Morningstar | KBC Reports 2018 Results in Line With Expectations; FVE Maintained
Narrow-moat KBC reported full-year results of EUR 2.6 billion, in line with our expectations. We maintain our fair value estimate of EUR 80 per share. Income generation was healthy as net interest income and insurance income contributed positively. Total income was down 2% to EUR 7.5 billion owing to lower results from financial instruments at fair value, but we do not see this as cause for concern as trading-related items tend be volatile by their very nature. Operating expenses increased 4%, causing the banking cost/income ratio to expand to 57.5% from 54.2% over the same period last year.We are pleasantly surprised that KBC booked another year of impairment reversals after we noticed a general trend of increasing loan-loss provisions among European peers. KBC also experienced a EUR 30 million net increase in provisions in the fourth quarter; this was mostly due to corporate loans in Belgium, however, and doesn’t seem to indicate loan deterioration across the portfolio. That said, we do not anticipate the tailwind of impairment reversals to continue in 2019. KBC's nonperforming loan ratio declined to 4.3% versus 6% in 2017 after the sale of its legacy portfolio in Ireland, which contributed about 1% in NPL relief.
The common equity Tier 1 ratio remained virtually flat at 16% if one adjusts last year’s ratio for IFRS 9 impacts, well above the minimum requirement of 10.6%. This leaves KBC adequately prepared for Basel IV regulations coming into effect in January 2022. The new regulations are estimated to increase KBC’s risk-weighted assets by EUR 8 billion or 9%, which in turn would lower the CET1 ratio by 1.3 percentage points.
KBC Group is a bank-insurance group engaged in providing products and services mainly to retail, private banking, SME and mid-cap clients. Co. focuses on its primary markets of Belgium, the Czech Republic, Slovakia, Hungary and Bulgaria. Co. is also present in Ireland and, to a limited extent, in several other countries to support corporate clients from its primary markets. Co.'s main brands are KBC and CBC in Belgium, CSOB in Czech Republic and Slovakia, K&H in Hungary, CIBANK and DZI Insurance in Bulgaria, and KBC Bank Ireland in Ireland. As of Dec 31 2014, Co. had 1,601 bank branches. In addition, Co. had total assets of Euro245.17 billion.
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