One of Europe’s largest finance houses,
KBC Group, is yet another financier to report significant profit
downturns on account of credit market turmoil.
Its net profit for the first quarter of 2008 was down 44 per cent
to €554m, compared to the first quarter in 2007 and its underlying
profit came to €573m, also down 22 per cent on the first quarter in
2007 and down 15 per cent on the previous quarter.

Group CEO, Andre Bergen said that the merchant banking, which
includes leasing, and asset management businesses suffered due to a
fall in investment yields across asset classes and highly volatile
markets.
The group’s impairments totalled €39m, which was almost entirely
related to loans (€35m), as loan loss impairments were also up €6m
on Q1 2007 and by €34m on Q4 2007.

Nevertheless, Bergen added: “The trends for lending,
deposit-gathering and life insurance sales remained solid.
Especially Central and Eastern Europe continued to do very well,
with organic loan growth at 26 per cent year-on-year and underlying
net banking profit up 27 per cent. This testifies to that region’s
role as a growth-driver for the group.”

KBC Group consists of five core business units, Belgium, Central
& Eastern Europe and Russia, merchant banking, European private
banking and shared services & operations, of which leasing is a
part of.
But for the sake of financial reporting, KBC Lease was grouped with
the merchant banking business unit, which recorded an underlying
net profit of €26m for Q1 2008, down from €269m in Q1 2007.
This is due to large losses on technical charges, net unrealised
gains from financial instruments and operating expenses. Meanwhile,
the division’s net interest income for Q1 2008 was only marginally
lower at €249m, compared to €275m in Q1 2007.

The division’s income was also depressed by higher funding
costs, lower income in a number of markets, amongst which those
related to bonds, equity, fund and credit derivatives, structured
products and local private equity. According to KBC’s financial
statement, “most other income components were also impacted to some
extent by the turmoil on the financial markets.”

As well as encompassing all of KBC’s financial services provided
to SMEs and corporate customers, the merchant banking unit also
includes KBC’s commercial banking activities, which reported a net
profit of €108m for Q1 2008, down 23 per cent on the 2007 quarterly
average. Commercial banking’s net income faired relatively well,
recording €310m for Q1 2008, down from €356m in Q1 2007, while its
impairments totalled €10m for Q1 2008, compared to €6m for Q1
2007.