KBC Group / Bank Debt Roadshow May More infomation: or on your mobile: m.kbc.com

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1 KBC Group / Bank Debt Roadshow May 2014 More infomation: or on your mobile: m.kbc.com KBC Group - Investor Relations Office investor.relations@kbc.com 1

2 Important information for investors This company presentation is provided for information purposes only. It does not constitute an offer to sell or the solicitation to buy any security issued by KBC. A decision to purchase or sell our securities should be made only on the basis of a prospectus or offering memorandum prepared for that purpose and on the information contained or incorporated by reference therein. KBC believes that this presentation is reliable, although some information is summarised and therefore incomplete. Financial data is generally unaudited. KBC cannot be held liable for any loss or damage resulting from the use of the information. This presentation contains non-ifrs information and forward-looking statements with respect to the strategy, earnings and capital trends of KBC, involving numerous assumptions and uncertainties. The risk exists that these statements may not be fulfilled and that future developments may differ materially. Moreover, KBC does not undertake to update the presentation in line with new developments. Much of the information in these slides relates to the KBC Group and may not, therefore, be wholly relevant to the performance or financial condition of KBC Bank and its subsidiaries. Those interested in KBC Bank should not place undue reliance or attach too great importance to the information contained in these slides relating to KBC Group. By reading this presentation, each investor is deemed to represent that they understand and agree to the foregoing restrictions. As of 1Q2014, a number of other changes have been affecting KBC s group and segment reporting figures: The application of the new IFRS-11 standard. This standard stipulates that joint ventures must be accounted for using the equity method instead of the proportionate consolidation method that has been used so far. For KBC, this mainly applies to CMSS, a joint venture of ČSOB in the Czech Republic. This change does not affect the net result, but does have an impact on various items in the consolidated income statement. The shift from Basel II to Basel III and the abolishment of the home country government bonds carve-out. Among other things, this changes the risk-weighted asset figures and related ratios. An enhanced definition for net interest margin across all business units. This is aimed at providing a clearer picture of the margin generated by KBC s core business. Hence, volatile assets related to general liquidity management or derivatives (such as reverse repos, cash balances with central banks, etc.) were eliminated, and companies that are still to be divested as well as those in run-down were excluded from the scope (in the past: only those companies under IFRS 5). 2

3 Executive summary 1Q 2014 (KBC Group) SOLID CAPITAL AND ROBUST LIQUIDITY POSITIONS Accelerated repayment of 0.5bn of State aid (principal + penalty) to the Flemish Government in January 2014 Pro forma 1 common equity ratio (B3 fully loaded 2 based on Danish Compromise) of 12.5% at end 1Q14 Continued strong liquidity position (NSFR at 108% and LCR at 130%) STRONG BUSINESS PERFORMANCE IN 1Q14 Net result of 397m EUR and adjusted 3 net result of 387m EUR. The latter is the result of: o Strong commercial bank-insurance franchises in our core markets and core activities o Higher net interest margin o Q-o-q increase of net fee and commission income and a further rise in AuM o Good dealing room results, but substantial negative M2M ALM derivatives (-83m EUR) o Excellent combined ratio (89%), but lower life insurance sales o Good cost/income ratio (56%) adjusted for specific items (mainly M2M impact of ALM derivatives) o Low impairment charges. We are maintaining our FY 2014 guidance of 150m-200m EUR for Ireland INVESTOR DAY ON 17 JUNE o We will provide more insight on specific topics, such as bank-insurance, capital management (including dividend policy as from accounting year 2016) and business development going forward 1. Pro forma figures include the impact of the signed divestments of KBC Bank Deutschland and Antwerp Diamond Bank (ADB) 2. Including remaining State aid of 2bn EUR and the abolishment of the home country government bonds carve-out 3. Adjusted net result is the net result excluding a limited number of non-operational items, being legacy CDO and divestment activities and the M2M effect of own debt instruments due to own credit risk 3

4 Contents 1 Strategy and business profile of KBC Group 2 Financial performance of KBC Group 3 Asset quality of KBC Bank/Group 4 Liquidity and solvency of KBC Bank/Group 5 Wrap up Appendices 4

5 Well-defined core markets provide access to new growth in Europe KBC Group s core markets and Ireland MARKET SHARE, AS OF END 2013 Loans and deposits BE CZ SK HU BG 20% 19% 10% 9% 2% Investment funds 35% 29% 7% 17% IRELAND UK NETHERLANDS Life insurance 17% 6% 5% 3% 10% BELGIUM FRANCE GERMANY CZECH REP SLOVAKIA HUNGARY Non-life insurance 9% 6% 3% 5% REAL GDP GROWTH OUTLOOK FOR CORE MARKETS 1 10% BE CZ SK HU BG ITALY BULGARIA % of Assets % 0.2% 16% 3% 0.8% 4% 1.0% 1% 0.5% PORTUGAL SPAIN Macroeconomic outlook Based on GDP, CPI and unemployment trends Inspired by the Financial Times GREECE 2014e 1.2% -1.3% 1.5% 1.5% 1.8% 1.8% 2015e 1.4% 2.5% 1.7% 1.8% 2.5% 1. Source: KBC data, February

6 Overview of KBC Group STRONG BANK-INSURANCE GROUP PRESENT WITH LEADING MARKET POSITIONS IN CORE GEOGRAPHIES (BELGIUM AND CEE) A leading financial institution in both Belgium and the Czech Republic Turnaround potential in the International Markets Business Business focus on Retail, SME & Midcap clients Unique selling proposition: in-depth knowledge of local markets and profound relationships with clients INTEGRATED BANK-INSURANCE BUSINESS MODEL, LEADING TO HIGH CROSS-SELLING RATES Strong value creator with good operational results through the cycle Integrated model creates cost synergies by avoiding overlap of supporting entities and generates added value for our clients through a complementary and optimised product and service offering 6

7 Overview of key financial data at 1Q 2014 KBC Group KBC Bank KBC Insurance Market cap (13/05/14): 19bn Adjusted net result (FY 2013): EUR 1.0bn Total assets: EUR 246bn Total equity: EUR 16bn CET1 ratio (Basel 3 transitional 1 ): 12.9% CET1 ratio (Basel 3 fully loaded 1 ): 12.2% Adjusted net result (FY 2013): EUR 0.8bn 3 Total assets: EUR 213bn Total equity: EUR 14bn CET1 ratio (Basel 3 transitional 2 ): 12.5% CET1 ratio (Basel 3 fully loaded 2 ): 11.6% C/I ratio: 62% 4 Adjusted net result (FY 2013): EUR 0.3bn Total assets: EUR 37bn Total equity: EUR 3bn Solvency I ratio: 299% Combined operating ratio: 89% Credit Ratings of KBC Bank S&P Moody s Fitch Long-term A (Negative) A2 (Stable) A- (Stable) Short-term A-1 Prime-1 F1 1. Pro forma figures which include the impact of the signed divestments of KBC Bank Deutschland and Antwerp Diamond Bank, and include remaining State Aid of 2bn EUR 2. Pro forma figures which include the impact of the signed divestments of KBC Bank Deutschland and Antwerp Diamond Bank 3. Includes KBC Asset Management ; excludes holding company eliminations 4. Adjusted for specific items, the C/I ratio amounted to c.56% in 1Q

8 Business profile CFO SERVICES CRO SERVICES BREAKDOWN OF ALLOCATED CAPITAL BY BUSINESS UNIT AT 31 MARCH % Czech Republic BELGIUM CZECH REPUBLIC INTERNATIONAL PRODUCT FACTORIES INTERNATIONAL MARKETS Merged as from 1 May 2014 Belgium 56% 11% 19% International Markets CORPORATE STAFF Group Centre* CORPORATE CHANGE & SUPPORT Ceases to exist as from 1 May 2014 *Covers inter alia results of companies to be divested, impact legacy & own credit risk and results of holding company 8

9 Assessment of the State aid position & repayment schedule KBC made accelerated full repayment of 3.0bn EUR of State aid to the Belgian Federal Government in December 2012 and the accelerated repayment of 1.17bn EUR of State aid to the Flemish Regional Government mid-2013, approved by the NBB KBC is committed to repaying the remaining outstanding balance of 2.33bn EUR owed to the Flemish Regional Government in seven equal instalments of 0.33bn EUR (plus premium) over the period (KBC however has the option to further accelerate these repayments). At the beginning of 2014, KBC accelerated the repayment of 0.33bn EUR (plus penalty), and as such saved 28m EUR in interest coupon payments Jan 2012 Dec Total remaining amount 7.0bn EUR 6.5bn EUR 3.5bn EUR 2.33bn EUR 0 EUR Belgian Federal Government 0.5bn 1 EUR 3.5bn EUR 3.0bn EUR 3.0bn 2 EUR Flemish Regional Government 3.5bn EUR 3.5bn EUR 3.5bn EUR 1.17bn 3 EUR 2.33bn EUR To be repaid in seven equal instalments of 0.33bn EUR (plus penalty) 0.33bn 4 EUR 2.0bn 5 EUR 1. Plus 15% penalty amounting to 75m EUR 2. Plus 15% penalty amounting to 450m EUR 3. Plus 50% penalty amounting to 583m EUR 4. Plus 50% penalty amounting to 167m EUR 5. Plus 50% penalty amounting to 1 000m EUR 9

10 Contents 1 Strategy and business profile of KBC Group 2 Financial performance of KBC Group 3 Asset quality of KBC Bank/Group 4 Liquidity and solvency of KBC Bank/Group 5 Wrap up Appendices 10

11 Earnings capacity NET RESULT CONTRIBUTION OF BANKING ACTIVITIES TO KBC GROUP ADJUSTED NET RESULT 1, Adjusted net result excl. one-off additional impairments -368 FY FY FY09 FY10 FY11 FY12 Excluding adjustments ADJUSTED NET RESULT 1, FY Q Q13 2Q13 3Q13 4Q13 1Q14 CONTRIBUTION OF INSURANCE ACTIVITIES TO KBC GROUP ADJUSTED NET RESULT 1, FY07 FY08 FY09 FY10 FY11 FY12 FY13 1Q Note that the scope of consolidation has changed over time, due partly to divestments 2 Difference between adjusted net result at KBC Group and the sum of the banking and insurance contribution are the holding-company/group items 1Q13 2Q13 Non-life result Life result 3Q13 4Q13 1Q14 Non-technical & taxes Amounts in m EUR 11

12 Net interest income and margin NII Q13 2Q13 3Q13 4Q13 1Q14 NII - deconsolidated entities NII - insurance contribution NII - contribution of holding-company/group NII - banking contribution Amounts in m EUR NIM restated % 1.89% 1.87% 1.89% 1.92% 1Q13 2Q13 3Q13 4Q13 1Q14 Net interest income Increased 1% both y-o-y and q-o-q (despite 2 days less in 1Q), excluding deconsolidated entities Sound commercial margins and lower funding costs more than offset the negative impact from lower reinvestment yields and the deliberately decreasing loan portfolio at the foreign branches and the legacy Project Finance portfolio at the banking side Net interest income at the insurance side continues to suffer mainly from lower reinvestment yields Stable loan volume q-o-q. Solid mortgage growth in the Czech Republic and Slovakia Deposit volumes were marginally up q-o-q driven mainly by growth in demand deposits, offset by maturing wholesale debt. Strong deposit growth q-o-q in Belgium and Ireland Improved net interest margin (2.00%) Up by 8bps q-o-q and 11bps y-o-y Q-o-q, sound commercial margins, lower funding costs and better ALM yield management more than offset the negative impact from lower reinvestment yields 1. The restated Net Interest Margin (bank) is aimed at providing a clearer picture of the margin generated by our core business. Therefore, the main impact stems from eliminating the volatile assets related to general liquidity management or derivatives (such as reverse repos and cash balances with central banks). Additionally, the scope of companies has been fine-tuned to exclude all divestments and companies in run-down (whereas in the past only those reclassified as IFRS5-companies were excluded) 12

13 Net fee and commission income and AUM Q Q13 F&C Q13 4Q13 Deconsolidated entities 378 1Q14 Strong net fee and commission income Increased by 4% q-o-q and stabilised y-o-y excluding deconsolidated entities Q-o-q increase was mainly the result of higher fees from mutual funds and payment transactions, despite lower fees on investment services and booking fees recorded in Hungary Y-o-y stabilisation as lower entry fees from unitlinked products in Belgium were offset by higher management fees there and higher fees from payment transactions and other fees (mainly fees on investment services and booking fees) recorded in Hungary AUM Assets under management (167bn EUR) Rose by 7% y-o-y owing to net inflows (+3%) and a positive price effect (+4%) Up 2% q-o-q as a result of net inflows (+1%) and a positive price effect (+1%) 1Q13 2Q13 3Q13 4Q13 1Q14 Amounts in m EUR 13

14 Operating expenses and cost/income ratio Q13 OPERATING EXPENSES Q13 3Q13 4Q13 Deconsolidated entities Bank tax Q14 Costs well under control, despite high bank taxes The C/I ratio (62% in 1Q14) was affected by the negative M2M impact of ALM derivatives and high bank taxes, only partly offset by somewhat higher sales of AFS assets Adjusted for specific items, the C/I ratio amounted to roughly 56% in 1Q14 Operating expenses went down by 3% y-o-y excluding deconsolidated entities, due to the FX effect and lower staff expenses in the Belgium BU. This was only partly offset by higher staff expenses in Ireland (increased number of FTEs, particularly in the MARS support unit). Excluding all one-off items, operating expenses fell by 1% y-o-y Operating expenses increased by 1% q-o-q excluding deconsolidated entities due mainly to the Hungarian bank tax (51m EUR pre-tax), although this effect was partly offset by lower marketing expenses and other operational expenses. Excluding all one-off items, operating costs decreased by 3% q-o-q Amounts in m EUR 14

15 Asset impairment, credit cost and NPL ratio 333 1Q % ASSET IMPAIRMENT Q13 3Q13 4Q13 One-off additional impairments CCR RATIO 1.21% 0.91% 0.82% 0.71% 107 1Q14 Substantially lower impairment charges Sharp q-o-q decrease of loan loss provisions as a result of the one-off additional impairments in Ireland (671m EUR) and Hungary (21m EUR) following reassessment of loan books (announced when publishing 3Q13 results) booked in 4Q13, some releases of impairment (mainly in the Czech BU) and lower impairment charges in Group Centre in 1Q14 Compared with the 333m EUR level of 1Q13, substantially lower impairments were recorded mainly due to overall lower gross impairments. Lower impairment charges were recognised in Ireland in 1Q14 (48m EUR compared with 99m EUR in 1Q13) whereas 1Q13 experienced a large impairment on one large corporate file Impairment of 5m EUR on AFS shares 0.29% FY09 5.4% FY10 5.6% FY11 FY12 NPL RATIO 6.0% 5.9% FY13 1Q14 5.9% The credit cost ratio only amounted to 0.29% in 1Q14 thanks to a.o. some releases of impairment & positive model changes (mainly in the Czech BU) and much lower impairments in Ireland (in line with our guidance) The NPL ratio stabilised at 5.9% 1Q13 2Q13 3Q13 4Q13 1Q14 15

16 Overview of results based on business units NET PROFIT BELGIUM Q14 ROAC: 25% NET PROFIT CZECH REPUBLIC Q14 ROAC: 40% Q Q14 2Q-4Q 1Q 2Q-4Q 1Q NET PROFIT INTERNATIONAL MARKETS NET PROFIT INTERNATIONAL MARKETS EXCL. IRELAND 1Q14 ROAC: -6% Q Q14 Amounts in m EUR 2Q-4Q 1Q 16 2Q-4Q 1Q

17 Contents 1 Strategy and business profile of KBC Group 2 Financial performance of KBC Group 3 Asset quality of KBC Bank/Group 4 Liquidity and solvency of KBC Bank/Group 5 Wrap up Appendices 17

18 Balance sheet risks (KBC Bank consolidated at 31 March 2014) Total Assets: 213bn EUR Tangible & intangible fixed assets (incl. Investment property): 4bn EUR Equity: 14bn EUR Total Liabilities & Equity: 213bn EUR Capital adequacy Loan book: 121bn EUR (Loans and advances to customers) Credit quality Liquidity position Funding and deposit base: 165bn EUR Investment portfolio: 44bn EUR Sovereign bonds Trading assets: 12bn EUR Other (incl. interbank loans): 33bn EUR Trading exposure Trading liabilities: 10bn EUR Other (incl. interbank deposits): 24bn EUR 18

19 NPL ratios at KBC Group and per business unit KBC GROUP CUSTOMER LOAN BOOK: 121bn EUR at end 1Q14 5.4% 5.6% 6.0% 5.9% 5.9% (LARGELY SOLD THROUGH OWN BRANCHES) 42% 43% 1Q13 2Q13 3Q13 4Q13 1Q14 13% 3% Total retail = 59% Residential mortgages Other Retail loans Consumer Finance SME/Corporate loans BELGIUM BU CZECH REPUBLIC BU INTERNATIONAL MARKETS BU 2.3% 2.3% 2.6% 2.5% 2.5% 3.5% 3.5% 3.5% 3.1% 3.1% 18.1% 18.5% 19.0% 19.2% 19.7% 9.0% 9.2% 9.0% 9.3% 8.9% 1Q13 2Q13 3Q13 4Q13 1Q14 1Q13 2Q13 3Q13 4Q13 1Q14 1Q13 2Q13 3Q13 4Q13 1Q14 NPL including Ireland NPL excluding Ireland 19

20 Loan loss experience at KBC 1Q14 CREDIT COST RATIO FY13 FY 2012 CREDIT COST RATIO CREDIT COST RATIO AVERAGE Belgium 0.15% 0.37% 0.28% n.a. Czech Republic 0.03% 0.26% 0.31% n.a. International Markets 0.99% 4.48% % 1 n.a. Group Centre 0.16% 1.85% 0.99% n.a. Total 0.29% 1.21% % 0.55% Credit cost ratio: amount of losses incurred on troubled loans as a % of total average outstanding loan portfolio 1 The high credit cost ratio at the International Markets BU is due in full to KBC Bank Ireland. Excluding Ireland, the CCR at this business unit amounted to 108bps in FY13 2 Credit cost ratio amounted to 1.21% in FY13 due to the reassessment of the loan books in Ireland and Hungary 20

21 Limited trading activity at KBC Group BREAKDOWN ACCORDING TO RWA* Credit risk 73% Market risk 4% Operational risk 12% 12% Insurance activity Traditional dealing rooms, Brussels by far the largest, focus mainly on trading in interest rate instruments and for client-related business. Abroad, dealing rooms focus primarily on providing customer service in money and capital market products, on funding local bank activities and engage in limited trading for own account in local niches. * RWA on fully loaded basis and under Danish Compromise 21

22 Government bond portfolio Carrying value Carrying value of 47.8bn EUR in government bonds (excl. trading book) at end of 1Q14, primarily as a result of a significant excess liquidity position and the reinvestment of insurance reserves in fixed-income instruments Carrying value of GIIPS exposure amounted to 2.7bn EUR at end of 1Q14 END 2012 Carrying value of 48.8bn EUR (47bn EUR notional amount) END 2013 Carrying value of 48.5bn EUR (45.6bn EUR notional amount) END 1Q14 Carrying value of 47.8bn EUR (44.5bn EUR notional amount) Austria * Netherlands * Germany** Ireland * Other 2% 6% France 1% 6% Italy** Slovakia 2% 3% Hungary 5% Poland* 1% 17% Czech Rep. Belgium 55% France Netherlands ** Austria ** Ireland * Germany ** Portugal Spain* Other 1% 9% 7% Italy** 2% Slovakia 5% 4% Hungary 1% Poland * Czech Rep. 16% 49% Belgium Netherlands ** Austria ** Ireland * Germany ** Portugal Spain** Other 2% 10% France 7% Italy 3% 5% Slovakia 4% Hungary 1% Poland * 17% Czech Rep. 44% Belgium (*) 1%, (**) 2% (*) 1%, (**) 2% (*) 1%, (**) 2% * Carrying value is the amount at which an asset [or liability] is recognised: for those not valued at fair value this is after deducting any accumulated depreciation (amortisation) and accumulated impairment losses thereon, while carrying amount is equal to fair value when recognised at fair value 22

23 Government bond portfolio KBC Group Carrying value Reclassification of the government bond portfolio from available-for-sale to held-to-maturity ,0% ,0% 50,0% 40,0% ,0% 20,0% 10,0% 0 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 0,0% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 AFS HTM HFT FV L&R AFS HTM HFT FV L&R 23

24 Contents 1 Strategy and business profile of KBC Group 2 Financial performance of KBC Group 3 Asset quality of KBC Bank/Group 4 Liquidity and solvency of KBC Bank/Group 5 Wrap up Appendices 24

25 Consistent track record of strengthening capital Pro forma 1 common equity ratio (B3 fully loaded 2 ) of 12.5% based on the Danish Compromise, after taking into account: The accelerated repayment of 0.5bn of State aid (principal + penalty) to the Flemish Government in January 2014 The abolishment of the home country government bonds carve-out, which led to 4.4bn EUR extra RWAs The CDO collapse in January, which led to a decrease in RWAs of roughly 0.7bn EUR Fully loaded B3 leverage ratio: 4.9% at KBC Bank Consolidated, based on current CRR legislation 3bn EUR repayment to Belgian State 1.2bn EUR repayment to Flemish Gov 0.3bn EUR repayment to Flemish Gov 10.0% 11.7% 10.5% 11.5% 13.1% 12.2% 12.8% 12.2% 12.5% 10% minimum internal target 9.25% NBB minimum 3 (pillar 2) 1H12 9M12 FY12 1Q Q14 pro forma CET1 includes the impact of the signed agreements for the divestment of KBC Bank Deutschland and Antwerp Diamond Bank 2. With remaining State aid included in CET1 as agreed with local regulator 3. Excludes revaluation reserve of available-for-sales assets 25 1H13 9M13 FY13 1Q14 1Q14 pro forma 2

26 Active capital management by KBC Sale treasury shares: 16 Oct 12 Capital release: +0.35bn EUR Capital increase : 10 Dec 12 Common increase: +1.25bn EUR Coco: 18 Jan 13 Increasing loss absorbing capital: +1.0bn USD Shareholder loans I: 3 July 13 Capital release : +0.33bn EUR Shareholder loans II : 19 Nov. 13 Capital release : +0.67bn EUR Numerous successful capital management exercises since Oct-2012 generating approx. 5bn EUR in loss absorbing capital AT1: 12 March 14 Increasing loss absorbing capital: +1.4bn EUR 26

27 KBC has a strong CET1 ratio in a European context 18.9% 18.3% BASEL 3 CET 1 RATIO (FULLY LOADED Q UNLESS OTHERWISE STATED IN THE FOOTNOTES) 15.0% 13.9% 13.6% 12.8% 12.5% 11.5% 11.2% 10.9% 10.3% 10.3% 10.0% 9.9% 9.8% 9.7% 9.3% Median: 10.9% 9.2% 9.0% Source: Company filings 1. Including: (i) the effects of the accelerated repayment of 0.33bn EUR of State aid to the Flemish Regional Government (+50% premium) and the impact of the signed agreements for the divestment of KBC Bank Deutschland and Antwerp Diamond Bank, and (ii) the remaining State aid of 2bn EUR 2. As of Q

28 Conservative RWA calculations 55% RISK WEIGHTED ASSETS VS. TOTAL ASSETS (BASEL 2.5) 1 46% 45% 44% 42% 40% 37% 33% 32% 30% Median: 30% 26% 26% 25% 25% 24% 23% 23% 20% 16% 1.. EBA Review (30-Jun-2013) 28

29 Solid liquidity position (1) KBC Bank continues to have a strong retail/mid-cap deposit base in its core markets resulting in a stable funding mix with a significant portion of the funding attracted from core customer segments & markets 7% 8% 5% 5% 8% 8% 7% 8% 7% 7% 3% 5% 7% 8% 7% 3% 9% 7% 9% 3% 0% 6% 8% 9% 3% 2% 3% 10% 8% 2% 3% 2% 9% 9% 2% 100% 3.0% 7.0% 29.0% 66% 64% 70% 69% 73% 75% 75% 75% customer driven 62.0% Retail and SME Mid-cap FY08 FY09 Net unsecured interbank funding FY10 FY11 Total equity FY12 FY13 1Q14 Debt issues in retail network Government and PSE Net secured funding Certificates of deposit Debt issues placed with institutional investors Funding from customers 29

30 Solid liquidity position (2) (*, **) KBC has further strengthened the already excellent liquidity position in 1Q14 given that: Available liquid assets are more than 5 times the amount of the net recourse on short-term wholesale funding Funding from non-wholesale markets is stable funding from core-customer segments in core markets * In line with IFRS5, the situation at the end of 1Q14 excludes the divestments that have not yet been completed (KBC Deutschland and ADB) ** Graphs are based on Note 18 of KBC s quarterly report, except for the available liquid assets and liquid assets coverage, which are based on the KBC Group Treasury Management Report Ratios 1Q14 Target 2015 NSFR 1 108% 105% LCR 1 130% 100% NSFR at 108% and LCR at 130% by the end of 1Q14 In compliance with the implementation of Basel 3 liquidity requirements, KBC is targeting LCR and NSFR of at least 100% and 105%, respectively by LCR (Liquidity Coverage ratio) and NSFR (Net Stable Funding Ratio) are calculated based on KBC s interpretation of current Basel Committee guidance, which may change in the future. The LCR can be relatively volatile in future due to its calculation method, as month-to-month changes in the difference between inflows and outflows can cause significant swings in the ratio even if liquid assets remain stable 30

31 Upcoming mid-term funding maturities T1 Subordinated debt will not be refinanced, but will be called KBC successfully issued a 5Y covered bond of 750m EUR and a CRD IV compliant Additional Tier-1 Instrument of 1.4bn EUR in the first quarter of 2014 KBC s credit spreads remained very stable during 1Q14 KBC Bank has 5 solid sources of long-term funding: Retail term deposits Retail EMTN Public benchmark transactions Covered bonds (supporting diversification of the funding mix) Structured notes and covered bonds using the private placement format 31

32 Summary Covered Bond Programme (1) (details, see Annex 3) KBC HAS ISSUED SUCCESSFUL BENCHMARK COVERED BONDS AND PRIVATE PLACEMENTS FOR AN AMOUNT OF 4.81BN EUR KBC s 10bn EUR Covered Bond Programme is rated Aaa/AAA (Moody s/fitch) CRD and UCITS compliant / 10% risk-weighted All issues performed well in the secondary market KBC S COVERED BONDS ARE BACKED BY STRONG LEGISLATION AND SUPERIOR COLLATERAL Cover pool: Belgian residential mortgage loans Strong Belgian legislation inspired by German Pfandbriefen law Direct covered bond issuance from a bank s balance sheet Dual recourse, including recourse to a special estate with cover assets included in a register Requires license from the National Bank of Belgium (NBB) The special estate is not affected by a bank insolvency. In that case, the NBB can appoint a cover pool administrator to manage the special estate in issuer ; both monitor the pool on a ongoing basis The value of one asset category must be at least 85% of the nominal amount of covered bonds The value of the cover assets must at least be 105% of the covered bonds (value of mortgage loans is limited to 80% LTV) Maximum 8% of a bank s assets can be used for the issuance of covered bonds THE COVERED BOND PROGRAMME IS CONSIDERED AS AN IMPORTANT FUNDING TOOL FOR THE TREASURY DEPARTMENT KBC s intentions are to be a frequent benchmark issuer if markets permit 32

33 Summary Covered Bond Programme (2) (details, see Annex 3) COVER POOL: BELGIAN RESIDENTIAL MORTGAGE LOANS Exclusively this as selected main asset category Value (including collections) at least 105% of the outstanding covered bonds Branch originated prime residential mortgages predominantly out of Flanders Selected cover asset have low average LTV (68%) and high seasoning (37 months) KBC HAS A DISCIPLINED ORIGINATION POLICY 2007 to 2012 average residential mortgage loan losses below 2 bp Arrears in Belgium approx. stable over the past 10 years: (i) Cultural aspects, stigma associated with arrears, importance attached to owning one s property (ii) High home ownership also implies that the change in house prices itself has limited impact on loan performance (iii) Well established credit bureau, surrounding legislation and positive property market 1,2% 1,10% 1,09% 1,10% 1,14% 1,12% 1,12% 1,11% 1,08% 1,08% 1,09% 1,09% 1,09% 1,10% 1,11% 1,09% 1,08% 1,08% 1,08% 1,06% 1,06% 1,06% 1,06% 1,12% 1,12% 1,13% 1,14% 1,12% 1,11% 1,12% 1,13% 1,14% 1,15% 1,16% 1,16% 1,16% 1,17% 1,0% 0,8% Market loans in 3 months arrears KBC loans in default KBC loan losses 0,6% 0,4% 0,2% 0,0% 0,238% 0,199% 0,214% 0,259% 0,291% 0,324% 0,345% 0,347% 0,344% 0,348% 0,36% 0,38% 0,36% 0.012% 0.008% 0.006% 0.009% 0.012% 0,020% 0,013% dec/07 jun/08 dec/08 jun/09 dec/09 jun/10 dec/10 jun/11 dec/11 jan/12 feb/12 mrt/12 apr/12 mei/12 jun/12 jul/12 aug/12 sep/12 okt/12 nov/12 dec/12 jan/13 feb/13 mrt/13 apr/13 mei/13 jun/13 jul/13 aug/13 sep/13 okt/13 nov/13 dec/13 jan/14 feb/14 mrt/14 33

34 Contents 1 Strategy and business profile of KBC Group 2 Financial performance of KBC Group 3 Asset quality of KBC Bank/Group 4 Liquidity and solvency of KBC Bank/Group 5 Wrap up Appendices 34

35 Wrap up (at KBC Group level) SOLID CAPITAL AND ROBUST LIQUIDITY POSITIONS Accelerated repayment of 0.5bn of State aid (principal + penalty) to the Flemish Government in January 2014 Pro forma 1 common equity ratio (B3 fully loaded 2 based on Danish Compromise) of 12.5% at end 1Q14 Continued strong liquidity position (NSFR at 108% and LCR at 130%) STRONG BUSINESS PERFORMANCE IN 1Q14 Net result of 397m EUR and adjusted 3 net result of 387m EUR. The latter is the result of: o Strong commercial bank-insurance franchises in our core markets and core activities o Higher net interest margin o Q-o-q increase of net fee and commission income and a further rise in AuM o Good dealing room results, but substantial negative M2M ALM derivatives (-83m EUR) o Excellent combined ratio (89%), but lower life insurance sales o Good cost/income ratio (56%) adjusted for specific items (mainly M2M impact of ALM derivatives) o Low impairment charges. We are maintaining our FY 2014 guidance of 150m-200m EUR for Ireland INVESTOR DAY ON 17 JUNE o We will provide more insight on specific topics, such as bank-insurance, capital management (including dividend policy as from accounting year 2016) and business development going forward 1. Pro forma figures include the impact of the signed divestments of KBC Bank Deutschland and Antwerp Diamond Bank (ADB) 2. Including remaining State aid of 2bn EUR and the abolishment of the home country government bonds carve-out 3. Adjusted net result is the net result excluding a limited number of non-operational items, being legacy CDO and divestment activities and the M2M effect of own debt instruments due to own credit risk 35

36 Appendices 1 KBC 2013/14 benchmarks + overview of outstanding benchmarks 2 KBC Bank CDS levels Summary - KBC s covered bond programme Details selective credit exposure Summary of government transactions Solvency: details, CT1 from 4Q13 to 1Q14 Macroeconomic views 36

37 KBC 2013 Benchmarks (1/2) KBC 10NC5Y Fixed Contigent Capital Note BE Notional: 1bn USD Issue Date: 25 January 2013 Maturity: 25 January 2023 Coupon: 8%, A, Act/Act Re-offer spread: USD Mid Swap bp (issue price 100%) Joint lead managers: KBC, BofA Merrill Lynch, Credit Suisse, Goldman Sachs, JPMorgan and Morgan Stanley KBC 10Y Fixed - Covered Bond BE Notional: 750m EUR Issue Date: 31 January 2013 Maturity: 31 January 2023 Coupon: 2%, A, Act/Act Re-offer spread: Mid Swap + 36bp (issue price 99.24%) Joint lead managers: KBC, BNP Paribas, Commerzbank and Deutsche Bank KBC 7Y Fixed - Covered Bond BE KBC 3Y Fixed - Covered Bond BE Notional: 1 bn EUR Issue Date: 28 May 2013 Maturity: 28 May 2020 Coupon: 1.25%, A, Act/Act Re-offer spread: Mid Swap + 16bp (issue price %) Joint lead managers: KBC, DZ Bank, LBBW and RBS Notional: 750m EUR Issue Date: 29/8/2013 Maturity: 29 Augustus 2016 Coupon: 0.875%, A, Act/Act Re-offer spread: Mid Swap + 5bp (issue price %) Joint lead managers: KBC, Commerzbank, DB, ING, Unicredit 37

38 KBC 2013 Benchmarks (2/2) KBC 5Y Fixed Senior Unsecured XS Notional: 750m EUR Issue Date: 10 September 2013 Maturity: 10 September 2018 Coupon: 2.125%, A, Act/Act Re-offer spread: Mid Swap +78 (issue price %) Joint lead managers: KBC, GSI, Natixis, UBS 38

39 KBC 2014 Benchmarks KBC 5Y Fixed Covered BE Notional: 750m EUR Issue Date: 25 February 2014 Maturity: 25 February 2019 Coupon: 1%, A, Act/Act Re-offer spread: Mid Swap +10bp (issue price %) Joint lead managers: Deutsche Bank - DZ Bank - ING Bank - KBC Bank - Unicredit KBC PerpNC5Y Fixed Additional Tier 1 BE Notional: 1.4bn EUR Issue Date: 19 March 2014 Maturity: perpetual NC5 Coupon: 5.625%, A, Act/Act Re-offer spread: Mid Swap + 475,9bp (issue price 100%) Joint lead managers: KBC, Goldman Sachs, JP Morgan, Morgan Stanley and UBS 39

40 Outstanding Benchmarks Tranche Report Issuer Curr Amount issued Coupon Settlement Date Maturity Date ISIN YEAR UNSECURED KBC Ifima N.V. EUR m Euribor /05/ /05/2014 XS KBC Ifima N.V. EUR /09/ /09/2014 XS KBC Ifima N.V. EUR /03/ /03/2015 XS KBC Ifima N.V. EUR /03/ /03/2016 XS KBC Ifima N.V. EUR /04/ /03/2015 XS KBC Ifima N.V. EUR /05/ /10/2015 XS KBC Ifima N.V. EUR /03/ /03/2017 XS KBC Ifima N.V. EUR /08/ /08/2016 XS KBC Ifima N.V. EUR /09/ /09/2018 XS COVERED KBC Bank N.V. EUR /12/ /12/2017 BE KBC Bank N.V. EUR /01/ /01/2023 BE KBC Bank N.V. EUR /05/ /05/2020 BE KBC Bank N.V. EUR /08/ /08/2016 BE KBC Bank N.V. EUR /02/ /02/2019 BE Maturity profile KBC benchmark issues in million euros =>2018

41 Main characteristics of Subordinated Debt Issues SUBORDINATED BOND ISSUES KBC KBC Bank NV KBC Bank NV KBC Bank NV KBC Groep NV KBC Bank NV Funding Trust II Tier I T2 Coco AT1 Amount issued EUR GBP EUR USD EUR Tendered EUR GBP Net Amount EUR GBP EUR USD EUR ISIN-code XS BE XS BE BE Call date 30/09/ /12/ /06/ /01/ /03/2019 Initial coupon 6.875% 6.202% 8.00% 8.00% 5.625% Coupon step-up / reset First (next) call date 3m euribor + 300bps 3m gbp libor + 193bps no step-up $ MS 5Y % MS 5Y+4.759% 30/06/ /12/ /06/ /01/ /03/2019 ACPM - Yes Yes - - Dividend Stopper - Yes Yes - - Conversion into PSC Trigger Status - Yes Yes - - CT1/CET1 < 7% at Trigger CET1 RATIO Supervisory Event or Supervisory Event or KBC Group level =< 5.125% general "concursus general "concursus Full and permanent Temporary writedown - creditorum" creditorum" write-down To be called (in 2014) To be called (in 2014) 41

42 Main terms of CRD IV-compliant AT1 issue Issuer Instrument Ranking Issuer ratings Instrument rating Currency / size Issue format Optional redemption Coupon Coupon cancellation Principal write-down Trigger event Return to financial health PONV KBC Group NV ( Issuer ) Undated Deeply Subordinated Additional Tier 1 Fixed Rate Resettable Callable Securities ( Securities ) Deeply subordinated and senior only to ordinary shares of the Issuer and any other instrument ranking pari passu with such ordinary shares, or otherwise junior to the issuer s obligations under the securities Baa1/A/A- (Moody's, S&P, Fitch) Rated BB by S&P and BB by Fitch EUR 1.4bn PerpNC5 Callable on the First Call Date and every interest payment date thereafter Callable on Tax or Regulatory event Securities callable at the Prevailing Principal Amount plus accrued interest, but only if the Prevailing Principal Amount is equal to the Original Principal Amount Subject to regulatory approval (if required) 1 Fixed rate of 5.625% per annum until (but excluding) the First Call Date, reset every 5 years thereafter (non-step) Payable quarterly Non-cumulative Fully discretionary Mandatory cancellation upon insufficient Distributable Items or if payment exceeds MDA Temporary write-down upon the occurrence of a Trigger Event The write-down amount will be the lower of The amount of write-down required to cure the Trigger Event pro rata with similar loss absorbing instruments (post cancellation of accrued interest on the Securities and the prior or concurrent write-down or conversion into equity if any prior loss-absorbency instruments) and The amount necessary to reduce the Prevailing Principal Amount of the securities to 1 cent Issuer s consolidated CET1 Ratio < 5.125% (on a transitional basis) Gradual write-up 2 to the Original Principal Amount if a positive consolidated net income of Issuer is recorded Fully discretionary write-up and pro rata with other similar instruments Subject to the Maximum Write-up Amount and to the MDA Statutory 1. The applicable banking regulations do not permit purchases in the first 5 years 2. Write-up will be based on the applicable transitional CET1 definition using the Danish Compromise 42

43 Appendices 1 KBC 2013/14 benchmarks + overview of outstanding benchmarks 2 KBC Bank CDS levels Summary - KBC s covered bond programme Details selective credit exposure Summary of government transactions Solvency: details, CT1 from 4Q13 to 1Q14 Macroeconomic views 43

44 KBC Bank CDS levels since

45 Appendices 1 KBC 2013/14 benchmarks + overview of outstanding benchmarks 2 KBC Bank CDS levels Summary - KBC s covered bond programme Details selective credit exposure Summary of government transactions Solvency: details, CT1 from 4Q13 to 1Q14 Macroeconomic views 45

46 Key messages on KBC s covered bond programme KBC s covered bonds are backed by strong legislation and superior collateral KBC s covered bonds are rated Aaa/AAA (Moody s/fitch) Cover pool: Belgian residential mortgage loans Strong Belgian legislation inspired by German Pfandbriefen law KBC has a disciplined origination policy 2007 to 2013 average residential mortgage loan losses below 2 bp CRD and UCITS compliant / 10% risk-weighted KBC already issued five successful benchmark covered bonds (3, 5, 7 and 10 year) The covered bond programme is considered as an important funding tool Sound economic picture provides strong support for Belgian housing market High private savings ratio of 15.2% Belgian unemployment is significantly below the EU average Demand still outstrips supply 46

47 KBC s disciplined origination leads to low arrears and extremely low loan losses BELGIUM SHOWS A SOLID PERFORMANCE OF MORTGAGES Arrears have been pretty stable over the past 10 years. Arrears in Belgium are low due to: Cultural aspects, stigma associated with arrears, importance attached to owning one s property High home ownership also implies that the change in house prices itself has limited impact on loan performance Well established credit bureau and surrounding legislation Housing market environment (no large house price declines) AND KBC HAS EXTRAORDINARY LOW LOAN LOSSES 1,2% 1,10% 1,09% 1,10% 1,14% 1,12% 1,12% 1,11% 1,08% 1,08% 1,09% 1,09% 1,09% 1,10% 1,11% 1,09% 1,08% 1,08% 1,08% 1,06% 1,06% 1,06% 1,06% 1,12% 1,12% 1,13% 1,14% 1,12% 1,11% 1,12% 1,13% 1,14% 1,15% 1,16% 1,16% 1,16% 1,17% 1,0% 0,8% 0,6% 0,4% 0,2% 0,0% Market loans in 3 months arrears KBC loans in default KBC loan losses 0,238% 0,199% 0,214% 0,259% 0,291% 0,324% 0,345% 0,347% 0,344% 0,348% 0,36% 0,38% 0,36% 0.012% 0.008% 0.006% 0.009% 0.012% 0,020% 0,013% dec/07 jun/08 dec/08 jun/09 dec/09 jun/10 dec/10 jun/11 dec/11 jan/12 feb/12 mrt/12 apr/12 mei/12 jun/12 jul/12 aug/12 sep/12 okt/12 nov/12 dec/12 jan/13 feb/13 mrt/13 apr/13 mei/13 jun/13 jul/13 aug/13 sep/13 okt/13 nov/13 dec/13 jan/14 feb/14 mrt/14 47

48 Belgian legal framework National Bank of Belgium Cover Pool Monitor Direct covered bond issuance from a bank s balance sheet Dual recourse, including recourse to a special estate with cover assets included in a register The special estate is not affected by a bank s insolvency Requires licences from the National Bank of Belgium (NBB) Ongoing supervision by the NBB The cover pool monitor verifies the register and the portfolio tests and reports to the NBB The NBB can appoint a cover pool administrator to manage the special estate Issuer Special Estate with Cover Assets in a Register Covered bonds Proceeds Note Holders Cover Pool Administrator Representative of the Noteholders 48

49 Strong legal protection mechanisms 1 Collateral type The value of one asset category must be at least 85% of the nominal amount of covered bonds KBC Bank selects residential mortgage loans and commits that their value (including collections) will be at least 105% 2 Overcollateralisation Test The value of the cover assets must at least be 105% of the covered bonds The value of residential mortgage loans: 1) is limited to 80% LTV 2) must be fully covered by a mortgage inscription (min 60%) plus a mortgage mandate (max 40%) 3) 30 day overdue loans get a 50% haircut and 90 days (or defaulted) get zero value 3 Cover Asset Coverage Test The sum of interest, principal and other revenues of the cover assets must at least be the interest, principal and costs relating to the covered bonds Interest rates are stressed by plus and minus 2% for this test 4 Liquidity Test Cover assets must generate sufficient liquidity or include enough liquid assets to pay all unconditional payments on the covered bonds falling due the next 6 months Interest rates are stressed by plus and minus 2% for this test 5 Cap on Issuance Maximum 8% of a bank s assets can be used for the issuance of covered bonds 49

50 KBC Bank NV residential mortgage covered bond programme Issuer: KBC Bank NV Main asset category: min 105% of covered bond outstanding is covered by residential mortgage loans and collections thereon Programme size: Up to 10bn EUR (only) Interest rate: Fixed Rate, Floating Rate or Zero Coupon Maturity: Events of default: Soft Bullet: payment of the principal amount may be deferred past the Final Maturity Date until the Extended Final Maturity Date if the Issuer fails to pay Extension period is 12 months for all series Failure to pay any amount of principal on the Extended Final Maturity Date A default in the payment of an amount of interest on any interest payment date Rating agencies: Moody s Aaa /Fitch AAA Moody s Fitch Over-collateralisation 28% 24.5% TPI Cap Probable 50 D-cap 4 (moderate risk)

51 Benchmark issuance KBC covered bonds Since establishment of the covered bond programme KBC has issued five benchmark issuances: SPREAD EVOLUTION KBC COVERED BONDS (SPREAD IN BP VERSUS 6 MONTH MID SWAP) Source Bloomberg Mid ASW levels 51

52 Key cover pool characteristics (1/3) Investor reports, final terms and prospectus are available on Data based on preliminary portfolio data as of : 31 March 2014 Total Outstanding Principal Balance Total value of the assets for the over-collateralisation test No. of Loans Average Current Loan Balance per Borrower Maximum Loan Balance Minimum Loan Balance Number of Borrowers Longest Maturity 359 month Shortest Maturity 1 month Weighted Average Seasoning 38 months Weighted Average Remaining Maturity 224 months Weighted Average Current Interest Rate 3.39% Weighted Average Current LTV 68% No. of Loans in Arrears(+30days) 149 Direct Debit Paying 97% 52

53 Key cover pool characteristics (2/3) REPAYMENT TYPE (LINEAR VS. ANNUITY) Annuity 97% LOAN PURPOSE Linear 3% West- Vlaanderen 15,3% Luxemburg 0,2% Namen 0,2% Henegouwen 0,7% GEOGRAPHICAL ALLOCATION Oost- Vlaanderen 17,9% Luik 1,4% Limburg 12,2% Onbekend 0,1% Waals Brabant 0,8% Antwerpen 29,0% Brussels Hoofdstedelijk Vlaams Brabant 17,2% gewest 5,1% INTEREST RATE TYPE (FIXED PERIODS) Construction 15,13% Remortgage 17,76% Purchase 67,11% 53

54 Key cover pool characteristics (3/3) FINAL MATURITY DATE Weighted Average Remaining Maturity: 224 months SEASONING Weighted Average Seasoning: 37 months % > 2032 % Months INTEREST RATE CURRENT LTV % < to to to to 4.5 to Interest rate Weighted Average Current Interest Rate: 3.39% 5.0 to to to to 7.0 > % <10 10 to to to to to to to to to to to to 130 Weighted Average Current LTV: 68% 130 to to

55 Appendices 1 KBC 2013/14 benchmarks + overview of outstanding benchmarks 2 KBC Bank CDS levels Summary - KBC s covered bond programme Details selective credit exposure Summary of government transactions Solvency: details, CT1 from 4Q13 to 1Q14 Macroeconomic views 55

56 Hungary (1) HUNGARIAN LOAN BOOK KEY FIGURES AS AT 31 MARCH 2014 Loan portfolio Outstanding NPL NPL coverage SME/Corporate 2.7bn 5.9% 64% Retail 2.3bn 18.3% 73% o/w private 1.9bn 20.4% 72% o/w companies 0.4bn 8.6% 76% TOTAL 5.0bn 11.7% 69%* * NPL coverage ratio calculated under the current definition (NPL = PD 11 & 12). If we apply the new definition (NPL = PD 10, 11 & 12), the NPL coverage ratio would amount to 53% Net result at the K&H Group amounted to -8m EUR in 1Q14 (including the full year bank tax charge with -42m EUR post-tax impact), which shows improvement in comparison with the corresponding period last year (-19m EUR in 1Q13, also including FY bank tax impact) Loan loss provisions amounted to 11m EUR in 1Q14 (compared with 10m EUR in 1Q13 and 43m EUR in 4Q13, including 21m EUR impact of reassessing the loan portfolio) The credit cost ratio was 0.90% in 1Q14 (1.50% in FY13) 15% 14% 13% 12% 11% 10% 9% PROPORTION OF HIGH RISK AND NPLS 14.3% 13.5% 13.5% 13.3% 13.0% 12.1% 12.6% 11.9% 11.7% 11.9% 11.7% 11.3% 11.4% 11.3% 11.2% 10.7% 12.3% 11.7% * NPL (PD11-12) decreased to 11.7% in 1Q14 from 12.1% in 4Q13 share of PD exposure was 15.3% in 1Q14 (15.4% in 4Q13) The sharp increase in the high risk portfolio is mainly due to 1) restructured loans moving out of the non-performing to the performing (but still high risk) loan book and 2) a more conservative review of the PD model for retail loans shifting a part of the low risk book to the high risk book 8% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 High Risk (probability of default > 6,4%) Non-Performing 56

57 Hungary (2) FX MORTGAGES In December 2013, the Hungarian Supreme Court (Curia) delivered its law unifying resolution in order to ensure uniformity in the settlement of FX loan disputes in the courts. This resolution is binding on all courts. The Curia dealt with broad questions regarding FX loans. The major conclusions: o The consequences of FX rate fluctuations must be borne by the borrower if the bank properly informed its customer of the risk of such fluctuation and its effects on repayments. As a result of FX risks, these contracts do not violate good faith, nor are usurious, impossible to perform or sham. As no grounds for invalidity existed as at the date of the conclusion of the contract, these contracts are valid o Changes following the conclusion of the contract cannot invalidate it. The courts may not in general amend contracts as a general means for solving economic and social issues o If a part in a consumer contract proved to be invalid, the courts should endeavour to uphold the arrangement by an appropriate amendment. In this case, the parties remain bound by the valid clauses of the contract The Curia has not yet resolved on whether banks gave sufficiently transparent information about unilateral changes to the terms of loan contracts (interest rates, FX spreads and fees). Also it remains to be decided whether the use of different FX rates at disbursement and repayment may be treated as an unfair term in consumer contracts. These issues were expected to be addressed by the Curia following the ruling of the European Court of Justice (ECJ) on a related OTP case (on 30 April 2014). However, in this instance, the ECJ passed the issue back to Curia. Curia said it would rule on the given case before the summer. The Curia s general guidelines regarding the uniformity of court decisions however are not expected until autumn The government said it would wait for the Curia ruling to address the issue of FX loans, so it is too early to tell what proposal will be passed into law and how much this will cost banks The size of K&H Bank s FX mortgage portfolio (gross value): o Total Retail FX mortgage: 1.4bn EUR o Retail FX housing loans: 0.6bn EUR o Retail FX home equity loans: 0.8bn EUR 57

58 Ireland (1) 1. The total NPL coverage ratio amounted to 72% at the end of 1Q14 (73% in 4Q13) taking into account the adjustments for the Mortgage Indemnity Guarantee and Reserved Interest (61% for owner occupied mortgages and 72% for buy to let mortgages, respectively) 2. NPL coverage ratio calculated under the current definition (NPL = PD 11 & 12). If we apply the new definition (NPL = PD 10, 11 & 12), the NPL coverage ratio would amount to 36% IRISH LOAN BOOK KEY FIGURES AS AT 31 MARCH 2014 LOAN PORTFOLIO OUTSTANDING NPL Owner occupied mortgages PROPORTION OF HIGH RISK AND NPLS NPL COVERAGE 9.0bn 20.8% 52% 1 Buy to let mortgages 3.0bn 36.4% 66% 1 SME /corporate 1.4bn 24.8% 110% Real estate investment Real estate development 1.2bn 0.5bn 34.0% 89.5% 85% 80% Total 15.1bn 27.4% 67% % 21.8% 3Q % 23.3% 4Q % 24.0% 25.8% 24.9% 25.9% 25.7% 31.7% 26.2% High Risk (probability of default > 6.4%) Non-performing (PD11-12) 1Q12 2Q13 3Q13 4Q % 27.4% 1Q14 The High Risk portion of loans increased significantly in 4Q13 due to the reassessment of the loan book Loan loss provisions in 1Q14 of 48m EUR (773m EUR in 4Q13). A significant decrease q-o-q as a result of the reassessment of the KBCI loan book in light of the EBA guidelines issued in October 2013 and the Central Bank of Ireland Impairment Provisioning Guidelines issued May 2013 which took place in 4Q13. Net loss in 1Q14 was 40m EUR (-766m EUR in 4Q13) GDP data for 2013 proved disappointing due to technical reasons connected to the ending of patents on some pharmaceutical exports. However, most indicators, particularly those related to jobs suggest that the Irish economy moved onto a more positive trajectory in This is expected to continue in 2014 with domestic spending turning positive and exports being supported by improving conditions in key trading partners. The Irish housing market saw transaction levels and prices both improved during 2013 and an improving economy is likely to see these trends persist through the course of 2014 as new supply remains limited. Similarly, healthier economic conditions and increased investor activity are expected to support the commercial property market. KBCI is proactively engaging with those customers who are experiencing financial difficulty and is implementing its long term Mortgage Arrears Resolution Strategy. As part of this, KBCI has met the Q public target set by the Central Bank of Ireland Continued successful retail deposit campaign with gross retail deposit levels increased by c. 1.0bn EUR since end 2012 to 3.1bn EUR at end 1Q14 and approx. 6,000 new customer accounts opened in the quarter. Demand for mortgage products continues to grow with rising consumer confidence and increased brand awareness KBCI recently launched a new credit card proposition with personal loan product soon to follow. Customer growth is being driven by an expanding digitally-led distribution model supported by selective new office locations Local tier-1 ratio of 13.1% at the end of 1Q14 We are maintaining our guidance for loan loss provisions in Ireland: 150m-200m EUR for FY14 and 50m-100m EUR for each of FY15 and FY16. Profitability expected from 2016 onwards The current definition of Non-Performing Loans (NPL) (currently being PD11-12) will be reviewed by 3Q14 in the context of the draft October 2013 EBA paper and May 2013 Central Bank of Ireland Impairment Provisioning and Disclosure Guidelines. Based on this reviewed definition, the NPL coverage ratio will drop substantially 58