KBC Bank unsure how Covid-19 will impact credit costs

KBC Bank has said it can provide "no reliable estimate" at this point on the size of the impact of the coronavirus pandemic on credit costs.

The bank, which has an Irish subsidiary, issued a trading update for the first quarter of the year on Friday.

It said the growing public health crisis around the world has distressed financial markets amid concerns that the global economy, and the EU’s economies in particular, are heading towards a sharp contraction this year.

“The coronavirus pandemic has triggered a chain of events in the markets that has led to a massive sell-off across asset classes and a sharp increase in volatility,” it said.

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“The significant deterioration in the economic outlook has brought about an unprecedented monetary policy response from central banks and governments around the world, resulting in flattening yield curves and widening credit spreads.

“All these trends will adversely affect the Financial Instruments at Fair Value (FIFV) in KBC Group’s results for the first quarter of 2020 which are due to be announced on May 14th.”

“The FIFV are being affected by the increased volatility in financial markets. The combination of a number of market-driven factors, such as sharply lower stock markets, widening credit spreads and lower long-term interest rates, will have a negative impact on the fair value of financial Instruments at KBC of close to €400 million.”

The bank said credit costs in the first quarter of 2020 will be characterised mainly by impairments on a number of corporate loans in Belgium, as was the case in previous quarters.

“Going forward, no reliable estimate can be made at this point on the size of the impact of the coronavirus pandemic on our credit costs,” it said.

It added that this was because a number of events such as the length and depth of the downturn of the economy and legislative actions that are being taken by authorities in different markets may have an impact on its assessment of future loan losses.