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KBC Group / BankDebt presentationAugust 2018
KBC Group - Investor Relations Office – Email:More infomation: www.kbc.com
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This presentation is provided for information purposes only. It does not constitute an offer to sell or the solicitation to buy anysecurity issued by the KBC Group.
KBC believes that this presentation is reliable, although some information is condensed and therefore incomplete. KBC cannot beheld 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 capitaltrends of KBC, involving numerous assumptions and uncertainties. There is a risk that these statements may not be fulfilled andthat future developments differ materially. Moreover, KBC does not undertake any obligation to update the presentation in linewith new developments.
By reading this presentation, each investor is deemed to represent that it possesses sufficient expertise to understand the risksinvolved.
Important information for investors
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Market share (end ’17) BE CZ SK HU BG IRL
Loans and deposits
Investment funds
Life insurance
Non-life insurance
KBC PassportWell-defined core markets: access to ‘new growth’ in Europe
GDP growth: KBC data, August ‘18 * Retail segment
10%20% 20%
11% 8%11%
33% 22% 13%7% 13%
3%8%14%4%
21%
9% 7%3%
7% 11%
Real GDP growth BE CZ SK HU BG IRL
% of Assets
2017
2018e
2019e
4%
66%
3%19% 3% 2%
3.6%4.6%1.7% 3.4% 4.0%
7.8%
3.9%1.6%
3.2% 3.5%3.6%6.0%
3.4%1.5% 2.7% 3.7% 3.4% 4.0%
IRELAND
BELGIUMCZECH REP
SLOVAKIA
HUNGARY
BULGARIA
*3.5m clients659 branches98bn EUR loans133bn EUR dep.
0.3m clients16 branches12bn EUR loans5bn EUR dep.
3.7m clients270 branches24bn EUR loans30bn EUR dep.
0.6m clients122 branches7bn EUR loans6bn EUR dep.
1.8m clients207 branches5bn EUR loans7bn EUR dep.
1.4m clients236 branches3bn EUR loans4bn EUR dep.Belgium
Business Unit
CzechRepublicBusiness Unit
InternationalMarkets Business Unit
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KBC Group NV
KBC Bank KBC Insurance
100%100%
KBC IFIMA*
* All debt obligations of KBC IFIMA are unconditionally and irrevocably guaranteed by KBC Bank.
Retail and Wholesale EMTN
AT 1 Tier 2 Senior
Covered bond No public issuance
KBC Asset Management
48%
52%
No public issuance
MREL
KBC PassportGroup’s legal structure and issuer of debt instruments
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Contents
1 Strategy and business profile
Financial performance
3 Balance sheet
4 Solvency and liquidity
5 MREL strategy
Appendices
6 Wrap up & looking forward Roughly 40% of KBC shares are owned by a syndicate of core
shareholders, providing continuity to pursue long-term strategicgoals. Committed shareholders include the Cera/KBC AncoraGroup (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
2
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KBC Group in a nutshell (1)
We want to be among Europe’s best performing financial institutions! By achieving this, KBC wants to become the reference in bank-insurance in its core markets• We are a leading European financial group with a focus on providing bank-insurance products and services to
retail, SME and mid-cap clients, in our core countries: Belgium, Czech Republic, Slovakia, Hungary, Bulgaria andIreland.
Diversified and strong business performance… geographically
• Mature markets (BE, CZ, IRL) versus developing markets (SK, HU, BG)• Economies of BE & 4 CEE-countries highly oriented towards Germany, while IRL is more oriented to the UK & US• Robust market position in all key markets & strong trends in loan and deposit growth
… and from a business point of view• An integrated bank-insurer• Strongly developed & tailored AM business• Strong value creator with good operational
results through the cycle• Unique selling proposition: in-depth
knowledge of local markets and profound relationships with clients
• Integrated model creates cost synergies and resultsin a complementary & optimised product offering
• Broadening ‘one-stop shop’ offering to our clients
Diversification Synergy
Customer Centricity
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High profitability
Solid capital position…
FY17
Net result
EUR 2575m 17%
ROE
55% 88%
C/I ratio Combined ratio
1H18
EUR 1248m 16%56% 88%
CET1 generationbefore any distribution
20172015
279 bps
2016
296 bps 277 bps
Fully loaded Basel 3 CET1 ratio of KBC Group (Danish Compromise)
14.0% ‘Own Capital Target’
10.6% regulatory minimum
15.8%
FY171Q17
15.7%
1Q181H17 9M17 1H18
15.7% 15.9% 16.3% 15.9%
134%
NSFR
139%
LCR
136% 139%
… and robust liquidity positions
FY171H18
KBC Group in a nutshell (2)
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• Every year, we assess the CET1 ratios of a peergroup of European banks active in the retail, SMEand corporate client segments. We positionourselves on the fully loaded median CET1 ratio ofthe peer group (14% at end of 2017)
• We want to keep a flexible buffer of up to 2% CET1for potential add-on M&A in our core markets
• This buffer comes on top of our ‘Own CapitalTarget’ and all together forms the ‘ReferenceCapital Position’
• Any M&A opportunity will be assessed subject tovery strict financial and strategic criteria
Own capital target=
Median CET1 Peers (FL)
2017
2.0%
14.0%
‘Reference Capital Position’
= 16.0%
Flexible buffer for M&A
We aim to be one of the better capitalised financial institutions in Europe
• Payout ratio policy (i.e. dividend + AT1 coupon) of at least 50% of consolidated profit• Interim dividend of 1 EUR per share 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‘
Capital distribution to shareholders
KBC Group in a nutshell (3)
9
More of the same, but differentlyWants 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
10
Our bank-insurance modelIn different countries and different stages of implementation
Bank branches selling insurance products from intra-group insurance company as
additional source of fee income
Bank branches selling insurance products of third party insurers as
additional source of fee income
Acting as a single operational company: bank and insurance operations working under unified governance and achieving commercial and non-
commercial synergies
Acting as a single commercial company: bank and insurance operations working under unified governance and achieving
commercial synergies
Level 4: Integrated distribution and operation
Level 3: Integrated distribution
Level 2: Exclusive distribution
Level 1: Non-exclusive distribution
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.
Belgium
Target for Central Europe
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SustainablityThe core of our sustainability strategy
Increasing ourpositive impact
on society
Encouraging responsiblebehaviour on the part of
all employees
Limiting ouradverse impact
on society
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
Four focus domains that are close to our core activities
Financial literacy
Environmentalresponsibility
Stimulating entrepreneurship
Longevity or health
Strict policies for our day-to-day activities
Focus on sustainable investments
Reducing our own environmental footprint
2018 achievements:• Launch of the first Belgian Sustainable Pension Savings Fund for private individuals• Successful launch of the Green Bond Framework and issue of the Inaugural Green Bond of 500m EUR• SRI funds increased to 8.3 bn EUR by the end of 1H18• Updated KBC Sustainability Policies• KBC/CSOB announced to stop financing of Coal Fired Power Generation and Coal mining (current exposure phases out in 2023)
Please find more info in our 2017 Sustainability Report
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SustainablityOur non-financial environmental targets
Indicator Goal 2017 2016Share of renewables in total energy credit portfolio
Minimum 50% by 2030 41.2% 42.1%
Financing of coal-related activities Immediate stop of coal-related activities and gradual exit in the Czech Republic by 20231
Progress in line with target See 2018 achievements
Progress in line with target
Total GHG emissions (excluding commuter travel)
25% reduction by 2020 relative to 2015, both absolute and per FTE Long term target for a 50%-decrease by 2030
-28.9% (absolute)-28.2% (per FTE)
-14.03% (absolute)-14.1% (per FTE)
ISO 14001-certified environmental management system
ISO 14001 certification in all core countries at the end of 2017
All 6 core countries certified
Belgium, Slovakia, Hungary and Bulgaria
Business solutions in each of the focus domains
Develop sustainable banking and insurance products and services to meet a range of social and environmental challenges
See 2017 Sustainability & Annual Report for examples
For examples: seeSustainability & Annual Report 2016
Volume of SRI funds 10 billion EUR by end 20202 7.1 billion EUR 2.8 billion EUR
Awareness of SRI among both our staff and clients
Increase awareness and knowledge of SRI 100% awareness among Belgian sales teams through e-learning courses
Progress in line with target
(1) Except for financing of existing coal-fired district heating plants until 2035 under strict conditions, i.e. only to assist further ecological upgrades(2) Our initial target of 5 billion EUR by the end of 2018 had already been met by mid-2017
85/100 (Sector Leader) C (Prime, best in class) A- (Leadership)74
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SustainabilityFirst green bond issuance
On 23 May 2018, the Climate Bonds Standard Board approved the certification of the proposed KBC Green Bond
Application was made on the basis of the proposed inaugural allocation, focused on renewable energy and green residential real-estate loans
Certification
Verification
One year after issuance and until maturity, a limited assurance report on the allocation of the Green Bond proceeds to Eligible Assets to be provided by an external auditor
To be published on KBC website
KBC GREEN PORTFOLIO APPROACH
Green Bond
portfolio Green Bond
funding
Inclusion of existing and new Green Assets
KBC will ensure the availability of sufficient Green Assets to match Green funding
Deletion of ineligible or amortising Green Assets
At a first stage, in the context of the inaugural Green Bond, KBC allocated theproceeds to two green asset categories: renewable energy and residential real-estate loans.
Within those categories, KBC has identified more than EUR 1.3 billion of GreenAssets within its private and corporate client business lines in Belgium.
For future transactions, in cooperation with the relevant business teams, KBCaims to capture more green assets from other categories and expand the greeneligibility to more business lines and clients.
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More of the same… but differently…Enhanced channels for empowered clients
Creating superior client satisfaction via a seamless, multi-channel client-centric
distribution approach
Real time
Enhanced channels for empowered clients
Investing €1.5bn cash-flow (2017-20):• Further optimise our integrated distribution
model according to a real-time omni-channel approach
• Prepare our applications to engage with Fintechs and other value chain players
• Invest in our digital presence (e.g., social media) to enhance client relationships and anticipate their needs
• Further increase efficiency and effectiveness of data management
• Set up an open architecture IT package as core banking system for our International Markets Business Unit
Operating Expenses 2017-2020 = 1bn EUR
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Guidance
CAGR total income (‘16-’20)* ≥ 2.25% by 2020
C/I ratio banking excluding bank tax ≤ 47% by 2020
C/I ratio banking including bank tax ≤ 54% by 2020
Combined ratio ≤ 94% by 2020
Dividend payout ratio ≥ 50% as of now
* Excluding marked-to-market valuations of ALM derivatives
Regulatory requirements
Common equity ratio* excluding P2G ≥ 10.6% by 2019
Common equity ratio* including P2G ≥ 11.6% by 2019MREL ratio ≥ 25.9% by May ‘19NSFR ≥ 100% as of nowLCR ≥ 100% as of now
* Fully loaded, Danish Compromise. P2G = Pillar 2 guidance.
KBC the reference…Group financial guidance (Investor visit 2017)
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Non-financial guidance: % Inbound contacts via omni-channel and digital channel*
KBC Group** > 80% by 2020
Non-financial guidance: CAGR Bank-Insurance clients (1 bank product + 1 insurance product)
BU BE > 2% by 2020
BU CR > 15% by 2020
BU IM > 10% by 2020
Non-financial guidance: CAGR Bank-Insurance stable clients (3 bk + 3 ins products in Belgium; 2 bk + 2 ins products in CEE)
BU BE > 2% by 2020
BU CR > 15% by 2020
BU IM > 15% by 2020
• Clients interacting with KBC through at least one of the non-physicalchannels (digital or through a remote advisory centre), possibly in additionto contact through physical branches. This means that clients solelyinteracting with KBC through physical branches (or ATMs) are excluded
** Bulgaria & PSB out of scope for Group target
KBC the reference…Group non-financial guidance (Investor visit 2017)
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Contents
2
Strategy and business profile1
Financial performance
3 Balance sheet
4 Solvency and liquidity
5 MREL strategy
Appendices
6 Wrap up & looking forward
BREAKDOWN OF ALLOCATED CAPITAL BY BUSINESS UNIT AS AT 30 JUNE 2018
61%
16%
20%
3%
Belgium
Czech Republic
International Markets
Group Centre
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Commercial bank-insurance franchises in coremarkets performed well
Customer loans and customer depositsincreased in all business units
Good net interest income and net interestmargin
Lower net fee and commission income
Less net gains from financial instruments atfair value and net other income
Excellent sales of non-life insurance and highersales of life insurance y-o-y
Costs excluding bank tax seasonally up
Net impairment releases on loans
Solid solvency and liquidity
Share buy-back concluded (-0.2% CET1 impact)
Interim dividend of 1 EUR per share in Nov’18Comparisons: versus the previous quarter, unless otherwise mentioned
KBC Group2Q 2018 key takeaways
Good net result of 692mEUR in 2Q18
ROE 16%* Cost-income ratio 56% (excl. specfic items)
Combined ratio 88% Credit cost ratio -0.10% Common equity ratio 15.8% (B3, DC, fully loaded)
Leverage ratio 6.0% (fully loaded)
NSFR 136% & LCR 139%
1H18
2Q181Q181Q17 2Q17 3Q17 4Q17
630
855
691
399
556
692
* ROE including pro rata bank taxes amounted to 17% in 1H18
2Q18 financial performance
19
Main exceptional items
2Q18 1Q18
BU B
EBU
IMG
C
Opex - Facility expenses
Total Exceptional Items BU BE
- 12m EUR+18m EUR
Hungary - NOI - Sale of building +7m EUR
-37m EUR +20m EUR +40m EUR
Total Exceptional Items BU IM
DTA KBC Lease UK +7m EUR
Total Exceptional Items GC
Total Exceptional Items (pre-tax)
Total Exceptional Items (post-tax) -37m EUR +19m EUR +35m EUR
2Q17
Ireland - Provision release on back of model recalibration +40m EUR
NOI – Settlement of old legal file -38m EUR
1m EUR 6m EUR
7m EUR 40m EUR
-38m EUR 7m EUR
Net other income (NOI) - Settlement of old legal file+1m EUR
20
Net result at KBC Group
* Difference between net result at KBC Group and the sum of the banking and insurancecontribution is accounted for by the holding-company/group items
CONTRIBUTION OF BANKING ACTIVITIES TO KBC GROUP NET RESULT*
2Q18
692
399
1Q17 2Q17 3Q17 4Q17
691
1Q18
630
855
556
NET RESULT AT KBC GROUP*
3Q17
750
1Q17 2Q17 4Q17
461
1Q18 2Q18
526575
330
574
61 82 93 84 75113
7864
96
27 42
74
-29 -33 -52 -34 -32
111
2Q17
-15
4Q171Q17 3Q17 1Q18 2Q18
102113
137
78
155
CONTRIBUTION OF INSURANCE ACTIVITIES TO KBC GROUP NET RESULT*
Amounts in m EUR
Non-Life result Non-technical & taxes
Life result
21
Good net interest income and net interest margin
Net interest income (1,117m EUR)• Down by 1% q-o-q and up by 2% y-o-y. Note that NII banking
slightly increased q-o-q and rose by 5% y-o-y• The small q-o-q decrease was driven primarily by:
o lower netted positive impact of ALM FX swapso lower reinvestment yieldso more pressure on commercial loan margins in most core
countriespartly offset by:o lower funding costs (due mainly to the call of the CoCo)o continued good loan volume growtho small additional positive impact of both short- & long-term
interest rate increases in the Czech Republico 1 day extra
Net interest margin (2.00%)• Down by 1 bp q-o-q due mainly to a slight increase in interest-
bearing assets• Up by 4 bps y-o-y thanks to lower funding costs and the
positive impact of repo rate hikes in the Czech Republic
NIM (pro forma for 2017***)
NII (pro forma for 2017*)
907 928 946 952 970 972
143 142 144 135 128 12428 21 22 47 27 19
3Q17
233
1Q17
3
2Q17 4Q17
0
1Q18
1
2Q18
1,081 1,094 1,114 1,1251,137 1,117
1Q181Q17
1.96%
3Q17 2Q182Q17 4Q17
1.93% 1.96% 1.97% 2.01% 2.00%
Amounts in m EUR
NII - netted positive impact of ALM FX swaps**NII - Holding-company/group NII - Banking
NII - Insurance
* 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
* Non-annualised ** Loans to customers, excluding reverse repos (and bonds) *** Customer deposits, including debt certificates but excluding repos. Customer deposit volumes excluding debt certificates & repos +3% q-o-q and +6% y-o-y
VOLUME TREND Total loans** o/w retail mortgages Customer deposits*** AuM Life reserves
Volume 145bn 60bn 193bn 214bn 29bn
Growth q-o-q* +3% +1% +3% 0% 0%
Growth y-o-y +5% +3% +2% 1% -1%
22
Lower net fee and commission income
Amounts in bn EUR
AuM*214 213 215 217 213 214
4Q17 1Q183Q171Q17 2Q17 2Q18
* Note that 2017 AuM figures were reduced due to a roughly 2bn EUR adjustment inInstitutional Mandates
323 314 295 301 299 281
208 213 213 229 215 223
-69 -73 -74 -75 -64 -66
463
4Q171Q17 2Q17 3Q17 1Q18 2Q18
438454 433 456 450
Distribution Banking services Asset management services
Amounts in m EUR Net fee and commission income (438m EUR)• Down by 3% q-o-q and by 4% y-o-y• Q-o-q decrease was the result chiefly of:
o lower entry fees from mutual funds and unit-linked lifeinsurance products
o lower securities-related feeso slightly lower management fees and stable management
fee margino higher commissions paid on insurance salespartly offset by:o higher fees from payment serviceso higher fees from credit files & bank guarantees
• Y-o-y decrease was mainly the result of:o lower entry fees (as 2Q17 benefited from the launch of
Expertease in Belgium)o lower securities-related feeso slightly lower management feeso lower fees from credit files & bank guaranteespartly offset by:o higher fees from payment serviceso the contribution of UBB/Interleaseo lower commissions paid on insurance sales
Assets under management (214bn EUR)• Stabilised q-o-q• Rose by 1% y-o-y owing entirely to a positive price effect• The mutual fund business has seen net outflows, mainly in
group assets and investment advice
F&C (pro forma for 2017*)
* 2017 pro forma figures as the network income shifted from FIFV to net F&C as of 2018
23
Insurance premium income (gross earned premiums) at 707m EUR• Non-life premium income (392m) increased by 6%
y-o-y• Life premium income (315m) down by 6% q-o-q
and up by 18% y-o-y
The non-life combined ratio at 1H18amounted to 88%, an excellent numberdespite high technical charges in 1Q18 duemainly to high storm claims in Belgium andthanks to low technical charges in 2Q18
Insurance premium income up y-o-y and excellent combined ratio
COMBINED RATIO (NON-LIFE)
PREMIUM INCOME (GROSS EARNED PREMIUMS)
1Q
83%
1H
88%84%
9M FY
79%90% 88%
2017 2018
360 369 378 384 378 392
312 267 282410 336 315
2Q171Q17
636
3Q17 4Q17 2Q181Q18
672 660
794714 707
Life premium income Non-Life premium income
Amounts in m EUR
24
Non-life and life sales up y-o-y
Sales of non-life insurance products• Up by 7% y-o-y thanks to a good commercial
performance in all major product lines in our coremarkets and tariff increases
Sales of life insurance products• Decreased by 14% q-o-q and up by 3% y-o-y• The q-o-q decrease was primarily due to lower sales of
unit-linked products in Belgium• The y-o-y increase was driven mainly by higher sales of
guaranteed interest products in Belgium• Sales of unit-linked products accounted for 39% of total
life insurance sales
LIFE SALES
NON-LIFE SALES (GROSS WRITTEN PREMIUM)
207 193 187270 219 165
267 222 218
318279
261
415
1Q181Q17
474
2Q17 4Q173Q17 2Q18
405
588498
426
Guaranteed interest products Unit-linked products
468
358 349 342
492
382
3Q171Q17 2Q17 4Q17 1Q18 2Q18
Amounts in m EUR
25
Lower FV gains, higher other net income
The lower q-o-q figures for net gains fromfinancial instruments at fair value wereattributable mainly to:• a negative change in market, credit and funding value
adjustments (mainly as a result of changes in theunderlying market value of the derivative portfolio)
• lower dealing room income
Other net income amounted to 71m EUR,higher than the normal run rate of around 50mEUR due to the settlement of an old legal file inBelgium and the sale of a building in Hungary
FV GAINS (pro forma for 2017*)
Amounts in m EUR
19 21 17 19
73110
86
7194 73
11112
1Q17
7
2Q17 3Q17 4Q17
4
1Q18
130
180
94118
96
77
47
4
-14
71
3Q17 4Q171Q17 2Q17 1Q18
OTHER NET INCOME
Net result on equity instruments (overlay insurance)Other FV gainsM2M ALM derivatives
* 2017 pro forma figures as:1) the impact of the FX derivatives was ‘netted’ in NII as of 2018 2) the shift from realised gains AFS shares and impairments on AFS shares to FIFV due to IFRS 9 (overlay approach for insurance)
26
Lower FV gains and other net income
The lower q-o-q figures for net gains fromfinancial instruments at fair value wereattributable mainly to:• a negative change in ALM derivatives• a negative change in market, credit and funding value
adjustments (mainly as a result of changes in theunderlying market value of the derivatives portfolio,increased credit spreads and model changes)
• lower dealing room income in the Czech Republicpartly offset by• higher net result on equity instruments (insurance)
Other net income amounted to 23m EUR, lowerthan the normal run rate of around 50m EURdue to the settlement of an old legal file in theGroup Centre
FV GAINS (pro forma for 2017*)
Amounts in m EUR
19 21 19 33
73 35110
86
71 94 73
1 417 712
1Q17 2Q17
11
118
3Q17 4Q17 1Q18-14
2Q18
130
180
94 9654
77
47
4
-14
71
23
4Q171Q17 3Q172Q17 1Q18 2Q18
OTHER NET INCOME
Other FV gainsM2M 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 2018 2) the shift from realised gains on AFS shares and impairments on AFS shares to FIFV
due to IFRS 9 (overlay approach for insurance)
27
Operating expenses down due entirely to lower bank taxes, good cost/income ratio
Cost/income ratio (banking) adjusted for specificitems* at 58% in 2Q18 and 56% YTD• Operating expenses excluding bank tax went up by 2%
q-o-q due mainly to:o seasonal effects such as traditionally lower ICT,
marketing and professional fee expenses in 1Q18o higher staff expenses in Belgium and the Czech
Republic (mostly due to wage inflation)
• Operating expenses without bank tax increased by 6%y-o-y due chiefly to the consolidation of UBB/Interlease,higher ICT costs, higher marketing expenses and higherdepreciation & amortisation costs (due to thecapitalisation of some projects)
• Pursuant to IFRIC 21, certain levies (such ascontributions to the European Single Resolution Fund)have to be recognised in advance, and this adverselyimpacted the results for 1Q18. The y-o-y increase canmainly be explained by the consolidation of UBB
• Total bank taxes (including ESRF contribution) areexpected to increase from 439m EUR in FY17 to 461mEUR in FY18, although still subject to changes
OPERATING EXPENSES
868 891 896 980 920 942
361 371
2Q181Q181Q17
1941
2Q17
18
4Q173Q17
24
1,229
910 9141,021
1,291
966
Bank tax Operating expenses
* See glossary (slide 80) for the exact definition** Still subject to changes*** The C/I ratio adjusted for specific items of 56% in 1H18 amounts to roughly 50% excluding these bank taxes
Amounts in m EUR
TOTAL Upfront Spread out over the year
2Q18 1Q18 2Q18 1Q18 2Q18 3Q18e 4Q18e
BU BE -4 273 -4 0 0 0 0
BU CZ 1 29 1 0 0 0 0
Hungary 22 26 0 19 22 21 22
Slovakia 4 3 0 4 4 4 4
Bulgaria 1 14 1 0 0 0 0
Ireland 0 3 0 1 0 1 14
GC 0 0 0 0 0 0 0
TOTAL 24 347 -2 24 26 25 40
EXPECTED BANK TAX SPREAD IN 2018 (PRELIMINARY)**
Bank taxes of 395m EUR YTD. On a pro rata basis, bank taxes represented 11.0% of 1H18 opex at KBC Group***
28
Net impairment releases, excellent credit cost ratio and improved impaired loans ratio
Very low asset impairments• This was attributable mainly to:
o net loan loss impairment releases in Ireland of 39m EUR(compared with 43m in 1Q18)
o also small net loan loss impairment reversals in the CzechRepublic, Hungary, Bulgaria and Group Centre
partly offset byo additional loan loss impairments of 26m EUR in Belgium on
corporate files
• Impairment of 20m on ‘other’, of which:o 13m EUR in the Czech Republic mostly resulting from a
review of residual values of financial car leases under short-term contracts
o 6m EUR in Bulgaria mainly on a legacy property file
The credit cost ratio amounted to -0.10% in 1H18 due tolow gross impairments and several releases
The impaired loans ratio improved to 5.5%, 3.2% ofwhich over 90 days past due
ASSET IMPAIRMENT
1532 20
15
-30 -21
8
2
-63-1
61
31
6
1Q17
7
-78
3Q172Q17 4Q17 1Q18 2Q18-71
-56
IMPAIRED LOANS RATIO
4Q17
3.2%
3Q17
3.9%
2Q18
3.6%
1Q17
3.4%
2Q17
6.9%
3.7% 3.5%
1Q18
6.8% 6.6%6.0% 5.9% 5.5%
CREDIT COST RATIO
FY17
0.23%
FY14 1H18
0.09%
FY15 FY16
0.42%
-0.06%-0.10%
Impaired loans ratio of which over 90 days past due
Other impairments Impairments on financial assets at AC* and FVOCI* AC = Amortised Cost. Under IAS 39, impairments on L&R
29
NET PROFIT – BELGIUM NET PROFIT – CZECH REPUBLIC
703 858579
785
680
812706
853790
20152014 2016 2017
1,4321,515
1H18
1,564 1,575
1H18 ROAC: 21%
Amounts in m EUR
277 271 320 364
316251 271276
338528
596
2014 2015 2016 2017 1H18
542
702
1H18 ROAC: 37%
NET PROFIT – INTERNATIONAL MARKETS
92183
292
299
-203
153
245152
2015
21
20172014 2016
245
1H18-182
428 444
1H18 ROAC: 28%
Overview of contribution of business units to 1H18 result
2H 1H 2H 1H
2H 1H
NET PROFIT – KBC GROUP
681
1,314
1,113
2014
1,082
1,463
2015 2016
1,176
1,090
1,485
2017 1H18
1,762
2,4272,639 2,575
1,248
1H18 ROAC: 23%
2H 1H
30
Contents
3
Strategy and business profile1
Financial performance2
Balance sheet
4 Solvency and liquidity
5 MREL strategy
Appendices
6 Wrap up & looking forward
31
Y-O-Y ORGANIC* VOLUME GROWTH
4%
BE
* 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 Bulgaria: new business (written from 1 Jan 2014) +7% y-o-y, while legacy -29% y-o-y***** Retail mortgages in Ireland: new business (written from 1 Jan 2014) +43% y-o-y, while legacy -8% y-o-y
1%
5%
Deposits***Loans** Retail mortgages
2%
Loans**
6%
Retail mortgages
Deposits***
5%
9%
3%
Deposits***Loans**
4%
Retail mortgages****
3%
13%
Loans** Retail mortgages
9%
Deposits***
7%
13%
Loans** Retail mortgages
6%
Deposits***
12%
CR
2%
Deposits***Loans** Retail mortgages*****
-1%
3%
3%
Retail mortgages
5%
Loans** Deposits***
2%
Balance sheet:Loans and deposits continue to grow in most core countries
32
Balance sheet KBC Group consolidated at 30 June 2018
74
62
145
146
Total assets (EUR 302bn)
Other (incl. interbank loans, reverse repos, property & equipment etc...)
Loan book (loans and advances to customers)
Investment portfolio (equity and debt securties)
Trading assets
Insurance investment contracts
62
192919
154
136
Total liabilities and equity (EUR 302bn)
Deposits from customers
Other MREL instruments and debt certificates
Equity (including AT1)
Technical provisions, before reinsurance NL and L
Liabilities under insurance investment contracts
Trading liabilities
Other (incl. interbank deposits)
Credit qualityCapital adequacy &liquidity position
33
Sectorial breakdown of outstanding loan portfolio(167bn EUR*) of KBC Bank Consolidated
11%
7%
15%
7%
8%4%4%
3%
39%
Building & construction
Services
Agriculture, farming, fishingAuthorities
Private Persons
Distribution
2%
Rest
Real estate
Finance & insuranceAutomotive
Metals
1.6%
Electricity
1.5%
1.2%
5.1%
Food producers
1.5%
0.7%
Other sectors
1.0%
Chemicals
1.1%Machinery & heavy equipment
Shipping 0.8%
Hotels, bars & restaurantsOil, gas & other fuels
* It includes all payment credit, guarantee credit (except for confirmations of letters of credit and similar export/import related commercial credit), standby credit and credit derivatives, granted by KBC to private persons, companies, governments and banks. Bonds held in the investment portfolio are included if they are corporate or bank issued, hence government bonds and trading book exposure are not included* Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees
34
Investment portfolio (as per 30/06/2018)
73%
6%
4%
7%
4%2% 4%
Other
Sovereign bonds
Non-Financial bonds
Other public bonds
Financial bonds
Covered bonds
Asset Backed securties2%
Equities
(*) 1%, (**) 2%
INVESTMENT PORTFOLIO (Total EUR 62bn) SOVEREIGN BOND PORTFOLIO
(Carrying value1 EUR 48bn) (Notional value EUR 45bn)
1. Carrying value is the amount at which an asset [or liability] is recognised: for those not valued at fair value this is after deducting any accumulated depreciation (amortisation) and accumulated impairment losses thereon, while carrying amount is equal to fair value when recognised at fair value
31%
14%
3%4%6%
4%
13%
9%
6%
France
Poland
Italy
Austria *
Belgium
Czech Rep.Bulgaria**
SlovakiaHungary
Other
SpainGermany **
Netherlands * IrelandPortugal *
2%
35
Impaired loans ratios*, of which over 90 days past due
INTERNATIONAL MARKETS BU (including UBB)CZECH REPUBLIC BU
3Q17 2Q18
3.9%3.6%
1Q17
3.7%
2Q17 4Q17
3.4% 3.5%
1Q18
6.9%
3.2%
6.8% 6.6%6.0% 5.9%
5.5%
Impaired loans ratio *Of which over 90 days past due
1.8%
2.1%
1Q17
1.6%1.7%
4Q173Q172Q17
1.6% 1.6%
1Q18
1.5%
2Q18
2.4%2.7% 2.6% 2.5% 2.4%
12.6%
1Q17
12.8%
4Q17
13.4%
2Q17 3Q17
22.4%
11.3% 12.1%
1Q18
11.5%
2Q18
24.2% 23.6%
19.7% 20.4% 19.5%
BELGIUM BU3.0%
3Q17
1.5%
2.4%
1Q17
1.5% 1.5%
2Q17
1.4%
4Q17
1.3%
1Q18
1.2%
2Q18
3.0%2.8% 2.8%
2.6%
KBC GROUP
• Impaired loans ratio: As of 1Q18, a switch has been made in the risk reporting figures from outstanding (PD10-12) to the new definition of gross carrying amount, i.e. including reserved and accrued interests. In addition, the transaction scope of the credit portfolio was extended and now additionally includes the following 4 elements: (1) bank exposure (money market placements, documentary credit, accounts), (2) KBC Commercial Finance debtor risk, (3) unauthorised overdrafts, and (4) reverse repo (excl. central bank exposure)
36
Cover ratios
INTERNATIONAL MARKETS BU (including UBB)CZECH REPUBLIC BU
BELGIUM BUKBC GROUP
• Impaired loans cover ratio: As of 1Q18 a switch has been made in the risk reporting figures from outstanding to the new definition of gross carrying amount, i.e. including reserved and accrued interests
1Q17
48.0%
4Q172Q17 3Q17 1Q18
63.7%
46.6%
2Q18
47.3%
64.2%
47.5%
64.5%
44.0%
64.1%
47.8%
68.1% 67.7%
Impaired loans cover ratio *
Cover ratio for loans with over 90 days past due
55.1%
69.0%
3Q171Q17 4Q172Q17 1Q18 2Q18
69.4% 66.9%
56.7%
71.8%
54.7% 57.7%
68.9%
52.5%
66.8%
53.0%
1Q181Q17 2Q17
48.4%
4Q17
69.7%
3Q17 2Q18
67.5%
47.9% 46.4%
67.6%
44.4% 45.9%
68.6%
44.2%
67.6% 66.4%
46.0%
3Q172Q171Q17 4Q17 2Q181Q18
43.5%
58.8%
45.9%
58.9%65.5%
45.4%
60.8%
40.9%
60.2%
46.9%
66.0%
37
Loan loss experience at KBC
1H18CREDIT COST
RATIO
FY17CREDIT COST
RATIO
FY16CREDIT COST
RATIO
FY15CREDIT COST
RATIO
FY14CREDIT COST
RATIO
AVERAGE ‘99 –’17
Belgium 0.08% 0.09% 0.12% 0.19% 0.23% n/a
Czech Republic -0.03% 0.02% 0.11% 0.18% 0.18% n/a
International Markets -0.71% -0.74% -0.16% 0.32% 1.06% n/a
Group Centre -0.93% 0.40% 0.67% 0.54% 1.17% n/a
Total -0.10% -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
38
Contents
4
Strategy and business profile1
Financial performance2
Balance sheet3
Solvency and liquidity
5 MREL strategy
Appendices
6 Wrap up & looking forward
39
Strong capital positionFully loaded Basel 3 CET1 ratio at KBC Group (Danish Compromise)
10.6% fully loaded regulatory minimum
1Q189M17 FY171Q17 1H17
15.7%
1H18
15.7% 15.8%15.9% 16.3% 15.9%
The common equity ratio* slightly decreasedfrom 15.9% at the end of 1Q18 to 15.8% atthe end of 1H18 based on the DanishCompromise, mainly due to the impact of theshare buy-back (-0.2%). This clearly exceedsthe minimum capital requirements** set bythe competent supervisors of 9.875% phased-in for 2018 and 10.6% fully loaded and our‘Own Capital Target’ of 14.0%
* Note that 1 January 2018, there is no longer a difference betweenfully loaded and phased-in
** Excludes a pillar 2 guidance (P2G) of 1.0% CET1
14.0% ‘Own Capital Target’
Fully loaded Basel 3 total capital ratio (Danish Compromise)
1Q18 total capital ratio
1H18 total capital ratio
2.3% T2
15.8% CET1
1.5% AT1
2.4% T2
15.9% CET1
2.6% AT1
19.7%20.8%
The fully loaded total capital ratio amountedto 20.8% at the end of 1H18. The q-o-qincrease can mainly be explained by thesuccessful issue of a 1bn EUR additional Tier-1instrument in April 2018
40
Fully loaded Basel 3 leverage ratio and Solvency II ratio
1Q17 1H17
4.7%
FY179M17
4.7%4.8%
1Q18 1H18
4.7% 5.0% 5.1%
Fully loaded Basel 3 leverage ratio at KBC BankFully loaded Basel 3 leverage ratio at KBC Group
1Q181H171Q17 9M17
6.1%
FY17 1H18
5.7%5.7% 5.8% 5.7% 6.0%
Solvency II ratio
1Q18 1H18
Solvency II ratio* 218% 219%
The increase (+1%-point) in the Solvency II ratiowas mainly the result of lower risk on theinvestment portfolio, partly offset by an increase intechnical provisions (due to a slight decrease ininterest rates)
* 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 insurancecompanies are now allowed to apply a higher adjustment for deferred taxes, in line with general European standards, if they pass the recoverability test. This is the case for KBC
41
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 1H18 (versus FY17). The elevated amount in short-term wholesale funding is
mainly on the back of short-term arbitrage opportunities
69% 73% 75% 73% 73% 69% 70% 72%
8% 10% 6%9%9% 8% 9% 8% 8%
9% 8%7%8% 10% 8% 8% 8%
7% 7%9% 0% 2% 2% 2%8%
10% 11%6% 5%
-6% -5%
3%
3%
FY11
3%
3%
FY12
2%
FY13
4%
3%
FY14
3%
FY15
-1%
FY16 FY17 1H18
Net unsecured interbank funding
Debt issues placed with institutional investors
Net secured funding
Total equity
Certificates of deposit
Funding from customers
73%
21%
7%0%
Government and PSE
Retail and SME
Mid-cap
Debt issues in retail network
72% customer
driven
129 555 131 914 132 862 133 766 139 560 143 690 155 774 163 225
FY11 FY12 FY13 FY14 FY15 FY16 FY17 1H18
Funding from customers (m EUR)
42
Short term unsecured funding KBC Bank vs liquid assets as of end June 2018 (bn EUR)
KBC maintains a solid liquidity position, given that:• Available liquid assets remained very high at almost 4
times the amount of the net short-term wholesalefunding
• Funding from non-wholesale markets is stable fundingfrom core-customer segments in core markets
* 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
* Net Stable Funding Ratio (NSFR) is based on KBC’s interpretation of the proposed CRRamendment
** Liquidity Coverage Ratio (LCR) is based on the Delegated Act requirements. From EOY2017onwards, KBC discloses 12 months average LCR in accordance to EBA guidelines on LCRdisclosure
(*)
NSFR at 136% and LCR at 139% by the end of 1H18• Both ratios were well above the regulatory requirement of
at least 100%
Solid liquidity position (2)
Ratios FY17 1H18 Regulatory requirement
NSFR* 134% 136% ≥100%
LCR** 139% 139% ≥100%
14,1911,56
22,7018,71
15,19
58,30 56,23
65,39
57,79 58,83411%
486%
288%309%
387%
2Q17 3Q17 4Q17 1Q18 2Q18Net Short Term Funding Available Liquid Assets Liquid Assets Coverage
43
Upcoming mid-term funding maturities
CoCo has been called (on 25 January 2018)
KBC Bank placed covered bonds of 750m EUR with 8-yearmaturity and 250m EUR with 20-year maturity in March 2018
KBC Group issued a perpetual non-call 7.5-year additional Tier-1instrument of 1bn EUR in April 2018
KBC Group successfully issued its inaugural green seniorbenchmark issue of 500m EUR with a 5-year maturity in June2018
KBC Group’s credit spreads widened at the end of 2Q18
KBC Bank has 6 solid sources of long-term funding:• Retail term deposits• Retail EMTN• Public benchmark transactions• Covered bonds• Structured notes and covered bonds using the private
placement format• Senior unsecured, T1 and T2 capital instruments issued at KBC
Group level and down-streamed to KBC Bank
16%
6%
10%
10%31%
27%
0.3%
1.0%
1.8%
1.4%
1.7%
0.7%
0.2%0.4%
0.2%0.3%
0
1000
2000
3000
4000
5000
6000
2018 2019 2020 2021 2022 2023 2024 2025 2026 ≥ 2027
m E
UR
Breakdown Funding Maturity Buckets
Senior Unsecured - Holdco Senior Unsecured - Opco Subordinated T1 Subordinated T2 Covered Bond TLTRO
Total outstanding =
24.4bn EUR
(Including % of KBC Group’s balance sheet)
44
Latest credit ratings
S&PMoody’s Fitch
Gro
upBa
nkIn
sura
nce
Senior UnsecuredTier IIAdditional Tier IShort-term P-2 A-2 F1Outlook Stable Stable Stable
Baa1 A- (from BBB+) A- BBB (from BBB-) A-- BB+ (from BB) BB+
Senior Unsecured
Short-term P-1 A-1 F1Outlook Stable Stable Positive
A1 A+ (from A) ATier II
Covered Bonds AAA - AAA
-
Financial Strength RatingIssuer Credit Rating
- A (from A-) -- A (from A-) -
BBB (from BBB-)
Outlook - Stable -
-
Latest update: • 30 July 2018: S&P rating upgrade KBC Group, KBC Bank, Insurance and CSOB CR.
45
-40
10
60
110
160
210
-20
0
20
40
60
80
100
120
140
Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18
Credit Spreads Trends
0.5Y Senior Debt Opco 5Y Covered Bond Interpolated 5Y Senior Debt Holdco Interpolated 7NC2 Subordinated Tier 2
Credit spreads trends
1 7NC2 Subordinated Tier 2 spread is shown on the right-hand axis
1
46
KBC IS A FREQUENT ISSUER WITH AN OUTSTANDING AMOUNT OF 7.56 BN EUR• KBC’s 10bn EUR covered bond programme is rated Aaa/AAA (Moody’s/Fitch)• CRD and UCITS compliant / 10% risk-weighted• All issues performed well in the secondary market
KBC’S COVERED BONDS ARE BACKED BY STRONG LEGISLATION AND SUPERIOR COLLATERAL• Cover pool: Belgian residential mortgage loans• Strong Belgian legislation – inspired by German Pfandbriefen law• Direct covered bond issuance from a bank’s balance sheet• Dual recourse, including recourse to a special estate with cover assets included in a register• Requires license from the National Bank of Belgium (NBB)• The special estate is not affected by a bank insolvency. In that case, the NBB can appoint a cover pool administrator to manage
the special estate in issuer ; both monitor the pool on a ongoing basis• The value of one asset category must be at least 85% of the nominal amount of covered bonds• The value of the cover assets must at least be 105% of the covered bonds (value of mortgage loans is limited to 80% LTV)• Maximum 8% of a bank’s assets can be used for the issuance of covered bonds
THE COVERED BOND PROGRAMME IS CONSIDERED AS AN IMPORTANT FUNDING TOOL FOR THE TREASURY DEPARTMENT• KBC’s intentions are to be a frequent benchmark issuer if markets and funding plan permit
Summary covered bond programme (1/2) (details, see Annex 3)
47
Summary covered bond programme (2/2) (details, see Annex 3)
COVER POOL: BELGIAN RESIDENTIAL MORTGAGE LOANS• Exclusively, this is selected as main asset category• Value (including collections) at least 105% of the
outstanding covered bonds• Branch originated prime residential mortgages
predominantly out of Flanders• Selected cover asset have low average LTV (61.72%) and
high seasoning (54 months)
KBC HAS A DISCIPLINED ORIGINATION POLICY• 2009 to 2017 residential mortgage loan losses below 4 bp• Arrears in Belgium approx. stable over the past 10 years:
(i) Cultural aspects, stigma associated with arrears,importance attached to owning one’s property
(ii) High home ownership also implies that the change inhouse prices itself has limited impact on loanperformance
(iii) Well established credit bureau, surrounding legislationand positive property market
1,12
%1,
12%
1,11
%1,
08%
1,08
%1,
09%
1,09
%1,
09%
1,10
%1,
11%
1,09
%1,
08%
1,08
%1,
08%
1,06
%1,
06%
1,06
%1,
06%
1,12
%1,
12%
1,13
%1,
14%
1,12
%1,
11%
1,12
%1,
13%
1,14
%1,
15%
1,16
%1,
16%
1,16
%1,
17%
1,17
%1,
18%
1,17
%1,
17%
1,17
%1,
19%
1,20
%1,
20%
1,19
%1,
20%
1,20
%1,
20%
1,22
%1,
22%
1,19
%1,
18%
1,17
%1,
18%
1,16
%1,
17%
1,16
%1,
16%
1,17
%1,
18%
1,17
%1,
16%
1,13
%1,
12%
1,11
%1,
11%
1,12
%1,
14%
1,11
%1,
11%
1,10
%1,
10%
1,10
%1,
09%
1,06
%1,
05%
1,04
%1,
03%
1,03
%1,
03%
1,02
%
0,38
%0,
39%
0,41
%0,
430%
0,44
0%
0,44
0%
0,44
%
0,50
%
0,53
%
0,52
%
0,56
%
0,54
%
0,48
%
0,41
%
0,43
%
0,39
%
0,39
%
0.01
2%
0.00
8%
0.00
6%
0,02
0%
0,01
3%
0,03
7%
0,02
0%
0,02
7%
0,01
7%
0,0%
0,2%
0,4%
0,6%
0,8%
1,0%
1,2%
1,4%
dec/
09
dec/
10
dec/
11
feb/
12
apr/
12
jun/
12
aug/
12
okt/
12
dec/
12
feb/
13
apr/
13
jun/
13
aug/
13
okt/
13
dec/
13
feb/
14
apr/
14
jun/
14
aug/
14
okt/
14
dec/
14
feb/
15
apr/
15
jun/
15
aug/
15
okt/
15
dec/
15
feb/
16
apr/
16
jun/
16
aug/
16
okt/
16
dec/
16
feb/
17
apr/
17
jun/
17
aug/
17
okt/
17
dec/
17
Market loans in 3 months arrears KBC loans in 90days arrears KBC loan losses
48
Contents
5
Strategy and business profile1
Financial performance2
Balance sheet3
Solvency and liquidity4
MREL strategy
Appendices
6 Wrap up & looking forward
49
The resolution plan for KBC is based on a Single Point of Entry (SPE) approach at KBC Group level Bail-in is identified as the preferred resolution tool SRB’s current approach to MREL is defined in the ‘2017 MREL Policy’ published on 20 December 2017, which is based on the current legal
framework and hence might be revised in the context of the ongoing legislative process to review BRRD The MREL target for KBC is 25.9%, which is based on fully loaded capital requirements as at 31-12-2016 SRB requires KBC to achieve this target by 1 May 2019, using both HoldCo and eligible OpCo instruments
LAA Loss Absorbing AmountRCA ReCapitalisation AmountMCC Market Confidence ChargeCBR = Combined Buffer Requirement = 2.5% Conservation Buffer +1.5% O-SII buffer + 0.15% countercyclical buffer
LAA
RCA
MCC
8% P1
1.75% P2R
4.15% CBR
8% P1
1.75% P2R
2.9% (CBR – 1,25%)
@ 100% RWA
@ 95% RWA
= 25.9%
2Q18
1.4%
4.3%HoldCo senior
2.6%
2.3%
CET1 15.8%
OpCo (T2 & senior >1y)
T2
AT1
26.4%
= 25.1%
Gradually mature.To be replaced by
HoldCo senior
HoldCo approach
Consolidated approach
KBC well on track to comply with resolution requirements
ActualRegulatory requirement
50
Available MREL as a % of RWA (fully loaded)
3.4%3.8%
22.3%
2.5%
1Q17
22.8%
1Q182Q17
26.4%
23.7%
3Q17
2.3%
24.0%
4Q17
1.3%24.8%
23.5%
26.3%1.4%
25.1%
2Q18
26.0% 26.2% 26.3%
OpCo MREL HoldCo MREL
51
KBC has strong buffers cushioning Sr. debt at all levels (30 June 2018)
KBC GroupSenior4 019
Tier 22 182
Additional Tier 12 400
CET1 (fully loaded)14 715
KBC BankSenior1 303
Other liabilities44 865
Tier 21 682
Additional Tier 12 400
CET1 (fully loaded)11 913
396
KBC InsuranceTier 2500
Parent shareholders equity2 993
KBC Asset ManagementFully consolidated for solvency purposes
To large extent customer-related, protected as
much as possible
Senior issued by KBC Bank, which will be limited going
forward (for funding reasons)
Buffer for Sr. level 20.0bn EUR
Buffer for Sr. level 19.3 bn EUR
Legacy T2 issued by KBC Bank will disappear over time
nominal amounts in million EUR
Subordinated on loan by KBC Group4 019
52
Contents
6
Strategy and business profile1
Financial performance2
Balance sheet3
Solvency and liquidity4
MREL strategy
Appendices
5
Wrap up & looking forward
53
Looking forward 2018
We expect 2018 to be a year of economic growth in the euro area, the US and in all ourcore markets
Economicoutlook
Group guidance
Business units
Solid returns for all Business Units Loan impairments for Ireland towards a release in 100m-150m EUR range for FY18 Impact of the reform of the Belgian corporate income tax regime: recurring positive P&L
impact as of 2018 onwards and one-off negative impact in 4Q17 will be fully recuperatedin roughly 3 years’ time
B4 impact for KBC Group estimated at roughly 8bn EUR higher RWA on fully loaded basisat year-end 2017, corresponding with 9% RWA inflation and -1.3% impact on CET1 ratio
Referring to our dividend policy, KBC will pay an interim dividend of 1 EUR per share inNovember 2018, as an advance payment on the total dividend. The pay-out ratio policy(i.e. dividend + AT1 coupon) of at least 50% of consolidated profit is reconfirmed
Next to Belgium and Czech Republic, the International Markets Business Unit has becomea strong net result contributor, thanks to: Ireland: re-positioning as a core country with a sustainable profit contribution Bulgaria: merger of CIBank into UBB. The new group UBB has become the largest
bank-insurance group in Bulgaria with a substantial increase in profit contribution Sustainable profit contribution of Hungary and Slovakia
54
Post-balance sheet event*: KBC Bank Ireland sells part of legacy loan portfolio
KBC Bank Ireland has been organically building down its legacy portfolio of non-performing loans in Ireland over the past few years. Today, KBC announces the sale of an important part of its non-performing loans
Background1
Scope and NPL ratio impact2● KBC Bank Ireland sells approximately 1.9bn EUR of its legacy outstanding loan portfolio:
● Non-performing corporate portfolio● Non-performing Irish Buy-to-Let mortgage portfolio● Performing & non-performing UK Buy-to-let mortgage portfolio
● This will lead to a roughly 11%-points reduction of the NPL ratio to approximately 25% pro forma at end 2Q18 (versus reported35.6% at end 2Q18)
• Based on 1Q18 figures, the transaction will result in a net P&L impact of +14m EUR (after transaction costs), a release of risk-weighted assets ofapproximately 0.4bn EUR, leading to an improvement of KBC Group’s CET1 ratio of 7bps. These figures might slightly change up until closing date,which is expected in 4Q18
• We maintain our impairment guidance for Ireland, namely a net release in a range of 100m-150m EUR for FY18
P&L and Capital impact
By selling all of the sub-portfolio’s currently in scope, KBC Bank Ireland would be able to:(i) Achieve a NPL ratio reduction of c. 11%-points and reach a NPL ratio of approximately 25% pro forma at end 2Q18(ii) De-risk Brexit implications from the sale of the UK BTL portfolio.(iii) Enhance focus on its core strategy ‘Digital First’ in retail banking & micro SME, as presented at our Investor Day mid-2017
Benefits
3
4
* Note that the 2Q18 figures mentioned in the rest of the presentation do not take into account this post-balance sheet event
55
Appendices
Overview of outstanding benchmarks
2 KBC Bank CDS levels
3
4
Solvency: details on capital5
Details on credit exposure of Ireland
6
Summary of KBC’s covered bond programme
Belgium: digital sales
1
56
Annex 1 - Outstanding benchmarksOverview till end of June 2018
Total: EUR 11,75bn
Issuer Curr Amount issued Coupon Settlement Date Maturity Date ISIN YEAR
KBC Ifima N.V. EUR 750 000 000 2,125 10/09/2013 10/09/2018 XS0969365591 2018KBC Group EUR 750 000 000 1,000 26/04/2016 26/04/2021 BE6286238561 2021KBC Group EUR 1 250 000 000 0,750 1/03/2017 01/03/2022 BE0002272418 2022KBC Group EUR 750 000 000 FRN 24/05/2017 24/11/2022 BE0002281500 2022KBC Group EUR 500 000 000 0,875 27/06/2018 27/06/2023 BE0002602804 2023KBC Group EUR 750 000 000 0,750 18/10/2016 18/10/2023 BE0002266352 2023
KBC Bank N.V. EUR 750 000 000 1 25/02/2014 25/02/2019 BE0002462373 2019KBC Bank N.V. EUR 1 000 000 000 1,25 28/05/2013 28/05/2020 BE0002434091 2020KBC Bank N.V. EUR 1 000 000 000 0,125 28/04/2015 28/04/2021 BE0002489640 2021KBC Bank N.V. EUR 1 000 000 000 0,45 22/01/2015 22/01/2022 BE0002482579 2022KBC Bank N.V. EUR 1 250 000 000 0,375 1/03/2016 01/09/2022 BE0002498732 2022KBC Bank N.V. EUR 750 000 000 2 31/01/2013 31/01/2023 BE0002425974 2023KBC Bank N.V. EUR 750 000 000 0,75 8/03/2018 08/03/2026 BE0002583616 2026KBC Bank N.V. EUR 500 000 000 0,75 24/10/2017 24/10/2027 BE0002500750 2027
Tranche Report
UNSECURED SENIOR DEBT
COVERED BOND
57
Issued 18 Sep 2017
Issued 17 Apr 2018
KBC Bank NVKBC Groep NV
AT1KBC Groep NV
AT1KBC Groep NV
Tier IIKBC Groep NV
Tier IIKBC Groep NV
Tier II
Amount issued GBP 525 000 000 EUR 1 400 000 000 EUR 1 000 000 000 EUR 750 000 000 EUR 750 000 000 EUR 500 000 000Tendered GBP 480 500 000
Net Amount GBP 44 500 000 EUR 1 400 000 000 EUR 1 000 000 000 EUR 750 000 000 EUR 750 000 000 EUR 500 000 000
ISIN-code BE0119284710 BE0002463389 BE0002592708 BE0002479542 BE0002485606 BE0002290592
Call date 19/12/2019 19/03/2019 24/10/2025 25/11/2019 11/03/2022 18/09/2024
Initial coupon 6.202% 5.625% 4.250% 2.375% 1.875% 1.625%
Coupon step-up / reset 3m gbp libor + 193bps $ MS 5Y + 4.759% € MS 5Y + 359.4bps € MS 5Y + 1.980% € MS 5Y + 1.50% € MS 5Y + 1.25%
First (next) call date 19/12/2019 19/03/2019 24/10/2025 25/11/2019 11/03/2022 18/09/2024
ACPM Yes - - - - -
Dividend Stopper Yes - - - - -
Conversion into PSC Yes - - - - -
TriggerSupervisory Event or general "concursus
creditorum"
Trigger CET1 RATIO < 5.125% Temporary
write-down
Trigger CET1 RATIO < 5.125% Principal
write-downRegulatory + Tax Call Regulatory + Tax Call Regulatory + Tax Call
SUBORDINATED BOND ISSUES KBC
Annex 1 - Outstanding benchmarksMain characteristics of subordinated debt issues
58
Annex 2 - KBC Bank CDS levels (in bp)
59
Direct covered bond issuance from a bank’s balancesheet
Dual recourse, including recourse to a special estatewith cover assets included in a register
The special estate is not affected by a bank’s insolvency
Requires licenses from the National Bank of Belgium(NBB)
Ongoing supervision by the NBB
The cover pool monitor verifies the register and theportfolio tests and reports to the NBB
The NBB can appoint a cover pool administrator tomanage the special estate
National Bank of Belgium
Cover Pool Administrator
Not
e Ho
lder
s
Covered bonds
ProceedsIssuer
Cover PoolMonitor
Special Estate with Cover Assets in a Register
Representativeof the Noteholders
Annex 3 – KBC’s covered bond programmeBelgian legal framework
60
The value of one asset category must be at least 85% of the nominal amount ofcovered bonds• KBC Bank selects residential mortgage loans and commits that their value (including
collections) will be at least 105%
Collateral type
Over-collateralisation
Test
Cover Asset Coverage Test
Liquidity Test
Cap on Issuance
1
2
3
4
5
The value of the cover assets must at least be 105% of the covered bonds• The value of residential mortgage loans:
1) is limited to 80% LTV
2) must be fully covered by a mortgage inscription (min 60%) plus a mortgage mandate (max 40%)
3) 30 day overdue loans get a 50% haircut and 90 days (or defaulted) get zero value
The sum of interest, principal and other revenues of the cover assets must atleast be the interest, principal and costs relating to the covered bonds• Interest rates are stressed by plus and minus 2% for this test
Cover assets must generate sufficient liquidity or include enough liquid assets topay all unconditional payments on the covered bonds falling due the next 6months Interest rates are stressed by plus and minus 2% for this test
Maximum 8% of a bank’s assets can be used for the issuance of covered bonds
Annex 3 – KBC’s covered bond programmeStrong legal protection mechanisms
61
Annex 3 – KBC’s covered bond programme KBC Bank NV Residential mortgage covered bond programme
Issuer: • KBC Bank NV
Main asset category: • min 105% of covered bond outstanding is covered by residential mortgage loans and collections thereon
Programme size: • Up to 10bn EUR (only)
Interest rate: • Fixed rate, floating rate or zero coupon
Maturity: • Soft bullet: payment of the principal amount may be deferred past the final maturity
date until the extended final maturity date if the issuer fails to pay• Extension period is 12 months for all series
Events of default:• Failure to pay any amount of principal on the extended final maturity date• A default in the payment of an amount of interest on any interest payment date
Rating agencies: • Moody’s Aaa / Fitch AAA
Moody’s Fitch
Over-collateralisation 10% 14.5%
TPI Cap Probable D-cap 4 (moderate risk)
62
Annex 3 – KBC’s covered bond programmeBenchmark issuance KBC covered bonds
Since establishment of the covered bond programme KBC has issued eight benchmark issuances:
SPREAD EVOLUTION KBC COVERED BONDS (SPREAD IN BP VERSUS 6 MONTH MID SWAP)
Sour
ce B
loom
berg
Mid
ASW
leve
ls
63
Annex 3 – KBC’s covered bond programmeKey cover pool characteristics (1/3)
Investor reports, final terms and prospectus are available on www.kbc.com/covered_bonds
Portfolio data as of : 30 June 2018
Total Outstanding Principal Balance 10 735 661 338
Total value of the assets for the over-collateralisation test 10 004 937 116
No. of Loans 140 302
Average Current Loan Balance per Borrower 109 428
Maximum Loan Balance 1 000 000
Minimum Loan Balance 1 000
Number of Borrowers 98 107
Longest Maturity 359 month
Shortest Maturity 1 month
Weighted Average Seasoning 55.7 months
Weighted Average Remaining Maturity 180 months
Weighted Average Current Interest Rate 2.14%
Weighted Average Current LTV 61.53%
No. of Loans in Arrears (+30days) 191
Direct Debit Paying 97.95%
64
Annex 3 – KBC’s covered bond programmeKey cover pool characteristics (2/3)
REPAYMENT TYPE (LINEAR VS. ANNUITY) GEOGRAPHICAL ALLOCATION
LOAN PURPOSE INTEREST RATE TYPE (FIXED PERIODS)
Linear3%
Annuity97%
Brussels Hoofdstedelijk … Waals Brabant
1%Vlaams Brabant
18%
Antwerpen29%
Limburg13%
Luik1%
Namen0%
Henegouwen1%
Luxemburg0%
West-Vlaanderen
14%
Oost-Vlaanderen
18%
No review62%
1 y / 1 y12%
3 y / 3 y16%
5 y / 5 y…
10 y / 5 y2%
15 y / 5 y0%
20 y / 5 y0%
Purchase47%Remortgage
42%
Construction11%
65
0,002,004,006,008,00
10,0012,0014,0016,00
<= 1
0%
10%
< to
<=
20%
20%
< to
<=
30%
30%
< to
<=
40%
40%
< to
<=
50%
50%
< to
<=
60%
60%
< to
<=
70%
70%
< to
<=
80%
80%
< to
<=
90%
90%
< to
<=
100%
100%
< to
<=
110%
110%
< to
<=
120%
120%
< to
<=
130%
130%
< to
<=
140%
140%
< to
<=1
50%
150%
<0,0010,0020,0030,0040,0050,0060,0070,00
< 2,
5
2.5
< to
<=
3.0
3.0
< to
<=
3.5
3.5
< to
<=
4.0
4.0
< to
<=
4.5
4.5
< to
<=
5.0
5.0
< to
<=
5.5
5.5
< to
<=
6.0
6.0
< to
<=
6.5
6.5
< to
<=
7.0
> 7
.0
0,00
5,00
10,00
15,00
20,00
25,00
30,00
35,00
40,00
0 - 12 13 - 2425 - 3637 - 4849 - 6061 - 7273 - 8485 - 9697 -108 109 -
0,00
10,00
20,00
30,00
40,00
50,00
60,00
2013 - 2017 2018 - 2022 2023 - 2027 2028 - 2032 > 2032
Annex 3 – KBC’s covered bond programmeKey cover pool characteristics (3/3)
FINAL MATURITY DATE SEASONING
INTEREST RATECURRENT LTV
Weighted Average Remaining Maturity:
180 months
Weighted Average Seasoning:
55.7 months
Weighted Average Current LTV:
61.5%
Weighted Average Current
Interest Rate: 2.14%
66
Annex 3 - Belgian GDP growthGDP growth in 2017 driven by domestic demand and net exports
92
94
96
98
100
102
104
106
108
110
112BelgiumGermanyFranceNetherlandsEuro Area
Real GDP in the Euro Area (Q1 2008 = 100)
Source: Eurostat; NBB Source: NBB
Belgium – Contributions to real GDP growth (in percentage points)
-3%
-2%
-1%
0%
1%
2%
3%
4%
Private consumptionPublic consumptionGross fixed capital formationNet exportsStock buildingGDP growth
67
Annex 3: Belgian real estate marketRoughly stabilization in prices since 2012, with again an acceleration from the fall of 2016 onwards
House prices Belgium (*)
Source: FOD Economie
(*) Corrected for price changes resulting from changes in the quality and location of the real estate sold
Source: NBB.Stat; ECB
-4
-2
0
2
4
6
8
10
12
14
16
95
100
105
110
115
120
Index (Q1 2008 = 100, lhs)Year-on-year change (in %, rhs)
Debt position Belgian households (outstanding amounts, in % of GDP)
0%
10%
20%
30%
40%
50%
60%
70%
80%Belgium - Other debt (consumer loans)Belgium - Mortgage debtEuro Area (total debt)
68
-0,5
0,5
1,5
2,5
3,5
4,5
5,5
Belgium
Germany
0
100
200
300
400
500
600
700
800BelgiumFranceNetherlandsItalySpainIreland
Annex 3 - Interest rates still historically low
10-year government bond yields(in %)
Spread Belgium-Germany
Interest rate spreads Euro Area(10-year rate versus Germany, in basis points)
69
Annex 4 - Details on credit exposure of IrelandImpaired loans ratio further improved
The Irish economy in 1H18 was characterised bysignificant positive momentum in activity andemployment growth, FY18 GDP growth of 6% isenvisaged
The upswing in the Irish economy has progressivelystrengthened and this has been reflected in robust andbroadly based jobs growth. As a result, theunemployment rate has reduced to 5.1% mid-2018, thelowest rate since 2007
The positive performance of the Irish economy hastranslated into increased demand for housing and inspite of some increase in supply, residential propertyprices continue to rise significantly
Impaired loans have reduced in 2Q18 by 0.2bn EUR (-4%q-o-q) with impaired loan ratio at 35.6% at 2Q18
Net loan loss provision release of 39m EUR in 2Q18driven by the continued growth in the CSO House PriceIndex and improved non-performing portfolioperformance. This compares with a 43m EUR release in1Q18
Looking forward, we are maintaining our impairmentguidance for Ireland, namely a net release in a range of100m-150m EUR for FY18
OUT-STANDING
IMPAIRED LOANS
IMPAIRED LOANS
IMPAIRED LOANS
€ € PD 10-12PD 10-12
COVERAGE
Owner occupied mortgages 9.1bn 2.2bn 24% 0.6bn 28%
Buy to let mortgages 2.1bn 1.4bn 67% 0.7bn 47%
SME /corporate 0.5bn 0.3bn 62% 0.2bn 63%
Real estate
- Investment 0.5bn 0.4bn 75% 0.2bn 63%
- Development 0.1bn 0.1bn 100% 0.1bn 96%
Total 12.3bn 4.4bn 36% 1.8bn 41%
PROVISIONS PD 10-12 €
LOAN PORTFOLIO
70
Annex 4 - Details on credit exposure of IrelandPortfolio 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) comprises2.7bn EUR of the overall Retail portfolio and increased q-o-q by 0.2bnEUR. New Retail at 2Q18 represents 24% of total Retail portfolio (from17% at 2Q17)
Impaired portfolio decreased by roughly 89m EUR q-o-q mainly due toimproved portfolio performance (reduction of 0.7bn EUR y-o-y)
Coverage ratio for impaired loans has slightly improved to 36% for2Q18
Weighted average indexed LTV on the impaired portfolio has improvedsignificantly y-o-y and in 2Q18 decreased to 100% (from 119% at 2Q17)
Corporate loan portfolio
Impaired portfolio has reduced by roughly 75m EUR q-o-q. Reductiondriven mainly by continued deleverage of portfolio (reduction of0.5bn EUR y-o-y)
Coverage ratio for impaired loans has remained stable at 67% for2Q18
Overall exposure has dropped by approximately 0.64bn EUR y-o-y(-37% y-o-y)
71
Annex 5 - Solvency details Fully loaded B3 CET1 based on the Danish Compromise (DC) from 1Q18 to 2Q18
Jan 2012 Dec 2012 2014-2020
Fully loaded B3 commonequity ratio decreased to15.8% at end 2Q18 based onthe Danish Compromise, duemainly to the impact of theshare buy-back (-0.2%)
This clearly exceeds theminimum capital requirementsset by the competentsupervisors of 10.6% fullyloaded
DELTA AT NUMERATOR LEVEL (BN EUR)
2Q18 net result (excl. KBC Ins. due to Danish Compr.)
14.7
B3 CET1 at end 1Q18 (DC)
0.5 -0.3
Pro-rata accrual dividend
-0.2
Share buy-back
-0.1
Other* B3 CET1 at end 2Q18 (DC)
14.8
DELTA ON RWA (BN EUR)
2Q18 (B3 DC)
-0.2
1Q18 (B3 DC**) 2Q18 impact
92.9
93.2
* Includes the q-o-q delta in deferred tax assets on losses carried forward, remeasurement of defined benefit obligations, IRB provision shortfall, deduction re. financing providedto shareholders, deduction re. irrevocable payment commitments, intangible fixed assets, AT1 coupon, translation differences, etc.
** Includes the RWA equivalent for KBC Insurance based on DC, calculated as the historical book value of KBC Insurance multiplied by 370%
72
Annex 5 - Solvency detailsOverview of B3 CET1 ratios at KBC Group
* FICOD: Financial Conglomerate Directive** DC: Danish Compromise*** DM: Deduction Method
Method Numerator Denominator B3 CET1 ratio
FICOD*, fully loaded 15,826 105,764 15.0%
DC**, fully loaded 14,715 92,931 15.8%
DM***, fully loaded 13,721 87,484 15.7%
73
Annex 5 - Solvency detailsImplementation of the BRRD in Belgium
1. The BRRD has been transposed to a large extent by the Act of 25 April 2014 on the legalstatus and supervision of credit institutions ("The Banking Act") which applies sinceMay-2015, with the exception of some major provisions, such as the bail-in tool. Someprovisions will be further implemented by a Royal Decree (“RD”):
• Bail-in mechanism and MREL requirement of the BRRD: RD was published in theBelgian Official Journal 29 December 2015 and entries into force as from 1 January2016. However, the resolution strategy and MREL target for KBC are assumptionsand have not been determined by the Resolution Authority
• Group dimension of the BRRD: transposition is currently under preparation
2. The competent authorities are
• Supervision authority (KBC Bank NV, KBC Group NV): ECB/NBB.
• Resolution authority (KBC Bank NV, KBC Group NV): Single Resolution Board asfrom 1 January 2016.
• Competent authority for conduct supervision of financial institutions andintermediaries (KBC Bank NV): FSMA.
3. The hierarchy of claims in Belgium is in line with the BRRD as provided for in art. 48BRRD and applies losses accordingly.
• Creditors are protected by the No Creditor Worse Off (“NCWO”) principle whichensures that creditors in resolution can’t be worse-off than in normal insolvencyproceedings (art 34(1) BRRD).
4. KBC plans on on-lending senior unsecured issued out of KBC Group NV as subordinatedinstruments at KBC Bank NV to ensure the on-loan would only take losses after Tier 2securities.
• Additionally KBC Bank NV’s funding needs in senior unsecured are expected to bemoderate going forward
CET1
AT1
Tier 2
Internal Sub Loan
Senior Unsecured
Hierarchy of Claims in Belgium
Structured Notes
Derivatives
Junior Deposits
Individual & SME Deposits
Covered Deposits
Loss
Abs
orpt
ion
in K
BC B
ank
74
Annex 5 - Solvency details What are the risks for HoldCo senior investors?
74
Shareholders equity
AT1
Tier 2
Senior Unsecured
Recapitalisation scenario, losses (originating in any or in all of the underlying entities*) are lower than the size of the capital instruments at theHoldCo level part or all of Senior debt issued by the HoldCo can be converted into shares to recapitalise the HoldCo up to a minimum level as decided by
the competent authorities. The investor then has a combination of shares and bonds of the HoldCo instead of only bonds and thus (co-)ownsthe underlying entities. The conversion factor would be determined by the competent authorities applying the NCWO principle.
Loss absorption scenario, losses (originating in any or in all of the underlying entities*) exceed the size of the capital instruments at the HoldColevel part or all of Senior issued by the HoldCo can be bailed-in to absorb losses. The NCWO principle implies that losses are only up-streamed to
the HoldCo upto the amount of the investment of the HoldCo in the entity(ies) generating the losses. Hence, the investor in the HoldCoSenior will lose (up to) its investment to the extent that the amount of outstanding HoldCo senior debt exceeds the value of the remainingunderlying entities of the HoldCo
Public Issuance
1 2
1
2
BRRD capitalinstruments
HoldCo
In all scenarios surpassing the Point of NonViability, the investors are protected by theNo Creditor Worse Off principle (“NCWO”),which stipulates that no instrument will beworse off in resolution than in normalinsolvency proceedings
* In KBC Group’s case this would be KBC Bank and/or KBC Insurance and/or KBC Asset Management
size of loss
75
0
5 000
10 000
15 000
20 000
25 000
30 000
Q1 Q2 Q3 Q4 Q1 Q2
2017 2018
Consumer loans
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
Q1 Q2 Q3 Q4 Q1 Q2
2017 2018
Pension savings
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
Q1 Q2 Q3 Q4 Q1 Q2
2017 2018
Current accounts
0200400600800
1 0001 2001 4001 6001 8002 000
Q1 Q2 Q3 Q4 Q1 Q2
2017 2018
Travel insurance
# of files # of files
# of files # of files
Annex 6 – Digital sales BU BelgiumDigital sales are increasing
76
Digital signing after contact with branches or KBC Live in 2017-2018
Digital sales @ KBC Live up, strong performance in non-life
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
KBC Live cumulative sales 2017-2018
Non life insurance Life insurance Housing loans
Consumer loans Investment plans
Annex 6 – Digital sales BU BelgiumOmnichannel is embraced by our customers
77
Glossary (1/2)
AQR Asset Quality Review
B3 Basel III
CBI Central Bank of Ireland
Combined ratio (non-life insurance) [technical insurance charges, including the internal cost of settling claims / earned premiums] + [operating expenses / written premiums] (after reinsurance in each case)
Common equity ratio [common equity tier-1 capital] / [total weighted risks]
Cost/income ratio (banking) [operating expenses of the banking activities of the group] / [total income of the banking activities of the group]
Cost/income ratio adjusted for specific items
The numerator and denominator are adjusted for (exceptional) items which distort the P&L during a particular period in order to provide a better insight into the underlying business trends. Adjustments include: • MtM ALM derivatives (fully excluded)• bank taxes (including contributions to European Single Resolution Fund) are included pro rata and hence spread over all quarters of the year instead of
being recognised for the most part upfront (as required by IFRIC21)• one-off items
Credit cost ratio (CCR) [net changes in individual and portfolio-based impairment for credit risks] / [average outstanding loan portfolio]. Note that, inter alia, government bonds are not included in this formula
EBA European Banking Authority
ESMA European Securities and Markets Authority
ESFR European Single Resolution Fund
FICOD Financial Conglomerates Directive
Impaired loans cover ratio [total specific impairments on the impaired loan portfolio (stage 3) ] / [part of the loan portfolio that is impaired (stage 3) ]
Impaired loans ratio [part of the loan portfolio that is impaired (stage 3)] / [total outstanding loan portfolio]
Leverage ratio[regulatory available tier-1 capital] / [total exposure measures]. The exposure measure is the total of non-risk-weighted on and off-balance sheet items, based on accounting data. The risk reducing effect of collateral, guarantees or netting is not taken into account, except for repos and derivatives. This ratio supplements the risk-based requirements (CAD) with a simple, non-risk-based backstop measure
Liquidity coverage ratio (LCR) [stock of high quality liquid assets] / [total net cash outflow over the next 30 calendar days].
Net interest margin (NIM) of the group [banking group net interest income excluding dealing room] / [banking group average interest-bearing assets excluding dealing room]
Net stable funding ratio (NSFR) [available amount of stable funding] / [required amount of stable funding]
78
Glossary (2/2)
MARS Mortgage Arrears Resolution Strategy
MREL Minimum requirement for own funds and eligible liabilities
PD Probability of default
Return on allocated capital (ROAC) for a particular business unit
[result after tax, including minority interests, of a business unit, adjusted for income on allocated capital instead of real capital] / [average capital allocated to the business unit]. The capital allocated to a business unit is based on risk-weighted assets for banking and risk-weighted asset equivalents for insurance
Return on equity [result after tax, attributable to equity holders of the parent] / [average parent shareholders’ equity, excluding the revaluation reserve for fair value through Other Comprehensive Income (OCI) assets]
TLAC Total loss-absorbing capacity
79
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