August 10, 2007 01:08 ET

Earnings release KBC Group, 2Q & 1H 2007

BRUSSELS, BELGIUM--(Marketwire - August 10, 2007) -

KBC closed the second quarter of 2007 with a net profit of 936 million euros, bringing net profit for the first half of the year to 1 933 million euros. Underlying net profit, i.e. net profit excluding extraordinary items not related to the normal course of business, came to 880 million euros for the second quarter, which translates into an underlying net profit for the first half of the year of 1 660 million euros (4.76 euros per share, up 21%% year-on-year). The corresponding return on equity for the first half of the year came to 21%.

According to André Bergen, Group CEO, "KBC performed in an excellent way in the second quarter, building on the strong momentum of the first three months of this year. The general climate remained favourable and the group was in fine form." He added: "The start of the third quarter is encouraging. Vulnerability to current credit market volatility is very low. We are not a direct subprime mortgage lender and our indirect exposure to the market via credit-linked investments is small."

Earnings highlights:

* Solid business dynamics in all business areas

* Strong increase in core income

* Costs remain under control

* Low level of loan loss charges

* Encouraging start to the third quarter of 2007

Financial highlights - 2Q 2007

André Bergen, Group CEO, summarises the quarter's financial highlights as follows:

"We made a second-quarter profit of 880 million euros, excluding exceptional items. Profit was up 13% compared with the previous quarter and 39% year-on-year.

The business dynamics were solid throughout the group and all business units put in a fine performance, which included double- digit earnings growth. The loan portfolio ended the quarter 5% higher, while assets under management were up 6%.

Core income was strong. On a like-for-like basis, interest income was up 7% on the second quarter of 2006, while fee and commission income went up by 14%. These figures illustrate the strength of our core franchises. Moreover, our dealing rooms continued to perform well, as in the two preceding quarters.

During the quarter, we benefited from somewhat higher gains on investment securities in our insurance division. Even without these gains, the results would have been very strong. The amount was some 30 million euros above the average for the four preceding quarters.

As in previous quarters, the life insurance business in Belgium slowed. Tax treatment in this area has become less favourable since 2006. On the other hand, non-life insurance charges normalised, following the adverse impact of the Kyrill storm in the first quarter.

We decided to enforce more balanced expense budget utilisation throughout the year and this had an upward, technical effect on the quarter's cost level. Aside from normal cost inflation, the cost trend remains under control. The year-to-date cost/income ratio for the banking business came to 56%.

Loan loss charges remained low. We saw a limited number of corporate loan defaults in some places, but we benefited from some bad loan recoveries in others. Year-to-date, the loan loss ratio stood at just 11 basis points."

Extraordinary items:

During the second quarter of 2007, an extraordinary result of 56 million euros was recorded. The main item was the market value gain on ALM hedges that do not qualify for hedge accounting. There was also the gain on the sale of Banca KBL Fumagalli (Italy, a net 14 million euros). These extraordinary results were excluded from the underlying profit amount.

Developments - 2H 2007

André Bergen: "During the summer, business is always a bit slower. Nevertheless, the July earnings trend was encouraging. In addition, the sale of the stake in Hungarian bank-card clearing house GBC was completed, with a positive net earnings impact of about 25 million euros."

KBC Investor Relations Office
Luc Cool

Earnings release KBC Group, 2Q & 1H 2007:

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