2003 KBC Bank & Insurance Group Interim results at 30 September 2003 Ticker codes: KBC BB...

2 0 0 3

KBC Bank & Insurance Group

Interim results at 30 September 2003

www.kbc.com

Ticker codes: KBC BB (Bloomberg) KBKBT BR (Reuters)

B:KB (Datastream)

ISIN code: BE0003565737

Results third Quarter

2

2 0 0 3Interim results at 30 Sep 2003

Highlights

Outlook

Performance, insurance

Performance, banking


3

2 0 0 3

355

230

159

744

278316

280

152

747

287 304 300256

860

1Q01

2Q01

3Q01

9M01

4Q01

1Q02

2Q02

3Q02

9M02

4Q02

1Q03

2Q03

3Q03

9M03

Third Quarter Highlights

Average quarter2002

In m EUR+ 0%

- 5%

- 15%

Relatively good performance (up 69 %) y-o-y

+ 69%

+ 15%


4

2 0 0 3Third Quarter Highlights

Robust performance in Belgium Further improving level of costs in banking (ytd -5%) Pressure on interest margin reversed (Q/Q: 195 -> 210 bp) Low level of loan loss ratio (ytd 22 bp) and P&C (*) claims ratio

(ytd 59 bp)

Satisfactory result in most CEE markets ROAC (*) banking in Czech (CR) / Slovak republics (SR): ytd 17% ROAC for banking in Hungary: ytd 19% Improved performance by insurance operations (still limited scale)

… but very poor performance of banking business in Poland (high loan loss provisions : 124 m in 3Q)

(*) P&C : Property and Casualty insurance(**) Return on allocated capital


5


Highlights

Outlook




6

2 0 0 3Banking, income development

Interest income : ytd 2% organic growth(margin : 6M 1.63% 9M 1.71%)

Commission income : strong growth(capital-guaranteed funds)

Lower trading income due to lower FX income and MtM of equity derivatives

Considerable capital gains (ytd 196 m) on ‘free’ bond portfolio

One-off ‘other income’ recorded in 2Q 02 and lower dividends

Excluding capital gains, stable gross operating income despite difficult climate in 1H

0

500

1000

1500

2000

2500

1Q 03 2Q 03 3Q 03

Total income -2%

- 33%- 13%

+16%

-1%

-30%- 12%

Gross income ytd

9M 03


7

2 0 0 3Banking, expense development Belgium :

Expenditures ytd : 5% (- 60 m) Headcount reduction :

target of 1 650 FTE met in Oct 03

Central and Eastern Europe : Expenditures ytd: 1% (6 m) Headcount reduction :

Czech Republic : 460 FTE(48% of target)

Poland : new target of 1 000/1200 FTE

1249

425 749

13131364

743

760726

673

0

500

1000

1500

2000

2500

3000

9M 01 9M 02 9M 03

Belgium CEE Other

Continuing cost control

Cost/Income ratio 9M 03: 65%(65% for FY 02)

9M 03:45 %

Belgium

9M 03:27 %CEE

2 4612 782 2 757

2001 excl. KB

Ytd expenses (m EUR)


8

2 0 0 3Cost control in Belgium

Although Belgium is a ‘mature’ market, further improvement in performance can be expected

Merger (almost) completed, full extent of cost savings in bottom-line as of 1H 04

Lower cost/income ratio ahead, thanks to: Greater use of bancassurance (acceleration in P&C and to SME segment) Reduction in product complexity in retail (possibly by up to 70%) (*)

Outsourcing of transaction processing (payments) and IT (limited scale)(implementation in progress)

Stronger pooling of back-office activities of Belgian group companies Various other co-sourcing scenarios being considered Screening of real-estate-related costs

(*) e.g. by reducing the wide range of credit cards, travellers’ cheques, mortgage loans, savings certificates, …


9

2 0 0 3Banking, loan provisions

Customer loan bookSept. 03

(1)

Lossratio

9M 03 (2)

Belgium 49.0 bn 0.22%

Hungary 3.7 bn 0.32%

CR / SR 5.9 bn 0.45%

Poland 4.0 bn 6.09%

International 27.6 bn 0.51%

Total 90.3 bn 0.60%

Intensive clean-up of loan portfolio in Poland

Quarterly loan loss provisions (m EUR)

Loan loss ratio 9M 03: 0.60%(0.55 for FY 02)

47 4011

4625 31 25

11 88

65

28

61

139

3145

32

50

26

49

40

0

50

100

150

200

1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03

Belgium CEE Other

(1) Gross loans(2) Specific provisions - annualized


10

2 0 0 3Retail banking in Belgium Ytd profit 145 m ( 189%), ROAC up to 10% from 3% Growth in income : ytd 6%

(strong commission income and rebound in interest income) Cost reduction : ytd 5% Provisions (38 m EUR) remain low (16 bp on RWA(*))

2003 has seen a turnaround in Belgian retail on the back of robust commission business and cost savings

Belgium1st home market

+36%

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

Profit contribution Trend 4Q avg

(*) Risk -weighted assets


11

2 0 0 3Banking in Central and Eastern Europe

CR & SR : stable yoy in spite of pressure on margin, thanks to commission income and zero expense growth

Hungary : income and volume growth more than set off pressure on margin

Poland : difficult economic conditions and high loan loss provisions (195 m)

(*) excl. minority interests, incl. 12 m provisions for KB related to 02

Satisfactory performance in Czech Republic,Slovakia and Hungary (though further improvement to be expected) Still basic restructuring work to do in Poland

Central Europe2nd home market

In m EUR(*)

9M 02 9M 03 % ROAC 03

CR / SR 109 112 +3 % 18%

Hungary 13 23 +77 % 19%

Poland -37 -138 - -

Slovenia - + 5 - -


12

2 0 0 3Activities in Central and Eastern Europe

Confidence in our strategy fundamentals : Satisfying year-to-date results in most markets (incl. insurance),

excl. banking in Poland Within 6 months : all CEE affiliates (5 countries) operating in the EU Common shared optimism regarding rebound of economic cycle in ‘04

Refocusing : from ‘external expansion’ to ‘improvement in performance’

Adjustment of group governance model to encompass CEE affiliates.Key issues : Further increase in management and controlling capacity of KBC HQ Improved organization of transfer of know-how to CEE Strengthened central audit teams



13

2 0 0 3Addressing the challenges in Poland Capital base : strengthened (+ 666 m PLN (completed), KBC's stake up to 81%)

Risk sensitivity : to be greatly reduced Credit risk policies redefined and credit decision authority reduced (completed) Cleaning up ‘historic’ loan book (195 m provisions ytd) Improving risk control and risk management

Cost base : to be further reduced Centralizing back offices, strengthening HR and performance measurement Reducing headcount (driven by new central IT system) by 1000/1200 FTE,

real estate expenses (15-20 %) and other tangible costs (5-10%) by ‘04 Disinvesting from non-strategic activities (Ukraine, Lithuania, PKB, Pension Fund,…)

Market position : to be improved on the retail market (sales growth 10-15 %) Thorough customer segmentation in the nationwide network Transfer of KBC product know-how (e.g., in the field of AM) Acceleration of bancassurance efforts with WARTA Insurance



14

2 0 0 3Asset Management division

Breakdown of retail funds

Equity: 11%

Bonds & MM: 13%

Balanced: 12%

Capital- guaranteed: 48%

Profit contribution : ytd 84 m ( 4%) New capital-guaranteed funds :

ytd 105 new mutual/unit-linked funds AUM : ytd 5% to 84 bn from 80 bn

Retail funds (42 bn) : 4% Private assets (13 bn) : 4% Institutional & group assets (28 bn): 6%

Profit contribution down slightly

Belgium:85 %

Central Europe: 5 %

Other


15

2 0 0 3

Corporate banking : Profit contribution: ytd 140m 10%

(ROAC 9%) Cost decrease ( 7%) due to strict cost

control, mainly in Belgium / Western Europe

No repeat of 2002 one-off revenues Provisions for problem loans

(56 bp on RWA), mainly for the electricity sector in the US

Market activities : Profit contribution: ytd 117 m 51 %

(ROAC 14%)

Very strong performance in money and capital market products

Equity trading: still weak (break-even for KBC Securities at operating level)

KBC Financial Products : satisfactory result but negative MtM for equity derivatives

Corporate and investment banking

-20

0

20

40

60

80

100

120

140

1Q 01 2Q 01 3Q 01 4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03

Corporate banking Market activities

²²

Profit contribution : corporate banking and market activities


16


Highlights

Outlook




17

2 0 0 3

65.4% 62.0% 61.2%

34.0%33.3% 32.6%

9M 01 9M 02 9M 03

Loss/premium Expense/premium

P&C, underwriting result

Exceptionallylow level

Premium income Combined ratio

Very sound business, in ‘03 partly driven by upward trend in rates and in general by strong risk and cost discipline

Premiums ytd 15%

org. growth

99% 95% 94%

452 477 505

2562

85137145

193

9M 01 9M 02 9M 03

Belgium CEE R/I

Excl R/I

614

684

784


18

2 0 0 3

Q101

Q201

Q301

Q401

Q102

Q202

Q302

Q402

Q103

Q203

Q303

Q403

Interest-guaranteed Unit-linked

Life business, underwriting resultQuarterly net

premium income

Very strong growth (bancassurance-driven)

9M 02: 1816 m1 050 m interest-guar.766 m unit-linked9M 01: 1 230 m

299 m interest-guar. 931 m unit-linked

9M 03: 1 991 m1 369 m interest-guar.622 m unit-linked

9M 03:95 %

Belgium

9M 03:5%Central Europe

Premiums ytd 9 %

organic growth


19

2 0 0 3Insurance, investment income

9M 02 9M 03

Interest, dividend,rent

347 347 +0%

Capital gainson shares (*) 136 96 -30%

Total 483 443 -8%

Suffering from low bond yields

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

1Q01

2Q01

3Q01

4Q 01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

Interest income, bonds10 y EUR T-bonds

(*) incl. write-back from provision for financial risk(15m in ‘03)and excl. value adj. for unit-linked products


20

2 0 0 3Insurance, non-recurring items

In m EUR 3Q 03 9M 03

Non-recurring result

Value adjustments, shares -18 -108

Transfer from equalization reserve - 92

Non-recurring gains on securities - 122

Transfer to provision for financial risks 7 -115

Other -2 -8

Total non-recurring result -13 -17

Value adjustments on shares offset by non-recurring income

Provision for financial risks, balance : 100 m EUR


21


Highlights

Outlook




22

2 0 0 3Profit outlook

Interest rate environment and general financial climate have improved. Economic outlook is more favourable.

On the other hand, further loan losses in 4Q cannot be ruled out (credit review, Poland).

Profit ‘03 expectation : at least the ’02 level(based on current information and assumption of stable stock market)

2 0 0 3

Additional information


24

2 0 0 3Year-to-date results, detailed overview

m EUR 9M 02 9M 03 % Organic %

Gross operating income 4 979 4 872 - 2% - 2% - banking 4 338 4 231 - 2% - 2% - insurance 652 640 - 2% - 3%Administrative expenses - 3 133 - 3 143 + 0% + 0% - banking - 2 782 - 2 757 - 1% - 1% - insurance -348 -380 + 9% + 7%Operating result 1 846 1 729 - 6% - 5% - banking 1 556 1 474 - 5% - 4% - insurance 303 260 - 14% - 14%Loan loss provisions

Value adjust., non-recurring, extraordinary and other results

- 305

- 211

- 425

8

Pre-tax profit 1 323 1 274 - 4% - 3%

Taxes - 445 - 318

Minority interests - 130 - 96

Net profit 747 860 + 15% + 15%


25

2 0 0 3

515 544655

258 219

214

9M 01 9M 02 9M 03

Banking Insurance

Contribution per business, year-to-date

744 747

860

Group result : 3/4 from banking, 1/4 from insurance

+20%

-2%

Net profit in m EUR

ROE banking : 11.1%

ROE insurance : 16.3%

ROE Group: 13.2%


26

2 0 0 3Year-To-Date Highlights In banking : high commission income (y-o-y +16%)

and in 3Q strongly improving interest income.

In insurance : high premium volume (y-o-y + 11%), but pressure on investment income.

Zero cost growth y.o.y. In banking : cost level down 1%.

Strong technical result in non-life : combined ratio 95.4% (excl. reinsurance : 93.8%).

Relatively high loan loss provisions (425 m).

Value impairments on shares (100 m, but offset).

Solid solvency : 8.6% (Tier 1 - bank) and 318% (insurance)


27

2 0 0 3Main changes in scope of consolidation

Impact (*)

CSOB Insurance

NLB Bank

Full consolidation,

retroactively to 1Q

Equitymethod

-0.4%

+0.1%

+0.1%

Q2 Q3 Q4 Q1 Q2 Q3 Q4

2002 2003

Ergo Insurance

Krefima Bank

Full consolidation

Deconsolidation(previously full consolidation)

(*) Impact on gross operating income

Limited net impact of changes in consolidation

(full consolidation, previously

equity method)

Q1

2004

Warta Insurance

EXPECTED


28

2 0 0 3Group, key performance ratios

Sep 02 Dec 02 Sep 03

Cost / income, banking 64.1% 65.2% 65.2%

Combined ratio, insurance (*) 95.2% 101.4% 93.8%

Solvency (Tier 1), banking 8.3% 8.8% 8.6%

Solvency, insurance (**) 305% 320% 318%

Return on equity 12.3% 12.7% 13.2%

Growth in EPS (y-o-y) +0% +1% +15%

(*) Excluding reinsurance(**) Including unrealized gains

Getting closer to strategic objectives


29

2 0 0 3Areas of activity, profit contribution

(*) Profit excluding minority interests

Profit contribution (*) year-to-date

Activity m EUR % ROAC Headlines

Retail, Belgium 328 m 30% 15%

- Strong commission and premium income- Improving interest margin (2.1% in 3Q)- Cost reduction in banking ( 5% y-o-y)- Low loan losses (16 bp/RWA) and low combined ratio P&C (92 %)

Central Europe: - banking in CR/SR - banking in Hungary - banking in Poland

-28 m112 m

23 m-138 m

-+ 3%

+ 77%-

- 2%+18%

+ 19%-

- Strong commissions and zero cost growth in CR (although margin pressure and fewer one-offs)- Strong income growth in banking in Hungary- High loan losses in Poland (195 m)- Improvement in insurance (though limited scale)

Asset management 84 m 4% - - AUM up 5% vs Dec 02

Corporate services 139 m 11% 9%- Successful cost control- Less one-off income (CLOs) and higher loan losses (US energy) - R/I out of the red

Market activities 117 m 51% 14%- Fixed income: very strong - Equities: still weak but cost-cutting successful - Derivatives: satfisfactory (suffered from MtM)

Strong rebound in Belgian retail. High adverse impact of Poland.


30

2 0 0 3Interest spreads in Belgium, banking

1.80%

1.85%

1.90%

1.95%

2.00%

2.05%

2.10%

2.15%

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

3.5%

4.0%

4.5%

5.0%

5.5%

Interest margin, Belgium 10 y EUR T-bonds

Going forward, increasing market rates could fuel top-line growth

Interest marginSpread on new loans

0.5%

0.7%

0.9%

1.1%

1.3%

1.5%

1.7%

1.9%

Investment credit, Belgian SME loan book

Corporate bond A-rating


31

2 0 0 3Economic outlook

Popu-lation

Real GDP growth

10-y interest rate

CPI change

2002 2003e 2004e Dec 03e Sep 04e 2002 2003e 2004e

Belgium 10 m 0.7% 0.8% 1.9% 4.4% 4.8% 1.6% 1.5% 1.1%

Czech Republic 10 m 2.0% 3.0% 3.9% 4.5% 5.0% 1.8% 0.0% 2.2%

Slovak Republic 5 m 4.4% 3.5% 4.2% 5.1% 5.4% 3.3% 8.2% 6.0%

Hungary 10 m 3.2% 2.0% 3.0% 7.3% 7.5% 5.3% 4.5% 6.5%

Poland 38 m 1.3% 3.1% 4.0% 5.0% 5.8% 1.9% 0.6% 2.2%

Source : KBC Asset Management, November 2003


32

2 0 0 3Value adjustments, investment portfolio

Significant value adjustments in ‘02 and in 1Q 03 (offset in insurance business by non-recurring result)

4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03

Adjustments, insurance bookAdjustments, banking book

DJ Eurostoxx

-223

-35

-220

125

-6


33

2 0 0 3Unrealized gains, investment portfolio

In m EUR Dec 02 Sep 03 %

Bankingbook 1 742 1 784 + 2 %

Bonds 1 630 1 597

Shares 113 187

Insurancebook 82 174 + 112%

Bonds 497 434

Shares -516 -359

Real estate 101 99

Unrealized gains increasing, driven by upward trend of stock markets

Balance of gains and losses


34

2 0 0 3

0

500

1000

1500

2000

2500

FY 01 FY 02 sep/03

Legal Buffer Excess

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

FY 01 FY 02 sep/03

Legal Buffer Excess

Solvency

8.8% 8.8% 8.6% 504%

320%318%

Banking business (Tier 1)

Insurance business (Solvency margin)

564 m

564 m

668 m

612 m

3 868 m

3 868 m

Solid solvency in both banking and insurance (no double gearing and no DAC)

In m EURIn m EUR


35

2 0 0 3Solvency

KBC Bank 1993 / 2003 mandatory convertible bond Conversion, 30 Nov 2003 :

Capital increase: ca. 8.1 m new shares (*)(not dividend-entitled for ’03)

Impact : Lower interest charges (12.2% for ‘03) EPS ‘04 dilution, ca. 1.5 pp Tier 1: ca. + 30 bp Free float : ca. + 1%

(*) Based on outstanding MCB at 30 Sept. 2003

2 0 0 3

KBC Bank & Insurance Group

Investor Relations Office - tel.: +32 2 429 4916E-mail : [email protected]

Press Office - tel.: +32 2 429 8545 / 6501 E-mail : [email protected]

[email protected]

2003 KBC Bank & Insurance Group Interim results at 30 September 2003 Ticker codes: KBC BB...

Documents

Transcript of 2003 KBC Bank & Insurance Group Interim results at 30 September 2003 Ticker codes: KBC BB...