Morningstar | KBC's 1H Results Slightly Behind Our Expectations With IFRS 9 Negatively Contributing
Narrow-moat KBC posted net income of EUR 1.2 billion for the first half of 2018, a 16% decline from last year. Net interest income at EUR 2.2 billion was slightly higher than our expectations and 3% above the first half of 2017 on a comparable basis, positively affected by the consolidation of UBB/Interlease and driven by lower funding costs, rate increases in the Czech Republic, and higher commercial lending volume. The net interest margin at 2.01% came under pressure while reinvestment yields were low. Driven by IFRS 9 changes, the trading income line saw a 66% decline, which was the main culprit causing the 4% decline in total income. We maintain our narrow moat rating and our fair value estimate of EUR 80 per share.In terms of business segments during the quarter, while Belgium and the Czech Republic saw year-over-year net income declines of 13% each, net income for the international markets segment increased 3%. On the revenue line, life insurance sales were up 4% due to an increase in the sale of guaranteed-interest products. The nonlife insurance technical result was slightly lower than in the same period last year, with higher premium income more than offset by higher technical charges and a lower ceded reinsurance result.
Similar to the previous quarter, KBC booked releases of loan-loss impairments in the second quarter, amounting to EUR 84 million in the first half of 2018 versus EUR 72 million in the year-earlier period. According to the details provided by management, the net release of provisions was thanks to the EUR 81 million release in Ireland. The release mainly stemmed from improved house prices.
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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