KBC Bank Half-Year Report - 1H2016. Interim Report KBC Bank 1H2016 p. 1

Transcription

1 KBC Bank Half-Year Report - 1H2016 Interim Report KBC Bank 1H2016 p. 1

2 Company name KBC or KBC Bank as used in this report refer to the consolidated bank entity (i.e. KBC Bank NV including all companies that are included in the scope of consolidation). KBC Bank NV refers solely to the non-consolidated entity. KBC Group or the KBC group refers to the parent company of KBC Bank (see below). Difference between KBC Bank and KBC Group KBC Bank is a subsidiary of KBC Group. Simplified, the KBC Group's legal structure has one single entity KBC Group NV in control of two underlying companies, viz. KBC Bank and KBC Insurance. Forward-looking statements The expectations, forecasts and statements regarding future developments that are contained in this report are, of course, based on assumptions and are contingent on a number of factors that will come into play in the future. Consequently, the actual situation may turn out to be (substantially) different. Glossary of ratios used See separate section at the end of this report. Investor Relations contact details Investor.relations@kbc.com KBC Bank NV Investor Relations Office (IRO) Havenlaan 2 BE-1080 Brussels Belgium Management certification I, Luc Popelier, Chief Financial Officer of KBC Bank, certify on behalf of the Executive Committee of KBC Bank NV that, to the best of my knowledge, the abbreviated financial statements included in the interim report are based on the relevant accounting standards and fairly present in all material respects the financial condition and results of KBC Bank NV including its consolidated subsidiaries, and that the interim report provides a fair overview of the main events, the main transactions with related parties in the period under review and their impact on the abbreviated financial statements, and an overview of the main risks and uncertainties for the remainder of the current year. Interim Report KBC Bank 1H2016 p. 2

3 Contents Report for the first six months of Summary 3 Business highlights 4 Analysis of the results and balance sheet 5 Statement of risk 8 Consolidated financial statements according to IFRS 9 Consolidated income statement 10 Condensed consolidated statement of comprehensive income 11 Consolidated balance sheet 12 Consolidated statement of changes in equity 13 Condensed consolidated cash flow statement 14 Notes on statement of compliance and changes in accounting policies 14 Notes on segment reporting 15 Other notes 17 Report of the statutory auditor 26 Other information 28 Overview of the loan portfolio 29 Solvency 30 Details of ratios and terms 31 This report contains information that is subject to transparency regulations for listed companies. 31 August 2016, 8 a.m. CEST. Interim Report KBC Bank 1H2016 p. 1

4 Report for the first six months of 2016 KBC Bank Interim Report KBC Bank 1H2016 p. 2

5 Summary: Profit of 923 million euros generated in first half of Liquidity and capital bases remain strong. Against a background of persisting low interest rates, modest economic growth in Belgium and firmer growth in Central Europe, KBC Bank posted a strong net profit figure of 923 million euros in the first half of 2016, compared to 895 million euros in the year-earlier period. The results were complemented by strong fundamentals relating to our solvency and liquidity positions. Financial highlights for the first half of 2016, compared with the first half of 2015: We granted more loans in Belgium (+4%), the Czech Republic (+10%), Slovakia (+15%) and Bulgaria (+12%), while clients increased their deposits with us in all our countries: Belgium (+6%), the Czech Republic (+9%), Hungary (+13%), Slovakia (+16%), Bulgaria (+8%) and Ireland (+11%). In spite of the negative impact of low interest rates, our net interest income was down just 2% year-on-year, thanks to positive elements such as lower funding costs and higher lending-related income. The bank s net interest margin stood at 1.95%, down 13 basis points year-on-year. Our net fee and commission income was down 18%, due mainly to lower asset management-related fees. The sale of our Visa Europe shares resulted in one-off additional income of 99 million euros (pre-tax), or 84 million euros (after tax). At million euros, costs went up 2% year-on-year, due mainly to a higher amount of bank taxes being paid. Disregarding these taxes, our costs remained unchanged year-on-year. The cost/income ratio stood at 59% year-to-date. After evenly spreading the bank taxes and excluding specific items, the cost/income ratio came to 56%. The year-to-date cost of credit amounted to an excellent but unsustainably low 0.07% of our loan portfolio. Our liquidity position remained solid, and with a common equity ratio of 13.6% (fully loaded) our capital base remained strong. Key data, KBC Bank (consolidated, in millions of EUR) 1H2015 1H2016 Net result by business unit: Belgium Czech Republic International Markets Group Centre Balance sheet and solvency Total assets Total equity Common equity ratio (Basel III, fully loaded) 13.7% 13.6% Interim Report KBC Bank 1H2016 p. 3

6 Business highlights in the period under review (1H2016) The strategy of KBC Bank is fully embedded in the strategy of its parent company, KBC Group. KBC Group s core strategy remains focused on providing bank-insurance products and services to retail, SME and mid-cap clients in Belgium, the Czech Republic, Slovakia, Hungary and Bulgaria. In KBC Group, KBC Bank is essentially responsible for the banking business, and KBC Insurance for the insurance business. On the macroeconomic front, the most significant economic risk to the euro-area economy, the Brexit, materialised after the referendum in the UK on 23 June. This initially increased volatility on the financial markets and weighed on both producer and consumer sentiment. So far, however, the overall real impact has still been limited. Nevertheless, it will have a negative effect on the economic recovery in the euro area. In particular, it will emphasise the main source of fragility, i.e. the relative weakness of investment growth. The Brexit decision occurred against the background of relatively favourable economic data. The strong first-quarter growth of real GDP in the euro area, which accelerated to 0.6%, had supported a somewhat optimistic view. However, this robust performance could not be sustained in the second quarter, when growth came to just 0.3%. This is more in line with the potential growth rate of the euro area. As a result, the euro area unemployment rate continued its slow but steady decline to 10.1% in June. Economic growth in the second quarter was surprisingly weak in the US too (0.3% not annualised), despite the strong increase in private consumption. The weakness was due mainly to disappointing investment growth and a decline in inventories. In the meantime, global inflation remains subdued. In the US, inflation has reached relatively normal levels. In the euro area, on the other hand, the latest core inflation rate is still only half the target rate set by the European Central Bank (2%). The underlying reasons for this include the still high rate of unemployment, subdued nominal wage growth, and the trade-weighted appreciation of the euro, making import price inflation even more negative. At the end of July, the European Banking Authority (EBA) announced the results of the 2016 EU-wide EBA stress test. The results for KBC Group (KBC Bank s parent company) are published in the press release of 29 July 2016, which is available at The outcome of this exercise provided a reassuring signal to all of KBC Group s stakeholders that the institution is well capitalised. We are continuing to pro-actively roll out our financial technology plans so we can serve our clients even better going forward. In June 2016, we announced that clients of ČSOB and Era Poštovní spořitelna (Postal Savings Bank) would be able to pay for their shopping by mobile phone, courtesy of a new app called ČSOB NaNákupy (Mobile Wallet). This is the first mobile wallet in the Czech Republic to support both MasterCard and Visa. Another plus point for the app is that it can be used without the need for a new bank card or SIM. By the end of the year, additional features will be provided. The mobile app will allow payments over the Internet, card management and enable the transaction history to be viewed. Users will have the option of downloading their loyalty cards, receipts or using shared shopping lists in their devices. In July 2016, we announced the launch of a trial ground-breaking blockchain application for SMEs. Together with IT specialist Cegeka and various other companies, we are the first in the market to successfully test Digital Trade Chain (DTC), a blockchain solution that facilitates secure international trade between SMEs. Large companies use documentary credit as a way of reducing the risks involved in doing business, but this solution is not always suitable for SMEs. We are continuing to develop DTC and are negotiating with additional parties to make the platform more widely available and easier to access. Also in July 2016, we announced that we were cooperating with ING on an integrated payment and loyalty solution in Belgium. In doing so, we are responding to the rapidly changing digital experience of clients. These user-friendly and cost-effective solutions are already being used in the Belgian market by over a million Qustomer, CityLife and Payconiq users at more than stores. This network will continue to expand in the months to come. In July 2016, KBC in Belgium and K&H in Hungary won the Euromoney Award for 'Best Bank in their respective countries. Euromoney welcomed 600 senior bankers from around the world to celebrate the 25th anniversary of its Awards for Excellence. The awards are based on year-round monitoring of market share and customer-satisfaction data compiled by Euromoney s industry-leading surveys department. These awards clearly demonstrate that our client-oriented approach is working. We embrace our broader role in society. To give one example, we are convinced that we can make a positive contribution to mobility and road safety by offering our clients appropriate solutions. The KBC group is the only group in Belgium that brings together all aspects of mobility in terms of finance, insurance and assistance. Through companies like KBC Insurance, KBC Autolease and VAB, KBC has access to market leaders and much respected discussion partners in specific areas of mobility. Today, these three companies are facing the same mobility-related trends and challenges. KBC wants to take this to the next level. By ensuring that KBC Insurance, KBC Autolease and VAB combine their efforts and work together within the KBC Mobility programme, KBC aims to become the reference for sustainable, quality mobility solutions in Belgium. Existing examples are a bicycle loan, mobility advice, car-sharing and roadside bike assistance and our focus on mitigating hassle following an accident using the KBC Assist app. In this way, KBC is actively looking to respond to the changing needs of clients and society. Next to this, on the corporate sustainability and responsibility front, we launched the Renovation loan for owners associations in Belgium to facilitate sustainable and energy-efficient improvements to buildings. In the Czech Republic, ČSOB launched ČSOB Helps the Regions, a grant programme where 4 million Czech koruna is distributed among NGOs operating in local communities. Thanks to the donations generated by the Good Will Card scheme run by ČSOB Private Banking, the Help Fund budget for 2016 increased to 1.3 million Czech koruna, which creates the opportunity to finance special care provided by medical institutions specialised in neuro-rehabilitation. In Hungary, K&H's efforts through its Ready, Steady, Money! financial competition were recognised by the special award in the Most Creative Good Deed' category in the Three Good Deeds' CSR competition. Interim Report KBC Bank 1H2016 p. 4

7 Analysis of the result and balance sheet A full overview of the IFRS consolidated income statement and balance sheet is provided in the Consolidated financial statements section of this interim report. Condensed statements of comprehensive income, changes in shareholders equity and cash flow, as well as several notes to the accounts, are also available in the same section. Consolidated income statement, KBC Bank (in millions of EUR) 1H2015 1H2016 Net interest income Interest income Interest expense Dividend income Net result from financial instruments at fair value through profit and loss Net realised result from available-for-sale assets Net fee and commission income Fee and commission income Fee and commission expense Other net income Total income Operating expenses Impairment on loans and receivables on available-for-sale assets -2 0 on goodwill 0 0 on other -6-2 Share in results of associated companies and joint ventures Result before tax Income tax expense Result after tax attributable to minority interests* attributable to equity holders of the parent Breakdown of result after tax, attributable to equity holders of the parent Belgium Czech Republic International Markets Group Centre * Primarily the 48% stake that KBC Group holds in KBC Asset Management Highlights, consolidated balance sheet, KBC Bank (in millions of EUR) Total assets Loans and advances to customers Securities (equity and debt instruments) Deposits from customers and debt securities Risk weighted assets (Basel III, fully loaded) Total equity of which parent shareholders equity Interim Report KBC Bank 1H2016 p. 5

8 KBC Bank ended the first six months of 2016 (1H2016) with a net profit of 923 million euros, compared with a net profit of 895 million euros in the first six months of 2015 (1H2015) Analysis of the major components of our profit and loss account Net interest income stood at million euros in 1H2016, down 2% year-on-year. The net interest margin came to 1.95% year-to-date, 13 basis points lower than the level of a year earlier. The decrease in net interest income was accounted for in part by the current low interest environment leading to a lower transformation result and a lower level of dealing room interest income, though they were partly offset by lower funding costs and higher interest income from lending activities. Both lending and customer deposit volumes increased: deposits from customers and debt certificates, excluding repos, went up by 6%, and loans and advances to customers, excluding reverse repos, by 4% yearon-year (percentages calculated Net interest Net fee and income commission income Breakdown of the 1H2016 net result (in millions of EUR) after elimination of transactions between KBC Group companies). As regards deposits, volumes increased in every country: Belgium +6%, Czech Republic +9%, Slovakia +16%, Hungary +13%, Bulgaria +8% and Ireland 11%. Lending went up in Belgium (+4%), the Czech Republic (+10%), Slovakia (+15%) and Bulgaria (+12%), but decreased in Ireland (-5%, as matured and impaired mortgage loans surpassed new production and the corporate loan portfolio continued to be deleveraged) as well as in Hungary (-1%). Net fee and commission income amounted to 854 million euros in 1H2016, down 18% on its 1H2015 level. The decrease was largely related to substantially lower entry and management fees for asset management activities. Overall, total assets under management at KBC Group stood at 207 billion euros at the end of June 2016, still up 2% year-on-year, with an increase in net entries being only partly being offset by a price decrease. Belgium (193 billion euros) accounted for the bulk of the assets under management, the Czech Republic for 9 billion euros and the other countries for an aggregate 6 billion euros at the end of June Other income Operating expenses -55 Impairment 11 Other -217 Income taxes Net result Group share Minority interests All other income items combined amounted to 440 million euros in 1H2016. Dividend income stood at 12 million euros, more or less in line with the level recorded in 1H2015. Realised gains on the sale of bonds and shares came to 119 million euros, more than double the figure recorded in 1H2015, thanks mainly to the gain on the sale of Visa Europe shares (99 million euros, pre-tax). The net result from financial instruments at fair value amounted to 252 million euros, up 6% on 1H2015 (including higher value adjustments (FVA/MVA/CVA, partly as a result of one-off model changes), and a lower marked-to-market valuation in respect of derivative instruments used for ALM purposes). Lastly, other net income came to 57 million euros in 1H2016, down 36 million euros on 1H2015, as the reference figure had included a number of positive one-off items. Operating expenses came to million euros in 1H2016, up 2% on their year-earlier level. The year-on-year increase in operating expenses was essentially due to higher special bank taxes (up from 329 million euros in 1H2015 to 367 million euros in 1H2016). Excluding all special bank taxes, costs were roughly at the same level as in 1H2015. As a result, the cost/income ratio stood at 59% year-to-date, compared to 55% in FY2015. Excluding a number of specific items and evenly spreading the special bank taxes, the cost/income ratio would be 56%, compared to 55% in FY2015. Loan loss impairment stood at a low 54 million euros in 1H2016, significantly down on the 211 million euros recorded a year earlier. This improvement was largely accounted for by Belgium and Ireland. Consequently, the annualised credit cost ratio stood at an excellent 0.07% year-to-date (0.23% in FY2015). Interim Report KBC Bank 1H2016 p. 6

9 Performance by business unit The Belgium Business Unit (encompassing all activities in Belgium) generated a net result of 400 million euros in 1H2016, compared with 565 million euros in 1H2015. Total income fell 14% and included lower net interest income, a lower net result from financial instruments at fair value, less net fee and commission income and other net income, and higher net realised gains from available-for-sale assets (owing to the sale of Visa Europe shares). Costs went up 6% (due mainly to higher bank taxes; costs excluding bank taxes remained more or less the same), leading to a year-to-date cost/income ratio of 62% (50% in 1H2015 and in FY2015). However, impairment charges decreased significantly (from 129 million euros in 1H2015 to 34 million in 1H2016), leading to an excellent annualised credit cost ratio of 0.07% in 1H2016 (0.19% in FY2015). The Czech Republic Business Unit (encompassing all activities in the Czech Republic) generated a net result of 309 million euros in 1H2016, compared with 259 million euros in 1H2015. The period under review included roughly stable net interest income and net fee and commission income, and higher gains from available-for-sale assets (owing to the sale of Visa Europe shares) and a higher net result from financial instruments at fair value. Costs stood at the same level as in the year-earlier period, leading to a sound cost/income ratio of 44% (48% in 1H2015 and in FY2015), while loan loss impairment fell further on the already low level of 1H2015, resulting in an excellent annualised credit cost ratio of 0.09% in 1H2016 (0.18% in FY2015). The International Markets Business Unit (covering activities in Ireland, Hungary, Slovakia and Bulgaria) generated a net result of 172 million euros in 1H2016, as opposed to 81 million euros in 1H2015. When broken down by country, the net result was as follows: 53 million euros for Ireland (compared to 0 million euros in 1H2015, thanks essentially to higher net interest income caused by lower funding and liquidity costs, a higher result from financial instruments at fair value and lower loan loss impairment); 52 million euros for Slovakia (compared to 40 million euros in 1H2015, due to higher total income thanks to gains on the sale of Visa Europe shares, among other things); 8 million euros for Bulgaria (compared to 9 million euros in 1H2015); and 59 million euros for Hungary (compared to 31 million in 1H2015, due in part to lower costs and loan loss impairment). For the business unit as a whole, the cost/income ratio stood at 64% in 1H2016 (compared to 70% in 1H2015 and 66% in FY2015) and the annualised credit cost ratio amounted to an excellent 0.03% (as opposed to 0.32% for FY2015). The Group Centre s net result amounted to 42 million euros in 1H2016, as opposed to -9 million euros in 1H2015. The Group Centre includes certain capital and liquidity management-related costs, costs related to the holding of participations and the results of the companies or activities that are earmarked for divestment or are in run-down. The year-on-year improvement in the Group Centre s net result was due mainly to a combination of increased total income (higher net result from financial instruments at fair value and other net income) and lower loan loss impairment. Equity, solvency and liquidity At the end of June 2016, our total equity came to 13.5 billion euros, virtually unchanged on its level at the start of the year, as the positive impact of the inclusion of the 1H2016 result (+1.0 billion euros, including minority interests) was offset by the lower valuation of available-for-sale and cash flow reserves (an aggregate -0.5 billion euros), the remeasurement of benefit plans (-0.2 billion euros), a dividend paid to KBC Group for financial year 2015 (-0.2 billion euros as the final dividend, following the 1.2 billion euros for the interim dividend paid in 2015), and a number of smaller changes. Our common equity ratio (Basel III) stood at 13.5% (phased-in) or 13.6% (fully loaded) at 30 June The total capital ratio (Basel III) was 19.9% (phased-in and fully loaded). The leverage ratio (Basel III, fully loaded) stood at 5.1%. Our liquidity position remains excellent, as reflected in an LCR ratio of 132% and an NSFR ratio of 123% at the end of June Selected ratios (consolidated) FY2015 1H2016 Cost/income ratio 55% 59% Common equity ratio according to Basel III (phased-in) 14.1% 13.5% Common equity ratio according to Basel III (fully loaded) 13.7% 13.6% Leverage ratio according to Basel III (fully loaded) 5.4% 5.1% Credit risk Credit cost ratio 0.23% 0.07% Impaired loans ratio 8.6% 7.8% for loans more than 90 days overdue 4.8% 4.4% Liquidity Net stable funding ratio (NSFR) 121% 123% Liquidity coverage ratio (LCR) 127% 132% Interim Report KBC Bank 1H2016 p. 7

10 Statement of risk As we are mainly active in banking and asset management, we are exposed to a number of typical risks for these financial sectors such as but not limited to credit default risk, counterparty credit risk, concentration risk, movements in interest rates, currency risk, liquidity and funding risk, changes in regulations, operational risk, customer litigation, competition from other and new players, as well as the economy in general. Although KBC closely monitors and manages each of these risks within a strict risk framework containing governance and limits, they may all have a negative impact on asset values or could generate additional charges beyond anticipated levels. At present, a number of items are considered to constitute the main challenges for the financial sector in general and, as a consequence, are also relevant to KBC. Increasing capital requirements are a dominant theme for the sector. Major current regulatory initiatives relate to credit risk, operational risk, trading risk, ALM risk and consumer protection. Besides regulation, the low interest rate environment remains a continuing challenge. If low rates were to persist, this would put considerable pressure on the long-term profitability of banks and especially insurers. The financial sector also faces the potential systemic consequences of political and financial developments like Brexit or concerns about the banking sector in some countries. The risk radar screens of financial institutions show that financial technology is an additional challenge for the business model of traditional financial institutions. Finally, cyber risk has become one of the main threats during the past few years, not just for the financial sector, but for the economy as a whole. Risk management data are provided in the annual reports, interim reports and dedicated risk reports of KBC Bank and KBC Group, all of which are available at On the macroeconomic front, given the uncertainty caused by the Brexit vote in the UK referendum on 23 June, we are working on the assumption that the Fed will keep its policy rate on hold for the remainder of 2016 and will only raise it gradually in 2017, probably in three steps of 25 basis points each time. In the meantime, the ECB has announced that it was keeping its negative deposit rate unchanged, or would even lower it, until well after its Asset Purchase Programme ends, which is currently scheduled for March The ECB will probably only raise its deposit rate in 2018 at the earliest. As a result of the flight to quality on the financial markets after the Brexit vote, it is expected that the US dollar will strengthen moderately against the euro in 2016 and The expected further economic expansion in the US, together with the expected Fed rate hikes in 2017, should lead to a modest rise in US bond yields. This will also pull up German rates to a certain extent, given the global integration of the main bond markets. Despite the relatively weak second quarter in macroeconomic terms and higher-than-average economic and political uncertainty arising from Brexit, Turkish political tensions, the refugee crisis, upcoming elections in Europe and the US, fragility in emerging markets, and so on, we nevertheless expect the remainder of 2016 to be a year of sustained economic growth in both the euro area and the US. The fundamental reasons for this are the resilience of domestic demand, in particular private consumption, somewhat accommodating fiscal policy, and resuming investment growth, especially in the US. Growth contribution from international trade, on the other hand, is expected to be rather weak. As a result, economic growth in the euro area and the US will be somewhat lower than in 2015 and is expected to accelerate again in We remain cautiously positive about growth in Belgium, although the figures for 2016 and 2017 are likely to remain below euro area levels, given the continuing fiscal austerity and the relatively higher-than-expected impact of Brexit. In Central Europe, robust GDP growth is expected to ease somewhat in 2016, as the impulse provided by European cohesion funds for government investment dissipates. Interim Report KBC Bank 1H2016 p. 8

11 Consolidated financial statements according to IFRS, KBC Bank 1H2016 Reviewed by the statutory auditor Interim Report KBC Bank 1H2016 p. 9

12 Consolidated income statement In millions of EUR 1H H 2016 Net interest income Interest income Interest expense Dividend income Net result from financial instruments at fair value through profit or loss Net realised result from available-for-sale assets Net fee and commission income Fee and commission income Fee and commission expense Net other income TOTAL INCOME Operating expenses Staff expenses General administrative expenses Depreciation and amortisation of fixed assets Impairment on loans and receivables on available-for-sale assets on goodwill 0 0 on other Share in results of associated companies and joint ventures RESULT BEFORE TAX Income tax expense RESULT AFTER TAX Attributable to minority interest Attributable to equity holders of the parent Interim Report KBC Bank 1H2016 p. 10

13 Condensed consolidated statement of comprehensive income In millions of EUR 1H H 2016 RESULT AFTER TAX attributable to minority interest attributable to equity holders of the parent Other comprehensive income - to be recycled to P&L Net change in revaluation reserve (AFS assets) - Equity Net change in revaluation reserve (AFS assets) - Bonds Net change in revaluation reserve (AFS assets) - Other 0 0 Net change in hedging reserve (cash flow hedge) Net change in translation differences Net change related to associated companies & joint ventures Other movements 1-1 Other comprehensive income - not to be recycled to P&L Net change in defined benefit plans Net change related to associated companies & joint ventures 0 0 TOTAL COMPREHENSIVE INCOME attributable to minority interest attributable to equity holders of the parent For more information on amendments to IAS 1, triggering a presentation change of the above table, see note 1a. Interim Report KBC Bank 1H2016 p. 11

14 Consolidated balance sheet ASSETS (in millions of EUR) Note Cash and cash balances with central banks Financial assets Held for trading Designated at fair value through profit or loss Available for sale Loans and receivables Held to maturity Hedging derivatives Fair value adjustments of hedged items in portfolio hedge of interest rate risk Tax assets Current tax assets Deferred tax assets Non-current assets held for sale and assets associated with disposal groups Investments in associated companies and joint ventures Investment property Property and equipment Goodwill and other intangible assets Other assets TOTAL ASSETS LIABILITIES AND EQUITY (in millions of EUR) Note Financial liabilities Held for trading Designated at fair value through profit or loss Measured at amortised cost Hedging derivatives Fair value adjustments of hedged items in portfolio hedge of interest rate risk Tax liabilities Current tax liabilities Deferred tax liabilities Provisions for risks and charges Other liabilities TOTAL LIABILITIES Total equity Parent shareholders' equity Additional Tier-1 instruments included in equity Minority interests TOTAL LIABILITIES AND EQUITY Interim Report KBC Bank 1H2016 p. 12

15 Consolidated statement of changes in equity Issued and paid up share capital Share premium Revaluation reserve (AFS assets) Hedging reserve (cashflow hedges) Remeasurement of defined benefit obligations Retained earnings Translation differences Parent shareholders' equity Additional Tier-1 instruments included in equity In millions of EUR Total equity Balance at the beginning of the period ( ) Net result for the period Other comprehensive income for the period Total comprehensive income Dividends Coupon additional Tier-1 instruments Change in minorities Total change Minority interests Balance at the end of the period of which revaluation reserve for shares 128 of which revaluation reserve for bonds 401 of which revaluation reserve for other assets than bonds and shares 0 of which relating to non-current assets held for sale and disposal groups of which relating to equity method Balance at the beginning of the period ( ) Net result for the period Other comprehensive income for the period Total comprehensive income Dividends Coupon additional Tier-1 instruments Change in minorities Total change Balance at the end of the period of which revaluation reserve for shares 106 of which revaluation reserve for bonds 574 of which revaluation reserve for other assets than bonds and shares 0 of which relating to non-current assets held for sale and disposal groups of which relating to equity method The changes in equity in 1H2016 include the payment of a final dividend to KBC Group of 165 million euros, following the payment of an interim dividend of million euros in Interim Report KBC Bank 1H2016 p. 13

16 Condensed consolidated cash flow statement In millions of EUR 1H H 2016 Cash and cash equivalents at the beginning of the period Net cash from (used in) operating activities Net cash from (used in) investing activities Net cash from (used in) financing activities Effects of exchange rate changes on opening cash and cash equivalents Cash and cash equivalents at the end of the period Notes on statement of compliance and changes in accounting policies Statement of compliance (Note 1a in the annual accounts for 2015) The condensed interim financial statements of the KBC Bank for the 1H2016 have been prepared in accordance with IAS 34, Interim financial reporting. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2015, which have been prepared in accordance with the International Financial Reporting Standards as adopted for use in the European Union ( endorsed IFRS ). The same accounting policies, methods of computation and presentation have been followed in its preparation as were applied in the most recent annual financial statements, except for the following item: An amendment to IAS 1 (presentation of financial statement) requiring the aggregate share in other comprehensive income of associated companies and joint ventures to be recognised separately, was issued but not yet mandatory at year-end It also has to be grouped according to whether or not it is recycled to profit or loss. As a consequence, the amounts presented in the other items of other comprehensive income exclude the share in results of associated companies and joint ventures. KBC had decided to apply the new standard with effect from The reference figures have been adjusted accordingly. Summary of significant accounting policies (Note 1b in the annual accounts for 2015) A summary of the main accounting policies is provided in the annual financial statements as at 31 December Interim Report KBC Bank 1H2016 p. 14

17 Notes on segment reporting Segment reporting according to the management structure of the group (Note 2 in the annual accounts for 2015) For a description on the management structure and linked reporting presentation, please refer to Note 2 in the annual accounts for Business unit Belgium Business unit Czech Republic Business unit International Markets of which: Hungary of which: Slovakia of which: Bulgaria of which: Ireland Group Centre In millions of EUR 1H 2015 Net interest income Dividend income Net result from financial instruments at fair value through profit or loss Net realised result from available-for-sale assets Net fee and commission income Net other income TOTAL INCOME Operating expenses Impairment on loans and receivables on available-for-sale assets on goodwill on other Share in results of associated companies and joint ventures RESULT BEFORE TAX Income tax expense RESULT AFTER TAX Attributable to minority interests NET RESULT H 2016 Net interest income Dividend income Net result from financial instruments at fair value through profit or loss Net realised result from available-for-sale assets Net fee and commission income Net other income TOTAL INCOME Operating expenses Impairment on loans and receivables on available-for-sale assets on goodwill on other Share in results of associated companies and joint ventures RESULT BEFORE TAX Income tax expense RESULT AFTER TAX Attributable to minority interests NET RESULT KBC Bank Interim Report KBC Bank 1H2016 p. 15

18 Business unit Belgium Business unit Czech Republic Business unit International Markets of which: Hungary of which: Slovakia of which: Bulgaria of which: Ireland Group Centre In millions of EUR Deposits from customers & debt certificates excl. repos Loans & advances to customers excluding reverse repos Term loans excl. Reverse repos Mortgage loans Current accounts advances Finance leases Consumer credit Other Deposits from customers & debt certificates excl. repos Loans & advances to customers excluding reverse repos Term loans excl. Reverse repos Mortgage loans Current accounts advances Finance leases Consumer credit Other KBC Bank Interim Report KBC Bank 1H2016 p. 16

19 Other notes Net interest income (Note 3 in the annual accounts for 2015) In millions of EUR 1H H 2016 Total Interest income Available-for-sale assets Loans and receivables Held-to-maturity investments Other assets not at fair value Subtotal, interest income from financial assets not measured at fair value through profit or loss Financial assets held for trading Hedging derivatives Other financial assets at fair value through profit or loss Interest expense Financial liabilities measured at amortised cost Other Subtotal, interest expense for financial liabilities not measured at fair value through profit or loss Financial liabilities held for trading Hedging derivatives Other financial liabilities at fair value through profit or loss Net interest expense on defined benefit plans Net realised result from financial instruments at fair value through profit and loss (Note 5 in the annual accounts for 2015) The result from financial instruments at fair value through profit or loss is also influenced by MtM ALM derivatives, since fair value changes (due to marked-to-market accounting) of ALM hedging instruments (that are treated as held for trading instruments) appear under Net result from financial instruments at fair value, whereas most of the related assets are not recognised at fair value. The net result from these ALM hedging instruments amounted to 33 million euros (pre-tax) in 1H2016 and 92 million euros (pre-tax) in 1H2015. Net realised result from available-for-sale assets (Note 6 in the annual accounts for 2015) In millions of EUR 1H H 2016 Total Breakdown by portfolio Fixed-income securities 40 6 Shares The realised gains on available-for-sale shares in 1H2016 include the realised gain related to the takeover of Visa Europe by Visa Inc. on the basis of the market value as at 22 June 2016 (99 million euros pre-tax, 84 million euros after tax). Interim Report KBC Bank 1H2016 p. 17

20 Net fee and commission income (Note 7 in the annual accounts for 2015) In millions of EUR 1H H 2016 Total Fee and commission income Securities and asset management Commitment credit Payments Other Fee and commission expense Other net income (Note 8 in the annual accounts for 2015) In millions of EUR 1H H 2016 Total Of which net realised result following The sale of loans and receivables The sale of held-to-maturity investments 1 1 The repurchase of financial liabilities measured at amortised cost Other of which: Income concerning leasing at the KBC Lease-group Realised gains or losses on divestments New law on retail loans (Hungary) 25 0 Deconsolidation real estate companies 18 0 Operating expenses (Note 9 in the annual accounts for 2015) The application of IFRIC 21 (Levies; in force as of 1 January 2015) has as a consequence that certain levies are taken upfront in expense of the first quarter of the year. As a consequence, the figure of the operating expenses in the first half of the year includes the bank levies related to the full year (367 million euros in 1H2016 and 329 million euros in 1H2015). The figure for 1H2016 is also impacted by the negative impact (38 million euros) of the reorganisation of the Belgian Banking taxes (one new banking tax replacing the four existing banking taxes), which is partly compensated by the agreement to register 15% of the contribution to the ESRF in some countries (9 million euros) as an irrevocable payment commitment (booked off balance as a contingent liability). Interim Report KBC Bank 1H2016 p. 18

21 Impairments income statement (Note 11 in the annual accounts for 2015) In millions of EUR 1H H 2016 Total Impairment on loans and receivables Breakdown by type Specific impairments for on-balance-sheet lending Provisions for off-balance-sheet credit commitments 5 6 Portfolio-based impairments Breakdown by business unit Business unit Belgium Business unit Czech Republic Business unit International Markets of which: Hungary of which: Slovakia of which: Bulgaria of which: Ireland Group Centre Impairment on available-for-sale assets Breakdown by type Shares Other 0 0 Impairment on goodwill 0 0 Impairment on other Intangible assets, other than goodwill 0-1 Property and equipment and investment property Held-to-maturity assets 0 0 Associated companies and joint ventures 0 0 Other 0 0 Income tax expense (Note 13 in the annual accounts for 2015) In 1Q2016, the income tax expenses were positively influenced by 18 million euros of Deferred Tax Assets (DTA) at KBC Credit Investments. In 2Q2016, an additional net 27 million euros DTA was booked: (i) +47 million euros at KBC Credit Investments and (ii) -20 million euros at KBC Securities. Interim Report KBC Bank 1H2016 p. 19

22 Financial assets and liabilities: breakdown by portfolio and products (Note 14 in the annual accounts for 2015) (In millions of EUR) FINANCIAL ASSETS, Held for Designated at trading fair value Available for sale Loans and receivables Held to maturity Hedging derivatives Measured at amortised cost Loans and advances to credit institutions and investment firms a Loans and advances to customers b Excluding reverse repos Trade receivables Consumer credit Mortgage loans Term loans Finance leasing Current account advances Securitised loans Other Equity instruments Debt securities issued by Public bodies Credit institutions and investment firms Corporates Derivatives Other Total carrying value a Of which reverse repos b Of which reverse repos FINANCIAL ASSETS, Loans and advances to credit institutions and investment firms a Loans and advances to customers b Excluding reverse repos Trade receivables Consumer credit Mortgage loans Term loans Finance leasing Current account advances Securitised loans Other Equity instruments Debt securities issued by Public bodies Credit institutions and investment firms Corporates Derivatives Other Total carrying value a Of which reverse repos b Of which reverse repos Total Interim Report KBC Bank 1H2016 p. 20

23 (In millions of EUR) FINANCIAL LIABILITIES, Held for Designated at trading fair value Available for sale Loans and receivables Held to maturity Hedging derivatives Measured at amortised cost Deposits from credit institutions and investment firms a Deposits from customers and debt certificates b Excluding repos Deposits from customers Demand deposits Time deposits Saving accounts Special deposits Other deposits Debt certificates Certificates of deposit Customer savings certificates Convertible bonds Non-convertible bonds Convertible subordinated liabilities Non-convertible subordinated liabilities Derivatives Short positions in equity instruments in debt instruments Other Total carrying value a Of which repos b Of which repos FINANCIAL LIABILITIES, Deposits from credit institutions and investment firms a Deposits from customers and debt certificates b Excluding repos Deposits from customers Demand deposits Time deposits Saving accounts Special deposits Other deposits Debt certificates Certificates of deposit Customer savings certificates Convertible bonds Non-convertible bonds Convertible subordinated liabilities Non-convertible subordinated liabilities Derivatives Short positions in equity instruments in debt instruments Other Total carrying value a Of which repos b Of which repos Total Interim Report KBC Bank 1H2016 p. 21

24 Financial assets and liabilities at fair value fair value hierarchy (Note 20 in the annual accounts for 2015) For more details on how KBC defines and determines fair value and the fair value hierarchy and level 3 valuations, please refer to Notes 19 to 22 inclusive of the annual accounts. Fair value hierarchy In millions of EUR Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Financial assets measured at fair value Held for trading Designated at fair value Available for sale Hedging derivatives Total Financial liabilities measured at fair value Held for trading Designated at fair value Hedging derivatives Total Financial assets and liabilities measured at fair value transfers between level 1 and 2 (Note 21 in the annual accounts for 2015) In 1H2016, an approximate total amount of 0.1 billion euros in financial instruments at fair value was transferred from level 1 to level 2. KBC also transferred around 0.2 billion euros in financial instruments at fair value from level 2 to level 1. The majority of the transfers is due to changed liquidity of corporate and regional government bonds. Financial assets and liabilities measured at fair value focus on level 3 (Note 22 in the annual accounts for 2015) In 1H2016, the following material movements were observed with respect to instruments classified in level 3 of the fair value level hierarchy: In the financial assets designated at fair value category, the fair value decreased by approximately 0.2 billion euros, which is mainly due to the expiry of a CDO note in January In the financial liabilities designated at fair value category, the fair value decreased by 0.2 billion euros, which is mainly due to the expiry of KBC Ifima senior bonds. Interim Report KBC Bank 1H2016 p. 22