KBC's Credit Quality Holds Up Well in Q4 2020; Guides for Midcycle Loan Losses in 2021

Narrow-moat KBC Group reported net attributable profits of EUR 538 million for fourth-quarter 2020, 23% below the EUR 702 million it reported for fourth-quarter 2019 and exactly in line with the consensus expectation of analysts collected by KBC itself. KBC reported a common equity Tier 1 ratio of 17.6%. It has one of the soundest capital adequacy levels compared with any large, globally listed universal bank. It managed to generate nearly double-digit returns on equity, on what could be viewed as elevated capital levels and during the most severe economic downturn for more than a decade. Unsurprisingly, KBC trades at a material premium to the sector and is currently firmly in 3-star territory. We maintain our fair value estimate of EUR 58 per share and our narrow moat rating.