Economy 21 May 2012, 4:10pm

Government measures exhaust Hungarian unit of KBC, K&H Bank Q1 profit plummets

Portfolio

K&H Bank, the Hungarian unit of Belium’s KBC Group, posted HUF 368 million after-tax profit in the first quarter of 2012, the bank announced on Monday. Adjusted for one-offs and the bank tax K&H’s net profit would have reached HUF 5.2 billion. The early FX mortgage repayment scheme hit the bank hard: it has not only stripped it of a large volume of interest income but also boosted the non-performing loan (NPL) ratio in the retail segment to 17.3%. K&H expects a 75% takeup in the new FX cap scheme and it booked the estimated profit-reducing impact in Q1 too (to the tune of HUF 1.3 bn). The CEO said the new financial transaction tax should not be borne by the banks.

K&H Group posted HUF 368 million after-tax profit in the January-March period. The 92% yr/yr plunge was caused by the decrease in the loan stock due to the early repayment programme and that the bank booked a HUF 1.3 bn estimated full-year loss on interest income in connection with the FX cap scheme. The profit excluding one-offs came to HUF 5.2 bn and the NPL ratio ticked up to 12.1% from 10.3% in Q4, CEO Hendrik Scheerlinck announced today.

Provisioning was close to the past (ex-early repayment) numbers: K&H generated HUF 7 bn worth of provisions in the first quarter. The volume of loans declined to HUF 1,538 bn in the first quarter of 2012 from HUF 1,661 bn in Q1 2011. HUF 188 bn of this can be related to the early repayment programme. Without that the bank’s loans would have grown 4% in annual terms. Deposits increased by 2% yr/yr.

K&H’s capital adequacy ratio (CAR) is healthy (12%) and its loan/deposit ratio is the best among the large local banks (76.9%). As K&H was hit harder by the early FX mortgage repayments than the majority of its rivals, its market share in the area of retail lending shrunk to 8.6% in Jan-Mar from 9.6% in the same period of 2011. The bank’s market share at retail deposits, however, grew to 6.6% from 6.4% and came in at 20.2% at investment funds vs. 20.1% a year earlier.

Some 28% of those eligible take choose the early repayment option actually used this opportunity at K&H, which will leave the bank about HUF 9 bn less in interest income this year. They expect about two thirds of their clients use the new FX cap scheme. The NPL ratio jumped to 17.3% in the retail segment, while the quality of the bank’s corporate loan portfolio can be regarded as healthy (7.9% NPL ratio). K&H Bank sees significant business opportunities in the agricultural sector and the food industry. In order to exploit these potentials the bank has set up a separate agri branch and holds regular meetings with potential clients.

K&H’s net interest income declined by 27% yr/yr in Q1 and its operating expenses went up 3.3% compared to Q1 2011, partly because of a one-off cost of moving into a new headquarters and partly due to the setting up of KBC’s local data centre.

With regard to the planned financial transaction tax Scheerlinck reminded that the government had reached an agreement with the banks last December and also the first few sentences of the related bill. The latter say the cabinet wants to switch the focus of taxes to sales taxes from labour taxes. If the new levy should be considered a sales tax, it is the customers who would need to pay that, the CEO said. At the same time he noted that the government should make sure the new tax does not exert a negative or extremely negative impact on the economy that could spark capital flight from the country. He said he hoped an open and constructive dialogue can be conducted on this matter with the cabinet in the next few weeks.