KBC closed the third quarter of 2006 with a net profit of 1 081 million euros (which included an 0.5-billion-euro divestment gain). The underlying profit for the quarter came to 574 million euros. According to André Bergen, Group CEO, 'We are again very satisfied with our performance. Despite the normal seasonal trends, business volumes remained solid. Moreover, the interest margin increased and credit risk was, once again, low.' Profit for the first nine months of the year amounted to 2 797 million euros, representing an increase of 59% (underlying +15%) and a return on equity of 26% (underlying 19%).
Financial highlights - 3Q 2006
The third quarter result benefited from a one-off gain of 0.5 billion euros, net, on the divestment from Banco Urquijo (European Private Banking Business Unit).
On an underlying basis (i.e. group profit net of one-off factors and fair value changes in ALM hedging instruments), net profit ended 1% higher than the figure recorded for the strong third quarter of 2005, with a higher contribution from the Central Eastern Europe Business Unit (due to, among other things, lower credit risk charges), but a weaker performance from the capital market activities (Merchant Banking Business Unit).
Underlying profit was down 10% on the previous quarter, primarily reflecting seasonality in the earnings pattern of most business units. Over the past five years, third quarter net profit has been down 20% on average vis-à-vis the preceding quarter (financial year 2005 being the exception).
Aside from the normal seasonal trends, business volumes remained solid in many fields. Outstanding home loans, for instance, increased by 4% during the quarter (of which +11% in Central Eastern Europe), as did life insurance reserves. Following a 2% drop in the previous quarter (related to the volatile market conditions prevailing at that time), assets under management rose again by 5% during the quarter under review.
The net interest margin of the banking business moved up 3 basis points on account of, among other things, the 10-basis-point widening of the Central Eastern European interest margin.
The cost trend remained favourable (on an underlying basis, -8% vis-à-vis the previous quarter and -4% year-on-year), while loan losses were, once again, very limited (including in Central Eastern Europe).
Outlook for the 2006 financial year
KBC believes in the continued earnings potential of its business strategies. In keeping with policies adopted by several of its peers, it will no longer provide quantitative earnings guidance. KBC will update its mid-term financial targets by 7 December 2006. On that day, a news release will be issued at 8.30 a.m. CET.
This earnings release is available to the public in English, Dutch, French and German at www.kbc.com, along with annexes to the earnings release, a PowerPoint presentation and a quarterly report (all in English).
