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KBC posts YOY fall in Q2 profit, to sell Irish loan portfolio to Goldman Sachs

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KBC posts YOY fall in Q2 profit, to sell Irish loan portfolio to Goldman Sachs

Belgium-based KBC Group NV reported second-quarter profit attributable to equity holders of the parent of €692 million under IFRS 9, down from €855 million under IAS 39 a year earlier.

EPS for the quarter fell to €1.61 from the year-ago €2.01.

Net interest income rose to €1.12 billion in the period from €1.03 billion a year earlier. Net fee and commission income ticked up on a yearly basis to €438 million from €430 million.

The group's nonlife insurance income, before reinsurance, rose year over year to €202 million from €179 million. Life insurance income, before reinsurance, came in at €1 million, compared to the year-ago loss of €24 million.

The group booked a reversal on impairments of €1 million, down from a reversal of €71 million a year earlier. It recorded a €21 million net release of loan loss impairments, down from a net release of €78 million in the second quarter of 2017. The result was largely driven by a €39 million gain due to the positive effect of higher house prices on its Irish mortgage loan portfolio, but was partially offset by €26 million of additional loan loss impairment charges from Belgium.

For the first half, KBC's attributable profit fell year over year to €1.25 billion under IFRS 9 from €1.49 billion under IAS 39. EPS for the half was €2.91, compared to the year-ago €3.49.

First-half return on equity was 16%, compared to 17% for full year 2017.

The group's Basel III fully loaded common equity ratio according to the Danish compromise method was 15.8% as of June-end, compared to 16.3% at 2017-end.

KBC Insurance's Solvency II ratio stood at 219% at the end of June, compared to 218% at the end of March and 212% at the end of 2017.

Meanwhile, the group said unit KBC Bank Ireland PLC agreed to sell part of its legacy portfolio, amounting to roughly €1.9 billion, to Goldman Sachs Group Inc. The portfolio comprises nonperforming corporate loans, nonperforming Irish buy-to-let mortgage loans, and performing and nonperforming U.K. buy-to-let mortgage loans.

The transaction reduces KBC Bank Ireland's impaired loans ratio by roughly 11 percentage points to around 25% pro forma at the end of the second quarter. On a group level, the sale is expected to result in a net profit impact of €14 million and a release of risk-weighted assets of approximately €400 million, resulting in a 7-basis-point improvement in KBC Group's common equity ratio. The deal is expected to close in the fourth quarter.

For the remainder of 2018, KBC expects "solid returns" for all of its business units. For Ireland, the group expects a net release of loan impairment of 100 million to €150 million for the full year 2018. In Belgium, KBC expects a recurring positive impact on its results from the recent reform of the Belgian income tax system, adding that it expects the negative upfront effect recorded in the fourth quarter of 2017 to be "fully recouped in roughly three years' time."

The group will pay an interim dividend of €1 per share Nov. 16.