Belgian financial services group KBC beat expectations in the second quarter due to healthy interest income and sharply lower provisions for bad debts and despite reduced earnings from its dealing rooms.
KBC, which has received €7 billion in state aid to help it through the global financial crisis, said today it expected loan losses to decline in 2010 from 2009, with healthy revenue although costs could increase.
Many of Europe's top banks have beat earnings forecast this week as bad debts have shrunk more than expected, outweighing a slowdown in investment banking, which was hit by sovereign debt fears.
KBC's net profit before one-offs rose 35 per cent year-on-year to €554 million in the second quarter, versus an expected €459 million.
However, around €400 million of exceptionals, a number linked to its wind-down programme and some related to sovereign credit spreads, left the absolute net profit at €149 million, a 51 per cent drop, albeit still higher than expected.
The company said its merchant banking unit's dealing rooms had faced a tough environment, which had led to a "sizeably lower" net result for these activities.
However, its commercial banking activities have been "thriving" with stable revenues and substantially lower impairment charges, mainly in Ireland.
KBC said the total bottom line for Merchant Banking amounted to €121 million.
In return for the state aid it received, KBC has pledged to downscale its capital market activities and businesses outside its core of Belgium and emerging Europe, where it is the fifth largest by assets.
So far, it has sold its private banking arm KBL European Private Bankers, closed down its Japanese equity operations, and sold off its Asian derivatives unit and Brussels-based reinsurance business.
Last week, it agreed a staff-led buyout of British broker Peel Hunt.
The group has also pledged to sell its Polish consumer finance unit Zagiel, float a minority of Czech unit CSOB and possibly do the same for K&H of Hungary.
Reuters