Despite the economic havoc wrought by the corona pandemic, KBC has
so far not have to swallow that many credit losses, CEO Johan Thijs said on Thursday. But like most other European banks, KBC also realizes that it is only a matter of time before the group is flooded by a wave of defaults as a result of the crisis.
For this reason, between April and the end of June, the group recorded 845 million euros in write-downs on loans that were not repaid or repaid late. The impact of that measure on the second-quarter figures published by KBC on Thursday before trading hours was correspondingly. Combined with declining interest income, net profit plummeted by around 72 percent to 210 million euros. The bank and insurer did significantly better than the 153 million euros that analysts had predicted.
When KBC published its first quarter results in May, CEO Johan Thijs had indicated that the bank and insurer should swallow 1.1 billion euros in credit losses this year. That was the basic scenario, it sounded then. In the worst case, the corona bill could rise to 1.6 billion euros.
But in its report for the second quarter, KBC reiterates that it sticks to its base scenario of 1.1 billion euros. At least for the time being, because the bank states in a disclaimer that the long-term prospects for the economy also depend on new waves of contamination.
In addition, KBC was able to further reduce costs. Operating costs today are 8 percent below last year’s and 6 percent below the level of the first quarter. “Compared to last year, the costs are now 80 million euros lower,” says Thijs. ‘We saved on personnel costs by, among other things, ending contracts with interim workers and consultants. As soon as the crisis erupted, we also cut the costs for marketing and events. This has meant that the ratio between our costs and income is now only a fraction higher than in normal times. ‘
Czech profit engine in neutral
On the other hand, interest income, say the turnover that the bank derives from its core business, remains under pressure. Unlike other banks, KBC was able to maintain this income for a long time by parking cash that is not converted into credit at the central bank of the Czech Republic, one of the group’s home markets.
Banks that park this kind of ‘surplus cash’ with the European Central Bank have to pay a penalty interest, but in the Czech Republic, KBC has long received interest on those deposits. That has changed since the corona crisis. Now that the Czech central bank has also cut interest rates, KBC sees that profit engine disappear. In combination with the difficult market conditions, interest income in the second quarter was thus 9 percent lower than in the previous quarter. Compared to the same period last year, there was a drop of 4 percent. For the whole of 2020, KBC is now counting on 4.4 billion euros in interest income
No interim dividend
KBC finally confirms that it will not pay an interim dividend in the autumn. After the ECB ordered banks to keep their cash as much as possible earlier this year, KBC had already canceled its normal 2019 dividend.