KBC's Loan-Loss Provisions Drive Earnings Growth in Q2 2021

Narrow-moat KBC reported a net profit of EUR 793 million for first-quarter 2021, compared with the EUR 210 million net profit it reported for second-quarter 2020 and 7% ahead of the EUR 739 million the consensus of analysts collected by the company itself had pencilled in for the quarter. However, earnings growth was solely the result of KBC booking a net release (credit) from loan-loss provisions of EUR 130 million compared with a net provision (debit) of EUR 845 million booked for second-quarter 2020. Revenue declined 9% year on year, while operating expenses increased by 8%, leading to a 23% decline in preprovision profits. We maintain our narrow moat rating and our EUR 61/share fair value estimate.