Transcript KBC Retail Bankverzekeren

KBC Group
Retail bancassurance
and private banking on
the Belgian market
Web site: www.kbc.com
April 2005
Ticker codes: KBC BB (Bloomberg)
KBKBT BR (Reuters)
ISIN code: BE0003565737
Contact information
Investor Relations Office
Luc Cool
Nele Kindt
Marina Kanamori
Tel.: +32 2 429 49 16
[email protected]
Surf to www.kbc.com for the latest update.
2
Disclaimer
3

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 on
sources that KBC believes to be reliable, KBC does 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 statements 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.
ING Financials Day - 18 April 2005
4
1.
Introduction
W. Duron
2.
Retail bancassurance in Belgium
F. Florquin
3.
Private banking in Belgium
F. Florquin
4.
Synergies for private banking
within KBC Group
W. Duron
Foto gebouw
1
Introduction
Benelux players have considerable scale
Euroland top-30 banks, by market cap *
* DJ Euro Stoxx Banks constituents ranking by market cap, as at 14 March 2005
6
SAB
MPS
BNL
AN
AL
BCP
EUR
CAP
NBG
COM
ERSTE
MED
BACA
POP
BIR
AIB
HVB
SP IMI
DEXIA
INTESA BCI
KBC
UNICREDITO
FORTIS
CREDIT AGRICOLE
ABN AMRO
SOCIETE GENERALE
DEUTSCHE BANK
BBVA
BNP PARIBAS
BSCH
KBC Group : 24 bn euros
KBC Group’s business portfolio
Revenue breakdown*
Capital markets Gevaert
11%
International
SME/corporate 7%
European
private banking
10%
2%
Belgium :
46% - retail bancassurance
- private banking
- asset management
- SME and corporates
24%
CEE

Although KBC has successfully expanded its operations in CEE, it primarily is a top
bancassurer and asset manager in Belgium, its historical home market

Thanks to the merger with Almanij (March 2005), the private banking activities were
expanded to include a Western European network. PB has become a more
pronounced key focus
* 2004 pro forma figures, excl. group items
7
Belgian market, headlines
Market shares:
Insurance premiums
Mutual funds
Client deposits
FORTIS
KBC
FORTIS
KBC
FORTIS
ETHIAS
DEXIA
DEXIA
AXA
ING
ING
KBC
Argenta
ING
Other
0%
Other
10%
20%
30%
0%
Other
10%
20%
30%
0%
10%
20%
30%
31-Dec-03
8

The banking landscape in Belgium is highly consolidated (80%held by top-4 banks)

The market growth in the field of wealth management is significant (high savings rate)

The market is highly receptive to cross-selling of AM & insurance products

KBC is a top-3 player, especially strong in the Northern region
Retail and private bancassurance *
Return on capital
Profit contribution
583
19%
14%
382
Target 2007:
high single
digit CAGR
2001
Target 2007:
sustained
high level
2001
2004
Cost/income ratio, banking
92%
2004
Combined ratio, non-life
100%
72%
93%
Target 2007:
further down
to low 60-ties
2001
9
2004
* excl. European private banking
Target 2007:
max 95%
over-the-cycle
2001
2004
European private banking network
Netherlands:
Theodoor Gilissen
Acquired in ’03 – participation: 100%
UK:
Brown Shipley
Acquired in ’89 – participation: 100%
Germany:
Merck Finck & Co
Acquired in ’99 – participation: 100%
Belgium:
KBC Private banking
Puilaetco private bankers (100%
participation acquired in ’04)
Switzerland:
Kredietbank (Suisse)
Historical presence
Luxembourg:
Kredietbank Luxembourg
Parent company for European PB
France:
KBL France
Acquired in ’98 – participation: 100%
Spain:
Banco Urquijo
Acquired in ’98 – participation: 100%
Monaco:
KB Luxembourg (Monaco)
Historical presence
Italy:
Fumagalli Soldan
Acquired in ’01 – participation: 95%
10

Since ‘98, KBC Group (KBL) has developed a private banking network throughout
Western Europe, anticipating further erosion of its offshore activities for a/o Belgian
customers in Luxembourg

Private banking assets outside Belgium grew to 43 bn across the 10 countries
Foto gebouw
2
Retail bancassurance
in Belgium
Retail and private bancassurance, Belgium
Return on capital
Profit contribution
Core retail
Retail and private bancassurance
Core retail
Other retail and private banking
583
382
216
19%18%
14%
169
Target 2007:
high single
digit CAGR
414
166
2001
2001
2004
Cost/income ratio
92% 85%
Target 2007:
sustained
high level
7%
Core retail
Retail and private bancassurance
2004
Combined ratio, non-life
100%100%
72%68%
Core retail
Retail and private bancassurance
93% 93%
Target 2007:
further down
to low 60-ties
2001
12
2004
* excl. European private banking
Target 2007:
max 95%
over-the-cycle
2001
2004
Nice results 2004
Core retail only:
2004
In mio EUR
a.o. Savings & investments
Lending
Insurance
Gross income
Direct costs
Allocated costs
Operating expenses
Provisions
Pre-tax profit
Net profit
12m
1 132
424
236
1 829
-811
-439
-1 250
-11
568
414
Evolution
Abs.
%
+19
-12
+32
+66
+4
+13
+17
+42
+125
+75
How to achieve further growth ?
13
+2%
-3%
+15%
+4%
-1%
-3%
-1%
-80%
+28%
+22%
Sharp increase in productivity
Efficiency
strategy
Strong growth in revenue per FTE
Strong growth in revenue per branch
Revenues per branch, 1998 = 100
Revenues per FTE, 1998 = 100
+10% p.a.
236
154
+15% p.a.
218
143
+5% p.a.
170
116
119
115
152
139
100
93
1998
14
1999
2000
2001
2002
2003
2004
100
102
1998
1999
2000
2001
2002
2003
2004
Cost-savings largely implemented
Efficiency
strategy
Up to 2004: significant decline in costs
1
Spontaneous cost inflation
2
Cutback in branch FTEs: -1 300 or -18%
Core retail only, cost trend, in m EUR
2001 costs
1 344
+57
1
2
3
-40
Reduction in No. of branches: -680 or -45%
3 -10
4
Integration of ICT platforms and of
products and support services
Henceforth: upwards pressure on costs
1
Spontaneous cost inflation
2004 costs
1 250
1
2007 costs 1 295
15
-101
4
+45
estimate
Target:
cost growth
below wage
inflation rate
Rather limited potential for further automation
Efficiency
strategy
Potential for further automation
Rate of automation
100%
95%
93.3%
90%
94.1%
90.9%
85%
88.60%
87.4%
80%
82.3%
75%
70%
69.5%
65%
60%
2001
2002
Debit transfers
16
2003
Cash withdrawals
2004
?
Strict cost control remains important
Efficiency
strategy
Closely-knit network
High wage costs
Number of bank branches
per million inhabitants
Netherlands
Sweden
UK
USA
Japan
Switzerland
France
Italy
Belgium
Germany
17
Source: Febelfin
200
219
1.
Wage costs in Belgium are higher than
in other European countries
2.
Average level of education of branch
staff is higher than in other European
countries
245
275
289
371
427
514
537
611
Low over-the-cycle credit-loss charges
Risk
strategy
Core retail Belgium only
Trend of impairments in credit portfolio
Write-downs vs.
risk-weighted assets
0.23% 0.24%
0.09%
2002
18
2003
2004
Target:
<0.25%
over-the-cycle
Focus on revenue growth strategy
Growth
strategy
(*) Core retail Belgium only
Revenue growth (*) in 2001-2004 period
partly driven by positive pricing effects.
2001 income
Lending
+89
½ due to positive
pricing effects
Insurance (excl.
S&I)
Other
2004 income
19
Inkomsten 2004
1 564
Savings &
investments
+5% p.a.
+28
1 829
1 828
Sparen &
Beleggen
Kredietverlening
+101
+47
Achieved
+5% p.a.
revenue growth
Revenue growth (*) in 2004-2007 period
driven by positive volume effects
and negative price effects
Verzekeren
(excl.S&B)
Overige
Inkomsten 2007
+5% p.j.
+165
Margin pressure
+32
+67
Ambition:
maintain
growth trend
5
2 087
Growth in the savings & investments field
How to grow within a mature market?
Growth
strategy
1
Attracting new funds
Proven performance
Market potential
Estimated nominal GDP growth rate
2.1%
2.3%
Germany
NL
2.8%
France
5.8%
3.5%
3.7%
3.9%
EMU
Belgium
UK
Savings rate
14.2%
20
22
23
1995
1996
25
1997
28
29
29
30
31
31
28
1998
1999
2000
2001
2002
2003
2004
New funds attracted – in bn
10.6%
Eurozone
Spain
Market share of mutual funds
Belgium
3.4
3.3
2002
2003
5.3
2004
Growth in the insurance field
How to grow within a mature market?
Growth
strategy
1
2
Attracting new funds Insurance
High internal potential
Proven performance
Premium growth, non-life
69%
31%
Total
non-life
76%
80%
83%
96%
98%
8%
3%
24%
20%
17%
Home
Family
Car
4%
5%
3%
8%
6%
6%
5%
2%
Hospital Accident
2000
2001
Bank branches
% bank client households w/o product
% bank client households w/ product
2002
2003
X-sell results
56%
2004
Tied agents
2000
2004
60%
34%
bank x bank (> 3 of 6
product areas)
21
14%
12%
40%
bank x insurance
Growth in the lending field
How to grow within a mature market?
1
Attracting new funds
2
Insurance
3
Lending
Growth
strategy
High expectations for growth in retail lending
Total market – Mortgage loans
Small business loans:
CAGR 9%
100
2001
108
2002
118
2003
128
• Moderate growth trend, in line with
nominal GDP growth (+4.2% in 2005)
2004e
• But, still additional growth potential via
raising amounts of advances in current
account (with higher margins) and
increasing non-credit-linked revenues
Mortage loans:
strong growth on the back of:
• steep rise in Belgian real estate prices
• real estate prices still below level of other
European markets
22
Source: NBB
Obstacles to growth
How to grow within a mature market?
1
2
Attracting new funds Insurance
Growth
strategy
3
Lending
Sharper price competition !
Hardening credit-pricing cycle
Threats to growth according to analysts
Nos. 1 & 2 based on ranking
Small busniess loans
Pressure on
margins
Investments in
additional
services
85%
18%
Mortgages
23
l04
Ju
-0
4
Ja
n
l03
Ju
-0
3
Ja
n
l02
Ju
-0
2
Ja
n
l01
Ju
-0
1
16%
Ja
n
Slowdown in
economic
growth
Catalysts for growth
How to grow within a mature market?
1
Attracting new funds
2
Insurance
Growth
strategy
3
Lending
Enhancing customer satisfaction
Customer satisfaction at KBC
Would you recommend your bank to others?
Yes, definitely + Yes, probably
KBC
80%
Competitor A
76%
Competitor B
Competitor C
71%
68%
Top-4 bancassurers only
24
1999
2000
2001
2002
2004
Target
Foto gebouw
3
Private banking in
Belgium
Business model in Belgium

KBC PB is a seperate channel for distribution of wealth management services to HNWI

Focus: customers with 1-5m of investible assets. Downflow of below-threshold clients
to retail (> 65% are (ex-)entrepreneurs and owners of own business or practice; others
are upper middle management/senior executives, heirs to a large fortune, etc.)

19 dedicated branches focused on onshore private banking; broad local market
representation (in the Northern part of Belgium)

Network-led model; private banking under corporate brand with growth primarily
through identifying and converting clients from the retail and corporate network

Full-service banking (in partnership with the retail business*) - broad range of wealth
management products and services

Controlled open architecture: > 90% investment management in-house, with an
emphasis on product design (structured products, particularly capital guaranteed
products) and quantitative techniques
* PB clients are served by retail branches for their standard banking needs
26
Leveraging links with retail and corporate branches
Acquisition focus
Existing client relationships offer a
high degree of opportunity
39%
42%
19%
Acquisition
costs
KBC is primary bank (e.g. SME)
low
KBC is second bank (e.g. SME)
27
high
Key performance figures
Growth primarily from retail trade-up*
Growth of relationships base
CAGR 9%
100
108
115
128
86%
85%
82%
80%
2001
2002
2003
2004
* New clients with former retail relationship
28
2001
2002
2003
2004
Key performance figures
Client asset growth (bn)
12.5
9.5
7.6
7.9
2001
2002
2003
2004
Cost/income
Contribution (bn; pre-tax)
56
78%
67%
41
56%
49%
22
13
2001
29
2002
2003
2004
2001
2002
2003
2004
Key performance figures
Customer satisfaction
(Very)
good
Exits to competition
1.6%
1.6%
2003
2004
How do you
rate your
experience
with PB
overall?
Source: Annual customer survey 2004; response rate: 21% of all PB clients
30
Yes
1,5%
91%
2002
(Very)
satisfied
97%
94%
Are you
satisfied
with your
CRO’s
competence
level?
Would you
describe
your CRO
as
proactive?
Foto gebouw
4
Synergies
for private
banking within
KBC Group
Quick reminder

Until 31 Dec. 04:
Almanij
KBC
Bank & Insurance
KBC
Bank

KBL
European Private Bankers
KBC
Insurance
Gevaert
KBC
Asset Management
As of 01 Jan. 05:
KBC Group NV
KBC
Bank
32
KBC
Insurance
KBC
AM
KBL
European Private Bankers
Gevaert
KBC Group’s epb* today
* epb: European private banking
33

Presence in 10 countries outside
Belgium, multi-domestic positioning

No link with traditional banking network
(contrary to the network-led model in
Belgium)

Highly based on open architecture
(though product penetration of in-house
products to increase within new KBC
Group)
Key financials of epb*
Net profit
In m EUR (Lux GAAP)
174
181
193
Assets under management
205
In bn EUR
36
34
CAGR +6%
CAGR +6%
2001
2002
2003
2004
2001
34
2003
Lux GAAP
Lux GAAP
2001
2002
8.4%
2002
10.0%
2003
* Reminder: figures excl. KBC PB in Belgium
2004
Return on equity
Tier-1 ratio
7.6%
43
38
9.2%
2004
15%
17%
18%
2001
2002
2003
21%
2004
Synergies within enlarged KBC Group








Synergies via integrating epb with KBC PB
(Belgium) and KBC AM
Total synergy programme of NPV 500 m
(net of restructuring and capital costs, posttax)
Estimated capital and restructuring costs are
ca. 50m over 5 years
Recurring pre-tax benefits of 75 m (peak
level), half of which can be realized by 2006
Cashflow positive every year
40% revenue and 60% cost (and cost
avoidance) benefits
All synergies reach their peak by 2009
(some faster than others)
Portfolio of 32 synergies, 19 ‘large’ and
13 ‘small’
Synergy benefit, in m
(see note below)
Revenue
80
60
40
20
Cost + Cost
Avoidance
0
2005 2006 2007 2008 2009
Note: ‘Synergy benefit’ described throughout as peak recurring annual increase in pre-tax bottom-line result vs. base
business
35
KBC Group