KBC

Are there any changes in the composition or risk profile of customer deposits that could affect liquidity ratios?

Created August 07, 2025 at 05:01 AM

Short answer:

Yes. The bank’s statement points to a qualitative change in its deposit base that can positively influence its liquidity ratios. By explicitly excluding “volatile, low‑margin short‑term deposits at KBC Bank’s foreign branches” from the reported deposit growth, KBC signals that the underlying composition of its deposits is shifting toward more stable, higher‑quality funding. This reduces the liquidity‑risk profile of the deposit base and should, all else equal, improve the bank’s key liquidity metrics (e.g., the Liquidity Coverage Ratio – LCR, Net Stable Funding Ratio – NSFR).

Why the composition matters for liquidity ratios

Liquidity Ratio	What it measures	How deposit composition affects it
LCR (Liquidity Coverage Ratio)	Ability to meet cash outflows over a 30‑day stress period using high‑quality liquid assets (HQLA).	A deposit base dominated by short‑term, easily withdrawn funds (e.g., “volatile” short‑term deposits) raises the projected outflow amount, forcing the bank to hold more HQLA. Reducing such deposits lowers the outflow estimate, easing the LCR requirement.
NSFR (Net Stable Funding Ratio)	Proportion of stable funding (e.g., long‑dated deposits) to the amount of required stable funding over a one‑year horizon.	A shift toward longer‑dated, less‑volatile deposits improves the stable‑funding denominator, raising the NSFR. Conversely, a high share of short‑term, low‑margin deposits drags the ratio down.

What the news tells us about KBC’s deposit profile

Item from the release	Interpretation
“Customer deposits – excluding volatile, low‑margin short‑term deposits at KBC Bank’s foreign branches – were also up 2% quarter‑on‑quarter and 7% year‑on‑year.”	The bank is filtering out the most liquidity‑sensitive segment of its deposit book when presenting the growth figures. This suggests that the core deposit base (the part that remains after exclusion) is more stable and less prone to rapid withdrawals.
Deposit growth (2% QoQ, 7% YoY)	Even with the exclusion, the deposit base is expanding, providing a larger pool of stable funding.
“Volatile, low‑margin short‑term deposits”	These are typically high‑frequency, low‑duration funds that can be withdrawn quickly, especially in stress scenarios. Their removal from the reported figures indicates a reduction in the proportion of such high‑risk funding.
Loan portfolio expansion (+2% QoQ, +7% YoY)	A growing loan book financed by a more stable deposit base improves the asset‑liability match and reduces funding‑gap risk.

Potential impact on KBC’s liquidity ratios

Lower projected cash outflows in stress‑testing
- By shedding a segment of deposits that would be classified as “short‑term” in regulatory stress‑scenario calculations, KBC’s 30‑day outflow estimate (used for the LCR) is likely to fall.
- A lower outflow reduces the amount of high‑quality liquid assets (HQLA) the bank must hold, improving the LCR (or at least easing the pressure to acquire additional HQLA).
Higher proportion of stable funding
- The NSFR requires that the stable‑funding ratio (stable funding / required stable funding) stay above 100%.
- Removing volatile short‑term deposits raises the stable‑funding denominator (the “available stable funding” side), thereby lifting the NSFR.
- The growth in “core” deposits (2% QoQ, 7% YoY) further adds to the pool of stable funding, reinforcing this effect.
Improved funding‑gap profile
- A deposit base that is longer‑dated and less price‑sensitive reduces the mismatch between the maturities of assets (loans) and liabilities (deposits).
- This tightens the funding gap and reduces the need for costly short‑term wholesale funding, indirectly supporting both liquidity ratios and overall funding cost efficiency.
Risk‑adjusted capital considerations
- While not directly a liquidity ratio, a more stable deposit base also lowers the risk‑weighting of the funding side in the Basel III liquidity framework, potentially easing capital‑allocation pressures.

Summary of the likely net effect

Effect	Direction	Reason
Liquidity Coverage Ratio (LCR)	Improves / less strain	Lower 30‑day outflow estimate due to removal of volatile short‑term deposits; larger stable deposit base reduces HQLA requirement.
Net Stable Funding Ratio (NSFR)	Improves	Higher proportion of stable, longer‑dated deposits increases the stable‑funding denominator; deposit growth adds to stable funding pool.
Overall liquidity risk profile	Weakens (i.e., reduces) risk	Deposit composition shifts away from “high‑frequency, low‑margin” funds toward more durable, higher‑margin deposits, lowering the probability of sudden withdrawals.

Caveats & Additional Considerations

Regulatory treatment of foreign‑branch deposits: The statement excludes “volatile, low‑margin short‑term deposits at KBC Bank’s foreign branches.” If those deposits still exist on the balance sheet, regulators may still count them in the stress‑testing framework, albeit possibly with a lower weighting. The net effect depends on the size of that excluded segment relative to total deposits.
Market perception: Even though the bank reports a more stable deposit base, market participants may still scrutinize the quality of the remaining deposits (e.g., proportion of retail vs. corporate, maturity profile). A transparent breakdown would help confirm the liquidity benefit.
Future policy or macro‑environment: If macro‑conditions (e.g., interest‑rate volatility, economic slowdown) trigger a shift in depositor behavior, the “stable” portion could be tested. The bank’s ability to retain these deposits under stress will still be a key factor in the actual realized liquidity ratios.

Bottom line

The news indicates a positive shift in the composition and risk profile of KBC’s customer deposits: the bank is deliberately excluding volatile, low‑margin short‑term deposits from its reported growth figures, implying that the remaining deposit base is more stable and less prone to rapid outflows. This change should enhance KBC’s liquidity ratios—both the LCR and NSFR—by lowering projected cash outflows and increasing the proportion of stable funding, thereby reducing liquidity‑risk pressures on the institution.