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GROWTH IN CEE COUNTRIES “Czech Evidence”. Jaromír Sladkovský FPK Conference, London 14 December 2004. 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. - PowerPoint PPT Presentation
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1
GROWTH IN CEE COUNTRIES“Czech Evidence”
Jaromír Sladkovský
FPK Conference, London 14 December 2004
2
LEGAL 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 UPON SOURCES THAT KBC BELIEVES TO BE RELIABLE, KBC DO 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 STATEMNTS 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.
3
TABLE OF CONTENTS
INTRODUCTION
CURRENT SITUATION IN CR
FUTURE GROWTH POTENTIAL IN CR
KBC POSITIONING IN CR
4
COUNTRIES WITH KBC PRESENCE
POLANDpopulation 38.2mGDP* 46%bank assets** 104m
Source: OECD, Statistics of National Banks*) GDP per capita - EU25=100% (PPP)
**) as of the end of 2003 (EUR)
CZECH REPUBLICpopulation 10.2mGDP 73%bank assets 80m
SLOVAKIApopulation 5.4mGDP 51%bank assets 24m
HUNGARYpopulation 10.1mGDP 61%bank assets 56m
SLOVENIApopulation 2.0mGDP 77%bank assets 22m
5
WHERE WILL THE VALUE CREATION COME FROM IN CR IN FUTURE ?
M&A Activities
• Limited on the local market (privatization completed; 85% of bank equity and 96% of bank assets in hands of foreign strategic investors: KBC, ERSTE, SG, HVB, GE etc.)
• Market concentrated enough (top 3 players have 75% market share in total bank deposits and 50% in bank loans; the concentration in retail banking is even higher as top 4 players have 85% in retail deposits and 90% in retail outstanding loans)
Cost Management
• Main strategic focus after strategic takeover (centralization of processes such as back-office activities; headcount rightsizing; close control of central procurement etc.)
• Still not sufficiently exploited
Revenue Based Growth
• Large potential (low penetration of the population and companies with financial products; low loan to deposit volume ratio compared to EU countries etc.
• Dynamic volume growth in key products
6
INTRODUCTION
CURRENT SITUATION IN CR
FUTURE GROWTH POTENTIAL IN CR
KBC POSITIONING IN CR
7
RETAIL LOANS SPEEDED UP COMPARED TO RETAIL DEPOSITS IN 2001-2003
Source: CNB, Czech Statistical Bureau (data without individual entrepreneurs)
13%
18%
23%
27%
5%7%
8%10%
12%
4%
0%
5%
10%
15%
20%
25%
30%
2000 2001 2002 2003 F2004
Retail Loans to Deposits
Retail Loans to GDP
Percent
8
LEVEL OF HOUSEHOLDS’ DEBT IS FAR BEHIND THE EURO-ZONE AVERAGE
0%
10%
20%
30%
40%
50%
60%
Eurozone Czech Republic Slovak Republic
Other loans** Consumer lending Housing loans*
Source: ECB, CNB, NBS
48%
10% 8%
*) Including mortgages and building loans**) Including loans provided to individual entrepreneurs, non-residents etc.
Retail loans as % of GDP (2003)
9
CZECH FAMILIES HAVE IMPROVED THEIR STANDARDS OF LIVING
Source: Czech Statistical Bureau
111
138
70
80
90
100
110
120
130
140
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Real GDP per capita
Real Wages
1990 BASE LINE = 100
INCREASING PURCHASING POWER REDUCES FUTURE
UNCERTAINTY AND ENHANCES WILLINGNESS
TO BOROW MONEY*
*) Average Czech Family owes over EUR 3 thousand at the end of 2003
10
PORTFOLIO OF THE MOST DEMANDED PRODUCTS HAS CHANGED SINCE 1990
Saving Deposits
Social LoansBefore 1990Before 1990
SME LoansCurrent AccountsSaving Deposits
1990-19951990-1995
Building SavingsSaving Deposits
Car LeasingNon-bank consumer
credits
Consumer LendingBuilding Savings
Building LoansMutual FundsLife Insurance
1996-20001996-2000
2001-20032001-2003
MortgagesSME Loans
Consumer LendingMutual Funds
Pension FundsLife Insurance
2004Future2004
Future
11
PENETRATION OF RETAIL CLIENTS WITH BASIC PRODUCTS IS LOW
34%
61%
15%5% 9%
71%
C/A S/A Debit Cards Overdraft Credit Cards ConsumerLoans
54%
18%
2% 5% 1%
58%
ConstructionSavings
LifeInsurance
PensionFunds
MutualFunds
BuildingLoans
Mortgage
Source: GfK Research – Czech Republic (Spring 2004)
12
PENETRATION OF SME WITH PRODUCTS IS ALSO FAR BEHIND THE POTENTIAL
38% 36%28% 21%
14%
96%
C/A S/A Debit Cards CommercialLoans
Overdraft Credit Cards
Source: GfK Research – Czech Republic (Spring 2004)
19%
36%
7%14% 10%
97%
C/A S/A Debit Cards CommercialLoans
Overdraft Credit Cards
CO
MP
AN
IES
*IN
DIV
IDU
AL
E
NT
RE
PR
EN
EU
RS
*) firms with annual turnover up to EUR 10m
13
INTRODUCTION
CURRENT SITUATION IN CR
FUTURE GROWTH POTENTIAL IN CR
KBC POSITIONING IN CR
14
WHICH CLIENTS WILL BRING THE HIGHEST REVENUE GROWTH?
RETAIL
SME
CORPORATE
• Growing profits resulting in higher volume of deposits
• Limited potential in terms of number of customers
• Significantly penetrated with loan and leasing products
• Highly competitive market – squeezing margins
• Unsaturated clients’ needs (only 5% of SME have a loan)
• Interesting margins and fees
• New business opportunities resulting from EU accession
• Risk management (new scoring based methods)
• Gradually reducing fees from FX transaction (accession to the Euro-zone)
• Insufficient penetration with financial products
• Growing wealth of the population
• Unexploited marketing instruments (propensity models etc.)
• Robust risk management techniques (scoring-based)
15
WHAT FACTORS WILL SHAPE FUTURE RETAIL BANKING IN CR ?
Former antipathy of households against money borrowing originated
from the communist-time has been gradually disappearing
Demographic development
strong generation in their 30’s has financing and life-time
investment needs (life insurance, pension funds)
strong generation in their 50’s (becoming retired in 5-10 years)
require mainly short-term investments (mutual funds)
Continuing enhancement of living standards
Interest rates will very likely stay at current low level
…
16
STRONG POPULATION YEARS ARE BECOMING ACTIVE
50
75
100
125
150
175
200
19
51
19
53
19
55
19
57
19
59
19
61
19
63
19
65
19
67
19
69
19
71
19
73
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
Newly-born childrenin a given year
25-35 years old population now
Source: Czech Statistical Bureau
Thousand of people
17
20 23 25 3215
2026
46
1117
25
39
89
14
13
0
20
40
60
80
100
120
140
160
180
2001 2002 2003 F2004** F2007
Mortgages
Building loans
Consumer lending***
MORTGAGE SEEMS TO BE A KEY DRIVER IN RETAIL LENDING
*) Fixed exchange rate of 31 CZK/EUR **) 2004 Forecast based on the actual results in October 2004 ***) Including consumer loans, overdrafts, credit cards and other loans
3851
68
90
167
8%
20%
32%
CAGR2004-2007
Source: CNB, ČSOB Forecast
EUR Billion*
18
PENSION FUNDS AND MUTUAL FUNDS WILL MAINTAIN THEIR HIGH GROWTH
Source: CNB, ČSOB Forecast
244 227 221 222 243
19 33 40 487258 76
88
117
2125
30
48
3238
4247
63
43
16
0
100
200
300
400
500
600
2001 2002 2003 F2004** F2007
Life Insurance** Pension Funds Building Savings Mutual Funds Bank Deposits*
*) current and saving accounts **) technical reserves of life insurance
354376
405435
543
3%3%
15%15%
10%10%
17%17%
10%10%
EUR Billion* CAGR2004-2007
19
INTRODUCTION
CURRENT SITUATION IN CR
FUTURE GROWTH POTENTIAL IN CR
KBC POSITIONING IN CR
20
SUMMARY
Revenue growth is the topic for value creation in the future
Imbalance in deposit to loan ratio of the banking industry shows
clear potential
Key segments of growth potential are SME clients and
individuals (specifically the affluent segment)
Housing needs will drive the credit market growth
Improving regulatory framework will play an important role
21
ČSOB POTENTIAL
Critical mass of customers
Ability to retain and attract clients (mainly affluent clients)
Focus on lending growth (SME loans, mortgages, etc.)
Robust risk management techniques (mainly for SME)
Efficiency in „the back” and in the internal supply chain
WINNING FORMULA
Largest financial group in CR with 5 million retail clients
Affluent clients turnover below 1%; growing private banking
Strengthening in SME business (35% y-on-y growth)
New scoring based approach towards SME
Centralization of card mgmt within CEE region
KBC (ČSOB)
22
GROWTH IN CEE COUNTRIES“Czech Evidence”
Jaromír Sladkovský
FPK Conference, London 14 December 2004
23
INTRODUCTION
CURRENT SITUATION IN CR
FUTURE GROWTH POTENTIAL IN CR
KBC POSITIONING IN CR
APPENDICES ON THE KBC GROUP
24
1 BNP Paribas (35 bn) 1 BNP Paribas (45 bn) 1 BSCH (57 bn)2 BSCH (31 bn) 2 BSCH (45 bn) 2 BNP Paribas (48 bn)
3 BBVA (29 bn) 3 Deutsche Bank (38 bn) 3 BBVA (42 bn)4 Deutsche Bank (26 bn) 4 BBVA (35 bn) 4 Deutsche Bank (35 bn)
5 ABN AMRO (25 bn) 5 Société Gén. (31 bn) 5 Crédit Agricole (35 bn)
6 Société Gén. (24 bn) 6 ABN AMRO (30 bn) 6 Société Gén. (34 bn)
7 Unicredit (24 bn) 7 Crédit Agricole (28 bn) 7 ABN AMRO (32 bn)8 Fortis (22 bn) 8 Unicredit (27 bn) 8 Unicredit (27 bn)
9 Crédit Agricole (14 bn) 9 Fortis (21 bn) 9 Fortis (26 bn)10 Dexia (14 bn) 10 Intesa BCI (18 bn) 10 Intesa BCI (21 bn)11 Intesa BCI (12 bn) 11 Dexia (16 bn) 11 Dexia (18 bn)
12 Allied Irish Banks (12 bn) 12 San Paolo IMI (15 bn) 12 KBC (18 bn)13 Bank of Ireland (10 bn) 13 KBC (11 bn) 13 San Paolo IMI (15 bn)
14 KBC (9 bn) 14 Bco Popular (11 bn) 14 Allied Irish Banks (12 bn)
15 San Paolo IMI (9 bn) 15 Allied Irish Banks (11 bn) 15 HVB (12 bn)16 Banco Popular (8 bn) 16 Bank of Ireland (11 bn) 16 Bank of Ireland (11 bn)17 HVB (7 bn) 17 HVB (10 bn) 17 Bco Popular (10 bn)
18 Mediobanca (6 bn) 18 Commerzbank (9 bn) 18 Commerzbank (9 bn)
19 Bca MPS (6 bn) 19 Mediobanca (7 bn) 19 BA-CA (9 bn)
20 Bco Popular (5 bn) 20 Bca MPS (6 bn) 20 Mediobanca (9 bn)
Dec 2002 Dec 2003 Nov 2004
(*) DJ Euro Stoxx Banks Constituents - Ranking by Market Capitalization – Situation as at 16 Nov 2004
TOP-20 IN EUROLAND BANKING (*)
25
PROMINENT PLAYER IN 2 MARKETS
• Top financial player in Belgium
• Succesfully expanded in 5 most advanced countries in CEE (new EU)
• Selected ‘other’ areas: international mid-corporate banking (mostly in W. Eur.) and financial markets
• As investments in CEE have continued to increase, the ‘other’ activities have been progressively scaled down
Breakdown of revenue :
Treasury & other 9%
CEE25%
Belgium
48%
Financial markets 11%
Internaternational corporate 7%
26
• KBC is one of the largest international players in the region
• In contrast to the other players, KBC limits its presence to the new EU Member States (the Czech Republic, Slovakia, Hungary, Poland and Slovenia) and is active in both the banking and insurance fields
8.7
13.2
13.5
14.3
19.0
21.6
23.5
24.6
28.6
29.0
ING (NL)
OTP (HU)
Citibank (US)
Intesa BCI (IT)
Société Générale (FR)
RZB (AT)
HVB / BA-CA (GE/AT)
UniCredit (IT)
Erste Bank (AT)
KBC (BE)
TOP-3 PLAYER IN THE CEE REGION
International banks in CEE (by total assets, in bn EUR):
Source: RZB – assets as at 31 Dec 03, ownership structure as at 30 Jun 04
27
Core targets:
* Capital allocated on the basis of risk-weighted assets and non-amortised goodwill
Cost/income ratio, banking 58%
Combined ratio, non-life insurance 95%
EPS growth (4-y CAGR) 10%
Return on equity, Group 16%
Return on allocated capital *:
- Retail in Belgium 16%
- Central and Eastern Europe 17%
- Corporates 12%
- Financial markets 18%
Tier-1 ratio, banking 8%
Solvency margin, insurance 200%
CHALLENGING FINANCIAL TARGETS
Minimumtargets for 2005
28
SOLID GROUP PERFORMANCE
Profitability
Efficiency
SolvencyTier-1, banking
Solvency, insurance
Cost/income, banking
Combined ratio, insurance
Return on equity
Growth in EPS
8.8%
320%
65%
101%
13%
Dec 02
+1%
9.5%
316%
65%
95%
13%
Dec 03
+8%
Combined ratio, insurance excluding reinsurance. Solvency, insurance including unrealized gains.
9.6%
341%
60%
94%
17%
+36%
Sep 04
+
+
+
+
+
+
Trend
29
2001 2002 2003 2004e
STRONG EARNINGS MOMENTUM
Net profitin m EUR
1 0221 119
1 034
Consensusestimate
3-y CAGR: +15%
9M 04 profit : +40% year-on-yearWell on track to deliver on all our targets
1 537
1 201
Consensus estimate as at 7 December 2004
30
1.421.48 1.52
1.64
2000 2001 2002 2003
3.90
3.39 3.42
3.68
2000 2001 2002 2003
EPS
36%44% 44% 45%
2000 2001 2002 2003
Payout ratio
3.1% 3.6%4.2%
4.9%
2000 2001 2002 2003
DPS
Dividend yield
STEADILY GROWING DIVIDEND
EUREUR
31
VALUATION
P/E 05
CEE banks (1) 13.4
CEE-exposed banks (2) 12.1
Euro-zone banks (3) 11.6
KBC 10.9
BEL banks (4) 9.9
Key figures:
Share price: 57.3 EURNet Asset Value: 38.2 EUR
Analysts’ estimates:
EPS 2004 consensus: 4.97EPS 2005 consensus: 5.27P/E 2005: 10.9
Analysts’ recommendations :
Positive: 41%Neutral: 23%Negative: 36%
Valuation relative to peer group :
Unweighted average of IBES data :(1) OTP, Komercni, Pekao, BPH PBK, BRE(2) Erste, Unicredit, BA-CA, Soc Gen, Intesa BCI(3) Top 20 of DJ Euro Stoxx banks (4) Fortis, Dexia
Situation as at 7 December 2004