KBC Group / Bank Debt presentation May KBC Group - Investor Relations Office

Transcription

1 KBC Group / Bank Debt presentation May 2018 More infomation: KBC Group - Investor Relations Office investor.relations@kbc.com 1

2 Important information for investors This presentation is provided for information purposes only. It does not constitute an offer to sell or the solicitation to buy any security issued by the KBC Group. KBC believes that this presentation is reliable, although some information is condensed and therefore incomplete. 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. There is a risk that these statements may not be fulfilled and that future developments differ materially. Moreover, KBC does not undertake any obligation to update the presentation in line with new developments. By reading this presentation, each investor is deemed to represent that it possesses sufficient expertise to understand the risks involved. 2

3 1Q 2018 key takeaways for KBC Group Financial performance: Very good net result of 556m EUR, despite the large upfront bank taxes (371m EUR). ROE of 14%* in 1Q18 : Good performance of the commercial bank-insurance franchises in our core markets and core activities Q-o-q increase in customer loan volumes and customer deposits (excluding debt certificates & repos) in most of our core countries Roughly stable net interest income and higher net interest margin q-o-q High net fee and commission income Lower net gains from financial instruments at fair value and higher other net income Combined ratio of 90% in 1Q18. Excellent sales of non-life and life insurance products Strict cost management resulted in a cost/income ratio of 55% YTD adjusted for specific items Net impairment releases on financial assets at amortised cost of 63m EUR, mainly driven by Ireland (net release of 43m EUR in 1Q18). We are maintaining our impairment guidance for Ireland, namely a net release in a range of 100m-150m EUR for FY18 Capital and liquidity positions: The fully loaded** B3 common equity ratio based on the Danish Compromise at end 2017 decreased from 16.3% to 15.9% at the end of 1Q18 due to the impact of the first-time application of IFRS 9 (-41bps) Fully loaded B3 leverage ratio, based on current CRR legislation, amounted to 5.7% at KBC Group Continued strong liquidity position (NSFR at 137% and LCR at 139%) at end 1Q18 * ROE taking into account pro rata bank taxes amounted to 19% in 1Q18 ** This clearly exceeds the minimum capital requirements set by the competent supervisors of respectively 9.875% phased-in and 10.60% fully loaded for On top of the above-mentioned capital requirements, the ECB expects KBC to hold a pillar 2 guidance (P2G) of 1.0% CET1 3

4 Contents 1 Strategy and business profile 2 3 Capital deployment plan Financial performance 4 Balance sheet 5 Solvency and liquidity 6 MREL strategy 7 Wrap up & looking forward Appendices Roughly 40% of KBC shares are owned by a syndicate of core shareholders, providing continuity to pursue long-term strategic goals. Committed shareholders include the Cera/KBC Ancora Group (co-operative investment company), the Belgian farmers association (MRBB) and a group of industrialist families The free float is held mainly by a large variety of international institutional investors 4

5 Well-defined core markets provide access to new growth in Europe MARKET SHARE (END 2017) BE CZ SK HU BG IRL Loans and 20% 20% KBC Group s core markets 11% 11% 10% 8% * deposits Investment funds 33% 22% 7% 13% 13% IRELAND UK NETHERLANDS Life insurance 14% 8% 4% 3% 21% BELGIUM FRANCE GERMANY CZECH REP SLOVAKIA HUNGARY Non-life insurance * Only for retail segment 9% 7% 7% 3% 11% REAL GDP GROWTH OUTLOOK FOR CORE MARKETS 1 BE CZ SK HU BG IRL BULGARIA % of Assets 64% 20% 3% 3% 2% 4% PORTUGAL SPAIN Macroeconomic outlook Based on GDP, CPI and unemployment trends Inspired by the Financial Times ITALY GREECE e 1.7% 1.9% 4.6% 4.0% 3.4% 3.6% 3.3% 3.9% 3.8% 3.6% 7.8% 6.0% 1. Source: KBC data, May e 1.7% 2.8% 3.9% 3.5% 3.5% 4.0% 5

6 Group s legal structure and issuer of debt instruments KBC Group NV AT 1 Tier 2 Senior MREL 100% 48% 100% KBC Bank 52% KBC Asset Management KBC Insurance Covered bond No public issuance No public issuance KBC IFIMA* Retail and Wholesale EMTN * All debt obligations of KBCIFIMA are unconditionally and irrevocably guaranteed by KBCBank. 6

7 Overview of key financial data at 1Q 2018 Market cap 1 Net result KBC Group Total assets Total equity CET1 ratio 2 30 bn EUR 556 m EUR 304 bn EUR 19 bn EUR 15.9 % KBC Bank Net result 3 : 461m EUR Total assets: 269bn EUR Total equity: 16bn EUR CET1 ratio 4 : 14.1% C/I ratio 5 : 55% KBC Insurance Net result 3 : 102m EUR Total assets: 38bn EUR Total equity: 3bn EUR Solvency II ratio: 218% Combined ratio: 90% Credit Cost Ratio: -0.15% 6 1. As at 18 May Fully loaded Danish Compromise 3. Difference between net result at KBC Group and the sum of the banking and insurance contribution is accounted by the holding-company/group item 4. Includes KBC Asset Management ; excludes holding company eliminations 5. Adjusted for specific items (see glossary for definition) 6. Negative sign means release 7

8 Latest credit ratings Moody s S&P Fitch Group Bank Insurance Senior Unsecured Tier II Additional Tier I Baa1 BBB+ A - BBB- A- - BB BB+ Short-term P-2 A-2 F1 Outlook Stable Stable Stable Covered Bonds AAA - AAA Senior Unsecured A1 A A Tier II - BBB- - Short-term P-1 A-1 F1 Outlook Stable Positive Positive Financial Strength Rating Issuer Credit Rating - A- - - A- - Outlook - Stable - Latest update: 8 th of December 2017 Fitch revised KBC Bank outlooks to positive and affirmed the A rating. 8

9 Business profile KBC is a leading player in Belgium, its core countries in CEE and Ireland CFO SERVICES BREAKDOWN OF ALLOCATED CAPITAL BY BUSINESS UNIT AT 31 DECEMBER 2017 CRO SERVICES Czech Republic 16% BELGIUM CZECH REPUBLIC CORPORATE STAFF INTERNATIONAL MARKETS Belgium 61% 3% 20% Group Centre International Markets KBC is a leading player (retail and SME bank-insurance, private banking, commercial and local investment banking) in Belgium, the Czech Republic and its 4 core countries in the International Markets business unit 9

10 More of the same, but differently Wants to be among the best performing financial institutions in Europe KBC wants to be among Europe s best performing financial institutions. This will be achieved by: Strengthening our bank-insurance business model for retail, SME and mid-cap clients in our core markets, in a highly cost-efficient way Focusing on sustainable and profitable growth within the framework of solid risk, capital and liquidity management Creating superior client satisfaction via a seamless, multi-channel, clientcentric distribution approach By achieving this, KBC wants to become the reference in bankinsurance in its core markets 10

11 KBC Group going forward The bank-insurance business model, different countries, different stages of implementation Level 4: Integrated distribution and operation Acting as a single operational company: bank and insurance operations working under unified governance and achieving commercial and noncommercial synergies Level 3: Integrated distribution Acting as a single commercial company: bank and insurance operations working under unified governance and achieving commercial synergies Level 2: Exclusive distribution Bank branches selling insurance products from intragroup insurance company as additional source of fee income Level 1: Non-exclusive distribution Bank branches selling insurance products of third party insurers as additional source of fee income Belgium Target for Central Europe KBC targets to reach at least level 3 in every country, adapted to the local market structure and KBC s market position in banking and insurance. 11

12 More of the same but differently Enhanced channels for empowered clients Creating superior client satisfaction via a seamless, multi-channel client-centric distribution approach Real time Investing 1.5bn cash-flow ( ): Further optimise our integrated distribution model according to a real-time omni-channel approach Prepare our applications to engage with Fintechs and other value chain players Invest in our digital presence (e.g., social media) to enhance client relationships and anticipate their needs Further increase efficiency and effectiveness of data management Set up an open architecture IT package as core banking system for our International Markets Business Unit Enhanced channels for empowered clients 12

13 KBC Group and digitalisation Digital investments Cashflow = 1.5bn EUR Operating Expenses = 1bn EUR Regulatory driven developments (IFRS 9, CRS(*), MIFID, etc...) Regulatory 20% Strategic Grow 36% Organic growth or operational efficiencies Strategic Transformation 44% Omni-channel and core-banking system Strategic Grow Strategic Transform Regulatory (*) The Common Reporting Standard (CRS) refers to a systematic and periodic exchange of information at international level aimed at preventing tax evasion. Information on the taxpayer in the country where the revenue was taken is exchanged with the country where the taxpayer has to pay tax. It concerns an exchange of information between as many as 53 OECD countries in the first year (2017). By 2018, another 34 countries will join. 13

14 Summary of the guidance at KBC Group level as announced at our Investor Visit in June 2017 (1/2) More of the same Guidance CAGR total income ( 16-20)* 2.25% 2020 C/I ratio banking excluding bank tax 47% 2020 C/I ratio banking including bank tax 54% 2020 Combined ratio 94% 2020 Dividend payout ratio 50% As of now * Excluding marked-to-market valuations of ALM derivatives by Regulatory requirements by Common equity ratio*excluding P2G 10.6% 2019 Common equity ratio*including P2G 11.6% 2019 MREL ratio** 25.9% May 2019 NSFR 100% As of now LCR 100% As of now * Fully loaded, Danish Compromise. P2G = Pillar 2 guidance. ** See slide 83 for more details 14

15 Summary of the guidance at KBC Group level as announced at our Investor Visit in June 2017 (2/2) but differently Make further progress in our bank-insurance model Guidance CAGR Bank-Insurance clients (1 Bank product + 1 Insurance product) by BU BE > 2% 2020 BU CR > 15% 2020 BU IM > 10% 2020 Guidance by CAGR Bank-Insurance stable clients (3 Bk + 3 Ins products in Belgium; 2 Bk + 2 Ins products in CE) BU BE > 2% 2020 BU CR > 15% 2020 BU IM > 15% 2020 Guidance on inbound omni-channel/digital behaviour* Guidance % Inbound contacts via omni-channel and digital channel 15 by KBC Group** > 80% 2020 Clients interacting with KBC through at least one of the non-physical channels (digital or through a remote advisory centre), possibly in addition to contact through physical branches. This means that clients solely interacting with KBC through physical branches (or ATMs) are excluded ** Bulgaria & PSB out of scope for Group target

16 Contents Strategy and business profile Capital deployment plan Financial performance 4 Balance sheet 5 Solvency and liquidity 6 MREL strategy 7 Wrap up & looking forward Appendices 16

17 What does it mean to be one of the better capitalised financials for KBC? Own Capital Target Impact of Basel 4 agreement: update Own Capital Target We aim to be one of the better capitalised financial institutions in Europe. Therefore as a starting position, we assess each year the CET1 ratios of a peer group of European banks active in the Retail, SME, and Corporate client segments. We position ourselves on the fully loaded median CET1 ratio of the peer group*. The median CET1 of our 12 peers increased from 13.6% end-2016 to 14% end-2017 Additional buffer B4 Median CET1 peers (FL) 1% 14% = 14.0% Own Capital Target Based on internal benchmarking, KBC will no longer be impacted relatively more than the sector average by Basel 4. Therefore, the B4 buffer of 1% versus peers is no longer required 2017 * The impact of B4 will be fully included at the start of 2022 (Note that all Basel 4 proposals are applicable in 2022, except for the 72.5% floor which is gradually phased-in and only binding for KBC as of 2027) 17

18 What does it mean for our capital deployment? Reference Capital Position Impact of Basel 4 agreement: update Reference Capital Position KBC Group wants to keep a flexible buffer of up to 2% CET1 for potential add-on M&A in our core markets Flexible buffer for M&A 2.0% This buffer comes on top of the Own Capital Target of KBC Group, and all together forms the Reference Capital Position Own Capital Target 14.0% = 16.0% Reference Capital Position Any M&A opportunity will be assessed subject to very strict financial and strategic criteria

19 Contents 1 Strategy and business profile 2 Capital deployment plan 3 Financial performance 4 Balance sheet 5 Solvency and liquidity 6 MREL strategy 7 Wrap up & looking forward Appendices 19

20 Net result at KBC Group CONTRIBUTION OF BANKING ACTIVITIES TO KBC GROUP NET RESULT* 750 NET RESULT AT KBC GROUP* * Difference between net result at KBC Group and the sum of the banking and insurance contribution is accounted for by the holding-company/group items Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q CONTRIBUTION OF INSURANCE ACTIVITIES TO KBC GROUP NET RESULT* Q17 2Q17 3Q17 4Q17 1Q Non-Life result Non-technical & taxes Amounts in m EUR 20 Life result

21 Summary 2017 pro forma figures Impact shift per P&L line 4Q17 as was 4Q17 pro forma 3Q17 as was 3Q17 pro forma 2Q17 as was 2Q17 pro forma 1Q17 as was 1Q17 pro forma NII 1,029 1,137 1,039 1,114 1,028 1,094 1,025 1, FIFV F&C AFS gains* * Due to IFRS 9, the P&L line net realised result from AFS assets is replaced by net realised result from debt instruments at FV through OCI Interest accrual FX derivatives: shifted from FIFV to NII (in line with the transition to IFRS 9) Network income (income received from margins earned on FX transactions carried out by the network for clients): shifted from FIFV to F&C IFRS 9: overlay approach for insurance: shift from realised gains AFS shares and impairments on AFS shares to FIFV Please note that due to IFRS 9, the realised gains on AFS shares in Banking (26m in 4Q17, 32m in 3Q17, 21m in 2Q17 and 10m in 1Q17) have been eliminated from net result as they are now booked in equity 21

22 Good net interest income and higher net interest margin NII (pro forma for 2017*) 1,081 1,094 1,114 1,137 1, Q17 2Q17 3Q17 NII - netted positive impact of ALM FX swaps** NII - Holding-company/group 1.93% 4Q17 NIM (pro forma for 2017***) 1.96% 1.96% 1.97% Amounts in m EUR 1Q18 NII - Insurance NII - Banking * 2017 pro forma figures for NII as the impact of ALM FX derivatives was netted in NII as of 2018 ** From all ALM FX swap desks *** NIM is calculated excluding the dealing room and the net positive impact of ALM FX swaps & repos 2.01% Net interest income (1,125m EUR) Down by 1% q-o-q and up by 4% y-o-y The small q-o-q decrease was driven primarily by: o lower netted positive impact of ALM FX swaps o lower reinvestment yields o more negative pressure on commercial loan margins in most core countries o lower number of days partly offset by: o lower funding costs (due mainly to the call of the CoCo) o continued good loan volume growth o positive impact of both short & long term increasing interest rates in the Czech Republic Net interest margin (2.01%) Up by 4 bps q-o-q and by 8 bps y-o-y thanks to lower funding costs and the positive impact of repo rate hikes in the Czech Republic 1Q17 2Q17 3Q17 4Q17 1Q18 VOLUME TREND Customer deposit volumes excluding debt certificates & repos +2% q-o-q and +7% y-o-y Excluding FX effect Total loans ** o/w retail mortgages Customer deposits*** AuM Life reserves Volume 143bn 60bn 188bn 213bn 29bn Growth q-o-q* +1% 0% -3% -2% 0% Growth y-o-y +5% +4% +3% 0% -2% * Non-annualised ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos 22

23 High net fee and commission income F&C (pro forma for 2017*) Amounts in m EUR Q17 2Q17 3Q17 4Q17 1Q18 F&C - network income F&C - banking contribution F&C - insurance contribution F&C - contribution of holding-company/group * 2017 pro forma figures as the network income shifted from FIFV to net F&C as of 2018 Amounts in bn EUR AuM* Net fee and commission income (450m EUR) Down by 1% q-o-q and by 3% y-o-y Positive net sales of mutual funds in 1Q18 Q-o-q decrease was the result chiefly of: o lower management fees o lower fees from payment services o lower fees from credit files & bank guarantees o lower securities-related fees partly offset by: o higher entry fees o lower commissions paid on insurance sales Y-o-y decrease was mainly the result of: o lower entry fees o lower securities-related fees o lower fees from credit files & bank guarantees partly offset by: o higher fees from payment services o the contribution of UBB/Interlease Q17 2Q17 3Q17 4Q17 1Q18 Assets under management (213bn EUR) Fell by 1.5% q-o-q owing entirely to a negative price effect The mutual fund business has seen net inflows again, but this was offset by net outflows in group assets and investment advice * Note that 2017 AuM figures were reduced due to a roughly 2bn EUR adjustment in Institutional Mandates 23

24 Insurance premium income up y-o-y and good combined ratio PREMIUM INCOME (GROSS EARNED PREMIUM) Insurance premium income (gross earned premium) at 714m EUR Non-life premium income (378m) increased by 5% y-o-y Life premium income (336m) down by 18% q-o-q and up by 8% y-o-y 1Q17 2Q17 3Q17 4Q17 1Q18 Life premium income Non-Life premium income 79% COMBINED RATIO (NON-LIFE) 90% 84% 88% 83% The non-life combined ratio at 1Q18 amounted to 90%, still a good number despite higher technical charges due mainly to higher storm claims in Belgium 1Q 1H 9M FY Amounts in m EUR 24

25 Non-life and life sales up y-o-y NON-LIFE SALES (GROSS WRITTEN PREMIUM) Sales of non-life insurance products Up by 5% y-o-y thanks to a good commercial performance in all major product lines in our core markets and tariff increases 1Q17 2Q17 3Q17 4Q17 1Q LIFE SALES Q17 2Q17 3Q17 4Q17 Guaranteed interest products Unit-linked products Q18 Sales of life insurance products Decreased by 15% q-o-q and up by 5% y-o-y The q-o-q decrease was driven mainly by lower sales of guaranteed interest products in Belgium (attributable chiefly to traditionally higher volumes in taxincentivised pension saving products in 4Q17 and extra sales for individual pension agreements for selfemployed business leaders, anticipating the reduction of corporate tax as of 2018) and lower sales of unitlinked products in the Czech Republic The y-o-y increase was driven mainly by higher sales of guaranteed interest products in Belgium and higher sales of unit-linked products in the Czech Republic Sales of unit-linked products accounted for 44% of total life insurance sales Amounts in m EUR 25

26 Lower FV gains, higher other net income FV GAINS (pro forma for 2017*) Q17 2Q17 3Q17 4Q17 1Q18 The lower q-o-q figures for net gains from financial instruments at fair value were attributable mainly to: a negative change in market, credit and funding value adjustments (mainly as a result of changes in the underlying market value of the derivative portfolio) lower dealing room income Other FV gains M2M ALM derivatives Net result on equity instruments (overlay insurance) * 2017 pro forma figures as: 1) the impact of the FX derivatives was netted in NII as of ) the shift from realised gains AFS shares and impairments on AFS shares to FIFV due to IFRS 9 (overlay approach for insurance) 77 OTHER NET INCOME Other net income amounted to 71m EUR, higher than the normal run rate of around 50m EUR due to the settlement of an old legal file in Belgium and the sale of a building in Hungary Q17 2Q17 3Q17 4Q17 1Q18 Amounts in m EUR 26

27 Operating expenses up due entirely to higher bank taxes, but good cost/income ratio 1, OPERATING EXPENSES 1, , Cost/income ratio (banking) adjusted for specific items* at 55% in 1Q18 Operating expenses excluding bank tax went down by 6% q-o-q due mainly to seasonal effects such as traditionally lower ICT, marketing and professional fee expenses, despite a 12m EUR provision for facility expenses for one specific file in Belgium in 1Q Q17 2Q17 3Q17 4Q17 1Q18 Bank tax Operating expenses Operating expenses without bank tax increased by 6% y-o-y due chiefly to the consolidation of UBB/Interlease, higher ICT costs, higher staff expenses (wage drift in most countries), higher marketing expenses, a 12m EUR provision for facility expenses for one specific file in Belgium and higher depreciation & amortisation costs (due to the capitalisation of some projects) EXPECTED BANK TAX SPREAD IN 2018 (PRELIMINARY)** TOTAL Upfront Spread out over the year 1Q18 1Q18 1Q18 2Q18e 3Q18e 4Q18e BU BE BU CZ Hungary Slovakia Pursuant to IFRIC 21, certain levies (such as contributions to the European Single Resolution Fund) have to be recognised in advance, and this adversely impacted the results for 1Q17. The y-o-y increase can mainly be explained by the consolidation of UBB Total bank taxes (including ESRF contribution) are expected to increase from 439m EUR in FY17 to 461m EUR in FY18, although still subject to changes Bulgaria Ireland GC TOTAL Amounts in m EUR 27 * See glossary (slide 88) for the exact definition ** still subject to changes

28 Net impairment releases, excellent credit cost ratio and improved impaired loans ratio Q % ASSET IMPAIRMENT Q17 3Q17 4Q17 1Q18 Other impairments Impairments on financial assets at AC* * AC = Amortised Cost. Under IAS 39, impairments on L&R CREDIT COST RATIO Very low asset impairments This was attributable mainly to: o net loan loss provision releases in Ireland of 43m EUR (compared with 52m in 4Q17) o also small net loan provision reversals in Bulgaria, Hungary, Slovakia and Group Centre Impairment of 6m on other in the Czech Republic as a result of the review of the residual value calculation on financial leases for cars in CSOB Leasing 0.23% FY % -0.06% FY15 FY16 FY % 1Q18 The credit cost ratio amounted to -0.15% in 1Q18 due to low gross impairments and several releases IMPAIRED LOANS RATIO 6.8% 6.9% 6.6% 6.0% 5.9% The impaired loans ratio improved to 5.9%, 3.5% of which over 90 days past due 3.6% 3.9% 3.7% 3.4% 3.5% 1Q17 2Q17 Impaired loans ratio 3Q17 4Q17 1Q18 of which over 90 days past due 28

29 Overview of results based on business units* NET PROFIT KBC GROUP Amounts in m EUR 2,639 2,427 2,575 1Q18 ROAC: 21% 1,762 1,415 2,129 2, Q-4Q 1, Q 556 1Q18 NET PROFIT BELGIUM 1Q18 ROAC: 15% 1,516 1,564 1,432 1,575 NET PROFIT CZECH REPUBLIC 1Q18 ROAC: 40% NET PROFIT INTERNATIONAL MARKETS 1Q18 ROAC: 25% ,165 1,234 1,274 1, Q Q18 2Q-4Q 1Q 2Q-4Q 1Q Q18 * Note that the 1Q18 results & ROAC were impacted by the upfront booking of the bank tax 2Q-4Q 1Q 29

30 Contents 1 Strategy and business profile 2 Capital deployment plan 3 4 Financial performance Balance sheet 5 Solvency and liquidity 6 MREL strategy 7 Wrap up & looking forward Appendices 30

31 Balance sheet (1/2): Loans and deposits continue to grow in most core countries Y-O-Y ORGANIC* VOLUME GROWTH FOR KBC GROUP 4% 4% 1% Loans** Retail mortgages Deposits*** * Volume growth excluding FX effects and divestments/acquisitions ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos 31

32 Balance sheet (2/2): Loans and deposits continue to grow in most core countries Y-O-Y ORGANIC* VOLUME GROWTH FOR MAIN ENTITIES 12% 4% BE 1% 0% 5% CZ 10% 3% 7% 9% Loans** Retail mortgages Deposits*** Loans** Retail mortgages Deposits*** Loans** Retail mortgages Deposits*** 11% 20% Y-o-y volume growth including UBB/Interlease: loans +231%, retail mortgages +239% and customer deposits +396% Total loans new business: q-o-q +3% Legacy: q-o-q -7% 7% 6% 11% 9% 8% 0% 2% Loans** Retail mortgages Deposits*** Loans** Retail mortgages Deposits*** Loans** Retail Deposits*** mortgages**** * Volume growth excluding FX effects and divestments/acquisitions ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos **** Retail mortgages in Ireland: new business (written from 1 Jan 2014) +49% y-o-y, while legacy -7% y-o-y 32

33 Balance sheet KBC Group consolidated at 31 March 2018 Total assets (EUR 304bn) Total liabilities and equity (EUR 304bn) Credit quality Capital adequacy & liquidity position Loan book (loans and advances to customers) Investment portfolio (equity and debt securties) Insurance investment contracts Trading assets Other (incl. interbank loans, reverse repos, property & equipment etc...) 33 Deposits from customers Equity (including AT1) Other MREL instruments and debt certificates Technical provisions, before reinsurance NL and L Liabilities under insurance investment contracts Trading liabilities Other (incl. interbank deposits)

34 Sectorial and geographical breakdown of outstanding loan portfolio (163bn EUR*) of KBC Bank Consolidated Sector breakdown Geographic breakdown Services Private Persons 11% Distribution 7% 40% 15% Rest 7% 2% Real estate 3% 8% Automotive 3% 4% griculture, farming, fishing Finance & insurance Authorities Building & construction 2% 2% 5% 1% 1% 1% 1% 1% 1% Electricity Food producers Other sectors Metals Chemicals Machinery & heavy equipment Shipping Hotels, bars & restaurants Oil, gas & other fuels North America Asia Other CEE Other W-Eur 1% 2% 8% 2% 2% Bulgaria Hungary Slovakia Ireland 5% 8% 2% 3% Czech Rep. 15% Rest 54% Belgium (*) It includes all payment credit, guarantee credit (except for confirmations of letters of credit and similar export/import related commercial credit), standby credit and credit derivatives, granted by KBC to private persons, companies, governments and banks. Bonds held in the investment portfolio are included if they are corporate or bank issued, hence government bonds and trading book exposure are not included. Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees. 34

35 Impaired loans ratios*, of which over 90 days past due KBC GROUP BELGIUM BU 6.8% 6.9% 6.6% 6.0% 5.9% 3.0% 3.0% 2.8% 2.8% 2.6% 3.6% 3.9% 3.7% 3.5% 3.4% 1.5% 1.5% 1.5% 1.4% 1.3% 1Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q18 Impaired loans ratio * Of which over 90 days past due CZECH REPUBLIC BU INTERNATIONAL MARKETS BU (including UBB) 2.7% 2.6% 2.5% 2.4% 2.4% 24.2% 23.6% 22.4% 19.7% 20.4% 1.8% 1.7% 1.6% 1.6% 1.6% 12.8% 13.4% 12.6% 11.3% 12.1% 1Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q18 Impaired loans ratio: As of 1Q18, a switch has been made in the risk reporting figures from outstanding (Stage 3) to the new definition of gross carrying amount, i.e. including reserved and accrued interests. In addition, the transaction scope of the credit portfolio was extended and now additionally includes the following 4 elements: (1) bank exposure (money market placements, documentary credit, accounts), (2) debtor risk KBC Commercial Finance, (3) unauthorized overdrafts, and (4) reverse repo (excl. central bank exposure) 35

36 Cover ratios KBC GROUP 63.7% 64.2% 64.5% 64.1% 68.1% 67.5% 67.6% BELGIUM BU 69.7% 68.6% 67.6% 46.6% 47.3% 47.5% 44.0% 47.8% 47.9% 46.4% 48.4% 44.4% 44.2% 1Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q18 Impaired loans cover ratio * Cover ratio for loans with over 90 days past due CZECH REPUBLIC BU INTERNATIONAL MARKETS BU (including UBB) 55.1% 69.4% 71.8% 56.7% 69.0% 54.7% 68.9% 57.7% 52.5% 66.8% 58.8% 43.5% 58.9% 45.9% 60.8% 45.4% 60.2% 40.9% 66.0% 46.9% 1Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q18 Impaired loans cover ratio: As of 1Q18 a switch has been made in the risk reporting figures from outstanding to the new definition of gross carrying amount, i.e. including reserved and accrued interests 36

37 Loan loss experience at KBC 1Q18 CREDIT COST RATIO FY17 CREDIT COST RATIO FY16 CREDIT COST RATIO FY15 CREDIT COST RATIO FY14 CREDIT COST RATIO AVERAGE Belgium 0.05% 0.09% 0.12% 0.19% 0.23% n/a Czech Republic International Markets 0.01% 0.02% 0.11% 0.18% 0.18% n/a -0.86% -0.74% -0.16% 0.32% 1.06% n/a Group Centre -1.43% 0.40% 0.67% 0.54% 1.17% n/a Total -0.15% -0.06% 0.09% 0.23% 0.42% 0.47% Credit cost ratio: amount of losses incurred on troubled loans as a % of total average outstanding loan portfolio 37

38 Investment portfolio (as per 31/03/2018) Asset Backed securties Equities Other Non-Financial bonds 4% 2% 4% Covered bonds 7% Financial bonds 6% 3% 2% INVESTMENT PORTFOLIO (Total EUR 64bn) Other SOVEREIGN BOND PORTFOLIO (Carrying value 1 EUR 49bn) (Notional value EUR 46bn) Netherlands * Ireland Austria * Portugal * Germany ** Spain 5% 9% 31% Other public bonds France 13% Belgium 73% Sovereign bonds 4% Italy 2% Bulgaria** 6% 4% Slovakia Hungary 3% (*) 1%, (**) 2% Poland 15% Czech Rep. 1. 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 38

39 Contents 1 Strategy and business profile 2 Capital deployment plan Financial performance Balance sheet Solvency and liquidity 6 MREL strategy 7 Wrap up & looking forward Appendices 39

40 Strong capital position Fully loaded Basel 3 CET1 ratio at KBC Group (Danish Compromise) 15.7% 15.7% 15.9% 16.3% 15.9% 14.0% Own Capital Target 10.6% fully loaded regulatory minimum 1Q17 1H17 9M17 FY17 1Q18 Fully loaded Basel 3 total capital ratio (Danish Compromise) 19.7% 2.3% T2 1.5% AT1 20.7% 2.3% 2.6% The common equity ratio* decreased from 16.3% at the end of 2017 to 15.9% at the end of 1Q18 based on the Danish Compromise, due to the impact of the first-time application of IFRS 9 (-41bps). This clearly exceeds the minimum capital requirements** set by the competent supervisors of 9.875% phased-in for 2018 and 10.6% fully loaded and our Own Capital Target of 14.0% The pro forma*** fully loaded CET1 ratio amounted to roughly 15.7% at the end of 1Q18 * Note that as from 01/01/2018 onwards, there is no difference anymore between fully loaded and phased-in ** Excludes a pillar 2 guidance (P2G) of 1.0% CET1 *** Also taking into account the impact of the share buy-back 15.9% CET1 15.9% The fully loaded total capital ratio amounted to 19.7% at the end of 1Q18. Including the successful issuance of 1bn EUR additional Tier- 1 instrument in April 2018, the pro forma fully loaded total capital ratio amounted to 20.7% Total capital ratio 1Q18 Pro forma total capital ratio 1Q18 40

41 Fully loaded Basel 3 leverage ratio and Solvency II ratio Fully loaded Basel 3 leverage ratio at KBC Group 5.7% 5.7% 5.8% 6.1% 5.7% Fully loaded Basel 3 leverage ratio at KBC Bank 4.8% 4.7% 4.7% 5.0% 4.7% 1Q17 1H17 9M17 FY17 1Q18 1Q17 1H17 9M17 FY17 1Q18 Solvency II ratio 4Q17 1Q18 Solvency II ratio* 212% 218% The increase (+6%-points) in the Solvency II ratio was mainly the result of lower equity markets * On 19 April 2017, the NBB retroactively relaxed the strict cap on the loss-absorbing capacity of deferred taxes in the calculation of the required capital. Belgian insurance companies are now allowed to apply a higher adjustment for deferred taxes, in line with general European standards, if they pass the recoverability test. This is the case for KBC 41

42 Solid liquidity position 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 Customer funding further increased in 1Q18. The elevated amount in short-term wholesale funding is on the back of short-term arbitrage opportunities Funding from customers (m EUR) 3% 6% 3% 9% 0% 2% 4% 5% 2% 8% 2% 8% 10% 8% 8% 8% 7% 9% 8% 9% 8% 8% 9% 3% 2% 3% 3% 3% 8% 10% 12% 7% 7% 9% 8% 10% 6% FY11 FY12 FY13 FY14 FY15 FY16 FY17 1Q18 0% 7% 69% 73% 75% 73% 73% 69% 70% 72% 72% customer driven 21% 72% -1% -6% -4% FY11 FY12 FY13 FY14 Net unsecured interbank funding Net secured funding Debt issues placed with institutional investors FY15 FY16 Total equity Certificates of deposit Funding from customers FY17 1Q18 Retail and SME Mid-cap Debt issues in retail network Government and PSE 42

43 Solid liquidity position Short term unsecured funding KBC Bank vs Liquid assets as of end March 2018 (*) (bn EUR) 486% 68,14 411% 65,39 58,30 56,23 57,79 309% 271% 288% 25,10 22,70 18,71 14,19 11,56 KBC maintains a solid liquidity position, given that: Available liquid assets remained very high at more than 3 times the amount of the net short-term wholesale funding Funding from non-wholesale markets is stable funding from core-customer segments in core markets 1Q17 2Q17 3Q17 4Q17 1Q18 Net Short Term Funding Available Liquid Assets Liquid Assets Coverage * Graph is 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 FY17 1Q18 Regulatory requirement NSFR * 134% 137% 100% LCR ** 139% 139% 100% NSFR is at 137% and LCR is at 139% by the end of 1Q18 Both ratios were well above the regulatory requirement of at least 100% * Net Stable Funding Ratio (NSFR) is based on KBC s interpretation of the proposal of CRR amendment ** Liquidity Coverage ratio (LCR) is based on the Delegated Act requirements. From EOY2017 onwards, KBC discloses 12 months average LCR in accordance to EBA guidelines on LCR disclosure 43

44 Upcoming mid-term funding maturities Breakdown Funding Maturity Buckets (Including % of KBC Group s balance sheet) 1.8% 1.7% KBC Bank placed covered bonds of 750m EUR with 8-year maturity and 250m EUR with 20-year maturity in March 2018 m EUR % 1.4% KBC Bank has successfully issued a 1bn EUR additional Tier-1 instrument with 7.5-year non-call perpetual in April % 27% 32% 15% 6% 10% 0.5% 10% 0.2% 0.4% 0.2% 0.3% Senior Unsecured - Holdco Senior Unsecured - Opco Subordinated T1 Subordinated T2 Covered Bond TLTRO Total outstanding = 23bn EUR at the end of April 2018 CoCo has been called (on 25 January 2018) KBC Group s credit spreads have widened towards the end of 1Q18 KBC Bank has 6 solid sources of long-term funding: Retail term deposits Retail EMTN Public benchmark transactions Covered bonds Structured notes and covered bonds using the private placement format Senior unsecured, T1 and T2 capital instruments issued at KBC Group level and down-streamed to KBC Bank 44

45 Credit spreads evolution Credit Spreads Evolution Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar Y Senior Debt Opco 5Y Covered Bond Interpolated 5Y Senior Debt Holdco Interpolated 7NC2 Subordinated Tier NC2 Subordinated Tier 2 spread is depicted based on the right hand axis. 45

46 Summary covered bond programme (1/2) (details, see Annex 3) KBC IS A FREQUENT ISSUER WITH AN OUTSTANDING AMOUNT OF 7.56 BN 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 and funding plan permit 46

47 Summary covered bond programme (2/2) (details, see Annex 3) COVER POOL: BELGIAN RESIDENTIAL MORTGAGE LOANS Exclusively, this is selected as 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 (61.72%) and high seasoning (54 months) KBC HAS A DISCIPLINED ORIGINATION POLICY 2009 to 2017 residential mortgage loan losses below 4 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 1,4% 1,2% 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% 1,17% 1,18% 1,17% 1,17% 1,17% 1,19% 1,20% 1,20% 1,19% 1,20% 1,20% 1,20% 1,22% 1,22% 1,19% 1,18% 1,17% 1,18% 1,16% 1,17% 1,16% 1,16% 1,17% 1,18% 1,17% 1,16% 1,13% 1,12% 1,11% 1,11% 1,12% 1,14% 1,11% 1,11% 1,10% 1,10% 1,10% 1,09% 1,06% 1,05% 1,04% 1,03% 1,03% 1,03% 1,02% 1,0% Market loans in 3 months arrears KBC loans in 90days arrears KBC loan losses 0,8% 0,6% 0,4% 0,38% 0,39% 0,41% 0,430% 0,440% 0,440% 0,44% 0,50% 0,53% 0,52% 0,56% 0,54% 0,48% 0,41% 0,43% 0,39% 0,39% 0,2% 0,0% 0.012% 0.008% 0.006% 0,020% 0,013% 0,037% 0,020% 0,027% 0,017% dec/09 dec/10 dec/11 feb/12 apr/12 jun/12 aug/12 okt/12 dec/12 feb/13 apr/13 jun/13 aug/13 okt/13 dec/13 feb/14 apr/14 jun/14 aug/14 okt/14 dec/14 feb/15 apr/15 jun/15 aug/15 okt/15 dec/15 feb/16 apr/16 jun/16 aug/16 okt/16 dec/16 feb/17 apr/17 jun/17 aug/17 okt/17 dec/17 47

48 Contents 1 Strategy and business profile 2 Capital deployment plan Financial performance Balance sheet Solvency and liquidity MREL strategy 7 Wrap up & looking forward Appendices 48

49 KBC well on track to comply with resolution requirements The resolution plan for KBC is based on a Single Point of Entry (SPE) approach at the level of KBC Group; Bail-in is identified as the preferred resolution tool; SRB s current approach to MREL is defined in the 2017 MREL Policy published on 20 December 2017, which is based on the current legal framework and hence might be revised in the context of the ongoing legislative process to review BRRD; The MREL target for KBC is 25.9%, which is based on fully loaded capital requirements as at ; SRB requires KBC to achieve this target by 1 May 2019, using both HoldCo and eligible OpCo instruments Consolidated approach MCC RCA 2.9% (CBR 1,25%) 1.75% P2R 8% 95% RWA HoldCo approach = 23.5% HoldCo senior T2 AT1 24.8% 1.3% 3.8% 2.3% 1.5% OpCo (T2 & senior >1y) Gradually mature. To be replaced by HoldCo senior LAA 4.15% CBR 1.75% 100% RWA = 25,9% TARGET CET1 15.9% 8% P1 LAA RCA MCC CBR = Loss Absorbing Amount ReCapitalisation Amount Market Confidence Charge Combined Buffer Requirement = 2.5% Conservation Buffer +1.5% O-SII buffer % countercyclical buffer 49 1Q18

50 Available MREL as a % of RWA (fully loaded) 26.0% 3.8% 26.3% 26.2% 26.3% 3.4% 2.5% 2.3% 24.8% 1.3% 25.9% 1.3% 22.3% 22.8% 23.7% 24.0% 23.5% 24.6% 1Q17 2Q17 3Q17 4Q17 1Q18 1Q18 pro forma* OpCo MREL HoldCo MREL * Pro forma MREL also includes the successful issuance of 1bn EUR additional Tier-1 instrument in April

51 KBC has strong buffers cushioning Sr. debt at all levels (31 March 2018) Senior issued by KBC Bank, which will be limited going forward (for funding reasons) Senior KBC Bank Tier 2 Other liabilities Additional Tier CET1 (fully loaded) To large extent customerrelated, protected as much as possible Subordinated on loan by KBC Group Buffer for Sr. level 18.4bn EUR Senior KBC Group Tier Additional Tier Short-term CDs 0 CET1 (fully loaded) Buffer for Sr. level 18.4 bn EUR KBC Asset Management Fully consolidated for solvency purposes Temporary short-term finance which allowed repayment of state aid cash-wise as dividends are up-streamed to KBC Group with a delay KBC Insurance Tier Parent shareholdersequity Legacy T2 issued by KBC Bank will disappear over time nominal amounts in million EUR 51

52 Contents 1 Strategy and business profile 2 Capital deployment plan Financial performance Balance sheet Solvency and liquidity MREL strategy Wrap up & looking forward Appendices 52

53 KBC Group 1Q 2018 wrap up Strong commercial bank-insurance results in our core countries Successful sustainable earnings track record Solid capital and robust liquidity position 53

54 KBC Group going forward Looking forward to 2018 We expect 2018 to be a year of sustained economic growth in both the euro area, the US and in each of our core markets Management guides for: solid returns for all Business Units loan impairments for Ireland towards a release in a 100m-150m EUR range for FY18 the impact of the reform of the Belgian corporate income tax regime: a recurring positive P&L impact as of 2018 onwards and the one-off negative impact in 4Q17 will be fully recuperated in roughly 3 years time B4 impact for KBC Group is estimated at roughly 8bn EUR higher RWA on a fully loaded basis as at year-end 2017, which corresponds with a RWA inflation of 9% and an impact on the CET1 ratio of -1.3% Next to the Belgium and the Czech Republic Business Units, the International Markets Business Unit has become a strong contributor to the net result of KBC Group thanks to: Ireland: re-positioning as a core country with a sustainable profit contribution Bulgaria: the legal merger of CIBank into UBB was approved. The new group UBB has become the largest bank-insurance group in Bulgaria with a substantial increase in profit contribution Sustainable profit contribution of Hungary and Slovakia 54

55 Appendices 1 Overview of outstanding benchmarks 2 KBC Bank CDS levels Summary of KBC s covered bond programme Details on credit exposure of Ireland Solvency: details on capital Belgium: digital sales 55

56 Annex 1 - Outstanding benchmarks Overview till end of March 2018 Issuer Curr Amount issued Coupon Settlement Date Maturity Date ISIN YEAR UNSECURED KBC Ifima N.V. EUR ,125 10/09/ /09/2018 XS KBC Group EUR ,000 26/04/ /04/2021 BE KBC Group EUR ,750 1/03/ /03/2022 BE KBC Group EUR FRN 24/05/ /11/2022 BE KBC Group EUR ,750 18/10/ /10/2023 BE COVERED KBC Bank N.V. EUR /02/ /02/2019 BE KBC Bank N.V. EUR ,25 28/05/ /05/2020 BE KBC Bank N.V. EUR ,125 28/04/ /04/2021 BE KBC Bank N.V. EUR ,45 22/01/ /01/2022 BE KBC Bank N.V. EUR ,375 1/03/ /09/2022 BE KBC Bank N.V. EUR /01/ /01/2023 BE KBC Bank N.V. EUR ,75 8/03/ /03/2026 BE KBC Bank N.V. EUR ,75 24/10/ /10/2027 BE Total: EUR 11,25bn Tranche Report 56

57 Annex 1 - Outstanding benchmarks Main characteristics of subordinated debt issues KBC Bank NV KBC Groep NV AT1 SUBORDINATED BOND ISSUES KBC KBC Groep NV AT1 KBC Groep NV Tier II KBC Groep NV Tier II KBC Groep NV Tier II Amount issued GBP EUR EUR EUR EUR EUR Tendered GBP Net Amount GBP EUR EUR EUR EUR EUR ISIN-code BE BE BE BE BE BE Call date 19/12/ /03/ /10/ /11/ /03/ /09/2024 Initial coupon 6.202% 5.625% 4.250% 2.375% 1.875% 1.625% Coupon step-up / reset 3m gbp libor + 193bps $ MS 5Y % MS 5Y bps MS 5Y % MS 5Y % MS 5Y % First (next) call date 19/12/ /03/ /10/ /11/ /03/ /09/2024 ACPM Yes Dividend Stopper Yes Conversion into PSC Yes Trigger Supervisory Event or general "concursus creditorum" Trigger CET1 RATIO < 5.125% Temporary write-down Trigger CET1 RATIO < 5.125% Principal write-down Issued 17 Apr 2018 Regulatory + Tax Call Regulatory + Tax Call Regulatory + Tax Call Issued 18 Sep

58 Annex 2 - KBC Bank CDS levels (in bp) 58

59 Annex 3 KBC s covered bond programme Key messages 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 2009 to 2017 residential mortgage loan losses below 4 bp CRD and UCITS compliant / 10% risk-weighted KBC already issued 9 successful benchmark and several private placement covered bonds in different maturity buckets First covered bond matured in August 2016 The covered bond programme is considered as an important funding tool However, due other reglementary funding (MREL) needs, covered bonds issuance has been slowed down. Sound economic picture provides strong support for Belgian housing market Private savings ratio of approx. 12 % Belgian unemployment is significantly below the EU average Demand still outstrips supply 59

60 Annex 3 KBC s covered bond programme KBC s disciplined origination leads to low arrears and extremely low loan losses BELGIUM SHOWS A SOLID PERFORMANCE OF MORTGAGES Arrears have been very 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 60

61 Annex 3 KBC s covered bond programme 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 licenses 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 61

62 Annex 3 KBC s covered bond programme 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 62

63 Annex 3 KBC s covered bond programme 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 10% 14.5% TPI Cap Probable 63 D-cap 4 (moderate risk)

64 Annex 3 KBC s covered bond programme Benchmark issuance KBC covered bonds Since establishment of the covered bond programme KBC has issued eight benchmark issuances: SPREAD EVOLUTION KBC COVERED BONDS (SPREAD IN BP VERSUS 6 MONTH MID SWAP) Source Bloomberg Mid ASW levels 64

65 Annex 3 KBC s covered bond programme Key cover pool characteristics (1/3) Investor reports, final terms and prospectus are available on Portfolio data as of : 31 March 2018 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 54 months Weighted Average Remaining Maturity 181 months Weighted Average Current Interest Rate 2.16% Weighted Average Current LTV 61.7% No. of Loans in Arrears (+30days) 242 Direct Debit Paying 97.9% 65

66 Annex 3 KBC s covered bond programme Key cover pool characteristics (2/3) REPAYMENT TYPE (LINEAR VS. ANNUITY) GEOGRAPHICAL ALLOCATION Annuity 97% Linear 3% Oost- Vlaanderen 18% West- Vlaanderen 15% Luxemburg Henegouwen 0% 1% Namen 0% Brussels Hoofdstedelijk Luik 2% Limburg 13% Antwerpen 29% Waals Brabant 1% Vlaams Brabant 18% LOAN PURPOSE INTEREST RATE TYPE (FIXED PERIODS) Construction 11% 10 y / 5 y 2% 5 y / 5 y 15 y / 5 y 0% 20 y / 5 y 0% Remortgage 43% Purchase 46% 3 y / 3 y 17% 1 y / 1 y 12% No review 61% 66

67 Annex 3 KBC s covered bond programme Key cover pool characteristics (3/3) FINAL MATURITY DATE SEASONING 60,00 50,00 40,00 30,00 20,00 10,00 0,00 Weighted Average Remaining Maturity: 181 months > ,00 25,00 20,00 15,00 10,00 5,00 0,00 Weighted Average Seasoning: 54 months ,00 60,00 50,00 40,00 30,00 20,00 10,00 0,00 < 2,5 2.5 < to <= < to <= 3.5 INTEREST RATE 3.5 < to <= < to <= < to <= < to <= 5.5 Weighted Average Current Interest Rate: 2.16% 5.5 < to <= < to <= < to <= 7.0 > ,00 14,00 12,00 10,00 8,00 6,00 4,00 2,00 0,00 <= 10% 10% < to <= 20% 20% < to <= 30% 30% < to <= 40% 40% < to <= 50% CURRENT LTV 50% < to <= 60% 60% < to <= 70% 70% < to <= 80% 80% < to <= 90% 90% < to <= 100% 100% < to <= 110% 110% < to <= 120% 120% < to <= 130% Weighted Average Current LTV: 61.7% 130% < to <= 140% 140% < to <=150% 150% < 67

68 Annex 3 - Belgian GDP growth GDP growth in 2017 driven by domestic demand and net exports Belgium Germany France Netherlands Euro Area Real GDP in the Euro Area (Q = 100) 4% 3% 2% Belgium Contributions to real GDP growth (in percentage points) % 100 0% % -2% -3% Private consumption Public consumption Gross fixed capital formation Net exports Stock building GDP growth Source: Eurostat; NBB 68 Source: NBB

69 Annex 3 - Belgian real estate market Roughly stabilization in prices since 2012, with again an acceleration from the fall of 2016 onwards House prices Belgium (*) (*) Corrected for price changes resulting from changes in the quality and location of the real estate sold Debt position Belgian households (outstanding amounts, in % of GDP) 120 Index (Q = 100, lhs) Year-on-year change (in %, rhs) % 70% Belgium - Other debt (consumer loans) Belgium - Mortgage debt Euro Area (total debt) % 8 50% % % % -2 10% % Source: FOD Economie 69 Source: NBB.Stat; ECB

70 Annex 3 - Interest rates rising, but level still historically low 5,5 4,5 3,5 10-year government bond yields (in %) Belgium Germany Belgium France Netherlands Italy Spain Ireland Interest rate spreads Euro Area (10-year rate versus Germany, in basis points) 2, , ,5 Spread Belgium-Germany 100-0,5 0 70

71 Annex 4 - Details on credit exposure of Ireland Impaired loans ratio further improved The Irish economy has begun 2018 with significant positive momentum in activity and employment growth, FY18 GDP growth of 6% is envisaged The upswing in the Irish economy has progressively strengthened and this has been reflected in robust and broadly based jobs growth. As a result, the unemployment rate has reduced to 5.9%, its lowest level in almost ten years Healthy jobs growth, improving confidence and supportive demographics are underpinning strengthening demand for housing. While new supply has increased somewhat, this has not been sufficient to prevent significant upward pressure on house prices On a like-for-like basis, impaired loans have reduced in 1Q18 by 0.2bn EUR (-3% q-o-q) with impaired loan ratio at 36.6% at 1Q18 Net loan loss provision release of 43m EUR in 1Q18 driven by growth in the CSO House Price Index and improved nonperforming portfolio performance. This compares with a 52m EUR release in 4Q17 Note: In order to align with current accounting guidance, KBC has modified its classification of reserved interest provisions (i.e. interest charged and not recognised in the P&L on impaired loans since date of default). These amounts, previously netted from gross outstanding loan balances, are now included as part of impaired loan provisions. The net balance sheet carrying value of impaired loans is unchanged. As at 1Q18, reserved interest provisions totalled 0.5bn EUR. Prior quarter ratios have been restated 71 Looking forward, we are maintaining our impairment guidance for Ireland, namely a net release in a range of 100m-150m EUR for FY18

72 Annex 4 - Details on credit exposure of Ireland Portfolio analysis - Forborne loans (in line with EBA Technical Standards) comprise loans on a live restructure or continuing to serve a probation period post-restructure/cure to Performing Retail portfolio The New Retail portfolio (all originations post 1 Jan 2014) comprises 2.5bn EUR of the overall Retail portfolio and increased q-o-q by 0.2bn EUR. New Retail at 1Q18 represents 22% of total Retail portfolio (from 15% at 1Q17) Impaired portfolio decreased by roughly 84m EUR q-o-q on a like-forlike basis mainly due to improved portfolio performance (reduction of 0.8bn EUR y-o-y) Coverage ratio for impaired loans has remained stable at roughly 37% for 1Q18 Weighted average indexed LTV on the impaired portfolio has improved significantly y-o-y and in 1Q18 decreased to 102% (from 120% at 1Q17) Corporate loan portfolio Impaired portfolio on a like-for-like basis has reduced by roughly 78m EUR q-o-q. Reduction driven mainly by continued deleverage of portfolio (reduction of 0.5bn EUR y-o-y) Coverage ratio for impaired loans has remained stable at roughly 67% for 1Q18 Overall exposure has dropped by approximately 0.65bn EUR y-o-y (-35% y-o-y) 72

73 Annex 5 - Solvency details Fully loaded B3 CET1 based on the Danish Compromise (DC) from 4Q17 to 1Q18 DELTA AT NUMERATOR LEVEL (BN EUR) 15.1 B3 CET1 at end 4Q17 (DC) 0.5 1Q18 net result (excl. KBC Ins. due to Danish Compr.) -0.3 Pro-rata accrual dividend Fully loaded B3 common equity ratio decreased to 15.9% at end 1Q18 based on the Danish Compromise, due Jan 2012 FTA IFRS9 Other* Dec 2012 mainly to the impact of the B3 CET1 at end 1Q18 (DC) first-time application of IFRS 9 (-41bps) DELTA ON RWA (BN EUR) This clearly exceeds the minimum capital requirements set by the competent supervisors of 10.6% fully loaded 4Q17 (B3 DC**) 1Q18 impact 1Q18 (B3 DC) * Includes the q-o-q delta in deferred tax assets on losses carried forward, remeasurement of defined benefit obligations, IRB provision shortfall, deduction re. financing provided to shareholders, deduction re. irrevocable payment commitments, intangible fixed assets, AT1 coupon, translation differences, etc. ** Includes the RWA equivalent for KBC Insurance based on DC, calculated as the historical book value of KBC Insurance multiplied by 370% 73

74 Annex 5 - Solvency details Overview of B3 CET1 ratios at KBC Group Method Numerator Denominator B3 CET1 ratio FICOD*, fully loaded 15, , % DC**, fully loaded 14,793 93, % DM***, fully loaded 13,806 87, % * FICOD: Financial Conglomerate Directive ** DC: Danish Compromise *** DM: Deduction Method 74

75 Annex 5 - Solvency details Implementation of the BRRD in Belgium Loss Absorption in KBC Bank Hierarchy of Claims in Belgium Junior Deposits Derivatives Structured Notes Covered Deposits Individual & SME Deposits Internal Sub Loan Tier 2 AT1 CET1 Senior Unsecured 1. The BRRD has been transposed to a large extent by the Act of 25 April 2014 on the legal status and supervision of credit institutions ("The Banking Act") which applies since May-2015, with the exception of some major provisions, such as the bail-in tool. Some provisions will be further implemented by a Royal Decree ( RD ): Bail-in mechanism and MREL requirement of the BRRD: RD was published in the Belgian Official Journal 29 December 2015 and entries into force as from 1 January However, the resolution strategy and MREL target for KBC are assumptions and have not been determined by the Resolution Authority Group dimension of the BRRD: transposition is currently under preparation 2. The competent authorities are Supervision authority (KBC Bank NV, KBC Group NV): ECB/NBB. Resolution authority (KBC Bank NV, KBC Group NV): Single Resolution Board as from 1 January Competent authority for conduct supervision of financial institutions and intermediaries (KBC Bank NV): FSMA. 3. The hierarchy of claims in Belgium is in line with the BRRD as provided for in art. 48 BRRD and applies losses accordingly. Creditors are protected by the No Creditor Worse Off ( NCWO ) principle which ensures that creditors in resolution can t be worse-off than in normal insolvency proceedings (art 34(1) BRRD). 4. KBC plans on on-lending senior unsecured issued out of KBC Group NV as subordinated instruments at KBC Bank NV to ensure the on-loan would only take losses after Tier 2 securities. Additionally KBC Bank NV s funding needs in senior unsecured are expected to be moderate going forward 75

76 Annex 5 - Solvency details General principles (1/2): What happens in different solvency situations? Point of Non Viability (PONV) KBC is in control Resolution Authority is in control Business as usual Recovery plan Resolution plan Capital instruments CET1 AT1 sufficiently above Joint Capital Decision no impact in breach (or breach is imminent) of Joint Capital Decision coupon uncertain absorbs losses when trigger (5.125% CET1 on transitional basis) is breached in breach of minimum requirements (4.5% CET1 / 6% T1 / 8% total capital) or considered as non viable by the competent authorities. absorb losses at PONV T2 no impact no impact absorb losses at PONV Senior debt no impact no impact absorb losses beyond PONV (bail-in) 76

77 Annex 5 - Solvency details General principles (2/2): What are the risks for HoldCo senior investors? Public Issuance size of loss BRRD capital instruments Senior Unsecured Tier 2 AT1 Shareholders equity In all scenarios surpassing the Point of Non Viability, the investors are protected by the No Creditor Worse Off principle ( NCWO ), which stipulates that no instrument will be worse off in resolution than in normal insolvency proceedings HoldCo Recapitalisation scenario, losses (originating in any or in all of the underlying entities*) are lower than the size of the capital instruments at the HoldCo level part or all of Senior debt issued by the HoldCo can be converted into shares to recapitalise the HoldCo up to a minimum level as decided by the competent authorities. The investor then has a combination of shares and bonds of the HoldCo instead of only bonds and thus (co-)owns the underlying entities. The conversion factor would be determined by the competent authorities applying the NCWO principle. 2 Loss absorption scenario, losses (originating in any or in all of the underlying entities*) exceed the size of the capital instruments at the HoldCo level part or all of Senior issued by the HoldCo can be bailed-in to absorb losses. The NCWO principle implies that losses are only up-streamed to the HoldCo upto the amount of the investment of the HoldCo in the entity(ies) generating the losses. Hence, the investor in the HoldCo Senior will lose (up to) its investment to the extent that the amount of outstanding HoldCo senior debt exceeds the value of the remaining underlying entities of the HoldCo 77 * In KBC Group s case this would be KBC Bank and/or KBC Insurance and/or KBC Asset Management 77