KBC Group Company presentation FY 2016 / 4Q 2016 · This presentation contains non-IFRS information and forward-looking statements with respect to the strategy, earnings and capital

1

KBC GroupCompany presentationFY 2016 / 4Q 2016

KBC Group - Investor Relations Office – E-mail:

More information: www.kbc.com

[email protected]

https://www.kbc.com/

mailto:[email protected]

2

This presentation is provided for information 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

3

4Q 2016 key takeaways for KBC Group

STRONG BUSINESS PERFORMANCE IN 4Q16Good net result of 685m EUR in 4Q16 and 2,427m EUR in FY16, leading to ROE of 18% in 2016o Good performance of the commercial bank-insurance franchises in our core markets and core activitieso Q-o-q increase in customer loan volumes and customer deposits in most of our core countrieso Slightly lower net interest income due entirely to dealing room and insurance, while NII banking increased (net interest margin stabilised q-o-q) o Higher net fee and commission income q-o-qo Higher net gains from financial instruments at fair value, lower realised AFS gains and higher net other income o Combined ratio of 93% in FY16. Excellent sales of non-life and life insurance productso Strict cost management resulted in a cost/income ratio of 57% in FY16 adjusted for specific items o Seasonally higher level of impairment charges. Net loan provision release in Ireland of 12m EUR in 4Q16 and 45m EUR in FY16, fully in line with

our guidance. We are guiding a net loan loss provision release for Ireland within the range of 25m-75m EUR for FY17

SOLID CAPITAL AND ROBUST LIQUIDITY POSITIONSo The B3 common equity ratio based on the Danish Compromise at end 2016 amounted to 16.2% phased-in and 15.8% fully loaded, which

clearly exceeds the minimum capital requirements set by the ECB / NBB of respectively 8.65% and 10.40% for 2017o On top of the above mentioned capital requirements, the ECB expects KBC to hold a pillar 2 guidance (P2G) of 1.0% CET1o Fully loaded B3 leverage ratio, based on current CRR legislation, amounted to 6.1% at KBC Groupo Continued strong liquidity position (NSFR at 125% and LCR at 139%) at end 2016

DIVIDEND PROPOSAL1

o On top of the interim dividend of 1 EUR per share paid in November 2016, a final dividend of 1.80 EUR per share will be proposed to the AGMfor the 2016 accounting year (i.e. a pay-out ratio of 50% including the AT1 coupon)

o The pay-out ratio policy (i.e. dividend + AT1 coupon) of at least 50% of consolidated profit is reconfirmed for the future

IRELAND: RE-POSITION AS A CORE COUNTRY…o By building a fully-fledged client-centric retail bank in line with our omni-channel distribution model, underpinned by a ‘digital first’ strategy and

by further developing the bank-insurance modelo We will organize an onsite visit at KBC Ireland in Dublin on Wednesday 21 June 2017

1. Any dividend payment will be subject to the usual approval of the regulator

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Contents

1

4

Strong solvency and solid liquidity

4Q 2016 wrap up

Annex 2: Company profile

2

4Q 2016 performance of KBC Group

3

4Q 2016 performance of business units

Annex 3: Other items

5 FY 2016 key takeaways

Annex 1: FY 2016 performance of KBC Group

https://multimediafiles.kbcgroup.eu/ng/published/KBCCOM/PDF/COM_pdf_kbc_quarterly_report_4Q2012_en.pdf



5

KBC Group

Section 1

4Q 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*

685629721

392

600666

510

441

4Q163Q162Q161Q164Q15

862

765

-344

3Q152Q151Q15

NET RESULT AT KBC GROUP*

613552

644

358

524564

412

448

-310

3Q152Q151Q15 4Q163Q162Q161Q164Q15

903

765

-41

8959 48 44

83 72

73

6250 44

31

22 5856

-35-30-21-19 -9 -21

2761

3Q16

95

2Q16

75

1Q16

48

4Q15

33

-34

3Q15

79

2Q15

121

1

1Q15

121

4Q16

96

CONTRIBUTION OF INSURANCE ACTIVITIES TO KBC GROUP NET RESULT*

Amounts in m EUR

Net resultImpact KBC FHGW impairments

Net resultImpact KBC FHGW impairments

GW impairments

Non-technical & taxes

Life result

Non-Life result

7

Higher NII banking and stable net interest marginLower NII dealing room and insurance

Net interest income• Down by 1% both q-o-q and y-o-y, due entirely to the lower contribution of

dealing room and insurance• NII banking increased q-o-q, driven primarily by:

o lower funding costso additional rate cuts on savings accountso continued good volume growth in current accounts and loanso further positive effect of enhanced ALM managementpartly offset by:o lower reinvestment yieldso pressure on commercial loan margins in most core countrieso slightly lower upfront prepayment fees

Net interest margin (1.90%)• Stable q-o-q, but down by 5 bps y-o-y• Q-o-q stabilisation is due to lower funding costs, rate cuts on savings

accounts and the further positive effect of enhanced ALM management,fully offset by lower reinvestment yields, decreased net interest incomefrom the dealing room and pressure on commercial loan margins in mostcore countries

NIM

NII

906 898 903 898900

162

888

154 156

914

157

925

1474142

154157163252810192231

1,057

-17

3Q16 4Q16

1,064

1Q15

-2

3Q152Q15

-3

1,0621,091

4Q15 1Q16

1,0701,0671,066

2Q16

-1

1,092

1.99%1.90%

1.95%

2.10%

1.96%

2Q15 2Q161Q16

2.06%

1Q15

1.90%

3Q164Q153Q15

1.94%

4Q16

Amounts in m EUR

NII - Holding-company/group

NII - dealing room

NII - Banking

NII - Insurance

* Non-annualised ** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos

VOLUME TRENDExcluding FX effect Total loans ** Of which mortgages Customer deposits*** AuM Life reserves

Volume 133bn 57bn 177bn 213bn 29bn

Growth q-o-q* +1% +1% +6% +2% 0%

Growth y-o-y +4% +4% +10% +2% 1%

Customer deposit volumes excluding debtcertificates & repos +1% q-o-q and +4% y-o-y

8

Higher net fee and commission income

Net fee and commission income• Up by 2% q-o-q and by 1% y-o-y

• Q-o-q increase was the result chiefly of:o higher management fees from mutual funds & unit-

linked life insurance products (thanks to reset date CPPIand a good equity market performance)

o higher fees from credit files and bank guarantees(specific event fees in Belgium)

partly offset by:o higher commissions paid on insurance saleso lower securities-related feeso slightly lower fees from payment services in Belgium and

Slovakia due to timing differences

• Y-o-y increase occurred entirely in the Belgium BusinessUnit due to higher management fees from mutual funds andunit-linked life insurance products and higher fees fromcredit files and bank guarantees

Assets under management (213bn EUR)• Went up by 2% q-o-q owing almost entirely to a positive

price effect

• Rose by 2% y-o-y owing to net outflows (-1%) and a positiveprice effect (+3%)

F&C

Amounts in m EUR

518 530453 445 422 432 443

-74-71-76-70-69-64-59 -80-1-4-1-1

455

4Q16

376

3Q16

368

2Q16

360

1Q16

346

4Q15

371

3Q15

383

2Q15

465

1Q15

459

F&C - contribution of holding-company/group

F&C - banking contribution

F&C - insurance contribution

Amounts in bn EUR

AuM

213209207207209200204208

4Q163Q162Q161Q164Q153Q152Q151Q15

9

Insurance premium income (gross earned premium) at 776m EUR• Non-life premium income (363m) increased by 7%

y-o-y

• Life premium income (413m) up by 23% q-o-q(partly seasonal effect) and down by 7% y-o-y

The non-life combined ratio at FY16 amounted to93%, an improvement compared with 94% in9M16 due to low claims in 4Q16

Amounts in m EUR

Insurance premium income sharply up and excellent combined ratio

COMBINED RATIO (NON-LIFE)

PREMIUM INCOME (GROSS EARNED PREMIUM)

93%

FY

91%

9M

94%89%

1H

95%86%

1Q

91%82%

20162015

320 326 335 338 341 349 357

302 265 289445 426 402 336

363

413

4Q16

776

3Q16

693

2Q16

751

1Q16

767

4Q15

783

3Q15

624

2Q15

591

1Q15

622

Non-Life premium incomeLife premium income

10

Non-life sales up y-o-y, life sales up q-o-q and down 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 tariff increases

Sales of life insurance products• Increased by 17% q-o-q and decreased by 2% y-o-y

• The q-o-q increase was driven mainly by higher sales ofguaranteed interest products in Belgium (attributablechiefly to traditionally higher volumes in tax-incentivised pension saving products in 4Q16) andhigher sales of unit-linked products in the CzechRepublic

• The y-o-y decrease can be explained chiefly by lowersales of guaranteed interest products in Belgium (drivenby reduced guaranteed interest offered)

• Sales of unit-linked products accounted for 39% of totallife insurance sales

LIFE SALES

NON-LIFE SALES (GROSS WRITTEN PREMIUM)

189 181 170 182 235 209 173

275 231 212

353353 349

275

204

318

4Q163Q16

447

2Q16

558

1Q16

587

4Q15

535

3Q15

382

2Q15

412

1Q15

464522

Unit-linked productsGuaranteed interest products

Amounts in m EUR

321327336

445

302308314

418

4Q163Q162Q161Q164Q153Q152Q151Q15

11

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:• a positive change in ALM derivatives (59m EUR in

4Q16 compared with -4m EUR in 3Q16) due to anincrease q-o-q in IRS rates

• a positive change in market, credit and fair valueadjustments (mainly as a result of model changes in3Q16)

• better dealing room income

Lower gains realised on AFS assets (q-o-qdecrease both on bonds and shares)

Other net income amounted to 101m EUR,substantially higher than the normal run rate ofaround 50m EUR due to some one-offtransactions (of which 25m EUR was offset inthe technical result of life insurance)

FV GAINS

Amounts in m EUR

89

76 73141

-4

-156

-3

5990 734560

165

224

3Q16

69

2Q16

154

13

1Q16

93

4Q163Q15

179

1Q15

12

2Q15 4Q15

2

4757

20

8

26

128

273044

36

80

2Q16 4Q163Q15 4Q15 3Q162Q151Q15 1Q16

GAINS REALISED ON AFS ASSETS

101

59475147

96105

49

2Q161Q16 4Q162Q15 3Q161Q15 3Q15 4Q15

OTHER NET INCOME

M2M ALM derivativesOther FV gains Liquidation KBC FH

-68

12

Operating expenses up, but good cost/income ratio

Cost/income ratio (banking) adjusted for specificitems* at 57% in 4Q16 and in FY16. Excludingbank tax, C/I ratio amounted to 50% in FY16• Operating expenses excluding bank tax increased by 7%

q-o-q due mainly to:o 33m one-off expenses for early retirement (20m EUR

in the Belgium Business Unit and 13m EUR in theGroup Centre

o seasonal effects such as traditionally higher ICT,marketing and professional fee expenses

• Operating expenses without bank tax increased by 2%y-o-y due entirely to one-off expenses for earlyretirement, despite lower facilities expenses and lowerpension costs

• Operating expenses excluding bank tax and excludingthe 33m one-off expenses for early retirement roughlystabilised y-o-y in FY16

• 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. In 2Q16, the Belgiangovernment replaced the 4 existing taxes by 1, whichled to 38m EUR additional bank taxes in Belgium, partlyoffset by the ability to book 6m EUR of the ESRFcontribution as a non-P&L item

• Total bank taxes (including ESRF contribution) increasedfrom 417m EUR in FY15 to 437m EUR in FY16

OPERATING EXPENSES

264

8349

335

51

962

858

1Q15

1,125

861 851

4Q15

914

895

871

24

3Q15

862

841

21

2Q15

941

2Q16

904

853

1Q16

1,186

935

27

3Q16 4Q16

963

Bank tax Operating expenses

* See glossary (slide 98) for the exact definitionAmounts in m EUR

TOTAL Upfront Spread out over the year

4Q16 1Q16 2Q16 3Q16 4Q16 1Q16 2Q16 3Q16 4Q16

BU BE 0 241 32 0 0 0 0 0 0

BU CZ 0 28 -1 0 0 0 0 0 0

Hungary 21 31 0 0 0 17 19 20 21

Slovakia 4 6 -2 0 0 3 3 3 4

Bulgaria 0 1 1 0 0 0 1 0 0

Ireland 3 2 0 0 0 1 1 1 3

GC 0 5 -3 0 0 0 0 0 0

TOTAL 27 314 27 0 0 22 24 24 27

BANK TAX SPREAD IN 2016

13

Overview of bank taxes*

INTERNATIONAL MARKETS BUCZECH REPUBLIC BU

BELGIUM BUKBC GROUP

2724232550

26

71

23

11

8

4Q163Q162Q16

22

-1

1Q16

61

4Q15

282

3Q152Q151Q15

79

Common bank taxesESRF contribution

18449118

0013

0 38

57

42

4Q163Q162Q16

32

-6

1Q16

241

4Q153Q152Q151Q15

160


11

9

22

-1

710

6

-12

900

4Q163Q162Q161Q16

28

4Q153Q15

-3

2Q151Q15

20


62

92

592724

-12

83243

34

202

3215

4Q163Q162Q16

51

-8

1Q16

335

4Q15

49

3Q15

21

2Q151Q15

264

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 FY16 amounts to roughly 50% excluding these bank taxes

Bank taxes of 437m EUR YTD, representing 11.1% of FY16 opex at KBC Group**

Bank taxes of 273m EUR YTD, representing 11.2% of FY16 opex at the Belgium BU

Bank taxes of 27m EUR YTD, representing 4.4% of FY16 opex at the CZ BU

Bank taxes of 135m EUR YTD, representing 18.0% of FY16 opex at the IM BU

14

Seasonally higher asset impairments, excellent credit cost ratio and decreased impaired loans ratio

Higher impairment charges q-o-q• The seasonal q-o-q increase in loan loss provisions from the

unsustainable low level in 3Q16 was attributable mainly to:o higher but still low impairments in retail, partly due to

impairments as a result of IBNR parameter changes inBelgium

o higher but still low impairments on SMEs, corporates &leasing in the Czech Republic and Slovakia

o net loan loss provision releases in Ireland of 12m EUR(compared with 28m in 3Q16), despite the negative impact ofparameter changes in 4Q16

• Impairment ofo 4m EUR on AFS shares (entirely in Belgium, partly offset by a

release in the Czech Republic)o 15m EUR on other (IT)

The credit cost ratio only amounted to 0.09% in FY16 dueto low gross impairments and several releases

The impaired loans ratio dropped further to 7.2%

ASSET IMPAIRMENT

73

138

7850

50

21

1834 5425 10

194

1Q15

77

3Q162Q16 4Q16

73

28

71

1Q16

4

28

4Q15

472

344

3Q15

4915

2Q15

14911

IMPAIRED LOANS RATIO

1Q164Q15

4.8%

9.6%

4.4%

8.2%

4.7%

2Q16

8.6%

3Q15

9.0%

5.2%

2Q15

7.8%

1Q15

5.3%

9.3%

5.5%

3Q16

7.6%

4.2%

4Q16

3.9%

7.2%

CREDIT COST RATIO

FY15FY14

1.21%

0.09%

0.42%

FY16

0.23%

FY13FY12FY09

0.91%

FY11

0.71%

FY10

0.82%

1.11%

of which over 90 days past dueImpaired loan ratio

GW impairments Impairments on L&ROther impairments

15

KBC Group

Section 2

4Q 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 439m EUR

Net result at the Belgium Business Unitamounted to 439m EUR• The quarter under review was characterised by lower

net interest income, an increase in net fee andcommission income, higher dividend income,increased trading and fair value income, a decreasein realised gains on AFS assets, higher other netincome, an excellent combined ratio, higher sales oflife insurance products, seasonally higher operatingexpenses (including one-off for early retirement) andimpairment charges q-o-q

• Loan volumes rose by 1% q-o-q. Customer depositsexcluding debt certificates & repos stabilized q-o-q


VOLUME TREND

Total loans ** Of which mortgages Customer deposits*** AuM Life reserves


Growth q-o-q* +1% +1% +7% +2% 0%

Growth y-o-y +4% +3% +13% +3% +1%

439414

371

209

348358

528

330

4Q153Q151Q15 4Q161Q16 3Q162Q162Q15

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): lower NII and NIM

Net interest income (651m EUR)• Down by 4% q-o-q and by 6% y-o-y due entirely to the lower

contribution of dealing room and insurance

• NII banking slightly increased q-o-q, driven primarily by:o lower funding costs on term depositso continued good volume growth in current accounts & loanso further positive effect of enhanced ALM managementpartly offset by:o lower reinvestment yieldso slightly lower upfront prepayment fees (13m EUR in 4Q16

compared with 16m EUR in 3Q16)

• NII banking roughly stabilised y-o-y as:o sharply lower funding costs on term depositso increase in volumes on current and savings accountso higher net interest income on lending activitieso further positive effect of enhanced ALM managemento slightly higher prepayment fees (13m EUR in 4Q16 compared

with 11m EUR in 4Q15)was entirely offset by:o lower reinvestment yieldso increased hedging losses on previously refinanced mortgages

• Customer deposits excluding debt certificates and repos rose by2% y-o-y, while customer loans rose by 4% y-o-y

Net interest margin (1.72%)• Fell by 6 bps q-o-q and by 13 bps y-o-y due to the negative

impact of lower reinvestment yields, decreased net interestincome from the dealing room and some pressure oncommercial loan margins. Y-o-y, net interest margin was alsoimpacted by increased hedging losses on refinanced mortgages

NIM

NII

Amounts in m EUR

540 549 531 534 536 541 530

151 152 147 145 145 141 145

533

135

691720

3Q15 2Q161Q162Q15

19688

1Q15 4Q15

68212

714

1623694

57

-17

3Q16 4Q16

680651

2Q16

1.85%

3Q15

1.86%

4Q16

1.72%

1Q15

1.78%

4Q15

1.86%

2Q15

1.96%1.84%

1Q16 3Q16

1.96%

NII - dealing room income NII - contribution of banking

NII - contribution of insurance

19

Credit margins in Belgium

PRODUCT SPREAD ON CUSTOMER LOAN BOOK, OUTSTANDING

PRODUCT SPREAD ON NEW PRODUCTION

1.0

0.6

0.4

0.2

0.0

1.2

1.4

0.8

1Q13 3Q13 3Q144Q12 3Q161Q162Q151Q154Q141Q144Q13 4Q162Q162Q13 4Q153Q152Q141Q122Q11 3Q11 4Q11 3Q121Q11 2Q12

Customer loans

1.4

1.2

0.6

1.0

1.8

0.2

0.4

0.8

1.6

2Q164Q153Q14 2Q15 3Q15 1Q16 3Q162Q14 4Q164Q13 1Q153Q13 4Q142Q131Q134Q123Q122Q12 1Q141Q121Q11 3Q11 4Q112Q11

Mortgage loansSME and corporate loans

20

Belgium BU (3): higher net F&C income

Net fee and commission income (279m EUR)• Increased by 3% q-o-q, due mainly to the combination

of higher management fees from mutual funds andunit-linked life insurance products (thanks to resetdate CPPI and a good equity market performance) andhigher fees from credit files & bank guarantees(specific event fees), which were only partly offset bylower fees from payment transactions (partly timingeffect) & other banking services and highercommissions paid on insurance sales

• Rose by 3% y-o-y driven chiefly by highermanagement fees from mutual funds and unit-linkedlife insurance products (thanks to reset date CPPI anda good equity market performance) and higher feesfrom credit files & bank guarantees, which were onlypartly offset by lower fees from securitiestransactions, higher commissions paid on insurancesales and slightly lower fees from paymenttransactions & other banking services

Assets under management (199bn EUR)• Rose by 2% q-o-q owing almost entirely to a positive

price effect

• Went up by 3% y-o-y entirely as a result of a positiveprice effect

AuM*

F&C

Amounts in bn EUR

400 406

335 318 307 312 324

-52-47-52-48-48-43-40 -54

333

4Q16

279

3Q16

272

2Q16

264

1Q16

255

4Q15

270

3Q15

287

2Q15

363

1Q15

360

194193192194185189193 199

4Q163Q162Q161Q164Q153Q152Q151Q15

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• Increased by 4% y-o-y driven mainly by a good

commercial performance and some tariff increases.Premium growth was mainly situated in ‘motor casco’,‘property’ and ‘legal assistance’

Combined ratio amounted to 92% in FY16 (90%in FY15). There were much lower major claims in4Q16 compared with 4Q15

Belgium BU (4): higher y-o-y non-life sales and excellent combined ratio


92%

FY

90%

9M

92%87%

1H

96%

84%

1Q

92%

79%

20162015


220234

249

314

211222

238

328

4Q163Q162Q161Q164Q153Q152Q151Q15

22

Belgium BU (5): higher life sales and good cross-sellingratios

Sales of life insurance products• Rose by 11% q-o-q driven entirely by higher sales of

guaranteed interest products, attributable mainly totraditionally higher volumes in tax-incentivisedpension saving products in 4Q16

• Decreased by 2% y-o-y driven mainly by lower sales ofguaranteed interest products

• As a result, guaranteed interest products and unit-linked products accounted for 73% and 27%,respectively, of life insurance sales in 4Q16

Mortgage-related cross-selling ratios• 89.0% for fire insurance

• 77.6% for life insurance

LIFE SALES

Amounts in m EUR

149 13885 82

163 140 108

248205

184

327

327322

252

106

294

4Q163Q16

361

2Q16

462

1Q16

490

4Q15

409

3Q15

269

2Q15

343

1Q15

397 399

Guaranteed interest products Unit-linked products

MORTGAGE-RELATED CROSS-SELLING RATIOS

89.0%

77.6%

49,5

63,7

40

45

50

55

60

65

70

75

80

85

90

Fire insurance Life insurance

23

The higher q-o-q figures for net gains fromfinancial instruments at fair value were theresult mainly of:• better dealing room income

• a positive q-o-q change in ALM derivatives (56mEUR in 3Q16 compared with 16m EUR in 3Q16)due to an increase q-o-q in IRS rates

• a positive q-o-q change in market, credit and fairvalue adjustments (mainly as a result of modelchanges)

Gains realised on AFS assets came to 6m EUR(q-o-q decrease entirely on shares)

Other net income amounted to 66m EUR in4Q16, somewhat above the normal run ratedue to a one-off transaction (with theopposite, negative effect of 25m EUR in thetechnical result of life insurance)

FV GAINS

Amounts in m EUR

91

45

38 57 53

-31-10

563

-1

118

4Q16

66

2Q15

20

2Q16

13

3Q15

-32

51

136

4Q151Q15

7

17

1Q16

917

3Q16

174

69

16

612

49

2326

3338

52

4Q161Q15 2Q164Q153Q152Q15 3Q161Q16


66

53

444641

55

67

45

1Q164Q153Q152Q151Q15 4Q163Q162Q16

OTHER NET INCOME

Belgium BU (6): higher FV gains and higher other net income, but lower gains realised on AFS assets

Other FV gains M2M ALM derivatives

24

Belgium BU (7): seasonally higher operating expenses andimpairments, excellent credit cost ratio

Operating expenses: +5% q-o-q and flat y-o-y• Operating expenses (without bank tax) rose by 5% q-o-q

due mainly to 20m EUR one-off expenses for earlyretirement and seasonal effects such as traditionally higherICT, marketing and professional fee expenses, partly offsetby lower variable remuneration

• Operating expenses without bank tax increased by 3% y-o-ydriven chiefly by 20m EUR one-off expenses for earlyretirement and higher ICT, facilities and professional feeexpenses, partly offset by lower pension expenses andlower general administrative expenses

• Cost/income ratio: 45% in 4Q16 and 54% in FY16, distortedpartly by the bank taxes. Adjusted for specific items, the C/Iratio amounted to 54% in 4Q16 and 55% in FY16

Loan loss provisions amounted to 46m EUR in 4Q16(compared with 33m EUR in 3Q16). The q-o-qincrease was due largely to impairments in retail as aresult of IBNR parameter changes. Gross impairmentsremained low in all other segments. Credit cost ratioamounted to 12 bps in FY16 (19 bps in FY15). Totalother impairments increased q-o-q due to 7m EURimpairments on IT software. Impairments on AFSshares stabilised q-o-q at 7m EUR

Impaired loans ratio dropped to 3.3%, 1.7% of whichover 90 days past due

ASSET IMPAIRMENT

OPERATING EXPENSES

Amounts in m EUR

535 534 541 533 541

556540 529

241160

4Q163Q162Q16

57332

1Q16

774

4Q15

55413

3Q152Q15

584

49

1Q15

695

6267

13

3428 33

10

15

18

24

20 8

6

46

14

4Q16

60

3Q16

41

2Q16

48

1Q16

30

4Q15

52

3Q15

28

2Q15

77

1Q15

653

Operating expensesBank tax

Impairments on L&ROther impairments

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

439414

371

209

348358

528

330

4Q163Q162Q161Q164Q153Q152Q151Q15

371330

303

176

288300

429

212

4Q163Q162Q161Q164Q153Q152Q151Q15

-25 -29

8049 37 38

74 61

62

50

33 24

19

5240

-15-12 -5 -20

1948

3Q16

68

84

2Q16

688

1Q16

33

4Q15

60

-2

3Q15

58

2Q15

99

0

1Q15

117

4Q16

Non-Life result Non-technical & taxesLife result

CONTRIBUTION OF INSURANCE ACTIVITIES TO NET RESULT OF THE BELGIUM BU *

26

CZECH REPUBLIC BUSINESS UNIT

CFO SERVICES

CRO SERVICES

CORPORATE STAFF

BELGIUMCZECH


MARKETS

27

Czech Republic BU (1): net result of 131m EUR

Net result at the Czech Republic Business Unit of131m EUR• Q-o-q results were characterised by higher net

interest income, higher net fee and commissionincome, higher net results from financial instrumentsat fair value, a decrease in net other income, animproved combined ratio, substantially higher sales oflife insurance products, seasonally higher operatingexpenses and impairment charges q-o-q

• Profit contribution from the insurance businessremained limited in comparison to the bankingbusiness


VOLUME TREND

Excluding FX effect Total loans ** Of which mortgages Customer deposits*** AuM Life reserves

Volume 20bn 9bn 26bn 8.5bn 1.0bn

Growth q-o-q* +1% +3% +3% -1% +7%

Growth y-o-y +9% +12% +9% -3% +4%

NET RESULT

Amounts in m EUR

131

145

191

129119

153

127

143

3Q162Q161Q164Q153Q152Q151Q15 4Q16

28

Czech Republic BU (2): higher NII and NIM

Net interest income (215m EUR)• Up by 1% q-o-q and by 2% y-o-y to 215m EUR (also

corrected for FX effects)

• The q-o-q increase was the result primarily of growth inloan volumes (especially in mortgages and consumerfinance), a reduction of the average offered rate onsavings accounts and a positive effect of enhanced ALMmanagement, which were partly offset by lowerreinvestment yields and pressure on lending margins inmortgages and consumer finance

• Loan volumes up by 9% y-o-y, driven mainly by growthin mortgages, corporate loans, consumer finance and,to a lesser extent, in SME loans

• Customer deposit volumes up by 9% y-o-y

Net interest margin (2.96%)• Up by 5bps q-o-q and by 1 bp y-o-y to 2.96%

• The q-o-q increase was attributable mainly to areduction of the average offered rate on savingsaccounts and a positive effect of enhanced ALMmanagement, fully offset by a lower reinvestment yieldand pressure on lending margins in mortgages andconsumer finance

NIM

NII

Amounts in m EUR

215213210211210215208212

4Q163Q162Q161Q164Q153Q152Q151Q15

2.96%

4Q163Q16

2.91%

2Q16

2.91%

1Q16

3.00%

4Q15

2.95%

3Q15

3.01%

2Q15

3.00%

1Q15

3.16%

29

Czech Republic BU (3): higher net F&C income

Net fee and commission income (50m EUR)• Increased by 9% q-o-q and down by 3% y-o-y (or +9%

q-o-q and -4% y-o-y pro forma, adjusted to takeaccount of FX effect)

• The q-o-q increase was mainly the result of higherfees from payment services (seasonal effect ofChristmas and slightly higher fees for cardsmaintenance) and higher management & entry fees

• The y-o-y decrease was attributable chiefly to lowersecurities-related & other fees and higher fees paid toCzech Post, partly offset by higher management &entry fees and slightly higher fees from paymentservices

Assets under management (8.5bn EUR)• Decreased by 1.5% q-o-q owing to small net inflows

(+1.3%) and a negative price effect (-2.8%)

• Y-o-y, assets under management fell by 3.3%, drivenby net outflows (-3.7%) and a positive price effect(+0.4%)

AuM*

F&C

Amounts in bn EUR

Amounts in m EUR

5046

4946

52495050

4Q163Q162Q161Q164Q153Q152Q151Q15

1Q15

8.38.2

2Q15 4Q16

8.5

3Q16

8.6 8.6

2Q161Q16

8.7

4Q15

8.8

3Q15

8.5


30

Czech Republic BU (4): higher premium income andimproved q-o-q combined ratio

Insurance premium income (gross earnedpremium) stood at 144m EUR• Non-life premium income (50m) rose by 8% y-o-y

excluding FX effect, due mainly to growth in allproducts

• Life premium income (94m) went up by 59% q-o-q andfell by 2% y-o-y, excluding FX effect. Q-o-q increaseentirely in unit-linked single premiums

Combined ratio: 96% in FY16 (compared with 94%in FY15) impacted by storms and large fire claimsin 2Q16 and 3Q16

Cross-selling ratios: increased commercial focusand sales activities helped to improve demand forproperty insurance combined with a mortgage


PREMIUM INCOME (GROSS EARNED PREMIUM)

41 44 45 47 45 46 49

3041

7695

67 51 59

50

94

4Q16

144

3Q16

108

2Q16

97

1Q16

112

4Q15

142

3Q15

121

2Q15

85

1Q15

71

96%

FY

94%

9M

97%94%

1H

98%95%

1Q

95%96%

20162015

Non-Life premium incomeLife premium income

CROSS-SELLING RATIOS

Mortg. & prop. Mortg. & life risk Cons. Fin. & life risk

2016

63%

2015

68%

2016

47%

2015

50%

2016

65%

2015

57%

31

Czech Republic BU (5): seasonally higher operating expenses and impairments, excellent credit cost ratio

Operating expenses (152m EUR)• Rose by 5% q-o-q and fell by 9% y-o-y, excluding FX

effect

• Excluding FX effect and bank tax, operating expensesincreased by 5% q-o-q, but decreased by 5% y-o-y

• The q-o-q increase excluding FX effect and bank taxwas due mainly to traditionally higher marketingexpenses and professional fees

• The y-o-y decrease excluding FX effect and bank taxwas attributable primarily to lower generaladministrative expenses in 4Q16 and restructuringcharges in 4Q15

• Cost/income ratio at 47% in 4Q16 and 45% in FY16.Adjusted for specific items, the C/I ratio amounted toroughly 48% in 4Q16 and 46% in FY16

Impairments on L&R were extremely low in 3Q16due to several reversals, while the increase in4Q16 was driven by SME and corporates, despitereleases in retail. Overall, impairments remainedlow

Credit cost ratio amounted to 0.11% in FY16

Impaired loans ratio amounted to 2.8%, 1.9% of which over 90 days past due

ASSET IMPAIRMENT

OPERATING EXPENSES

141 140159

141

20

142

28

144

152144

4Q163Q162Q16

143

-1

1Q16

170

4Q15

1667

3Q15

140

-2

2Q15

150

10

1Q15

161

11

2

10

1

20

4

15

2

3Q162Q16 4Q161Q163Q152Q151Q15 4Q15

2012 2013 2014 2015 2016

CCR 0.31% 0.26% 0.18% 0.18% 0.11%


32

INTERNATIONAL MARKETS BUSINESS UNIT

CFO SERVICES

CRO SERVICES

CORPORATE STAFF

BELGIUMCZECH


MARKETS

33

International Markets BU (1): net result of 139m EUR


VOLUME TREND

Total loans ** Of which mortgages Customer deposits*** AuM Life reserves

Volume 21bn 14bn 18bn 5.7bn 0.6bn

Growth q-o-q* +1% +1% +2% -3% +1%

Growth y-o-y +2% +2% +7% -9% +8%

NET RESULT

Amounts in m EUR

139

106

123

6061

92

68

24

4Q163Q162Q161Q164Q153Q152Q151Q15

Net result: 139m EUR, despite 27m EUR bank taxes• Profit breakdown for International Markets: 16m EUR for

Slovakia, 23m EUR for Hungary, 5m EUR for Bulgaria and95m EUR for Ireland

• Q-o-q results were characterised by higher net interestincome, lower net fee and commission income, higherresult from financial instruments at fair value, higherrealised gains on AFS assets, higher net other income,roughly stable life insurance sales, higher costs, lower netimpairment releases and DTA increases in Ireland

34

International Markets BU (2): organic growth

The total loan book increased by 1% q-o-q and by 2% 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) was more than offset by the increases of 12% in Slovakia (amongst other things due to the continuouslyincreasing mortgage portfolio), 15% in Bulgaria and 5% in Hungary

Total deposits were up by 2% q-o-q and by 7% y-o-y• The 2% q-o-q increase was accounted for chiefly by an increase of 12% in Hungary and 6% in Bulgaria, despite a decrease of 6% in Ireland

(primarily in corporates, replaced by intragroup TLTRO funding)

• The y-o-y rise of 7% was due mainly to Hungary (both in retail and corporates), Slovakia (strong growth in current accounts andcorporates) and Bulgaria

* Organic growth excluding FX impact; q-o-q figures are non-annualised. Loan and mortgage figures after impairment charges** Mortgages in Bulgaria: new business +7% q-o-q and +23% y-o-y, while legacy -12% q-o-q and -33% y-o-y

ORGANIC GROWTH*

TOTAL LOANS MORTGAGES DEPOSITS

q-o-q y-o-y q-o-q y-o-y q-o-q y-o-y

IRL -1% -5% 0% -3% -6% -5%

SK +3% +12% +5% +26% -2% +9%

HU +2% +5% +1% +4% +12% +14%

BG +8% +15% -1%** -3%** +6% +15%

TOTAL +1% +2% +1% +2% +2% +7%

35

International Markets BU (3): higher NII and NIM

Net interest income (198m EUR)• Rose by 7% q-o-q and by 9% y-o-y

• The q-o-q increase was driven by Ireland (reservedinterest releases mainly related to the settlement of acorporate non-performing loan, lower allocatedliquidity and funding costs), Slovakia (growth in loanvolumes, a favorable business mix and lower fundingcosts) and Hungary (mainly due to higher lendingmargins in retail and higher loan volumes)

• The y-o-y rise was attributable almost entirely toIreland (reserved interest releases mainly related tothe settlement of a corporate non-performing loan,lower allocated liquidity and funding costs)

Net interest margin (2.70%)• Up by 18 bps q-o-q and by 20 bps y-o-y

• The q-o-q increase was driven almost entirely byIreland

• The y-o-y increase was accounted for entirely byIreland

NIM

NII

Amounts in m EUR

198184179178181180178172

4Q163Q162Q161Q164Q153Q152Q151Q15

4Q16

2.70%

3Q16

2.52%

2Q16

2.48%

1Q16

2.47%

4Q15

2.50%

3Q15

2.56%

2Q15

2.60%

1Q15

2.53%

36

International Markets BU (4): lower net F&C income

Net fee and commission income (50m EUR)• Down by 4% q-o-q and by 3% y-o-y

• The q-o-q decrease was driven primarily by:o lower fees from payment services and from

credit files & bank guarantees in Slovakiao higher commissions paid on insurance sales in

Bulgaria

Assets under management (5.7bn EUR)• Decreased by 3% q-o-q owing to net outflows (-4%)

and a positive price effect (+1%)

• Y-o-y, assets under management fell by 9%, due tonet outflows (-14%) and a positive price effect(+5%)

AuM*

F&C

Amounts in bn EUR

Amounts in m EUR

50525148

51515350

4Q163Q162Q161Q164Q153Q152Q151Q15

3Q16 4Q16

5.8 5.7

2Q16

5.6

1Q16

6.1

4Q15

6.2

3Q15

6.4

2Q15

6.7

1Q15

6.8


37

International Markets BU (5): higher premium incomeand excellent combined ratio

Insurance premium income (gross earnedpremium) stood at 73m EUR• Non-life premium income (52m) rose by 13% y-o-y as

a result of:o good performance in MTPL, casco and household +

growing average tariff in motor retail in Hungaryo good performance in casco in Bulgariao Good performance in MTPL, casco and household

insurance in Slovakia

• Life premium income (21m)o rose by 7% q-o-q entirely due to the seasonally

successful sales of a new interest guaranteedproduct in Bulgaria

o increased by 2% y-o-y driven mainly by higher salesof unit-linked life insurance products in Bulgaria

Combined ratio at an excellent 94% in FY16 (95%in FY15). The combined ratio for FY16 breaksdown into 93% for Hungary, 89% for Slovakia and97% for Bulgaria


PREMIUM INCOME(GROSS EARNED PREMIUM)

Amounts in m EUR

39 41 43 46 46 49 50

23 1927 21 24

24 20

52

21

4Q16

60

1Q15

62

70

4Q15

67

2Q16

73

1Q16

73

3Q16

70

3Q15

70

2Q15

95%

1H

90%95%

1Q

88%88%92%

FY

95%

9M

94%

20162015

Life premium income Non-Life premium income

38

International Markets BU (6): higher operating expenses, impairment releases, excellent credit cost ratio

Operating expenses (189m EUR)• Rose by 4% q-o-q and by 2% y-o-y

• Opex without bank tax rose by 3% q-o-q driven by:o higher staff, marketing and ICT expenses in Slovakiao higher staff expenses and depreciations in Hungaryo higher staff, marketing and professional expenses in Bulgariapartly offset by:o lower staff, consultancy and ICT expenses in Ireland

• C/I ratio stood at 61% in 4Q16 and 64% in FY16. Adjusted for specificitems, the C/I ratio amounted to 67% in 4Q16 and 66% in FY16

Impairments on L&R (-8m EUR)• Net loan loss provision releases due mainly to Ireland (-12m EUR in

4Q16 compared with -28m EUR in 3Q16 and 16m EUR in 4Q15),driven by:o an increase in the 9-month average House Price Index and

improved non-performing portfolio performance for retailo lower provisions on existing non-performing loans, a release of

specific provisions as a result of deleveraging and improvedmacro-economic conditions for corporates

Credit cost ratio of -0.16% in FY16

Impaired loans ratio dropped to 25.4%, of which 13.4% over 90 days past due

ASSET IMPAIRMENT(Negative figures indicate net releases, hence positive profit impact)

OPERATING EXPENSES

Amounts in m EUR

148 145 148 156 147 150 157

79

25 2328 61

2224

161

27

189

4Q163Q16

180

2Q16

172

1Q16

208

4Q15

184

3Q15

171

2Q15

170

1Q15

226

-35

6

-2

28

12

28

16

-3

4Q163Q162Q161Q164Q153Q152Q151Q15

Loan book

2012CCR

2013CCR

2014CCR

2015CCR

2016CCR

IM BU 25bn 2.26% 4.48% 1.06% 0.32% -0.16%

- Ireland- Hungary- Slovakia- Bulgaria

13bn5bn7bn1bn

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%

-0.33%-0.33%0.24%0.32%


39

Ireland (1): why an attractive market for KBC?

Strong demographics, solid macroeconomic fundamentals and growth prospects

• Ireland is least correlated to the German economy, so provides diversification to ouroperations in Western and Central/Eastern Europe

• Youngest population in Europe, with 40% under 25 years of age.

• Consumers are digitally savvy and open to new ways of banking

• Strong educational profile and high percentage of population working in IT with third-leveldegrees

• Ireland has been Europe’s fastest growing economy for the last two years and demonstrateda remarkable capability to recover from the financial crisis:o The performance of export sectors has remained robusto The upswing in domestic demand is even more striking. Consumer spending has picked up notably and

construction activity begun to increaseo Unemployment rate continues to decline to 7.2% in December 2016 (11.8% in 4Q13)o Outlook for lending is positive with annual mortgage lending forecast to double over the next 3-5 years as

supply catches up with demand

40

Ireland (2): recent performance of KBC Bank Ireland

KBC Bank Ireland is completing a transformation from a mortgage and corporate lender to afully-fledged customer-centric retail bank. KBC Bank Ireland returned to profitability in 2015

• After 5 years of loss making (2010 to 2014), KBCI returned to profitability since 2015:o Net profit of 13m in 2015o Net profit of 184m in 2016 partly due to a net release of loan loss provisions and the one-off

benefit of the recognition of a DTA

Omni Channel Distribution Model

HubsDirect Sales and Contact Centre

Online and Mobile Sales and Service Channel

Over 1,000 Employees

Growing Customer Base with Deepening Relationships

239,000 customers33,000 new customers in 2016

7% of adult population bank with KBCProduct range complete to meet

broader customer needs

Increasing Market Relevance

Best Retail Banking Reputation 2012-…- 2016

41

Ireland (3): core market of KBC group with clear strategy and ambitions

Confirmation of KBC’s long standing commitment of 40 years to the Irish market

• KBC Group: a reliable committed strategic long-term shareholder and partner for KBC BankIreland committed to support a sustainable growth strategy

• KBC Bank Ireland: part of a well-capitalised, resilient international financial group with accessto innovations and learnings from all KBC Group entities

• Ireland core market alongside Belgium, Czech Republic, Bulgaria, Slovakia, Hungary. Anambition to achieve at least 10% market share in retail and micro SME segments and plan todevelop bank-insurance similar to other core markets of KBC Group

42

Ireland (4): core market of KBC group with clear strategy and ambitions

KBC Bank Ireland: customer-centric challenger bank with a ‘Digital First’ approach supportedby a focused physical distribution presence through hubs and straightforward product /solutions offering

• KBC Bank Ireland will pursue a fully-fledged sustainable growth strategy based on theimplementation of a ‘Digital First’ customer-centric strategy for retail and micro SMEsegments

• For the foreseeable future, Insurance products continue to be distributed throughpartnerships and collaboration

• Intensified collaboration with KBC Group entities will facilitate KBC Bank Ireland to copyproven innovations and learnings from other KBC core markets

• KBC Bank Ireland will be given the support to innovate. Moreover, the bank’s new corebanking system will allow KBC Bank Ireland to tap into opportunities offered by the fintechcommunity, to digitalise and innovate faster and thus be a frontrunner in the digitaltransformation of the KBC Group.

43

Ireland (5): net result of 184m EUR in 2016

The Irish economy posted a strong performance in 2016, with a pick-up indomestic spending compensating for slower export growth. On this basis,we estimate GDP growth at around 4% for 2016

Central to improving domestic activity was a further strengthening of thejobs market which prompted a marked decline in unemployment.Increased numbers at work also underpinned stronger consumer spendingand demand for housing

New housing supply fell short of continued strong demand, resulting in anincrease in residential property price inflation in the second half of 2016

Customer deposits (retail & corporate) of 5.0bn EUR (compared with 5.1bnEUR at end 2015). Retail deposits have shown a 1% increase y-o-y, with areduction in corporate deposits (partly replacement with intragroupfunding)

Net loan loss provision release of 12m EUR in 4Q16 (compared with 28mEUR release in 3Q16), despite the negative impact of parameter changes in4Q16. Coverage ratio stabilised at 43% at 4Q16

Looking forward, we are guiding a net loan loss provision release forIreland within the range of 25m-75m EUR for FY17

LOAN PORTFOLIO €

OUT-STANDING

€

IMPAIRED LOANS

€

IMPAIRED LOANS PD

10-12

SPECIFIC PROVISIONS

€

IMPAIRED LOANS

PD 10-12 COVERAGE

Owner occupied mortgages

9.0bn 2.8bn 30.9% 0.9bn 34%

Buy to let mortgages

2.4bn 1.6bn 67.9% 0.7bn 43%

SME /corporate 0.9bn 0.6bn 65.8% 0.4bn 60%

Real estate- Investment- Development

0.7n0.2bn

0.5bn0.2bn

75.0%100.0%

0.3bn0.2bn

52%86%

Total 13.1bn 5.7bn 43.3% 2.4bn 43%

PROPORTION OF HIGH RISK AND IMPAIRED LOANS

High Risk Performing (PD 8-9 probability of Default >6.4%)

Impaired Loan (PD 10-12)

52.6%

4.7%8.2%

52.0%51.3% 50.3%

8.4%8.2% 9.2%

48.7%

9.5%

47.3% 46.4%

9.9%

45.3%

10.3%

44.7%

9.7%

43.3%

10.2%

44

Retail portfolio Impaired portfolio fell by roughly 140m EUR q-o-q due to a

combination of property sales and improvement in the portfolioperformance (reduction of 0.5bn EUR y-o-y)

Coverage ratio for impaired loans has increased to 37.2% in 4Q16(from 36.4% in 3Q16)

Overall exposure has decreased due to a reduction of the impairedbook and loan amortisations, partly offset by new mortgageproduction

Ireland (6): portfolio analysis

Corporate loan portfolio Impaired portfolio has reduced by roughly 150m EUR q-o-q.

Reduction driven mainly by continued deleverage of theportfolio (reduction of roughly 0.4bn EUR y-o-y)

Coverage ratio for impaired loans has decreased to 61.2% in4Q16 (from 64.7% in 3Q16)

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

- Retail PD12 balances include roughly 110m EUR of fully provided loan balances, which have been

contracted for sale. Sale will be completed 1Q17

4Q16 Retail Portfolio

PD Exposure Impairment Cover %

PD 1-8 6,028 25 0.4%

Of which non Forborne 5,968

Of which Forborne 60

PD 9 943 46 4.9%

Of which non Forborne 162

Of which Forborne 781

PD 10 2,502 639 25.5%

PD 11 1,111 379 34.1%

PD 12 768 611 79.6%

TOTAL PD1-12 11,352 1,700

Specific Impairment/(PD 10-12) 37.2%

Perf

orm

ing

Impa

ired

4Q16 Corporate Loan Portfolio

PD Exposure Impairment Cover %

PD 1-8 423 1 0.1%

PD 9 54 2 3.0%

PD 10 406 162 39.9%

PD 11 314 164 52.3%

PD 12 580 470 81.0%

TOTAL PD1-12 1,779 799

Specific Impairment/(PD 10-12) 61.2%

Imp

air

ed

Pe

rf.

45

GROUP CENTRE

CFO SERVICES

CRO SERVICES

CORPORATE STAFF

BELGIUMCZECH


MARKETS

46

Group Centre: net result of -24m EUR

Net result: -24m 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 was attributable mainly to:

o a positive change in the contribution of Group Re

o a positive effect of enhanced ALM management

o a positive change in market, credit and fair value adjustments(mainly as a result of model changes in 3Q16)

o a positive change in M2M own credit risk

NET RESULT

Amounts in m EUR

-24-36

-6-2

-57

-90

3713

334

4Q163Q161Q164Q15 2Q16

-341

2Q15

765

3Q151Q15

BREAKDOWN OF NET RESULT AT GROUP CENTRE

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Group item (ongoing business) 11 -36 -18 -422 2 27 -53 -38

- Operating expenses of group activities -19 -15 0 -62 -18 -7 -21 -39

- Capital and treasury management 5 7 0 0 1 1 -4 4

o/w net subordinated debt cost -9 -10 -9 -9 -9 -9 -10 -10

- Holding of participations -17 -26 -18 -15 -17 -9 -13 -14

o/w net funding cost of participations -7 -7 -7 -6 -5 -5 -6 -4

- Group Re* - - - - 3 2 -3 13

- Other 41 -2 0 -346 33 39 -11 -2

Ongoing results of divestments and companies in run-down 2 -22 16 756 -8 10 17 14

Total net result at GC 13 -57 -2 334 -6 37 -36 -24

GW impairmentsImpact KBC FH Group Centre

* Group Re was shifted from the Belgium Business Unit to Group Centre as of 2016

47

NET PROFIT – BELGIUM NET PROFIT – CZECH REPUBLIC

296

377 414348

439

993

2013

1,570

1,193

2012

1,360

1,064

2016

1,432

2015

1,564

1,216

2014

1,515

1,102

FY16 ROAC: 24%

Amounts in m EUR

467 435 408 423 465

114119 121 119

131

2016

596

2015

542

2014

528

2013

554

2012

581

FY16 ROAC: 41%

NET PROFIT –INTERNATIONAL MARKETS

-731

289

-242

-122

139

184

-7-175

-853

2012

-260

-18

2016

428

2015

24561

2014

-182

2013

FY16 ROAC: 22%

105

174

49 34

5844

200

-41

95

38

2016

244

2015

232

2014

-3

2013

139

2012

144

NET PROFIT – INTERNATIONAL MARKETS EXCL. IRELAND

Overview of results based on business units

9M4Q 4Q 9M

4Q 9M 4Q 9M

FY16 ROAC: 20%

48

Balance sheet (1/2):Loans and deposits continue to grow in most core countries

Deposits***

10%

4% 4%

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

Y-O-Y ORGANIC* VOLUME GROWTH FOR KBC GROUP

49

Balance sheet (2/2):Loans and deposits continue to grow in most core countries

Deposits***

13%

Mortgages

3%

Loans**

4%

Deposits***

9%

Mortgages

12%

Loans**

9%

Deposits***

-5%

Mortgages

-3%

Loans**

-5%

Deposits***

9%

Mortgages

26%

Loans**

12%

4%

5%

MortgagesLoans**

14%

Deposits***

-3%

Loans** Deposits***

15% 15%

Mortgages

BE

CZ

Y-O-Y ORGANIC* VOLUME GROWTH FOR MAIN ENTITIES

* 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

50

KBC Group

Section 3

Strong solvency andsolid liquidity

51

Strong capital position

Phased-in Basel 3 CET1 ratio at KBC Group (Danish Compromise)

8.65% regulatoryminimum for 2017

FY16

16.2%

9M16

15.1%

1H16

14.9%

1Q16

14.6%

13.7%

2.4%

1.2%

1H15

16.9%

13.3%

2.4%

1.2%

1Q15

14.7%

11.4%

2.2%

1.1%

9M15

15.2%

17.2%

FY15

Phased-in B3 CET1 ratio w/o YES and penalty on YESYESPenalty on YES

Common equity ratio (B3 phased-in) of 16.2%based on the Danish Compromise at end 2016,which clearly exceeds the minimum capitalrequirements set by the ECB / NBB* of 8.65%for 2017

• Systemic buffer announced by the ECB: CET1 phased-in of 1.0% in 2017 under the Danish Compromise

Fully loaded Basel 3 CET1 ratio at KBC Group (Danish Compromise)

10.40% pro forma regulatory minimum

FY16

15.8%

9M16

15.3%

1H16

14.9%

1Q16

14.6%

FY15

14.9%

9M15

17.4%

14.0%

2.3%

1.2%

1H15

16.7%

13.2%

2.3%

1.2%

1Q15

14.9%

11.7%

2.2%

1.1%

A pro forma fully loaded common equity ratioof 15.8%* based on the Danish Compromise atend 2016, which clearly exceeds the minimumcapital requirements set by the ECB / NBB of10.40%**

* The acquisition of UBB & Interlease in Bulgaria (expected to beclosed in 2Q17) will have a very limited impact of -54bps onfully loaded B3 CET1 ratio

** Excludes a pillar 2 guidance (P2G) of 1.0% CET1

Penalty on YES YES Fully loaded B3 CET1 ratio w/o YES and penalty on YES

52

Fully loaded Basel 3 leverage ratio

Fully loaded B3 leverage ratio, based on thecurrent CRR legislation (which was adaptedduring 4Q14):• 5.1% at KBC Bank consolidated level

• 6.1% at KBC Group level

FY16

5.1%

9M16

5.3%

1H16

5.1%

1Q16

5.0%

FY15

5.4%

9M15

4.8%

1H15

4.8%

1Q15

4.9%

Fully loaded Basel 3 leverage ratio at KBC Bank

Fully loaded Basel 3 leverage ratio at KBC Group

FY16

6.1%

9M16

6.2%

6.2%

1H16

6.0%

6.0%

1Q16

5.9%

5.9%

FY15

6.3%

6.3%

9M15

6.9%

5.6%

0.8%

0.4%

1H15

6.7%

5.4%

0.8%

0.4%

1Q15

6.4%

5.2%

0.9%

0.4%

6.1%

FL B3 leverage ratio excl. YES and penalty on YESYESPenalty on YES

53

KBC maintains a minimum total capital ratio of 17%*

• Minimum CET1 target of10.40% fully loaded

• AT1 of 1.5%

• Minimum T2 target of 2%

• Minimum total capital ratio of 17.0%

Total capital ratioof 20.6% phased-in

2017 fully loaded

10.40%

1.50% AT1

2.00% T2

3.10% additionalcapital

2016 fully loaded

15.82%

1.59%

2.60%

2016 phased-in

16.15% CET1

1.66% AT1

2.78% T2

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 20.0% fully loaded

54

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

Although there is a relative decrease in the funding mix, customer funding has further increased in 2016. Theincrease in CDs and short-term wholesale is related to short-term trading opportunities

64%70% 69% 73% 75% 73% 73%

8%

8%9%

9% 8% 9% 8%

8%

10% 8% 8%

8%

5%

5%9%

4% 5% 8%

69%

7%

7%

8%7%

7%

8%

2%2%2%0%

8%

6%3%8%

100%

FY16

-1%

3%2%

3%

FY14FY12 FY13

3%

FY15FY10FY09

3%3%

FY11

3%

Certificates of deposit

Total equityNet unsecured interbank funding

Funding from customersDebt issues placed with institutional investors

Net secured funding

1%7%

21%

71%

Mid-cap

Government and PSE

Debt issues in retail network

Retail and SME

69% customer

driven

129.555 131.914 132.862 133.766

139.560 143.690

FY11 FY12 FY13 FY14 FY15 FY16

Funding from customers (m EUR)

55

Short-term unsecured funding KBC Bank vs liquid assets as of end September 2016 (bn EUR)

* 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 125% and LCR is at 139% by the end of FY16

• 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 FY16 Target

NSFR1 121% 125% >105%

LCR1 127% 139% >105%

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

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

15,619,04

24,70

17,53 19,37

58,5 58,3

68,6

59,0 59,7

376%

306%

278%

337%308%

4Q15 1Q16 2Q16 3Q16 4Q16

Net Short Term Funding Available Liquid Assets Liquid Assets Coverage

56

KBC Group

Section 4

4Q 2016 wrap up

57

4Q 2016 wrap up

Strong commercial bank-insurance results in our core countries

Successful underlying earnings track record

Solid capital and robust liquidity position

58

KBC Group

Section 5

FY 2016 key takeaways

59

FY 2016 key takeaways for KBC Group

STRONG BUSINESS PERFORMANCE IN FY16Excellent net result of 2,427m EUR in FY16, positively impacted by unsustainably low loan loss provisions and high net gains from financialinstruments at fair value. ROE amounted to 18% in 2016o Good performance of the commercial bank-insurance franchises in our core markets and core activitieso Y-o-y increase in customer loan and deposit volumes in most of our core countries o Lower NII due entirely to dealing room and insurance, while higher NII banking (despite lower net interest margin)o Net fee and commission income decreased by 14% y-o-y; AuM increased by 2% y-o-yo Sharply higher net gains from financial instruments at fair value, flat realised AFS gains and lower net other incomeo Excellent combined ratio (93% in FY16). Increase in sales of non-life and life insurance productso Cost/income ratio (57% in FY16) adjusted for specific items o Excellent, but unsustainable low level of loan loss provisions. Net loan loss provision release in Ireland amounted to 45m EUR in FY16, fully in

line with guidance. We are guiding a net loan loss provision release for Ireland within the 25m-75m EUR range for FY17

SOLID CAPITAL AND ROBUST LIQUIDITY POSITIONSo The B3 common equity ratio based on the Danish Compromise at end 2016 amounted to 16.2% phased-in and 15.8% fully loaded, which

clearly exceeds the minimum capital requirements set by the ECB / NBB of respectively 8.65% and 10.40% for 2017o On top of the above mentioned capital requirements, the ECB expects KBC to hold a pillar 2 guidance (P2G) of 1.0% CET1o Fully loaded B3 leverage ratio, based on current CRR legislation, amounted to 6.1% at KBC Groupo Continued strong liquidity position (NSFR at 125% and LCR at 139%) at end 2016

DIVIDEND PROPOSAL1

o On top of the interim dividend of 1 EUR per share paid in November 2016, a final dividend of 1.80 EUR per share will be proposed to the AGMfor the 2016 accounting year (i.e. a pay-out ratio of 50% including the AT1 coupon)

o The pay-out ratio policy (i.e. dividend + AT1 coupon) of at least 50% of consolidated profit is reconfirmed for the future

IRELAND: RE-POSITION AS A CORE COUNTRY…o By building a fully-fledged client-centric retail bank in line with our omni-channel distribution model, underpinned by a ‘digital first’ strategy

and by further developing the bank-insurance modelo We will organize an onsite visit at KBC Ireland in Dublin on Wednesday 21 June 2017

1. Any dividend payment will be subject to the usual approval of the regulator

60

Looking forward to 2017

We expect 2017 to be a year of sustained economic growth in both the Euro area and the US. Themost important risks for the Euro area stem from the political side with several elections upcomingand the Brexit negotiations that will be initiated

Management guides for:• solid returns for all Business Units

• loan impairments for Ireland towards a release of a 25m-75m EUR range for FY17

Next to the Belgium and the Czech Republic Business Units, the International Markets Business Unitwill also become a strong contributor to the net result of KBC Group thanks to:• Ireland: re-positioning as a core country with a sustainable profit contribution• Bulgaria: after the acquisition of UBB and Interlease, UBB-CIBank and DZI will become the largest bank-

insurance group in Bulgaria with a substantial increase in profit contribution. The transaction is expected to beclosed in 2Q17

61

KBC Group

Annex 1

FY 2016 performance of KBC Group

62Amounts in m EUR

NET RESULT

765

-344

2,639

2,218

2,427

2015 2016

Net result amounted to 2,427m EUR in 2016

• Net result of 2015 was positively impacted by a one-off P&L gainof 765m EUR as a result of the liquidation of KBC FinancialHolding, partly offset by 344m EUR goodwill impairments

• Excluding these items as mentioned above in 2015, net result in2016 increased by 9% y-o-y to 2.4bn EUR, mainly as a result of:

o Revenues slightly decreased (-1% y-o-y) mainly due to lowernet fee & commission income, slightly lower net interestincome and net other income, largely offset by sharply highernet result from FIFV, and higher result from life and non-lifeinsurance after reinsurance

o Strict cost control excluding bank taxes: +1% y-o-y. Higher banktaxes (+5% y-o-y), almost fully due to Belgium (partly as theBelgian government replaced the 4 existing taxes by 1, whichled to 38m EUR additional bank taxes). Operating expensesexcluding bank tax and excluding the 33m one-off expenses forearly retirement roughly stabilised y-o-y in FY16

o Excellent, but unsustainably low level of loan loss provisionsthanks chiefly to:o a net loan loss provision release in Ireland (45m EUR) and

Hungary (15m EUR)o low gross impairments in all segments in Belgium and the

Czech Republic

Impact KBC FHGW impairments

-8%

FY 2016 net result amounted to 2,427m EUR

+9%

63

Net interest income• Net interest income fell by 1% y-o-y due entirely to the lower

contribution of dealing room and insurance• Net interest income banking rose by 1% y-o-y due to lower

funding costs, continued good volume growth in currentaccounts and loans, the positive effect of enhanced ALMmanagement and additional rate cuts on savings accounts,which were partly offset by to lower reinvestment yields,increased hedging losses on previously refinanced mortgages,lower upfront prepayments fees and pressure on commercialloan margins in most core countries

• On a comparable basis, loan volumes increased by 4% y-o-y,driven by an increase of 9% y-o-y in the Czech Republic BU and4% y-o-y in the Belgium BU

• Deposit volumes even rose by 10% y-o-y on a comparablebasis: the y-o-y increases in the Belgium BU (+13%), in theCzech Republic BU (+9%) and in the International Markets BU(+7%) were partly offset by a 15% decrease in the Group Centre

Net interest margin (1.92%)• Decreased by 10 bps y-o-y due mainly to lower reinvestment

yields, increased hedging losses on previously refinancedmortgages, decreased net interest income from the dealingroom and pressure on commercial margins in most countries

NIM

NII

2016

1.92%

2015

2.02%

Amounts in m EUR

635 61477

2016

4,258

3,639

10

-5

2015

4,311

3,597

2

-1%

-10bps

NII - insurance contribution

NII - contribution of holding-company /group

NII - dealing room

NII - banking contribution

+1%

-3%

VOLUME TRENDExcluding FX effect Total loans * Of which mortgages Customer deposits** AuM Life reserves


Growth y/y +4% +4% +10% +2% +1%

Customer deposit volumes excludingdebt certificates & repos +4% y-o-y

Net interest income slightly down, net interest margin under pressure

* Loans to customers, excluding reverse repos (and bonds)** Customer deposits, including debt certificates but excluding repos

64

Lower net fee and commission income, but higher AUM

Net fee and commission income• Decreased by 14% y-o-y

• This decrease was driven mainly by the BelgiumBusiness Unit (-16% y-o-y) owing to lower entry &management fees on mutual funds & unit-linkedlife insurance products and decreased securitiesrelated fees

Assets under management (213bn EUR)• Rose by 2% y-o-y owing to net outflows (-1%) and a

positive price effect (+3%)

Amounts in m EUR

AUM

F&C

-262 -301

2015

1,678

1,945

-5

2016

1,450

1,753

-2

-14%

213209

20162015

+2%

F&C - banking contributionF&C - contribution of holding-company/group

F&C - insurance contribution

65

Higher non-life insurance sales and excellent combined ratio

Sales of non-life insurance products• Up by 7% y-o-y mainly thanks to a good

commercial performance in all major product linesin our core markets and tariff increases

The non-life combined ratio at FY16 stood atan excellent 93%. Nevertheless, this is adeterioration compared to FY15 as FY16 wasnegatively impacted by:• one-off charges due to terrorist attacks in Belgium

• storms & floods in Belgium

• storms & large fire claims in the Czech Republic

Amounts in m EUR


2016

1,430

2015

1,342 +7%


93%91%82%

94%

9M

89%

FY

91%

1H

95%

1Q

86%

20152015

66

Higher life insurance sales, but lower VNB

Sales of life insurance products• Up by 18% y-o-y

• The increase in sales of guaranteed interest productssignificantly increased in Belgium thanks to salesefforts and supported by a fallback in clients’ riskappetite, despite the low rate of guaranteed interest.The increase in sales of unit-linked products wasattributable fully to Belgium and the Czech Republic

• Sales of unit-linked products accounted for 39% oftotal life insurance sales

VNB• Fell by 18% y-o-y to 96m EUR due to:

o methodological changes (related to the interestrate curve) in 2016

o the impact of the low interest rate environmentdespiteo the increase in sales of unit-linked and risk products

with higher profitability margin

• Disregarding the methodological changes in 2016, VNBrose 3% y-o-y to 120m EUR

LIFE SALES

Amounts in m EUR

722 820

1,295

2015

1,793

1,071

2016

2,114

Unit-linked productsGuaranteed interest products

VNB (Life)*

0

20

40

60

80

100

120 30

25

20%

15

10

5

0%2016

95.9

3.5%

2015

116.4

6.1%

VNB/PVNBP (%)VNB (m EUR)

• VNB = Value of New Business = present value of all future profits attributable to the shareholders from the new life insurance policies written during the year• The VNB of KBC Group includes the expected future income generated by KBC Insurance and CSOB P CZ arising from other parties within KBC Group. In 2016, this income amounted to 64.3m EUR• VNB/PVNBP = VNB at point of sale compared with the Present Value of New Business Premiums. This ratio reflects the margin earned on total premiums

+18%

67

Higher FV gains, stable gains realised on AFS assets and lower other net income

The higher y-o-y figure for net gains fromfinancial instruments at fair value wasattributable to:• good dealing room results (especially in Belgium)

• a positive y-o-y change in market, credit and fairvalue adjustments (both in Belgium and the CzechRepublic)

partly offset by

• a negative change in ALM derivatives (88m EUR inFY16 compared with 101m EUR in FY15)

Gains realised on AFS assets stabilised at189m EUR (mainly on AFS shares)

Other net income amounted to a high 258mEUR in FY16, higher than the normal run rateof roughly 200m EUR due to, among otherthings, gains on real estate sales and someone-off transactions

FV GAINS

Amounts in m EUR


OTHER NET INCOME

-156

452

269

88

101

2016

540

2015

214

189190

2015 2016

258

297

20162015

+46% excl. liquidationKBC FH

0%

-13%

Liquidation KBC FH Other FV gainsM2M ALM derivatives

68

Operating expenses up, but good cost/income ratio

Cost/income ratio (banking) at 57% in FY16adjusted for specific items. Excluding bank tax, C/Iratio amounted to 50% in FY16

• Operating expenses increased by 1% y-o-y due mainlyto:o higher bank tax (+5% y-o-y to 437m EUR, almost fully

due to Belgium, partly as the Belgian governmentreplaced the 4 existing taxes by 1, which led to 38mEUR additional bank taxes)

o higher operating expenses (+1% y-o-y to 3,511mEUR), which is fully in line with our implicit guidance.The increase was attributable mainly to the 33m one-off expenses for early retirement, higher ICT expensesin Belgium and higher staff expenses in Hungary

• Operating expenses excluding bank tax and excludingthe 33m one-off expenses for early retirement roughlystabilised y-o-y in FY16

OPERATING EXPENSES

Amounts in m EUR

417 437

3,511

2016

3,948

2015

3,890

3,473

Bank tax Opex

+5%

+1%

+1%

69

Excellent, but unsustainably low impairment charges, excellent credit cost and improved impaired loans ratio

Significantly lower impairment charges• Total impairments fell by 50% y-o-y excluding the 344m

EUR goodwill impairments in FY15

• Loan loss provisions decreased by 61% y-o-y to 126mEUR, thanks chiefly to:o a net loan loss provision release in Ireland (45m EUR)

and Hungary (15m EUR)o low gross impairments in all segments in Belgium and

the Czech Republic

The credit cost ratio sharply improved from 0.23%in FY15 to 0.09% in FY16. The credit cost ratioimproved in each business unit, except for theGroup Centre

The impaired loans ratio dropped to 7.2%, of which3.9% over 90 days past due

ASSET IMPAIRMENT

IMPAIRED LOANS RATIO

CCR RATIO

FY16

0.09%

FY15

0.23%

FY14

0.42%

FY13

1.21%

FY12

0.71%

FY11

0.82%

FY10

0.91%

323

126

2016

201

5520

2015

747

45

344

34

FY16

7.2%

3.9%

3.3%

FY15

8.6%

4.8%

3.8%

FY14

9.9%

5.5%

4.4%

FY13

10.2%

6.0%

4.2%

-50% excl. the GW impairments in FY15

of which over 90 days past dueImpaired loans ratio

Impairment on AFS assets

Impairment on goodwill

Impairment on other

Impairment on L&R

-61%

70

KBC Group

Annex 2

Company profile

71

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 AS AT 31 DECEMBER 2016

Group Centre

4%

International Markets19%

Czech Republic

15%

Belgium 61%

72

BE CZ SK HU BG IRL

Loans and deposits

Investment funds

Life insurance

Non-life insurance

Well-defined core markets provide access to ‘new growth’ in Europe

1. Source: KBC data, February 2017

MARKET SHARE (END 2016)

10%11%20%21%

7%3%

15%7%23%

33%

11%4%4%7%

13%

9% 10%6%3%

7%

BE CZ SK HU BG IRL

% of Assets

2016

2017e

2018e

5%1%3%3%15%

70%

2.0%3.3%

2.4%1.2%

4.0%3.3%

3.0%3.2%2.6%3.0%2.3%1.3%

3.0%3.4%2.5%3.0%2.0%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 *

* Only for retail segment

73

Loan loss experience at KBC

FY16CREDIT COST RATIO




FY 2012CREDIT COST RATIO

AVERAGE ‘99 –’15

Belgium 0.12% 0.19% 0.23% 0.37% 0.28% n/a

Czech Republic

0.11% 0.18% 0.18% 0.26% 0.31% n/a

International Markets

-0.16% 0.32% 1.06% 4.48%* 2.26% n/a

Group Centre 0.67% 0.54% 1.17% 1.85% 0.99% n/a

Total 0.09% 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

74

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

75

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 2016

18.5%

Free float

59.8%

Other core

7.6%MRBB

11.5%Cera

2.7%

KBC Ancora

76

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

77

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

78

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. Is excluding additional pillar 2 guidance (P2G) of 1.0% CET1

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 (fully loaded, Danish Compromise)

≥ 10.40%2 2019

Total capital ratio(fully loaded, Danish Compromise)

≥ 17% 2017

NSFR ≥ 105% 2014

LCR ≥ 105% 2014

Dividend payout ratio ≥ 50% 2016

79

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

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

80

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

81

KBC Group

Annex 3

Other items

82

Sectorial breakdown of outstanding loan portfolio (1)(148bn EUR*) of KBC Bank Consolidated

Private Persons42%

Automotive2%

Agriculture, farming, fishing

3%

Authorities

3%

Building & construction

4%Finance & insurance

6%Real estate

7%

Rest14%

Distribution8%

Services

12%

1.6%

Oil, gas & other fuels

0.7%Hotels, bars & restaurants

0.9%Shipping

1.2%

Machinery & heavy equipment 1.1%

Chemicals1.1%

Metals

1.4%Other sectors

4.3%

Food producers1.4%

Electricity

* 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

83

Geographical breakdown of the outstanding loan portfolio (2)(148bn EUR*) of KBC Bank Consolidated

Slovakia4.8%

Ireland 8.9%

Czech Rep.

Bulgaria

0.6%

Hungary

3.1%

Rest

1.6%

Asia

0.8%

North America

1.6%

Other CEE

0.5%Other W-Eur

7.3%

14.0%

Belgium

56.8%

* 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

84

Impaired loans ratios, of which over 90 days past due


4Q16

7.2%

3.9%

3Q16

7.6%

2Q16

7.8%

4.4%

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%4.2%

Of which over 90 days past due **

Impaired loans ratio *

4Q16

2.8%

1.9%

3Q16

2.7%

2.1%

2Q16

2.8%

1Q16

3.2%

2.4%

4Q15

3.4%

2.5%

3Q15

3.4%

2.5%

2Q15

3.5%

2.6%2.2%

1Q15

3.7%

2.7%

32.9%

17.9%

1Q15

33.4%

3Q16

26.9%

14.3%

2Q16

27.8%

14.8%

1Q16

28.9%

15.4%

4Q15

29.8%

16.0%

3Q15

31.4%

17.0%

2Q15 4Q16

25.4%

13.4%18.4%

BELGIUM BU

4Q16

3.3%

1.7%

3Q16

3.5%

1.9%

2Q16

3.6%

2.0%

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

85

Cover ratios


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

46.1%

63.1%

4Q163Q16

62.0%

45.6%

2Q16

61.5%

45.5%

1Q16

60.8%

45.4%

4Q15

60.3%

44.8%

3Q15

57.9%

43.9%

2Q15

57.8%

42.9%

1Q15

57.6%

42.4%

Cover ratio for loans with over 90 days past due **

Impaired loans cover ratio *

4Q16

54.7%

68.9%

3Q16

63.6%

56.7%

2Q16

62.6%

56.1%

1Q16

63.2%

54.2%

4Q15

65.1%

53.6%

3Q15

67.1%

54.2%

2Q15

66.6%

53.4%

1Q15

67.1%

52.9%

4Q163Q16

60.1%

42.7%

2Q16

59.7%

42.5%

1Q16

60.0%

44.8%

4Q15

60.4%

44.7%

3Q15

56.5%

44.0%

2Q15

57.6%

43.6%

1Q15

58.3%

43.4%

64.9%

44.9%

44.4%

59.3%

4Q163Q16

60.6%

44.8%

2Q16

60.0%

44.7%

1Q16

59.4%

44.0%

4Q15

58.1%

43.0%

3Q15

55.6%

41.7%

2Q15

55.2%

40.4%

1Q15

54.5%

39.8%

86

Fully loaded B3 CET1 based on the Danish Compromise (DC)from 3Q16 to 4Q16

Jan 2012 Dec 2012 2014-2020

4Q16 (B3 DC)

87.8

4Q16 impact

-1.2

3Q16 (B3 DC**)

89.0

DELTA AT NUMERATOR LEVEL (BN EUR)

DELTA ON RWA (BN EUR)

* Includes the q-o-q delta in remeasurement of defined benefit obligations, 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. 15.8% at end4Q16 based on theDanish Compromise(DC)

A pro forma fullyloaded common equityratio translation to10.40% was clearlyexceeded

B3 CET1 at end 4Q16 (DC)

13.9

Other*

0.1

Dividend payment KBC Ins

to KBC Group

0.2

Delta in AFS revaluation

reserves

-0.1

Delta in DTAs on losses

carried forward

-0.2

Pro-rata accrual dividend

-0.3

4Q16 net result (excl. KBC Ins. due to Danish Compr.)

0.6

B3 CET1 at end 3Q16 (DC)

13.6

87

Overview of B3 CET1 ratios at KBC Group

Method Numerator Denominator B3 CET1 ratio

FICOD*, phased-in 14,794 100,136 14.8%

FICOD, fully loaded 14,647 101,039 14.5%

DC**, phased-in 14,033 86,878 16.2%

DC, fully loaded 13,886 87,782 15.8%

DM***, fully loaded 12,806 82,120 15.6%

* FICOD: Financial Conglomerate Directive** DC: Danish Compromise*** DM: Deduction Method

88

Solvency II ratio

Solvency II ratio

3Q16 4Q16

Solvency II ratio without cap of the NBB(ratio comparable with European peers)

198% 214%

Solvency II ratio with cap of the NBB* 170% 203%

* On 25 April 2016, the NBB published a circular determining the treatment of the loss absorbing capacity of deferred taxes in the Solvency II calculation. This caps theloss absorbing capacity of deferred taxes for Belgian insurance companies to the net deferred tax liability recognised on the economic balance sheet

On 25 April 2016, the NBB decided to impose a capon the loss absorbing capacity of deferred taxes inthe calculation of the required capital with retro-active application from 1 January 2016 onwards*.The introduction of such absolute cap deviatesboth from the European Solvency II regulation andthe practice of most other European regulatorsand increases the required capital

As a result of this gold-plating by the NBB, theformal Solvency II ratio came down from 214% to203% for 4Q16

The increase (+16%-points) in the Solvency II ratiowithout this cap was mainly the result of higherinterest rates and parameter updates. Thestronger improvement of the Solvency II ratio withthe application of the cap (+33%-points) is due to ahigher cap as a result of the increase of theavailable Deferred Tax Liabilities on the economicbalance sheet for 4Q16

89

Resolution strategy for KBC

During 2016, an extensive dialogue took place between SRB and KBC regarding the resolution strategy. KBC hasproposed a Single Point of Entry approach at the level of KBC Group with bail-in as primary resolution tool. SRB hasnot communicated any formal decision to KBC so far

SRB has not formally communicated any MREL target at this point in time. However, an indicative figure is put forwardbased on the mechanical approach as published by SRB on November 28th, 2016

Source: SRB, 4th Industry Dialogue 28/11/2016

Applied on KBC (on a fully loaded basis):

2 x P1 2 x 8%+ 2 x P2R 2 x 1,75%+ 2 x CBR 2 x (2,5%+1,5%) (*)- 1,25% -1,25%

Indicative target = 26,25% as % of RWA

(*) excluding countercyclical buffers that will be introduced in 2017

Given the SPE approach at KBC Group level, the target needs to be satisfied with instruments issued by KBC Group NV

90

Available MREL based on KBC resolution strategy(instruments issued by KBC group only)

1.9%

14.9%

19.6%

1Q16 3Q16 4Q16

18.3%

1.6%

18.0%

14.6%

1.6%

0.8%

1.9%

14.9%

1.9%

1.6%

2Q16

19.2%

4Q15

15.3%

1.6%

1.9%

0.8%

21.0%

15.8%

1.6%

1.9%

1.7%

MREL ratio as a % RWA (fully loaded)

T2 CET1Holdco Senior AT1

91

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)

92

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

93

Government bond portfolio – Notional value

Notional investment of 50.5bn EUR in government bonds (excl. trading book) at end of 2016, 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 5.8bn EUR at end of 2016

Portugal *Ireland **

Netherlands *Austria *

Germany **Spain

5%Other

8%

France 12%

Italy4%

Slovakia

5%

Hungary

4%

Poland**

3%

Czech Rep.

14%

Belgium

38%

END 2016(Notional value of 50.5bn EUR)

(*) 1%, (**) 2%

Slovakia

5%

Hungary

4%

Poland**

2%

Czech Rep.

14%

Belgium

41%


Netherlands *Austria **

Germany **Spain

5%Other

8%

France 10%

Italy5%

END 2015(Notional value of 48.8bn EUR)

(*) 1%, (**) 2%

94

Government bond portfolio – Carrying value

Carrying value of 55.2bn EUR in government bonds (excl. trading book) at end of 2016, 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 6.8bn EUR at end of 2016

* 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 2016(Carrying value of 55.2bn EUR)

(*) 1%, (**) 2%


Netherlands *Austria *

Germany *Spain

5%Other

8%

France 12%

Italy4%

Slovakia

5%

Hungary

4%

Poland **

3%Czech Rep.

13%

Belgium

38%

END 2015(Carrying value of 53.4bn EUR)

(*) 1%, (**) 2%


Netherlands *Austria **

Germany **Spain

6%Other

Belgium

41%

7%

France 10%

Italy5%

Slovakia

5%

Hungary

4%

Poland **

2%

Czech Rep.

13%

95

Upcoming mid-term funding maturities

KBC Group has successfully issued a 750m EUR senior unsecuredbond with 7-year maturity in October 2016

KBC’s credit spreads have widened towards the end of 4Q16

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

7%

15%

7%

10%

4%36%

21%

1.1%

0.7%

1.1%

2.0%

0.7%

1.1%

0.6%

0.1% 0.04%0.1%

0

1000

2000

3000

4000

5000

6000

2017 2018 2019 2020 2021 2022 2023 2024 2025 >= 2026

m E

UR

Breakdown Funding Maturity Buckets

Senior Unsecured - Holdco Senior Unsecured - Opco Subordinated T1

Subordinated T2 Contingent Convertible Covered Bond

TLTRO

Total outstanding =

20.5bn EUR

(Including % of KBC Group’s balance sheet)

96

-10

40

90

140

190

240

-15

5

25

45

65

85

105

125

145

Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16

Credit Spreads Evolution

1,5Y Senior Debt Opco Interpolated 5Y Covered Bond Interpolated 5Y Senior Debt Holdco 10NC5 Subordinated Tier 2

Credit spreads evolution

1 10NC5 Subordinated Tier 2 spread is depicted based on the right hand axis.

1

97

Analysts’ coverage

Bank/broker Analyst Contact details Rating Target Price Upside

Situation as of 2 February 2017, based on a share price of 60.26 EUR

ABN Amro Cor Kluis [email protected] + 66.00 10%

Alpha Value Farahad Moshiri [email protected] + 65.70 9%

Autonomous Farquhar Murray [email protected] + 64.40 7%

Bank of America Merrill Lynch Tarik El Mejjad [email protected] + 66.60 11%

Barclays Capital Kiri Vijayarajah [email protected] = 56.00 -7%

Berenberg Andrew Lowe [email protected] + 60.00 0%

Citi Investment Research Stefan Nedialkov [email protected] + 68.00 13%

Degroof Petercam Bart Jooris [email protected] = 58.00 -4%

Deutsche Bank Flora Benhakoun [email protected] + 66.00 10%

Exane BNP Paribas Guillaume Tiberghien [email protected] + 57.00 -5%

Goldman Sachs Pawel Dziedzic [email protected] + 75.00 24%

HSBC Johannes Thormann [email protected] = 61.00 1%

ING Albert Ploegh [email protected] + 60.00 0%

JP Morgan Securities Paul Formanko [email protected] + 68.00 13%

Keefe, Bruyette & Woods Jean-Pierre Lambert [email protected] + 70.70 17%

Kempen & Co Bart Horsten [email protected] + 70.00 16%

KeplerCheuvreux Benoit Petrarque [email protected] + 63.80 6%

Macquarie Jain Vardhman [email protected] + 65.00 8%

Mediobanca Robin van den Broek [email protected] + 61.00 1%

Morgan Stanley Bruce Hamilton [email protected] + 63.60 6%

Natixis Securities Alex Koagne [email protected] + 60.50 0%

Oddo Jean Sassus [email protected] + 69.00 15%

Santander Patrick Lee [email protected] = 58.00 -4%

Societe Generale Phelbe Pace [email protected] + 68.50 14%

UBS Anton Kryachok [email protected] = 50.00 -17%

98

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]

99

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

100

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Documents

KBC Group Company presentation FY 2016 / 4Q 2016 · This presentation contains non-IFRS information and forward-looking statements with respect to the strategy, earnings and capital