Scope Ratings has today upgraded KBC Group’s issuer and senior debt ratings to A from A- with Stable Outlook, following the completion of its review for possible upgrade initiated on 24 September 2015. Ratings on KBC’s Additional Tier 1 and Tier 2 securities were also upgraded, to BBB- from BB+ and to BBB+ from BBB, respectively, both with Stable Outlook. KBC’s S-1 short-term rating and its Stable Outlook were confirmed.

Scope has highlighted the positive trend in KBC’s asset quality and profitability, partially underpinned by improved macroeconomic conditions in Ireland and the continued resilience of the group’s operations in Belgium and the Czech Republic. While still elevated, the impaired loan ratio continues to steadily decrease, reaching 9% at end-September 2015 from levels above 10% a year ago. Loan loss charges for the Irish loan book are also expected to materially decline going forward. Year-to-date, loan loss charges in Ireland were EUR 32m with management guiding to full-year provisions at the lower end of the EUR 50m-100m range.

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 is currently seeking permission from the European Commission to accelerate repayment. 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-September 2015, the group’s fully loaded CRD IV CET1 and leverage ratios under the Danish compromise were 17.4% and 6.9%, respectively.

The rating agency further notes that the ratings are supported by management’s focused bancassurance 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 following ratings were upgraded, all with Stable Outlook:

• Issuer credit-strength rating (ICSR) to A from A- (KBC Group).
• Senior unsecured debt ratings to A from A- (KBC Group).
• Additional Tier 1 securities ratings to BBB- from BB+ (KBC Group).
• 8% USD 1bn contingent capital securities (Tier 2) rating to BBB+ from BBB (KBC Bank).

KBC Group’s S-1 short-term ratings and their Stable Outlook were confirmed.