KBC Groep NV (KBC), Belgium’s biggest bank and insurer by market value, reported profit that beat analyst estimates as tighter corporate credit spreads and commissions on life-insurance sales made up for a shrinking interest margin.
Third-quarter net income of 531 million euros compared with a 1.58 billion-euro loss a year earlier, the Brussels-based company said today in a statement. Analysts had projected profit of 470 million euros, the median of nine estimates compiled by Bloomberg. Net interest income contracted 19 percent on an underlying basis and costs fell 16 percent.
KBC said its capital position improved after selling 350 million euros of treasury shares last month and its balance sheet continued to shrink. The bank and insurer forecast a common equity ratio of 10.2 percent rather than 9.5 percent assuming a full implementation of Basel III capital rules by the end of next year after repayment of 4.17 billion euros of state aid plus penalties. The capital roadmap assumes KBC will report profit of an average 380 million euros in the next five quarters.
“Earnings were better than anticipated on almost every line,” Marc Leemans, an analyst at Bank Degroof in Brussels, wrote in an investor note. “Total income exceeded expectations on strong fee and commission income and results from marking to market financial instruments.”
KBC rose as much as 4.3 percent on Euronext Brussels and traded 49 cents higher at 18.79 euros by 9:26 a.m. local time. The shares have gained 93 percent since the start of the year.
Net interest income, KBC’s biggest source of revenue, fell to 1.09 billion euros on an underlying basis from 1.34 billion euros in the same period a year earlier. Adjusting for divestments, the drop was 13 percent as the difference between what the bank pays for funds and what it charges for loans narrowed 8 basis points from the preceding quarter to 1.74 percent.
KBC further reduced its investments in higher-yielding sovereign bonds in Southern Europe and sold about 500 million euros of Italian debt at a loss of 12 million euros before tax in the quarter. KBC also disposed of all of its Spanish regional government bonds at a loss of 13 million euros.
The bank set aside 283 million euros to cover loan losses in the quarter, an increase from 198 million euros in the preceding quarter. Loan provisions covered 61 percent of non- performing loans at the end of September, down from 62 percent at the end of June.
Provisions in Ireland, where KBC gave its local banking unit an additional 100 million euros of capital to keep the Tier 1 ratio at more than 11 percent, dropped to 129 million euros from 136 million euros in the second quarter. Provisions in Ireland now cover 45 percent of non-performing loans in the country.
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