Kbc Group N.v. · EURONEXT:KBC
Kbc — Debt Investor Presentation (March 2013)
56 slides from Kbc's debt investor presentation, Mar 14, 2013
Slide 1: Covered Bond Investor Presentation
COVERED BOND INVESTOR PRESENTATION 14 March 2013 0
Slide 2: Important information for investors
Important p information for investors • The information in this document has been prepared by KBC Bank NV (KBC Bank) solely for use at a presentation to be held in connection connection, inter alia alia, with a potential offering (the Offering) of Covered Bonds (the Covered Bonds) by KBC Bank. • In
Slide 3: Important information for investors
Important p information for investors • This presentation is provided for information purposes only. This presentation does not constitute an offer or invitation to sell, or any solicitation of any offer to subscribe for or purchase any securities securities, and nothing contained herein shall form
Slide 4: Executive summary
Executive summary y • KBC Bank has strong and diversified financial performance • g core banking Strong g operations p in Belgium g and CEE • Highly liquid – a loyal deposit base and low refinancing needs • Conservative risk profile – loan losses in Belgium of only 11 bps • Well capitalised – pro fo
Slide 5: Contents
Contents Page Number •1 Key highlights of KBC Group/Bank 4 •2 Overview of Belgian housing and mortgage market 19 •3 Review of Belgian covered bond legislation 26 •4 KBC Bank B k residential id ti l mortgage t covered dbbond d programme 32 •5 Appendices 40 4
Slide 6: Overview of KBC Group
Overview of KBC Group p • Strong bank-insurance group present with leading market positions in core geographies (Belgium and CEE) • A leading financial institution in both Belgium and the Czech Republic1 • Business focus on Retail, SME & Midcap clients • Unique selling proposition: in-depth knowledg
Slide 7: Well defined core markets provide access to 'new growth' in Europe
Well defined core markets provide access to ‘new growth’ g in Europe p BE¹ CZ SK HU BG 2 20% 20% KBC Group’s core markets Loans and deposits 10% 8% 2% arket share, as off end 2012 In Belgium and CEE-4 Investment 35% 30% 20% f d funds 8% 17% 13% Life 8% 5% 3% insurance IRELAND NETHERLANDS Ma 9% 11% N
Slide 8: Overview of key financial data at end 2012
Overview of key y financial data at end 2012 KBC Group p KBC Bank KBC Insurance • Market cap (05/03/13): 12bn • Underlying profit (Bank and AM): • Underlying profit: EUR 0.4bn EUR 1.1bn¹ • Underlying profit: EUR 1.5bn • Gross earned premium: EUR 3.0bn • Total assets: EUR 225bn • Non-life GWP: EUR 1.
Slide 9: RWA reduced by more than initially planned
RWA reduced by y more than initially y planned p • 35% reduction in risk weighted assets between the end of 2008 and 2012 due mainly to divestment activities • Divestments of KBC companies have taken place on a large scale since 2009: >20 entities KBC Group risk weighted assets (in bn EUR) Selected
Slide 10: Group's legal structure
Group’s p legal g structure Group’s legal structure KBC Group NV 100% 100% KBC Bank NV KBC Insurance NV Issuing Entity of Covered Bonds €1,258m Profitt attributable tto KBC Profitt attributable tto KBC €1,140m sset Management¹ anking and As Insurance €736m €404m €440m €364m Ba FY10 FY11 FY12 FY10 FY
Slide 11: Underlying earnings capacity remains strong through crisis
Underlying earnings capacity remains strong through g crisis Reported net profit 3,430 3,281 1,860 Losses on non-core structured credit 612 13 Excl. exceptional items -2,484 -2,466 Excl. exceptional items and FY06 FY07 FY08 FY09 FY10 FY11 FY12 cyclical effects of credit provisions Underlying net pro
Slide 12: Satisfying FY results in home markets
Satisfying y g FY results in home markets Underlying performance Underlying net profit - Belgium (retail) Underlying net profit - CEE 2012 ROAC: 25% Consistent performer 2012 ROAC: 37% 1.4 Consistent performer 0.6 0.6 1.1 1.1 1.1 0.6 0.6 1.1 1.1 1.0 1.0 0.5 0.1 0.1 0.4 0.1 0.1 0.3 0.1 0.8 0.2 0.3 20
Slide 13: Very low loan losses in Belgian operations
Very y low loan losses in Belgian g operations p FY12 FY 2011 FY 2010 FY 2009 credit dit costt credit dit costt credit dit costt credit dit costt A Average P k Peak ratio ratio ratio ratio 1999-2012 1999-2012 Belgium 0.11% 0.10% 0.15% 0.15% 0.15% 0.31% CEE 0.40% 1.59%¹ 1.16% 2.11% 1.04% 2.75% Mercha
Slide 14: Strong capital position
Strong g capital p p position Strong tier-1 ratio of 13.8% (14.6% pro forma) at KBC Group as at end 2012, after proposed gross dividend of 1.00 EUR per share Pro forma core tier tier-1 1 ratio of 12 12.5% 5% at KBC Group (including the impact of the signed divestments of Absolut Bank, NLB and a
Slide 15: Assessment of the State aid position repayment schedule
Assessment of the State aid position repayment p y schedule • KBC announced the accelerated full repayment of 3.0bn EUR of State aid to the Belgian Federal Government in December 2012, approved by the NBB, and its intention to accelerate repayment of 1.17bn EUR of State aid to the Fl i h Regional Fl
Slide 16: Assessment of state aid position (2)
Assessment of state aid p position ( (2) ) Overview of capital transactions with the Belgian State and the Flemish Regional Government Belgian State (Federal Holding and Investment Company) and Flemish Regional Government KBC Group NV issues 7bn EUR of non-voting core-capital instruments to the Belg
Slide 17: Estimated common equity at end 2013 Fully loaded B3
Estimated common equity at end 2013 Fully y loaded B31 B3 impact at numerator level (bn EUR) 11.9 11.8 • Fully loaded B3 1.5 -1.2 -0.6 0.1 common equity ratio of approx. 10.8% at end 2012 Look through Consensus Reimbursement Penalty on reimbursed Recuperation of DTAs Estimated common • Fully loaded
Slide 18: A solid liquidity position driven by a loyal deposit base
A solid liquidity position driven by a loyal deposit p base throughout g the crisis • 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 • KB
Slide 19: Low refinancing need compared to peers
Low refinancing g need compared p to p peers Breakdown funding maturity buckets 3Y senior debt interpolated credit spreads & 5Y covered bond spread 350 Breakdown funding maturity buckets 10.000 300 9.000 8.000 250 7.000 200 Millions EUR 6.000 bps 5.000 150 4.000 100 3.000 2.000 50 1.000 0 0 2013 201
Slide 20: Contents
Contents Page Number •1 Key highlights of KBC Group/Bank 4 •2 Overview of Belgian housing and mortgage market 19 •3 Review of Belgian covered bond legislation 26 •4 KBC Bank B k residential id ti l mortgage t covered dbbond d programme 32 •5 Appendices 40 19
Slide 21: Belgium outperforms EMU
Belgium g outperforms p EMU Challenging economic environment: Belgium outperforms • Wi h E With Europe still ill addressing dd i theh ffall-out ll off the h financial fi i l crisis, i i this hi also l affects ff B Belgium, l i b but the h country’s ’ economy iis demonstrating its habitual resilience
Slide 22: Demand for houses continues to be well supported
Demand for houses continues to be well supported pp Increasing demand for houses • Very high home ownership in Belgium is around 78%1. • Total outstanding mortgage debt is now at EUR 163bn. Total mortgage debt compared to GDP in Belgium i 46% and is d compares wellll tto other th E European countrie
Slide 23: Supply is subdued
Supply pp y is subdued Stable supply • Construction activity has remained relatively stable in the past decade • No building boom in Belgium, increase in price of land is indicator that supply is subdued. • Construction economy is only a fraction of GDP Building activity % of construction economy as
Slide 24: Belgian house prices are affordable
Belgian g house p prices are affordable Belgian housing market Mortgage market technicals2 • Belgian borrowers predominantly prefer to take out a longer • The average g Belgian g house is still affordable for the Belgian g fixed rate period. period A very high 61.5% 61 5% is fixed permanently and bo
Slide 25: KBC's disciplined origination leads to low arrears and loan losses
KBC’s disciplined origination leads to low arrears and extremely y low loan losses Belgium shows a solid performance of mortgages Arrears have been pretty stable over the past 10 years. Arrears in Belgium are low due to: • Cultural aspects, stigma associated with arrears, importance attached to owni
Slide 26: Low defaults, illustrated by KBC's securitisation transactions performance
Low defaults, illustrated by KBC’s securitisation transactions performance p Prudent origination and stable housing result in low defaults and high recovery Low cumulative default figures g on KBC Home loan Invest transactions. • Assets used in securitisation are similar to the cover assets • Defaul
Slide 27: Contents
Contents Page Number •1 Key highlights of KBC Group/Bank 4 •2 Overview of Belgian housing and mortgage market 19 •3 Review of Belgian covered bond legislation 26 •4 KBC Bank B k residential id ti l mortgage t covered dbbond d programme 32 •5 Appendices 40 26
Slide 28: Belgian legal framework
Belgian g legal g framework • Direct covered bond issuance from a bank’s balance sheet • Dual recourse, including recourse to a special estate with cover assets t included i l d d iin a register i t National Bank • The special estate is not affected by a bank insolvency of Belgium • Requires licence
Slide 29: Special estate - dual recourse
Special p estate - dual recourse General bank estate Covered bond insolvency regime • Material exception to ordinary rules: Covered Bond • Liquidation proceedings only affect the general estate Special estate • The special estate is not affected by the bank’s insolvency/liquidation Covered Bond • Th
Slide 30: Strong legal protection mechanisms
Strong g legal g p protection mechanisms 1 • The value of one asset category must be at least 85% of the nominal amount of covered bonds b d Collateral type • KBC Bank selects residential mortgage loans and commits that their value (including collections) will be at least 105% 2 • The value of the c
Slide 31: External supervision / management
External supervision p / management g • Provides a general and special authorization • The statutory auditor provides a report on the organisational capabilities of the issuer • Approves the appointment of the cover pool monitor By the • Appoints, if circumstances require so, the cover pool administ
Slide 32: Belgian covered bond legislation in comparison
Belgian covered bond legislation g in comparison p Belgium Netherlands France Germany UK Segregation of • Issuer holds assets • Cover pool assets • No segregation of • Issuer holds assets on • Cover pool assets sold to Cover Pool on balance sheet and assigned to SPE (which covered pool assets balanc
Slide 33: Contents
Contents Page Number •1 Key highlights of KBC Group/Bank 4 •2 Overview of Belgian housing and mortgage market 19 •3 Review of Belgian covered bond legislation 26 •4 KBC Bank B k residential id ti l mortgage t covered dbbond d programme 32 •5 Appendices 40 32
Slide 34: KBC Bank NV residential mortgage covered bond programme (1/2)
KBC Bank NV residential mortgage covered bond p programme g ( (1/2) / ) Issuer: • KBC Bank NV Main asset category: • min 105% of covered bond outstanding is covered by Residential Mortgage Loans Dual recourse • Parri passu with the other unsecured obligations of the Issuer (general bank estate) Stat
Slide 35: KBC Bank NV residential mortgage covered bond programme (2/2)
KBC Bank NV residential mortgage covered bond p programme g ( (2/2) / ) • Failure to pay any amount of principal on the Extended Final Maturity Date Events of default: • A default in the payment of an amount of interest on any interest payment date • Moody’s y Aaa R ti agencies: Rating i • Fitch AAA
Slide 36: Benchmark issuance KBC Covered bonds
Benchmark issuance KBC Covered bonds • Since establishment of the covered bond programme KBC has issued two Benchmark issuances: • The inaugural EUR covered bond was issued in December 2012 for an amount of EUR 1.25 billion with a 5 years maturity at Mid swaps+30bp • On 24th January 2013, KBC Bank l
Slide 37: Key characteristics of current cover pool (1/3)
Key y characteristics of current cover p pool ( (1/3) / ) Portfolio as of: 31 January y 2013 Total Outstanding Principal Balance 6,346,409,846 Total value of the assets for the over-collateralisation test 5,609,473,381 No of Loans No. 58 675 58,675 Average Current Loan Balance per Borrower 138,974 M
Slide 38: Key characteristics of current cover pool (2/3)
Key y characteristics of current cover pool p ( (2/3) / ) Repayment type (linear vs. annuity) Geographical allocation Linear Brussels Waals Brabant 3.7% Hoofdstedelijk 1% gewest 5% Oost- Vlaanderen Vlaams 18% Brabant 18% West- Vlaanderen 15% Luxemburg 0% Antwerpen 29% Annuity Henegouwen Limburg 96.3
Slide 39: Key characteristics of current cover pool (3/3)
Key y characteristics of current cover pool p ( (3/3) / ) Final Maturity date Seasoning 45 00 45.00 Weighted Average 40.00 Weighted Average Remaining Maturity: Seasoning: 237 months 35.00 60.00 22 months 30.00 50.00 25.00 40.00 % 20 00 20.00 30.00 15.00 % 20.00 10.00 10.00 5.00 0.00 0.00 2013 - 2017
Slide 40: Key messages
Key y messages g • KBC Bank has strong and diversified financial performance • Strong core banking operations in Belgium and CEE • Highly liquid – a loyal deposit base and low refinancing needs • Conservative risk profile – loan losses in Belgium of only 11 bps • Wellll capitalised W it li d – pro f
Slide 41: Contents
Contents Page Number •1 Key highlights of KBC Group/Bank 4 •2 Overview of Belgian housing and mortgage market 19 •3 Review of Belgian covered bond legislation 26 •4 KBC Bank B k residential id ti l mortgage t covered dbbond d programme 32 •5 Appendices 40 40
Slide 42: Appendices
Appendices pp Page Number •1 Initial mortgage selection criteria 41 •2 Underwriting and approval process 43 •3 Credit risk management 45 •4 Additional Additi l fi financial i l iinformation f ti on KBC 48 •5 Supplementary information on Belgian mortgage market 53 41
Slide 43: Mortgage selection criteria
Mortgage g g selection criteria • The Mortgage Loans have all been originated under the Mortgage Credit Act; • The Mortgage Loans and Related Security is governed by Belgian law; • The Mortgage Loans are granted with respect to Real Estate in Belgium; • The Mortgage Loans have all been originated on
Slide 44: Appendices
Appendices pp Page Number •1 Initial mortgage selection criteria 41 •2 Underwriting and approval process 43 •3 Credit risk management 45 •4 Additional Additi l fi financial i l iinformation f ti on KBC 48 •5 Supplementary information on Belgian mortgage market 53 43
Slide 45: Underwriting and approval process
Underwriting g and approval pp p process 4 steps in 1 registration system (“KPD”) in local branches Customer Credit Credit Step 4 Administration Step 1 Step 2 Step 3 Application pp Analysis y Decision Handlingg Standard Application pp Form Step 1 i. Information on the project (investment and financi
Slide 46: Appendices
Appendices pp Page Number •1 Initial mortgage selection criteria 41 •2 Underwriting and approval process 43 •3 Credit risk management 45 •4 Additional Additi l fi financial i l iinformation f ti on KBC 48 •5 Supplementary information on Belgian mortgage market 53 45
Slide 47: Start of credit risk monitoring: automatic processes
Start of credit risk monitoring: automatic processes p • Main risk warning signal : detection of arrears in payment • Monthly review of the credit portfolio : start of Monitoring phase if arrears > 5 days • Daily review of the credit portfolio : start of special follow-up phase if arrears = 45 days
Slide 48: Credit risk management: various phases
Credit risk management: various phases p Borrower Debtor The Step 1 Monitoring Special Possible Step 2 Step 3 Step 4 Irrevocable Step Step55 Written off Phase Mention Loss 5 days 45 days 90 days Termination – Legal proceedings Written Off • Arrears < 45 days; local branch is responsible for the • Ir
Slide 49: Appendices
Appendices pp Page Number •1 Initial mortgage selection criteria 41 •2 Underwriting and approval process 43 •3 Credit risk management 45 •4 Additional Additi l fi financial i l iinformation f ti on KBC 48 •5 Supplementary information on Belgian mortgage market 53 48
Slide 50: Loan book credit quality
Loan book credit quality q y Belgian NPL Progression (2010-2012) Loan Book Overview NPL ratio BELGIUM BU • Customer loan book: 128bn EUR at end 2012 1 6% 1.6% 1 6% 1.6% 1 6% 1.6% 1 6% 1.6% 1.6% 1 6% • 42% residential mortgages 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% • 3% consumer finance • 7% other retai
Slide 51: Legacy assets within investment portfolio
Legacy g y Assets within investment p portfolio Outstanding CDO Exposure Exposure¹ Outstanding CDO Exposure¹ • CDO exposure largely written down or Outstanding covered byy a State g guarantee €b as off end €bn d 2012 N ti Notional l markdowns kd Hedged Portfolio 10.1 -0.5 • The total notional amount
Slide 52: Government bond portfolio (KBC Group)
Government bond p portfolio ( (KBC Group) p) Notional investment of 47bn EUR in government bonds (excl. trading book) at end of 2012, primarily as a result of a significant excess liquidity position and the reinvestment of insurance reserves into fixed-income instruments GIIPS exposure down d by
Slide 53: Liquid asset buffer more than double short term funding needs
Liquid asset buffer more than double short term funding g needs Short term unsecured funding KBC Bank vs. Liquid assets as of end 20121,2 The available liquid assets further increased in comparison with the end of September 2012, due to the following factors: • Increasing investments in highly liqui
Slide 54: Appendices
Appendices pp Page Number •1 Initial mortgage selection criteria 41 •2 Underwriting and approval process 43 •3 Credit risk management 45 •4 Additional Additi l fi financial i l iinformation f ti on KBC 48 •5 Supplementary information on Belgian mortgage market 53 53
Slide 55: Lending market dominated by banks
Lending g market dominated by y banks Lending market dominated by banks Market Shares of Belgian Mortgage Market • The four biggest market participants, KBC Specialised Bank NV, Belfius, BNP Paribas Fortis and Insurance Mortgage ING control nearly y 70 p per cent of the Companies: Co pa es Companies
Slide 56: Contact Details
Contact Details Wim Allegaert Kurt de Baenst General Manager, Investor Relations Investor Relations Manager Email: wim.allegaert@kbc.be Email: kurt.debaenst@kbc.be Work: +32 (0) 2 429 5051 Work: +32 (0) 2 429 3573 Mobile: +32 (0) 474 97 74 33 Mobile: +32 (0) 472 50 04 27 Mark Stout Enzo Soi Manager,