KBC Group Analysts presentation 2Q 2018 Results 9 August AM CEST

Transcription

1 KBC Group Analysts presentation 2Q 2018 Results 9 August AM CEST Dial-in numbers +44 (0) (0) (2) Teleconference replay will be available on until 31 August 2018 More infomation: KBC Group - Investor Relations Office - ACCESS CODE 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 1Q18 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 Capital and liquidity positions: The fully loaded** B3 common equity ratio based on the Danish Compromise decreased from 16.3% at the end of 2017 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 ** 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 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 impairments 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 * ROE taking into account pro rata bank taxes amounted to 19% in 1Q18 3

4 Contents Q 2018 performance of KBC Group 1Q 2018 performance of business units Strong solvency and solid liquidity 1Q 2018 wrap up Annex 1: Company profile Annex 2: Other items 4

5 KBC Group Section 1 1Q 2018 performance of KBC Group 5

6 Net result at KBC Group CONTRIBUTION OF BANKING ACTIVITIES TO KBC GROUP NET RESULT* 750 NET RESULT AT KBC GROUP* Q Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 78 CONTRIBUTION OF INSURANCE ACTIVITIES TO KBC GROUP NET RESULT* Q * 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 Non-Life result Non-technical & taxes Amounts in m EUR 6 Life result

7 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 7

8 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 8

9 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 - insurance contribution F&C - banking 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 9

10 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% 83% 88% 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 10

11 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 1Q18 LIFE SALES Q17 2Q17 3Q17 4Q17 1Q18 Guaranteed interest products Unit-linked products 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 11

12 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 4 1Q17 2Q17 3Q17 4Q17 1Q18-14 Amounts in m EUR 12

13 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 thecapitalisation 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 13 * See glossary (slide 88) for the exact definition ** still subject to changes

14 Overview of bank taxes* 361 KBC GROUP Bank taxes of 371m EUR in 1Q18. On a pro rata basis, bank taxes represented 11.1% of 1Q18 opex at KBC Group** 278 BELGIUM BU Bank taxes of 273m EUR in 1Q18. On a pro rata basis, bank taxes represented 11.1% of 1Q18 opex at the Belgium BU Q17 2Q17 3Q17 4Q17 1Q18 European Single Resolution Fund contribution Common bank taxes CZECH REPUBLIC BU Q17 2Q17 3Q17 4Q17 1Q18 Bank taxes of 29m EUR in 1Q18. On a pro rata basis, bank taxes represented 4.3% of 1Q18 opex at the CZ BU 225 1Q17 INTERNATIONAL MARKETS BU Q Q17-7 2Q17 3Q17 ESRF contribution 25 3Q Q Q17 1Q18 Common bank taxes Bank taxes of 70m EUR in 1Q18. On a pro rata basis, bank taxes represented 18.0% of 1Q18 opex at the IM BU Q18 ESRF contribution Common bank taxes ESRF contribution Common bank taxes * This refers solely to the bank taxes recognised in opex, and as such it does not take account of income tax expenses, non-recoverable VAT, etc. ** The C/I ratio adjusted for specific items of 55% in 1Q18 amounts to roughly 48% excluding these bank taxes 14

15 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 FY % 0.09% -0.06% -0.15% FY15 FY16 FY17 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 15

16 KBC Group Section 2 1Q 2018 performance of business units 16

17 BELGIUM BUSINESS UNIT CFO SERVICES CRO SERVICES BELGIUM CZECH REPUBLIC INTERNATIONAL MARKETS CORPORATE STAFF 17

18 Belgium BU (1): net result of 243m EUR Q17 2Q17 3Q17 4Q17 1Q18 Amounts in m EUR NET RESULT Net result at the Belgium Business Unit amounted to 243m EUR The quarter under review was characterised by lower net interest income, roughly stable net fee and commission income, decreased trading and fair value income, higher other net income, an improved combined ratio, seasonally lower sales of life insurance products, higher operating expenses due entirely to higher bank taxes and lower impairment charges q-o-q Excluding both the upfront booking of the bank tax in 1Q18 and the one-off negative impact of the reform of the Belgian corporate income tax regime in 4Q17, the net result rose by roughly 3% q-o-q Customer deposits excluding debt certificates and repos rose by 4% y-o-y, while customer loans also increased by 4% y-o-y * Non-annualised ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos VOLUME TREND Total loans ** o/w retail mortgages Customer deposits*** AuM Life reserves Volume 96bn 35bn 126bn 199bn 27bn Growth q-o-q* +1% 0% -5% -1% -1% Growth y-o-y +4% +1% 0% 0% -2% 18 Customer deposit volumes excluding debt certificates & repos +2% q-o-q and +4% y-o-y

19 Belgium BU (2): lower NII despite stable NIM NII (pro forma for 2017*) Q17 2Q17 3Q17 4Q17 1Q18 NII - netted positive impact of ALM FX swaps** NII - contribution of banking NII - contribution of insurance Amounts in m EUR Net interest income (649m EUR) Fell by 4% q-o-q due mainly to the lower netted impact of FX swaps, lower reinvestment yields and lower number of days Down by 5% y-o-y, driven primarily by: o lower reinvestment yields o pressure on commercial loan margins o lower upfront prepayment fees (6m EUR in 1Q18 compared with 9m EUR in 1Q17) partly offset by: o lower funding costs on term deposits o good loan volume growth 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 NIM (pro forma for 2017***) 1.78% 1.79% 1.72% 1.73% 1.73% Net interest margin (1.73%) Stabilised q-o-q Fell by 5 bps y-o-y due to the negative impact of lower reinvestment yields and some pressure on commercial loan margins 1Q17 2Q17 3Q17 4Q17 1Q18 19

20 Credit margins in Belgium 1.4 PRODUCT SPREAD ON CUSTOMER LOAN BOOK, OUTSTANDING Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 Customer loans PRODUCT SPREAD ON NEW PRODUCTION Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 SME and corporate loans Mortgage loans 20

21 Belgium BU (3): good net F&C income F&C (pro forma for 2017*) AuM* Amounts in m EUR Q17 2Q17 3Q17 4Q17 1Q18 F&C - network income F&C - contribution of banking F&C - contribution of insurance * 2017 pro forma figures as the network income shifted from FIFV to net F&C as of 2018 Amounts in bn EUR Net fee and commission income (318m EUR) Positive net sales of mutual funds in 1Q18 Net F&C income decreased by 1% q-o-q due mainly to: o lower management fees o lower securities-related fees o lower fees from credit files & bank guarantees partly offset by o higher entry fees from mutual funds and unit-linked life insurance products o higher fees from payment services o lower commissions paid on insurance sales Fell by 11% y-o-y driven chiefly by lower entry fees from mutual funds & unit-linked life insurance products (as 1Q17 benefited from the launch of EasyInvest), lower securities-related fees, lower fees from credit files & bank guarantees, slightly lower fees from payment services and higher commissions paid on insurance sales Assets under management (199bn EUR) Fell by 1% q-o-q owing entirely to a negative price effect Stabilised y-o-y as net inflows (+1%) were offset by a negative price effect (-1%) 1Q17 2Q17 3Q17 4Q17 1Q18 * Also note that 2017 AuM figures were reduced due to a roughly 2bn EUR adjustment in Institutional Mandates 21

22 Belgium BU (4): higher y-o-y non-life sales and good combined ratio NON-LIFE SALES (GROSS WRITTEN PREMIUM) Sales of non-life insurance products Increased by 2% y-o-y Premium growth was situated in all classes, except for Accident & Health 1Q17 2Q17 3Q17 4Q17 1Q18 77% COMBINED RATIO (NON-LIFE) 93% 86% 81% 80% Combined ratio amounted to 93% in 1Q18 (86% in FY17). 1Q18 was negatively impacted by higher technical charges y-o-y due mainly to higher storm claims 1Q 1H 9M FY

23 Belgium BU (5): lower life sales and good cross-selling ratios LIFE SALES Q17 2Q17 3Q17 4Q17 1Q18 Guaranteed interest products Unit-linked products Amounts in m EUR Sales of life insurance products Fell by 12% q-o-q as the sales of guaranteed interest products are traditionally lower in the first quarter (versus traditionally higher volumes in tax-incentivised pension saving products in the fourth quarter and extra sales for individual pension agreements for selfemployed business leaders in 4Q17, anticipating the reduction of corporate tax as of 2018). The lower sales of unit-linked products was the result of commercial efforts in 4Q17 and a less favourable investment climate in 1Q18 Increased by 2% y-o-y driven entirely by higher sales of guaranteed interest products As a result, guaranteed interest products and unitlinked products accounted for 62% and 38%, respectively, of life insurance sales in 1Q18 MORTGAGE-RELATED CROSS-SELLING RATIOS % % Property insurance Life insurance 78.9% Mortgage-related cross-selling ratios 86.5% for property insurance 78.9% for life insurance % 40 23

24 Belgium BU (6): lower FV gains and 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 the result mainly of negative q-o-q change in market, credit and funding value adjustments (mainly as a result of changes in the underlying market value of the derivative portfolio) 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) 46 OTHER NET INCOME Other net income amounted to 59m EUR in 1Q18, higher than the normal run rate of around 50m EUR due to the settlement of an old legal file 1Q17 2Q17 3Q17 4Q17 1Q18 Amounts in m EUR 24

25 Belgium BU (7): higher opex due entirely to higher bank taxes, lower impairments, good credit cost ratio OPERATING EXPENSES Q17 2Q17 3Q17 4Q17 1Q18 Bank tax Operating expenses Operating expenses: +45% q-o-q and stable y-o-y Operating expenses without bank tax fell by 3% q-o-q due mainly to traditionally lower marketing, professional fee and ICT expenses in the first quarter, despite a 12m EUR provision for facility expenses for one specific file in 1Q18 Operating expenses without bank tax increased by 1% y-o-y as lower staff and marketing expenses were more than offset by a 12m EUR provision for facility expenses for one specific file in 1Q18, higher ICT & professional fee expenses Cost/income ratio: 77% in 1Q18, distorted mainly by the bank taxes. Adjusted for specific items, the C/I ratio amounted to 56% in 1Q18 (53% in FY17) ASSET IMPAIRMENT Q17 2Q17 3Q17 4Q17 1Q18 Other impairments Impairments on financial assets at AC* * AC = Amortised Cost. Under IAS 39, impairments on L&R Amounts in m EUR 25 Loan loss provisions amounted to 14m EUR in 1Q18 (compared with loan loss provisions of 12m EUR in 4Q17), so continuously overall low gross impairments (in all segments) in 1Q18. Credit cost ratio amounted to 5 bps in 1Q18 (9 bps in FY17) Impaired loans ratio improved to 2.6%, 1.3% of which over 90 days past due

26 Net result at the Belgium BU NET RESULT AT THE BELGIUM BU* CONTRIBUTION OF BANKING ACTIVITIES TO NET RESULT OF THE BELGIUM BU* Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q18 CONTRIBUTION OF INSURANCE ACTIVITIES TO NET RESULT OF THE BELGIUM BU* * Difference between net profit at the Belgium Business Unit and the sum of the banking and insurance contribution is accounted for by the rounding up or down of figures 1Q17 Non-Life result 2Q17 Life result 3Q17 4Q17 Non-technical & taxes 1Q18 Amounts in m EUR 26

27 CZECH REPUBLIC BUSINESS UNIT CFO SERVICES CRO SERVICES BELGIUM CZECH REPUBLIC INTERNATIONAL MARKETS CORPORATE STAFF 27

28 Czech Republic BU (1): net result of 171m EUR Q17 2Q17 Amounts in m EUR NET RESULT Q17 4Q17 1Q18 Net result at the Czech Republic Business Unit of 171m EUR Q-o-q results were characterised by higher net interest income, higher net fee and commission income, lower but still good net results from financial instruments at fair value, stable net other income, an improved combined ratio, lower sales of life insurance products, higher operating expenses (due entirely to higher bank taxes) and lower impairment charges The net result rose by 2% q-o-q. Excluding the upfront booking of the bank tax in 1Q18, the net result was even up by 16% q-o-q Profit contribution from the insurance business remained limited in comparison to the banking business * Non-annualised ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos VOLUME TREND Excluding FX effect Total loans ** o/w retail mortgages Customer deposits*** AuM Life reserves Volume 23bn 11bn 31bn 9.7bn 1.2bn Growth q-o-q* +1% +1% +1% +1% +7% Growth y-o-y +5% +10% +3% +10% +13% 28

29 Czech Republic BU (2): higher NII and NIM NII Q17 Amounts in m EUR Q17 3Q17 4Q17 1Q18 Net interest income (248m EUR) Up by 6% q-o-q and by 15% y-o-y to 248m EUR. Corrected for FX effects, NII rose by 5% q-o-q and by 8% y-o-y pro forma The pro forma q-o-q increase was the result primarily of the positive impact of both short & long term increasing interest rates and the growth in retail loan volumes, which were partly offset by pressure on lending margins in mortgages and consumer finance Loan volumes up by 5% y-o-y, driven mainly by growth in mortgages and consumer finance and, to a lesser extent, in SME loans Customer deposit volumes up by 3% y-o-y NIM (pro forma for 2017*) 2.93% 2.91% 2.84% 2.95% 3.02% Net interest margin (3.02%) Up by 7 bps q-o-q and by 9 bps y-o-y to 3.02% The q-o-q increase was driven mainly by the positive impact of repo rate hikes, partly offset by pressure on lending margins The y-o-y increase was the result of the positive impact of repo rate hikes, partly offset by pressure on lending margins (especially in mortgages and consumer finance) 1Q17 2Q17 3Q17 4Q17 1Q18 * NIM is is calculated excluding the dealing room and the net positive impact of ALM FX swaps & repos 29

30 Czech Republic BU (3): higher net F&C income F&C (pro forma for 2017*) Amounts in m EUR Q17 2Q17 3Q17 4Q17 1Q18 F&C - network income F&C - banking & insurance * 2017 pro forma figures as the network income shifted from FIFV to net F&C as of 2018 Net fee and commission income (67m EUR) Rose by 5% q-o-q and by 19% y-o-y on a pro forma basis The q-o-q increase was driven by lower paid commissions to the Czech Post (from this year on, Czech Post receives more support than in the past, booked in opex). Besides this effect, there is impact of higher entry fees, higher securities-related fees, but lower fees from payment services (seasonal effect of Christmas) and lower fees from credit files & bank guarantees The y-o-y increase was attributable chiefly to higher management & entry fees, higher fees from payment services, higher securities-related fees and due to less fees paid to the Czech Post AuM Amounts in bn EUR Assets under management (9.7bn EUR) Increased by 1% q-o-q owing to net inflows (+2%) and a negative price effect (-1%) Y-o-y, assets under management rose by 10%, driven by net inflows (+6%) and a positive price effect (+4%) 1Q17 2Q17 3Q17 4Q17 1Q18 30

31 Czech Republic BU (4): higher premium income, good combined ratio PREMIUM INCOME (GROSS EARNED PREMIUM) Q17 2Q17 3Q17 4Q17 1Q18 Insurance premium income (gross earned premium) stood at 117m EUR Non-life premium income (57m) rose by 10% y-o-y excluding FX effect, due to growth in all products Life premium income (60m) went down by 39% q-o-q and increased by 17% y-o-y, excluding FX effect. Q-o-q decline entirely in unit-linked single premiums Life premium income Non-Life premium income COMBINED RATIO (NON-LIFE) 100% 93% 98% 97% 97% Combined ratio: 93% in 1Q18 (compared with 97% in FY17) due to very good claim experience (no large claims and mild winter) 1Q 1H 9M FY CROSS-SELLING RATIOS Mortg. & prop. Mortg. & life risk Cons. Fin. & life risk Cross-selling ratios remained at a good level 65% 61% 60% 47% 48% 45% 63% 57% 53% Q Q Q18 31

32 Czech Republic BU (5): higher opex due entirely to higher bank taxes, excellent credit cost ratio Q17 OPERATING EXPENSES Q17 3Q17 4Q17 Bank tax Operating expenses Q18 Operating expenses (189m EUR) Fell by 10% q-o-q and rose by 8% y-o-y, excluding FX effect and bank tax The q-o-q decrease excluding FX effect and bank tax was due mainly to traditionally lower marketing expenses and professional fees, lower ICT costs and facilities expenses in the first quarter The y-o-y increase excluding FX effect and bank tax was attributable primarily to higher staff expenses (mainly due to wage inflation) and higher support to the Czech Post (which is compensated by lower paid fee) Cost/income ratio at 47% in 1Q18. Adjusted for specific items, the C/I ratio amounted to roughly 42% in 1Q18 (and 43% in FY17) ASSET IMPAIRMENT Very limited loan loss provisions due to several releases (which almost fully offset the low gross impairments) 7 Impairment of 6m EUR on other as the result of a revaluation of leased cars in CSOB Leasing Credit cost ratio amounted to 0.01% in 1Q Q18 CCR 0.18% 0.18% 0.11% 0.02% 0.01% -1 1Q17 2Q17 3Q17 4Q17 1Q18 Impaired loans ratio stabilised at 2.4%, 1.6% of which over 90 days past due 32

33 INTERNATIONAL MARKETS BUSINESS UNIT CFO SERVICES CRO SERVICES BELGIUM CZECH REPUBLIC INTERNATIONAL MARKETS CORPORATE STAFF 33

34 International Markets BU (1): net result of 137m EUR Q17 Amounts in m EUR Q17 NET RESULT Q17 Bulgaria Ireland Hungary Q17 Slovakia 137 1Q18 Net result: 137m EUR The pro forma q-o-q results were characterised by: lower net interest income. NIM amounted to 2.88% in 1Q18 (2.84% in 4Q17) lower net fee and commission income (in BG & HU) higher result from financial instruments at fair value sharply higher net other income (especially in IRL, as 4Q17 was impacted by an additional provision related to the tracker mortgage review) a very good combined ratio of 86% (especially in HU & SK) higher life insurance sales (in SK & BG) higher costs due entirely to higher bank taxes higher net impairment releases Profit breakdown for International Markets (next slides): 23m EUR for Slovakia, 34m EUR for Hungary, 57m EUR for Ireland and 21m EUR for Bulgaria VOLUME TREND Excluding FX effect Total loans ** o/w retail mortgages Customer deposits*** AuM Life reserves Volume 24bn 15bn 23bn 4.5bn 0.7bn Growth q-o-q* 0% 0% +1% -11% +6% Growth y-o-y +13% +8% +24% -21%**** +7% * Non-annualised ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos **** The decrease can partly be explained by the divestment of KBC TFI in Poland in December 2017 (-0.93bn AuM in 4Q17) 34

35 International Markets BU (2): Slovakia 22 Amounts in m EUR 25 NET RESULT Q17 2Q17 3Q17 4Q17 1Q18 23 Net result of 23m EUR characterised by (pro forma q-o-q): slightly lower net interest income as volume growth was more than offset by margin pressure stable net fee & commission income as the strong performance in sales of mutual funds was offset by lower income from banking services lower net other income an excellent combined ratio (87% in 1Q18); roughly stable technical insurance result in life lower operating expenses driven by traditionally lower ICT & marketing expenses in the first quarter and lower staff expenses net impairment releases (mainly in consumer finance and leasing) credit cost ratio of -0.20% in 1Q18 VOLUME TREND Total loans ** o/w retail mortgages Customer deposits*** Volume 7bn 3bn 6bn Growth q-o-q* +1% +3% +3% Growth y-o-y +7% +12% +9% Volume trend: Total customer loans rose by 1% q-o-q and by 7% y-o-y, amongst other things due to the continuously increasing mortgage portfolio and consumer finance Total customer deposits rose by 3% q-o-q and by 9% y-o-y thanks to retail as well as corporates * Non-annualised ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos 35

36 International Markets BU (3): Hungary 20 1Q17 Amounts in m EUR 47 2Q17 NET RESULT Q17 4Q Q18 Net result of 34m EUR characterised by (pro forma q-o-q): lower net interest income due to a one-off effect (2m EUR) lower net fee and commission income as higher management fees were more than offset by traditionally lower fees from payment transactions in the first quarter higher net results from financial instruments thanks to higher M2M ALM derivatives higher net other income due to the sale of a building good non-life commercial performance y-o-y in all major product lines and growing average tariff in motor retail; an excellent combined ratio (84% in 1Q18); stable sales of life insurance products q-o-q lower operating expenses excluding bank tax (45m EUR) due mainly to lower staff & ICT expenses net impairment releases (mainly in retail and corporates) credit cost ratio of -0.44% in 1Q18 VOLUME TREND Excl. FX effect Total loans ** o/w retail mortgages Customer deposits*** Volume 4bn 2bn 7bn Growth q-o-q* 0% 0% -3% Growth y-o-y +11% +7% +6% Volume trend: Total customer loans stabilised q-o-q and rose by 11% y-o-y, mainly in mortgages and corporates Total customer deposits fell by 3% q-o-q, but rose by 6% y-o-y due to strong growth in corporates * Non-annualised ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos 36

37 International Markets BU (4): Ireland 67 1Q17 Amounts in m EUR 99 NET RESULT -1 2Q17 3Q17 4Q17 1Q18 VOLUME TREND 3 Total loans ** o/w retail mortgages Customer deposits*** Volume 11bn 10bn 6bn Growth q-o-q* -1% 0% +5% Growth y-o-y 0% +2% +8% * Non-annualised ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos Net result of 57m EUR characterised by (pro forma q-o-q): higher net interest income due mainly to lower funding costs net other income in 4Q17 was impacted by an additional provision of 61.5m EUR related to the industry-wide review of the tracker rate mortgage products originated in Ireland before 2009 higher operating expenses excluding bank tax due mainly to higher ICT expenses and regulatory levies (mainly CBI Industry Funding levy) lower net impairment releases (-43m EUR in 1Q18 compared with -52m EUR in 4Q17), as 4Q17 benefited from 31m EUR IBNR parameter changes. Releases in 1Q18 are driven by: o an increase in the 9-month average House Price Index and an improved portfolio performance o lower provisions on existing non-performing loans driven by improved macro-economic conditions and provision releases following deleveraging for corporates credit cost ratio of -1.36% in 1Q18 Volume trend: Total customer loans fell by 1% q-o-q and stabilised y-o-y. The q-o-q decrease resulted from the further deleveraging of the corporate loan portfolio Retail mortgages: new business (written from 1 Jan 2014) +7% q-o-q and +49% y-o-y, while legacy -2% q-o-q and -7% y-o-y Total customer deposits rose by 5% q-o-q and by 8% y-o-y

38 International Markets BU (5): Bulgaria Amounts in m EUR 4 5 NET RESULT 22 1Q17 2Q17 3Q17 4Q17 1Q Net result of 21m EUR Net result was characterised by (pro forma q-o-q): In banking (CIBank & UBB/Interlease): o slightly lower net interest income, as volume growth was more than offset by margin pressure o lower net fee and commission income due to traditionally lower fees from payment transactions in the first quarter o lower net results from financial instruments o lower operating expenses excluding bank tax due mainly to lower staff & ICT expenses o higher bank tax y-o-y due to UBB/Interlease acquisition o net impairment releases. Credit ratio of -1.09% in 1Q18 In insurance (DZI): higher net result o good earned premiums both in Life and Non-Life, offset by higher technical charges. Combined ratio amounted to 93% VOLUME TREND Excl. FX effect Total loans *** o/w retail mortg. Customer deposits**** Volume 3bn 1bn 4bn Growth q-o-q* +1% +1% +3% Growth y-o-y +231%** +239%** +396%** * Non-annualised ** Y-o-y growth excluding UBB/Interlease amounted to +11% for total loans, +20% for retail mortgages and +9% for customer deposits *** Loans to customers, excluding reverse repos (and bonds) **** Customer deposits, including debt certificates but excluding repos 38 Volume trend: Total customer loans rose by 1% q-o-q and by 231% y-o-y (11% y-o-y excluding UBB/Interlease), amongst other things due to the continuously increasing mortgage portfolio and a strong pick-up in corporates in 1Q18 Total loans: new business +3% q-o-q and +186% y-o-y, while legacy -7% q-o-q and +787% y-o-y Total customer deposits rose by 3% q-o-q and by 396% y-o-y (9% y-o-y excluding UBB/Interlease)

39 GROUP CENTRE CFO SERVICES CRO SERVICES BELGIUM CZECH REPUBLIC INTERNATIONAL MARKETS CORPORATE STAFF 39

40 Group Centre: net result of 5m EUR NET RESULT 5 Net result: 5m EUR The net result for the Group Centre comprises the results coming from activities and/or decisions specifically made for group purposes (see table below for components) Q17 2Q17 3Q17 4Q17 BREAKDOWN OF NET RESULT AT GROUP CENTRE 1Q18 The q-o-q improvement was attributable mainly to: o one-off upfront negative P&L impact of 126m EUR due to the Belgian corporate income tax reform in 4Q17 o higher NII due to lower debt costs (as a result of the call of the CoCo) o lower operating expenses o net impairment releases 1Q17 2Q17 3Q17 4Q17 1Q18 Group item (ongoing business) Operating expenses of group activities Capital and treasury management o/w net subordinated debt cost Holding of participations o/w net funding cost of participations Group Re Other Ongoing results of divestments and companies in run-down Total net result at GC Amounts in m EUR 40

41 Overview of results based on business units* NET PROFIT KBC GROUP Amounts in m EUR 2,639 2,575 2,427 1Q18 ROAC: 21% 1,762 2,129 2,035 1, 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 Q18 ROAC: 25% 1,165 1, ,223 1, Q Q-4Q 1Q 2Q-4Q 1Q Q Q18 * Note that the 1Q18 results & ROAC were impacted by the upfront booking of the bank tax 2Q-4Q 1Q 41

42 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 42

43 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% Loans** BE 1% Retail mortgages 0% Deposits*** 5% Loans** CZ 10% Retail mortgages 3% Deposits*** 7% Loans** Retail mortgages 9% Deposits*** 20% 11% 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 43

44 KBC Group Section 3 Strong solvency and solid liquidity 44

45 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 45

46 Fully loaded Basel 3 leverage ratio and Solvency II ratio Fully loaded Basel 3 leverage ratio at KBC Group 5.7% 5.8% 6.1% 5.7% 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 46

47 Solid liquidity position (1) KBC Bank continues to have a strong retail/mid-cap deposit base in its core markets resulting in a stable funding mix with a significant portion of the funding attracted from core customer segments & markets 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 47

48 Solid liquidity position (2) 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 48

49 KBC Group Section 4 1Q 2018 wrap up 49

50 1Q 2018 wrap up Strong commercial bank-insurance results inour core countries Successful earnings track record Solid capital and robust liquidity position 50

51 Looking forward 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 51

52 KBC Group Annex 1 Company profile 52

53 Business profile BREAKDOWN OF ALLOCATED CAPITAL BY BUSINESS UNIT AS AT 31 MARCH 2018 Czech Republic 16% Belgium 61% 20% International Markets 3% Group Centre 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 53

54 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 9% 7% * Only for retail segment 3% 7% 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% 3.4% 4.0% 3.6% 3.9% 3.3% 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% 54

55 Key strengths Well-developed bank-insurance strategy and strong cross-selling capabilities Strong commercial bank-insurance franchises in Belgium and the Czech Republic with stable and solid returns. The International Markets Business Unit also has become a strong contributor to the net result of KBC Group Successful earnings track record Solid capital and robust liquidity position 55

56 Shareholder structure SHAREHOLDER STRUCTURE AT END 1Q18 MRBB Cera 11.4% 2.7% Other core 7.4% KBC Ancora 18.5% 60.0% Free float 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 56

57 KBC Group going forward: 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, client-centric distribution approach By achieving this, KBC wants to become the reference in bank-insurance in its core markets 57

58 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 Belgium Level 3: Integrated distribution Acting as a single commercial company: bank and insurance operations working under unified governance and achieving commercial synergies Target for Central Europe 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 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. 58

59 More of the same but differently Integrated distribution model according to a real-time omni-channel approach remains key but client interaction will change over time. Technological development will be the driving force Human interface will still play a crucial role Simplification is a prerequisite: In the way we operate Is a continuous effort Is part of our DNA Client-centricity will be further fine-tuned into think client, but design for a digital world Digitalisation end-to-end, frontand back-end, is the main lever: All processes digital Execution is the differentiator Further increase efficiency and effectiveness of data management Set up an open architecture IT package as core banking system for our International Markets Unit Improve the applications we offer our clients (one-stop-shop offering) via co-creation/partnerships with Fintechs and other value chain players Investment in our digital presence (e.g., social media) to enhance client relationships and anticipate their needs Easy-to-access and convenientto-use set-up for our clients Clients will drive the pace of action and change Further development of a fast, simple and agile organisation structure Different speed and maturity in different entities/core markets Adaptation to a more open architecture (with easy plug in and out) to be future-proof and to create synergy for all 59

60 Summary of the guidance at KBC Group level as announced at our Investor Visit in June 2017 More of the same Guidance by 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 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 60

61 Summary of the guidance at KBC Group level as announced at our Investor Visit in June 2017 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 61 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

62 Digital Investments Cashflow = 1.5bn EUR Operating Expenses = 1bn EUR Regulatory driven developments (IFRS 9, CRS(*), MIFID, etc.) Regulatory 20% Strategic Growth 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. 62

63 Digital sales are increasing (examples: BU Belgium) Q1 Q2 Q3 Q4 Q Q1 Q2 Q3 Q4 Q Consumer loans Travel insurance Q1 Q2 Q3 Q4 Q1 0 Q1 Q2 Q3 Q4 Q Pension savings 63 Current accounts

64 Omnichannel is embraced by our customers (examples: BU Belgium) Digital signing after contact with the branches or KBC Live in Digital KBC Live increases, strong performance in non-life 90,00% 80,00% 70,00% 60,00% 50,00% 40,00% 30,00% 17Q1 17Q2 17Q3 17Q4 18Q1 Digital signing of consumer loans Digital signing of debt protect cover life insurance Digital signing mortgage loans Digital signing housing insurance Digital signing car insurance KBC Live cumulative sales Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mrt Non life insurance Life insurance Housing loans Consumer loans Investment plans 64

65 Impact of Basel 4 agreement On 7 December, the Basel Committee reached an agreement on the remaining Basel 3 post-crisis regulatory reforms (commonly known as Basel 4). The main elements of the Basel 4 agreement are: o credit risk: changes to the internal ratings-based approach and a revised standardised approach; o market risk: FRTB postponed to 2022; o operational risk: a revised and more risk sensitive standardised approach, replacing all existing approaches; o an aggregate output floor (gradually phased-in between 2022 and 2027), which will ensure that banks' risk-weighted assets based on internal models are not lower than 72.5% of RWAs as calculated by the revised standardised approaches For KBC Group, the RWA increase related to Basel 4 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%. This figure is based on our current interpretation of Basel 4, a static balance sheet and the current economic environment. It also does not take into account possible management actions We no longer see evidence that KBC is impacted significantly more than our peers. As a consequence, the 1% buffer for Basel 4 in our management targets is no longer required The Basel agreement now needs to be implemented in EU regulation (CRR/CRD package), which might influence (in a positive or negative way) the final impact for KBC Elements that are not included in above mentioned RWA impact (and which might affect KBC earlier): o o o the ongoing Targeted Review of Internal Models (TRIM) exercise by ECB; the potential impact of the EBA review of the IRB approach (PD & LGD estimation; treatment defaulted exposures); any impact on the Pillar 2 requirements (given that pillar 1 more adequately captures the risks) 65

66 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) 66

67 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

68 Capital distribution to shareholders The payout ratio policy (i.e. dividend + AT1 coupon) of at least 50% of consolidated profit is reconfirmed, with an annual interim dividend of 1 EUR per share being paid in November of each accounting year as an advance on the total dividend On top of the payout ratio of 50% of consolidated profit, each year, the Board of Directors will take a decision, at its discretion, on the distribution of the capital above the Reference Capital Position 68

69 The core of KBC s sustainability strategy (1) We apply strict sustainability rules to our business activities, in respect of human rights, environment, business ethics and social themes KBC is a market leader in socially responsible investments, offering a full range of SRI funds We contribute to the transition to a low-carbon economy by reducing our own environmental footprint, tightening our lending policy to the energy sector and taking initiatives to promote energy efficiency, renewable energy, etc. Limiting our adverse impact on society Increasing our positive impact on society Encouraging responsible behaviour on the part of all employees Sustainability goes beyond philanthropy and sponsorship We focus on a number of societal needs and actively respond to these needs by developing business solutions in which a bank-insurer can provide the elements that make a difference We defined the following focus domains: financial literacy, environmental responsibility, entrepreneurship, and demographic ageing and health Examples are given on the next slides The mindset of all KBC staff should go beyond regulation and compliance Responsible behaviour is a requirement to implement an effective and credible sustainability strategy Specific focus on responsible selling and responsible advice 69

70 The core of KBC s sustainability strategy (2) Our focus areas What? A few examples Financial literacy Environmental responsibility Helping clients make the right choices through good and transparent advice, and clear communication Improving general public knowledge of financial concepts and products Reducing our ecological footprint through a diverse range of initiatives and objectives Developing products and services that can make a positive contribution to the environment Around 200 lessons on financial subjects given by ČSOB employees at 50 different schools in 2017 Launch of an investors' club by K&H in Hungary, aimed at the younger generation so that they can learn more about investing, the financial markets, etc. Introduction of KBC Go Digital Intro in Belgium, in which clients can discover our digital offering Launch of Get-a-teacher by KBC in Belgium, to give schools the opportunity to extend financial knowledge by ordering a teacher from KBC Focusing on multi-mobility at KBC Autolease, including the development of bicycle leasing Signing the Green Deal for Circular Procurement to help achieve a more circular economy in Flanders Obtaining a Leadership A- score in the 2017 Carbon Disclosure Project Climate Change Programme 70

71 The core of KBC s sustainability strategy (3) Our focus areas What? A few examples Entrepreneurship Contributing to economic growth by supporting innovative ideas and projects Launching the e-stores programme in Bulgaria Rolling out Start from Belgium to other core countries KBC Match it, a digital platform for transferring businesses Providing capital for start-ups via the KBC Start it Fund Supporting local initiatives through the Bolero crowdfunding platform Encouraging clients to take the step to e-commerce via Storesquare, FarmCafe and similar initiatives Realising various European programmes to support small and micro businesses and SMEs Launching the KBC Service to Associations to encourage involvement in clubs, societies and associations in Belgium Demographic ageing and health We chose demographic ageing as the fourth pillar in Belgium and the Czech Republic We chose Health as the fourth pillar in Bulgaria, Slovakia, Hungary and Ireland Providing digitalisation lessons for over-55s in Belgium Providing financial and material assistance to sick children through the K&H MediMagic Programme in Hungary ČSOB is collaborating with the Centre of Health Economics and Management at the Faculty of Social Sciences at the Charles University in Prague Launch by ČSOB in the Czech Republic of the online portal Find your way through senior age in collaboration with the Sue Ryder Home advisory centre More information is available at under Corporate Sustainability. 71

72 KBC Group Annex 2 Other items 72

73 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 73

74 Ireland (1): 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 74 Looking forward, we are maintaining our impairment guidance for Ireland, namely a net release in a range of 100m-150m EUR for FY18

75 Ireland (2): 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) 75