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KBC GroupCompany presentation1Q 2016
KBC Group - Investor Relations Office – E-mail:
More information: www.kbc.com
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This presentation is provided for informational purposes only. It does not constitute an offer to sell or the solicitation to buy anysecurity issued by the KBC Group.
KBC believes that this presentation is reliable, although some information is condensed and therefore incomplete. KBC cannot beheld 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 capitaltrends of KBC, involving numerous assumptions and uncertainties. There is a risk that these statements may not be fulfilled andthat future developments differ materially. Moreover, KBC does not undertake any obligation to update the presentation in linewith new developments.
By reading this presentation, each investor is deemed to represent that it possesses sufficient expertise to understand the risksinvolved.
Important information for investors
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1Q 2016 key takeaways for KBC Group
STRONG BUSINESS PERFORMANCE IN 1Q16Strong net result of 392m EUR in 1Q16, despite unfavorable market circumstances and the large upfront bank taxeso Good commercial bank-insurance franchises in our core markets and core activitieso Q-o-q increase in customer loan and deposit volumes in most of our core countrieso Slightly higher net interest income and net interest margin q-o-qo Limited net asset management inflows and lower net fee and commission income q-o-q (fully in line with guidance)o Higher net gains from financial instruments at fair value (due mainly to the impact of KBC FH in 4Q15), higher net other income and lower
realised AFS gainso Combined ratio (91% in 1Q16) distorted by one-off charges due to the terrorist attacks in Belgium (-30m EUR). Underlying quality
remained excellent (combined ratio of 82% excluding one-off charges). Excellent sales of both non-life and life insurance productso Cost/income ratio (57% in 1Q16) adjusted for specific items o Unsustainably low impairment charges (due partly to seasonal effect). Net loan provision release of 3m EUR in 1Q16 in Ireland. We are
maintaining our profitability and impairment guidance for Ireland, namely the lower end of the 50m-100m EUR range for FY16 for impairments
SOLID CAPITAL AND ROBUST LIQUIDITY POSITIONSo Common equity ratio (B3 phased-in) of 14.6% based on the Danish Compromise at end 1Q16, which clearly exceeds the new minimum
capital requirements set by the ECB (9.75%) and the NBB (0.5%), i.e. an aggregate 10.25% for 2016. The B3 fully loaded common equityratio stood at 14.6% based on the Danish Compromise at end 1Q16
o Fully loaded B3 leverage ratio, based on current CRR legislation, amounted to 5.9% at KBC Groupo Continued strong liquidity position (NSFR at 121% and LCR at 130%) at end 1Q16
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Contents
1
4
Strong solvency and solid liquidity
1Q 2016 wrap up
Annex 1: Company profile
2
1Q 2016 performance of KBC Group
3
1Q 2016 performance of business units
Annex 2: Other items
5
KBC Group
Section 1
1Q 2016 performance of KBC Group
6
Net result at KBC Group
* Difference between net result at KBC Group and the sum of the banking and insurancecontribution is accounted for by the holding-company/group items
CONTRIBUTION OF BANKING ACTIVITIES TO KBC GROUP NET RESULT*
392
600666
510
441
2Q151Q15 1Q164Q15
862
765
-344
3Q15
NET RESULT AT KBC GROUP*
358
524564
412
448
1Q164Q15
903
765
-310
3Q152Q151Q15
-41
8959 48 44
73
6250 44
31
-21-1927
48
1Q163Q15
79
2Q15
121
1
1Q15
121
-9
4Q15
33
-34
CONTRIBUTION OF INSURANCE ACTIVITIES TO KBC GROUP NET RESULT*
Amounts in m EUR
Impact KBC FHGW impairments Net result
Net resultImpact KBC FHGW impairments
Non-technical & taxes
Life result
Non-Life result
GW impairments
7
Slightly higher net interest income and net interest margin
Net interest income• Slightly up q-o-q and down by 2% y-o-y• The slight q-o-q increase was driven primarily by:
o lower funding costso additional rate cuts on savings accountso continued good volume growth in current accounts and loansalmost fully offset by:o lower reinvestment yieldso pressure on commercial loan margins in most core countrieso a decrease of 2m EUR in NII from the dealing room
Net interest margin (1.96%)• Up by 1 bp q-o-q and down by 14 bps y-o-y• Q-o-q increase is due almost entirely to rate cuts on savings accounts and
lower funding costs partly offset by lower reinvestment yields andpressure on commercial loan margins in most core countries
NIM
NII
906 898 903900 888
156154162 15716381022
4Q15
1,0671
2Q15
1,092
191,066
4
3Q15 1Q16
-2
1,0622
1Q15
1,091
-3
31
1.99%2.06%
3Q152Q15
2.10%
1Q15
1.96%1.95%
4Q15 1Q16
Amounts in m EUR
NII - dealing room NII - Insurance
NII - Holding-company/group NII - Banking
* Non-annualised ** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos. Please be aware of the significant impact of calling most of the hybrid tier-1 instruments and maturing wholesale debt
VOLUME TRENDExcluding FX effect Total loans ** Of which mortgages Customer deposits*** AuM Life reserves
Volume 129bn 55bn 165bn 207bn 28bn
Growth q-o-q* +1% 0% +2% -1% 0%
Growth y-o-y +4% +3% +3% 0% -1%
Customer deposit volumes excluding debtcertificates & repos +1% q-o-q and +4% y-o-y
8
Small net asset management inflows and lower net fee and commission income (in line with guidance)
Net fee and commission income• Down by 7% q-o-q and by 25% y-o-y
• Q-o-q decrease was the result chiefly of:o lower management fees from mutual funds & unit-
linked life insurance products (lower AuM and high cashlevel in CPPI) and lower entry fees from mutual funds inBelgium
o lower fees from payment services in the Czech Republic(seasonal effect of Christmas and full impact ofinterchange fees regulation) and Hungary
o lower fees from credit files and bank guarantees inBelgium, the Czech Republic and Slovakia
o higher commissions paid on insurance salespartly offset by:o higher entry fees from unit-linked life insurance
products
• Y-o-y decline resulted chiefly from lower management andentry fees from mutual funds and unit-linked life insuranceproducts in Belgium, lower fees from credit files and bankguarantees in Belgium, lower fees from securitiestransactions and higher commissions paid on insurancesales
• Although the recovery of net F&C has been delayed due tothe market circumstances in 1Q16, we expect a positivereversal of the trend in net F&C in 2Q16. Net F&C incomewill remain an important top-line contributor
Assets under management (207bn EUR)• Down by 1% q-o-q as a result of small net inflows and a
negative price effect (-1%)
• Flat y-o-y owing to net inflows (+4%) anda negative price effect (-5%)
F&C
Amounts in m EUR
518 530453 445
-70-69-64-59 -76
422
1Q16
346
4Q15
371
-4
3Q15
383
-1
2Q15
465
-1
1Q15
459
F&C - contribution of holding-company/group
F&C - banking contribution
F&C - insurance contribution
Amounts in bn EUR
AuM
207209200204208
1Q164Q153Q152Q151Q15
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Insurance premium income (gross earned premium) at 767m EUR• Non-life premium income (341m) increased by 7%
y-o-y
• Life premium income (426m) down by 4% q-o-q(due entirely to lower unit-linked single premiumsin the Czech Republic as a result of intensifiedproduct campaigns in 4Q15) and up by 41% y-o-y(driven by significantly higher sales of guaranteedinterest products in Belgium and significantlyhigher sales of unit-linked products in the CzechRepublic)
The non-life combined ratio at 1Q16 amountedto 91% as relatively low technical charges dueto mild winter conditions across all countrieswere offset by one-off charges due to terroristattacks in Belgium (-30m EUR). Excluding theseone-off charges, the non-life combined ratiostood at an excellent 82% in 1Q16
COMBINED RATIO (NON-LIFE)
PREMIUM INCOME (GROSS EARNED PREMIUM)
0%
89%82%
1H
91%
FY
86%
1Q 9M
2015 2016
320 326 335 338
302 265 289445
341
426
3Q15 4Q152Q15
783 767
1Q16
624591
1Q15
622
Life premium income Non-Life premium income
9%
82%
91%
one-off charges
Amounts in m EUR
Insurance premium income slightly down, but excellent combined ratio (excluding one-off charges)
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Non-life sales up y-o-y and life sales up q-o-q and y-o-y
Sales of non-life insurance products• Up by 6% y-o-y thanks to a good commercial
performance in all major product lines in our coremarkets and premium increases
Sales of life insurance products• Increased by 10% q-o-q and by 26% y-o-y
• The q-o-q rise was driven entirely by higher sales ofunit-linked products due to commercial efforts inBelgium. Thanks to sales efforts and supported by afallback in clients’ risk appetite, the sales ofguaranteed interest products stabilised q-o-q despitethe fact that the fourth quarter benefitted from thetraditionally higher volumes in pension savingsproducts as usual
• The y-o-y increase can be explained mainly bysignificantly higher sales of guaranteed interestproducts in Belgium and higher sales of unit-linkedproducts in the Czech Republic
• Sales of unit-linked products accounted for 40% oftotal life insurance sales
LIFE SALES
NON-LIFE SALES (GROSS WRITTEN PREMIUM)
189 181 170 182
275231 212
353
235
353412
1Q15
464
2Q15
587
1Q164Q15
535
382
3Q15
Unit-linked productsGuaranteed interest products
Amounts in m EUR
445
302308314
418
2Q151Q15 1Q163Q15 4Q15
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Higher FV gains and other net income, lower gains realisedon AFS assets
The higher q-o-q figures for net gains fromfinancial instruments at fair value wereattributable to:• -156m EUR translation differences as a result of the
liquidation of KBC Financial Holding Inc. (US) in 4Q15
• a positive change in ALM derivatives (20m EUR in1Q16 compared with 12m EUR in 4Q15) due topositive time value and a one-off benefit fromunwinding the hedge on the previous TLTRO (+21mEUR), despite a significant decrease q-o-q in IRS rates
• better dealing room income
• +12m EUR M2M of Own Credit Risk (mainlymethodology change)
partly offset by:
• a negative change in market, credit and fair valueadjustments (as a result of widening spreads andincreased volumes)
Lower gains realised on AFS assets (q-o-qreduction entirely on shares)
Other net income amounted to 51m EUR, in linewith the normal run rate of around 50m EUR
FV GAINS
Amounts in m EUR
89
76 73
-156
904560
2Q15
179
1Q15
57
-3
1Q16
93
20
4Q15
12
3Q15
47
2
2730
4436
80
1Q164Q153Q152Q151Q15
GAINS REALISED ON AFS ASSETS
5147
96105
49
1Q15 2Q15 3Q15 1Q164Q15
OTHER NET INCOME
Other FV gains M2M ALM derivatives Liquidation KBC FH
-68
12
Operating expenses up, due entirely to higher bank taxes
Cost/income ratio (banking) adjusted for specificitems* at 57% in 1Q16• The C/I ratio of 71% was affected mainly by IFRIC 21
• Operating expenses excluding bank tax went down by7% q-o-q due to:o seasonal effects such as traditionally lower
marketing, ICT and professional fee expenseso lower depreciation and amortisation costs in Ireland,
the Group Centre and Hungaryo No restructuring charges in CZ in 1Q16
• Operating expenses without bank tax decreased by 1%y-o-y due to lower ICT expenses (mainly in KBC GroupNV due to delayed invoices), lower staff expenses inBelgium and the Czech Republic (both due to lowerFTEs) and lower professional fees
• Pursuant to IFRIC 21, certain levies (such ascontributions to the European Single Resolution Fund)have to be recognised in advance, and this adverselyimpacted the results for 1Q16
• Total bank taxes (including ESRF contribution) areexpected to decrease slightly from 417m EUR in FY15 to412m EUR in FY16, although still subject to changes
OPERATING EXPENSES
264
8349
335
841
21
2Q15
941
858
1Q15
1,125
861
1Q16
1,186
851
4Q15
962
914
3Q15
862
Operating expensesBank tax
* See glossary (slide 85) for the exact definition** Still subject to changes
Amounts in m EUR
TOTAL Upfront Spread out over the year
1Q16 1Q16 1Q16 2Q16e 3Q16e 4Q16e
BU BE 241 241 0 0 0 0
BU CZ 28 28 0 0 0 0
Hungary 48 31 17 20 20 25
Slovakia 9 6 3 3 3 3
Bulgaria 2 1 0 0 0 0
Ireland 2 2 1 1 1 2
GC 5 5 0 0 0 0
TOTAL 335 314 22 23 23 30
EXPECTED BANK TAX SPREAD (PRELIMINARY)**
13
Overview of bank taxes*
INTERNATIONAL MARKETS BUCZECH REPUBLIC BU
BELGIUM BUKBC GROUP
2325
26
71
50
11
8
1Q16
61
4Q15
282
3Q152Q151Q15
79
Common bank taxesESRF contribution
184
49118
57
130
42
1Q16
241
4Q153Q152Q151Q15
160
Common bank taxesESRF contribution
11
9
22
710
-12
96
1Q15
20
2Q15
-3
3Q15
28
4Q15 1Q16
ESRF contribution Common bank taxes
-12
83
34
202243
92
32
62
1Q161Q15 2Q15
264
3Q15
21
335
49
4Q15
15
Common bank taxes
European Single Resolution Fund contribution
* 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 57% in 1Q16 amounts to roughly 50% excluding these bank taxes
Bank taxes of 335m EUR in 1Q16. On a pro rata basis, bank taxes represented8.7% of 1Q16 opex at KBC Group**
Bank taxes of 241m EUR in 1Q16. On a pro rata basis, bank taxes represented 7.8% of 1Q16 opex at the Belgium BU
Bank taxes of 28m EUR in 1Q16. On a pro rata basis, bank taxes represented 4.1% of 1Q16 opex at the CR BU
Bank taxes of 61m EUR in 1Q16. On a pro rata basis, bank taxes represented 16.6% of 1Q16 opex at the IM BU
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Unsustainable low asset impairments, excellent credit cost ratio and decreased impaired loans ratio
Sharply lower impairment charges (-95% both q-o-q andy-o-y)• The seasonal q-o-q decrease in loan loss provisions was
attributable mainly to:o low gross impairments in all segments in Belgium and the
Czech Republico several reversals in Belgium, the Czech Republic and Irelando the positive impact of model changes in the Czech Republic
and Hungary
• Impairment ofo 24m EUR on AFS shares (entirely in Belgium)o 1m EUR on ‘other’
The credit cost ratio only amounted to 0.01% in 1Q16due to low gross impairments and some releases
The impaired loans ratio dropped further to 8.2%
ASSET IMPAIRMENT
73
138
7834 25
50
1Q16
28
4
4Q15
472
344
3Q15
4915
2Q15
14911
1Q15
774
IMPAIRED LOANS RATIO
1Q16
8.2%
4.7%
4Q15
8.6%
4.8%
3Q15
9.0%
5.2%
2Q15
9.3%
5.3%
1Q15
9.6%
5.5%
CREDIT COST RATIO
1Q16
0.01%
FY15
0.23%
FY14
0.42%
FY13
1.21%
FY12
0.71%
FY11
0.82%
FY10
0.91%
FY09
1.11%
of which over 90 days past dueImpaired loan ratio
Other impairments Impairments on L&RGW impairments
15
KBC Group
Section 2
1Q 2016 performance of business units
16
BELGIUM BUSINESS UNIT
CFO SERVICES
CRO SERVICES
CORPORATE STAFF
BELGIUMCZECH
REPUBLICINTERNATIONAL
MARKETS
17
Belgium BU (1): net result of 209m EUR
Net result at the Belgium Business Unitamounted to 209m EUR• The quarter under review was characterised by
stable net interest income, a decline in net fee andcommission income, decreased trading and fair valueincome, a decrease in realised gains on AFS assets,higher other net income, an excellent combined ratioexcluding the one-off charges due to the terroristattacks, higher sales of life insurance products,higher operating expenses due entirely to higherbank taxes and lower impairment charges q-o-q
• Loan volumes rose by 1% q-o-q. Customer depositsincreased by 3% q-o-q
* Non-annualised ** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos
VOLUME TREND
Total loans ** Of which mortgages Customer deposits*** AuM Life reserves
Volume 89bn 33bn 115bn 192bn 27bn
Growth q-o-q* +1% 0% +3% -1% 0%
Growth y-o-y +4% +3% +3% 0% -2%
209
348358
528
330
2Q151Q15 3Q15 4Q15 1Q16
NET RESULT
Amounts in m EUR
Customer deposit volumes excluding debtcertificates & repos flat q-o-q and +2% y-o-y
18
Belgium BU (2): stable NII and NIM
Net interest income (688m EUR)• Almost flat q-o-q and down by 4% y-o-y
• Group Re was shifted from the Belgium business unit to GroupCentre as of 2016 (NII amounted to 4m EUR in 1Q15 and 4Q15)
• Q-o-q stabilisation was driven primarily by lower funding costson term deposits, the full effect of an additional rate cut onsavings accounts in December, continued good volume growthin current accounts & loans and higher new commercial loanmargins fully offset by lower reinvestment yields, reduced netinterest income from the dealing room and lower upfrontprepayment fees (10m EUR in 1Q16 compared with 11m EUR in4Q15)
• Decreased y-o-y as sharply lower funding costs on termdeposits, increase in volumes on current and savings accountsand higher net interest income on lending activities were morethan offset by lower reinvestment yields, lower prepaymentfees (10m EUR in 1Q16 compared with 29m EUR in 1Q15),increased hedging losses on previously refinanced mortgagesand lower net interest income from the dealing room
• Customer deposits excluding debt certificates and reposincreased by 2% y-o-y, while customer loans rose by 4% y-o-y
Net interest margin (1.86%)• Increased by 1 bp q-o-q
• Decreased by 10 bps y-o-y due to the negative impact of lowerreinvestment yields, increased hedging losses on refinancedmortgages and some pressure on commercial loan margins
• KBC lowered the savings account rate by 5 bps (base rate) from20 bps to 15 bps (of which 5 bps base rate and 10 bps loyaltypremium) from 8 December 2015 onwards and another 4 bps(base rate) from 15 bps to the legal limit of 11 bps from 16 April2016 onwards
NIM
NII
Amounts in m EUR
540 549 531 534
151 152 147 145
536
145
1Q16
6887
4Q15
69112
3Q15
69416
2Q15
72019
1Q15
71423
1Q16
1.86%
4Q15
1.85%
3Q15
1.86%
2Q15
1.96%
1Q15
1.96%
NII - contribution of insurance
NII - contribution of bankingNII - dealing room income
19
Credit margins in Belgium
PRODUCT SPREAD ON CUSTOMER LOAN BOOK, OUTSTANDING
PRODUCT SPREAD ON NEW PRODUCTION
1.4
0.6
0.4
0.0
0.2
1.0
0.8
1.2
3Q11 4Q111Q11 2Q11 1Q12 1Q14 2Q144Q123Q12 4Q132Q132Q12 3Q131Q13 3Q14 2Q15 4Q151Q15 1Q163Q154Q14
Customer loans
1.4
1.6
0.2
0.6
0.4
0.8
1.0
1.2
1.8
4Q133Q11 3Q12 2Q142Q13 4Q15 1Q161Q11 2Q12 3Q152Q151Q154Q141Q12 3Q142Q11 4Q11 4Q12 1Q141Q13 3Q13
SME and corporate loans Mortgage loans
20
Belgium BU (3): lower net F&C income, despite limitedpositive net inflows
Net fee and commission income (255m EUR)• Decreased by 6% q-o-q, due mainly to the
combination of lower management fees from mutualfunds (further shift to cash in CPPI products, forinstance) and unit-linked life insurance products,lower entry fees from mutual funds, lower fees fromcredit files and bank guarantees and highercommissions paid on insurance sales, which wereonly partly offset by higher entry fees from unit-linked life insurance products and higher fees frompayment transactions & other banking services
• Fell by 29% y-o-y driven chiefly by lowermanagement and entry fees from mutual funds andunit-linked life insurance products, lower fees fromcredit files and bank guarantees, lower fees frompayment & securities transactions and highercommissions paid on insurance sales
Assets under management (192bn EUR)• Went down by 1% q-o-q owing entirely to a negative
price effect (-1%), despite limited positive net inflows
• Stabilised y-o-y as a result of net inflows (+5%) and anegative price effect (-5%)
AuM*
F&C
Amounts in bn EUR
400 406
335 318
-48-48-43-40 -52
307
4Q153Q151Q15 2Q15
270
360
287
363
255
1Q16
192194185189193
3Q151Q15 2Q15 4Q15 1Q16
Amounts in m EUR
* The breakdown across the BUs is based on the ‘Assets under Distribution’ in each BU
F&C - contribution of bankingF&C - contribution of insurance
21
Sales of non-life insurance products• Decreased by 4% y-o-y driven entirely by the shift of
Group Re from the Belgium Business Unit to GroupCentre
• Increased by 4% y-o-y pro forma driven by premiumgrowth in the ‘fire’, ‘other damage to property’ and‘motor’ classes and some premium increases
Combined ratio amounted to 92% in 1Q16 (90%in FY15) entirely due to one-off technical chargeslinked to the terrorist attacks on 22 March (30mEUR). Excluding these one-off charges, the non-life combined ratio stood at an excellent 80% in1Q16
NON-LIFE SALES (GROSS WRITTEN PREMIUM)
314
211222238
328
2Q151Q15 1Q164Q153Q15
COMBINED RATIO (NON-LIFE)
0%
87%79%
1H
90%
FY
84%
1Q 9M
2015 2016
12%
80%
92%
one-off charges
Belgium BU (4): higher y-o-y non-life sales and excellent combined ratio (excluding one-off charges)
22
Belgium BU (5): sharply higher life sales and good cross-selling ratios
Sales of life insurance products• Rose by 20% q-o-q, driven entirely by significantly
higher sales of unit-linked products due to commercialefforts. Thanks to sales efforts and supported by afallback in clients’ risk appetite, the sales ofguaranteed interest products stabilised q-o-q despitethe fact that the fourth quarter benefitted from thetraditionally higher volumes in pension savingsproducts as usual
• Increased by 23% y-o-y driven mainly by significantlyhigher sales of guaranteed interest products
• As a result, guaranteed interest products and unit-linked products accounted for 67% and 33%,respectively, of life insurance sales in 1Q16
Mortgage-related cross-selling ratios• 87.5% for fire insurance
• 77.0% for life insurance
LIFE SALES
Amounts in m EUR
149 13885 82
248205
184
327
163
327
490
1Q16
397
1Q15 4Q152Q15
269
3Q15
343
409
Unit-linked productsGuaranteed interest products
MORTGAGE-RELATED CROSS-SELLING RATIOS
87,5%
77,0%
49,5
63,7
40
45
50
55
60
65
70
75
80
85
90
Fire insurance Life insurance
23
The lower q-o-q figures for net gains fromfinancial instruments at fair value were theresult mainly of:• a negative q-o-q change in ALM derivatives (3m
EUR in 1Q16 compared with 13m EUR in 4Q15)due to a significant decrease q-o-q in IRS rates,despite the positive time value and an one-offbenefit from unwinding the hedge on the previousTLTRO (+21m EUR)
• a negative q-o-q change in market, credit and fairvalue adjustments (as a result of widening spreadsand increased volumes)
despite
• better dealing room income (especially FX options)
Gains realised on AFS assets came to 23mEUR (less gains realised on shares in 1Q16compared with 4Q15)
Other net income amounted to 46m EUR in1Q16, roughly in line with the normal run rate
FV GAINS
Amounts in m EUR
45
38
-31
91
17 17
1Q16
20
3
3Q15
13
4Q15
51
2Q15
136
-32-1
1Q15
-10
7
2326
3338
52
4Q15 1Q162Q151Q15 3Q15
GAINS REALISED ON AFS ASSETS
4641
55
67
45
4Q153Q152Q15 1Q161Q15
OTHER NET INCOME
Belgium BU (6): lower FV gains, lower gains realised on AFS assets, but higher other net income
M2M ALM derivativesOther FV gains
24
Belgium BU (7): higher operating expenses, lowerimpairments, excellent credit cost ratio
Operating expenses: +40% q-o-q and +11% y-o-y• The q-o-q and y-o-y increase was attributable entirely to
higher bank taxes
• Operating expenses without bank tax fell by 1% q-o-qmainly as lower marketing expenses and lowerprofessional fees were partly offset by higher ICT andfacilities expenses
• Cost/income ratio: 74% in 1Q16, distorted mainly by thebank taxes. Adjusted for specific items, the C/I ratioamounted to roughly 56% in 1Q16 (53% in FY15)
Loan loss provisions amounted to only 6m EUR in1Q16. The q-o-q decrease was due chiefly to somereversals. Gross impairments remained low in allsegments. Credit cost ratio amounted to 2 bps in1Q16 (19 bps in FY15)
Impaired loans ratio dropped to 3.7%, 2.2% of whichover 90 days past due
Impairment on AFS shares (24m EUR)
ASSET IMPAIRMENT
OPERATING EXPENSES
Amounts in m EUR
535 534 540 541 533
241160
1Q16
774
4Q15
55413
3Q15
5400
2Q15
584
49
1Q15
695
30
52
28
77
65
4Q153Q152Q151Q15 1Q16
Operating expensesBank tax
25
Net result at the Belgium BU
* Difference between net profit at the Belgium Business Unit and the sum of the banking and insurance contribution is accounted for by the rounding up or down of figures
CONTRIBUTION OF BANKING ACTIVITIES TO NET RESULT OF THE BELGIUM BU *
NET RESULT AT THE BELGIUM BU *
Amounts in m EUR
209
348358
528
330
1Q164Q153Q152Q151Q15
176
288300
429
212
1Q164Q153Q152Q151Q15
8049 37 38
62
50
33 24
-12-25
1919
1Q15
117
1Q16
33
-5
4Q15
60
-2
3Q15
58
2Q15
99
0
Non-technical & taxesLife resultNon-Life result
CONTRIBUTION OF INSURANCE ACTIVITIES TO NET RESULT OF THE BELGIUM BU *
26
CZECH REPUBLIC BUSINESS UNIT
CFO SERVICES
CRO SERVICES
CORPORATE STAFF
BELGIUMCZECH
REPUBLICINTERNATIONAL
MARKETS
27
Czech Republic BU (1): net result of 129m EUR
Net result at the Czech Republic Business Unit of129m EUR• Q-o-q results were characterised by slightly higher net
interest income, lower net fee and commissionincome, higher net results from financial instruments,a good combined ratio in non-life insurance and lowersales of life insurance products, higher costs (dueentirely to higher bank taxes) and extremely lowimpairment charges
• Profit contribution from the insurance businessremained limited in comparison to the bankingbusiness
* Non-annualised ** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos
VOLUME TREND
Excluding FX effect Total loans ** Of which mortgages Customer deposits*** AuM Life reserves
Volume 19bn 8bn 24bn 8.7bn 1.0bn
Growth q-o-q* +3% +3% +1% -1% +1%
Growth y-o-y +10% +10% +8% +7% +2%
NET RESULT
Amounts in m EUR
129119
153
127
143
1Q15 2Q15 1Q164Q153Q15
28
Czech Republic BU (2): slightly higher NII and NIM
Net interest income (211m EUR)• Up by 1% q-o-q and flat y-o-y to 211m EUR. Corrected
for FX effects, NII stabilised q-o-q and decreased by 2%y-o-y pro forma
• The pro forma q-o-q stabilisation was the resultprimarily of growth in loan volumes, a reduction of theaverage offered rate on savings accounts and increasednet interest income from the dealing room, which werefully offset by lower reinvestment yields and pressureon lending margins
• Loan volumes up by 10% y-o-y, driven mainly by growthin mortgages and corporate loans and, to a lesserextent, in SME loans
• Customer deposit volumes up by 8% y-o-y
Net interest margin (3%)• Rose by 5 bps q-o-q and fell by 16 bps y-o-y to 3%
• The q-o-q increase was attributable mainly to anothercut in interest rates on savings deposits
• The y-o-y decrease was the result of a lowerreinvestment yield and pressure on lending margins(although to a lesser extent in 1Q16), partially offset byseveral cuts in interest rates on savings accounts
NIM
NII
Amounts in m EUR
211210215208212
1Q164Q151Q15 2Q15 3Q15
3.00%
1Q16
3.16%2.95%
3Q15
3.00%
1Q15
3.01%
2Q15 4Q15
29
Czech Republic BU (3): lower net F&C income
Net fee and commission income (46m EUR)• Decreased by 11% q-o-q and by 9% y-o-y (or -11%
both q-o-q and y-o-y pro forma, adjusted to takeaccount of FX effect)
• The pro forma q-o-q decrease was the result of lowerfees from payment services (seasonal effect ofChristmas and full impact of interchange feesregulation) and lower fees from credit files and bankguarantees, partly offset by slightly higher fees fromsecurities
• The pro forma y-o-y decrease was attributable chieflyto lower entry fees from mutual funds, lower paymentcard fees and higher fees paid to the Czech Post
Assets under management (8.7bn EUR)• Went down by 1% q-o-q to roughly 8.7bn EUR, as a
result of a 2% decrease in net inflows and a positiveprice effect (+1%)
• Y-o-y, assets under management rose by 7%, drivenby net inflows (+3.5%) and a positive price effect(+3.5%)
AuM*
F&C
Amounts in bn EUR
Amounts in m EUR
46
52495050
4Q152Q15 3Q151Q15 1Q16
1Q16
8.7
2Q151Q15
8.58.8
8.38.2
4Q153Q15
* The breakdown across the BUs is based on the ‘Assets under Distribution’ in each BU
30
Czech Republic BU (4): lower premium income and goodcombined ratio
Insurance premium income (gross earnedpremium) stood at 112m EUR• Non-life premium income (45m) rose by 6% y-o-y
excluding FX effect, due mainly to growth in allproducts, except Motor fleets business
• Life premium income (67m) went down by 30% q-o-qand rose by 117% y-o-y, excluding FX effect. Q-o-qdecline mainly in unit-linked single premiums due tointensified product campaigns in 4Q15
Combined ratio: 95% in 1Q16 (compared with94% in FY15)
Cross-selling ratios: increased commercial focusand sales activities helped to improve demandfor property insurance combined with amortgage
COMBINED RATIO (NON-LIFE)
PREMIUM INCOME (GROSS EARNED PREMIUM)
41 44 45 47
30 4176
95
45
67
3Q15
121
2Q15
85
1Q15
71
1Q16
112
4Q15
142
FY
94%
9M
94%
1H
95%
1Q
95%96%
20162015
Non-Life premium incomeLife premium income
CROSS-SELLING RATIOS
Mortg. & prop. Mortg. & life risk Cons. Fin. & life risk
2015
57%
1Q16
45%
2015
50%
1Q16
58%
1Q16
66%
2015
68%
31
Czech Republic BU (5): higher operating expenses andextremely low impairments, excellent credit cost ratio
Operating expenses (170m EUR)• Rose by 2% q-o-q and by 3% y-o-y, excluding FX effect
• Excluding FX effect and bank tax, operating expensesdecreased by 11% q-o-q and by 2% y-o-y
• The q-o-q decrease excluding FX effect and bank taxwas due mainly to traditionally lower marketingexpenses and professional fees, slightly lower staffexpenses and no restructuring charges
• The y-o-y decrease excluding FX effect and bank taxwas attributable primarily to lower staff expenses andlower professional fees
• Cost/income ratio at 53% in 1Q16, distorted by IFRIC21. Adjusted for specific items, the C/I ratio amountedto roughly 46% in 1Q16 (and 48% in FY15)
Impairments on L&R were extremely low due toseveral reversals (especially in SMEs), the positiveimpact of a model update and overall favourabledevelopment in all segments
Credit cost ratio amounted to 0.01% in 1Q16
Impaired loans ratio dropped to 3.2%, 2.4% of which over 90 days past due
ASSET IMPAIRMENT
OPERATING EXPENSES
141 140159
141
28
142
2010
161
2Q151Q15
150140
3Q15
166
-2
7
4Q15
170
1Q16
1
20
4
15
2
3Q152Q151Q15 4Q15 1Q16
2012 2013 2014 2015 1Q16
CCR 0.31% 0.26% 0.18% 0.18% 0.01%
Operating expensesBank tax
32
INTERNATIONAL MARKETS BUSINESS UNIT
CFO SERVICES
CRO SERVICES
CORPORATE STAFF
BELGIUMCZECH
REPUBLICINTERNATIONAL
MARKETS
33
International Markets BU (1): net result of 60m EUR
* Non-annualised ** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos
VOLUME TREND
Total loans ** Of which mortgages Customer deposits*** AuM Life reserves
Volume 21bn 14bn 18bn 6.1bn 0.6bn
Growth q-o-q* 0% 0% +3% -2% +2%
Growth y-o-y 0% +1% +15% -11% +2%
NET RESULT
Amounts in m EUR
6061
92
68
24
3Q15 1Q164Q151Q15 2Q15
Net result: 60m EUR, despite 61m EUR bank taxes• Profit breakdown for International Markets: 20m EUR for
Slovakia, 12m EUR for Hungary, 4m EUR for Bulgaria and23m EUR for Ireland.
• Q-o-q results were characterised by lower net interestincome, lower net fee and commission income, higherresult from financial instruments at fair value, higherrealised gains on AFS assets, higher non-life insurancesales and stable life insurance sales, a decrease in netother income, higher costs due entirely to higher banktaxes and a reversal of loan loss impairment charges
34
International Markets BU (2): organic growth
The total loan book remained unchanged both q-o-q and y-o-y• On a y-o-y basis, the 5% decrease in Ireland (matured and impaired mortgage loans surpassed new production + deleveraging of the
corporate loan portfolio) and 5% decrease in Hungary (due to large repayments within the Corporate portfolio) were offset entirely bythe increases of 15% in Slovakia (amongst other things due to the continuously increasing mortgage portfolio) and 11% in Bulgaria
Total deposits were up by 3% q-o-q and by 15% y-o-y• The 3% q-o-q increase was accounted for chiefly by an increase of 6% in Slovakia (primarily in current accounts and corporates) and of
4% in Ireland
• The y-o-y rise of 15% was due mainly to the successful retail deposit campaign in Ireland. Deposits also grew solidly in all the othercountries (Slovakia, Hungary and Bulgaria)
* Organic growth excluding FX impact; q-o-q figures are non-annualised. Loan and mortgage figures after impairment charges
ORGANIC GROWTH*
TOTAL LOANS MORTGAGES DEPOSITS
q-o-q y-o-y q-o-q y-o-y q-o-q y-o-y
IRE -2% -5% -1% -3% +4% +17%
SL +2% +15% +4% +16% +6% +15%
HU 0% -5% 0% +2% 0% +13%
BG +2% +11% +1% +2% -1% +10%
TOTAL 0% 0% 0% +1% +3% +15%
35
International Markets BU (3): lower NII and NIM
Net interest income (178m EUR)• Fell by 1% q-o-q and rose by 3% y-o-y
• The q-o-q decrease was driven by Hungary (lowerreinvestment yield and negative impact from thetransfer of deals to NAMA)
• The y-o-y rise was attributable mainly to Ireland(lower allocated liquidity and funding costs) andSlovakia (consolidation of VB Leasing as of 3Q15 andgrowth of lending volumes), which more than offset adecrease in Hungary (lower reinvestment yield andsome Curia decisions, like for instance the conversionof FX mortgages)
Net interest margin (2.47%)• Down by 3 bps q-o-q and by 6 bps y-o-y
• The q-o-q and y-o-y decrease was accounted forentirely by Slovakia, Hungary and Bulgaria, despite aconsiderable y-o-y rise in NIM in Ireland (mainly as aresult of lower allocated liquidity and funding costs)
NIM
NII
Amounts in m EUR
178181180178172
3Q151Q15 2Q15 4Q15 1Q16
2.56%
2Q15
2.53% 2.60%
3Q15
2.50%
1Q15 4Q15
2.47%
1Q16
36
International Markets BU (4): lower net F&C income
Net fee and commission income (48m EUR)• Down by 6% q-o-q and by 3% y-o-y
• The q-o-q decrease was driven primarily by lowerfees from payment services in Hungary (seasonaleffect)
• The y-o-y decrease was driven mainly by:o lower fees from credit files and bank guarantees
in Slovakiao higher commissions paid on insurance sales in
Bulgaria
Assets under management (6.1bn EUR)• Decreased by 2% q-o-q, as a result of net outflows
(-5%), partly offset by a positive price effect (+3%)
• Y-o-y, assets under management fell by 11%, dueto net outflows (-8%) and a negative price effect(-3%)
AuM*
F&C
Amounts in bn EUR
Amounts in m EUR
48515153
50
3Q15 4Q152Q151Q15 1Q16
4Q15
6.2
3Q15
6.8
2Q15
6.46.7
1Q15
6.1
1Q16
* The breakdown across the BUs is based on the ‘Assets under Distribution’ in each BU
37
International Markets BU (5): higher premium incomeand excellent combined ratio
Insurance premium income (gross earnedpremium) stood at 70m EUR• Non-life premium income (46m) rose by 18% y-o-y as
a result of:o improved sales in motor retail in Hungaryo good performance in MTPL and casco in Slovakiao good performance in casco and industrial fire in
Bulgaria
• Life premium income (24m)o rose by 14% q-o-q due chiefly to higher unit-linked
single premiums in Slovakia and higher corporatesales in Bulgaria
o rose by 2% y-o-y driven entirely by highercorporate sales in Bulgaria
Combined ratio at an excellent 88% in 1Q16(95% in FY15). The combined ratio for 1Q16breaks down into 83% for Hungary, 85% forSlovakia and 97% for Bulgaria
COMBINED RATIO (NON-LIFE)
PREMIUM INCOME(GROSS EARNED PREMIUM)
Amounts in m EUR
39 41 43 46
23 1927 21
46
24
3Q15
70
2Q15
67
4Q151Q15
62 60
70
1Q16
95%
1Q 1H
88% 88%
9M
95%
FY
95%
2015 2016
Non-Life premium incomeLife premium income
38
International Markets BU (6): higher operating expenses, reversal of impairments, excellent credit cost ratio
Operating expenses (208m EUR)• Rose by 13% q-o-q and fell by 8% y-o-y
• Opex without bank tax fell by 6% q-o-q driven by:o lower staff and ICT expenses in Hungaryo lower staff and marketing expenses in Slovakiao lower professional fees in Bulgariao lower general administrative & depreciation costs in Ireland
• Y-o-y stabilisation of opex without bank tax
• C/I ratio stood at 75% in 1Q16, distorted by IFRIC 21. Adjusted forspecific items, the C/I ratio amounted to 63% in 1Q16 (66% in FY15)
Impairments on L&R (-3m EUR)• Unsustainable level due to:
o Ireland (-3m EUR in 1Q16 compared with 16m EUR in 4Q15 and7m EUR in 1Q15), driven by:o releases in Retail (due to increase in the 9-month average
House Price Index and positive pool migrations, partly offsetby the negative impact of model changes)
o releases in Corporate (one large file)o model changes in Hungary
Credit cost ratio of -0.04% in 1Q16
Impaired loans ratio dropped to 28.9%, of which 15.4% over 90 days past due
ASSET IMPAIRMENT
OPERATING EXPENSES
Amounts in m EUR
156148145148 147
282325
7961
3Q151Q15
226
4Q15
184171
2Q15
170
1Q16
208
-2
28
12
28
16
2Q15 4Q153Q151Q15 1Q16
Loan book
2012CCR
2013CCR
2014CCR
2015CCR
1Q16CCR
IM BU 25bn 2.26% 4.48% 1.06% 0.32% -0.04%
- Ireland- Hungary- Slovakia- Bulgaria
14bn5bn6bn1bn
3.34%0.78%0.25%0.94%
6.72%1.50%0.60%1.19%
1.33%0.94%0.36%1.30%
0.34%0.12%0.32%1.21%
-0.10%-0.18%0.08%0.67%
Operating expensesBank tax
39
Ireland (1): profitable in 2016
Irish economic growth is expected to remain strong in 2016, with GDPgrowth of about 5%
Domestic spending is expected to improve further, supporting solid jobsgrowth and driving a reduction in unemployment rate towards 8% by end2016
The housing market recovery is continuing, but a supply shortfall in keysegments and macro-prudential regulations are restraining the pace ofincrease in transaction levels and property prices
Customer Deposits (Retail & Corporate) net inflows of 0.3bn EUR in 1Q16,resulting in a deposit portfolio of 5.4bn EUR (compared with 5.1bn EUR in4Q15). Growth of Customer Deposits amounted to 22% y-o-y
Loan loss provision release of 3m EUR in 1Q16 compared with 16m EURcharge in 4Q15 (release due to improving economic conditions). Coverageratio increased from 41% in 4Q15 to 42% in 1Q16
Looking forward, we are maintaining our guidance for Ireland, namely:
• continued profitability on an annual basis
• loan loss provisions at the lower end of the 50m-100m EUR range forFY16
LOAN PORTFOLIO €
OUT-STANDING
€
IMPAIRED LOANS
€
IMPAIRED LOANS PD
10-12
SPECIFIC PROVISIONS
€
IMPAIRED LOANS
PD 10-12 COVERAGE
Owner occupied mortgages
9.1bn 3.0bn 33.5% 1.0bn 33%
Buy to let mortgages
2.5bn 1.7bn 68.4% 0.7bn 40%
SME /corporate 1.1bn 0.7bn 61.0% 0.4bn 60%
Real estate- Investment- Development
0.8bn0.3bn
0.6bn0.3bn
65.2%72.5%
0.3bn0.2bn
55%91%
Total 13.7bn 6.4bn 46.4% 2.7bn 42%
The Impaired portion of loans increased significantly in 4Q13 due to the reassessment of theloan book. KBC’s definition of impaired loans includes PD 10-12. PD 10 is considered asunlikely to pay exposure.
PROPORTION OF HIGH RISK AND IMPAIRED LOANS
7.2%
52.1%
47.0%
High Risk Performing (PD 8-9 probability of Default >6.4%)
Impaired Loan (PD 10-12)
5.4%
52.6%50.2%
4.7%8.2%
52.0%
10.2%
51.3% 50.3%
8.4%8.2% 9.2%
48.7%
9.5%
47.3% 46..4%
9.9%
40
Retail portfolio Impaired portfolio fell by roughly 0.2bn EUR q-o-q due to a
combination of property sales and improvement in the portfolioperformance. This was in line with previous quarter (reduction of0.2bn EUR q-o-q and 0.8bn EUR y-o-y)
Coverage ratio for impaired loans increased to 35.4% in 1Q16 (from34.4% in 4Q15)
Overall exposure has decreased due to a reduction of the impairedbook and loan amortisations, partly offset by new mortgageproduction
Ireland (2): portfolio analysis
Corporate loan portfolio Impaired portfolio has reduced by roughly 60m EUR q-o-q.
Reduction driven mainly by continued deleverage of theportfolio (reduction of 0.2bn EUR y-o-y)
Coverage ratio for impaired loans has increased to 62.9% in1Q16 (from 61.8% in 4Q15)
Overall exposure has dropped by 0.4bn EUR y-o-y
‘Forborne’ loans (in line with EBA Technical Standards) comprise loans on a live restructure or continuing
to serve a probation period post-restructure/cure to Performing.
1Q16 Retail Portfolio
PD Exposure Impairment Cover %
PD 1-8 5,927 26 0.4%
Of which non Forborne 5,868
Of which Forborne 59
PD 9 901 46 5.1%
Of which non Forborne 219
Of which Forborne 682
PD 10 2,678 640 23.9%
PD 11 1,313 476 36.3%
PD 12 752 564 75.0%
TOTAL PD1-12 11,571 1,752
Specific Impairment/(PD 10-12) 35.4%
Perf
orm
ing
Impa
ired
1Q16 Corporate Loan Portfolio
PD Exposure Impairment Cover %
PD 1-8 492 4 0.9%
PD 9 43 5 11.0%
PD 10 556 206 37.1%
PD 11 305 188 61.6%
PD 12 747 618 82.7%
TOTAL PD1-12 2,143 1,021
Specific Impairment/(PD 10-12) 62.9%
Impa
ired
Perf
.
41
GROUP CENTRE
CFO SERVICES
CRO SERVICES
CORPORATE STAFF
BELGIUMCZECH
REPUBLICINTERNATIONAL
MARKETS
42
Group Centre: net result of -6m EUR
Net result: -6m EUR The net result for the Group Centre comprises the results coming
from activities and/or decisions specifically made for grouppurposes (see table below for components)
The q-o-q improvement pro forma* was attributable mainly to:o an increase of 24m EUR in FIFV, mainly as a result of higher
ineffectivity intragroup hedges and M2M OCRo a decrease of 24m EUR in operating expenses in 1Q16 due
partly to the traditionally seasonal effect in 4Q15 and lowerICT costs
o no net impairmentso an +18m EUR positive DTA impact
Remember that 4Q15 was impacted by a gain of 765m EUR as aresult of the liquidation of KBC Financial Holding, partly offset by341m EUR in goodwill impairments
NET RESULT
Amounts in m EUR
-6-2
-57
-90
13
1Q15 1Q164Q15
334
-341
765
3Q152Q15
BREAKDOWN OF NET RESULT AT GROUP CENTRE
1Q15 2Q15 3Q15 4Q15 1Q16
Group item (ongoing business) 11 -36 -18 -422 2
- Operating expenses of group activities -19 -15 0 -62 -18
- Capital and treasury management 5 7 0 0 1
o/w net subordinated debt cost -9 -10 -9 -9 -9
- Holding of participations -17 -26 -18 -15 -17
o/w net funding cost of participations -7 -7 -7 -6 -5
- Group Re** - - - - 3
- Other 41 -2 0 -346 33
Ongoing results of divestments and companies in run-down 2 -22 16 756 -8
Total net result at GC 13 -57 -2 334 -6
Group CentreImpact KBC FH GW impairments
* Excluding the gain on KBC FH and the goodwill impairments in 4Q15** Group Re was shifted from the Belgium business unit to Group Centre as of 2016
43
NET PROFIT – BELGIUM NET PROFIT – CZECH REPUBLIC
486 385 351 330209
874
1Q162015
1,564
1,234
2014
1,516
1,165
2013
1,570
1,185
2012
1,360
1Q16 ROAC: 14%
Amounts in m EUR
158 132 138
423 422 390
129
143
399
1Q162015
542
2014
528
2013
554
2012
5811Q16 ROAC: 37%
NET PROFIT –INTERNATIONAL MARKETS
-766
-163
221
-156-97
60
-26
1Q162015
245
24
2014
-182
2013
-853
-87
2012
-260
1Q16 ROAC: 13%
160 149
206
37
2614
1Q162015
232
2014
-3-17
2013
139
-10
2012
144
-15
NET PROFIT – INTERNATIONAL MARKETS EXCL. IRELAND
Overview of results based on business units
1Q2Q-4Q 2Q-4Q 1Q
1Q2Q-4Q 1Q2Q-4Q
1Q16 ROAC: 13%
44
Balance sheet (1/2):Loans and deposits continue to grow in most core countries
Deposits***
3%
4%
3%
MortgagesLoans**
* Volume growth making abstraction of FX effects and divestments/acquisitions** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos. Please be aware of the significant impact of calling most of the hybrid tier-1 instruments and maturing wholesale debt
Y-O-Y ORGANIC* VOLUME GROWTH FOR KBC GROUP
45
Balance sheet (2/2):Loans and deposits continue to grow in most core countries
Deposits***
3%
Mortgages
3%
Loans**
4%
Deposits***
8%
Mortgages
10%
Loans**
10%
-5%
Loans** Deposits***
17%
Mortgages
-3%
Deposits***
15%
Mortgages
16%
Loans**
15%
Deposits***
13%
Mortgages
2%
Loans**
-5%
Deposits***
10%
Mortgages
2%
Loans**
11%
* Volume growth making abstraction of FX effects and divestments/acquisitions ** Loans to customers including reverse repos (and not including bonds) *** Customer deposits, including debt certificates and including repos
BE
CZ
Y-O-Y ORGANIC* VOLUME GROWTH FOR MAIN ENTITIES
46
KBC Group
Section 3
Strong solvency andsolid liquidity
47
Strong capital position
Phased-in Basel 3 CET1 ratio at KBC Group (Danish Compromise)
10.25% regulatoryminimum
14.4%1.2%
1H151Q15
17.2%
2.2%
16.9%
14.7%
FY15
13.7%
FY14
2.4%
9M15
13.3%
1.1% 2.4%
1.2%
11.4%
14.6%
1Q16
15.2%14.0%
11.0%
1H14
1.1%2.2%
2.3%
1.1%1.2%
9.6%
12.9%
10.6%9.9%
2.3%1.1%
13.2%
1Q14 9M14
2.2%
Phased-in B3 CET1 ratio w/o YES and penalty on YESYESPenalty on YES
Common equity ratio (B3 phased-in) of14.6% based on the Danish Compromise atend 1Q16, which clearly exceeds the newminimum capital requirements set by the ECB(9.75%) and the NBB (0.5%)*, i.e. anaggregate 10.25% for 2016
* As announced by the NBB the systemic buffer (CET1 phased-in of 0.5% in 2016 under the Danish Compromise) will gradually increase over a 3-year period, reaching 1.5% in 2018
Fully loaded Basel 3 CET1 ratio at KBC Group (Danish Compromise)
11.25% pro forma regulatory minimum
14.9%
9M15
2.3%
14.0%
13.7%1.1%
10.4%
2.2%
9M14
2.2%
FY14
14.3%
11.0%
2.3%
13.2%
1H15
16.7%1.2%
1.1%
2.1%
9.0%
12.2%
14.6%
1Q16
17.4%
1Q14
1.1%
2.1%
1.1%
1H14
12.9%
9.7%
1.2%
1Q15
14.9%
11.7%
2.2%
1.1%
FY15
Fully loaded B3 CET1 ratio w/o YES and penalty on YESYESPenalty on YES
A pro forma fully loaded common equity ratiotranslation to 11.25% was clearly exceededwith a fully loaded B3 common equity ratioof 14.6% based on the Danish Compromise atend 1Q16
48
Fully loaded Basel 3 leverage ratio
Fully loaded B3 leverage ratio, based on thecurrent CRR legislation (which was adaptedduring 4Q14):• 5.0% at KBC Bank consolidated level
• 5.9% at KBC Group level
9M15
5.4%
FY15
5.0%
1Q169M14
4.9%5.0% 5.1%
FY14
4.8%
1H151Q15
4.8%
Fully loaded Basel 3 leverage ratio at KBC Bank
Fully loaded Basel 3 leverage ratio at KBC Group
5.4%
0.4%
5.1%4.7%
0.8%6.0%
6.4%0.4%
6.9%
0.4%
0.9% 0.9%
9M15
5.6%
9M14
0.4%6.4%
1H15
0.9%
0.8%
1Q15
0.4%
FY15 1Q16
5.9%
5.9%
6.3%
6.3%
FY14
6.7%
5.2%
FL B3 leverage ratio excl. YES and penalty on YESPenalty on YES YES
49
KBC maintains a minimum total capital ratio of 17%*
• Minimum CET1 target of11.25% fully loaded (SREPof 9.75% and DomesticSIFI buffer of 1.50% fullyloaded)
• AT1 of 1.5%
• Minimum T2 target of 2%
• Minimum total capital ratio of 17.0%
Total capital ratioof 19.0% phased-in
11.25%
1.56%
2.57%
14.61%
1.63% AT1
2.75% T2
2017e fully loaded
1.50% AT1
2.25% additionalcapital
2.00% T2
1Q16 phased-in
14.59% CET1
1Q16 fully loaded
Total capital ratioof no less than 17.0%
fully loaded
Will be filled up with T2, depending on the actual CET1
position
* Basel 3, Danish compromise
Total capital ratioof 18.7% fully loaded
50
Solid liquidity position (1)
KBC Bank continues to have a strong retail/mid-cap deposit base in its core markets – resulting in a stablefunding mix with a significant portion of the funding attracted from core customer segments & markets
64%70% 69% 73% 75% 73% 73%
8%
8%9%
9% 8% 9% 8%4%
10% 8% 8%
8%
5%
5% 9%
4% 5% 5%
74%
7%
7%
8%
7%7%
8%
2%2%2%0%
8%
3%8% 6%
100%
1Q16
0%
FY15
3%
FY14
3%
FY09
3%
FY10 FY12
3%
3%
2%
FY13FY11
3%
Funding from customers
Certificates of deposit
Total equity
Debt issues placed with institutional investors
Net secured funding
Net unsecured interbank funding
7%1%
21%
71%
Government and PSE
Debt issues in retail network
Mid-cap
Retail and SME
74% customer
driven
51
Short term unsecured funding KBC Bank vs Liquid assets as of end March 2016 (bn EUR)
KBC maintains a solid liquidity position, given that:
• Available liquid assets are more than 3 times the amountof the net recourse on short-term wholesale funding
• Funding from non-wholesale markets is stable fundingfrom core-customer segments in core markets
* Graphs are 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
(*)
NSFR is at 121% and LCR is at 130% by the end of 1Q16
• Both ratios were well above the minimum target of at least105%, in compliance with the implementation of Basel 3liquidity requirements
Solid liquidity position (2)
Ratios FY15 1Q16 Target
NSFR1 121% 121% >105%
LCR1 127% 130% >105%
18,4 18,5 17,4 15,619,04
60,965,0
62,958,5 58,3
332%
352%
362%376%
306%
1Q15 2Q15 3Q15 4Q15 1Q16
Net Short Term Funding Available Liquid Assets Liquid Assets Coverage
1 Liquidity coverage ratio (LCR) is based on the Delegated Act requirements, while the NetStable Funding Ratio (NSFR) is based on KBC’s interpretation of current Basel Committeeguidance
52
KBC Group
Section 4
1Q 2016 wrap up
53
1Q 2016 wrap up
Strong commercial bank-insurance results in our core countries
Successful underlying earnings track record
Solid capital and robust liquidity position
54
Looking forward, management envisages:
• Continued stable and solid returns for the Belgium & Czech Republic Business Units
• Turnaround achieved in the International Markets Business Unit
• As per guidance already issued, profitability in Ireland expected to continue for the FY16…
• …moreover, we are maintaining our guidance on impairments for Ireland, namely the lower end of the 50m-100m EUR range for FY16
• A phased-in B3 common equity ratio of minimum 10.25% for 2016
• LCR and NSFR of at least 105%
• Dividend payout ratio (including the coupon paid on AT1) ≥ 50% as of FY2016*
* Subject to the approval of the General Meeting of Shareholders
Looking forward to 2016
55
KBC Group
Annex 1
Company profile
56
Business profile
KBC is a leading player (retail and SME bank-insurance, private banking, commercial and local investment banking) in Belgium and its 4 core countries in CEE
BREAKDOWN OF ALLOCATED CAPITAL BY BUSINESS UNIT AT 31 MARCH 2016
Group Centre
6%
International Markets20%
Czech Republic
15%
Belgium 60%
57
BE CZ SK HU BG
Loans and deposits
Investment funds
Life insurance
Non-life insurance
Well-defined core markets provide access to ‘new growth’ in Europe
1. Excluding group insurance. Including group insurance, market share of life insurance amounted to 13% at the end of 2015
2. Source: KBC data, May 2016
MARKET SHARE (END 2015)
21% 19%11% 10%
3%
18%7%26%
40%
7%17%1
12%4%4%
10%5%3%
7%9%
BE CZ SK HU BG
% of Assets
2015
2016e
2017e
1%3%3%15%
70%
3.0%2.9%3.6%4.3%
1.4%
2.4%2.4%3.3%2.5%1.4%
2.5%2.8%3.5%2.3%1.5%
REAL GDP GROWTH OUTLOOK FOR CORE MARKETS2
Macroeconomic outlookBased on GDP, CPI and unemployment trendsInspired by the Financial Times
IRELAND UK
BELGIUM
NETHERLANDS
GERMANY
CZECH REP
SLOVAKIA
HUNGARY
BULGARIA
GREECE
ITALY
PORTUGAL
SPAIN
FRANCE
KBC Group’s core markets
and Ireland
58
Loan loss experience at KBC
1Q16CREDIT COST RATIO
FY15CREDIT COST RATIO
FY14CREDIT COST RATIO
FY13CREDIT COST RATIO
FY 2012CREDIT COST RATIO
AVERAGE ‘99 –’15
Belgium 0.02% 0.19% 0.23% 0.37% 0.28% n/a
Czech Republic
0.01% 0.18% 0.18% 0.26% 0.31% n/a
International Markets
-0.04% 0.32% 1.06% 4.48%* 2.26% n/a
Group Centre -0.02% 0.54% 1.17% 1.85% 0.99% n/a
Total 0.01% 0.23% 0.42% 1.21%** 0.71% 0.52%
Credit cost ratio: amount of losses incurred on troubled loans as a % of total average outstanding loan portfolio
* The high credit cost ratio at the International Markets Business Unit is due in full to KBC Bank Ireland. Excluding Ireland, the CCR at this business unit amounted to 108 bps in FY13
** Credit cost ratio amounted to 1.21% in FY13 due to the reassessment of the loan books in Ireland and Hungary
59
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
Turnaround achieved in the International Markets Business Unit
Successful underlying earnings track record
Solid capital and robust liquidity position
60
Shareholder structure
Roughly 40% of KBC shares are owned by a syndicate of core shareholders, providing continuity to pursue long-termstrategic 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
SHAREHOLDER STRUCTURE AT END 1Q16
MRBB
Free float
18.5%
7.6%11.5%
Other core
2.7%
Cera
59.8%
KBC Ancora
61
KBC Group going forward:To be among the best performing retail-focused institutions in Europe
KBC wants to build on its strengths and be among Europe’s best performing retail-focused 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
62
KBC Group going forward:The bank-insurance business model, different countries, different stages of implementation
Bank branches selling insurance products from intra-group insurance company as
additional source of fee income
Bank branches selling insurance products of third party insurers as
additional source of fee income
Acting as a single operational company: bank and insurance operations working under unified governance and achieving commercial and non-
commercial synergies
Acting as a single commercial company: bank and insurance operations working under unified governance and achieving
commercial synergies
Level 4: Integrated distribution and operation
Level 3: Integrated distribution
Level 2: Exclusive distribution
Level 1: Non-exclusive distribution
KBC targets to reach at least level 3 in every country, adapted to the local market structure and KBC’s market position in banking and insurance.
Belgium
Target for Central Europe
63
Summary of the financial targets at KBC Group levelas announced at our Investor Day in June 2014
Based on adjusted figures
1. Excluding marked-to-market valuations of ALM derivatives2. 2016 minimum phased-in CET1 ratio of 10.25% set by the ECB (9.75% minimum CET1) in combination with NBB’s systemic buffer (0.5% minimum in 2016, gradually
increasing over a 3-year period and reaching 1.5% in 2018) under the Danish compromise
Targets… by…
CAGR total income (‘13-’17)1 ≥ 2.25% 2017
CAGR bank-insurance gross income (‘13-’17) ≥ 5% 2017
C/I ratio ≤ 53% 2017
Combined ratio ≤ 94% 2017
Common equity ratio (phased-in, Danish compromise)
≥ 10.25%2 2016
Total capital ratio(fully loaded, Danish compromise)
≥ 17% 2017
NSFR ≥ 105% 2014
LCR ≥ 105% 2014
Dividend payout ratio ≥ 50% 2016
64
KBC Group going forward: An optimised geographic footprint
Strengthen current geographic footprint
• Optimise business portfolio by strengthening current bank-insurance presence through organic growth or through acquisitions if possible.
• Strive for market leadership (top 3 bank/top 4 insurance) in core countries by 2020
• First priority for Ireland is to become profitable from 2016 onwards (already achieved in 2015). As of then, all available options (organically grow a profitable retail bank, build a captive bank-
insurance group or sell a profitable bank) will be considered
No further plans to expand beyond current geographic footprint
KBC Group will consider acquisition options, if any, to strengthen current geographic bank-insurance footprint,
Clear financial criteria for investment decision-making, based on:
Solid capital position of KBC GroupInvestment returns in the short and mid termsNew investment contributing positively to group ROE
65
KBC Group going forward: An optimised geographic footprint
Become a reference in bank-insurance in each core country
Through a locally embedded bank-insurance business model and a strong corporate culture, creating superior client satisfaction
With a clear focus on sustainable and profitable growth
66
KBC wants to keep its options open
Solid capital generation 2Q14-2017
Accelerate the repayment of state aid (+ penalties) by year-end 2017 at the latest: roughly 1/3 of capital available in 2Q14-2017
Increase dividend payout ratio (including coupon
for YES and AT1) to ≥ 50% from financial year 2016 onwards. Given the current solvency buffer (above 10.5% B3 CET1) and given no dividend for financial year 2015: roughly 1/3 of capital to 2Q14-2017
Invest in the business (organic growth and potential
small add-on M&A under very strict financial criteria) and deal with regulatory uncertainties: roughly 1/3 of capital to 2Q14-2017
The excess capital can be returned to the shareholders if no value-added business investments are found
Multi-year distribution: Planned employment of capital 2Q14-2017(current capital buffer + capital generation 2Q14-2017)
33.3%
33.3%
33.3%
100.0%
Business investments & regulatory uncertainties
Available excess capital
Dividends and coupon for YES & AT1
Repayment of state aid (+ penalties)
67
KBC Group
Annex 2
Other items
68
Sectorial breakdown of outstanding loan portfolio (1)(144bn EUR*) of KBC Bank Consolidated
Private Persons42%
Automotive2%
Agriculture, farming, fishing
3%
Authorities
3%
Building & construction
4%Finance & insurance
6%Real estate
7%
Rest
Distribution8%
Services
11%
14%
Oil, gas & other fuels
0.8%Hotels, bars & restaurants
0.9%Shipping
1.1%
Machinery & heavy equipment 1.1%
Chemicals1.1%
Metals
1.3%Other sectors
1.6%
Food producers1.3%
Electricity
4.4%
* It includes all payment credit, guarantee credit (except for confirmations of letters of credit and similar export-/import-related commercial credit), standby credit and credit derivatives, granted by KBC to private persons, companies, governments and banks. Bonds held in the investment portfolio are included if they are corporate- or bank-issued, hence government bonds and trading book exposure are not included* Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees
69
Geographical breakdown of the outstanding loan portfolio (2)(144bn EUR*) of KBC Bank Consolidated
Rest
1.7%
Asia
0.8%
North America
1.5%
Other CEE
0.5%Other W-Eur
7.6%Bulgaria
0.6%
Hungary
3.0%Slovakia
4.5%
Ireland 9.5%
Czech Rep.
13.6%
Belgium
56.6%
* It includes all payment credit, guarantee credit (except for confirmations of letters of credit and similar export-/import-related commercial credit), standby credit and credit derivatives, granted by KBC to private persons, companies, governments and banks. Bonds held in the investment portfolio are included if they are corporate- or bank-issued, hence government bonds and trading book exposure are not included* Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees
70
Impaired loans ratios, of which over 90 days past due
INTERNATIONAL MARKETS BUCZECH REPUBLIC BU
1Q16
8.2%
4.7%
4Q15
8.6%
4.8%
3Q15
9.0%
5.2%
2Q15
9.3%
5.3%
1Q15
9.6%
5.5%
of which over 90 days past due **
Impaired loans ratio *
1Q16
3.2%
2.4%
4Q15
3.4%
2.5%
3Q15
3.4%
2.5%
2Q15
3.5%
2.6%
1Q15
3.7%
2.7%
1Q16
28.9%
15.4%
4Q15
29.8%
16.0%
3Q15
31.4%
17.0%
2Q15
32.9%
17.9%
1Q15
33.4%
18.4%
BELGIUM BU
1Q16
3.7%
2.2%
4Q15
3.8%
2.2%
3Q15
4.0%
2.4%
2Q15
4.1%
2.4%
1Q15
4.2%
2.5%
KBC GROUP
* Impaired loans ratio: total outstanding impaired loans (PD 10-12)/total outstanding loans** of which total outstanding loans with over 90 days past due (PD 11-12)/total outstanding loans
71
Cover ratios
INTERNATIONAL MARKETS BUCZECH REPUBLIC BU
BELGIUM BUKBC GROUP
* Impaired loans cover ratio: total impairments (specific) for impaired loans / total outstanding impaired loans (PD10-12)** Cover ratio for loans with over 90 days past due: total impairments (specific) for loans with over 90 days past due / total outstanding PD11-12 loans
4Q15
60.3%
44.8%
3Q15
57.9%
43.9%
2Q15 1Q16
45.4%
60.8%57.8%
42.9%
1Q15
57.6%
42.4%
Cover ratio for loans with over 90 days past due **
Impaired loans cover ratio *
4Q15
65.1%
53.6%
3Q15
67.1%
54.2%
2Q15
63.2%
1Q16
54.2%
66.6%
53.4%
1Q15
67.1%
52.9%
4Q15
60.4%
44.7%
3Q15
56.5%
44.8%
1Q16
60.0%
44.0%
2Q15
57.6%
43.6%
1Q15
58.3%
43.4%
3Q15
55.6%
41.7%
2Q15
55.2%
40.4%
1Q15
54.5%
39.8%
58.1%
4Q15
43.0%
1Q16
59.4%
44.0%
72
Full restated capital position without state aid
Common equity ratio (B3 phased-in) of14.6% based on the Danish Compromise atend 1Q16, which clearly exceeds the newminimum capital requirements set by the ECB(9.75%) and the NBB (0.5%)**, i.e. anaggregate 10.25% for 2016
The B3 fully loaded common equity ratio alsostood at 14.6% based on the DanishCompromise at end 1Q16
* Pro forma assuming full state aid repayment (principal + penalty)** As recently announced by the NBB the systemic buffer (CET1 phased-in of 0.5% in 2016 under the Danish Compromise) will gradually increase
over a 3-year period, reaching 1.5% in 2018
Basel 3 CET1 ratio (both fully loaded and phased-in)at KBC Group based on the Danish Compromise*
10.25% regulatoryminimum for 2016
9M15 FY15
15.2%14.9%
1Q16
14.6%
13.7%14.0%
1H15
13.3%13.2%
1Q15
11.4%11.7%
14.6%
Phased-in B3 CET1 ratioFully loaded B3 CET1 ratio
73
Fully loaded B3 CET1 based on the Danish Compromise (DC)from 4Q15 to 1Q16
Jan 2012 Dec 2012 2014-2020
1Q16 (B3 DC)
89.8
1Q16 impact
0.7
4Q15 (B3 DC**)
89.1
DELTA AT NUMERATOR LEVEL (BN EUR)
DELTA ON RWA (BN EUR)
* Includes the q-o-q delta in AFS revaluation reserves, DTAs on losses carried forward, IRB provision shortfall, deduction re. financing provided to shareholders, translation
differences, etc.
** Includes the RWA equivalent for KBC Insurance based on DC, calculated as the book value of KBC Insurance multiplied by 370%
Fully loaded B3common equity ratio ofapprox. 14.6% at end1Q16 based on theDanish Compromise(DC)
A pro forma fullyloaded common equityratio translation to11.25% was clearlyexceeded
B3 CET1 at end 1Q16 (DC)Other*
-0.1
13.1
Pro-rata accrual dividend
-0.2
Remeasurement of defined benefit
obligations
-0.2
1Q16 net result
0.3
B3 CET1 at end 4Q15 (DC)
13.2
74
Overview of B3 CET1 ratios at KBC Group
Method Numerator Denominator B3 CET1 ratio
FICOD*, phased-in 13,619 100,790 13.5%
FICOD, fully loaded 13,773 101,692 13.5%
DC**, phased-in 12,960 88,849 14.6%
DC, fully loaded 13,114 89,750 14.6%
DM***, fully loaded 11,957 83,895 14.3%
* FICOD: Financial Conglomerate Directive** DC: Danish Compromise*** DM: Deduction Method
75
Given the current regulatory framework, KBC Group is comfortable with:
• 21.9% risk-weighted TLAC*
• 8.0% leveraged TLAC
• 12.9% MREL*
21.9% TLAC as % of RWA
MREL (as % of total liabilities)
5.7%
0.6%1.4%
0.9%
4.3%
TLAC (as % of leverage exposure)
5.3%
0.6%1.3%
0.8%
TLAC (as % of RWA)
14.6%
1.6%
3.5%
2.3%
AT1
CET1
T2 eligible TLAC (excl. T2 with 1y remaining maturity)
Senior unsecured debt, 2.5% of RWA
Other MREL eligible liabilities > 1y
8.0% TLAC as % of leverage
exposure
12.9% MREL as % of total
liabilities
Comfortable bail-in buffer
* TLAC: Total Loss-Absorbing Capacity / MREL: Minimum requirement for own funds and eligible liabilities
76
P&L volatility from ALM derivatives
ALM derivatives (swaps and options) are used to hedge the interest rate risk of the loan & deposit portfolios. This creates an accounting mismatch between derivatives (at market value) and hedged products (at amortised cost)• Options are used to hedge the caps/floors that KBC is obliged by law to include in Belgian mortgages
Most of this mismatch is removed with IFRS hedge accounting
A part of the ALM derivatives has not been included in any hedge accounting structure for different reasons:• Option hedging for mortgage loans: no hedge accounting possible given the dynamic hedging strategy used
• Part of the ALM interest rate derivatives has not been included in a hedge accounting structure, due to the offsetting effect with AFS bonds impact on capital ratios (which is not the case with valuation changes of cash flow hedges due to the applied regulatory capital filter)
77
Open ALM swap positionProtecting stability of capital ratio
Keeping part of the ALM swaps outside of hedge accounting reduces the volatility of the capital ratios as shown below (Basel III fully loaded + Danish Compromise insurance deconsolidation)
Drawback is more volatility in P&L as revaluation of swaps recorded in P&L, whereas the revaluation of the AFS bonds is recognised in capital
AFS BondsOptions
AFS Bonds
Options
Open ALM Swaps Position
No Open ALM Swap Position Current Status
78
Government bond portfolio – Notional value
Notional investment of 48.7bn EUR in government bonds (excl. trading book) at end of 1Q16, primarily as aresult of a significant excess liquidity position and the reinvestment of insurance reserves in fixed-incomeinstruments
Notional value of GIIPS exposure amounted to 6.2bn EUR at end of 1Q16
40%
Belgium
2%
Poland**
4%
Czech Rep.Hungary
Slovakia
6%
14%
5%Italy
11%France
8%Other
5%Spain
Germany **Austria *
Netherlands *Ireland **Portugal *
END 1Q16(Notional value of 48.7bn EUR)
(*) 1%, (**) 2%
Portugal *Ireland **
Austria **Netherlands *
Germany **Spain
5%Other
8%
France
41%
Belgium
14%
Czech Rep.
2%
Poland**
4%
Hungary
5%
Slovakia
5%Italy
10%
END 2015(Notional value of 48.8bn EUR)
(*) 1%, (**) 2%
79
Government bond portfolio – Carrying value
Carrying value of 53.7bn EUR in government bonds (excl. trading book) at end of 1Q16, primarily as a result of a significant excess liquidity position and the reinvestment of insurance reserves in fixed-income instruments
Carrying value of GIIPS exposure amounted to 7.4bn EUR at end of 1Q16
* Carrying value is the amount at which an asset [or liability] is recognised: for those not valued at fair value this is after deducting any accumulated depreciation (amortisation) and accumulated impairment losses thereon, while carrying amount is equal to fair value when recognised at fair value
END 1Q16(Carrying value of 53.7bn EUR)
(*) 1%, (**) 2%
Netherlands *
13%
8%
Ireland **Portugal *
Belgium
39%
Poland **
2%Hungary
6%
Slovakia4%
11%France
5%
Other
Italy
6%SpainGermany *
Austria *
Czech Rep.
END 2015(Carrying value of 53.4bn EUR)
(*) 1%, (**) 2%
Portugal *
2%
Poland **
4%
Hungary
5%
Slovakia
5%Italy
10%France
Other
SpainGermany **
6%
7%
Ireland **Austria **
Netherlands *
41%
Belgium
13%
Czech Rep.
80
4%
20%
7%
11%
4%
40%
14%
0,7%
1,1%
1,8%
1,2%
0,5%
0,7%
1,2%
0,3%
0,1%0,1%
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2016 2017 2018 2019 2020 2021 2022 2023 2024 >= 2025
Mill
ion
sEU
R
Breakdown Funding Maturity Buckets
Senior Unsecured - Holdco Senior Unsecured - Opco Subordinated T1 Subordinated T2
Contingent Convertible Covered Bond TLTRO
Upcoming mid-term funding maturities
Total outstanding = 20.15bn EUR
(Including % of KBC Group’s balance sheet)
KBC Bank has successfully issued a 1.25bn EUR covered bond with6.5-year maturity in March 2016. KBC Group has also successfullyissued an inaugural 750m EUR senior unsecured bond with 5-yearmaturity in April 2016
KBC’s credit spreads have narrowed during 1Q16
KBC Bank has 6 solid sources of long-term funding:
• Retail term deposits
• Retail EMTN
• Public benchmark transactions
• Covered bonds
• Structured notes and covered bonds using the private placementformat
• Senior unsecured, T1 and T2 capital instruments issued at KBCGroup level and down-streamed to KBC Bank
81
-10
40
90
140
190
240
-15
-5
5
15
25
35
45
55
65
75
85
Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16
Credit Spreads Evolution
2.5Y Senior Debt Interpolated 5Y Covered Bond Interpolated 10NC5 Subordinated Tier 2
Credit spreads evolution
1 10NC5 Subordinated Tier 2 spread is depicted based on the right hand axis.
1
82
Analysts’ coverage
Bank/broker Analyst Contact details Rating Target Price Upside
Situation as of 02 May 2016, based on a share price of 49.03 EUR
ABN Amro Ron Heijdenrijk [email protected] = 55.00 12%
Alpha Value Farahad Moshiri [email protected] + 50.40 3%
Autonomous Farquhar Murray [email protected] + 68.20 39%
Bank of America Merrill Lynch Tarik El Mejjad [email protected] = 58.60 20%
Barclays Capital Kiri Vijayarajah [email protected] = 56.00 14%
Berenberg Andrew Lowe [email protected] + 55.00 12%
Citi Investment Research Andrew Coombs [email protected] + 76.00 55%
Degroof Petercam Bart Jooris [email protected] = 52.20 -6%
Deutsche Bank Flora Benhakoun [email protected] = 55.00 12%
Exane BNP Paribas Guillaume Tiberghien [email protected] + 59.00 20%
HSBC Johannes Thormann [email protected] = 56.00 14%
ING Albert Ploegh [email protected] + 60.00 22%
JP Morgan Securities Paul Formanko [email protected] + 75.00 53%
Keefe, Bruyette & Woods Jean-Pierre Lambert [email protected] + 60.20 23%
KeplerCheuvreux Benoit Petrarque [email protected] + 63.00 28%
Mediobanca Robin van den Broek [email protected] + 67.00 37%
Morgan Stanley Bruce Hamilton [email protected] = 60.01 22%
Natixis Securities Alex Koagne [email protected] = 56.00 14%
Oddo Julie Legrand [email protected] + 69.00 41%
Rabo Securities Cor Kluis [email protected] + 70.00 43%
Santander Patrick Lee [email protected] = 57.00 16%
Societe Generale Philip Richards [email protected] = 55.00 12%
UBS Anton Kryachok [email protected] = 47.00 -4%
83
Glossary (1)
AQR Asset Quality Review
B3 Basel III
CBI Central Bank of Ireland
Combined ratio (non-life insurance)[technical insurance charges, including the internal cost of settling claims / earned premiums] + [operating expenses / written premiums] (after reinsurance in each case)
Common equity ratio [common equity tier-1 capital] / [total weighted risks]
Cost/income ratio (banking) [operating expenses of the banking activities of the group] / [total income of the banking activities of the group]
Cost/income ratio adjusted for specific items
The numerator and denominator are adjusted for (exceptional) items which distort the P&L during a particular period in order to provide a better insight into the underlying business trends. Adjustments include: • MtM ALM derivatives (fully excluded)• bank taxes (including contributions to European Single Resolution Fund) are included pro rata and hence spread over all quarters of the year instead of
being recognised for the most part upfront (as required by IFRIC21)• Up to the end of 2014, also Legacy & OCR was an important correction• One-off items (such as the impact of the liquidation of KBC FH)
Credit cost ratio (CCR)[net changes in individual and portfolio-based impairment for credit risks] / [average outstanding loan portfolio]. Note that, inter alia, government bonds are not included in this formula
EBA European Banking Authority
ESMA European Securities and Markets Authority
ESFR European Single Resolution Fund
FICOD Financial Conglomerates Directive
Impaired loans cover ratio [total impairments (specific) for impaired loans] / [total outstanding impaired loans]. For a definition of ‘impaired’, see ‘Impaired loans ratio’
Impaired loans ratio [total outstanding impaired loans (PD 10-11-12)] / [total outstanding loans]
Leverage ratio[regulatory available tier-1 capital] / [total exposure measures]. The exposure measure is the total of non-risk-weighted on and off-balance sheet items, based on accounting data. The risk reducing effect of collateral, guarantees or netting is not taken into account, except for repos and derivatives. This ratio supplements the risk-based requirements (CAD) with a simple, non-risk-based backstop measure
Liquidity coverage ratio (LCR) [stock of high quality liquid assets] / [total net cash outflow over the next 30 calendar days].
Net interest margin (NIM) of the group [net interest income of the banking activities] / [average interest-bearing assets of the banking activities]
Net stable funding ratio (NSFR) [available amount of stable funding] / [required amount of stable funding]
84
Glossary (2)
MARS Mortgage Arrears Resolution Strategy
MREL Minimum requirement for own funds and eligible liabilities
PD Probability of default
Return on allocated capital (ROAC) for a particular business unit
[result after tax, including minority interests, of a business unit, adjusted for income on allocated capital instead of real capital] / [average capital allocated to the business unit]. The capital allocated to a business unit is based on risk-weighted assets for banking and risk-weighted asset equivalents for insurance
Return on equity[result after tax, attributable to equity holders of the parent] / [average parent shareholders’ equity, excluding the revaluation reserve for available-for-sale assets]. If a coupon is expected to be paid on the core-capital securities sold to the Belgian Federal and Flemish Regional governments, it will be deducted from the numerator (pro rata)
TLAC Total loss-absorbing capacity
85
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