9 November 2007 (7 a.m. CET) - KBC closed the third quarter of 2007 with a net profit of 639 million euros, or 1.85 euros per share. As the comparable quarter of 2006 had included an 0.5-billion-euro divestment gain, the figure for the current quarter was clearly lower (41%) than the figure for the reference quarter. Underlying profit, i.e. net profit excluding 'exceptional items', came to 601 million euros. It was thus up 5% year-on-year and, in line with the normal seasonal pattern, down on the previous quarter, which had been exceptionally good.
For the first nine months of the year, the group realised a net profit of 2 572 million euros, or 7.39 euros per share. On an underlying basis, this amounted to 2 261 million euros, or an increase of 14% on the corresponding period of 2006, leading to an annualised return on equity of 19%.
According to André Bergen, Group CEO, "As anticipated, the impact of the adverse financial market climate in the third quarter was limited for our group. Moreover, our customer business continues to perform very well, giving us good reason to remain optimistic about the future."
Financial highlights - 3Q 2007 and 9M 2007
André Bergen, Group CEO, summarises the financial highlights for 3Q 2007 as follows:
"The third quarter of 2007 turned out to be very good indeed. Excluding exceptional items, profit was up 5% on the year-earlier quarter, notwithstanding the difficult climate on the financial markets that was triggered by the sub-prime mortgage crisis in the U.S. For seasonal reasons, the third quarter is always weaker than the second.
Moreover, the quality of this quarter's underlying profit was excellent. We noted sound year-on-year increases in our interest income, commission income and insurance sales, for instance.
As anticipated, the impact of the adverse credit market climate on our mortgage-backed investments was very limited. Our investment approach has always been very conservative. For the CDO tranches held, no impairment was required, and a negative 39 million euros after tax was posted due to their revaluation at current market value. Obviously, the result from our trading activities on the capital markets was down, yet the contribution of our merchant banking operations to group profit ended only 5% lower than the previous year's figure.
Customer loan quality, meanwhile, has not shown any sign of change. We are also not materially involved in the higher risk area of large-scale leveraged finance.
We have a large deposit overhang, making us relatively independent from wholesale funding. The liquidity crunch on the financial markets has never been a real issue for us. Moreover, our solvency levels remain very sound and there is no reason to review our share-buyback programme."
Exceptional items during the quarter under review:
In the third quarter of 2007, 38 million euros were recorded for items not related to the normal course of business. Primarily, this concerned the sale of the share in the Hungarian bank-card clearing house GBC (with a positive after-tax impact of 28 million euros).
Highlights for the first nine months of 2007:
- Net result: 2 572 million euros, or, excluding exceptional items, 2 261 million euros, up 14% compared to the corresponding period of 2006.
- Increases in the net underlying result of all business units: Belgium +21%, CEE +20%, Merchant Banking +3% and European Private Banking +7%.
- Continuing business growth: year on year, lending and deposits increased by +18% and +9%, respectively (of which 1 to 2 percentage points due to new acquisitions). Assets under management grew by 13%, and life insurance reserves by 6%.
- A favourable trend in most of the underlying core income items: net interest income was up 7% year-on-year, earned insurance premiums +12%, fee and commission income +9%; however, trading income was down by 5%.
- Costs remained under control: the underlying cost/income ratio in the banking business came to 58% (the same as for the 2006 financial year); the combined ratio in the insurance business came to 97%, or, if the Kyrill storm is not taken into account, 93% (96% in the 2006 financial year).
- Limited loan losses: the annualised loan loss ratio came to 13 bps, the same as for the 2006 financial year.
- Underlying return on equity: 19.2%, exceeding the mid-term target of 18.5%.
- Shareholders' equity: 17.3 billion euros as at 30-09-2007, up slightly (0.1 billion euros) on the start of the year, with the inclusion of the profit for the first nine months of the year being largely offset by dividends paid, a decrease in the revaluation reserve for available-for-sale assets, and the repurchase of treasury shares.
- Robust solvency: as at the end of September 2007, the Tier-1 ratio of KBC's banking activities (KBC Bank and KBL together) came to 8.2% (more than twice the legal minimum), the solvency ratio for the insurance activities amounted to as much as three times the legal minimum, while leverage at the holding company level remained very limited (gearing ratio at 102%).
Developments in 4Q 2007
André Bergen: "For some time now, we have preferred not to issue specific earnings guidance for the current year. However, we can confirm that the fourth quarter has got off to a good start. Moreover, we have a set of financial targets for the medium term; temporary market turbulence is not a threat to our meeting these targets."
