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The Belgian banks saw their profits evaporate in the past six months. They set aside massive amounts of money to absorb possible credit losses. Still, they feel strong enough to withstand the corona storm.
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With declines of more than 75 percent on average, the half-year figures of the major Belgian banks show that the corona crisis is having a severe financial impact and the sector is preparing for bitter economic times. But despite those bloodletting, bank CEOs radiate calm because they believe the banking sector is strong enough to handle the crisis.
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Despite all the economic doom reports, the impact of the corona crisis has remained relatively limited for the banks for the time being thanks to government measures for businesses and households. Now that these support measures are gradually being phased out, the first victims are also starting to fall.
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Provisions weigh on results
Those precautions weigh heavily on the results. ING Belgium, which made a profit of 303 million euros in the first half of last year, saw its profit almost completely wiped out to 2 million euros. KBC’s net profit plummeted by 72 percent to 205 million euros and Belfius’ group profit fell from 304 million euros to 21 million in the first half of the year. BNP Paribas Fortis’s retail division had already reported a 25 percent decline in profit last week.
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The bankers are not waiting for the expected wave of defaults to arrive, but are already putting extra money aside.
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Search for income remains difficult
Due to low interest rates and faster digitization, banks were already forced to update their revenue models before the corona crisis. The pandemic made that search even more difficult, but in general the banks managed to maintain their income reasonably well in the first half of the year.
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KBC was able to compensate for this setback thanks to the solid performance of its insurance division. In the past six months, Belfius also benefited from the fact that, in addition to being a bank, it is also active as an insurer.
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At the same time, the Belgian investor also gave the banks a boost. The recovery of the stock markets attracted massive investors who are afraid of falling by the wayside, and this drove the commission income considerably higher at a number of banks. Belfius reported an increase in income of 13 percent on Friday, but the non-major banks are also noticing the growing investor appetite. Peter De Vlies, the CEO of AXA Bank Belgium, already stated last week that he could compensate for the falling interest income in the first half of the year through, among other things, higher investment income.
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Comfortable buffers
The bank CEOs also consistently point out their strong position to get through the corona crisis, a big difference from the situation at the start of the financial crisis. They refer to solid capital buffers that give them the capacity to absorb future losses.
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At Belfius, CEO Marc Raisière proudly boasts a core capital ratio of 15.5 percent. That is better than comparable European banks (13.9%). ‘KBC also scores very well here. Our figures are worlds apart from French and Italian banks. ‘
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That other ratio – liquidity – is also very good, partly because a large part of Belgian customers have hoarded money in current and savings accounts. ‘We also saw this saving behavior during the financial crisis,’ says ING Belgium.
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Banks have passed digital stress test
Although anything but obvious, the lockdown measures have never really endangered the functioning of the banks in recent months. Most banks were able to get their staff to work from home quite quickly. And also for the customer, who in any case had less access to the branch, digital banking received a boost.
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At ING Belgium, the number of customers using the bank’s mobile app was one-fifth higher in the first half of the year than in the same period last year. The other major banks came up with equally impressive charts. Digital seems to be becoming the norm more than ever, especially in a world that seems to have to live with multiple flare-ups of the epidemic.
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