1
KBC GroupCompany presentation1Q 2018
KBC Group - Investor Relations Office – E-mail:
More information: www.kbc.com
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
The fully loaded** B3 common equity ratio based on theDanish Compromise decreased from 16.3% at the end of2017 to 15.9% at the end of 1Q18 due to the impact of thefirst-time application of IFRS 9 (-41bps)
Fully loaded B3 leverage ratio, based on current CRRlegislation, amounted to 5.7% at KBC Group
Continued strong liquidity position (NSFR at 137% and LCRat 139%) at end 1Q18
Capital and liquidity positions:
** This clearly exceeds the minimum capital requirements set by the competentsupervisors of respectively 9.875% phased-in and 10.60% fully loaded for 2018. Ontop of the above-mentioned capital requirements, the ECB expects KBC to hold apillar 2 guidance (P2G) of 1.0% CET1
Very good net result of 556m EUR, despite the largeupfront bank taxes (371m EUR). ROE of 14%* in 1Q18 Good performance of the commercial bank-insurance franchises
in our core markets and core activities
Q-o-q increase in customer loan volumes and customer deposits(excluding debt certificates & repos) in most of our core countries
Roughly stable net interest income and higher net interest marginq-o-q
High net fee and commission income
Lower net gains from financial instruments at fair value and higherother net income
Combined ratio of 90% in 1Q18. Excellent sales of non-life and lifeinsurance products
Strict cost management resulted in a cost/income ratio of 55%YTD adjusted for specific items
Net impairments releases on financial assets at amortised cost of63m EUR, mainly driven by Ireland (net release of 43m EUR in1Q18). We are maintaining our impairment guidance for Ireland,namely a net release in a range of 100m-150m EUR for FY18
1Q18 financial performance:
1Q 2018 key takeaways for KBC Group
* ROE taking into account pro rata bank taxes amounted to 19% in 1Q18
4
Contents
1
4
Strong solvency and solid liquidity
1Q 2018 wrap up
Annex 2: Other items
2
1Q 2018 performance of KBC Group
3
1Q 2018 performance of business units
Annex 1: Company profile
5
KBC Group
Section 1
1Q 2018 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*
691
1Q17
399
556
2Q17 3Q17 4Q17 1Q18
630
855
NET RESULT AT KBC GROUP*
526
330
1Q181Q17 2Q17 3Q17 4Q17
750
575
461
61 82 93 84 75
7864
96
27 42
-29 -33 -52 -34
2Q171Q17
-15
3Q17 4Q17 1Q18
111 113
137
10278
CONTRIBUTION OF INSURANCE ACTIVITIES TO KBC GROUP NET RESULT*
Amounts in m EUR
Non-Life result
Life result
Non-technical & taxes
7
Summary 2017 pro forma figures
Impact shift per P&L line
4Q17 as was
4Q17 pro forma
3Q17 as was
3Q17 pro forma
2Q17 as was
2Q17 pro forma
1Q17 as was
1Q17 pro forma
NII 1,029 1,137 1,039 1,114 1,028 1,094 1,025 1,081
FIFV 235 118 182 94 249 180 191 130
F&C 430 456 408 433 430 454 439 463
AFS gains* 51 6 51 2 52 8 45 14
+108
+17
• Interest accrual FX derivatives: shifted from FIFV to NII (in line with the transition to IFRS 9)• Network income (income received from margins earned on FX transactions carried out by the network for clients): shifted from FIFV to F&C• IFRS 9: overlay approach for insurance: shift from realised gains AFS shares and impairments on AFS shares to FIFV• Please note that due to IFRS 9, the realised gains on AFS shares in Banking (26m in 4Q17, 32m in 3Q17, 21m in 2Q17 and 10m in 1Q17) have
been eliminated from net result as they are now booked in equity
+26
+75
+12
+25
+66
+21
+24
+56
+19
+24
* Due to IFRS 9, the P&L line ‘net realised result from AFS assets is replaced by ‘net realised result from debt instruments at FV through OCI’
8
Good net interest income and higher net interest margin
Net interest income (1,125m EUR)• Down by 1% q-o-q and up by 4% y-o-y• The small q-o-q decrease was driven primarily by:
o lower netted positive impact of ALM FX swapso lower reinvestment yieldso more negative pressure on commercial loan margins in
most core countrieso lower number of dayspartly offset by:o lower funding costs (due mainly to the call of the CoCo)o continued good loan volume growtho positive impact of both short & long term increasing
interest rates in the Czech Republic
Net interest margin (2.01%)• Up by 4 bps q-o-q and by 8 bps y-o-y thanks to lower funding
costs and the positive impact of repo rate hikes in the CzechRepublic
NIM (pro forma for 2017***)
NII (pro forma for 2017*)
907 928 946 952 970
143 142 144 135 12828 21 22 47 27
2Q17
3
1,114
1Q17
23
3Q17
3
4Q17 1Q18
1,1370
1,081 1,094 1,125
1Q181Q17 2Q17 3Q17
2.01%1.96%
4Q17
1.96%1.93%1.97%
Amounts in m EUR
NII - netted positive impact of ALM FX swaps**
NII - Holding-company/group
NII - Insurance
NII - Banking
* Non-annualised** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos
VOLUME TRENDExcluding FX effect Total loans ** o/w retail mortgages Customer deposits*** AuM Life reserves
Volume 143bn 60bn 188bn 213bn 29bn
Growth q-o-q* +1% 0% -3% -2% 0%
Growth y-o-y +5% +4% +3% 0% -2%
Customer deposit volumes excluding debtcertificates & repos +2% q-o-q and +7% y-o-y
* 2017 pro forma figures for NII as the impact of ALM FX derivatives was ‘netted’ in NII as of 2018** From all ALM FX swap desks*** NIM is calculated excluding the dealing room and the net positive impact of ALM FX swaps & repos
9
High net fee and commission income
Net fee and commission income (450m EUR)• Down by 1% q-o-q and by 3% y-o-y
• Positive net sales of mutual funds in 1Q18
• Q-o-q decrease was the result chiefly of:o lower management feeso lower fees from payment serviceso lower fees from credit files & bank guaranteeso lower securities-related feespartly offset by:o higher entry feeso lower commissions paid on insurance sales
• Y-o-y decrease was mainly the result of:o lower entry feeso lower securities-related feeso lower fees from credit files & bank guaranteespartly offset by:o higher fees from payment serviceso the contribution of UBB/Interlease
Assets under management (213bn EUR)• Fell by 1.5% q-o-q owing entirely to a negative price effect
• The mutual fund business has seen net inflows again, but thiswas offset by net outflows in group assets and investmentadvice
F&C (pro forma for 2017*)
Amounts in m EUR
511 506 489 518 502
-72 -73 -81 -86 -77
4Q17
2424
1Q17
-2
2Q17
2625
3Q17
454
-1
25
0
1Q18
463 433 456 450
F&C - contribution of holding-company/group
F&C - network income
F&C - insurance contribution
F&C - banking contribution
Amounts in bn EUR
AuM*
214 213 215 217 213
3Q171Q17 2Q17 4Q17 1Q18
* 2017 pro forma figures as the network income shifted from FIFV to net F&C as of 2018
* Note that 2017 AuM figures were reduced due to a roughly 2bn EUR adjustment in Institutional Mandates
10
Insurance premium income (gross earned premium) at 714m EUR• Non-life premium income (378m) increased by 5%
y-o-y
• Life premium income (336m) down by 18% q-o-qand up by 8% y-o-y
The non-life combined ratio at 1Q18 amountedto 90%, still a good number despite highertechnical charges due mainly to higher stormclaims in Belgium
Insurance premium income up y-o-y and good combined ratio
COMBINED RATIO (NON-LIFE)
PREMIUM INCOME (GROSS EARNED PREMIUM)
88%
FY1Q
83%90%
1H
84%
9M
79%
2017 2018
360 369 378 384 378
312 267 282410
336
1Q181Q17 2Q17
672
3Q17 4Q17
636 660
794714
Life premium income Non-Life premium income
Amounts in m EUR
11
Non-life and life sales up y-o-y
Sales of non-life insurance products• Up by 5% 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• Decreased by 15% q-o-q and up by 5% y-o-y
• The q-o-q decrease was driven mainly by lower sales ofguaranteed interest products in Belgium (attributablechiefly to traditionally higher volumes in tax-incentivised pension saving products in 4Q17 and extrasales for individual pension agreements for self-employed business leaders, anticipating the reductionof corporate tax as of 2018) and lower sales of unit-linked products in the Czech Republic
• The y-o-y increase was driven mainly by higher sales ofguaranteed interest products in Belgium and highersales of unit-linked products in the Czech Republic
• Sales of unit-linked products accounted for 44% of totallife insurance sales
LIFE SALES
NON-LIFE SALES (GROSS WRITTEN PREMIUM)
207 193 187270 219
267222 218
318279
1Q17
415474
2Q17 3Q17 4Q17
405
1Q18
588
498
Guaranteed interest products Unit-linked products
468
358 349 342
492
1Q181Q17 2Q17 3Q17 4Q17
Amounts in m EUR
12
Lower FV gains, higher other net income
The lower q-o-q figures for net gains fromfinancial instruments at fair value wereattributable mainly to:• a negative change in market, credit and funding value
adjustments (mainly as a result of changes in theunderlying market value of the derivative portfolio)
• lower dealing room income
Other net income amounted to 71m EUR,higher than the normal run rate of around 50mEUR due to the settlement of an old legal file inBelgium and the sale of a building in Hungary
FV GAINS (pro forma for 2017*)
Amounts in m EUR
19 21 17 19
73110
86
7194
73
11112
180
1Q17
7
2Q17
4
4Q173Q17 1Q18
130
94
11896
77
47
4
-14
71
2Q171Q17 3Q17 4Q17 1Q18
OTHER NET INCOME
Other FV gains
M2M ALM derivatives
Net result on equity instruments (overlay insurance)
* 2017 pro forma figures as:1) the impact of the FX derivatives was ‘netted’ in NII as of 2018 2) the shift from realised gains AFS shares and impairments on AFS shares to FIFV due to IFRS 9 (overlay approach for insurance)
13
Operating expenses up due entirely to higher bank taxes, but good cost/income ratio
Cost/income ratio (banking) adjusted for specificitems* at 55% in 1Q18• Operating expenses excluding bank tax went down by
6% q-o-q due mainly to seasonal effects such astraditionally lower ICT, marketing and professional feeexpenses, despite a 12m EUR provision for facilityexpenses for one specific file in Belgium in 1Q18
• Operating expenses without bank tax increased by 6%y-o-y due chiefly to the consolidation of UBB/Interlease,higher ICT costs, higher staff expenses (wage drift inmost countries), higher marketing expenses, a 12m EURprovision for facility expenses for one specific file inBelgium and higher depreciation & amortisation costs(due to the capitalisation of some projects)
• 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 1Q17. The y-o-y increase canmainly be explained by the consolidation of UBB
• Total bank taxes (including ESRF contribution) areexpected to increase from 439m EUR in FY17 to 461mEUR in FY18, although still subject to changes
OPERATING EXPENSES
868 891 896 980 920
361371
1,291
41
1Q17 3Q172Q17
19
1Q184Q17
18
1,229
910 9141,021
Bank tax Operating expenses
* See glossary (slide 88) for the exact definition** still subject to changesAmounts in m EUR
TOTAL Upfront Spread out over the year
1Q18 1Q18 1Q18 2Q18e 3Q18e 4Q18e
BU BE 273 273 0 0 0 0
BU CZ 29 29 0 0 0 0
Hungary 45 26 19 21 21 21
Slovakia 7 3 4 4 4 4
Bulgaria 14 14 0 0 0 0
Ireland 4 3 1 1 1 14
GC 0 0 0 0 0 0
TOTAL 371 347 24 25 25 39
EXPECTED BANK TAX SPREAD IN 2018 (PRELIMINARY)**
14
Overview of bank taxes*
INTERNATIONAL MARKETS BUCZECH REPUBLIC BU
BELGIUM BUKBC GROUP
46
24
25
41
52
11
18
25
1Q181Q17
1
57
2Q17 4Q173Q17
70
Common bank taxesESRF contribution
225
-7
215
53 58
4Q171Q17
-2
3Q17 1Q18
-4
2Q17
278
-6
0
273
ESRF contribution Common bank taxes
6 1 6
2022
0
2Q171Q17 3Q17
26
4Q17 1Q18
0
29
ESRF contribution Common bank taxes
278
1841
273
83 98
3Q171Q17
361
20
1Q18
-1
0
2Q17 4Q17
1941
371
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 55% in 1Q18 amounts to roughly 48% excluding these bank taxes
Bank taxes of 371m EUR in 1Q18. On a pro rata basis, bank taxes represented 11.1% of 1Q18 opex at KBC Group**
Bank taxes of 273m EUR in 1Q18. On a pro rata basis, banktaxes represented 11.1% of 1Q18 opex at the Belgium BU
Bank taxes of 29m EUR in 1Q18. On a pro rata basis, bank taxes represented 4.3% of 1Q18 opex at the CZ BU
Bank taxes of 70m EUR in 1Q18. On a pro rata basis, bank taxes represented 18.0% of 1Q18 opex at the IM BU
15
Net impairment releases, excellent credit cost ratio and improved impaired loans ratio
Very low asset impairments• This was attributable mainly to:
o net loan loss provision releases in Ireland of 43m EUR(compared with 52m in 4Q17)
o also small net loan provision reversals in Bulgaria, Hungary,Slovakia and Group Centre
• Impairment of 6m on other in the Czech Republic as a result ofthe review of the residual value calculation on financial leasesfor cars in CSOB Leasing
The credit cost ratio amounted to -0.15% in 1Q18 due tolow gross impairments and several releases
The impaired loans ratio improved to 5.9%, 3.5% ofwhich over 90 days past due
ASSET IMPAIRMENT
1532
15
-30
616
1Q17
7
-78
2Q17 3Q17
31
4Q17
-63
1Q18
8
-71
2
-56
IMPAIRED LOANS RATIO
4Q172Q17
3.6%
1Q17
3.9% 3.4%3.7%
3Q17
3.5%
1Q18
6.8% 6.9% 6.6%6.0% 5.9%
CREDIT COST RATIO
FY16FY14
0.09%
0.23%
FY15 FY17 1Q18
0.42%
-0.06%
-0.15%
of which over 90 days past dueImpaired loans ratio
Impairments on financial assets at AC*Other impairments
* AC = Amortised Cost. Under IAS 39, impairments on L&R
16
KBC Group
Section 2
1Q 2018 performance of business units
17
BELGIUM BUSINESS UNIT
CFO SERVICES
CRO SERVICES
CORPORATE STAFF
BELGIUMCZECH
REPUBLICINTERNATIONAL
MARKETS
18
Belgium BU (1): net result of 243m EUR
Net result at the Belgium Business Unitamounted to 243m EUR• The quarter under review was characterised by lower
net interest income, roughly stable net fee andcommission income, decreased trading and fair valueincome, higher other net income, an improvedcombined ratio, seasonally lower sales of lifeinsurance products, higher operating expenses dueentirely to higher bank taxes and lower impairmentcharges q-o-q
• Excluding both the upfront booking of the bank tax in1Q18 and the one-off negative impact of the reformof the Belgian corporate income tax regime in 4Q17,the net result rose by roughly 3% q-o-q
• Customer deposits excluding debt certificates andrepos rose by 4% y-o-y, while customer loans alsoincreased by 4% y-o-y
* Non-annualised ** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos
VOLUME TREND
Total loans ** o/w retail mortgages Customer deposits*** AuM Life reserves
Volume 96bn 35bn 126bn 199bn 27bn
Growth q-o-q* +1% 0% -5% -1% -1%
Growth y-o-y +4% +1% 0% 0% -2%
301
483455
336
243
2Q171Q17 3Q17 4Q17 1Q18
NET RESULT
Amounts in m EUR
Customer deposit volumes excluding debtcertificates & repos +2% q-o-q and +4% y-o-y
19
Belgium BU (2): lower NII despite stable NIM
Net interest income (649m EUR)• Fell by 4% q-o-q due mainly to the lower netted impact of FX
swaps, lower reinvestment yields and lower number of days
• Down by 5% y-o-y, driven primarily by:o lower reinvestment yieldso pressure on commercial loan marginso lower upfront prepayment fees (6m EUR in 1Q18 compared
with 9m EUR in 1Q17)partly offset by:o lower funding costs on term depositso good loan volume growth
Net interest margin (1.73%)• Stabilised q-o-q
• Fell by 5 bps y-o-y due to the negative impact of lowerreinvestment yields and some pressure on commercial loanmargins
NIM (pro forma for 2017***)
NII (pro forma for 2017*) Amounts in m EUR
523 529 512 515 513
130 129 132 123 117
4Q172Q17
28 2019
1Q17 3Q17
39 19
1Q18
681 677 664 677649
2Q171Q17 3Q17
1.72%
4Q17 1Q18
1.79%1.78% 1.73% 1.73%
NII - contribution of insurance
NII - netted positive impact of ALM FX swaps** NII - contribution of banking
• 2017 pro forma figures for NII as the impact of ALM FX derivatives was ‘netted’ in NII as of 2018** From all ALM FX swap desks*** NIM is calculated excluding the dealing room and the net positive impact of ALM FX swaps & repos
20
Credit margins in Belgium
PRODUCT SPREAD ON CUSTOMER LOAN BOOK, OUTSTANDING
PRODUCT SPREAD ON NEW PRODUCTION
1.0
0.4
1.2
0.0
1.4
0.2
0.6
0.8
4Q11 3Q12 1Q14 3Q16 1Q181Q171Q11 3Q172Q11 3Q11 1Q12 2Q12 4Q12 3Q151Q13 4Q163Q132Q13 3Q144Q13 2Q14 4Q14 1Q161Q15 2Q15 4Q15 2Q16 2Q17 4Q17
Customer loans
1.4
1.2
0.8
0.4
0.2
1.6
0.6
1.8
1.0
4Q173Q11 2Q144Q13 4Q143Q142Q13 1Q171Q13 4Q161Q164Q11 4Q151Q11 2Q11 1Q12 2Q12 3Q12 3Q164Q12 3Q13 1Q14 2Q161Q15 2Q15 3Q15 2Q17 3Q17 1Q18
SME and corporate loans Mortgage loans
21
Belgium BU (3): good net F&C income
Net fee and commission income (318m EUR)• Positive net sales of mutual funds in 1Q18
• Net F&C income decreased by 1% q-o-q due mainly to:o lower management feeso lower securities-related feeso lower fees from credit files & bank guaranteespartly offset byo higher entry fees from mutual funds and unit-linked
life insurance productso higher fees from payment serviceso lower commissions paid on insurance sales
• Fell by 11% y-o-y driven chiefly by lower entry fees frommutual funds & unit-linked life insurance products (as1Q17 benefited from the launch of EasyInvest), lowersecurities-related fees, lower fees from credit files &bank guarantees, slightly lower fees from paymentservices and higher commissions paid on insurance sales
Assets under management (199bn EUR)• Fell by 1% q-o-q owing entirely to a negative price effect
• Stabilised y-o-y as net inflows (+1%) were offset by anegative price effect (-1%)
AuM*
F&C (pro forma for 2017*)
Amounts in bn EUR
391 376 352 368 356
-45 -45 -52 -55 -47
2Q17
910
1Q17 4Q17
7
356
3Q17
8 9
1Q18
339307
321 318
200 198 200 202 199
3Q171Q17 2Q17 4Q17 1Q18
Amounts in m EUR
* Also note that 2017 AuM figures were reduced due to a roughly 2bn EUR adjustment in Institutional Mandates
F&C - network income
F&C - contribution of insurance
F&C - contribution of banking
* 2017 pro forma figures as the network income shifted from FIFV to net F&C as of 2018
22
Sales of non-life insurance products• Increased by 2% y-o-y
• Premium growth was situated in all classes, except for‘Accident & Health’
Combined ratio amounted to 93% in 1Q18(86% in FY17). 1Q18 was negatively impacted byhigher technical charges y-o-y due mainly tohigher storm claims
Belgium BU (4): higher y-o-y non-life sales and goodcombined ratio
COMBINED RATIO (NON-LIFE)
81%
93%
80%
1Q
77%
9M1H FY
86%
2017 2018
NON-LIFE SALES (GROSS WRITTEN PREMIUM)
323
256241
228
329
4Q171Q17 3Q172Q17 1Q18
23
Belgium BU (5): lower life sales and good cross-sellingratios
Sales of life insurance products• Fell by 12% q-o-q as the sales of guaranteed interest
products are traditionally lower in the first quarter(versus traditionally higher volumes in tax-incentivisedpension saving products in the fourth quarter andextra sales for individual pension agreements for self-employed business leaders in 4Q17, anticipating thereduction of corporate tax as of 2018). The lowersales of unit-linked products was the result ofcommercial efforts in 4Q17 and a less favourableinvestment climate in 1Q18
• Increased by 2% y-o-y driven entirely by higher salesof guaranteed interest products
• As a result, guaranteed interest products and unit-linked products accounted for 62% and 38%,respectively, of life insurance sales in 1Q18
Mortgage-related cross-selling ratios• 86.5% for property insurance
• 78.9% for life insurance
LIFE SALES
Amounts in m EUR
155 143 113170 154
241197
193
290250
396
3Q171Q17 1Q182Q17
340
4Q17
306
460
404
Guaranteed interest products Unit-linked products
MORTGAGE-RELATED CROSS-SELLING RATIOS
49.5%
86.5%
63.7%
78.9%
40
45
50
55
60
65
70
75
80
85
90
Property insurance Life insurance
24
The lower q-o-q figures for net gains fromfinancial instruments at fair value were theresult mainly of negative q-o-q change inmarket, credit and funding value adjustments(mainly as a result of changes in theunderlying market value of the derivativeportfolio)
Other net income amounted to 59m EUR in1Q18, higher than the normal run rate ofaround 50m EUR due to the settlement of anold legal file
FV GAINS (pro forma for 2017*)
Amounts in m EUR
20 21 12 17 19
29 30
14
3617
61
23
1Q17 3Q17
51
2Q17
10
-2
4Q17
-2
1Q18
110
74
36 34
4640
51
38
59
1Q17 2Q17 1Q183Q17 4Q17
OTHER NET INCOME
Belgium BU (6): lower FV gains and higher other net income
Other FV gains
M2M ALM derivatives
Net result on equity instruments (overlay insurance)
* 2017 pro forma figures as:1) the impact of the FX derivatives was ‘netted’ in NII as of 2018 2) the shift from realised gains AFS shares and impairments on AFS shares to FIFV due to IFRS 9 (overlay approach for insurance)
25
Belgium BU (7): higher opex due entirely to higher bank taxes, lower impairments, good credit cost ratio
Operating expenses: +45% q-o-q and stable y-o-y• Operating expenses without bank tax fell by 3% q-o-q due
mainly to traditionally lower marketing, professional feeand ICT expenses in the first quarter, despite a 12m EURprovision for facility expenses for one specific file in 1Q18
• Operating expenses without bank tax increased by 1% y-o-yas lower staff and marketing expenses were more thanoffset by a 12m EUR provision for facility expenses for onespecific file in 1Q18, higher ICT & professional fee expenses
• Cost/income ratio: 77% in 1Q18, distorted mainly by thebank taxes. Adjusted for specific items, the C/I ratioamounted to 56% in 1Q18 (53% in FY17)
Loan loss provisions amounted to 14m EUR in 1Q18(compared with loan loss provisions of 12m EUR in4Q17), so continuously overall low gross impairments(in all segments) in 1Q18. Credit cost ratio amountedto 5 bps in 1Q18 (9 bps in FY17)
Impaired loans ratio improved to 2.6%, 1.3% of whichover 90 days past due
ASSET IMPAIRMENT
OPERATING EXPENSES
Amounts in m EUR
544 550 527 566 549
278 273
0
1Q17 4Q172Q17
-6 -7
566
3Q17 1Q18
822
544 520
822
59
2112 14
-4
13
12
4Q17
1
1Q182Q171Q17
3
3Q17
-1
60
-2
34
24
13
Operating expensesBank tax
Other impairments Impairments on financial assets at AC*
* AC = Amortised Cost. Under IAS 39, impairments on L&R
26
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
301
483455
336
243
1Q17 2Q17 4Q173Q17 1Q18
208
385336
271
165
1Q17 2Q17 4Q173Q17 1Q18
5070 80 74 63
6448
79
20
-21 -20-40
-19
93
3Q171Q17 2Q17
9
4Q17
-5
1Q18
98
119
65 78
Life resultNon-Life result Non-technical & taxes
CONTRIBUTION OF INSURANCE ACTIVITIES TO NET RESULT OF THE BELGIUM BU*
27
CZECH REPUBLIC BUSINESS UNIT
CFO SERVICES
CRO SERVICES
CORPORATE STAFF
BELGIUMCZECH
REPUBLICINTERNATIONAL
MARKETS
28
Czech Republic BU (1): net result of 171m EUR
Net result at the Czech Republic Business Unit of171m EUR• Q-o-q results were characterised by higher net
interest income, higher net fee and commissionincome, lower but still good net results from financialinstruments at fair value, stable net other income, animproved combined ratio, lower sales of life insuranceproducts, higher operating expenses (due entirely tohigher bank taxes) and lower impairment charges
• The net result rose by 2% q-o-q. Excluding the upfrontbooking of the bank tax in 1Q18, the net result waseven up by 16% q-o-q
• Profit contribution from the insurance businessremained limited in comparison to the bankingbusiness
* Non-annualised ** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos
VOLUME TREND
Excluding FX effect Total loans ** o/w retail mortgages Customer deposits*** AuM Life reserves
Volume 23bn 11bn 31bn 9.7bn 1.2bn
Growth q-o-q* +1% +1% +1% +1% +7%
Growth y-o-y +5% +10% +3% +10% +13%
NET RESULT
Amounts in m EUR
181 183
170 167 171
1Q184Q172Q171Q17 3Q17
29
Czech Republic BU (2): higher NII and NIM
Net interest income (248m EUR)• Up by 6% q-o-q and by 15% y-o-y to 248m EUR.
Corrected for FX effects, NII rose by 5% q-o-q and by8% y-o-y pro forma
• The pro forma q-o-q increase was the result primarilyof the positive impact of both short & long termincreasing interest rates and the growth in retail loanvolumes, which were partly offset by pressure onlending margins in mortgages and consumer finance
• Loan volumes up by 5% y-o-y, driven mainly by growthin mortgages and consumer finance and, to a lesserextent, in SME loans
• Customer deposit volumes up by 3% y-o-y
Net interest margin (3.02%)• Up by 7 bps q-o-q and by 9 bps y-o-y to 3.02%
• The q-o-q increase was driven mainly by the positiveimpact of repo rate hikes, partly offset by pressure onlending margins
• The y-o-y increase was the result of the positive impactof repo rate hikes, partly offset by pressure on lendingmargins (especially in mortgages and consumerfinance)
NIM (pro forma for 2017*)
NII
Amounts in m EUR
216 220 218234
248
1Q17 4Q172Q17 3Q17 1Q18
1Q182Q171Q17
2.84%
3Q17 4Q17
2.93% 2.91% 2.95% 3.02%
* NIM is is calculated excluding the dealing room and the net positive impact of ALM FX swaps & repos
30
Czech Republic BU (3): higher net F&C income
Net fee and commission income (67m EUR)• Rose by 5% q-o-q and by 19% y-o-y on a pro forma
basis
• The q-o-q increase was driven by lower paidcommissions to the Czech Post (from this year on,Czech Post receives more support than in the past,booked in opex). Besides this effect, there is impact ofhigher entry fees, higher securities-related fees, butlower fees from payment services (seasonal effect ofChristmas) and lower fees from credit files & bankguarantees
• The y-o-y increase was attributable chiefly to highermanagement & entry fees, higher fees from paymentservices, higher securities-related fees and due to lessfees paid to the Czech Post
Assets under management (9.7bn EUR)• Increased by 1% q-o-q owing to net inflows (+2%) and
a negative price effect (-1%)
• Y-o-y, assets under management rose by 10%, drivenby net inflows (+6%) and a positive price effect (+4%)
AuM
F&C (pro forma for 2017*)
Amounts in m EUR
47 47 4353 57
9 910
1010
3Q17
53
64
1Q17 4Q172Q17
56
1Q18
56
67
9.2
3Q17
8.8
1Q181Q17 2Q17 4Q17
9.3 9.6 9.7
* 2017 pro forma figures as the network income shifted from FIFV to net F&C as of 2018
F&C - network income F&C - banking & insurance
Amounts in bn EUR
31
Czech Republic BU (4): higher premium income, goodcombined ratio
Insurance premium income (gross earnedpremium) stood at 117m EUR• Non-life premium income (57m) rose by 10% y-o-y
excluding FX effect, due to growth in all products
• Life premium income (60m) went down by 39% q-o-qand increased by 17% y-o-y, excluding FX effect. Q-o-qdecline entirely in unit-linked single premiums
Combined ratio: 93% in 1Q18 (compared with97% in FY17) due to very good claim experience(no large claims and mild winter)
Cross-selling ratios remained at a good level
COMBINED RATIO (NON-LIFE)
PREMIUM INCOME (GROSS EARNED PREMIUM)
49 53 56 59 57
48 4768
9660
1Q182Q17
100
1Q17 3Q17 4Q17
97
124
155
117
98% 97%
1Q FY1H 9M
100%93% 97%
2017 2018
Life premium income Non-Life premium income
CROSS-SELLING RATIOS
Mortg. & prop. Mortg. & life risk Cons. Fin. & life risk
1Q182017
65%48%
2016
63%
2016
61% 60%47%
2017
45%
1Q18 2016
57%
2017
53%
1Q18
32
Czech Republic BU (5): higher opex due entirely to higher bank taxes, excellent credit cost ratio
Operating expenses (189m EUR)• Fell by 10% q-o-q and rose by 8% y-o-y, excluding FX
effect and bank tax
• The q-o-q decrease excluding FX effect and bank taxwas due mainly to traditionally lower marketingexpenses and professional fees, lower ICT costs andfacilities expenses in the first quarter
• The y-o-y increase excluding FX effect and bank tax wasattributable primarily to higher staff expenses (mainlydue to wage inflation) and higher support to the CzechPost (which is compensated by lower paid fee)
• Cost/income ratio at 47% in 1Q18. Adjusted for specificitems, the C/I ratio amounted to roughly 42% in 1Q18(and 43% in FY17)
Very limited loan loss provisions due to severalreleases (which almost fully offset the low grossimpairments)
Impairment of 6m EUR on ‘other’ as the result ofa revaluation of leased cars in CSOB Leasing
Credit cost ratio amounted to 0.01% in 1Q18
Impaired loans ratio stabilised at 2.4%, 1.6% ofwhich over 90 days past due
ASSET IMPAIRMENT
OPERATING EXPENSES
139 150 152176
160
26
29
1Q183Q17
0
2Q171Q17
01
4Q17
165151 153
177189
-1
11
3
11
7
1Q183Q171Q17 4Q172Q17
2014 2015 2016 2017 1Q18
CCR 0.18% 0.18% 0.11% 0.02% 0.01%
Bank tax Operating expenses
33
INTERNATIONAL MARKETS BUSINESS UNIT
CFO SERVICES
CRO SERVICES
CORPORATE STAFF
BELGIUMCZECH
REPUBLICINTERNATIONAL
MARKETS
34
International Markets BU (1): net result of 137m EUR
VOLUME TREND
Excluding FX effect Total loans ** o/w retail mortgages Customer deposits*** AuM Life reserves
Volume 24bn 15bn 23bn 4.5bn 0.7bn
Growth q-o-q* 0% 0% +1% -11% +6%
Growth y-o-y +13% +8% +24% -21%**** +7%
NET RESULT
Amounts in m EUR
22 25 16 16 23
20
47
40 3934
67
99
22
57
18
21
2Q17
78
4
1Q17
3
1775
-1
4Q173Q17 1Q18
114
74
137
Net result: 137m EUR
The pro forma q-o-q results were characterised by:• lower net interest income. NIM amounted to 2.88% in
1Q18 (2.84% in 4Q17)
• lower net fee and commission income (in BG & HU)
• higher result from financial instruments at fair value
• sharply higher net other income (especially in IRL, as 4Q17was impacted by an additional provision related to thetracker mortgage review)
• a very good combined ratio of 86% (especially in HU & SK)
• higher life insurance sales (in SK & BG)
• higher costs due entirely to higher bank taxes
• higher net impairment releases
Profit breakdown for International Markets (nextslides): 23m EUR for Slovakia, 34m EUR for Hungary,57m EUR for Ireland and 21m EUR for Bulgaria
SlovakiaBulgaria Ireland Hungary
* Non-annualised ** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos**** The decrease can partly be explained by the divestment of KBC TFI in Poland in December 2017 (-0.93bn AuM in 4Q17)
35
International Markets BU (2): Slovakia
Net result of 23m EUR characterised by (proforma q-o-q):• slightly lower net interest income as volume growth
was more than offset by margin pressure
• stable net fee & commission income as the strongperformance in sales of mutual funds was offset bylower income from banking services
• lower net other income
• an excellent combined ratio (87% in 1Q18); roughlystable technical insurance result in life
• lower operating expenses driven by traditionally lowerICT & marketing expenses in the first quarter and lowerstaff expenses
• net impairment releases (mainly in consumer financeand leasing)
• credit cost ratio of -0.20% in 1Q18
* Non-annualised ** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos
VOLUME TREND
Total loans ** o/w retail mortgages Customer deposits***
Volume 7bn 3bn 6bn
Growth q-o-q* +1% +3% +3%
Growth y-o-y +7% +12% +9%
NET RESULT
Amounts in m EUR
22
25
16 16
23
4Q171Q17 2Q17 3Q17 1Q18
Volume trend:• Total customer loans rose by 1% q-o-q and by 7% y-o-y,
amongst other things due to the continuouslyincreasing mortgage portfolio and consumer finance
• Total customer deposits rose by 3% q-o-q and by 9%y-o-y thanks to retail as well as corporates
36
International Markets BU (3): Hungary
NET RESULT
Amounts in m EUR
20
47
40 39
34
1Q17 4Q173Q172Q17 1Q18
* Non-annualised ** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos
VOLUME TREND
Excl. FX effect Total loans ** o/w retail mortgages Customer deposits***
Volume 4bn 2bn 7bn
Growth q-o-q* 0% 0% -3%
Growth y-o-y +11% +7% +6%
Net result of 34m EUR characterised by (pro formaq-o-q):• lower net interest income due to a one-off effect (2m
EUR)
• lower net fee and commission income as highermanagement fees were more than offset by traditionallylower fees from payment transactions in the first quarter
• higher net results from financial instruments thanks tohigher M2M ALM derivatives
• higher net other income due to the sale of a building
• good non-life commercial performance y-o-y in all majorproduct lines and growing average tariff in motor retail;an excellent combined ratio (84% in 1Q18); stable sales oflife insurance products q-o-q
• lower operating expenses excluding bank tax (45m EUR)due mainly to lower staff & ICT expenses
• net impairment releases (mainly in retail and corporates)
• credit cost ratio of -0.44% in 1Q18
Volume trend:• Total customer loans stabilised q-o-q and rose by 11%
y-o-y, mainly in mortgages and corporates
• Total customer deposits fell by 3% q-o-q, but rose by 6%y-o-y due to strong growth in corporates
37
International Markets BU (4): Ireland
NET RESULT
Amounts in m EUR
67
99
-1
3
57
1Q17 4Q172Q17 3Q17 1Q18
* Non-annualised ** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos
VOLUME TREND
Total loans ** o/w retail mortgages Customer deposits***
Volume 11bn 10bn 6bn
Growth q-o-q* -1% 0% +5%
Growth y-o-y 0% +2% +8%
Net result of 57m EUR characterised by (pro formaq-o-q):• higher net interest income due mainly to lower funding
costs
• net other income in 4Q17 was impacted by an additionalprovision of 61.5m EUR related to the industry-widereview of the tracker rate mortgage products originatedin Ireland before 2009
• higher operating expenses excluding bank tax due mainlyto higher ICT expenses and regulatory levies (mainly CBIIndustry Funding levy)
• lower net impairment releases (-43m EUR in 1Q18compared with -52m EUR in 4Q17), as 4Q17 benefitedfrom 31m EUR IBNR parameter changes. Releases in1Q18 are driven by:o an increase in the 9-month average House Price
Index and an improved portfolio performanceo lower provisions on existing non-performing loans
driven by improved macro-economic conditions andprovision releases following deleveraging forcorporates
• credit cost ratio of -1.36% in 1Q18
Volume trend:• Total customer loans fell by 1% q-o-q and stabilised y-o-y.
The q-o-q decrease resulted from the further deleveragingof the corporate loan portfolio
• Retail mortgages: new business (written from 1 Jan 2014)+7% q-o-q and +49% y-o-y, while legacy -2% q-o-q and -7%y-o-y
• Total customer deposits rose by 5% q-o-q and by 8% y-o-y
38
International Markets BU (5): Bulgaria
NET RESULTAmounts in m EUR
45
22
18
21
2Q171Q17 3Q17 1Q184Q17
VOLUME TREND
Excl. FX effect Total loans *** o/w retail mortg. Customer deposits****
Volume 3bn 1bn 4bn
Growth q-o-q* +1% +1% +3%
Growth y-o-y +231%** +239%** +396%**
Net result of 21m EUR
Net result was characterised by (pro forma q-o-q):• In banking (CIBank & UBB/Interlease):
o slightly lower net interest income, as volume growth wasmore than offset by margin pressure
o lower net fee and commission income due to traditionallylower fees from payment transactions in the first quarter
o lower net results from financial instrumentso lower operating expenses excluding bank tax due mainly to
lower staff & ICT expenseso higher bank tax y-o-y due to UBB/Interlease acquisitiono net impairment releases. Credit ratio of -1.09% in 1Q18
• In insurance (DZI): higher net resulto good earned premiums both in Life and Non-Life, offset by
higher technical charges. Combined ratio amounted to 93%
Volume trend:• Total customer loans rose by 1% q-o-q and by 231% y-o-y
(11% y-o-y excluding UBB/Interlease), amongst other thingsdue to the continuously increasing mortgage portfolio and astrong pick-up in corporates in 1Q18
• Total loans: new business +3% q-o-q and +186% y-o-y, whilelegacy -7% q-o-q and +787% y-o-y
• Total customer deposits rose by 3% q-o-q and by 396% y-o-y(9% y-o-y excluding UBB/Interlease)
* Non-annualised ** Y-o-y growth excluding UBB/Interlease amounted to +11% for total loans, +20% for retail mortgages and +9% for customer deposits*** Loans to customers, excluding reverse repos (and bonds)**** Customer deposits, including debt certificates but excluding repos
39
GROUP CENTRE
CFO SERVICES
CRO SERVICES
CORPORATE STAFF
BELGIUMCZECH
REPUBLICINTERNATIONAL
MARKETS
40
Group Centre: net result of 5m EUR
Net result: 5m 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 one-off upfront negative P&L impact of 126m EUR due to theBelgian corporate income tax reform in 4Q17
o higher NII due to lower debt costs (as a result of the call of theCoCo)
o lower operating expenses
o net impairment releases
NET RESULT
Amounts in m EUR
33
12
-12
5
1Q183Q171Q17 2Q17 4Q17
-179
BREAKDOWN OF NET RESULT AT GROUP CENTRE
1Q17 2Q17 3Q17 4Q17 1Q18
Group item (ongoing business) -50 0 -31 -157 -17
- Operating expenses of group activities -14 -14 -20 -25 -17
- Capital and treasury management -18 17 5 -5 -4
o/w net subordinated debt cost -9 -9 -9 -13 -6
- Holding of participations -9 -13 -13 18 1
o/w net funding cost of participations -2 0 0 -1 -1
- Group Re 5 6 5 10 7
- Other -14 5 -9 -154 -3
Ongoing results of divestments and companies in run-down 83 11 19 -22 23
Total net result at GC 33 12 -12 -179 5
41
NET PROFIT – BELGIUM NET PROFIT – CZECH REPUBLIC
351 330 209 301
243
1,2231,274
2015
1,165
2014
1,234
2016
1,575
2017 1Q18
1,516 1,5641,432
1Q18 ROAC: 15%
Amounts in m EUR
138 143 129 181
171
390 399 467
521
1Q1820172014 20162015
542529596
702
1Q18 ROAC: 40%
NET PROFIT – INTERNATIONAL MARKETS
-156
60114
137221
368330
1Q1820172016
-26
2014
24
245
-182
2015
428 444
1Q18 ROAC: 25%
Overview of results based on business units*
2Q-4Q 1Q 2Q-4Q 1Q
2Q-4Q 1Q
NET PROFIT – KBC GROUP
347 510 392630
556
2015
2,427
2017
1,415
2016
2,035
2014
2,129
1,762
1,945
1Q18
2,639 2,575
1Q18 ROAC: 21%
2Q-4Q 1Q
* Note that the 1Q18 results & ROAC were impacted by the upfront booking of the bank tax
42
Balance sheet (1/2):Loans and deposits continue to grow in most core countries
Loans**
4%
Retail mortgages
4%
Deposits***
1%
* Volume growth excluding 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
43
Balance sheet (2/2):Loans and deposits continue to grow in most core countries
1%
Retail mortgages
Loans** Deposits***
4%
0%
3%
Loans**
10%
Retail mortgages
Deposits***
5%
Deposits***Retail mortgages****
Loans**
0%2%
8%
12%
Loans**
9%
Retail mortgages
Deposits***
7%
11%
Loans**
6%7%
Retail mortgages
Deposits***
11%
Loans** Retail mortgages
Deposits***
9%
20%
BE CZ
Y-O-Y ORGANIC* VOLUME GROWTH FOR MAIN ENTITIES
* Volume growth excluding FX effects and divestments/acquisitions** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos**** Retail mortgages in Ireland: new business (written from 1 Jan 2014) +49% y-o-y, while legacy -7% y-o-y
44
KBC Group
Section 3
Strong solvency andsolid liquidity
45
Strong capital position
Fully loaded Basel 3 CET1 ratio at KBC Group (Danish Compromise)
10.6% fully loaded regulatory minimum
15.9%
9M171Q17 1Q18
15.7%
1H17 FY17
15.9%15.7% 16.3%
The common equity ratio* decreased from16.3% at the end of 2017 to 15.9% at the endof 1Q18 based on the Danish Compromise,due to the impact of the first-time applicationof IFRS 9 (-41bps). This clearly exceeds theminimum capital requirements** set by thecompetent supervisors of 9.875% phased-infor 2018 and 10.6% fully loaded and our ‘OwnCapital Target’ of 14.0%
The pro forma*** fully loaded CET1 ratioamounted to roughly 15.7% at the end of1Q18
* Note that as from 01/01/2018 onwards, there is no differenceanymore between fully loaded and phased-in
** Excludes a pillar 2 guidance (P2G) of 1.0% CET1*** Also taking into account the impact of the share buy-back
14.0% ‘Own Capital Target’
Fully loaded Basel 3 total capital ratio (Danish Compromise)
15.9% CET1
1.5% AT1
2.3% T22.3%
2.6%
Total capital ratio 1Q18
15.9%
Pro forma total capital ratio 1Q18
19.7%20.7%
The fully loaded total capital ratio amountedto 19.7% at the end of 1Q18. Including thesuccessful issuance of 1bn EUR additional Tier-1 instrument in April 2018, the pro forma fullyloaded total capital ratio amounted to 20.7%
46
Fully loaded Basel 3 leverage ratio and Solvency II ratio
9M17
4.7%
1Q17
4.8%
1Q181H17
4.7%
FY17
5.0%4.7%
Fully loaded Basel 3 leverage ratio at KBC BankFully loaded Basel 3 leverage ratio at KBC Group
5.7%
FY17
5.8%5.7%
1Q17 1H17 9M17 1Q18
5.7%6.1%
Solvency II ratio
4Q17 1Q18
Solvency II ratio* 212% 218%
The increase (+6%-points) in the Solvency II ratiowas mainly the result of lower equity markets
* On 19 April 2017, the NBB retroactively relaxed the strict cap on the loss-absorbing capacity of deferred taxes in the calculation of the required capital. Belgian insurancecompanies are now allowed to apply a higher adjustment for deferred taxes, in line with general European standards, if they pass the recoverability test. This is the case for KBC
47
Solid liquidity position (1)
KBC Bank continues to have a strong retail/mid-cap deposit base in its core markets – resulting in a stable funding mixwith a significant portion of the funding attracted from core customer segments & markets
Customer funding further increased in 1Q18. The elevated amount in short-term wholesale funding is on the back ofshort-term arbitrage opportunities
69% 73% 75% 73% 73% 69% 70% 72%
8%10% 6%9%
9% 8% 9% 8% 8%9%
8%7%8% 10% 8% 8% 8%
7%7%
9% 0% 2% 2% 2%8%
10%12%6% 5%
-6% -4%
3%
FY12
3%
FY13
3%
FY11
3%
FY15
3%
FY17
2%
4%
3%
FY14
-1%
FY16 1Q18
Net unsecured interbank funding
Certificates of deposit
Total equity
Net secured funding
Debt issues placed with institutional investors Funding from customers
72%
21%
7%0%
Retail and SME
Mid-cap
Debt issues in retail network
Government and PSE
72% customer
driven
129.555 131.914 132.862 133.766 139.560 143.690 155.774 162.536
FY11 FY12 FY13 FY14 FY15 FY16 FY17 1Q18
Funding from customers (m EUR)
48
Short term unsecured funding KBC Bank vs Liquid assets as of end March 2018 (bn EUR)
KBC maintains a solid liquidity position, given that:
• Available liquid assets remained very high at more than3 times the amount of the net short-term wholesalefunding
• Funding from non-wholesale markets is stable fundingfrom core-customer segments in core markets
* Graph is 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
* Net Stable Funding Ratio (NSFR) is based on KBC’s interpretation of the proposal of CRRamendment** Liquidity Coverage ratio (LCR) is based on the Delegated Act requirements. From EOY2017onwards, KBC discloses 12 months average LCR in accordance to EBA guidelines on LCRdisclosure
(*)
NSFR is at 137% and LCR is at 139% by the end of1Q18
• Both ratios were well above the regulatory requirementof at least 100%
Solid liquidity position (2)
Ratios FY17 1Q18 Regulatory requirement
NSFR* 134% 137% ≥100%
LCR** 139% 139% ≥100%
25,10
14,1911,56
22,7018,71
68,14
58,30 56,23
65,39
57,79
271%
411%
486%
288%
309%
1Q17 2Q17 3Q17 4Q17 1Q18
Net Short Term Funding Available Liquid Assets Liquid Assets Coverage
49
KBC Group
Section 4
1Q 2018 wrap up
50
1Q 2018 wrap up
Strong commercial bank-insurance results in our core countries
Successful earnings track record
Solid capital and robust liquidity position
51
Looking forward
We expect 2018 to be a year of sustained economic growth in both the euro area, the US and in each of ourcore markets
Management guides for:• solid returns for all Business Units• loan impairments for Ireland towards a release in a 100m-150m EUR range for FY18• the impact of the reform of the Belgian corporate income tax regime: a recurring positive P&L impact as of 2018
onwards and the one-off negative impact in 4Q17 will be fully recuperated in roughly 3 years’ time• B4 impact for KBC Group is estimated at roughly 8bn EUR higher RWA on a fully loaded basis as at year-end 2017, which
corresponds with a RWA inflation of 9% and an impact on the CET1 ratio of -1.3%
Next to the Belgium and the Czech Republic Business Units, the International Markets Business Unit hasbecome 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: the legal merger of CIBank into UBB was approved. The new group UBB has become the largest bank-insurance
group in Bulgaria with a substantial increase in profit contribution• Sustainable profit contribution of Hungary and Slovakia
52
KBC Group
Annex 1
Company profile
53
Business profile
KBC is a leading player (retail and SME bank-insurance, private banking, commercial and local investment banking) in Belgium, the Czech Republic and its 4 core countries in the International Markets Business Unit
BREAKDOWN OF ALLOCATED CAPITAL BY BUSINESS UNIT AS AT 31 MARCH 2018
61%
16%
20%
Belgium
International Markets
Czech Republic
Group Centre
3%
54
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, May 2018
MARKET SHARE (END 2017)
20% 20%11% 11% 10% 8%
7%
33%22% 13% 13%
3%8%14%4%
21%
11%9% 7%3%
7%
BE CZ SK HU BG IRL
% of Assets
2017
2018e
2019e
64%
20%4%3% 3% 2%
4.0%1.7%
7.8%4.6% 3.6%3.4%
3.6%1.9%3.9%3.3% 3.8%
6.0%
3.5%2.8%1.7%3.9% 3.5% 4.0%
REAL GDP GROWTH OUTLOOK FOR CORE MARKETS1
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
55
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. The International Markets Business Unit also has become a strong contributor to the net result of KBC Group
Successful earnings track record
Solid capital and robust liquidity position
56
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 1Q18
18.5%
2.7%
KBC Ancora
Cera 11.4%
MRBB
60.0%
7.4%
Other core
Free float
57
KBC Group going forward:Wants to be among the best performing financial institutions in Europe
KBC wants to be among Europe’s best performing 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
58
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
59
More of the same… but differently…
• Integrated distribution model according to a real-time omni-channel approach remains key but client interaction will change over time. Technological development will be the driving force
• Human interface will still play a crucial role
• Simplification is a prerequisite:• In the way we operate• Is a continuous effort• Is part of our DNA
• Client-centricity will be further fine-tuned into ‘think client, but design for a digital world’
• Digitalisation end-to-end, front-and back-end, is the main lever:• All processes digital • Execution is the
differentiator
• Further increase efficiency and effectiveness of data management
• Set up an open architecture IT package as core banking system for our International Markets Unit
• Improve the applications we offer our clients (one-stop-shop offering) via co-creation/partnerships with Fintechs and other value chain players
• Investment in our digital presence (e.g., social media) to enhance client relationships and anticipate their needs
• Easy-to-access and convenient-to-use set-up for our clients
• Clients will drive the pace of action and change
• Further development of a fast, simple and agile organisation structure
• Different speed and maturity in different entities/core markets
• Adaptation to a more open architecture (with easy plug in and out) to be future-proof and to create synergy for all
60
Summary of the guidance at KBC Group levelas announced at our Investor Visit in June 2017
Guidance… by…
CAGR total income (‘16-’20)* ≥ 2.25% 2020
C/I ratio banking excluding bank tax ≤ 47% 2020
C/I ratio banking including bank tax ≤ 54% 2020
Combined ratio ≤ 94% 2020
Dividend payout ratio ≥ 50% As of now
* Excluding marked-to-market valuations of ALM derivatives
More of the same …
Regulatory requirements… by…
Common equity ratio*excluding P2G ≥ 10.6% 2019
Common equity ratio*including P2G ≥ 11.6% 2019
MREL ratio** ≥ 25.9% May 2019
NSFR ≥ 100% As of now
LCR ≥ 100% As of now* Fully loaded, Danish Compromise. P2G = Pillar 2 guidance.
** See slide 83 for more details
61
Summary of the guidance at KBC Group levelas announced at our Investor Visit in June 2017
… but differently…
Make further progress in our bank-insurance model
Guidance on inbound omni-channel/digital behaviour*
Guidance by …
% Inbound contacts via omni-channel and
digital channel
KBC Group** > 80% 2020
Guidance by…
CAGR Bank-Insurance clients (1 Bank product + 1 Insurance product)
BU BE > 2% 2020
BU CR > 15% 2020
BU IM > 10% 2020
Guidance by…
CAGR Bank-Insurance stable clients (3 Bk + 3 Ins products in Belgium; 2 Bk + 2 Ins products in CE)
BU BE > 2% 2020
BU CR > 15% 2020
BU IM > 15% 2020
• Clients interacting with KBC through at least one of the non-physical channels (digital or through a remote advisory centre), possibly in addition
to contact through physical branches. This means that clients solely interacting with KBC through physical branches (or ATMs) are excluded
** Bulgaria & PSB out of scope for Group target
62
Digital Investments 2017-2020
112 125 127 128
94 78 83 90
43 44 48 55
Strategic Grow Strategic Transform Regulatory
Cashflow 2017-2020 = 1.5bn EUR Operating Expenses 2017-2020 = 1bn EUR
(*) The Common Reporting Standard (CRS) refers to a systematic and periodic exchange of information at international level aimed at preventing tax evasion. Information on the
taxpayer in the country where the revenue was taken is exchanged with the country where the taxpayer has to pay tax. It concerns an exchange of information between as many as 53
OECD countries in the first year (2017). By 2018, another 34 countries will join.
2017 2018 2019 2020
Regulatory driven
developments (IFRS
9, CRS(*), MIFID,
etc.)
Omni-channel
and core-banking
system
Organic growth
or operational
efficienciesRegulatory
20% Strategic
Growth
36%
Strategic Transformation
44%
63
Digital sales are increasing (examples: BU Belgium)
0
200
400
600
800
1.000
1.200
Q1 Q2 Q3 Q4 Q1
2017 2018
Travel insurance
0
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
18.000
20.000
Q1 Q2 Q3 Q4 Q1
2017 2018
Consumer loans
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
Q1 Q2 Q3 Q4 Q1
2017 2018
Pension savings
0
5.000
10.000
15.000
20.000
25.000
30.000
35.000
Q1 Q2 Q3 Q4 Q1
2017 2018
Current accounts
64
Omnichannel is embraced by our customers (examples: BU Belgium)
Digital sales @ KBC Live increases, strong performance in non-life
Digital signing after contact with the branches or KBC Live in 2017-2018
0
5.000
10.000
15.000
20.000
25.000
30.000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mrt
KBC Live cumulative sales 2017-2018
Non life insurance Life insurance Housing loans
Consumer loans Investment plans
30,00%
40,00%
50,00%
60,00%
70,00%
80,00%
90,00%
17Q1 17Q2 17Q3 17Q4 18Q1
Digital signing of consumer loans
Digital signing of debt protect cover life insurance
Digital signing mortgage loans
Digital signing housing insurance
Digital signing car insurance
65
Impact of Basel 4 agreement
On 7 December, the Basel Committee reached an agreement on the remaining Basel 3 post-crisis regulatoryreforms (commonly known as Basel 4). The main elements of the Basel 4 agreement are:
o credit risk: changes to the internal ratings-based approach and a revised standardised approach;o market risk: FRTB postponed to 2022;o operational risk: a revised and more risk sensitive standardised approach, replacing all existing approaches;o an aggregate output floor (gradually phased-in between 2022 and 2027), which will ensure that banks' risk-weighted assets
based on internal models are not lower than 72.5% of RWAs as calculated by the revised standardised approaches
For KBC Group, the RWA increase related to Basel 4 is estimated at roughly 8bn EUR higher RWA on a fullyloaded basis as at year-end 2017, which corresponds with a RWA inflation of 9% and an impact on the CET1 ratioof -1.3%. This figure is based on our current interpretation of Basel 4, a static balance sheet and the currenteconomic environment. It also does not take into account possible management actions
We no longer see evidence that KBC is impacted significantly more than our peers. As a consequence, the 1%buffer for Basel 4 in our management targets is no longer required
The Basel agreement now needs to be implemented in EU regulation (CRR/CRD package), which might influence (ina positive or negative way) the final impact for KBC
Elements that are not included in above mentioned RWA impact (and which might affect KBC earlier):o the ongoing Targeted Review of Internal Models (TRIM) exercise by ECB;o the potential impact of the EBA review of the IRB approach (PD & LGD estimation; treatment defaulted exposures);o any impact on the Pillar 2 requirements (given that pillar 1 more adequately captures the risks)
66
1%
14%Median CET1 peers (FL)
Additional buffer B4
2017
We aim to be one of the better capitalisedfinancial institutions in Europe. Therefore asa starting position, we assess each year theCET1 ratios of a peer group of Europeanbanks active in the Retail, SME, andCorporate client segments. We positionourselves on the fully loaded median CET1ratio of the peer group*. The median CET1 ofour 12 peers increased from 13.6% end-2016to 14% end-2017
Based on internal benchmarking, KBC will nolonger be impacted relatively more than thesector average by Basel 4. Therefore, the B4buffer of 1% versus peers is no longerrequired
‘Own
Capital Target’= 14.0%
* The impact of B4 will be fully included at the start of 2022 (Note that all Basel 4 proposals are applicable in 2022, except for the 72.5% floor which is gradually phased-in and only binding for KBC as of 2027)
Impact of Basel 4 agreement: update ‘Own Capital Target’
67
Own Capital Target 14.0%
2.0%Flexible buffer for M&A
2017
‘Reference
Capital Position’= 16.0%
KBC Group wants to keep a flexiblebuffer of up to 2% CET1 for potentialadd-on M&A in our core markets
This buffer comes on top of the ‘OwnCapital Target’ of KBC Group, and alltogether forms the ‘Reference CapitalPosition’
Any M&A opportunity will be assessedsubject to very strict financial andstrategic criteria
Impact of Basel 4 agreement: update ‘Reference Capital Position’
68
Capital distribution to shareholders
The payout ratio policy (i.e. dividend + AT1 coupon) of at least 50% of consolidated profit isreconfirmed, with an annual interim dividend of 1 EUR per share being paid in November of eachaccounting year as an advance on the total dividend
On top of the payout ratio of 50% of consolidated profit, each year, the Board of Directors will take adecision, at its discretion, on the distribution of the capital above the ‘Reference Capital Position‘
69
The core of KBC’s sustainability strategy (1)
The mindset of all KBC staff should go beyond regulation and compliance
Responsible behaviour is a requirement to implement an effective and credible sustainability strategy
Specific focus on responsible selling and responsible advice
We apply strict sustainability rulesto our business activities, inrespect of human rights,environment, business ethics andsocial themes
KBC is a market leader in sociallyresponsible investments, offering afull range of SRI funds
We contribute to the transition toa low-carbon economy by reducingour own environmental footprint,tightening our lending policy to theenergy sector and taking initiativesto promote energy efficiency,renewable energy, etc.
Sustainability goes beyond philanthropyand sponsorship
We focus on a number of societal needsand actively respond to these needs bydeveloping business solutions in which abank-insurer can provide the elementsthat make a difference
We defined the following focus domains:‘financial literacy’, ‘environmentalresponsibility’, ‘entrepreneurship’, and‘demographic ageing and health’
Examples are given on the next slides
Increasing ourpositive impact
on society
Encouragingresponsible behaviour
on the part of allemployees
Limiting ouradverse impact
on society
70
The core of KBC’s sustainability strategy (2)
Our focus areas What? A few examples
Financialliteracy
• Helping clients make the right choicesthrough good and transparent advice,and clear communication
• Improving general public knowledge offinancial concepts and products
• Around 200 lessons on financial subjectsgiven by ČSOB employees at 50 differentschools in 2017
• Launch of an investors' club by K&H inHungary, aimed at the younger generationso that they can learn more about investing,the financial markets, etc.
• Introduction of ‘KBC Go Digital Intro’ inBelgium, in which clients can discover ourdigital offering
• Launch of ‘Get-a-teacher’ by KBC inBelgium, to give schools the opportunity toextend financial knowledge by ‘ordering’ ateacher from KBC
Environmental responsibility
• Reducing our ecological footprintthrough a diverse range of initiatives andobjectives
• Developing products and services thatcan make a positive contribution to theenvironment
• Focusing on multi-mobility at KBCAutolease, including the development ofbicycle leasing
• Signing the ‘Green Deal for CircularProcurement’ to help achieve a morecircular economy in Flanders
• Obtaining a ‘Leadership A-’ score in the2017 Carbon Disclosure Project ClimateChange Programme
71
The core of KBC’s sustainability strategy (3)
Our focus areas What? A few examples
Entrepre-neurship
• Contributing toeconomic growth bysupporting innovativeideas and projects
• Launching the e-stores programme in Bulgaria• Rolling out Start it @kbc from Belgium to other core countries• KBC Match’it, a digital platform for transferring businesses• Providing capital for start-ups via the KBC Start it Fund• Supporting local initiatives through the Bolero crowdfunding
platform• Encouraging clients to take the step to e-commerce via
Storesquare, FarmCafe and similar initiatives• Realising various European programmes to support small and
micro businesses and SMEs• Launching the KBC Service to Associations to encourage
involvement in clubs, societies and associations in Belgium
Demographic ageing and health
• We chose‘demographic ageing’as the fourth pillar inBelgium and the CzechRepublic
• We chose ‘Health’ asthe fourth pillar inBulgaria, Slovakia,Hungary and Ireland
• Providing digitalisation lessons for over-55s in Belgium• Providing financial and material assistance to sick children
through the ‘K&H MediMagic Programme’ in Hungary• ČSOB is collaborating with the Centre of Health Economics and
Management at the Faculty of Social Sciences at the CharlesUniversity in Prague
• Launch by ČSOB in the Czech Republic of the online portal ‘Findyour way through senior age’ in collaboration with the SueRyder Home advisory centre
More information is available at www.kbc.com, under ‘Corporate Sustainability’.
72
KBC Group
Annex 2
Other items
73
Loan loss experience at KBC
1Q18CREDIT COST
RATIO
FY17CREDIT COST
RATIO
FY16CREDIT COST
RATIO
FY15CREDIT COST
RATIO
FY14CREDIT COST
RATIO
AVERAGE ‘99 –’17
Belgium 0.05% 0.09% 0.12% 0.19% 0.23% n/a
Czech Republic
0.01% 0.02% 0.11% 0.18% 0.18% n/a
International Markets
-0.86% -0.74% -0.16% 0.32% 1.06% n/a
Group Centre -1.43% 0.40% 0.67% 0.54% 1.17% n/a
Total -0.15% -0.06% 0.09% 0.23% 0.42% 0.47%
Credit cost ratio: amount of losses incurred on troubled loans as a % of total average outstanding loan portfolio
74
Ireland (1): impaired loans ratio further improved
The Irish economy has begun 2018 with significant positive
momentum in activity and employment growth, FY18 GDPgrowth of 6% is envisaged
The upswing in the Irish economy has progressively strengthenedand this has been reflected in robust and broadly based jobsgrowth. As a result, the unemployment rate has reduced to 5.9%,its lowest level in almost ten years
Healthy jobs growth, improving confidence and supportivedemographics are underpinning strengthening demand forhousing. While new supply has increased somewhat, this has notbeen sufficient to prevent significant upward pressure on houseprices
On a like-for-like basis, impaired loans have reduced in 1Q18 by0.2bn EUR (-3% q-o-q) with impaired loan ratio at 36.6% at 1Q18
Net loan loss provision release of 43m EUR in 1Q18 driven bygrowth in the CSO House Price Index and improved non-performing portfolio performance. This compares with a 52m
EUR release in 4Q17
Looking forward, we are maintaining our impairment guidancefor Ireland, namely a net release in a range of 100m-150m EURfor FY18
Note: In order to align with current accounting guidance, KBC has modified its classification of reserved interest provisions (i.e. interest charged and not recognised in the P&L on impaired loans since date of default). These amounts, previously netted from gross outstanding loan balances, are now included as part of impaired loan provisions. The net balance sheet carrying value of impaired loans is unchanged. As at 1Q18, reserved interest provisions totalled 0.5bn EUR. Prior quarter ratios have been restated
75
Retail portfolio
The New Retail portfolio (all originations post 1 Jan 2014) comprises2.5bn EUR of the overall Retail portfolio and increased q-o-q by 0.2bnEUR. New Retail at 1Q18 represents 22% of total Retail portfolio (from15% at 1Q17)
Impaired portfolio decreased by roughly 84m EUR q-o-q on a like-for-like basis mainly due to improved portfolio performance (reduction of0.8bn EUR y-o-y)
Coverage ratio for impaired loans has remained stable at roughly 37%for 1Q18
Weighted average indexed LTV on the impaired portfolio has improvedsignificantly y-o-y and in 1Q18 decreased to 102% (from 120% at 1Q17)
Ireland (2): portfolio analysis
Corporate loan portfolio
Impaired portfolio on a like-for-like basis has reduced by roughly78m EUR q-o-q. Reduction driven mainly by continued deleverage ofportfolio (reduction of 0.5bn EUR y-o-y)
Coverage ratio for impaired loans has remained stable at roughly67% for 1Q18
Overall exposure has dropped by approximately 0.65bn EUR y-o-y(-35% 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
76
Sectorial breakdown of outstanding loan portfolio (1)(163bn EUR* including UBB) of KBC Bank Consolidated
11%
7%
15%
7%
8%4%3%
3%
40%
Rest
Services
Real estate
Distribution
Authorities
Finance & insuranceAutomotive
Building & constructionAgriculture, farming, fishing
Private Persons
2%
Food producers0.7%
1.6%
Electricity
1.4%
1.5%
Other sectorsMetals
1.2%Chemicals
Shipping
1.1%Machinery & heavy equipment
1.1%
5.2%
0.7%
Hotels, bars & restaurantsOil, gas & other fuels
* 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
77
Geographical breakdown of the outstanding loan portfolio (2)(163bn EUR* including UBB) of KBC Bank Consolidated
54.2%
3.2%
Ireland
14.5% Belgium
Czech Rep.
7.7%
1.8%
4.8%
Other CEE
Slovakia
Hungary 2.1%
Bulgaria8.1%
Other W-Eur 0.6%1.5%
North America
1.6%
AsiaRest
* 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
78
Impaired loans ratios*, of which over 90 days past due
INTERNATIONAL MARKETS BU (including UBB)CZECH REPUBLIC BU
1Q18
3.7%3.9%3.6%
1Q17 2Q17
6.0%
3Q17
3.4%
4Q17
5.9%
3.5%
6.8% 6.9%6.6%
Impaired loans ratio *
Of which over 90 days past due
1.6%
2.5%
1.6%
1Q182Q17
2.4%
1.8%
3Q171Q17
1.7%
4Q17
1.6%
2.7% 2.6%2.4%
12.8%
4Q172Q171Q17
13.4% 12.6% 11.3%
3Q17
12.1%
1Q18
24.2%
20.4%
23.6%22.4%
19.7%
BELGIUM BU
1.5%1.5%
1Q17
2.8%
2Q17
1.5%
3Q17
1.4%
4Q17
1.3%
1Q18
3.0% 3.0%2.8%
2.6%
KBC GROUP
• Impaired loans ratio: As of 1Q18, a switch has been made in the risk reporting figures from outstanding (PD10-12) to the new definition of gross carrying amount, i.e. including reserved and accrued interests. In addition, the transaction scope of the credit portfolio was extended and now additionally includes the following 4 elements: (1) bank exposure (money market placements, documentary credit, accounts), (2) debtor risk KBC Commercial Finance, (3) unauthorized overdrafts, and (4) reverse repo (excl. central bank exposure)
79
Cover ratios
INTERNATIONAL MARKETS BU (including UBB)CZECH REPUBLIC BU
BELGIUM BUKBC GROUP
• Impaired loans cover ratio: As of 1Q18 a switch has been made in the risk reporting figures from outstanding to the new definition of gross carrying amount, i.e. including reserved and accrued interests
63.7%
3Q17
68.1%
1Q17
47.3%
2Q17 1Q184Q17
46.6%
64.2%
47.5%
64.5%
44.0%
64.1%
47.8%
Impaired loans cover ratio *
Cover ratio for loans with over 90 days past due
1Q182Q17
69.0%
4Q173Q171Q17
56.7% 57.7%55.1%
69.4% 71.8%
54.7%
68.9%
52.5%
66.8%
47.9%
1Q17 4Q17
46.4%
2Q17
67.5%
1Q183Q17
67.6%
48.4%
69.7%
44.4%
68.6%
44.2%
67.6%
58.8%
3Q17 1Q18
60.8%
1Q17
43.5%
2Q17 4Q17
45.9%
58.9%
45.4%
66.0%
40.9%
60.2%
46.9%
80
Fully loaded B3 CET1 based on the Danish Compromise (DC)from 4Q17 to 1Q18
Jan 2012 Dec 2012 2014-2020
4Q17 (B3 DC**)
0.8
1Q18 impact
93.2
1Q18 (B3 DC)
92.4
DELTA AT NUMERATOR LEVEL (BN EUR)
DELTA ON RWA (BN EUR)
* Includes the q-o-q delta in deferred tax assets on losses carried forward, remeasurement of defined benefit obligations, IRB provision shortfall, deduction re. financing provided
to shareholders, deduction re. irrevocable payment commitments, intangible fixed assets, AT1 coupon, translation differences, etc.
** Includes the RWA equivalent for KBC Insurance based on DC, calculated as the historical book value of KBC Insurance multiplied by 370%
Fully loaded B3 commonequity ratio decreased to15.9% at end 1Q18 based onthe Danish Compromise, duemainly to the impact of thefirst-time application of IFRS 9(-41bps).
This clearly exceeds theminimum capital requirementsset by the competentsupervisors of 10.6% fullyloaded
14.8
B3 CET1 at end 4Q17 (DC)
Pro-rata accrual dividend
-0.30.5
1Q18 net result (excl. KBC Ins. due to Danish Compr.)
-0.4
FTA IFRS9
-0.1
Other* B3 CET1 at end 1Q18 (DC)
15.1
81
Overview of B3 CET1 ratios at KBC Group
Method Numerator Denominator B3 CET1 ratio
FICOD*, fully loaded 15,803 106,327 14.9%
DC**, fully loaded 14,793 93,173 15.9%
DM***, fully loaded 13,806 87,743 15.7%
* FICOD: Financial Conglomerate Directive** DC: Danish Compromise*** DM: Deduction Method
82
The resolution plan for KBC is based on a Single Point of Entry (SPE) approach at the level of KBC Group;
Bail-in is identified as the preferred resolution tool;
SRB’s current approach to MREL is defined in the ‘2017 MREL Policy’ published on 20 December 2017, which is based on thecurrent legal framework and hence might be revised in the context of the ongoing legislative process to review BRRD;
The MREL target for KBC is 25.9%, which is based on fully loaded capital requirements as at 31-12-2016;
SRB requires KBC to achieve this target by 1 May 2019, using both HoldCo and eligible OpCo instruments
LAA Loss Absorbing AmountRCA ReCapitalisation AmountMCC Market Confidence ChargeCBR = Combined Buffer Requirement = 2.5% Conservation Buffer +1.5% O-SII buffer + 0.15% countercyclical buffer
LAA
RCA
MCC
8% P1
1.75% P2R
4.15% CBR
8% P1
1.75% P2R
2.9% (CBR – 1,25%)
@ 100% RWA
@ 95% RWA
= 25,9%
T2
1.5%
1.3%
HoldCo senior 3.8%
2.3%
1Q18
15.9%
OpCo (T2 & senior >1y)
AT1
CET1
24.8%
= 23.5%
Gradually mature.To be replaced by
HoldCo senior
HoldCo approach
Consolidated approach
KBC well on track to comply with resolution requirements
83
Available MREL as a % of RWA (fully loaded)
26.3%
22.3%
26.0%
3.8%
1Q17
24.6%23.7%
1Q182Q17
3.4%
22.8%
2.5%
23.5%
3Q17
2.3%
26.3%
24.0%
4Q17
26.2%
1.3%1.3%
1Q18 pro forma*
24.8%25.9%
OpCo MREL HoldCo MREL
* Pro forma MREL also includes the successful issuance of 1bn EUR additional Tier-1 instrument in April 2018
84
Government bond portfolio – Notional value
Notional investment of 46.3bn EUR in government bonds (excl. trading book) at end of 1Q18, 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 1Q18
31%
15%
3%4%6%
4%
13%
9%
5%
France
SlovakiaCzech Rep.
Belgium
Poland
2%
Hungary
Bulgaria**Italy
Other
SpainGermany **
Austria *Netherlands * Ireland
Portugal *
END 1Q18(Notional value of 46.3bn EUR)
(*) 1%, (**) 2%
33%
14%
3%4%6%
4%
12%
9%
5%
Italy
Belgium
Bulgaria**Czech Rep.
PolandHungary
2%
Slovakia
France
Other
SpainGermany **
Austria **Netherlands * Ireland **
Portugal *
END 2017(Notional value of 47.3bn EUR)
(*) 1%, (**) 2%
85
Government bond portfolio – Carrying value
Carrying value of 49.3bn EUR in government bonds (excl. trading book) at end of 1Q18, 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 6.6bn EUR at end of 1Q18
* 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 1Q18(Carrying value of 49.3bn EUR)
(*) 1%, (**) 2%
31%
14%
3%4%6%
4%
13%
9%
6%
Hungary
Belgium
Czech Rep.
Poland
ItalySlovakia
2%
Netherlands *
Bulgaria**
France
Other
SpainGermany **
Austria *Ireland
Portugal *
END 2017(Carrying value of 51.5bn EUR)
(*) 1%, (**) 2%
33%
13%
3%4%6%
4%
12%
9%
6%
SlovakiaHungary
Belgium
Czech Rep.
Poland
Italy
Spain
2%
Bulgaria**
France
Other
Germany **Austria **
Netherlands * Ireland**Portugal *
86
Upcoming mid-term funding maturities
KBC Bank placed covered bonds of 750m EUR with 8-year maturityand 250m EUR with 20-year maturity in March 2018
KBC Bank has successfully issued a 1bn EUR additional Tier-1instrument with 7.5-year non-call perpetual in April 2018
CoCo has been called (on 25 January 2018)
KBC Group’s credit spreads have widened towards the end of 1Q18
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
15%
6%
10%
10%
32%
27%
0.3%
1.0%
1.8%
1.4%
1.7%
0.5%
0.2%
0.4%
0.2%0.3%
0
1000
2000
3000
4000
5000
6000
2018 2019 2020 2021 2022 2023 2024 2025 2026 ≥ 2027
m E
UR
Breakdown Funding Maturity Buckets
Senior Unsecured - Holdco Senior Unsecured - Opco Subordinated T1 Subordinated T2 Covered Bond TLTRO
(Including % of KBC Group’s balance sheet)
Total outstanding =
23bn EUR at the end of April 2018
87
-40
10
60
110
160
210
-20
0
20
40
60
80
100
120
140
Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18
Credit Spreads Evolution
0.5Y Senior Debt Opco 5Y Covered Bond Interpolated 5Y Senior Debt Holdco Interpolated 7NC2 Subordinated Tier 2
Credit spreads evolution
1 7NC2 Subordinated Tier 2 spread is depicted based on the right hand axis.
1
88
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)• one-off items
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 specific impairments on the impaired loan portfolio (stage 3) ] / [part of the loan portfolio that is impaired (PD 10-11-12) ]
Impaired loans ratio [part of the loan portfolio that is impaired (PD 10-11-12)] / [total outstanding loan portfolio]
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 [banking group net interest income excluding dealing room] / [banking group average interest-bearing assets excluding dealing room]
Net stable funding ratio (NSFR) [available amount of stable funding] / [required amount of stable funding]
89
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 fair value through Other Comprehensive Income (OCI) assets]
TLAC Total loss-absorbing capacity
90
Contact informationInvestor Relations OfficeE-mail: [email protected]
www.kbc.comvisit for the latest update