Belgian lender KBC raises annual outlook, expects higher interest rates

By Jakob Van Calster

Aug 6 (Reuters) - KBC on Thursday joined Dutch peer ING and several other European lenders in raising its annual outlook as a European bank rally rolls on, partly due to expectations of higher future interest rates.

The upgrade brings expected net interest income, the difference between interest earned on loans and paid on deposits, broadly into line with analysts' expectations, which on average stood at about €7 billion ($8.08 billion) for 2026.

The conflict in the Middle East has fuelled expectations that interest rates will remain higher for longer, a trend reflected in rising forward swap rates that have strengthened the outlook for banks' NII.

"Given the upward inflation risks, we expect another rate hike by 25 basis points to 2.50% in September," KBC said in its earnings report.

One analyst, who asked to remain unnamed, said that so far with no recession in view, "banks are getting the positives without the negatives".

LOWER PROVISIONS FOR GEOPOLITICAL RISKS

KBC raised its full-year outlook for both total income growth and net interest income, forecasting total income growth of about 11% and NII of around €7.05 billion, up from at least 9.9% and at least €6.73 billion, respectively.

Second quarter profit clocked in at €1.15 billion, roughly in line with the €1.11 billion analysts expected on average in a company-compiled consensus. KBC said income was supported by higher net interest income, insurance revenues, trading and fair-value income, and net fee and commission income.

The Belgian lender, which holds around €400 billion in assets, said customer loan volumes rose quarter-on-quarter, while loan-book impairment charges declined. The addition to reserves for geopolitical and macroeconomic uncertainties was "significantly less" than in the previous quarter.

In May, the bank missed profit expectations after boosting provisions to cushion against risks stemming from geopolitical tensions.

($1 = 0.8660 euros)

(Reporting by Jakob Van Calster; Editing by Ronojoy Mazumdar)