EUR 850.00 For Business Accounts Only

Morningstar | KBC Delivers Returns on Equity in Range of Our Midcycle Estimate; FVE Maintained

Narrow-moat KBC reported operating income of EUR 907 million in the third quarter versus EUR 982 million in the same period last year. This can largely be explained by less positive net results from financial instruments at fair value contributions, which tend to be volatile. Excluding these fair value effects, operating income came in at EUR 828 million versus EUR 800 million in 2017. Other large line items performed well, on the other hand. Net interest income was up 9% to EUR 1.1 billion on the back of 5% loan growth, while net fee and commission income increased 4%. This was slightly offset by higher staff and general expenses, which were up 3% and 19%, respectively. Further down the income statement, impairment reversals of EUR 2 million were again a welcome sight after a reversal of EUR 1 million in the second quarter, underlining the currently robust business environment in European markets. Return on equity year to date stands at 16% and is right on point with our 16%-17% midcycle estimate. We maintain our fair value estimate of EUR 80 per share and narrow moat rating.

KBC remains well capitalized with a fully loaded common equity Tier 1 ratio of 16% and sports healthy credit and liquidity metrics. The liquidity coverage ratio and the net stable funding ratio stand at 138% and 134%, respectively, while about 5.5% of gross loans are classified as impaired versus 6% at the beginning of the year.