | 11 068 |
| Holding activities | 72 | 249 |
| Elimination of intercompany transactions | - 113 | - 135 |
| Solvency ratios | ||
| Common equity ratio | 12.84% | 12.86% |
| Tier-1 ratio | 12.84% | 14.35% |
| CAD ratio | 17.82% | 15.86% |
| 1.The decrease in subordinated liabilities is amongst other things the result of the call of almost all KBC's classic subordinated instruments. |
2 Until the end of 2014, KBC Group's RWA include a yearly decreasing amount of RWA for residual operational risks related to KBL EPB (sold in 2012).
The reference figures on total weighted risk volume have been restated to account for the different treatment of the joint venture ČMSS in the Czech Business Unit (from proportionate consolidation to equity method - for more information see note 1a of the Consolidated financial statements of this interim report.).
The increase in RWA is mainly driven by a change in methodology whereby the 'carve out' of the home-country sovereign bonds (risk weighting these at zero percent) was not applied anymore. This change increased RWA by approximately 4.4 billion euros as calculated based on positions as at the end of 2013.
Following table groups the solvency on the level of KBC according to different methodologies and calculation methods.
| Overview of KBC Group CET ratio | Danish Compromise | ||||
|---|---|---|---|---|---|
| Fully loaded | Phased-in | Fully loaded | Phased-in | ||
| In millions of EUR - 30-06-2014 | |||||
| Common equity | 12 068 | 11 938 | 12 366 | 11 266 | |
| Total weighted risk volume | 93 874 | 90 559 | 94 902 | 91 587 | |
| Common equity ratio | 12.86% | 13.18% | 13.03% | 12.30% |
The tables below show the tier-1 and CAD ratios calculated under Basel III/CRD IV Danish Compromise for KBC Bank, as well as the solvency ratio of KBC Insurance. More information on the solvency of KBC Bank and KBC Insurance as at 31-12-2013 can be found in their consolidated financial statements and in the KBC Risk Report on www.kbc.com.
| Solvency, KBC Bank consolidated (in millions of EUR) | 31-12-2013 | 30-06-2014 |
|---|---|---|
| Total regulatory capital, after profit appropriation | 14 400 | 13 558 |
| Tier-1 capital | 9 602 | 11 343 |
| Of which common equity | 9 602 | 9 943 |
| Tier-2 and tier-3 capital | 4 797 | 2 215 |
| Total weighted risks | 79 822 | 82 325 |
| Credit risk | 64 776 | 68 751 |
| Market risk | 4 308 | 2 836 |
| Operational risk | 10 738 | 10 738 |
| Solvency ratios | ||
| Common equity ratio | 12.0% | 12.1% |
| Tier-1 ratio | 12.0% | 13.8% |
| CAD ratio | 18.0% | 16.5% |
| Solvency, KBC Insurance consolidated (in millions of EUR) | 31-12-2013 | 30-06-2014 |
| Available capital | 2 721 | 3 064 |
| Required solvency margin | 968 | 968 |
| Solvency ratio and surplus | ||
| Solvency ratio (%) | 281% | 317% |
| Solvency surplus (in millions of EUR) | 1 753 | 2 096 |
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