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KBC Group
Retail bancassurance and private banking on the Belgian market
April 2005Web site: www.kbc.com
Ticker codes: KBC BB (Bloomberg) KBKBT BR (Reuters)
ISIN code: BE0003565737
2
Contact information
Investor Relations Office
Luc CoolNele KindtMarina Kanamori
Tel.: +32 2 429 49 16 investor.relations@kbc.com
Surf to www.kbc.com for the latest update.
3
Disclaimer
This presentation is provided for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to buy any security.
Although the statements of fact in this presentation have been obtained from and are based on sources that KBC believes to be reliable, KBC does not guarantee their accuracy, and any such information may be condensed or incomplete.
This presentation contains forward-looking statements with respect to our strategies and earnings development. By their nature, these forward-looking statements involve numerous assumptions, uncertainties and opportunities. The risk exists that these statements may not be fulfilled and that future results differ materially.
By receiving this presentation, each investor is deemed to represent that it is a sophisticated investor and possesses sufficient investment expertise to understand the risks involved.
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ING Financials Day - 18 April 2005
1. Introduction W. Duron
2. Retail bancassurance in Belgium F. Florquin
3. Private banking in Belgium F. Florquin
4. Synergies for private banking W. Duronwithin KBC Group
Introduction
Foto gebouw
1
6
BSC
H
BN
P PA
RIB
AS
BBVA
DEU
TSC
HE
BAN
K
SOCIE
TE
GEN
ERALE
ABN
AM
RO
CRED
IT A
GRIC
OLE
FORTIS
UN
ICRED
ITO
INTES
A B
CI
DEX
IA
SP I
MI
HVB
AIB
BIR
POP
BACA
MED
ERST
E
CO
M
NBG
CAP
EUR
BCP
AL
AN
BN
L
MPS
SAB
KB
C
Euroland top-30 banks, by market cap *
* DJ Euro Stoxx Banks constituents ranking by market cap, as at 14 March 2005
KBC Group : 24 bn euros
Benelux players have considerable scale
7
46%
24%
10%
7%11% 2%
KBC Group’s business portfolio
Although KBC has successfully expanded its operations in CEE, it primarily is a top bancassurer and asset manager in Belgium, its historical home market
Thanks to the merger with Almanij (March 2005), the private banking activities were expanded to include a Western European network. PB has become a more pronounced key focus
CEE
Capital markets
International SME/corporate
Europeanprivate banking
Revenue breakdown*
Belgium :- retail bancassurance- private banking- asset management- SME and corporates
Gevaert
* 2004 pro forma figures, excl. group items
8
0% 10% 20% 30%
Other
Argenta
ING
DEXIA
KBC
FORTIS
Client deposits
0% 10% 20% 30%
Other
ING
DEXIA
FORTIS
KBC
Mutual funds
0% 10% 20% 30%
Other
ING
KBC
AXA
ETHIAS
FORTIS
Insurance premiums
Belgian market, headlines
Market shares:
The banking landscape in Belgium is highly consolidated (80%held by top-4 banks)
The market growth in the field of wealth management is significant (high savings rate)
The market is highly receptive to cross-selling of AM & insurance products
KBC is a top-3 player, especially strong in the Northern region
31-Dec-03
9
92%72%
2001 2004
382
583
2001 2004
14%
19%
2001 2004
Return on capital
Cost/income ratio, banking
Profit contribution
Retail and private bancassurance *
100%93%
2001 2004
Combined ratio, non-life
Target 2007:sustained high level
Target 2007:high single digit CAGR
Target 2007:further down to low 60-ties
Target 2007:max 95%
over-the-cycle
* excl. European private banking
10
European private banking network
Netherlands:Theodoor GilissenAcquired in ’03 – participation: 100%
Germany:Merck Finck & CoAcquired in ’99 – participation: 100%
Switzerland:Kredietbank (Suisse)Historical presence
Italy:Fumagalli SoldanAcquired in ’01 – participation: 95%
Monaco:KB Luxembourg (Monaco)Historical presence
Luxembourg:Kredietbank LuxembourgParent company for European PB
France:KBL France Acquired in ’98 – participation: 100%
Spain:Banco UrquijoAcquired in ’98 – participation: 100%
Since ‘98, KBC Group (KBL) has developed a private banking network throughout Western Europe, anticipating further erosion of its offshore activities for a/o Belgian customers in Luxembourg
Private banking assets outside Belgium grew to 43 bn across the 10 countries
UK:Brown ShipleyAcquired in ’89 – participation: 100%
Belgium:KBC Private bankingPuilaetco private bankers (100% participation acquired in ’04)
Retail bancassurancein Belgium
Foto gebouw
2
12
92%72%
85%68%
2001 2004
166
414216
169
2001 2004
14%
19%
7%
18%
2001 2004
Return on capital
Cost/income ratio
Profit contribution
Retail and private bancassurance, Belgium
100%93% 93%
100%
2001 2004
Combined ratio, non-life
Target 2007:sustained high level
Target 2007:high single digit CAGR
Target 2007:further down to low 60-ties
Target 2007:max 95%
over-the-cycle
* excl. European private banking
382
583
Core retailOther retail and private banking
Core retailRetail and private bancassurance
Core retailRetail and private bancassurance
Core retailRetail and private bancassurance
13
Nice results 2004
In mio EUR2004
12m
Evolution
Abs. %
a.o. Savings & investments 1 132 +19 +2%
Lending 424 -12 -3%
Insurance 236 +32 +15%
Gross income 1 829 +66 +4%
Direct costs -811 +4 -1%
Allocated costs -439 +13 -3%
Operating expenses -1 250 +17 -1%
Provisions -11 +42 -80%
Pre-tax profit 568 +125 +28%
Net profit 414 +75 +22%
Core retail only:
How to achieve further growth ?
14
Sharp increase in productivity
Efficiencystrategy
100
93
116 115119
143
154
1998 1999 2000 2001 2002 2003 2004
+5% p.a.
+10% p.a.
Strong growth in revenue per FTE
Revenues per FTE, 1998 = 100
100 102
139
152
170
218
236
1998 1999 2000 2001 2002 2003 2004
+15% p.a.
Strong growth in revenue per branch
Revenues per branch, 1998 = 100
15
Cost-savings largely implemented
Efficiencystrategy
Spontaneous cost inflation
3
4 Integration of ICT platforms and of products and support services
Reduction in No. of branches: -680 or -45%
Cutback in branch FTEs: -1 300 or -18%
Spontaneous cost inflation
Up to 2004: significant decline in costs
Henceforth: upwards pressure on costs
1 344
1 295
1 250
+45estimate
-101
-10
-40
+57
2001 costs
2004 costs
2007 costs
Core retail only, cost trend, in m EUR
2
3
4
11
1
2
1
Target:cost growth below wage inflation rate
16
Rather limited potential for further automation
Efficiency strategy
69.5%
82.3%
87.4%88.60%
90.9%93.3% 94.1%
60%
65%
70%
75%
80%
85%
90%
95%
100%
2001 2002 2003 2004
Debit transfers Cash withdrawals
?
Potential for further automation
Rate of automation
17
Strict cost control remains important
Efficiency strategy
Number of bank branchesper million inhabitants
611
537
514
427
371
289
275
245
219
200
Germany
Belgium
Italy
France
Switzerland
Japan
USA
UK
Sweden
Netherlands
Closely-knit network High wage costs
Source: Febelfin
1. Wage costs in Belgium are higher than in other European countries
2. Average level of education of branch staff is higher than in other European countries
18
Core retail Belgium only Trend of impairments in credit portfolio
Write-downs vs. risk-weighted assets
0.23% 0.24%
0.09%
2002 2003 2004
Low over-the-cycle credit-loss charges
Target:<0.25%
over-the-cycle
Risk strategy
19
Focus on revenue growth strategy
Revenue growth (*) in 2001-2004 period partly driven by positive pricing effects.
Revenue growth (*) in 2004-2007 period driven by positive volume effects
and negative price effects
1 564
1 829
+28
+47
+101
+89
2001 income
Savings &investments
Lending
Insurance (excl.S&I)
Other
2004 income
+5% p.a.
½ due to positive pricing effects
1 828
2 087
5
+67
+32
+165
Inkomsten 2004
Sparen &Beleggen
Krediet-verlening
Verzekeren(excl.S&B)
Overige
Inkomsten 2007
+5% p.j.
Margin pressure
Ambition:maintain
growth trend
Growth strategy
(*) Core retail Belgium only
Achieved+5% p.a.
revenue growth
20
Growth in the savings & investments field
Growthstrategy
How to grow within a mature market?
2.1% 2.3% 2.8%3.5% 3.7% 3.9%
5.8%
Germany NL France EMU Belgium UK Spain
Market potential
Estimated nominal GDP growth rate
10.6%14.2%
Eurozone Belgium
3.4 3.3
5.3
2002 2003 2004
1
Attracting new funds
Proven performance
Savings rate New funds attracted – in bn
22 23 2528 28 29 29 30 31 31
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Market share of mutual funds
21
Growth in the insurance field
Growthstrategy
How to grow within a mature market?
1
Attracting new funds
2Insurance
High internal potential Proven performance
17% 4% 2%20%24%31%
69% 76% 80% 83% 96% 98%
Totalnon-life
Home Family Car Hospital Accident
% bank client households w/o product
% bank client households w/ product
8%5%
8%
12% 14%
3% 3%
6% 6% 5%
2000 2001 2002 2003 2004
Bank branches Tied agents
56%
34% 40%60%
bank x bank (> 3 of 6product areas)
bank x insurance
2000 2004
Premium growth, non-life
X-sell results
22
Growth in the lending field
Growthstrategy
How to grow within a mature market?
1
Attracting new funds
2
Insurance3
Lending
100108
118128
2001 2002 2003 2004e
Total market – Mortgage loans
CAGR 9%
Source: NBB
Small business loans:
• Moderate growth trend, in line with nominal GDP growth (+4.2% in 2005)
• But, still additional growth potential via raising amounts of advances in current account (with higher margins) and increasing non-credit-linked revenues
High expectations for growth in retail lending
Mortage loans: strong growth on the back of:• steep rise in Belgian real estate prices• real estate prices still below level of other European markets
23
Obstacles to growth
Growthstrategy
How to grow within a mature market?
1
Attracting new funds
2
Insurance
3
Lending
Sharper price competition !
85%
18%
16%
Pressure onmargins
Investments inadditionalservices
Slowdown ineconomic
growth
Mortgages
Small busniess loans
Threats to growth according to analystsNos. 1 & 2 based on ranking
Hardening credit-pricing cycle
24
Would you recommend your bank to others?Yes, definitely + Yes, probably
80%
76%
71%
68%
KBC
Competitor A
Competitor B
Competitor C
Catalysts for growth
Growthstrategy
How to grow within a mature market?
1
Attracting new funds
2
Insurance
3
Lending
Enhancing customer satisfaction Customer satisfaction at KBC
1999 2000 2001 2002 2004 TargetTop-4 bancassurers only
Private banking in Belgium
Foto gebouw
3
26
Business model in Belgium
KBC PB is a seperate channel for distribution of wealth management services to HNWI
Focus: customers with 1-5m of investible assets. Downflow of below-threshold clients to retail (> 65% are (ex-)entrepreneurs and owners of own business or practice; others are upper middle management/senior executives, heirs to a large fortune, etc.)
19 dedicated branches focused on onshore private banking; broad local market representation (in the Northern part of Belgium)
Network-led model; private banking under corporate brand with growth primarily through identifying and converting clients from the retail and corporate network
Full-service banking (in partnership with the retail business*) - broad range of wealth management products and services
Controlled open architecture: > 90% investment management in-house, with an emphasis on product design (structured products, particularly capital guaranteed products) and quantitative techniques
* PB clients are served by retail branches for their standard banking needs
27
Leveraging links with retail and corporate branches
42%
19%
39%
Existing client relationships offer a high degree of opportunity
KBC is primary bank (e.g. SME)
KBC is second bank (e.g. SME)
Acquisition focus
Retail clie
nts
> 2.5 m
Retail clients
> 1 m
Acquisition costs
Other
prospects
Retail clients
< 1 m with
potential Prospects
known to
retail
branchesProspects
known
to corporate
banches
highlow
28
Key performance figures
Growth of relationships base Growth primarily from retail trade-up*
* New clients with former retail relationship
100115
128108
2001 2002 2003 2004
85%
80%
86%
82%
2001 2002 2003 2004
CAGR 9%
29
Key performance figures
7.6 7.9
9.5
12.5
2001 2002 2003 2004
22
13
41
56
2001 2002 2003 2004
67%
78%
56%49%
2001 2002 2003 2004
Client asset growth (bn)
Contribution (bn; pre-tax) Cost/income
30
Key performance figures
Exits to competition
1.6% 1.6% 1,5%
2002 2003 2004
91%97% 94%
(Very) good
Yes
(Very) satisfied
How do you rate your
experience with PB overall?
Are you satisfied with your CRO’s
competence level?
Would you describe
your CRO as
proactive?
Customer satisfaction
Source: Annual customer survey 2004; response rate: 21% of all PB clients
Synergies for private banking within KBC Group
Foto gebouw
4
32
Quick reminder
Until 31 Dec. 04:
As of 01 Jan. 05:
Almanij
KBCBank & Insurance
KBLEuropean Private Bankers
Gevaert
KBC Bank
KBC Insurance
KBCAsset Management
KBC Group NV
KBCBank
KBCInsurance
KBCAM
KBLEuropean Private Bankers
Gevaert
33
KBC Group’s epb* today
Presence in 10 countries outside Belgium, multi-domestic positioning
No link with traditional banking network (contrary to the network-led model in Belgium)
Highly based on open architecture (though product penetration of in-house products to increase within new KBC Group)
* epb: European private banking
34
174 181193
205
2001 2002 2003 2004
Net profit
Key financials of epb*
36 3438
43
2001 2002 2003 2004
Assets under management
In bn EUR
7.6% 8.4%10.0% 9.2%
2001 2002 2003 2004
Tier-1 ratio
15% 17% 18%21%
2001 2002 2003 2004
Return on equity
In m EUR (Lux GAAP)
Lux GAAPLux GAAP
CAGR +6% CAGR +6%
* Reminder: figures excl. KBC PB in Belgium
35
0
20
40
60
80
2005 2006 2007 2008 2009
Synergies within enlarged KBC Group
Note: ‘Synergy benefit’ described throughout as peak recurring annual increase in pre-tax bottom-line result vs. base business
Synergy benefit, in m (see note below)
Revenue
Cost + Cost Avoidance
Synergies via integrating epb with KBC PB (Belgium) and KBC AM
Total synergy programme of NPV 500 m (net of restructuring and capital costs, post- tax)
Estimated capital and restructuring costs are ca. 50m over 5 years
Recurring pre-tax benefits of 75 m (peak level), half of which can be realized by 2006
Cashflow positive every year 40% revenue and 60% cost (and cost
avoidance) benefits All synergies reach their peak by 2009
(some faster than others) Portfolio of 32 synergies, 19 ‘large’ and
13 ‘small’
KBC Group
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