KBC Group: Third-quarter result of 697 million euros

Press Release

Outside trading hours - Regulated information*

Brussels, 12 November 2020 (07.00 a.m. CET)

KBC Group: Third-quarter result of 697 million euros

KBC Group - overview (consolidated, IFRS)	3Q2020		2Q2020	3Q2019	9M2020		9M2019
Net result (in millions of EUR)	697		210	612	902		1 787
Basic earnings per share (in EUR)	1.64		0.47	1.44	2.08		4.19
Breakdown of the net result by business unit (in millions of EUR)
Belgium	486	204	368	605		932
Czech Republic	116	77	159	281		584
International Markets	123	-45	85	113		260
Group Centre	-28	-26	0	-97		10
Parent shareholders' equity per share (in EUR, end of period)	46.6	44.9	43.5	46.6		43.5

During the third consecutive quarter of facing up to the challenges of the pandemic, the harsh reality that coronavirus is still far from being eradicated has become very clear. It is still causing human suffering all over the world and unprecedented economic upheaval. However, the various government relief measures should help control the overall impact going forward. Obviously, the long-term impact of the coronavirus crisis on society will be significant. It will also depend on the number and intensity of any new outbreaks, as well as on the timing of developing and distributing a vaccine or cure.

Meanwhile, we have been working hard with government agencies to support all customers impacted by coronavirus, by efficiently implementing various relief measures, including loan deferrals. In our six home countries combined, we have granted a total of 13.7 billion euros in loan payment deferrals by the end of September 2020 (according to the EBA definition) and have also granted 0.6 billion euros' worth of loans under public corona guarantee schemes. At the same time, we have continued providing a high level of service to our customers in all our core markets, thanks to the expertise and commitment of our employees, in combination with the efforts and investments we have made over the past few years on the digital transformation front. Given that the pandemic has accelerated the trend to digitalisation, we are clearly benefiting from our digital transformation efforts. We will continue to work on solutions to proactively make life easier for our customers, thanks in part to the extensive use of artificial intelligence and data analysis. We will be communicating on this and other topics in more depth during a separate strategy session today, with the accompanying press release being issued at 1 p.m. CET.

As regards our financial results, we generated a net profit of 697 million euros in the third quarter of 2020, leading to a return on equity of 15% in the third quarter of 2020 (when bank taxes are spread evenly throughout the year). The third quarter profit is well above the 210 million euros recorded in the previous quarter, which had included 746 million euros in collective impairment charges for the coronavirus crisis. Our net interest income went up quarter-on-quarter, while our trading and fair value result fared well too, though it was down on the exceptionally high level recorded in the previous quarter. In the current lower-for-longer interest rate environment, this quarterly result is also clearly benefiting from the diversification achieved through KBC's integrated bank-insurance model. This was reflected in a strong non-life result (good premium growth and an excellent combined ratio of 83% year-to-date), as well as higher net fee and commission income. Costs remained clearly under control. Adding the result for this quarter to the one for the first half of the year brings our net profit for the first nine months of 2020 to 902 million euros.

Our solvency position remained very strong, with a common equity ratio of 16.6% on a fully loaded basis, well above the current minimum capital requirement of 7.95%. Our liquidity position remained solid too, with an LCR of 142% and an NSFR of 146% at the end of September 2020. Consequently, our current capital and liquidity buffers allow us to face today's challenges with confidence.

In closing, I would like to take this opportunity to explicitly thank all stakeholders who have continued to put their trust in us. I also wish to express my sincere thanks to all colleagues who have expended huge efforts to serve our customers and support the sound functioning of the group in these challenging times.

Johan Thijs, Chief Executive Officer

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* This news item contains information that is subject to the transparency regulations for listed companies.

Press Release

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Financial highlights in the third quarter of 2020

• Commercial bank-insurance franchises in our core markets performed well.
• Net interest income increased by 4% quarter-on-quarter and decreased by 4% year-on-year. The quarter-on-quarter increase was due mainly to the positive impact of TLTRO III, a positive one-off item related to inflation-linked bonds (insurance), higher margins on the new production of mortgage loans than the margins on the outstanding portfolios in Belgium, the Czech Republic and Slovakia, and the higher netted impact of ALM FX swaps. These items more than offset the negative impact of past rate cuts made by the CNB in the Czech Republic and the lower reinvestment yields in general. Year-on-year, the decrease was mainly related to the past CNB rate cuts in the Czech Republic, the year-on-year depreciation of the Czech koruna and Hungarian forint against the euro and the negative impact of lower reinvestment yields, which could not be fully offset by the positive impact of TLTRO III, the above- mentioned positive one-off item, ECB tiering and a larger loan and bond portfolio.
• Loan volumes were up 1% quarter-on-quarter and 4% year-on-year, with year-on-year growth recorded in all business units. The volume of granted loans with payment holidays in the various relief schemes amounted to 13.7 billion euros by the end of September 2020 (EBA definition).
  Deposits excluding debt certificates grew by 1% quarter-on-quarter and 9% year-on-year, with year-on-year growth in all business units.
• Technical income from our non-life insurance activities (premiums less charges, plus the ceded reinsurance result) was down 9% on its level in the previous quarter, which had included significantly lower technical charges related to the effect of the lockdown. It was up 22% year-on-year, thanks to a combination of higher premium income and lower technical charges. Consequently, the combined ratio for the first nine months of 2020 amounted to an excellent 83%. Sales of our life insurance products were down 25% on the level recorded in the previous quarter and up 4% on their level in the year-earlier quarter.
• Net fee and commission income was slightly higher (1%) than the level recorded in the previous quarter and down 12% year-on-year.Quarter-on-quarter, the positive effect of higher asset management fees was partly offset by the higher level of distribution fees paid. Year- on-year, both asset management fees and banking service fees were down, while distribution fees were up.
• The trading and fair value result amounted to 85 million euros, down on the very high level recorded in the previous quarter, and up year-on-year. On the whole, the huge drop in the trading and fair value result in the first quarter of the year has now been offset for a large part by the positive trading and fair value result recorded in the two subsequent quarters.
• All other income items combined were 31% and 19% lower than the figures recorded in the previous and year-earlier quarters, respectively, primarily because the quarter under review included a negative one-off item related to the tracker mortgage review in Ireland, and lower dividend income.
• Costs have been reduced. Excluding bank taxes, they were down 4% compared to the year- earlier quarter as a result of cost-saving measures. Compared to the low level recorded in the previous quarter, costs were up 3%. The resulting cost/income ratio amounted to 59% for the first nine months of the year, compared to 58% for full-year 2019 (when certain non-operating items are excluded and bank taxes spread evenly throughout the year).
• Loan loss impairment charges amounted to 52 million euros in the quarter under review, well down on the 845-million-euro charge in the previous quarter, which had incorporated 746 million euros' worth of collective impairment charges for the coronavirus crisis. As a consequence, the credit cost ratio for the first nine months of the year amounted to 0.61%, up from 0.12% for full-year 2019.
• Our liquidity position remained strong with an LCR of 142% and NSFR of 146%. Our capital base remained robust as well, with a fully loaded common equity ratio of 16.6%.

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* This news item contains information that is subject to the transparency regulations for listed companies.

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Overview of results and balance sheet

Consolidated income statement, IFRS

3Q2020

2Q2020

1Q2020

4Q2019

3Q2019

9M2020

9M2019

KBC Group (in millions of EUR)

Net interest income		1 122
Non-life insurance (before reinsurance)		233
Earned premiums		448
Technical charges		-215
Life insurance (before reinsurance)		1
Earned premiums		267
Technical charges		-266
Ceded reinsurance result		-9
Dividend income		12
Net result from financial instruments at fair value through P&L1
	85
Net realised result from debt instruments at fair value through		1
other comprehensive income
Net fee and commission income		390
Net other income		37
Total income		1 872
Operating expenses		-926
Impairment		-63
Of which: on financial assets at amortised cost and at fair value through		-52
other comprehensive income2
Share in results of associated companies & joint ventures		-2
Result before tax		881
Income tax expense		-184
Result after tax		697
attributable to minority interests		0
attributable to equity holders of the parent		697
Basic earnings per share (EUR)		1.64
Diluted earnings per share (EUR)		1.64

1 083	1 195	1 182	1 174	3 400
255	185	229	192	673
435	443	441	440	1 327
-180	-258	-212	-248	-654
6	0	2	-5	6
276	297	364	291	841
-271	-297	-363	-297	-834
-13	-7	-11	-9	-30
17	12	17	14	41
253	-385	130	-46	-47
2	0	0	5	4
388	429	445	444	1 207
53	50	47	43	139
2 043	1 479	2 041	1 813	5 394
-904	-1 338	-1 045	-975	-3 168
-857	-141	-82	-26	-1 060
-845	-121	-75	-25	-1 018
-3	-3	-1	0	-9
279	-3	912	812	1 157
-69	-2	-210	-200	-255
210	-5	702	612	902
0	0	0	0	0
210	-5	702	612	902
0.47	-0.04	1.66	1.44	2.08
0.47	-0.04	1.66	1.44	2.08

3 436

527

1 280 -753

-7

959 -966

-14 65 51

7

1 289

234

1. 588 -3 258 -134
   -128
   8

1. 204 -417

1. 787
   0

1. 787

4.19

4.19

	Key consolidated balance sheet figures			30-09-2020			30-06-2020			31-03-2020		31-12-2019		30-09-2019
	KBC Group (in millions of EUR)
	Total assets			321 193		317 388		301 451	290 735	294 830
	Loans and advances to customers, excl. reverse repos			157 773		157 563		158 364	155 816	154 863
	Securities (equity and debt instruments)			71 310		72 131		67 176	65 633	65 122
	Deposits from customers & debt certificates, excl. repos			211 672		210 811		208 293	203 369	205 270
	Technical provisions, before reinsurance			18 613		18 775		18 816	18 560	18 549
	Liabilities under investment contracts, insurance			12 482		12 505		11 979	13 610	13 456
	Parent shareholders' equity			19 384		18 710		18 220	18 865	18 086
	Selected ratios			9M2020			FY2019
	KBC group (consolidated)

Return on equity

Cost/income ratio, banking

(when excluding certain non-operating items and spreading bank taxes evenly throughout the year)

6%314%

61%58%

(59%)(58%)

Combined ratio, non-life insurance	83%	90%
Common equity ratio, Basel III Danish Compromise, fully loaded [transitional]		16.6% [16.6%]		17.1%
Common equity ratio, FICOD fully loaded [transitional]		15.5% [15.5%]		15.8%
Leverage ratio, Basel III fully loaded		5.9%		6.8%
Credit cost ratio		0.61%		0.12%
Impaired loans ratio		3.2%		3.5%
for loans more than 90 days past due		1.8%		1.9%
Net stable funding ratio (NSFR)		146%		136%
Liquidity coverage ratio (LCR)		142%		138%

1 Also referred to as 'Trading and fair value income'. 2 Also referred to as 'Loan loss impairment'.

3 This is 7% when bank taxes are spread evenly throughout the year.

We provide a full overview of our IFRS consolidated income statement and balance sheet in the 'Consolidated financial statements' section of the quarterly report. Condensed statements of comprehensive income, changes in shareholders' equity, as well as several notes to the accounts, are also available in the same section. As regards the (changes in) definition of ratios, see 'Details of ratios and terms' in the quarterly report.

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Press Release

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Analysis of the quarter (3Q2020)

Total income

1 872 million euros

• Total income down 8% quarter-on-quarter.
• Net interest income and net fee and commission income up.
• Technical insurance income, dividend income, trading and fair value income, and net other income down.

Net interest income amounted to 1 122 million euros in the quarter under review, up 4% on the figure recorded in the previous quarter and down 4% year-on-year. The quarter-on-quarter increase was due mainly to the positive impact of TLTRO III, a positive one-off item related to inflation-linked bonds (insurance), higher margins on the new production of mortgage loans than the margins on the outstanding portfolios in Belgium, the Czech Republic and Slovakia, and the higher netted impact of ALM FX swaps. These items more than offset the negative impact of the rate cuts made in the past by the CNB in the Czech Republic and the lower reinvestment yields in general. Year- on-year, the decrease was mainly related to the past CNB rate cuts in the Czech Republic, the year-on-year depreciation of the Czech koruna and Hungarian forint against the euro and the negative impact of lower reinvestment yields, which could not be fully offset by the positive impact of TLTRO III, the above-mentioned positive one-off item, ECB tiering and a larger loan and bond portfolio.

The total volume of customer lending (158 billion euros) was up 1% quarter-on-quarter and 4% year-on-year, with year-on-year growth recorded in all business units. The volume of granted loans with payment holidays in the various relief schemes amounted to 13.7 billion euros by the end of September 2020 according to the EBA definition (broken down evenly among home loans, SME loans and loans to corporations). For approximately 1 billion euros of that amount, the moratorium has already expired by the end of September 2020 (of which 97% resumed payments). In addition to this, we granted some 0.6 billion euros in loans that fall under the various corona-related government guarantee schemes in our home markets.

Customer deposits including debt certificates (212 billion euros) were up 1% quarter-on-quarter and 4% year-on- year, with year-on-year growth in all business units. Excluding debt certificates, deposits were up by no less than 9% year-on-year. All growth figures disregard forex movements.

The net interest margin for the quarter under review amounted to 1.81%, down 1 and 13 basis points, respectively, on the figures recorded in the previous and year-earlier quarters.

Technical income from our non-lifeinsurance activities (earned premiums less technical charges, plus the ceded reinsurance result) contributed 225 million euros to total income, down 9% on the excellent performance recorded in the previous quarter and up 22% on the corresponding year-earlier quarter. Notwithstanding higher earned premium income, the quarter-on-quarternon-life technical income decrease came about primarily because of higher technical charges (claims gradually returning to more normal levels following the exceptionally low level in the second quarter as a consequence of the lockdown). The year-on-year increase was due to a combination of lower charges and higher premium income. Overall, the combined ratio for the first nine months of 2020 came to an excellent 83%, compared to 90% for full-year 2019.

Technical income from our life insurance activities (earned premiums less technical charges, plus the ceded reinsurance result) amounted to 0 million euros, compared to 1 million euros in the previous quarter and -6 million euros in the year-earlier quarter. Sales of life insurance products in the quarter under review (420 million euros) were down 25% on the level recorded in the previous quarter, due to lower sales of both unit-linked and guaranteed- interest life products in Belgium. Sales were up 4% on the level recorded in the year-earlier quarter, driven by higher sales of unit-linked products in Belgium (due to the shift from mutual funds to unit-linked products by private banking customers) and only partially offset by lower sales of guaranteed-interest products (due mainly to the suspension of universal single life insurance in Belgium). Overall, in the quarter under review, both unit-linked products and guaranteed-interest products accounted for approximately half of our total life insurance sales.

In the quarter under review, net fee and commission income amounted to 390 million euros. This figure was slightly up (1%) on the level of the previous quarter, with the increase in fees for our asset management business

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