Scope Ratings today placed KBC Group’s A- Issuer Credit-Strength Rating (ICSR) and senior unsecured debt ratings under review for possible upgrade. These ratings were initially assigned in April 2014, with a Stable Outlook. KBC’s capital instrument ratings were also placed on review for possible upgrade (see details at the end of this press release). KBC’s S-1 Short-Term Ratings were not placed on review.

Scope has highlighted the positive trend in KBC’s asset quality and profitability, partially underpinned by improved macroeconomic conditions in Ireland. While still elevated, the impaired loan ratio continues to steadily decrease, reaching 9.3% at end-June 2015. Loan loss charges for the Irish loan book are also expected to materially decline going forward. The rating review will assess the sustainability of these positive developments.

Along with the progress in asset quality, the group’s risk profile has also significantly improved as legacy activities (notably CDOs and divestments) have been disposed of since 2014. Further, KBC has repaid EUR 5bn of EUR 7bn in state aid and has committed to repaying the remainder by end-2017 at the latest. In Scope’s opinion, the group’s earnings and capital position have strengthened to such a degree that they are more than sufficient to repay the aid immediately. At end-June 2015, the group’s fully loaded CRD IV CET1 and leverage ratios under the Danish compromise were 16.7% and 6.7%, respectively.

The rating agency further notes that the review for upgrade is supported by management’s focused banc-assurance strategy in its core markets of Belgium, the Czech Republic, Slovakia, Hungary and Bulgaria. In Ireland, the aim is to return to profitability in 2016 which would then provide management with various options such as selling a profitable bank or further developing the business.

The review for possible upgrade relates to KBC Group’s ICSR and senior unsecured debt and capital instruments ratings. The following ratings were placed under review:

• Issuer Credit-Strength Rating (ICSR) of A-, on review for possible upgrade (KBC Group).
• Senior unsecured debt ratings of A-, on review for possible upgrade (KBC Group).
• Additional Tier 1 securities ratings of BB+, on review for possible upgrade (KBC Group).
• 8% USD 1bn contingent capital securities (Tier 2) rating of BBB, on review for possible upgrade (KBC Bank).

KBC Group’s S-1 Short-Term Ratings and their Stable Outlook were not placed under review.