Annual Report • Mar 31, 2016
Annual Report
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Prepared for the future
2015 Annual Report
for a number of participating interests
Common equity ratio at group level (Basel III, Danish compromise)
We are an integrated bank-insurance group, catering mainly for retail, private banking, SME and mid-cap clients. Our core markets are Belgium, the Czech Republic, Slovakia, Hungary and Bulgaria. We are also present in Ireland and, to a limited extent, in several other countries to support corporate clients from our core markets.
| Clients (estimate) | 10 million |
|---|---|
| Staff | 38 450 (36 411 FTEs) |
| Bank branches | 1 560 |
| Insurance network | 441 agencies in Belgium, various distribution |
| channels in Central and Eastern Europe |
| Fitch | Moody's | Standard & Poor's | |
|---|---|---|---|
| KBC Bank NV | A- | A1 | A |
| KBC Insurance NV | A | – | A |
| KBC Group NV | A- | Baa1 | BBB+ |
| KBC Ancora | 18.5% |
|---|---|
| Cera | 2.7% |
| MRBB | 11.5% |
| Other core shareholders | 7.6% |
Data relates to year-end 2015, unless otherwise indicated. For definitions, please see the detailed tables and analyses in this report. Outlook/watch/review data for our ratings is given elsewhere in this report. In KBC Insurance's case, it is the financial strength rating.
| Consolidated balance sheet, end of period (in millions of EUR) Total assets 285 382 256 928 238 686 245 174 252 356 Loans and advances to customers 138 284 128 492 120 371 124 551 128 223 Securities 65 036 67 295 64 904 70 359 72 623 Deposits from customers and debt certificates 165 226 159 632 161 135 161 783 170 109 Technical provisions and liabilities under investment contracts, insurance 26 928 30 058 30 488 31 487 31 919 Total equity 16 772 15 879 14 514 16 521 15 811 Risk-weighted assets (Basel II to 2012, Basel III from 2013) 126 333 102 148 91 216 91 236 89 067 Consolidated income statement (in millions of EUR) Total income 7 310 7 733 7 448 6 720 7 148 Operating expenses -4 344 -4 248 -3 843 -3 818 -3 890 Impairment -2 123 -2 511 -1 927 -506 -747 Net result, group share 13 612 1 015 1 762 2 639 Belgium – – – 1 516 1 564 Czech Republic – – – 528 542 International Markets (Slovakia, Hungary, Bulgaria, Ireland) – – – -182 245 Group Centre – – – -100 287 Gender diversity Gender diversity in the workforce (percentage of women) 59% 58% 57% 57% 56% Gender diversity in the Board of Directors (percentage of women) 4% 10% 15% 22% 25% Environmental efficiency* Electricity consumption (in GJ per FTE; Belgium) 22.5 21.8 22.4 22.2 21.0 Gas and heating oil consumption (in GJ per FTE; Belgium) 13.3 13.2 16.8 13.3 14.3 Commuter and business travel (in km per FTE; Belgium) 15 394 15 151 14 334 14 141 13 632 Paper consumption (in tonnes per FTE; Belgium) 0.15 0.13 0.13 0.11 0.12 Water consumption (in m3 per FTE; Belgium) 8.7 9.0 9.5 9.5 9.8 Greenhouse gas emissions (in tonnes per FTE; Belgium) 2.3 1.9 2.6 2.3 2.1 KBC share Number of shares outstanding, end of period (in millions) 358.0 417.0 417.4 417.8 418.1 Parent shareholders' equity per share, end of period (in EUR) 28.7 29.0 28.3 31.4 34.5 Average share price for the financial year (in EUR) 22.3 17.3 32.8 43.1 56.8 Share price at year-end (in EUR) 9.7 26.2 41.3 46.5 57.7 Gross dividend per share (in EUR) 0.01 1.00 0.00 2.00 0.00 Basic earnings per share (in EUR) -1.93 -1.09 1.03 3.32 3.80 Equity market capitalisation, end of period (in billions of EUR) 3.5 10.9 17.2 19.4 24.1 Financial ratios Return on equity -6% 1% 9% 14% 22% Cost/income ratio, banking 61% 64% 52% 58% 55% Combined ratio, non-life insurance 92% 95% 94% 94% 91% Credit cost ratio, banking 0.82% 0.71% 1.21% 0.42% 0.23% Common equity ratio (Basel III, Danish compromise method, phased-in/fully loaded) – – 13.3%/12.8% 14.4%/14.3% 15.2%/14.9% Total capital ratio (Basel III, Danish compromise method, phased-in/fully loaded) – – 18.4%/17.8% 18.9%/18.3% 19.8%/19.0% Net stable funding ratio (NSFR) – 105% 111% 123% 121% Liquidity coverage ratio (LCR) – 107% 131% 120% 127% Minimum requirement for own funds and eligible liabilities (MREL) – – – 12.5% 13.9% |
2011 | 2012 | 2013 | 2014 | 2015 |
|---|---|---|---|---|---|
For definitions and comments, please see the analyses and 'Glossary of ratios and terms' in this report. The proposed dividend for 2015 is subject to the approval of the General Meeting of Shareholders.
* We have slightly restated the reference figures for the environmental indicators to reflect the new way in which the number of FTEs is calculated.
| 150 | Statutory auditor's report |
|---|---|
| 152 | Consolidated income statement |
| 153 | Consolidated statement of comprehensive income |
| 154 | Consolidated balance sheet |
| 155 | Consolidated statement of changes in equity |
| 156 | Consolidated cashflow statement |
| 158 | Notes on the accounting policies |
| 158 | Note 1 a: Statement of compliance |
| 159 | Note 1 b: Summary of significant accounting policies |
| 165 | Notes on segment reporting |
| 165 | Note 2: Segment reporting based on the management |
| structure | |
| 168 | Notes to the income statement |
| 168 | Note 3: Net interest income |
| 169 | Note 4: Dividend income |
| 169 | Note 5: Net result from financial instruments at fair value |
| through profit or loss | |
| 170 | Note 6: Net realised result from available-for-sale assets |
| 170 | Note 7: Net fee and commission income |
| 170 | Note 8: Other net income |
| 171 | Note 9: Insurance results |
| 172 | Note 10: Earned premiums, life insurance |
| 173 | Note 11: Non-life insurance per class of business |
| 174 | Note 12: Operating expenses |
| 174 | Note 13: Personnel |
| 175 | Note 14: Impairment (income statement) |
| 176 | Note 15: Share in results of associated companies and |
| joint ventures | |
| 176 | Note 16: Income tax expense |
| 177 | Note 17: Earnings per share |
Statutory annual report: we have incorporated the content of the annual report required by law into the 'Report of the Board of Directors', which also contains additional, non-compulsory information. We have also combined the reports for the company and consolidated financial statements. All other reports and the websites we refer to do not form part of our annual report.
Integrated reporting: we have chosen to present our annual report – more specifically the section dealing with our business model and our strategy – in as integrated a manner as possible, taking the fullest possible account of IIRC guidelines. We view integrated reporting as our ultimate goal, one we get closer to achieving each year.
Company name: 'KBC', 'we', 'the group' or 'the KBC group' refer to the consolidated entity, i.e. KBC Group NV plus all the group companies included in the scope of consolidation. 'KBC Group NV' refers solely to the parent company.
Translation: this annual report is available in Dutch, French and English. The Dutch version is the original; the other language versions are unofficial translations. We have made every reasonable effort to avoid any discrepancies between the different language versions. However, should such discrepancies exist, the Dutch version will take precedence.
Disclaimer: the expectations, forecasts and statements regarding future developments that are contained in this annual report are based on assumptions and assessments made when drawing up this report. By their nature, forward-looking statements involve uncertainty. Various factors could cause actual results and developments to differ from the initial statements.
Report of the Board of Directors
KBC at a glance
Creation: formed in 1998 after the merger of two large Belgian banks (the Kredietbank and CERA Bank) and a large Belgian insurance company (ABB Insurance).
Principal activity: integrated bank-insurance.
Approximately 10 million clients.
Approximately 38 000 employees.
Core markets: Belgium, the Czech Republic, Slovakia, Hungary and Bulgaria. Elsewhere in the world, a presence in Ireland and, to a limited extent, in several other countries.
Principal brands and estimated market share:
Approximately 1 560 bank branches, insurance sales via own agents and other channels, together with various electronic channels.
Our vision: to be the reference for bank-insurance in all our core markets.
Our strategy rests on four, mutually reinforcing principles:
We put our strategy into practice within a stringent risk, capital and liquidity management framework.
2016 December January • Repayment of the final outstanding instalment of 2 billion euros of state aid (plus a 50% penalty) to the Flemish Regional Government. Even after this repayment, KBC retains a solid buffer over and above the minimum capital requirements set by the regulators. level.
• Announcement that KBC Insurance's solvency ratio, calculated according to the new Solvency II framework, was at a solid
February
2016
• Launch of our new corporate website (www.kbc.com).
2015
• Publication of third-quarter results (net profit of 600 million euros).
• Publication of fourthquarter results (net profit of 862 million euros, including the impact of liquidating KBC Financial Holding Inc.).
November
Statement by the Chairman of the Board of Directors and the Chief Executive Officer
Thomas Leysen: It certainly was a good year. In fact, it was the first time in recent years that we were able to concentrate fully on our core activities after having spent a substantial amount of our time previously on the divestment plan agreed with the European Commission. At the same time, we're committed to heeding the lessons learned from the financial crisis. We've slimmed down, we've improved our risk profile considerably over the past few years and, above all, we've returned to the essence of what we do – bankinsurance in a carefully considered selection of European countries. Our results illustrate that it's working. We've taken another step towards realising our objective of becoming the reference for bankinsurance in all our core markets. In other words, we're prepared for the future.
Johan Thijs: We saw a fine 6% rise in our income, with just about every one of our group's bank-insurance activities contributing to this performance. Despite the climate of low interest rates, net interest income remained around the same level as last year. Our net fee and commission income, on the other hand, grew by an impressive 7%, thanks primarily to our asset management activities. Our insurance business performed strongly too, with premiums going up by 4% and the combined ratio for our non-life business ending the year at an excellent 91%. All the other income items combined were – on balance – up by almost half on their level in 2014. The quality of our loan portfolio continued to improve and the amount of provisioning required was much lower than in 2014, due in part to a significant improvement in Ireland. We also wrote down goodwill on a number of participating interests. Our costs remained well under control and, as a result, the cost/ income ratio stood at an excellent 55% at year-end. On top of that, the liquidation of a group company had a net positive impact of 765 million euros, which brought our total net profit for 2015 to 2.6 billion euros – an
excellent performance to be proud of and one for which we're genuinely grateful to our clients and employees.
Thomas Leysen: That's right. We repaid the 2 billion euros in outstanding state aid in full at the end of 2015, plus a 50% penalty, to the Flemish Regional Government. That was considerably earlier than originally agreed with Europe. We remain grateful for the support we received when our group was in difficulty and also for the government's belief in our resilience. At the same time, the government – and by extension society – has received an attractive gain from the aid operations. I'd also like to add that our solvency position remains extremely strong, even after the repayment of state aid. At the end of 2015, our common equity capital ratio under Basel III stood at approximately 15%, according to the Danish compromise method. That's still well above the target set by the regulator.
Johan Thijs: Our focus is clearly on our current set of core countries and on further optimising our position there. We therefore do not intend to expand our geographical presence as it now stands. We're concentrating instead on organic growth in these countries, with the specific aim of growing our core businesses – banking, insurance, leasing, asset management, et cetera – in a profitable way. What that means in Belgium's case, for instance, is that we have launched KBC Brussels and have continued to roll out our growth strategy for CBC in Wallonia. If opportunities to make acquisitions in these core countries present themselves, we will definitely consider them, but only if they fit in with our strategy and satisfy clear and stringent financial criteria. A good example of this is our acquisition of Volksbank Leasing Slovakia, which allowed us to strengthen our position on the Slovakian leasing market.
Thomas Leysen: Competition is extremely tough and will remain so, not only from the traditional players, but also from online banks and e-commerce businesses in general. We will continue therefore to focus on new products and services, so that we can offer our clients innovative solutions. The climate of low interest rates is also impacting our current and future levels of interest income. We have responded to this, but the possibilities are finite. To reduce our dependence on interest margins, we will continue to diversify our income, including through such sources as our investment funds and investment-type insurance products. We will also ensure that our costs are kept under control and will continue to reduce complexity in all layers of the organisation.
Thomas Leysen: To us, sustainability means focusing on our long-term performance, placing the client's interests at the heart of everything we do, embedding our operations in a framework of stringent risk management, being responsive to society's expectations and maintaining a dialogue with our stakeholders. We also view transparent reporting as an important part of sustainability that takes account of all our stakeholders. In other words, we will continue along the path we started last year, which means working pragmatically towards the integrated reporting of financial and non-financial information, with considerable attention being paid to the principle of brevity. The reason for this is simple: if a report goes into too much detail, hardly anyone will read it, which defeats the whole purpose of publishing it.
Will digitisation continue to grow in importance?
Johan Thijs: We're committed to putting the client at the heart of what we do. Specifically, this means adopting a proactive approach to meet our clients' needs in terms of financial products. What's more, their preferences and behaviour are instrumental in determining how we cater for them. Our various distribution channels,
our branches, our call centre, our online applications and our mobile apps are all being seamlessly integrated, which gives clients the freedom to choose how to contact KBC whenever it suits them. Besides having an extensive network of bank branches and insurance agencies, we're fully committed in our strategy to digitisation. Digitisation of our products and processes allows us to make it easier and more convenient for clients to access us 24/7. The world we live in is changing at a very fast pace because of digitisation and the financial sector is no exception to this transformation. We are now busily preparing for this new future.
Thomas Leysen: The world economy was split in 2015 between developed economies and emerging markets. Growth in the euro area was driven by consumer spending, thanks primarily to lower energy and commodity prices, and a further improvement in the labour market. Looser budget policy, additional monetary easing by the ECB and the weaker euro were factors that also contributed to this situation. The emerging economies were adversely affected by low commodity prices and the prospect of a first interest-rate hike in the US, which in fact materialised in December.
We expect this trend to continue in 2016 and that, on balance, global economic growth will pick up slightly, as well. So, we are looking ahead with a sense of confidence. We have tightened up our strategy, set our longterm goals and are now fully focused on the further development of our bank-insurance group. Paramount in this regard is putting the client firmly centre stage.
We hope you enjoy our annual report.
Johan Thijs Thomas Leysen
Chief Executive Officer Chairman of the Board of Directors
The section on our business model describes how we create value, the specific characteristics of our model, the conditions in which we pursue our activities, what types of capital we use for that purpose, and what result we achieve as a consequence. In the section on our strategy, we discuss the principles we apply in order to achieve our goal of becoming the reference for bankinsurance in all our core markets.
In our capacity as a bank, we provide a range of savings accounts and other savings and investment products to ensure that our clients can save and invest in a well-informed manner. In this way, every client can grow their assets in keeping with their personal risk profile, and call on the expertise of our staff to assist them. We also see it as our task to contribute to general financial education and have taken a variety of initiatives in that field.
We use the money acquired through deposits to provide loans to individuals and businesses, thereby putting that money to productive use in society. As a lender, we enable people to build a house or buy a car, for instance, and businesses to be created or to grow. We also invest in the economy indirectly through our investment portfolio. Besides loans to individuals and businesses, we fund specific sectors and target groups, such as the social profit sector. We also provide funding to infrastructure projects that have a major impact on the domestic economy, and we contribute to the development of green energy projects.
The intermediation we provide as a deposit-taker and a lender ultimately means that we assume our clients' risks for them. Our highly developed risk and capital management know-how allows us to manage those risks.
As an insurer, we enable our clients to operate free of worry and to limit their risks.
Our clients can use our loans, deposit products and asset management services to help them realise their dreams and projects, and take out our insurance to protect those dreams and projects.
The relevance of insurance for the economy and for society as a whole speaks for itself. It is the ideal means of covering the risks associated with activities that are essential in our day-to-day lives. For instance, without car insurance, goods and people would not be transported; without public liability insurance, businesses could not be run; without fire insurance, property would not be protected; without industrial accident insurance, people would not be protected at work; and without income and health insurance, health care would become unaffordable.
What's more, we have a tradition going back many years of working closely with organisations involved in road safety, welfare and victim assistance, and, as an insurer, we are totally committed to 'prevention'. Preventing human suffering and focusing on values such as safety, security, health and concern for victims are just some of the social objectives we have set ourselves, which is reflected in initiatives like our awarenessraising campaigns.
We also offer our clients a variety of other financial services that are indispensable in everyday life, including payments, cash management, trade finance, leasing, corporate finance, and money and capital market products. In this way too, we contribute to the economic system.
We contribute significantly to employment in all our core markets. We recognise that we have a significant direct impact on the lives of our people. Therefore, we offer them a fair reward for the work they do, thereby contributing to the welfare of the countries in which we operate. We also offer them development opportunities and the means to maintain the best possible work-life balance. What's more, as a major local player in each of our core countries, we form part of the economic and social fabric in those countries. We take account of this in our activities, and we take a range of initiatives to support local communities.
We use various types of resource or 'capital' to enable us to operate.
• Financial capital is the money we receive from different capital providers to support our activities and to invest further in our business strategy. It comprises the capital made available by our shareholders, state aid (already repaid in full at year-end 2015) and accumulated profit generated by our operations.
• Human capital and intellectual capital refer to the recruitment, management and development of our employees, to enable them to make the best possible use of their talents and experience in order to keep improving our service and to develop solutions for our clients. Intellectual capital includes the knowledge and creativity of our employees, together with our intellectual property and brand name.
• Social and relationship capital comprises all relationships with and our reputation among our clients, stakeholders, government, regulators and other stakeholders who enable us to operate.
• Manufactured capital is a generic term for all the forms of infrastructure we use to perform our activities. It includes our office buildings, branches and agencies, our electronic and other networks and our ICT platforms.
• Natural capital refers to the raw materials we use in our operations. Although the consumption of raw materials is less significant for a financial institution than it is in most industrial sectors, we are a responsible business that wants to show due respect to our environmental impact and, therefore, we integrate this aspect into our operations, as well.
We perform our activities within the economic and social context of each country, taking account of the characteristics of our business model and our values.
Our business culture and values define how we work towards our goal of becoming the reference as bank-insurer and contributing positively to society. We have summed up our business culture in the acronym 'PEARL', which stands for Performance, Empowerment, Accountability, Responsiveness and Local Embeddedness. We also encourage all our employees to behave in a way that is responsive, respectful and results-driven. An explanation of what we mean is given in the following diagram.
It goes without saying that we monitor how embedded our culture and values are among our staff. We have appointed a dedicated PEARL manager to ensure that all our employees are thoroughly imbued with these values. The PEARL manager reports on a regular basis to our Group CEO, ensuring that senior management is aware of the extent to which PEARL is known, practised by and embedded within our group.
Besides our culture and our values, our business model is characterised by a number of highly specific elements that set us apart from our competitors, such as our integrated bankinsurance model and our focus on a number of specific countries. The table on page 16 goes into this in greater depth.
We offer an integrated response to our clients' banking and insurance needs. Our organisation is similarly integrated, with most services operating at group level and the group managed in an integrated style. Our integrated model offers the client the benefit of a comprehensive, one-stop financial service that allows them to choose from a wider, complementary and optimised range of products and services. It offers the group benefits in terms of income and risk diversification, additional sales potential through intensive co-operation between the bank and insurance distribution channels, and significant cost-savings and synergies.
We focus on our core markets of Belgium, the Czech Republic, Hungary, Slovakia and Bulgaria. As a result, we now operate in a mix of mature and growth markets, taking advantage in the latter of the catch-up potential for financial services. Our focus in Ireland is on raising profitability by expanding our retail business there. We have a limited presence elsewhere in the world to support activities in our core markets.
We want to build sustainable local relationships with private individuals, SMEs and mid-caps in our core countries. Local responsiveness is very important to us in that regard. It means we know and understand our local clients better, that we pick up signals effectively and respond to them proactively, and that we offer products and services tailored to these local needs. It also means that we focus on the sustainable development of the markets and communities in which we operate.
A special feature of our shareholder structure is the core shareholder syndicate consisting of Cera, KBC Ancora, MRBB and the other core shareholders, which held just over 40% of our shares at the end of 2015. These shareholders act in concert, thereby ensuring shareholder stability and the further development of our group.
| Our strengths | |||||
|---|---|---|---|---|---|
| A well-developed bank-insurance strategy, which enables us to respond immediately to our clients' needs |
Strong and finely meshed commer cial banking and insurance franchises in Belgium and the Czech Republic, with solid returns |
Further turnaround potential of the International Markets Business Unit |
Successful track record of underlying business results |
Solid capital position and historically strong liquidity |
Firmly embedded in the local economies of our core countries |
| Our challenges | |||||
| Macroeconomic environment characterised by low interest rates, demographic age ing and increased nervousness |
Stricter regulation in areas like client protection and solvency |
Competition, new players in the market, new technologies and changing client behaviour |
Increasing cyber crime |
Public image of the financial sector |
You will find information on each business unit and country in the section 'Our business units'. Information about our culture and values can be found at www.kbc.com/About us.
* A proportion of our employees work in other countries or in group functions. We also allocate part of our capital and income to the Group Centre (see below).
We have aligned the governance of our group with our strategic choices and our business model, and have ensured that our structure supports effective decision-making and individual accountability.
For that reason, our group is structured around three business units, which focus on local activities and are expected to contribute to
sustainable earnings and growth. The business units are Belgium, the Czech Republic and International Markets (Slovakia, Hungary, Bulgaria and Ireland). The diagram above illustrates the importance of the different business units. A more detailed description of each business unit (and the Group Centre) can be found in the 'Our business units' section.
I really appreciate empowerment at K&H, which is one of the key PEARL values. I see this in the behaviour of my managers, who support us in everything we do and show that they believe in us. Consequently, I treat my team in the same way, and highly value the effort put in by all concerned.
András Árva, Head of Private Individuals Segment Marketing at K&H (Hungary)
The Board of Directors is responsible for defining our group's strategy, general policy and risk appetite. It is supported by several specialised committees, namely the Audit Committee, the Risk & Compliance Committee, the Nomination Committee and the Remuneration Committee. The role and activities of these committees are dealt with in the 'Corporate governance statement' section.
The Executive Committee is responsible for the operational management of the group within the confines of the general strategy approved by the board. In view of its responsibility for financial policy and risk management, the Executive Committee also includes a chief financial officer (CFO) and chief risk officer (CRO) among its ranks.
The most important matters discussed by the Board of Directors in 2015 are summarised in the 'Corporate governance statement' section.
Detailed information on our remuneration policy for senior management can also be found in that section, under 'Remuneration report'. The principle underpinning our remuneration policy for senior management – and indeed for all our staff – is that good performance deserves to be rewarded. It is only fair that every employee who works hard is properly rewarded for their efforts, including by means of (limited) variable remuneration.
| Board of Directors | Number of members | 16 |
|---|---|---|
| Men/Women | 12/4 | |
| Principal qualifications* | economics, law, actuarial sciences, mathematics, management, philosophy, literature, etc. |
|
| Nationality | Belgian (14), Hungarian (1), Czech (1) | |
| Independent directors | 3 | |
| Attendance record | See the 'Corporate governance statement' section | |
| Executive Committee |
Number of members | 6 |
| Men/Women | 5/1 | |
| Principal qualifications* | law, economics, actuarial sciences, mathematics, international relations |
|
| Nationality | Belgian (5), British (1) |
* Based on all qualifications (several individuals have more than one degree).
Rough breakdown based on all qualifications (several individuals have more than one degree)
More information on the business units can be found in the 'Our business units' section. More detailed information on our governance is provided in the 'Corporate governance statement' section and in the group's Corporate Governance Charter at www.kbc.com.
The world economy, the financial markets and other macroeconomic and demographic developments can strongly influence our results. The same goes for technological changes and intensifying and evolving competition. Regulation, moreover, continues to grow and tighten, which affects our operations and capital management. Cyber threats have also become a major concern in an increasingly more digitised world. Each of these challenges is dealt with in the following overview.
The specific risks associated with our core bank-insurance business – including credit risk, market risk and technical insurance risk – are discussed in brief under 'We aim to achieve our ambitions within a stringent risk management framework' in the 'Our strategy' section, and at greater length in the 'Risk management' and 'Capital adequacy' sections.
The world economy was marked by encouraging growth in developed countries and hesitant growth in emerging markets. Falling oil and commodity prices served to boost purchasing power for developed-world consumers, but resulted in a loss of income for producer nations. Uncertainty as to the sustainability of the Chinese growth model also had a significant impact. Within the euro area, Spain and Ireland experienced a vigorous recovery and there was little threat to financial stability, even during the summer when Greece found itself on the brink of a single currency exit. Generally speaking, weak investment growth in the euro area remained the Achilles heel. Low inflation and jittery financial markets led to shifting expectations in terms of the Fed raising interest rates for the first time in many years, something which eventually happened at the end of the year. With fear of deflation in the euro area in the background, the ECB took a step in the opposite direction in March, when it further eased its policy by announcing a fresh bondpurchasing programme, targeted primarily at government paper. German ten-year government bond yields dipped temporarily to just above zero in anticipation of the move. A correction followed, but yet more easing in December pushed German long-term bond yields back towards the 0.5% mark. The ECB's purchasing programme caused rate spreads on government bonds in the euro area to narrow further.
The world economy (see boxed text on the previous page), the financial markets and demographic developments can strongly influence our results. This relates to matters like the level and volatility of interest rates, inflation, employment, bankruptcies, disposable household income, financial market liquidity, exchange rate movements, availability of funding, investor and consumer confidence and credit spreads.
The risk of persistently low interest rates has become more important in recent years, exerting significant pressure on the income of banks and insurers. Demographic ageing is also a challenge for our life insurance business, for instance, where it can lead to a changing product offering due to the shift in the composition of the insurance population, and because it drives up demand for rate products with longer maturities.
We carry out most of our activities in a highly competitive environment. Besides the traditional players, there is also intensifying competition from smaller banking entities and e-commerce in general.
Our competitors too are being affected by technological change and shifting client behaviour. Examples include the surge in growth of online services. We are both eager and obliged to keep up with technological developments and the new needs of a changing society.
We take proactive measures. Examples include adjusting our offering to take account of demographic ageing (more insurance policies relating to health care, investment products linked to financial planning, etc.); strengthening our own capital position to ensure financial stability; and continuing to invest in investment solutions that offer protection against stock market shocks.
The creative input of our employees is highly important when it comes to equipping ourselves to deal with competition and technological change. We do everything we can to attract and motivate talented staff.
Increasing regulation is an issue for the financial sector as a whole. It includes rules like the Markets in Financial Instruments Directive, the Markets in Financial Instruments Regulation and the Insurance Distribution Directive to protect clients from unfair or inappropriate practices. Other regulation relates to the foundations of the European Banking Union, i.e. harmonised supervision by the European Central Bank of the most important euro area banks (Single Supervisory Mechanism) and the Single Resolution Mechanism in the euro area. The Banking Act came into force in Belgium, transposing the provisions of the Capital Requirements Directive into Belgian law and imposing restrictions on certain activities. Various new initiatives are currently underway in the area of solvency, including recent developments in the Basel regulations for banks and the introduction of the Solvency II Directive for insurers with effect from 2016. The Bank Recovery and Resolution Directive (BRRD), which includes the introduction of resolution instruments such as bail-ins and the associated MREL requirements, is also important. It is designed to ensure that investors rather than governments have to absorb losses incurred by banks. Another factor is the new IFRS that have yet to become effective, including IFRS 4 (applies specifically to the insurance business) and especially IFRS 9 (introduces a number of measures, including a new classification system for financial instruments and new impairment rules).
Hacking and cyber attacks are a constant threat in an increasingly digital world, with the potential to cause significant financial and reputational harm.
1 Including 10 KBC Bank branches in the US, Asia and Europe (5-billion-euro loan portfolio). 2 Or 17% excluding group insurance.
Our employees are, without any doubt, our greatest strength. They come into direct contact with our clients and define the way KBC is viewed by them. We are fully aware that it is chiefly due to the commitment and efforts of our employees that we are able to achieve strong results and to fulfil our strategy.
As a financial group, we draw on many different types of capital, most notably our employees and our capital base. Our brands, reputation and capacity to innovate, our relationships with all our stakeholders, our networks – both electronic and bricks-and-mortar – and our ICT infrastructure are also important elements that enable us to operate. We also make us of a variety of raw materials, although our consumption of these is less significant, certainly compared to industrial companies.
Our HR policy is embedded in our PEARL business culture, where the ideas of Performance, Empowerment, Accountability and Responsiveness are crucial, as is a regional approach to each of our core countries (Local Embeddedness). It is our employees who give tangible shape to this policy, and the manner in which they do so reflects KBC's three core values, i.e. those of being results-driven, respectful and responsive. We closely monitor how the PEARL business culture is understood in all our core countries. It is our belief that the strength of our PEARL culture will ultimately result in more satisfied stakeholders and in a robust economic performance.
To help anchor our business culture, we have also adjusted our HR tools. In 2015, we launched updated career assessments that run in parallel in all our core countries. This will ensure that we recruit the right applicants and that new KBC employees meet the right profile. The new career assessments will also guarantee opportunities for our own staff to progress their career.
We create a stimulating working environment where employees are given the opportunity to develop their talents and skills, not only by learning, but also by communicating their ideas and taking responsibility. We view selfdevelopment as the key to career-long employability. With that in mind, we offer our staff a wide range of traditional training courses, e-learning, Skype sessions, workplace coaching, and other development opportunities. Although employees are primarily responsible for developing their careers, KBC offers a great deal of support. There is also a range of interesting jobs, and plenty of opportunities are offered to change jobs internally and for employees to grow in their current position. At the same time, we pay particular attention to career-long employability. Minerva, our HR plan for older employees in Belgium, has enabled us to move towards a more individualised approach that is geared more closely to their particular needs. We are responding in this way to demographic developments and preparing people to work for longer.
Leadership is no longer just a question of delegating and overseeing, but more of enthusing, inspiring and motivating people. We realise that good managers are key when it comes to enabling employees to bring out the best in themselves. That's why we have intensive leadership tracks in place at different levels. Managers develop their skills through our 'lead yourself', 'lead your business' and 'lead your people' courses. We also launched KBC University in 2015, an ambitious development programme for senior managers from the entire KBC group, with different speakers and modules focusing on bank-insurance, leadership and 'client-centricity'. The 'leadership@kbc' Intranet portal was set up too as an open forum on which everyone can exchange ideas.
KBC rewards its employees fairly, offering them a competitive pay package that reflects the differing levels of responsibility. We use variable remuneration to differentiate between individual and team performance. In addition to these components, the overall remuneration package incorporates an attractive range of fringe benefits, including a pension scheme and free insurance. Besides financial rewards, we attach a great deal of importance to the recognition of employees who, for instance, have made an exceptional contribution to a project.
We offer our employees the scope to show enterprise and encourage collaboration, we invest in self-directing teams and set up international collaborative projects. In 2015, particular attention was paid to reducing the complexity of our products, processes, tools and specific working methods.
KBC also embarked on the roll-out of a uniform ICT platform for 'soft' HR processes in 2015. To get the very best out of our employees' talents, we have transparent HR processes and intuitive tools that support those processes. The advantage of an integrated ICT platform is that HR data can be compared across the different countries. The new system is already being used in the Czech Republic for performance management and recruitment. Belgium will follow, with an emphasis on the internal job market, recruitment and succession management.
We do not make any distinction on the grounds of gender, religion, ethnic background or sexual orientation in our HR, recruitment and promotion policies or in our remuneration systems. Equal treatment of employees is also enshrined in the KBC Code of Conduct and in the various manifestos and charters KBC has endorsed. As an employer, KBC wants to give a
clear signal to society: we treat our employees in a socially responsible manner and that relationship is grounded in mutual trust and respect.
Given the importance of our employees to the group, we attach particular importance to tracking their satisfaction and involvement, and so survey them on a regular basis. We surveyed the entire group for the first time in 2015, with
an exceptionally high 80% of staff actually responding. The survey revealed an involvement level higher than the European financial sector average. The engagement index rose in Belgium and Bulgaria. Although the index in the Czech Republic was down on last year's very high level, it remained well above the benchmark. The index remained at its traditionally high level in Hungary too. In Slovakia and Ireland, it was slightly lower than the national benchmark.
| Number of staff, KBC group | 31-12-2014 | 31-12-2015 |
|---|---|---|
| In FTEs | 36 187 | 36 411 |
| In % | ||
| Belgium | 45% | 44% |
| Central and Eastern Europe | 51% | 52% |
| Rest of the world | 4% | 4% |
| Belgium Business Unit | 35% | 34% |
| Czech Republic Business Unit | 23% | 23% |
| International Markets Business Unit | 29% | 30% |
| Group Functions and Group Centre | 13% | 13% |
| Men | 43% | 44% |
| Women | 57% | 56% |
| Full-time | 81% | 82% |
| Part-time | 19% | 18% |
| Average age | 42 | 42 |
| Average seniority | 14 | 13 |
| Number of training days per FTE | 9 | 7 |
More information about our relationship with our employees can be found at www.kbc.com/Working at KBC.
It goes without saying that we need a solid capital base if our employees are to work properly. At year-end 2015, our total equity came to 15.8 billion euros and chiefly comprised own share capital, share premiums, various accumulated reserves and certain additional tier-1 instruments. A detailed breakdown of our equity is provided in the 'Consolidated statement of changes in equity' table in the 'Consolidated financial statements' section. The main changes in equity in 2015 were the inclusion of the annual profit (+2.6 billion euros) and the final repayment of state aid (-3 billion euros). Our capital was represented by 418 087 058 shares at year-end 2015, a small increase of 306 400 shares on the previous year, due to the traditional capital increase reserved for staff in December.
Our share is listed on Euronext Brussels. Its closing price at year-end 2015 was 57.67 euros, up 24% on the year-earlier figure. As a result, the market value of our company was about 24 billion euros at the end of 2015.
Our shares are held by a large number of shareholders spread across a number of countries. A group of shareholders consisting of MRBB, Cera, KBC Ancora and the Other core shareholders, constitute KBC's core shareholders. They have signed a shareholder agreement in order to support and co-ordinate the general policy of our group and to supervise its implementation. The agreement establishes a contractual shareholder syndicate and contains provisions on the transfer of securities and the exercise of voting rights. The current agreement applies for a ten-year period with effect from 1 December 2014. According to the most recent notifications, the core shareholders own approximately 40% of our shares between them.
The General Meeting of Shareholders decides each year on the dividend to be paid. The group's dividend intentions are set out in the table below.
| KBC share | 2014 | 2015 |
|---|---|---|
| Number of shares outstanding at year-end (in millions) | 417.8 | 418.1 |
| Share price* | ||
| Highest share price for the financial year (in EUR) | 46.9 | 65.3 |
| Lowest share price for the financial year (in EUR) | 38.0 | 44.3 |
| Average share price for the financial year (in EUR) | 43.1 | 56.8 |
| Closing share price for the financial year (in EUR) | 46.5 | 57.7 |
| Difference between closing share price at financial year-end and previous financial year-end |
+13% | +24% |
| Equity market capitalisation at year-end (in billions of EUR) | 19.4 | 24.1 |
| Average daily volume traded on NYSE Euronext Brussels (source: Bloomberg) | ||
| Number of shares (in millions) | 1.03 | 0.86 |
| In millions of EUR | 44.2 | 48.2 |
| Equity per share (in EUR) | 31.4 | 34.5 |
* Based on closing prices and rounded to one decimal place.
| Shareholder structure of KBC Group NV* | Number of shares at the time of disclosure |
% of the current number of shares |
|---|---|---|
| KBC Ancora | 77 516 380 | 18.5% |
| Cera | 11 127 166 | 2.7% |
| MRBB | 47 889 864 | 11.5% |
| Other core shareholders | 31 768 376 | 7.6% |
| Subtotal for core shareholders | 168 301 786 | 40.3% |
| Free float | 249 785 272 | 59.7% |
| Total | 418 087 058 | 100.0% |
* The shareholder structure shown in the table is based on the most recent notifications made under the transparency rules or (if they are more recent) on disclosures made under the Act on public takeover bids or other available information. Details of notifications from shareholders can be found in the 'Company annual accounts and additional information' section.
| For financial year 2015 | No dividend. |
|---|---|
| For financial year 2016 and beyond | Payment of at least 50% of the consolidated profit available for distribution (in the form of dividends and coupons on the AT1 instruments combined). |
* Subject at all times to the approval of the relevant General Meeting of Shareholders and the supervisory authorities.
We received financial support from the Belgian Federal and Flemish Regional governments in 2008 and 2009 to strengthen our capital base. This state aid, which initially amounted to 7 billion euros, was paid back in full at the end of 2015 (when a final repayment of 2 billion euros was made, plus a 50% penalty). In 2009, we also signed an agreement with the Belgian State regarding a guarantee for a substantial part of our structured credit portfolio (CDOs). Since then, our exposure to CDOs has been scaled back to zero and this guarantee agreement also terminated.
Our strong capital base enables us to pursue our business activities, a significant part of which is to transform deposits and other forms of funding into loans. For that reason, funding acquired through deposits and the issue of debt securities are important 'raw materials' for our group, alongside our capital. We have therefore developed a strong retail/mid-cap deposit base
in our core markets. We are also a regular issuer of debt instruments and we issue ordinary and subordinated bonds in various currencies in a number of ways, including through issues as part of the wholesale and retail programmes of KBC IFIMA.
The table shows the long-term and short-term credit ratings of KBC Group NV, KBC Bank NV and KBC Insurance NV. KBC Group NV's rating was downgraded from 'A3' to 'Baa2' by Moody's in June 2015, while KBC Insurance's rating was downgraded from 'A' to 'A-' by Standard & Poor's at the beginning of December 2015. In January 2016, Fitch upgraded the financial strength rating of KBC Insurance from 'A-' to 'A', Standard & Poor's downgraded the rating of KBC Group NV from 'A-' to 'BBB+' and Moody's upgraded the rating of KBC Bank from 'A2' to 'A1' and of KBC Group NV from 'Baa2' to 'Baa1'.
| Long-term rating | Outlook/watch/ review |
Short-term rating |
|---|---|---|
| A- | (Stable outlook) | F1 |
| A | (Stable outlook) | – |
| A- | (Stable outlook) | F1 |
| A1 | (Stable outlook) | P-1 |
| Baa1 | (Stable outlook) | P-2 |
| A | (Negative outlook) | A-1 |
| A- | (Stable outlook) | – |
| BBB+ | (Stable outlook) | A-2 |
* Please refer to the respective credit rating agencies for definitions of the different ratings. In KBC Insurance's case, it is the financial strength rating, which indicates the likelihood of policyholders' claims being met, whereas the ratings given for the bank and the group indicate the likelihood of their financial obligations (debts) being met.
Alongside our staff and capital, our network and relationships are extremely important to our activities. An overview of our network can be found under 'Market conditions in our most important countries in 2015'. Our social and relationship capital comprises all relationships with our clients, shareholders, government,
regulators and other stakeholders who enable us to remain socially relevant and to operate as a socially responsible business. This theme is dealt with in depth under 'Our role in society: to be responsive to society's expectations and to maintain a dialogue with our stakeholders' in the 'Our strategy' section.
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More information about our shareholder structure is provided in the 'Corporate governance statement' section, under 'Disclosure under Article 34 of the Belgian Royal Decree of 14 November 2007'. Further details of our credit ratings are available at www.kbc.com/Investor Relations/Credit ratings, and information on our sources of finance is provided under 'Liquidity risk' in the 'Risk management' section.
(1 January 2015 = 100%, end-of-week prices)
It goes without saying that profitability – enshrined within a sustainable framework (see below) – is important for any business. We included an overview of our most important financial data and their development over the past five years under 'Our group in figures' at
the beginning of this annual report. Because of the state aid received, we carried out an onerous divestment programme during that period, as reflected in the decline in total assets in the initial years. The divestment programme and the repercussions of the financial crisis also naturally
285
with strong results again …
had an impact on our net profit in the years in question. Nevertheless, our business model remained profitable and efficient throughout, as demonstrated for instance by our adjusted net profit figures (i.e. net profit corrected for the impact of divestments and CDOs) and our cost/ income ratio (see graph). That period is now behind us, as strikingly illustrated in the graph of our net profit, which shows a steady increase. We are back again, therefore, and totally prepared for the future.
We take a closer look at our financial results in the 'Consolidated results in 2015' section. The most important items were:
Positive impact of the valuation of derivatives used for asset/liability management purposes.
Increase in most other income items.
Cost/income ratio
| Selection of financial data (KBC group)1 | 2014 | 2015 | change | KPI3 | |
|---|---|---|---|---|---|
| Total assets | millions of EUR | 245 174 | 252 356 | +3% | |
| Loans and advances to customers | millions of EUR | 124 551 | 128 223 | +3% | |
| Deposits from customers and debt certificates | millions of EUR | 161 783 | 170 109 | +5% | |
| Technical reserves, insurance (incl. unit-linked) | millions of EUR | 31 487 | 31 919 | +1% | |
| Total equity | millions of EUR | 16 521 | 15 811 | -4% | |
| Risk-weighted assets (Basel III, Danish compromise method, fully loaded) |
millions of EUR | 91 236 | 89 067 | -2% | |
| Net result | millions of EUR | 1 762 | 2 639 | +50% | |
| Total income | millions of EUR | 6 720 | 7 148 | +6% | n |
| Gross bank-insurance income | millions of EUR | 500 | 507 | +1% | n |
| Cost/income ratio, banking | % | 58% | 55% | -3 percentage points | n |
| Combined ratio, non-life insurance | % | 94% | 91% | -3 percentage points | n |
| Liquidity coverage ratio (LCR) | % | 120% | 127% | –1 | n |
| Net stable funding ratio (NSFR) | % | 123% | 121% | -2 percentage points | n |
| Common equity ratio2 | % | 14.4%/14.3% | 15.2%/14.9% | +0.8% percentage points/ +0.5% percentage points |
n |
| Total capital ratio2 | % | 18.9%/18.3% | 19.8%/19.0% | +0.9% percentage points/ +0.7% percentage points |
n |
| Dividend payout ratio | % | 59% | – | – | n |
1 The change in data has been affected by various one-off factors or changes in definition. For more information, see the 'Consolidated results in 2015' section and the 'Glossary of ratios and terms'.
2 According to Basel III, Danish compromise method, phased-in/fully loaded.
3 See 'Our strategy'.
.
As stated already, it is important to us that our profitability is enshrined within the pursuit of sustainability.
When Corporate Sustainability and Responsibility or CSR is mentioned, the first thing that usually springs to mind is ecological or social impact. As far as we are concerned, however, sustainability goes a lot further than that.
It means that the client's interests are at the heart of everything we do, that we focus on our long-term performance, that we are responsive to the expectations of society, and that we surround all this with stringent risk management. All these elements are embedded in our strategy for the future, which is discussed at length in the 'Our strategy' section.
This does not mean, of course, that specific ecological or social impact is not important to us. Even though a financial institution's ecological footprint is traditionally much smaller than that of an industrial company, we strive continuously to reduce that footprint further. Ecology has a direct influence on our activities too. To give just one example, climate change (more extreme weather) can have a direct negative impact on our insurance results due to higher claim levels.
Of course, we also remain sensitive to the social impact we have on the communities in which we operate, especially the urban areas where our business is focused, and we play an active role in patronage. Each of our group's business units engages in local community projects, the precise focus of which depends on local priorities and culture.
Deyan Avramov, Director of Property Insurance at DZI Insurance (Bulgaria)
I am proud to be part of the KBC group and to see the sustainable values in our PEARL culture also being reflected in our insurance activities. The role insurance plays in today's society is vitally important and simply being part of this great team is extremely fulfilling, both as a professional and as an individual.
We decided in consultation with our Internal Sustainability Board (see below) to define a number of focus areas regarding corporate sustainability and responsibility. At group level, we will focus on the areas of financial literacy, entrepreneurship and environmental responsibility. In addition, each of our entities can choose between health and demographic ageing as the fourth area.
A selection of data relating to our environmental efforts is provided below. We expanded the scope in 2015 to include the entire KBC group. For purposes of comparison, we have also included the relevant figures for Belgium and the Czech Republic in 2014 and 2015.
| Selection of non-financial data | 2014 Belgium and the Czech Republic |
2015 Belgium and the Czech Republic |
2015 Group as a whole |
|---|---|---|---|
| Electricity consumption | 480 382 GJ | 448 479 GJ | 558 864 GJ |
| Water consumption | 302 173 m3 | 268 266 m3 | 402 039 m3 |
| CO2 emissions |
56 107 tonnes | 54 905 tonnes | 68 395 tonnes* |
| Waste | – | – | 6 476 tonnes |
* Excluding Bulgaria.
CSR is not a separate policy for us, it forms an integral part of our group-wide strategy. We do, however, have a separate CSR department, which reports directly to the CEO, and also have specific CSR committees in all our core countries and in Ireland, which deliver and validate non-financial data and organise and communicate on local initiatives. Sustainable business has to be supported, however, by all the group's employees. To ensure this is the case, we have – alongside our Sustainability Advisory Board of external experts – set up an Internal Sustainability Board, where representatives of the different business units create a platform with the CEO and the CSR General Manager for internal awareness-raising and communication.
Since CSR policy constitutes an integral part of our group's strategy, we report where possible in an integrated manner. We no longer have a separate CSR section, therefore, and have incorporated this information instead into the description of our model and our strategy.
We have developed a number of guidelines to ensure that sustainability is firmly embedded in our everyday activities. The most important of these are listed below. The actual codes of conduct can be found at www.kbc.com.
Role in society
Human rights
We have been a pioneer in our core markets ever since KBC Asset Management launched its first SRI funds in 1992. The first generation of funds worked on an exclusion basis, i.e. the funds in question did not invest in companies belonging to morally questionable sectors. The second generation concentrated on positive criteria, i.e. on companies that have a positive impact on society, mostly with an ecological focus. The current generation of SRI funds takes account not only of ecological criteria, but also of social impact and corporate governance, and of the various stakeholders. The funds only invest in companies that are among the best in their sector in terms of sustainability. 'Impact investing' is the latest trend in SRI. This form of investing bridges the gap between traditional investments, which focus on financial returns, and philanthropy, which does not expect a financial return. By launching the first impact investing fund in Belgium, KBC Asset Management is looking to continue its pioneering role in sustainable investment in its core markets.
Detailed financial information can be found in our presentations and reports at www.kbc.com. More detailed information on CSR is also available at www. kbc.com/Sustainability & Responsibility and in the 'Our business units' section of this report.
More information on our sustainable investments can be found at https://kbcam.kbc.be/en/socially-responsible-investment-products.
Our strategy rests on four, mutually reinforcing principles:
We implement our strategy within a strict risk, capital and liquidity management framework.
Our ultimate goal is to be the reference for bank-insurance in all our core markets. We are convinced that our strategy will help increase trust in us day by day and will thus place us firmly on the road towards that goal.
Within a stringent risk, capital and liquidity management framework
We have to earn and retain our clients' trust day after day if we are to become the reference. To do so, we put our clients at the heart of everything we do. We offer them complete, accessible and relevant solutions and an optimum experience. Trust, convenience and proactivity take the lead in everything we do.
How do we place the client at the heart of everything we do?
improve our services and products. We also closely monitor our reputation, which can be influenced by a range of factors (see diagram). Not only do we calculate our score for reputation in general, we do so for the underlying elements, as well, and communicate this analysis to all the departments and individuals concerned, raising their awareness of it and ensuring they take appropriate action. The emphasis in 2015 was on actions relating to governance, citizenship and client centricity.
I'm really proud of the way we interact with our clients. They choose KBC for expertise, but especially because we see them as more than just a client, and treat them in a warm and genuine manner. To me, that's the essence of putting the client centre stage.
Kristof Claessens, Relationship Manager and Adviser at KBC Belgium
* In Belgium, the financial benchmarks are: BNP Paribas Fortis, ING, Argenta, AXA, Ethias, AG Insurance, Deutsche Bank, Rabobank, bpost bank, Belfius, BKCP; in the Czech Republic: Air Bank, GE Money Bank, Cˇeská sporˇitelna, Komercˇní banka, Kooperativa pojišt'ovna, Cˇeská pojišt'ovna, Fio banka, Ceska Posta, Unicredit Bank; in Hungary: OTP Bank, Erste Bank Hungary, Budapest bank, CIB Bank, Raiffeisen Bank Hungary, UniCredit Bank Hungary; in Slovakia: Slovenská sporitel'nˇa, VUB Banka, Tatra banka, Prima banka, Sberbank Slovensko, Unicredit Bank; in Ireland: Credit Union, Zurich Ireland, Permanent TSB, Bank of Ireland, Ulster Bank, AIB. The scores for the Czech Republic relate in the first instance to CˇSOB Bank. The method of calculation is being fine-tuned for Bulgaria and, therefore, no definitive results are available.
In the diagrams, we compare:
a) the KBC entity's score with the average score in the sector (per country);
b) the KBC entity's progress with average progress in the sector (per country).
If, for example, the score of a KBC entity in a country is significantly higher than the sector average and the progress compared to the previous year is significantly lower than average progress in the sector, we place the KBC entity in the upper-left segment. For most of the indicators, 'significantly' means 'a difference of 5% or more'.
Within a stringent risk, capital and liquidity management framework
One of the foundations of our business model is that we engage in bank-insurance activities. It means that we respond in an integrated way to all of our clients' banking and insurance needs and that we also position ourselves as an integrated bank-insurer within our organisation. Our integrated model offers the client the benefit of a comprehensive, one-stop financial service that allows them to choose from a wider, complementary and optimised range of products and services. It offers the group benefits in terms of income and risk diversification, additional sales potential through intensive co-operation between the bank and insurance distribution channels, and significant cost-savings and synergies.
How do we as a bank-insurer offer our clients a unique experience?
• As an integrated bank-insurer, we can put our clients' interests at the heart of what we do by offering them an integrated product range
and advising them based on grouped needs that transcend pure banking or insurance, and include payment convenience, for instance, the home, mobility and family.
I really believe in bank-insurance. We can offer clients solutions that help them live their dreams in any situation. The aim is not to acquire a house or a car, but rather to live, travel and enjoy life. And that's possible thanks to our integrated bank-insurance solutions.
Martin Renner, Bank-Insurance & Direct Sales Department at CˇSOB (Slovakia)
• We are furthest advanced in Belgium, where our bank-insurance business already operates as a single company that is achieving both commercial and non-commercial synergies. An important feature of our model in Belgium is the unique co-operation between our bank branches and insurance agencies in micro
* See 'Glossary of ratios and terms' for definition.
markets. The branches sell bank and standard insurance products, and refer clients to the insurance agency in the same micro market for other insurance products. The insurance agencies sell the full range of insurance products and handle all claims, including those relating to policies taken out at a bank branch.
| KPI | What | Target and result in 20151 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Compound annual growth rate (CAGR) of: [fee and commission income received by the |
BEL | CZE | SLO | HUN | BUL | IRE | Group | ||||
| CAGR of bank-insurance gross income |
bank from the linked insurer] + | Target CAGR for 2013-2017 |
≥ 5% | ≥ 15% | ≥ 10% | ≥ 20% | ≥ 5% | – | ≥ 5% | ||
| [insurance income for insurance products sold by bank branches] + |
CAGR for 2013-2015 |
0% | 14%2 | -3% | 5%2 | 11% | – | 0% | |||
| [management fees generated by unit-linked | |||||||||||
| insurance products sold by bank branches | |||||||||||
| and recognised at the asset manager]1 |
1 We refined the method of calculating the CAGR of gross bank-insurance income in 2015 and restated the figures for 2014 retroactively. See 'Glossary of ratios and terms'.
2 Calculated in local currency for the Czech Republic and Hungary.
• Our bank-insurance model also enables us to achieve various commercial synergies. In Belgium, for instance, some seven out of ten clients who agreed home loans with our bank in 2015 also took out mortgage protection cover with our insurer, while eight to nine out of ten purchased home insurance. At Cˇ SOB in
the Czech Republic, approximately six out of ten clients who took out home loans in 2015 also purchased home insurance from the group. To give another example, roughly one-fifth of households in Belgium that bank with KBC Bank hold at least three banking and three insurance products from KBC.
Within a stringent risk, capital and liquidity management framework
To secure our long-term future, we build long-term relationships with our clients. We do not pursue high short-term returns that come with excessive risks but rather focus on sustainable and profitable growth in the long run.
How do we ensure sustainable and profitable growth?
everything we do is an absolute precondition in terms of guaranteeing this sustainability. For more information on this, see 'We aim to achieve our ambitions within a stringent risk management framework'.
I am proud that we not only enable clients to address their financial needs, but that we also promote intergenerational cohesion and family education. For instance, our pension plans for children allow us to help parents secure their children's future and educate them about longterm commitments and financial matters. That's also part of being a sustainable company.
Patrik Madle, Marketing Communication Specialist at CˇSOB (Czech Republic)
as making contacts and developing a network. We have already established five Start it @kbc centres in Brussels and the main cities in Flanders, and support 240 start-ups.
• We defined Belgium, the Czech Republic, Slovakia, Hungary and Bulgaria as our core countries and have sold off most of our presence elsewhere in recent years. The announced sale of Union KBC Asset Management in India and the acquisition of Volksbank Leasing Slovakia, both in 2015, further illustrate this strategy. We view our presence in all our core countries as a long-term commitment and are not planning to alter our geographical footprint significantly. We want to further optimise our current geographical presence in order to become a reference in bank-insurance in each core country. We will consolidate our presence in these core countries by means of organic growth or attractive acquisitions, in line with clear strategic and financial criteria, and will seek to be a market leader (top three for
banking activities, top four for insurance activities) by 2020. We are continuing to work on profitability in Ireland, after which all options will be considered (growing further organically into a profitable bank; building an attractive bank-insurance group; or selling a profitable bank).
• We monitor our long-term performance and our focus on the real economy and sustainability via a number of Key Performance Indicators (KPIs), the most important of which are listed in the table on the following page.
| KPI | What | Target and result in 20151 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Compound annual growth rate (CAGR) of | BEL | CZE | SLO | HUN | BUL | IRE | Group | |||
| CAGR of total | total income. The calculation is based on the adjusted results for 2013, and excludes |
Target CAGR for 2013-2017 |
≥ 2% | ≥ 3% | ≥ 3% | ≥ 4% | ≥ 3% | ≥ 25% ≥ 2,25% | ||
| income | fluctuations in value of the derivatives used for asset/liability management purposes. |
CAGR for 2013-2015 |
1.6% | 1.8%2 | 2.4% | 1.0%2 | 5.8% | 28.5% | 2.6%3 | |
| [operating expenses of the banking activities] / [total income of the banking |
BEL | CZE | SLO | HUN | BUL | IRE | Group | |||
| Cost/income ratio | activities] | Target for 2017 | ≤ 50% | ≤ 45% | ≤ 58% | ≤ 62% | ≤ 67% | ≤ 50% | ≤ 53% | |
| 2015 result | 50% | 48% | 60% | 65% | 65% | 75% | 55% | |||
| [technical insurance charges, including the | BEL | CZE | SLO | HUN | BUL | IRE | Group | |||
| Combined ratio | internal cost of settling claims / earned insurance premiums] + [operating expenses |
Target for 2017 | ≤ 94% | ≤ 94% | ≤ 94% | ≤ 96% | ≤ 96% | – | ≤ 94% | |
| / written insurance premiums] (for non-life insurance, and data after reinsurance). |
2015 result | 90% | 94% | 88% | 97% | 97% | – | 91% | ||
| Innovation | Innovation relates to: 'launches innovative products/services faster than competitors', |
To have a higher absolute score and/or make more progress Target than the sector average in each country. |
||||||||
| 'continuously innovates to improve client experience', 'exceeds client expectations', |
Innovation | Progress | ||||||||
| 'uses advanced technologies'. The survey is | relative to peer group (by country) | |||||||||
| performed by the external firm Ipsos. | Less progress |
Same progress |
More progress |
|||||||
| Performance 2015 |
perfor mance |
Better | K&H (Hungary) KBCI (Ireland) Cˇ SOB (Slovakia) |
|||||||
| relative to peer group (by country) result |
perfor mance |
Same | KBC (Belgium) |
|||||||
| Poorer perfor mance |
Cˇ SOB (Czech Republic) |
|||||||||
| Market share in SRI funds | BEL | |||||||||
| Position in SRI funds |
(based on KBC's own calculations) | Target 2015 result (September) |
Market leadership 52% |
|||||||
1 The list of benchmarks is provided under the table appearing in 'The client is at the centre of our business culture' on page 40, as is a word of explanation on the diagrams in this table.
2 Calculated in local currency for the Czech Republic and Hungary. 3 After eliminating the impact of liquidating KBC Financial Holding Inc.
Summary of the most important strategic initiatives in the years ahead
International Markets (Slovakia, Hungary, Bulgaria, Ireland)
More information on strategy by business unit and country can be found in the 'Our business units' section.
Within a stringent risk, capital and liquidity management framework
We build trust in us not only by creating financial sustainability, but also by meeting the expectations of our clients, our employees, our shareholders and society. As we have to constantly earn our stakeholders' loyalty and preference, we work persistently on the commitment of our employees and demonstrate day after day how we contribute positively to society: we stimulate the local economy in all our core markets, we work on innovative solutions to present and future problems, and we communicate on social themes as transparently as possible.
How do we respond to society's expectations?
• We recognise that the way society views the financial sector is changing. Consumers are increasingly rewarding those brands that listen to them, judging them on relevant aspects
such as delivering good quality, launching innovative products at fair prices, focusing on things which make their lives happier, easier and healthier, and which are beneficial to the economy, environment and community. Value is no longer measured purely in terms of money, but also based on emotional parameters like trust and pride.
• At the same time, suspicion of business – in the financial sector certainly – remains strong and companies are also being held to account on issues like fair trade, their impact on the environment and responsible behaviour. The bar for the financial world has been set at a high level, especially after the crisis, and trust is now the licence to operate. Being a responsible and respected player in this new world therefore means that we are primarily working further to create or restore trust.
• We also use a number of Key Performance Indicators (KPIs) to see whether we are focusing sufficiently on socially relevant
themes and whether we are meeting stakeholder expectations. The most important of these KPIs are listed in the table below.
| KPI | What | Target and result in 2015* | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Does the entity have a formal process to | BEL | CZE | SLO | HUN | BUL | IRE | |||||
| Formal | interact with its stakeholders? | Target | Establish a formal stakeholder interaction process | ||||||||
| stakeholder process |
2015 result | OK | OK | OK | OK | OK | OK | ||||
| Governance | 'Governance' refers to the statements: 'behaves ethically', 'is open and transparent', 'acts as an accountable |
To have a higher absolute score and/or make more progress Target than the sector average in each country. |
|||||||||
| company', 'is a responsive company', | Governance | Progress relative to peer group (by country) |
|||||||||
| 'complies with laws, regulations and industry policies'. The survey is performed |
Less progress |
Same progress |
More progress |
||||||||
| by the external firm Ipsos. | Better perfor mance |
Cˇ SOB (Slovakia) |
|||||||||
| relative to peer group (by country) Performance 2015 result |
Same perfor mance |
Cˇ SOB (Czech Republic) K&H (Hungary) KBCI (Ireland) |
|||||||||
| Poorer perfor mance |
KBC (Belgium) |
||||||||||
| 7 billion euros in non-voting core-capital | Target | ||||||||||
| Repayment of state aid |
securities was originally sold to the Belgian Federal and Flemish Regional Governments in 2008 and 2009. |
2015 result | Repayment in full by no later than year-end 2017 Fully repaid at year-end 2015 |
||||||||
| [(gross dividend x number of shares entitled | Target | ≥ 50% from financial year 2016 | |||||||||
| Dividend payout ratio |
to dividend) + (coupon on outstanding AT1 securities (and in respect of remaining state aid to year-end 2015))] / [consolidated net result] |
2015 result | Not yet relevant for 2015 |
* The list of benchmarks is provided under the table appearing in 'The client is at the centre of our business culture' on page 40, as is a word of explanation on the diagrams in this table.
Empathy is essential to our job. We are driven by the desire to support victims in their hour of need and to make a real difference in society. A healthy amount of experience – and therefore insight into human nature – doesn't go amiss in the job either.
Beatrijs Fabry, Claims Handling Adviser at KBC Belgium
sustainability item to stakeholders (vertical axis) and KBC's performance in that regard (horizontal axis). KBC's performance is expressed as the average score that KBC received from all the participating stakeholders for each of the 16 sustainability items. The respondents rated KBC's sustainability performance on a scale of 1 to 5, where 1 equals 'totally disagree' and 5 'totally agree'. The results in the matrix show us that KBC scored well on all these sustainability items, as we had a score above 3 (= neutral) for virtually every item. More information on this survey can be found in our 'Report to Society'.
5 Develops products and services for problems of tomorrow
15 Risk is managed in a responsible way in order to protect the long term interests of all stakeholders
16 Is a solid company with good financial results
Our sustainable and profitable performance is achieved through robust risk, capital and liquidity management.
We have already fully embedded risk management in our strategy and our decisionmaking process, as illustrated by the fact that:
Our risk management is based on a 'Three Lines of Defence model', to shield us against risks that might threaten the achievement of our goals (see table on the following page).
| 1 The business itself |
The business operations side is fully responsible for all the risks in its area of activity and has to ensure that effective controls are in place. In so doing, it ensures that the right controls are performed in the right way, that self-assessment of the business side is of a sufficiently high standard, that there is adequate awareness of risk and that sufficient priority/capacity is allocated to risk themes. |
|---|---|
| 2 The Risk function, Compliance, and – for certain matters – Finance, Legal and Tax, and Information Risk Security |
Independent of the business side, the second-line risk and control functions formulate their own opinion regarding the risks confronting KBC. In this way, they provide an adequate degree of certainty that the first-line control function is keeping these risks under control, without taking over primary responsibility from the first line. In this regard, the second-line functions are tasked to identify, measure and report risks. The risk function has a veto right to ensure that it is respected. The second-line risk and control functions also support the consistent implementation of the risk policy, the risk framework, etc., throughout the group, and supervise how they are applied. Compliance is an independent function that aims to prevent KBC from being exposed to compliance risk or suffering harm through non-compliance with the prevailing laws, regulations or internal rules. It pays particular attention in this regard to compliance with the Integrity Policy. |
| 3 Internal audit |
As the independent third-line of control, Internal Audit is responsible for the quality control of the existing business processes. It performs risk-based and general audits to ensure that the internal control and risk management system, including Risk Policy, are effective and efficient, and to ensure that policy measures and processes are in place and consistently applied within the group to guarantee the continuity of operations. |
Although the activities of a large financial group are inherently exposed to various risks that only become apparent in retrospect, we can currently identify a number of major challenges and priorities for our group. These are set out under 'In what environment do we operate?' in the 'Our business model' section. They are:
In addition to these general risks, we are exposed as a bank-insurer to sector-specific risks such as credit risk, country risk, interest rate risk, foreign exchange risk, insurance underwriting risk and operational risk. An overview of these risks can be found in the table, with more detailed information provided in the 'Risk management' and 'Capital adequacy' sections.
| Sector-specific risks | How are we addressing them? |
|---|---|
| Credit risk The potential negative deviation from the expected value of a financial instrument caused by default on the part of a party to a contract, due to the inability or unwillingness of that party to pay or perform, or due to particular situations or measures on the part of political or monetary authorities in a particular country. Any concentrations in the loan portfolio can have a particularly significant impact. |
• Existence of a robust management framework • Recording impairment charges, taking risk-mitigating measures, optimising the overall credit risk profile, etc. |
| Market risk in non-trading activities Structural market risks, such as interest risk, equity risk, real estate risk, currency risk and inflation risk. Structural risks are risks inherent to the commercial activity or long-term positions. |
• Existence of a robust management framework • ALM VaR limits at group level, for each risk type and entity; supplemented by other risk-measuring methods, such as Basis Point Value (BPV), nominal amounts, limit tracking for crucial indicators, etc. |
| Liquidity risk The risk that KBC will be unable to meet its payment obligations as they come due, without incurring unacceptable losses. |
• Existence of a robust management framework • Liquidity stress tests, management of funding structure, etc. |
| Market risk in trading activities The potential negative deviation from the expected value of a financial instrument caused by fluctuations in interest rates, exchange rates, and share or commodity prices. |
• Existence of a robust management framework • Historical VaR method, duration, 'greeks' for products with options, stress tests, etc. |
| Technical insurance risks Risks stemming from uncertainty as to how often insured events will occur and how extensive they will be. Low interest rates are a focus point here, as is demographic ageing. |
• Existence of a robust management framework • Underwriting, pricing, claims reserving, reinsurance and claims handling policies, etc. • Developing new products. |
| Operational and other non-financial risks The risk of loss resulting from inadequate or failed internal processes and (ICT) systems, human error or sudden external events, whether man-made or natural. |
• Existence of a robust management framework • Group key controls, Loss Event Databases, Risk Scans (bottom-up and top-down), Case Study Assessments, Key Risk Indicators (KRIs), etc. |
| Solvency risk Risk that the capital base will fall below an acceptable level. |
• Existence of a robust management framework • Statutory and in-house minimum solvency ratios, active capital management, etc. |
In addition to the comprehensive monitoring of risk indicators (see the 'Risk management' section), we monitor our solvency and liquidity performance using a number of Key Performance Indicators (KPIs), the most important of which are listed in the table.
| KPI | What? | Target and result in 2015 | |||||
|---|---|---|---|---|---|---|---|
| [common equity tier-1 capital] / [total | Target | ≥ 10.25% (phased-in) from 2016 at group level* | |||||
| weighted risks]. The calculation shown here | 2015 result | 15.2% | |||||
| Common equity ratio |
is on a phased-in basis and according to the Danish compromise method. |
* This minimum figure will increase by 0.5 percentage points in 2017 and by another 0.5 percentage points in 2018, in line with the higher buffer for national relevant institutions set by the National Bank of Belgium. |
|||||
| [total regulatory capital] / [total risk | Target | ≥ 17% (fully loaded) from 2017 at group level | |||||
| Total capital ratio | weighted assets]. The calculation shown here is on a fully-loaded basis and according to the Danish compromise method. |
2015 result | 19.0% | ||||
| [available amount of stable funding] / | Target | ≥ 105% from 2014 at group level | |||||
| Net stable funding ratio (NSFR) |
[required amount of stable funding] | 2015 result | 121% | ||||
| [stock of high-quality liquid assets] / [total | Target | ≥ 105% from 2014 at group level | |||||
| Liquidity coverage ratio (LCR) |
net cash outflows over the next 30 calendar days] |
2015 result | 127% |
* We adjusted the target to take account of the new requirements of the National Bank of Belgium and the European Central Bank in this regard.
Like to know more? Detailed information can be found in the 'Risk management' and 'Capital adequacy' sections in this report.
| Consolidated income statement, KBC group (in millions of EUR)1 | 2014 | 2015 |
|---|---|---|
| Net interest income | 4 308 | 4 311 |
| Interest income | 7 893 | 7 150 |
| Interest expense | -3 586 | -2 839 |
| Non-life insurance (before reinsurance) | 512 | 611 |
| Earned premiums | 1 266 | 1 319 |
| Technical charges | -754 | -708 |
| Life insurance (before reinsurance)2 | -216 | -201 |
| Earned premiums | 1 247 | 1 301 |
| Technical charges | -1 463 | -1 502 |
| Ceded reinsurance result | 16 | -29 |
| Dividend income | 56 | 75 |
| Net result from financial instruments at fair value through profit or loss | 227 | 214 |
| Net realised result from available-for-sale assets | 150 | 190 |
| Net fee and commission income | 1 573 | 1 678 |
| Fee and commission income | 2 245 | 2 348 |
| Fee and commission expense | -672 | -670 |
| Other net income | 94 | 297 |
| Total income | 6 720 | 7 148 |
| Operating expenses | -3 818 | -3 890 |
| Impairment | -506 | -747 |
| on loans and receivables | -587 | -323 |
| on available-for-sale assets | -29 | -45 |
| on goodwill | 0 | -344 |
| other | 109 | -34 |
| Share in results of associated companies | 25 | 24 |
| Result before tax | 2 420 | 2 535 |
| Income tax expense | -657 | 104 |
| Net post-tax result from discontinued operations | 0 | 0 |
| Result after tax | 1 763 | 2 639 |
| Result after tax, attributable to minority interests | 0 | 0 |
| Result after tax, attributable to equity holders of the parent (net result) |
1 762 | 2 639 |
| Net result by business unit | ||
| Belgium | 1 516 | 1 564 |
| Czech Republic | 528 | 542 |
| International Markets | -182 | 245 |
| Group Centre | -100 | 287 |
| Return on equity | 14% | 22% |
| Cost/income ratio, banking | 58% | 55% |
| Combined ratio, non-life insurance | 94% | 91% |
| Credit cost ratio, banking | 0.42% | 0.23% |
1 For a definition of the ratios, see 'Glossary of ratios and terms'.
2 Figures for earned premiums (and technical charges) do not include investment contracts without DPF, which roughly correspond to unit-linked life insurance contracts (0.8 billion euros in premiums in 2014, 0.7 billion euros in 2015).
| Key consolidated balance sheet, solvency and liquidity figures, KBC group (in millions of EUR) | 2014 | 2015 |
|---|---|---|
| Total assets | 245 174 | 252 356 |
| Loans and advances to customers | 124 551 | 128 223 |
| Securities (equity and debt instruments) | 70 359 | 72 623 |
| Deposits from customers and debt securities | 161 783 | 170 109 |
| Technical provisions (before reinsurance) and liabilities under investment contracts, insurance | 31 487 | 31 919 |
| Risk-weighted assets | 91 236 | 89 067 |
| Total equity | 16 521 | 15 811 |
| Common equity ratio (Basel III, Danish compromise method): phased-in/fully loaded | 14.4%/14.3% | 15.2%/14.9% |
| Common equity ratio (FICOD method): phased-in/fully loaded | 14.6%/14.6% | 14.9%/14.6% |
| Total capital ratio (Basel III, Danish compromise method): phased-in/fully loaded | 18.9%/18.3% | 19.8%/19.0% |
| Leverage ratio (Basel III, Danish compromise method): fully loaded | 6.4% | 6.3% |
| Minimum requirement for own funds and eligible liabilities (MREL) | 12.5% | 13.9% |
| Liquidity coverage ratio (LCR) | 120% | 127% |
| Net stable funding ratio (NSFR) | 123% | 121% |
Net interest income came to 4 311 million euros in 2015, roughly the same as its year-earlier level (and even up 1% when changes in the scope of consolidation are excluded), despite the climate of low interest rates and the related low level of reinvestment income. The latter was offset by the positive effect of lower rates of interest being paid on savings accounts, for instance, lower funding costs and higher volumes (see below). What's more, the high level of home loan refinancing in Belgium in the first half of 2015 led – as it did in the second half of 2014 – to a large amount of earlyrepayment penalties, but this was offset by the related negative hedging effect (pro rata funding losses), which will continue to have an impact in the years ahead. As far as volumes are concerned, loans and advances to customers (excluding reverse repos) (128 billion euros year-end 2015) rose on a comparable basis by 3% in 2015, increasing by 3% at the Belgium Business Unit and by 8% at the Czech Republic Business Unit, remaining unchanged at the International Markets Business Unit (growth in Slovakia and Bulgaria, but a decline in Ireland and Hungary), and contracting at the Group Centre. The total volume of deposits (162 billion euros in deposits from customers and debt securities (excluding repos) at year-end 2015) rose by 5% in 2015, with the Belgium Business Unit recording an increase of 5%, the Czech Republic Business Unit 6%, the International Markets Business Unit 15% (with growth in all countries) and the Group Centre recording a decline.
Consequently, the net interest margin for the banking activities came to 2.02% in 2015, 6 basis points lower than in 2014. The interest margin for 2015 came to 1.91% in Belgium, 3.03% in the Czech Republic and 2.55% at the International Markets Business Unit.
Net fee and commission income came to 1 678 million euros in 2015, up 7% on the year-earlier figure. Most of the increase was accounted for by Belgium in the first half of the year and related primarily to growth in assets under management (investment funds, discretionary and advisory asset management, etc.). At the end of 2015, the group's total assets under management came to 209 billion euros, up 12%
on the year-earlier figure, due to a positive volume effect (8%) and a price effect that – on balance – was also positive (4%). Most of these assets were managed at the Belgium Business Unit (194 billion euros, up 13%) and the Czech Republic Business Unit (9 billion euros, up 19%).
The technical insurance result (earned premiums less technical charges plus the ceded reinsurance result) amounted to 381 million euros in 2015. Earned premiums in non-life insurance came to 1 319 million euros, up 4% on the yearearlier figure. They grew by 3% in Belgium, by 7% in the Czech Republic, and by 11% in the three other Central and Eastern European markets combined. Technical insurance charges fell 6% in 2015, due primarily to Belgium, where the figure for 2014 had been adversely affected by hailstorms. The combined ratio at group level improved from 94% to 91%.
Earned premiums in life insurance amounted to 1 301 million euros in 2015. However, in compliance with IFRS, certain types of life insurance (i.e. unit-linked products) have been excluded from this figure. If the premium income from such products is included, premium income from the life insurance business totalled around 1.8 billion euros, 5% less than in 2014. There was a decline of 12% in the main market of Belgium for both rate-guaranteed (-4%) and unit-linked products (-26%, due in part to fewer commercial campaigns and a shift towards investment funds). For the group as a whole, products offering guaranteed rates accounted for about 60% of premium income from the life insurance business in 2015, and unitlinked products for 40%. On 31 December 2015, the group's life reserves came to 26.7 billion euros for the Belgium Business Unit, 1 billion euros for the Czech Republic and 0.6 billion euros for the three other Central and Eastern European core markets combined.
The net result from financial instruments at fair value through profit or loss (trading and fair value income) came to 214 million euros in 2015. The figure also includes -156 million euros (before tax) relating to the liquidation of KBC Financial Holding Inc. (i.e. a foreign exchange loss on the capital of KBC Financial Holding Inc. following its liquidation; see Note 5 and also the impact on the 'Income tax expense' item). Disregarding this item, trading and fair-value income would have come to 370 million euros in 2015, 63% more than in 2014. The increase chiefly reflected the marked-to-market valuation of certain derivatives used for asset/liability management purposes, which had been extremely negative in 2014 (-201 million euros) but positive in 2015 (+101 million euros), and which more than made up for the lower result generated by the dealing room in Belgium and the negative impact of various value adjustments (MVA, CVA, FVA).
Other income (dividends, realised gains and other net income) came to an aggregate 562 million euros in 2015, as opposed to 300 million euros in 2014. The difference is largely attributable to the higher level of other net income, which had been severely impacted in 2014 by provisioning related to legislation on retail loans in Hungary (-231 million euros (before tax); we were able to reverse part of this – 34 million euros – in 2015; see the 'International Markets Business Unit' section for more information).
Operating expenses amounted to 3 890 million euros in 2015, up slightly (by 2%) on their year-earlier level, or an increase of 3% when changes in the scope of consolidation are excluded. This reflected a number of items, including higher special bank taxes (417 million euros in total, up due in part to the contribution to the European Resolution Fund), ICT costs (relating to digitisation, etc.) and pension expenses, offset in part by lower marketing costs and lower costs relating to the operations of the former Antwerp Diamond Bank (cf. restructuring costs in 2014).
As a result, the cost/income ratio for the group's banking activities came to approximately 55% in 2015, compared with 58% a year earlier. This ratio was, of course, also affected by non-operating and exceptional items (including the markedto-market valuations for ALM derivatives, the effect of the Hungarian act on foreign-currency-denominated consumer loans and the impact of liquidating KBC Financial Holding Inc.). Adjusted for these (and a few less important) specific items, the cost/income ratio also came to 55% in 2015, compared to 54% in 2014. The cost/income ratio was 50% for the Belgium Business Unit (53% excluding specific items), 48% for the Czech Republic Business Unit (also 48% excluding specific
items) and 66% for the International Markets Business Unit (also 66% excluding specific items).
Total impairment came to 747 million euros in 2015. Impairment on loans and receivables (loan loss provisions) amounted to 323 million euros in 2015, compared with 587 million euros in 2014. Much of this significant improvement is attributable to Ireland, where loan loss provisioning fell from 198 million euros to 48 million euros. Loan loss provisioning is expected to be somewhere between 50 and 100 million euros in 2016, and more so at the lower end of that range. Loan loss provisions for the other countries came to 177 million euros in Belgium (28 million euros less than in 2014), 6 million euros in Hungary (41 million euros less than in 2014), 36 million euros in the Czech Republic (2 million euros more than in 2014) and 56 million euros for the remaining countries (46 million euros less than in 2014, due primarily to lower provisioning at the Group Centre). Overall, the group's credit cost ratio subsequently improved from 42 basis points in 2014 to a very favourable 23 basis points in 2015 (19 basis points at the Belgium Business Unit, 18 basis points at the Czech Republic Business Unit and 32 basis points at the International Markets Business Unit (Ireland: 34 basis points; Slovakia: 32 basis points; Hungary: 12 basis points; and Bulgaria: 121 basis points)).
The proportion of impaired loans (see 'Glossary of ratios and terms' for definition) in the total loan portfolio was 8.6% at year-end 2015, compared with 9.9% in 2014. This breaks down into 3.8% at the Belgium Business Unit, 3.4% at the Czech Republic Business Unit, and 30% at the International Markets Business Unit (due primarily to Ireland, with a ratio of 47%). The proportion of impaired loans more than 90 days past due came to 4.8% in 2015, compared to the year-earlier figure of 5.5%. At year-end 2015, 45% of the impaired loans were covered by specific impairment charges. More information on the composition of the loan portfolio is provided in the 'Risk management' section.
Other impairment charges totalled 423 million euros in 2015 and related inter alia to available-for-sale securities (45 million euros), goodwill (344 million euros, primarily relating to CIBANK in Bulgaria and to Cˇ SOB in Slovakia (see Note 14 in the 'Consolidated financial statements' section)) and other items (34 million euros).
'Income tax expense' made a positive contribution of 104 million euros in 2015, compared with a negative 657 million euros in 2014. This reflects the fact that this item benefited to the tune of 921 million euros in 2015 from the recognition of a deferred tax asset related to the liquidation of KBC Financial Holding Inc. – an offshoot of the divestment programme that KBC had agreed with the European Commission in 2009 (the amount given also incorporates the tax impact of the exchange difference recorded under 'Other income'). More information in this regard can be found in Note 16 of the 'Consolidated financial statements' section.
The group's net result in 2015 breaks down as follows by business unit: Belgium 1 564 million euros (up 48 million euros on the figure for 2014, due primarily to higher net fee and commission income, technical insurance income, and trading
and fair-value income, together with lower loan losses, and despite slightly lower net interest income and higher costs and several one-off items); the Czech Republic 542 million euros (up 14 million euros on the figure for 2014, owing to factors such as higher trading and fair-value income and despite slightly higher costs); International Markets 245 million euros (a 427-million-euro improvement on the figure for 2014, due mainly to lower loan loss provisioning in Ireland in 2015, whereas 2014 had been adversely affected by the recognition of a 183-million-euro provision (after tax) related to the Hungarian act on consumer loans); and the Group Centre 287 million euros (improvement of 387 million euros on the figure for 2014, primarily because of the recognition of the deferred tax asset related to KBC Financial Holding Inc.).
A more detailed analysis of the results for each business unit can be found in the relevant sections of this annual report.
Total assets (in billions of EUR)
Loans and advances to customers (excl. reverse repos)
At the end of 2015, the group's consolidated total assets came to 252 billion euros, up 3% year-on-year. However, riskweighted assets (Basel III) declined by 2% to 89 billion euros, due in part to certain add-ons no longer being required for our IRB Advanced models, a further reduction in the remaining activities in run-off (at the Group Centre) and several other items. More information in this regard can be found in the 'Capital adequacy' section.
The group's core banking business is to attract deposits and provide loans. This is naturally reflected in the figure for loans and advances to customers (excluding reverse repos) on the asset side of the balance sheet (128 billion euros at year-end 2015). On a comparable basis, total loans and advances to clients rose by 3% (up 3% at the Belgium Business Unit and 8% at the Czech Republic Business Unit, and more or less the same at the International Markets Business Unit (an increase in Slovakia and Bulgaria, but a decline in Hungary and Ireland)). The main products (including reverse repos) were again term loans (57 billion euros) and mortgage loans (55 billion euros).
On the liabilities side, the group's customer deposits (deposits from customers and debt securities, excluding repos) grew by 5% to 162 billion euros. Deposits increased by 5% at the Belgium Business Unit, by 6% at the Czech Republic Business Unit and by 15% at the International Markets Business Unit (with growth in all countries), but fell by 17% in the Group Centre. As in 2014, the main deposit products (including repos) were time deposits (37 billion euros), demand deposits (55 billion euros) and savings accounts (50 billion euros, up 6% on their level at the end of 2014).
The group also holds a portfolio of securities at the bank and at the insurer (where it serves primarily as an investment in the insurance context, especially life insurance). The group's total securities portfolio was worth roughly 73 billion euros at year-end 2015. Some 30% of this portfolio relates to the
group's insurance activities and 70% to the banking activities. The total securities portfolio comprised 3% shares and 97% bonds (with bonds increasing by almost 2 billion euros in 2015). Roughly three-quarters of these bonds at year-end 2015 consisted of government paper, the most important being Belgian, Czech, French, Spanish, Slovak and Italian. A detailed list of these bonds is provided in the 'Risk management' section.
Other important items on the assets side of the balance sheet were loans and advances to credit institutions and investment firms (14 billion euros, up 8% year-on-year due in part to higher reverse repos), derivatives (positive marked-to-market valuation of 9 billion euros, down 12% year-on-year) and investment-linked life insurance contracts (13 billion euros, virtually unchanged year-on-year).
Other significant items on the liabilities side of the balance sheet were the technical provisions and liabilities under the insurer's investment contracts (an aggregate 32 billion euros, roughly the same year-on-year), derivatives (negative markedto-market value of 10 billion euros, down 14% year-on-year) and deposits from credit institutions and investment firms (19 billion euros, up 7% year-on-year).
On 31 December 2015, the group's total equity came to 15.8 billion euros. This figure included 14.4 billion euros in parent shareholders' equity and 1.4 billion euros in additional tier-1 instruments. On balance, total equity declined by 0.7 billion euros in 2015. The most important components in this respect were the repayment of the remaining Flemish government aid (-3 billion euros, including the 50% penalty) the inclusion of the annual profit (+2.6 billion euros), the payment of the dividend and the coupon on the government aid for 2014 (-1 billion euros in total) and a number of smaller other items (changes in the available-for-sale reserve and cashflow hedge reserve, changes in defined benefit plans, and changes in translation differences: an aggregate +0.7 billion euros).
At year-end 2015, the common equity ratio came to 15.2% (phased-in) or 14.9% (fully loaded), according to the Danish compromise method, and to 14.9% (phased-in) or 14.6% (fully loaded) according to the FICOD method. Our leverage ratio came to an equally impressive 6.3% at the end of the year, while the MREL finished at 13.9%. Detailed calculations
Additional information
of our solvency indicators are given in the 'Capital adequacy' section.
The group's liquidity position also remained excellent, as reflected in an LCR ratio of 127% and an NSFR ratio of 121% at year-end 2015.
the income statement, in which we excluded a limited number of non-operating items under the usual headings (impact of legacy business related to divestments and CDOs and effect of the valuation of own credit risk) and also reclassified certain results related to market activities under 'Net result from financial instruments at fair value through profit and loss'. More information in this regard can be found in our previous annual reports. Since the impact of the legacy business has become negligible (after completion of the divestment plan and the scaling back of the CDO portfolio), and in order to simplify our reporting, we have stopped providing these adjusted results and will only review the IFRS results from now on. This also applies to segment reporting (Note 2 in the 'Consolidated financial statements' section), where IFRS figures for 2014 have now also been restated retroactively.
activities conducted by entities in the other Central and Eastern European core countries, namely CˇSOB Bank and CˇSOB Poist'ovnˇ a in Slovakia, K&H Bank and K&H Insurance in Hungary and CIBANK and DZI Insurance in Bulgaria, plus KBC Bank Ireland's operations.
Our group's management structure centres on three business units: 'Belgium', 'Czech Republic' and 'International Markets'. The latter is responsible for the other core countries in Central and Eastern Europe (Slovakia, Hungary and Bulgaria) and Ireland.
The Belgium Business Unit comprises the activities of KBC Bank NV and KBC Insurance NV, and their Belgian subsidiaries, the most important of which are CBC Banque, KBC Asset Management, KBC Lease Group, KBC Securities and KBC Group Re.
Bulgaria
The Czech Republic Business Unit comprises all KBC's activities in the Czech Republic. These consist primarily of the activities of the CˇSOB group (under the CˇSOB Bank, Era, Postal Savings Bank, Hypotecˇní banka, CˇMSS and Patria brands), the insurer CˇSOB Pojišt'ovna and CˇSOB Asset Management.
Czech Republic Slovakia
Hungary
Following a decent first six months, waning household and business confidence caused growth to dip in the summer, but the economic outlook brightened again towards the end of the year. Growth came in at 1.4% on balance, the first time it was less than the euro area average since 2006. Household consumption made an even greater contribution to growth than in recent years. However, the recovery in business investment remained modest, something that was also reflected in the weak pattern of lending to businesses. A revival in this regard did not become apparent until the second half of the year. Home building was weak and the secondary housing market experienced a soft landing. Nevertheless, mortgage lending increased more dynamically than expected, as many households continued to take advantage of low interest rates, prompting a slowdown in growth in outstanding deposits. Investment funds were also very popular.
Belgium boosted its competitiveness thanks to factors like persistent wage restraint. This development – along with regional government employment measures – also helped to create more jobs. Inflation rose from -0.7% in January to 1.5% in December. This reflected price adjustments on the government's initiative, such as the end of the impact of the April 2014 VAT reduction on electricity, the raising of registration fees in higher education, and a fresh VAT increase on electricity towards the end of the year. Uncertainty regarding a possible 'Grexit' briefly drove up the spread between Belgian ten-year government bonds and their German counterparts to more than 50 basis points at the beginning of July, though for the
rest of the time, the spread mostly fluctuated around 30 basis points.
We expect real GDP growth to remain around the 1.4% level in 2016.
The Czech Republic was second only to Ireland as the European Union's best-performing economy in 2015. Domestic demand caused real GDP growth to double to 4.3%, more than twice as strong as the EU average. Household consumption was boosted by real wage increases and job creation, while a catch-up process in terms of drawing on European cohesion funds was a significant stimulus to government investment. Business investment grew fairly strongly too, although it did not contribute to GDP growth, as it led chiefly to an increase in imports. It did, however, deliver a powerful impulse to business lending. Historically low interest rates and an improving labour market sparked an acceleration in the growth of home loans.
Relatively favourable economic growth was accompanied by a sharp increase in employment and a significant drop in unemployment. The jobless rate was just 4.5% of the labour force at year-end 2015, compared to a peak of 7.8% at the beginning of 2010. Inflation hovered just above 0% throughout the year, well below the central bank's target of 2%. Monetary policy remained expansive as a result. Low interest rates did not prevent deposit growth from remaining robust, but investment funds and shares were also much in demand. We expect real GDP growth to ease to a projected 2.5% in 2016, as the impulse provided by European funds for government investment will dissipate. Underlying domestic demand will remain healthy, however, with persistent growth in household consumption.
As was the case in the Czech Republic, investment growth in other Central European countries benefited from the catch-up in use of European cohesion funds. As a result, real GDP growth in Slovakia (3.5%), Hungary (2.8%) and Bulgaria (2.7%) was well above the EU average. Growth in Bulgaria was driven primarily by net exports, whereas domestic demand was the chief engine of growth in Slovakia and Hungary. Substantial real wage increases and a sharp fall in unemployment underpinned household consumption. Falling energy prices left inflation moving around the 0% mark in Hungary throughout the year, and even resulted in negative inflation in Slovakia and Bulgaria. As was the case in other countries, rates spreads in Slovakia, Hungary and Bulgaria widened slightly for a time with Germany during the Greek crisis.
Robust domestic demand in Slovakia was accompanied by persistently vigorous growth in lending to households and a recovery in lending to businesses. Lending continued to be weak in Bulgaria, however, and Hungary remained in the grip of debt reduction, despite the central bank's stimulus package. It launched a fresh growthsupport programme in November to further encourage lending to SMEs and also announced that its policy rate was likely to remain unchanged until the autumn of 2017, illustrating its concern at the further pattern of economic growth.
We expect real GDP growth in Slovakia, Hungary and Bulgaria to ease somewhat in 2016 to 3.3%,
2.4% and 2.5% respectively, owing to the catchup in financing from the European cohesion funds coming to an end.
Ireland posted the strongest economic growth of any industrialised country in 2015 (7.2%). Exports continued to grow robustly and domestic demand picked up strongly. The factors stimulating growth were the lower oil price, the improvement in the terms of trade, low inflation, robust job creation, more flexible budget policy and resurgent demand following the deep crisis. Strong economic growth has helped reduce the level of debt, although it still remains high. Continuing debt reduction served to reduce the banks' outstanding loan volumes further, whereas household and business deposits grew rapidly. Economic growth is likely to slow down in 2016, but will remain very robust.
The outlook for all countries is based on forecasts made at the start of 2016, and so the actual situation could differ (considerably).
| Macroeconomic | Belgium | Czech Republic | Hungary | Slovakia | Bulgaria | Ireland | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| indicators* | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | |
| GDP growth (real) | 1.3% | 1.4% | 2.0% | 4.3% | 3.7% | 2.8% | 2.5% | 3.5% | 1.5% | 2.7% | 5.2% | 7.2% | |
| Inflation (average annual increase in consumer prices (%)) |
0.5% | 0.6% | 0.4% | 0.3% | 0.0% | -0.1% | -0.1% | -0.3% | -1.6% | -1.0% | 0.3% | -0.1% | |
| Unemployment (% of the labour force at year-end; Eurostat definition) |
8.6% | 7.9% | 5.8% | 4.5% | 7.3% | 6.3% | 12.4% | 10.6% | 10.2% | 8.8% | 10.2% | 9.0% | |
| Government budget balance (% of GDP) |
-3.1% | -2.8% | -1.9% | -1.9% | -2.5% | -2.3% | -2.8% | -2.7% | -5.8% | -2.8% | -3.9% | -1.5% | |
| Public debt (% of GDP) | 106.7% | 106.5% | 42.7% | 41.0% | 76.2% | 75.8% | 53.5% | 52.7% | 27.0% | 31.8% | 107.5% | 96.0% |
* Data for 2015 based on estimates made at the start of 2016.
The following table provides an indication of our presence (brands, network) and our scale (clients, loan portfolio, deposits, market share) per country.
| Market position in 20151 | Belgium | Czech Republic | Hungary | Slovakia | Bulgaria | Ireland |
|---|---|---|---|---|---|---|
| Main brands | KBC, CBC, KBC Brussels |
CˇSOB | K&H | CˇSOB | CIBANK, DZI | KBC Bank Ireland |
| Network | 783 bank branches |
316 bank branches2 |
209 bank branches |
125 bank branches |
100 bank branches |
17 bank branches |
| 441 insurance agencies |
Insurance sold through various channels |
Insurance sold through various channels |
Insurance sold through various channels |
Insurance sold through various channels |
– | |
| Various online channels |
Various online channels |
Various online channels |
Various online channels |
Various online channels |
Various online channels |
|
| Clients (millions, estimate) |
3.5 | 4.0 | 1.6 | 0.6 | 0.6 | 0.2 |
| Loan portfolio (in billions of EUR) | 93 | 20 | 4.5 | 6.0 | 0.9 | 13.9 |
| Deposits and debt securities (in billions of EUR) |
111 | 24 | 5.9 | 5.3 | 0.7 | 5.3 |
| Market shares – bank products – investment funds – life insurance |
21% 40% 13% |
19% 26% 7% |
10% 18% 4% |
11% 7% 4% |
3% – 12% |
–3 – – |
| – non-life insurance | 9% | 7% | 5% | 3% | 10% | – |
1 Market shares and client numbers: based on own estimates; when calculating the figure for client numbers, account was taken of the overlap (roughly estimated) between the various companies in the group. For traditional bank products: average estimated market share for loans and deposits. For life insurance in Belgium, the share of the retail market (i.e. excluding group insurance) was 17%, based on reserves; for the other countries, the life insurance market share is based on premiums. Loan portfolio: see 'Risk management'. Deposits and debt securities: deposits from customers and debt securities (excluding repos). The Belgium Business Unit also includes the small network of KBC Bank branches established in the rest of Europe, the US and Southeast Asia, which focus on activities and clients with links to KBC's core markets (10 branches with a total loan portfolio of approximately 5 billion euros). The group operates under various brands in the Czech Republic, including CˇSOB, Era, PSB, CˇMSS and Hypotecˇní Banka.
2 CˇSOB Bank and Era.
3 Retail market share: 11% for home loans and 6% for deposits.
We offer a wide range of loan, deposit, asset management, insurance and other financial products in virtually all our countries, where our focus is on private individuals, SMEs and high-net-worth clients. Services for corporate clients additionally include cash management, payments, trade finance, lease, money market activities, capital market products, stockbroking and corporate finance. As yet, we do not offer any asset management products in Bulgaria, and in Ireland, we only have a banking subsidiary.
We position ourselves, moreover, as a bankinsurer in every country apart from Ireland, although the roll-out of our bank-insurance concept varies from market to market.
Our bank-insurance business is already operating as a single company in Belgium, enabling it to achieve both commercial and non-commercial synergies. An important feature of our model in Belgium is the unique cooperation between our bank branches and insurance agencies in micro markets. The branches sell bank and standard insurance products, and refer clients to the insurance agency in the same micro market for other insurance products. The insurance agencies sell the full range of insurance products and handle all claims, including those relating to policies taken out at a bank branch.
We have not yet gone so far in our other core countries as we have in Belgium, but we want to create an integrated distribution model by no later than 2017, which will allow us to achieve commercial synergies.
We announced our plans for the future and our updated strategy at an Investor Day in 2014. We also unveiled a variety of financial and nonfinancial targets for each country. More detailed information in this regard is provided in the 'Our strategy' section.
A selection of specific initiatives and achievements is set out below for each business unit.
• Through CBC, we want to tap potential growth in specific bank-insurance market segments and to expand our presence in
Wallonia, along with our accessibility and the services we provide, by opening new insurance agencies and bank branches and by relocating existing ones.
Named as one of the best employers in Belgium (Great Place to Work®) – Gold for the 'Room for Improvement' campaign in the 'Integrated Communication' category and silver in the 'B2B' category (Best of Activation Awards) – 'Best New Product or Service Innovation' prize for Bolero Crowdfunding (Efma Awards) – 'Best Private Bank in Belgium' (Private Wealth Magazine and Euromoney) – Social Media Insurance Award and Social Media Insurance Event Award (Financelab)
– ...
• Our Czech group companies will concentrate even more on simplifying products, IT, organisation, the bank distribution network, head office and branding, to achieve even greater cost efficiency.
Cˇ SOB named among the best employers in the Czech Republic (Sodexo) – Cˇ SOB crowned 'Best Bank in the Czech Republic' (Euromoney, The Banker, Global Finance, Hospodárˇské noviny) – Cˇ SOB named 'Best Private Bank in the Czech Republic' (Euromoney, Professional Wealth Management/The Banker) – Cˇ SOB rewarded with a 'Golden Certificate for Responsible Reporting' (TOP Responsible Company 2015) – ...
Ireland
simplification and excellent service provision to the client. Collaboration between DZI and CIBANK will be expanded through the further development of products (including unitlinked ones) and distribution channels.
Bulgaria
KBC Bank Ireland selected as the bank with the 'Best Corporate Reputation' (Rep Track) and rewarded with the 'Product Innovation Award' (Temenos Community Forum Istanbul) – Cˇ SOB crowned 'Best Trade Finance Bank in Slovakia' (Global Finance Magazine) – Cˇ SOB Poist'ovnˇ a named 'Insurer of the Year' in Slovakia (Trend) – K&H named one of the 'National Champions' in the Customer Focus category of the European Business Awards and received the MAF Award for its 'Ready, Steady, Money' initiative – ...
In 2015, the Belgium Business Unit recorded a net result of 1 564 million euros, compared with 1 516 million euros a year earlier.
The most important income item, net interest income, came to 2 819 million euros in 2015. Although down 3%, it remains a decent achievement given the low level of interest rates (and therefore low level of income generated by reinvestments) and came about thanks to lower funding costs, lower rates of interest being paid on savings accounts, and higher lendingrelated interest income (due in part to home loans). What's more, the high level of home loan refinancing led in the first half of 2015 – as it had in the second half of 2014 – to a large amount of early-repayment penalties, but also to a related negative hedging effect (pro rata funding losses). As far as volumes are concerned, loans and advances to customers, excluding reverse repos (88 billion euros at year-end) went up by 3%, while deposits from customers and debt securities, excluding repos (111 billion euros at year-end) grew by 5%. The average net interest margin narrowed from 2.01% in 2014 to 1.91% in 2015.
Net fee and commission income (1 280 million euros) rose by a substantial 11%, due primarily to the strong performance of our asset management activities, which resulted in robust growth in income from investment funds (chiefly management fees). Total assets under management in Belgium were up by no less than 13% to 194 billion euros, due to a combination of increased net volume (+8%) and the rise in value of the assets themselves (+4%).
Our insurance activities generated 1 958 million euros in earned premiums, 969 million euros of which came from the life segment and 989 million euros from the non-life segment. Non-life premium income grew by 3% (primarily in the 'Fire and other damage to property' and 'Motor' classes), while claims were down 10% (storms had a sharply negative impact in 2014, although this was largely offset by reinsurance). As a result, the combined ratio for our non-life insurance business amounted to a sound 90%, which was an improvement on the previous year (94%). Sales of life insurance – including investment contracts without a discretionary participation feature (roughly equivalent to unit-linked life insurance
policies), which are excluded from the IFRS figures – ended the year at 1.4 billion euros. This 12% decline was primarily attributable to lower sales of unit-linked products in 2015 (-26%). At year-end, the outstanding life reserves totalled 26.7 billion euros, up 1% on the year-earlier figure.
The other income items chiefly comprised gains realised on the sale of shares and bonds (149 million euros, up slightly on the 2014 figure, and primarily related to sales of shares), dividends received on securities held in our portfolios (65 million euros, also slightly better than in 2014), trading and fair-value income (162 million euros, a significantly better performance than in 2014 due primarily to the positive impact of the increase in the value of derivatives used for asset/liability management purposes, which more than made up for the lower result in the dealing room and various negative fair value adjustments) and other income (207 million euros, down slightly on its 2014 level). Besides the usual items (results from KBC Autolease, VAB, etc.), 'other income' also included a number of one-off items.
Our costs rose by 4% to 2 373 million euros in 2015, with various factors, including higher special bank taxes (due, for instance, to the contribution to the European Resolution Fund), higher pension costs and lower marketing and communication costs, all playing their part. The cost/income ratio for the banking activities remained at an excellent 50%, roughly the same as in 2014. Adjusted for one-off items, it was 53%, as opposed to 49% in 2014.
Loan loss provisioning was relatively limited in 2015, coming to 177 million euros, a decline of 14% on the year-earlier figure. In terms of our overall loan portfolio, therefore, loan loss provisions amounted to just 19 basis points in 2015, compared to 23 basis points in 2014. Approximately 3.8% of the business unit's loan portfolio was impaired (see 'Glossary of ratios and terms' for definition) at year-end 2015, compared with 4.3% a year earlier. Impaired loans that were more than 90 days past due accounted for 2.2% of the portfolio (the same as in 2014).
In 2015, the Czech Republic Business Unit recorded a net profit of 542 million euros, compared with 528 million euros a year earlier.
Our total income increased despite low interest rates and narrowing rate margins. At 845 million euros, net interest income – the most important income item – was adversely affected by the climate of low interest rates and associated lower level of income generated by reinvestments, but the decline was limited to 2% (and to as little as 1% with an unchanged scope of consolidation and eliminating the effect of exchange rates). The main positive factors in this regard were lower interest rates on savings accounts and strong volume growth of both loans and deposits. As regards the latter, loans and advances to customers, excluding reverse repos (18 billion euros at year-end) rose by 8% in 2015, while deposits from customers and debt securities, excluding repos (24 billion euros at year-end) grew by 6% year-on-year. The average net interest margin narrowed from 3.18% in 2014 to 3.03% in 2015.
Net fee and commission income (201 million euros) held up extremely well in 2015, with further growth of 4% due primarily to the strong performance of the asset management activities, which resulted in a firm increase in management fees for investment funds (due in part to growth in assets under management). Total assets under management in the Czech Republic rose by 19% to almost 9 billion euros, owing to a combination of increased net volume (+12%) and the rise in value of the assets themselves (+7%).
Our insurance activities generated a total of 420 million euros in earned premiums, 243 million euros of which came from the life segment and 177 million euros from the non-life segment. Non-life premium income grew 7% (primarily in the 'Motor' and 'Fire and other damage to property' classes), while claims were up 8%. As a result, the combined ratio for our non-life insurance business amounted to a good 94%, the same level as a year earlier. Sales of life insurance ended the year at 0.2 billion euros, up by half on the figure for 2014 owing to an increase in the number of Maximal Invest products being issued. At year-end, the outstanding life reserves for this business unit totalled 1 billion euros, roughly the same as the year-earlier figure.
The other income items chiefly comprised gains realised on the sale of shares and bonds (12 million euros), trading and fair-value income (98 million euros, as opposed to 62 million euros in 2014, due in part to the positive impact of the increase in the value of derivatives used for asset/liability management purposes, and higher dealing room income) and other income (23 million euros).
Costs rose by 4% to 617 million euros in 2015 (by 3% with an unchanged scope of consolidation and eliminating the effect of exchange rates), with various factors, including higher ICT costs, facility services costs and other administrative costs, which more than offset the slightly lower staff expenses and depreciation, all playing their part. Consequently, the cost/ income ratio for the banking activities remained at a solid 48%, roughly the same as in 2014.
Loan loss provisioning remained limited in 2015, coming to 36 million euros, which is just 2 million euros more than the low level of 2014, despite the negative impact of several model adjustments. In terms of our overall loan portfolio, therefore, loan loss provisions amounted to just 18 basis points in 2015, roughly the same level as in 2014. Approximately 3.4% of the business unit's loan portfolio was impaired at year-end 2015, compared with 3.8% a year earlier. Impaired loans that were more than 90 days past due accounted for 2.5% of the portfolio (2.9% in 2014).
In 2015, the net result at the International Markets Business Unit amounted to 245 million euros, as opposed to -182 million euros a year earlier. The improvement was largely accounted for by Hungary (we had to set aside significant provisions in 2014 in response to new legislation on retail loans) and by Ireland (a sharp reduction in loan loss provisioning).
The net result per country was 131 million euros for Hungary, 82 million euros for Slovakia, 18 million euros for Bulgaria and 13 million euros for Ireland.
The business unit's net interest income came to 711 million euros in 2015, up 5% year-on-year, due primarily to lower
funding and liquidity costs in Ireland and to a lesser extent to volume growth in Slovakia, among other things. As regards the latter, loans and advances to customers for the business unit as a whole, excluding reverse repos (21 billion euros), remained roughly the same in 2015. Increases in Slovakia (+16%, due primarily to home loans), and Bulgaria (+9%) were cancelled out by a decline in Ireland (-4%, due to the scaling back of corporate lending) and in Hungary (-7%). At 17 billion euros, deposits from customers and debt securities (excluding repos) went up by 15% in 2015, attributable largely to the deposit campaign in Ireland (+26%). Deposits also grew in Slovakia (+8%), Bulgaria (+15%) and Hungary (+12%). The average net interest margin rose from 2.41% in 2014 to 2.55% in 2015.
Net fee and commission income (206 million euros) declined slightly by 1%, due mainly to Bulgaria, but remained stable or even improved a little in the other countries.
The business unit's insurance activities, which are confined to Hungary, Slovakia and Bulgaria, generated a total of 259 million euros in earned premiums, 90 million euros of which came from the life segment and 169 million euros from the non-life segment. Non-life premium income grew by 11% (growth in all countries), while claims were up just 3%. As a result, the combined ratio for the non-life insurance business amounted to a fine 95%, a slight improvement on its yearearlier level (96%). Sales of life insurance – including investment contracts without a discretionary participation feature (roughly equivalent to unit-linked life insurance policies), which are excluded from the IFRS figures – ended the year at 0.1 billion euros, up 17% on the figure for 2014, primarily on account of higher sales of unit-linked products in Hungary in 2015. At year-end, the outstanding life reserves for this business unit totalled 0.6 billion euros, up 8% on the year-earlier figure, due chiefly to the increase in Hungary.
The other income items chiefly comprised gains realised on the sale of shares and bonds (6 million euros), trading and fair-value income (76 million euros), and other income (50 million euros). The latter item was much better than in 2014 (a negative 227 million euros), when it was affected by a
231-million-euro provision that had been set aside to deal with the effects of the new Hungarian law on consumer loans (for more information on the 'Curia' provision, see Note 8 in the 'Consolidated financial statements' section). What's more, it was possible to reverse approximately 34 million euros of this provision in 2015.
Costs rose by a modest 2% to 752 million euros in 2015. The lion's share of the increase occurred in Ireland and related primarily to the roll-out of the retail strategy. Consequently, the cost/income ratio for the banking activities came to 66%, compared to 92% in 2014 when it had of course been influenced by 'Curia' provisioning in Hungary.
Loan loss provisions came to 82 million euros in 2015, down 191 million euros on their 2014 level, due primarily to the improvement in Ireland (from 198 to 48 million euros). In terms of our overall loan portfolio, loan loss provisions for the business unit as a whole amounted to 32 basis points in 2015, compared to 106 basis points in 2015. The figures per country were 34 basis points for Ireland (compared to 133 basis points in 2014), 12 basis points for Hungary, 32 basis points for Slovakia and 121 basis points for Bulgaria. Approximately 30% of the business unit's loan portfolio was impaired at year-end 2015, compared with 34% a year earlier. This high figure related chiefly to Ireland (where impaired loans stood at 47% at year-end). Impaired loans that were more than 90 days past due accounted for 16% of the portfolio (19% in 2014).
Besides financial reporting for three business units, we also report on a separate Group Centre. This centre includes the operating results of the group's holding-company activities, certain costs related to capital and liquidity management, costs related to the holding of participating interests and the results of the remaining companies and activities in the process of being run down. The Group Centre also contains the results of legacy business (CDOs and divestments) to year-end 2014 (immaterial thereafter) and the valuation of own credit risk.
In 2015, the Group Centre generated a net result of 287 million euros, compared with -100 million euros a year earlier. This consisted of:
| Results by business unit* (in millions of EUR) | Belgium | Czech Republic | International Markets | |||
|---|---|---|---|---|---|---|
| 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | |
| Net interest income | 2 917 | 2 819 | 860 | 845 | 677 | 711 |
| Non-life insurance (before reinsurance) | 374 | 460 | 75 | 80 | 68 | 81 |
| Earned premiums | 964 | 989 | 165 | 177 | 153 | 169 |
| Technical charges | -590 | -530 | -89 | -96 | -86 | -88 |
| Life insurance (before reinsurance) | -252 | -243 | 24 | 26 | 12 | 16 |
| Earned premiums | 1 004 | 969 | 160 | 243 | 84 | 90 |
| Technical charges | -1 256 | -1 212 | -136 | -216 | -71 | -73 |
| Ceded reinsurance result | 19 | -20 | -7 | -8 | 2 | -6 |
| Dividend income | 49 | 65 | 0 | 0 | 0 | 0 |
| Net result from financial instruments at fair value through profit or loss |
44 | 162 | 62 | 98 | 73 | 76 |
| Net realised result from available-for-sale assets | 115 | 149 | 9 | 12 | 16 | 6 |
| Net fee and commission income | 1 152 | 1 280 | 194 | 201 | 208 | 206 |
| Other net income | 269 | 207 | 18 | 23 | -227 | 50 |
| Total income | 4 688 | 4 878 | 1 235 | 1 277 | 828 | 1 141 |
| Operating expenses | -2 282 | -2 373 | -594 | -617 | -740 | -752 |
| Impairment | -251 | -222 | -36 | -42 | -284 | -84 |
| on loans and receivables | -205 | -177 | -34 | -36 | -273 | -82 |
| on available-for-sale assets | -27 | -38 | 0 | -4 | 0 | 0 |
| on goodwill | 0 | 0 | 0 | -2 | 0 | 0 |
| other | -19 | -7 | -3 | 0 | -11 | -2 |
| Share in results of associated companies | -1 | -1 | 23 | 23 | 0 | 0 |
| Result before tax | 2 154 | 2 282 | 628 | 640 | -196 | 305 |
| Income tax expense | -638 | -717 | -100 | -98 | 14 | -60 |
| Net post-tax result from discontinued operations | 0 | 0 | 0 | 0 | 0 | 0 |
| Result after tax | 1 517 | 1 565 | 528 | 542 | -182 | 245 |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 |
| attributable to equity holders of the parent (net result) | 1 516 | 1 564 | 528 | 542 | -182 | 245 |
| Banking | 1 205 | 1 230 | 501 | 516 | -204 | 225 |
| Insurance | 311 | 334 | 27 | 26 | 23 | 20 |
| Holding-company activities | – | – | – | – | – | – |
| Risk-weighted assets, banking (Basel III; period-end) | 42 919 | 42 157 | 12 345 | 12 919 | 18 425 | 19 424 |
| Solvency, insurance (Solvency I; period-end) | 868 | 891 | 67 | 72 | 44 | 48 |
| Allocated capital (period-end) | 6 026 | 5 985 | 1 414 | 1 482 | 2 011 | 2 123 |
| Return on allocated capital | 26% | 26% | 37% | 37% | -9% | 12% |
| Cost/income ratio, banking | 50% | 50% | 48% | 48% | 92% | 66% |
| Combined ratio, non-life insurance | 94% | 90% | 94% | 94% | 96% | 95% |
* Some reference figures for 2014 have been restated (see 'Consolidated results in 2015').
| Of which: | Group Centre | Total group | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Hungary | Slovakia | Bulgaria | Ireland | ||||||||
| 2015 | 2014 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 |
| 248 | 274 | 210 | 214 | 43 | 47 | 149 | 202 | -146 | -63 | 4 308 | 4 311 |
| 27 | 27 | 20 | 20 | 21 | 35 | 0 | 0 | -6 | -10 | 512 | 611 |
| 65 | 55 | 27 | 29 | 71 | 76 | 0 | 0 | -16 | -16 | 1 266 | 1 319 |
| -38 | -29 | -7 | -9 | -50 | -41 | 0 | 0 | 10 | 6 | -754 | -708 |
| 2 | -1 | 10 | 10 | 4 | 4 | 0 | 0 | -1 | 0 | -216 | -201 |
| 15 | 15 | 53 | 52 | 16 | 23 | 0 | 0 | 0 | 0 | 1 247 | 1 301 |
| -13 | -16 | -43 | -41 | -12 | -20 | 0 | 0 | 0 | 0 | -1 463 | -1 502 |
| -3 | -2 | -2 | -1 | 6 | -2 | 0 | 0 | 2 | 6 | 16 | |
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 7 | 10 | 56 | |
| 60 | 62 | 15 | 16 | 2 | 2 | -7 | -2 | 49 | -121 | 227 | |
| 3 | 14 | 2 | 2 | 0 | 0 | 0 | 1 | 10 | 23 | 150 | |
| 160 | 160 | 46 | 47 | 1 | -2 | -3 | -3 | 19 | -9 | 1 573 | |
| 42 | -225 | 0 | 9 | 0 | 0 | -2 | 0 | 34 | 17 | 94 | |
| 539 | 307 | 301 | 317 | 77 | 83 | 138 | 198 | -31 | -148 | 6 720 | |
| -353 | -368 | -185 | -190 | -52 | -56 | -132 | -149 | -203 | -149 | -3 818 | |
| -8 | -49 | -18 | -18 | -10 | -10 | -207 | -48 | 65 | -399 | -506 | |
| -6 | -47 | -17 | -18 | -10 | -10 | -198 | -48 | -75 | -28 | -587 | |
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -1 | -3 | -29 | |
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -342 | 0 | |
| -2 | -1 | 0 | 0 | 0 | 0 | -9 | 0 | 142 | -25 | 109 | |
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 3 | 3 | 25 | |
| 179 | -109 | 98 | 108 | 15 | 17 | -202 | 1 | -166 | -693 | 2 420 | |
| -47 | 15 | -24 | -26 | 0 | 2 | 23 | 12 | 65 | 980 | -657 | |
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| 131 | -94 | 75 | 82 | 15 | 18 | -179 | 13 | -100 | 287 | 1 763 | |
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| 131 | -94 | 75 | 82 | 15 | 18 | -179 | 13 | -100 | 287 | 1 762 | |
| 125 | -102 | 65 | 74 | 11 | 12 | -179 | 13 | -31 | 432 | 1 470 | |
| 6 | 8 | 10 | 8 | 5 | 6 | 0 | 0 | 30 | -26 | 391 | |
| – | – | – | – | – | – | – | – | -99 | -119 | -99 | |
| 6 858 | 6 996 | 3 815 | 4 350 | 671 | 750 | 6 931 | 7 449 | 6 650 | 5 433 | – | |
| 16 | 14 | 15 | 15 | 15 | 16 | 0 | 0 | 1 | 0 | – | |
| 749 | 759 | 426 | 483 | 96 | 108 | 728 | 782 | 701 | 571 | – | |
| 17% | -12% | 18% | 18% | 16% | 18% | -28% | 2% | – | – | – | |
| 65% | 125% | 62% | 60% | 63% | 65% | 96% | 75% | – | – | 58% | |
| 97% | 96% | 83% | 88% | 101% | 97% | – | – | – | – | 94% |
Mainly active in banking, insurance and asset management, we are exposed to a number of typical industry-specific risks such as – but not exclusively – credit risk, movements in interest rates and exchange rates, liquidity risk, insurance underwriting risk, operational risks, etc.
This section of our annual report focuses on our risk governance model and the most material sector-specific risks we face. The general risks (relating to the macroeconomic situation, competition, regulations, etc.) are described in the 'Our business model and strategy' section.
Our statutory auditors have audited the information in this section that forms part of the IFRS financial statements, viz.:
Our risk governance model is characterised primarily by:
risk-aware business people, who act as the first line of defence for conducting sound risk management in the group;
parts of the 'Market risk in non-trading activities' section: the introduction, 'Managing market risk in non-trading activities', 'Interest rate risk' (except for the 'Impact of a parallel 10-basis-point increase in the yield curve for the KBC group' table and the 'Breakdown of the reserves for non-unit-linked life insurance by guaranteed interest rate, insurance activities' table) and 'Foreign exchange risk';
Relevant risk management bodies and control functions:
The Group Markets Committee (GMC) supports the Group Executive Committee in setting, monitoring and following up limits for markets activities (trading activity, where there is not only market risk, but also operational and counterparty credit risks).
The Group Insurance Committee (GIC) supports the Group Executive Committee in setting, monitoring and following up limits for insurance activities at group level.
Performance is assessed on a yearly basis as part of the Internal Control Statement.
A simplified schematic of our risk governance model is shown above.
KBC seeks to promote a strong risk culture throughout its organisation. The Risk function's vision is to put risk in the hearts and minds of everyone, with a view to helping the group create sustainable growth and earn client trust. Its mission is to inspire, equip and challenge the business to excel in managing the risk/return balance of its activities, within the playing field defined in the risk appetite.
We consider risk culture as a powerful wheel of effective and efficient risk management. It cultivates a shared perception among employees of the priority given to risk management. This includes perceptions of risk-related practices and behaviours that are expected, valued and supported.
As a basis for evaluating progress, we ask ourselves the following questions:
Throughout the group, individual entities and departments made important strides in implementing risk culture throughout their respective organisations. Focusing on the questions above, several local initiatives were launched to enhance risk awareness. Furthermore, the topic has been at the top of the agenda of KBC's CRO Community, which enables insights, best practices and ideas to be shared.
During 2015, a large number of initiatives were taken in other areas to further improve the quality and effectiveness of the internal control environment. We revised and simplified our overarching Risk Management Frameworks (RMFs) in order to achieve better and more focused risk management. Most notably, we thoroughly reviewed the KBC Three Lines of Defence model, taking important steps to promote clear accountability for risk taking, for oversight and for creating opinions that contribute to the requisite degree of certainty.
Credit risk is the potential negative deviation from the expected value of a financial instrument arising from the non-payment or non-performance by a contracting party (for instance a borrower), due to that party's insolvency, inability or lack of willingness to pay or perform, or to events or measures taken by
the political or monetary authorities of a particular country (country risk). Credit risk thus encompasses default risk and country risk, but also includes migration risk, which is the risk for adverse changes in credit ratings.
More information on risk management can be found in our Risk Report at www.kbc.com, under 'investor relations', 'reports', 'risk reports'.
We manage credit risk at both transactional and portfolio level. Managing credit risk at the transactional level means that we have sound practices, processes and tools in place to identify and measure the risks before and after accepting individual credit exposures. Limits and delegations are set to determine the maximum credit exposure allowed and the level at which acceptance decisions are taken. Managing the risk at portfolio level encompasses, inter alia, periodic measuring and analysing of risk embedded in the consolidated loan and investment portfolios and reporting on it, monitoring limit discipline, conducting stress tests under different scenarios, taking risk mitigating measures and optimising the overall credit risk profile.
We have sound acceptance policies and procedures in place for all kinds of credit risk exposure. We are limiting our description below to exposures related to traditional loans to businesses and to lending to individuals, as these account for the largest part of the group's credit risk exposure.
Lending to individuals (e.g., mortgages) is subject to a standardised process, during which the output of scoring models plays an important role in the acceptance procedure. Lending to businesses is subject to a more integrated acceptance process in which relationship management, credit acceptance committees and model-generated output are taken into account.
For most types of credit risk exposure, monitoring is determined primarily by the risk class, with a distinction being made based on the Probability of Default (PD) and the Loss Given Default (LGD). The latter reflects the estimated loss that would be incurred if an obligor defaults.
In order to determine the risk class, we have developed various rating models for measuring how creditworthy borrowers are and for estimating the expected loss of various types of transactions. We use a number of uniform models throughout the group (models for governments, banks, large companies, etc.), while others have been designed for specific geographic
markets (SMEs, private individuals, etc.) or types of transaction. We use the same internal rating scale throughout the group.
We use the output generated by these models to split the non-defaulted loan portfolio into internal rating classes ranging from 1 (lowest risk) to 9 (highest risk) for the PD. We assign an internal rating ranging from PD 10 to PD 12 to a defaulted obligor. PD class 12 is assigned when either one of the obligor's credit facilities is terminated by the bank, or when a court order is passed instructing repossession of the collateral. PD class 11 groups obligors that are more than 90 days past due (in arrears or overdrawn), but that do not meet PD 12 criteria. PD class 10 is assigned to obligors for which there is reason to believe that they are unlikely to pay (on time), but that do not meet the criteria for classification as PD 11 or PD 12. 'Defaulted' status is fully aligned with the 'non-performing' and 'impaired' statuses. Obligors in PD classes 10, 11 and 12 are therefore referred to as 'defaulted' and 'impaired'. Likewise, 'performing' status is fully aligned with the 'non-defaulted' and 'non-impaired' statuses.
We review loans to large corporations at least once a year, with the internal rating being updated as a minimum. If ratings are not updated in time, a capital add-on is imposed. Loans to small and medium-sized enterprises and to private individuals are reviewed periodically, with account being taken of any new information that is available (such as arrears, financial data, a significant change in the risk class). This monthly exercise can trigger a more in-depth review or may result in measures being taken for the client.
For credit linked to defaulted borrowers in PD classes 10, 11 and 12, we record impairment losses based on an estimate of the net present value of the recoverable amount. This is done on a case-by-case basis, and on a statistical basis for smaller credit facilities. In addition, for non-defaulted credit in PD classes 1 to 9, we record impairment losses on a 'portfolio basis', using a formula based on the IRB Advanced models used internally, or an alternative method if a suitable IRB Advanced model is not yet available.
We also monitor credit risk on a portfolio basis, inter alia by means of monthly and/or quarterly reports on the consolidated credit portfolio in order to ensure that lending policy and limits are being respected. In addition, we monitor the largest risk concentrations via periodic and ad hoc reports. Limits are in place at borrower/guarantor, issuer or counterparty level, at sector level and for specific activities or geographic areas. Moreover, we perform stress tests on certain types of credit, as well as on the full scope of credit risk.
Whereas some limits are in notional terms, we also use concepts such as 'expected loss' and 'loss given default'. Together with 'probability of default' and 'exposure at default', these concepts form the building blocks for calculating the regulatory capital requirements for credit risk, as KBC has opted to use the Internal Rating Based (IRB) approach. By the end of 2015, the main group entities (apart from CIBANK in Bulgaria and Cˇ SOB in Slovakia) and some smaller entities had adopted the IRB Advanced approach. Others are scheduled to shift to the IRB Advanced approach in the coming years, subject to regulatory approval. 'Non-material' entities will continue to adopt the Standardised approach.
In the following sections, we take a closer look at the credit risk exposure of the entities of the KBC group.
Credit risk arises in both the banking and insurance activities of the group.
Looking at the banking activities first, the main source of credit risk is the loan and investment portfolio. This portfolio has been built up mainly through what can be considered as pure, traditional lending activities. It includes all retail lending such as mortgage loans and consumer loans, all corporate lending such as (committed and uncommitted) working capital credit lines, investment credit, guarantee credit and credit derivatives (protection sold) and all non-government debt securities in the investment books of the group's bank entities. The table excludes other credit risks, such as trading exposure (issuer risk), counterparty risk associated with interprofessional transactions, international trade finance (documentary credit, etc.) and government bonds. We describe these items separately below.
The loan and investment portfolio as defined in this section differs significantly from 'Loans and advances to customers' in Note 18 of the 'Consolidated financial statements' section.For more information, please refer to the 'Glossary of ratios and terms'.
| Loan and investment portfolio, banking | 31-12-2014 | 31-12-2015 |
|---|---|---|
| Total loan portfolio (in billions of EUR) | ||
| Amount granted | 166 | 174 |
| Amount outstanding | 139 | 143 |
| Loan portfolio breakdown by business unit (as a % of the portfolio of credit outstanding) | ||
| Belgium | 64% | 65% |
| Czech Republic | 14% | 14% |
| International Markets | 18% | 18% |
| Group Centre | 4% | 3% |
| Total | 100% | 100% |
| Loan portfolio breakdown by counterparty sector (as a % of the portfolio of credit outstanding)1 | ||
| Private individuals | 42% | 42% |
| Finance and insurance | 6% | 6% |
| Governments | 4% | 3% |
| Corporates | 49% | 49% |
| Services | 11% | 11% |
| Distribution | 8% | 8% |
| Real estate | 7% | 7% |
| Building and construction | 4% | 4% |
| Agriculture, farming, fishing | 3% | 3% |
| Automotive | 2% | 2% |
| Other2 | 14% | 14% |
| Total | 100% | 100% |
| Loan portfolio breakdown by region (as a % of the portfolio of credit outstanding)1, 6 | ||
| Western Europe | 75% | 74% |
| Central and Eastern Europe | 21% | 22% |
| North America | 1% | 1% |
| Other | 2% | 3% |
| Total | 100% | 100% |
| Loan portfolio breakdown by risk class (part of the portfolio, as a % of the portfolio of credit outstanding)1, 3 | ||
| PD 1 (lowest risk, default probability ranging from 0.00% up to, but not including, 0.10%) | 30% | 31% |
| PD 2 (0.10% – 0.20%) | 11% | 11% |
| PD 3 (0.20% – 0.40%) | 13% | 14% |
| PD 4 (0.40% – 0.80%) | 15% | 15% |
| PD 5 (0.80% – 1.60%) | 11% | 11% |
| PD 6 (1.60% – 3.20%) | 10% | 9% |
| PD 7 (3.20% – 6.40%) | 5% | 4% |
| PD 8 (6.40% – 12.80%) | 2% | 2% |
| PD 9 (highest risk, ≥ 12.80%) | 2% | 2% |
| Total | 100% | 100% |
| Loan and investment portfolio, banking | 31-12-2014 | 31-12-2015 |
|---|---|---|
| Impaired loans4 (PD 10 + 11 + 12; in millions of EUR or %) | ||
| Impaired loans5 | 13 692 | 12 305 |
| Specific impairment | 5 709 | 5 517 |
| Portfolio-based impairment (i.e. based on PD 1 to 9) | 215 | 229 |
| Credit cost ratio | ||
| Belgium Business Unit | 0.23% | 0.19% |
| Czech Republic Business Unit | 0.18% | 0.18% |
| International Markets Business Unit | 1.06% | 0.32% |
| Ireland | 1.33% | 0.34% |
| Slovakia | 0.36% | 0.32% |
| Hungary | 0.94% | 0.12% |
| Bulgaria | 1.30% | 1.21% |
| Group Centre | 1.17% | 0.54% |
| Total | 0.42% | 0.23% |
| Impaired loans ratio | ||
| Belgium Business Unit | 4.3% | 3.8% |
| Czech Republic Business Unit | 3.8% | 3.4% |
| International Markets Business Unit | 34.1% | 29.8% |
| Group Centre | 8.6% | 10.0% |
| Total | 9.9% | 8.6% |
| Impaired loans that are more than 90 days past due (PD 11 + 12; in millions of EUR or %) | ||
| Impaired loans that are more than 90 days past due | 7 676 | 6 936 |
| Specific impairment for impaired loans that are more than 90 days past due | 4 384 | 4 183 |
| Ratio of impaired loans that are more than 90 days past due | ||
| Belgium Business Unit | 2.2% | 2.2% |
| Czech Republic Business Unit | 2.9% | 2.5% |
| International Markets Business Unit | 19.0% | 16.0% |
| Group Centre | 6.3% | 6.1% |
| Total | 5.5% | 4.8% |
| Cover ratio [Specific loan loss impairment]/[impaired loans] | ||
| Total | 42% | 45% |
| Total (excluding mortgage loans) | 51% | 53% |
The Belgium Business Unit also includes the small network of 10 KBC Bank branches established in the rest of Europe, the US and Southeast Asia. These branches, which focus on activities and clients with links to KBC's core markets, have a total loan portfolio of approximately 5 billion euros.
1 Audited figures.
2 Individual sector shares not exceeding 3%.
3 Internal rating scale.
4 Figures differ from those appearing in Note 21 of the 'Consolidated financial statements' section, due to differences in scope.
5 Reconciliation of year-end figures: the difference of 1 386 million euros between the figures for 2014 and 2015 was due to this category of loan decreasing by 277 million euros at the Belgium Business Unit, by 5 million euros at the Czech Republic Business Unit, by 6 million euros at the Group Centre, and by 1 099 million euros at the International Markets Business Unit (962 million euros of which in Ireland).
6 A more detailed breakdown by country is available in KBC's Extended Quarterly Report – 4Q2015 at www.kbc.com.
We have provided the following additional information for the loan and investment portfolio in Ireland, due to the specific situation on this market.
| Details for the loan and investment portfolio of KBC Bank Ireland1 | 31-12-2014 | 31-12-2015 |
|---|---|---|
| Total portfolio (outstanding, in billions of EUR) | 14 | 14 |
| Breakdown by loan type | ||
| Home loans | 82% | 84% |
| SME & corporate loans | 9% | 8% |
| Real estate investment and real estate development | 9% | 8% |
| Breakdown by risk class | ||
| Normal (PD 1-9) | 48% | 53% |
| Impaired (PD 10) | 25% | 24% |
| Impaired (PD 11+12) | 27% | 24% |
| Credit cost ratio2 | 1.33% | 0.34% |
| Cover ratio | 37% | 41% |
1 For a definition, see 'Credit risk exposure in the banking activities' (i.e. excluding inter alia government bonds).
2 Unaudited.
In order to avoid a situation where an obligor facing financial difficulties ends up defaulting, we can decide to renegotiate its loans and grant forbearance measures in accordance with internal policy guidelines.
Forbearance measures consist of concessions towards a borrower facing, or about to face, financial difficulties.
Forbearance measures may involve:
After a forbearance measure has been decided upon, a forbearance tag is attached to the file in the credit systems for identification, monitoring and reporting purposes.
A client with a forborne loan will in principle be assigned a PD class that is higher than the one it had before the forbearance measure was granted, given the higher risk of the client.
If a client/facility has been assigned 'defaulted' status (before or at the time forbearance measures are granted), the client/ forborne facility (depending on whether defaulted status is
assigned at client or facility level) must remain defaulted for at least one year. Only upon strict conditions can the client/ facility be reclassified as 'non-defaulted'. A forborne facility with a 'non-defaulted' status will be tagged as 'forborne' for at least two years after the forbearance measure has been granted, or after the client becomes non-defaulted, and can only be removed when strict extra criteria have been met (non-defaulted, regular payments, etc.).
As forbearance measures constitute an objective indicator (i.e. impairment trigger) that requires assessing whether impairment is needed, all forbearance measures are subject to an impairment test.
At the end of 2015, forborne loans accounted for some 5% of the total loan portfolio. The tables below provide details on the movement in forborne loan exposure, the relevant impairment recorded (between year-end 2014 and year-end 2015), and the breakdown of forborne loans by PD class.
Compared to the end of 2014, the forborne loan exposure decreased by 1.3%, as the slight increase due to the new EBA-based policy on forbearance measures (two-year tagging period) was more than offset by the reduction resulting from repayments, cures and write-offs and – specifically in Hungary following the Curia Act – the impact on mortgage loans of the settlement and conversion of foreign currency loans to forint.
| 2015 opening balance |
Movements | 2015 closing balance |
|||||
|---|---|---|---|---|---|---|---|
| Gross carrying value | Loans which have become forborne |
Loans which are no longer considered to be forborne |
Repayments | Write-offs | Other1 | ||
| Total | 7 897 | 2 099 | -1 443 | -671 | -105 | 16 | 7 794 |
| Of which: | |||||||
| KBC Bank Ireland | 5 703 | 541 | -377 | -426 | -75 | 17 | 5 383 |
| K&H Bank | 197 | 91 | -3 | -138 | -24 | 4 | 128 |
| 2015 opening balance |
Movements | 2015 closing balance |
|||||
| Impairment | Existing im pairment on loans which have become forborne |
Decrease in impairment because loans are no longer forborne |
Increase in impairment on forborne loans |
Decrease in impairment on forborne loans |
Other2 | ||
| Total | 2 108 | 586 | -304 | 209 | -378 | -19 | 2 203 |
| Of which: | |||||||
| KBC Bank Ireland | 1 664 | 228 | -160 | 176 | -300 | 0 | 1 607 |
| K&H Bank | 72 | 19 | -1 | 5 | -49 | -1 | 46 |
1 Includes foreign-exchange effects for loans granted in currencies other than the local currency, changes in the drawn/undrawn portion of facilities, and increases in the gross carrying value of existing forborne loans.
2 Includes the use of impairment in respect of write-offs.
| Forborne loans | As a % of the outstanding portfolio |
Breakdown by PD class (as a % of the entity's portfolio of forborne loans) |
||||||
|---|---|---|---|---|---|---|---|---|
| PD 1-8 | PD 9 | PD 10 | PD 11-12 | |||||
| (impaired, less than 90 days past due) |
(impaired, 90 days and more past due) |
|||||||
| 31-12-2014 | ||||||||
| Total | 6% | 6% | 7% | 58% | 29% | |||
| Of which: | ||||||||
| KBC Bank Ireland | 39% | 1% | 6% | 61% | 32% | |||
| K&H Bank | 4% | 1% | 5% | 55% | 39% | |||
| By client segment | ||||||||
| Private individuals1 | 8% | 6% | 7% | 62% | 25% | |||
| SMEs | 1% | 21% | 16% | 40% | 23% | |||
| Corporations2 | 5% | 4% | 5% | 54% | 37% | |||
| 31-12-2015 | ||||||||
| Total | 5% | 8% | 11% | 53% | 28% | |||
| Of which: | ||||||||
| KBC Bank Ireland | 38% | 1% | 11% | 59% | 29% | |||
| K&H Bank | 3% | 2% | 8% | 70% | 21% | |||
| By client segment | ||||||||
| Private individuals1 | 8% | 9% | 13% | 59% | 19% | |||
| SMEs | 1% | 28% | 12% | 35% | 25% | |||
| Corporations2 | 5% | 3% | 6% | 46% | 45% |
1 99% of the forborne loans total relates to mortgage loans in 2015 (99% in 2014).
2 53% of the forborne loans relates to commercial real estate loans in 2015 (55% in 2014).
The main sources of other credit risk in the banking activities are:
Short-term commercial transactions. This involves export or import finance (documentary credit, pre-export and postimport finance, etc.) and only entails exposure to financial institutions. We manage risks associated with this activity by setting limits per financial institution and per country or group of countries.
Trading book securities. These securities carry an issuer risk (potential loss on default by the issuer). We measure exposure to this type of risk on the basis of the market value of the securities. Issuer risk is curtailed through the use of limits both per issuer and per rating category.
Interprofessional transactions (deposits with professional counterparties and derivatives trading). These transactions result in counterparty risk. The amounts shown in the table are the group's pre-settlement risks, measured as the sum of the (positive) current replacement value ('mark-to-market' value) of a transaction and the applicable add-on. Risks are curtailed by setting limits per counterparty. We also use close-out netting and collateral techniques. Financial collateral is only taken into account if the assets concerned are considered eligible risk-mitigants for regulatory capital calculations.
| (in billions of EUR) | 31-12-2014 | 31-12-2015 |
|---|---|---|
| Short-term commercial transactions | 4.4 | 2.9 |
| Issuer risk1 | 0.2 | 0.1 |
| Counterparty risk in interprofessional transactions2 | 10.1 | 9.6 |
1 Excluding a nominative list of central governments, and all exposure to EU institutions and multilateral development banks.
2 After deduction of collateral received and netting benefits.
Government securities in the investment portfolio of banking entities. We measure exposure to governments in terms of nominal value and book value. Such exposure relates mainly to EU states (particularly Belgium). We have put in place limiting caps for both non-core and core country sovereign bond exposure. Details on the exposure of the combined banking and insurance activities to government bonds are provided in a separate section below.
For the insurance activities, credit exposure exists primarily in the investment portfolio (towards issuers of debt instruments) and towards reinsurance companies. We have guidelines in place for the purpose of controlling credit risk within the investment portfolio with regard to, for instance, portfolio composition and ratings.
| Investment portfolio of KBC group insurance entities | ||
|---|---|---|
| (in millions of EUR, market value)1 | 31-12-2014 | 31-12-2015 |
| Per balance sheet item | ||
| Securities | 21 282 | 22 048 |
| Bonds and other fixed-income securities | 19 935 | 20 490 |
| Held to maturity | 6 982 | 6 629 |
| Available for sale | 12 952 | 13 813 |
| At fair value through profit or loss and held for trading | 1 | 1 |
| As loans and receivables | 0 | 46 |
| Shares and other variable-yield securities | 1 345 | 1 555 |
| Available for sale | 1 340 | 1 551 |
| At fair value through profit or loss and held for trading | 5 | 3 |
| Other | 3 | 3 |
| Property and equipment and investment property | 373 | 341 |
| Investment contracts, unit-linked2 | 13 425 | 13 330 |
| Other | 1 074 | 1 485 |
| Total | 36 155 | 37 204 |
| Details for bonds and other fixed-income securities | ||
| By external rating3 | ||
| Investment grade | 96% | 95% |
| Non-investment grade | 2% | 3% |
| Unrated | 2% | 2% |
| By sector3 | ||
| Governments | 65% | 59% |
| Financial4 | 13% | 26% |
| Other | 22% | 15% |
| By remaining term to maturity3 | ||
| Not more than 1 year | 12% | 12% |
| Between 1 and 3 years | 18% | 21% |
| Between 3 and 5 years | 20% | 18% |
| Between 5 and 10 years | 30% | 26% |
| More than 10 years | 20% | 22% |
1 The total carrying value amounted to 35 847 million euros at year-end 2015 and to 34 716 million euros at year-end 2014.
2 Representing the assets side of unit-linked (class 23) products and completely balanced on the liabilities side. No credit risk involved for KBC Insurance.
3 Excluding investments for unit-linked life insurance. In certain cases, based on extrapolations and estimates.
4 Including covered bonds and non-bank financial companies.
We are also exposed to a credit risk in respect of (re)insurance companies, since they could default on their commitments under (re)insurance contracts concluded with us. We measure this particular type of credit risk by means of a nominal approach (the maximum loss) and expected loss, among other techniques. Name concentration limits apply. PD – and by extension – expected loss is calculated using internal or external ratings. We determine the exposure at default by adding up the net loss reserves and the premiums, and the loss given default percentage is fixed at 50%.
Offering great service means we are actively listening to clients and also ensuring we follow through on our promises to deliver consistently excellent experiences. Getting it right the first time is one of the key areas I concentrate on to help keep our clients happy.
Colin Rockett, Mortgage Consultant at KBC Bank Ireland
| Credit exposure to (re)insurance companies by risk class1 : Exposure at Default (EAD) and Expected Loss (EL)2 (in millions of EUR) |
EAD 2014 |
EL 2014 |
EAD 2015 |
EL 2015 |
|---|---|---|---|---|
| AAA up to and including A- | 190 | 0.06 | 236 | 0.10 |
| BBB+ up to and including BB- | 123 | 0.12 | 27 | 0.03 |
| Below BB- | 0 | 0 | 0 | 0 |
| Unrated | 28 | 0.65 | 4 | 0.09 |
| Total | 341 | 0.83 | 267 | 0.22 |
1 Based on internal ratings.
2 EAD figures are audited, whereas EL figures are unaudited.
We hold a significant portfolio of government bonds, primarily as a result of our considerable excess liquidity position and for the reinvestment of insurance reserves into fixed instruments.
A breakdown per country is provided in the table on the following page.
| Designated | For compari son purposes: |
Economic | ||||||
|---|---|---|---|---|---|---|---|---|
| at fair value | total | impact of | ||||||
| Available | Held to | through | Loans and | Held for | at year-end | +100 basis | ||
| for sale | maturity | profit or loss | receivables | trading | Total | 2014 | points3 | |
| Southern Europe and Ireland | ||||||||
| Greece | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Portugal | 348 | 36 | 0 | 0 | 1 | 385 | 83 | -27 |
| Spain | 2 685 | 263 | 0 | 0 | 3 | 2 951 | 1 609 | -195 |
| Italy | 2 615 | 116 | 0 | 0 | 8 | 2 739 | 2 123 | -175 |
| Ireland | 489 | 546 | 0 | 0 | 3 | 1 038 | 775 | -52 |
| KBC core countries | ||||||||
| Belgium | 5 845 | 15 844 | 77 | 0 | 510 | 22 276 | 24 545 | -1 206 |
| Czech Republic | 1 841 | 5 147 | 0 | 18 | 491 | 7 496 | 7 587 | -438 |
| Hungary | 578 | 1 450 | 0 | 5 | 128 | 2 161 | 2 073 | -77 |
| Slovakia | 1 533 | 1 380 | 0 | 0 | 2 | 2 915 | 2 792 | -181 |
| Bulgaria | 375 | 15 | 0 | 0 | 0 | 390 | 279 | -25 |
| Other countries | ||||||||
| France | 2 248 | 3 147 | 0 | 0 | 117 | 5 512 | 4 214 | -471 |
| Poland | 902 | 148 | 12 | 0 | 6 | 1 068 | 624 | -52 |
| Germany | 317 | 482 | 0 | 0 | 4 | 803 | 861 | -47 |
| Austria | 312 | 473 | 21 | 0 | 11 | 817 | 1 182 | -56 |
| Netherlands | 102 | 410 | 1 | 0 | 3 | 516 | 905 | -32 |
| Rest2 | 1 703 | 1 894 | 10 | 0 | 121 | 3 727 | 3 643 | -233 |
| Total carrying | ||||||||
| value | 21 892 | 31 353 | 120 | 22 | 1 408 | 54 796 | 53 298 | – |
| Total nominal | ||||||||
| value | 19 070 | 29 566 | 110 | 22 | 1 187 | 49 956 | 48 646 | – |
1 Excluding exposure to supranational entities of selected countries. No material impairment on the government bonds in portfolio.
2 Sum of countries whose individual exposure is less than 0.5 billion euros at year-end 2015.
3 Theoretical economic impact in fair value terms of a parallel 100-basis-point upward shift in the spread over the entire maturity structure (in millions of euros). Only a portion of this impact is reflected in profit or loss and/or equity. Figures relate to banking book exposure only (impact on trading book exposure was very limited and amounted to -27 million euros at year-end 2015).
• The carrying value of the total sovereign bond exposure increased by 1.5 billion euros, due primarily to the higher exposure to Spanish, French, Italian, Polish and Portugese government bonds (+1.3 billion euros, +1.3 billion euros, +0.6 billion euros, +0.4 billion euros and +0.3 billion euros, respectively), but partly offset by a decrease in exposure to Belgian government bonds (-2.3 billion euros).
Revaluation reserve for available-for-sale assets at year-end 2015:
KBC sees no major sources of estimation uncertainty that would significantly increase the risk of a material adjustment to the carrying value of sovereign debt over financial year 2016.
Portfolio of Belgian government bonds:
Theoretical full economic impact (see previous table): the impact on IFRS profit or loss is very limited since the lion's share of the portfolio of Belgian sovereign bonds was classified as 'Available For Sale' (26%) and 'Held To Maturity' (71%); the impact on IFRS unrealised gains on available-for-sale assets is -205 million euros (after tax).
Impact on liquidity: a widening credit spread affects the liquidity coverage ratio (LCR), but the group has a sufficiently large liquidity buffer.
At 1.6 billion euros, the total net portfolio (i.e. excluding de-risked positions) of structured credit products (consisting primarily of European residential mortgage-backed securities (RMBS)) was down 0.1 billion euros on its level at year-end 2014, as redemptions were slightly higher (by 0.1 billion euros) than new investments. In 2013, KBC decided to lift the strict moratorium on investments in ABS and to allow treasury investments in liquid, high-quality, non-synthetic European ABS, which are also accepted as eligible collateral by the European Central Bank (ECB). This allows for further diversification in the investment portfolios. The moratorium on investments in synthetic securitisations or re-securitisations is still in place.
In September 2014, KBC collapsed the last two remaining CDOs originated by KBC Financial Products, enabling it to fully scale down its CDO portfolio, which had stood at more than 25 billion euros in 2008. Collapsing these CDOs ended the guarantee agreement that KBC had concluded with the Belgian Federal Government and completely eliminated the group's exposure to MBIA. For the record, KBC wishes to point out that it is the counterparty to and issuer of a further 0.2 billion euros' worth of CDO notes issued by KBC Financial Products and held by third-party investors that will remain outstanding until November 2017.
The process of managing structural exposure to market risks (including interest rate risk, equity risk, real estate risk, foreign exchange risk and inflation risk) is also known as Asset/Liability Management (ALM).
'Structural exposure' encompasses all exposure inherent in our commercial activity or in our long-term positions (banking and insurance). Trading activities are consequently not included. Structural exposure can also be described as a combination of:
The main building blocks of KBC's ALM Risk Management Framework are:
| KBC group non-trading market risk (VaR 99.93%, 1-year time horizon) (in billions of EUR)* 31-12-2014 |
31-12-2015 |
|---|---|
| Total 4.89 |
5.46 |
* Excluding a number of small group companies. Cyclical prepayment options embedded in mortgage loans have not been captured. VaR is measured using the VaR-CoVaR approach. The increase in 2015 was driven primarily by spread risk, following a volume increase in bonds.
The main technique used to measure interest rate risks is the 10 BPV method, which measures the extent to which the value of the portfolio would change if interest rates were to go up by ten basis points across the entire curve (negative figures
indicate a decrease in the value of the portfolio). We also use other techniques such as gap analysis, the duration approach, scenario analysis and stress testing (both from a regulatory capital perspective and from a net income perspective).
| Impact of a parallel 10-basis-point increase in the yield curve for the KBC group | Impact on value* | |
|---|---|---|
| (in millions of EUR) | 2014 | 2015 |
| Banking | -57 | -25 |
| Insurance | 16 | 17 |
| Total | -41 | -8 |
* Full market value, regardless of accounting classification or impairment rules.
We manage the ALM interest rate positions of the banking entities via a system of market-oriented internal pricing for products with a fixed maturity date, and via a replicating portfolio technique for products without a fixed maturity date (e.g., current and savings accounts).
The bank takes interest rate positions mainly through government bonds, with a view to acquiring interest income, both in a bond portfolio used for reinvesting equity and in a bond portfolio financed with short-term funds. The table shows the bank's exposure to interest rate risk in terms of 10 BPV.
| (in millions of EUR) 2014 |
2015 |
|---|---|
| Average for 1Q -55 |
-60 |
| Average for 2Q -61 |
-40 |
| Average for 3Q -71 |
-28 |
| Average for 4Q -57 |
-25 |
| As at 31 December -57 |
-25 |
| Maximum in year -71 |
-60 |
| Minimum in year -55 |
-25 |
* Unaudited figures, except for those 'As at 31 December'.
In line with the Basel guidelines, we conduct a 200-basis-point stress test at regular intervals. It sets off the total interest rate risk in the banking book (given a 2% parallel shift in interest rates) against total capital and reserves. For the banking book at KBC group level, this risk came to 9.5% of total capital and reserves at year-end 2015. This is well below the 20% threshold, which is monitored by the National Bank of Belgium.
The following table shows the interest sensitivity gap of the ALM banking book. In order to determine the sensitivity gap, we break down the carrying value of assets (positive amount) and liabilities (negative amount) according to either the contractual repricing date or the maturity date, whichever is earlier, in order to obtain the length of time for which interest rates are fixed. We include derivative financial instruments, mainly to reduce exposure to interest rate movements, on the basis of their notional amount and repricing date.
| ≤ 1 month | 1–3 months | 3–12 months | 1–5 years | 5–10 years | > 10 years | Non interest bearing |
Total | |
|---|---|---|---|---|---|---|---|---|
| 31-12-2014 | -13 126 | -2 961 | 5 099 | 20 560 | 9 205 | -2 172 | -16 606 | 0 |
| 31-12-2015 | -20 413 | 300 | 13 132 | 15 847 | 8 163 | -4 006 | -13 024 | 0 |
The interest sensitivity gap shows our overall long position in interest rate risk. Generally, assets reprice over a longer term than liabilities, which means that KBC's net interest income benefits from a normal yield curve. The economic value of the KBC group is predominantly sensitive to movements at the long-term end of the yield curve.
Where the group's insurance activities are concerned, the fixed-income investments for the non-life reserves are invested with the aim of matching the projected pay-out patterns for claims, based on extensive actuarial analysis. The non-unit-linked life activities (class 21) combine a guaranteed interest rate with a discretionary participation feature (DPF) fixed by the insurer. The main risks to which the insurer is exposed as a result of such activities are a lowinterest-rate risk (the risk that return on investments will drop below the guaranteed level) and a risk that the investment return will not be sufficient to give customers a competitive profit-sharing rate. The risk of low interest rates is managed via a cashflow-matching policy, which is applied to that portion of the life insurance portfolios covered by fixed-income securities. Unit-linked life insurance investments (class 23) are not dealt with here, since this activity does not entail any market risk for KBC.
In the table below, we have summarised the exposure to interest rate risk in our life insurance activities. The life insurance assets and liabilities relating to business offering guaranteed rates are grouped according to the expected timing of cashflows.
| Expected cashflows (not discounted), life insurance activities (in millions of EUR) |
0–5 years | 5–10 years | 10–15 years |
15–20 years |
> 20 years | Total |
|---|---|---|---|---|---|---|
| 31-12-2014 | ||||||
| Fixed-income assets backing liabilities, guaranteed component | 10 466 | 4 639 | 2 332 | 865 | 1 050 | 19 351 |
| Liabilities, guaranteed component | 10 282 | 3 303 | 1 994 | 1 402 | 1 986 | 18 967 |
| Difference in expected cashflows | 184 | 1 336 | 338 | -537 | -936 | 384 |
| Mean duration of assets | 5.85 years | |||||
| Mean duration of liabilities | 6.72 years | |||||
| 31-12-2015 | ||||||
| Fixed-income assets backing liabilities, guaranteed component | 10 309 | 4 368 | 2 469 | 1 259 | 1 264 | 19 671 |
| Liabilities, guaranteed component | 9 860 | 3 371 | 2 292 | 1 769 | 2 802 | 20 094 |
| Difference in expected cashflows | 449 | 997 | 177 | -509 | -1 538 | -423 |
| Mean duration of assets | 5.94 years | |||||
| Mean duration of liabilities | 7.29 years |
As mentioned above, the main interest rate risk for the insurer is a downside one. We adopt a liability driven ALM approach focused on mitigating the interest rate risk in accordance with KBC's risk appetite. For the remaining interest rate risk, we
adhere to a policy that takes into account the possible negative consequences of a sustained decline in interest rates, and have built up adequate supplementary reserves.
| Breakdown of the reserves for non-unit-linked life insurance by guaranteed interest rate, insurance activities 31-12-2014 |
31-12-2015 |
|---|---|
| 5.00% and higher* 3% |
3% |
| More than 4.25% up to and including 4.99% 11% |
10% |
| More than 3.50% up to and including 4.25% 5% |
5% |
| More than 3.00% up to and including 3.50% 22% |
21% |
| More than 2.50% up to and including 3.00% 22% |
20% |
| 2.50% and lower 35% |
40% |
| 0.00% 2% |
2% |
| Total 100% |
100% |
* Contracts in Central and Eastern Europe.
We manage the credit spread risk for the sovereign portfolio by monitoring the extent to which the value of the sovereign bonds would change if credit spreads were to go up by 100 basis points across the entire curve. The economic sensitivity of the main sovereign positions to changes in spreads is dealt with in the 'Credit risk' section.
The main exposure to equity is within our insurance business, where the ALM strategies are based on a risk-return evaluation, account taken of the market risk attached to open equity positions. Please note that a large part of the equity portfolio is held for the DPF of insurance liabilities (especially profit-sharing in the Belgian market). Apart from the insurance entities, smaller equity portfolios are also held by other group entities, e.g., KBC Bank and KBC Asset Management. We have provided more information on total non-trading equity exposures at KBC in the tables below. During 2015, a hedging strategy was set up at KBC Insurance to limit the downside equity risk.
| Equity portfolio of the KBC group | Banking activities | Insurance activities | Group | |||
|---|---|---|---|---|---|---|
| (breakdown by sector, in %) | 31-12-2014 | 31-12-2015 | 31-12-2014 | 31-12-2015 | 31-12-2014 | 31-12-2015 |
| Financials | 68% | 71% | 18% | 19% | 23% | 24% |
| Consumer non-cyclical | 1% | 0% | 10% | 14% | 9% | 12% |
| Communication | 0% | 1% | 2% | 3% | 2% | 3% |
| Energy | 0% | 0% | 5% | 5% | 4% | 5% |
| Industrials | 17% | 25% | 40% | 36% | 37% | 35% |
| Utilities | 0% | 0% | 2% | 4% | 2% | 3% |
| Consumer cyclical | 0% | 1% | 12% | 13% | 11% | 12% |
| Materials | 0% | 0% | 8% | 5% | 7% | 5% |
| Other and not specified | 13% | 2%2 | 4% | 1% | 5% | 2% |
| Total | 100% | 100% | 100% | 100% | 100% | 100% |
| In billions of EUR | 0.2 | 0.25 | 1.3 | 1.6 | 1.5 | 1.81 |
| of which unlisted | 0.1 | 0,1 | 0.0 | 0.0 | 0.1 | 0.1 |
1 The main differences between the 1.8 billion euros in this table and the 2.5 billion euros for 'Equity instruments' in the table appearing in Note 18 of the 'Consolidated financial statements' section – besides a number of minor differences in the scope of consolidation – are that:
(a) Shares in the trading book (0.4 billion euros) are excluded above, but are included in the table in Note 18.
(b) Real estate participations that are not consolidated are classified as 'investments in building' in this table, but classified as 'shares' in the table in Note 18 (as they are not consolidated). (c) Most 'investments in funds' are treated on a 'look-through' basis (according to the underlying asset mix of the fund and therefore also partially classified as 'fixed-income instruments'), whereas they are classified as 'shares' in the table in Note 18.
2 Reduction due to reclassification.
| Impact of a 12.5% drop in equity prices (in millions of EUR) Banking activities Insurance activities |
Impact on value | |
|---|---|---|
| 2014 | 2015 | |
| -20 | -30 | |
| -166 | -199 | |
| Total | -186 | -229 |
| Non-trading equity exposure (in millions of EUR) |
Net realised gains (in income statement) |
|||||
|---|---|---|---|---|---|---|
| 31-12-2014 | 31-12-2015 | 31-12-2014 | 31-12-2015 | |||
| Banking activities | 2 | 31 | 108 | 238 | ||
| Insurance activities | 84 | 105 | 261 | 320 | ||
| Total* | 86 | 136 | 385 | 573 |
* The total figure includes gains from some equity positions directly attributable to the KBC group. Gains from joint participations involving the banking and insurance entities of the KBC group have been eliminated, since these participations are consolidated at group level.
The groups' real estate businesses hold a limited real estate investment portfolio. KBC Insurance also holds a diversified real estate portfolio, which is held as an investment for non-life reserves and long-term life activities. The real estate exposure is viewed as a long-term hedge against inflation risks and as a way of optimising the risk/return profile of these portfolios. The table provides an overview of the sensitivity of economic value to fluctuations in the property markets.
| Impact of a 12.5% drop in real estate prices | Impact on value | |
|---|---|---|
| (in millions of EUR) | 2014 | 2015 |
| Bank portfolios | -51 | -48 |
| Insurance portfolios | -30 | -30 |
| Total | -81 | -77 |
We pursue a prudent policy as regards our structural currency exposure, essentially seeking to avoid currency risk. Foreign exchange exposures in the ALM books of banking entities with a trading book are transferred to the trading book where they are managed within the allocated trading limits. The foreign exchange exposure of banking entities without a trading book, of the insurance entities and of other entities has to be hedged, if material. Equity holdings in non-euro currencies that are part of the investment portfolio do not need to be hedged. Participating interests in foreign currency are in principle funded by borrowing an amount in the relevant currency equal to the value of the net assets excluding goodwill.
Liquidity risk is the risk that an organisation will be unable to meet its payment obligations as they come due, without incurring unacceptable losses.
The principal objective of our liquidity management is to be able to fund the group and to enable the core business activities of the group to continue to generate revenue, even under adverse circumstances. Since the financial crisis, there has been a greater focus on liquidity risk management throughout the industry, and this has been intensified by the minimum liquidity standards defined by the Basel Committee, which have been transposed into European law through CRD IV/CRR.
A group-wide 'liquidity risk management framework' is in place to define the risk playing field.
Liquidity management itself is organised within the Group Treasury function, which acts as a first line of defence and is responsible for the overall liquidity and funding management of the KBC group. The Group Treasury function monitors and steers the liquidity profile on a daily basis and sets the policies and steering mechanisms for funding management (intragroup funding, funds transfer pricing). These policies ensure that local management has an incentive to work towards a sound funding profile. It also actively monitors its collateral on a group-wide basis and is responsible for drafting the liquidity contingency plan that sets out the strategies for addressing liquidity shortfalls in emergency situations.
Our liquidity risk management framework is based on the following pillars:
• Contingency liquidity risk. This risk is assessed on the basis of liquidity stress tests, which measure how the liquidity buffer of the group's bank entities changes under extreme stressed scenarios. This buffer is based on assumptions regarding liquidity outflows (retail customer behaviour, professional client behaviour, drawing of committed credit lines, etc.) and liquidity inflows resulting from actions to increase liquidity ('repoing' the bond portfolio, reducing unsecured interbank lending, etc.). The liquidity buffer has to be sufficient to cover liquidity needs (net cash and collateral outflows) over (i) a period that is required to restore market confidence in the group following a KBC-specific event, (ii) a period that is required for markets to stabilise after a general market event and (iii) a combined scenario, which takes a KBC-specific event and a general market event into account. The overall aim of the liquidity
framework is to remain sufficiently liquid in stress situations, without resorting to liquidity-enhancing actions which would entail significant costs or which would interfere with the core banking business of the group.
• Structural liquidity risk. We manage our funding structure so as to maintain substantial diversification, to minimise funding concentrations in time buckets, and to limit the level of reliance on short-term wholesale funding. We manage the structural funding position as part of the integrated strategic planning process, where funding – in addition to capital, profits and risks – is one of the key elements. At present, our strategic aim for the next few years is to build up a sufficient buffer in terms of LCR and NSFR via a funding management framework, which sets clear funding targets for the subsidiaries (own funding, reliance on intra-group funding) and provides further incentives via a system of intra-group pricing to the extent subsidiaries run a funding mismatch.
In the table on the following page, we have illustrated the structural liquidity risk by grouping the assets and liabilities according to the remaining term to maturity (contractual maturity date). The difference between the cash inflows and outflows is referred to as the 'net funding gap'. At year-end 2015, KBC had attracted 28 billion euros' worth of funding on a gross basis from the professional interbank and repo markets.
• Operational liquidity risk. Operational liquidity management is conducted in the treasury departments, based on estimated funding requirements. Group-wide trends in funding liquidity and funding needs are monitored on a daily basis by the Group Treasury function, ensuring that a sufficient buffer is available at all times to deal with extreme liquidity events in which no wholesale funding can be rolled over.
| Liquidity risk (excluding inter | <= 1 | 1–3 | 3–12 | 1–5 | 5–10 | > 10 | On | Not | |
|---|---|---|---|---|---|---|---|---|---|
| company deals)* (in billions of EUR) 31-12-2014 |
month | months | months | years | years | years | demand | defined | Total |
| Total inflows | 16 | 8 | 16 | 55 | 45 | 33 | 3 | 35 | 211 |
| Total outflows | 35 | 9 | 15 | 31 | 8 | 1 | 84 | 27 | 211 |
| Professional funding | 15 | 3 | 1 | 5 | 0 | 0 | 0 | 0 | 26 |
| Customer funding | 17 | 5 | 9 | 11 | 4 | 0 | 84 | 0 | 130 |
| Debt certificates | 0 | 2 | 4 | 14 | 4 | 1 | 0 | 0 | 26 |
| Other | 2 | – | – | – | – | – | – | 27 | 30 |
| Liquidity gap (excl. undrawn commitments) |
-19 | -1 | 2 | 24 | 37 | 32 | -81 | 7 | 0 |
| Undrawn commitments | – | – | – | – | – | – | – | -32 | – |
| Financial guarantees | – | – | – | – | – | – | – | -10 | – |
| Net funding gap (incl. undrawn commitments) |
-19 | -1 | 2 | 24 | 37 | 32 | -81 | -34 | -42 |
| 31-12-2015 | |||||||||
| Total inflows | 17 | 11 | 15 | 56 | 48 | 34 | 4 | 34 | 218 |
| Total outflows | 34 | 14 | 10 | 28 | 12 | 1 | 93 | 26 | 218 |
| Professional funding | 15 | 4 | 1 | 6 | 1 | 0 | 0 | 0 | 28 |
| Customer funding | 17 | 10 | 6 | 9 | 3 | 0 | 93 | 0 | 138 |
| Debt certificates | 0 | 0 | 3 | 13 | 8 | 1 | 0 | 0 | 24 |
| Other | 2 | – | – | – | – | – | – | 26 | 28 |
| Liquidity gap (excl. undrawn commitments) |
-17 | -3 | 6 | 28 | 36 | 33 | -90 | 8 | 0 |
| Undrawn commitments | – | – | – | – | – | – | – | -37 | – |
| Financial guarantees | – | – | – | – | – | – | – | -9 | – |
| Net funding gap (incl. undrawn commitments) |
-17 | -3 | 6 | 28 | 36 | 33 | -90 | -38 | -46 |
* Cashflows exclude interest rate flows consistent with internal and regulatory liquidity reporting. Inflows/outflows that arise from margin calls posted/received for MtM positions in derivatives are reported in the 'not defined' bucket. Professional funding' includes all deposits from credit institutions and investment firms, as well as all repos. Instruments are classified on the basis of their first callable date. Some instruments are reported at fair value (on a discounted basis), whereas others are reported on an undiscounted basis (in order to reconcile them with Note 18 of the 'Consolidated financial statements' section). Due to the uncertain nature of the maturity profile of undrawn commitments and financial guarantees, these instruments are reported in the 'Not defined' bucket. The 'Other' category under 'Total outflows' contains own equity, short positions, provisions for risks and charges, tax liabilities and other liabilities.
Typical for a banking group, funding sources generally have a shorter maturity than the assets that are funded, leading to a negative net liquidity gap in the shorter time buckets and positive net liquidity gap in the longer term buckets. This creates liquidity risk if KBC would be unable to renew maturing short-term funding. Our liquidity framework imposes a funding strategy to ensure that the liquidity risk remains within the group's risk appetite.
The KBC group has a solid liquidity position. Historically, it has always had a substantial amount of liquid assets. At year-end 2015, the KBC group had 59 billion euros' worth of unencumbered central bank eligible assets, 43 billion euros of which in the form of liquid government bonds (74%). The remaining available liquid assets were mainly other ECB/FED eligible bonds (10%) and pledgeable credit claims (10%). Most of the liquid assets are expressed in euros, Czech koruna and Hungarian forint (all home market currencies). Unencumbered liquid assets were more than three times the net recourse to short-term wholesale funding, while funding from nonwholesale markets was accounted for by stable funding from core customer segments in our core markets.
KBC continues to have a strong retail/mid-cap deposit base in its core markets, resulting in a stable funding mix. A significant portion of the funding is attracted from core customer segments and markets.
The KBC group's funding mix (31 December 2015) can be broken down as follows:
• Funding from customers (circa 140 billion euros, 73% of the total figure), consisting of demand deposits, time deposits, savings deposits, other deposits, savings certificates and debt issues placed in the network. Some 58% of the funding from customers relates to private individuals and SMEs.
Please note that:
• In November 2012, we announced our 10-billion-euro Belgian residential mortgage covered bonds programme. This programme gives KBC access to the covered bond
Funding mix
market, allowing it to diversify its funding structure and reduce the cost of long-term funding. At the start of December 2012, we launched a first covered bond issue in the amount of 1.25 billion euros. More issues followed in 2013 for a total of 2.7 billion euros, in 2014 for a total of 0.9 billion euros and in 2015 for a total of 2 billion euros.
• In 2014, we borrowed 2.8 billion euros from the ECB under the targeted long-term refinancing operations (TLTROs).
Both the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) are defined in the 'Glossary of ratios and terms'. At year-end 2015, our NSFR stood at 121% and our LCR at 127%. The LCR for 2015 was calculated based on the Delegated Act definition of LCR, i.e. the binding European definition applying from October 2015 on. Our NSFR and LCR are both well above the minimum regulatory requirements and KBC's internal floors of 105%.
Market risk is defined as the potential negative deviation from the expected value of a financial instrument (or portfolio of such instruments) due to changes in the level or in the volatility of market prices, e.g., interest rates, exchange rates and equity or commodity prices. The interest rate, foreign exchange and equity risks of the non-trading positions in the banking book and of the insurer's positions are all included in ALM exposure.
The objective of market risk management is to measure, report and advise on the market risk of the aggregate trading position at group level, taking into account the main risk factors and specific risk.
We are exposed to market risk via the trading books of our dealing rooms in Belgium, the Czech Republic, Slovakia and Hungary, as well as via a minor presence in the UK and Asia. The traditional dealing rooms, with the dealing room in Belgium accounting for the lion's share of the limits and risks, focus on trading in interest rate instruments, while activity on the FX markets has traditionally been limited. All dealing rooms focus on providing customer service in money and capital market products and on funding the bank activities.
The market risk and regulatory capital in the four legacy business lines of KBC Investments Limited (formerly KBC Financial Products), namely the CDO, fund derivatives, reverse mortgages and insurance derivatives businesses have been reduced in recent years and are now almost equal to zero. This is especially the case for the fund derivatives, reverse
mortgages and insurance derivatives businesses where the market risk regulatory capital charges represent only 1% of the total (please note that the reverse mortgages and insurance derivatives businesses were transferred to KBC Bank NV in December 2015 due to the closure of certain subsidiaries). These legacy business lines continue to be monitored and wound down by dedicated teams.
Regarding the CDO business – and as mentioned in other parts of this report – KBC has now fully scaled down its CDO portfolio. However, the position pertaining to the 0.2 billion euros of CDO notes held by investors is located in the trading books of KBC Investments Limited. Consequently, the market risk regulatory capital for this position is recorded under the re-securitisation column (15 million euros) in the 'Trading regulatory capital requirements' table.
The principal tool we use for measuring and monitoring market risk exposures in the trading book is the Historical Value-at-Risk (HVaR) method. VaR is defined as an estimate of the amount of economic value that might be lost on a given portfolio due to market risk over a defined holding period, with a given confidence level. The measurement takes account of the market risk of the current portfolio. We use the historical simulation method, observing the relevant CRD IV standards (99% one-sided confidence interval, ten-day holding period, historical data going back at least 250 working days, for which – after analysis – we choose to use 500
working days of historical data). This means that the HVaR used for managing market exposure uses the same holding period and confidence level as the HVaR used for the three approved internal models referred to in the 'Regulatory capital' sub-section below. The HVaR method does not rely on assumptions regarding the distribution of price fluctuations or correlations, but is based on patterns of experience over the previous two years. The HVaR is calculated and monitored at desk and entity level, as well as at KBC group level.
As with any model, there are a certain number of uncertainties/deficiencies. However, the model is subject to regular review and improvements. During 2015, the most important development involved adjusting the model to appropriately capture the risk attached to interest rate derivatives in negative rate environments.
Complex and/or illiquid instruments that cannot be modelled in an HVaR context are subject to nominal and/or scenario limits.
We monitor risk concentrations via a series of secondary limits, including equity concentration limits, FX concentration limits and basis-point-value limits for interest rate risk and basis risk. The specific risk associated with a particular issuer or country is also subject to concentration limits. There are also scenario analysis limits, and – where deemed appropriate – stress scenario limits involving multiple shifts of underlying risk factors. In addition, secondary limits are in place to monitor the risks inherent in options (the so-called 'greeks').
In addition to the daily HVaR calculations, we conduct extensive stress tests. Whereas the HVaR model captures potential losses under normal market conditions, stress tests show the impact of exceptional circumstances and events with a low degree of probability. The historical and hypothetical stress-test scenarios incorporate both market risk and the liquidity aspects of disruptions in the market. During 2015, a complete and thorough review of all the scenarios and calculation methodologies for historical and hypothetical stress tests was initiated. As a direct result of this exercise, newly calibrated hypothetical interest rate stress tests were approved
by the Group Markets Committee and will be implemented in the first quarter of 2016, with newly calibrated stress tests for the other risk drivers to follow later in the year. For more details about stress testing, please refer to the relevant sub-section of the 'Market risk' section in KBC's Risk Report, which is available at www.kbc.com.
One of the building blocks of sound risk management is prudent valuation. We perform a daily independent middleoffice valuation of front-office positions. Whenever the independent nature or the reliability of the valuation process is not guaranteed, we perform a monthly parameter review. Where applicable, we make adjustments to the fair value to reflect close-out costs, mark-to-model-related valuation adjustments, counterparty risk, liquidity risk and operationsrelated costs.
In addition to the parameter review, we perform periodic risk controls, including all checks that do not entail parameter or P&L testing as carried out in the parameter review, but that are necessary for sound risk management. Moreover, we set up a business case for every new product or activity in order to analyse the risks and the way in which they will be managed.
The table below shows the KBC group's Historical Value-at-Risk model (HVaR; 99% confidence interval, ten-day holding period, historical simulation) used for the linear and non-linear exposure of all the dealing rooms of the KBC group (including KBC Securities).
| Holding period: 10 days | 2014 | 2015 |
|---|---|---|
| Average for 1Q | 24 | 14 |
| Average for 2Q | 19 | 15 |
| Average for 3Q | 15 | 15 |
| Average for 4Q | 15 | 16 |
| As at 31 December | 15 | 18 |
| Maximum in year | 29 | 21 |
| Minimum in year | 11 | 12 |
A breakdown of the risk factors (averaged) in the KBC group's HVaR model is shown in the table below. Please note that the
equity risk stems from the European equity business, and also from KBC Securities.
| Breakdown by risk factor of trading HVaR for the KBC group (in millions of EUR) | Average for 2014 | Average for 2015 |
|---|---|---|
| Interest rate risk | 18.7 | 14.7 |
| FX risk | 2.3 | 2.6 |
| FX option risk | 1.8 | 2.2 |
| Equity risk | 1.4 | 1.8 |
| Diversification effect | -6.2 | -6.1 |
| Total HVaR | 18.1 | 15.1 |
We test the reliability of the VaR model daily via a back-test, which compares the one-day VaR figure with the 'no-action P&L' (i.e. positions remain unchanged, but market data changes to the next day's data). This is done both at the top level and at the level of the different entities and desks.
We have provided an overview of the derivative products under Note 29 in the 'Consolidated financial statements' section.
Both KBC Group NV and KBC Investments Limited have been authorised by the Belgian regulator to use their respective VaR models to calculate regulatory capital requirements for part of their trading activities. Cˇ SOB (Czech Republic) has also received approval from the local regulator to use its VaR model for capital requirement purposes. These models are also used for the calculation of Stressed VaR (SVaR), which is one of the CRD III Regulatory Capital charges that entered into effect at year-end 2011. The calculation of an SVaR measure is based on the normal VaR calculations and follows the same methodological assumptions, but is constructed as if the relevant market factors were experiencing a period of stress. The period of stress is based on recent history and is calibrated regularly.
The resulting capital requirements for trading risk are shown in the table below. The regulatory capital requirements for the trading risk of local KBC entities that did not receive approval from their respective regulator to use an internal model for capital calculations, as well as the business lines not included in the HVaR calculations, are measured according to the Standardised approach. This approach sets out general and specific risk weightings per type of market risk (interest risk, equity risk, foreign exchange risk and commodity risk). Note that, as mentioned earlier in this section, the re-securitisation regulatory capital for 2015 (15 million euros) emanates from the counterposition for the 0.2 billion euros of CDO notes held by investors (the counterposition is located in the trading books of KBC Investments Limited).
| Trading regulatory capital requirements, by risk type (in millions of EUR) |
Interest rate risk |
Equity risk | FX risk | Commodity risk |
Resecur itisation |
Total | |
|---|---|---|---|---|---|---|---|
| 31-12-2014 | |||||||
| Market risks assessed by internal model | HVaR SVaR |
38 56 |
2 3 |
11 17 |
– – |
– | 126 |
| Market risks assessed by the Standardised approach |
27 | 4 | 14 | 3 | 19 | 68 | |
| Total | 120 | 9 | 43 | 3 | 19 | 194 | |
| 31-12-2015 | |||||||
| Market risks assessed by internal model | HVaR SVaR |
68 84 |
3 2 |
9 26 |
– – |
– | 192 |
| Market risks assessed by the Standardised approach |
18 | 5 | 16 | 2 | 15 | 56 | |
| Total | 171 | 10 | 50 | 2 | 15 | 248 |
Technical insurance risks stem from uncertainty regarding how often insured losses will occur and how extensive they will be. All these risks are kept under control through appropriate underwriting, pricing, claims reserving, reinsurance and claims handling policies of line management and through independent insurance risk management.
The Group risk function develops and rolls out a group-wide framework for managing insurance risks. It is responsible for providing support for local implementation and for the functional direction of the insurance risk management process of the insurance subsidiaries.
The insurance risk management framework is designed primarily around the following building blocks:
Examples include best estimate valuations of insurance liabilities, ex post economic profitability analyses, natural catastrophe and other life, non-life and health exposure modelling, stress testing and required economic capital calculations.
• Determination of insurance risk limits and conducting compliance checks, as well as providing advice on reinsurance programmes.
We develop models from the bottom up for all material group-wide insurance liabilities, i.e. (i) future claims that will occur over a predefined time horizon, as well as the claims settlement pattern, (ii) the future settlement of claims (whether already reported to the insurer or not) that have occurred in the past but have not yet been fully settled, and (iii) the impact of the reinsurance programme on these claims. We use these models to steer the group's insurance entities towards creating more shareholder value, by means of applications to calculate economic capital, support decisions on reinsurance, calculate the ex post profitability of specific sub-portfolios and set off economic capital requirements against the relevant return in pricing insurance policies.
Martina Kucˇerová, Insurance Adviser at CˇSOB (Czech Republic)
The insurance portfolios are protected against the impact of serious claims or the accumulation of losses (due, for instance, to a concentration of insured risks) by means of reinsurance. We divide these reinsurance programmes into three main groups, i.e. property insurance, liability insurance and personal insurance, and we re-evaluate and renegotiate them every year.
For me, our unique bank-insurance model is the best example of client-centricity. It represents a completely transformed approach to
comprehensive banking and insurance advice in one place and in a
banking and insurance that allows us to offer our clients
modern and convenient way.
Most of our reinsurance contracts are concluded on a non-proportional basis, which provides cover against the impact of serious claims or loss events. The independent insurance risk management function is also responsible for advising on the restructuring of the reinsurance programmes. This approach has resulted in optimising the retention of the KBC group particularly in respect of its exposure to natural catastrophe risk, but also in respect of other lines of business.
As part of its mission to independently monitor insurance risks, the Group risk function regularly carries out in-depth studies. These confirm that there is a high degree of probability that the non-life technical provisions at subsidiary level are adequate.
In addition, various group companies conduct Liability Adequacy Tests (LAT) that meet local and IFRS requirements for the life technical provisions. We make calculations using prospective methods (cashflow projections that take account of lapse rates and a discount rate that is set for each insurance entity based on local macroeconomic conditions and regulations), and build in extra market-value margins to deal with the factor of uncertainty in a number of parameters. Since no deficiencies were identified by year-end 2015, there was no need for a deficiency reserve to be set aside within the KBC group.
The table below shows claims settlement figures in the non-life business over the past few years and includes KBC Insurance NV, Cˇ SOB Pojišt'ovna (Czech Republic), Cˇ SOB Poist'ovnˇ a (Slovak Republic), DZI Insurance (from financial year 2008), K&H Insurance, and KBC Group Re. All provisions for claims to be paid at the close of 2015 have been included. The claims-settlement figures incorporate all amounts that can be allocated to individual claims, including the Incurred But Not Reported (IBNR) and Incurred But Not Enough Reserved (IBNER) provisions, and the external handling expenses for settling claims, but do not include internal claims settlement expenses and provisions for amounts expected to be
recovered. The provision figures included are before reinsurance and have not been adjusted to eliminate intercompany amounts.
The first row in the table shows the total claims burden (claims paid plus provisions) for the claims that occurred during a particular year, as estimated at the end of the year of occurrence. The following rows indicate the situation at the end of the subsequent calendar years. We restated the amounts to reflect exchange rates at year-end 2015.
| Loss triangles, KBC Insurance |
Year of occur rence |
Year of occur rence |
Year of occur rence |
Year of occur rence |
Year of occur rence |
Year of occur rence |
Year of occur rence |
Year of occur rence |
Year of occur rence |
Year of occur rence |
|---|---|---|---|---|---|---|---|---|---|---|
| (in millions of EUR) | 2006 | 2007 | 2008* | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 |
| Estimate at the end of the year of |
||||||||||
| occurrence | 631 | 687 | 794 | 825 | 868 | 805 | 845 | 906 | 996 | 949 |
| 1 year later | 537 | 620 | 756 | 723 | 769 | 710 | 738 | 760 | 885 | – |
| 2 years later | 510 | 587 | 726 | 668 | 719 | 654 | 702 | 694 | – | – |
| 3 years later | 499 | 565 | 714 | 651 | 716 | 635 | 677 | – | – | – |
| 4 years later | 485 | 561 | 709 | 634 | 710 | 623 | – | – | – | – |
| 5 years later | 478 | 556 | 701 | 626 | 701 | – | – | – | – | – |
| 6 years later | 463 | 549 | 676 | 619 | – | – | – | – | – | – |
| 7 years later | 457 | 549 | 672 | – | – | – | – | – | – | – |
| 8 years later | 455 | 548 | – | – | – | – | – | – | – | – |
| 9 years later | 453 | – | – | – | – | – | – | – | – | – |
| Current estimate | 453 | 548 | 672 | 619 | 701 | 623 | 677 | 694 | 885 | 949 |
| Cumulative payments |
405 | 475 | 600 | 530 | 602 | 518 | 521 | 526 | 591 | 349 |
| Current provisions | 48 | 73 | 72 | 89 | 99 | 105 | 156 | 167 | 293 | 601 |
* From financial year 2008, the figures for DZI Insurance (Bulgaria) have been included. If these figures had not been taken into account, the following amounts would have been arrived at for financial year 2008 (amount and year of occurrence): 500 for 2006 and 586 for 2007.
Understanding our clients and the way they prefer to do their banking and insurance business with us is key to offering the right solutions, providing superior client service and staying ahead of the competition. Putting clients centre stage is indeed paying off. We are seeing ever increasing levels of client satisfaction and long-term client retention.
Nina Velikova, Branch Manager at CIBANK (Bulgaria)
Specific information on the insurance activities of the group can be found in Notes 9, 10, 11 and 35 in the 'Consolidated financial statements' section. We have provided a breakdown by business unit of earned premiums and technical charges in the notes dealing with segment reporting.
Operational risk is the risk of loss resulting from inadequate or failed internal processes and systems, human error or sudden external events, whether man-made or natural. Operational risks exclude business, strategic and reputational risks.
We have provided information on legal disputes in Note 36 of the 'Consolidated financial statements' section.
We have a single, global framework for managing operational risk across the entire group.
The Group risk function is primarily responsible for defining the operational risk management framework for the entire group. The development and implementation of this framework is supported by an extensive operational risk governance model covering all entities of the group.
The Group risk function creates an environment where risk specialists (in various areas, including information risk management, business continuity and disaster recovery, compliance, anti-fraud, legal, tax and accounting matters) can work together (setting priorities, using the same language and tools, uniform reporting, etc.). It is assisted by the local risk management units, which are likewise independent of the business.
We use a number of building blocks for managing operational risks, which cover all aspects of operational risk management.
Between 2011 and 2015, specific attention was given to the structured set-up of process-based Group Key Controls, which gradually replaced the former Group Standards. These controls are policies containing top-down basic control objectives and are used to mitigate key and killer risks inherent in the processes of KBC entities. As such, they are an essential building block of both the operational risk management framework and the internal control system. Our Group Key Controls now cover the complete process universe of the group (45 KBC Group Processes). Structural risk-based review cycles are installed to manage the process universe, close gaps, eliminate overlap and optimise group-wide risks and controls.
The business and (local) control functions assess the Group Key Controls. The risk self-assessments are consolidated at the Group risk function and ensure that there is a consistent relationship between (i) processes, (ii) risks, (iii) control activities and (iv) assessment scores. KBC created an objective management tool to evaluate its internal control environment and to benchmark the approach across its entities. Each year, we report the assessment results to the National Bank of Belgium and the European Central Bank in our Internal Control Statement.
Besides these Group Key Controls, there are a number of other building blocks:
not properly mitigated, and on new or emerging operational risks that are relevant at (sub)group level.
The quality of the internal control environment and related risk exposure as identified, assessed and managed by means of these building blocks is reported to KBC's senior management via a management dashboard and to the National Bank of Belgium and the FSMA via the annual Internal Control Statement. Information on the internal control and risk management systems can be found in the 'Corporate governance statement' section.
KBC uses the Standard approach to calculate operational risk capital under Basel II. Operational risk capital for KBC Bank at the consolidated level totalled 822 million euros at the end of 2015, compared with 849 million euros at the end of 2014.
Reputation risk is the risk arising from the negative perception on the part of clients, counterparties, shareholders, investors, debt-holders, market analysts, other relevant parties or regulators that can adversely affect a financial institution's ability to maintain existing, or establish new business
It's really important for us to contribute positively to society for the benefit of our clients, our shareholders, our team and our community. We translate that in providing all our clients with a banking experience that is modern, secure, convenient and responsive to the changing needs and lifestyles of our clients and society in general.
Sarah Ridge, Hub Manager at KBC Bank Ireland
relationships and to have continued access to sources of funding (for instance, through the interbank or securitisation markets). Reputation risk is mostly a secondary or derivative risk since it is usually connected to and will materialise together with another risk.
We refined the Reputation Risk Management Framework in 2015, in line with the KBC Risk Management Framework. The pro-active and re-active management of reputation risk is the responsibility of the business, supported by many specialist units (including Group Communication and Group Compliance).
Under the pillar 2 approach to capital adequacy, the impact of reputation risk on the current business is covered in the first place by the capital charge for primary risks (such as credit or operational risk, etc.). It is also covered by the capital reserved for business risk.
KBC defines business risk as the risk arising from changes in external factors (the macroeconomic environment, regulations, client behaviour, competitive landscape, socio-demographic environment, etc.) that impact the demand for and/or profitability of our products and services.
Business risk is assessed using structured risk scans, but also on an ongoing basis by reporting 'risk signals' to top management.
Capital adequacy (or solvency) risk is the risk that the capital base of the group, the bank or the insurer might fall below an acceptable level. In practice, this entails checking solvency against the minimum regulatory requirements and against in-house solvency targets. Hence, capital adequacy is approached from both a regulatory and an internal perspective.
Our statutory auditors have audited the information in this section that forms part of the IFRS financial statements, namely the 'Solvency at group level' table (the audited parts are indicated in a footnote to the tables), 'ICAAP and ORSA' and 'Stress testing'.
We report the solvency of the group, the bank and the insurance company based on IFRS data and according to the rules imposed by the regulator. For the KBC group, this implies that we calculate our solvency ratios based on CRR/ CRD IV. This regulation entered gradually into force on 1 January 2014, and will be fully implemented by 1 January 2022.
The general rule under CRR/CRD IV for insurance participations is that an insurance participation is deducted from common equity at group level, unless the competent authority grants permission to apply a risk weighting instead (Danish compromise). KBC received such permission from the supervisory authority and hence reports its solvency on the basis of a 370% risk weighting being applied to the holdings of own fund instruments of the insurance company, after having deconsolidated KBC Insurance from the group figures.
The minimum solvency ratios required under CRR/CRD IV are 4.5% for the common equity tier-1 (CET1) ratio, 6.0% for the tier-1 capital ratio and 8.0% for the total capital ratio (i.e. pillar 1 miminum ratios). As a result of its supervisory review and evaluation process (SREP), the competent supervisory authority (in KBC's case, the ECB) can require that higher minimum ratios be maintained (= pillar 2 requirements) because, for instance, not all risks are properly reflected in the regulatory pillar 1 calculations. On top of this, a number of additional buffers have to be put in place, including a capital conservation buffer of 2.5%
(to be phased in between 2016 and 2019), a buffer for systemically important banks (to be determined by the supervisory authority) and a countercyclical buffer in times of credit growth (between 0% and 2.5%, likewise to be determined by the supervisory authority). These buffers need to be met using CET1 capital, the strongest form of capital.
The ECB required KBC to maintain a CET1 ratio of at least 9.75% (phased-in, Danish Compromise) in 2016, which includes the CRR/ CRD IV minimum requirement (4.5%), the conservation buffer (0.625%) and the pillar 2 add-on (4.625%). On top of this, the National Bank of Belgium (NBB) requires KBC – as a systemically important Belgian bank – to hold an additional buffer of 0.5% of CET1 (phased-in, Danish Compromise) in 2016, 1.0% in 2017 and 1.5% in 2018.
KBC clearly exceeds the targets set by the ECB (9.75%) and the NBB (0.5% in 2016), i.e. an aggregate 10.25% for 2016. At year-end 2015, the phased-in CET1 ratio came to 15.2%, which represented a capital buffer of 4 289 million euros relative to the minimum requirement of 10.25%. The regulatory minimum solvency targets were also amply exceeded throughout the entire financial year.
In addition to the solvency ratios under CRD IV, KBC – as a financial conglomerate – also has to disclose its solvency position as calculated in accordance with the Financial Conglomerate Directive (FICOD; 2002/87/EC). This implies that available capital will be calculated on the basis of the consolidated position of the group and the eligible items recognised as such under the prevailing sectoral rules, which are CRD IV for the banking business and Solvency I for the insurance business (Solvency II as of 2016). The resulting available capital is to be compared with a capital requirement expressed as a risk weighted asset amount. For this latter figure, the capital requirements for the insurance business (based on Solvency I until the end of 2015 and on Solvency II as of 2016) are multiplied by 12.5 to obtain a risk weighted asset equivalent (instead of the 370% risk weighting applied to the participation under the Danish compromise). At year-end 2015, the phased common equity ratio (under FICOD) was 14.9%.
A detailed calculation of the KBC group's solvency ratios under the Danish compromise method is given below, and summary calculations provided for the FICOD method.
Additional information concerning the calculation of solvency according to Basel III (Danish compromise method, fully loaded):
| Danish compromise method) (in millions of EUR) |
31-12-2014 Phased-in |
31-12-2014 Fully loaded |
31-12-2015 Phased-in |
31-12-2015 Fully loaded |
|---|---|---|---|---|
| Total regulatory capital, after profit appropriation | 16 723 | 16 688 | 17 305 | 16 936 |
| Tier-1 capital | 14 136 | 14 476 | 14 691 | 14 647 |
| Common equity1 | 12 684 | 13 076 | 13 242 | 13 247 |
| Parent shareholders' equity (after deconsolidating KBC Insurance) | 12 592 | 12 592 | 14 075 | 14 075 |
| Non-voting core-capital securities | 2 000 | 2 000 | 0 | 0 |
| Intangible fixed assets, incl. deferred tax impact (-) | -334 | -334 | -366 | -366 |
| Goodwill on consolidation, incl. deferred tax impact (-) | -769 | -769 | -482 | -482 |
| Minority interests | -3 | -3 | 0 | 0 |
| Available-for-sale revaluation reserves (-)3 | -679 | – | -466 | – |
| Hedging reserve, cashflow hedges (-) | 1 391 | 1 391 | 1 163 | 1 163 |
| Valuation differences in financial liabilities at fair value – own credit risk (-) | -21 | -21 | -20 | -20 |
| Value adjustment due to requirements for prudent valuation (-)2 | -43 | -92 | -53 | -94 |
| Equalisation reserve (-) | 0 | 0 | 0 | 0 |
| Dividend payout (-) | -836 | -836 | 0 | 0 |
| Coupon on government securities (-) | -171 | -171 | 0 | 0 |
| Coupon on AT1 instruments (-) | -2 | -2 | -2 | -2 |
| Deduction with regard to financing provided to shareholders (-) | -159 | -159 | -91 | -91 |
| IRB provision shortfall (-) | -225 | -225 | -171 | -171 |
| Deferred tax assets on losses carried forward (-) | -59 | -297 | -345 | -765 |
| Additional going concern capital | 1 452 | 1 400 | 1 450 | 1 400 |
| Grandfathered innovative hybrid tier-1 instruments | 52 | 0 | 50 | 0 |
| Grandfathered non-innovative hybrid tier-1 instruments | 0 | 0 | 0 | 0 |
| CRR-compliant AT1 instruments | 1 400 | 1 400 | 1 400 | 1400 |
| Minority interests to be included in additional going concern capital | 0 | 0 | 0 | 0 |
| Tier-2 capital | 2 587 | 2 212 | 2 614 | 2 289 |
| IRB provision excess (+) | 357 | 375 | 359 | 369 |
| Subordinated liabilities | 2 230 | 1 837 | 2 255 | 1 920 |
| Subordinated loans non-consolidated financial sector entities (-) | 0 | 0 | 0 | 0 |
| Minority interests to be included in tier-2 capital | 0 | 0 | 0 | 0 |
| Total weighted risk volume | 88 382 | 91 236 | 87 343 | 89 067 |
| Banking | 77 379 | 80 232 | 78 034 | 79 758 |
| Insurance | 10 897 | 10 897 | 9 133 | 9 133 |
| Holding-company activities | 191 | 191 | 208 | 208 |
| Elimination of intercompany transactions | -85 | -85 | -33 | -33 |
| Solvency ratios | ||||
| Common equity ratio | 14.4% | 14.3% | 15.2% | 14.9% |
| Tier-1 ratio | 16.0% | 15.9% | 16.8% | 16.4% |
| Total capital ratio | 18.9% | 18.3% | 19.8% | 19.0% |
1 Audited figures (excluding 'IRB provision shortfall' and 'Value adjustment due to requirements for prudent valuation').
2 CRR ensures that prudent valuation is reflected in the calculation of available capital. This means that the fair value of all assets measured at fair value and impacting the available capital (by means of fair value changes in P&L or equity) need to be brought back to their prudent value. The difference between the fair value and the prudent value (also called the 'additional value adjustment' or AVA) must be deducted from the CET1 ratio.
3 Relates to the prudential filter for positive revaluation reserves from equity.
| Solvency at group level (consolidated; FICOD method) (in millions of EUR or %)* |
31-12-2014 Phased-in |
31-12-2014 Fully loaded |
31-12-2015 Phased-in |
31-12-2015 Fully loaded |
|---|---|---|---|---|
| Common equity | 13 136 | 13 528 | 13 503 | 13 508 |
| Total weighted risk volume | 89 742 | 92 596 | 90 841 | 92 565 |
| Common equity ratio | 14.6% | 14.6% | 14.9% | 14.6% |
* For more details, please refer to KBC's Extended Quarterly Reports (available at www.kbc.com).
At year-end 2015, the fully loaded Basel III leverage ratio – based on current CRR legislation – stood at 6.3% for the KBC group at the consolidated level (see table). The changes compared to year-end 2014 were limited, with a higher level of tier-1 capital being offset by higher total exposure.
| Leverage ratio (consolidated; under CRD IV/CRR (Basel III), Danish compromise method) (in millions of EUR) |
31-12-2014 Fully loaded |
31-12-2015 Fully loaded |
|---|---|---|
| Tier-1 capital | 14 476 | 14 647 |
| Total exposure | 226 669 | 233 675 |
| Total assets | 245 174 | 252 355 |
| Deconsolidation of KBC Insurance | -27 708 | -31 545 |
| Adjustment for derivatives | -3 246 | -3 282 |
| Adjustment for regulatory corrections in determining Basel III tier-1 capital | -1 559 | -806 |
| Adjustment for securities financing transaction exposures | 266 | 1 057 |
| Off-balance sheet exposures | 13 742 | 15 897 |
| Leverage ratio | 6.4% | 6.3% |
More details, including a description of the processes used to manage the risk of excessive leverage, can be found in KBC's Risk Report, which is available at www.kbc.com (the risk report has not been audited by the statutory auditor).
Besides the ECB and NBB, which supervise KBC on a going concern basis, KBC will also be subject to requirements to be set by the Single Resolution Board (SRB). The SRB is developing resolution plans for the major banks in the euro area. Such a plan describes how the resolution authorities will approach the resolution of a bank that is failing (or likely to fail) in a way that protects its critical functions, government funds and financial stability. It takes account of the specific features of the bank and is tailor-made. A major resolution tool is the 'bail-in', which implies a recapitalisation and stabilisation of the bank by writing down certain unsecured liabilities and issuing new
shares to former creditors as compensation. Depending on the size of the losses, the bail-in could be sufficient to bring the capital back to a level that is high enough to restore market confidence and to create a stable point from which additional actions could be implemented. The first focus is therefore on the availability of an adequate amount of liabilities that are eligible for bail in. This is measured by the minimum requirement for own funds and eligible liabilities (MREL), which will be set by the SRB. At year-end 2015, the MREL stood at 13.9% for the KBC group.
As is the case for the KBC group, the solvency of KBC Bank is calculated based on CRR/CRD IV. The solvency of KBC Insurance was calculated on the basis of Solvency I rules until the end of 2015, but will be calculated on the basis of Solvency II rules when they become effective on 1 January 2016.
In the table, we have provided certain solvency information for KBC Bank and KBC Insurance, separately. More detailed information can be found in their consolidated financial statements and in KBC's Risk Report, which is available at www.kbc.com (the risk report has not been audited by the statutory auditor).
| Solvency, KBC Bank and KBC Insurance separately | ||
|---|---|---|
| (in millions of EUR) | 31-12-2014 | 31-12-2015 |
| KBC Bank (consolidated, CRR/CRD IV, fully loaded) | ||
| Total regulatory capital, after profit appropriation | 14 154 | 16 045 |
| Tier-1 capital | 11 132 | 12 346 |
| Of which common equity | 9 727 | 10 941 |
| Tier-2 capital | 3 021 | 3 699 |
| Total weighted risks | 80 232 | 79 758 |
| Common equity ratio | 12.1% | 13.7% |
| Tier-1 ratio | 13.9% | 15.5% |
| Total capital ratio | 17.6% | 20.1% |
| KBC Insurance (consolidated, Solvency I) | ||
| Available capital | 3 166 | 2 922 |
| Required solvency margin | 981 | 1 011 |
| Solvency ratio (%) | 323% | 289% |
| Solvency surplus | 2 185 | 1 911 |
Solvency II is the new regulatory framework for insurers in Europe. Whereas Solvency I requirements were volume-based, Solvency II pursues a risk-based approach. It aims to implement solvency requirements that better reflect the risks that companies face and deliver a supervisory system that is consistent across all EU Member States. KBC is subject to the Solvency II regime as regards all its insurance subsidiaries. KBC successfully participated in preparatory regulatory reporting for Solvency II during 2015. As of 2016, the Solvency II results will be reported on a quarterly basis to the regulators and in the financial statements.
On 31 December 2015, the Solvency II ratio for KBC Insurance at group level came to 231% (see table below). This clearly ranks KBC Insurance among the better-capitalised companies in the insurance industry. This robust ratio is the result of a strong own funds base relative to the required capital. For the pillar 1 calculation of required capital, KBC has adopted the Standard Formula Model approach, which is regarded as more conservative, rather than using internal models. Given its solid level of capitalisation, KBC also decided not to use any transitional measures. To prevent excessive fluctuations in the Solvency II ratio, however, it uses volatility adjustment for all its subsidiaries.
| Solvency, KBC Insurance under Solvency II | |
|---|---|
| (in millions of EUR) | 31-12-2015 |
| Own funds | 3 683 |
| Tier-1 | 3 180 |
| IFRS parent shareholders' equity | 2 815 |
| Dividend payout | -71 |
| Deduction of intangible assets and goodwill (after tax) | -123 |
| Valuation differences (after tax) | 416 |
| Volatility adjustment | 195 |
| Other | -53 |
| Tier-2 | 503 |
| Subordinated liabilities | 503 |
| Solvency capital requirement (SCR) | 1 592 |
| Solvency II ratio | 231% |
| Solvency surplus above SCR | 2 091 |
KBC's ICAAP (Internal Capital Adequacy Assessment Process) consists of numerous business and risk processes that together contribute to the objective of assessing and ensuring at all times that KBC is adequately capitalised in view of its risk profile and the quality of its risk management and control environment. For this purpose, KBC has an internal capital model in place to complement the existing regulatory capital models. KBC replaced its former economic capital model with a new internal capital measurement model whose approach is not only more aligned with evolving regulatory requirements, but is also more fit for use as regards, for example, measuring risk adjusted performance and underpinning risk limits, in addition to assessing capital adequacy. The new internal capital model is complemented by a framework for assessing earnings that aims to reveal vulnerabilities in terms of the longer term sustainability of KBC's business model.
Final responsibility for the ICAAP lies with the Board of Directors, advised by the RCC.
A backbone process in KBC's ICAAP is the Alignment of Planning Cycles (APC). This yearly process aims to create an integrated three-year plan in which the strategy, finance, treasury and risk perspectives are collectively taken into account. In this process, the risk appetite of the group is set and cascaded by setting risk limits at entity level. The APC is not only about planning, it is also about closely monitoring the execution of the plan in all its aspects (P&L, risk weighted assets, liquidity). Such monitoring is reflected in dedicated reports drawn up by the various Group functions.
Since 2014, KBC Insurance and its insurance and reinsurance subsidiaries have conducted an Own Risk and Solvency Assessment (ORSA) on a regular basis, in accordance with Solvency II requirements. Similar to ICAAP, the aim of the ORSA is to monitor and ensure that business is managed in a sound and prudent way and that the KBC Insurance group is adequately capitalised in view of its risk profile and the quality of its risk management and control environment. The ORSA process draws to a large extent on the same 'core processes' as the ICAAP and includes APC, risk appetite setting and ongoing business, risk and capital management processes. Where necessary, these processes are enhanced to take account of the specific nature of the (re)insurance activities and to comply with Solvency II requirements.
Stress testing is an important risk management tool that adds value both to strategic processes and to day-to-day risk management (risk identification, risk appetite and limit setting, etc.). As such, stress testing is an integral part of KBC's Risk Management Framework and underlying risk-type specific frameworks, and is an important building block of KBC's ICAAP and ORSA.
KBC defines stress testing as a management decision supporting process that encompasses various techniques which are used to evaluate the potential negative impact on KBC's (financial) condition, caused by specific event(s) and/or movement(s) in risk factors ranging from plausible to extreme, exceptional or implausible.
As such, it is an important tool in identifying sources of vulnerability and hence in assessing whether KBC's capital is adequate enough to cover the risks facing it. That is why the APC also includes views under stressed assumptions. These stress tests are designed to provide assurance that:
The resulting capital ratios are compared to internal and external capital targets. An assessment is made to see the extent to which potential shortfalls can be mitigated by taking risk management actions.
Even more severe scenarios and sensitivities are calculated in the context of the recovery plan. These scenarios focus on events that lead to a breach of the regulatory capital requirements and hence trigger the recovery plan. As such, the scenarios provide another insight into key vulnerabilities of the group. To prevent KBC from ending up in a recovery situation – should the defined stress scenario occur – management needs to consider mitigating action.
Numerous other stress tests are run within KBC that provide valuable information for assessing the capital adequacy of the group. They include regulatory imposed stress tests, ad hoc integrated and risk-type or portfolio-specific stress tests at group and local level. Relevant stress test impacts are valuable inputs for defining sensitivities in APC planning.
The main aspects of the company's corporate governance policy are set out in the Corporate Governance Charter of KBC Group NV (the 'Charter', which is published at www.kbc.com). KBC Group NV has adopted the 2009 version of the Belgian Corporate Governance Code (the 'Code') as its benchmark. This Code can be downloaded at www.corporategovernancecommittee.be. More factual information regarding corporate governance and on the application of certain statutory provisions is contained in this corporate governance statement.
Unless otherwise indicated, the period dealt with runs from 1 January 2015 to 31 December 2015.
A number of terms have been abbreviated as follows in this section of the annual report: Board of Directors: Board; Executive Committee: EC; Audit Committee: AC; Risk & Compliance Committee: RCC.
The following table shows the members of the Board and its committees on 31 December 2015. A list of the external offices held by all members of the Board is provided at www.kbc.com, as is a brief CV for each director. The number of meetings attended is shown in the columns relating to the committees.
| ee on Committ Remunerati |
4 | 4 (c) | 4 | 4 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Committee Nomination |
5 | 5 (c) | 4 | 5 | 5 | ||||||||||||
| RCC | 10 | 10 (c) | 9 | 10 | 10 | ||||||||||||
| AC | 8 | 7 | 8 | 8 | 8 (c) | ||||||||||||
| EC | n (c) | n | n | ||||||||||||||
| Independen t directors |
n | n | n | ||||||||||||||
| olders' repr esentatives Core shareh |
n | n | n | n | n | n | n | n | n | n | |||||||
| ve directors Non-executi |
n | n | n | n | n | n | n | n | n | n | n | n | n | ||||
| ngs attende d Board meeti |
11 | 11 | 10 | 11 | 11 | 11 | 11 | 11 | 11 | 11 | 11 | 11 | 11 | 10 | 11 | 8 | 11 |
| Expiry date e erm of offic of current t |
2019 | 2017 | 2016 | 2019 | 2019 | 2019 | 2019 | 2018 | 2016 | 2016 | 2019 | 2016 | 2016 | 2018 | 2018 | 2018 | |
| ard in 2015 d on the Bo Period serve |
Full year | Full year | Full year | Full year | Full year | Full year | Full year | Full year | Full year | Full year | Full year | Full year | Full year | Full year | Full year | Full year | |
| ponsibility Primary res |
Chairman of the Board | Deputy Chairman of the Board CEO, Vlerick Group |
President of the EC and Executive Director | CEO, Christeyns Group | Managing Director, Cera and KBC Ancora | Managing Director, Cera and KBC Ancora | Managing Director, 3D | Professor, International Business School of Budapest | Mayor of Lo-Reninge and Chairman of the Board of Directors of Cera Beheersmaatschappij NV |
Senior Partner, Squire Patton Boggs (US) LLP | Executive Director | CEO, Ravago Group | Lawyer and Deputy Chairperson of the Board of Directors of Cera Beheersmaatschappij NV |
Executive Director | (Chairman of the Boerenbond and MRBB CVBA until 30 November 2015) Chairman, Wit-Geel Kruis van Vlaanderen |
Managing Director, MRBB | |
| Number of meetings in 2015 | Theodoros Roussis | Ghislaine Van Kerckhove | Christine Van Rijsseghem |
(c) Chairman of this committee.
Marc De Ceuster attended 11 Board meetings and 10 RCC meetings. Koen Algoed attended 4 Board meetings, 2 AC meetings and 1 Nomination Committee meeting.
• On the advice of the Nomination Committee, the Board will propose that Vladimira Papirnik – independent director
within the meaning of and in line with the criteria set out in Article 526ter of the Companies Code and in the Code – be re-appointed in this capacity for a period of four years.
On the recommendation of the AC, the Board will propose that PricewaterhouseCoopers ('PwC') be appointed as statutory auditor for a period of three years, subject to the approval of the regulator. The statutory auditor will be represented by Messrs Roland Jeanquart and Tom Meuleman. The fees paid to the statutory auditor will amount to 145 000 euros for financial year 2016 and to 152 000 euros per year for financial years 2017 and 2018, and may be duly indexed or modified (not automatically) should there be any significant change in the company's activities due to acquisitions being made or new product lines being launched.
Sonja De Becker was born in Erps-Kwerps (Belgium) in 1967. After graduating from the Katholieke Universiteit Leuven (KU Leuven, 1990), she started her career as a legal adviser at the Boerenbond (farmers' union) (1990–1997). She then became head of environmental consulting at SBB Bedrijfsdiensten in Leuven (1997–1999), before returning to the Boerenbond to take up the post of Deputy General Secretary (1999–2001), General Secretary (2001–2013) and Deputy Chairperson (2013–2015). Since 1 December 2015, she has been Chairperson of the Boerenbond.
Like to know more? The corporate governance charter can be found under 'Corporate Governance' at www.kbc.com. The agenda for the General Meeting of 4 May 2016 is available at www.kbc.com.
°1962 Belgian Master's Degree in Law (UGent) Joined company in 1987* CRO (Chief Risk Officer)
°1965 Belgian Master's Degree in Science (Applied Mathematics) and Actuarial Sciences (KU Leuven) Joined company in 1988* Group CEO (Chief Executive Officer)
Johan Thijs
Composition of the EC at the end of 2015
Daniel Falque °1963 Belgian Master's Degree in International Relations (Université catholique de Louvain)
Joined company in 2009* CEO of the Belgium Business Unit
°1964 Belgian Master's Degree in Applied Economics, (UFSIA Antwerp) Joined company in 1988* CFO (Chief Financial Officer)
°1956 British Master's Degree in Law and Economics (Cambridge University) Joined company in 1996* CEO of the Czech Republic Business Unit
* 'Joined company in ...' refers to KBC Group NV, group companies or pre-merger entities (Kredietbank, Cera, ABB, etc.).
Luc Gijsens
°1953 Belgian Master's Degree in Law (KU Leuven) Joined company in 1977* CEO of the International Markets Business Unit
Besides carrying out the activities required under the Companies Code, reviewing the quarterly results and the activities of the AC, RCC, Nomination Committee and Remuneration Committee, and handling and taking decisions on the dossiers submitted by these committees, the Board also dealt with the following matters:
The EC also reported monthly on the trend in the results and the general course of business at the group's various business units. It also paid regular attention to the strategy and specific challenges for the different areas of activity.
The AC is tasked inter alia with advising the Board on the integrity of financial reporting and the effectiveness of the internal control process and risk management. It provides guidance to the internal audit function and oversees the external auditor.
The AC met in the presence of the President of the EC, the Group CRO, the Group CFO, the internal auditor, the compliance officer and the statutory auditors. Besides
reviewing the company and consolidated financial statements, the annual report, the half-year and quarterly figures, approving the relevant press releases and discussing the auditor's findings, it also discussed the quarterly reports drawn up by the internal auditor. The AC also examined:
The RCC advises the Board on current and future risk tolerance and on risk strategy, and assists it in supervising how the EC implements this strategy. It ensures that the prices of assets and liabilities and of categories of off-balance-sheet products that are offered to clients, factor in the risks run by the institution, with due account taken of its business model and risk strategy, viz. risks – especially reputation risks – that might arise from the types of product offered to clients. The RCC monitors the risk and compliance functions.
The RCC met in the presence of the President of the EC, the Group CRO, the Group CFO, the internal auditor, the compliance officer and the statutory auditors. Besides discussing the periodic reports from the risk function and the compliance officer (including the annual reports), it also examined the reports drawn up by the legal, tax and branch inspection departments. In addition, the following special reports dealt with were:
Information Security and Cyber Risk;
the risk-related elements of remuneration policy and the pricing of products offered to clients;
Please note that the Nomination Committee of KBC Group NV acts in the same capacity for KBC Insurance and KBC Bank. The main matters dealt with were:
The Remuneration Committee usually met in the presence of the Chairman of the Board, the President of the EC and the representative of the Flemish Regional Government. Please note that the Remuneration Committee of KBC Group NV acts in the same capacity for KBC Insurance and KBC Bank.
The main matters dealt with were:
For a general description of how the Board and its committees function, see sections 5 and 6 of the Charter of KBC Group NV (at www.kbc.com).
On 31 December 2015, the AC had two independent directors within the meaning of and in line with the criteria set out in Article 526ter of the Companies Code and in the Code.
of Department at the International Business School of Budapest and Research Associate at the Centre for Economic and Regional Studies of the Hungarian Academy of Sciences.
The other members of the AC are:
Koen Algoed sat on the AC as a non-executive director from 2 July until 28 December 2015. He holds an MSc in Econometrics & Mathematical Economics (London School of Economics) and a PhD in Economics (KU Leuven). He is Professor of Economics at the KU Leuven, a member of the Centre for Research on Economic Markets and their Environments (KU Leuven, Brussels Campus) and Cabinet Secretary for the Flemish Minister for Work, Economy, Innovation and Sport.
It can be concluded on the basis of the profiles and competences of the members of the AC that the committee is constructed and has the requisite skills and experience in accordance with the requirements of the Charter and of Article 526bis, § 2 of the Companies Code.
On 31 December 2015, the RCC of KBC Group NV had one independent director within the meaning of and in line with the criteria set out in Article 526ter of the Companies Code and in the Code.
The RCC comprises:
Marc De Ceuster sat on the RCC as a non-executive director until 28 December 2015. He holds a PhD in Applied Economics (University of Antwerp, 1992) and a Master's Degree in Law (UFSIA – UIA Antwerp, 1987). He is Professor of Finance (University of Antwerp) and Academic Director of the master's courses in Real Estate Management, Personal Financial Planning and Finance at the Antwerp Management School.
It can be concluded on the basis of the profiles and competences of the members of the RCC that each individual member and the committee as a whole possess the requisite skills and experience.
The Board worked out an arrangement regarding transactions and other contractual ties between the company (including its affiliated companies) and its directors, not covered by the
conflict of interest rule set out in Articles 523 or 524ter of the Companies Code. It has been incorporated into the Charter.
The Board of KBC Group NV has drawn up a Dealing Code which, among other things, requires a list of key employees to be drawn up, annual blocking periods to be set, and transactions by persons with managerial responsibility and
with persons connected with them to be reported to the Belgian Financial Services and Markets Authority (FSMA). The principles of this code have been appended to the Charter.
With a view to constantly improving its own effectiveness, the Board – led by its Chairman – evaluates a number of elements each year, including the composition of the Board, the selection, appointment and training of its members, practical operations (relating to the agenda, meetings, chairmanship, secretariat), reporting to the Board, the type of culture within the Board, the performance of its duties, remuneration, the working relationship with the EC, the shareholders and other stakeholders, the Board's committees, proposed agenda items and training proposals.
On the initiative of the Chairman of the Board, directors who are nominated for re-appointment are subject to an individual evaluation that focuses on their efforts and effectiveness within the Board and – where appropriate – their performance as chairman or member of a committee of the Board. This evaluation is performed by the Chairman. The Board evaluates
the Chairman who must not be present when the evaluation is being performed.
Once a year, non-executive directors assess how they interact with the executive management. To that end, they meet at least once a year without the executive directors.
Each Board committee regularly carries out an evaluation of its own composition and workings, before reporting its findings and, where necessary, making proposals to the Board.
On the initiative of the President of the EC, the full EC discusses its objectives and assesses its performance once a year. Each year, the President of the EC evaluates each member of the EC individually. The individual evaluation of the President is performed by the Chairman of the Board.
Procedures for developing the remuneration policy and for determining the remuneration granted to individual directors and members of the EC
General: The remuneration policy for the Board and EC is based on prevailing legislation, the Code and market data. It is monitored and regularly checked by the Remuneration Committee – with the assistance of specialist members of staff – to see whether it complies with changes in the law, the Code, and prevailing market practices and trends. The Chairman of the Remuneration Committee informs the Board of the committee's activities and advises it of any changes to the remuneration policy and its practical implementation. The Board may also act on its own initiative, or on a proposal from the EC, and instruct the Remuneration Committee to examine potential changes to the remuneration policy and to advise it accordingly. If required by law, the Board will submit any policy changes to the General Meeting for approval.
Board: On the basis of advice obtained from the Remuneration Committee, the Board decides on the remuneration package for its members. If required, it may also submit proposals in this regard to the General Meeting for decision.
EC: On the basis of advice obtained from the Remuneration Committee and taking account of the established remuneration policy, the Board determines the remuneration to be granted to members of the EC, and assesses this amount at regular intervals. The amount in question is split into a fixed component and a profit-related/performance-related component.
The Remuneration Committee declares the following:
The basic principle applying to non-executive directors, executive directors and other members of the EC is that they are entitled to a fair remuneration that is commensurate with the contribution they have made to the policy and growth of the group.
The following applies to non-executive directors:
additional remuneration (attendance fees) is paid to them for each meeting attended.
• KBC Group NV does not grant loans or guarantees to directors. Such loans or guarantees may, however, be granted by KBC Group NV banking subsidiaries pursuant to Article 72 of the Banking Act of 25 April 2014, meaning that loans may be granted at terms applying to clients and approved by the Board.
The following applies to executive directors and other members of the EC:
dealing with the digital transformation;
implementing the financial plans (including profitability, capital and liquidity planning);
The Remuneration Committee evaluates the extent to which these criteria have been met and, on the basis of its findings and within the limits of the contractually agreed system, makes a proposal regarding the size of the performancerelated variable remuneration and duly advises the Board, which takes the final decision. It also advises the Board on the size of the individual variable emolument after assessing the individual performance of each member of the EC and taking due account of the evaluation performed by the President of the EC.
• Members also benefit from a retirement and survivor's pension scheme, which comprises a supplementary retirement pension or – if the insured dies while still in employment and leaves a spouse – a survivor's pension, and also provides cover in the event of disability.
The variable component is split into a performance-related variable emolument and an individual variable emolument. The performance-related variable component for the President of the EC is set between 0 and 300 000 euros and the individual variable component between 0 and 100 000 euros. The limits for these components are 200 000 euros and 70 000 euros, respectively, for the other members of the EC. The final amount is set by the Board on the advice of the Remuneration Committee, based on an assessment of the individual and collective achievements during the previous financial year. In any event, the variable component accounts for less than 30% of the total remuneration package.
The total amount of annual variable remuneration (i.e. both the performance-related and individual components) for members of the EC is paid over four years, with 50% being paid in the first year and the rest spread equally over the next three years.
Furthermore, 50% of the total annual variable remuneration is awarded in the form of equity-related instruments called phantom stocks (though not in the Czech Republic where virtual investment certificates are used), whose value is linked to the price of the KBC Group NV share. These stocks must be retained for one year after being allocated. Like the cash component of variable remuneration, they are also allocated over a four-year period. The average price of the KBC share during the first three months of the year is used to calculate the number of phantom stocks to which each member of the EC is entitled. These stocks are then converted into cash a year later on the basis of the average price of the KBC share during the first three months of that year. They are subject to the allocation and acquisition conditions described under 'Clawback provisions' below.
It is not the intention to make any changes to the remuneration awarded to non-executive directors. However, the Remuneration Committee will discuss attendance fees for members of the AC and RCC and consider the possibility of replacing these fees with a fixed emolument.
In 2015, a study was carried out in partnership with an external research agency on the supplementary pension for the members and President of the EC. The study found that the pension provided in the current supplementary pension plan was not in line with the market, lying below the median for BEL 20 companies. Although a challenging exercise, a comparison of the supplementary pension scheme for members of the EC was also made with an international peer group of companies operating in the financial sector. The results that emerged were in line with those from the BEL 20 comparison.
It also emerged that most of the benchmark companies no longer run a defined benefit plan. A final significant difference was that the pension benefit in the vast majority of peer group pension plans is linked to the amount of remuneration actually paid (and, therefore, the pension amount paid to the CEO also differs from the amount paid to the other members of the EC). Consequently, a new pension plan was launched on 1 January 2016. It is a defined contribution plan that is funded entirely by KBC. When drawing up this plan, account was taken of the fact that the career as a member (and especially as President) of the EC is shorter than that of an average employee. In the pension formula, therefore, the first ten years that an individual sits on the EC are the ones in which a significant part of the supplementary pension is built up. The study also revealed that the death cover was relatively lower than the benchmark level and, therefore, the death benefit was increased under the new plan. The plan applies to all new members who join the EC on or after 1 January 2016 (provided they are resident in Belgium). Members already on the EC on 31 December 2015 were offered the choice of continuing with their current pension plan or joining the new one. All but one of the members decided to switch to the new plan. In their case, the vested reserves built up by 31 December 2015 were transferred to that plan.
The policy for remunerating members of senior management is published in the Remuneration Policy. It contains a number of group-wide principles relating primarily to the variable remuneration component. The main principles stipulate that:
the ratio of fixed to variable remuneration components be set at a maximum one to one half;
variable remuneration be capped at a nominal 750 000 euros;
Besides the risk gateway, a 'Risk-Adjusted Performance Measurement Framework' has also been introduced to set results-based variable remuneration for performances as from financial year 2012. The basic idea behind this policy used for capital allocation is that neither economic capital nor regulatory capital is suitable as a single driver for capital allocation. Regulatory capital is limited in terms of risk types and only partially reflects the specific characteristics of KBC. Although economic capital comprises more types of risk and reflects KBC's estimation of its own risk profile, it is not available at the same detailed level at the moment. Given these limitations, the decision was taken to allocate capital on the basis of a risk-weighted asset (RWA) coefficient that reflects the aspects of economic capital.
This policy introduces the concept of risk-adjusted profit (RAP) as the (absolute) measure of company profitability, but with an inherent adjustment for capital and risk-related factors. For certain categories of key identified staff for whom the competent control function has assessed that the RAP is an inadequate risk-adjustment mechanism, this framework will be supplemented by additional performance indicators that are better designed to measure risk.
As already explained above, payment of the total annual variable remuneration is not only spread over time, half of it is also awarded in the form of phantom stocks that are to be retained for a period of one year.
The variable remuneration component, including the deferred part, is only acquired when this can be reconciled with the financial situation of the entire institution and justified by the performances of the KBC group and the EC.
Action can be taken regarding payment of deferred amounts that have still to be acquired (malus arrangement), when:
In this regard, the Board takes a decision on the advice of the Remuneration Committee.
Variable remuneration already acquired will exceptionally be clawed back when there is:
In accordance with the remuneration system in force, non-executive directors received a fixed emolument and attendance fees in proportion to the number of meetings they attended of the Board of KBC Group NV and, where relevant, of the other companies of the KBC group in Belgium or abroad. As mentioned above, the Chairman of the Board received solely a special fixed emolument and the chairmen of the AC and RCC an additional fixed emolument. The Deputy Chairman of the Board also received an additional fixed emolument.
| Remuneration (for FY 2015) |
Remuneration for AC and RCC members (for FY 2015) |
Attendance fees (for FY 2015) |
|
|---|---|---|---|
| Thomas Leysen | 500 000 | 0 | 0 |
| Koen Algoed | 10 000 | 5 000 | 20 000 |
| Alain Bostoen | 33 333 | 0 | 55 000 |
| Jo Cornu | 6 667 | 0 | 20 000 |
| Marc De Ceuster | 20 000 | 30 000 | 55 000 |
| Franky Depickere | 65 000 | 130 000 | 60 000 |
| Luc Discry | 40 000 | 0 | 55 000 |
| Frank Donck | 33 333 | 25 000 | 55 000 |
| Júlia Király | 20 000 | 30 000 | 82 500 |
| Lode Morlion | 40 000 | 0 | 55 000 |
| Vladimira Papirnik | 20 000 | 30 000 | 82 500 |
| Theodoros Roussis | 40 000 | 0 | 55 000 |
| Ghislaine Van Kerckhove | 40 000 | 0 | 50 000 |
| Piet Vanthemsche | 40 000 | 0 | 40 000 |
| Philippe Vlerick | 63 333 | 0 | 50 000 |
| Marc Wittemans | 40 000 | 65 000 | 55 000 |
The members of the EC who also sit on the Board as executive directors did not receive either a fixed remuneration or any attendance fees.
For members of the EC, the individual component is set on the basis of an assessment of the performance of the member in question, while the performance-related component is set on the basis of an assessment of a number of pre-agreed criteria relating to the performances of the EC and the company. These assessments generate a percentage between 0% and 100% that is applied to the maximum variable remuneration.
Based on the advice of the Remuneration Committee, the Board decided that the members of the EC should be awarded performance-related variable remuneration for 2015 that equalled 96.88%.
The EC of KBC Group NV is a collective body, whose president is the first among equals and not the sole executive and accountable representative of the company. Nevertheless, in implementation of company law and the Code, the remuneration paid to the President of the EC (the CEO) is shown separately in the following table. The aggregate remuneration paid by KBC Group NV and its direct and indirect subsidiaries to members of the EC of KBC Group NV other than the President for the 2015 financial year is also shown in the table. The EC comprises six members (including the President).
| CEO: Johan Thijs |
Other members of the EC (combined) |
|||
|---|---|---|---|---|
| Remuneration paid to the EC of KBC Group NV (in EUR) | 2014 | 2015 | 2014 | 2015 |
| Employment status | Self-employed | Self-employed | Self-employed | Self-employed |
| Base remuneration (fixed) | 1 040 000 | 1 090 000 | 3 936 202 | 3 850 000 |
| Individual remuneration for financial year1 (variable) |
21 667 | 21 667 | 75 526 | 70 292 |
| Performance-related remuneration for financial year1 (variable) |
70 312 | 72 656 | 264 965 | 242 188 |
| Results-based remuneration for previous financial years2 (variable) |
72 447 | 54 384 | 341 189 | 155 781 |
| Performance-related remuneration for previous financial years2 (variable) |
35 743 | 28 521 | 140 183 | 77 242 |
| Total | 1 240 169 | 1 267 228 | 4 758 065 | 4 395 503 |
| Pension3 | ||||
| Supplementary defined benefit pension plan (service cost) | 116 343 | 100 297 | 820 318 | 778 964 |
| Supplementary defined contribution pension plan (contribution transferred to pension fund) |
44 060 | 39 579 | 88 120 | 118 738 |
| Other benefits4 | 14 853 | 14 298 | 122 248 | 87 277 |
1 Half of the variable remuneration component is awarded in the form of phantom stocks, and variable remuneration is paid over four years (50% in the first year and the rest spread equally over the next three years). Consequently, the amount stated here is solely the portion of total variable remuneration payable in cash in 2016 (25% of the total amount awarded).
2 In each case, 16.66% of the cash component of the variable remuneration for 2012, 2013 and 2014.
3 Until 31 December 2015, the pension scheme for members of the EC (except John Hollows) comprised a small defined contribution pension plan and the main defined benefit pension plan. The defined contribution plan applies to all members of the EC as from the year following the year in which the member in question has sat on the EC for three years. It is funded by KBC via an annual contribution (to the KBC pension fund), the size of which is expressed as a percentage of KBC's consolidated net profit. This percentage depends on the trend in earnings per share. The defined benefit plan applies to members of the EC as soon as they take a seat on the committee. Entitlement to a full supplementary retirement pension is acquired after 25 years' service in the KBC group, at least six of which as a member of the EC. Each supplementary pension (unless built up through personal contributions) – the right to which has been acquired elsewhere in the group in whatever capacity (self-employed or employee) – is taken into account when calculating this retirement pension, i.e. no accumulation is possible. John Hollows participates in a defined contribution pension plan in the Czech Republic.
As explained above, a new defined contribution-type pension plan entered into force on 1 January 2016.
4 Each member of the EC receives a representation allowance of 400 euros per month. As this is a flat-rate reimbursement of expenses, the amount has not been included in the table. Each member of the EC also has a company car, the personal use of which is charged on the basis of a fixed 7 500 kilometres per year. Other benefits which members of the EC receive include hospitalisation insurance, assistance insurance and accident insurance.
The remuneration package awarded to members of the EC does not include a long-term cash bonus.
As described above, half of the total annual variable remuneration is awarded in the form of phantom stocks that are to be retained for a period of one year. The following amounts were awarded in the form of phantom stocks for 2015 (the number of phantom stocks is calculated on the basis of the average price of the KBC share during the first three months of the year of vesting).
| Amounts awarded in the form of phantom stocks | Vesting | Vesting | Vesting | Vesting | |
|---|---|---|---|---|---|
| (in EUR) | Total | in 2016 | in 2017 | in 2018 | in 2019 |
| Johan Thijs | 188 646 | 94 323 | 32 070 | 32 070 | 30 183 |
| Luc Popelier | 125 458 | 62 729 | 21 328 | 21 328 | 20 073 |
| John Hollows* | 126 042 | 63 021 | 21 427 | 21 427 | 20 167 |
| Luc Gijsens | 124 292 | 62 146 | 21 130 | 21 130 | 19 887 |
| Daniel Falque | 123 708 | 61 854 | 21 030 | 21 030 | 19 793 |
| Christine Van Rijsseghem | 125 458 | 62 729 | 21 328 | 21 328 | 20 073 |
* Virtual investment certificates instead of phantom stocks.
No other shares, stock options or rights to acquire shares were allocated.
Some of the phantom stocks awarded both in 2011 for financial year 2010 and in 2013 for financial year 2012 were converted into cash at 51.61 euros per share in April 2015. The following amounts were paid (in euros):
| • Johan Thijs | 87 117 |
|---|---|
| • Luc Popelier | 78 034 |
| • John Hollows | 78 034 |
| • Luc Gijsens | 30 966 |
| • Daniel Falque | 18 218 |
Given that KBC repaid the remaining instalment of Flemish state aid in December 2015, the special conditions relating to severance payments that had been agreed with the Flemish Regional Government in 2009 no longer apply. Pursuant to the Companies Code and the Banking Act – and based on well-reasoned advice from the Remuneration Committee – the Board decided that severance payments for executive directors and members of the EC should be adjusted with effect on 1 January 2016. For members of the EC who have worked six years or less at KBC Group NV, such payments have been set at 12 months' remuneration, for those who have worked between six and nine years, they are equal to 15 months' remuneration, and for those who have worked more than nine years, they are equal to 18 months' remuneration. In this context, remuneration is taken to be the fixed remuneration component for the current year and the variable component for the last full year preceding termination of office.
Part 1: Description of the main features of the internal control and risk management systems at KBC
We examine the strategy and organisational structure of the KBC group in the 'Our business model and strategy' section of this annual report.
The KBC group has a dual governance structure based on the Belgian model:
The Charter describes the mutual responsibilities of both management bodies, their composition and activities, as well as the qualification requirements for their members. Their composition and activities are dealt with in more detail elsewhere in this section.
Ethical behaviour and integrity are considered as essential components of sound business practice. Honesty and integrity are part of the high ethical standards that KBC stands for – both in the spirit and the letter of the applicable regulations. Therefore, KBC treats its clients in a fair, reasonable, honest and professional manner.
These principles are set out in the integrity policy, as well as in specific codes, instructions and codes of conduct. The main
guidelines and policy memos on socially responsible business practices can be found under 'Sustainability & Responsibility' at www.kbc.com.
One of the topics covered by the integrity policy is 'conduct risk', a relatively recent concept that identifies the risk arising from the inappropriate provision of financial services. To address this matter, KBC has drawn up a comprehensive policy that includes prevention, monitoring and reporting. An extensive, group-wide communication campaign ensures that the necessary awareness of this risk is in place.
KBC's Integrity Policy focuses primarily on the following areas, for which – where appropriate – specific group-wide compliance rules have been issued, i.e. for:
The integrity policy also maintains a strong and comprehensive focus on ethics and combating fraud:
Compliance in its capacity as the group competence centre for fraud.
The Code of Conduct for KBC Group Employees is a generalised document based on a set of group values that outlines how all members of staff should conduct themselves. It forms the basis for developing specialised codes of conduct for specific target groups and for drawing up policy guidelines at group level.
KBC's vision on corporate social responsibility is set out in its Principles for Socially Responsible Business, which is available at www.kbc.com.
To arm itself against the risks that it is exposed to in achieving its mission, the EC – under its responsibility and the supervision of the Board – has implemented a multi-layered internal control system. This system is commonly known as the 'Three Lines of Defence' model.
The business operations side is fully responsible for all the risks in its area of activity and has to ensure that effective controls are in place. In so doing, it ensures that the right controls are performed in the right way, that self-assessment of the
business side is of a sufficiently high standard, that there is adequate awareness of risk and that sufficient priority/capacity is allocated to risk themes.
Independent of the business side, the second-line risk and control functions formulate their own opinion regarding the risks confronting KBC. In this way, they provide an adequate degree of certainty that the first-line control function is keeping these risks under control, without taking over primary responsibility from the first line. In this regard, the second-line functions are tasked to identify, measure and report risks. The risk function has a veto right to ensure that it is respected. The second-line risk and control functions also support the consistent implementation of the risk policy, the risk framework, etc., throughout the group, and supervise how they are applied.
Compliance is an independent function within the KBC group, protected by its modified status (as described in the Compliance Charter), its place in the organisation chart (hierarchically under the CRO with a functional reporting line to the President of the EC) and its reporting lines (reporting to the RCC as the highest body and even to the Board in certain cases). Its prime objective is to prevent KBC from running a compliance risk or from incurring loss/damage – regardless of its nature – due to non-compliance with applicable laws, regulations or internal rules that fall either within the scope of the compliance function or within the areas assigned to it by the EC. Hence, the compliance function devotes particular attention to adherence to the integrity policy.
As the independent third-line of control, Internal Audit is responsible for the quality control of the existing business processes. It performs risk-based and general audits to ensure that the internal control and risk management system, including Risk Policy, are effective and efficient, and to ensure that policy measures and processes are in place and consistently applied within the group to guarantee the continuity of operations.
Responsibilities, features, organisational structure and reporting lines, scope, audit methodology, co-operation between internal audit departments of the KBC group, and outsourcing of internal audit activities are set out in the Audit Charter of KBC Group NV. This charter complies with the stipulations of the National Bank of Belgium regulation of 19 May 2015 – approved by the Royal Decree of 5 July 2015 – on the internal control system and the internal audit function, with the Implementation Circular 2015_21 of 13 July 2015 and with the Act of 25 April 2014 on the status and supervision of credit institutions.
In accordance with international professional audit standards, an external entity screens the audit function on a regular basis (the last time this happened was in 2014). The results of that exercise were reported to the EC and the AC.
Each year, the EC evaluates whether the internal control and risk management system is still compliant and reports its findings to the AC and RCC.
These committees supervise, on behalf of the Board, the integrity and effectiveness of the internal control measures and the risk management system set up under the EC, paying special attention to correct financial reporting. They also examine the procedures set up by the company to see whether they comply with the law and other regulations.
Their role, composition and activities, along with the qualifications of their members, are laid down in their respective charters, which are included under the Charter of KBC Group NV. More information on these committees is provided elsewhere in this section.
It is vitally important that timely, accurate and understandable financial reports are provided to both internal and external stakeholders. To ensure this is the case, the underlying process needs to be sufficiently robust.
Periodic reporting at company level is based on a documented accounting process. A manual on the accounting procedures and financial reporting process is available. Periodic financial statements are prepared directly from the general ledger. Bookkeeping accounts are examined to see whether they correspond to underlying inventories. The result of these controls can be demonstrated.
Periodic financial statements are prepared in accordance with local accounting policies and periodic reports on own funds in accordance with the most recent National Bank of Belgium (NBB) resolutions.
The main affiliated companies have their own accounting and administrative organisation, as well as a set of procedures for internal financial controls. The consolidation process is explained in a descriptive document. The consolidation system and the consolidation process have been operational for some time and have numerous built-in consistency controls.
The consolidated financial statements are prepared in accordance with IFRS accounting policies that apply to all the companies included in the scope of consolidation. The relevant senior financial managers (CFOs) of the subsidiaries certify to the accuracy and completeness of the financial figures reported in accordance with group accounting policies. The Approval Committee, which is chaired by the general managers of Financial Insight & Communication and of Group Finance, monitors compliance with IFRS accounting policies.
Pursuant to the Act of 25 April 2014 on the status and supervision of credit institutions, the EC of KBC Group NV evaluated the internal control system for the financial reporting process and prepared a report on its findings.
The group-wide roll-out of 'fast close' procedures, the monitoring of intercompany transactions within the group, and permanent follow-up of a number of indicators relating to risk, performance and quality (Key Risk Indicators and Key Performance Indicators) continually help raise the quality of both the accounting process and the financial reporting process.
The internal control of the accounting process has been based on Group Key Control Accounting and External Financial Reporting standards since 2006. These rules for managing the main risks attached to the accounting process involve the establishment and maintenance of accounting process architecture, the establishment and maintenance of accounting policies and accounting presentations, compliance with authorisation rules and the separation of responsibilities when transactions are registered in the accounts, and the establishment of appropriate first- and second-line account management.
The Reporting Framework (2011) and Challenger Framework (2012) define a solid governance structure and clearly describe the roles and responsibilities of the various players in the financial reporting process. The aim here is to radically reduce reporting risks by challenging input data and improving the analysis of – and therefore insight into – the reported figures.
Each year (since 2012), when preparing the Internal Control Statement for the supervisory authorities, the legal entities have to assess themselves as to whether they comply with the Group Key Control Accounting and External Financial Reporting standards. The findings of this self-assessment are registered in the risk function's Group Risk Assessment Tool. Besides a questionnaire to be completed by the CFOs, it also includes drawing up a list of all the responsibilities (Entity Accountability Excel sheets) for accounting and external financial reporting, along with the underlying Departmental Reference Documents that substantiate how these responsibilities are being shouldered.
In this way, the CFOs formally confirm by substantiated means that all the defined roles and responsibilities relating to the end-to-end process for external financial reporting have been properly assumed within their entity. The veracity of this confirmation can be checked at any time by all the internal and external stakeholders involved.
KBC Group NV's Internal Audit function conducts an end-toend audit of the accounting process and external financial reporting process at both company and consolidated level.
For details of the AC's supervisory work, see the second paragraph of point 4 in the first part of this text.
The corporate governance statement included in the annual report must indicate whether any provisions of the Corporate Governance Code have not been complied with and state the reasons for non-compliance (the 'comply-or-explain' principle). This information is provided below.
Provision 2.1. of the Corporate Governance Code stipulates that one of the factors for deciding the composition of the Board should be gender diversity (see 'Gender diversity' below).
Provision 5.2./1 of Appendix C to the Corporate Governance Code stipulates that the Board should set up an audit committee composed exclusively of non-executive directors. Provision 5.2./4 of the same appendix additionally specifies that at least a majority of its members should be independent. Provision 5.3./1 of Appendix D to the Corporate Governance Code stipulates that the Board should set up a nomination committee composed of a majority of independent nonexecutive directors.
At year-end 2015, the AC was composed of four nonexecutive directors, two of whom were independent and two who represented the core shareholders. Independent directors were, therefore, in the minority on this committee. On 31 December 2015, the Nomination Committee was composed of four directors, one of whom was the Chairman of the Board (who is also an independent director) and three who represented the core shareholders. Independent directors were, therefore, in the minority on this committee.
When selecting the members of the AC and Nomination Committee – as is also the case with the Board – the group takes account of the specific shareholder structure and, in particular, of the presence of Cera, KBC Ancora, MRBB and the other core shareholders, who have endorsed the perspective of long-term share ownership. Given this shareholder engagement, the Board considered it appropriate to involve them in a suitable and balanced manner in the activities of the committees via their representatives on the Board.
Up until 28 December 2015, the composition of these committees was such that account was also taken of a government-appointed director's right to participate in meetings.
At least one-third of the Board's members must be of a different gender than the other members by no later than 1 January 2017.
At year-end 2015, four women and twelve men sat on the Board. Once the appointment of Sonja De Becker is finalised, the Board will comprise five women and eleven men, and thus comply with the Code.
There were no conflicts of interest during the 2015 financial year that required the application of Article 523, 524 or 524ter of the Companies Code.
Ernst & Young Bedrijfsrevisoren BCVBA – represented by Christel Weymeersch and/or Jean-François Hubin – will continue to act as the company's statutory auditor until the General Meeting. Details of the statutory auditor's remuneration are provided in Note 43 of the 'Consolidated financial statements' section.
As regards the proposal to appoint PwC as statutory auditor with effect from the General Meeting, please refer to 'Proposal to appoint the statutory auditor'.
The share capital was fully paid up and was represented by 418 087 058 shares of no nominal value. More information on the group's capital can be found in the 'Company annual accounts and additional information' section.
Each year, KBC Group NV carries out a capital increase reserved for its employees and the employees of certain of its Belgian subsidiaries. If the issue price of the new shares is less than the closing price, these new shares may not be transferred by the employee for two years, starting from the payment date, unless he or she dies. The shares subscribed to by employees under the capital increase decided upon by the Board on 13 November 2015 are blocked until 17 December 2017. The shares issued under the capital increase in 2014 also remain blocked (until 15 December 2016).
The options on KBC Group NV shares held by employees of the various KBC group companies and allocated to them under stock option plans set up at different points in time, may not be transferred inter vivos. For an overview of the number of stock options for staff, see Note 12 in the 'Consolidated financial statements' section.
3 Holders of any securities with special control rights None.
4 Systems of control of any employee share scheme where the control rights are not exercised directly by the employees None.
The voting rights attached to the shares held by KBC Group NV and its direct and indirect subsidiaries are suspended. At 31 December 2015, these rights were suspended for 2 shares (0.00% of the shares in circulation at that time).
A group of legal entities and individuals act in concert and constitute the core shareholders of KBC Group NV. As indicated in their disclosure, the number of voting rights held by these entities and individuals was:
That is a total of 168 301 786 shares carrying voting rights, or 40.26% of the total number of such shares on 31 December 2015.
A shareholder agreement was concluded between these parties in order to support and co-ordinate the general policy of KBC Group NV and to supervise its implementation. The agreement provides for a contractual shareholder syndicate. The shareholder agreement includes stipulations on the transfer of securities and the exercise of voting rights within the shareholder syndicate. The agreement was extended for a new ten-year period, with effect from 1 December 2014.
Appointment and replacement of members of the Board:
Following the approval of or notification to the supervisory authority, proposals to appoint nominated directors or to re-appoint directors are submitted by the Board to the General Meeting for approval. Each proposal is accompanied by a documented recommendation from the Board, based on the advice of the Nomination Committee.
Without prejudice to the applicable legal provisions, nominations are communicated as a separate agenda item for the General Meeting at least thirty days before it is held. When nominating an independent director, the Board will state whether the individual meets the independence criteria of the Companies Code.
The General Meeting appoints directors by a simple majority of votes cast.
From among its non-executive members, the Board elects a chairman and one or more deputy chairmen, if necessary. Outgoing directors are always eligible for re-appointment. If, during the course of a financial year, a directorship falls vacant as a result of decease, resignation, dismissal or for any other reason, the remaining directors may provisionally arrange for a replacement and appoint a new director. In that case, the next General Meeting will proceed to a definitive appointment. A director appointed to replace a director whose term of office had not yet come to an end will complete this term of office, unless the General Meeting decides on a different term of office when making the definitive appointment.
Amendment of the Articles of Association:
Unless stipulated otherwise, the General Meeting is entitled to amend the Articles of Association. Accordingly, the General Meeting may only validly deliberate and take decisions about such amendments if they have been expressly proposed in the convening notice and if those attending the meeting represent at least half the share capital. If the latter condition is not satisfied, a new convening notice is required and the new meeting can validly deliberate and take decisions, regardless of the share of capital represented by the shareholders attending the meeting. An amendment is only adopted if it receives three-quarters of the votes cast (Article 558 of the Companies Code).
If an amendment to the Articles of Association pertains to the object of the company, the Board must justify the proposed amendment in a detailed report that is referred to in the agenda. A statement of assets and liabilities drawn up no longer than three months previously must be included in this report and be reported on separately by the statutory auditors. Copies of the reports in question can be obtained in accordance with Article 535 of the Companies Code. If these reports do not appear, decisions taken at the General Meeting will be null and void. The General Meeting may only deliberate and take decisions validly on changes in the object of the company if those present not only represent half of the share capital (…). If this condition is not satisfied, a second convening notice is required. To ensure that the second meeting can deliberate and take decisions validly, it is sufficient that some of the capital is represented. An amendment will then only be adopted if it receives at least four-fifths of the votes cast. (…) (excerpt from Article 559 of the Companies Code).
The General Meeting authorised the Board until 20 May 2018 to increase, in one or more steps, the share capital by a total amount of 700 million euros, in cash or in kind, by issuing shares. The Board is also authorised until the same date to decide on one or more occasions to issue convertible bonds (whether subordinated or otherwise) or warrants that may or may not be linked to bonds (whether subordinated or otherwise) that could result in capital being increased within the 700 million euros referred to above. Under this authorisation, the Board can suspend or restrict preferential subscription rights, subject to the limits laid down by law and the Articles of Association.
On 13 November 2015, the Board decided to use its authorisation to increase capital by issuing shares without preferential subscription rights to employees at a price of 46.67 euros per share and with a limit of 74 shares per employee. On 23 December 2015, the issued share capital was increased by 1 066 272 euros (represented by 306 400 new shares).
As a result, the authorised capital amounted to 696 103 433.56 euros at year-end 2015. Consequently, when account is taken of the accounting par value of the share on 31 December 2015, a maximum of 200 029 722 new shares can still be issued, i.e. 47.84% of the number of shares in circulation at that time.
The General Meeting of 2 May 2013 authorised the Board (and also granted it a power of sub-delegation) to acquire maximum 250 000 shares over a five-year period. The shares may be acquired at a price that may not be higher than the last closing price on Euronext Brussels prior to the date of acquisition, plus 10%, and not lower than 1 euro. Within the confines of the law, this authorisation is valid for all acquisitions for a consideration, in the broadest sense of the term, on or off the exchange.
The boards of KBC Group NV and its direct subsidiaries received authorisation to sell their KBC Group NV shares on or off the exchange. In the latter case, the price may not be lower than that prevailing on the exchange at the time of sale, less 10%. On 31 December 2015, KBC Group NV and its direct subsidiaries did not hold any KBC Group NV shares.
9 Significant agreements to which KBC Group NV is a party and which take effect, alter or terminate upon a change of control of KBC Group NV following a public takeover bid None.
10 Agreements between KBC and its directors or employees providing for compensation if the directors resign or are made redundant, or if employees are made redundant, without valid reason following a public takeover bid None.
Notifications of shareholdings are provided:
A summary containing the most recent disclosures is provided under 'Our business model and strategy' in the 'Report of the Board of Directors' section.
It should be noted that the figures provided under A) and B) below may differ from the current number of shares in possession, as a change in the number held does not always give rise to a new notification.
Article 10bis of the Articles of Association of KBC Group NV stipulates the threshold at which individuals must disclose their shareholdings. KBC publishes these notifications on www.kbc.com. The table provides an overview of the shareholder structure at year-end 2015, based on all the
notifications received by 31 December 2015. The 'Company annual accounts and additional information' section also contains an overview of notifications received in 2015 (and the first two months of 2016).
| Shareholder structure on 31-12-2015 (based on the most recent notifications received pur suant to the Act of 2 May 2007) |
Address | Number of KBC shares/voting rights (as a % of the current number of shares/voting rights) |
Notification relating to |
|---|---|---|---|
| KBC Ancora Comm.VA | Mgr. Ladeuzeplein 15, 3000 Leuven, Belgium | 77 516 380 (18.54%) | 1 December 2014 |
| Cera CVBA | Mgr. Ladeuzeplein 15, 3000 Leuven, Belgium | 11 127 166 (2.66%) | 1 December 2014 |
| MRBB CVBA | Diestsevest 40, 3000 Leuven, Belgium | 47 889 864 (11.45%) | 1 December 2014 |
| Other core shareholders | C/o Ph. Vlerick, Ronsevaalstraat 2, 8510 Bellegem, Belgium |
32 020 498 (7.66%) | 1 December 2014 |
| KBC group companies | Havenlaan 2, 1080 Brussels, Belgium | 300 (0.00%) | 16 October 2012 |
| Blackrock Inc. | 12 Throgmorton Avenue, London EC2N 2DL, United Kingdom |
20 934 882 (5.01%) | 4 December 2015 |
| FMR LLC (Fidelity) | 245 Summer Street, Boston, Massachusetts 02210, United States |
12 312 076 (2.94%) | 4 May 2015 |
| Parvus Asset Management Europe Ltd. |
7 Clifford Street, London W1S 2FT, United Kingdom |
12 341 146 (2.95%) | 13 February 2015 |
New notifications were received at the start of 2016 (see the 'Company annual accounts and additional information' section, Note 3).
Within the framework of this law, KBC Group NV received a number of updated disclosures on 20 August 2015. The entities and individuals referred to below act in concert.
a legal entities b individuals holding 3% or more of securities carrying voting rights1
| Shareholding | Shareholding | ||||
|---|---|---|---|---|---|
| Shareholder | (quantity) | %2 Shareholder | (quantity) | %2 | |
| KBC Ancora Comm. VA | 77 516 380 | 18.54 Bareldam SA | 387 544 | 0.09 | |
| MRBB CVBA | 47 889 864 | 11.45 Robor NV | 359 606 | 0.09 | |
| Cera CVBA | 11 127 166 | 2.66 Dufinco BVBA | 357 002 | 0.09 | |
| SAK AGEV | 6 461 885 | 1.55 Sereno SA | 321 408 | 0.08 | |
| Ravago Finance NV | 3 855 915 | 0.92 Rodep Comm. VA | 304 181 | 0.07 | |
| VIM CVBA | 3 834 500 | 0.92 Efiga Invest SPRL | 230 806 | 0.06 | |
| 3D NV | 2 491 893 | 0.60 Gavel Comm. VA | 220 024 | 0.05 | |
| Almafin SA | 1 285 997 | 0.31 Ibervest | 190 000 | 0.05 | |
| De Berk BVBA | 1 138 208 | 0.27 Promark International NV | 189 008 | 0.05 | |
| Algimo NV | 1 040 901 | 0.25 Niramore International SA | 150 700 | 0.04 | |
| SAK PULA | 981 450 | 0.23 SAK Iberanfra | 120 107 | 0.03 | |
| Rainyve SA | 941 958 | 0.23 Isarick NV | 45 056 | 0.01 | |
| Alia SA | 937 705 | 0.22 Agrobos | 45 000 | 0.01 | |
| Stichting Amici Almae Matris | 912 731 | 0.22 Filax Stichting | 38 529 | 0.01 | |
| Ceco CVA | 568 849 | 0.14 I.B.P Ravaga Pensioenfonds | 34 833 | 0.01 | |
| Van Holsbeeck NV | 502 822 | 0.12 Hendrik Van Houtte CVA | 25 920 | 0.01 | |
| Nascar Finance SA | 485 620 | 0.12 Asphalia NV | 14 241 | 0.00 | |
| Cecan NV | 466 002 | 0.11 Vobis Finance NV | 685 | 0.00 | |
| Cecan Invest NV | 397 563 | 0.10 |
(the identity of the individuals concerned does not have to be disclosed)
| Shareholding | Shareholding | Shareholding | Shareholding | ||||
|---|---|---|---|---|---|---|---|
| (quantity) | %2 | (quantity) | %2 | (quantity) | %2 | (quantity) | %2 |
| 861 395 | 0.21 | 182 826 | 0.04 | 80 500 | 0.02 | 20 836 | 0.00 |
| 285 000 | 0.07 | 159 100 | 0.04 | 46 821 | 0.01 | 19 522 | 0.00 |
| 285 000 | 0.07 | 107 744 | 0.03 | 41 500 | 0.01 | 3 431 | 0.00 |
| 193 200 | 0.05 | 107 498 | 0.03 | 32 554 | 0.01 | 2 800 | 0.00 |
1 No such disclosures were received.
2 The calculation (%) of the total outstanding number of shares is based on the total number of shares on 31 December 2015.
Consolidated financial statements
| (in millions of EUR) | Note | 2014 | 2015 |
|---|---|---|---|
| Net interest income | 3 | 4 308 | 4 311 |
| Interest income | 3 | 7 893 | 7 150 |
| Interest expense | 3 | -3 586 | -2 839 |
| Non-life insurance (before reinsurance) | 9, 11 | 512 | 611 |
| Earned premiums | 9, 11 | 1 266 | 1 319 |
| Technical charges | 9, 11 | -754 | -708 |
| Life insurance (before reinsurance) | 9, 10 | -216 | -201 |
| Earned premiums | 9, 10 | 1 247 | 1 301 |
| Technical charges | 9, 10 | -1 463 | -1 502 |
| Ceded reinsurance result | 9 | 16 | -29 |
| Dividend income | 4 | 56 | 75 |
| Net result from financial instruments at fair value through profit or loss | 5 | 227 | 214 |
| Net realised result from available-for-sale assets | 6 | 150 | 190 |
| Net fee and commission income | 7 | 1 573 | 1 678 |
| Fee and commission income | 7 | 2 245 | 2 348 |
| Fee and commission expense | 7 | -672 | -670 |
| Other net income | 8 | 94 | 297 |
| TOTAL INCOME | 6 720 | 7 148 | |
| Operating expenses | 12 | -3 818 | -3 890 |
| Staff expenses | 12 | -2 248 | -2 245 |
| General administrative expenses | 12 | -1 303 | -1 392 |
| Depreciation and amortisation of fixed assets | 12 | -266 | -253 |
| Impairment | 14 | -506 | -747 |
| on loans and receivables | 14 | -587 | -323 |
| on available-for-sale assets | 14 | -29 | -45 |
| on goodwill | 14 | 0 | -344 |
| other | 14 | 109 | -34 |
| Share in results of associated companies and joint ventures | 15 | 25 | 24 |
| RESULT BEFORE TAX | 2 420 | 2 535 | |
| Taxes | 16 | -657 | 104 |
| Net post-tax result from discontinued operations | 0 | 0 | |
| RESULT AFTER TAX | 1 763 | 2 639 | |
| attributable to minority interests | 0 | 0 | |
| of which relating to discontinued operations | 0 | 0 | |
| attributable to equity holders of the parent | 1 762 | 2 639 | |
| of which relating to discontinued operations | 0 | 0 | |
| Earnings per share (in EUR) | |||
| Ordinary | 17 | 3.32 | 3.80 |
| Diluted | 17 | 3.32 | 3.80 |
• We have dealt with the main items in the income statement under 'Consolidated results in 2015' in the 'Report of the Board of
Directors' and 'Our business units' sections. The statutory auditor has not audited these sections.
| (in millions of EUR) | 2014 | 2015 |
|---|---|---|
| RESULT AFTER TAX | 1 763 | 2 639 |
| attributable to minority interests | 0 | 0 |
| attributable to equity holders of the parent | 1 762 | 2 639 |
| OTHER COMPREHENSIVE INCOME | ||
| Recycled to profit or loss | ||
| Net change in revaluation reserve for shares | 47 | 176 |
| Fair value adjustments before tax | 119 | 259 |
| Deferred tax on fair value changes | -4 | -11 |
| Transfer from reserve to net result | -68 | -72 |
| Impairment | 8 | 7 |
| Net gains/losses on disposal | -76 | -79 |
| Deferred taxes on income | 0 | 0 |
| Net change in revaluation reserve for bonds | 675 | -210 |
| Fair value adjustments before tax | 1 006 | -258 |
| Deferred tax on fair value changes | -334 | 91 |
| Transfer from reserve to net result | 2 | -44 |
| Impairment | 0 | 0 |
| Net gains/losses on disposal | -34 | -57 |
| Amortisation and impairment of revaluation reserve for available-for-sale financial assets following reclassification to 'loans and receivables' and 'held-to-maturity assets' |
38 | -3 |
| Deferred taxes on income | -2 | 16 |
| Net change in revaluation reserve for other assets | 0 | 0 |
| Fair value adjustments before tax | 0 | 0 |
| Deferred tax on fair value changes | 0 | 0 |
| Transfer from reserve to net result | 0 | 0 |
| Impairment | 0 | 0 |
| Net gains/losses on disposal | 0 | 0 |
| Deferred taxes on income | 0 | 0 |
| Net change in hedging reserve (cashflow hedges) | -871 | 222 |
| Fair value adjustments before tax | -1 287 | 302 |
| Deferred tax on fair value changes | 440 | -110 |
| Transfer from reserve to net result | -25 | 29 |
| Gross amount | -28 | 39 |
| Deferred taxes on income | 3 | -9 |
| Net change in translation differences | 79 | 272 |
| Gross amount | 9 | 169 |
| Deferred taxes on income | 70 | 103 |
| Other movements | 1 | 2 |
| Not recycled to profit or loss | ||
| Net change in defined benefit plans | -198 | 226 |
| Remeasurements (IAS 19) | -281 | 323 |
| Deferred tax on remeasurements (IAS 19) | 83 | -97 |
| TOTAL COMPREHENSIVE INCOME | 1 495 | 3 327 |
| attributable to minority interests | 0 | 0 |
| attributable to equity holders of the parent | 1 494 | 3 326 |
| ASSETS (in millions of EUR) | Note | 31-12-2014 | 31-12-2015 |
|---|---|---|---|
| Cash and cash balances with central banks | – | 5 771 | 7 038 |
| Financial assets | 18–29 | 231 421 | 237 346 |
| Held for trading | 18–29 | 12 182 | 10 385 |
| Designated at fair value through profit or loss | 18–29 | 18 163 | 16 514 |
| Available for sale | 18–29 | 32 390 | 35 670 |
| Loans and receivables | 18–29 | 135 784 | 141 305 |
| Held to maturity | 18–29 | 31 799 | 32 958 |
| Hedging derivatives | 18–29 | 1 104 | 514 |
| Reinsurers' share in technical provisions, insurance | 35 | 194 | 127 |
| Fair value adjustments of the hedged items in portfolio hedge of interest rate risk | – | 168 | 105 |
| Tax assets | 31 | 1 814 | 2 336 |
| Current tax assets | 31 | 88 | 107 |
| Deferred tax assets | 31 | 1 726 | 2 228 |
| Non-current assets held for sale and disposal groups | – | 18 | 15 |
| Investments in associated companies and joint ventures | 32 | 204 | 207 |
| Investment property | 33 | 568 | 438 |
| Tangible fixed assets | 33 | 2 278 | 2 299 |
| Goodwill and other intangible assets | 34 | 1 258 | 959 |
| Other assets | 30 | 1 480 | 1 487 |
| TOTAL ASSETS | 245 174 | 252 356 | |
| LIABILITIES AND EQUITY (in millions of EUR) | Note | 31-12-2014 | 31-12-2015 |
| Financial liabilities | 18–29 | 205 644 | 213 333 |
| Held for trading | 18–29 | 8 449 | 8 334 |
| Designated at fair value through profit or loss | 18–29 | 23 908 | 24 426 |
| Measured at amortised cost | 18–29 | 169 796 | 178 383 |
| Hedging derivatives | 18–29 | 3 491 | 2 191 |
| Technical provisions (before reinsurance) | 35 | 18 934 | 19 532 |
| Fair value adjustments of the hedged items in portfolio hedge of interest rate risk | – | 189 | 171 |
| Tax liabilities | 31 | 697 | 658 |
| Current tax liabilities | 31 | 98 | 109 |
| Deferred tax liabilities | 31 | 599 | 549 |
| Liabilities associated with disposal groups | – | 0 | 0 |
| Provisions for risks and charges | 36 | 560 | 310 |
| Other liabilities | 37 | 2 629 | 2 541 |
| TOTAL LIABILITIES | 228 652 | 236 545 | |
| Total equity | 39 | 16 521 | 15 811 |
| Parent shareholders' equity | 39 | 13 125 | 14 411 |
| Non-voting core-capital securities | 39 | 2 000 | 0 |
| Additional tier-1 instruments included in equity | 39 | 1 400 | 1 400 |
| Minority interests | 39 | -3 | 0 |
| TOTAL LIABILITIES AND EQUITY | 245 174 | 252 356 |
| Remeasu | Additional | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Issued and paid |
Revaluation | Hedging reserve |
rement of defined |
Transla | Parent share |
Non-voting | ments tier-1 instru |
||||||
| (in millions of EUR) | up share capital |
Share premium |
Treasury shares |
reserve (AFS assets) |
(cashflow hedges) |
benefit plans |
Reserves | tion dif ferences |
holders' equity |
core-capital securities |
included in equity |
Minority interests |
Total equity |
| 2014 | |||||||||||||
| Balance at the beginning of the period | 1 452 | 5 404 | 0 | 1 094 | -497 | 65 | 4 648 | -340 | 11 826 | 2 333 | 0 | 354 | 14 514 |
| Net result for the period | 0 | 0 | 0 | 0 | 0 | 0 | 1 762 | 0 | 1 762 | 0 | 0 | 0 | 1763 |
| Other comprehensive income | 0 | 0 | 0 | 722 | -871 | -198 | 1 | 79 | -268 | 0 | 0 | 0 | -268 |
| Subtotal, comprehensive income | 0 | 0 | 0 | 722 | -871 | -198 | 1 763 | 79 | 1 494 | 0 | 0 | 0 | 1 495 |
| Dividends | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Coupon on non-voting core-capital securities | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Coupon on additional tier-1 instruments included in equity | 0 | 0 | 0 | 0 | 0 | 0 | -39 | 0 | -39 | 0 | 0 | 0 | -39 |
| Capital increase | 1 | 17 | 0 | 0 | 0 | 0 | 0 | 0 | 19 | 0 | 0 | 0 | 19 |
| Redemption of non-voting core-capital securities | 0 | 0 | 0 | 0 | 0 | 0 | -167 | 0 | -167 | -333 | 0 | 0 | -500 |
| Issue of additional tier-1 instruments included in equity | 0 | 0 | 0 | 0 | 0 | 0 | -6 | 0 | -6 | 0 | 1 400 | 0 | 1 394 |
| Effect of business combinations | 0 | 0 | 0 | 0 | 0 | 0 | -2 | 0 | -2 | 0 | 0 | 0 | -2 |
| Change in minority interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Change in scope | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -358 | -358 |
| Total change | 1 | 17 | 0 | 722 | -871 | -198 | 1 548 | 79 | 1 298 | -333 | 1 400 | -358 | 2 007 |
| Balance at the end of the period | 1 453 | 5 421 | 0 | 1 815 | -1 368 | -133 | 6 197 | -261 | 13 125 | 2 000 | 1 400 | -3 | 16 521 |
| of which revaluation reserve for shares | – | – | – | 370 | – | – | – | – | – | – | – | – | – |
| of which revaluation reserve for bonds | – | – | – | 1 445 | – | – | – | – | – | – | – | – | – |
| of which relating to non-current assets held for sale and | |||||||||||||
| disposal groups | – | – | – | – | – | – | – | – | – | – | – | – | – |
| of which relating to application of the equity method | – | – | – | 23 | 0 | 0 | 0 | 0 | 23 | – | – | – | 23 |
| 2015 | |||||||||||||
| Balance at the beginning of the period | 1 453 | 5 421 | 0 | 1 815 | -1 368 | -133 | 6 197 | -261 | 13 125 | 2 000 | 1 400 | -3 | 16 521 |
| Net result for the period | 0 | 0 | 0 | 0 | 0 | 0 | 2 639 | 0 | 2 639 | 0 | 0 | 0 | 2 639 |
| Other comprehensive income | 0 | 0 | 0 | -34 | 222 | 226 | 2 | 272 | 688 | 0 | 0 | 0 | 688 |
| Subtotal, comprehensive income | 0 | 0 | 0 | -34 | 222 | 226 | 2 640 | 272 | 3 326 | 0 | 0 | 0 | 3 327 |
| Dividends | 0 | 0 | 0 | 0 | 0 | 0 | -836 | 0 | -836 | 0 | 0 | 0 | -836 |
| Coupon on non-voting core-capital securities | 0 | 0 | 0 | 0 | 0 | 0 | -171 | 0 | -171 | 0 | 0 | 0 | -171 |
| Coupon on additional tier-1 instruments included in equity | 0 | 0 | 0 | 0 | 0 | 0 | -52 | 0 | -52 | 0 | 0 | 0 | -52 |
| Capital increase | 1 | 16 | 0 | 0 | 0 | 0 | 0 | 0 | 17 | 0 | 0 | 0 | 17 |
| Redemption of non-voting core-capital securities | 0 | 0 | 0 | 0 | 0 | 0 | -1 000 | 0 | -1 000 | -2 000 | 0 | 0 | -3 000 |
| Issue of additional tier-1 instruments included in equity | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Effect of business combinations | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Change in minority interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Change in scope | 0 | 0 | 0 | 1 | 0 | 0 | 0 | 0 | 1 | 0 | 0 | 3 | 4 |
| Total change | 1 | 16 | 0 | -33 | 222 | 226 | 582 | 272 | 1 286 | -2 000 | 0 | 3 | -710 |
| Balance at the end of the period | 1 454 | 5 437 | 0 | 1 782 | -1 146 | 94 | 6 779 | 11 | 14 411 | 0 | 1 400 | 0 | 15 811 |
| of which revaluation reserve for shares | – | – | – | 547 | – | – | – | – | – | – | – | – | – |
| of which revaluation reserve for bonds | – | – | – | 1 235 | – | – | – | – | – | – | – | – | – |
| of which relating to non-current assets held for sale and disposal groups |
– | – | – | – | – | – | – | -3 | -3 | – | – | – | -3 |
| of which relating to application of the equity method | – | – | – | 22 | 0 | 0 | 0 | 7 | 28 | – | – | – | 28 |
Consolidated statement of changes in equity
to pay a dividend for financial year 2015 (nor a coupon on the state aid).
| (in millions of EUR) | Reference1 | 2014 | 2015 |
|---|---|---|---|
| Operating activities | |||
| Result before tax | See consolidated income statement |
2 420 | 2 535 |
| Adjustments for: | |||
| Result before tax from discontinued operations | See consolidated income statement |
0 | 0 |
| Depreciation, impairment and amortisation of property and equipment, intangible fixed assets, investment property and securities |
21, 33, 34 | 213 | 698 |
| Profit/Loss on the disposal of investments | – | -25 | -24 |
| Change in impairment on loans and advances | 14 | 587 | 323 |
| Change in technical provisions (before reinsurance) | 35 | 143 | 429 |
| Change in the reinsurers' share in the technical provisions | 35 | -48 | 69 |
| Change in other provisions | 36 | -37 | -224 |
| Other unrealised gains or losses | – | 967 | 147 |
| Income from associated companies and joint ventures | 15 | -25 | -24 |
| Cashflows from operating profit before tax and before changes in operating assets and liabilities | – | 4 195 | 3 927 |
| Changes in operating assets (excluding cash and cash equivalents) | – | -11 151 | -2 897 |
| Financial assets held for trading | 18 | -248 | 1 656 |
| Financial assets at fair value through profit or loss | 18 | -686 | 2 066 |
| Available-for-sale assets | 18 | -4 561 | -3 324 |
| Loans and receivables | 18 | -5 037 | -3 866 |
| Hedging derivatives | 18 | -325 | 590 |
| Operating assets associated with disposal groups, and other assets | – | -294 | -20 |
| Changes in operating liabilities (excluding cash and cash equivalents) | – | 11 913 | 10 032 |
| Deposits measured at amortised cost | 18 | 12 076 | 9 464 |
| Debts represented by securities measured at amortised cost | 18 | 3 218 | 255 |
| Financial liabilities held for trading | 18 | -4 682 | 172 |
| Financial liabilities at fair value through profit or loss | 18 | 1 112 | 1 226 |
| Hedging derivatives | 18 | 522 | -998 |
| Operating liabilities associated with disposal groups, and other liabilities | – | -333 | -88 |
| Income taxes paid | 16 | -407 | -457 |
| Net cash from or used in operating activities | 4 550 | 10 604 |
| (in millions of EUR) | Reference1 | 2014 | 2015 |
|---|---|---|---|
| Investing activities | |||
| Purchase of held-to-maturity securities | 18 | -1 929 | -3 202 |
| Proceeds from the repayment of held-to-maturity securities at maturity | 18 | 1 012 | 2 029 |
| Acquisition of a subsidiary or a business unit, net of cash acquired (including increases in percentage interest held) | – | 0 | 200 |
| Proceeds from the disposal of a subsidiary or business unit, net of cash disposed of (including decreases in | |||
| percentage interest held) | See next table | 559 | 0 |
| Purchase of shares in associated companies and joint ventures | 32 | 0 | 0 |
| Proceeds from the disposal of shares in associated companies and joint ventures | 32 | 0 | 0 |
| Dividends received from associated companies and joint ventures | 32 | -30 | 23 |
| Purchase of investment property | 33 | -19 | -5 |
| Proceeds from the sale of investment property | 33 | 53 | 15 |
| Purchase of intangible fixed assets (excluding goodwill) | 34 | -153 | -158 |
| Proceeds from the sale of intangible fixed assets (excluding goodwill) | 34 | 28 | 39 |
| Purchase of property and equipment | 33 | -441 | -558 |
| Proceeds from the sale of property and equipment | 33 | 304 | 233 |
| Net cash from or used in investing activities | -615 | -1 385 | |
| Financing activities | |||
| See consolidated | |||
| statement of changes | |||
| Purchase or sale of treasury shares | in equity | 0 | 0 |
| Issue or repayment of promissory notes and other debt securities | 18 | -4 148 | -537 |
| Proceeds from or repayment of subordinated liabilities | 18 | -2 396 | -277 |
| Principal payments under finance lease obligations | – | 0 | 0 |
| See consolidated | |||
| statement of changes | |||
| Proceeds from the issuance of share capital | in equity | 19 | 17 |
| See consolidated statement of changes |
|||
| Redemption of non-voting core-capital securities | in equity | -500 | -3 000 |
| See consolidated | |||
| statement of changes | |||
| Proceeds from the issuance of preference shares | in equity | 1 042 | 0 |
| See consolidated statement of changes |
|||
| Dividends paid | in equity | -39 | -1 058 |
| Net cash from or used in financing activities | -6 023 | -4 855 | |
| Change in cash and cash equivalents | |||
| Net increase or decrease in cash and cash equivalents | – | -2 088 | 4 364 |
| Cash and cash equivalents at the beginning of the period | – | 8 691 | 6 518 |
| Effects of exchange rate changes on opening cash and cash equivalents | – | -84 | 104 |
| Cash and cash equivalents at the end of the period | – | 6 518 | 10 987 |
| Additional information | |||
| Interest paid2 | 3 | -3 586 | -2 839 |
| Interest received2 | 3 | 7 893 | 7 150 |
| Dividends received (including equity method) | 4, 32 | 56 | 98 |
| Components of cash and cash equivalents | |||
| See consolidated | |||
| Cash and cash balances with central banks | balance sheet | 5 771 | 7 038 |
| Loans and advances to banks repayable on demand and term loans to banks at not more than three months | 18 | 4 287 | 6 541 |
| Deposits from banks repayable on demand | 18 | -3 539 | -2 593 |
| Cash and cash equivalents belonging to disposal groups | – | 0 | 0 |
| Total | – | 6 518 | 10 987 |
| of which not available | – | 0 | 0 |
1 The notes referred to do not always contain the exact same amounts as those included in the cashflow statement, as – among other things – adjustments have been made to take account of acquisitions or
disposals of subsidiaries, as set out in IAS 7.
2 'Interest paid' and 'Interest received' in this overview are the equivalent of the 'Interest expense' and 'Interest income' items in the consolidated income statement. Given the large number of underlying contracts that generate interest expense and interest income, it would take an exceptional administrative effort to establish actual cashflows. Moreover, it is reasonable to assume that actual cashflows for a bank-insurance company do not differ much from the accrued interest expense and accrued interest income, as most rate products pay interest regularly within the year.
| Year | 2014 |
|---|---|
| (in millions of EUR) | KBC Bank Deutschland |
| Purchase or sale | Sale |
| Percentage of shares bought or sold in the relevant year | 100% |
| Total share percentage at the end of the relevant year | 0% |
| For business unit/segment | Group Centre |
| Deal date (month and year) | September 2014 |
| Results of the relevant company/business recognised in the group result up to and including: | 30 September 2014 |
| Purchase price or sale price | 90 |
| Cashflow for acquiring or selling companies less cash and cash equivalents acquired or sold | 559 |
| Assets and liabilities bought or sold | |
| Cash and cash balances with central banks | 12 |
| Financial assets | 2 230 |
| Held for trading | 19 |
| Designated at fair value through profit or loss | 0 |
| Available for sale | 163 |
| Loans and receivables | 1 985 |
| Held to maturity | 64 |
| Hedging derivatives | 0 |
| of which cash and cash equivalents | 14 |
| Financial liabilities | 1 781 |
| Held for trading | 9 |
| Designated at fair value through profit or loss | 0 |
| Measured at amortised cost | 1 772 |
| Hedging derivatives | 0 |
| of which cash and cash equivalents | 483 |
| Technical provisions (before reinsurance) | 0 |
The consolidated financial statements, including all the notes, were authorised for issue on 17 March 2016 by the Board of Directors. These financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted for use in the European Union ('endorsed IFRS') and present one year of comparative information. All amounts are shown in millions of euros and rounded to the million.
The following IFRS became effective on 1 January 2015 and have been applied by KBC in this report.
• IFRIC 21 (Levies) was approved by the European Union in June 2014. It became effective on 1 January 2015 and needs to be applied retroactively. The main consequence of IFRIC 21 in 2015 was that certain levies had to be recognised in advance, which impacted the quarterly results. However, there was no impact on the annual result.
The following (amendments to) IFRS were issued but not yet mandatory at year-end 2015. KBC has decided to apply these standards with effect from 2016.
• The amendment to IAS 1 (Presentation of Financial Statement) requires the aggregate share in 'other comprehensive income' of associated companies and joint ventures to be recognised separately. It also has to be grouped according to whether or not it is recycled to profit or loss. As a consequence, the amounts presented in the other items of 'other comprehensive income' exclude the share in results of associated companies and joint ventures.
The following IFRS were issued but not yet effective at year-end 2015. KBC will apply these standards when they become mandatory.
are required to be measured);
Stage 3: Non-performing or impaired.
The following aspects are covered specifically in Phase 2:
The IFRS 9 project is being implemented according to plan. During 2015, KBC performed a high-level impact study for IFRS 9 and developed a number of pilot models to measure impairment. The study was based on information currently available and may change if other detailed analyses or additional information becomes available to KBC in the future. At present, KBC does not anticipate the changes in classification and measurement of financial assets and liabilities to have any significant impact on the balance sheet or equity. As regards the effect of implementing new impairment rules under IFRS 9, KBC currently expects provisioning for impairment losses to increase, which would have a negative impact on equity. Draft IFRS 9-compliant impairment policies were also drawn up in 2015, as were draft guidelines for developing IFRS 9-compliant models. In addition, preparations were started to implement the necessary ICT solutions. KBC will take part in the first EBA impact study in 2016 and currently expects to announce stable impact assessments in the second half of 2017.
All (material) entities (including structured entities) over which the consolidating entity exercises, directly or indirectly, exclusive control – as defined in IFRS 10 – are consolidated according to the method of full consolidation.
(Material) companies over which joint control is exercised, directly or indirectly, are consolidated according to the equity method (IFRS 11). (Material) investments in associates, i.e. companies over which KBC has significant influence, are also accounted for using the equity method. As allowed under IAS 28, investments held by venture capital organisations are classified as 'held for trading' (measured at fair value through profit or loss).
Changes in ownership interests (that do not result in a loss of control) are accounted for as equity transactions. They do not affect goodwill or profit or loss.
Monetary assets and liabilities denominated in a foreign currency are translated into the functional currency at the spot rate at balance sheet date.
Negative and positive valuation differences, except for those relating to the funding of shares and investments of consolidated companies in a foreign currency, are recognised in profit or loss.
Non-monetary items measured at historical cost are translated into the functional currency at the historical exchange rate that existed on the transaction date.
Non-monetary items carried at fair value are translated at the spot rate of the date the fair value was determined.
Translation differences are reported together with changes in fair value. Income and expense items in foreign currency are taken to profit or loss at the exchange rate prevailing when they were recognised.
The balance sheets of foreign subsidiaries are translated into the reporting currency (euros) at the spot rate at balance sheet date (with the exception of the capital and reserves, which are translated at the historical rate). The income statement is translated at the average rate for the financial year as best estimate of the exchange rate at transaction date.
Differences arising from the use of one exchange rate for assets and liabilities, and another for net assets (together with the exchange rate differences – net of deferred taxes – on loans concluded to finance participating interests in foreign currency) are recognised in equity, commensurate with KBC's share.
Financial assets and liabilities are recognised in the balance sheet when KBC becomes a party to the contractual provisions of the instruments. Regular-way purchases or sales of financial assets are recognised using settlement date accounting.
All financial assets and liabilities – including derivatives – must be recognised in the balance sheet according to the IAS 39 classification system. Each classification is subject to specific measurement rules.
The IAS 39 classifications are as follows:
referred to as 'an accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. The fair value option may also be used for financial assets with embedded derivatives.
Financial instruments are reported according to the dirty price convention, i.e. accrued interest is presented under the same heading as the financial instruments for which the interest has accrued.
KBC applies the following general rules:
• Amounts receivable. These are classified under 'Loans and receivables' and are measured on acquisition at fair value, including transaction costs. Loans with a fixed maturity are subsequently measured at amortised cost using the effective interest method, i.e. an interest rate is applied that exactly discounts all estimated future cashflows from the loans to the net carrying value. This interest rate takes account of all related fees and transaction costs. Loans with no fixed maturity date are measured at amortised cost.
Impairment losses are recognised for loans and advances for which there is evidence – either on an individual or portfolio basis – of impairment at balance sheet date. Whether or not evidence exists is determined on the basis of the probability of default (PD). The PD depends on a number of loan-specific characteristics, such as the type of loan, the borrower's line of business, the geographical location of the borrower and other elements key to a borrower's risk profile. Loans with the same PD therefore have a similar credit risk profile.
The impairment amount is calculated as the difference between the loans' carrying value and their present value.
For off-balance-sheet commitments (commitment credit) classified as uncertain or irrecoverable and doubtful, provisions are recognised if the general IAS 37 criteria are satisfied and the more-likely-than-not criterion met. These provisions are recognised at their present value. Interest on loans written down as a result of impairment is recognised using the contractual rate of interest used to measure the impairment loss.
• Securities. Depending on whether or not securities are traded on an active market and depending on what the intention is when they are acquired, securities are classified as loans and receivables, held-tomaturity assets, held-for-trading assets, financial assets at fair value through profit or loss, or available-for-sale assets.
Securities classified as loans and receivables or held-to-maturity assets are initially measured at fair value, including transaction costs. They are subsequently measured at amortised cost. The difference between the acquisition cost and the redemption value is recognised as interest and recorded in the income statement on an accruals basis over the remaining term to maturity. It is taken to the income statement on an actuarial basis, based on the effective rate of return on acquisition. Individual impairment losses for securities classified as loans and receivables or held-to-maturity are recognised – according to the same method as is used for amounts receivable as described
above – if there is evidence of impairment at balance sheet date. Held-for-trading securities are initially measured at fair value (excluding transaction costs) and subsequently at fair value, with all fair value changes being recognised in profit or loss for the financial year.
Securities classified initially as 'Financial assets at fair value through profit or loss' that are not held for trading are measured in the same way as held-for-trading assets.
Available-for-sale securities are initially measured at fair value (including transaction costs) and subsequently at fair value, with changes in fair value being recorded separately in equity until the sale or impairment of the securities. In this case, the cumulative fair value changes are transferred from equity to profit or loss for the financial year. Impairment losses are recognised if evidence of impairment exists on the balance sheet date. For listed equity and other variableyield securities, a significant (more than 30%) or prolonged (more than one year) decline in their fair value below cost is evidence of impairment. For fixed-income securities, impairment is measured on the basis of the recoverable amount of the acquisition cost. Impairment losses are taken to the income statement for the financial year. For equity and other variable-yield securities, impairment is reversed through a separate equity heading. Reversals of impairment on fixed-income securities occur through profit or loss for the financial year. However, if it cannot be demonstrated objectively that the reason for prolonged impairment no longer exists (i.e. the loss event triggering impairment has not completely disappeared), any increases in fair value will be recorded in equity. This continues until there is no longer any evidence of impairment. At that moment, impairment is completely reversed through profit or loss and any difference in fair value recorded in equity.
measured at fair value, with fair value changes being taken to the income statement.
• Hedge accounting. KBC applies hedge accounting when all the requisite conditions (according to the hedge accounting requirements that have not been carved out in the IAS 39 version as approved by the EU) are fulfilled. These conditions are that the hedge relationship must be formally designated and documented on the inception of the hedge, the hedge must be expected to be highly effective and this effectiveness must be able to be measured reliably, and the measurement of hedge effectiveness must take place on a continuous basis during the reporting period in which the hedge can be considered to be effective.
For fair value hedges, both the derivatives hedging the risks and the hedged positions are measured at fair value, with all fair value changes being taken to the income statement. Accrued interest income from rate swaps is included in net interest income. Hedge accounting is discontinued once the hedge accounting requirements are no longer met or if the hedging instrument expires or is sold. In this case, the gain or loss recorded in equity on the hedged position (for fixed-income financial instruments) will be taken to profit or loss on an accruals basis until maturity.
KBC uses fair value hedges for a portfolio of interest rate risk to hedge the interest rate risk for a portfolio of loans and savings deposits using interest rate swaps. The interest rate swaps are measured at fair value, with fair value changes reported in profit or loss. Accrued interest income from these swaps is included in net interest income. The hedged amount of loans is measured at fair value as well, with fair value changes reported in profit or loss. The fair value of the hedged amount is presented as a separate line item of the assets on the balance sheet. KBC makes use of the 'carvedout' version of IAS 39, so that no ineffectiveness results from anticipated repayments, as long as underhedging exists. In case of hedge ineffectiveness, the cumulative change in the fair value of the hedged amount will be amortised through profit or loss over the remaining lifetime of the hedged assets or immediately removed from the balance sheet if the ineffectiveness is due to the fact that the corresponding loans have been derecognised.
For cashflow hedges, derivatives hedging the risks are measured at fair value, with those fair value gains or losses determined to be an effective hedge being recognised separately in equity. Accrued interest income from rate swaps is included in net interest income. The ineffective portion of the hedge is recognised in income for the financial year. Hedge accounting will be discontinued if the hedge accounting criteria are no longer met. In this case, the derivatives will be treated as held-for-trading derivatives and measured accordingly. Foreign currency funding of a net investment in a foreign entity is accounted for as a hedge of that net investment. This form of hedge accounting is used for investments not denominated in euros. Translation differences (account taken of deferred taxes) on the funding are recorded in equity, along with translation differences on the net investment.
• Financial guarantee contracts. These are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due under the initial or revised terms of a debt instrument. A financial guarantee contract is initially recognised at fair value and subsequently measured at the greater of the following:
Goodwill is defined as any excess of the cost of the acquisition over the acquirer's interest in the fair value of the identifiable assets acquired and liabilities and contingent liabilities assumed at the date of acquisition. It is recognised as an intangible asset and is carried at cost less impairment losses. Goodwill is not amortised, but is tested for impairment at least once a year or if there is either internal or external evidence for doing so. An impairment loss is recognised if the carrying value of the cash-generating unit to which the goodwill belongs exceeds its recoverable amount. Impairment losses on goodwill cannot be reversed. For each new business combination, KBC has to choose whether to measure minority interests at fair value or as their proportionate share of the acquiree's net identifiable assets. This choice determines the amount of goodwill recognised.
Software is recognised as an intangible asset if the capitalisation criteria are met. System software is capitalised and amortised at the same rate as hardware, i.e. over three years, from the moment the software is available for use. Standard software and customised software developed by a third party is capitalised and amortised over five years according to the straight-line method from the moment the software is available for use. Internal and external development expenses for internally-generated software for investment projects are capitalised and written off according to the straight-line method over five years, while for core systems with a longer useful life, the period is eight years. Investment projects are large-scale projects that introduce or replace an important business objective or model. Internal and external research expenses for these projects and all expenses for other ICT projects concerning internally-generated software (other than investment projects) are taken to the income statement directly.
All property and equipment is recognised at cost (including directly allocable acquisition costs), less accumulated depreciation and impairment. The rates of depreciation are determined on the basis of the anticipated useful life of the assets and are applied according to the straight-line method from the moment the assets are available for use. Impairment is recognised if the carrying value of the asset exceeds its recoverable value (i.e. the higher of the asset's value in use and net selling price). Amounts written down can be reversed through the income statement. When property or equipment is sold, the realised gains or losses are taken directly to the income statement. If property or equipment is destroyed, the remaining amount to be written off is taken directly to the income statement.
The accounting policy outlined for property and equipment also applies to investment property.
External borrowing costs that are directly attributable to the acquisition of an asset are capitalised as part of the cost of that asset. All other borrowing costs are recognised as an expense in the period in which they are incurred. Capitalisation commences when expenses are incurred for the asset, when the borrowing costs are incurred and when activities that are necessary to prepare the asset for its intended use or sale are in progress. When development is interrupted, the capitalisation of borrowing costs is suspended. The capitalisation of borrowing costs ceases when all the activities necessary to prepare the asset for its intended use or sale are complete.
For primary business, the provision for unearned premiums is in principle calculated on a daily basis, based on the gross premiums. For inward treaties, i.e. reinsurance business received, the provision for unearned premiums is calculated for each contract separately on the basis of the information communicated by the ceding undertaking and, where necessary, supplemented on the basis of the company's own view of how the risk will change over time.
The provision for unearned premiums for the life insurance business is recorded under the provision for the life insurance group of activities.
Except for unit-linked life insurance products, this provision is calculated according to current actuarial principles, with account being taken of the provision for unearned premiums, the ageing reserve, provision for annuities payable but not yet due, etc.
In principle, this provision is calculated separately for every insurance contract.
For accepted business, a provision is constituted for each individual contract, based on the information supplied by the ceding undertaking and supplemented, where necessary, by the company's own past experience.
Besides the rules set out below, an additional provision is set aside as required by law.
For claims reported, the provision is in principle measured separately in each case, taking into account the known facts in the claims file, on the basis of the amounts still due to the injured parties or beneficiaries, plus external costs of settling claims. Where benefits have to be paid in the
form of an annuity, the amounts to be set aside for that purpose are calculated using recognised actuarial methods.
For 'claims incurred but not reported' at balance sheet date, an IBNR (Incurred But Not Reported) provision is set aside. In the primary business, this IBNR provision is based on a lump sum per class of insurance depending upon past experience and the trend in the insured portfolio. For extraordinary events, additional amounts are added to the IBNR provision.
For 'claims incurred but not enough reserved' at balance sheet date, an IBNER (Incurred But Not Enough Reserved) provision is set aside if the adequacy procedures demonstrate that the other claims provisions are insufficient to meet future liabilities. This provision contains amounts for claims which have already been reported but which, for technical reasons, could not yet be recorded in the claims file. Where appropriate, a provision is set aside on a prudent basis for possible liabilities arising for claims files already closed.
A provision for the internal cost of settling claims is calculated at a percentage that is based on past experience.
Additional provisions are also constituted as required by law, such as supplementary workmen's compensation provisions.
This heading includes the provision for the profit share that has been allocated but not yet awarded at the end of the financial year for both the group of life insurance activities and the group of non-life insurance activities.
A liability adequacy test is performed to evaluate current liabilities, detect possible deficiencies and recognise them in profit or loss.
The effect of reinsurance business ceded and retrocession is entered as an asset and calculated for each contract separately, supplemented where necessary by the company's own past experience regarding the evolution of the risk over time.
Deposit accounting rules apply to financial instruments that do not include a discretionary participation feature (DPF), and to the deposit component of unit-linked insurance contracts. This means that the deposit component and insurance component are measured separately. In deposit accounting, the portion of the premiums relating to the deposit component is not taken to the income statement, nor is the resulting increase in the carrying value of the liability. Management fees and commissions are recognised immediately in the income statement. When the value of unit-linked investments fluctuates subsequently, both the change on the asset side and the resulting change on the liabilities side are taken to the income statement immediately. Therefore, after initial recognition, the deposit component is measured at fair value through profit or loss. This fair value is determined by multiplying the number of units by the value of the unit, which is based upon the fair value of the underlying financial instruments. Settlements relating to the deposit component are not recorded in the income statement, but will result in a decrease in the carrying value of the liability.
Financial instruments with a discretionary participation feature and the insurance component of unit-linked contracts are treated as non-unitlinked insurance contracts (see f Technical provisions), and are not unbundled into a deposit component and an insurance component. On the balance sheet date, the liabilities resulting from these financial instruments or insurance contracts are tested to see if they are adequate, according to the liability adequacy test. If the carrying value of these liabilities is lower than their estimated future discounted cashflows, the deficiency will be recognised in the income statement against an increase in the liability.
Retirement benefit obligations are included under the 'Other liabilities' item and relate to obligations for retirement and survivor's pensions, early retirement benefits and similar pensions or annuities. Defined benefit plans are those under which KBC has a legal or constructive obligation to pay extra contributions to the pension fund if this last has insufficient assets to settle all the obligations to employees resulting from employee service in current and prior periods. The retirement benefit obligations under these plans for employees are calculated according to IAS 19, based on the projected-unit-credit method, with each period of service granting additional entitlement to pension benefits.
Changes in the defined benefit liability/asset are recognised in operating expenses (service costs), in interest expense (net interest costs) and in other comprehensive income (remeasurements).
This heading includes current and deferred tax liabilities. Current tax for the period is measured at the amount expected to be paid, using the rates of tax in effect for the balance sheet date. Deferred tax liabilities are recognised for all taxable temporary differences between the carrying value of an asset or liability and its tax base. They are measured using the tax rates in effect on realisation of the assets or settlement of the liabilities to which they relate. Deferred tax assets are recognised for all deductible temporary differences between the carrying value of assets and liabilities and their tax base, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised.
Provisions are recognised in the balance sheet:
Equity is the residual interest in the net assets after all liabilities have been deducted.
Equity instruments have been differentiated from financial instruments in accordance with the IAS 32 rules.
• The non-voting core-capital securities (also referred to as yieldenhanced securities or YES) issued to the governments are considered an equity instrument, with the coupon being accounted for directly in equity. Since payment of the coupon on the YES is conditional upon payment of a dividend on ordinary shares, coupons are recognised at the same time as dividends on ordinary shares (i.e. the coupon is not accrued in equity).
Put options on minority interests (and, where applicable, combinations of put and call options resulting in forward contracts) are recognised as financial liabilities at the present value of the exercise prices. The corresponding minority interests are deducted from equity. The difference is recognised either as an asset (goodwill) or in the income statement (negative goodwill).
| Exchange rate at 31-12-2015 | Exchange rate average in 2015 | |||
|---|---|---|---|---|
| 1 EUR = … | Change from 31-12-2014 | 1 EUR = … | Change relative to average in 2014 | |
| … currency | (positive: appreciation relative to EUR) | … currency | (positive: appreciation relative to EUR) | |
| (negative: depreciation relative to EUR) | (negative: depreciation relative to EUR) | |||
| CZK | 27.023 | 3% | 27.299 | 1% |
| GBP | 0.7340 | 6% | 0.7261 | 11% |
| HUF | 315.98 | 0% | 309.57 | 0% |
| USD | 1.0887 | 12% | 1.1098 | 20% |
* Rounded figures.
No material changes were made to the accounting policies in 2015.
Information on the group's management structure can be found in the 'Our business units' section (which has not been audited by the statutory auditor). This structure forms the basis for our financial segment reporting presentation.
The segments are (essentially):
A more detailed definition is provided in the 'Our business units' section.
Prior to year-end 2014, we provided 'adjusted figures' alongside the figures according to IFRS, to give more insight into the ongoing business performance. As a consequence, a number of non-operating items (legacy CDO activities, legacy business of divestment companies and the impact of changes in the fair value of own debt instruments due to own credit risk) were not recognised in the income statement, but were summarised instead in three lines at the bottom of the presentation, and the Belgium Business Unit's trading results were recognised under 'Net result from financial instruments at fair value'. Segment reporting was based entirely on these 'adjusted results'. A detailed definition of 'adjusted results' can be found in our 2014 Annual Report.
We scrapped the adjusted results with effect from 2015 – with retroactive application to the 2014 figures for purposes of comparison – because the non-operating items had become immaterial (divestments completed, CDO exposure fully scaled back) and because it substantially simplified our financial reporting. As of this report, therefore, the segment data is based entirely on IFRS data. Moreover, we no longer split up the Group Centre into 'Group Centre (excl. intersegment eliminations)' and 'Intersegment eliminations', in accordance with internal reporting to management (also with retroactive application for 2014).
It should be noted that:
Transactions among the different segments are reported at arm's length.
We recognise 'Net interest income' in the segment information without dividing it up into 'Interest income' and 'Interest expense'. This is permitted under IFRS because the bulk of the business units' income is in the form of interest, and management assesses and co-ordinates those business units primarily on the basis of net interest income.
We have commented on the results for each business unit in the 'Report of the Board of Directors' section. The statutory auditor has not audited these sections.
| Interna | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Czech | tional | ||||||||
| Belgium | Republic | Markets | |||||||
| Business | Business | Business | Group | ||||||
| (in millions of EUR) | Unit | Unit | Unit Of which: | Centre | KBC group | ||||
| Hungary | Slovakia | Bulgaria | Ireland | ||||||
| INCOME STATEMENT FOR 2014 | |||||||||
| Net interest income | 2 917 | 860 | 677 | 274 | 210 | 43 | 149 | -146 | 4 308 |
| Non-life insurance (before reinsurance) | 374 | 75 | 68 | 27 | 20 | 21 | 0 | -6 | 512 |
| Earned premiums | 964 | 165 | 153 | 55 | 27 | 71 | 0 | -16 | 1 266 |
| Technical charges | -590 | -89 | -86 | -29 | -7 | -50 | 0 | 10 | -754 |
| Life insurance (before reinsurance) | -252 | 24 | 12 | -1 | 10 | 4 | 0 | -1 | -216 |
| Earned premiums | 1 004 | 160 | 84 | 15 | 53 | 16 | 0 | 0 | 1 247 |
| Technical charges | -1 256 | -136 | -71 | -16 | -43 | -12 | 0 | 0 | -1 463 |
| Ceded reinsurance result | 19 | -7 | 2 | -2 | -2 | 6 | 0 | 2 | 16 |
| Dividend income | 49 | 0 | 0 | 0 | 0 | 0 | 0 | 7 | 56 |
| Net result from financial instruments at fair value through profit or loss |
44 | 62 | 73 | 62 | 15 | 2 | -7 | 49 | 227 |
| Net realised result from available-for-sale assets |
115 | 9 | 16 | 14 | 2 | 0 | 0 | 10 | 150 |
| Net fee and commission income | 1 152 | 194 | 208 | 160 | 46 | 1 | -3 | 19 | 1 573 |
| Other net income | 269 | 18 | -227 | -225 | 0 | 0 | -2 | 34 | 94 |
| TOTAL INCOME | 4 688 | 1 235 | 828 | 307 | 301 | 77 | 138 | -31 | 6 720 |
| Operating expensesa | -2 282 | -594 | -740 | -368 | -185 | -52 | -132 | -203 | -3 818 |
| Impairment | -251 | -36 | -284 | -49 | -18 | -10 | -207 | 65 | -506 |
| on loans and receivables | -205 | -34 | -273 | -47 | -17 | -10 | -198 | -75 | -587 |
| on available-for-sale assets | -27 | 0 | 0 | 0 | 0 | 0 | 0 | -1 | -29 |
| on goodwill | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| other | -19 | -3 | -11 | -1 | 0 | 0 | -9 | 142 | 109 |
| Share in results of associated companies and joint ventures |
-1 | 23 | 0 | 0 | 0 | 0 | 0 | 3 | 25 |
| RESULT BEFORE TAX | 2 154 | 628 | -196 | -109 | 98 | 15 | -202 | -166 | 2 420 |
| Taxes | -638 | -100 | 14 | 15 | -24 | 0 | 23 | 65 | -657 |
| Net post-tax result from discontinued | |||||||||
| operations | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| RESULT AFTER TAX | 1 517 | 528 | -182 | -94 | 75 | 15 | -179 | -100 | 1 763 |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| attributable to equity holders of the | |||||||||
| parent | 1 516 | 528 | -182 | -94 | 75 | 15 | -179 | -100 | 1 762 |
| a Of which non-cash expenses | -61 | -28 | -48 | -26 | -11 | -3 | -7 | -124 | -260 |
| Depreciation and amortisation of fixed assets |
-59 | -31 | -49 | -27 | -11 | -3 | -7 | -129 | -268 |
| Other | -1 | 4 | 1 | 1 | 0 | 0 | 0 | 4 | 7 |
| Acquisitions of non-current assets* | 346 | 39 | 89 | 21 | 29 | 6 | 33 | 121 | 594 |
* Non-current assets held for sale and disposal groups, investment property, property and equipment, investments in associated companies, and goodwill and other intangible assets.
| (in millions of EUR) | Belgium Business Unit |
Czech Republic Business Unit |
Interna tional Markets Business |
Unit Of which: | Group Centre |
KBC group | |||
|---|---|---|---|---|---|---|---|---|---|
| Hungary | Slovakia | Bulgaria | Ireland | ||||||
| INCOME STATEMENT FOR 2015 | |||||||||
| Net interest income | 2 819 | 845 | 711 | 248 | 214 | 47 | 202 | -63 | 4 311 |
| Non-life insurance (before reinsurance) | 460 | 80 | 81 | 27 | 20 | 35 | 0 | -10 | 611 |
| Earned premiums | 989 | 177 | 169 | 65 | 29 | 76 | 0 | -16 | 1 319 |
| Technical charges | -530 | -96 | -88 | -38 | -9 | -41 | 0 | 6 | -708 |
| Life insurance (before reinsurance) | -243 | 26 | 16 | 2 | 10 | 4 | 0 | 0 | -201 |
| Earned premiums | 969 | 243 | 90 | 15 | 52 | 23 | 0 | 0 | 1 301 |
| Technical charges | -1 212 | -216 | -73 | -13 | -41 | -20 | 0 | 0 | -1 502 |
| Ceded reinsurance result | -20 | -8 | -6 | -3 | -1 | -2 | 0 | 6 | -29 |
| Dividend income | 65 | 0 | 0 | 0 | 0 | 0 | 0 | 10 | 75 |
| Net result from financial instruments at fair value through profit or loss |
162 | 98 | 76 | 60 | 16 | 2 | -2 | -121 | 214 |
| Net realised result from available-for-sale assets |
149 | 12 | 6 | 3 | 2 | 0 | 1 | 23 | 190 |
| Net fee and commission income | 1 280 | 201 | 206 | 160 | 47 | -2 | -3 | -9 | 1 678 |
| Other net income | 207 | 23 | 50 | 42 | 9 | 0 | 0 | 17 | 297 |
| TOTAL INCOME | 4 878 | 1 277 | 1 141 | 539 | 317 | 83 | 198 | -148 | 7 148 |
| Operating expensesa | -2 373 | -617 | -752 | -353 | -190 | -56 | -149 | -149 | -3 890 |
| Impairment | -222 | -42 | -84 | -8 | -18 | -10 | -48 | -399 | -747 |
| on loans and receivables | -177 | -36 | -82 | -6 | -18 | -10 | -48 | -28 | -323 |
| on available-for-sale assets | -38 | -4 | 0 | 0 | 0 | 0 | 0 | -3 | -45 |
| on goodwill | 0 | -2 | 0 | 0 | 0 | 0 | 0 | -342 | -344 |
| other | -7 | 0 | -2 | -2 | 0 | 0 | 0 | -25 | -34 |
| Share in results of associated companies and joint ventures |
-1 | 23 | 0 | 0 | 0 | 0 | 0 | 3 | 24 |
| RESULT BEFORE TAX | 2 282 | 640 | 305 | 179 | 108 | 17 | 1 | -693 | 2 535 |
| Taxes | -717 | -98 | -60 | -47 | -26 | 2 | 12 | 980 | 104 |
| Net post-tax result from discontinued operations |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| RESULT AFTER TAX | 1 565 | 542 | 245 | 131 | 82 | 18 | 13 | 287 | 2 639 |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| attributable to equity holders of the parent |
1 564 | 542 | 245 | 131 | 82 | 18 | 13 | 287 | 2 639 |
| a Of which non-cash expenses | -55 | -18 | -56 | -24 | -13 | -3 | -16 | -102 | -231 |
| Depreciation and amortisation of fixed assets |
-57 | -24 | -61 | -25 | -12 | -3 | -21 | -111 | -253 |
| Other | 2 | 7 | 5 | 1 | -1 | 0 | 5 | 9 | 22 |
| Acquisitions of non-current assets* | 406 | 82 | 93 | 27 | 29 | 9 | 28 | 142 | 722 |
* Non-current assets held for sale and disposal groups, investment property, property and equipment, investments in associated companies, and goodwill and other intangible assets.
The table below presents some of the main on-balance-sheet products by segment.
| Belgium Business |
Czech Republic Business |
Interna tional Markets Business |
Group | ||||||
|---|---|---|---|---|---|---|---|---|---|
| (in millions of EUR) | Unit | Unit | Unit Of which: | Centre | KBC group | ||||
| Hungary | Slovakia | Bulgaria | Ireland | ||||||
| BALANCE SHEET AT 31-12-2014 | |||||||||
| Deposits from customers and debt certificates (excluding repos) |
105 885 | 22 047 | 14 860 | 5 220 | 4 856 | 600 | 4 185 | 11 187 | 153 979 |
| Loans and advances to customers (excluding reverse repos) |
84 165 | 16 216 | 20 790 | 3 771 | 4 578 | 666 | 11 776 | 1 990 | 123 161 |
| Term loans (excluding reverse repos) |
41 926 | 6 360 | 5 289 | 1 915 | 1 527 | 284 | 1 562 | 1 792 | 55 366 |
| Mortgage loans | 32 318 | 7 251 | 13 561 | 1 320 | 1 807 | 239 | 10 195 | 26 | 53 156 |
| Current account advances |
2 318 | 922 | 653 | 312 | 329 | 0 | 12 | 161 | 4 054 |
| Finance leases | 3 172 | 442 | 523 | 92 | 425 | 0 | 6 | 0 | 4 138 |
| Consumer credit | 1 088 | 1 028 | 654 | 59 | 452 | 142 | 0 | 0 | 2 770 |
| Other loans and advances |
3 343 | 213 | 111 | 72 | 38 | 0 | 0 | 12 | 3 678 |
| BALANCE SHEET AT 31-12-2015 | |||||||||
| Deposits from customers and debt certificates (excluding repos) |
111 136 | 24 075 | 17 089 | 5 862 | 5 263 | 692 | 5 272 | 9 241 | 161 542 |
| Loans and advances to customers (excluding reverse repos) |
88 017 | 18 005 | 21 035 | 3 552 | 5 462 | 725 | 11 295 | 664 | 127 721 |
| Term loans (excluding reverse repos) |
43 969 | 7 137 | 5 106 | 1 647 | 1 944 | 204 | 1 311 | 649 | 56 860 |
| Mortgage loans | 33 341 | 8 079 | 13 657 | 1 369 | 2 072 | 242 | 9 975 | 0 | 55 078 |
| Current account advances |
2 271 | 954 | 800 | 284 | 374 | 139 | 4 | 0 | 4 026 |
| Finance leases | 3 303 | 527 | 683 | 117 | 566 | 0 | 0 | 0 | 4 512 |
| Consumer credit | 1 174 | 1 067 | 687 | 67 | 474 | 140 | 5 | 0 | 2 928 |
| Other loans and advances |
3 958 | 241 | 102 | 69 | 33 | 0 | 0 | 15 | 4 316 |
| (in millions of EUR) | 2014 | 2015 |
|---|---|---|
| Total | 4 308 | 4 311 |
| Interest income | 7 893 | 7 150 |
| Available-for-sale assets | 763 | 717 |
| Loans and receivables | 4 510 | 4 085 |
| Held-to-maturity investments | 1 006 | 1 013 |
| Other liabilities not at fair value | 22 | 41 |
| Subtotal, interest income from financial assets not measured at fair value through profit or loss | 6 301 | 5 857 |
| of which impaired financial assets | 119 | 94 |
| Financial assets held for trading | 926 | 807 |
| Hedging derivatives | 459 | 360 |
| Other financial assets at fair value through profit or loss | 208 | 127 |
| Interest expense | -3 586 | -2 839 |
| Financial liabilities measured at amortised cost | -1 691 | -1 202 |
| Other liabilities not at fair value | -4 | -8 |
| Subtotal, interest expense for financial liabilities not measured at fair value through profit or loss | -1 695 | -1 210 |
| Financial liabilities held for trading | -1 093 | -926 |
| Hedging derivatives | -639 | -590 |
| Other financial liabilities at fair value through profit or loss |
-151 | -103 |
| Net interest expense relating to defined benefit plans | -7 | -10 |
| (in millions of EUR) 2014 |
2015 |
|---|---|
| Total 56 |
75 |
| Shares held for trading 7 |
9 |
| Shares initially recognised at fair value through profit or loss 2 |
2 |
| Available-for-sale shares 46 |
65 |
| (in millions of EUR) | 2014 | 2015 |
|---|---|---|
| Total | 227 | 214 |
| Trading instruments (including interest and fair value changes in trading derivatives) | 144 | 211 |
| Other financial instruments initially recognised at fair value through profit or loss | -37 | 71 |
| of which gains/losses on own credit risk | -2 | 17 |
| Foreign exchange trading | 110 | -31 |
| Fair value adjustments in hedge accounting | 10 | -37 |
| Micro hedge | 10 | 2 |
| Fair value hedges | 4 | -1 |
| Changes in the fair value of the hedged items | -465 | -30 |
| Changes in the fair value of the hedging derivatives, including discontinuation | 469 | 29 |
| Cashflow hedges | 6 | 3 |
| Changes in the fair value of the hedging derivatives, ineffective portion | 6 | 3 |
| Hedges of net investments in foreign operations, ineffective portion | 0 | 0 |
| Portfolio hedge of interest rate risk | 0 | -1 |
| Fair value hedges of interest rate risk | 0 | 1 |
| Changes in the fair value of the hedged items | 18 | -54 |
| Changes in the fair value of the hedging derivatives, including discontinuation | -19 | 55 |
| Cashflow hedges of interest rate risk | 0 | -1 |
| Changes in the fair value of the hedging derivatives, ineffective portion | 0 | -1 |
| Discontinuation of hedge accounting in the event of cashflow hedges | 0 | -38 |
For cashflow micro hedges, we compare the designated hedging instrument with a perfect hedge of the hedged cashflows on a prospective (by BPV measurement) and retrospective basis (by comparing the fair value of the designated hedging instrument with the perfect hedge). The effectiveness of both tests must fall within a range of 80%–125%, which is currently the case.
We use the rules set out in the European version of IAS 39 (carve-out) to assess the effectiveness of fair value hedges for a portfolio of interest rate risk. IFRS does not permit net positions to be reported as hedged items, but does allow hedging instruments to be designated as a hedge of a gross asset position (or a gross liabilities position, as the case may be). Specifically, we make sure that the volume of assets (or liabilities) in each maturity bucket is greater than the volume of hedging instruments allocated to the same bucket.
| (in millions of EUR) | 2014 | 2015 |
|---|---|---|
| Total | 150 | 190 |
| Fixed-income securities | 64 | 54 |
| Shares | 86 | 136 |
| (in millions of EUR) | ||
|---|---|---|
| (in millions of EUR) | 2014 | 2015 |
|---|---|---|
| Total | 1 573 | 1 678 |
| Fee and commission income | 2 245 | 2 348 |
| Securities and asset management | 1 179 | 1 289 |
| Margin on life insurance investment contracts without DPF (deposit accounting) | 89 | 81 |
| Commitment credit | 245 | 266 |
| Payments | 522 | 535 |
| Other | 209 | 178 |
| Fee and commission expense | -672 | -670 |
| Commission paid to intermediaries | -295 | -309 |
| Other | -377 | -362 |
• The lion's share of the fees and commissions related to lending is recognised under 'Net interest income' (effective interest rate calculations).
| (in millions of EUR) 2014 |
2015 |
|---|---|
| Total 94 |
297 |
| of which gains or losses on | |
| Sale of loans and receivables 3 |
3 |
| Sale of held-to-maturity investments 1 |
6 |
| Repurchase of financial liabilities measured at amortised cost 0 |
-9 |
| Other, including: 90 |
297 |
| Income from (mainly operational) leasing activities, KBC Lease Group 87 |
81 |
| Income from VAB Group 69 |
59 |
| Gains and losses on divestments 21 |
11 |
| Moratorium interest 15 |
0 |
| Provisions for the new Hungarian act on consumer loans -231 |
34 |
| Settlement of an old credit file (Bell Group) 31 |
0 |
| Deconsolidation of real estate companies 0 |
18 |
• Provisions for the new Hungarian act on consumer loans' concerns new legislation approved by the Hungarian parliament on 4 July 2014 that applies to the entire banking sector in Hungary (the act on the resolution of certain issues related to the Supreme Court's (Curia) uniformity decision on consumer loan agreements concluded by financial institutions). The scope of the act covers consumer loans denominated in foreign currency and in Hungarian forint. As regards consumer loans denominated in foreign currency, the act prohibits the use of exchange rate margins and the bid-ask spreads that
applied to such loans have to be corrected with retroactive effect. As far as all consumer loans are concerned, the act repeals all unilateral changes that banks made to interest rates and fees. As a result of this act, KBC set aside additional, one-off net provisions of 231 million euros (before tax) in the second quarter of 2014 for correcting the bid-ask spreads and the unilateral changes to interest rates. 34 million euros of this amount was reversed in 2015, due to a re-assessment of these provisions.
| Non-technical | ||||
|---|---|---|---|---|
| (in millions of EUR) | Life | Non-life | account | Total |
| 2014 | ||||
| Earned premiums, insurance (before reinsurance) | 1 249 | 1 286 | – | 2 535 |
| Technical charges, insurance (before reinsurance) | -1 463 | -755 | – | -2 218 |
| Net fee and commission income | -13 | -234 | – | -247 |
| Ceded reinsurance result | -2 | 18 | – | 16 |
| General administrative expenses | -121 | -240 | – | -362 |
| Internal claims settlement expenses | -7 | -58 | – | -66 |
| Indirect acquisition costs | -30 | -79 | – | -109 |
| Administrative expenses | -84 | -103 | – | -187 |
| Investment management fees | 0 | 0 | – | -1 |
| Technical result | -350 | 74 | – | -276 |
| Net interest income | – | – | 675 | 675 |
| Net dividend income | – | – | 40 | 40 |
| Net result from financial instruments at fair value through profit or loss | – | – | 42 | 42 |
| Net realised result from available-for-sale assets | – | – | 96 | 96 |
| Other net income | – | – | 2 | 2 |
| Impairment | – | – | -34 | -34 |
| Allocation to the technical accounts | 620 | 101 | -721 | 0 |
| Technical-financial result | 270 | 176 | 99 | 544 |
| Share in results of associated companies and joint ventures | – | – | 3 | 3 |
| RESULT BEFORE TAX | 270 | 176 | 102 | 547 |
| Income tax expense | – | – | – | -156 |
| RESULT AFTER TAX | – | – | – | 392 |
| attributable to minority interests | – | – | – | 0 |
| attributable to equity holders of the parent | – | – | – | 391 |
| 2015 | ||||
| Earned premiums, insurance (before reinsurance) | 1 303 | 1 338 | – | 2 642 |
| Technical charges, insurance (before reinsurance) | -1 502 | -708 | – | -2 210 |
| Net fee and commission income | -15 | -247 | – | -262 |
| Ceded reinsurance result | -2 | -27 | – | -29 |
| General administrative expenses | -119 | -231 | -3 | -353 |
| Internal claims settlement expenses | -7 | -53 | – | -60 |
| Indirect acquisition costs | -29 | -77 | – | -107 |
| Administrative expenses | -82 | -101 | – | -183 |
| Investment management fees | 0 | 0 | -3 | -3 |
| Technical result | -334 | 125 | -3 | -212 |
| Net interest income | – | – | 636 | 636 |
| Net dividend income | – | – | 53 | 53 |
| Net result from financial instruments at fair value through profit or loss | – | – | -9 | -9 |
| Net realised result from available-for-sale assets | – | – | 108 | 108 |
| Other net income | – | – | -6 | -6 |
| Impairment | – | – | -69 | -69 |
| Allocation to the technical accounts | 574 | 104 | -678 | 0 |
| Technical-financial result | 240 | 228 | 31 | 499 |
| Share in results of associated companies and joint ventures | – | – | 3 | 3 |
| RESULT BEFORE TAX | 240 | 228 | 34 | 502 |
| Income tax expense | – | – | – | -148 |
| RESULT AFTER TAX | – | – | – | 355 |
| attributable to minority interests | – | – | – | 0 |
| attributable to equity holders of the parent | – | – | – | 354 |
• The figures relating to earned premiums do not include investment contracts without DPF, which largely correspond to unit-linked contracts.
• As a bank-insurer, KBC presents its financial information on an integrated basis (i.e. banking and insurance activities combined). More information on the banking and insurance businesses is provided separately in the respective annual reports of KBC Bank and KBC Insurance. For the purpose of Note 9, information is provided on the insurance results alone. The figures include intragroup transactions between bank and insurance entities (the results for insurance contracts concluded between the group's bank and
insurance entities, interest that insurance companies receive on their deposits with bank entities, commissions that insurance entities pay to bank branches for sales of insurance, etc.) in order to give a more accurate view of the profitability of the insurance business. Additional information on the insurance business is provided separately in Notes 10, 11, 35 and 44 (KBC Insurance section), in the 'Risk management' section ('Credit risk exposure in the insurance activities', 'Interest rate risk', 'Equity risk' and 'Real estate risk', 'Technical insurance risk'), and in the 'Capital adequacy' section ('Solvency of KBC Bank and KBC Insurance separately').
| (in millions of EUR) | 2014 | 2015 |
|---|---|---|
| Total | 1 249 | 1 303 |
| Breakdown by IFRS category | ||
| Insurance contracts | 765 | 897 |
| Investment contracts with DPF | 485 | 406 |
| Breakdown by type | ||
| Accepted reinsurance | 0 | 0 |
| Primary business | 1 249 | 1 303 |
| Breakdown of primary business | ||
| Individual premiums | 984 | 1 024 |
| Single premiums | 364 | 393 |
| Periodic premiums | 619 | 631 |
| Premiums under group contracts | 265 | 279 |
| Single premiums | 50 | 49 |
| Periodic premiums | 215 | 230 |
| Total sales of life insurance (including investment contracts without DPF) | ||
| Unit-linked | 785 | 722 |
| Guaranteed-rate | 1 107 | 1 071 |
• As required under IFRS, we use deposit accounting for investment contracts without DPF. This means that the premium income (and technical charges) from these contracts is not recognised under 'Earned premiums, insurance (before reinsurance)' (and 'Technical charges, insurance (before reinsurance)'), but that the margins on them are reported under 'Net fee and commission income'.
Investment contracts without DPF are more or less the same as unit-linked contracts, which in 2014 accounted for premium income of 0.8 billion euros and in 2015 for premium income of 0.7 billion euros.
• The figures include intragroup transactions concluded between the insurance and banking businesses.
| Earned premiums |
Claims incurred |
Operating expenses |
|||
|---|---|---|---|---|---|
| (before rein | (before rein | (before rein | Ceded | ||
| (in millions of EUR) | surance) | surance) | surance) | reinsurance | Total |
| 2014 | |||||
| Total | 1 286 | -755 | -474 | 18 | 74 |
| Accepted reinsurance | 21 | 22 | -6 | -38 | -2 |
| Primary business | 1 265 | -777 | -468 | 56 | 76 |
| Accident & health (classes 1 & 2, excl. industrial accidents) | 115 | -64 | -38 | 0 | 13 |
| Industrial accidents (class 1) | 72 | -63 | -19 | -1 | -12 |
| Motor, third-party liability (class 10) | 342 | -211 | -122 | -2 | 7 |
| Motor, other classes (classes 3 & 7) | 182 | -130 | -67 | 25 | 10 |
| Shipping, aviation, transport (classes 4, 5, 6, 7, 11 & 12) | 4 | -1 | -1 | 0 | 0 |
| Fire and other damage to property (classes 8 & 9) | 391 | -239 | -155 | 37 | 34 |
| General third-party liability (class 13) | 86 | -43 | -37 | -1 | 5 |
| Credit and suretyship (classes 14 & 15) | 1 | 0 | -1 | 0 | 0 |
| Miscellaneous pecuniary losses (class 16) | 9 | -1 | -3 | -2 | 4 |
| Legal assistance (class 17) | 45 | -19 | -19 | 0 | 8 |
| Assistance (class 18) | 17 | -4 | -6 | 0 | 6 |
| 2015 | |||||
| Total | 1 338 | -708 | -479 | -27 | 125 |
| Accepted reinsurance | 32 | -2 | -8 | 0 | 22 |
| Primary business | 1 306 | -707 | -470 | -27 | 102 |
| Accident & health (classes 1 & 2, excl. industrial accidents) | 110 | -50 | -36 | 0 | 24 |
| Industrial accidents (class 1) | 72 | -42 | -18 | -1 | 10 |
| Motor, third-party liability (class 10) | 359 | -240 | -122 | -1 | -5 |
| Motor, other classes (classes 3 & 7) | 193 | -110 | -70 | 1 | 15 |
| Shipping, aviation, transport (classes 4, 5, 6, 7, 11 & 12) | 3 | -1 | -1 | -1 | 0 |
| Fire and other damage to property (classes 8 & 9) | 403 | -152 | -153 | -21 | 77 |
| General third-party liability (class 13) | 87 | -67 | -38 | -3 | -20 |
| Credit and suretyship (classes 14 & 15) | 1 | -1 | 0 | 0 | -1 |
| Miscellaneous pecuniary losses (class 16) | 10 | -5 | -4 | 0 | 1 |
| Legal assistance (class 17) | 48 | -32 | -19 | 0 | -3 |
| Assistance (class 18) | 20 | -7 | -9 | 0 | 4 |
• The figures include intragroup transactions concluded between the insurance and banking businesses.
| (in millions of EUR) | 2014 | 2015 |
|---|---|---|
| Total | -3 818 | -3 890 |
| Staff expenses | -2 248 | -2 245 |
| General administrative expenses | -1 303 | -1 392 |
| of which bank taxes | -339 | -417 |
| Depreciation and amortisation of fixed assets | -266 | -253 |
• General administrative expenses include repair and maintenance expenses, advertising costs, rent, professional fees, various (nonincome) taxes, utilities and other such expenses. They also include expenses related to the special tax imposed on financial institutions in various countries (totalling 339 million euros in 2014 and 417 million euros in 2015). The latter figure comprises 222 million euros in the Belgium Business Unit, 35 million euros in the Czech Republic Business Unit, 18 million euros in Slovakia, 4 million euros in Bulgaria, 131 million euros in Hungary, 2 million euros in Ireland and 6 million euros in the Group Centre.
certain members of staff of the company and various subsidiaries. The stock options were granted free to the members of staff, who only had to pay the relevant tax on the benefit when the options were allocated. The stock options have a life of seven to ten years from the date of issue (partially extended to 12 years) and can be exercised in specific years in the months of June, September or December. Not all the options need to be exercised at once. When exercising options, members of staff can either deposit the resulting shares on their custody accounts or sell them immediately on NYSE Euronext Brussels. We have provided an overview of the number of stock options for staff in the table.
| 2014 | 2015 | |||
|---|---|---|---|---|
| Options | Number of options1 |
Average exercise price |
Number of options1 |
Average exercise price |
| Outstanding at beginning of period | 183 526 | 72.69 | 174 660 | 71.95 |
| Granted during period | 0 | – | 0 | – |
| Exercised during period | -1 566 | 37.50 | -14 200 | 46.45 |
| Expired during period | -7 300 | 97.94 | -8 380 | 69.95 |
| Outstanding at end of period2 | 174 660 | 71.95 | 152 080 | 74.44 |
| Exercisable at end of period | 174 660 | 71.95 | 152 080 | 74.44 |
1 In share equivalents.
2 2014: range of exercise prices: 37.50–89.21 euros; weighted average residual term to maturity: 33 months.
2015: range of exercise prices: 46.45–89.21euros; weighted average residual term to maturity: 24 months.
• Information on the capital increase reserved for KBC group employees can be found in the 'Company annual accounts and additional information' section. In 2015, this resulted in the recognition of a limited employee benefit (3 million euros) as the issue price was lower than the market price. Information regarding the (highest, lowest, average) price of the KBC share can be found in the 'Report of the Board of Directors' section.
• The main cash-settled share-based payment arrangements for 2014 included 4 million euros in costs related to a phantom stock plan (included under 'Staff expenses'). This item came to 5 million euros for 2015.
| (number) | 2014 | 2015 |
|---|---|---|
| Total average number of persons employed (in full-time equivalents) | 36 258 | 36 199 |
| Breakdown by legal entity | ||
| KBC Bank NV | 26 941 | 27 033 |
| KBC Insurance NV | 4 147 | 4 074 |
| KBC Group NV (holding company) | 5 170 | 5 092 |
| Breakdown by employee classification | ||
| Blue-collar staff | 361 | 366 |
| White-collar staff | 35 612 | 35 560 |
| Senior management | 285 | 273 |
• The figures in the table are annual averages, which – in terms of scope – may differ from year-end figures provided elsewhere in this annual report.
| (in millions of EUR) | 2014 | 2015 |
|---|---|---|
| Total | -506 | -747 |
| Impairment on loans and receivables | -587 | -323 |
| Breakdown by type | ||
| Specific impairment, on-balance-sheet lending | -676 | -322 |
| Provisions for off-balance-sheet credit commitments | 19 | 9 |
| Portfolio-based impairment | 70 | -10 |
| Breakdown by business unit | ||
| Belgium | -205 | -177 |
| Czech Republic | -34 | -36 |
| International Markets | -273 | -82 |
| Group Centre | -75 | -28 |
| Impairment on available-for-sale assets | -29 | -45 |
| Breakdown by type | ||
| Shares | -29 | -43 |
| Other | 0 | -3 |
| Impairment on goodwill | 0 | -344 |
| Impairment on other | 109 | -34 |
| Intangible fixed assets (other than goodwill) | -23 | -7 |
| Property and equipment (including investment property) | -8 | -27 |
| Held-to-maturity assets | 1 | 0 |
| Associated companies and joint ventures | 0 | 0 |
| Other | 139 | 0 |
bonds (3 million euros). In 2014, this item comprised only impairment on shares.
| (in millions of EUR) | ||
|---|---|---|
| (in millions of EUR) | 2014 | 2015 |
|---|---|---|
| Total | 25 | 24 |
| of which CˇMSS | 23 | 23 |
• The share in results of associated companies and joint ventures is accounted for primarily by CˇMSS, a joint venture of Cˇ SOB in the Czech Republic. More details are provided in Note 32.
• Impairment on (goodwill on) associated companies and joint ventures is included in 'Impairment' (see Note 14). The share in results of associated companies and joint ventures does not therefore take this impairment into account.
| (in millions of EUR) | 2014 | 2015 |
|---|---|---|
| Total | -657 | 104 |
| Breakdown by type | ||
| Current taxes on income | -407 | -457 |
| Deferred taxes on income | -250 | 562 |
| Tax components | ||
| Result before tax | 2 420 | 2 535 |
| Income tax at the Belgian statutory rate | 33.99% | 33.99% |
| Income tax calculated | -823 | -861 |
| Plus/minus tax effects attributable to | ||
| differences in tax rates, Belgium – abroad | 126 | 220 |
| tax-free income | 140 | 143 |
| adjustments related to prior years | 17 | -10 |
| adjustments, opening balance of deferred taxes due to change in tax rate | 0 | 0 |
| unused tax losses and unused tax credits to reduce current tax expense | 3 | 10 |
| unused tax losses and unused tax credits to reduce deferred tax expense | 1 | 1 |
| reversal of previously recognised deferred tax assets due to tax losses | -14 | 0 |
| liquidation of KBC Financial Holding Inc. | 0 | 910 |
| other (mainly non-deductible expenses) | -108 | -310 |
| Aggregate amount of temporary differences associated with investments in subsidiaries, branches and associated companies and interests in joint ventures, for which deferred tax liabilities have not been recognised* |
207 | 314 |
* Reserves of joint or other subsidiaries, associated companies and branches that, at certain entities, will be taxed in full on distribution (recorded in full). For a significant number of entities, the foreign tax credit applies (5% is recorded, since 95% is definitively taxed).
• For information on tax assets and tax liabilities, see Note 31.
• 'Liquidation of KBC Financial Holding Inc.' reflects the consequences of the liquidation of KBC Financial Holding Inc. (KBCFH). When it agreed its strategic refocus with the European Commission in 2009, KBC undertook to run down or divest the activities of its subsidiary KBCFH (in the US) in order to reduce its own risk profile. That process has since been completed, with KBC collapsing the last two CDOs it held in portfolio in September 2014 (see press release of 1 October 2014). As a final step, KBC also liquidated KBCFH. According to Belgian tax law, the loss in paid-up capital that KBC Bank sustained as a result of the liquidation of KBCFH is tax deductible for the parent company on the date of liquidation, rather than at the time the losses were incurred (specifically 2008 and 2009). On balance, the full impact on the results came to 765 million euros (910 million euros in the form of a deferred tax asset relating to tax losses carried forward, partially offset by the transfer from equity to profit or loss of -156 million euros (-145 million euros after tax) in exchange differences relating to the capital of KBCFH). The recognition of this deferred tax asset had only a limited positive impact in 2015 of approximately 0.2 percentage points on KBC's solvency (fully loaded CET1 ratio calculated according to the Danish Compromise method).
| (in millions of EUR) EUR) | 2014 | 2015 |
|---|---|---|
| Basic earnings per share | ||
| Result after tax, attributable to equity holders of the parent | 1 762 | 2 639 |
| Coupon/penalty on core-capital securities sold to the Belgian Federal and Flemish Regional governments | -337 | -1 000 |
| Coupon on AT1 instruments1 | -41 | -52 |
| Net result used to determine basic earnings per share | 1 384 | 1 587 |
| Weighted average number of ordinary shares outstanding (millions of units) | 417 | 418 |
| Basic earnings per share (in EUR) | 3.32 | 3.80 |
| Diluted earnings per share | ||
| Result after tax, attributable to equity holders of the parent | 1 762 | 2 639 |
| Coupon/penalty on core-capital securities sold to the Belgian Federal and Flemish Regional governments | -337 | -1 000 |
| Coupon on AT1 instruments1 | -41 | -52 |
| Net result used to determine diluted earnings per share | 1 384 | 1 587 |
| Weighted average number of ordinary shares outstanding (millions of units) | 417 | 418 |
| Dilutive potential ordinary shares (millions of units)2 | 0 | 0 |
| Weighted average number of ordinary shares for diluted earnings (millions of units) | 417 | 418 |
| Diluted earnings per share (in EUR) | 3.32 | 3.80 |
1 The 41 million euros in 2014 includes the 39 million euros (as indicated in the 'Consolidated statement of changes in equity' table) and 2 million euros recognised on an accruals basis for the last two weeks of the financial year.
2 Account is only taken of employee stock options which are still outstanding and could have a dilutive impact (where the market price is lower than the exercise price and treasury shares have been purchased for this purpose (486 at year-end 2014 and 0 at year-end 2015)).
| Held for | Desig nated at fair |
Available | Loans and receiv |
Held to | Hedging deriva |
Measured at amor |
||
|---|---|---|---|---|---|---|---|---|
| (in millions of EUR) | trading | value1 | for sale | ables | maturity | tives | tised cost | Total |
| FINANCIAL ASSETS, 31-12-2014 | ||||||||
| Loans and advances to credit institutions and investment firmsa | 141 | 1 636 | 0 | 10 812 | – | – | – | 12 590c |
| Loans and advances to customersb | 27 | 1 335 | 0 | 123 189 | – | – | – | 124 551 |
| Trade receivables | 0 | 0 | 0 | 3 291 | – | – | – | 3 291 |
| Consumer credit | 0 | 0 | 0 | 2 770 | – | – | – | 2 770 |
| Mortgage loans | 0 | 33 | 0 | 53 123 | – | – | – | 53 156 |
| Term loans | 7 | 1 303 | 0 | 55 446 | – | – | – | 56 755 |
| Finance leases | 0 | 0 | 0 | 4 138 | – | – | – | 4 138 |
| Current account advances | 0 | 0 | 0 | 4 054 | – | – | – | 4 054 |
| Other3 | 20 | 0 | 0 | 367 | – | – | – | 387 |
| Equity instruments | 303 | 3 | 1 826 | – | – | – | – | 2 132 |
| Investment contracts (insurance) | – | 13 425 | – | – | – | – | – | 13 425 |
| Debt instruments issued by | 2 894 | 1 763 | 30 564 | 1 207 | 31 799 | – | – | 68 227 |
| Public bodies | 2 391 | 1 063 | 19 469 | 31 | 30 342 | – | – | 53 296 |
| Credit institutions and investment firms | 297 | 293 | 4 427 | 159 | 859 | – | – | 6 035 |
| Corporates | 206 | 407 | 6 667 | 1 018 | 598 | – | – | 8 896 |
| Derivatives | 8 814 | – | – | – | – | 1 104 | – | 9 918 |
| Other3 | 3 | – | – | 576 | 0 | 0 | – | 579 |
| Total | 12 182 | 18 163 | 32 390 | 135 784 | 31 799 | 1 104 | – | 231 421 |
| a of which reverse repos2 | 3 319 | |||||||
| b of which reverse repos2 | 1 389 | |||||||
| c of which loans and advances to banks repayable on demand and term loans to banks at not more than three months | 4 287 | |||||||
| FINANCIAL ASSETS, 31-12-2015 | ||||||||
| Loans and advances to credit institutions and investment firmsa | 0 | 2 107 | 0 | 11 524 | – | – | – | 13 631c |
| Loans and advances to customersb | 0 | 394 | 0 | 127 829 | – | – | – | 128 223 |
| Trade receivables | 0 | 0 | 0 | 3 729 | – | – | – | 3 729 |
| Consumer credit | 0 | 0 | 0 | 2 928 | – | – | – | 2 928 |
| Mortgage loans | 0 | 28 | 0 | 55 050 | – | – | – | 55 078 |
| Term loans | 0 | 366 | 0 | 56 997 | – | – | – | 57 363 |
| Finance leases | 0 | 0 | 0 | 4 512 | – | – | – | 4 512 |
| Current account advances | 0 | 0 | 0 | 4 026 | – | – | – | 4 026 |
| Other3 | 0 | 0 | 0 | 587 | – | – | – | 587 |
| Equity instruments | 411 | 2 | 2 071 | – | – | – | – | 2 485 |
| Investment contracts (insurance) | – | 13 330 | – | – | – | – | – | 13 330 |
| Debt instruments issued by | 1 785 | 681 | 33 598 | 1 117 | 32 958 | – | – | 70 138 |
| Public bodies | 1 408 | 120 | 21 892 | 22 | 31 353 | – | – | 54 796 |
| Credit institutions and investment firms | 192 | 104 | 4 893 | 158 | 984 | – | – | 6 330 |
| Corporates | 184 | 456 | 6 813 | 937 | 622 | – | – | 9 013 |
| Derivatives | 8 188 | – | – | – | – | 514 | – | 8 702 |
| Other3 | 1 | – | – | 835 | 0 | 0 | – | 836 |
| Total | 10 385 | 16 514 | 35 670 | 141 305 | 32 958 | 514 | – | 237 346 |
| a of which reverse repos2 | 5 012 | |||||||
| b of which reverse repos2 | 502 | |||||||
| c of which loans and advances to banks repayable on demand and term loans to banks at not more than three months | 6 541 |
1 Loans and advances in the 'Designated at fair value' column relate primarily to reverse repo transactions and a small portfolio of home loans. In each case, the carrying value comes close to the maximum credit exposure.
2 A 'reverse repo' transaction is a transaction where one party (KBC) buys securities from another party and undertakes to resell these securities at a designated future date at a set price. In most cases, reverse repo transactions are governed by bilateral framework agreements (generally Global Master Repo Agreements) which include a description of the periodic exchanges of collateral. The reverse repo transactions shown in the table are related mainly to the temporary lending of bonds. In this type of lending, the risk and the income from the bonds are for the counterparty. The amount of the reverse repos is virtually identical to the amount of the underlying assets (that have been lent out).
3 Financial assets not included under 'Loans and advances to customers' as they are not directly related to commercial lending.
| Loans | ||||||||
|---|---|---|---|---|---|---|---|---|
| Desig | and | Hedging | Measured | |||||
| (in millions of EUR) | Held for trading |
nated at fair value |
Available for sale |
receiv ables |
Held to maturity |
deriva tives |
at amor tised cost |
Total |
| FINANCIAL LIABILITIES, 31-12-2014 | ||||||||
| Deposits from credit institutions and investment firmsa | 60 | 1 004 | – | – | – | – | 16 628 | 17 692c |
| Deposits from customers and debt securitiesb | 367 | 10 352 | – | – | – | – | 151 064 | 161 783 |
| Demand deposits | 0 | 35 | – | – | – | – | 47 011 | 47 046 |
| Time deposits | 69 | 8 028 | – | – | – | – | 31 425 | 39 523 |
| Savings accounts | 0 | 0 | – | – | – | – | 47 455 | 47 455 |
| Special deposits | 0 | 0 | – | – | – | – | 1 715 | 1 715 |
| Other deposits | 0 | 14 | – | – | – | – | 485 | 499 |
| Certificates of deposit | 9 | 3 | – | – | – | – | 5 922 | 5 935 |
| Savings certificates | 0 | 0 | – | – | – | – | 762 | 762 |
| Convertible bonds | 0 | 0 | – | – | – | – | 0 | 0 |
| Non-convertible bonds | 289 | 1 732 | – | – | – | – | 12 741 | 14 761 |
| Convertible subordinated liabilities | 0 | 0 | – | – | – | – | 0 | 0 |
| Non-convertible subordinated liabilities | 0 | 540 | – | – | – | – | 3 549 | 4 088 |
| Liabilities under investment contracts | – | 12 553 | – | – | – | – | 0 | 12 553 |
| Derivatives | 7 697 | – | – | – | – | 3 491 | – | 11 188 |
| Short positions | 325 | – | – | – | – | – | – | 325 |
| In equity instruments | 71 | – | – | – | – | – | – | 71 |
| In debt instruments | 254 | – | – | – | – | – | – | 254 |
| Other2 | – | – | – | – | – | – | 2 103 | 2 104 |
| Total | 8 449 | 23 908 | – | – | – | 3 491 | 169 796 | 205 644 |
| a of which repos1 | 1 315 | |||||||
| b of which repos1 | 7 804 | |||||||
| c of which deposits from banks repayable on demand | 3 539 | |||||||
| FINANCIAL LIABILITIES, 31-12-2015 | ||||||||
| Deposits from credit institutions and investment firmsa | 1 | 1 123 | – | – | – | – | 17 828 | 18 953c |
| Deposits from customers and debt securitiesb | 431 | 10 916 | – | – | – | – | 158 762 | 170 109 |
| Demand deposits | 0 | 0 | – | – | – | – | 55 148 | 55 148 |
| Time deposits | 57 | 9 360 | – | – | – | – | 27 724 | 37 141 |
| Savings accounts | 0 | 0 | – | – | – | – | 50 075 | 50 075 |
| Special deposits | 0 | 0 | – | – | – | – | 1 983 | 1 983 |
| Other deposits | 0 | 0 | – | – | – | – | 484 | 484 |
| Certificates of deposit | 0 | 10 | – | – | – | – | 6 159 | 6 168 |
| Savings certificates | 0 | 0 | – | – | – | – | 1 092 | 1 092 |
| Convertible bonds | 0 | 0 | – | – | – | – | 0 | 0 |
| Non-convertible bonds | 374 | 1 253 | – | – | – | – | 12 576 | 14 203 |
| Convertible subordinated liabilities | 0 | 0 | – | – | – | – | 0 | 0 |
| Non-convertible subordinated liabilities | 0 | 293 | – | – | – | – | 3 522 | 3 815 |
| Liabilities under investment contracts | – | 12 387 | – | – | – | – | 0 | 12 387 |
| Derivatives | 7 487 | 0 | – | – | – | 2 191 | – | 9 677 |
| Short positions | 415 | 0 | – | – | – | – | – | 415 |
| In equity instruments | 58 | 0 | – | – | – | – | – | 58 |
| In debt instruments | 357 | 0 | – | – | – | – | – | 357 |
| Other2 | 0 | 0 | – | – | – | – | 1 792 | 1 792 |
| Total | 8 334 | 24 426 | – | – | – | 2 191 | 178 383 | 213 333 |
| a of which repos1 | 1 128 | |||||||
| b of which repos1 | 8 567 | |||||||
| c of which deposits from banks repayable on demand | 2 593 |
1 A 'repo' transaction is a transaction where one party buys securities from another party (KBC) and undertakes to resell these securities at a designated future date at a set price. In most cases, repo transactions are governed by bilateral framework agreements (generally Global Master Repo Agreements) which include a description of the periodic exchanges of collateral. The repo transactions shown in the table are related mainly to the temporary lending of bonds. In this type of lending, the risk and the income from the bonds are for KBC. The amount of the repos is virtually identical to the amount of the underlying assets (that have been lent out).
2 Financial liabilities not included under deposits from customers as they are not directly related to commercial deposit acquisition.
| Designa | Measured | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Held for | ted at fair | Available | Loans and | Held to | Hedging | at amor | ||||
| (in millions of EUR) | trading | value | for sale | receivables | maturity | derivatives | tised cost | Total | ||
| FINANCIAL ASSETS, 31-12-2014 | ||||||||||
| Belgium | 2 543 | 1 104 | 8 804 | 78 358 | 16 744 | 87 | – | 107 641 | ||
| Central and Eastern Europe | 2 221 | 491 | 5 290 | 28 286 | 8 183 | 112 | – | 44 584 | ||
| Rest of the world | 7 418 | 16 567 | 18 295 | 29 139 | 6 872 | 905 | – | 79 197 | ||
| Total | 12 182 | 18 163 | 32 390 | 135 784 | 31 799 | 1 104 | – | 231 421 | ||
| FINANCIAL ASSETS, 31-12-2015 | ||||||||||
| Belgium | 2 119 | 546 | 7 000 | 80 760 | 16 053 | 14 | – | 106 492 | ||
| Central and Eastern Europe | 1 344 | 474 | 6 552 | 33 276 | 8 348 | 86 | – | 50 080 | ||
| Rest of the world | 6 922 | 15 494 | 22 118 | 27 269 | 8 557 | 413 | – | 80 774 | ||
| Total | 10 385 | 16 514 | 35 670 | 141 305 | 32 958 | 514 | – | 237 346 | ||
| FINANCIAL LIABILITIES, 31-12-2014 | ||||||||||
| Belgium | 1 436 | 12 635 | – | – | – | 231 | 92 010 | 106 313 | ||
| Central and Eastern Europe | 1 033 | 838 | – | – | – | 81 | 35 597 | 37 549 | ||
| Rest of the world | 5 979 | 10 435 | – | – | – | 3 179 | 42 189 | 61 782 | ||
| Total | 8 449 | 23 908 | – | – | – | 3 491 | 169 796 | 205 644 | ||
| FINANCIAL LIABILITIES, 31-12-2015 | ||||||||||
| Belgium | 1 293 | 12 503 | – | – | – | 95 | 98 443 | 112 334 | ||
| Central and Eastern Europe | 1 049 | 779 | – | – | – | 135 | 37 780 | 39 744 | ||
| Rest of the world | 5 991 | 11 144 | – | – | – | 1 960 | 42 159 | 61 255 | ||
| Total | 8 334 | 24 426 | – | – | – | 2 191 | 178 383 | 213 333 | ||
| Designa | Measured | |||||||
|---|---|---|---|---|---|---|---|---|
| (in millions of EUR) | Held for trading |
ted at fair value |
Available for sale |
Loans and receivables |
Held to maturity |
Hedging derivatives |
at amor tised cost |
Total |
| FINANCIAL ASSETS, 31-12-2014 | ||||||||
| At not more than one year | 1 322 | 3 146 | 3 647 | 47 279 | 2 213 | – | – | 57 608 |
| At more than one year | 1 593 | 8 760 | 26 826 | 81 592 | 29 586 | – | – | 148 357 |
| Not specified* | 9 267 | 6 257 | 1 916 | 6 912 | 0 | 1 104 | – | 25 456 |
| Total | 12 182 | 18 163 | 32 390 | 135 784 | 31 799 | 1 104 | – | 231 421 |
| FINANCIAL ASSETS, 31-12-2015 | ||||||||
| At not more than one year | 468 | 3 251 | 3 434 | 48 161 | 1 967 | – | – | 57 282 |
| At more than one year | 1 317 | 6 625 | 30 090 | 89 924 | 30 991 | – | – | 158 947 |
| Not specified* | 8 600 | 6 638 | 2 145 | 3 220 | 0 | 514 | – | 21 117 |
| Total | 10 385 | 16 514 | 35 670 | 141 305 | 32 958 | 514 | – | 237 346 |
| FINANCIAL LIABILITIES, 31-12-2014 | ||||||||
| At not more than one year | 517 | 9 480 | – | – | – | – | 99 643 | 109 639 |
| At more than one year | 158 | 9 576 | – | – | – | – | 31 306 | 41 040 |
| Not specified* | 7 774 | 4 853 | – | – | – | 3 491 | 38 847 | 54 965 |
| Total | 8 449 | 23 908 | – | – | – | 3 491 | 169 796 | 205 644 |
| FINANCIAL LIABILITIES, 31-12-2015 | ||||||||
| At not more than one year | 571 | 10 747 | – | – | – | – | 98 462 | 109 781 |
| At more than one year | 225 | 8 108 | – | – | – | – | 28 287 | 36 620 |
| Not specified* | 7 538 | 5 570 | – | – | – | 2 191 | 51 633 | 66 932 |
| Total | 8 334 | 24 426 | – | – | – | 2 191 | 178 383 | 213 333 |
* Maturity date has not been specified or there is no point in classifying the financial asset or liability in terms of when it matures. Financial assets that do not have a specified maturity date concern primarily hedging derivatives ('Hedging derivatives' column), derivatives and shares held for trading ('Held-for-trading' column), a large proportion of insurance investment contracts ('Designated at fair value' column), shares available for sale ('Available-for-sale' column) and current account advances and irrecoverable or doubtful receivables ('Loans and receivables' column). Financial liabilities that do not have a specified maturity date relate mainly to savings accounts ('Measured at amortised cost' column), hedging derivatives ('Hedging derivatives' column), derivatives held for trading ('Held-for-trading' column) and a large proportion of the liabilities under insurance investment contracts ('Designated at fair value' column).
• The difference between short-term financial assets and short-term financial liabilities reflects, among other things, the fundamental operation of a bank, i.e. converting short-term deposits into longterm loans. Consequently, the volume of deposits at not more than one year (recognised under financial liabilities) is greater than loans at not more than one year (recorded under financial assets), a ratio that indicates liquidity risk. More information on liquidity risk is provided in the 'Risk management' section.
| (in millions of EUR) | Held for trading |
Designa ted at fair value |
Available for sale |
Loans and receivables |
Held to maturity |
Hedging derivatives |
Total |
|---|---|---|---|---|---|---|---|
| FINANCIAL ASSETS, 31-12-2014 | |||||||
| Unimpaired assets | 12 182 | 18 163 | 32 153 | 128 330 | 31 798 | 1 104 | 223 730 |
| Impaired assets | – | – | 361 | 13 255 | 6 | – | 13 621 |
| Impairment | – | – | -124 | -5 801 | -5 | – | -5 930 |
| Total | 12 182 | 18 163 | 32 390 | 135 784 | 31 799 | 1 104 | 231 421 |
| FINANCIAL ASSETS, 31-12-2015 | |||||||
| Unimpaired assets | 10 385 | 16 514 | 35 454 | 134 905 | 32 957 | 514 | 230 728 |
| Impaired assets | – | – | 356 | 12 023 | 6 | – | 12 386 |
| Impairment | – | – | -140 | -5 623 | -5 | – | -5 768 |
| Total | 10 385 | 16 514 | 35 670 | 141 305 | 32 958 | 514 | 237 346 |
• Impairment: the concept of 'impairment' is relevant for all financial assets that are not designated at fair value through profit or loss. Fixed-income financial assets are impaired when impairment is identified on an individual basis. In the case of loans, they are impaired when they have a probability of default (or PD, see explanation below) rating of 10, 11 or 12. Impairment is recognised based on an estimate of the net present value of the recoverable amount. In addition, for credit in PD classes 1 to 9, impairment losses are recorded on a portfolio basis (IBNR), using a formula that takes account of the expected loss (EL) calculated using the internal rating
based (IRB) advanced models and emergence period (or an alternative method if an IRB advanced model is not yet available).
• PD class: KBC has developed various rating models to determine the PD class. The output generated by these models is used to split the normal loan portfolio into internal rating classes ranging from PD 1 (lowest risk) to PD 9 (highest risk). More information on PD is provided under 'Credit risk' in the 'Risk management' section.
| (in millions of EUR) | Available for sale | Held to maturity |
Loans and receivables | Provisions for commitments and financial guarantees* |
||
|---|---|---|---|---|---|---|
| Fixed-income assets |
Shares | Fixed-income assets |
Individual impairment |
Portfolio based impair ment |
||
| IMPAIRMENT, 31-12-2014 | ||||||
| Opening balance | 0 | 117 | 8 | 5 319 | 261 | 114 |
| Movements with an impact on results | ||||||
| Impairment recognised | 0 | 30 | 0 | 1 295 | 64 | 32 |
| Impairment reversed | 0 | -2 | -1 | -620 | -130 | -55 |
| Movements without an impact on results | ||||||
| Write-offs | 0 | -16 | 0 | -439 | 0 | -3 |
| Changes in the scope of consolidation | 0 | -5 | 0 | -34 | 1 | 9 |
| Transfers to/from non-current assets held for sale and disposal groups |
0 | 0 | 0 | 174 | 5 | 0 |
| Other | 0 | -1 | -3 | -96 | 0 | 61 |
| Closing balance | 0 | 124 | 5 | 5 600 | 201 | 158 |
| IMPAIRMENT, 31-12-2015 | ||||||
| Opening balance | 0 | 124 | 5 | 5 600 | 201 | 158 |
| Movements with an impact on results | ||||||
| Impairment recognised | 3 | 43 | 0 | 826 | 86 | 44 |
| Impairment reversed | 0 | 0 | -1 | -504 | -78 | -52 |
| Movements without an impact on results | ||||||
| Write-offs | 0 | -10 | 0 | -494 | 0 | 0 |
| Changes in the scope of consolidation | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfers to/from non-current assets held for sale and disposal groups |
0 | 0 | 0 | 0 | 0 | 0 |
| Other | 0 | -20 | 1 | -18 | 3 | -25 |
| Closing balance | 3 | 137 | 5 | 5 410 | 213 | 125 |
* These impairment losses are recognised on the liabilities side of the balance sheet. Changes in impairment losses of this kind are recorded under 'Impairment on loans and receivables' in the income statement.
• For information regarding the impact of changes in impairment on the income statement, see Note 14.
• Additional information on impairment relating to the loan portfolio is provided under 'Credit risk' in the 'Risk management' section.
| (in millions of EUR) | Less than 30 days past due |
30 days or more, but less than 90 days past due |
|---|---|---|
| 31-12-2014 | ||
| Loans and advances | 2 173 | 603 |
| Debt instruments | 0 | 0 |
| Derivatives | 0 | 0 |
| Total | 2 173 | 603 |
| 31-12-2015 | ||
| Loans and advances | 2 076 | 417 |
| Debt instruments | 0 | 0 |
| Derivatives | 0 | 0 |
| Total | 2 076 | 417 |
• Financial assets are past due if a counterparty fails to make a payment at the time agreed in the contract. The concept of 'past due' applies to a contract, not to a counterparty. For example, if a counterparty fails to make a monthly repayment, the entire loan is considered past
due, but that does not mean that other loans to this counterparty are considered past due. Financial assets that are 90 days or more past due are always considered impaired.
• See Notes 22 and 40.
| (in millions of EUR) | 31-12-2014 | 31-12-2015 | ||||
|---|---|---|---|---|---|---|
| Collateral | Collateral | |||||
| Gross | received | Net | Gross | received | Net | |
| Maximum credit exposure | ||||||
| Equity instruments | 2 132 | 0 | 2 132 | 2 485 | 0 | 2 485 |
| Debt instruments | 68 227 | 59 | 68 167 | 70 138 | 61 | 70 078 |
| Loans and advances | 137 140 | 69 842 | 67 298 | 141 854 | 70 285 | 71 570 |
| of which designated at fair value | 2 971 | 2 588 | 384 | 2 501 | 1 028 | 1 473 |
| Derivatives | 9 918 | 3 253 | 6 664 | 8 702 | 3 605 | 5 097 |
| Other (including accrued interest) | 28 271 | 4 246 | 24 025 | 29 686 | 4 205 | 25 481 |
| Total | 245 687 | 77 401 | 168 286 | 252 866 | 78 156 | 174 710 |
• Maximum credit exposure relating to a financial asset: generally the gross carrying value, net of impairment. Besides the amounts on the balance sheet, maximum credit exposure also includes the undrawn portion of irrevocable loan commitments, financial guarantees granted and other irrevocable commitments. These amounts are included in the table under 'Other'.
| Gross amounts of recognised |
Gross amounts of recognised financial |
Net amounts of financial instruments presented in |
|||||
|---|---|---|---|---|---|---|---|
| Financial instruments subject to offsetting, enforceable master netting agreements and similar |
financial | instruments | the balance | Amounts not set off in the balance | |||
| arrangements | instruments | set off | sheet | sheet | Net amount | ||
| (in millions of EUR) | Financial instruments |
Cash collateral |
Securities collateral |
||||
| FINANCIAL ASSETS, 31-12-2014 | |||||||
| Derivatives | 12 390 | 2 473 | 9 918 | 5 190 | 2 505 | 0 | 2 223 |
| Derivatives (excluding central clearing houses) | 9 910 | 0 | 9 910 | 5 190 | 2 505 | 0 | 2 215 |
| Derivatives with central clearing houses* | 2 481 | 2 473 | 8 | 0 | 0 | 0 | 8 |
| Reverse repos, securities borrowing and similar arrangements |
6 415 | 1 707 | 4 708 | 645 | 0 | 4 047 | 15 |
| Reverse repos | 6 415 | 1 707 | 4 708 | 645 | 0 | 4 047 | 15 |
| Securities borrowing | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other financial instruments | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 18 805 | 4 180 | 14 626 | 5 835 | 2 505 | 4 047 | 2 238 |
| FINANCIAL ASSETS, 31-12-2015 | |||||||
| Derivatives | 11 238 | 2 536 | 8 702 | 4 659 | 2 213 | 0 | 1 831 |
| Derivatives (excluding central clearing houses) | 8 695 | 0 | 8 695 | 4 659 | 2 213 | 0 | 1 824 |
| Derivatives with central clearing houses* | 2 543 | 2 536 | 7 | 0 | 0 | 0 | 7 |
| Reverse repos, securities borrowing and similar arrangements |
8 035 | 2 521 | 5 514 | 340 | 0 | 5 141 | 33 |
| Reverse repos | 8 035 | 2 521 | 5 514 | 340 | 0 | 5 141 | 33 |
| Securities borrowing | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other financial instruments | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 19 273 | 5 057 | 14 216 | 4 999 | 2 213 | 5 141 | 1 863 |
| FINANCIAL LIABILITIES, 31-12-2014 | |||||||
| Derivatives | 13 660 | 2 473 | 11 188 | 5 190 | 3 871 | 0 | 2 127 |
| Derivatives (excluding central clearing houses) | 11 184 | 0 | 11 184 | 5 190 | 3 871 | 0 | 2 124 |
| Derivatives with central clearing houses* | 2 476 | 2 473 | 3 | 0 | 0 | 0 | 3 |
| Repos, securities lending and similar arrangements | 10 827 | 1 707 | 9 120 | 645 | 0 | 8 470 | 4 |
| Repos | 10 827 | 1 707 | 9 120 | 645 | 0 | 8 470 | 4 |
| Securities lending | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other financial instruments | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 24 487 | 4 180 | 20 307 | 5 835 | 3 871 | 8 471 | 2 131 |
| FINANCIAL LIABILITIES, 31-12-2015 | |||||||
| Derivatives | 12 231 | 2 536 | 9 695 | 4 659 | 3 630 | 0 | 1 407 |
| Derivatives (excluding central clearing houses) | 9 684 | 0 | 9 684 | 4 659 | 3 630 | 0 | 1 396 |
| Derivatives with central clearing houses* | 2 547 | 2 536 | 11 | 0 | 0 | 0 | 11 |
| Repos, securities lending and similar arrangements | 12 216 | 2 521 | 9 694 | 340 | 0 | 9 332 | 22 |
| Repos | 12 216 | 2 521 | 9 694 | 340 | 0 | 9 332 | 22 |
| Securities lending | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other financial instruments | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 24 447 | 5 057 | 19 390 | 4 999 | 3 630 | 9 332 | 1 429 |
* Cash collateral account at central clearing houses included in the gross amount.
• The criteria for offsetting are met if KBC currently has a legally enforceable right to set off the recognised financial assets and financial liabilities and intends either to settle the transactions on a net basis, or to realise the financial asset and settle the financial liability simultaneously. Financial assets and financial liabilities that are set off relate to financial instruments that were traded on (central) clearing houses.
• The amounts presented in the 'Financial instruments' column under the 'Amounts not set off in the balance sheet' heading are for financial instruments entered into under an enforceable master
netting agreement or similar arrangement that does not meet the criteria defined in IAS 32. The amounts stated refer to situations in which offsetting can only be applied if one of the counterparties defaults, becomes insolvent or goes bankrupt. The same principle applies for financial instruments given or received as collateral. The value given in the table for non-cash collateral received (the 'Securities collateral' column under the 'Amounts not set off in the balance sheet' heading) corresponds with the market value. This is the value that is used if one of the counterparties defaults, becomes insolvent or goes bankrupt.
default swap (CDS) spread, or, if there is no such spread, on the counterparty credit risk that is derived from bonds whose issuers are similar to the derivative counterparty in terms of rating, sector and geographical location. A debt value adjustment (DVA) is made for contracts where the counterparty is exposed to KBC (as opposed to the other way around). It is similar to a CVA, but the expected future negative fair value of the contracts is taken into consideration. A funding value adjustment (FVA) is a correction made to the market value of uncollateralised derivatives in order to ensure that the (future) funding costs or income attached to entering into and hedging such instruments are factored in when measuring the value of the instruments.
| Fair value of financial assets and liabilities that are not measured at fair value in the balance sheet (in millions of EUR) |
Loans and receivables | Financial assets held to maturity |
Financial liabilities measured at amortised cost |
|||
|---|---|---|---|---|---|---|
| Carrying value | Fair value | Carrying value | Fair value | Carrying value | Fair value | |
| FINANCIAL ASSETS, 31-12-2014 | ||||||
| Loans and advances to credit institutions and investment firms | 10 812 | 10 953 | – | – | – | – |
| Loans and advances to customers | 123 189 | 126 392 | – | – | – | – |
| Debt instruments | 1 207 | 1 400 | 31 799 | 36 001 | – | – |
| Other | 576 | 576 | – | – | – | – |
| Total | 135 784 | 139 322 | 31 799 | 36 001 | – | – |
| Level 1 | – | 929 | – | 34 848 | – | – |
| Level 2 | – | 19 992 | – | 984 | – | – |
| Level 3 | – | 118 401 | – | 169 | – | – |
| FINANCIAL ASSETS, 31-12-2015 | ||||||
| Loans and advances to credit institutions and investment firms | 11 524 | 11 438 | – | – | – | – |
| Loans and advances to customers | 127 829 | 128 859 | – | – | – | – |
| Debt instruments | 1 117 | 1 136 | 32 958 | 36 693 | – | – |
| Other | 835 | 836 | – | – | – | – |
| Total | 141 305 | 142 268 | 32 958 | 36 693 | – | – |
| Level 1 | – | 231 | – | 35 468 | – | – |
| Level 2 | – | 21 350 | – | 794 | – | – |
| Level 3 | – | 120 687 | – | 431 | – | – |
| FINANCIAL LIABILITIES, 31-12-2014 | ||||||
| Deposits from credit institutions and investment firms | – | – | – | – | 16 628 | 17 887 |
| Deposits from customers and debt securities | – | – | – | – | 151 064 | 153 732 |
| Liabilities under investment contracts | – | – | – | – | 0 | 0 |
| Other | – | – | – | – | 2 103 | 1 981 |
| Total | – | – | – | – | 169 796 | 173 601 |
| Level 1 | – | – | – | – | – | 1 052 |
| Level 2 | – | – | – | – | – | 78 637 |
| Level 3 | – | – | – | – | – | 93 911 |
| FINANCIAL LIABILITIES, 31-12-2015 | ||||||
| Deposits from credit institutions and investment firms | – | – | – | – | 17 828 | 17 842 |
| Deposits from customers and debt securities | – | – | – | – | 158 762 | 159 367 |
| Liabilities under investment contracts | – | – | – | – | 0 | 0 |
| Other | – | – | – | – | 1 792 | 1 743 |
| Total | – | – | – | – | 178 383 | 178 952 |
| Level 1 | – | – | – | – | – | 75 |
| Level 2 | – | – | – | – | – | 83 804 |
| Level 3 | – | – | – | – | – | 95 073 |
| (in millions of EUR) | 31-12-2014 | 31-12-2015 | ||||||
|---|---|---|---|---|---|---|---|---|
| Fair value hierarchy | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total |
| Financial assets at fair value | ||||||||
| Held for trading | ||||||||
| Loans and advances to | ||||||||
| credit institutions and | ||||||||
| investment firms | 0 | 141 | 0 | 141 | 0 | 0 | 0 | 0 |
| Loans and advances to customers | 0 | 27 | 0 | 27 | 0 | 0 | 0 | 0 |
| Equity instruments | 294 | 8 | 0 | 303 | 256 | 155 | 0 | 411 |
| Debt instruments | 1 998 | 634 | 262 | 2 894 | 1 254 | 244 | 287 | 1 785 |
| of which sovereign bonds | 1 872 | 487 | 32 | 2 391 | 1 157 | 209 | 42 | 1 408 |
| Derivatives | 1 | 6 492 | 2 321 | 8 814 | 0 | 6 133 | 2 055 | 8 188 |
| Other | 0 | 3 | 0 | 3 | 0 | 1 | 0 | 1 |
| Designated at fair value | ||||||||
| Loans and advances to | ||||||||
| credit institutions and | ||||||||
| investment firms | 0 | 1 636 | 0 | 1 636 | 0 | 2 107 | 0 | 2 107 |
| Loans and advances to customers | 0 | 1 309 | 26 | 1 335 | 0 | 366 | 28 | 394 |
| Equity instruments | 3 | 0 | 0 | 3 | 2 | 0 | 0 | 2 |
| Investment contracts (insurance) | 13 270 | 156 | 0 | 13 425 | 13 046 | 284 | 0 | 13 330 |
| Debt instruments | 1 278 | 149 | 337 | 1 763 | 257 | 41 | 383 | 681 |
| of which sovereign bonds | 1 034 | 29 | 0 | 1 063 | 80 | 40 | 0 | 120 |
| Available for sale | ||||||||
| Equity instruments | 1 432 | 0 | 393 | 1 826 | 1 641 | 19 | 411 | 2 071 |
| Debt instruments | 26 349 | 3 051 | 1 163 | 30 564 | 28 814 | 3 486 | 1 298 | 33 598 |
| of which sovereign bonds | 18 331 | 982 | 156 | 19 469 | 20 761 | 687 | 444 | 21 892 |
| Hedging derivatives | ||||||||
| Derivatives | 0 | 1 104 | 0 | 1 104 | 0 | 514 | 0 | 514 |
| Total | 44 624 | 14 711 | 4 503 | 63 839 | 45 271 | 13 348 | 4 462 | 63 082 |
| Financial liabilities at fair value | ||||||||
| Held for trading | ||||||||
| Deposits from credit institutions and | ||||||||
| investment firms | 0 | 60 | 0 | 60 | 0 | 1 | 0 | 1 |
| Deposits from customers and debt securities | 0 | 326 | 41 | 367 | 0 | 429 | 2 | 431 |
| Derivatives | 2 | 5 359 | 2 335 | 7 697 | 0 | 5 428 | 2 058 | 7 487 |
| Short positions | 325 | 0 | 0 | 325 | 415 | 0 | 0 | 415 |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Designated at fair value | ||||||||
| Deposits from credit institutions and investment firms |
0 | 1 004 | 0 | 1 004 | 0 | 1 123 | 0 | 1 123 |
| Deposits from customers and debt securities | 0 | 9 928 | 424 | 10 352 | 0 | 10 321 | 594 | 10 916 |
| Liabilities under investment contracts | 12 552 | 1 | 0 | 12 553 | 12 386 | 0 | 0 | 12 387 |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Hedging derivatives | ||||||||
| Derivatives | 0 | 3 491 | 0 | 3 491 | 0 | 2 191 | 0 | 2 191 |
| Total | 12 879 | 20 170 | 2 800 | 35 848 | 12 801 | 19 495 | 2 654 | 34 950 |
• The IAS 39 fair value hierarchy prioritises the valuation techniques and the respective inputs into three levels.
The fair value hierarchy gives the highest priority to 'level 1 inputs'. This means that, when there is an active market, quoted prices have to be used to measure the financial assets or liabilities at fair value. Level 1 inputs are prices that are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency (and that are quoted in active markets accessible to KBC). They represent actual and regularly occurring market transactions on an arm's length basis. The fair value is then based on a mark-to-market valuation derived from currently available transaction prices. No valuation technique (model) is involved. If there are no price quotations available, the reporting entity establishes fair value using a model based on observable or unobservable inputs. The use of observable inputs needs to be maximised, whereas the use of unobservable inputs has to be minimised.
Observable inputs are also referred to as 'level 2 inputs' and reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Examples of observable inputs are the risk-free rate, exchange rates, stock prices and implied volatility. Valuation techniques based on observable inputs include discounted cashflow analysis, or reference to the current or recent fair value of a similar instrument.
Unobservable inputs are also referred to as 'level 3 inputs' and reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions regarding the risks involved). Unobservable inputs reflect a market that is not active. For example, proxies and correlation factors can be considered to be unobservable in the market.
| Instrument type | Products | Valuation technique | |
|---|---|---|---|
| Level 1 | Liquid financial instruments for which quoted prices are regularly available |
FX spots, exchange traded financial futures, exchange traded options, exchange traded stocks, exchange traded funds, liquid government bonds, other liquid bonds, liquid asset backed securities (ABS) in active markets |
Mark-to-market (quoted prices in active markets) |
| (Cross-currency) interest rate swaps (IRS), FX swaps, FX forwards, forward rate agreements (FRA), inflation swaps, dividend swaps, commodity swaps, reverse floaters, bond future options, interest rate future options, overnight index swaps (OIS), FX resets |
Discounted cashflow analysis based on discount and estimation curves (derived from quoted deposit rates, FX swaps and (CC)IRS) |
||
| Plain vanilla/liquid derivatives | Caps & floors, interest rate options, European & American stock options, European & American FX options, forward starting options, digital FX options, FX strips of simple options, European swaptions, constant maturity swaps (CMS), European cancellable IRS, compound options |
Option pricing model based on observable inputs (e.g., volatilities) |
|
| Credit default swaps (CDS) | CDS model based on credit spreads | ||
| Level 2 | Linear financial assets (without optional features) – cash instruments |
Deposits, simple cashflows, repo transactions | Discounted cashflow analysis based on discount and estimation curves (derived from quoted deposit rates, FX swaps and (CC)IRS) |
| Asset backed securities | Medium liquid asset backed securities | Third-party pricing (e.g., lead manager); prices corroborated by alternative observable market data, or using comparable spread method |
|
| Debt instruments | KBC IFIMA own issues (liabilities), mortgage bonds held by Cˇ SOB |
Discounted cashflow analysis and valuation of related derivatives based on observable inputs |
|
| Linear financial liabilities (cash instruments) | Loans, commercial paper | Discounted cashflow analysis based on discount and estimation curves (derived from quoted deposit rates, FX swaps and (CC)IRS) |
|
| Exotic derivatives | Target profit forwards, target strike forwards, Bermudan swaptions, digital interest rate options, quanto interest rate options, digital stock options, Asian stock options, barrier stock options, quanto digital FX options, FX Asian options, FX European barrier options, FX simple digital barrier options, FX touch rebates, double average rate options, inflation options, cancellable reverse floaters, American and Bermudan cancellable IRS, CMS spread options, CMS interest rate caps/floors, (callable) range accruals, outperformance options, auto-callable options |
Option pricing model based on unobservable inputs (e.g., correlation) |
|
| Level 3 | Illiquid credit-linked instruments | Collateralised debt obligations (notes) | Valuation model based on correlation of probability of default of underlying assets |
| Private equity investments | Private equity and non-quoted participations | Based on the valuation guidelines of the European Private Equity & Venture Capital Association (EVCA) |
|
| Illiquid bonds/asset backed securities | Illiquid (mortgage) bonds/asset backed securities that are indicatively priced by a single pricing provider in an inactive market |
Third-party pricing (e.g., lead manager), where prices cannot be corroborated due to a lack of available/reliable alternative market data |
|
| Debt instruments | KBC own issues (KBC IFIMA) | Discounted cashflow analysis and valuation of related derivatives based on unobservable inputs (indicative pricing by third parties for derivatives) |
Level 3 financial assets
| Held for trading | Designated at fair value | Available for sale | Hedging deriva tives |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Loans and advances | Equity instruments | Investment contracts (insurance) |
Debt instruments | Derivatives | Loans and advances | Equity instruments | Investment contracts (insurance) |
Debt instruments | Equity instruments | Debt instruments | Derivatives | |
| Opening balance | 0 | 1 | 0 | 342 | 2 141 | 24 | 5 | 0 | 352 | 300 | 1 472 | 0 |
| Gains or losses | 0 | 0 | 0 | 17 | 253 | 1 | 0 | 0 | 0 | 41 | -11 | 0 |
| in profit or loss* | 0 | 0 | 0 | 17 | 253 | 1 | 0 | 0 | 0 | 4 | -24 | 0 |
| in other comprehensive income | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 37 | 13 | 0 |
| Acquisitions | 0 | 0 | 0 | 2 | 305 | 0 | 0 | 0 | 18 | 23 | 835 | 0 |
| Disposals | 0 | 0 | 0 | -20 | -77 | 0 | -5 | 0 | -2 | -6 | -74 | 0 |
| Settlements | 0 | 0 | 0 | -61 | -312 | -3 | 0 | 0 | -16 | -1 | -464 | 0 |
| Transfers into level 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 110 | 0 |
| Transfers out of level 3 | 0 | 0 | 0 | -31 | 0 | 0 | 0 | 0 | 0 | 0 | -687 | 0 |
| Transfers into/out of non-current assets held for sale |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Translation differences | 0 | 0 | 0 | 14 | 11 | 3 | 0 | 0 | 36 | 0 | 1 | 0 |
| Changes in the scope of consolidation |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -22 | -3 | -20 | 0 |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -29 | 39 | 0 | 0 |
| Closing balance | 0 | 0 | 0 | 263 | 2 321 | 26 | 0 | 0 | 337 | 393 | 1 163 | 0 |
| Total gains (positive figures) or losses (negative figures) included in profit or loss for assets held at the end of the reporting period |
0 | 0 | 0 | 22 | 304 | 1 | 1 | 0 | 10 | -1 | 6 | 0 |
| Level 3 financial liabilities | ||||||||||||
| Hedging |
| Held for trading | Designated at fair value | deriva tives |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Deposits from credit institutions |
customers and debt Deposits from securities |
Liabilities under in vestment contracts |
Derivatives | Short positions | Other | Deposits from credit institutions |
customers and debt Deposits from securities |
Liabilities under in vestment contracts |
Other | Derivatives | |
| Opening balance | 0 | 102 | 0 | 2 542 | 13 | 0 | 0 | 543 | 0 | 0 | 0 |
| Gains or losses | 0 | 1 | 0 | -58 | 0 | 0 | 0 | -25 | 0 | 0 | 0 |
| in profit or loss* | 0 | 1 | 0 | -58 | 0 | 0 | 0 | -25 | 0 | 0 | 0 |
| in other comprehensive income | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Issues | 0 | 0 | 0 | 293 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Repurchases | 0 | -5 | 0 | 0 | 0 | 0 | 0 | -119 | 0 | 0 | 0 |
| Settlements | 0 | -66 | 0 | -452 | -13 | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfers into level 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfers out of level 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfers out of/into liabilities associated with disposal groups |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Translation differences | 0 | 7 | 0 | 10 | 0 | 0 | 0 | 23 | 0 | 0 | 0 |
| Changes in the scope of consolidation |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Closing balance | 0 | 41 | 0 | 2 335 | 0 | 0 | 0 | 424 | 0 | 0 | 0 |
| Total gains (negative figures) or losses (positive figures) included in profit or loss for liabilities held at the end of the reporting period |
0 | 0 | 0 | 329 | 0 | 0 | 0 | -8 | 0 | 0 | 0 |
| * Recognised primarily in 'Net result from financial instruments at fair value', 'Net realised result from available-for-sale assets' and 'Impairment on available-for-sale assets'. |
Level 3 financial assets
| Held for trading | Designated at fair value | Available for sale | Hedging deriva tives |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Loans and advances | Equity instruments | Investment contracts (insurance) |
Debt instruments | Derivatives | Loans and advances | Equity instruments | Investment contracts (insurance) |
Debt instruments | Equity instruments | Debt instruments | Derivatives | |
| Opening balance | 0 | 0 | 0 | 263 | 2 321 | 26 | 0 | 0 | 337 | 393 | 1 163 | 0 |
| Gains or losses | 0 | 0 | 0 | 2 | -195 | 2 | 2 | 0 | -42 | 73 | 30 | 0 |
| in profit or loss* | 0 | 0 | 0 | 2 | -195 | 2 | 2 | 0 | -42 | -12 | 0 | 0 |
| in other comprehensive income | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 85 | 30 | 0 |
| Acquisitions | 0 | 0 | 0 | 78 | 372 | 0 | 0 | 0 | 70 | 3 | 546 | 0 |
| Disposals | 0 | 0 | 0 | -57 | -2 | 0 | -2 | 0 | -18 | -20 | -58 | 0 |
| Settlements | 0 | 0 | 0 | -13 | -446 | 0 | 0 | 0 | 0 | 0 | -28 | 0 |
| Transfers into level 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 14 | 211 | 0 |
| Transfers out of level 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -44 | -568 | 0 |
| Transfers into/out of non-current assets held for sale |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Translation differences | 0 | 0 | 0 | 15 | 5 | 0 | 0 | 0 | 35 | -8 | 1 | 0 |
| Changes in the scope of consolidation |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -1 | 0 | 0 |
| Closing balance | 0 | 0 | 0 | 287 | 2 055 | 28 | 0 | 0 | 383 | 411 | 1 298 | 0 |
| Total gains (positive figures) or losses (negative figures) included in profit or loss for assets held at the end of the reporting period |
0 | 0 | 0 | 2 | -57 | 2 | 0 | 0 | -34 | -3 | 0 | 0 |
| Level 3 financial liabilities | ||||||||||||
| Hedging |
| Held for trading | Designated at fair value | deriva tives |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Deposits from credit institutions |
customers and debt Deposits from securities |
Liabilities under in vestment contracts |
Derivatives | Short positions | Other | Deposits from credit institutions |
customers and debt Deposits from securities |
Liabilities under in vestment contracts |
Other | Derivatives | |
| Opening balance | 0 | 41 | 0 | 2 335 | 0 | 0 | 0 | 424 | 0 | 0 | 0 |
| Gains or losses | 0 | 0 | 0 | -148 | 0 | 0 | 0 | -79 | 0 | 0 | 0 |
| in profit or loss* | 0 | 0 | 0 | -148 | 0 | 0 | 0 | -79 | 0 | 0 | 0 |
| in other comprehensive income | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Issues | 0 | 0 | 0 | 324 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Repurchases | 0 | 0 | 0 | -4 | 0 | 0 | 0 | -165 | 0 | 0 | 0 |
| Settlements | 0 | -43 | 0 | -449 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfers into level 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfers out of level 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfers out of/into liabilities associated with disposal groups |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Translation differences | 0 | 4 | 0 | 0 | 0 | 0 | 0 | 21 | 0 | 0 | 0 |
| Changes in the scope of consolidation |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 394 | 0 | 0 | 0 |
| Closing balance | 0 | 2 | 0 | 2 058 | 0 | 0 | 0 | 594 | 0 | 0 | 0 |
| Total gains (negative figures) or losses (positive figures) included in profit or loss for liabilities held at the end of the reporting period |
0 | 0 | 0 | -57 | 0 | 0 | 0 | -28 | 0 | 0 | 0 |
| * Recognised primarily in 'Net result from financial instruments at fair value', 'Net realised result from available-for-sale assets' and 'Impairment on available-for-sale assets'. |
* Recognised primarily in 'Net result from financial instruments at fair value', 'Net realised result from available-for-sale assets' and 'Impairment on available-for-sale assets'.
2013 to a negligible amount at year-ends 2014 and 2015. The remaining minor fluctuations in value are attributable to the fact that 0.2 billion euros' worth of CDO notes that are held by investors will remain outstanding until 7 October 2017. KBC issued these notes and is counterparty for them. The notes could continue to fluctuate in value, mainly on account of movements in credit spreads on the underlying portfolio.
| (in millions of EUR) | 31-12-2014 | 31-12-2015 |
|---|---|---|
| Impact of change in own credit spreads on the income statement | -2 | 17 |
| Total cumulative impact at balance sheet date | -31 | -14 |
• The fair value of financial liabilities designated at fair value through profit or loss takes account of own credit risk. A significant portion of the financial liabilities designated at fair value through profit or loss relate to KBC IFIMA issues. The own credit risk of KBC IFIMA issues designated at fair value through profit or loss is measured using KBC's own funding spread. Taking into account this own credit risk,
the total fair value of KBC IFIMA issues designated at fair value through profit or loss amounted to some 1.3 billion euros on 31 December 2015. The results of sensitivity tests – in which the funding spread is shifted – on the total fair value of KBC IFIMA issues are given in the table below.
| Spreads | Spreads | Spreads | Spreads | Spreads | Spreads | |
|---|---|---|---|---|---|---|
| -50% | -20% | -10% | +10% | +20% | +50% | |
| 31-12-2014 | -0.01 | -0.00 | -0.00 | +0.00 | +0.00 | +0.01 |
| 31-12-2015 | -0.01 | -0.00 | -0.00 | +0.00 | +0.00 | +0.01 |
• If no account is taken of the effect of changes in credit risk, the difference between the carrying value and redemption price of the financial liabilities designated at fair value through profit or loss is limited (less than 0.2 billion euros).
| (in millions of EUR) | |||
|---|---|---|---|
| Carrying value | 711 | ||
| Fair value | 735 | ||
| If not reclassified (available for sale) |
After reclassification (loans and receivables) |
Impact | |
| Impact on the revaluation reserve (available-for-sale assets), before tax | -65 | -90 | -25 |
| Impact on the income statement, before tax | 0 | 0 | 0 |
• Reclassifications: in October 2008, the International Accounting Standards Board (IASB) issued amendments to IAS 39 and IFRS 7 under 'Reclassification of financial assets'. Following the implementation of these amendments, the KBC group reclassified a number of assets out of the 'available for sale' category to the 'loans and receivables' category because they had become less liquid. On the date of reclassification, the assets in question met the definition of loans and receivables, and the group has the intention and ability to hold these assets for the foreseeable future or until maturity. KBC reclassified these assets on 31 December 2008. On the reclassification date (31 December 2008), the estimated recoverable amount of these assets came to 5 billion euros and the effective interest rate varied between 5.88% and 16.77%. The above
reclassifications had a negative impact of 25 million euros on equity and no impact on the income statement.
| Held for trading | Micro hedging: fair value hedge | Micro hedging: cashflow hedge* | Portfolio hedge of interest rate risk | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying value | Notional amount | Carrying value | Notional amount | Carrying value | Notional amount | Carrying value | Notional amount | |||||||||
| (in millions of EUR) | Assets | Liabilities | Purchased | Sold | Assets | Liabilities | Purchased | Sold | Assets | Liabilities | Purchased | Sold | Assets | Liabilities | Purchased | Sold |
| 31-12-2014 | ||||||||||||||||
| Total | 8 814 | 7 697 | 380 492 | 377 541 | 426 | 736 | 25 223 | 25 223 | 650 | 2 610 | 25 711 | 25 647 | 28 | 144 | 2 749 | 2 749 |
| Breakdown by type | ||||||||||||||||
| Interest rate contracts | 5 304 | 4 596 | 217 557 | 214 711 | 426 | 736 | 25 223 | 25 223 | 642 | 2 600 | 25 525 | 25 525 | 28 | 144 | 2 749 | 2 749 |
| Interest rate swaps | 4 120 | 4 056 | 148 425 | 149 039 | 426 | 736 | 25 223 | 25 223 | 642 | 2 600 | 25 525 | 25 525 | 28 | 144 | 2 749 | 2 749 |
| Forward rate agree- | ||||||||||||||||
| ments | 0 | 3 | 1 880 | 2 385 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Futures | 3 | 3 | 12 879 | 13 727 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Options | 1 181 | 534 | 54 374 | 49 560 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Forwards | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Foreign exchange con tracts |
1 339 | 982 | 125 336 | 126 203 | 0 | 0 | 0 | 0 | 7 | 10 | 186 | 122 | 0 | 0 | 0 | 0 |
| exchange operations/ currency forwards Forward foreign |
189 | 180 | 17 419 | 17 394 | 0 | 0 | 0 | 0 | 0 | 1 | 31 | 31 | 0 | 0 | 0 | 0 |
| Currency and interest rate swaps |
1 028 | 621 | 95 689 | 95 268 | 0 | 0 | 0 | 0 | 7 | 9 | 155 | 91 | 0 | 0 | 0 | 0 |
| Futures | 0 | 0 | 284 | 284 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Options | 121 | 180 | 11 944 | 13 257 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Equity contracts | 2 016 | 2 022 | 32 162 | 31 912 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Equity swaps | 1 674 | 1 704 | 30 120 | 30 120 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Forwards | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Futures | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Options | 342 | 318 | 2 042 | 1 793 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Warrants | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Credit contracts | 105 | 46 | 4 826 | 4 104 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Credit default swaps | 105 | 46 | 4 826 | 4 104 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Credit spread options | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total return swaps | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Commodity and other contracts |
51 | 51 | 611 | 611 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
* Including hedges of net investments in foreign operations.
| Held for trading | Micro hedging: fair value hedge | Micro hedging: cashflow hedge* | Portfolio hedge of interest rate risk | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying value | Notional amount | Carrying value | Notional amount | Carrying value | Notional amount | Carrying value | Notional amount | |||||||||
| (in millions of EUR) | Assets | Liabilities | Purchased | Sold | Assets | Liabilities | Purchased | Sold | Assets | Liabilities | Purchased | Sold | Assets | Liabilities | Purchased | Sold |
| 31-12-2015 | ||||||||||||||||
| 8 188 | 7 487 | 374 627 | 376 167 | 127 | 469 | 31 073 | 31 065 | 356 | 1 708 | 26 724 | 26 718 | 31 | 13 | 7 809 | 7 569 | |
| Breakdown by type | ||||||||||||||||
| Interest rate contracts | 4 458 | 4 283 | 207 334 | 206 585 | 127 | 469 | 31 065 | 31 065 | 346 | 1 703 | 26 607 | 26 607 | 31 | 13 | 7 809 | 7 569 |
| Interest rate swaps | 3 546 | 3 854 | 155 102 | 155 321 | 127 | 469 | 31 065 | 31 065 | 346 | 1 703 | 26 607 | 26 607 | 31 | 13 | 6 765 | 6 524 |
| Forward rate agreements | 0 | 3 | 1 525 | 2 062 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 0 | 0 | 6 066 | 8 135 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| 912 | 425 | 44 637 | 41 063 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 045 | 1 045 | |
| 0 | 0 | 3 | 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Foreign exchange con | 1 814 | 1 340 | 133 090 | 136 179 | 0 | 0 | 8 | 0 | 10 | 5 | 117 | 111 | 0 | 0 | 0 | 0 |
| exchange operations/ currency forwards Forward foreign |
149 | 192 | 18 381 | 18 409 | 0 | 0 | 8 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Currency and interest rate swaps |
1 434 | 1 032 | 104 376 | 104 146 | 0 | 0 | 0 | 0 | 10 | 5 | 117 | 111 | 0 | 0 | 0 | 0 |
| 0 | 0 | 67 | 67 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| 231 | 117 | 10 266 | 13 557 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Equity contracts | 1 717 | 1 721 | 32 141 | 31 842 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Equity swaps | 1 409 | 1 422 | 28 961 | 28 962 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| 308 | 299 | 3 154 | 2 880 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| 0 | 0 | 26 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Credit contracts | 66 | 8 | 916 | 413 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Credit default swaps | 66 | 8 | 916 | 413 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Credit spread options | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total return swaps | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Commodity and other | 133 | 134 | 1 147 | 1 148 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
* Including hedges of net investments in foreign operations.
Various micro-hedging techniques in accordance with the principles of IAS 39 to limit volatility:
º Fair value hedges: used in certain asset-swap constructions. Using this technique, the interest rate risk attached to a bond is hedged for investments that were made purely on account of the credit spread. The technique is also applied when certain fixed-term debt instruments are issued by the bank (senior debt issues).
| (in millions of EUR) | Inflow | Outflow |
|---|---|---|
| Not more than three months | 11 | -15 |
| More than three but not more than six months | 20 | -56 |
| More than six months but not more than one year | 44 | -115 |
| More than one but not more than two years | 102 | -338 |
| More than two but not more than five years | 340 | -932 |
| More than five years | 1 409 | -2 139 |
| (in millions of EUR) 31-12-2014 |
31-12-2015 |
|---|---|
| Total 1 480 |
1 487 |
| Debtors arising out of direct insurance operations 349 |
376 |
| Debtors arising out of reinsurance operations 13 |
17 |
| Other debtors and called capital as yet unpaid 0 |
0 |
| Deposits with ceding companies 13 |
216 |
| Income receivable (other than interest income from financial assets) 281 |
26 |
| Other 824 |
852 |
| (in millions of EUR) 31-12-2014 |
31-12-2015 |
|---|---|
| CURRENT TAXES | |
| Current tax assets 88 |
107 |
| Current tax liabilities 98 |
109 |
| DEFERRED TAXES 1 127 |
1 680 |
| Deferred tax assets by type of temporary difference 2 279 |
2 829 |
| Employee benefits 198 |
191 |
| Losses carried forward 540 |
1 146 |
| Tangible and intangible fixed assets 48 |
32 |
| Provisions for risks and charges 53 |
38 |
| Impairment for losses on loans and advances 230 |
218 |
| Financial instruments at fair value through profit or loss and fair value hedges 267 |
244 |
| Fair value changes, available-for-sale assets, cashflow hedges and hedges of net investments in foreign operations 844 |
828 |
| Technical provisions 33 |
29 |
| Other 65 |
103 |
| Deferred tax liabilities by type of temporary difference 1 152 |
1 150 |
| Employee benefits 2 |
91 |
| Losses carried forward 0 |
0 |
| Tangible and intangible fixed assets 101 |
103 |
| Provisions for risks and charges 1 |
1 |
| Impairment for losses on loans and advances 7 |
8 |
| Financial instruments at fair value through profit or loss and fair value hedges 48 |
45 |
| Fair value changes, available-for-sale assets, cashflow hedges and hedges of net investments in foreign operations 776 |
665 |
| Technical provisions 126 |
134 |
| Other 89 |
102 |
| Recognised as a net amount in the balance sheet as follows: | |
| Deferred tax assets 1 726 |
2 228 |
| Deferred tax liabilities 599 |
549 |
| Unused tax losses and unused tax credits 1 283 |
492 |
euros: 910 million euros of which following the liquidation of KBC Financial Holding Inc., partially offset by taxable profit generated in 2015) and financial instruments at fair value through profit or loss (-10 million euros);
+34 million euros, owing primarily to technical and other provisions (+20 million euros), the rise in financial instruments at fair value through profit or loss (+7 million euros), and the increase related to fixed assets (+6 million euros);
the market value of cashflow hedges: -8 million euros;
| (in millions of EUR) | 31-12-2014 | 31-12-2015 |
|---|---|---|
| Total | 204 | 207 |
| Overview of investments, including goodwill | ||
| CˇMSS | 175 | 179 |
| Other | 28 | 28 |
| Goodwill on associated companies and joint ventures | ||
| Gross amount | 0 | 0 |
| Accumulated impairment | 0 | 0 |
| Breakdown by type | ||
| Unlisted | 204 | 207 |
| Listed | 0 | 0 |
| Fair value of investments in listed associated companies and joint ventures | 0 | 0 |
| MOVEMENTS TABLE | 2014 | 2015 |
| Opening balance (1 January) | 182 | 204 |
| Acquisitions | 0 | 0 |
| Carrying value, transfers | 0 | 0 |
| Share in the result for the period | 25 | 24 |
| Capital increase | 0 | 0 |
| Dividends paid | -30 | -23 |
| Share of gains and losses not recognised in the income statement | 11 | -2 |
| Translation differences | 0 | 7 |
| Changes in goodwill | 0 | 0 |
| Transfers to or from non-current assets held for sale and disposal groups | 0 | 0 |
| Other movements | 16 | -4 |
| Closing balance (31 December) | 204 | 207 |
Total equity: 179 (175)
Total income: 64 (59)
| (in millions of EUR) | 31-12-2014 | 31-12-2015 | |||
|---|---|---|---|---|---|
| Property and equipment | 2 278 | 2 299 | |||
| Investment property | 568 | 438 | |||
| Rental income | 66 | 54 | |||
| Direct operating expenses from investments generating rental income | 18 | 15 | |||
| Direct operating expenses from investments not generating rental income | 1 | 0 | |||
| Total property | |||||
| Land and | Other | and | Investment | ||
| MOVEMENTS TABLE | buildings | IT equipment | equipment | equipment | property |
| 2014 | |||||
| Opening balance | 1 362 | 133 | 962 | 2 457 | 598 |
| Acquisitions | 78 | 42 | 321 | 441 | 19 |
| Disposals | -152 | -1 | -126 | -279 | -49 |
| Depreciation | -72 | -55 | -27 | -154 | -28 |
| Impairment | |||||
| Recognised | -1 | -6 | -1 | -8 | 0 |
| Reversed | 0 | 0 | 0 | 1 | 0 |
| Transfers to or from non-current assets held for sale and disposal groups | -20 | 0 | 0 | -20 | 0 |
| Translation differences | -4 | -1 | -2 | -7 | 0 |
| Changes in the scope of consolidation | 8 | 0 | 0 | 8 | 33 |
| Other movements | 2 | -1 | -163 | -162 | -5 |
| Closing balance | 1 202 | 111 | 965 | 2 278 | 568 |
| of which accumulated depreciation and | |||||
| impairment | 1 142 | 338 | 624 | 2 104 | 328 |
| of which expenditure on items in the course of construction | 31 | 9 | 22 | 62 | – |
| of which finance lease as a lessee | 0 | 0 | 0 | 0 | – |
| Fair value 31-12-2014 | – | – | – | – | 716 |
| 2015 | |||||
| Opening balance | 1 202 | 111 | 965 | 2 278 | 568 |
| Acquisitions | 108 | 53 | 397 | 558 | 5 |
| Disposals | -68 | -2 | -150 | -221 | -5 |
| Depreciation | -70 | -54 | -29 | -153 | -21 |
| Impairment | |||||
| Recognised | -7 | -10 | -10 | -27 | 0 |
| Reversed | 0 | 0 | 0 | 0 | 0 |
| Transfers to or from non-current assets held for sale and disposal groups | -4 | 0 | -1 | -4 | -10 |
| Translation differences | 12 | 0 | 2 | 14 | 0 |
| Changes in the scope of consolidation | -1 | -57 | 28 | -30 | -89 |
| Other movements | -10 | 55 | -162 | -117 | -10 |
| Closing balance | 1 161 | 96 | 1 041 | 2 299 | 438 |
| of which accumulated depreciation and impairment |
1 159 | 373 | 653 | 2 186 | 229 |
| of which expenditure on items in the course of construction | 32 | 5 | 17 | 55 | – |
| of which finance lease as a lessee | 0 | 0 | 0 | 0 | – |
| Fair value 31-12-2015 | – | – | – | – | 609 |
unit prices of similar real property. Account is taken of all the market inputs available on the date of the assessment (including location and market situation, type of building and construction, state of repair, use, etc.).
• Certain other investment property is valued annually by in-house specialists based on the current annual rental per building and expected rental movements and on an individual capitalisation rate per building.
| Software developed |
Software developed |
||||
|---|---|---|---|---|---|
| (in millions of EUR) | Goodwill | in-house | externally | Other | Total |
| 2014 | |||||
| Opening balance | 950 | 180 | 138 | 9 | 1 276 |
| Acquisitions | 0 | 56 | 91 | 6 | 153 |
| Disposals | 0 | -16 | -5 | -7 | -28 |
| Adjustment resulting from subsequent identification | 0 | 0 | 0 | 0 | 0 |
| Amortisation | 0 | -59 | -50 | -1 | -110 |
| Impairment | |||||
| Recognised | 0 | -22 | -1 | 0 | -23 |
| Reversed | 0 | 0 | 0 | 0 | 0 |
| Transfers to or from non-current assets held for sale and disposal groups |
0 | 0 | 0 | 0 | 0 |
| Translation differences | -16 | 0 | -2 | 0 | -18 |
| Changes in the scope of consolidation | 0 | 0 | -8 | 0 | -8 |
| Other movements | -1 | 26 | -8 | 0 | 17 |
| Closing balance | 933 | 165 | 153 | 7 | 1 258 |
| of which accumulated amortisation and impairment | 1 202 | 497 | 567 | 52 | 2 318 |
| 2015 | |||||
| Opening balance | 933 | 165 | 153 | 7 | 1 258 |
| Acquisitions | 0 | 71 | 78 | 9 | 158 |
| Disposals | 0 | -28 | -5 | -6 | -39 |
| Adjustment resulting from subsequent identification | 0 | 0 | 0 | 0 | 0 |
| Amortisation | 0 | -53 | -48 | -1 | -103 |
| Impairment | |||||
| Recognised | -344 | -5 | 0 | 0 | -350 |
| Reversed | 0 | 0 | 0 | 0 | 0 |
| Transfers to or from non-current assets held for sale and disposal groups |
0 | 0 | 0 | 0 | 0 |
| Translation differences | 7 | 0 | 1 | 0 | 9 |
| Changes in the scope of consolidation | -1 | -2 | -1 | 0 | -5 |
| Other movements | 0 | 28 | 3 | 0 | 30 |
| Closing balance | 594 | 176 | 181 | 9 | 959 |
| of which accumulated amortisation and impairment | 829 | 495 | 594 | 54 | 1 971 |
an investment as the present value of all future free cashflows of the business. This method is based on long-term projections about the company's business and the resulting cashflows (i.e. projections for a number of years ahead (usually 17), and the residual value of the business at the end of the specific projection period). These longterm projections are the result of an assessment of past and present performances combined with external sources of information on future performances in the respective markets and the global macroeconomic environment. The terminal growth rate is determined using a long-term average market growth rate. The present value of these future cashflows is calculated using a post-tax compound discount rate which is based on the capital asset pricing model (CAPM). A risk-free rate, a market-risk premium (multiplied by an activity beta), and a country risk premium (to reflect the impact of the economic situation of the country where KBC is active) are also used in the calculation. KBC has developed two distinct discounted cashflow models, viz. a bank model and an insurance model. Free cashflows in both cases are the dividends that can be paid out to the company's shareholders, account taken of the minimum capital requirements.
| specific period of cashflow projections |
||||
|---|---|---|---|---|
| Goodwill outstanding (in millions of EUR) | 31-12-2014 | 31-12-2015 | 31-12-2014 | 31-12-2015 |
| K&H Bank | 219 | 220 | 11.6%–8.0% | 13.6%–10.7% |
| Cˇ SOB (Czech Republic) | 229 | 233 | 8.4%–7.8% | 9.9%–9.7% |
| Cˇ SOB (Slovakia) | 191 | 0 | 8.9%–8.1% | 10.0%–9.0% |
| CIBANK | 117 | 0 | 9.3%–7.7% | 11.1%–9.5% |
| DZI Insurance | 108 | 74 | 9.4%–8.1% | 9.2%–7.6% |
| Rest | 69 | 68 | – | – |
| Total | 933 | 594 | – | – |
• No sensitivity analysis was carried out for entities where the recoverable amount exceeded the carrying value to such a large extent that no reasonably possible change in the key assumptions would result in the recoverable amount being less than or equal to the carrying value. A sensitivity analysis was not carried out for DZI Insurance either because the recoverable amount was equal to the carrying value and, therefore, any adverse change in the key assumptions would lead to impairment. The table gives an indication for K&H Bank of the change in key assumptions that would lead to the recoverable amount equalling the carrying value.
Discount rates throughout the
| Decrease | Increase in | Decrease in | ||
|---|---|---|---|---|
| Increase in | in terminal | targeted | annual net | |
| Change in key assumptions1 | discount rate2 | growth rate3 | solvency ratio4 | profit |
| K&H Bank | 10.2% | – | 1.7% | 9.8% |
1 Needless to say account should be taken of the fact that a change in these assumptions could affect other assumptions used to calculate the recoverable amount.
2 The discount rate for the first year was increased by the percentage shown. Pursuant to the way in which discount rates (or changes in discount rates) are modelled, the increase in the discount rate for the first year is gradually and diminishingly carried forward as (higher) discount rates for the years ahead.
3 Not relevant for K&H Bank as it would mean that the terminal growth rate will be negative.
4 Absolute increase in the tier-1 capital ratio.
| (in millions of EUR) | 31-12-2014 | 31-12-2015 | ||
|---|---|---|---|---|
| Technical provisions (before reinsurance) (i.e. gross figures) | 18 934 | 19 532 | ||
| Insurance contracts | 9 757 | 10 297 | ||
| Provision for unearned premiums and unexpired risk | 603 | 647 | ||
| Life insurance provision | 6 274 | 6 677 | ||
| Provision for claims outstanding | 2 360 | 2 436 | ||
| Provision for profit sharing and rebates | 18 | 18 | ||
| Other technical provisions | 502 | 519 | ||
| Investment contracts with DPF | 9 176 | 9 235 | ||
| Life insurance provision | 9 080 | 9 143 | ||
| Provision for claims outstanding | 0 | 0 | ||
| Provision for profit sharing and rebates | 96 | 92 | ||
| Reinsurers' share | 194 | 127 | ||
| Insurance contracts | 194 | 127 | ||
| Provision for unearned premiums and unexpired risk | 2 | 1 | ||
| Life insurance provision | 1 | 2 | ||
| Provision for claims outstanding | 192 | 123 | ||
| Provision for profit sharing and rebates | 0 | 0 | ||
| Other technical provisions | 0 | 0 | ||
| Investment contracts with DPF | 0 | 0 | ||
| Life insurance provision | 0 | 0 | ||
| Provision for claims outstanding | 0 | 0 | ||
| Provision for profit sharing and rebates | 0 | 0 | ||
| Gross | Gross | |||
| MOVEMENTS TABLE | 2014 | Reinsurance 2014 | 2015 | Reinsurance 2015 |
| INSURANCE CONTRACTS, LIFE | ||||
| Opening balance | 6 261 | 2 | 6 754 | 2 |
| Deposits excluding fees | 647 | 0 | 788 | 0 |
| Provisions paid | -547 | 0 | -599 | 0 |
| Accretion of interest | 225 | 0 | 234 | 0 |
| Cost of profit sharing | 2 | 0 | 3 | 0 |
| Exchange differences | -27 | 0 | 27 | 0 |
| Transfers out of/into liabilities associated with disposal groups | 0 | 0 | 0 | 0 |
| Changes in the scope of consolidation | 0 | 0 | 0 | 0 |
| Other movements | 193 | 0 | -36 | 1 |
| Closing balance | 6 754 | 2 | 7 170 | 3 |
| INSURANCE CONTRACTS, NON-LIFE | ||||
| Opening balance | 2 922 | 144 | 3 004 | 192 |
| Changes in the provision for unearned premiums | 33 | 0 | 35 | 0 |
| Payments regarding claims of previous years | -216 | -9 | -204 | -7 |
| Surplus/shortfall of claims | ||||
| provision in previous financial years | -131 | -22 | -129 | 8 |
| Provision for new claims | 370 | 100 | 332 | 13 |
| Exchange differences | -7 | 0 | -5 | 0 |
| Transfers out of/into liabilities associated with disposal groups | 0 | 0 | 0 | 0 |
| Changes in the scope of consolidation | 0 | 0 | 0 | 0 |
| Other movements | 32 | -21 | 93 | -83 |
| Closing balance | 3 004 | 192 | 3 127 | 123 |
| INVESTMENT CONTRACTS WITH DPF, LIFE | ||||
| Opening balance | 9 518 | 0 | 9 176 | 0 |
| Deposits excluding fees | 517 | 0 | 378 | 0 |
| Provisions paid | -859 | 0 | -606 | 0 |
| Accretion of interest | 199 | 0 | 259 | 0 |
| Cost of profit sharing | 0 | 0 | 0 | 0 |
| Exchange differences | 0 | 0 | 1 | 0 |
| Transfers out of/into liabilities associated with disposal groups | 0 | 0 | 0 | 0 |
| Changes in the scope of consolidation | 0 | 0 | 0 | 0 |
| Other movements | -199 | 0 | 27 | 0 |
| Closing balance | 9 176 | 0 | 9 235 | 0 |
mortality and morbidity rates, which are based on standard mortality tables and adapted where necessary to reflect the group's own experience;
expense assumptions, which are based on current expense levels and expense loadings;
| (in millions of EUR) | Provisions for restructuring |
Provisions for taxes and pending legal disputes |
Other | Subtotal | Provisions for commitments and financial guarantees |
Total |
|---|---|---|---|---|---|---|
| 2014 | ||||||
| Opening balance | 19 | 292 | 98 | 409 | 114 | 523 |
| Movements with an impact on results | 0 | |||||
| Amounts allocated | 24 | 12 | 235 | 271 | 32 | 304 |
| Amounts used | -8 | -80 | -194 | -282 | -3 | -285 |
| Unused amounts reversed | -2 | -3 | -11 | -16 | -55 | -71 |
| Transfers out of/into liabilities associated with disposal groups | 2 | 0 | 0 | 2 | 0 | 2 |
| Changes in the scope of consolidation | -1 | 0 | 0 | 0 | 9 | 9 |
| Other movements | -2 | 4 | 16 | 18 | 61 | 79 |
| Closing balance | 32 | 225 | 144 | 402 | 158 | 560 |
| 2015 | ||||||
| Opening balance | 32 | 225 | 144 | 402 | 158 | 560 |
| Movements with an impact on results | ||||||
| Amounts allocated | 7 | 22 | 11 | 40 | 44 | 84 |
| Amounts used | -31 | -82 | -80 | -194 | 0 | -194 |
| Unused amounts reversed | 0 | -47 | -19 | -66 | -52 | -118 |
| Transfers out of/into liabilities associated with disposal groups | 0 | 0 | 0 | 0 | 0 | 0 |
| Changes in the scope of consolidation | 0 | 0 | -1 | -1 | 0 | -1 |
| Other movements | 2 | 0 | 1 | 3 | -25 | -22 |
| Closing balance | 9 | 118 | 58 | 184 | 125 | 310 |
which the bank could be involved, but in most cases they concerned payments or lending. KBC Bank and/or KB Consult were joined to proceedings in a number of cases. In addition, KB Consult was placed under suspicion by an investigating judge in 2004, and together with KBC Bank and KBC Group NV, was summoned to appear in the proceedings before a judge in chambers in Bruges. On 9 November 2011, the judge referred KB Consult and KBC Bank to Bruges Criminal Court on charges of uttering, but dismissed the charges against KBC Group NV. The Belgian state appealed the decision of no case to answer against KBC Group NV. On 27 October 2015, the indictments division ruled that proceedings were time-barred and upheld the original decision of no case to answer. The case as referred will now be heard before Bruges Criminal Court in the course of 2016. A suitable provision has been constituted to deal with the potential impact of claims for damages in this respect. The transfer of a cash company is in principle completely legitimate. Nevertheless, it later transpired that certain purchasers were acting in bad faith since they did not make any investments at all and did not file tax returns for the cash companies they had purchased. KBC Bank and KB Consult immediately took the necessary measures to preclude any further involvement with these parties. Referral to the criminal court does not in any way imply that any KBC entity has been convicted of an offence. KBC is fully defending its position in these cases, based, among other things, on the fact that, during the period in which the events took place, the legal entity was not liable to prosecution and, in particular, KBC was utterly lacking in criminal intent.
most important of which are the rulings on extraterritoriality and good faith defences. On 27 April 2014, Judge Rakoff issued an opinion and order regarding the 'good faith' standard and pleading burden to be applied in the Picard/SIPA proceeding based on sections 548(b) and 559(b) of the Bankruptcy Code. As such the burden of proof that KBC should have been aware of the fraud perpetrated by Madoff in this matter is for Picard/SIPA. On 7 July 2014, Judge Rakoff ruled that Picard/SIPA's reliance on section 550(a) does not allow for the recovery of subsequent transfers received abroad by a foreign transferee from a foreign transferor (as is the case for KBC Investments Ltd). Therefore, the trustee's recovery claims have been dismissed to the extent that they seek to recover purely foreign transfers. In June 2015, the trustee filed a petition against KBC to overturn the ruling that the claim fails on extraterritoriality grounds. In this petition, the trustee also amended the original claim including the sum sought. The amount has now been increased to 196 million US dollars.
Note 37: Other liabilities
Spain, Italy and Greece). They allowed for early redemption of the residual value as soon as a credit event occurred with respect to one of these countries. When the 5-5-5 bonds were launched, the sovereign risks were generally regarded as very low. However, the unexpected, far-reaching changes in market conditions early in 2010 (the Greek crisis) changed the original risk profile of these bonds. At the start of 2011, KBC pro-actively decided to offer additional security to holders of 5-5-5 bonds and informed them of this in writing: if a credit event occurred, investors would still get back the amount they had invested, less the coupons already received and less taxes and charges. On 9 March 2012, a credit event actually occurred in Greece, and KBC honoured the promise it made. On 8 October 2012, a number of parties who had subscribed to the 5-5-5 bonds issued by KBC Group NV and by KBC IFIMA raised proceedings before Brussels Court of First Instance, as they were not satisfied with the proposed settlement. In the case involving the KBC Group NV issue, the court handed down a judgment on 20 January 2016, which found in favour of one of the plaintiffs. KBC Bank and KBC Group NV have examined the judgment in detail and are of the view that there is sufficient ground for appealing the case, and have therefore decided to file a petition to that effect.
| (in millions of EUR) | 31-12-2014 | 31-12-2015 |
|---|---|---|
| Total | 2 629 | 2 541 |
| Breakdown by type | ||
| Retirement benefit obligations or other employee benefits | 657 | 371 |
| Deposits from reinsurers | 67 | 77 |
| Accrued charges (other than from interest expenses on financial liabilities) | 254 | 244 |
| Other | 1 650 | 1 849 |
• For more information on retirement benefit obligations, see Note 38 (note that the amount recognised under 'Retirement benefit
obligations or other employee benefits' in Note 37 relates to a broader scope than the amounts presented in Note 38).
| (in millions of EUR) | 31-12-2014 | 31-12-2015 |
|---|---|---|
| DEFINED BENEFIT PLANS | ||
| Reconciliation of defined benefit obligations | ||
| Defined benefit obligations at the beginning of the period | 2 034 | 2 610 |
| Current service cost | 98 | 120 |
| Interest cost | 63 | 45 |
| Plan amendments | ||
| Actuarial gain or loss resulting from changes in demographic assumptions | 26 | -9 |
| Actuarial gain or loss resulting from changes in financial assumptions | 500 | -220 |
| Past-service cost | -1 | 0 |
| Benefits paid | -128 | -116 |
| Exchange differences | 7 | 8 |
| Curtailments | -2 | -9 |
| Transfers under IFRS 5 | 16 | 0 |
| Changes in the scope of consolidation | 0 | 0 |
| Other | -3 | -49 |
| Defined benefit obligations at the end of the period | 2 610 | 2 380 |
| Reconciliation of the fair value of plan assets | ||
| Fair value of plan assets at the beginning of the period | 1 818 | 2 103 |
| Actual return on plan assets | 283 | 82 |
| Expected return on plan assets | 57 | 36 |
| Employer contributions | 87 | 65 |
| Plan participant contributions | 22 | 21 |
| Benefits paid | -128 | -116 |
| Exchange differences | 6 | 7 |
| Settlements | 0 | 0 |
| Transfers under IFRS 5 | 14 | 0 |
| Changes in the scope of consolidation | 0 | 0 |
| Other | 1 | 2 |
| Fair value of plan assets at the end of the period | 2 103 | 2 165 |
| of which financial instruments issued by the group | 25 | 50 |
| of which property occupied by KBC | 0 | 9 |
| Funded status | ||
| Plan assets in excess of defined benefit obligations | -507 | -215 |
| Reimbursement rights | 0 | 0 |
| Asset ceiling limit | 0 | -4 |
| Unfunded accrued/prepaid pension cost | -507 | -220 |
| Movement in net liabilities or net assets | ||
| Unfunded accrued/prepaid pension cost at the beginning of the period | -216 | -507 |
| Amounts recognised in the income statement | -79 | -103 |
| Amounts recognised in other comprehensive income | -281 | 323 |
| Employer contributions | 87 | 65 |
| Exchange differences | -1 | -1 |
| Transfers under IFRS 5 | -2 | 0 |
| Changes in the scope of consolidation | 0 | 0 |
| Other | -14 | 2 |
| Unfunded accrued/prepaid pension cost at the end of the period | -507 | -221 |
| Amounts recognised in the income statement | 79 | 103 |
| Current service cost | 98 | 120 |
| Past-service cost | -1 | 0 |
| Interest cost | 7 | 9 |
| Plan participant contributions | -22 | -21 |
| Curtailments | -2 | -5 |
| Settlements | 0 | 0 |
| Changes in the scope of consolidation | 0 | 0 |
| Changes to the amounts recognised in other comprehensive income | 281 | -323 |
| Actuarial gain or loss resulting from changes in demographic assumptions | 26 | -9 |
| Actuarial gain or loss resulting from changes in financial assumptions | 500 | -220 |
| Actuarial result on plan assets | -227 | -46 |
| Experience adjustments | -5 | -50 |
| Other | -14 | 0 |
| (in millions of EUR) 31-12-2014 |
31-12-2015 |
|---|---|
| Principal actuarial assumptions used (based on weighted averages) | |
| Discount rate 1.6% |
2.1% |
| 3.0% Expected rate of salary increase |
3.0% |
| 2.0% Expected rate of inflation |
2.0% |
| DEFINED CONTRIBUTION PLANS | |
| Expenses for defined contribution plans 5 |
8 |
• The pension claims of the Belgian-based staff of the various KBC group companies are covered by pension funds and group insurance schemes. Retirement benefits that are actively accrued for the current workforce of KBC Bank, KBC Insurance and most of their Belgian subsidiaries are accrued exclusively through the KBC pension funds. Retirement benefits accrued through employer contributions are currently accrued primarily through a defined benefit plan, where the benefit is calculated based on the final salary of employees before they retire, the number of years they had been in the plan and a formula that applies a progressive rate scale. A defined contribution plan was introduced on 1 January 2014 for all new employees. In this plan, a contribution is deposited based on the current monthly salary and the amounts deposited are paid out together with the (guaranteed) return on retirement. Both types of pension plan are managed by the OFP Pensioenfonds KBC and the OFP Pensioenfonds Senior Management KBC, which uses the services of KBC Asset
Management for the investment strategy. In addition, there are a number of closed group insurance schemes from the past that will continue to be funded, one of the main ones being the plan for employees of KBC Insurance (a defined benefit plan for the period of employment up to 1 January 2007).
• KBC Bank Ireland participated in a fully funded defined benefit plan until 31 August 2012. As of that date, no additional pension rights will be accumulated under that plan for future years of service. Benefits accrued in the plan continue to be linked to future salary increases of the participants (i.e. it will be managed dynamically). The assets of the pension plan have been separated from the assets of the bank. The employees of KBC Finance Ireland and the Dublin branch of KBC Bank are also signed up to this pension plan. The retirement benefits are calculated using a mathematical formula that takes account of age, salary and the length of time the participant was signed up.
| (in millions of EUR) | 2011 | 2012 | 2013 | 2014 | 2015 |
|---|---|---|---|---|---|
| Changes in main headings in the main table | |||||
| Defined benefit obligations | 1 823 | 2 191 | 2 034 | 2 610 | 2 380 |
| Fair value of plan assets | 1 557 | 1 765 | 1 818 | 2 103 | 2 165 |
| Unfunded accrued/prepaid pension cost | -372 | -425 | -216 | -507 | -220 |
| Impact of changes in the assumptions used in the actuarial calculation of plan assets and retirement benefit obligations* |
|||||
| Impact on plan assets | 0 | 0 | 0 | 0 | 0 |
| Impact on retirement benefit obligations | -76 | 213 | -85 | -135 | 24 |
* Arising from defined benefit plans. A plus sign signifies a positive impact, a minus sign a negative impact.
| KBC pension fund | KBC Insurance group insurance scheme |
KBC Bank Ireland pension plan | |
|---|---|---|---|
| Composition (31-12-2015) | |||
| Shares | 38% | 11% | 41% |
| Bonds | 49% | 89% | 16% |
| Real estate | 10% | 0% | 3% |
| Cash | 3% | 0% | 2% |
| Investment funds | 0% | 0% | 37% |
| of which illiquid assets | 4% | 0% | 0% |
| Composition (31-12-2014) | |||
| Shares | 39% | 10% | 36% |
| Bonds | 51% | 89% | 42% |
| Real estate | 9% | 0% | 3% |
| Cash | 1% | 1% | 1% |
| Investment funds | 0% | 0% | 18% |
| of which illiquid assets | 3% | 0% | 0% |
| Contributions expected in 2016 | |||
| (in millions of EUR) | 48 | 2 | 3 |
| Nature of pension plan benefits | Capital at retirement age. Death benefit in case of death during active career. |
Capital at retirement age. | Life-long annuity at retirement age. The pension fund was closed on 30 August 2012. |
| Orphans' benefit in case of death during active career.Monthly annuity payment as from the 13th |
Accrued benefits continue to be linked to future salary increases. |
||
| Regulatory framework | month of work disability. | Pension plans are registered in collective labour agreements and | Regulated by the Irish Pensions |
| incorporated into a set of regulations. Annual reporting of funding levels to supervisory authorities (FSMA/NBB). Any underfunding must be |
Authority. Funding level calculated every year and certified every three |
||
| reported immediately to the supervisory authorities. | years. Any underfunding must be reported immediately to the Irish Pensions Authority. |
||
| Responsibilities of KBC | To pay adequate contributions in accordance with the plan's funding agreement. To fund the pension plan. To provide annual pension statements to plan participants. To provide information following exit from the plan. |
To pay adequate contributions in accordance with the plan's funding agreement. To fund the pension plan. To notify the insurer when participants exit the plan. |
To pay adequate contributions in accordance with the plan's funding agreement. |
| Risks for KBC | Investment risk and inflation risk. | Investment risk. | |
| ALM policy | The hedging portfolio hedges against interest rate risk and inflation risk | Investments in leveraged LDI | |
| using interest rate swaps. The return portfolio aims to generate an extra return. |
pooled funds. | ||
| Plan amendments | An employer-funded defined contribution plan was introduced on 1 Janu ary 2014. All employees joining the company from that date are signed up to this new plan, while all those who were already employed on 31 December 2013 remain signed up to the defined benefit plan unless they |
The trustees agreed to reduce participants' benefits for 2015 to account for the payment of the pension levy enacted by the Irish |
|
| chose to switch to the new one. | government. | ||
| Funding | Contributions to the plan are calculated using the projected unit credit method. |
Contributions to the plan are calculated using the projected unit credit method. The pension fund was closed on 30 August 2012. No further accrual of future years of service. |
|
| Curtailments and settlements | Not applicable. | The trustees agreed to reduce participants' benefits for 2015 to account for the payment of the pension levy enacted by the Irish government. |
|
| Discounting method | Based on iBoxx quotes for various time buckets of AA-rated corporate bonds. The resulting yield curve is converted into a zero coupon curve. As of year 16, extrapolation is applied to flatten the curve for maturities of 20 years and longer. |
The Mercer method starts from a self-composed basket of corporate bonds with AAA, AA and A ratings. A spread is deducted from the bonds with an A rating in order to obtain the equivalent of an AA-rated corporate bond. After conversion to the zero coupon format using extrapolation for long maturities, the equivalent discount rate is determined. |
| Additional information on retirement benefit obligations – DEFINED BENEFIT PLANS | ||||
|---|---|---|---|---|
| -- | -- | -- | -- | ---------------------------------------------------------------------------------- |
| KBC Insurance group insurance | |||
|---|---|---|---|
| KBC pension fund | scheme | KBC Bank Ireland pension plan | |
| Key actuarial assumptions | |||
| Average discount rate | 2.13% | 1.95% | 2.80% |
| Expected rate of salary increase | 3.00% | 2.83% | 2.50% |
| Expected inflation rate | 2.00% | 2.00% | 1.50% |
| Expected rate of increase in pensions | – | – | 1.50% |
| Average duration of the obligations | 13.82 years | 11.83 years | 17 years |
| Weighted average duration of the obligations | 12.20 years | 12.06 years | 25 years |
| Impact of changes in the assumptions used in the actuarial calculation of the retirement benefit obligations |
|||
| Increase in the retirement benefit obligations on 31-12-2015 consequent on: |
|||
| a decrease of 1% in the discount rate | 13.82% | 11.88% | 28.40% |
| an increase of 1% in the expected inflation rate | 11.03% | 11.19% | 28.10% |
| an increase that is 1% higher than the expected real increase in salary |
14.17% | 23.82% | 8.15% |
| the age of retirement being 65 for all active employees |
1.76% | 0.67% | – |
| an increase of one year in life expectancy | – | – | 2.71% |
| The impact of the following assumptions has not been calculated: |
Decreasing mortality rates. Pension benefits are paid out in capital, so longevity risk is immaterial. Staff turnover rates, since the expected rate is very low. |
Not applicable. | |
| Additional information on retirement benefit obligations – DEFINED CONTRIBUTION PLANS | |||
| KBC pension fund | |||
| Contributions expected in 2016 (in millions of EUR) | 18 | ||
| Nature of pension plan benefits | Capital at retirement age. Vested rights are paid out on death. |
||
| Regulatory framework | Pursuant to the Belgian Supplementary Pensions Act, the employer must guarantee a minimum return of 3.75% on employee contributions. |
||
| Responsibilities of KBC | To provide information following exit from the plan. To deposit employee contributions at the pension institution. |
||
| Risks for KBC | Investment risk. | ||
| Funding | Contributions to the plan are calculated using the fixed component liability method. | ||
| Discounting method | Based on iBoxx quotes for various time buckets of AA-rated corporate bonds. The resulting yield curve is converted into a zero coupon curve. As of year 16, extrapolation is applied to flatten the curve for maturities of 20 years and longer. |
||
| Key actuarial assumptions | |||
| Average discount rate | 2.00% | ||
| Expected rate of salary increase | – | ||
| Expected inflation rate | – | ||
| Expected rate of increase in pensions | – | ||
| Weighted average duration of the obligations | 11 years | ||
| Impact of changes in the assumptions used in the actuarial calculation of the retirement benefit obligations |
|||
| Increase in the retirement benefit obligations on 31-12-2015 consequent on: |
|||
| a decrease of 1% in the discount rate | 4.46% | ||
| an increase of 1% in the expected inflation rate | – | ||
| an increase that is 1% higher than the expected real increase in salary |
– | ||
| the age of retirement being 65 for all active employees |
-0.04% | ||
| an increase of one year in life expectancy | – |
| Quantities | 31-12-2014 | 31-12-2015 |
|---|---|---|
| Ordinary shares | 417 780 658 | 418 087 058 |
| of which ordinary shares that entitle the holder to a dividend payment | 417 780 658 | 418 087 058 |
| of which treasury shares | 488 | 2 |
| Mandatorily convertible bonds | 0 | 0 |
| Non-voting core-capital securities | 67 796 608 | 0 |
| Additional information | ||
| Par value per share (in EUR) | 3.48 | 3.48 |
| Number of shares issued but not fully paid up | 0 | 0 |
| MOVEMENTS TABLE (quantities) | Ordinary shares | Non-voting core-capital securities |
| 2014 | ||
| Opening balance | 417 364 358 | 79 096 044 |
| Issue of shares | 416 300 | – |
| Reimbursement of core-capital securities | – | -11 299 436 |
| Closing balance | 417 780 658 | 67 796 608 |
| 2015 | ||
| Opening balance | 417 780 658 | 67 796 608 |
| Issue of shares | 306 400 | – |
| Reimbursement of core-capital securities | – | -67 796 608 |
| Closing balance | 418 087 058 | 0 |
3 billion euros (plus a 15% penalty) to the Belgian Federal Government (see balance sheet at year-end 2012). On 3 July 2013, KBC repaid 1.17 billion euros (plus a 50% penalty) to the Flemish Regional Government (see balance sheet at year-end 2013). On 8 January 2014, KBC repaid 0.33 billion euros (plus a 50% penalty) to the Flemish Regional Government (see balance sheet at year-end 2014). On 28 December 2015, KBC repaid the remaining 2 billion euros (plus a 50% penalty) to the Flemish Regional Government (see balance sheet at year-end 2015).
• Additional tier-1 instruments: in March 2014, KBC issued 1.4 billion euros in CRD IV-compliant additional tier-1 securities. These securities qualify as additional tier-1 capital under Basel III (as adopted in CRD IV) and, therefore, have had a positive impact on KBC's tier-1 capital. They are perpetual and may be called for redemption from year five onwards. Since they are classified as shares under IAS 32 (because interest payments are discretionary and the securities are perpetual), the annualised coupon of 5.625% – which is paid every quarter – is treated as a dividend. This transaction had no impact on the number of ordinary shares.
| (in millions of EUR) | 31-12-2014 | 31-12-2015 |
|---|---|---|
| Loan commitments – undrawn amount | ||
| Given | 31 520 | 36 575 |
| Irrevocable | 17 520 | 19 266 |
| Revocable | 14 000 | 17 309 |
| Received | 33 | 134 |
| Financial guarantees | ||
| Given | 9 985 | 9 364 |
| Guarantees/collateral received | 30 385 | 34 477 |
| For impaired and past due assets | 1 741 | 1 699 |
| For assets that are not impaired or past due | 28 644 | 32 778 |
| Other commitments | ||
| Given | 186 | 220 |
| Irrevocable | 186 | 220 |
| Revocable | 0 | 0 |
| Received | 0 | 0 |
| Carrying value of financial assets pledged by KBC as collateral | ||
| For liabilities* | 30 841 | 31 723 |
| For contingent liabilities | 3 969 | 3 311 |
* At year-end 2015, some 12 billion euros' worth of residential mortgage loans and cash collections were entered in the cover asset register for the special estate of the covered bond programme (9.2 billion euros at year-end 2014). More information on covered bonds is provided under 'Liquidity risk' in the 'Risk management' section.
Since these companies are included in the scope of consolidation, this is an intragroup transaction and the guarantee is not included in the above table.
• There is an obligation to return collateral received (which may be sold or repledged in the absence of default by the owner; see table) in its original form, or possibly in cash. Collateral can be called in if loans are terminated for various reasons such as default or bankruptcy. In the event of bankruptcy, the collateral will be sold by the receiver. In other cases, the bank will organise the foreclosure itself or take possession of the collateral. Collateral received that relates to OTC derivatives is primarily cash, which is recognised by KBC on the balance sheet (and is not included in the table). More details are provided in Note 22.
| Collateral received | Fair value of collateral sold or | ||||
|---|---|---|---|---|---|
| (which may be sold or repledged in the absence of default by the owner)illions of EUR) | Fair value of collateral received | repledged | |||
| 31-12-2014 | 31-12-2015 | 31-12-2014 | 31-12-2015 | ||
| Financial assets | 15 450 | 12 666 | 5 208 | 6 881 | |
| Equity instruments | 7 | 1 | 0 | 0 | |
| Debt instruments | 15 297 | 12 499 | 5 208 | 6 881 | |
| Loans and advances | 146 | 166 | 0 | 0 | |
| Cash | 0 | 0 | 0 | 0 | |
| Other | 2 | 0 | 0 | 0 | |
| Property and equipment | 2 | 0 | 0 | 0 | |
| Investment property | 0 | 0 | 0 | 0 | |
| Other | 0 | 0 | 0 | 0 |
| Collateral obtained by taking possession (in millions of EUR) | 31-12-2014 | 31-12-2015 |
|---|---|---|
| Non-current assets held for sale | 1 | 1 |
| Property and equipment | 0 | 0 |
| Investment property | 2 | 3 |
| Equity instruments and debt securities | 0 | 0 |
| Cash | 89 | 162 |
| Other | 26 | 12 |
| Total | 118 | 177 |
| (in millions of EUR) | |
|---|---|
| (in millions of EUR) | 31-12-2014 | 31-12-2015 |
|---|---|---|
| Finance lease receivables | ||
| Gross investment in finance leases, receivable | 4 774 | 5 114 |
| At not more than one year | 1 133 | 1 229 |
| At more than one but not more than five years | 2 376 | 2 615 |
| At more than five years | 1 265 | 1 270 |
| Unearned future finance income on finance leases | 636 | 593 |
| Net investment in finance leases | 4 138 | 4 515 |
| At not more than one year | 999 | 1 100 |
| At more than one but not more than five years | 2 105 | 2 361 |
| At more than five years | 1 034 | 1 054 |
| of which unguaranteed residual values accruing to the benefit of the lessor | 23 | 38 |
| Accumulated impairment for uncollectable lease payments receivable | 120 | 83 |
| Contingent rents recognised in the income statement | 101 | 95 |
| Operating lease receivables | ||
| Future aggregate minimum rentals receivable under non-cancellable operating leases | 407 | 434 |
| At not more than one year | 148 | 173 |
| At more than one but not more than five years | 250 | 255 |
| At more than five years | 9 | 6 |
| Contingent rents recognised in the income statement | 1 | 0 |
• There are no significant cases in which KBC is the lessee in operating or finance leases.
through KBC group's branch network, and that channel is becoming increasingly important in Central Europe, too.
• Operating leases: involve primarily full service car leases, which are sold through the KBC Bank and CBC Banque branch network and through an internal sales team. Full service car leasing activities are being further developed in Central Europe, too.
2014 2015
| Transactions with related parties, excluding key management (in millions of EUR) |
Subsidiaries | companies Associated |
es Joint ventur |
Flemish Reg ion |
Other | Total | Subsidiaries | companies Associated |
es Joint ventur |
Other | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Assets | 207 | 410 | 106 | 548 | 179 | 1 450 | 304 | 325 | 39 | 77 | 745 |
| Loans and advances | 70 | 159 | 64 | 0 | 175 | 467 | 133 | 55 | 2 | 34 | 223 |
| Current account advances | 0 | 0 | 0 | 0 | 145 | 145 | 1 | 0 | 0 | 4 | 4 |
| Term loans | 69 | 158 | 64 | 0 | 30 | 322 | 132 | 55 | 2 | 30 | 219 |
| Finance leases | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Consumer credit | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Mortgage loans | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Equity instruments | 136 | 68 | 17 | 0 | 0 | 221 | 154 | 81 | 11 | 4 | 251 |
| Held for trading | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Investment securities | 136 | 68 | 17 | 0 | 0 | 221 | 154 | 81 | 11 | 4 | 251 |
| Investments in associated companies and joint ventures | 0 | 177 | 25 | 0 | 0 | 202 | 0 | 179 | 27 | 0 | 205 |
| Other amounts receivable | 2 | 6 | 0 | 548 | 4 | 560 | 18 | 10 | 0 | 38 | 66 |
| Liabilities | 547 | 123 | 782 | 0 | 184 | 1 636 | 720 | 121 | 315 | 173 | 1 329 |
| Deposits | 543 | 15 | 782 | 0 | 181 | 1 522 | 581 | 17 | 259 | 171 | 1 027 |
| Deposits | 543 | 15 | 782 | 0 | 181 | 1 522 | 581 | 17 | 259 | 171 | 1 027 |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other financial liabilities | 0 | 0 | 0 | 0 | 0 | 0 | 101 | 0 | 0 | 0 | 101 |
| Debt certificates | 0 | 0 | 0 | 0 | 0 | 0 | 101 | 0 | 0 | 0 | 101 |
| Subordinated liabilities | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Share-based payments (granted) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Share-based payments (exercised) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other liabilities | 3 | 108 | 0 | 0 | 3 | 114 | 38 | 104 | 56 | 3 | 201 |
| Income statement | -3 | -1 | -10 | 24 | -6 | 3 | 2 | -3 | -7 | 3 | -5 |
| Net interest income | 3 | 0 | -8 | 24 | 0 | 20 | -1 | -1 | -5 | 1 | -7 |
| Interest income | 4 | 3 | 3 | 24 | 0 | 34 | 2 | 1 | 2 | 1 | 6 |
| Interest expense | -1 | -3 | -10 | 0 | 0 | -14 | -4 | -2 | -8 | 0 | -14 |
| Earned premiums, insurance (before reinsurance) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Technical insurance charges (before reinsurance) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Dividend income | 1 | 5 | 0 | 0 | 2 | 8 | 1 | 0 | 1 | 6 | 9 |
| Net fee and commission income | 0 | -1 | -3 | 0 | -2 | -6 | 14 | -1 | -3 | 2 | 11 |
| Fee and commission income | 0 | 0 | 0 | 0 | 1 | 2 | 14 | 0 | 0 | 2 | 17 |
| Fee and commission expense | 0 | -1 | -3 | 0 | -3 | -7 | 0 | -1 | -3 | 0 | -5 |
| Other net income | 3 | 1 | 0 | 0 | 1 | 5 | 5 | 3 | 0 | 2 | 10 |
| General administrative expenses | -11 | -6 | 0 | 0 | -7 | -25 | -17 | -5 | 0 | -6 | -28 |
| Undrawn portion of loan commitments, financial guarantees and other commitments |
|||||||||||
| Given by the group | 35 | 101 | 3 | 0 | 390 | 528 | 138 | 6 | 1 | 185 | 329 |
| Received by the group | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| (in millions of EUR)* | 2014 | 2015 |
|---|---|---|
| Total* | 11 | 9 |
| Breakdown by type of remuneration | ||
| Short-term employee benefits | 9 | 8 |
| Post-employment benefits | 2 | 1 |
| Defined benefit plans | 2 | 1 |
| Defined contribution plans | 0 | 0 |
| Other long-term employee benefits | 0 | 0 |
| Termination benefits | 1 | 0 |
| Share-based payments | 0 | 0 |
| Stock options (units) | ||
| At the beginning of the period | 0 | 0 |
| Granted | 0 | 0 |
| Exercised | 0 | 0 |
| Composition-related changes | 0 | 0 |
| At the end of the period | 0 | 0 |
| Advances and loans granted to key management and partners | 3 | 2 |
* Remuneration to key management or partners of the consolidating company on the basis of their activity in that company, its subsidiaries and associated companies, including the amount of retirement pensions granted to former key management staff on that basis.
In 2015, KBC Group NV and its subsidiaries paid Ernst & Young Bedrijfsrevisoren BCVBA fees amounting to a total of 8 992 752 euros for standard audit services (9 621 322 euros in 2014). Remuneration paid for other services came to 1 443 353 euros in 2015 (1 628 013 euros in 2014) and comprised 1 060 625 euros for other certifications, 125 667 euros for tax advice and 247 061 euros for other non-audit assignments (979 261, 92 868 and 555 884 euros, respectively, in 2014).
In 2015, KBC Group NV alone paid Ernst & Young Bedrijfsrevisoren BCVBA fees of 148 100 euros for standard audit services (149 124 euros in 2014). Remuneration paid for non-standard audit services came to 58 468 euros (113 144 euros in 2014).
The KBC group's legal structure has one single entity – KBC Group NV – in control of two underlying companies, viz. KBC Bank NV and KBC
Insurance NV, each of which has several subsidiaries and subsubsidiaries.
| Share of | |||||
|---|---|---|---|---|---|
| capital held | |||||
| Company | at group | Business | |||
| Company | Registered office | number | level (in %) | unit3 | Activity |
| KBC Bank: subsidiaries that are fully consolidated | |||||
| KBC Bank NV | Brussels – BE | 0462.920.226 | 100.00 | BEL/GRP | credit institution |
| ADB Asia Pacific Limited | Singapore – SG | -- | 100.00 | GRP | credit institution |
| Almafin Real Estate NV | Brussels – BE | 0403.355.494 | 100.00 | BEL | real estate |
| Almafin Real Estate Services NV | Brussels – BE | 0416.030.525 | 100.00 | BEL | real estate |
| Immo Arenberg NV | Brussels – BE | 0471.901.337 | 100.00 | BEL | real estate |
| Apitri NV | Brussels – BE | 0469.889.873 | 100.00 | BEL | real estate |
| CBC Banque SA | Brussels – BE | 0403.211.380 | 100.00 | BEL | credit institution |
| Cˇeskoslovenská Obchodná Banka a.s. | Bratislava – SK | -- | 100.00 | IMA | credit institution |
| Cˇ SOB Centrála. s.r.o. | Bratislava – SK | -- | 100.00 | IMA | facilities management and support services |
| Cˇ SOB Factoring a.s. | Bratislava – SK | -- | 100.00 | IMA | factoring |
| Cˇ SOB Leasing a.s. | Bratislava – SK | -- | 100.00 | IMA | leasing |
| Cˇ SOB Leasing Pojist'ovací Maklér s.r.o. | Bratislava – SK | -- | 100.00 | IMA | leasing support |
| VB Leasing SK. spol. s.r.o. | Bratislava – SK | -- | 100.00 | IMA | leasing |
| VB Leasing Sprostredkovatel'ská s.r.o. | Bratislava – SK | -- | 100.00 | IMA | insurance broker |
| Cˇ SOB Stavebná Sporitel'nˇ a a.s. | Bratislava – SK | -- | 100.00 | IMA | building society |
| Cˇeskoslovenská Obchodní Banka a.s. | Prague – CZ | -- | 100.00 | CZR | credit institution |
| Bankovní Informacˇní Technologie s.r.o. | Prague – CZ | -- | 100.00 | CZR | automatic data processing |
| Centrum Radlická a.s. | Prague – CZ | -- | 100.00 | CZR | real estate |
| Cˇ SOB Advisory a.s. | Prague – CZ | -- | 100.00 | CZR | investment administration |
| Cˇ SOB Factoring a.s. | Prague – CZ | -- | 100.00 | CZR | factoring |
| Cˇ SOB Leasing a.s. | Prague – CZ | -- | 100.00 | CZR | leasing |
| Cˇ SOB Leasing Pojist'ovací Maklér s.r.o. | |||||
| Prague – CZ | -- | 100.00 | CZR | leasing support | |
| Cˇ SOB Penzijní spolecˇnost a.s. | Prague – CZ | -- | 100.00 | CZR | pension insurance fund |
| Cˇ SOB Property Fund a.s. | Prague – CZ | -- | 100.00 | CZR | real estate fund |
| Merrion Properties a.s. | Prague – CZ | -- | 100.00 | CZR | real estate |
| Hypotecˇní Banka a.s. | Prague – CZ | -- | 100.00 | CZR | mortgage credit institution |
| Patria Online a.s. | Prague – CZ | -- | 100.00 | CZR | online investment data |
| Patria Finance a.s. | Prague – CZ | -- | 100.00 | CZR | online securities trading |
| Patria Finance CF a.s. | Prague – CZ | -- | 100.00 | CZR | agent and consulting services |
| Radlice Rozvojavá a.s. | Prague – CZ | -- | 100.00 | CZR | real estate |
| CIBANK EAD | Sofia – BG | -- | 100.00 | IMA | credit institution |
| Management of Assets for Sale – 2 EOOD | Sofia – BG | -- | 100.00 | IMA | real estate |
| Katarino Spa Hotel EAD | Sofia – BG | -- | 100.00 | IMA | real estate |
| IIB Finance Ireland | Dublin – IE | -- | 100.00 | GRP | holding company |
| KBC Finance Ireland | Dublin – IE | -- | 100.00 | GRP | lending |
| KBC Financial Services (Ireland) Limited | Dublin – IE | -- | 100.00 | GRP | holding company |
| Immo-Quinto NV | Brussels – BE | 0466.000.470 | 100.00 | BEL | real estate |
| Immo Senningerberg | Luxembourg – LU | -- | 100.00 | BEL | real estate |
| KBC Asset Management NV | Brussels – BE | 0469.444.267 | 100.00 | BEL | asset management |
| KBC Asset Management SA | Luxembourg – LU | -- | 100.00 | BEL | asset management |
| KBC Fund Management Limited | Dublin – IE | -- | 100.00 | BEL | asset management |
| KBC Participations Renta B | Luxembourg – LU | -- | 100.00 | BEL | asset management |
| KBC Participations Renta C | Luxembourg – LU | -- | 100.00 | BEL | asset management |
| Cˇ SOB Asset Management, a.s., Investicˇní Spolecˇnost | |||||
| Prague – CZ | -- | 100.00 | CZR | asset management | |
| KBC Participations Renta SA | Luxembourg – LU | -- | 100.00 | BEL | asset management |
| KBC Towarzystwo Funduszy Inwestycyjnych a.s. | Warsaw – PL | -- | 100.00 | IMA | asset management |
| KBC Autolease NV | Leuven – BE | 0422.562.385 | 100.00 | BEL | leasing |
| KBC Lease (Luxembourg) SA | Betrange – LU | -- | 100.00 | BEL | leasing |
| KBC Bail Immobilier France sas | Paris – FR | -- | 100.00 | BEL | leasing |
| KBC Bank Ireland Plc. | Dublin – IE | -- | 100.00 | IMA | credit institution |
| Boar Lane Nominee (Number 1) Limited | Dublin – IE | -- | 100.00 | IMA | * |
| Boar Lane Nominee (Number 2) Limited | Dublin – IE | -- | 100.00 | IMA | * |
| Boar Lane Nominee (Number 3) Limited | Dublin – IE | -- | 100.00 | IMA | * |
| Danube Holdings Limited | Dublin – IE | -- | 100.00 | IMA | real estate |
| Glare Nominee Limited | Dublin – IE | -- | 100.00 | IMA | * |
| IIB Finance Limited | Dublin – IE | -- | 100.00 | IMA | commercial and financial services |
| IIB Asset Finance Limited | Dublin – IE | -- | 100.00 | IMA | leasing |
| IIB Commercial Finance Limited | Dublin – IE | -- | 100.00 | IMA | leasing |
| IIB Leasing Limited | Dublin – IE | -- | 100.00 | IMA | leasing |
| Lease Services Limited | Dublin – IE | -- | 100.00 | IMA | leasing |
|---|---|---|---|---|---|
| IIB Homeloans and Finance Limited | Dublin – IE | -- | 100.00 | IMA | holding company |
| KBC Homeloans and Finance Limited | Dublin – IE | -- | 100.00 | IMA | holding company |
| Premier Homeloans Limited | London – GB | -- | 100.00 | IMA | home loans |
| Irish Homeloans and Finance Limited | Dublin – IE | -- | 100.00 | IMA | real estate |
| KBC ACS Limited | Dublin – IE | -- | 100.00 | IMA | * |
| KBC Mortgage Finance | Dublin – IE | -- | 100.00 | IMA | mortgage financing |
| KBC Nominees Limited | Dublin – IE | -- | 100.00 | IMA | * |
| Fermion Limited | Dublin – IE | -- | 100.00 | IMA | mortgages management |
| Intercontinental Finance | Dublin – IE | -- | 100.00 | IMA | leasing |
| Linkway Developments Limited | Dublin – IE | -- | 100.00 | IMA | * |
| Merrion Commercial Leasing Limited | London – GB | -- | 100.00 | IMA | leasing |
| Merrion Equipment Finance Limited | London – GB | -- | 100.00 | IMA | * |
| Merrion Leasing Assets Limited | London – GB | -- | 100.00 | IMA | * |
| Merrion Leasing Finance Limited | London – GB | -- | 100.00 | IMA | * |
| Merrion Leasing Industrial Limited | London – GB | -- | 100.00 | IMA | * |
| Merrion Leasing Limited | London – GB | -- | 100.00 | IMA | * |
| Merrion Leasing Services Limited | London – GB | -- | 100.00 | IMA | leasing |
| Monastersky Limited | Dublin – IE | -- | 100.00 | IMA | holding company |
| Needwood Properties Limited | Dublin – IE | -- | 100.00 | IMA | real estate |
| Phoenix Funding 2 Limited | Dublin – IE | -- | 100.00 | IMA | securitisation |
| Phoenix Funding 3 Limited | Dublin – IE | -- | 100.00 | IMA | securitisation |
| Phoenix Funding 4 Limited | Dublin – IE | -- | 100.00 | IMA | securitisation |
| Phoenix Funding 5 Limited | Dublin – IE | -- | 100.00 | IMA | securitisation |
| Rolata Limited | Douglas – IM | -- | 100.00 | IMA | investment |
| KBC Commercial Finance NV | Brussels – BE | 0403.278.488 | 100.00 | BEL | factoring |
| KBC Credit Investments NV | Brussels – BE | 0887.849.512 | 100.00 | BEL/GRP | investment firm |
| KBC Financial Products UK Limited | London – GB | -- | 100.00 | GRP | (derivative) financial products |
| KBC Financial Products International SA | Luxembourg – LU | -- | 100.00 | GRP | stockbroker |
| KBC IFIMA SA | Luxembourg – LU | -- | 100.00 | GRP | financing |
| KBC Immolease NV | Leuven – BE | 0444.058.872 | 100.00 | BEL | leasing |
| KBC Investments Hong Kong Limited | Hong Kong – HK | -- | 100.00 | GRP | stockbroker |
| KBC Investments Limited | London – GB | -- | 100.00 | GRP | stockbroker |
| KBC AIM Feeder Fund | George Town – KY | -- | 100.00 | GRP | fund |
| KBC AIM Master Fund | George Town – KY | -- | 100.00 | GRP | fund |
| KBC Financial Products (Cayman Islands) Limited 'Cayman I' |
George Town – KY | -- | 100.00 | GRP | stockbroker |
| KBC Investments Cayman Islands V Limited | George Town – KY | -- | 100.00 | GRP | fund |
| Hanover Street Finance Limited | Jersey – GB | -- | 100.00 | GRP | CDO activities |
| Baker Street Finance Limited | Jersey – GB | -- | 100.00 | GRP | CDO activities |
| Dorset Street Finance Limited | Jersey – GB | -- | 100.00 | GRP | CDO activities |
| Pembridge Square Finance Limited | Jersey – GB | -- | 100.00 | GRP | CDO activities |
| Regent Street Finance Limited | Jersey – GB | -- | 100.00 | GRP | CDO activities |
| KBC Lease Belgium NV | Leuven – BE | 0426.403.684 | 100.00 | BEL | leasing |
| KBC Lease France SA | Lyon – FR | -- | 100.00 | GRP | leasing |
| KBC Lease (UK) Limited | Uxbridge – GB | -- | 100.00 | GRP | leasing |
| KBC Real Estate Luxembourg SA | Luxembourg – LU | -- | 100.00 | BEL | real estate |
| KBC Vastgoedinvesteringen NV | Brussels – BE | 0455.916.925 | 100.00 | BEL | real estate |
| KBC Vastgoedportefeuille België NV | Brussels – BE | 0438.007.854 | 100.00 | BEL | real estate |
| Apicinq NV | Brussels – BE | 0469.891.457 | 100.00 | BEL | real estate |
| KBC Securities NV | Brussels – BE | 0437.060.521 | 100.00 | BEL | stockbroker |
| K&H Bank Zrt. | Budapest – HU | -- | 100.00 | IMA | credit institution |
| K&H Befektetési Alapkezelo¨ Zrt. | Budapest – HU | -- | 100.00 | IMA | securities broking and fund management |
| K&H Csoportszolgáltató Központ Kft. | Budapest – HU | -- | 100.00 | IMA | accounting and tax collection |
| K&H Equities Tanácsadó Zrt. | Budapest – HU | -- | 100.00 | IMA | business and management advice |
| K&H Faktor Pénzügyi Szolgáltató Zrt. | Budapest – HU | -- | 100.00 | IMA | factoring |
| K&H Alkusz Biztosításközvetítö Kft. | Budapest – HU | -- | 100.00 | IMA | insurance broker |
| K&H Autópark Bérleti és Szolgáltató Kft. | Budapest – HU | -- | 100.00 | IMA | fleet management |
| K&H Eszközlizing Gép-és Tehergépjármü Bérleti Kft. | Budapest – HU | -- | 100.00 | IMA | leasing |
| K&H Ingatlanlizing Zrt. | Budapest – HU | -- | 100.00 | IMA | leasing |
| Loan Invest NV 'Institutional company for investment in receivables under Belgian law' |
Brussels – BE | 0889.054.884 | 100.00 | BEL | securitisation |
| Old Broad Street Invest NV | Brussels – BE | 0871.247.565 | 100.00 | GRP | real estate |
| Poelaert Invest NV | Brussels – BE | 0478.381.531 | 100.00 | BEL | real estate |
| RSL Leasing IFN SA | Bucharest – RO | -- | 100.00 | GRP | leasing |
| KBC Bank: subsidiaries that are not fully consolidated | |||||
|---|---|---|---|---|---|
| 111 OBS (General Partner) Limited1 | London – GB | -- | 100.00 | GRP | real estate |
| 111 OBS Limited Partnership1 | London – GB | -- | 100.00 | GRP | real estate |
| 111 OBS (Nominee) Limited1 | London – GB | -- | 100.00 | BEL | real estate |
| 2 B Delighted Italia Srl1 | Turin – IT | -- | 99.58 | GRP | lighting |
| 2 B Delighted NV1 | Roeselare – BE | 0891.731.886 | 99.58 | GRP | lighting |
| Wever & Ducré NV1 | Roeselare – BE | 0412.881.191 | 99.58 | GRP | lighting |
| Asia Pacific Trading & Investment Company Limited1 | Hong Kong – HK | -- | 99.58 | GRP | lighting |
| Dark NV1 | Roeselare – BE | 0472.730.389 | 99.58 | GRP | lighting |
| Limis Beyond Light NV1 | Roeselare – BE | 0806.059.310 | 99.58 | GRP | lighting |
| Wever & Ducré BV1 | The Hague – NL | -- | 99.58 | GRP | lighting |
| Wever & Ducré GmbH1 | Herzogenrath – DE | -- | 99.58 | GRP | lighting |
| Wever & Ducré Iluminación SL1 | Madrid – ES | -- | 99.58 | GRP | lighting |
| Almaloisir & Immobilier sas1 | Nice – FR | -- | 100.00 | BEL | real estate |
| Banque Diamantaire (Suisse) SA1 | Geneva – CH | -- | 100.00 | GRP | credit institution |
| Belrom Cinci SRL1 | Bucharest – RO | -- | 100.00 | BEL | leasing |
| Belrom Sapte SRL1 | Bucharest – RO | -- | 100.00 | BEL | leasing |
| Brussels North Distribution NV1 | Brussels – BE | 0476.212.887 | 100.00 | BEL | real estate |
| Cˇ SOB Nadácia1 | Bratislava – SK | -- | 100.00 | IMA | real estate |
| Eurincasso s.r.o.1 | Prague – CZ | -- | 100.00 | CZR | debt collection |
| Fitraco NV1 | Leuven – BE | 0425.012.626 | 100.00 | BEL | leasing |
| Immo-Antares NV² | Brussels – BE | 0456.398.361 | 100.00 | BEL | issuance of real estate certificates |
| Immo-Basilix NV² | Brussels – BE | 0453.348.801 | 100.00 | BEL | issuance of real estate certificates |
| Immo-Beaulieu NV² | Brussels – BE | 0450.193.133 | 50.00 | BEL | issuance of real estate certificates |
| Immobilière Distri-Land NV² | Brussels – BE | 0436.440.909 | 87.52 | BEL | issuance of real estate certificates |
| Immo Genk-Zuid NV² | Brussels – BE | 0464.358.497 | 100.00 | BEL | issuance of real estate certificates |
| Immolease-Trust NV1 | Brussels – BE | 0406.403.076 | 100.00 | BEL | real estate |
| Immo Lux-Airport SA² | Luxembourg – LU | -- | 100.00 | BEL | issuance of real estate certificates |
| Immo NamOtt NV² | Brussels – BE | 0840.412.849 | 100.00 | BEL | issuance of real estate certificates |
| Immo NamOtt Tréfonds NV² | Brussels – BE | 0840.620.014 | 100.00 | BEL | issuance of real estate certificates |
| Immo-Zénobe Gramme NV² | Brussels – BE | 0456.572.664 | 100.00 | BEL | issuance of real estate certificates |
| IP Exit, a.s.² | Prague – CZ | -- | 71.30 | CZR | * |
| Julienne Holdings S.à.r.l.1 | Luxembourg – LU | -- | 93.00 | BEL | holding company |
| Julie LH BVBA1 | Brussels – BE | 0890.935.201 | 93.00 | BEL | real estate |
| Juliette FH BVBA1 | Zaventem – BE | 0890.935.397 | 93.00 | BEL | real estate |
| KB-Consult NV1 | Brussels – BE | 0437.623.220 | 100.00 | BEL | * |
| KBC Bail France II sas1 | Lyon – FR | -- | 100.00 | GRP | leasing |
| KBC Clearing NV1 | Amsterdam – NL | -- | 100.00 | BEL | clearing house |
| KBC Lease (Nederland) BV1 | Almere – NL | -- | 100.00 | GRP | leasing |
| KBC Private Equity NV1 | Brussels – BE | 0403.226.228 | 100.00 | GRP | investment firm |
| KBC Securities USA, Inc.1 | New York – US | -- | 100.00 | GRP | stockbroker |
| Luxembourg North Distribution SA² | Luxembourg – LU | -- | 100.00 | BEL | issuance of real estate certificates |
| Immo Mechelen City Center NV2 | Brussels – BE | 0635.828.862 | 100.00 | BEL | issuance of real estate certificates |
| Midas Life Settlements LLC1 | Delaware – US | -- | 100.00 | GRP | life settlement service provider |
| Motokov a.s.1 | Prague – CZ | -- | 70.09 | CZR | vehicles |
| Newcourt Street Finance Limited1 | Jersey – GB | -- | 100.00 | GRP | CDO activities |
| NV ACTIEF NV1 | Brussels – BE | 0824.213.750 | 57.14 | BEL | training |
| Oxford Street Finance Limited1 | Jersey – GB | -- | 100.00 | GRP | CDO activities |
| Posselton Limited1 | Dublin – IE | -- | 100.00 | GRP | energy |
| Property LM s.r.o.1 | Bratislava – SK | -- | 100.00 | CZR | real estate |
| Reverse Mortgage Loan Trust 2008-11 | New York – US | -- | 100.00 | GRP | reverse mortgages |
| RHVG DK NV2 | Brussels – BE | 0539.765.408 | 100.00 | BEL | issuance of real estate certificates |
| RHVG QT NV2 | Brussels – BE | 0539.764.121 | 100.00 | BEL | issuance of real estate certificates |
| RHVG RB NV2 | Brussels – BE | 0539.765.012 | 100.00 | BEL | issuance of real estate certificates |
| RHVG SB NV2 | Brussels – BE | 0539.764.814 | 100.00 | BEL | issuance of real estate certificates |
| RHVG TB NV2 | Brussels – BE | 0539.764.517 | 100.00 | BEL | issuance of real estate certificates |
| Securitas sam1 | Monaco – MC | -- | 100.00 | GRP | leasing |
| Sisyphus Holding Corporation1 | Delaware – US | -- | 100.00 | GRP | holding company |
| Setanta Energy LLC1 | Delaware – US | -- | 100.00 | GRP | energy |
| TEE Square Limited1 | Road Town – VG | -- | 100.00 | CZR | * |
| Transformation Fund Stabilita1 | Prague – CZ | -- | 100.00 | CZR | pension insurance |
| Vastgoed Ruimte Noord NV1 | Brussels – BE | 0863.201.515 | 100.00 | BEL | real estate |
| Weyveld Vastgoedmaatschappij NV² | Brussels – BE | 0425.517.818 | 100.00 | BEL | issuance of real estate certificates |
| World Alliance Financial Corporation1 | New York – US | -- | 100.00 | GRP | reverse mortgages |
| KBC Bank: joint ventures accounted for using the equity method | |||||
| Cˇeskomoravská Stavební Sporˇitelna (CˇMSS) | Prague – CZ | -- | 55.00 | CZR | building society |
| Union KBC Asset Management Company Private Limited | Mumbai – IN | -- | 49.00 | BEL | asset management |
|---|---|---|---|---|---|
| KBC Bank: joint ventures not accounted for using the equity method1 | |||||
| Atrium Development SA | Luxembourg – LU | -- | 25.00 | BEL | real estate |
| Covent Garden Development NV | Brussels – BE | 0892.236.187 | 25.00 | BEL | real estate |
| Covent Garden Real Estate NV | Zaventem – BE | 0872.941.897 | 50.00 | BEL | real estate |
| Jesmond Amsterdam BV | Amsterdam – NL | -- | 50.00 | BEL | holding company |
| Miedziana Sp z.o.o. | Warsaw – PL | -- | 47.75 | BEL | real estate |
| Real Estate Participation NV | Zaventem – BE | 0473.018.817 | 50.00 | BEL | real estate |
| UNION KBC Trustee Company Private Limited | Mumbai – IN | -- | 49.00 | BEL | trustee |
| Xiongwei Lighting (Guangzhou) Co. Ltd | Guangzhou – CY | -- | 49.79 | GRP | lighting |
| KBC Bank: associated companies accounted for using the equity method | |||||
| HAGE Hajdúsági Agráripari Zrt. | Nádudvar – HU | -- | 25.00 | IMA | agriculture |
| KBC Bank: associated companies not accounted for using the equity method1 | |||||
| Bancontact-MisterCash NV | Brussels – BE | 0884.499.250 | 20.00 | BEL | credit cards |
| Banking Funding Company NV | Brussels – BE | 0884.525.182 | 20.25 | BEL | payment transactions |
| Bedrijvencentrum Regio Roeselare NV | Roeselare – BE | 0428.378.724 | 22.22 | BEL | business centre |
| Brussels I3 Fund NV | Brussels – BE | 0477.925.433 | 36.37 | BEL | venture capital funds |
| Citylife Belgium NV | Hasselt – BE | 0578.946.577 | 33.33 | BEL | IT and consultancy |
| Cofely Ren s.r.o. | Prague – CZ | -- | 42.82 | CZR | lease |
| Czech Banking Credit Bureau a.s. | Prague – CZ | -- | 20.00 | CZR | ICT |
| Etoiles d'Europe sas | Paris – FR | -- | 45.00 | BEL | hotels |
| Gemma Frisius-Fonds K.U. Leuven | Leuven – BE | 0477.960.372 | 40.00 | BEL | venture capital |
| Isabel NV | Brussels – BE | 0455.530.509 | 25.33 | BEL | ICT |
| Justinvest NV | Antwerp – BE | 0476.658.097 | 33.33 | BEL | real estate |
| První Certifikacˇni Autorita a.s. | Prague – CZ | -- | 23.25 | CZR | certification services |
| Qbic Feeder Fund NV | Ghent – BE | 0846.493.561 | 21.02 | BEL | venture capital |
| Rabot Invest NV | Antwerp – BE | 0479.758.733 | 25.00 | BEL | real estate |
| Thanksys NV | Hasselt – BE | 0553.877.423 | 22.22 | BEL | IT and consultancy |
| Xenarjo CVBA | Mechelen – BE | 0899.749.531 | 22.39 | BEL | social sector |
| KBC Insurance: subsidiaries that are fully consolidated | |||||
| KBC Insurance NV | Leuven – BE | 0403.552.563 | 100.00 | BEL/GRP | insurance company |
| ADD NV | Heverlee – BE | 0406.080.305 | 100.00 | BEL | insurance broker |
| KBC Group Re SA | Luxembourg – LU | -- | 100.00 | BEL/GRP | reinsurance company |
| Cˇ SOB Pojišt'ovna a.s. | Pardubice – CZ | -- | 100.00 | CZR | insurance company |
| Cˇ SOB Poist'ovnˇ a a.s. | Bratislava – SK | -- | 100.00 | IMA | insurance company |
| Double U Building BV | Rotterdam – NL | -- | 100.00 | BEL | real estate |
| DZI Life Insurance JSC | Sofia – BG | -- | 100.00 | IMA | life insurance |
| DZI – GENERAL INSURANCE JSC | Sofia – BG | -- | 100.00 | IMA | non-life insurance |
| DZI – HEALTH INSURANCE AD | Sofia – BG | -- | 100.00 | IMA | health insurance |
| Groep VAB NV | Zwijndrecht – BE | 0456.920.676 | 95.00 | BEL | holding company |
| VAB Rijschool NV | Sint-Niklaas – BE | 0448.109.811 | 95.00 | BEL | driving school |
| VAB NV | Zwijndrecht – BE | 0436.267.594 | 95.00 | BEL | roadside assistance |
| K&H Biztosító Zrt. | Budapest – HU | -- | 100.00 | IMA | insurance company |
| KBC Verzekeringen Vastgoed Nederland I BV | Rotterdam – NL | -- | 100.00 | BEL | real estate |
| KBC Insurance: subsidiaries that are not fully consolidated1 | |||||
| Algemene Maatschappij voor Risicobeheer NV Cˇ SOB Insurance Service Limited |
Merelbeke – BE | 0420.104.030 | 100.00 | BEL | insurance broker |
| Pardubice – CZ | -- | 100.00 | IMA | insurance broker | |
| Depannage 2000 NV | Hoboken – BE | 0403.992.429 | 95.00 | BEL | vehicles |
| KBC Zakenkantoor NV | Leuven – BE | 0462.315.361 | 100.00 | BEL | insurance broker |
| Maatschappij voor Brandherverzekering CVBA | Leuven – BE | 0403.552.761 | 90.09 | BEL | reinsurance |
| Net Fund Administration Sp z.o.o. | Warsaw – PL | -- | 100.00 | GRP | asset management |
| Omnia NV | Leuven – BE | 0413.646.305 | 100.00 | BEL | travel agency |
| Probemo Dubbele Bedieningen NV | Sint-Niklaas – BE | 0435.357.180 | 95.00 | BEL | driving school |
| Rijscholen Sanderus NV | Mechelen – BE | 0413.004.719 | 95.00 | BEL | driving school |
| VAB Banden Peeters NV | Overijse – BE | 0459.070.118 | 80.81 | BEL | vehicles |
| VAB Fleet Services NV | Zwijndrecht – BE | 0866.583.053 | 66.50 | BEL | vehicles |
| VAB Fleet Services BV | Apeldoorn – NL | -- | 66.50 | BEL | vehicles |
| 24+ NV | Zwijndrecht – BE | 0895.810.836 | 97.50 | BEL | insurance broker |
| KBC Insurance: joint ventures accounted for using the equity method | |||||
| NLB Vita d.d. KBC Insurance: joint ventures not accounted for using the equity method1 |
Ljubljana – SI | -- | 50.00 | GRP | life insurance |
| – | |||||
| KBC Insurance: associated companies accounted for using the equity method | |||||
| – | |||||
| KBC Insurance: associated companies not accounted for using the equity method1 | |||||
| AIA-Pool cvba | Brussels – BE | 0453.634.752 | 33.47 | BEL | insurance broker |
| AssurCard NV | Leuven – BE | 0475.433.127 | 33.33 | BEL | automated third-party payment system |
|---|---|---|---|---|---|
| Olympus Mobility NV | Brussels – BE | 0638.809.930 | 49.76 | BEL | computer programming |
| Optimobil Belgium NV | Brussels – BE | 0471.868.277 | 24.06 | BEL | vehicles |
| Traject NV | Ghent – BE | 0448.394.475 | 47.50 | BEL | mobility |
| KBC Group: subsidiaries that are fully consolidated | |||||
| KBC Group NV | Brussels – BE | 0403.227.515 | 100.00 | GRP | bank-insurance holding company |
| KBC Bank NV | Brussels – BE | 0462.920.226 | 100.00 | BEL/GRP | credit institution |
| KBC Insurance NV | Leuven – BE | 0403.552.563 | 100.00 | BEL/GRP | insurance company |
| Kredietcorp SA | Luxembourg – LU | -- | 100.00 | GRP | investment firm |
| KBC Group: subsidiaries that are not fully consolidated1 | |||||
| – | |||||
| KBC Group: joint ventures accounted for using the equity method | |||||
| – | |||||
| KBC Group: joint ventures not accounted for using the equity method1 | |||||
| – | |||||
| KBC Group: associated companies accounted for using the equity method | |||||
| – | |||||
| KBC Group: associated companies not accounted for using the equity method1 | |||||
| Experience@work CVBA | Mechelen – BE | 0627.819.632 | 33.00 | GRP | consultancy |
| * Not active. | |||||
| Reason for exclusion: |
1 Immaterial.
2 Issuers of real estate certificates and companies whereby the group is not exposed to a variable return.
3 BEL = Belgium Business Unit, CSR = Czech Republic Business Unit, IMA = International Markets Business Unit, GRP = Group Centre.
Companies eligible for consolidation are effectively included in the consolidated accounts if two of the following criteria are met:
• the group share in equity exceeds 2.5 million euros;
• the group share in the results exceeds 1 million euros;
• the balance sheet total exceeds 100 million euros.
The combined balance sheet total of the companies excluded from consolidation may not amount to more than 1% of the consolidated balance sheet total.
Interests in subsidiaries
º For the vast majority of the entities, the voting rights are materially equal to the ownership rights.
respected, which impose certain restrictions on the repatriation of capital and distribution of dividends.
| Direct parent | Consolidation | ||||
|---|---|---|---|---|---|
| Company | company | method | Ownership percentage at group level | Remarks | |
| 31-12-2014 | 31-12-2015 | ||||
| Additions | |||||
| VB Leasing SK, spol. s.r.o. | Cˇ SOB Leasing | Full | – | 100.0% | Acquisition by Cˇ SOB Leasing in 3Q 2015 |
| VB Leasing Sprostredkovatel'ská | |||||
| s.r.o. | Cˇ SOB Leasing | Full | – | 100.0% | Acquisition by Cˇ SOB Leasing in 3Q 2015 |
| Exclusions | |||||
| KBC Bank Deutschland AG | KBC Bank NV | Full | – | – | Sold in 3Q 2014 |
| Transformation Fund Stabilita | Cˇ SOB | Full | – | – | Deconsolidated in 3Q 2014 |
| KBC Financial Holding Inc. | KBC Bank NV | Full | 100.0% | – | Liquidated in 4Q 2015 |
| Name changes | |||||
| None | |||||
| Changes in ownership percentage and internal mergers | |||||
| Antwerp Diamond Bank NV | KBC Bank NV | Full | 100.0% | – | Merged with KBC Bank in 3Q 2015 |
| KBC Lease Holding NV | KBC Bank NV | Full | 100.0% | – | Merged with KBC Bank in 3Q 2015 |
Since no principal companies fell under the scope of IFRS 5 in 2014 and 2015, there is no (longer any) need to provide additional information for this note.
The information required in relation to risks (in accordance with IFRS 4 and IFRS 7) and capital (pursuant to IAS 1) is provided in those parts of the 'Risk management' and 'Capital adequacy' sections that have been audited by the statutory auditor.
Significant non-adjusting events between balance sheet date and the date on which the financial statements were approved by the Board of Directors (17 March 2016):
• Please refer to Note 36 as regards the '5-5-5 bonds' issued by KBC Group NV.
general, the company may, both in Belgium and abroad, perform all acts which may contribute to the achievement of its object (Article 2 of the Articles of Association, which are available at www.kbc.com).
The company annual accounts of KBC Group NV are presented here in abridged form. A full set of these accounts will be submitted for approval to the General Meeting of Shareholders of 4 May 2016.
The company annual accounts, the report of the Board of Directors and the statutory auditor's report are filed with the National Bank of Belgium. These documents are available free of charge from KBC Group NV, Investor Relations Office, IRO, Havenlaan 2, 1080 Brussels, Belgium. They can also be viewed at www.kbc.com.
The statutory auditor has delivered an unqualified audit opinion on the company annual accounts of KBC Group NV.
The company annual accounts have been prepared according to Belgian accounting standards (B-GAAP) and are, therefore, not comparable with the figures prepared in accordance with IFRS in the other sections of this report.
Company annual accounts and additional information
| (in millions of EUR) | 31-12-2014 | 31-12-2015 |
|---|---|---|
| Fixed assets | 17 442 | 18 140 |
| Intangible fixed assets | 226 | 160 |
| Property and equipment | 138 | 105 |
| Land and buildings | 32 | 31 |
| Plant, machinery and equipment | 82 | 60 |
| Furniture and vehicles | 12 | 13 |
| Other tangible fixed assets | 1 | 0 |
| Assets under construction and advance payments | 11 | 1 |
| Financial fixed assets | 17 078 | 17 875 |
| Affiliated companies | 17 077 | 17 874 |
| Participating interests | 14 529 | 14 044 |
| Amounts receivable | 2 547 | 3 830 |
| Other companies linked by participating interests | 1 | 1 |
| Participating interests | 1 | 1 |
| Amounts receivable | 0 | 0 |
| Current assets | 524 | 261 |
| Amounts receivable at more than one year | 1 | 0 |
| Trade debtors | 0 | 0 |
| Other amounts receivable | 1 | 0 |
| Stocks and contracts in progress | 1 | 1 |
| Stocks | 1 | 1 |
| Goods purchased for resale | 1 | 1 |
| Amounts receivable within one year | 69 | 10 |
| Trade debtors | 33 | 6 |
| Other amounts receivable | 36 | 5 |
| Current investments | 0 | 0 |
| Own shares | 0 | 0 |
| Other investments | 0 | 0 |
| Cash at bank and in hand | 405 | 163 |
| Deferred charges and accrued income | 49 | 87 |
| Total assets | 17 966 | 18 401 |
| Equity | 11 486 | 13 670 |
| Capital | 1 453 | 1 454 |
| Issued capital | 1 453 | 1 454 |
| Share premium account | 5 409 | 5 423 |
| Reserves | 1 466 | 1 466 |
| Legal reserves | 145 | 145 |
| Reserves not available for distribution | 1 | 1 |
| Untaxed reserves | 190 | 190 |
| Reserves available for distribution | 1 129 | 1 129 |
| Profit (Loss (-)) carried forward | 3 158 | 5 327 |
| Provisions and deferred taxes | 20 | 13 |
| Provisions for liabilities and charges | 20 | 13 |
| Pensions and similar obligations | 17 | 12 |
| Other liabilities and charges | 3 | 1 |
| Amounts payable | 6 459 | 4 718 |
| Amounts payable at more than one year | 4 878 | 3 080 |
| Financial debt | 4 878 | 3 080 |
| Subordinated loans | 4 297 | 3 080 |
| Non-subordinated bonds | 581 | 0 |
| Credit institutions | 0 | 0 |
| Amounts payable within one year | 1 363 | 1 583 |
| Amounts payable at more than one year falling due within the year | 0 | 480 |
| Financial debt | 376 | 937 |
| Credit institutions | 0 | 0 |
| Other loans | 376 | 937 |
| Trade debt | 39 | 33 |
| Taxes, remuneration and social security charges | 80 | 78 |
| Taxes | 3 | 7 |
| Remuneration and social security charges | 77 | 71 |
| Other amounts payable | 868 | 55 |
| Accrued charges and deferred income | 219 | 55 |
| Total liabilities | 17 966 | 18 401 |
| (in millions of EUR) | 31-12-2014 | 31-12-2015 |
|---|---|---|
| Operating income | 1 082 | 1 060 |
| Turnover | 1 026 | 971 |
| Increase (decrease (-)) in stocks of finished goods, work and contracts in progress | 0 | 0 |
| Own construction capitalised | 49 | 61 |
| Other operating income | 7 | 28 |
| Operating charges | 1 153 | 1 115 |
| Services and other goods | 568 | 577 |
| Remuneration, social security charges and pensions | 435 | 430 |
| Depreciation of and amounts written off formation expenses and intangible and tangible fixed assets | 118 | 110 |
| Provisions for liabilities and charges: amounts set aside (amounts reversed (-)) | 1 | -7 |
| Other operating charges | 31 | 5 |
| Operating profit (loss (-)) | -71 | -55 |
| Financial income | 1 441 | 3 366 |
| Income from financial fixed assets | 1 354 | 3 224 |
| Income from current assets | 5 | 0 |
| Other financial income | 82 | 142 |
| Financial charges | 444 | 1 144 |
| Debt charges | 432 | 1 128 |
| Amounts written down on current assets: increase (decrease (-)) | 0 | 0 |
| Other financial charges | 12 | 16 |
| Profit (Loss (-)) on ordinary activities, before tax | 926 | 2 167 |
| Extraordinary income | 158 | 51 |
| Reversal of provisions for extraordinary liabilities and charges | 1 | 0 |
| Gains on disposal of fixed assets | 157 | 23 |
| Other extraordinary income | 0 | 28 |
| Extraordinary charges | 1 | 27 |
| Extraordinary depreciation of and extraordinary amounts written off formation expenses and intangible and tangible fixed assets | 0 | 26 |
| Provisions for extraordinary liabilities and charges | 0 | 0 |
| Losses on disposal of fixed assets | 1 | 0 |
| Other extraordinary charges | 0 | 1 |
| Profit (Loss (-)) for the period, before tax | 1 083 | 2 191 |
| Transfers from deferred taxes | 1 | 0 |
| Transfers to deferred taxes | 0 | 4 |
| Income tax | 4 | 6 |
| Profit (Loss (-)) for the period | 1 080 | 2 181 |
| Profit (Loss (-)) for the period available for appropriation | 1 080 | 2 181 |
In this lay-out, charges are also depicted with a plus sign, as opposed to the way they are presented in the consolidated income statement.
| (in millions of EUR) 31-12-2014 |
31-12-2015 |
|---|---|
| Profit (Loss (-)) to be appropriated 4 006 |
5 338 |
| Profit (Loss (-)) for the period available for appropriation 1 080 |
2 181 |
| Profit (Loss (-)) carried forward from the previous period 2 927 |
3 158 |
| Transfers to equity 0 |
0 |
| To the legal reserves 0 |
0 |
| To other reserves 0 |
0 |
| Profit (Loss (-)) to be carried forward 3 158 |
5 327 |
| Profit to be distributed 849 |
11 |
| Dividends 836 |
0 |
| Directors' entitlements 0 |
0 |
| Other beneficiaries, employee profit-sharing 13 |
11 |
It will be proposed to the General Meeting of Shareholders that the profit for appropriation for the 2015 financial year be distributed as
shown in the table. If this proposal is approved, no dividend will be paid for 2015.
| (in millions of EUR) | Participating interests in affiliated companies |
Amounts receivable from affiliated companies |
Participating interests in companies linked by participating interests |
Amounts receivable from companies linked by participating interests |
|---|---|---|---|---|
| Carrying value at 31-12-2014 | 14 529 | 2 547 | 1 | 0 |
| Acquisitions in 2015 | 0 | 1 283 | 0 | 0 |
| Disposals in 2015 | -486 | 0 | 0 | 0 |
| Other changes in 2015 | 0 | 0 | 0 | 0 |
| Carrying value at 31-12-2015 | 14 044 | 3 830 | 1 | 0 |
KBC Group NV's participating interests in affiliated companies comprise mainly the shareholdings in KBC Bank NV, KBC Insurance NV en KBC Asset Management NV.
The main change in 2015 concerned the 500-million-euro capital reduction at KBC Insurance NV.
The amounts receivable from affiliated companies related to loans to KBC Bank NV in the form of additional tier-capital (1.4 billion euros) and tier-2 capital (1.7 billion euros), a subordinated perpetual loan of 0.25 billion euros to KBC Bank NV and a subordinated loan of 0.5 billion euros to KBC Insurance NV.
| Capital increase for | Appropriation of | |||
|---|---|---|---|---|
| (in millions of EUR) | 31-12-2014 | staff | results | 31-12-2015 |
| Capital | 1 453 | 1 | 0 | 1 454 |
| Share premium account | 5 409 | 13 | 0 | 5 423 |
| Reserves | 1 466 | 0 | 0 | 1 466 |
| Profit (Loss) carried forward | 3 158 | 0 | 2 169 | 5 327 |
| Equity | 11 486 | 14 | 2 169 | 13 670 |
At year-end 2015, the company's issued share capital amounted to 1 454 298 014.35 euros, represented by 418 087 058 shares of no nominal value, and the share premium account came to 5 422 640 121.69 euros. The share capital is fully paid up.
Changes in 2015:
• A capital increase under the authorisation to increase capital carried out on 23 December 2015 and reserved exclusively for employees of KBC Group NV and some of its Belgian subsidiaries resulted in 306 400 shares being issued at a price of 46.67 euros per share. These shares are blocked for two years, since the issue price was less than the market price of the KBC share on 11 November 2015. Capital was increased by 1 066 272.00 euros and the share premium account went up by 13 233 416.00 euros. By carrying out this capital increase, KBC Group NV aims to strengthen ties with its staff and the staff of its Belgian subsidiaries. Given the limited extent of the capital increase, the financial ramifications for existing shareholders are minor. All of the shares issued in 2015 will also be entitled to dividend from the 2015 financial year.
• Subject to the approval of the General Meeting, none of the 5 338 million euros' worth of profit to be appropriated will be paid out in dividends, but 11 million euros will be paid out in the form of an employee profit-sharing bonus. The profit carried forward, therefore, is 5 327 million euros.
The authorisation to increase capital may be exercised up to and including 20 May 2018 for an amount of 696 103 433.56 euros. Based on a par value of 3.48 euros a share, a maximum of 200 029 722 new KBC Group NV shares can therefore be issued under this authorisation.
The table below gives an overview of the notifications received in 2015 and in the first two months of 2016 pursuant to the Belgian Act of 2 May 2007 concerning the disclosure of significant participations. KBC publishes these notifications on www.kbc.com.
Please note that the number of shares stated in the notifications may differ from the current number in possession, as a change in the number of shares held does not always give rise to a new notification.
| Number of KBC shares (= voting |
% of total voting | |||
|---|---|---|---|---|
| rights) on date con | rights on date | |||
| Notifications* | Notification relating to | Note | cerned | concerned* |
| FMR LLC (Fidelity) | 12 January 2015 | Size of holding exceeds the 3% notification threshold | 12 687 206 | 3.04% |
| Parvus Asset Management Europe Ltd. |
13 February 2015 | Size of holding moves below the 3% notification threshold | 12 341 146 | 2.95% |
| FMR LLC (Fidelity) | 4 May 2015 | Size of holding moves below the 3% notification threshold | 12 312 076 | 2.95% |
| Blackrock Inc. | 17 August 2015 | Size of holding moves below the 5% notification threshold | 20 886 993 | 4.9995% |
| Blackrock Inc. | 19 August 2015 | Size of holding exceeds the 5% notification threshold | 20 907 517 | 5.0044% |
| Blackrock Inc. | 20 August 2015 | Size of holding moves below the 5% notification threshold | 20 881 252 | 4.9981% |
| Blackrock Inc. | 4 December 2015 | Size of holding exceeds the 5% notification threshold | 20 934 882 | 5.01% |
| Blackrock Inc. | 9 February 2016 | Size of holding moves below the 5% notification threshold | 20 650 780 | 4.94% |
| * More detailed information can be found in the respective notification forms available at www.kbc.com. |
The 'Corporate governance statement' section contains an overview of the shareholder structure at year-end 2015, based on all the notifications received pursuant to the Belgian Act of 2 May 2007.
| KBC shares held by KBC group companies | Address | 31 December 2014 |
31 December 2015 |
|---|---|---|---|
| KBC Securities NV | Havenlaan 12, 1080 Brussels, Belgium | 2 | 2 |
| KBC Group NV itself | Havenlaan 2, 1080 Brussels, Belgium | 486 | 0 |
| Total | 488 | 2 | |
| As a percentage of the total number of shares | 0.0% | 0.0% |
The average par value of the KBC share came to 3.48 euros in 2015. At year-end 2014, KBC bought 486 own shares (on the stock market, for 22 524 euros), which were given in 2015 to employees who exercised their options at the end of 2014.
Government (-2 billion euros under 'Subordinated loans'), an increase in tier-2 instruments (+783 million euros under 'Subordinated loans'), an increase in commercial paper (+561 million euros under 'Other loans') and the fact that no dividend would be paid for 2015 (under 'Other amounts payable').
See Note 43 in the 'Consolidated financial statements' section.
KBC Group NV had three branch offices (in the Czech Republic, Slovakia and Hungary) at year-end 2015.
The information required in accordance with Article 96 of the Belgian Companies Code that has not been provided above appears in the 'Report of the Board of Directors' section.
In 2008 and 2009, KBC Group NV issued 7 billion euros in perpetual, non-transferable, non-voting core-capital securities that have equal ranking (pari passu) with ordinary shares upon liquidation. These securities were subscribed by the Belgian State (the Federal Holding and Investment Company) and the Flemish Region, each in the amount of 3.5 billion euros.
KBC repaid that amount as follows:
• in 2015: 2 billion euros, plus a penalty of 50% to the Flemish Regional Government.
In 2009, KBC signed an agreement with the Belgian State regarding a guarantee for a substantial part of its structured credit portfolio. The plan initially related to a notional amount totalling 20 billion euros. More information on the structure of that transaction is provided in previous annual reports. In recent years, KBC rapidly reduced its exposure to CDOs and collapsed the two remaining CDOs in its portfolio in 2014. Over a period of just five years, KBC succeeded in scaling back its entire CDO portfolio, which had exceeded 25 billion euros in 2008, thus releasing it from the guarantee agreement.
Gives an insight into the income generated by insurance products sold through the bank channel and, therefore, into the success of the bankinsurance model.
| Calculation (in millions of EUR) | Reference | 2014 | 2015 |
|---|---|---|---|
| Fee and commission income received by the bank from the linked insurer (A) |
'Consolidated income statement': component of 'Net fee and commission income' |
151 | 146 |
| + | |||
| Insurance income for insurance products sold by bank branches (B) |
'Consolidated income statement': component of 'Total income' (various headings) |
295 | 298 |
| + Management fees generated by unit-linked insurance products sold by bank branches and recognised at the |
'Consolidated income statement': component of 'Net fee and commission income' |
||
| asset manager (C) | 54 | 63 | |
| = (A)+(B)+(C) | 500 | 507 |
We refined the method of calculation in 2015 and restated the figures for 2014 retroactively. The main change concerns the inclusion of all management fees generated by unit-linked products that were sold through bank branches (only a portion of these fees had been included previously) and a few smaller adjustments (total impact on the 2014 figures: an increase of roughly 64 million euros).
Gives an idea of the amount of profit over a certain period that is attributable to one share (and, where applicable, including dilutive instruments).
| Calculation (in millions of EUR) | Reference | 2014 | 2015 |
|---|---|---|---|
| Result after tax, attributable to equity holders of the parent (A) - |
'Consolidated income statement' | 1 762 | 2 639 |
| Coupon (and/or penalty) on the core-capital securities sold to the government (B) - |
'Consolidated statement of changes in equity' | -337 | -1 000 |
| Coupon on the additional tier-1 instruments included in equity (C) |
'Consolidated statement of changes in equity' | -41 | -52 |
| / | |||
| Average number of ordinary shares less treasury shares (in millions) in the period (D) |
Note 39 | 417 | 418 |
| or Average number of ordinary shares plus dilutive options less treasury shares in the period (E) |
(idem) | (idem) | |
| Basic = (A-B-C) / (D) (in EUR) | 3.32 | 3.80 | |
| Diluted = (A-B-C) / (E) (in EUR) | 3.32 | 3.80 |
Gives an insight into the technical profitability (i.e. after eliminating investment returns, among other items) of the non-life insurance business, more particularly the extent to which insurance premiums adequately cover claim payments and expenses. The combined ratio takes ceded reinsurance into account.
| Calculation (in millions of EUR or %) | Reference | 2014 | 2015 |
|---|---|---|---|
| Technical insurance charges, including the internal cost of settling claims (A) |
Note 9 | 760 | 757 |
| / | |||
| Earned insurance premiums (B) | Note 9 | 1 243 | 1 301 |
| + | |||
| Operating expenses (C) | Note 9 | 417 | 435 |
| / | |||
| Written insurance premiums (D) | Note 9 | 1 258 | 1 325 |
| = (A/B)+(C/D) | 94% | 91% | |
A risk-weighted measure of the group's solvency, based on common equity tier-1 capital.
| Calculation | 2014 | 2015 |
|---|---|---|
| Detailed calculation under 'Solvency at group level' in the 'Capital adequacy' section (the ratio given here is based on the | ||
| Danish compromise) | ||
| Phased-in* | 14.4% | 15.2% |
| Fully loaded* | 14.3% | 14.9% |
* The CRD IV rules are gradually being implemented to allow banks to build up the necessary capital buffers. The capital position of a bank, when account is taken of the transition period, is referred to as the 'phased-in' view. The capital position based on full application of all the rules – as would be the case after this transition period – is referred to as 'fully loaded'.
Gives an impression of the relative cost efficiency (costs relative to income) of the banking activities.
| Calculation (in millions of EUR or %) | Reference | 2014 | 2015 |
|---|---|---|---|
| Operating expenses of the banking activities (A) | 'Consolidated income statement': component of 'Operating expenses' |
3 315 | 3 391 |
| / | |||
| Total income of the banking activities (B) | 'Consolidated income statement': component of 'Total income' | 5 739 | 6 144 |
| = (A) / (B) | 58% | 55% |
This ratio is now based entirely on IFRS figures after use of the 'adjusted income statement' was discontinued in 2015 (the reference figures have been restated retroactively).
Indicates the proportion of impaired loans (see 'Impaired loans ratio' for definition) that are covered by impairment charges.
| Calculation (in millions of EUR or %) | Reference | 2014 | 2015 |
|---|---|---|---|
| Specific impairment on loans | 'Loan and investment portfolio, banking' table in the 'Risk management' section |
5 709 | 5 517 |
| / | |||
| Outstanding impaired loans | 'Loan and investment portfolio, banking' table in the 'Risk | ||
| management' section | 13 692 | 12 305 | |
| = (A) / (B) | 42% | 45% |
Where appropriate, the numerator and denominator in the formula may be limited to impaired loans that are more than 90 days past due.
Gives an idea of loan impairment charges recognised in the income statement for a specific period (in this case, a year), relative to the total loan portfolio (see 'Loan portfolio' for definition). In the longer term, this ratio can provide an indication of the credit quality of the portfolio.
| Calculation (in millions of EUR or %) | Reference | 2014 | 2015 |
|---|---|---|---|
| Net changes in impairment for credit risks (A) | 'Consolidated income statement': component of 'Impairment' | 587 | 323 |
| / | |||
| Average outstanding loan portfolio (B) | 'Loan and investment portfolio, banking' table in the 'Risk | ||
| management' section | 139 178 | 141 951 | |
| = (A) / (B) | 0.42% | 0.23% |
Gives an idea of the extent to which KBC Group NV distributes its annual profit (and, therefore, also indirectly the extent to which profits are used to strengthen the capital reserves).
| Reference | 2014 | 2015 |
|---|---|---|
| 836 | * | |
| 171 | ||
| 41 | ||
| – | ||
| 'Consolidated statement of changes in equity' 'Consolidated statement of changes in equity' 'Consolidated statement of changes in equity' 'Consolidated income statement' |
1 762 59% |
* Subject to the General Meeting of Shareholders approving non-payment of a dividend for 2015.
Indicates the proportion of impaired loans in the loan portfolio (see 'Loan portfolio' for definition) and, therefore, gives an idea of the creditworthiness of the portfolio. Impaired loans are loans where it is unlikely that the full contractual principal and interest will be repaid/paid. These loans have a KBC default status of PD 10, PD 11 or PD 12 and correspond to the new definition of 'non-performing' used by the European Banking Authority.
| Calculation (in millions of EUR or %) | Reference | 2014 | 2015 |
|---|---|---|---|
| Amount outstanding of impaired loans (A) | 'Loan and investment portfolio, banking' table in the 'Risk management' section |
13 692 | 12 305 |
| / Total outstanding loan portfolio (B) |
'Loan and investment portfolio, banking' table in the 'Risk | ||
| = (A) / (B) | management' section | 138 931 9.9% |
143 400 8.6% |
Where appropriate, the numerator may be limited to impaired loans that are more than 90 days past due (PD 11 + PD 12).
Gives an idea of the group's solvency, based on a simple non-risk-weighted ratio.
| Calculation (in millions of EUR or %) | Reference | 2014 | 2015 |
|---|---|---|---|
| Regulatory available tier-1 capital (A) | 'Solvency at group level' table in the 'Capital adequacy' section | 14 476 | 14 647 |
| / | |||
| Total exposure measures (total of non-risk-weighted on and off-balance sheet items, with a number of adjust |
|||
| ments) (B) | Based on the Capital Requirements Regulation (CRR) | 226 669 | 233 675 |
| = (A) / (B) | 6.4% | 6.3% |
Gives an idea of the bank's liquidity position in the short term, more specifically the extent to which the group is able to overcome liquidity difficulties over a one-month period.
| Calculation (in millions of EUR or %) | Reference | 2014 | 2015 |
|---|---|---|---|
| Stock of high-quality liquid assets (A) | Based on the European Commission's Delegated Act on LCR for 2015 and on the CRR for 2014 (therefore not entirely comparable) |
37 700 | 47 300 |
| / | |||
| Total net cash outflows over the next 30 calendar days (B) | 31 400 | 37 150 | |
| = (A) / (B) | 120% | 127% |
Gives an idea of the magnitude of (what are mainly pure, traditional) lending activities.
| Calculation (in millions of EUR) | Reference | 2014 | 2015 |
|---|---|---|---|
| Loans and advances to customers (related to the group's banking activities) (A) |
Note 18, component of 'Loans and advances to customers' | 123 275 | 126 812 |
| - Reverse repos with customers (B) |
Note 18 | -1 389 | -502 |
| + | |||
| Debt instruments issued by corporates and by credit institutions and investment firms (related to the group's banking activities) (C) |
Note 18, component of 'Debt instruments issued by corporates and by credit institutions and investment firms' |
6 860 | 7 118 |
| + | |||
| Loans and advances to credit institutions and investment firms (related to the group's banking activities, excluding dealing room activities) (D) |
Note 18, component of 'Loans and advances to credit institutions and investment firms ' |
1 443 | 1 060 |
| + | |||
| Financial guarantees granted to clients (E) | Note 40, component of 'Financial guarantees given' | 8 168 | 7 823 |
| + | |||
| Impairment on loans (F) | Note 21, component of 'Impairment' | 5 801 | 5 623 |
| + | |||
| Other (including accrued interest) (G) | Component of Note 18 | -5 227 | -4 534 |
| = (A)-(B)+(C)+(D)+(E)+(F)+(G) | 138 931 | 143 400 |
Provides an indication of the stock market value of the KBC group.
| Calculation (in EUR or quantity) | Reference | 2014 | 2015 |
|---|---|---|---|
| Closing price of KBC share (A) (in EUR) | – | 46.5 | 57.7 |
| X | |||
| Number of ordinary shares (B) | Note 39 | 417 780 658 | 418 087 058 |
| = (A) X (B) (in billions of EUR) | 19.4 | 24.1 |
Indicates the extent to which a bank has sufficient own funds and eligible liabilities available for bail-in. MREL and bail-in are based on the idea that shareholders and debt-holders should bear losses first if a bank fails.
| Reference | 2014 | 2015 |
|---|---|---|
| Based on BRRD | 30 656 | 30 704 |
| 'Consolidated balance sheet' | 245 174 | 220 809 |
| 12.5% | 13.9% | |
* After deconsolidation of KBC Insurance.
Gives an idea of the net interest income of the banking activities (one of the most important sources of revenue for the group) relative to the average total interest-bearing assets of the banking activities.
| Calculation (in millions of EUR or %) | Reference | 2014 | 2015 |
|---|---|---|---|
| Net interest income of the banking activities* (A) | 'Consolidated income statement': component of 'Net interest income' |
3 539 | 3 594 |
| / | |||
| Average interest-bearing assets of the banking activities | |||
| (B) | 'Consolidated balance sheet': component of 'Total assets' | 170 168 | 177 629 |
| = (A) / (B) | 2.08% | 2.02% |
* Redefined at the start of 2014 (and the figures restated retroactively) to eliminate all divestments and volatile short-term assets used for liquidity management purposes.
Gives an idea of the bank's structural liquidity position in the long term, more specifically the extent to which the group is able to overcome liquidity difficulties over a one-year period.
| Calculation (in millions of EUR or %) | Reference | 2014 | 2015 | |
|---|---|---|---|---|
| Available amount of stable funding (A) | – | 134 750 | 135 400 | |
| / | ||||
| Required amount of stable funding (B) | 109 500 | 111 800 | ||
| = (A) / (B) | 123% | 121% | ||
In 2014, we adjusted the method of calculation following our interpretation of the new Basel Committee guidance in October of that year. Therefore, the figures prior to 2014 are not entirely comparable with the figures for 2014 and 2015.
Gives the carrying value of a KBC share, i.e. the value in euros represented by each share in the parent shareholders' equity of KBC.
| Calculation (in millions of EUR or quantity) | Reference | 2014 | 2015 |
|---|---|---|---|
| Parent shareholders' equity (A) | 'Consolidated balance sheet' | 13 125 | 14 411 |
| / | |||
| Number of ordinary shares less treasury shares (at period | |||
| end) (B) | Note 39 | 417 780 170 | 418 087 056 |
| = (A) / (B) (in EUR) | 31.4 | 34.5 |
Gives an idea of the relative profitability of a business unit, more specifically the ratio of the net result to the capital allocated to the business unit.
| Calculation (in millions of EUR or %) | Reference | 2014 | 2015 |
|---|---|---|---|
| BELGIUM BUSINESS UNIT | |||
| Result after tax (including minority interests) of the business unit (A) |
Note 2: Segment reporting based on the management structure |
1 516 | 1 564 |
| / | |||
| The average amount of capital allocated to the business unit is based on the risk-weighted assets for the banking activities (under Basel III) and risk-weighted asset equiva lents for the insurance activities (under Solvency I) (B) |
'Our business units' section | 5 878 | 5 955 |
| = (A) / (B) | 26% | 26% | |
| CZECH REPUBLIC BUSINESS UNIT | |||
| Result after tax (including minority interests) of the business unit (A) |
Note 2: Segment reporting based on the management structure |
528 | 542 |
| / | |||
| The average amount of capital allocated to the business unit is based on the risk-weighted assets for the banking activities (under Basel III) and risk-weighted asset equiva |
'Our business units' section | ||
| lents for the insurance activities (under Solvency I) (B) | 1 441 | 1 474 | |
| = (A) / (B) | 37% | 37% | |
| INTERNATIONAL MARKETS BUSINESS UNIT | |||
| Result after tax (including minority interests) of the business unit (A) |
Note 2: Segment reporting based on the management structure |
-182 | 245 |
| / | |||
| The average amount of capital allocated to the business unit is based on the risk-weighted assets for the banking activities (under Basel III) and risk-weighted asset equiva |
'Our business units' section | ||
| lents for the insurance activities (under Solvency I) (B) | 1 949 | 2 028 | |
| = (A) / (B) | -9% | 12% |
Gives an idea of the relative profitability of the group, more specifically the ratio of the net result to equity.
| Calculation (in millions of EUR or %) | Reference | 2014 | 2015 |
|---|---|---|---|
| Result after tax, attributable to equity holders of the parent (A) - |
'Consolidated income statement' | 1 762 | 2 639 |
| Coupon on the core-capital securities sold to the government (B) - |
'Consolidated statement of changes in equity' | -171 | -0 |
| Coupon on the additional tier-1 instruments included in equity (C) / |
'Consolidated statement of changes in equity' | -41 | -52 |
| Average parent shareholders' equity, excluding the revaluation reserve for available-for-sale assets (D) |
'Consolidated statement of changes in equity' | 11 021 | 11 969 |
| = (A-B-C) / (D) | 14% | 22% |
Measures the solvency of the insurance business, calculated under Solvency I (up to and including 2015) or under Solvency II (as of 2016).
| Calculation 2014 |
2015 |
|---|---|
| Detailed calculation under 'Solvency of KBC Bank and KBC Insurance separately' in the 'Capital adequacy' section (Solvency I) 323% |
289% |
| (Solvency II) – |
231% |
Total assets under management (AuM) comprise third-party assets and KBC group assets managed by the group's various asset management companies (KBC Asset Management, Cˇ SOB Asset Management, etc.), as well as assets under advisory management at KBC Bank. The assets, therefore, consist mainly of KBC investment funds and unit-linked insurance products, assets under discretionary and advisory management mandates of (mainly retail, private banking and institutional) clients, and certain group assets. The size and development of total AuM are major factors behind net fee and commission income (generating entry and management fees) and hence account for a large part of any change in this income line. In that respect, the AuM of a fund that is not sold directly to clients but is instead invested in by another fund or via a discretionary/ advisory management portfolio, are also included in the total AuM figure, in view of the related work and any fee income linked to them.
| Calculation (in billions of EUR) | Reference | 2014 | 2015 |
|---|---|---|---|
| Belgium Business Unit (A) | KBC Asset Management Annual Report | 172.2 | 193.8 |
| + | |||
| Czech Republic Business Unit (B) | 7.4 | 8.8 | |
| + | |||
| International Markets Business Unit (C) | 6.1 | 6.2 | |
| (A)+(B)+(C) | 185.7 | 208.8 |
A risk-weighted measure of the group's solvency, based on total regulatory capital.
| Calculation | 2014 | 2015 |
|---|---|---|
| Detailed calculation under 'Solvency at group level' in the 'Capital adequacy' section (the ratio given here is based on the | ||
| Danish compromise) | ||
| Phased-in | 18.9% | 19.8% |
| Fully loaded | 18.3% | 19.0% |
'I, Luc Popelier, Chief Financial Officer of the KBC group, certify on behalf of the Executive Committee of KBC Group NV that, to the best of my knowledge, the financial statements, which are based on the relevant standards for annual accounts, fairly present in all material respects the assets, the financial condition and results of KBC Group
NV, including its consolidated subsidiaries, and that the annual report provides a fair overview of the development, the results and the situation of KBC Group NV, including its consolidated subsidiaries, as well as an overview of the main risks and uncertainties to which they are exposed.'
| Investor Relations Office |
|---|
| Wim Allegaert (General Manager, Financial Insight & Communication) |
| [email protected] |
| KBC Group NV, Investor Relations Office – IRO, Havenlaan 2, 1080 Brussels, Belgium |
| Press |
| Viviane Huybrecht (General Manager, Corporate Communication/Company Spokesperson) |
| [email protected] |
| KBC Group NV, Corporate Communication – GCM, Havenlaan 2, 1080 Brussels, Belgium |
| Corporate Sustainability & Responsibility |
| Vic Van de Moortel (General Manager, Corporate Sustainability & Responsibility) |
| [email protected] |
| KBC Group NV, Corporate Sustainability & Responsibility – CSR, Havenlaan 2, 1080 Brussels, Belgium |
The most up-to-date version of the financial calendar is available at www.kbc.com.
| Earnings release for 4Q 2015 and FY 2015 | 18 February 2016 |
|---|---|
| Publication of the Annual Report and the Risk Report for 2015 | 31 March 2016 |
| General Meeting of Shareholders (agenda available at www.kbc.com) | 4 May 2016 |
| Earnings release for 1Q 2016 | 12 May 2016 |
| Earnings release for 2Q 2016 | 11 August 2016 |
| Earnings release for 3Q 2016 | 17 November 2016 |
Editor-in-chief: Investor Relations Office – IRO, Havenlaan 2, 1080 Brussels, Belgium Sub-editing, translation, concept and design: Marketing & Communication Division, Brusselsesteenweg 100, 3000 Leuven, Belgium Printer: Van der Poorten, Diestsesteenweg 624, 3010 Leuven, Belgium Publisher: KBC Group NV, Havenlaan 2, 1080 Brussels, Belgium This annual report has been printed on paper that is not harmful to the environment.
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