K&H Bank, the Hungarian unit of Belgium’s KBC Group, is likely to face the worse of the two scenarios drawn up earlier as regards the losses the government’s relief package for foreign currency borrowers is expected to cause the bank. For its final estimate K&H has also taken into consideration the central bank’s (NBH) calculation method, although it still trusts that the ruling of the courts on unilateral interest rate hikes will favour the creditors. Meanwhile, the parent bank KBC has announced on Thursday morning that it posted a net result of 317 million euros for the second quarter, or EUR 287 m on an adjusted-profit basis, which greatly exceeded the EUR 241 m consensus forecast of analysts in a Reuters poll.
K&H Bank has announced that its parent bank, KBC, decided to set aside provisions of EUR 231 million to cover the consequences of the new Hungarian act on retail loans. A month ago the bank said that one-off net provisions to this end will amount to around EUR 162 m in Q2, warning at the same time that “a s the Supervisory Authority has not yet opined on the methodology to be used for calculating amounts paid in excess by clients and the interest payable by the bank on those amounts, there could be an additional impact of around 70 million euros (pre-tax) if the methodology, to be advised and recommended by the Hungarian Banking Association, and followed by K&H Bank, is not accepted."
A Hungarian court ruled in June that banks had previously overcharged customers for some loans. A law drafted by Prime Minister Viktor Orbán's government and passed last month will force banks to repay customers for unfair charges and interest rate hikes on loans. That is likely to result in big losses for Hungary's mostly foreign-owned banks.
The European Central Bank (ECB) has warned this could hurt financial stability and said that a planned conversion of foreign exchange loans into Hungarian forints could pose risks.
The provisions earmarked (cc. HUF 70 bn) matches the potential loss calculated with the methodology suggested by the central bank, although it is not legally obligatory to use, K&H said. The bank remains of the view that the calculation method suggested by the Hungarian Banking Association and applied by K&H was fully compliant with regulations. It expects that the legal foundations of the law will be challenged in court too. The European Central Bank’s (ECB) opinion released on 28 July and its suggestion that Hungarian authorities consult with the ECB before legislation such law would also help in this respect, it added.
This is how KBC fared in Q2
The adjusted net profit of KBC Group came in at EUR 287 million in April-June, exceeding the consensus forecast (Reuters) of analysts for a EUR 241 m profit. This item was affected most by provisioning for the new Hungarian act on consumer loans to the tune of EUR -231 m. KBC’s clean profit dipped sharply by 41% yryr and its International Markets Business Unit incurred EUR 176 million losses, as the positive results in Slovakia and Bulgaria were wiped out by the negative result in Ireland (due to loan loss provisioning) and Hungary (owing to the impact of new consumer loans act).
In Hungary, K&H fared well in the first half of the year regarding its operating profit. The bank extended some HUF 13 bn worth of new mortgage loans in the first six months of 2014, triple the volume recorded in the same period of 2013. K&H’s market share in the area of new home mortgages exceeded 13% in May. The number of loans to SMEs grew by 5% compared to Q1. In scope of the central bank’s Funding for Growth Scheme the bank has signed loan contracts with corporates to the tune of HUF 50.95 bn, which ensured it an estimated market share of 22.8%. K&H Group CEO Hendrik Scheerlinck also said today that, in line with their previously announced business strategy, K&H will invest HUF 1.5 bn annually between 2014 and 2017 (HUF 6 bn in total) on upgraded related to digitalisation.
K&H Bank’s capital position remains solid even after the above provisioning and exceeds the regulatory minimum therefore no capital increase related to the aforementioned will be necessary.
The bank’s liquidity expressed by its loan-to-deposit ratio is the best in Hungary even among the leading banks.
K&H’s statement confirmed that its Belgian owner KBC remains one of the most capital-strong and exceptionally profitable credit institutions of Europe, having posted EUR 714 million profit in the first half of 2014.
KBC retains its long-term commitment to Hungary, which it regards as one of its key market, the bank stressed in the statement, adding that K&H will publish its H1 earnings report in September.
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