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KBC Bank

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  • Luc Cool Thank you and good afternoon to you all. We announced our third quarter results earlier today and I hope that most of you have been able to read through the information made available on our website. As we announced, it is useful to have a copy with you of the powerpointpresentation that is on our website as well, as this will be the guideline for today’s call. Joining us during the conference call from our head office in Brussels are Willy Duron, our Group CEO and in charge of the insurance operations and André Bergen, the Deputy Chief Executive of the group and responsible for all our banking activities. Both gentlemen will first give a short overview of the quarterly results. I would now like to give the floor to Willy Duron.
  • Luc Cool Thank you and good afternoon to you all. We announced our third quarter results earlier today and I hope that most of you have been able to read through the information made available on our website. As we announced, it is useful to have a copy with you of the powerpointpresentation that is on our website as well, as this will be the guideline for today’s call. Joining us during the conference call from our head office in Brussels are Willy Duron, our Group CEO and in charge of the insurance operations and André Bergen, the Deputy Chief Executive of the group and responsible for all our banking activities. Both gentlemen will first give a short overview of the quarterly results. I would now like to give the floor to Willy Duron.
  • Luc Cool Thank you and good afternoon to you all. We announced our third quarter results earlier today and I hope that most of you have been able to read through the information made available on our website. As we announced, it is useful to have a copy with you of the powerpointpresentation that is on our website as well, as this will be the guideline for today’s call. Joining us during the conference call from our head office in Brussels are Willy Duron, our Group CEO and in charge of the insurance operations and André Bergen, the Deputy Chief Executive of the group and responsible for all our banking activities. Both gentlemen will first give a short overview of the quarterly results. I would now like to give the floor to Willy Duron.
  • Luc Cool Thank you and good afternoon to you all. We announced our third quarter results earlier today and I hope that most of you have been able to read through the information made available on our website. As we announced, it is useful to have a copy with you of the powerpointpresentation that is on our website as well, as this will be the guideline for today’s call. Joining us during the conference call from our head office in Brussels are Willy Duron, our Group CEO and in charge of the insurance operations and André Bergen, the Deputy Chief Executive of the group and responsible for all our banking activities. Both gentlemen will first give a short overview of the quarterly results. I would now like to give the floor to Willy Duron.
  • Transcript

    • 1. KBC Bank & Insurance Group Interim results at 30 September 2003 www.kbc.com Ticker codes: KBC BB (Bloomberg) KBKBT BR (Reuters) B:KB (Datastream) ISIN code: BE0003565737
    • 2. Interim results at 30 Sep 2003 Highlights Outlook Performance, insurance Performance, banking
    • 3. Third Quarter Highlights Average quarter 2002 In m EUR + 0% - 5% - 15% Relatively good performance (up 69 %) y-o-y + 69% + 15%
    • 4. Third Quarter Highlights <ul><li>Robust performance in Belgium </li></ul><ul><ul><li>Further improving level of costs in banking (ytd -5%) </li></ul></ul><ul><ul><li>Pressure on interest margin reversed (Q/Q: 195 -> 210 bp) </li></ul></ul><ul><ul><li>Low level of loan loss ratio (ytd 22 bp) and P&C (*) claims ratio (ytd 59 bp) </li></ul></ul><ul><li>Satisfactory result in most CEE markets </li></ul><ul><ul><li>ROAC (*) banking in Czech (CR) / Slovak republics (SR): ytd 17% </li></ul></ul><ul><ul><li>ROAC for banking in Hungary: ytd 19% </li></ul></ul><ul><ul><li>Improved performance by insurance operations (still limited scale) </li></ul></ul><ul><li>… but very poor performance of banking business in Poland (high loan loss provisions : 124 m in 3Q) </li></ul>(*) P&C : Property and Casualty insurance (**) Return on allocated capital
    • 5. Interim results at 30 Sep 2003 Highlights Outlook Performance, insurance Performance, banking
    • 6. Banking, income development <ul><li>Interest income : ytd  2% organic growth (margin : 6M 1.63%  9M 1.71%) </li></ul><ul><li>Commission income : strong growth (capital-guaranteed funds) </li></ul><ul><li>Lower trading income due to lower FX income and MtM of equity derivatives </li></ul><ul><li>Considerable capital gains (ytd 196 m) on ‘free’ bond portfolio </li></ul><ul><li>One-off ‘other income’ recorded in 2Q 02 and lower dividends </li></ul>Excluding capital gains, stable gross operating income despite difficult climate in 1H Total income -2% - 33% - 13% +16% -1% -30% - 12% Gross income ytd 9M 03
    • 7. Banking, expense development <ul><li>Belgium : </li></ul><ul><ul><li>Expenditures ytd :  5% (- 60 m) </li></ul></ul><ul><ul><li>Headcount reduction : target of 1 650 FTE met in Oct 03 </li></ul></ul><ul><li>Central and Eastern Europe : </li></ul><ul><ul><li>Expenditures ytd:  1% (6 m) </li></ul></ul><ul><ul><li>Headcount reduction : </li></ul></ul><ul><ul><ul><li>Czech Republic :  460 FTE (48% of target) </li></ul></ul></ul><ul><ul><ul><li>Poland : new target of  1 000/1200 FTE </li></ul></ul></ul>Continuing cost control Cost/Income ratio 9M 03: 65% (65% for FY 02) 2 461 2 782 2 757 2001 excl. KB Ytd expenses (m EUR) 9M 03: 45 % Belgium 9M 03: 27 % CEE
    • 8. Cost control in Belgium <ul><li>Merger (almost) completed, full extent of cost savings in bottom-line as of 1H 04 </li></ul><ul><li>Lower cost/income ratio ahead, thanks to: </li></ul><ul><ul><li>Greater use of bancassurance (acceleration in P&C and to SME segment) </li></ul></ul><ul><ul><li>Reduction in product complexity in retail (possibly by up to 70%) (*) </li></ul></ul><ul><ul><li>Outsourcing of transaction processing (payments) and IT (limited scale) (implementation in progress) </li></ul></ul><ul><ul><li>Stronger pooling of back-office activities of Belgian group companies </li></ul></ul><ul><ul><li>Various other co-sourcing scenarios being considered </li></ul></ul><ul><ul><li>Screening of real-estate-related costs </li></ul></ul>Although Belgium is a ‘mature’ market, further improvement in performance can be expected (*) e.g. by reducing the wide range of credit cards, travellers’ cheques, mortgage loans, savings certificates, …
    • 9. Banking, loan provisions Intensive clean-up of loan portfolio in Poland Quarterly loan loss provisions (m EUR) Loan loss ratio 9M 03: 0.60% (0.55 for FY 02) (1) Gross loans (2) Specific provisions - annualized 0.60% 90.3 bn Total 0.51% 27.6 bn International 6.09% 4.0 bn Poland 0.45% 5.9 bn CR / SR 0.32% 3.7 bn Hungary 0.22% 49.0 bn Belgium Loss ratio 9M 03 (2) Customer loan book Sept. 03 (1)
    • 10. Retail ban king in Belgi um <ul><ul><li>Ytd profit 145 m (  189 %) , ROAC up to 10% from 3% </li></ul></ul><ul><ul><li>Growth in income : ytd  6% (strong commission income and rebound in interest income) </li></ul></ul><ul><ul><li>Cost reduction : ytd  5% </li></ul></ul><ul><ul><li>Provisions (38 m EUR) remain low (16 bp on RWA (*) ) </li></ul></ul>2003 has seen a turnaround in Belgian retail on the back of robust commission business and cost savings Belgium 1 st home market +36% (*) Risk -weighted assets
    • 11. Banking in Central and Eastern Europe <ul><li>CR & SR : stable yoy in spite of pressure on margin, thanks to commission income and zero expense growth </li></ul><ul><li>Hungary : income and volume growth more than set off pressure on margin </li></ul><ul><li>Poland : difficult economic conditions and high loan loss provisions (195 m) </li></ul>(*) excl. minority interests, incl. 12 m provisions for KB related to 02 Satisfactory performance in Czech Republic,Slovakia and Hungary (though further improvement to be expected) Still basic restructuring work to do in Poland Central Europe 2 nd home market + 5 -138 23 112 9M 03 - - +77 % +3 % % - - Slovenia - -37 Poland 19% 13 Hungary 18% 109 CR / SR ROAC 03 9M 02 In m EUR (*)
    • 12. Activities in Central and Eastern Europe <ul><li>Confidence in our strategy fundamentals : </li></ul><ul><ul><li>Satisfying year-to-date results in most markets (incl. insurance), excl. banking in Poland </li></ul></ul><ul><ul><li>Within 6 months : all CEE affiliates (5 countries) operating in the EU </li></ul></ul><ul><ul><li>Common shared optimism regarding rebound of economic cycle in ‘04 </li></ul></ul><ul><li>Refocusing : from ‘external expansion’ to ‘improvement in performance’ </li></ul><ul><li>Adjustment of group governance model to encompass CEE affiliates. Key issues : </li></ul><ul><ul><li>Further increase in management and controlling capacity of KBC HQ </li></ul></ul><ul><ul><li>Improved organization of transfer of know-how to CEE </li></ul></ul><ul><ul><li>Strengthened central audit teams </li></ul></ul>Central Europe 2 nd home market
    • 13. Addressing the challenges in Poland <ul><li>Capital base : strengthened (+ 666 m PLN (completed), KBC's stake up to 81%) </li></ul><ul><li>Risk sensitivity : to be greatly reduced </li></ul><ul><ul><li>Credit risk policies redefined and credit decision authority reduced (completed) </li></ul></ul><ul><ul><li>Cleaning up ‘historic’ loan book (195 m provisions ytd) </li></ul></ul><ul><ul><li>Improving risk control and risk management </li></ul></ul><ul><li>Cost base : to be further reduced </li></ul><ul><ul><li>Centralizing back offices, strengthening HR and performance measurement </li></ul></ul><ul><ul><li>Reducing headcount (driven by new central IT system) by 1000/1200 FTE, real estate expenses (15-20 %) and other tangible costs (5-10%) by ‘04 </li></ul></ul><ul><ul><li>Disinvesting from non-strategic activities (Ukraine, Lithuania, PKB, Pension Fund,…) </li></ul></ul><ul><li>Market position : to be improved on the retail market (sales growth 10-15 %) </li></ul><ul><ul><li>Thorough customer segmentation in the nationwide network </li></ul></ul><ul><ul><li>Transfer of KBC product know-how (e.g., in the field of AM) </li></ul></ul><ul><ul><li>Acceleration of bancassurance efforts with WARTA Insurance </li></ul></ul>Central Europe 2 nd home market   
    • 14. Asset Management division Breakdown of retail funds Equity: 11% Bonds & MM: 13% Balanced: 12% Capital- guaranteed: 48% <ul><li>Profit contribution : ytd 84 m (  4%) </li></ul><ul><li>New capital-guaranteed funds : ytd 105 new mutual/unit-linked funds </li></ul><ul><li>AUM : ytd  5% to 84 bn from 80 bn </li></ul><ul><ul><li>Retail funds (42 bn) :  4% </li></ul></ul><ul><ul><li>Private assets (13 bn) :  4% </li></ul></ul><ul><ul><li>Institutional & group assets (28 bn):  6% </li></ul></ul>Profit contribution down slightly Other Belgium: 85 % Central Europe: 5 %
    • 15. <ul><li>Corporate banking : </li></ul><ul><ul><li>Profit contribution: ytd 140m  10% (ROAC 9%) </li></ul></ul><ul><ul><li>Cost decrease (  7%) due to strict cost control, mainly in Belgium / Western Europe </li></ul></ul><ul><ul><li>No repeat of 2002 one-off revenues </li></ul></ul><ul><ul><li>Provisions for problem loans (56 bp on RWA), mainly for the electricity sector in the US </li></ul></ul><ul><li>Market activities : </li></ul><ul><ul><li>Profit contribution: ytd 117 m  51 % (ROAC 14%) </li></ul></ul><ul><ul><li>Very strong performance in money and capital market products </li></ul></ul><ul><ul><li>Equity trading: still weak (break-even for KBC Securities at operating level) </li></ul></ul><ul><ul><li>KBC Financial Products : satisfactory result but negative MtM for equity derivatives </li></ul></ul>Corporate and investment banking Profit contribution : corporate banking and market activities
    • 16. Interim results at 30 Sep 2003 Highlights Outlook Performance, insurance Performance, banking
    • 17. P&C, underwriting result Exceptionally low level Premium income Combined ratio Very sound business, in ‘03 partly driven by upward trend in rates and in general by strong risk and cost discipline Premiums ytd 15% org. growth 99% 95% 94% Excl R/I 614 684 784
    • 18. Life business, underwriting result Quarterly net premium income Very strong growth (bancassurance-driven) 9M 02: 1816 m 1 050 m interest-guar. 766 m unit-linked 9M 01: 1 230 m 299 m interest-guar. 931 m unit-linked 9M 03: 1 991 m 1 369 m interest-guar. 622 m unit-linked Premiums ytd 9 % organic growth 9M 03: 95 % Belgium 9M 03: 5% Central Europe
    • 19. Insurance, investment income Suffering from low bond yields (*) incl. write-back from provision for financial risk (15m in ‘03)and excl. value adj. for unit-linked products -8% 443 483 Total -30% 96 136 Capital gains on shares (*) +0% 347 347 Interest, dividend, rent  9M 03 9M 02
    • 20. Insurance, non-recurring items Value adjustments on shares offset by non-recurring income Provision for financial risks, balance : 100 m EUR -13 -2 7 - - -18 3Q 03 -17 Total non-recurring result -8 Other -115 Transfer to provision for financial risks 122 Non-recurring gains on securities 92 Transfer from equalization reserve -108 Value adjustments, shares Non-recurring result 9M 03 In m EUR
    • 21. Interim results at 30 Sep 2003 Highlights Outlook Performance, insurance Performance, banking
    • 22. Profit outlook <ul><li>Interest rate environment and general financial climate have improved. Economic outlook is more favourable. </li></ul><ul><li>On the other hand, further loan losses in 4Q cannot be ruled out (credit review, Poland). </li></ul><ul><li>Profit ‘03 expectation : at least the ’02 level (based on current information and assumption of stable stock market) </li></ul>
    • 23. Additional information
    • 24. Year-to-date results, detailed overview - 2% - 2% 4 231 4 338 - banking - 3% - 2% 640 652 - insurance - 14% - 14% 260 303 - insurance - 4% - 5% 1 474 1 556 - banking + 7% + 9% -380 -348 - insurance - 1% - 1% - 2 757 - 2 782 - banking 860 - 96 - 318 1 274 - 425 8 1 729 - 3 143 4 872 9M 03 + 15% - 4 % - 6% + 0% - 2%  % + 15% 747 Net profit - 130 Minority interests - 445 Taxes - 3% 1 323 Pre-tax profit - 305 - 211 Loan loss provisions Value adjust ., non-recurring, extraordinary and other results - 5% 1 846 Operating result + 0% - 3 133 Administrative expenses - 2% 4 979 Gross operating income Organic  % 9M 02 m EUR
    • 25. Contribution per business, year-to-date 744 747 860 Group result : 3/4 from banking, 1/4 from insurance +20% -2% Net profit in m EUR ROE banking : 11.1% ROE insurance : 16.3% ROE Group: 13.2%
    • 26. Year-To-Date Highlights <ul><li>In banking : high commission income (y-o-y +16%) and in 3Q strongly improving interest income. </li></ul><ul><li>In insurance : high premium volume (y-o-y + 11%), but pressure on investment income. </li></ul><ul><li>Zero cost growth y.o.y. In banking : cost level down 1%. </li></ul><ul><li>Strong technical result in non-life : combined ratio 95.4% (excl. reinsurance : 93.8%). </li></ul><ul><li>Relatively high loan loss provisions (425 m). </li></ul><ul><li>Value impairments on shares (100 m, but offset). </li></ul><ul><li>Solid solvency : 8.6% (Tier 1 - bank) and 318% (insurance) </li></ul>
    • 27. Main changes in scope of consolidation Impact (*) CSOB Insurance NLB Bank Full consolidation , retroactively to 1Q Equity method Q2 Q3 Q4 Q1 Q2 Q3 Q4 2002 2003 Ergo Insurance Krefima Bank Full consolidation Deconsolidation (previously full consolidation) (*) Impact on gross operating income Limited net impact of changes in consolidation (full consolidation, previously equity method) Q1 2004 Warta Insurance E X P E C T E D -0.4% + 0.1 % + 0.1 %
    • 28. Group, key performance ratios (*) Excluding reinsurance (**) Including unrealized gains Getting closer to strategic objectives 318% 320% 305% Solvency, insurance (**) 8.6% 8.8% 8.3% Solvency (Tier 1), banking 93.8% 101.4% 95.2% Combined ratio, insurance (*) +15% 13.2% 65.2% Sep 03 +1% 12.7% 65.2% Dec 02 +0% Growth in EPS (y-o-y) 12.3% Return on equity 64.1% Cost / income, banking Sep 02
    • 29. Areas of activity, profit contribution (*) Profit excluding minority interests Profit contribution (*) year-to-date Strong rebound in Belgian retail. High adverse impact of Poland. 14 % 9 % - - 2% +18% + 19% - 15 % RO AC Headlines %  m EUR Activity - Fixed income: very strong - Equities: still weak but cost-cutting successful - Derivatives: satfisfactory (suffered from MtM)  51 % 117 m Market activities - Successful cost control - Less one-off income (CLOs) and higher loan losses (US energy) - R/I out of the red  11 % 139 m Corporate services - AUM up 5% vs Dec 02  4 % 84 m Asset management <ul><li>Strong commissions and zero cost growth in CR (although margin pressure and fewer one-offs) - Strong income growth in banking in Hungary - High loan losses in Poland (195 m) - Improvement in insurance (though limited scale) </li></ul>- + 3% + 77% - -28 m 112 m 23 m -138 m Central Europe: - banking in CR/SR - banking in Hungary - banking in Poland - Strong commission and premium income - Improving interest margin (2.1% in 3Q) - Cost reduction in banking (  5% y-o-y) - Low loan losses (16 bp/RWA) and low combined ratio P&C (92 %)  30 % 328 m Retail, Belgium
    • 30. Interest spreads in Belgium, banking Going forward, increasing market rates could fuel top-line growth Interest margin Spread on new loans
    • 31. Economic outlook Source : KBC Asset Management, November 2003 2.2% 0.6% 1.9% 5.8% 5.0% 4.0% 3.1% 1.3% 38 m Poland 6.5% 4.5% 5.3% 7.5% 7.3% 3.0% 2.0% 3.2% 10 m Hungary 6.0% 8.2% 3.3% 5.4% 5.1% 4.2% 3.5% 4.4% 5 m Slovak Republic 2.2% 0.0% 1.8% 5.0% 4.5% 3.9% 3.0% 2.0% 10 m Czech Republic 1.1% 1.5% 1.6% 4.8% 4.4% 1.9% 0.8% 0.7% 10 m Belgium 2004e 2003e 2002 Sep 04e Dec 03e 2004e 2003e 2002 CPI change 10-y interest rate Real GDP growth Popu- lation
    • 32. Value adjustments, investment portfolio Significant value adjustments in ‘02 and in 1Q 03 (offset in insurance business by non-recurring result) DJ Eurostoxx -223 -35 -220 125 -6
    • 33. Unrealized gains, investment portfolio Unrealized gains increasing, driven by upward trend of stock markets Balance of gains and losses 99 -359 434 174 187 1 597 1 784 Sep 03 + 112% 82 Insurance book 497 Bonds -516 Shares 101 Real estate 113 1 630 1 742 Dec 02 + 2 % Banking book %  In m EUR Shares Bonds
    • 34. Solvency 8.8% 8.8% 8.6% 504% 320% 318% Banking business (Tier 1) Insurance business (Solvency margin) 564 m 564 m 668 m 612 m 3 868 m 3 868 m Solid solvency in both banking and insurance (no double gearing and no DAC) In m EUR In m EUR
    • 35. Solvency <ul><li>KBC Bank 1993 / 2003 mandatory convertible bond </li></ul><ul><ul><li>Conversion, 30 Nov 2003 : </li></ul></ul><ul><ul><ul><li>Capital increase: ca. 8.1 m new shares (*) (not dividend-entitled for ’03) </li></ul></ul></ul><ul><ul><li>Impact : </li></ul></ul><ul><ul><ul><li>Lower interest charges (12.2% for ‘03) </li></ul></ul></ul><ul><ul><ul><li>EPS ‘04 dilution, ca. 1.5 pp </li></ul></ul></ul><ul><ul><ul><li>Tier 1: ca. + 30 bp </li></ul></ul></ul><ul><ul><ul><li>Free float : ca. + 1% </li></ul></ul></ul>(*) Based on outstanding MCB at 30 Sept. 2003
    • 36. KBC Bank & Insurance Group Investor Relations Office - tel.: +32 2 429 4916 E-mail : [email_address] Press Office - tel.: +32 2 429 8545 / 6501 E-mail : [email_address] [email_address]

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