Post on 18-Dec-2015
Remaining highly profitableon the Belgian market
Foto gebouw
Activities overview
Earnings drivers, retail
Earnings drivers, SME and corporate
Mid-term financial outlook
3
46%
24%
10%
7%11% 2%
Reminder : business portfolio
Although KBC has successfully expanded its operations in CEE, it is primarily a top bancassurer and asset manager in Belgium, its historical home market
CEE
Capital markets
International SME/corporate
Europeanprivate banking
Revenue breakdown - 2004*
Belgium :- retail bancassurance- private banking- asset management- SME and corporates
Gevaert
* 2004 pro-forma figures, excl. group items
4
0% 10% 20% 30%
Other
Argenta
ING
DEXIA
KBC
FORTIS
Client deposits
0% 10% 20% 30%
Other
ING
DEXIA
FORTIS
KBC
Mutual funds
0% 10% 20% 30%
Other
ING
KBC
AXA
ETHIAS
FORTIS
Insurance premiums
Market headlinesMarket shares:
Belgium’s banking landscape is highly consolidated (80% held by top-4 banks)
KBC is a top-3 player, especially strong in the Northern region
The market is highly receptive to cross-selling of AM & insurance products
Growth in the field of wealth management is significant (high savings rate)
31-Dec-03
5
Financial highlights, Belgium
1 Including bancassurance, private banking Belgium and asset management2 Core SME/Corporate activities only (at parent company level)
569 622725
6564
121
2002 2003 2004
Retail SME/Corporate
Financial performance in Belgium has been strong, mainly due to: Solid growth momentum for commission business (investment products in retail, non-lending income in SME/Corporate Consecutive years of cost reduction Over-the-cycle low loan losses
+8% +23%634 686
846
Net Profit (mln)
1 2
6
Business model
Segmented approach by customer group:
Basic activity (parent company)
Specific activities / segments (subsidiaries)
Retail 820 retail bank branches
600 insurance agents
Funds management (KBC AM)
Network of bank agents (Centea) and insurance brokers (Fidea)
110 branches in South Belgium (CBC)
HNW individuals 20 private banking branches
4 private banking ‘boutiques’ (Puilaetco)
SME / Corporate 1
16 branches
4 social profit and public sector branches
Multinational customers branch
Real estate activities
Corporate finance(KBC Securities)
Leasing (KBC Lease)
Factoring (International Factors)
Diamond center (Antwerp Diamond Bank)
Re-insurance (Secura)
1 Mostly SMEs (sales turnover > 8m), incl. 75 large corporate customers
Activities overview
Earnings drivers, retail
Earnings drivers, SME and corporate
Mid-term financial outlook
8
Sharp increase in productivity
Efficiencystrategy
100
93
116 115119
143
154
1998 1999 2000 2001 2002 2003 2004
+5% p.a.
+10% p.a.
Strong growth in revenue per FTE
Revenues per FTE, 1998 = 100
100 102
139
152
170
218
236
1998 1999 2000 2001 2002 2003 2004
+15% p.a.
Strong growth in revenue per branch
Revenues per branch, 1998 = 100
Sharp increase in productivity (to large extent driven by reduction in density of branches and cutback in branch FTEs)
9
+3.6%estimate
-7.5%
-4.0%
+4.2%
Cost containment has been successful
Cost inflation
3 Integration of ICT platforms and of products and support services
Cutbacks in branch FTEs and in number of branches
Cost inflation
Up to 2004: significant decline in costs
Henceforth: upward pressure on costs
2001 costs
2004 costs
2007 costs
Core retail only, excl. activities of subsidiaries
2
3
1 1
1
2
1
Target:cost growth below wageinflation rate
Efficiencystrategy
10
Strict cost control remains important
Efficiency strategy
Number of bank branchesper million inhabitants
611
537
514
427
371
289
275
245
219
200
Germany
Belgium
Italy
France
Switzerland
Japan
USA
UK
Sweden
Netherlands
Source: Febelfin
1. Wage costs in Belgium are higher than in other European countries
2. Average level of education of branch staff is higher than in other European countries
High wage costs(structural characteristic)
High density of network(Competition does not permit further branch cutbacks)
11
Trend of impairments of credit portfolio
Net write-downs vs. risk-weighted assets
0.21% 0.21%
0.09%
2002 2003 2004
Low over-the-cycle credit-loss charges
Target:< 0.25%
over-the-cycle
Risk strategy
1q05
0.00%
Credit-loss charges in Belgian retail are expected to be relatively low over the cycle (< 0.25%)
12
+1.8%
+3.0%
+6.5%
+5.7%
2001 income
Savings &investments
Lending
Insurance (excl.S&I)
Other
2004 income
+5% p.a.
Focus on revenue growth
Revenue growth in 2001-2004 partly driven by positive pricing effects
Revenue growth in 2004-2007 mainly driven by positive volume effects
½ due to positive pricing effects
+3.7%
+1.8%
+9.0%
0.3%
2004 income
Savings &investments
Lending
Insurance (excl.S&I)
Other
2007 income
Slower income growth due to
margin pressure
Mid-term ambition:maintain
growth trend
Growth strategy
Core retail only (excl. activities in subsidiaries)
Achieved+5% p.a.
revenue growth
13
Growth in savings & investments
Growthstrategy
How to grow within a mature market?
1.0%1.7% 1.8%
2.7% 3.0%
NL Germany Italy Belgium France
Market potential
Estimated nominal GDP growth rate
9.0%
15.0%
Euro zone Belgium
3.4 3.3
5.3
2002 2003 2004
1
Attracting new funds
Proven performance
Savings rate New funds attracted – in bn
31%31%30%29%29%28%28%25%23%22%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Market share of mutual funds
14
Growth in insurance field
Growthstrategy
How to grow within a mature market?
1
Attracting new funds
2Insurance
High cross-selling potential Proven performance
4% 2%17%20%24%
76% 80% 83%96% 98%
Home Family Car Hospital Accident
% bank client households w/o product
% bank client households w/ product
8%5%
8%
12% 14%
3% 3%
6% 6% 5%
2000 2001 2002 2003 2004
Bank branches Tied agents
56%
34% 40%60%
bank x bank areas (> 3 out of 6 products)
bank x insurance
2000 2004
Premium growth, non-life
X-sell results
15
Growth in lending field
Growthstrategy
How to grow within a mature market?
1
Attracting new funds
2
Insurance3
Lending
100108
118128
2001 2002 2003 2004e
Total market – Mortgage loans
CAGR 9%
Source: NBB
Small business loans:
• Moderate growth trend, in line with nominal GDP growth (+2.7% in 2005)
• But, further additional growth potential via raising amounts of advances in current account (with higher margins) and increasing non-credit-linked revenues
High expectations for growth in retail lending
Strong mortgage loans growth on the back of: sustained rise in Belgian real estate prices real estate prices still below level of other
European markets
16
Obstacles to growth
Growthstrategy
How to grow within a mature market?
1
Attracting new funds
2
Insurance
3
Lending
Sharper price competition
85%
16%
Pressure onmargins
Slowdown ineconomic
growth
Mortgages
Small business loans
Threats to growth according to analysts Hardening credit-pricing cycle
17
Catalysts for growth
Growthstrategy
How to grow within a mature market?
1
Attracting new funds
2
Insurance
3
Lending
Enhancing customer satisfaction Customer satisfaction at KBC
2001 2002 2003 (*) 2004Top-4 bancassurers only
* Extrapolation
Closure of branches
Customer-orientation program started
Would you recommend your bank to others?Yes, definitely + Yes, probably
80%
76%
71%
68%
KBC
Competitor A
Competitor B
Competitor C
Activities overview
Earnings drivers, retail
Earnings drivers, SME and corporate
Mid-term financial outlook
19
Growth in lending income
0.88%
1.06%
2002 2004
Lending income vs. RWA
Until 2004: Revenue growth driven by increased credit margins (up from 0.88%
in 2002 to 1.06% in ‘04) Despite low credit demand (and ensuing greater competition ), KBC
consolidated its market share in lending (even rising slightly from 22% in 2002 to 23% in ‘04)
Recent trends: Loan demand remains relatively limited (and competition increases
as a result) Pressure on margins makes growth in fee income a key priority
20
Growth in fee business: key priority
1.30%1.40%
2002 2004
Fee income vs. RWA
Mid-term target: > 2%
Fee revenue increased slightly in 2002-04 period due to higher sales of: corporate risk management products (average growth 15% p.a.) foreign trade products (average growth 28% p.a.) insurance products (average growth 59% p.a., but from a low base)
… offsetting stagnation of revenues from payment services (adverse impact of EU regulation)
21
Growth potential in fee income
Further growth of fee income targeted (to reach >2% on RWA) by means of: Continued growth in risk management, foreign trade and insurance products Increasing sale of ‘investment banking products’, in line with market trend,
giving SMEs direct access to capital markets (e.g., debt capital, private equity)
Implementation of training / tools to assist sales force in shifting from ‘operational’ relationship to ‘partnership’ with client
Internal performance / remuneration model increasingly focused on boosting fee income
76
38
8 7 5 5 2
-3 -4 -7Peer1 Peer2 KBC Peer3 Peer4 Peer5 Peer7
% change in commission income 2002-04*
local players
peers with substantial investment banking acitivities
* Boston Consulting survey, peers are corporate bankers in Western Europe
22
Monitoring credit riskRisk
strategy
1 KBC core SME/corporate banking excl. activities in specialized subsidiaries
0.34%
0.60%
0.07%0.00%
2002 2003 2004 1Q05
Impairments on loan portfolio 1
Mid-term target:loan loss ratio < 0.35%
LLR on RWA
Average 3yr-loan losses at 0.35%, in line with target, but rather cyclical (N.B. 2004/2005 historically low)
23
Monitoring credit risk
To maintain loan losses below ‘maximum’ level (0.35%): Increased monitoring of individual credit risks Active credit portfolio management:
avoiding risk concentration hedging credit risk exposure limits/caps on sub-portfolios (e.g., real estate, acquisition finance)
24
44%
38%
2002 2004
Strict cost control
Cost/income ratio 1
114 118
2002 2004
Efficiencystrategy
1 KBC core SME/corporate banking excl. activities in specialized subsidiaries
Expenses (m) 1
Mid-term cap:43%
Up to 2004: significant decline in C/I ratio to very low level (38%) cost inflation offset by FTE cutbacks and operational cost savings (reduced
number of branches)
Future: Continued cost control (without lessening commercial clout)
Activities overview
Earnings drivers, retail
Earnings drivers, SME and corporate
Mid-term financial outlook
26
92%72% 68%
2001 2004 2004new
14%19%
22%
2001 2004 2004 new
100%93% 93%
2001 2004 2004new
382
583725
2001 2004 2004new
Mid-term target:20%
Mid-term target:further down
to low 60s
Mid-term target:max 95%
over-the-cycle
Cost/income ratio, banking 1
Return on allocated capital 2Contribution to Group profit (m) 1
Mid-term outlook, retail
Combined ratio, non-life
1 Adjusted definition as of 2005: including asset management2 Adjusted definition as of 2005: including asset management and 8% allocated Tier-1 capital (instead of 7%)
27
3%
18%
2002 2004
1.30%
1.40%
2002 2004
2.18%
2.46%
2002 2004
65
121
2002 2004
Mid-term target:CAGR >10%
Mid-term target: >2%
Return on allocated capital, banking 1Contribution to Group profit (m) 1
Mid-term outlook, SME and corporate
Total revenue vs. RWA, banking 1
1 KBC core SME/corporate banking excl. activities in specialised subsidiaries
Mid-term target: 3.30%
Fee income vs. RWA, banking 1