KBC Group NV, Belgium’s biggest bank and insurer by market value, posted a record loss on writedowns of collateralized debt obligations and forecast provisions for bad loans will more than double this year.
The fourth-quarter net loss of €2.63 billion ($3.39 billion), which compares with net income of €708 million a year earlier, includes €1.7 billion of CDO writedowns, KBC said today in a statement. The Brussels-based bank wrote down completely the CDO portions that are first to take losses in the event of default to reduce the risk of future capital depletion.
Mounting losses on structured-credit investments led KBC to post its first annual loss and seek government support to shore up capital for a second time in three months in January. KBC is restricting lending in Ireland and some "high-risk" markets in eastern Europe and forecast credit losses will increase to 1 per cent of loans outstanding this year.
"Loan losses came in higher than expected," Albert Ploegh, an analyst at ING Wholesale Banking in Amsterdam, wrote in a note today. Mr Ploegh recommends buying KBC shares. "The loan-loss ratio in Ireland was still modest at 29 basis points, but will likely rise in 2009."
"The nonperforming loan level is at 1.8 per cent, so it remains well under control," chief executive Officer Andre Bergen said in an interview with Bloomberg.
"Underlying profit for January is much higher than it was in January of last year. We see increased lending margins and results in financial markets have been much better."
The share of nonperforming loans, defined as loans for which interest payments or principal repayments are more than 90 days in arrears, amounted to 2.1 per cent in central and eastern Europe and to 3 per cent in Ireland, where KBC has €18.6 billion euros of loans outstanding, including €13.7 billion of residential mortgages.
KBC also lost €6.5 billion of corporate deposits in the country as most other Irish banks accepted state guarantees, Mr Agneessens said. The Brussels-based bank forecast a "single- digit" increase in risk-weighted assets at its retail businesses in Belgium, central and eastern Europe and Russia.
KBC declined 23 cents, or 1.8 per cent, to €12.92 as of 3.51pm in Brussels trading, valuing the company at €4.59 billion. The shares have fallen 40 per cent so far this year, compared with a 14 per cent decline for the 56-company Dow Jones Stoxx 600 Banks Index.
Provisions for bad loans rose to 0.46 per cent of risk-weighted assets last year and may rise to 1 percent this year, Chief Financial Officer Herman Agneessens said on a conference call with analysts.
The 2008 figure excludes losses on bonds issued by Lehman Brothers Holdings, Washington Mutual Inc. and the three biggest Icelandic banks that all collapsed last year, and compares with 0.17 per cent in 2007.
KBC will have a core Tier 1 ratio, a measure of a bank's ability to absorb losses, of 8.6 per cent after receiving a €2 billion infusion by the Flemish regional government.
The non-voting securities pay annual interest of at least 8.5 per cent as soon as the bank resumes dividend payments and KBC may buy back the government aid at any time at 150 per cent of the issue price.
KBC will consider repayment "in three, four years from now," taking into account "the cost of equity at that time," Bergen said. Mr Agneessens (59) will retire at the end of April and KBC appointed Luc Philips (57) as his successor last month.
Bloomberg