2 0 0 3
KBC Bank & Insurance Group
Interim results at 30 September 2003
www.kbc.com
Ticker codes: KBC BB (Bloomberg) KBKBT BR (Reuters)
B:KB (Datastream)
ISIN code: BE0003565737
Results third Quarter
2
2 0 0 3Interim results at 30 Sep 2003
Highlights
Outlook
Performance, insurance
Performance, banking
Results third Quarter
3
2 0 0 3
355
230
159
744
278316
280
152
747
287 304 300256
860
1Q01
2Q01
3Q01
9M01
4Q01
1Q02
2Q02
3Q02
9M02
4Q02
1Q03
2Q03
3Q03
9M03
Third Quarter Highlights
Average quarter2002
In m EUR+ 0%
- 5%
- 15%
Relatively good performance (up 69 %) y-o-y
+ 69%
+ 15%
Results third Quarter
4
2 0 0 3Third Quarter Highlights
Robust performance in Belgium Further improving level of costs in banking (ytd -5%) Pressure on interest margin reversed (Q/Q: 195 -> 210 bp) Low level of loan loss ratio (ytd 22 bp) and P&C (*) claims ratio
(ytd 59 bp)
Satisfactory result in most CEE markets ROAC (*) banking in Czech (CR) / Slovak republics (SR): ytd 17% ROAC for banking in Hungary: ytd 19% Improved performance by insurance operations (still limited scale)
… but very poor performance of banking business in Poland (high loan loss provisions : 124 m in 3Q)
(*) P&C : Property and Casualty insurance(**) Return on allocated capital
Results third Quarter
5
2 0 0 3Interim results at 30 Sep 2003
Highlights
Outlook
Performance, insurance
Performance, banking
Results third Quarter
6
2 0 0 3Banking, income development
Interest income : ytd 2% organic growth(margin : 6M 1.63% 9M 1.71%)
Commission income : strong growth(capital-guaranteed funds)
Lower trading income due to lower FX income and MtM of equity derivatives
Considerable capital gains (ytd 196 m) on ‘free’ bond portfolio
One-off ‘other income’ recorded in 2Q 02 and lower dividends
Excluding capital gains, stable gross operating income despite difficult climate in 1H
0
500
1000
1500
2000
2500
1Q 03 2Q 03 3Q 03
Total income -2%
- 33%- 13%
+16%
-1%
-30%- 12%
Gross income ytd
9M 03
Results third Quarter
7
2 0 0 3Banking, expense development Belgium :
Expenditures ytd : 5% (- 60 m) Headcount reduction :
target of 1 650 FTE met in Oct 03
Central and Eastern Europe : Expenditures ytd: 1% (6 m) Headcount reduction :
Czech Republic : 460 FTE(48% of target)
Poland : new target of 1 000/1200 FTE
1249
425 749
13131364
743
760726
673
0
500
1000
1500
2000
2500
3000
9M 01 9M 02 9M 03
Belgium CEE Other
Continuing cost control
Cost/Income ratio 9M 03: 65%(65% for FY 02)
9M 03:45 %
Belgium
9M 03:27 %CEE
2 4612 782 2 757
2001 excl. KB
Ytd expenses (m EUR)
Results third Quarter
8
2 0 0 3Cost control in Belgium
Although Belgium is a ‘mature’ market, further improvement in performance can be expected
Merger (almost) completed, full extent of cost savings in bottom-line as of 1H 04
Lower cost/income ratio ahead, thanks to: Greater use of bancassurance (acceleration in P&C and to SME segment) Reduction in product complexity in retail (possibly by up to 70%) (*)
Outsourcing of transaction processing (payments) and IT (limited scale)(implementation in progress)
Stronger pooling of back-office activities of Belgian group companies Various other co-sourcing scenarios being considered Screening of real-estate-related costs
(*) e.g. by reducing the wide range of credit cards, travellers’ cheques, mortgage loans, savings certificates, …
Results third Quarter
9
2 0 0 3Banking, loan provisions
Customer loan bookSept. 03
(1)
Lossratio
9M 03 (2)
Belgium 49.0 bn 0.22%
Hungary 3.7 bn 0.32%
CR / SR 5.9 bn 0.45%
Poland 4.0 bn 6.09%
International 27.6 bn 0.51%
Total 90.3 bn 0.60%
Intensive clean-up of loan portfolio in Poland
Quarterly loan loss provisions (m EUR)
Loan loss ratio 9M 03: 0.60%(0.55 for FY 02)
47 4011
4625 31 25
11 88
65
28
61
139
3145
32
50
26
49
40
0
50
100
150
200
1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03
Belgium CEE Other
(1) Gross loans(2) Specific provisions - annualized
Results third Quarter
10
2 0 0 3Retail banking in Belgium Ytd profit 145 m ( 189%), ROAC up to 10% from 3% Growth in income : ytd 6%
(strong commission income and rebound in interest income) Cost reduction : ytd 5% Provisions (38 m EUR) remain low (16 bp on RWA(*))
2003 has seen a turnaround in Belgian retail on the back of robust commission business and cost savings
Belgium1st home market
+36%
1Q01
2Q01
3Q01
4Q01
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
Profit contribution Trend 4Q avg
(*) Risk -weighted assets
Results third Quarter
11
2 0 0 3Banking in Central and Eastern Europe
CR & SR : stable yoy in spite of pressure on margin, thanks to commission income and zero expense growth
Hungary : income and volume growth more than set off pressure on margin
Poland : difficult economic conditions and high loan loss provisions (195 m)
(*) excl. minority interests, incl. 12 m provisions for KB related to 02
Satisfactory performance in Czech Republic,Slovakia and Hungary (though further improvement to be expected) Still basic restructuring work to do in Poland
Central Europe2nd home market
In m EUR(*)
9M 02 9M 03 % ROAC 03
CR / SR 109 112 +3 % 18%
Hungary 13 23 +77 % 19%
Poland -37 -138 - -
Slovenia - + 5 - -
Results third Quarter
12
2 0 0 3Activities in Central and Eastern Europe
Confidence in our strategy fundamentals : Satisfying year-to-date results in most markets (incl. insurance),
excl. banking in Poland Within 6 months : all CEE affiliates (5 countries) operating in the EU Common shared optimism regarding rebound of economic cycle in ‘04
Refocusing : from ‘external expansion’ to ‘improvement in performance’
Adjustment of group governance model to encompass CEE affiliates.Key issues : Further increase in management and controlling capacity of KBC HQ Improved organization of transfer of know-how to CEE Strengthened central audit teams
Central Europe2nd home market
Results third Quarter
13
2 0 0 3Addressing the challenges in Poland Capital base : strengthened (+ 666 m PLN (completed), KBC's stake up to 81%)
Risk sensitivity : to be greatly reduced Credit risk policies redefined and credit decision authority reduced (completed) Cleaning up ‘historic’ loan book (195 m provisions ytd) Improving risk control and risk management
Cost base : to be further reduced Centralizing back offices, strengthening HR and performance measurement Reducing headcount (driven by new central IT system) by 1000/1200 FTE,
real estate expenses (15-20 %) and other tangible costs (5-10%) by ‘04 Disinvesting from non-strategic activities (Ukraine, Lithuania, PKB, Pension Fund,…)
Market position : to be improved on the retail market (sales growth 10-15 %) Thorough customer segmentation in the nationwide network Transfer of KBC product know-how (e.g., in the field of AM) Acceleration of bancassurance efforts with WARTA Insurance
Central Europe2nd home market
Results third Quarter
14
2 0 0 3Asset Management division
Breakdown of retail funds
Equity: 11%
Bonds & MM: 13%
Balanced: 12%
Capital- guaranteed: 48%
Profit contribution : ytd 84 m ( 4%) New capital-guaranteed funds :
ytd 105 new mutual/unit-linked funds AUM : ytd 5% to 84 bn from 80 bn
Retail funds (42 bn) : 4% Private assets (13 bn) : 4% Institutional & group assets (28 bn): 6%
Profit contribution down slightly
Belgium:85 %
Central Europe: 5 %
Other
Results third Quarter
15
2 0 0 3
Corporate banking : Profit contribution: ytd 140m 10%
(ROAC 9%) Cost decrease ( 7%) due to strict cost
control, mainly in Belgium / Western Europe
No repeat of 2002 one-off revenues Provisions for problem loans
(56 bp on RWA), mainly for the electricity sector in the US
Market activities : Profit contribution: ytd 117 m 51 %
(ROAC 14%)
Very strong performance in money and capital market products
Equity trading: still weak (break-even for KBC Securities at operating level)
KBC Financial Products : satisfactory result but negative MtM for equity derivatives
Corporate and investment banking
-20
0
20
40
60
80
100
120
140
1Q 01 2Q 01 3Q 01 4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03
Corporate banking Market activities
²²
Profit contribution : corporate banking and market activities
Results third Quarter
16
2 0 0 3Interim results at 30 Sep 2003
Highlights
Outlook
Performance, insurance
Performance, banking
Results third Quarter
17
2 0 0 3
65.4% 62.0% 61.2%
34.0%33.3% 32.6%
9M 01 9M 02 9M 03
Loss/premium Expense/premium
P&C, underwriting result
Exceptionallylow level
Premium income Combined ratio
Very sound business, in ‘03 partly driven by upward trend in rates and in general by strong risk and cost discipline
Premiums ytd 15%
org. growth
99% 95% 94%
452 477 505
2562
85137145
193
9M 01 9M 02 9M 03
Belgium CEE R/I
Excl R/I
614
684
784
Results third Quarter
18
2 0 0 3
Q101
Q201
Q301
Q401
Q102
Q202
Q302
Q402
Q103
Q203
Q303
Q403
Interest-guaranteed Unit-linked
Life business, underwriting resultQuarterly net
premium income
Very strong growth (bancassurance-driven)
9M 02: 1816 m1 050 m interest-guar.766 m unit-linked9M 01: 1 230 m
299 m interest-guar. 931 m unit-linked
9M 03: 1 991 m1 369 m interest-guar.622 m unit-linked
9M 03:95 %
Belgium
9M 03:5%Central Europe
Premiums ytd 9 %
organic growth
Results third Quarter
19
2 0 0 3Insurance, investment income
9M 02 9M 03
Interest, dividend,rent
347 347 +0%
Capital gainson shares (*) 136 96 -30%
Total 483 443 -8%
Suffering from low bond yields
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
1Q01
2Q01
3Q01
4Q 01
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
Interest income, bonds10 y EUR T-bonds
(*) incl. write-back from provision for financial risk(15m in ‘03)and excl. value adj. for unit-linked products
Results third Quarter
20
2 0 0 3Insurance, non-recurring items
In m EUR 3Q 03 9M 03
Non-recurring result
Value adjustments, shares -18 -108
Transfer from equalization reserve - 92
Non-recurring gains on securities - 122
Transfer to provision for financial risks 7 -115
Other -2 -8
Total non-recurring result -13 -17
Value adjustments on shares offset by non-recurring income
Provision for financial risks, balance : 100 m EUR
Results third Quarter
21
2 0 0 3Interim results at 30 Sep 2003
Highlights
Outlook
Performance, insurance
Performance, banking
Results third Quarter
22
2 0 0 3Profit outlook
Interest rate environment and general financial climate have improved. Economic outlook is more favourable.
On the other hand, further loan losses in 4Q cannot be ruled out (credit review, Poland).
Profit ‘03 expectation : at least the ’02 level(based on current information and assumption of stable stock market)
2 0 0 3
Additional information
Results third Quarter
24
2 0 0 3Year-to-date results, detailed overview
m EUR 9M 02 9M 03 % Organic %
Gross operating income 4 979 4 872 - 2% - 2% - banking 4 338 4 231 - 2% - 2% - insurance 652 640 - 2% - 3%Administrative expenses - 3 133 - 3 143 + 0% + 0% - banking - 2 782 - 2 757 - 1% - 1% - insurance -348 -380 + 9% + 7%Operating result 1 846 1 729 - 6% - 5% - banking 1 556 1 474 - 5% - 4% - insurance 303 260 - 14% - 14%Loan loss provisions
Value adjust., non-recurring, extraordinary and other results
- 305
- 211
- 425
8
Pre-tax profit 1 323 1 274 - 4% - 3%
Taxes - 445 - 318
Minority interests - 130 - 96
Net profit 747 860 + 15% + 15%
Results third Quarter
25
2 0 0 3
515 544655
258 219
214
9M 01 9M 02 9M 03
Banking Insurance
Contribution per business, year-to-date
744 747
860
Group result : 3/4 from banking, 1/4 from insurance
+20%
-2%
Net profit in m EUR
ROE banking : 11.1%
ROE insurance : 16.3%
ROE Group: 13.2%
Results third Quarter
26
2 0 0 3Year-To-Date Highlights In banking : high commission income (y-o-y +16%)
and in 3Q strongly improving interest income.
In insurance : high premium volume (y-o-y + 11%), but pressure on investment income.
Zero cost growth y.o.y. In banking : cost level down 1%.
Strong technical result in non-life : combined ratio 95.4% (excl. reinsurance : 93.8%).
Relatively high loan loss provisions (425 m).
Value impairments on shares (100 m, but offset).
Solid solvency : 8.6% (Tier 1 - bank) and 318% (insurance)
Results third Quarter
27
2 0 0 3Main changes in scope of consolidation
Impact (*)
CSOB Insurance
NLB Bank
Full consolidation,
retroactively to 1Q
Equitymethod
-0.4%
+0.1%
+0.1%
Q2 Q3 Q4 Q1 Q2 Q3 Q4
2002 2003
Ergo Insurance
Krefima Bank
Full consolidation
Deconsolidation(previously full consolidation)
(*) Impact on gross operating income
Limited net impact of changes in consolidation
(full consolidation, previously
equity method)
Q1
2004
Warta Insurance
EXPECTED
Results third Quarter
28
2 0 0 3Group, key performance ratios
Sep 02 Dec 02 Sep 03
Cost / income, banking 64.1% 65.2% 65.2%
Combined ratio, insurance (*) 95.2% 101.4% 93.8%
Solvency (Tier 1), banking 8.3% 8.8% 8.6%
Solvency, insurance (**) 305% 320% 318%
Return on equity 12.3% 12.7% 13.2%
Growth in EPS (y-o-y) +0% +1% +15%
(*) Excluding reinsurance(**) Including unrealized gains
Getting closer to strategic objectives
Results third Quarter
29
2 0 0 3Areas of activity, profit contribution
(*) Profit excluding minority interests
Profit contribution (*) year-to-date
Activity m EUR % ROAC Headlines
Retail, Belgium 328 m 30% 15%
- Strong commission and premium income- Improving interest margin (2.1% in 3Q)- Cost reduction in banking ( 5% y-o-y)- Low loan losses (16 bp/RWA) and low combined ratio P&C (92 %)
Central Europe: - banking in CR/SR - banking in Hungary - banking in Poland
-28 m112 m
23 m-138 m
-+ 3%
+ 77%-
- 2%+18%
+ 19%-
- Strong commissions and zero cost growth in CR (although margin pressure and fewer one-offs)- Strong income growth in banking in Hungary- High loan losses in Poland (195 m)- Improvement in insurance (though limited scale)
Asset management 84 m 4% - - AUM up 5% vs Dec 02
Corporate services 139 m 11% 9%- Successful cost control- Less one-off income (CLOs) and higher loan losses (US energy) - R/I out of the red
Market activities 117 m 51% 14%- Fixed income: very strong - Equities: still weak but cost-cutting successful - Derivatives: satfisfactory (suffered from MtM)
Strong rebound in Belgian retail. High adverse impact of Poland.
Results third Quarter
30
2 0 0 3Interest spreads in Belgium, banking
1.80%
1.85%
1.90%
1.95%
2.00%
2.05%
2.10%
2.15%
1Q01
2Q01
3Q01
4Q01
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
3.5%
4.0%
4.5%
5.0%
5.5%
Interest margin, Belgium 10 y EUR T-bonds
Going forward, increasing market rates could fuel top-line growth
Interest marginSpread on new loans
0.5%
0.7%
0.9%
1.1%
1.3%
1.5%
1.7%
1.9%
Investment credit, Belgian SME loan book
Corporate bond A-rating
Results third Quarter
31
2 0 0 3Economic outlook
Popu-lation
Real GDP growth
10-y interest rate
CPI change
2002 2003e 2004e Dec 03e Sep 04e 2002 2003e 2004e
Belgium 10 m 0.7% 0.8% 1.9% 4.4% 4.8% 1.6% 1.5% 1.1%
Czech Republic 10 m 2.0% 3.0% 3.9% 4.5% 5.0% 1.8% 0.0% 2.2%
Slovak Republic 5 m 4.4% 3.5% 4.2% 5.1% 5.4% 3.3% 8.2% 6.0%
Hungary 10 m 3.2% 2.0% 3.0% 7.3% 7.5% 5.3% 4.5% 6.5%
Poland 38 m 1.3% 3.1% 4.0% 5.0% 5.8% 1.9% 0.6% 2.2%
Source : KBC Asset Management, November 2003
Results third Quarter
32
2 0 0 3Value adjustments, investment portfolio
Significant value adjustments in ‘02 and in 1Q 03 (offset in insurance business by non-recurring result)
4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03
Adjustments, insurance bookAdjustments, banking book
DJ Eurostoxx
-223
-35
-220
125
-6
Results third Quarter
33
2 0 0 3Unrealized gains, investment portfolio
In m EUR Dec 02 Sep 03 %
Bankingbook 1 742 1 784 + 2 %
Bonds 1 630 1 597
Shares 113 187
Insurancebook 82 174 + 112%
Bonds 497 434
Shares -516 -359
Real estate 101 99
Unrealized gains increasing, driven by upward trend of stock markets
Balance of gains and losses
Results third Quarter
34
2 0 0 3
0
500
1000
1500
2000
2500
FY 01 FY 02 sep/03
Legal Buffer Excess
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
FY 01 FY 02 sep/03
Legal Buffer Excess
Solvency
8.8% 8.8% 8.6% 504%
320%318%
Banking business (Tier 1)
Insurance business (Solvency margin)
564 m
564 m
668 m
612 m
3 868 m
3 868 m
Solid solvency in both banking and insurance (no double gearing and no DAC)
In m EURIn m EUR
Results third Quarter
35
2 0 0 3Solvency
KBC Bank 1993 / 2003 mandatory convertible bond Conversion, 30 Nov 2003 :
Capital increase: ca. 8.1 m new shares (*)(not dividend-entitled for ’03)
Impact : Lower interest charges (12.2% for ‘03) EPS ‘04 dilution, ca. 1.5 pp Tier 1: ca. + 30 bp Free float : ca. + 1%
(*) Based on outstanding MCB at 30 Sept. 2003
2 0 0 3
KBC Bank & Insurance Group
Investor Relations Office - tel.: +32 2 429 4916E-mail : [email protected]
Press Office - tel.: +32 2 429 8545 / 6501 E-mail : [email protected]