KBC Group Company presentation - 1Q 2018 - KBC Bank
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KBC Group Company presentation 1Q 2018 More information: www.kbc.com KBC Group - Investor Relations Office – E-mail: investor.relations@kbc.com 1
Important information for investors This presentation is provided for information purposes only. It does not constitute an offer to sell or the solicitation to buy any security issued by the KBC Group. KBC believes that this presentation is reliable, although some information is condensed and therefore incomplete. KBC cannot be held liable for any loss or damage resulting from the use of the information. This presentation contains non-IFRS information and forward-looking statements with respect to the strategy, earnings and capital trends of KBC, involving numerous assumptions and uncertainties. There is a risk that these statements may not be fulfilled and that future developments differ materially. Moreover, KBC does not undertake any obligation to update the presentation in line with new developments. By reading this presentation, each investor is deemed to represent that it possesses sufficient expertise to understand the risks involved. 2
1Q 2018 key takeaways for KBC Group 1Q18 financial performance: Capital and liquidity positions: Very good net result of 556m EUR, despite the large The fully loaded** B3 common equity ratio based on the upfront bank taxes (371m EUR). ROE of 14%* in 1Q18 Danish Compromise decreased from 16.3% at the end of Good performance of the commercial bank-insurance franchises 2017 to 15.9% at the end of 1Q18 due to the impact of the in our core markets and core activities first-time application of IFRS 9 (-41bps) Q-o-q increase in customer loan volumes and customer deposits Fully loaded B3 leverage ratio, based on current CRR (excluding debt certificates & repos) in most of our core countries legislation, amounted to 5.7% at KBC Group Roughly stable net interest income and higher net interest margin Continued strong liquidity position (NSFR at 137% and LCR q-o-q at 139%) at end 1Q18 High net fee and commission income ** This clearly exceeds the minimum capital requirements set by the competent supervisors of respectively 9.875% phased-in and 10.60% fully loaded for 2018. On top of the above-mentioned capital requirements, the ECB expects KBC to hold a Lower net gains from financial instruments at fair value and higher pillar 2 guidance (P2G) of 1.0% CET1 other net income Combined ratio of 90% in 1Q18. Excellent sales of non-life and life insurance products Strict cost management resulted in a cost/income ratio of 55% YTD adjusted for specific items Net impairments releases on financial assets at amortised cost of 63m EUR, mainly driven by Ireland (net release of 43m EUR in 1Q18). We are maintaining our impairment guidance for Ireland, namely a net release in a range of 100m-150m EUR for FY18 3 * ROE taking into account pro rata bank taxes amounted to 19% in 1Q18
Contents 1 1Q 2018 performance of KBC Group 2 1Q 2018 performance of business units 3 Strong solvency and solid liquidity 4 1Q 2018 wrap up Annex 1: Company profile Annex 2: Other items 4
KBC Group Section 1 1Q 2018 performance of KBC Group 5
Net result at KBC Group CONTRIBUTION OF BANKING ACTIVITIES TO KBC GROUP NET RESULT* 750 575 526 461 NET RESULT AT KBC GROUP* 330 855 1Q17 2Q17 3Q17 4Q17 1Q18 691 630 556 CONTRIBUTION OF INSURANCE ACTIVITIES 399 TO KBC GROUP NET RESULT* 137 1Q17 2Q17 3Q17 4Q17 1Q18 111 113 96 102 78 64 78 27 42 82 93 84 75 61 -29 -15 * Difference between net result at KBC Group and the sum of the banking and insurance -33 -52 -34 contribution is accounted for by the holding-company/group items 1Q17 2Q17 3Q17 4Q17 1Q18 Non-Life result Non-technical & taxes Amounts in m EUR 6 Life result
Summary 2017 pro forma figures Impact shift 4Q17 4Q17 3Q17 3Q17 2Q17 2Q17 1Q17 1Q17 per P&L line as was pro forma as was pro forma as was pro forma as was pro forma NII 1,029 1,137 1,039 1,114 1,028 1,094 1,025 1,081 +108 +75 +66 +56 FIFV 235 118 182 94 249 180 191 130 +26 +25 +24 +24 F&C 430 456 408 433 430 454 439 463 +17 +12 +21 +19 AFS gains* 51 6 51 2 52 8 45 14 * Due to IFRS 9, the P&L line ‘net realised result from AFS assets is replaced by ‘net realised result from debt instruments at FV through OCI’ • Interest accrual FX derivatives: shifted from FIFV to NII (in line with the transition to IFRS 9) • Network income (income received from margins earned on FX transactions carried out by the network for clients): shifted from FIFV to F&C • IFRS 9: overlay approach for insurance: shift from realised gains AFS shares and impairments on AFS shares to FIFV • Please note that due to IFRS 9, the realised gains on AFS shares in Banking (26m in 4Q17, 32m in 3Q17, 21m in 2Q17 and 10m in 1Q17) have been eliminated from net result as they are now booked in equity 7
Good net interest income and higher net interest margin NII (pro forma for 2017*) Amounts in m EUR 1,081 1,094 1,114 2 22 1,137 3 47 1,125 0 27 Net interest income (1,125m EUR) 3 28 3 21 128 143 142 144 135 • Down by 1% q-o-q and up by 4% y-o-y • The small q-o-q decrease was driven primarily by: o lower netted positive impact of ALM FX swaps 907 928 946 952 970 o lower reinvestment yields o more negative pressure on commercial loan margins in most core countries 1Q17 2Q17 3Q17 4Q17 1Q18 NII - netted positive impact of ALM FX swaps** NII - Insurance o lower number of days NII - Holding-company/group NII - Banking partly offset by: * 2017 pro forma figures for NII as the impact of ALM FX derivatives was ‘netted’ in NII as of 2018 o lower funding costs (due mainly to the call of the CoCo) ** From all ALM FX swap desks o continued good loan volume growth *** NIM is calculated excluding the dealing room and the net positive impact of ALM FX swaps & repos o positive impact of both short & long term increasing NIM (pro forma for 2017***) interest rates in the Czech Republic 2.01% 1.97% 1.93% 1.96% 1.96% Net interest margin (2.01%) • Up by 4 bps q-o-q and by 8 bps y-o-y thanks to lower funding costs and the positive impact of repo rate hikes in the Czech Republic Customer deposit volumes excluding debt 1Q17 2Q17 3Q17 4Q17 1Q18 certificates & repos +2% q-o-q and +7% y-o-y VOLUME TREND Excluding FX effect Total loans ** o/w retail mortgages Customer deposits*** AuM Life reserves Volume 143bn 60bn 188bn 213bn 29bn Growth q-o-q* +1% 0% -3% -2% 0% Growth y-o-y +5% +4% +3% 0% -2% * Non-annualised ** Loans to customers, excluding reverse repos (and bonds) 8 *** Customer deposits, including debt certificates but excluding repos
High net fee and commission income Amounts in m EUR Net fee and commission income (450m EUR) F&C (pro forma for 2017*) • Down by 1% q-o-q and by 3% y-o-y • Positive net sales of mutual funds in 1Q18 463 454 456 450 24 24 433 26 25 • Q-o-q decrease was the result chiefly of: 25 o lower management fees o lower fees from payment services 511 506 518 502 489 o lower fees from credit files & bank guarantees o lower securities-related fees -72 -73 -81 -86 -77 0 partly offset by: -2 -1 o higher entry fees 1Q17 2Q17 3Q17 4Q17 1Q18 o lower commissions paid on insurance sales F&C - network income F&C - banking contribution • Y-o-y decrease was mainly the result of: F&C - insurance contribution F&C - contribution of holding-company/group o lower entry fees * 2017 pro forma figures as the network income shifted from FIFV to net F&C as of 2018 o lower securities-related fees o lower fees from credit files & bank guarantees Amounts in bn EUR partly offset by: o higher fees from payment services AuM* o the contribution of UBB/Interlease 214 213 215 217 213 Assets under management (213bn EUR) • Fell by 1.5% q-o-q owing entirely to a negative price effect • The mutual fund business has seen net inflows again, but this was offset by net outflows in group assets and investment advice 1Q17 2Q17 3Q17 4Q17 1Q18 * Note that 2017 AuM figures were reduced due to a roughly 2bn EUR adjustment in Institutional Mandates 9
Insurance premium income up y-o-y and good combined ratio PREMIUM INCOME (GROSS EARNED PREMIUM) Insurance premium income (gross earned 794 premium) at 714m EUR 672 636 660 714 • Non-life premium income (378m) increased by 5% 410 y-o-y 282 336 312 267 • Life premium income (336m) down by 18% q-o-q and up by 8% y-o-y 360 369 378 384 378 1Q17 2Q17 3Q17 4Q17 1Q18 Life premium income Non-Life premium income COMBINED RATIO (NON-LIFE) 79% 90% 84% 83% 88% The non-life combined ratio at 1Q18 amounted to 90%, still a good number despite higher technical charges due mainly to higher storm claims in Belgium 1Q 1H 9M FY 2017 2018 10 Amounts in m EUR
Non-life and life sales up y-o-y NON-LIFE SALES (GROSS WRITTEN PREMIUM) Sales of non-life insurance products 468 492 • Up by 5% y-o-y thanks to a good commercial performance in all major product lines in our core 358 349 342 markets and tariff increases 1Q17 2Q17 3Q17 4Q17 1Q18 Sales of life insurance products • Decreased by 15% q-o-q and up by 5% y-o-y LIFE SALES • The q-o-q decrease was driven mainly by lower sales of 588 guaranteed interest products in Belgium (attributable 474 498 chiefly to traditionally higher volumes in tax- 415 405 incentivised pension saving products in 4Q17 and extra 318 267 279 sales for individual pension agreements for self- 222 218 employed business leaders, anticipating the reduction 270 of corporate tax as of 2018) and lower sales of unit- 207 193 187 219 linked products in the Czech Republic 1Q17 2Q17 3Q17 4Q17 1Q18 • The y-o-y increase was driven mainly by higher sales of guaranteed interest products in Belgium and higher sales of unit-linked products in the Czech Republic Guaranteed interest products Unit-linked products • Sales of unit-linked products accounted for 44% of total life insurance sales 11 Amounts in m EUR
Lower FV gains, higher other net income FV GAINS (pro forma for 2017*) 180 The lower q-o-q figures for net gains from 130 86 118 financial instruments at fair value were 94 96 attributable mainly to: 110 94 • a negative change in market, credit and funding value 73 71 73 adjustments (mainly as a result of changes in the 19 1 21 11 7 19 4 underlying market value of the derivative portfolio) 12 17 1Q17 2Q17 3Q17 4Q17 1Q18 • lower dealing room income Other FV gains Net result on equity instruments (overlay insurance) M2M ALM derivatives * 2017 pro forma figures as: 1) the impact of the FX derivatives was ‘netted’ in NII as of 2018 2) the shift from realised gains AFS shares and impairments on AFS shares to FIFV due to IFRS 9 (overlay approach for insurance) OTHER NET INCOME Other net income amounted to 71m EUR, 77 71 higher than the normal run rate of around 50m EUR due to the settlement of an old legal file in 47 Belgium and the sale of a building in Hungary 4 -14 1Q17 2Q17 3Q17 4Q17 1Q18 12 Amounts in m EUR
Operating expenses up due entirely to higher bank taxes, but good cost/income ratio OPERATING EXPENSES Cost/income ratio (banking) adjusted for specific items* at 55% in 1Q18 1,291 1,229 • Operating expenses excluding bank tax went down by 1,021 371 6% q-o-q due mainly to seasonal effects such as 361 910 914 41 traditionally lower ICT, marketing and professional fee 19 18 expenses, despite a 12m EUR provision for facility expenses for one specific file in Belgium in 1Q18 891 896 980 920 868 • Operating expenses without bank tax increased by 6% y-o-y due chiefly to the consolidation of UBB/Interlease, higher ICT costs, higher staff expenses (wage drift in 1Q17 2Q17 3Q17 4Q17 1Q18 most countries), higher marketing expenses, a 12m EUR provision for facility expenses for one specific file in Bank tax Operating expenses Belgium and higher depreciation & amortisation costs (due to the capitalisation of some projects) EXPECTED BANK TAX SPREAD IN 2018 (PRELIMINARY)** TOTAL Upfront Spread out over the year • Pursuant to IFRIC 21, certain levies (such as contributions to the European Single Resolution Fund) 1Q18 1Q18 1Q18 2Q18e 3Q18e 4Q18e have to be recognised in advance, and this adversely 273 0 0 0 0 impacted the results for 1Q17. The y-o-y increase can BU BE 273 mainly be explained by the consolidation of UBB BU CZ 29 29 0 0 0 0 • Total bank taxes (including ESRF contribution) are Hungary 45 26 19 21 21 21 expected to increase from 439m EUR in FY17 to 461m EUR in FY18, although still subject to changes Slovakia 7 3 4 4 4 4 Bulgaria 14 14 0 0 0 0 Ireland 4 3 1 1 1 14 GC 0 0 0 0 0 0 TOTAL 371 347 24 25 25 39 * See glossary (slide 88) for the exact definition 13 Amounts in m EUR ** still subject to changes
Overview of bank taxes* Bank taxes of 273m EUR in 1Q18. On a pro rata basis, bank taxes represented 11.1% of KBC GROUP Bank taxes of 371m EUR in BELGIUM BU 1Q18 opex at the Belgium BU 361 371 1Q18. On a pro rata basis, 278 273 bank taxes represented 11.1% 53 58 83 98 of 1Q18 opex at KBC Group** 225 215 278 273 41 19 18 0 0 41 -4 -2 -1 20 -6 -7 1Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q18 European Single Resolution Fund contribution ESRF contribution Common bank taxes Common bank taxes Bank taxes of 70m EUR in 1Q18. On a pro rata basis, Bank taxes of 29m EUR in bank taxes represented 18.0% CZECH REPUBLIC BU 1Q18. On a pro rata basis, INTERNATIONAL MARKETS BU of 1Q18 opex at the IM BU bank taxes represented 4.3% 29 of 1Q18 opex at the CZ BU 70 26 57 18 11 41 22 20 25 25 1 52 46 24 6 1 0 0 6 1Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q18 ESRF contribution Common bank taxes ESRF contribution Common bank taxes * This refers solely to the bank taxes recognised in opex, and as such it does not take account of income tax expenses, non-recoverable VAT, etc. ** The C/I ratio adjusted for specific items of 55% in 1Q18 amounts to roughly 48% excluding these bank taxes 14
Net impairment releases, excellent credit cost ratio and improved impaired loans ratio ASSET IMPAIRMENT 31 2 Very low asset impairments 15 8 1 15 32 • This was attributable mainly to: 6 7 6 o net loan loss provision releases in Ireland of 43m EUR -30 -78 -63 (compared with 52m in 4Q17) o also small net loan provision reversals in Bulgaria, Hungary, -56 Slovakia and Group Centre -71 1Q17 2Q17 3Q17 4Q17 1Q18 • Impairment of 6m on other in the Czech Republic as a result of Other impairments Impairments on financial assets at AC* * AC = Amortised Cost. Under IAS 39, impairments on L&R the review of the residual value calculation on financial leases for cars in CSOB Leasing CREDIT COST RATIO 0.42% 0.23% 0.09% The credit cost ratio amounted to -0.15% in 1Q18 due to low gross impairments and several releases -0.06% -0.15% FY14 FY15 FY16 FY17 1Q18 IMPAIRED LOANS RATIO 6.8% 6.9% 6.6% 6.0% 5.9% The impaired loans ratio improved to 5.9%, 3.5% of which over 90 days past due 3.6% 3.9% 3.7% 3.4% 3.5% 1Q17 2Q17 3Q17 4Q17 1Q18 15 Impaired loans ratio of which over 90 days past due
KBC Group Section 2 1Q 2018 performance of business units 16
BELGIUM BUSINESS UNIT CFO SERVICES CRO SERVICES CZECH INTERNATIONAL BELGIUM REPUBLIC MARKETS CORPORATE STAFF 17
Belgium BU (1): net result of 243m EUR NET RESULT Net result at the Belgium Business Unit 483 amounted to 243m EUR 455 • The quarter under review was characterised by lower net interest income, roughly stable net fee and 336 commission income, decreased trading and fair value 301 income, higher other net income, an improved 243 combined ratio, seasonally lower sales of life insurance products, higher operating expenses due entirely to higher bank taxes and lower impairment charges q-o-q • Excluding both the upfront booking of the bank tax in 1Q18 and the one-off negative impact of the reform 1Q17 2Q17 3Q17 4Q17 1Q18 of the Belgian corporate income tax regime in 4Q17, the net result rose by roughly 3% q-o-q Amounts in m EUR • Customer deposits excluding debt certificates and repos rose by 4% y-o-y, while customer loans also increased by 4% y-o-y VOLUME TREND Customer deposit volumes excluding debt certificates & repos +2% q-o-q and +4% y-o-y Total loans ** o/w retail mortgages Customer deposits*** AuM Life reserves Volume 96bn 35bn 126bn 199bn 27bn Growth q-o-q* +1% 0% -5% -1% -1% Growth y-o-y +4% +1% 0% 0% -2% * Non-annualised ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos 18
Belgium BU (2): lower NII despite stable NIM Amounts in m EUR NII (pro forma for 2017*) 681 677 664 677 649 Net interest income (649m EUR) 28 19 20 39 130 129 19 • Fell by 4% q-o-q due mainly to the lower netted impact of FX 132 123 117 swaps, lower reinvestment yields and lower number of days • Down by 5% y-o-y, driven primarily by: o lower reinvestment yields 523 529 512 515 513 o pressure on commercial loan margins o lower upfront prepayment fees (6m EUR in 1Q18 compared with 9m EUR in 1Q17) partly offset by: 1Q17 2Q17 3Q17 4Q17 1Q18 o lower funding costs on term deposits NII - netted positive impact of ALM FX swaps** NII - contribution of banking o good loan volume growth NII - contribution of insurance • 2017 pro forma figures for NII as the impact of ALM FX derivatives was ‘netted’ in NII as of 2018 ** From all ALM FX swap desks *** NIM is calculated excluding the dealing room and the net positive impact of ALM FX swaps & repos NIM (pro forma for 2017***) Net interest margin (1.73%) 1.78% 1.79% 1.72% 1.73% 1.73% • Stabilised q-o-q • Fell by 5 bps y-o-y due to the negative impact of lower reinvestment yields and some pressure on commercial loan margins 1Q17 2Q17 3Q17 4Q17 1Q18 19
Credit margins in Belgium PRODUCT SPREAD ON CUSTOMER LOAN BOOK, OUTSTANDING 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 Customer loans PRODUCT SPREAD ON NEW PRODUCTION 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 SME and corporate loans Mortgage loans 20
Belgium BU (3): good net F&C income Amounts in m EUR F&C (pro forma for 2017*) Net fee and commission income (318m EUR) 356 • Positive net sales of mutual funds in 1Q18 339 321 10 9 307 8 318 9 • Net F&C income decreased by 1% q-o-q due mainly to: 7 o lower management fees o lower securities-related fees o lower fees from credit files & bank guarantees 391 376 352 368 356 partly offset by o higher entry fees from mutual funds and unit-linked life insurance products o higher fees from payment services -45 -45 -52 -55 -47 o lower commissions paid on insurance sales 1Q17 2Q17 3Q17 4Q17 1Q18 F&C - network income F&C - contribution of banking • Fell by 11% y-o-y driven chiefly by lower entry fees from F&C - contribution of insurance mutual funds & unit-linked life insurance products (as * 2017 pro forma figures as the network income shifted from FIFV to net F&C as of 2018 1Q17 benefited from the launch of EasyInvest), lower securities-related fees, lower fees from credit files & AuM* Amounts in bn EUR bank guarantees, slightly lower fees from payment 200 198 200 202 199 services and higher commissions paid on insurance sales Assets under management (199bn EUR) • Fell by 1% q-o-q owing entirely to a negative price effect • Stabilised y-o-y as net inflows (+1%) were offset by a negative price effect (-1%) 1Q17 2Q17 3Q17 4Q17 1Q18 * Also note that 2017 AuM figures were reduced due to a roughly 2bn EUR adjustment in Institutional Mandates 21
Belgium BU (4): higher y-o-y non-life sales and good combined ratio Sales of non-life insurance products NON-LIFE SALES (GROSS WRITTEN PREMIUM) • Increased by 2% y-o-y 323 329 • Premium growth was situated in all classes, except for ‘Accident & Health’ 256 241 228 1Q17 2Q17 3Q17 4Q17 1Q18 COMBINED RATIO (NON-LIFE) Combined ratio amounted to 93% in 1Q18 (86% in FY17). 1Q18 was negatively impacted by 93% 81% 86% higher technical charges y-o-y due mainly to 80% 77% higher storm claims 1Q 1H 9M FY 2017 2018 22
Belgium BU (5): lower life sales and good cross-selling ratios LIFE SALES Sales of life insurance products 460 • Fell by 12% q-o-q as the sales of guaranteed interest 404 products are traditionally lower in the first quarter 396 (versus traditionally higher volumes in tax-incentivised 340 pension saving products in the fourth quarter and 306 290 extra sales for individual pension agreements for self- 241 250 197 employed business leaders in 4Q17, anticipating the 193 reduction of corporate tax as of 2018). The lower sales of unit-linked products was the result of 155 143 170 154 commercial efforts in 4Q17 and a less favourable 113 investment climate in 1Q18 1Q17 2Q17 3Q17 4Q17 1Q18 • Increased by 2% y-o-y driven entirely by higher sales of guaranteed interest products Guaranteed interest products Unit-linked products • As a result, guaranteed interest products and unit- linked products accounted for 62% and 38%, Amounts in m EUR respectively, of life insurance sales in 1Q18 MORTGAGE-RELATED CROSS-SELLING RATIOS 90 85 86.5% 80 78.9% 75 70 Mortgage-related cross-selling ratios 65 • 86.5% for property insurance 63.7% 60 • 78.9% for life insurance Property insurance Life insurance 55 50 45 49.5% 40 23
Belgium BU (6): lower FV gains and higher other net income FV GAINS (pro forma for 2017*) The lower q-o-q figures for net gains from 110 financial instruments at fair value were the 61 74 result mainly of negative q-o-q change in 23 51 market, credit and funding value adjustments 36 34 (mainly as a result of changes in the 29 30 36 10 14 17 underlying market value of the derivative 20 21 12 -2 17 -2 19 portfolio) 1Q17 2Q17 3Q17 4Q17 1Q18 Other FV gains Net result on equity instruments (overlay insurance) M2M ALM derivatives * 2017 pro forma figures as: 1) the impact of the FX derivatives was ‘netted’ in NII as of 2018 2) the shift from realised gains AFS shares and impairments on AFS shares to FIFV due to IFRS 9 (overlay approach for insurance) OTHER NET INCOME Other net income amounted to 59m EUR in 59 1Q18, higher than the normal run rate of 46 51 around 50m EUR due to the settlement of an 40 38 old legal file 1Q17 2Q17 3Q17 4Q17 1Q18 24 Amounts in m EUR
Belgium BU (7): higher opex due entirely to higher bank taxes, lower impairments, good credit cost ratio OPERATING EXPENSES Operating expenses: +45% q-o-q and stable y-o-y 822 822 • Operating expenses without bank tax fell by 3% q-o-q due mainly to traditionally lower marketing, professional fee and ICT expenses in the first quarter, despite a 12m EUR 278 273 544 566 provision for facility expenses for one specific file in 1Q18 520 0 • Operating expenses without bank tax increased by 1% y-o-y as lower staff and marketing expenses were more than offset by a 12m EUR provision for facility expenses for one 544 550 527 566 549 specific file in 1Q18, higher ICT & professional fee expenses • Cost/income ratio: 77% in 1Q18, distorted mainly by the bank taxes. Adjusted for specific items, the C/I ratio -6 -7 amounted to 56% in 1Q18 (53% in FY17) 1Q17 2Q17 3Q17 4Q17 1Q18 Bank tax Operating expenses ASSET IMPAIRMENT 60 1 Loan loss provisions amounted to 14m EUR in 1Q18 (compared with loan loss provisions of 12m EUR in 34 4Q17), so continuously overall low gross impairments 59 (in all segments) in 1Q18. Credit cost ratio amounted 13 24 to 5 bps in 1Q18 (9 bps in FY17) 12 13 21 14 Impaired loans ratio improved to 2.6%, 1.3% of which 12 3 -1 over 90 days past due -4 -2 1Q17 2Q17 3Q17 4Q17 1Q18 Other impairments Impairments on financial assets at AC* * AC = Amortised Cost. Under IAS 39, impairments on L&R Amounts in m EUR 25
Net result at the Belgium BU CONTRIBUTION OF BANKING ACTIVITIES TO NET RESULT OF THE BELGIUM BU* 385 336 271 NET RESULT AT THE BELGIUM BU* 208 165 483 455 336 301 1Q17 2Q17 3Q17 4Q17 1Q18 243 CONTRIBUTION OF INSURANCE ACTIVITIES TO NET RESULT OF THE BELGIUM BU* 119 1Q17 2Q17 3Q17 4Q17 1Q18 93 98 79 48 65 78 64 9 20 70 80 74 63 50 -5 -21 -20 -19 -40 * Difference between net profit at the Belgium Business Unit and the sum of 1Q17 2Q17 3Q17 4Q17 1Q18 the banking and insurance contribution is accounted for by the rounding up Non-Life result Life result Non-technical & taxes or down of figures Amounts in m EUR 26
CZECH REPUBLIC BUSINESS UNIT CFO SERVICES CRO SERVICES CZECH INTERNATIONAL BELGIUM REPUBLIC MARKETS CORPORATE STAFF 27
Czech Republic BU (1): net result of 171m EUR NET RESULT Net result at the Czech Republic Business Unit of 181 183 170 167 171 171m EUR • Q-o-q results were characterised by higher net interest income, higher net fee and commission income, lower but still good net results from financial instruments at fair value, stable net other income, an improved combined ratio, lower sales of life insurance products, higher operating expenses (due entirely to higher bank taxes) and lower impairment charges • The net result rose by 2% q-o-q. Excluding the upfront booking of the bank tax in 1Q18, the net result was even up by 16% q-o-q 1Q17 2Q17 3Q17 4Q17 1Q18 • Profit contribution from the insurance business remained limited in comparison to the banking business Amounts in m EUR VOLUME TREND Excluding FX effect Total loans ** o/w retail mortgages Customer deposits*** AuM Life reserves Volume 23bn 11bn 31bn 9.7bn 1.2bn Growth q-o-q* +1% +1% +1% +1% +7% Growth y-o-y +5% +10% +3% +10% +13% * Non-annualised ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos 28
Czech Republic BU (2): higher NII and NIM NII Net interest income (248m EUR) 248 • Up by 6% q-o-q and by 15% y-o-y to 248m EUR. 216 220 218 234 Corrected for FX effects, NII rose by 5% q-o-q and by 8% y-o-y pro forma • The pro forma q-o-q increase was the result primarily of the positive impact of both short & long term increasing interest rates and the growth in retail loan volumes, which were partly offset by pressure on lending margins in mortgages and consumer finance • Loan volumes up by 5% y-o-y, driven mainly by growth in mortgages and consumer finance and, to a lesser 1Q17 2Q17 3Q17 4Q17 1Q18 extent, in SME loans • Customer deposit volumes up by 3% y-o-y Amounts in m EUR NIM (pro forma for 2017*) Net interest margin (3.02%) 3.02% 2.93% 2.91% 2.84% 2.95% • Up by 7 bps q-o-q and by 9 bps y-o-y to 3.02% • The q-o-q increase was driven mainly by the positive impact of repo rate hikes, partly offset by pressure on lending margins • The y-o-y increase was the result of the positive impact of repo rate hikes, partly offset by pressure on lending margins (especially in mortgages and consumer finance) 1Q17 2Q17 3Q17 4Q17 1Q18 * NIM is is calculated excluding the dealing room and the net positive impact of ALM FX swaps & repos 29
Czech Republic BU (3): higher net F&C income Amounts in m EUR F&C (pro forma for 2017*) Net fee and commission income (67m EUR) 67 • Rose by 5% q-o-q and by 19% y-o-y on a pro forma 64 basis 56 56 10 53 10 • The q-o-q increase was driven by lower paid 9 9 10 commissions to the Czech Post (from this year on, Czech Post receives more support than in the past, booked in opex). Besides this effect, there is impact of 47 47 53 57 higher entry fees, higher securities-related fees, but 43 lower fees from payment services (seasonal effect of Christmas) and lower fees from credit files & bank guarantees 1Q17 2Q17 3Q17 4Q17 1Q18 • The y-o-y increase was attributable chiefly to higher management & entry fees, higher fees from payment F&C - network income F&C - banking & insurance services, higher securities-related fees and due to less * 2017 pro forma figures as the network income shifted from FIFV to net F&C as of 2018 fees paid to the Czech Post AuM Amounts in bn EUR 9.7 8.8 9.2 9.3 9.6 Assets under management (9.7bn EUR) • Increased by 1% q-o-q owing to net inflows (+2%) and a negative price effect (-1%) • Y-o-y, assets under management rose by 10%, driven by net inflows (+6%) and a positive price effect (+4%) 1Q17 2Q17 3Q17 4Q17 1Q18 30
Czech Republic BU (4): higher premium income, good combined ratio PREMIUM INCOME (GROSS EARNED PREMIUM) 155 Insurance premium income (gross earned 124 117 premium) stood at 117m EUR 97 100 96 • Non-life premium income (57m) rose by 10% y-o-y 68 60 48 47 excluding FX effect, due to growth in all products 53 56 59 57 • Life premium income (60m) went down by 39% q-o-q 49 and increased by 17% y-o-y, excluding FX effect. Q-o-q 1Q17 2Q17 3Q17 4Q17 1Q18 decline entirely in unit-linked single premiums Life premium income Non-Life premium income COMBINED RATIO (NON-LIFE) 100% 93% 98% 97% 97% Combined ratio: 93% in 1Q18 (compared with 97% in FY17) due to very good claim experience (no large claims and mild winter) 1Q 1H 9M FY 2017 2018 CROSS-SELLING RATIOS Mortg. & prop. Mortg. & life risk Cons. Fin. & life risk Cross-selling ratios remained at a good level 65% 61% 60% 63% 57% 47% 48% 45% 53% 2016 2017 1Q18 2016 2017 1Q18 2016 2017 1Q18 31
Czech Republic BU (5): higher opex due entirely to higher bank taxes, excellent credit cost ratio Operating expenses (189m EUR) OPERATING EXPENSES • Fell by 10% q-o-q and rose by 8% y-o-y, excluding FX effect and bank tax 189 165 177 0 • The q-o-q decrease excluding FX effect and bank tax 29 151 153 was due mainly to traditionally lower marketing 26 0 1 expenses and professional fees, lower ICT costs and facilities expenses in the first quarter 176 • The y-o-y increase excluding FX effect and bank tax was 139 150 152 160 attributable primarily to higher staff expenses (mainly due to wage inflation) and higher support to the Czech Post (which is compensated by lower paid fee) • Cost/income ratio at 47% in 1Q18. Adjusted for specific 1Q17 2Q17 3Q17 4Q17 1Q18 items, the C/I ratio amounted to roughly 42% in 1Q18 (and 43% in FY17) Bank tax Operating expenses Very limited loan loss provisions due to several ASSET IMPAIRMENT releases (which almost fully offset the low gross 11 11 impairments) Impairment of 6m EUR on ‘other’ as the result of 7 a revaluation of leased cars in CSOB Leasing Credit cost ratio amounted to 0.01% in 1Q18 3 2014 2015 2016 2017 1Q18 CCR 0.18% 0.18% 0.11% 0.02% 0.01% -1 Impaired loans ratio stabilised at 2.4%, 1.6% of 1Q17 2Q17 3Q17 4Q17 1Q18 which over 90 days past due 32
INTERNATIONAL MARKETS BUSINESS UNIT CFO SERVICES CRO SERVICES CZECH INTERNATIONAL BELGIUM REPUBLIC MARKETS CORPORATE STAFF 33
International Markets BU (1): net result of 137m EUR Net result: 137m EUR NET RESULT The pro forma q-o-q results were characterised by: • lower net interest income. NIM amounted to 2.88% in 177 5 1Q18 (2.84% in 4Q17) • lower net fee and commission income (in BG & HU) 137 • higher result from financial instruments at fair value 21 114 99 • sharply higher net other income (especially in IRL, as 4Q17 4 was impacted by an additional provision related to the 78 74 57 tracker mortgage review) 67 22 18 • a very good combined ratio of 86% (especially in HU & SK) 47 3 • higher life insurance sales (in SK & BG) 40 34 20 39 • higher costs due entirely to higher bank taxes 22 25 16 16 23 • higher net impairment releases -1 1Q17 2Q17 3Q17 4Q17 1Q18 Profit breakdown for International Markets (next Bulgaria Ireland Hungary Slovakia slides): 23m EUR for Slovakia, 34m EUR for Hungary, Amounts in m EUR 57m EUR for Ireland and 21m EUR for Bulgaria VOLUME TREND Excluding FX effect Total loans ** o/w retail mortgages Customer deposits*** AuM Life reserves Volume 24bn 15bn 23bn 4.5bn 0.7bn Growth q-o-q* 0% 0% +1% -11% +6% Growth y-o-y +13% +8% +24% -21%**** +7% * Non-annualised ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos **** The decrease can partly be explained by the divestment of KBC TFI in Poland in December 2017 (-0.93bn AuM in 4Q17) 34
International Markets BU (2): Slovakia Net result of 23m EUR characterised by (pro NET RESULT forma q-o-q): • slightly lower net interest income as volume growth 25 was more than offset by margin pressure 23 22 • stable net fee & commission income as the strong performance in sales of mutual funds was offset by lower income from banking services 16 16 • lower net other income • an excellent combined ratio (87% in 1Q18); roughly stable technical insurance result in life • lower operating expenses driven by traditionally lower ICT & marketing expenses in the first quarter and lower staff expenses • net impairment releases (mainly in consumer finance 1Q17 2Q17 3Q17 4Q17 1Q18 and leasing) • credit cost ratio of -0.20% in 1Q18 Amounts in m EUR VOLUME TREND Volume trend: Total loans ** o/w retail mortgages Customer deposits*** • Total customer loans rose by 1% q-o-q and by 7% y-o-y, amongst other things due to the continuously Volume 7bn 3bn 6bn increasing mortgage portfolio and consumer finance Growth q-o-q* +1% +3% +3% • Total customer deposits rose by 3% q-o-q and by 9% y-o-y thanks to retail as well as corporates Growth y-o-y +7% +12% +9% * Non-annualised ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos 35
International Markets BU (3): Hungary Net result of 34m EUR characterised by (pro forma NET RESULT q-o-q): • lower net interest income due to a one-off effect (2m 47 EUR) 40 39 • lower net fee and commission income as higher management fees were more than offset by traditionally 34 lower fees from payment transactions in the first quarter • higher net results from financial instruments thanks to higher M2M ALM derivatives 20 • higher net other income due to the sale of a building • good non-life commercial performance y-o-y in all major product lines and growing average tariff in motor retail; an excellent combined ratio (84% in 1Q18); stable sales of life insurance products q-o-q 1Q17 2Q17 3Q17 4Q17 1Q18 • lower operating expenses excluding bank tax (45m EUR) due mainly to lower staff & ICT expenses Amounts in m EUR • net impairment releases (mainly in retail and corporates) • credit cost ratio of -0.44% in 1Q18 VOLUME TREND Excl. FX effect Total loans ** o/w retail mortgages Customer deposits*** Volume trend: Volume 4bn 2bn 7bn • Total customer loans stabilised q-o-q and rose by 11% y-o-y, mainly in mortgages and corporates Growth q-o-q* 0% 0% -3% • Total customer deposits fell by 3% q-o-q, but rose by 6% Growth y-o-y +11% +7% +6% y-o-y due to strong growth in corporates * Non-annualised ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos 36
International Markets BU (4): Ireland Net result of 57m EUR characterised by (pro forma NET RESULT q-o-q): • higher net interest income due mainly to lower funding 99 costs • net other income in 4Q17 was impacted by an additional provision of 61.5m EUR related to the industry-wide review of the tracker rate mortgage products originated 67 in Ireland before 2009 57 • higher operating expenses excluding bank tax due mainly to higher ICT expenses and regulatory levies (mainly CBI Industry Funding levy) • lower net impairment releases (-43m EUR in 1Q18 compared with -52m EUR in 4Q17), as 4Q17 benefited from 31m EUR IBNR parameter changes. Releases in 3 1Q18 are driven by: -1 o an increase in the 9-month average House Price 1Q17 2Q17 3Q17 4Q17 1Q18 Index and an improved portfolio performance Amounts in m EUR o lower provisions on existing non-performing loans driven by improved macro-economic conditions and provision releases following deleveraging for VOLUME TREND corporates Total loans ** o/w retail mortgages Customer deposits*** • credit cost ratio of -1.36% in 1Q18 Volume trend: Volume 11bn 10bn 6bn • Total customer loans fell by 1% q-o-q and stabilised y-o-y. Growth q-o-q* -1% 0% +5% The q-o-q decrease resulted from the further deleveraging of the corporate loan portfolio Growth y-o-y 0% +2% +8% • Retail mortgages: new business (written from 1 Jan 2014) * Non-annualised +7% q-o-q and +49% y-o-y, while legacy -2% q-o-q and -7% ** Loans to customers, excluding reverse repos (and bonds) y-o-y *** Customer deposits, including debt certificates but excluding repos • Total customer deposits rose by 5% q-o-q and 37 by 8% y-o-y
International Markets BU (5): Bulgaria Net result of 21m EUR NET RESULT Net result was characterised by (pro forma q-o-q): Amounts in m EUR 22 • In banking (CIBank & UBB/Interlease): 21 o slightly lower net interest income, as volume growth was 18 more than offset by margin pressure o lower net fee and commission income due to traditionally lower fees from payment transactions in the first quarter o lower net results from financial instruments o lower operating expenses excluding bank tax due mainly to lower staff & ICT expenses 5 4 o higher bank tax y-o-y due to UBB/Interlease acquisition o net impairment releases. Credit ratio of -1.09% in 1Q18 • In insurance (DZI): higher net result 1Q17 2Q17 3Q17 4Q17 1Q18 o good earned premiums both in Life and Non-Life, offset by higher technical charges. Combined ratio amounted to 93% VOLUME TREND Volume trend: • Total customer loans rose by 1% q-o-q and by 231% y-o-y Excl. FX effect Total loans *** o/w retail mortg. Customer deposits**** (11% y-o-y excluding UBB/Interlease), amongst other things due to the continuously increasing mortgage portfolio and a Volume 3bn 1bn 4bn strong pick-up in corporates in 1Q18 Growth q-o-q* +1% +1% +3% • Total loans: new business +3% q-o-q and +186% y-o-y, while legacy -7% q-o-q and +787% y-o-y Growth y-o-y +231%** +239%** +396%** • Total customer deposits rose by 3% q-o-q and by 396% y-o-y (9% y-o-y excluding UBB/Interlease) * Non-annualised ** Y-o-y growth excluding UBB/Interlease amounted to +11% for total loans, +20% for retail mortgages and +9% for customer deposits *** Loans to customers, excluding reverse repos (and bonds) **** Customer deposits, including debt certificates but excluding repos 38
GROUP CENTRE CFO SERVICES CRO SERVICES CZECH INTERNATIONAL BELGIUM REPUBLIC MARKETS CORPORATE STAFF 39
Group Centre: net result of 5m EUR NET RESULT Net result: 5m EUR 33 The net result for the Group Centre comprises the results coming from activities and/or decisions specifically made for group 12 purposes (see table below for components) 5 -12 The q-o-q improvement was attributable mainly to: -179 o one-off upfront negative P&L impact of 126m EUR due to the 1Q17 2Q17 3Q17 4Q17 1Q18 Belgian corporate income tax reform in 4Q17 o higher NII due to lower debt costs (as a result of the call of the CoCo) o lower operating expenses o net impairment releases BREAKDOWN OF NET RESULT AT GROUP CENTRE 1Q17 2Q17 3Q17 4Q17 1Q18 Group item (ongoing business) -50 0 -31 -157 -17 - Operating expenses of group activities -14 -14 -20 -25 -17 - Capital and treasury management -18 17 5 -5 -4 o/w net subordinated debt cost -9 -9 -9 -13 -6 - Holding of participations -9 -13 -13 18 1 o/w net funding cost of participations -2 0 0 -1 -1 - Group Re 5 6 5 10 7 - Other -14 5 -9 -154 -3 Ongoing results of divestments and companies in run-down 83 11 19 -22 23 Total net result at GC 33 12 -12 -179 5 Amounts in m EUR 40
Overview of results based on business units* Amounts in m EUR NET PROFIT – KBC GROUP 1Q18 ROAC: 21% 2,639 2,575 2,427 1,762 2,129 1,945 2,035 1,415 556 510 392 630 347 2014 2015 2016 2017 1Q18 2Q-4Q 1Q NET PROFIT – BELGIUM NET PROFIT – CZECH REPUBLIC NET PROFIT – INTERNATIONAL MARKETS 1Q18 ROAC: 15% 1Q18 ROAC: 40% 1Q18 ROAC: 25% 1,516 1,564 1,575 702 1,432 596 529 542 428 444 1,165 1,234 1,274 521 1,223 390 399 467 245 330 368 171 137 243 221 351 330 301 138 143 129 181 114 209 24 60 2014 2015 2016 2017 1Q18 2014 2015 2016 2017 1Q18 -156 2Q-4Q 1Q 2Q-4Q 1Q -26 -182 2014 2015 2016 2017 1Q18 2Q-4Q 1Q * Note that the 1Q18 results & ROAC were impacted by the upfront booking of the bank tax 41
Balance sheet (1/2): Loans and deposits continue to grow in most core countries Y-O-Y ORGANIC* VOLUME GROWTH FOR KBC GROUP 4% 4% 1% Loans** Retail mortgages Deposits*** * Volume growth excluding FX effects and divestments/acquisitions ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos 42
Balance sheet (2/2): Loans and deposits continue to grow in most core countries Y-O-Y ORGANIC* VOLUME GROWTH FOR MAIN ENTITIES 12% 9% 10% 7% 4% BE CZ 5% 3% 1% 0% Loans** Retail Deposits*** Loans** Retail Deposits*** Loans** Retail Deposits*** mortgages mortgages mortgages 20% 11% 11% 7% 6% 9% 8% 2% 0% Loans** Retail Deposits*** Loans** Retail Deposits*** Loans** Retail Deposits*** mortgages mortgages mortgages**** * Volume growth excluding FX effects and divestments/acquisitions ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos 43 **** Retail mortgages in Ireland: new business (written from 1 Jan 2014) +49% y-o-y, while legacy -7% y-o-y
KBC Group Section 3 Strong solvency and solid liquidity 44
Strong capital position Fully loaded Basel 3 CET1 ratio at KBC Group (Danish Compromise) The common equity ratio* decreased from 15.9% 16.3% 16.3% at the end of 2017 to 15.9% at the end 15.7% 15.7% 15.9% of 1Q18 based on the Danish Compromise, 14.0% ‘Own Capital Target’ due to the impact of the first-time application of IFRS 9 (-41bps). This clearly exceeds the 10.6% fully loaded regulatory minimum minimum capital requirements** set by the competent supervisors of 9.875% phased-in for 2018 and 10.6% fully loaded and our ‘Own Capital Target’ of 14.0% The pro forma*** fully loaded CET1 ratio amounted to roughly 15.7% at the end of 1Q17 1H17 9M17 FY17 1Q18 1Q18 * Note that as from 01/01/2018 onwards, there is no difference Fully loaded Basel 3 total capital ratio (Danish Compromise) anymore between fully loaded and phased-in ** Excludes a pillar 2 guidance (P2G) of 1.0% CET1 20.7% *** Also taking into account the impact of the share buy-back 19.7% 2.3% 2.3% T2 2.6% 1.5% AT1 The fully loaded total capital ratio amounted to 19.7% at the end of 1Q18. Including the 15.9% CET1 15.9% successful issuance of 1bn EUR additional Tier- 1 instrument in April 2018, the pro forma fully loaded total capital ratio amounted to 20.7% Total capital Pro forma total ratio 1Q18 capital ratio 1Q18 45
Fully loaded Basel 3 leverage ratio and Solvency II ratio Fully loaded Basel 3 leverage ratio at KBC Group Fully loaded Basel 3 leverage ratio at KBC Bank 5.7% 5.8% 6.1% 5.7% 5.7% 4.8% 4.7% 4.7% 5.0% 4.7% 1Q17 1H17 9M17 FY17 1Q18 1Q17 1H17 9M17 FY17 1Q18 Solvency II ratio 4Q17 1Q18 The increase (+6%-points) in the Solvency II ratio was mainly the result of lower equity markets Solvency II ratio* 212% 218% * On 19 April 2017, the NBB retroactively relaxed the strict cap on the loss-absorbing capacity of deferred taxes in the calculation of the required capital. Belgian insurance companies are now allowed to apply a higher adjustment for deferred taxes, in line with general European standards, if they pass the recoverability test. This is the case for KBC 46
Solid liquidity position (1) KBC Bank continues to have a strong retail/mid-cap deposit base in its core markets – resulting in a stable funding mix with a significant portion of the funding attracted from core customer segments & markets Customer funding further increased in 1Q18. The elevated amount in short-term wholesale funding is on the back of short-term arbitrage opportunities Funding from customers (m EUR) 162.536 143.690 155.774 10% 129.555 131.914 132.862 133.766 139.560 3% 6% 3% 2% 4% 5% 8% 12% 0% 2% 2% 7% 9% 10% 8% 8% 8% 8% 7% 7% 9% 9% 8% 9% 8% 8% 8% 9% 3% 2% 3% 3% 10% 6% 8% FY11 FY12 FY13 FY14 FY15 FY16 FY17 1Q18 3% 0% 7% 21% 75% 72% 69% 73% 73% 73% 70% 72% 69% customer driven 72% -1% -4% -6% FY11 FY12 FY13 FY14 FY15 FY16 FY17 1Q18 Retail and SME Mid-cap Net unsecured interbank funding Total equity Debt issues in retail network Net secured funding Certificates of deposit Government and PSE Debt issues placed with institutional investors Funding from customers 47
Solid liquidity position (2) Short term unsecured funding KBC Bank vs Liquid assets as of end March 2018 (*) (bn EUR) 486% 68,14 411% 65,39 58,30 KBC maintains a solid liquidity position, given that: 56,23 57,79 • Available liquid assets remained very high at more than 3 times the amount of the net short-term wholesale 309% funding 271% 288% • Funding from non-wholesale markets is stable funding 25,10 22,70 from core-customer segments in core markets 18,71 14,19 11,56 1Q17 2Q17 3Q17 4Q17 1Q18 Net Short Term Funding Available Liquid Assets Liquid Assets Coverage * Graph is based on Note 18 of KBC’s quarterly report, except for the ‘available liquid assets’ and ‘liquid assets coverage’, which are based on the KBC Group Treasury Management Report Ratios FY17 1Q18 Regulatory NSFR is at 137% and LCR is at 139% by the end of requirement 1Q18 NSFR* 134% 137% ≥100% • Both ratios were well above the regulatory requirement of at least 100% LCR** 139% 139% ≥100% * Net Stable Funding Ratio (NSFR) is based on KBC’s interpretation of the proposal of CRR amendment ** Liquidity Coverage ratio (LCR) is based on the Delegated Act requirements. From EOY2017 onwards, KBC discloses 12 months average LCR in accordance to EBA guidelines on LCR disclosure 48
KBC Group Section 4 1Q 2018 wrap up 49
1Q 2018 wrap up Strong commercial bank-insurance results in our core countries Successful earnings track record Solid capital and robust liquidity position 50
Looking forward We expect 2018 to be a year of sustained economic growth in both the euro area, the US and in each of our core markets Management guides for: • solid returns for all Business Units • loan impairments for Ireland towards a release in a 100m-150m EUR range for FY18 • the impact of the reform of the Belgian corporate income tax regime: a recurring positive P&L impact as of 2018 onwards and the one-off negative impact in 4Q17 will be fully recuperated in roughly 3 years’ time • B4 impact for KBC Group is estimated at roughly 8bn EUR higher RWA on a fully loaded basis as at year-end 2017, which corresponds with a RWA inflation of 9% and an impact on the CET1 ratio of -1.3% Next to the Belgium and the Czech Republic Business Units, the International Markets Business Unit has become a strong contributor to the net result of KBC Group thanks to: • Ireland: re-positioning as a core country with a sustainable profit contribution • Bulgaria: the legal merger of CIBank into UBB was approved. The new group UBB has become the largest bank-insurance group in Bulgaria with a substantial increase in profit contribution • Sustainable profit contribution of Hungary and Slovakia 51
KBC Group Annex 1 Company profile 52
Business profile BREAKDOWN OF ALLOCATED CAPITAL BY BUSINESS UNIT AS AT 31 MARCH 2018 Czech Republic 16% Belgium 61% 20% International Markets 3% Group Centre KBC is a leading player (retail and SME bank-insurance, private banking, commercial and local investment banking) in Belgium, the Czech Republic and its 4 core countries in the International Markets Business Unit 53
Well-defined core markets provide access to ‘new growth’ in Europe MARKET SHARE (END 2017) BE CZ SK HU BG IRL KBC Group’s core markets Loans and 20% 20% 11% 11% 10% 8%* deposits Investment 33% 22% 13% 13% funds 7% NETHERLANDS Life 21% 14% 8% IRELAND UK insurance 4% 3% BELGIUM Non-life 11% GERMANY insurance 9% 7% 7% CZECH REP 3% SLOVAKIA * Only for retail segment REAL GDP GROWTH OUTLOOK FRANCE HUNGARY FOR CORE MARKETS1 BE CZ SK HU BG IRL 64% % of BULGARIA Assets 20% 3% 3% 2% 4% ITALY 7.8% 4.6% 3.4% 4.0% 3.6% 2017 1.7% SPAIN PORTUGAL Macroeconomic outlook 6.0% GREECE 3.9% 3.8% 3.6% Based on GDP, CPI and unemployment trends 2018e 1.9% 3.3% Inspired by the Financial Times 3.9% 3.5% 3.5% 4.0% 2019e 1.7% 2.8% 1. Source: KBC data, May 2018 54
Key strengths Well-developed bank-insurance strategy and strong cross-selling capabilities Strong commercial bank-insurance franchises in Belgium and the Czech Republic with stable and solid returns. The International Markets Business Unit also has become a strong contributor to the net result of KBC Group Successful earnings track record Solid capital and robust liquidity position 55
Shareholder structure SHAREHOLDER STRUCTURE AT END 1Q18 Other core MRBB 7.4% Cera 11.4% 2.7% KBC Ancora 18.5% 60.0% Free float Roughly 40% of KBC shares are owned by a syndicate of core shareholders, providing continuity to pursue long-term strategic goals. Committed shareholders include the Cera/KBC Ancora Group (co-operative investment company), the Belgian farmers’ association (MRBB) and a group of industrialist families The free float is held mainly by a large variety of international institutional investors 56
KBC Group going forward: Wants to be among the best performing financial institutions in Europe KBC wants to be among Europe’s best performing financial institutions. This will be achieved by: • Strengthening our bank-insurance business model for retail, SME and mid-cap clients in our core markets, in a highly cost-efficient way • Focusing on sustainable and profitable growth within the framework of solid risk, capital and liquidity management • Creating superior client satisfaction via a seamless, multi-channel, client-centric distribution approach By achieving this, KBC wants to become the reference in bank-insurance in its core markets 57
KBC Group going forward: The bank-insurance business model, different countries, different stages of implementation Level 4: Integrated distribution and operation Acting as a single operational company: bank and insurance operations Belgium working under unified governance and achieving commercial and non- commercial synergies Level 3: Integrated distribution Acting as a single commercial company: bank and insurance Target for Central operations working under unified governance and achieving Europe commercial synergies Level 2: Exclusive distribution KBC targets to reach at Bank branches selling insurance products from intra- least level 3 in every group insurance company as country, adapted to the additional source of fee income local market structure and KBC’s market position in Level 1: Non-exclusive distribution banking and insurance. Bank branches selling insurance products of third party insurers as additional source of fee income 58
More of the same… but differently… • Integrated distribution model • Client-centricity will be further • Investment in our digital according to a real-time fine-tuned into ‘think client, but presence (e.g., social media) to omni-channel approach design for a digital world’ enhance client relationships and remains key but client anticipate their needs interaction will change over • Digitalisation end-to-end, front- time. Technological and back-end, is the main lever: • Easy-to-access and convenient- development will be the • All processes digital to-use set-up for our clients driving force • Execution is the differentiator • Clients will drive the pace of • Human interface will still play action and change a crucial role • Further increase efficiency and effectiveness of data management • Further development of a fast, simple and agile organisation • Simplification is a • Set up an open architecture IT structure prerequisite: package as core banking system for • In the way we operate our International Markets Unit • Different speed and maturity in • Is a continuous effort different entities/core markets • Is part of our DNA • Improve the applications we offer our clients (one-stop-shop offering) • Adaptation to a more open via co-creation/partnerships with architecture (with easy plug in Fintechs and other value chain and out) to be future-proof and players to create synergy for all 59
Summary of the guidance at KBC Group level as announced at our Investor Visit in June 2017 More of the same … Guidance… by… CAGR total income (‘16-’20)* ≥ 2.25% 2020 C/I ratio banking excluding bank tax ≤ 47% 2020 C/I ratio banking including bank tax ≤ 54% 2020 Combined ratio ≤ 94% 2020 Dividend payout ratio ≥ 50% As of now * Excluding marked-to-market valuations of ALM derivatives Regulatory requirements… by… Common equity ratio*excluding P2G ≥ 10.6% 2019 Common equity ratio*including P2G ≥ 11.6% 2019 MREL ratio** ≥ 25.9% May 2019 NSFR ≥ 100% As of now LCR ≥ 100% As of now * Fully loaded, Danish Compromise. P2G = Pillar 2 guidance. ** See slide 83 for more details 60
Summary of the guidance at KBC Group level as announced at our Investor Visit in June 2017 … but differently… Make further progress in our bank-insurance model Guidance by… Guidance by… CAGR Bank-Insurance clients CAGR Bank-Insurance stable clients (1 Bank product + 1 Insurance product) (3 Bk + 3 Ins products in Belgium; 2 Bk + 2 Ins products in CE) BU BE > 2% 2020 BU BE > 2% 2020 BU CR > 15% 2020 BU CR > 15% 2020 BU IM > 10% 2020 BU IM > 15% 2020 Guidance on inbound omni-channel/digital behaviour* Guidance by … % Inbound contacts via omni-channel and digital channel KBC Group** > 80% 2020 • Clients interacting with KBC through at least one of the non-physical channels (digital or through a remote advisory centre), possibly in addition to contact through physical branches. This means that clients solely interacting with KBC through physical branches (or ATMs) are excluded ** Bulgaria & PSB out of scope for Group target 61
Digital Investments 2017-2020 Cashflow 2017-2020 = 1.5bn EUR Operating Expenses 2017-2020 = 1bn EUR Regulatory driven Organic growth developments (IFRS or operational 48 55 9, CRS(*), MIFID, Regulatory efficiencies 43 44 etc.) 20% Strategic 78 83 90 Growth 94 36% Strategic Transformation 112 125 127 128 44% 2017 2018 2019 2020 Omni-channel Strategic Grow Strategic Transform Regulatory and core-banking system (*) The Common Reporting Standard (CRS) refers to a systematic and periodic exchange of information at international level aimed at preventing tax evasion. Information on the taxpayer in the country where the revenue was taken is exchanged with the country where the taxpayer has to pay tax. It concerns an exchange of information between as many as 53 OECD countries in the first year (2017). By 2018, another 34 countries will join. 62
Digital sales are increasing (examples: BU Belgium) 20.000 1.200 18.000 16.000 1.000 14.000 800 12.000 10.000 600 8.000 6.000 400 4.000 200 2.000 0 0 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 2017 2018 2017 2018 Consumer loans Travel insurance 8.000 35.000 7.000 30.000 6.000 25.000 5.000 20.000 4.000 15.000 3.000 10.000 2.000 1.000 5.000 0 0 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 2017 2018 2017 2018 Pension savings Current accounts 63
Omnichannel is embraced by our customers (examples: BU Belgium) Digital signing after contact with the branches Digital sales @ KBC Live increases, or KBC Live in 2017-2018 strong performance in non-life 90,00% 80,00% 30.000 70,00% 25.000 60,00% KBC Live cumulative sales 2017-2018 20.000 50,00% 15.000 40,00% 10.000 30,00% 17Q1 17Q2 17Q3 17Q4 18Q1 5.000 Digital signing of consumer loans Digital signing of debt protect cover life insurance 0 Digital signing mortgage loans Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mrt Digital signing housing insurance Non life insurance Life insurance Housing loans Digital signing car insurance Consumer loans Investment plans 64
Impact of Basel 4 agreement On 7 December, the Basel Committee reached an agreement on the remaining Basel 3 post-crisis regulatory reforms (commonly known as Basel 4). The main elements of the Basel 4 agreement are: o credit risk: changes to the internal ratings-based approach and a revised standardised approach; o market risk: FRTB postponed to 2022; o operational risk: a revised and more risk sensitive standardised approach, replacing all existing approaches; o an aggregate output floor (gradually phased-in between 2022 and 2027), which will ensure that banks' risk-weighted assets based on internal models are not lower than 72.5% of RWAs as calculated by the revised standardised approaches For KBC Group, the RWA increase related to Basel 4 is estimated at roughly 8bn EUR higher RWA on a fully loaded basis as at year-end 2017, which corresponds with a RWA inflation of 9% and an impact on the CET1 ratio of -1.3%. This figure is based on our current interpretation of Basel 4, a static balance sheet and the current economic environment. It also does not take into account possible management actions We no longer see evidence that KBC is impacted significantly more than our peers. As a consequence, the 1% buffer for Basel 4 in our management targets is no longer required The Basel agreement now needs to be implemented in EU regulation (CRR/CRD package), which might influence (in a positive or negative way) the final impact for KBC Elements that are not included in above mentioned RWA impact (and which might affect KBC earlier): o the ongoing Targeted Review of Internal Models (TRIM) exercise by ECB; o the potential impact of the EBA review of the IRB approach (PD & LGD estimation; treatment defaulted exposures); o any impact on the Pillar 2 requirements (given that pillar 1 more adequately captures the risks) 65
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