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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 : investor.relations@kbc.com.

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KBC Bank & Insurance Group

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  1. KBC Bank & Insurance Group Investor presentation Yearend 2004 www.kbc.com

  2. Contact information Visit www.kbc.com Investor Relations Office : Luc Cool Nele Kindt Marina Kanamori Tel. : +32 2 429 49 16 E-mail : investor.relations@kbc.com Ticker codes: KBC BB (Bloomberg) KBKBT BR (Reuters) B:KB (Datastream)ISIN code: BE0003565737

  3. Disclaimer • 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 FORWARD-LOOKING 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.

  4. Table of contents • Company profile • Developments in Belgium • Developments in CEE

  5. Foto gebouw 1 Company profile

  6. Top-20 player in Euroland banking (*) Nov 2004 Dec 2003 Dec 2002 (*) DJ Euro Stoxx Banks Constituents - Ranking by Market Capitalization – Situation as at 16 Nov 2004

  7. Prominent player in 2 core markets • 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 Breakdown of revenue (9M 04) Treasury & other 9% Belgium 48% Financial markets 11% International corporate 7% CEE25%

  8. Top-3 player in Belgium Market share: (1) • 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 for 2003. Sources: FEBELFIN, KBC Asset Management, Uw Vermogen (Flemish investment journal)

  9. Top-3 player in the CEE region International banks in CEE (by total assets, bn EUR) : Source: RZB – assets as at 31 Dec 03, ownership structure as at 30 Jun 04 • 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

  10. Top-3 position in the CEE region Banking Insurance Czech Republic:Market share: 18% (No. 1)Inhabitants: 10 mTotal 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 mTotal 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 mTotal 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 mTotal assets: 5 bn EUR Poland:Life M share: 4% (No. 5)Non-life M share: 13% (No. 2) Slovenia:Minority interest (34%)Inhabitants: 2 mMarket 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)

  11. Foto gebouw 2 Developments in Belgium

  12. Do not underestimate the market Nominal GDP growth Savings rate KBC estimates, 2005 EU forecast report Spring 04, % of GDP, 2003 • 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

  13. KBC is well positioned Life insurance, written premiums Retail AUM 1998 = 100total market (LH)vs. KBC (RH) 1998 = 100total market (LH)vs. KBC (RH) CAGR KBC +18% CAGR KBC +10% • 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.)

  14. Do not underestimate the market Mortgage loan growth Mortgage debt / GDP per capita Total market CAGR 9% Source: ECB Source: NBB • 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)

  15. Margin development Spreads on new mortgages Spreads on new small business loans KBC KBC • Loan spreads increased substantialy (‘doubled’), following consolidationon 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)

  16. Do not underestimate the market Core banking service fee rates World retail banking report (EFMA) EUR, 2003 • Fee rates still ‘cheap’, allowing for further (gradual) repricing • Greatest hindrance to repricing (probably) not from market competition, but from public opinion

  17. Solid credit quality Non-secured retail loans / total loans Loan loss charges, KBC Source: central banks KBC (net provisions to gross loans) %, 2003 • 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

  18. Further cost reduction potential Cost/income, total market Cost/income, KBC Belgium %, 2003 Retail banking(incl. AM) Banking - 16 pp 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

  19. Foto gebouw 3 Developments in CEE

  20. Above-average GDP growth 2005e Real GDP growth + inflation - KBC estimates 8.7% 7.3% 7.6% 6.5% • 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)

  21. Increasing product penetration 1997 2003 Deposits as % of GDP (EMU avg = 100) Deposits as % of GDP (EMU avg = 100) • 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

  22. Strong momentum in retail business Mortgage loan growth Mutual fund growth FEFSI Total market, 2003 Total market CEE-3, in m EUR NBP, NMB, CNB CAGR +48% • 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

  23. Margin levels have been ‘normalizing’ Mortgage loan spreads NMB, NBP, CNB Total market N/a N/a N/a • 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

  24. Cost-reduction potential Cost/income ratio KBC • 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

  25. Expanded horizons in CEE paying off Banking results – 9M04 Contribution to Group: profit excl. minority interests and return on excess capital; incl. allocated Group overhead. • 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

  26. Update on restructuring efforts in Poland 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 • Including intensive transfer of KBC know-how • Acceleration in bancassurance and AM sales Key achievements : - Risk Clearprofitability turnaround - Costs + Volumes

  27. KBC Bank & Insurance Group Foto gebouw www.kbc.com

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