Transcript KBC Bank & Insurance Group

KBC Bank & Insurance Group
Investor presentation
Yearend 2004
www.kbc.com
Contact information
Visit www.kbc.com
Investor Relations Office :
Luc Cool
Nele Kindt
Marina Kanamori
Tel. : +32 2 429 49 16
E-mail : [email protected]
Ticker codes: KBC BB (Bloomberg)
KBKBT BR (Reuters)
B:KB (Datastream)
ISIN code: BE0003565737
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Disclaimer
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•
THIS PRESENTATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY.
•
ALTHOUGH THE STATEMENTS OF FACT IN THIS PRESENTATION HAVE BEEN OBTAINED
FROM AND ARE BASED UPON SOURCES THAT KBC BELIEVES TO BE RELIABLE, KBC DO
NOT GUARANTEE THEIR ACCURACY, AND ANY SUCH INFORMATION MAY BE CONDENSED
OR INCOMPLETE.
•
THIS PRESENTATION CONTAINS FORWARD-LOOKING STATEMENTS WITH RESPECT TO OUR
STRATEGIES AND EARNINGS DEVELOPMENT BY THEIR NATURE, THESE FORWARDLOOKING STATEMNTS INVOLVE NUMEROUS ASSUMPTIONS, UNCERTAINTIES AND
OPPORTUNITIES. THE RISK EXISTS THAT THESE STATEMENTS MAY NOT BE FULFILLED AND
THAT FUTURE RESULTS DIFFER MATERIALLY.
•
BY RECEIVING THIS PRESENTATION EACH INVESTOR IS DEEMED TO REPRESENT THAT IT
IS A SOPHISTICATED INVESTOR AND POSSESSES SUFFICIENT INVESTMENT EXPERTISE TO
UNDERSTAND THE RISKS INVOLVED.
Table of contents
1. Company profile
2. Developments in Belgium
3. Developments in CEE
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Foto gebouw
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Company profile
Top-20 player in Euroland banking
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5
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7
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9
10
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12
BNP Paribas (35 bn)
BSCH (31 bn)
BBVA (29 bn)
Deutsche Bank (26 bn)
ABN AMRO (25 bn)
Société Gén. (24 bn)
Unicredit (24 bn)
Fortis (22 bn)
Crédit Agricole (14 bn)
Dexia (14 bn)
Intesa BCI (12 bn)
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2
3
4
5
6
7
8
9
10
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Allied Irish Banks (12 bn)
12 San Paolo IMI (15 bn)
13 Bank of Ireland (10 bn)
14 KBC (9 bn)
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16
17
18
19
20
San Paolo IMI (9 bn)
Banco Popular (8 bn)
HVB (7 bn)
Mediobanca (6 bn)
Bca MPS (6 bn)
Bco Popular (5 bn)
Nov 2004
Dec 2003
Dec 2002
BNP Paribas (45 bn)
BSCH (45 bn)
Deutsche Bank (38 bn)
BBVA (35 bn)
Société Gén. (31 bn)
ABN AMRO (30 bn)
Crédit Agricole (28 bn)
Unicredit (27 bn)
Fortis (21 bn)
Intesa BCI (18 bn)
Dexia (16 bn)
13 KBC (11 bn)
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15
16
17
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19
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Bco Popular (11 bn)
Allied Irish Banks (11 bn)
Bank of Ireland (11 bn)
HVB (10 bn)
Commerzbank (9 bn)
Mediobanca (7 bn)
Bca MPS (6 bn)
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2
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4
5
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7
8
9
10
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BSCH (57 bn)
BNP Paribas (48 bn)
BBVA (42 bn)
Deutsche Bank (35 bn)
Crédit Agricole (35 bn)
Société Gén. (34 bn)
ABN AMRO (32 bn)
Unicredit (27 bn)
Fortis (26 bn)
Intesa BCI (21 bn)
Dexia (18 bn)
12 KBC (18 bn)
13 San Paolo IMI (15 bn)
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15
16
17
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19
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Allied Irish Banks (12 bn)
HVB (12 bn)
Bank of Ireland (11 bn)
Bco Popular (10 bn)
Commerzbank (9 bn)
BA-CA (9 bn)
Mediobanca (9 bn)
(*) DJ Euro Stoxx Banks Constituents - Ranking by Market Capitalization – Situation as at 16 Nov 2004
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(*)
Prominent player in 2 core markets
Breakdown of revenue (9M 04)
Treasury &
Financial markets other 9%
11%
International
corporate
7%
Belgium
48%
CEE
25%
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
KBC is a top financial player in Belgium and has succesfully expanded its
operations in the 5 most advanced countries in CEE (new EU members)

Besides these core markets, KBC is active in selected ‘other’ areas:
international mid-corporate banking (mostly in W. Eur.) and financial markets

As investments in CEE have continued to increase, the ‘other’ activities have
been progressively scaled down
Top-3 player in Belgium
Market share: (1)
Insurance premiums
Mutual funds
Client deposits
FORTIS
KBC
FORTIS
KBC
FORTIS
AXA
DEXIA
DEXIA
Ethias
ING
ING
KBC
ING
Argenta
Other
0%
10%
20%
30%
0%
10%
20%
30%
0%
10%
20%
30%

Consolidated banking landscape (80-90% of market held by Top-4)

Market highly receptive to cross-selling of AM & insurance products

KBC is particularly strong in the Northern region
(one of the wealthiest regions in Europe)
(1) Figures
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Other
Other
for 2003. Sources: FEBELFIN, KBC Asset Management, Uw Vermogen (Flemish investment journal)
Top-3 player in the CEE region
International banks in CEE (by total assets, bn EUR) :
29.0
KBC (BE)
28.6
Erste Bank (AT)
24.6
23.5
UniCredit (IT)
HVB / BA-CA (GE/AT)
21.6
RZB (AT)
19.0
Société Générale (FR)
14.3
Intesa BCI (IT)
Citibank (US)
13.5
OTP (HU)
13.2
ING (NL)
8.7
Source: RZB – assets as at 31 Dec 03, ownership structure as at 30 Jun 04
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
KBC is one of the largest international players in the region

In contrast to other players, KBC limits its presence to new EU Member
States (the Czech and Slovak Republics, Hungary, Poland and Slovenia)
and is active in both the banking and insurance fields
Top-3 position in the CEE region
Banking
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Insurance
Czech Republic:
Market share: 18% (No. 1)
Inhabitants: 10 m
Total assets:18 bn EUR
Czech Republic:
Life M share: 7% (No. 4)
Non-life M share: 4% (No. 6)
Slovakia:
Market share: 6% (No. 4)
Inhabitants: 5 m
Total assets: 2 bn EUR
Slovakia:
Life M share: 4% (No. 8)
Non-life M share: 1% (No. 6)
Hungary:
Market share: 11% (No. 2)
Inhabitants: 10 m
Total assets: 6 bn EUR
Hungary:
Life M share: 2% (No. 13)
Non-life M share: 4% (No. 6)
Poland:
Market share: 5% (No. 8)
Inhabitants: 38 m
Total assets: 5 bn EUR
Poland:
Life M share: 4% (No. 5)
Non-life M share: 13% (No. 2)
Slovenia:
Minority interest (34%)
Inhabitants: 2 m
Market share: 42% (No. 1)
Slovenia:
Life M share: 4% (No. 5)

KBC invested ± 3.6 bn to acquire a prominent banking and insurance
position in a growth market of ± 65 m inhabitants

In Poland, KBC is looking for external growth in banking (lack of scale)
Foto gebouw
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Developments
in Belgium
Do not underestimate the market
Nominal GDP growth
Savings rate
KBC estimates, 2005
EU forecast report Spring 04, % of GDP, 2003
5.5%
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

12
2.9%
3.1%
Germany
NL
3.7%
4.0%
4.2%
6%
France
UK
Belgium
Spain
UK
9%
Nordic
16%
16%
Germany
Belgium
11%
Spain
Belgian GDP outgrowing European average (slightly) in 2004-05
Savings ratio amongst the highest in the world
(every year, ca. 15% of disposable income flows into financial assets)
Belgium’s high savings rate a key driver for sustained growth of the
financial industry
KBC is well positioned
Life insurance, written premiums
Retail AUM
1998 = 100
total market (LH)
vs. KBC (RH)
141
149
CAGR KBC +10%
146
133
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13
2000
2001
143
2002
139
202
170
145
107
2003
CAGR KBC +18%
165
157
156
127 130
1999
1998 = 100
total market (LH)
vs. KBC (RH)
3M04
122
1999
153
118
131
2000
2001
264
220
145
2002
2003 2004e
AM and Life insurance markets growing at ca. 8-10% per year
KBC outgrowing the market on the back of its favourable position:
 Especially strong in the (wealthy) Northern region
 Innovative product offering in retail AM (as a result, steadily
increasing market share over the past 10 yrs. )
 A differentiating bancassurance distribution model
(on the back of which life reserves grew >20% p.a.
over the last 3 yrs.)
Do not underestimate the market
Mortgage debt / GDP per capita
Mortgage loan growth
Total market
156
CAGR 9%
100
108
118
118
128
84
17
2001
Source: NBB
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2002
2003
2004e
Italy
41
45
46
Belgium
France
Spain
Germany
UK

Mortgages growing at 8-10% per year, driven by housing inflation
(loan-to-value for new loans is typically 75%)

Real estate prices still below other European markets, ensuring
a) sustained mortgage growth and b) acceptable risk position

More modest corporate loan growth, in line with nominal GDP
growth trend (expected at 4.2 % in 2005)
NL
Source: ECB
Margin development
Spreads on new mortgages
KBC
KBC
1.0%
1.0%
End-01
End-02
0.6%
End-00
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Spreads on new small business loans
0.7%
0.7%
1.0%
End-03
Mid-04
End-00
1.5%
1.4%
1.5%
End-01
End-02
End-03
1.2%
Mid-04

Loan spreads increased substantialy (‘doubled’), following consolidation
on market at the end of the ’90s

Recently, renewed margin pressure on both the credit and deposit
sides, since large players are eager to defend their market share

KBC’s net-interest margin in Belgium currently at 1.97% (2.04% in ’03)
Do not underestimate the market
Core banking service fee rates
World retail banking report (EFMA)
EUR, 2003
102
56
UK
16
102
183
104
60
Belgium Germany France
Spain
Sweden

Fee rates still ‘cheap’, allowing for further (gradual) repricing

Greatest hindrance to repricing (probably) not from market competition,
but from public opinion
Solid credit quality
Non-secured retail loans / total loans
%, 2003
19%
Source: central banks
Loan loss charges, KBC
KBC (net provisions to gross loans)
18%
13%
11%
11%
9%
8%
6%
0.32%
0.22%
0.24%
0.07%
France UK Germany Italy PortugalSpainBelgium NL
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
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2001
2002
2003
9M04
Market’s ‘savings culture’ implies low demand for unsecured
consumer lending
Commercial loan exposure well-diversified, spanning a large number
of SMEs (limited number of very large corporates)
Credit quality proven to be solid, with low loan loss charges
over the cycle
Further cost reduction potential
Cost/income, total market
%, 2003
Banking
65%
51%
UK
Cost/income, KBC Belgium
54%
Spain
66%
56%
Nordic
- 16 pp
66%
85%
86%
74%
Benelux Germany France
2001
Retail banking
(incl. AM)
2002
2003
69%
9M04
KBC committed to bring cost/income further down by
 Reducing product and business-process complexity (360 projects)
 Co-sourcing of back offices with other (international) banks, e.g.:
 ‘Orbay project’ with Rabobank (securities processing): unit cost
to be reduced by 2/3, generating 15-20 m recurring cost savings
 ‘Fin-Force project’ (cross-border payments)
 Similar areas
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Foto gebouw
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Developments
in CEE
Above-average GDP growth
2005e
Real GDP growth + inflation - KBC estimates
8.7%
6.5%
2.8%
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4.0%
7.6%
7.3%
4.2%
3.1%
3.7%
4.7%
3.4%
4.2%
CR
Slovakia
Hungary
Poland

Nominal GDP growth in 2005 expected at ca. 7% in the region,
outgrowing EU level by ca. 3.5%

GDP expected to outgrow European averages for a long time
(similar to previous EU entrants)
Increasing product penetration
1997
2003
Deposits as % of GDP (EMU avg = 100)
Deposits as % of GDP (EMU avg = 100)
80%
73%
CR
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63%
44%
44%
Slovakia
Hungary
44%
46%
Hungary
Poland
34%
Poland
CR
Slovakia

Current level of financial intermediation and product penetration still low
(e.g., 45% of the population in our markets have a bank account,
30% a savings account and 5% a mortgage loan)

Levels steadily catching up with that of the EU

Size of retail financial sector could multiply five-fold in 10 yrs. time,
if financial assests to GDP were to reach current levels of S. Europe
Strong momentum in retail business
Mortgage loan growth
Total market, 2003
NBP, NMB, CNB
93%
Mutual fund growth
Total market CEE-3, in m EUR
13 914
90%
11 474
39%
2 158
Czech Rep.



22
Hungary
Poland
FEFSI
1998
CAGR +48%
2002
9M03
Retail business growing at double-digit pace (albeit starting from a low
basis), on the back of a) increasing disposable income and b)
underpenetration of financial products
This explains KBC’s (and other FIs) key focus on the retail market
Corporate market more mature, including corporate loan growth,
which is more in line with (higher) GDP growth trend
Margin levels have been ‘normalizing’
Mortgage loan spreads
6.1%
3.2%
NMB, NBP, CNB
Total market
3.1%
2.5%
2.5%
1.7%
1.5%
N/a
End-02
23
N/a
Mid-03
CR
Hungary
Poland
1.7%
1.3%
N/a
End-03
Mid-04

Due to increased competition, margin pressure has already come
through to a large extent

KBC’s net-interest margin currently at 2.7% in CR/SR (vs. 2.5% in ’03),
3.8% in Hungary (vs. 4.0%) and 4.6% in Poland (vs. 4.9%)

As rates continue to converge towards euro levels, somewhat more
margin compression expected – to be offset by volume growth and fees
Cost-reduction potential
Cost/income ratio
KBC
80%
63%
73%
70% 67%
2002
24
84%
77%
70%
57%
2003
9M04
66%
56%
53%
CR
Hungary
Poland
Sector
2003

C/I levels significantly down in the the last 2 yrs. (except in Poland)

Still existing ‘efficiency gap’ vis-à-vis local market average,
in the process of being closed

In Poland, resolution to structural issue (lack of scale) may be critical
Expanded horizons in CEE paying off
Banking results – 9M04
StandContribution
In m EUR
alone
to Group
net profit
CR/SLK
163
124
(o/w SLK)
13
Hungary
65
25
Poland
32
25
Slovenia
65
22
Contribution
% y-o-y
Return on
allocated
capital
Return on
invested
capital
7%
17%
12%
5%
-
19%
11%
-
16%
6%
7%
Contribution to Group: profit excl. minority interests and return on excess capital; incl. allocated Group overhead.


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Ytd figures clearly illustrating internal return target of 17% is achievable
(except in Poland)
Since we are closing the efficiency gap, higher return in these market
levels seems to be within reach (assuming stable cost of risk)
In Poland, returns can be further increased, but ‘structural issue’ (scale)
may be critical for creating value above cost of capital
Update on restructuring efforts
in Poland
Key achievements :
- Risk
Clear
profitability
turnaround
- Costs
Risk issue adequately dealt with in 2003
 Historic loan book ‘cleaned-up’
(one of the highest provision coverage rates on the
market and ytd 04 provisions below market avg.)
 Risk management procedures upgraded and
distressed asset portfolio closely monitored
Cost basis significantly reduced:
 Centralization of back offices, outsourcing
of non-core functions and divestiture of non-core
assets (Ukraine, Lithuania, etc.)
 Headcount reduced by 1 300 FTEs (-19%)
Renewed focus on business development as of 2H04
+ Volumes  Including intensive transfer of KBC know-how
 Acceleration in bancassurance and AM sales
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KBC
Foto gebouw
Bank & Insurance Group
www.kbc.com