12 mei 2022
16:31
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Rising interest rates in its Czech home market helped bank-insurer KBC to counter the sharp rise in costs in the first quarter. If the ECB decides to raise interest rates in July, the group will receive an extra growth engine, says CEO Johan Thijs.
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Despite the war in Ukraine and the growing economic uncertainty, KBC
shot out of the starting blocks at lightning speed in 2022. Over the first three months of the year, the bancassurance company posted a net profit of EUR 458 million, which was better than analysts had expected.
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Compared to the first quarter of 2021, the net profit is just under 100 million euros lower. KBC set aside 223 million euros as an extra buffer for the Ukraine crisis, but the bank was able to largely compensate for this by reversing most of its previous corona provisions.
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The cause of the decline in profit is mainly due to the sharp increase in operating costs, which were 12 percent higher than a year earlier.
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The reason for this increase is obvious: high inflation. ‘It turned out to be much higher than we expected,’ says Thijs. ‘Due to automatic indexation, wage costs in Belgium are rising much faster than anticipated.’ Among other things the profit premium of 1,000 euros that the group paid to all 40,000 employees at the beginning of this year promised and the extra costs linked to KBC’s exit from Ireland pushed those costs even higher. ‘If you remove such one-off elements from the figures, our underlying result turns out to be higher than last year’s,’ says Thijs.
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KBC ran like a charm commercially in the first three months of the year, says the CEO. The bank extended 7 percent more loans than a year earlier, while also attracted 5 percent more deposits in the first quarter. And despite the turmoil on the stock markets, sales of investment products continued to boom. “Our asset management business generated as much revenue in the first quarter as it did in three quarters last year. Our online stock exchange platforms in Belgium and the Czech Republic also had a top quarter,’ says Thijs.
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Prague interest
In order to boost its income, KBC has also been able to count on the Central Bank of the Czech Republic, the group’s second home market. Unlike the European Central Bank (ECB), which is only now starting to talk about an interest rate hike in July, the Czech central bank has been gradually raising interest rates since June last year to fight inflation.
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As a result, KBC can park surplus euros that it cannot put to work as credit with its Czech subsidiary on better terms than with the ECB. In the meantime, Hungary, where KBC is also active, has also started raising interest rates. As a result, KBC saw its interest income – the bank’s main source of income – rise by more than 12 percent in the first quarter to 1.2 billion euros.
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We expect rising interest rates from the third and fourth quarters to contribute very positively to our revenues. They will rise faster than our costs.
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Now that the ECB is also preparing to turn off the money tap and possibly raise interest rates from July, KBC can get a new growth engine. ‘We expect that rising interest rates from the third and fourth quarters will contribute very positively to our income’, Thijs looks ahead. ‘They will rise faster than our costs. Although we expect that we will only really feel the effect in 2023. We will not adjust our targets for this year.’
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Thijs believes that KBC has taken a lead on the rest of the year with the strong first quarter results, because the commercial engine will not continue to run at the same speed in the coming months. “In terms of sales of investment products, we will no longer reach the levels of the first quarter. Nor do we expect lending to remain at its current high level. Perhaps even more important than the higher interest rates are the sharp price increases for building materials. That encourages quite a few people to borrow less or to postpone their renovation plans.’
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KBC’s Ukrainian invoice
In the investor presentation In the quarterly report, KBC provides more information about the 223 million euros in provisions for the Ukrainian crisis. The impact is all in all limited and mainly indirect. 55 million euros is directly for loans to Russian banks. In addition, 33 million is via corporate customers with significant activities in (Belarus) Russia and Ukraine. The majority of the commissions are indirect: 135 million for corporate customers who are at risk of being indirectly affected by the crisis due to logistics bottlenecks or high energy prices.
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