Annual Report • May 10, 2012
Annual Report
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Extended Quarterly Report – KBC Group – 1Q2012 1
'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 abbreviated financial statements included in the quarterly report are based on the relevant accounting standards and fairly present in all material respects the financial condition and results of KBC Group NV including its consolidated subsidiaries, and that the quarterly report provides a fair view of the main events, the main transactions with related parties in the period under review and their impact on the abbreviated financial statements, and an overview of the main risks and uncertainties for the remainder of the current year.
The expectations, forecasts and statements regarding future developments that are contained in this report are, of course, based on assumptions and are contingent on a number of factors that will come into play in the future. Consequently, the actual situation may turn out to be (substantially) different.
www.kbc.com/ir m.kbc.com
KBC Group NV Investor Relations Office (IRO) Havenlaan 2, BE 1080 Brussels, Belgium
CAD ratio
[consolidated total regulatory capital] / [total weighted risks].
Combined ratio (non-life insurance)
[technical insurance charges, including the internal cost of settling claims / earned premiums] + [expenses / written premiums] (after reinsurance).
(Core) Tier-1 capital ratio
[consolidated tier-1 capital] / [total weighted risks]. The calculation of the core tier-1 ratio does not include hybrid instruments (but does include the core-capital securities sold to the Belgian and Flemish governments).
Cost/income ratio (banking) [operating expenses of the banking businesses of the group] / [ total income of the banking businesses of the group].
Cost ratio, non-life insurance
[expenses / written premiums] (after reinsurance).
[impairment on loans] / [outstanding non-performing loans]. For a definition of 'non-performing', see 'Non-performing ratio'. Where appropriate, the numerator may be limited to individual impairment non-performing loans.
[net changes in individual and portfolio-based impairment for credit risks]/ [average outstanding loan portfolio]. Note that, inter alia, government bonds are not included in this formula.
[result after tax, attributable to the equity holders of the parent)] / [average number of ordinary shares, less treasury shares]. If a coupon is expected to be paid on the core-capital securities sold to the Belgian and Flemish governments, it will be deducted from the numerator (pro rata); if a penalty premium is paid, it is deducted too.
[result after tax, attributable to equity holders of the parent, adjusted for interest expense (after tax) for non-mandatorily convertible bonds] /
[average number of ordinary shares, less treasury shares, plus the dilutive effect of options (number of stock options allocated to staff with an exercise price less than the market price) and non-mandatorily convertible bonds]. If a coupon is expected to be paid on the core-capital securities sold to the Belgian and Flemish governments, it will be deducted from the numerator (pro rata) ; if a penalty premium is paid, it is deducted too.
[net interest income of the banking activities (underlying)] / [average interest-bearing assets of the banking activities].
[amount outstanding of non-performing loans (loans for which principal repayments or interest payments are more than ninety days in arrears or overdrawn)] / [total outstanding loan portfolio]
[parent shareholders' equity] / [number of ordinary shares, less treasury shares (at period-end)].
[result after tax, including minority interests, of a business unit, adjusted for income on allocated instead of real equity] / [average equity allocated to the business unit]. The result of a business unit is the sum of the result of the companies belonging to the business unit, adjusted for the funding cost of goodwill (related to the companies in the business unit) and allocated central governance expenses. The equity allocated to a business unit is based on risk-weighted assets for banking and risk-weighted asset equivalents for insurance.
Return on equity
[result after tax, attributable to the equity holders of the parent] / [average parent shareholders' equity, excluding the revaluation reserve for availablefor-sale investments]. If a coupon is expected to be paid on the core-capital securities sold to the Belgian and Flemish governments, it will be deducted from the numerator (pro rata) ; if a penalty premium is paid, it is deducted too.
Solvency ratio, insurance
[consolidated available capital of KBC Insurance] / [minimum required solvency margin of KBC Insurance].
Consolidated financial statements according to IFRS 33
Extended Quarterly Report – KBC Group – 1Q2012 2
This news release contains information that is subject to transparency regulations for listed companies. Date of release: 10 May 2012, 7 a.m. CEST.
KBC ended the first three months of 2012 with a net profit of 380 million euros, compared with a net profit of 437 million euros in the previous quarter and 821 million euros in the corresponding quarter of 2011. The 'underlying' net result for the quarter under review (after excluding one-off and exceptional items) came to 455 million euros, well up on the net profit of 161 million euros in 4Q2011 and down on the 658 million euros in 1Q2011.
'KBC has started 2012 by posting a solid level of profit in the first quarter. We recorded a good 455 million euros in underlying profit and took another sizeable step forward in the implementation of our divestment plan, mainly in Poland. This has enabled us to continue to de-risk our company.
All this resulted in our tier-1 capital ratio increasing by 0.8% to 13.1% in the first quarter of 2012. This tier-1 ratio amounts to 15.5% on a pro forma basis, when all agreements that have been signed but not yet closed are included.
This has been achieved against a background of particularly challenging market conditions. Despite this, the execution of our strategic plan has gained further momentum.
Our underlying result has been driven by the good results generated by our strategic banking and insurance business model on our home markets in Belgium and Central and Eastern Europe. Net interest income remained solid and insurance results remained good. The dealing rooms, in particular, had an excellent quarter. The quarter was also characterised by low levels of impairment. However, the result was also affected by additional loan loss provisioning in Ireland, as well as by the additional and final losses recorded on our Greek government bond position.
The two most noteworthy exceptional items were the strong positive value adjustments in our CDO portfolio and the negative marked-to-market valuation of our own issued debt.
On 2 January 2012, KBC repaid a first tranche of 500 million euros in respect of the YES (Yield Enhanced Securities) to the Belgian Federal Government, plus a 15% penalty. We are continuing our efforts to ensure that the 4.7 billion euros in state aid (before any penalty) is reimbursed by the end of 2013, as set out in the European plan.
We remain committed to executing our strategic plan with the same diligence and determination to ensure timely repayment of the state aid and are committed to playing an active role in the European financial sector, which will benefit our customers, employees, shareholders and other stakeholders.'
As has been the case in previous quarters, KBC has acted to reduce volatility in its results. We reduced our CDO and ABS exposure by 2.2 billion euros in the first quarter of 2012. This was achieved by early terminations and sales.
The main exceptional factors having an impact on the reported IFRS result for 1Q2012 were:
During the first quarter, corporate and ABS credit spreads tightened further, as had been the case during the fourth quarter of 2011. After the cost of reducing the CDO exposure was also taken into account, this led to a valuation mark-up of some 0.2 billion euros on the CDO exposure.
The substantial improvement of the credit spread on KBC debt between year-end 2011 and the end of the first quarter resulted in a negative marked-to-market adjustment of 0.3 billion euros.
The main one-off items having an impact on the underlying result for 1Q2012 were:
As a result of the exchange offer of Greek bonds (PSI debt restructuring), KBC recorded an additional and final negative result of 21 million euros after tax (28 million, pre-tax) on its Greek government bond portfolio in this market.
KBC also recorded a charge of 37 million euros after tax (56 million, pre-tax) above the provision already booked in 2011 on the repurchase on a voluntary basis the bonds (KBC IFIMA 5/5/5 and KBC Group 5/5/5) sold to retail customers, provided a credit event occurred. These structured bonds were launched in the spring of 2008, have a term to maturity of five years and a gross coupon of 5%. All holders of these bonds had been informed in March 2011 of this intention. The ISDA Determination Committee decided that a relevant CDS Credit Event occurred on 9 March 2012. As a consequence, KBC has repurchased the bonds of all bond holders on the basis of the invested capital less any coupons paid by the issuer. The difference between the auction price of 19 March 2012 and the invested capital less any coupons paid by the issuer has been provisioned for during this and previous quarters.
The main special item having an impact on the underlying result for 1Q2012 was:
• Ireland
The Irish economy weakened in late 2011 and is expected to remain challenging in 2012. Consumer sentiment, business sentiment and spending were all hit by the poorer global backdrop and ongoing severe austerity measures taken in Ireland itself. As a consequence, a loan loss provision of 195 million euros was recorded in 1Q2012.
Despite the particularly challenging market conditions, implementation of the strategic plan gained further momentum, as illustrated by the agreement that was signed for the sale of Warta. The deal is expected to release almost 0.7 billion euros in capital, resulting in an increase in KBC's tier-1 ratio of slightly less than 0.7%. When closed, the deal will have a positive impact of approximately 0.3 billion euros on KBC's income statement.
The investment agreement between KBC Bank and Banco Santander to merge the Polish banking subsidiaries, Bank Zachodni WBK and Kredyt Bank, clearly reflects KBC's progress in executing the divestment programme. Upon the deconsolidation of Kredyt Bank as a result of the proposed merger, and after the committed reduction of KBC's participation to below 10% shortly after the registration of the merger, approximately 0.7 billion euros of capital will be released (based on market valuations at the time the deal was announced), which corresponds with a pro forma tier-1 impact at KBC-group consolidated level of approximately +0.8%. Assuming a full exit, the pro forma tier-1 impact at KBC-group consolidated level is estimated at approximately +0.9%. Moreover, based on these market valuations, the deal will positively affect KBC's income statement by approximately 0.1 billion euros, which will be recognised when the deal is completed.
In addition, KBC closed the previously announced deal with affiliates of J.C. Flowers & Co. for the sale of Fidea, after receiving the necessary regulatory approvals.
With a pro forma total tier-1 ratio of 15.5% and a core tier-1 ratio of 13.6% (including the impact of the divestment of Warta, Kredyt Bank and KBL EPB), solvency remains solid.
Johan Thijs concludes: 'The first quarter was a continuation of the solid performance turned in by our underlying business in previous quarters. Our focus firmly remains on catering for our customer base in our core markets in Belgium and Central and Eastern Europe.'
| Overview (consolidated) | 1Q2011 | 4Q2011 | 1Q2012 |
|---|---|---|---|
| Net result, IFRS (in millions of EUR) | 821 | 437 | 380 |
| Earnings per share, basic, IFRS (in EUR)1 | 1.98 | 0.63 | 0.71 |
| Underlying net result (in millions of EUR) | 658 | 161 | 455 |
| Underlying earnings per share, basic (in EUR)1 | 1.50 | -0.19 | 0.93 |
| Breakdown of underlying net result per business unit (in millions of EUR) | |||
| Belgium | 280 | 251 | 266 |
| Central & Eastern Europe | 123 | 98 | 118 |
| Merchant Banking | 177 | -153 | 42 |
| Group Centre | 77 | -35 | 30 |
| Parent shareholders' equity per share (in EUR, end of period) | 32.4 | 28.7 | 32.2 |
1 Note: If a coupon is expected to be paid on the core-capital securities sold to the Belgian and Flemish governments, it will be deducted from the numerator (pro rata) ; if a penalty premium is paid, it is deducted too.
The IFRS and underlying income statement summary tables are provided further on in this earnings statement.
Financial highlights for 1Q2012 compared to 4Q2011:
Johan Thijs, Group CEO, summarises the underlying business performance for 1Q2012 as follows:
• Operating expenses came to 1 110 million euros in the first quarter of 2012, down 2% on their level in the previous quarter and 10% on their year-earlier level. This was accounted for primarily by the deconsolidation of KBL EPB and Fidea, as well as Centea for the year-on-year comparison. The quarter-on-quarter performance was also impacted by the Hungarian banking tax. Excluding the banking tax effect, FX impact and other one-off items, underlying costs decreased by 3% quarter-on-quarter and increased by 3% year-on-year. The year-to-date cost/income ratio came to 58% (56% excluding the impact of the 5/5/5 investment product), a clear indication of a well-controlled cost environment.
• Loan loss impairment stood at 261 million euros in the first quarter, up on the 97 million euros recorded a year earlier, but down on the 599 million euros recorded in the previous quarter. The figure came about largely because of the loan loss impairment of 195 million euros in Ireland, whereas the credit cost was low in the other regions. As a consequence, the annualised credit cost ratio stood at 0.66% year-to-date; this breaks down into virtually zero for the Belgian retail book (compared to 0.10% for FY2011), 0.60% in Central and Eastern Europe (down from 1.59% for FY2011, which had been affected by Hungary and Bulgaria) and 1.57% for Merchant Banking (up from 1.36% for FY2011). Excluding Ireland, the credit cost ratio for Merchant Banking stands at a very low 0.09% (down from 0.59% for FY2011).
• Other impairment charges came to 10 million euros in the quarter under review.
• The group's tier-1 ratio (under Basel II) came to a strong 13.1% at 31 March 2012 (core tier-1 ratio of 11.4%). Including the effect of divestments for which an agreement has been signed to date (Warta, Kredyt Bank and KBL EPB), the pro forma tier-1 ratio even stands at approximately 15.5% (core tier-1 ratio of 13.6%).
Extended Quarterly Report – KBC Group – 1Q2012 8
Explanations per heading of the IFRS income statement for the first quarter of 2012 (see summary table on the next page):
Extended Quarterly Report – KBC Group – 1Q2012 9
A summary of the income statement of KBC Group, based on the International Financial Reporting Standards (IFRS) is given below. A full overview of the IFRS consolidated income statement and balance sheet is provided in the 'Consolidated Financial Statements' section of the quarterly report. Condensed statements of comprehensive income, changes in shareholders' equity, and cash flow, as well as several notes to the accounts, are also available in the same section. In order to provide a good insight into the underlying business trends, KBC also publishes its 'underlying' results (see the following section).
| Consolidated income statement according to IFRS, KBC Group (in millions of EUR) |
1Q 2011 |
2Q 2011 |
3Q 2011 |
4Q 2011 |
1Q 2012 |
2Q 2012 |
3Q 2012 |
4Q 2012 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 1 395 | 1 406 | 1 341 | 1 337 | 1 261 | |||
| Interest income | 3 047 | 3 195 | 2 910 | 2 732 | 2 695 | |||
| Interest expense | -1 651 | -1 789 | - 1569 | -1 395 | -1 434 | |||
| Earned premiums, insurance (before reinsurance) | 1 141 | 974 | 972 | 1 033 | 884 | |||
| Technical charges, insurance (before reinsurance) | -1 012 | -840 | -812 | -877 | -752 | |||
| Ceded reinsurance result | -17 | -8 | -18 | -1 | -14 | |||
| Dividend income | 12 | 41 | 17 | 15 | 6 | |||
| Net result from financial instruments at fair value through profit or loss |
472 | -194 | -892 | 436 | 60 | |||
| Net realised result from available-for-sale assets | 34 | 42 | 10 | 83 | 32 | |||
| Net fee and commission income | 300 | 297 | 281 | 287 | 304 | |||
| Fee and commission income | 518 | 530 | 480 | 514 | 492 | |||
| Fee and commission expense | -218 | -233 | -200 | -227 | -188 | |||
| Other net income | 92 | 110 | -149 | 3 | 73 | |||
| Total income | 2 416 | 1 829 | 749 | 2 317 | 1 853 | |||
| Operating expenses | -1 143 | -1 081 | -1 077 | -1 043 | -1 132 | |||
| Impairment | -105 | -332 | -940 | -746 | -273 | |||
| on loans and receivables | -97 | -164 | -473 | -599 | -261 | |||
| on available-for-sale assets | -6 | -118 | -223 | -71 | -5 | |||
| on goodwill | 0 | -17 | -62 | -41 | 0 | |||
| on other | -2 | -33 | -183 | -35 | -7 | |||
| Share in results of associated companies | 1 | 0 | -23 | -35 | -9 | |||
| Result before tax | 1 170 | 416 | -1 292 | 492 | 439 | |||
| Income tax expense | -334 | -76 | 165 | -75 | -93 | |||
| Net post-tax result from discontinued operations | 0 | 0 | -445 | 26 | 40 | |||
| Result after tax | 835 | 340 | -1 571 | 443 | 387 | |||
| attributable to minority interests | 14 | 6 | 8 | 6 | 7 | |||
| attributable to equity holders of the parent | 821 | 333 | -1 579 | 437 | 380 | |||
| Belgium | 385 | 158 | -348 | 226 | 489 | |||
| Central & Eastern Europe | 141 | 145 | -91 | 94 | 119 | |||
| Merchant Banking | 203 | 69 | -255 | -225 | 17 | |||
| Group Centre | 92 | -39 | -885 | 342 | -246 | |||
| Earnings per share, basic (EUR) | 1.98 | 0.54 | -5.08 | 0.63 | 0.71 | |||
| Earnings per share, diluted (EUR) | 1.98 | 0.54 | -5.08 | 0.63 | 0.71 |
| Highlights, consolidated balance sheet and ratios, KBC Group (in millions of EUR or %) |
31-03- 2011 |
30-06- 2011 |
30-09- 2011 |
31-12- 2011 |
31-03- 2012 |
30-06- 2012 |
30-09- 2012 |
31-12- 2012 |
|---|---|---|---|---|---|---|---|---|
| Total assets | 322 493 | 312 899 | 305 109 | 285 382 | 290 635 | |||
| Loans and advances to customers* | 147 625 | 143 182 | 143 451 | 138 284 | 135 980 | |||
| Securities (equity and debt instruments)* | 88 839 | 85 144 | 74 062 | 65 036 | 65 853 | |||
| Deposits from customers and debt certificates* | 192 412 | 188 116 | 184 453 | 165 226 | 166 551 | |||
| Technical provisions, before reinsurance* | 23 870 | 24 084 | 21 064 | 19 914 | 19 925 | |||
| Liabilities under investment contracts, insurance* | 6 568 | 6 638 | 6 787 | 7 014 | 7 871 | |||
| Parent shareholders' equity | 11 011 | 11 500 | 9 834 | 9 756 | 10 949 | |||
| Non-voting core-capital securities | 7 000 | 7 000 | 7 000 | 6 500 | 6 500 | |||
| KBC Group ratios (based on underlying results, year-to-date) | ||||||||
| Return on equity | 5% | 12.5% | ||||||
| Cost/income ratio, banking | 60% | 58% | ||||||
| Combined ratio, non-life insurance | 92% | 89% | ||||||
| KBC Group solvency | ||||||||
| Tier-1 ratio | 12.3% | 13.1% | ||||||
| Core tier-1 ratio | 10.6% | 11.4% |
* Note: in accordance with IFRS 5, the assets and liabilities of a number of divestments were moved to 'Non-current assets held for sale and assets associated with disposal groups' and 'Liabilities associated with disposal groups', which slightly distorts the comparison between periods.
Over and above the figures according to IFRS, KBC provides a number of 'underlying' figures aimed at providing more insight into the business trends. The differences with the IFRS figures relate to the exclusion of exceptional or non-operating items and a different accounting treatment of certain hedging results and capital-market income. In view of their nature and materiality, it is important to adjust the results for these factors to understand the profit trend fully. A full explanation of the differences between IFRS and underlying figures is provided in the 'Consolidated financial statements' section of the quarterly report, under 'Notes on segment reporting'. A reconciliation table for the net result is provided below.
| Consolidated income statement, KBC Group, underlying (in millions of EUR) |
1Q 2011 |
2Q 2011 |
3Q 2011 |
4Q 2011 |
1Q 2012 |
2Q 2012 |
3Q 2012 |
4Q 2012 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 1 374 | 1 390 | 1 342 | 1 298 | 1 211 | |||
| Earned premiums, insurance (before reinsurance) | 1 141 | 975 | 972 | 1 033 | 884 | |||
| Technical charges, insurance (before reinsurance) | -1 016 | -843 | -817 | -880 | -752 | |||
| Ceded reinsurance result | -17 | -8 | -18 | -1 | -14 | |||
| Dividend income | 8 | 37 | 14 | 15 | 5 | |||
| Net result from financial instruments at fair value through profit or loss | 259 | 102 | 10 | 138 | 326 | |||
| Net realised result from available-for-sale assets | 53 | 42 | 11 | 85 | 31 | |||
| Net fee and commission income | 399 | 394 | 367 | 374 | 306 | |||
| Other net income | 73 | 72 | -210 | 12 | -8 | |||
| Total income | 2 274 | 2 161 | 1 673 | 2 075 | 1 989 | |||
| Operating expenses | -1 227 | -1 155 | -1 172 | -1 133 | -1 110 | |||
| Impairment | - 105 | -333 | -740 | -730 | -271 | |||
| on loans and receivables | -97 | -164 | -475 | -599 | -261 | |||
| on available-for-sale assets | -6 | -135 | -228 | -85 | -5 | |||
| on goodwill | 0 | 0 | 0 | 0 | 0 | |||
| on other | -2 | -35 | -38 | -46 | -5 | |||
| Share in results of associated companies | 1 | 0 | -23 | -35 | -9 | |||
| Result before tax | 943 | 673 | -262 | 177 | 599 | |||
| Income tax expense | - 271 | -138 | 22 | -9 | -136 | |||
| Result after tax | 671 | 534 | -240 | 167 | 463 | |||
| attributable to minority interests | 14 | 6 | 8 | 7 | 7 | |||
| attributable to equity holders of the parent | 658 | 528 | -248 | 161 | 455 | |||
| Belgium | 280 | 238 | 32 | 251 | 266 | |||
| Central & Eastern Europe | 123 | 146 | -40 | 98 | 118 | |||
| Merchant Banking | 177 | 63 | -196 | -153 | 42 | |||
| Group Centre | 77 | 81 | -44 | -35 | 30 | |||
| Earnings per share, basic (EUR) | 1.50 | 1.11 | -1.17 | -0.19 | 0.93 | |||
| Earnings per share, diluted (EUR) | 1.50 | 1.11 | -1.17 | -0.19 | 0.93 |
| Reconciliation between underlying result and result according to IFRS KBC Group (in millions of EUR) |
1Q 2011 |
2Q 2011 |
3Q 2011 |
4Q 2011 |
1Q 2012 |
2Q 2012 |
3Q 2012 |
4Q 2012 |
|---|---|---|---|---|---|---|---|---|
| Result after tax, attributable to equity holders of the parent, UNDERLYING |
658 | 528 | -248 | 161 | 455 | |||
| + MTM of derivatives for ALM hedging | 96 | -77 | -245 | -46 | 45 | |||
| + gains/losses on CDOs | 124 | -86 | -618 | 164 | 189 | |||
| + MTM of CDO guarantee and commitment fee | -10 | -22 | -10 | -10 | -40 | |||
| + impairment on goodwill (and associated companies) | 0 | -17 | -57 | -41 | 0 | |||
| + result on legacy structured derivative business (KBC FP) | 14 | 43 | 5 | -12 | -11 | |||
| + MTM of own debt issued | -16 | -25 | 185 | 215 | -340 | |||
| + Results on divestments | -45 | -12 | -591 | 8 | 81 | |||
| Result after tax, attributable to equity holders of the parent: IFRS |
821 | 333 | -1 579 | 437 | 380 |
Extended Quarterly Report – KBC Group – 1Q2012 13
o The tightening of corporate ABS credit spreads between end-December and end-March resulted in a valuation mark-up of 0.2 billion euros (after tax) on the CDO and ABS exposure, net of costs for the collapse of two CDOs with a nominal value of 1.7 billion euros.
o The tightening of KBC's credit spread in the first quarter of 2012 resulted in a negative 0.3 billion euros (after tax) marked-to-market adjustment in relation to KBC's own credit risk.
The financial calendar, including analyst and investor meetings, is available at www.kbc.com/ir/calendar.
| Total income, underlying (in millions of EUR) | 1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 1 374 | 1 390 | 1 342 | 1 298 | 1 211 | - | - | - |
| Earned premiums, insurance (before reinsurance) | 1 141 | 975 | 972 | 1 033 | 884 | - | - | - |
| Non-life | 451 | 468 | 477 | 466 | 438 | - | - | - |
| Life | 691 | 507 | 496 | 567 | 446 | - | - | - |
| Technical charges, insurance (before reinsurance) | -1 016 | -843 | -817 | -880 | -752 | - | - | - |
| Non-life | -234 | -245 | -259 | -258 | -234 | - | - | - |
| Life | -782 | -599 | -557 | -622 | -518 | - | - | - |
| Ceded reinsurance result | -17 | -8 | -18 | -1 | -14 | - | - | - |
| Dividend income | 8 | 37 | 14 | 15 | 5 | - | - | - |
| Net result from financial instruments at fair value through profit or loss |
259 | 102 | 10 | 138 | 326 | - | - | - |
| Net realised result from available-for-sale assets | 53 | 42 | 11 | 85 | 31 | - | - | - |
| Net fee and commission income | 399 | 394 | 367 | 374 | 306 | - | - | - |
| Banking | 497 | 488 | 468 | 475 | 396 | - | - | - |
| Insurance | -98 | -93 | -101 | -102 | -89 | - | - | - |
| Other net income | 73 | 72 | -210 | 12 | -8 | - | - | - |
| Total income | 2 274 | 2 161 | 1 673 | 2 075 | 1 989 | - | - | - |
| Belgium | 845 | 864 | 692 | 860 | 829 | - | - | - |
| Central & Eastern Europe | 556 | 537 | 538 | 544 | 531 | - | - | - |
| Merchant Banking | 469 | 340 | 105 | 323 | 425 | - | - | - |
| Group Centre | 404 | 420 | 338 | 348 | 204 | - | - | - |
Net interest income in the quarter under review amounted to 1 211 million.
Excluding entities that were deconsolidated (Centea as of 3Q2011, Fidea and KBL EPB as of 1Q2012), net interest income was almost flat (-1%) on its quarter-earlier level and down 4% on its year-earlier level. The overall net interest margin (excluding KBL EPB) stood at 193 basis points in 1Q2012, stable on its year-earlier level and 2 basis points down on its 4Q2011 level, due in part to the decrease in FX mortgage loans with relatively high margins in Hungary (see further) and reduced PIIGS-government bond exposure.
On a comparable basis (disregarding the deconsolidated entities and those entities falling under IFRS 5), the group's total loan portfolio increased by 3% year-on-year, whereas total deposit volumes fell by 11% year-on-year. Compared to the previous quarter, the loan volume went up by 1% and the deposit volume by 4% (a partial recovery of the significant outflow of deposits in 4Q2011). In the Belgium Business Unit, the credit portfolio continued to increase, going up by 6% year-on-year and by 1% quarter-on-quarter. In the CEE Business Unit, credit volumes went up by 2% year-on-year and were roughly flat quarter-on-quarter, which in both cases was essentially the result of the credit portfolio expanding in the Czech Republic and Slovakia, and the relatively large decline in the Hungarian credit portfolio (related to the decrease in mortgage loans triggered by the impact of the FX mortgage relief programme). In the Merchant Banking Business Unit, credit volumes were roughly flat both year-on-year and quarter-on-quarter. As regards deposit volumes, the following trend can be witnessed: they were up 4% year-on-year and 0.2% quarter-on-quarter in the Belgium Business Unit ; they were up 3% year-on-year, but down 2% quarter-on-quarter in the CEE Business Unit; and they increased by 18% in the quarter under review, but – taking account of the significant drop in the last quarter of 2011 – were still 34% down year-on-year in the Merchant Banking Business Unit.
Earned insurance premiums amounted to 884 million in 1Q2012, which breaks down into 446 million for life insurance and 438 million for non-life insurance.
Excluding Fidea (deconsolidated as of 1Q2012) non-life premium income was up 7% year-on-year and 3% quarter-onquarter. The non-life combined ratio in 1Q2012 stood at an excellent level of 89% and breaks down into 82% for Belgium and 95% for CEE.
Earned premiums for life insurance under IFRS exclude certain types of life insurance contracts (simplified, the unit-linked contracts). When these contracts are included, total life insurance sales amounted to some 1.2 billion in the quarter under review. This figure was up 19% on its 4Q2011 level and by 26% on its 1Q2011 level (excluding Fidea and VITIS Life in the calculation). The quarter under review was characterised by a switch from interest-guaranteed life insurance products (the 4Q2011 figures also included extra contributions to pension savings schemes) to unit-linked life products. Overall, sales of interest-guaranteed products for the group as a whole accounted for one-third of life insurance sales, while unit-linked insurance products increased their share to two-thirds (in FY2011, 53% and 47%, respectively).
Net fee and commission income stood at 306 million in 1Q2012.
Excluding the entities that were deconsolidated, net fee and commission income was at the same level as in the previous quarter (higher fees related to investment funds and unit-linked life insurance in 1Q2012, whereas fee income stemming from the issuance of Belgian state notes was included in 4Q2011), but was still down 4% year-on-year. Total assets under management of the group (excluding KBL EPB) stood at 153 billion at the end March of 2012, up 3% on its level at the start of the year, due entirely to a positive price effect.
The other income components were as follows. Dividend income amounted to 5 million. Trading and fair value income (recorded under 'Net result from financial instruments at fair value through profit and loss') amounted to a strong 326 million, thanks mainly to a very good performance in the dealing room, and, to a lesser extent, to positive credit value adjustments and to a gain on the sale of a private equity participation. The net realised result on available-for-sale assets stood at 31 million, down on the average of 48 million for the four preceding quarters, due to the fact that it includes a 39 million loss on the exchange of available-for-sale Greek bonds (plus another 3 million on held-to-maturity bonds, booked under 'Other net income'), which partially offset the relatively high gains on the sale of shares in the quarter under review (56 million at KBC Insurance). Other net income amounted to -8 million. It was negatively impacted by an additional 56 million used for settling the 5-5-5 investment product (over and above the 334 million recorded in 2011) and a 51 million loss related to the sale of Atomium assets and it was positively impacted by recoveries of 41 million in relation to the fraud case at KBC Lease UK in 2010.
As usual, the underlying figures exclude a number of non-operating or exceptional items, such as fair value changes in ALM hedging instruments (a positive amount in the quarter under review), the CDO-related impact (a significant positive amount in the quarter under review), fair value changes in own debt instruments (a significant negative amount related to the substantial narrowing of KBC's credit spread), results related to divestments (a positive amount), etc. A full overview of these items is provided in the table 'Reconciliation between underlying result and result according to IFRS' in the first part of this report, while the impact for each business unit is summarised separately in the following section of the report.
| Operating expenses, underlying (in millions of EUR) | 1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Staff expenses | -694 | -701 | -719 | -693 | -628 | - | - | - |
| General administrative expenses | -444 | -366 | -367 | -354 | -404 | - | - | - |
| Depreciation and amortisation of fixed assets | -89 | -87 | -86 | -85 | -78 | - | - | - |
| Operating expenses | -1 227 | -1 155 | -1 172 | -1 133 | -1 110 | - | - | - |
| Belgium | -429 | -446 | -462 | -453 | -458 | - | - | - |
| Central & Eastern Europe | -350 | -302 | -297 | -243 | -349 | - | - | - |
| Merchant Banking | -152 | -142 | -143 | -132 | -147 | - | - | - |
| Group Centre | -296 | -265 | -269 | -305 | -156 | - | - | - |
Operating expenses amounted to 1 110 million in the quarter under review.
At first sight, costs were down 2% quarter-on-quarter and by as much as 10% year-on-year. However, these figures are distorted by a) the effect of the deconsolidation of Centea, Fidea and KBL EPB, and b) the amounts booked for the Hungarian bank tax: negative impact of the full-year amount booked in 1Q2012 (57 million – a similar amount was also booked in 1Q2011) versus positive impact (55 million) related to a compensation measure for FX mortgage losses in 4Q2011. Excluding these items, costs fell 1% quarter-on-quarter (due in part to lower marketing expenses) and increased 3% year-on-year (mainly the impact of inflation).
As a result, the cost/income ratio (operating expenses versus total income) of the group's banking activities stood at 58% in 1Q2012, an improvement on its FY2011 level (60%). The 1Q2012 cost/income ratio breaks down per business unit as follows: 65% for Belgium, 65% for CEE (owing to the impact of the Hungarian banking tax) and 35% for Merchant Banking.
| Impairment, underlying (in millions of EUR) | 1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Impairment on loans and receivables | -97 | -164 | -475 | -599 | -261 | - | - | - |
| Impairment on available-for-sale assets | -6 | -135 | -228 | -85 | -5 | - | - | - |
| Impairment on goodwill | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Impairment on other | -2 | -35 | -38 | -46 | -5 | - | - | - |
| Impairment | -105 | -333 | -740 | -730 | -271 | - | - | - |
| Belgium | -15 | -74 | -165 | -58 | -2 | - | - | - |
| Central & Eastern Europe | -52 | -96 | -280 | -191 | -47 | - | - | - |
| Merchant Banking | -57 | -112 | -215 | -384 | -205 | - | - | - |
| Group Centre | 19 | -51 | -81 | -97 | -17 | - | - | - |
In 1Q2012, total impairment charges stood at 271 million.
Impairment on loans and receivables (loan loss provisions) stood at 261 million, 195 million of which related to KBC Bank Ireland. This figure of 261 million constitutes a 339 million decrease on the 599 million recorded in the previous quarter. While that quarter also included high loan loss provisions for Ireland, the quarter-on-quarter decrease is primarily situated in the other group entities, more specifically in the CEE Business Unit (especially in Hungary) and in the Merchant Banking Business Unit (lower impairment on Belgian corporate entities, among other things). Compared to their very low level recorded in 1Q2011, loan loss provisions were up 163 million, but that is almost entirely due to the situation in Ireland (195 million in the quarter under review as opposed to only 45 million in 1Q2011).
Overall, this led to an annualised credit cost ratio of 66 basis points in the quarter under review (or 18 basis points excluding Ireland), an improvement on the 82 basis points recorded for FY2011. The credit cost ratio for 1Q2012 breaks down as follows: virtually zero basis points for the Belgium Business Unit, 60 basis points for the CEE Business Unit, 157 basis points for the Merchant Banking Business Unit (only 9 basis points excluding Ireland) and 34 basis points for the Group Centre. At the end of March 2012, non-performing loans accounted for some 5.2% of the total loan book, up somewhat on the 4.9% registered three months earlier (virtually unchanged in the Belgium and CEE Business Units, but an increase in the Merchant Banking Business Unit).
Other impairment in the quarter under review totalled 10 million, much lower than the 131 million recorded in the previous quarter, which had been impacted by impairment on investment property and some 85 million in additional impairment on Greek government bonds. It should be noted that, in the quarter under review, the exchange deal regarding Greek bonds had an additional negative impact, but that was included under 'Net realised result from available-for-sale assets' (39 million) and 'Other net income' (3 million).
It should be noted that impairment on goodwill booked on group companies is always excluded from the underlying results, and hence it is always zero in the table above.
| Other components of the result, underlying (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Share in result of associated companies | 1 | 0 | -23 | -35 | -9 | - | - | - |
| Income tax expense | -271 | -138 | 22 | -9 | -136 | - | - | - |
| Minority interests in profit after tax | 14 | 6 | 8 | 7 | 7 | - | - | - |
The share in the results of associated companies was -9 million in the quarter under review (this item traditionally includes the result of KBC's minority participation in NLB in Slovenia). Underlying group tax amounted to -136 million in 1Q2012 and minority interests in the result amounted to 7 million.
Unless otherwise specified, all amounts are given in euros.
In order to create more transparency and to avoid substantial quarter-on-quarter distortion in the results of the business units upon each divestment, all the results of the companies that are earmarked for divestment have been grouped together in the Group Centre. The results of the other business units (Belgium, Central & Eastern Europe (CEE) and Merchant Banking) therefore exclude these companies.
The Belgium Business Unit encompasses the retail and private bancassurance activities in Belgium. More specifically, it includes the retail and private banking activities of the legal entity KBC Bank in Belgium, the activities of the legal entity KBC Insurance, and the activities of a number of subsidiaries (primarily CBC Banque, ADD, KBC Asset Management, part of KBC Lease, KBC Group Re, KBC Consumer Finance and VAB). It should be noted that the entities that are earmarked for divestment under the strategic plan (Centea and Fidea, both now sold) are not included here, but grouped together in the Group Centre (until their sale date).
| Income statement, Belgium Business Unit, underlying (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 567 | 581 | 581 | 591 | 585 | - | - | - |
| Earned premiums, insurance (before reinsurance) | 615 | 512 | 473 | 534 | 490 | - | - | - |
| Technical charges, insurance (before reinsurance) | -593 | -507 | -436 | -488 | -468 | - | - | - |
| Ceded reinsurance result | -8 | -1 | -11 | -5 | -8 | - | - | - |
| Dividend income | 6 | 26 | 9 | 11 | 5 | - | - | - |
| Net result from financial instruments at fair value through profit or loss |
10 | 12 | 10 | 13 | 15 | - | - | - |
| Net realised result from available-for-sale assets | 22 | 24 | 7 | 45 | 41 | - | - | - |
| Net fee and commission income | 186 | 178 | 169 | 166 | 177 | - | - | - |
| Other net income | 41 | 37 | -110 | -8 | -6 | - | - | - |
| Total income | 845 | 864 | 692 | 860 | 829 | - | - | - |
| Operating expenses | -429 | -446 | -462 | -453 | -458 | - | - | - |
| Impairment | -15 | -74 | -165 | -58 | -2 | - | - | - |
| on loans and receivables | -11 | -16 | -10 | -23 | 2 | - | - | - |
| on available-for-sale assets | -4 | -53 | -142 | -31 | -4 | - | - | - |
| on goodwill | 0 | 0 | 0 | 0 | 0 | - | - | - |
| on other | 0 | -5 | -13 | -5 | 0 | - | - | - |
| Share in results of associated companies | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Result before tax | 402 | 344 | 65 | 348 | 369 | - | - | - |
| Income tax expense | -121 | -105 | -32 | -97 | -103 | - | - | - |
| Result after tax | 281 | 238 | 33 | 251 | 266 | - | - | - |
| attributable to minority interests | 1 | 0 | 1 | 0 | 1 | - | - | - |
| attributable to equity holders of the parent | 280 | 238 | 32 | 251 | 266 | - | - | - |
| Banking | 175 | 147 | 64 | 148 | 137 | - | - | - |
| Insurance | 106 | 91 | -32 | 103 | 128 | - | - | - |
| Risk-weighted assets, group (end of period, Basel II) | 29 104 | 29 158 | 29 161 | 28 929 | 29 101 | - | - | - |
| of which banking | 18 086 | 18 013 | 17 988 | 18 038 | 18 179 | - | - | - |
| Allocated equity (end of period, Basel II) | 2 775 | 2 786 | 2 787 | 2 746 | 2 763 | - | - | - |
| Return on allocated equity (ROAC, Basel II) | 39% | 32% | 3% | 34% | 37% | - | - | - |
| Cost/income ratio, banking | 57% | 60% | 77% | 60% | 65% | - | - | - |
| Combined ratio, non-life insurance | 74% | 89% | 95% | 106% | 82% | - | - | - |
These underlying figures exclude exceptional items. A table reconciling the underlying result and the result according to IFRS is provided below (amounts are after taxes and minority interests).
| Reconciliation between underlying result and result according to IFRS Belgium Business Unit (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Result after tax, attributable to equity holders of the parent: underlying |
280 | 238 | 32 | 251 | 266 | - | - | - |
| + MTM of derivatives for ALM hedging | 57 | -56 | -213 | -38 | 68 | - | - | - |
| + gains/losses on CDOs | 49 | -20 | -165 | 18 | 161 | - | - | - |
| + MTM of CDO guarantee and commitment fee | -1 | -4 | -2 | -2 | -6 | - | - | - |
| + impairment on goodwill | 0 | 0 | 0 | -4 | 0 | - | - | - |
| + result on divestments | 0 | 0 | 0 | 0 | 2 | - | - | - |
| + other | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Result after tax, attributable to equity holders of the parent: IFRS |
385 | 158 | -348 | 226 | 489 | - | - | - |
In the quarter under review, the Belgium Business Unit generated an underlying profit of 266 million, significantly above the average of 201 million for the four preceding quarters. This was achieved in part thanks to a very low level of impairment and relatively large gains on the sale of shares at the insurance company in the quarter under review. It should be noted that the quarter under review was negatively impacted to the tune of some 34 million (after tax), due to the exchange deal on Greek government bonds (realised loss on old Greek bonds plus the additional impact on the 5-5-5 investment product).
Banking activities accounted for 52% of the underlying result of the Belgium Business Unit in the quarter under review, and insurance activities for 48%.
Net interest income stood at 585 million in the quarter under review, a 3% increase year-on-year and more or less stable quarter-on-quarter. At 143 basis points, the net interest margin of KBC Bank in Belgium widened by 3 basis points quarteron-quarter (partly due to interest corrections on Greek bonds, and despite somewhat lower commercial margins) and remained more or less flat year-on-year. In line with the group's focus on its home markets, the Belgian retail loan book continued to increase, expanding by 1% quarter-on-quarter and by as much as 6% year-on-year, with mortgage loans remaining an important driver of this volume growth (up 9% year-on-year). Customers' deposits likewise increased, going up by 0.2% quarter-on-quarter and 4% year-on-year.
Earned insurance premiums in the quarter under review amounted to 490 million and break down into 264 million for life insurance and 225 million for non-life insurance.
Non-life premium income continued its upward trend, increasing by 1% compared to the previous quarter and by as much as 6% on the year-earlier quarter (increases in most classes, but mainly in Fire insurance). The combined ratio stood at an excellent 82% in 1Q2012.
Life sales, including unit-linked products (which – in simplified terms – are not included in the premium figures under IFRS), amounted to 915 million in 1Q2012, significantly up on their level in 4Q2011 (+24%) and in 1Q2011 (+50%). Both the quarter-on-quarter and year-on-year increases were driven by very strong sales of unit-linked products (extra commercial efforts) in the quarter under review, which more than offset the decrease in sales of interest-guaranteed products. As a result, unit-linked products accounted for 71% of life insurance sales in 1Q2012 (as opposed to 52% in FY2011). At the end of March 2012, the life reserves of this business unit amounted to 23 billion.
Total net fee and commission income amounted to 177 million in the quarter under review, up 7% on the previous quarter (which had additionally benefitted from the fee income stemming from the issuance of Belgian state notes), but still 5% down on the year-earlier quarter. The quarter-on-quarter increase was accounted for by higher sales of unit-linked insurance products (the margin on those products is included in net fee and commission income) and by increased fee income from mutual funds (both entry and management fees). Assets under management of this business unit stood at 142 billion at the end of March 2012, up 3% on their level at the start of the year, thanks essentially to a positive price effect.
Trading and fair value income (recorded under 'Net result from financial instruments at fair value through profit and loss') came to 15 million in the quarter under review, slightly up on the average of 11 million for the four preceding quarters. Dividend income stood at 5 million. Notwithstanding the inclusion of the additional 19 million loss on the sale of old Greek bonds following the government bond exchange operation, the realised result on available-for-sale assets amounted to a relatively high 41 million, up on the average of 25 million for the four preceding quarters, thanks to significant gains on the sale of shares in the insurer's investment portfolio. Other net income came to -6 million in 1Q2012 and was negatively impacted by an additional 29 million for the 5-5-5 investment product, over and above the 167 million booked in FY2011.
The operating expenses of the Belgium Business Unit stood at 458 million in the quarter under review, comparable to the level recorded in the previous quarter (the quarter under review includes a higher contribution to the deposit guarantee scheme, the previous quarter included high marketing expenses). Costs were up 7% on their level in the year-earlier quarter, for a large part driven by the increased contribution to the deposit guarantee scheme referred to above; excluding this, the increase was 3%, due to higher staff expenses mainly as a consequence of inflation. The cost/income ratio in the quarter under review amounted to 65%, slightly more than the 63% recorded for FY2011.
Impairment on loans and receivables (loan loss provisions) was virtually zero in the quarter under review (even a small net reversal), enabling it to outperform the traditionally low level of loan losses in this business unit. As a consequence, the annualised credit cost ratio was roughly zero basis points, compared to an already excellent 10 basis points for FY2011. At the end of 1Q2012, some 1.5% of the Belgian retail loan book was non-performing, the same level as three months earlier. The other impairment charges amounted to 4 million in the quarter under review and related solely to shares in portfolio. The previous quarter included some 36 million worth of other impairment, which related mainly to Greek government bonds. It should be noted that, in the quarter under review, the exchange deal regarding Greek bonds had an additional negative impact of 22 million, but this was included under 'Net realised result from available-for-sale assets' (19 million) and 'Other net income' (2 million).
The CEE Business Unit encompasses the banking and insurance activities in the Czech Republic (ČSOB Bank and ČSOB Insurance), Slovakia (ČSOB Bank and ČSOB Insurance), Hungary (K&H Bank and K&H Insurance) and Bulgaria (CIBANK and DZI Insurance). Since they are earmarked for divestment, Absolut Bank in Russia, KBC Banka in Serbia, NLB and NLB Vita in Slovenia, and Kredyt Bank and Warta (both Poland) are not included here, but grouped together in the Group Centre.
| Income statement, CEE Business Unit, underlying (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 385 | 381 | 388 | 370 | 357 | - | - | - |
| Earned premiums, insurance (before reinsurance) | 241 | 163 | 182 | 159 | 173 | - | - | - |
| Technical charges, insurance (before reinsurance) | -189 | -115 | -135 | -108 | -127 | - | - | - |
| Ceded reinsurance result | -5 | -4 | -6 | -6 | -3 | - | - | - |
| Dividend income | 0 | 1 | 1 | 0 | 0 | - | - | - |
| Net result from financial instruments at fair value through profit or loss |
33 | 14 | 5 | 22 | 55 | - | - | - |
| Net realised result from available-for-sale assets | 6 | 3 | 6 | 17 | -11 | - | - | - |
| Net fee and commission income | 76 | 86 | 84 | 83 | 77 | - | - | - |
| Other net income | 9 | 9 | 13 | 7 | 11 | - | - | - |
| Total income | 556 | 537 | 538 | 544 | 531 | - | - | - |
| Operating expenses | -350 | -302 | -297 | -243 | -349 | - | - | - |
| Impairment | -52 | -96 | -280 | -191 | -47 | - | - | - |
| on loans and receivables | -51 | -42 | -234 | -151 | -46 | - | - | - |
| on available-for-sale assets | 0 | -52 | -45 | -30 | 0 | - | - | - |
| on goodwill | 0 | 0 | 0 | 0 | 0 | - | - | - |
| on other | -1 | -2 | 0 | -11 | -1 | - | - | - |
| Share in results of associated companies | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Result before tax | 154 | 139 | -39 | 111 | 136 | - | - | - |
| Income tax expense | -31 | 8 | -1 | -14 | -19 | - | - | - |
| Result after tax | 123 | 147 | -40 | 97 | 118 | - | - | - |
| attributable to minority interests | 0 | 0 | 0 | -1 | 0 | - | - | - |
| attributable to equity holders of the parent | 123 | 146 | -40 | 98 | 118 | - | - | - |
| Banking | 113 | 136 | -43 | 85 | 112 | - | - | - |
| Insurance | 10 | 11 | 3 | 12 | 6 | - | - | - |
| Risk-weighted assets, group (end of period, Basel II) | 25 607 | 25 810 | 26 062 | 26 128 | 26 260 | - | - | - |
| of which banking | 24 140 | 24 300 | 24 541 | 24 563 | 24 742 | - | - | - |
| Allocated equity (end of period, Basel II) | 2 137 | 2 155 | 2 176 | 2 184 | 2 192 | - | - | - |
| Return on allocated equity (ROAC, Basel II) | 19% | 22% | -11% | 14% | 17% | - | - | - |
| Cost/income ratio, banking | 63% | 55% | 53% | 43% | 65% | - | - | - |
| Combined ratio, non-life insurance | 88% | 89% | 101% | 93% | 95% | - | - | - |
These underlying figures exclude exceptional items. A table reconciling the underlying result and the result according to IFRS is provided below (amounts are after taxes and minority interests).
| Reconciliation between underlying result and result according to IFRS CEE Business Unit (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Result after tax, attributable to equity holders of the parent: underlying |
123 | 146 | -40 | 98 | 118 | - | - | - |
| + MTM of derivatives for ALM hedging | 22 | -1 | 2 | 21 | 2 | - | - | - |
| + gains/losses on CDOs | 2 | 0 | 0 | -3 | 0 | - | - | - |
| + MTM of CDO guarantee and commitment fee | 0 | 0 | 0 | 0 | 0 | - | - | - |
| + impairment on goodwill | 0 | -1 | -53 | -21 | 0 | - | - | - |
| + result on divestments | -5 | 1 | 0 | 0 | 0 | - | - | - |
| + other | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Result after tax, attributable to equity holders of the parent: IFRS |
141 | 145 | -91 | 94 | 119 | - | - | - |
In the quarter under review, the CEE Business Unit generated an underlying net result of 118 million, considerably more than the average figure of 82 million for the four preceding quarters. The good performance is due to, among other things, the low level of loan loss provisions, and was achieved despite the special Hungarian bank tax (57 million pre-tax) being booked for the full year and the loss realised on Greek bonds following the exchange deal (18 million pre-tax) in the quarter under review. The CEE Business Unit's net result for 1Q2012 breaks down as follows: 156 million for the Czech Republic, 23 million for Slovakia, -36 million for Hungary (owing to the special bank tax recorded for FY2012), 3 million for Bulgaria and -27 million included under 'Other results'.
Net interest income generated in this business unit amounted to 357 million in the quarter under review. Excluding the exchange rate impact, this represents a 4% decrease on both the previous quarter and the year-earlier quarter, due mainly to the decrease in the Hungarian loan book following the repayment of FX mortgages in 2011 (following the FX mortgage relief programme). At 316 basis points, the net interest margin narrowed by some 11 basis points both quarter-on-quarter and year-on-year (again, mainly on account of Hungary and, to a lesser extent, Slovakia). As regards volumes, the combined loan book of the business unit was up 2% year-on-year and virtually flat quarter-on-quarter (with the abovementioned decrease in Hungary being compensated by increases in the loan books of the Czech Republic and Slovakia). As regards customer deposits, the total volume for the CEE-4 rose by over 3% year-on-year and contracted by 2% quarter-onquarter (with the largest relative decrease being in Hungary).
Earned insurance premiums in the quarter under review amounted to 173 million, which breaks down into 91 million for life insurance and 81 million for non-life insurance.
Excluding the exchange rate impact, non-life premium income was down 4% quarter-on-quarter and up 6% year-on-year. The combined ratio for the quarter under review stood at a good 95%. The combined ratio remained below 100% in all countries, with the exception of Bulgaria.
Life sales, including insurance products not booked under earned premiums under IFRS, amounted to 98 million in the quarter under review, up 16% quarter-on-quarter but down 43% year-on-year. Most of the difference in the quarter-onquarter and year-on-year figures is accounted for by the increase or decrease in the sale of unit-linked products in the Czech Republic. Overall, unit-linked life products accounted for some two-thirds of life insurance sales in the CEE Business Unit in 1Q2012, with interest-guaranteed products accounting for the other third. At the end of March 2012, the outstanding life reserves in this business unit stood at 1.7 billion.
Net fee and commission income amounted to 77 million in the quarter under review, which is below the 82-million average of the last four quarters, due to a combination of various elements (lower fee income from investment services in the Czech Republic, from payment services in Hungary, etc.). Total assets under management of this business unit amounted to 11 billion at quarter-end, up 5% compared to year-end 2011, essentially as a result of a positive price effect.
Trading and fair value income (recorded under 'Net result from financial instruments at fair value through profit and loss') came to a relatively strong 55 million, up on the average of 19 million for the four preceding quarters (good trading results in the Czech and Slovak Republics, among other things). The net realised result from available-for-sale assets amounted to -11 million, as it incorporates some 18 million in losses realised on bonds covered by the Greek debt exchange operation. Other net income totalled 11 million.
The operating expenses of this business unit came to 349 million. At first sight, costs would appear to be significantly higher quarter-on-quarter. However, the 1Q2012 cost level includes the negative impact of the special Hungarian bank tax for the full year (57 million), whereas the previous quarter had included the positive impact (55 million) of the partial compensation of FX mortgage loan impairment charges. Excluding Hungarian-bank-tax-related items and some other technical items, operating expenses were down 1% quarter-on-quarter and up 1% year-on-year. The cost/income ratio of the CEE banking activities stood at 65% in the quarter under review, compared to 54% for FY2011 (the comparison is also clearly distorted by the amounts booked in relation to the Hungarian banking tax).
In the quarter under review, impairment on loans and receivables (loan loss provisions) stood at 46 million, a significant improvement on the level in the previous quarter (151 million), and even slightly down on the already low level recorded in 1Q2011. Most of the large quarter-on-quarter decrease came about because of Hungary (the 4Q2011 figure had included a significant loan loss impairment related to FX mortgage loans). As a result, the annualised credit cost ratio of this business unit amounted to 60 basis points in 1Q2012, well below the 159 basis points recorded for FY2011. At the end of the quarter under review, non-performing loans accounted for some 5.6% of the CEE loan book, the same level as three months earlier. Impairment on assets other than loans and receivables was immaterial in the quarter under review. In the previous quarter, it amounted to some 40 million, 30 million of which related to Greek government bonds. Please note that, in the quarter under review, the exchange deal regarding Greek bonds had an additional negative impact of 18 million, but this was included under 'Net realised result from available-for-sale assets'.
The underlying income statements for the Czech Republic, Slovakia, Hungary and Bulgaria are given below.
| Income statement, Czech Republic, underlying (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 259 | 261 | 268 | 257 | 260 | - | - | - |
| Earned premiums, insurance (before reinsurance) | 178 | 96 | 119 | 99 | 111 | - | - | - |
| Technical charges, insurance (before reinsurance) | -151 | -71 | -92 | -68 | -86 | - | - | - |
| Ceded reinsurance result | -2 | -2 | -3 | -5 | -1 | - | - | - |
| Dividend income | 0 | 1 | 1 | 0 | 0 | - | - | - |
| Net result from financial instruments at fair value through profit or loss |
26 | 12 | -1 | 16 | 31 | - | - | - |
| Net realised result from available-for-sale assets | 5 | 3 | 6 | 15 | -11 | - | - | - |
| Net fee and commission income | 42 | 49 | 50 | 49 | 45 | - | - | - |
| Other net income | 4 | 2 | 9 | 5 | 10 | - | - | - |
| Total income | 361 | 351 | 357 | 368 | 358 | - | - | - |
| Operating expenses | -158 | -165 | -169 | -182 | -160 | - | - | - |
| Impairment | -18 | -65 | -52 | -70 | -13 | - | - | - |
| Of which on loans and receivables | -18 | -13 | -9 | -33 | -13 | - | - | - |
| Of which on available-for-sale assets | 0 | -52 | -43 | -29 | 0 | - | - | - |
| Share in results of associated companies | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Result before tax | 185 | 121 | 136 | 116 | 185 | - | - | - |
| Income tax expense | -28 | -13 | -19 | -16 | -29 | - | - | - |
| Result after tax | 157 | 108 | 116 | 100 | 156 | - | - | - |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | - | - | - |
| attributable to equity holders of the parent | 157 | 108 | 116 | 100 | 156 | - | - | - |
| banking | 148 | 101 | 112 | 91 | 151 | - | - | - |
| insurance | 8 | 7 | 5 | 9 | 5 | - | - | - |
| Risk-weighted assets, group (end of period, Basel II) | 13 854 | 13 937 | 14 342 | 14 869 | 15 590 | - | - | - |
| of which banking | 13 015 | 13 080 | 13 477 | 14 013 | 14 709 | - | - | - |
| Allocated equity (end of period, Basel II) | 1 159 | 1 166 | 1 199 | 1 241 | 1 300 | - | - | - |
| Return on allocated equity (ROAC, Basel II) | 46% | 30% | 32% | 27% | 42% | - | - | - |
| Cost/income ratio, banking | 43% | 46% | 46% | 49% | 44% | - | - | - |
| Combined ratio, non-life insurance | 87% | 91% | 97% | 84% | 91% | - | - | - |
| Income statement, Slovakia, underlying (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 48 | 46 | 48 | 51 | 46 | - | - | - |
| Earned premiums, insurance (before reinsurance) | 19 | 20 | 16 | 15 | 18 | - | - | - |
| Technical charges, insurance (before reinsurance) | -13 | -14 | -9 | -6 | -10 | - | - | - |
| Ceded reinsurance result | -1 | 0 | -1 | -1 | -1 | - | - | - |
| Dividend income | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Net result from financial instruments at fair value through profit or loss |
3 | 1 | -3 | -7 | 10 | - | - | - |
| Net realised result from available-for-sale assets | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Net fee and commission income | 11 | 10 | 9 | 10 | 9 | - | - | - |
| Other net income | 2 | 4 | 1 | 1 | 2 | - | - | - |
| Total income | 70 | 67 | 60 | 64 | 75 | - | - | - |
| Operating expenses | -40 | -42 | -39 | -36 | -44 | - | - | - |
| Impairment | -1 | -8 | -5 | 0 | -3 | - | - | - |
| Of which on loans and receivables | -1 | -7 | -3 | 1 | -3 | - | - | - |
| Of which on available-for-sale assets | 0 | 0 | -2 | 0 | 0 | - | - | - |
| Share in results of associated companies | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Result before tax | 29 | 17 | 16 | 27 | 28 | - | - | - |
| Income tax expense | -5 | 0 | -4 | -4 | -5 | - | - | - |
| Result after tax | 24 | 18 | 13 | 23 | 23 | - | - | - |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | - | - | - |
| attributable to equity holders of the parent | 24 | 18 | 13 | 23 | 23 | - | - | - |
| banking | 19 | 15 | 13 | 20 | 19 | - | - | - |
| insurance | 6 | 3 | 0 | 4 | 4 | - | - | - |
| Risk-weighted assets, group (end of period, Basel II) | 4 208 | 4 382 | 4 435 | 4 261 | 4 102 | - | - | - |
| of which banking | 4 038 | 4 205 | 4 258 | 4 084 | 3 926 | - | - | - |
| Allocated equity (end of period, Basel II) | 347 | 361 | 365 | 352 | 339 | - | - | - |
| Return on allocated equity (ROAC, Basel II) | 23% | 16% | 9% | 24% | 22% | - | - | - |
| Cost/income ratio, banking | 61% | 63% | 65% | 58% | 60% | - | - | - |
| Combined ratio, non-life insurance | 85% | 88% | 89% | 67% | 52% | - | - | - |
| Net interest income 103 100 95 83 70 - - - Earned premiums, insurance (before reinsurance) 22 23 23 20 19 - - - Technical charges, insurance (before reinsurance) -11 -17 -18 -16 -15 - - - Ceded reinsurance result -1 -1 -1 -1 -1 - - - Dividend income 0 0 0 0 0 - - - Net result from financial instruments at fair value 4 12 12 13 15 - - - through profit or loss Net realised result from available-for-sale assets 0 0 0 2 0 - - - Net fee and commission income 24 25 25 24 22 - - - Other net income 1 2 1 0 -2 - - - Total income 143 143 138 125 109 - - - Operating expenses -130 -71 -68 0 -122 - - - Impairment -29 -19 -126 -117 -29 - - - Of which on loans and receivables -28 -18 -126 -116 -28 - - - Of which on available-for-sale assets 0 0 0 0 0 - - - Share in results of associated companies 0 0 0 0 0 - - - Result before tax -15 54 -56 8 -41 - - - Income tax expense -1 -13 6 -1 5 - - - Result after tax -16 40 -50 7 -36 - - - attributable to minority interests 0 0 0 0 0 - - - attributable to equity holders of the parent -16 40 -50 7 -36 - - - banking -19 38 -50 5 -35 - - - insurance 3 2 0 2 -1 - - - Risk-weighted assets, group (end of period, Basel II) 6 666 6 587 6 505 6 123 5 759 - - - of which banking 6 424 6 335 6 253 5 834 5 513 - - - Allocated equity (end of period, Basel II) 548 542 536 507 475 - - - Return on allocated equity (ROAC, Basel II) -18% 24% -41% -1% -35% - - - Cost/income ratio, banking 93% 49% 48% 2% 112% - - - Combined ratio, non-life insurance 74% 92% 109% 109% 98% - - - Income statement, Bulgaria, 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 underlying (in millions of EUR) Net interest income 12 10 8 9 10 - - - Earned premiums, insurance (before reinsurance) 23 25 24 25 25 - - - Technical charges, insurance (before reinsurance) -15 -14 -16 -19 -18 - - - Ceded reinsurance result -2 -1 -1 1 0 - - - Dividend income 0 0 0 0 0 - - - Net result from financial instruments at fair value 0 0 0 0 0 - - - through profit or loss Net realised result from available-for-sale assets 0 0 0 0 0 - - - Net fee and commission income 1 0 1 0 0 - - - Other net income 0 0 0 0 1 - - - Total income 19 21 17 17 19 - - - Operating expenses -14 -14 -14 -15 -14 - - - Impairment -4 -3 -2 -8 -2 - - - Of which on loans and receivables -4 -3 -2 -6 -2 - - - Of which on available-for-sale assets 0 0 0 0 0 - - - Share in results of associated companies 0 0 0 0 0 - - - Result before tax 2 4 1 -6 3 - - - Income tax expense 0 0 0 0 0 - - - Result after tax 2 5 1 -6 3 - - - attributable to minority interests 0 0 0 -1 0 - - - attributable to equity holders of the parent 2 4 1 -5 3 - - - banking 0 0 1 -5 2 - - - insurance 1 4 1 0 1 - - - Risk-weighted assets, group (end of period, Basel II) 846 867 750 848 808 - - - of which banking 628 643 523 604 593 - - - Allocated equity (end of period, Basel II) 81 83 74 82 77 - - - Return on allocated equity (ROAC, Basel II) -17% -15% -13% -49% -10% - - - Cost/income ratio, banking 66% 74% 82% 83% 69% - - - |
Income statement, Hungary, underlying( in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|---|
| Combined ratio, non-life insurance 107% 83% 104% 107% 110% - - - |
| Income statement, CEE – funding cost and other results, underlying (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | -36 | -36 | -31 | -31 | -29 | - | - | - |
| Earned premiums, insurance (before reinsurance) | -1 | -1 | -1 | -1 | -1 | - | - | - |
| Technical charges, insurance (before reinsurance) | 0 | 0 | 0 | 0 | 1 | - | - | - |
| Ceded reinsurance result | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Dividend income | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Net result from financial instruments at fair value through profit or loss |
0 | -11 | -3 | 0 | 0 | - | - | - |
| Net realised result from available-for-sale assets | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Net fee and commission income | -2 | 2 | -1 | 0 | 0 | - | - | - |
| Other net income | 2 | 1 | 2 | 2 | 0 | - | - | - |
| Total income | -38 | -45 | -34 | -30 | -29 | - | - | - |
| Operating expenses | -9 | -11 | -8 | -9 | -9 | - | - | - |
| Impairment | 0 | -1 | -95 | 4 | 0 | - | - | - |
| Of which on loans and receivables | 0 | 0 | -96 | 4 | 0 | - | - | - |
| Of which on available-for-sale assets | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Share in results of associated companies | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Result before tax | -47 | -57 | -136 | -35 | -38 | - | - | - |
| Income tax expense | 3 | 34 | 17 | 7 | 11 | - | - | - |
| Result after tax | -43 | -23 | -120 | -28 | -27 | - | - | - |
| attributable to minority interests | 0 | 0 | 0 | 0 | 0 | - | - | - |
| attributable to equity holders of the parent | -43 | -23 | -120 | -28 | -27 | - | - | - |
| banking | -36 | -19 | -118 | -25 | -25 | - | - | - |
| insurance | -7 | -5 | -2 | -3 | -3 | - | - | - |
The Merchant Banking Business Unit encompasses the financial services provided to SMEs & corporate customers and capital market activities (merchant banking activities of the CEE group companies are included in the CEE Business Unit). More specifically, it includes commercial banking and market activities of KBC Bank in Belgium and its branches elsewhere, and the activities of a number of subsidiaries, the main ones being KBC Lease (partial), KBC Securities, KBC Commercial Finance, KBC Credit Investments and KBC Bank Ireland. The entities that are earmarked for divestment under the strategic plan (the main ones being KBC Financial Products (various activities already sold), Antwerp Diamond Bank and KBC Bank Deutschland) are not included here, but are grouped together in the Group Centre.
| Income statement, Merchant Banking Business Unit, underlying (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 180 | 167 | 168 | 147 | 148 | - | - | - |
| Earned premiums, insurance (before reinsurance) | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Technical charges, insurance (before reinsurance) | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Ceded reinsurance result | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Dividend income | 0 | 4 | 2 | 0 | 0 | - | - | - |
| Net result from financial instruments at fair value through profit or loss |
213 | 87 | 9 | 97 | 239 | - | - | - |
| Net realised result from available-for-sale assets | 2 | 11 | 0 | 22 | -1 | - | - | - |
| Net fee and commission income | 51 | 53 | 43 | 55 | 56 | - | - | - |
| Other net income | 22 | 17 | -117 | 2 | -17 | - | - | - |
| Total income | 469 | 340 | 105 | 323 | 425 | - | - | - |
| Operating expenses | -152 | -142 | -143 | -132 | -147 | - | - | - |
| Impairment | -57 | -112 | -215 | -384 | -205 | - | - | - |
| on loans and receivables | -57 | -95 | -205 | -368 | -203 | - | - | - |
| on available-for-sale assets | 0 | -1 | -2 | -3 | 0 | - | - | - |
| on goodwill | 0 | 0 | 0 | 0 | 0 | - | - | - |
| on other | 0 | -16 | -7 | -13 | -1 | - | - | - |
| Share in results of associated companies | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Result before tax | 259 | 86 | -253 | -193 | 74 | - | - | - |
| Income tax expense | -78 | -21 | 61 | 44 | -27 | - | - | - |
| Result after tax | 182 | 65 | -192 | -149 | 46 | - | - | - |
| attributable to minority interests | 5 | 2 | 4 | 4 | 4 | - | - | - |
| attributable to equity holders of the parent | 177 | 63 | -196 | -153 | 42 | - | - | - |
| Banking | 176 | 62 | -197 | -154 | 41 | - | - | - |
| Insurance | 1 | 1 | 1 | 1 | 1 | - | - | - |
| Risk-weighted assets, group (end of period, Basel II) | 45 945 | 42 446 | 39 736 | 42 126 | 40 319 | - | - | - |
| of which banking | 45 945 | 42 446 | 39 736 | 42 126 | 40 319 | - | - | - |
| Allocated equity (end of period, Basel II) | 3 676 | 3 396 | 3 179 | 3 370 | 3 225 | - | - | - |
| Return on allocated equity (ROAC, Basel II) | 19% | 6% | -25% | -19% | 6% | - | - | - |
| Cost/income ratio, banking | 32% | 42% | 138% | 41% | 35% | - | - | - |
These underlying figures exclude exceptional items. A table reconciling the underlying result and the result according to IFRS is provided below (amounts are after taxes and minority interests).
| Reconciliation between underlying result and result according to IFRS Merchant Banking Business Unit (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Result after tax, attributable to equity holders of the parent: underlying |
177 | 63 | -196 | -153 | 42 | - | - | - |
| + MTM of derivatives for ALM hedging | 9 | -7 | -31 | -28 | -24 | - | - | - |
| + gains/losses on CDOs | 18 | 18 | -13 | -30 | -1 | - | - | - |
| + MTM of CDO guarantee and commitment fee | 0 | 0 | 0 | 0 | 0 | - | - | - |
| + impairment on goodwill | 0 | -5 | -4 | -8 | 0 | - | - | - |
| + result on divestments | -1 | 0 | -10 | -6 | 0 | - | - | - |
| + other | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Result after tax, attributable to equity holders of the parent: IFRS |
203 | 69 | -255 | -225 | 17 | - | - | - |
In the quarter under review, the Merchant Banking Business Unit generated an underlying result of 42 million, above the -28 million average for the four preceding quarters. The quarter under review was characterised by very good dealing room results and low loan loss impairment, except in Ireland, where another 195 million in impairment was set aside. The underlying result for 1Q2012 breaks down as follows: 65 million for market activities and -22 million for commercial banking activities (+123 million excluding KBC Bank Ireland, which is a fine result given the year-on-year reduction in capital consumption).
Total income for this business unit amounted to 425 million in the quarter under review. Trading and fair value income (recorded under 'Net result from financial instruments at fair value through profit or loss') amounted to a strong 239 million in the quarter under review, well above the average of 101 million for the four preceding quarters. This was accounted for mainly by the very good performance of the dealing room, and to a lesser extent by the fact that the quarter under review included positive credit value adjustments and a 21 million gain on the sale of a private equity participation.
Followings several quarters of decreasing net interest income, 1Q2012 witnessed a stabilisation at 148 million. The total credit portfolio of the Merchant Banking Business Unit remained roughly the same, both year-on-year and quarter-onquarter. Deposit volume in the quarter under review rose by 18%, a partial recovery after the large deposit outflow in 4Q2011, which was accounted for by volatile short-term corporate and institutional deposits outside KBC's core markets. On a year-on-year basis, deposits decreased by 34%
The other income components combined totalled 38 million in the quarter under review and included net fee and commission income of 56 million (slightly up on the 51 million average for the four preceding quarters), a net realised result from available-for-sale assets of -1 million (as opposed to a +9 million average in the four preceding quarters), and other net income of -17 million. The latter figure included the negative impact of 27 million for the 5-5-5 investment product, a 51 million loss related to the sale of Atomium assets and a positive impact of 41 million regarding partial recoveries for the fraud case at KBC Lease UK in 2010.
Operating expenses in the quarter under review amounted to 147 million, up 11% quarter-on-quarter, partly driven by the increased contribution to the Belgian deposit guarantee scheme (+ 7% excluding this and some other one-off items) and down 4% year-on-year (flat excluding several one-off items). The underlying cost/income ratio stood at 35%, compared to 46% for FY2011.
Impairment on loans and receivables (loan loss provisions) amounted to 203 million in the quarter under review, well down on the high 368 million registered in the previous quarter, but up on the favourable 57 million recorded in 1Q2011. Provisioning in the quarter under review related almost entirely to KBC Bank Ireland, where 195 million was set aside, roughly comparable to the 228 million booked in the previous quarter, but clearly much higher than the 45 million booked in 1Q2011. Disregarding Ireland, loan loss impairment in the other merchant banking entities was very limited in the quarter under review (a mere 8 million), a significant improvement on both reference quarters. Consequently, the annualised credit cost ratio for the Merchant Banking Business Unit came to 157 basis points in 1Q2012, compared to 136 basis points for FY2011. Excluding Ireland, the 1Q2012 credit cost ratio would have come to just 9 basis points, much better than the 59 basis points recorded for FY2011. At the end of 1Q2012, approximately 9.1% of the Merchant Banking Business Unit's loan book was non-performing, up on the 7.8% recorded three months earlier. Excluding Ireland, non-performing loans rose from 3.3% as at end 4Q2011 to 3.8% as at end 1Q2012, mainly due to one large file that went from performing to non-performing. The annualised credit cost ratio for KBC Bank Ireland stood at 469 basis points in 1Q2012, compared to 301 basis points for FY2011, while the non-performing ratio rose to 20.5% at the end of 1Q2012, up from 17.7% three months earlier. Other impairment charges for this business unit were immaterial in 1Q2012. In the previous quarter, they came to 16 million, and related primarily to Greek government bonds and investment property.
The underlying figures for the Merchant Banking Business Unit are broken down into 'Commercial Banking' (mainly lending and banking services to SMEs) and 'Market Activities' (sales and trading on money and capital markets, corporate finance, etc.) on the next page.
| Income statement, Commercial Banking, underlying (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 180 | 167 | 168 | 148 | 148 | - | - | - |
| Earned premiums, insurance (before reinsurance) | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Technical charges, insurance (before reinsurance) | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Ceded reinsurance result | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Dividend income | 0 | 4 | 2 | 0 | 0 | - | - | - |
| Net result from financial instruments at fair value | ||||||||
| through profit or loss | 10 | -25 | -48 | 0 | 41 | - | - | - |
| Net realised result from available-for-sale assets | 2 | 11 | 0 | 22 | -1 | - | - | - |
| Net fee and commission income | 26 | 29 | 26 | 36 | 36 | - | - | - |
| Other net income | 22 | 24 | 21 | 37 | 61 | - | - | - |
| Total income | 242 | 210 | 169 | 242 | 286 | - | - | - |
| Operating expenses | -87 | -88 | -90 | -86 | -92 | - | - | - |
| Impairment | -72 | -100 | -208 | -385 | -202 | - | - | - |
| Of which on loans and receivables | -72 | -83 | -200 | -368 | -201 | - | - | - |
| Of which on available-for-sale assets | 0 | -1 | -1 | -3 | 0 | - | - | - |
| Share in results of associated companies | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Result before tax | 83 | 23 | -130 | -229 | -8 | - | - | - |
| Income tax expense | -28 | -6 | 19 | 53 | -10 | - | - | - |
| Result after tax | 55 | 17 | -111 | -176 | -18 | - | - | - |
| attributable to minority interests | 4 | 3 | 4 | 3 | 4 | - | - | - |
| attributable to equity holders of the parent | 51 | 14 | -115 | -179 | -22 | - | - | - |
| Banking | 50 | 13 | -116 | -180 | -23 | - | - | - |
| Insurance | 1 | 1 | 1 | 1 | -1 | - | - | - |
| Risk-weighted assets, group (end of period, Basel II) | 32 176 | 30 934 | 30 733 | 31 065 | 31 300 | - | - | - |
| of which banking | 32 176 | 30 934 | 30 733 | 31 065 | 31 300 | - | - | - |
| Allocated equity (end of period, Basel II) | 2 574 | 2 475 | 2 459 | 2 485 | 2 504 | - | - | - |
| Return on allocated equity (ROAC, Basel II) | 7% | 2% | -19% | -30% | -3% | - | - | - |
| Cost/income ratio, banking | 36% | 42% | 54% | 36% | 32% | - | - | - |
| Income statement, Market Activities, underlying (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
| Net interest income | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Earned premiums, insurance (before reinsurance) | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Technical charges, insurance (before reinsurance) | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Ceded reinsurance result | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Dividend income | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Net result from financial instruments at fair value | 203 | 112 | 57 | 96 | 198 | - | - | - |
| through profit or loss | ||||||||
| Net realised result from available-for-sale assets | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Net fee and commission income | 25 | 25 | 17 | 19 | 19 | - | - | - |
| Other net income | 0 | -8 | -138 | -35 | -78 | - | - | - |
| Total income | 227 | 129 | -64 | 80 | 139 | - | - | - |
| Operating expenses | -65 | -53 | -53 | -46 | -55 | - | - | - |
| Impairment | 15 | -12 | -6 | 1 | -2 | - | - | - |
| Of which on loans and receivables | 15 | -12 | -5 | 0 | -2 | - | - | - |
| Of which on available-for-sale assets | 0 | 0 | -1 | 1 | 0 | - | - | - |
| Share in results of associated companies | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Result before tax | 177 | 63 | -123 | 36 | 82 | - | - | - |
| Income tax expense | -50 | -15 | 42 | -9 | -17 | - | - | - |
| Result after tax | 127 | 48 | -81 | 27 | 64 | - | - | - |
| attributable to minority interests | 1 | -1 | 0 | 1 | 0 | - | - | - |
| attributable to equity holders of the parent banking |
126 126 |
48 48 |
-81 -81 |
26 26 |
65 65 |
- - |
- - |
- - |
| insurance | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Risk-weighted assets, group (end of period, Basel II) | 13 769 | 11 512 | 9 003 | 11 061 | 9 018 | - | - | - |
| of which banking | 13 769 | 11 512 | 9 003 | 11 061 | 9 018 | - | - | - |
| Allocated equity (end of period, Basel II) | 1 102 | 921 | 720 | 885 | 721 | - | - | - |
| Return on allocated equity (ROAC, Basel II) | 46% | 18% | -41% | 14% | 34% | - | - | - |
The Group Centre comprises the results of the holding company KBC Group NV, KBC Global Services, some results that are not attributable to the other business units and the elimination of the results of intersegment transactions. It also comprises the results of the companies that have been designated as non-core in the group's strategy and are therefore earmarked for divestment. The main ones are Centea and Fidea (both have now been sold), Absolut Bank, KBC Banka, NLB and NLB Vita, Kredyt Bank (agreement signed with Banco Santander regarding the merger of Kredyt Bank with Bank Zachodni) and Warta (sale agreement signed), KBC Financial Products (various activities sold), Antwerp Diamond Bank, KBC Bank Deutschland and the KBL EPB group (sale agreement signed).
| Income statement, Group Centre, underlying (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 242 | 261 | 205 | 190 | 121 | - | - | - |
| Earned premiums, insurance (before reinsurance) | 284 | 299 | 317 | 341 | 222 | - | - | - |
| Technical charges, insurance (before reinsurance) | -234 | -221 | -245 | -283 | -157 | - | - | - |
| Ceded reinsurance result | -4 | -3 | -2 | 9 | -3 | - | - | - |
| Dividend income | 2 | 6 | 2 | 3 | 0 | - | - | - |
| Net result from financial instruments at fair value through profit or loss |
4 | -11 | -14 | 6 | 16 | - | - | - |
| Net realised result from available-for-sale assets | 22 | 3 | -2 | 2 | 3 | - | - | - |
| Net fee and commission income | 86 | 77 | 72 | 70 | -4 | - | - | - |
| Other net income | 2 | 9 | 4 | 11 | 5 | - | - | - |
| Total income | 404 | 420 | 338 | 348 | 204 | - | - | - |
| Operating expenses | -296 | -265 | -269 | -305 | -156 | - | - | - |
| Impairment | 19 | -51 | -81 | -97 | -17 | - | - | - |
| on loans and receivables | 21 | -11 | -26 | -58 | -14 | - | - | - |
| on available-for-sale assets | -2 | -29 | -38 | -21 | 0 | - | - | - |
| on goodwill | 0 | 0 | 0 | 0 | 0 | - | - | - |
| on other | -1 | -12 | -17 | -18 | -3 | - | - | - |
| Share in results of associated companies | 1 | 0 | -23 | -35 | -10 | - | - | - |
| Result before tax | 127 | 104 | -35 | -89 | 20 | - | - | - |
| Income tax expense | -42 | -19 | -6 | 58 | 12 | - | - | - |
| Result after tax | 85 | 85 | -41 | -32 | 32 | - | - | - |
| attributable to minority interests | 8 | 3 | 3 | 3 | 3 | - | - | - |
| attributable to equity holders of the parent | 77 | 81 | -44 | -35 | 30 | - | - | - |
| Banking | 86 | 57 | -19 | -29 | 17 | - | - | - |
| Insurance | 20 | 26 | -10 | 3 | 12 | - | - | - |
| holding company | -29 | -2 | -16 | -9 | 1 | - | - | - |
| Risk-weighted assets, group (end of period, Basel II) | 30 933 | 29 959 | 25 693 | 29 149 | 27 429 | - | - | - |
| of which banking | 27 732 | 26 637 | 22 347 | 25 814 | 25 850 | - | - | - |
| Allocated equity (end of period, Basel II) | 2 628 | 2 556 | 2 216 | 2 491 | 2 283 | - | - | - |
These underlying figures exclude exceptional items. A table reconciling the underlying result and the result according to IFRS is provided below (amounts are after taxes and minority interests).
| Reconciliation between underlying result and result according to IFRS, Group Centre (in millions of EUR) |
1Q2011 | 2Q2011 | 3Q2011 | 4Q2011 | 1Q2012 | 2Q2012 | 3Q2012 | 4Q2012 |
|---|---|---|---|---|---|---|---|---|
| Result after tax, attributable to equity holders of the parent: underlying |
77 | 81 | -44 | -35 | 30 | - | - | - |
| + MTM of derivatives for ALM hedging | 8 | -13 | -2 | 0 | 1 | - | - | - |
| + gains/losses on CDOs | 55 | -84 | -439 | 178 | 29 | - | - | - |
| + MTM of CDO guarantee and commitment fee | -8 | -18 | -8 | -9 | -33 | - | - | - |
| + impairment on goodwill (incl. associated companies) | 0 | -11 | 0 | -8 | 0 | - | - | - |
| + fair value changes of own debt outstanding | -16 | -25 | 185 | 215 | -340 | - | - | - |
| + legacy structured derivative business (KBC FP) | 14 | 43 | 5 | -12 | -11 | - | - | - |
| + Results on divestments | -38 | -12 | -581 | 14 | 80 | - | - | - |
| + other | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Result after tax, attributable to equity holders of the parent: IFRS |
92 | -39 | -885 | 342 | -246 | - | - | - |
The Group Centre's net result amounted to 30 million in 1Q2012. As mentioned before, this includes a number of group items and the results of the companies that are earmarked for divestment, whose combined net result came to 20 million in 1Q2012, compared to -24 million in 4Q2011. Please note that the 1Q2012 result was impacted by the deconsolidation of Fidea and KBL EPB.
The net result contribution of the companies up for divestment can be broken down by former business unit as follows:
Reviewed by the auditors
| In millions of EUR | Note | 1Q 2011 | 4Q 2011 | 1Q 2012 |
|---|---|---|---|---|
| Net interest income | 3 | 1 395 | 1 337 | 1 261 |
| Interest income | 3 | 3 047 | 2 732 | 2 695 |
| Interest expense | 3 | - 1 651 | - 1 395 | - 1 434 |
| Earned premiums, insurance (before reinsurance) | 9 | 1 141 | 1 033 | 884 |
| Non-life | 11 | 450 | 466 | 438 |
| Life | 10 | 690 | 567 | 446 |
| Technical charges, insurance (before reinsurance) | 9 | - 1 012 | - 877 | - 752 |
| Non-life | 9 | - 234 | - 258 | - 234 |
| Life | 9 | - 778 | - 618 | - 518 |
| Ceded reinsurance result | 9 | - 17 | - 1 | - 14 |
| Dividend income | 4 | 12 | 15 | 6 |
| Net result from financial instruments at fair value through profit or loss | 5 | 472 | 436 | 60 |
| Net realised result from available-for-sale assets | 6 | 34 | 83 | 32 |
| Net fee and commission income | 7 | 300 | 287 | 304 |
| Fee and commission income | 7 | 518 | 514 | 492 |
| Fee and commission expense | 7 | - 218 | - 227 | - 188 |
| Other net income | 8 | 92 | 3 | 73 |
| TOTAL INCOME | 2 416 | 2 317 | 1 853 | |
| Operating expenses | 12 | - 1 143 | - 1 043 | - 1 132 |
| Staff expenses | 12 | - 637 | - 631 | - 635 |
| General administrative expenses | 12 | - 421 | - 332 | - 416 |
| Depreciation and amortisation of fixed assets | 12 | - 84 | - 80 | - 81 |
| Impairment | 14 | - 105 | - 746 | - 273 |
| on loans and receivables | 14 | - 97 | - 599 | - 261 |
| on available-for-sale assets | 14 | - 6 | - 71 | - 5 |
| on goodwill | 14 | 0 | - 41 | 0 |
| on other | 14 | - 2 | - 35 | - 7 |
| Share in results of associated companies | 15 | 1 | - 35 | - 9 |
| RESULT BEFORE TAX | 1 170 | 492 | 439 | |
| Income tax expense | 16 | - 334 | - 75 | - 93 |
| Net post-tax result from discontinued operations | 46 | 0 | 26 | 40 |
| RESULT AFTER TAX | 835 | 443 | 387 | |
| Attributable to minority interest | 14 | 6 | 7 | |
| of which relating to discontinued operations | 0 | 0 | 0 | |
| Attributable to equity holders of the parent | 821 | 437 | 380 | |
| of which relating to discontinued operations | 0 | 26 | 40 | |
| Earnings per share (in EUR) | 17 | |||
| Basic | 17 | 1,98 | 0,63 | 0,71 |
| Diluted | 17 | 1,98 | 0,63 | 0,71 |
| In millions of EUR | 1Q 2011 | 1Q 2012 |
|---|---|---|
| RESULT AFTER TAX | 835 | 387 |
| attributable to minority interest | 14 | 7 |
| attributable to equity holders of the parent | 821 | 380 |
| OTHER COMPREHENSIVE INCOME | ||
| Net change in revaluation reserve (AFS assets) - Equity | - 9 | 38 |
| Net change in revaluation reserve (AFS assets) - Bonds | - 291 | 732 |
| Net change in revaluation reserve (AFS assets) - Other | - 1 | 0 |
| Net change in hedging reserve (cash flow hedge) | 171 | - 6 |
| Net change in translation differences | 19 | 107 |
| Other movements | 1 | - 2 |
| TOTAL COMPREHENSIVE INCOME | 724 | 1 256 |
| attributable to minority interest | 10 | 19 |
| attributable to equity holders of the parent | 714 | 1 236 |
| ASSETS (in millions of EUR) | Note | 31-12-2011 | 31-03-2012 |
|---|---|---|---|
| Cash and cash balances with central banks | 6 218 | 10 235 | |
| Financial assets | 18 | 249 439 | 244 670 |
| Held for trading | 18-29 | 26 936 | 25 068 |
| Designated at fair value through profit or loss | 18-29 | 13 940 | 16 758 |
| Available for sale | 18-29 | 39 491 | 34 599 |
| Loans and receivables | 18-29 | 153 894 | 146 348 |
| Held to maturity | 18-29 | 14 396 | 21 124 |
| Hedging derivatives | 18-29 | 782 | 772 |
| Reinsurers' share in technical provisions | 35 | 150 | 150 |
| Fair value adjustments of hedged items in portfolio hedge of interest rate risk | - | 197 | 188 |
| Tax assets | 31 | 2 646 | 2 321 |
| Current tax assets | 31 | 201 | 205 |
| Deferred tax assets | 31 | 2 445 | 2 116 |
| Non-current assets held for sale and assets associated with disposal groups | 46 | 19 123 | 25 644 |
| Investments in associated companies | 32 | 431 | 427 |
| Investment property | 33 | 758 | 708 |
| Property and equipment | 33 | 2 651 | 2 638 |
| Goodwill and other intangible assets | 34 | 1 898 | 1 822 |
| Other assets | 30 | 1 871 | 1 833 |
| TOTAL ASSETS | 285 382 | 290 635 | |
| LIABILITIES AND EQUITY (in millions of EUR) | Note | 31-12-2011 | 31-03-2012 |
|---|---|---|---|
| Financial liabilities | 18 | 225 804 | 226 937 |
| Held for trading | 18-29 | 27 355 | 24 035 |
| Designated at fair value through profit or loss | 18-29 | 28 678 | 29 293 |
| Measured at amortised cost | 18-29 | 167 842 | 171 766 |
| Hedging derivatives | 18-29 | 1 929 | 1 844 |
| Technical provisions, before reinsurance | 35 | 19 914 | 19 925 |
| Fair value adjustments of hedged items in portfolio hedge of interest rate risk | - | 4 | 2 |
| Tax liabilities | 31 | 545 | 563 |
| Current tax liabilities | 31 | 255 | 277 |
| Deferred tax liabilies | 31 | 290 | 286 |
| Liabilities associated with disposal groups | 46 | 18 132 | 21 229 |
| Provisions for risks and charges | 36 | 889 | 533 |
| Other liabilities | 37 | 3 322 | 3 474 |
| TOTAL LIABILITIES | 268 611 | 272 664 | |
| Total equity | 39 | 16 772 | 17 971 |
| Parent shareholders' equity | 39 | 9 756 | 10 949 |
| Non-voting core-capital securities | 39 | 6 500 | 6 500 |
| Minority interests | - | 516 | 522 |
| TOTAL LIABILITIES AND EQUITY | 285 382 | 290 635 | |
In line with IFRS 5, the assets and liabilities of some divestments were moved from various balance sheet lines towards the lines 'Non-current assets held for sale and assets associated with disposal groups' and 'Liabilities associated with disposal groups'. Note that reference figures were not adjusted (not required by IFRS 5). More information on divestments and all data required by IFRS 5 can be found in a separate note (note 46).
On 2 January 2012, KBC Group reimbursed 0.5 billion euros (and 15% penalty) to the Belgian State. This has already been taken into account in the balance sheet on 31-12-2011 (0.5 billion euros shift from equity to liabilities, and the extraction of the penalty from equity by presenting it as a liability).
| In millions of EUR 31-03-2011 |
Issued and paid | up share capital Share premium Treasury shares | Revaluation reserve (AFS assets) |
Hedging reserve (cashflow hedges) |
Reserves | Translation differences |
Parent shareholders' equity |
Non-voting core capital securities |
Minority interests |
Total equity | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at the beginning of the period | 1 245 | 4 340 | - 1 529 | 66 | - 443 | 7 749 | - 281 | 11 147 | 7 000 | 527 | 18 674 |
| Net result for the period | 0 | 0 | 0 | 0 | 0 | 821 | 0 | 821 | 0 | 14 | 835 |
| Other comprehensive income for the period | 0 | 0 | 0 | - 299 | 171 | 1 | 20 | - 107 | 0 | - 4 | - 111 |
| Total comprehensive income | 0 | 0 | 0 | - 299 | 171 | 822 | 20 | 714 | 0 | 10 | 724 |
| Dividends | 0 | 0 | 0 | 0 | 0 | - 850 | 0 | - 850 | 0 | 0 | - 850 |
| Capital increase | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Purchases of treasury shares | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Sales of treasury shares | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Results on (derivatives on) treasury shares Impact business combinations |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
| Change in minorities | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - 17 | - 17 |
| Change in scope | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total change | 0 | 0 | 0 | - 299 | 171 | - 28 | 20 | - 136 | 0 | - 6 | - 142 |
| Balance at the end of the period | 1 245 | 4 340 | - 1 529 | - 233 | - 272 | 7 721 | - 261 | 11 011 | 7 000 | 520 | 18 532 |
| of which revaluation reserve for shares of which revaluation reserve for bonds of which revaluation reserve for other assets than bonds and shares of which relating to non-current assets held for sale and disposal groups |
426 - 659 0 - 30 |
14 | - 16 | - 16 | |||||||
| 31-03-2012 | |||||||||||
| Balance at the beginning of the period | 1 245 | 4 341 | - 1 529 | - 117 | - 594 | 6 831 | - 422 | 9 756 | 6 500 | 516 | 16 772 |
| Net result for the period | 0 | 0 | 0 | 0 | 0 | 380 | 0 | 380 | 0 | 7 | 387 |
| Other comprehensive income for the period | 0 | 0 | 0 | 767 | - 5 | - 2 | 97 | 857 | 0 | 12 | 869 |
| Total comprehensive income | 0 | 0 | 0 | 767 | - 5 | 378 | 97 | 1 236 | 0 | 19 | 1 256 |
| Dividends | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Capital increase | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Repayment of non-voting core-capital securities | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Results on (derivatives on) treasury shares | 0 | 0 | - 3 | 0 | 0 | 0 | 0 | - 3 | 0 | 0 | - 3 |
| Impact business combinations | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Change in minorities Change in scope |
0 0 |
0 0 |
0 0 |
0 - 41 |
0 0 |
0 0 |
0 0 |
0 - 41 |
0 0 |
- 13 0 |
- 13 - 41 |
| Total change | 0 | 0 | - 3 | 726 | - 5 | 378 | 97 | 1 192 | 0 | 7 | 1 199 |
| Balance at the end of the period | 1 245 | 4 341 | - 1 532 | 609 | - 599 | 7 209 | - 325 | 10 949 | 6 500 | 522 | 17 971 |
| of which revaluation reserve for shares of which revaluation reserve for bonds of which revaluation reserve for other assets than bonds and shares of which relating to non-current assets held for sale and disposal groups |
273 336 0 39 |
5 | 44 | 44 |
The changes in equity during 1Q 2012 do not yet include the accounting of neither a gross dividend of 0.01 euros per share (3.6 million euros in total) nor the coupon on the core-capital securities sold to the Belgian Federal and Flemish Regional governments (595 million euros or 8.5% of 7 billion euros).
On 2 January 2012, KBC Group reimbursed 0.5 billion euros (and 15% penalty) to the Belgian State. This has already been taken into account in the balance sheet on 31-12- 2011 (0.5 billion euros shift from equity to liabilities, and the extraction of the penalty from equity by presenting it as a liability).
| In millions of EUR | 1Q 2011 | 1Q 2012 |
|---|---|---|
| Operating activities | ||
| Net cash from (used in) operating activities | - 5 352 | 10 868 |
| Investing activities | ||
| Net cash from (used in) investing activities | - 70 | - 7 376 |
| Financing activities | ||
| Net cash from (used in) financing activities | 722 | - 760 |
| Change in cash and cash equivalents | ||
| Net increase or decrease in cash and cash equivalents | - 4 700 | 2 733 |
| Cash and cash equivalents at the beginning of the period | 17 709 | 13 997 |
| Effects of exchange rate changes on opening cash and cash equivalents | - 622 | 90 |
| Cash and cash equivalents at the end of the period | 12 387 | 16 820 |
As mentioned in note 46, KBL EPB, Kredyt Bank and Warta form a disposal group. The planned divestments of KBL EPB (of which the closing of the sale transaction is planned in the first half of 2012), Kredyt Bank and Warta (of which the closing of the sale transaction is planned in the second half of 2012) will have the following main impacts on the cash flows included in investing activities:
The consolidated financial statements of the KBC Group have been prepared in accordance with the International Financial Reporting Standards (IAS 34) as adopted for use in the European Union ('endorsed IFRS'). The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2011.
Presentation change regarding parent shareholders' equity: the changes in equity during 1Q 2012 do not yet include the accounting of neither a gross dividend of 0.01 euros per share (3.6 million euros in total) nor the coupon on the core-capital securities sold to the Belgian Federal and Flemish Regional governments (595 million euros or 8.5% of 7 billion euros), whereas in previous 1Q-reports this was already deducted from parent shareholders' equity.
A summary of the main accounting policies is provided in the annual report. In 1Q 2012, no changes in content were made in the accounting policies that had a material impact on the results.
KBC is structured and managed according to a number of segments (called 'business units'). This breakdown is based on a combination of geographic criteria (Belgium and Central and Eastern Europe, being the two core geographic areas the group operates in) and activity criteria (retail bancassurance versus merchant banking). The Shared Services and Operations business unit, which includes a number of divisions that provide support to and serve as a product factory for the other divisions (ICT, leasing, payments, asset management etc.) is not shown as a separate segment, as all costs and income of this business unit are allocated to the other business units and are hence included in their results.
The segment reporting (see below) is based on this breakdown, but, as of 2010, also brings together all companies that are up for divestment (according to the new strategic plan) under the Group Centre.
For reporting purposes, the business units hence are:
The basic principle of the segment reporting is that an individual subsidiary is allocated fully to one segment (see note 44 in annual report 2011). Exceptions are made for costs that cannot be allocated reliably to a certain segment (grouped together in a separate Group Centre) and KBC Bank NV (allocated to the different segments and to the Group Centre by means of different allocation keys).
Funding costs of goodwill regarding participations recorded in KBC Bank and KBC Insurance are allocated to the different segments in function of the subsidiaries concerned. As a principle the funding costs regarding leveraging at the level of KBC Group are not allocated.
Inter-segment transactions are presented at arm's length.
The figures of the segment reporting have been prepared in accordance with the general KBC accounting policies (see Note 1) and are thus in compliance with the International Financial Reporting Standards as adopted for use in the European Union (endorsed IFRS). Some exceptions to these accounting policies have been made to better reflect the underlying performance (the resulting figures are called 'underlying results'):
within the investment banking division are recognised under 'net result from financial instruments at fair value', without any impact on net profit.
| Reconciliation between underlying result and result according to IFRS * KBC Group, in millions of EUR |
1Q 2011 |
2Q 2011 |
3Q 2011 |
4Q 2011 |
1Q 2012 |
|---|---|---|---|---|---|
| Result after tax, attributable to equity holders of the parent, UNDERLYING | 658 | 528 | -248 | 161 | 455 |
| + MTM of derivatives for ALM hedging | 96 | -77 | -245 | -46 | 45 |
| + gains/losses on CDOs | 124 | -86 | -618 | 164 | 189 |
| + MTM of CDO guarantee and commitment fee | -10 | -22 | -10 | -10 | -40 |
| + impairment on goodwill (and associated companies) | 0 | -17 | -57 | -41 | 0 |
| + loss on legacy structured derivative business (KBC FP) | 14 | 43 | 5 | -12 | -11 |
| + change in fair value of own debt instruments (due to own credit risk) | -16 | -25 | 185 | 215 | -340 |
| + Results on divestments | -45 | -12 | -591 | 8 | 81 |
| Result after tax, attributable to equity holders of the parent: IFRS | 821 | 333 | -1 579 | 437 | 380 |
A table reconciling the net profit and the underlying net profit is provided below.
* A breakdown of this reconciliation table per business unit is provided in the 'Underlying results per business unit' section of the Extended quarterly report.
The positive impact in the first quarter of 2012 is mainly due to the tightening of the credit spreads of government bonds in the designated at fair value through profit or loss portfolio. In KBC, a part of the government bond portfolio in the banking book is classified as financial assets designated at fair value through profit or loss (the fair value option) in order to significantly reduce a measurement inconsistency ('an accounting mismatch' that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases). This method is used specifically to avoid the remaining accounting mismatches relating to the loan portfolio (measured at amortized cost) and the interest rate swaps (measured at fair value) in ALM. For this purpose, a (government) bond portfolio has been classified as a financial asset at fair value through profit or loss.
In the first quarter of 2012, the market price for corporate credit decreased, as reflected in credit default swap spreads, generating a value mark-up of KBC's CDO exposure (including the impact of the government guarantee, but excluding the related fee and including the coverage of the CDO-linked counterparty risk against MBIA, the US monoline insurer which remained at the level of 31 December 2011, namely 70%). This value mark-up was offset by a negative P/L impact of approximately 0.1 billion euros from collapsing two CDOs in January 2012, which reduced the total nominal value of the CDO portfolio with 1.7 billion euros.
The negative impact on the results of the first quarter of 2012 can be explained by the strong decrease of the senior and subordinated credit spreads of KBC, leading to a higher MtM of debt certificates included in the financial liabilities designated at fair value through profit or loss.
In the first quarter of 2012, the results on divestments include mainly:
| Belgium Business |
CEE Business |
Merchant Banking Business |
Group Centre excluding intersegment |
Inter segment |
||
|---|---|---|---|---|---|---|
| In millions of EUR | unit | unit | unit | eliminations | eliminations KBC Group | |
| UNDERLYING INCOME STATEMENT - 3M2011 | ||||||
| Net interest income | 567 | 385 | 180 | 242 | 0 | 1 374 |
| Earned premiums, insurance (before reinsurance) | 615 | 241 | 0 | 305 | - 21 | 1 141 |
| Non-life | 212 | 79 | 0 | 169 | - 11 | 450 |
| Life | 403 | 162 | 0 | 136 | - 10 | 691 |
| Technical charges, insurance (before reinsurance) | - 593 | - 189 | 0 | - 241 | 7 | - 1 016 |
| Non-life | - 95 | - 38 | 0 | - 100 | - 2 | - 234 |
| Life | - 499 | - 151 | 0 | - 141 | 9 | - 782 |
| Ceded reinsurance result Dividend income |
- 8 6 |
- 5 0 |
0 0 |
- 8 2 |
4 0 |
- 17 8 |
| Net result from financial instruments at fair value through profit or loss | 10 | 33 | 213 | 4 | 0 | 259 |
| Net realised result from available-for-sale assets | 22 | 6 | 2 | 22 | 0 | 53 |
| Net fee and commission income | 186 | 76 | 51 | 86 | 0 | 399 |
| Other net income TOTAL INCOME |
41 845 |
9 556 |
22 469 |
7 419 |
- 5 - 15 |
73 2 274 |
| Operating expenses | - 429 | - 350 | - 152 | - 311 | 15 | - 1 227 |
| Impairment | - 15 | - 52 | - 57 | 19 | 0 | - 105 |
| on loans and receivables | - 11 | - 51 | - 57 | 21 | 0 | - 97 |
| on available-for-sale assets | - 4 | 0 | 0 | - 2 | 0 | - 6 |
| on goodwill | 0 | 0 | 0 | 0 | 0 | 0 |
| on other | 0 | - 1 | 0 | - 1 | 0 | - 2 |
| Share in results of associated companies | 0 | 0 | 0 | 1 | 0 | 1 |
| RESULT BEFORE TAX | 402 | 154 | 259 | 127 | 0 | 943 |
| Income tax expense | - 121 | - 31 | - 78 | - 42 | 0 | - 271 |
| Net post-tax result from discontinued operations | 0 | 0 | 0 | 0 | 0 | 0 |
| RESULT AFTER TAX | 281 | 123 | 182 | 85 | 0 | 671 |
| attributable to minority interests | 1 | 0 | 5 | 8 | 0 | 14 |
| attributable to equity holders of the parent | 280 | 123 | 177 | 77 | 0 | 658 |
| UNDERLYING INCOME STATEMENT 3M2012 | ||||||
| Net interest income | 585 | 357 | 148 | 121 | 0 | 1 211 |
| Earned premiums, insurance (before reinsurance) | 490 | 173 | 0 | 231 | - 9 | 884 |
| Non-life | 225 | 81 | 0 | 140 | - 8 | 438 |
| Life | 264 | 91 | 0 | 91 | 0 | 446 |
| Technical charges, insurance (before reinsurance) | - 468 | - 127 | 0 | - 160 | 3 | - 752 |
| Non-life | - 111 | - 44 | 0 | - 82 | 3 | - 234 |
| Life | - 357 | - 84 | 0 | - 78 | 0 | - 518 |
| Ceded reinsurance result | - 8 | - 3 | 0 | - 7 | 4 | - 14 |
| Dividend income | 5 | 0 | 0 | 0 | 0 | 5 |
| Net result from financial instruments at fair value through profit or loss | 15 | 55 | 239 | 16 | 0 | 326 |
| Net realised result from available-for-sale assets | 41 | - 11 | - 1 | 3 | 0 | 31 |
| Net fee and commission income | 177 | 77 | 56 | - 4 | 0 | 306 |
| Other net income | - 6 | 11 | - 17 | 7 | - 2 | - 8 |
| TOTAL INCOME | 829 | 531 | 425 | 208 | - 4 | 1 989 |
| Operating expenses | - 458 | - 349 | - 147 | - 160 | 4 | - 1 110 |
| Impairment | - 2 | - 47 | - 205 | - 17 | 0 | - 271 |
| on loans and receivables | 2 | - 46 | - 203 | - 14 | 0 | - 261 |
| on available-for-sale assets | - 4 | 0 | 0 | 0 | 0 | - 5 |
| on goodwill | 0 | 0 | 0 | 0 | 0 | 0 |
| on other | 0 | - 1 | - 1 | - 3 | 0 | - 5 |
| Share in results of associated companies | 0 | 0 | 0 | - 10 | 0 | - 9 |
| RESULT BEFORE TAX | 369 | 136 | 74 | 20 | 0 | 599 |
| Income tax expense | - 103 | - 19 | - 27 | 12 | 0 | - 136 |
| Net post-tax result from discontinued operations | 0 | 0 | 0 | 0 | 0 | 0 |
| RESULT AFTER TAX | 266 | 118 | 46 | 32 | 0 | 463 |
| attributable to minority interests | 1 | 0 | 4 | 3 | 0 | 7 |
| attributable to equity holders of the parent | 266 | 118 | 42 | 30 | 0 | 455 |
In the table below, an overview is provided of certain balance sheet items divided by segment.
| Belgium | CEE Business | Merchant Banking | |||
|---|---|---|---|---|---|
| In millions of EUR | Business unit | unit | Business unit | Group Centre KBC Group | |
| Balance sheet information 31-12-2011 | |||||
| Total loans to customers | 55 254 | 25 648 | 43 832 | 13 550 | 138 284 |
| Of which mortgage loans | 29 417 | 10 533 | 12 288 | 5 194 | 57 431 |
| Of which reverse repos | 0 | 16 | 1 413 | 0 | 1 429 |
| Customer deposits | 71 156 | 38 216 | 46 168 | 9 687 | 165 226 |
| Of which repos | 0 | 3 209 | 12 633 | 0 | 15 841 |
| Balance sheet information 31-03-2012 | |||||
| Total loans to customers | 55 776 | 26 279 | 46 542 | 7 383 | 135 980 |
| Of which mortgage loans | 29 703 | 10 871 | 12 093 | 1 284 | 53 951 |
| Of which reverse repos | 0 | 59 | 3 981 | 0 | 4 040 |
| Customer deposits | 71 324 | 39 907 | 52 380 | 2 940 | 166 551 |
| Of which repos | 0 | 4 034 | 12 832 | 0 | 16 866 |
The geographical information is based on geographic areas, and reflects KBC's focus on Belgium (land of domicile) and Central and Eastern Europe (including Russia) – and its selective presence in other countries ('rest of the world', i.e. mainly the US, Southeast Asia and Western Europe excluding Belgium). The geographic segmentation is based on the location where the services are rendered. Since at least 95% of the customers are local customers, the location of the branch or subsidiary determines the geographic breakdown of both the balance sheet and income statement. The geographic segmentation differs significantly from the business unit breakdown, due to, inter alia, a different allocation methodology and the fact that the geographic segment 'Belgium' includes not only the Belgium business unit, but also the Belgian part of the Merchant Banking Business unit.
| Central and Eastern | ||||
|---|---|---|---|---|
| In millions of EUR | Belgium | Europe and Russia | Rest of the world | KBC Group |
| 03M 2011 | ||||
| Total income from external customers (underlying) | 1 078 | 783 | 413 | 2 274 |
| 31-12-2011 | ||||
| Total assets (period-end) | 181 036 | 60 898 | 43 448 | 285 382 |
| Total liabilities (period-end) | 171 262 | 55 189 | 42 159 | 268 611 |
| 03M 2012 | ||||
| Total income from external customers (underlying) | 1 018 | 749 | 222 | 1 989 |
| 31-03-2012 | ||||
| Total assets (period-end) | 185 474 | 64 634 | 40 527 | 290 635 |
| Total liabilities (period-end) | 175 507 | 58 459 | 38 699 | 272 664 |
| In millions of EUR | 1Q 2011 | 4Q 2011 | 1Q 2012 |
|---|---|---|---|
| Total | 1 395 | 1 337 | 1 261 |
| Interest income | 3 047 | 2 732 | 2 695 |
| Available-for-sale assets | 467 | 406 | 350 |
| Loans and receivables | 1 628 | 1 656 | 1 580 |
| Held-to-maturity investments | 140 | 165 | 184 |
| Other assets not at fair value | 8 | 9 | 8 |
| Subtotal, interest income from financial assets not | |||
| measured at fair value through profit or loss | 2 242 | 2 235 | 2 122 |
| Financial assets held for trading | 547 | 228 | 344 |
| Hedging derivatives | 108 | 131 | 161 |
| Other financial assets at fair value through profit or loss | 149 | 138 | 67 |
| Interest expense | - 1 651 | - 1 395 | - 1 434 |
| Financial liabilities measured at amortised cost | - 773 | - 805 | - 761 |
| Other | 0 | - 6 | - 1 |
| Investment contracts at amortised cost | 0 | 0 | 0 |
| Subtotal, interest expense for financial liabilities not measured | |||
| at fair value through profit or loss | - 773 | - 811 | - 762 |
| Financial liabilities held for trading | - 616 | - 299 | - 392 |
| Hedging derivatives | - 197 | - 185 | - 220 |
| Other financial liabilities at fair value through profit or loss | - 65 | - 100 | - 60 |
| In millions of EUR | 1Q 2011 | 4Q 2011 | 1Q 2012 |
|---|---|---|---|
| Total | 34 | 83 | 32 |
| Breakdown by portfolio | |||
| Fixed-income securities | 7 | 47 | - 30 |
| Shares | 27 | 35 | 61 |
The net realised loss from AFS assets in 1Q 2012 include -39 million euros stemming from the finalisation of the events regarding Greece. More information is presented in Note 47.
| In millions of EUR | 1Q 2011 | 4Q 2011 | 1Q 2012 |
|---|---|---|---|
| Total | 300 | 287 | 304 |
| Fee and commission income | 518 | 514 | 492 |
| Securities and asset management | 245 | 217 | 201 |
| Margin on deposit accounting (life insurance investment contracts w ithout DPF) | 9 | 15 | 24 |
| Commitment credit | 70 | 86 | 77 |
| Payments | 135 | 161 | 137 |
| Other | 58 | 34 | 54 |
| Fee and commission expense | - 218 | - 227 | - 188 |
| Commission paid to intermediaries | - 122 | - 114 | - 101 |
| Other | - 97 | - 113 | - 87 |
| In millions of EUR | 1Q 2011 | 4Q 2011 | 1Q 2012 |
|---|---|---|---|
| Total | 92 | 3 | 73 |
| Of which net realised result following | |||
| The sale of loans and receivables | - 2 | - 7 | - 49 |
| The sale of held-to-maturity investments | 0 | - 1 | - 4 |
| The sale of financial liabilities measured at amortised cost | 0 | - 2 | 0 |
| Other: of which: | 94 | 13 | 126 |
| KBC Lease UK | 0 | 13 | 41 |
| Income concerning leasing at the KBC Lease-group | 21 | 30 | 20 |
| Income from consolidated private equity participations | 16 | 10 | 4 |
| Income from Group VAB | 17 | 15 | 18 |
| 5/5/5 bonds | 0 | - 71 | - 56 |
| Realised gains or losses on divestments | - 5 | 0 | 72 |
The net realized result following the sale of loans and receivables includes -51 million euros related to assets formerly assigned to Atomium, leading to a reduction in risk weighted assets of roughly 2 billion euros.
The realised results relating to the sale of HTM investments includes mainly the exchange operation regarding Greek bonds (more information in Note 47).
In 1Q 2012 there were further recuperations to the tune of 41 million euros in light of the fraud case at KBC Lease UK.
In the first quarter of 2012 KBC also recorded a negative P/L impact of 37 million euros after tax (56 million, pre-tax) as a result of KBC's voluntary compensation with respect to the 5/5/5 bonds (KBC IFIMA 5/5/5 and KBC Group 5-5- 5) sold to retail customers. These structured bonds were launched in the spring of 2008, have a term to maturity of five years, a gross coupon of 5% (of which three have been paid) and were linked until their maturity to the creditworthiness of five countries (Belgium, France, Spain, Italy and Greece). All retail holders of these bonds had been informed in March 2011 of KBC's intention to offer a voluntary compensation in case of a credit event. The ISDA Determination Committee decided that a relevant CDS Credit Event occurred on 9 March 2012. As a result, the bonds were settled according to the principles laid down in the bond prospectuses. In addition to the settlement value, KBC has paid all bond holders a compensation on the basis of the invested capital less the coupons that were already paid by the issuer. Provisions for this voluntary compensation have been recorded in the third and fourth quarter of 2011 (i.e. for an amount of 334 million euros pre-tax). The final compensation amount could only be calculated after the auction held by ISDA on 19 March 2012 which determined the settlement value for the bonds. The additional negative P/L impact in the first quarter 2012 relates to the difference between the provisioned amount at end of year 2011 and the total compensation to retail customers.
The closing of the divestments of Fidea and Dynaco (KBC Private Equity participation), resulted in a gain of respectively 51 and 21 million euros in 1Q 2012.
In millions of EUR
| Non | ||||
|---|---|---|---|---|
| technical | ||||
| Life | Non-life | account | TOTAL | |
| 1Q 2011 | ||||
| Technical result | -114 | 126 | 10 | 22 |
| Earned premiums, insurance (before reinsurance) | 692 | 456 | 0 | 1148 |
| Technical charges, insurance (before reinsurance) | -779 | -229 | 0 | -1008 |
| Net fee and commission income | -26 | -84 | 10 | -101 |
| Ceded reinsurance result | -1 | -17 | 0 | -17 |
| Financial result | 224 | 43 | 73 | 340 |
| Net interest income | 252 | 252 | ||
| Dividend income | 6 | 6 | ||
| Net result from financial instruments at fair value | 55 | 55 | ||
| Net realised result from AFS assets | 27 | 27 | ||
| Allocation to the technical accounts | 224 | 43 | -267 | 0 |
| Operating expenses | -37 | -90 | -2 | -129 |
| Internal costs claim paid | -2 | -19 | 0 | -21 |
| Administration costs related to acquisitions | -10 | -24 | 0 | -34 |
| Administration costs | -25 | -48 | 0 | -72 |
| Management costs investments | 0 | 0 | -2 | -2 |
| Other net income | 14 | 14 | ||
| Impairments | -8 | -8 | ||
| Share in results of associated companies | 0 | 0 | ||
| RESULT BEFORE TAX | 73 | 79 | 87 | 239 |
| Income tax expense | -65 | |||
| Net post-tax result from discontinued operations | 2 | |||
| RESULT AFTER TAX attributable to minority interest |
175 1 |
|||
| attributable to equity holders of the parent | 174 | |||
| 1Q 2012 | ||||
| Technical result | -97 | 113 | 16 | 33 |
| Earned premiums, insurance (before reinsurance) | 447 | 443 | 890 | |
| Technical charges, insurance (before reinsurance) | -517 | -237 | -754 | |
| Net fee and commission income | -26 | -79 | 16 | -89 |
| Ceded reinsurance result | 0 | -14 | -13 | |
| Financial result | 211 | 51 | 238 | 501 |
| Net interest income | 229 | 229 | ||
| Dividend income | 5 | 5 | ||
| Net result from financial instruments at fair value | 215 | 215 | ||
| Net realised result from AFS assets | 52 | 52 | ||
| Allocation to the technical accounts | 211 | 51 | -263 | 0 |
| Operating expenses | -35 | -89 | 0 | -124 |
| Internal costs claim paid | -2 | -20 | -22 | |
| Administration costs related to acquisitions | -10 | -24 | -35 | |
| Administration costs | -23 | -44 | -67 | |
| Management costs investments | 0 | 0 | 0 | |
| Other net income | 45 | 45 | ||
| Impairments | -10 | -10 | ||
| Share in results of associated companies | 0 | 0 | ||
| RESULT BEFORE TAX | 79 | 76 | 289 | 444 |
| Income tax expense | -103 | |||
| Net post-tax result from discontinued operations | 1 | |||
| RESULT AFTER TAX | 343 | |||
| attributable to minority interest | 1 | |||
| attributable to equity holders of the parent | 342 |
Note: Figures for premium income exclude the investment contracts without DPF, which roughly coincide with the unit-linked products. Figures are before elimination of transactions between the bank and insurance entities of the group (more information in the 2011 annual report).
In 2010 the Hungarian government has decided to impose a new extraordinary bank tax on the financial institutions. The bank tax was introduced for 2010, 2011 and 2012 and is due by both K&H Bank and K&H Insurance. The operating expenses for the first quarter of 2011 and 2012 include the expenses related to the special tax imposed on financial institutions in Hungary (62 million euros cost in 2011 fully booked in the first quarter of 2011, 57 million euros cost in 2012 fully booked in the first quarter of 2012; deductible expense).
During 4Q 2011, The Government of Hungary and the representatives of the Hungarian Banking Association, agreed on additional measures regarding FX debt relief, impacting also the amount of banking tax. The losses incurred by the banks on the FX-loans can for 30% be recovered from the banking tax paid. As a result of this, the full year amount of banking tax reduces to a cost of only 6 million euros. The agreement also states that the banking tax will not increase in 2012, be halved in 2013 and as from 2014 will be set at the level of the European bank tax.
| In millions of EUR | 1Q 2011 | 4Q 2011 | 1Q 2012 |
|---|---|---|---|
| Total | - 105 | - 746 | - 273 |
| Impairment on loans and receivables | - 97 | - 599 | - 261 |
| Breakdown by type | |||
| Specific impairments for on-balance-sheet lending | - 119 | - 613 | - 300 |
| Provisions for off-balance-sheet credit commitments | 8 | 3 | - 4 |
| Portfolio-based impairments | 15 | 10 | 44 |
| Breakdown by business unit | |||
| Belgium | - 11 | - 23 | 2 |
| Central and Eastern Europe | - 51 | - 151 | - 46 |
| Merchant Banking | - 57 | - 368 | - 203 |
| Group Centre | 22 | - 58 | - 14 |
| Impairment on available-for-sale assets | - 6 | - 71 | - 5 |
| Breakdown by type | |||
| Shares | - 6 | - 8 | - 5 |
| Other | 0 | - 63 | 0 |
| Impairment on goodwill | 0 | - 41 | 0 |
| Impairment on other | - 2 | - 35 | - 7 |
| Intangible assets, other than goodwill | 0 | - 7 | 0 |
| Property and equipment and investment property | 0 | - 18 | 0 |
| Held-to-maturity assets | 0 | - 16 | 0 |
| Associated companies (goodwill) | 0 | 0 | 0 |
| Other | - 2 | 7 | - 7 |
The impairment on loans and receivables for the business unit Merchant Banking, includes an impairment on loans & receivables in Ireland of -195 million euros in 1Q 2012.
| Held for | Designated | Available for | Loans and | Held to | Hedging | Measured at amortised |
Total excluding Kredyt Bank Group |
||
|---|---|---|---|---|---|---|---|---|---|
| In millions of EUR | trading | at fair value | sale | receivables | maturity | derivatives | cost | Total | (IFRS 5) |
| FINANCIAL ASSETS, 31-12-2011 | |||||||||
| Loans and advances to credit institutions and investment firms a | 4 600 | 305 | 0 | 14 253 | - | - | - | 19 158 c | 19 111 |
| Loans and advances to customers b | 203 | 1 879 | 0 | 136 201 | - | - | - | 138 284 | 131 813 |
| Excluding reverse repos | 136 855 | 130 384 | |||||||
| Discount and acceptance credit | 0 | 0 | 0 | 137 | - | - | - | 137 | 137 |
| Consumer credit | 0 | 0 | 0 | 3 910 | - | - | - | 3 910 | 3 269 |
| Mortgage loans | 0 | 178 | 0 | 57 253 | - | - | - | 57 431 | 53 492 |
| Term loans | 203 | 1 531 | 0 | 61 880 | - | - | - | 63 614 | 62 553 |
| Finance leasing | 0 | 11 | 0 | 4 647 | - | - | - | 4 658 | 4 524 |
| Current account advances | 0 | 0 | 0 | 4 876 | - | - | - | 4 876 | 4 249 |
| Securitised loans | 0 | 0 | 0 | 0 | - | - | - | 0 | 0 |
| Other | 0 | 159 | 0 | 3 499 | - | - | - | 3 659 | 3 589 |
| Equity instruments | 1 028 | 28 | 1 446 | - | - | - | - | 2 501 | 2 491 |
| Investment contracts (insurance) | 7 652 | - | - | - | - | - | 7 652 | 7 652 | |
| Debt instruments issued by | 4 286 | 3 997 | 37 299 | 2 890 | 14 063 | - | - | 62 535 | 60 374 |
| Public bodies | 3 101 | 3 594 | 29 183 | 224 | 13 365 | - | - | 49 467 | 47 580 |
| Credit institutions and investment firms | 647 | 204 | 3 862 | 211 | 491 | - | - | 5 415 | 5 141 |
| Corporates | 538 | 199 | 4 255 | 2 455 | 207 | - | - | 7 653 | 7 653 |
| Derivatives | 16 750 | - | - | - | - | 624 | - | 17 375 | 17 192 |
| Total carrying value excluding accrued intrest income | 26 867 | 13 861 | 38 745 | 153 345 | 14 063 | 624 | 0 | 247 505 | 238 633 |
| Accrued interest income | 69 | 79 | 746 | 549 | 334 | 158 | 0 | 1 934 | 1 858 |
| Total carrying value including accrued interest income | 26 936 | 13 940 | 39 491 | 153 894 | 14 396 | 782 | 0 | 249 439 | 240 491 |
| a Of which reverse repos |
5 982 | 5 982 | |||||||
| b Of which reverse repos | 1 429 | 1 429 | |||||||
| FINANCIAL ASSETS, 31-03-2012 | |||||||||
| Loans and advances to credit institutions and investment firms a | 4 854 | 823 | 0 | 11 855 | - | - | - | 17 532 c | |
| Loans and advances to customers b | |||||||||
| 71 | 4 280 | 0 | 131 629 | - | - | - | 135 980 | ||
| Excluding reverse repos | 131 940 | ||||||||
| Discount and acceptance credit | 0 | 0 | 0 | 179 | - | - | - | 179 | |
| Consumer credit | 0 | 0 | 0 | 3 223 | - | - | - | 3 223 | |
| Mortgage loans Term loans |
0 71 |
161 3 993 |
0 0 |
53 790 61 374 |
- - |
- - |
- - |
53 951 65 437 |
|
| Finance leasing | 0 | 10 | 0 | 4 441 | - | - | - | 4 451 | |
| Current account advances | 0 | 0 | 0 | 4 802 | - | - | - | 4 802 | |
| Securitised loans | 0 | 0 | 0 | 0 | - | - | - | 0 | |
| Other | 0 | 116 | 0 | 3 820 | - | - | - | 3 937 | |
| Equity instruments | 793 | 18 | 1 334 | - | - | - | - | 2 144 | |
| Investment contracts (insurance) | 8 562 | - | - | - | - | - | 8 562 | ||
| Debt instruments issued by | 4 754 | 3 048 | 32 839 | 2 361 | 20 707 | - | - | 63 709 | |
| Public bodies | 3 860 | 2 686 | 24 551 | 201 | 19 471 | - | - | 50 769 | |
| Credit institutions and investment firms | 487 | 201 | 3 562 | 11 | 703 | - | - | 4 964 | |
| Corporates | 407 | 161 | 4 726 | 2 148 | 533 | - | - | 7 976 | |
| Derivatives Total carrying value excluding accrued interest income |
14 514 24 986 |
- 16 730 |
- 34 173 |
- 145 846 |
- 20 707 |
634 634 |
- 0 |
15 149 243 075 |
|
| Accrued interest income | 83 | 28 | 426 | 503 | 417 | 138 | 0 | 1 594 | |
| Total carrying value including accrued interest income | 25 068 | 16 758 | 34 599 | 146 348 | 21 124 | 772 | 0 | 244 670 | |
| a Of which reverse repos |
6 065 | ||||||||
| b Of which reverse repos | 4 040 |
In the first quarter of 2012, a total amount of 3.6 billion euros of government securities were reclassified from AFS to HTM.
| Held for | Designated at fair |
Available for | Loans and | Held to | Hedging | Measured at amortised |
Total excluding Kredyt Bank Group |
||
|---|---|---|---|---|---|---|---|---|---|
| In millions of EUR | trading | value | sale | receivables | maturity | derivatives | cost | Total | (IFRS 5) |
| FINANCIAL LIABILITIES, 31-12-2011 | |||||||||
| Deposits from credit institutions and investment firms a | 843 | 3 831 | - | - | - | - | 21 259 | 25 934 c | 25 901 |
| Deposits from customers and debt certificates b | 4 288 | 17 565 | - | - | - | - | 143 373 | 165 226 | 159 163 |
| Excluding repos | 149 385 | 143 322 | |||||||
| Deposits from customers | 3 774 | 13 277 | - | - | - | - | 117 410 | 134 461 | 128 397 |
| Demand deposits | 0 | 0 | - | - | - | - | 37 472 | 37 472 | 33 788 |
| Time deposits | 3 774 | 13 277 | - | - | - | - | 42 010 | 59 061 | 56 918 |
| Savings deposits | 0 | 0 | - | - | - | - | 32 624 | 32 624 | 32 624 |
| Special deposits | 0 | 0 | - | - | - | - | 3 887 | 3 887 | 3 887 |
| Other deposits Debt certificates |
0 514 |
0 4 288 |
- - |
- - |
- - |
- - |
1 417 25 963 |
1 417 30 766 |
1 180 30 766 |
| Certificates of deposit | 0 | 20 | - | - | - | - | 4 597 | 4 617 | 4 617 |
| Customer savings certificates | 0 | 0 | - | - | - | - | 710 | 710 | 710 |
| Convertible bonds | 0 | 0 | - | - | - | - | 0 | 0 | 0 |
| Non-convertible bonds | 514 | 4 167 | - | - | - | - | 12 694 | 17 375 | 17 375 |
| Convertible subordinated liabilities | 0 | 0 | - | - | - | - | 0 | 0 | 0 |
| Non-convertible subordinated liabilities | 0 | 101 | - | - | - | - | 7 961 | 8 063 | 8 063 |
| Liabilities under investment contracts | - | 7 014 | - | - | - | - | 0 | 7 014 | 7 014 |
| Derivatives | 21 699 | 0 | - | - | - | 1 601 | - | 23 300 | 23 111 |
| Short positions | 497 | 0 | - | - | - | - | - | 497 | 497 |
| in equity instruments | 4 | 0 | - | - | - | - | - | 4 | 4 |
| in debt instruments | 493 | 0 | - | - | - | - | - | 493 | 493 |
| Other | 0 | 173 | - | - | - | - | 2 408 | 2 581 | 2 581 |
| Total carrying value excluding accrued interest expense | 27 327 | 28 584 | - | - | - | 1 601 | 167 041 | 224 553 | 218 267 |
| Accrued interest expense | 27 | 94 | - | - | - | 328 | 801 | 1 251 | 1 240 |
| Total carrying value including accrued interest expense | 27 355 | 28 678 | - | - | - | 1 929 | 167 842 | 225 804 | 219 508 |
| a Of which repos b Of which repos |
6 574 15 841 |
6 574 15 841 |
|||||||
| FINANCIAL LIABILITIES, 31-03-2012 | |||||||||
| Deposits from credit institutions and investment firms a | 1 133 | 2 992 | - | - | - | - | 23 672 | 27 797 c | |
| Deposits from customers and debt certificates b | 4 264 | 18 274 | - | - | - | - | 144 014 | 166 551 | |
| Excluding repos | 149 685 | ||||||||
| Deposits from customers | 3 686 | 13 398 | - | - | - | - | 117 914 | 134 999 | |
| Demand deposits | 0 | 0 | - | - | - | - | 35 672 | 35 672 | |
| Time deposits | 3 686 | 13 398 | - | - | - | - | 43 256 | 60 340 | |
| Savings deposits | 0 | 0 | - | - | - | - | 33 751 | 33 751 | |
| Special deposits | 0 | 0 | - | - | - | - | 3 977 | 3 977 | |
| Other deposits | 0 | 0 | - | - | - | - | 1 258 | 1 258 | |
| Debt certificates | 578 | 4 876 | - | - | - | - | 26 099 | 31 553 | |
| Certificates of deposit Customer savings certificates |
0 0 |
10 0 |
- - |
- - |
- - |
- - |
5 700 667 |
5 711 667 |
|
| Convertible bonds | 0 | 0 | - | - | - | - | 0 | 0 | |
| Non-convertible bonds | 578 | 4 639 | - | - | - | - | 12 158 | 17 375 | |
| Convertible subordinated liabilities | 0 | 0 | - | - | - | - | 0 | 0 | |
| Non-convertible subordinated liabilities | 0 | 226 | - | - | - | - | 7 574 | 7 800 | |
| Liabilities under investment contracts | - | 7 871 | - | - | - | - | 0 | 7 871 | |
| Derivatives | 17 995 | 0 | - | - | - | 1 582 | - | 19 576 | |
| Short positions | 620 | 0 | - | - | - | - | - | 620 | |
| in equity instruments in debt instruments |
9 611 |
0 0 |
- - |
- - |
- - |
- - |
- - |
9 611 |
|
| Other | 0 | 78 | - | - | - | - | 3 135 | 3 212 | |
| Total carrying value excluding accrued interest expense Accrued interest expense |
24 012 23 |
29 214 78 |
- - |
- - |
- - |
1 582 262 |
170 820 946 |
225 628 1 310 |
|
| Total carrying value including accrued interest expense | 24 035 | 29 293 | - | - | - | 1 844 | 171 766 | 226 937 | |
| a Of which repos b Of which repos |
7 889 16 866 |
| In millions of EUR | 31-03-2011 | 30-06-2011 | 30-09-2011 | 31-12-2011 | 31-03-2012 |
|---|---|---|---|---|---|
| Total | 134 214 | 135 674 | 136 281 | 136 855 | 131 940 |
| Breakdown per business unit | |||||
| Belgium | 52 413 | 53 364 | 54 190 | 55 254 | 55 776 |
| Central and Eastern Europe | 25 279 | 25 950 | 25 826 | 25 632 | 26 220 |
| Merchant Banking | 42 561 | 42 389 | 42 542 | 42 419 | 42 561 |
| Group Centre (*) | 13 962 | 13 972 | 13 723 | 13 550 | 7 383 |
(*) figures as of 31-03-2011 excluding Centea; figures as of 31-03-2012 excluding Kredyt Bank
| 31-03-2011 | 30-06-2011 | 30-09-2011 | 31-12-2011 | 31-03-2012 |
|---|---|---|---|---|
| 55 795 | 56 731 | 57 081 | 57 431 | 53 951 |
| 29 703 | ||||
| 10 871 | ||||
| 12 093 | ||||
| 5 149 | 5 303 | 5 145 | 5 194 | 1 284 |
| 27 337 10 677 12 633 |
27 833 11 045 12 550 |
28 457 11 019 12 460 |
29 417 10 533 12 288 |
(*) figures as of 31-03-2011 excluding Centea; figures as of 31-03-2012 excluding Kredyt Bank.
| In millions of EUR | 31-03-2011 | 30-06-2011 | 30-09-2011 | 31-12-2011 | 31-03-2012 |
|---|---|---|---|---|---|
| Total | 173 492 | 171 388 | 167 683 | 149 385 | 149 685 |
| Breakdown per business unit | |||||
| Belgium | 68 554 | 70 802 | 72 687 | 71 156 | 71 324 |
| Central and Eastern Europe | 35 543 | 35 692 | 35 193 | 35 007 | 35 874 |
| Merchant Banking | 60 175 | 56 010 | 51 474 | 33 535 | 39 548 |
| Group Centre (*) | 9 221 | 8 884 | 8 329 | 9 687 | 2 940 |
(*) figures as of 31-03-2011 excluding Centea; figures as of 31-03-2012 excluding Kredyt Bank
| Technical provisions, Life Insurance (In millions of EUR) |
3 31-03-2011 0 |
30-06-2011 | 30-09-2011 | 31-12-2011 | 31-03-2012 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Interest | Interest | Interest | Interest | Interest | |||||||
| Guaranteed Unit Linked | Guaranteed Unit Linked | Guaranteed Unit Linked | Guaranteed Unit Linked | Guaranteed | Unit Linked | ||||||
| Total | 18 704 | 7 267 | 18 885 | 7 356 | 18 860 | 7 579 | 18 891 | 7 936 | 16 296 | 8 820 | |
| Breakdown per business unit | |||||||||||
| Belgium | 15 260 | 6 148 | 15 374 | 6 217 | 15 363 | 6 466 | 15 414 | 6 859 | 15 240 | 7 713 | |
| Central and Eastern Europe | 868 | 783 | 879 | 803 | 865 | 779 | 836 | 742 | 859 | 796 | |
| Group Centre | 2 576 | 336 | 2 633 335 |
334 | 2 641 | 335 | 197 | 311 | |||
(*) figures as from 30/09/2011 are excluding Fidea, and as from 31/12/2011 also excluding Warta.
See note 8 (Other net income), for more detail on provision regarding 5/5/5 bonds.
| in number of shares | 31-12-2011 | 31-03-2012 |
|---|---|---|
| Ordinary shares | 357 980 313 | 357 980 313 |
| of which ordinary shares that entitle the holder to a dividend payment | 344 619 736 | 344 619 736 |
| of which treasury shares | 18 169 054 | 18 169 054 |
| Non-voting core-capital securities | 220 338 982 | 220 338 982 |
| Other information | ||
| Par value per ordinary share (in euros) | 3,48 | 3,48 |
| Number of shares issued but not fully paid up | 0 | 0 |
The ordinary shares of KBC Group NV have no nominal value and are quoted on NYSE Euronext (Brussels) and on the Luxembourg Stock Exchange.
The number of KBC-shares held by group companies is shown in the table under 'treasury shares'. As at 31 March 2012, this number includes, inter alia:
• the shares that are held to meet requirements under the various employee stock option plans (889 130 shares).
• the shares that were bought in relation to the 2007-2009 3-billion-euro share buyback program (13 360 577 shares).
On 2 January 2012, KBC Group reimbursed 0.5 billion euros (and 15% penalty) to the Belgian State representing 16 949 152 non-voting core-capital securities. This has already been taken into account in the balance sheet on 31- 12-2011 (0.5 billion euros shift from equity to liabilities, and the extraction of the penalty from equity by presenting it as a liability)
In the course of 1Q 2012, there was no significant change in related parties compared to the end of 2011. In 2009, KBC entered into a guarantee agreement with the Belgian State to cover most of its potential downside risk exposure to CDOs. Included in the 1Q 2012 results is the related cost of 60 million euros (pre-tax), which is recognized in 'Net result from financial instruments at fair value through profit or loss'.
On 2 January 2012, KBC Group reimbursed 0.5 billion euros (and 15% penalty) to the Belgian State. This has already been taken into account in the balance sheet on 31-12-2011 (0.5 billion euros shift from equity to liabilities, and the extraction of the penalty from equity by presenting it as a liability)
| Company | Consolidation method |
Ownership percentage at KBC Group level |
Comments | |
|---|---|---|---|---|
| For income statement comparison | 1Q2011 | 1Q2012 | ||
| Additions | ||||
| None | ||||
| Exclusions | ||||
| Centea | Full | 100,00% | ------ | Sold in 3Q2011 |
| Fidea NV | Full | 100,00% | ------ | Sold in 1Q2012 |
| Name Changes | ||||
| None | ||||
| Changes in ownership percentage and internal mergers | ||||
| Absolut Bank | Full | 95,00% | 99,00% Increase with 4,00% (2Q11) | |
| KBC Consumer Finance NV | Full | 60,01% | 100,00% Increase with 39,99% (2Q11) | |
| DZI Insurance | Full | 90,35% | 99,95% Increase with 9,61% (4Q11) | |
| For balance sheet comparison | 31-12-2011 | 31-03-2012 | ||
| Additions | ||||
| None | ||||
| Exclusions | ||||
| Fidea NV | Full | 100,00% | ------ | Sold in 1Q2012 |
| Name Changes | ||||
| None | ||||
| Changes in ownership percentage and internal mergers | ||||
| None |
As compared to 1Q 2011 the consolidation scope changed by excluding Centea and Fidea, both contributing 12 million euros and 13 million euros respectively to the consolidated net profit in 1Q 2011.
On 31 March 2012, following planned divestments fulfill the criteria of IFRS 5:
The assets and liabilities of these divestments are shown separately on the balance sheet (Non-current assets held for sale and assets associated with disposal groups on the asset side and Liabilities associated with disposal groups on the liability side): see table below for more details.
The other participations which are up for divestment in the future do not fulfill one or more of the criteria mentioned above on 31 March 2012:
| Activity: Segment: Other information: |
Private banking Group Centre On 10 October 2011, the KBC group has reached an agreement with Precision Capital for the sale of its dedicated private banking subsidiary KBL European Private Bankers ('KBL EPB') for a total consideration of approximately 1 billion euros. The transaction will release a total of approximately 0.7 billion euros in capital for KBC, resulting in a 0.6 % increase in KBC's tier-1 ratio (impact calculated on 30 June 2011 and subject to pricing adjustments on closing accounts). The transaction had a negative impact of approximately 0.4 billion euros on KBC's third-quarter P/L. |
|---|---|
| Fidea: | |
| Activity: Segment: Other information: |
Insurance Group Centre This transaction, between KBC Group and J.C. Flowers, was closed on 30 March 2012 . |
| Warta: | |
| Activity: Segment: Other information: |
Insurance Group Centre On 20 January 2012, KBC Group has reached an agreement with Talanx. for the sale of its subsidiary Warta for a total consideration of 770 million euros, adjusted by changes in net asset value between 30 June 2011 and the closing date. Closing of the transaction is subject to the customary regulatory approvals and is expected to be completed in the second half of 2012. On the basis of figures as at 30 September 2011, the transaction is expected to release almost 0.7 billion euros in capital for KBC, resulting in an increase in KBC's tier-1 ratio of slightly below 0.7%. The transaction will have a positive impact of approximately 0.3 billion euros on KBC's profit and loss, at the time of closing of the transaction. |
| Kredyt Bank: | |
| Activity: Segment: Other information: |
Banking Group Centre On 28 February 2012, KBC Group has reached an agreement with Santander for the merger of its subsidiary Kredyt Bank and Bank Zachodni WBK. Following the proposed merger, Santander will hold approximately 76.5% of the merged bank and KBC around 16.4%. The rest will be held by other minority shareholders. Banco Santander S.A. has committed to help KBC to lower its stake in the merged bank to below 10% immediately after the merger. Furthermore, KBC's intention is to divest its remaining stake, with a view to maximising value. Based on the market valuations at the time of reaching the agreement, the transaction will have a positive effect on KBC's income statement of approximately +0.1 billion euros at the time of closing the transaction. Closing of the transaction is subject to the customary regulatory approvals and is expected to be completed in the second half of 2012. Upon the deconsolidation of Kredyt Bank as a result of the proposed merger, and after a committed reduction of KBC's participation below 10% shortly after the registration of the merger and at the market valuations at the time of reaching the agreement approximately 0.7 billion euros of capital will be released, predominantly based on a reduction of Risk Weighted Assets – corresponding with a pro forma tier-1 impact at KBC-group consolidated level (calculated at year-end 2011) of approximately +0.8%. Assuming a full exit and based on current market valuations, the pro forma tier-1 impact at KBC- group consolidated level (calculated at year-end 2011) is estimated at approximately +0.9%. |
| In millions of EUR | 1Q 2011 | 4Q 2011 | 1Q 2012 |
|---|---|---|---|
| A: DISCONTINUED OPERATIONS | |||
| Income statement | |||
| Income statement KBL EPB (including Vitis Life) | |||
| Net interest income | 35 | 39 | 29 |
| Net fee and commission income | 98 | 77 | 88 |
| Other income | 23 | 50 | 20 |
| Total income | 156 | 166 | 137 |
| Operating expenses | - 108 | - 117 | - 110 |
| Impairment | - 1 | - 79 | - 8 |
| Share in results of associated companies | 0 | 0 | 0 |
| Result before tax | 48 | - 29 | 19 |
| Income tax expense | - 11 | 19 | - 6 |
| Result after tax | 37 | - 10 | 12 |
| Result of sale of KBL EPB (including Vitis Life) | |||
| Impairment loss recognised on the remeasurement to fair value less costs to sell | - 37 | 36 | 28 |
| Tax income related to measurement to fair value less costs to sell (deferred tax) | 0 | 0 | 0 |
| Result of sale after tax | - 37 | 36 | 28 |
| Net post-tax result from discontinued operations | 0 | 26 | 40 |
| Cashflow statement KBL EPB (including Vitis Life) | |||
| Net cash from (used in) operating activities | - 476 | ||
| Net cash from (used in) investing activities | - 2 | ||
| Net cash from (used in) financing activities | 8 | ||
| Net cash outflow/inflow | - 470 | ||
| Earnings per share relating to discontinued operations (KBL, including Vitis Life) | |||
| Basic | 0,12 | ||
| Diluted | 0,12 |
Regarding KBL's available for sale portfolio and translation differences, an unrealised reserve of +10 million euros (after tax) is included in parent shareholders' equity on 31 March 2012. At the latest at the time of closing (expected in the second quarter of 2012), these unrealised reserves will be reclassified from equity to profit or loss.
| of which: | of which: | |||
|---|---|---|---|---|
| Discon | Discon | |||
| tinued | tinued | |||
| Balance sheet | 31-12-2011 | operations | 31-03-2012 | operations |
| Assets | ||||
| Cash and cash balances with central banks | 1 076 | 1 076 | 764 | 497 |
| Financial assets | 16 797 | 12 523 | 23 382 | 12 231 |
| Fair value adjustments of hedged items in portfolio hedge of interest rate risk | 12 | 12 | 12 | 12 |
| Tax assets | 110 | 95 | 157 | 69 |
| Investments in associated companies | 13 | 13 | 12 | 12 |
| Investment property and property and equipment | 278 | 224 | 359 | 223 |
| Goodwill and other intangible assets | 352 | 196 | 461 | 227 |
| Other assets | 485 | 103 | 498 | 104 |
| Total assets | 19 123 | 14 242 | 25 644 | 13 374 |
| Liabilities | ||||
| Financial liabilities | 12 901 | 12 710 | 18 935 | 11 681 |
| Technical provisions insurance, before reinsurance | 4 533 | 424 | 1 628 | 407 |
| Tax liabilities | 38 | 6 | 36 | 7 |
| Provisions for risks and charges | 30 | 22 | 44 | 22 |
| Other liabilities | 631 | 304 | 585 | 417 |
| Total liabilities | 18 132 | 13 466 | 21 229 | 12 534 |
| Other comprehensive income | ||||
| Available-for-sale reserve | - 81 | - 72 | 97 | 79 |
| Deferred tax on available-for-sale reserve | 29 | 20 | - 25 | - 22 |
| Cash flow hedge reserve | - 1 | 0 | ||
| Translation differences | 7 | 7 | 61 | - 1 |
| Total other comprehensive income | - 45 | - 46 | 131 | 56 |
| Banking and Insurance book |
Trading book |
Total | Banking and insurance book maturity breakdown |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| AFS HTM FIV* |
Maturity date in 2012 |
Maturity date in 2013 |
Maturity date in & after 2014 |
||||||||||
| Greece | 0,0 | 0,0 | 0,0 | 0,0 | 0.0 | 0,0 | 0,0 | 0,0 | |||||
| Portugal | 0,0 | 0,1 | 0,0 | 0,0 | 0,1 | 0,0 | 0,0 | 0,1 | |||||
| Spain | 1,6 | 0,2 | 0,0 | 0,0 | 1,9 | 0,5 | 0,4 | 1,0 | |||||
| Italy | 1,5 | 0,4 | 0,0 | 0,0 | 2,0 | 0,0 | 0,4 | 1,6 | |||||
| Ireland | 0,1 | 0,3 | 0,0 | 0,0 | 0,4 | 0,0 | 0,0 | 0,4 | |||||
| Total | 3,4 | 1,0 | 0,0 | 0,0 | 4,4 | 0,5 | 0,8 | 3,1 |
Sovereign bonds on selected European countries, in billions of EUR, 31-03-2012, carrying amounts
* Designated at fair value through profit and loss.
| Evolution of Sovereign bond portfolio on selected European countries, banking and insurance (carrying amount in billions of EUR) | ||
|---|---|---|
| ---------------------------------------------------------------------------------------------------------------------------------- | -- | -- |
| End 1Q11 | End 2Q11 | End 3Q11 | End 4Q11 | End 1Q12 | |
|---|---|---|---|---|---|
| Greece | 0,6 | 0,5 | 0,3 | 0,2 | 0,0 |
| Portugal | 0,3 | 0,3 | 0,1 | 0,1 | 0,1 |
| Spain | 2,2 | 2,2 | 2,1 | 1,9 | 1,9 |
| Italy | 6,2 | 6,1 | 3,8 | 2,1 | 2,0 |
| Ireland | 0,4 | 0,4 | 0,4 | 0,4 | 0,4 |
| Total | 9,7 | 9,6 | 6,7 | 4,8 | 4,4 |
During the first quarter of 2012, KBC took part in the exchange operation regarding Greek government bonds. The new Greek government bonds received as part of the exchange of the 'old' Greek government bonds (31,5% of the nominal value of the 'old' government bonds) are valued at the market value at the moment of exchange (prices between 21%-29%), leading to a limited remaining carrying value of 43 million euros and a realised loss on AFS and HTM (above the impairments booked in 2011) of about 42 million euros. The new Greek government bonds are classified in level 1 (while the former Greek bonds were classified in level 2).
Spanish sovereign bond exposure: see also note 48 post-balance sheet events.
At 31 March 2012, the carrying amounts of the AFS government bonds contained a negative revaluation. This effect is included in the revaluation reserve for AFS financial assets for a total amount before tax of -83 million euros (Italy: +20 million, Portugal: -24 million, Spain: -62 million, Ireland: -15 million, Greece: -1 million).
Significant events between the balance sheet date (31 March 2012) and the publication of this report (10 May 2012)
• In the course of April 2012, KBC further reduced its Spanish sovereign bond exposure by selling all its HTM positions (0.2 billion euros) as well as a large amount of AFS bonds (approximately 1.0 billion euros) leading to a realised result of about -51 million euros before tax. Next to this, about 0.4 billion euros worth of bonds came to maturity. The remaining carrying amount of Spanish government bonds taking into account these sale amounts and maturities reduced to approximately 0.3 billion euros.
Not reviewed by the auditors
Extensive risk management and solvency data for 31-12-2011 is provided in KBC's 2011 Annual Report. For an explanation regarding the methodology used, please refer to the annual report.
The main source of credit risk is the loan portfolio of the bank. A snapshot of the banking portfolio is shown in the table below. It includes all payment credit, guarantee credit (except for confirmations of letters of credit and similar export-/import-related commercial credit), standby credit and credit derivatives, granted by KBC to private persons, companies, governments and banks. Bonds held in the investment portfolio are included if they are corporate- or bank-issued, hence government bonds and trading book exposure are not included. Further on in this chapter, extensive information is provided on the credit portfolio of each business unit. Structured credit exposure is described separately. Information specifically on sovereign bonds can be found under ' Note 47 (in the annual accounts 2011)'.
| Credit risk: loan portfolio overview (KBC Banking activities excl. KBL-EPB and Kredyt Bank) | 31-12-20111 | 31-03-2012 |
|---|---|---|
| Total loan portfolio (in billions of EUR) | ||
| Amount granted | 186 | 178 |
| Amount outstanding2 | 156 | 149 |
| Total loan portfolio, by business unit (as a % of the portfolio of credit granted) | ||
| Belgium | 34% | 36% |
| CEE | 19% | 21% |
| Merchant Banking | 37% | 38% |
| Group Centre | 10% | 6% |
| Total | 100% | 100% |
| Impaired loans (in millions of EUR or %) | ||
| Amount outstanding | 11 234 | 10 888 |
| Specific loan impairments | 4 870 | 4 665 |
| Portfolio-based loan impairments | 371 | 308 |
| Credit cost ratio, per business unit | ||
| Belgium | 0.10% | - 0.02% |
| CEE | 1.59% | 0.60% |
| Czech Republic | 0.37% | 0.26% |
| Slovakia | 0.25% | 0.29% |
| Hungary | 4.38% | 1.92% |
| Bulgaria | 14.73% | 1.16% |
| Merchant Banking | 1.36% | 1.57% |
| Group Centre | 0.36%3 | -0.01% 4 |
| Total | 0.83%3 | 0.66% 4 |
| Non-performing (NP) loans (in millions of EUR or %) | ||
| Amount outstanding | 7 580 | 7 888 |
| Specific loan impairments for NP loans | 3 875 | 3 794 |
| Non-performing ratio, per business unit | ||
| Belgium | 1.5% | 1.5% |
| CEE | 5.6% | 5.6% |
| Merchant Banking | 7.8% | 9.1% |
| Group Centre | 5.5% | 6.4% |
| Total | 4.9% | 5.3% |
| Cover ratio | ||
| Specific loan impairments for NP loans / Outstanding NP loans | 51% | 48% |
| Idem, excluding mortgage loans | 62% | 60% |
| Specific and portfolio-based loan impairments for performing and NP loans / outstanding NP loans | 69% | 63% |
| Idem, excluding mortgage loans | 89% | 81% |
| 1. Figures of 31-12-2011 include Kredyt Bank |
Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees.
CCR Group Centre including KBL EPB: 0.32% and CCR Total including KBL EPB: 0.82%.
CCR Group Centre including Kredyt Bank: 0.34% and CCR Total including Kredyt Bank: 0.66%
Further information on the provisions made for KBC Bank Ireland in Ireland can be found under 'Impairment – income statement (note 14)
Legend:
| 31-03-2012, in millions of EUR | Belgium | ||
|---|---|---|---|
| Total outstanding amount | 57.239 | ||
| Counterparty break down | % outst. | ||
| SME / corporate | 1.624 | 2,8% | |
| retail | 55.615 | 97,2% | |
| o/w private | 30.941 | 54,1% | |
| o/w companies | 24.674 | 43,1% | |
| Mortgage loans (*) | % outst. | ind. LTV | |
| total | 29.675 | 51,8% | 64% |
| o/w FX mortgages | 0 | 0,0% | - |
| o/w vintage 2007 and 2008 | 4.920 | 8,6% | - |
| o/w LTV > 100% | 2.740 | 4,8% | - |
| Probability of default (PD) | % outst. | ||
| low risk (pd 1-4; 0.00%-0.80%) | 46.137 | 80,6% | |
| medium risk (pd 5-7; 0.80%-6.40%) | 7.942 | 13,9% | |
| high risk (pd 8-10; 6.40%-100.00%) | 2.280 | 4,0% | |
| non-performing loans (pd 11 - 12) | 871 | 1,5% | |
| unrated | 9 | 0,0% | |
| Other risk measures | % outst. | ||
| outstanding non-performing loans (NPL) | 871 | 1,5% | |
| provisions for NPL | 440 | ||
| all provisions (specific + portfolio based) | 535 | ||
| cover NPL by all provisions (specific + portfolio) | 61% | ||
| 2011 Credit cost ratio (CCR) | 0,10% | ||
| YTD 2012 CCR | -0,02% | ||
(*) mortgage loans: only to private persons (as opposed to the accounting figures)
| 31-03-2012, in millions of EUR | Czech republic | Slovakia | Hungary | Bulgaria | Total CEE | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total outstanding amount | 20.339 | 4.361 | 5.506 | 694 | 30.900 | |||||||||
| Counterparty break down SME / corporate retail o/w private o/w companies |
6.730 13.609 10.261 3.348 |
% outst. 33,1% 66,9% 50,4% 16,5% |
2.405 1.956 1.652 305 |
% outst. 55,1% 44,9% 37,9% 7,0% |
2.842 2.664 2.229 435 |
% outst. 51,6% 48,4% 40,5% 7,9% |
296 398 240 158 |
% outst. 42,6% 57,4% 34,6% 22,7% |
12.273 18.628 14.382 4.246 |
% outst. 39,7% 60,3% 46,5% 13,7% |
||||
| Mortgage loans (1) total o/w FX mortgages o/w vintage 2007 and 2008 o/w LTV > 100% |
6.688 0 2.101 445 |
% outst. 32,9% 0,0% 10,3% 2,2% |
ind. LTV 67% - - - |
1.396 0 310 0 |
% outst. 32,0% 0,0% 7,1% 0,0% |
ind. LTV 58% - - - |
1.953 1.618 1.009 675 |
% outst. 35,5% 29,4% 18,3% 12,3% |
ind. LTV 86% 94% - - |
114 70 54 15 |
% outst. 16,5% 10,1% 7,8% 2,2% |
ind. LTV 62% - - |
65% 10.152 1.688 3.475 1.136 |
% outst. 32,9% 5,5% 11,2% 3,7% |
| Probability of default (PD) low risk (pd 1-4; 0.00%-0.80%) medium risk (pd 5-7; 0.80%-6.40%) high risk (pd 8-10; 6.40%-100.00%) non-performing loans (pd 11 - 12) unrated |
13.030 5.670 846 715 78 |
% outst. 64,1% 27,9% 4,2% 3,5% 0,4% |
2.432 1.343 282 153 150 |
% outst. 55,8% 30,8% 6,5% 3,5% 3,4% |
2.288 1.790 787 621 20 |
% outst. 41,5% 32,5% 14,3% 11,3% 0,4% |
9 226 119 245 94 |
% outst. 1,3% 32,6% 17,1% 35,3% 13,6% |
17.759 9.030 2.034 1.735 343 |
% outst. 57,5% 29,2% 6,6% 5,6% 1,1% |
||||
| Other risk measures outstanding non-performing loans (NPL) provisions for NPL all provisions (specific + portfolio based) cover NPL by all provisions (specific + portfolio) 2011 Credit cost ratio (CCR) (2) YTD 2012 CCR (local currency) (2) |
715 404 523 73% 0,37% 0,26% |
% outst. 3,5% |
153 90 126 82% 0,25% 0,29% |
% outst. 3,5% |
621 349 421 68% 4,38% 1,92% |
% outst. 11,3% |
245 117 138 56% 14,73% 1,16% |
% outst. 35,3% |
1.735 960 1.208 70% 1,59% 0,60% |
% outst. 5,6% |
Remarks
(1) mortgage loans: only to private persons (as opposed to the accounting figures) (2) individual CCR's in local currencies
| Loan portfolio Business Unit Merchant Banking 31-03-2012, in millions of EUR |
Belgium | Western Europe | o/w Ireland | USA | Southeast Asia | Global | Credit Investments | Total Merchant Banking | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total outstanding amount | 21.068 | 21.135 | 16.606 | 3.826 | 1.029 | 2.116 | 3.181 | 52.355 | |||||||||||||
| Counterparty break down SME / corporate retail o/w private o/w companies |
21.068 0 0 0 |
% outst. 100,0% 0,0% 0,0% 0,0% |
8.428 12.707 12.707 0 |
% outst. 39,9% 60,1% 60,1% 0,0% |
3.899 12.707 12.707 0 |
% outst. 23,5% 76,5% 76,5% 0,0% |
3.826 0 0 0 |
% outst. 100,0% 0,0% 0,0% 0,0% |
1.029 0 0 0 |
% outst. 100,0% 0,0% 0,0% 0,0% |
2.116 0 0 0 |
% outst. 100,0% 0,0% 0,0% 0,0% |
0 0 0 |
% outst. 3.181 100,0% 0,0% 0,0% 0,0% |
39.648 12.707 12.707 0 |
% outst. 75,7% 24,3% 24,3% 0,0% |
|||||
| Mortgage loans (*) total o/w FX mortgages o/w vintage 2007 and 2008 o/w LTV > 100% |
0 0 0 0 |
% outst. ind. LTV 0,0% 0,0% 0,0% 0,0% |
- 12.707 - 0 - 4.654 - 8.440 |
% outst. ind. LTV 60,1% 0,0% 22,0% 39,9% |
118% - - - |
12.707 0 4.654 8.440 |
76,5% 0,0% 28,0% 50,8% |
% outst. ind. LTV 118% - - - |
0 0 0 0 |
% outst. 0,0% 0,0% 0,0% 0,0% |
ind. LTV - - - - |
0 0 0 0 |
% outst. ind. LTV 0,0% 0,0% 0,0% 0,0% |
- - - - |
0 0 0 0 |
% outst. ind. LTV 0,0% 0,0% 0,0% 0,0% |
- 0 - 0 - 0 - 0 |
0,0% 0,0% 0,0% 0,0% |
% outst. ind. LTV - - - - |
12.707 0 4.654 8.440 |
% outst. 24,3% 0,0% 8,9% 16,1% |
| Probability of default (PD) low risk (pd 1-4; 0.00%-0.80%) medium risk (pd 5-7; 0.80%-6.40%) high risk (pd 8-10; 6.40%-100.00%) non-performing loans (pd 11 - 12) unrated |
14.135 4.176 813 916 1.027 |
% outst. 67,1% 19,8% 3,9% 4,3% 4,9% |
9.287 4.040 4.100 3.662 46 |
% outst. 43,9% 19,1% 19,4% 17,3% 0,2% |
7.093 3.078 3.036 3.399 0 |
% outst. 42,7% 18,5% 18,3% 20,5% 0,0% |
3.091 410 177 85 62 |
% outst. 80,8% 10,7% 4,6% 2,2% 1,6% |
590 375 41 22 0 |
% outst. 57,4% 36,4% 4,0% 2,2% 0,0% |
998 804 237 59 19 |
% outst. 11,2% 2,8% |
1.913 1.116 151 0 0 |
% outst. 60,2% 35,1% 4,8% 0,0% 0,0% |
30.015 10.920 5.520 4.745 1.154 |
% outst. 57,3% 20,9% 10,5% 9,1% 2,2% |
|||||
| Other risk measures outstanding non-performing loans (NPL) provisions for NPL all provisions (specific + portfolio based) cover NPL by all provisions (specific + portfolio) 2011 Credit cost ratio (CCR) YTD 2012 CCR |
916 549 753 82% n.a. n.a. |
% outst. 4,3% |
3.662 1.314 1.711 47% n.a. n.a. |
% outst. 17,3% |
3.399 1.166 1.430 42% 3,01% 4,69% |
% outst. 20,5% |
85 76 85 100% n.a. n.a. |
% outst. 2,2% |
22 14 28 126% n.a. n.a. |
% outst. 2,2% |
59 63 64 108% n.a. n.a. |
% outst. 2,8% |
0 0 28 - n.a. n.a. |
% outst. 0,0% |
4.745 2.016 2.699 57% 1,36% 1,57% |
% outst. 9,1% |
Remarks
Belgium = Belgian Corporate Branches, KBC Lease (Belgium), KBC Commercial Finance, KBC Real Estate
Western Europe = Foreign branches in Western Europe (UK, France, Netherlands); KBC Bank Ireland (incl. former Homeloans), KBC Lease UK, Ex-Atomium assets
Ireland = KBC Bank Ireland (incl. former KBC Homeloans)
USA = foreign branch in USA
Southeast Asia = Foreign branches in Asia (Hong Kong, Singapore, China)
Global = Structured Trade Finance, Foreign branch in Dublin (Syndicated loans), KBC Bank Head-office
Credit Investments = KBC Credit Investments
(*) mortgage loans: only KBC Homeloans exposure and only to private persons (as opposed to the accounting figures)
| Loan portfolio Business Unit Group Centre (excl. EPB & Kredyt Bank) 31-03-2012, in millions of EUR |
Belgium | CEER | o/w Russia | Western Europe | Global | Total Group Centre (excl. EPB and KB) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total outstanding amount | 1.539 | 2.369 | 2.116 | 2.675 | 1.835 | 8.418 | |||||||||||
| Counterparty break down SME / corporate retail o/w private o/w companies |
1.539 0 0 0 |
% outst. 100,0% 0,0% 0,0% 0,0% |
1.242 1.127 1.048 79 |
% outst. 52,4% 47,6% 44,2% 3,3% |
1.082 1.035 956 79 |
% outst. 51,1% 48,9% 45,2% 3,7% |
2.675 0 0 0 |
% outst. 100,0% 0,0% 0,0% 0,0% |
1.835 0 0 0 |
% outst. 51,1% 0,0% 0,0% 0,0% |
7.291 1.127 1.048 79 |
% outst. 86,6% 13,4% 12,5% 0,9% |
|||||
| Mortgage loans (*) total o/w FX mortgages o/w vintage 2007 and 2008 o/w LTV > 100% |
0 0 0 0 |
% outst. 0,0% 0,0% 0,0% 0,0% |
ind. LTV - - - - |
881 255 445 20 |
% outst. 37,2% 10,8% 18,8% 0,9% |
ind. LTV - - - |
806 180 403 11 |
% outst. 38,1% 8,5% 19,0% 0,5% |
ind. LTV 0% 0% - - |
0 0 0 0 |
% outst. 0,0% 0,0% 0,0% 0,0% |
ind. LTV - - - - |
0 0 0 0 |
% outst. 0,0% 0,0% 0,0% 0,0% |
ind. LTV - - - - |
881 255 445 20 |
% outst. 10,5% 3,0% 5,3% 0,2% |
| Probability of default (PD) low risk (pd 1-4; 0.00%-0.80%) medium risk (pd 5-7; 0.80%-6.40%) high risk (pd 8-10; 6.40%-100.00%) non-performing loans (pd 11 - 12) unrated |
165 1.026 171 162 15 |
% outst. 10,7% 66,7% 11,1% 10,5% 1,0% |
977 909 79 252 152 |
% outst. 41,2% 38,4% 3,4% 10,6% 6,4% |
961 841 138 0 45 |
% outst. 45,4% 39,8% 6,5% 0,0% 2,1% |
1.593 827 172 82 1 |
% outst. 59,6% 30,9% 6,4% 3,1% 0,0% |
467 1.188 138 42 0 |
% outst. 7,5% 2,3% |
3.202 3.950 561 537 168 |
% outst. 38,0% 46,9% 6,7% 6,4% 2,0% |
|||||
| Other risk measures outstanding non-performing loans (NPL) provisions for NPL all provisions (specific + portfolio based) cover NPL by all provisions (specific + portfolio) 2011 Credit cost ratio (CCR) YTD 2012 CCR (local currency) |
162 147 166 103% n.a. n.a. |
% outst. 10,5% |
252 150 176 70% n.a. n.a. |
% outst. 10,6% |
218 139 164 75% -1,99% -1,89% |
% outst. 10,3% |
82 65 95 116% 1,31% 1,13% |
% outst. 3,1% |
42 15 42 100% 0,70% 0,08% |
% outst. 2,3% |
537 378 532 99% 0,36% -0,01% |
% outst. 6,4% |
Legend
ind. LTV Indexed Loan to Value: current outstanding loan / current value of property
avg. PD Average Probability of Default
Remarks
Belgium = Antwerpse Diamantbank (incl. ADB Asia Pacific)
CEER = KBC Banka, Absolut Bank
In the past, KBC acted as an originator of structured credit transactions and also invested in such structured credit products itself.
In billions of EUR – 31-03-2012
| KBC investments in structured credit products (CDOs and other ABS)* | ||||
|---|---|---|---|---|
| Total nominal amount | 18.2 | |||
| o/w hedged CDO exposure | 10.1 | |||
| o/w unhedged CDO exposure | 5.5 | |||
| o/w other ABS exposure | 2.6 | |||
| Cumulative value markdowns (mid 2007 to date)* | -4.8 | |||
| o/w value markdowns | -4.1 | |||
| for unhedged CDO exposure | -3.8 | |||
| for other ABS exposure | -0.3 | |||
| o/w Credit Value Adjustment (CVA) on MBIA cover | -0.8 |
* Note that, value adjustments to KBC's CDOs are accounted for via profit and loss (instead of directly via shareholders' equity), since the group's CDOs are mostly of a synthetic nature (meaning that the underlying assets are derivative products such as credit default swaps on corporate names). Their synthetic nature is also the reason why KBC's CDOs are not eligible for accounting reclassification under IFRS in order to neutralise their impact.
Over the first quarter of 2012, there was a total notional reduction of 2.2 billion euros. The main component of this reduction was the de-risking of two CDOs, resulting in a decrease of the outstanding CDO notional with 1.7 billion euros, and the approximately 500 million euros of sales and amortizations of ABSs held by KBC Group.
Since the inception, the outstanding unhedged CDO positions held by KBC experienced net effective losses caused by claimed credit events until 10 April 2012 in the lower tranches of the CDO structure for a total amount of -2.2 billion euros. Of these, -1.9 billion euro's worth of events have been settled. These have had no further impact on P/L because complete value markdowns for these CDO tranches were already absorbed in P/L in the past.
As stated above, KBC bought credit protection from MBIA for a large part of the (super senior) CDOs it originated.
Moreover, the remaining risk related to MBIA's insurance coverage is to a large extent mitigated as it is included in the scope of the Guarantee Agreement that was agreed with the Belgian State on 14 May 2009. The contract with the Belgian State has a nominal value of 12.2 billion euros of which 10.1 billion euros relates to the exposure insured by MBIA. The remaining 2.1 billion euros of exposure covered by the contract with the Belgian State relates to the unhedged exposure. Of this portfolio (i.e. CDO exposure not covered by credit protection by MBIA) the super senior assets have also been included in the scope of the Guarantee Agreement with the Belgian State.
1 Figures exclude all expired, unwound and terminated CDO positions.
Details on the hedged CDO exposure (insurance for CDO-linked risks received from MBIA), 31-03-2012 In billions of EUR
| Total insured amount (notional amount of super senior swaps)1 | 10.1 |
|---|---|
| Details for MBIA insurance coverage | |
| - Fair value of insurance coverage received (modelled replacement value, after taking the Guarantee Agreement into account) | 1.1 |
| - CVA for counterparty risk, MBIA | -0.8 |
| (as a % of fair value of insurance coverage received) | 70% |
| 1 The amount insured by MBIA is included in the Guarantee Agreement with the Belgian State (14 May 2009). |
Details of the underlying assets to KBC's CDOs originated by KBC FP
(Average % as of initial total deal notional exposure; figures as of 10 April 2012)
KBC reports its solvency at group, banking and insurance level, calculating it on the basis of IFRS figures and the relevant guidelines issued by the Belgian regulator. For group solvency, the so-called 'building block' method is used. This entails comparing group regulatory capital (i.e. parent shareholders' equity less intangible assets and a portion of the revaluation reserve for available-for-sale assets, plus subordinated debt, etc.) with the sum of the separate minimum regulatory solvency requirements for KBC Bank, KBL EPB and the holding company (after deduction of intercompany transactions between these entities) and KBC Insurance. The total risk-weighted volume of insurance companies is calculated as the required solvency margin under Solvency I divided by 8%. The target for the tier-1 capital ratio at group level has been set at 11%.
| In millions of EUR | 31-12-2011 | 31-03-2012 |
|---|---|---|
| Regulatory capital | ||
| Total regulatory capital, KBC Group (after profit appropriation) | 19 687 | 19 789 |
| Tier-1 capital | 15 523 | 16 145 |
| Parent shareholders' equity | 9 756 | 10 949 |
| Non-voting core-capital securities (2) | 6 500 | 6 500 |
| Intangible fixed assets (-) | - 446 | - 454 |
| Goodwill on consolidation (-) | - 1 804 | - 1 827 |
| Innovative hybrid tier-1 instruments (2) | 420 | 416 |
| Non-innovative hybrid tier-1 instruments (2) | 1 690 | 1 691 |
| Minority interests | 145 | 156 |
| Equity guarantee (Belgian State) | 564 | 387 |
| Revaluation reserve available-for-sale assets (-) | 117 | - 609 |
| Hedging reserve, cashflow hedges (-) | 594 | 599 |
| Valuation diff. in fin. liabilities at fair value - own credit risk (-) | - 550 | - 209 |
| Minority interest in AFS reserve & hedging reserve, cashflow hedges (-) | - 3 | 0 |
| Equalization reserve (-) | - 139 | - 127 |
| Dividend payout (-) (3) | - 598 | - 737 |
| IRB provision shortfall (50%) (-) | 0 | 0 |
| Limitation of deferred tax assets | - 384 | - 257 |
| Items to be deducted (1) (-) | - 338 | - 331 |
| Tier-2 & 3 capital | 4 164 | 3 644 |
| Perpetuals (incl. hybrid tier-1 not used in tier-1) | 30 | 30 |
| Revaluation reserve, available-for-sale shares (at 90%) | 246 | 246 |
| Minority interest in revaluation reserve AFS shares (at 90%) | 0 | |
| IRB provision excess (+) | 403 | 403 |
| Subordinated liabilities | 3 778 | 3 252 |
| Tier-3 capital | 45 | 44 |
| IRB provision shortfall (50%) (-) | 0 | 0 |
| Items to be deducted (1) (-) | - 338 | - 331 |
| Capital requirement | ||
| Total weighted risks | 126 333 | 123 108 |
| Banking | 110 355 | 108 907 |
| Insurance | 15 791 | 14 018 |
| Holding activities | 286 | 242 |
| Elimination of intercompany transactions between banking and holding activities | - 100 | - 59 |
| Solvency ratios | ||
| Tier-1 ratio | 12,29% | 13,11% |
| Core Tier-1 ratio | 10,62% | 11,40% |
| CAD ratio Basic own funds ratio |
15,58% 5,47% |
16,07% 6,12% |
(1) items to be deducted are split 50/50 over tier-1 and tier-2 capital. Items to be deducted include mainly participations in and subordinated claims on financial institutions in w hich KBC Bank has betw een a 10% to 50% share (predominantly NLB).
(2) According to CRD II, these items are considered as grandfathered items.
(3) for 31/12/2011: includes 595 million euros coupon on non-voting core capital securities and 3 million euros dividend on ordinary shares; for 31/03/2012: includes coupon and dividend 2011 to be paid in 2Q12 and a pro rata of the dividend and coupon for 2012.
On 2 January 2012, KBC Group reimbursed 0.5 billion euros (and 15% penalty) to the Belgian State. This has already been taken into account in the balance sheet and hence also in the solvency calculation on 31-12-2011 (0.5 billion euros shift from equity to liabilities, and the extraction of the penalty from equity by presenting it as a liability).
The pro forma tier-1 ratio at 31 March 2012 including the impact of the sale of KBL, Kredyt Bank and Warta amounts to approximately 15.5%.
The Belgian regulator has confirmed to KBC that the non-voting core capital securities will be fully grandfathered as common equity under the current CRD4 proposal.
The tables below show the tier-1 and CAD ratios calculated under Basel II for KBC Bank, as well as the solvency ratio of KBC Insurance. More information on the solvency of KBC Bank and KBC Insurance can be found in their consolidated financial statements and in the KBC Risk Report.
| Solvency, KBC Bank consolidated (in millions of EUR) | 31-12-2011 | 31-03-2012 |
|---|---|---|
| Total regulatory capital, after profit appropriation | 16 364 | 16 261 |
| Tier-1 capital | 12 346 | 12 689 |
| Tier-2 and tier-3 capital | 4 019 | 3 572 |
| Total weighted risks | 106 256 | 104 746 |
| Credit risk | 85 786 | 84 843 |
| Market risk | 9 727 | 9 160 |
| Operational risk | 10 744 | 10 744 |
| Solvency ratios | ||
| Tier-1 ratio | 11,6% | 12,1% |
| of which core tier-1 ratio | 9,6% | 10,1% |
| CAD ratio | 15,4% | 15,5% |
| Solvency, KBC Insurance consolidated (in millions of EUR) | 31-12-2011 | 31-03-2012 |
| Available capital | 2 533 | 2 784 |
| Required solvency margin | 1 263 | 1 121* |
| Solvency ratio and surplus | ||
| Solvency ratio (%) | 201% | 248% |
| Solvency surplus (in millions of EUR) | 1 270 | 1 662 |
* decrease compared to 31-12-2011 related to the closing of the sale of Fidea in 1Q 2012.
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Until 25 May +44 20 7031 4064 (code: 915129)
Investor Relations Office
E-mail: [email protected]
Go to www.kbc.com for the latest update
This presentation is provided for informational purposes only. It does not constitute an offer to sell or the solicitation to buy any security issued by the KBC group.
KBC believes that this presentation is reliable, although some information is condensed and therefore incomplete. KBC can not be held liable for any damage resulting from the use of the information.
This presentation contains non-IFRS information and forward-looking statements with respect to the strategy, earnings and capital trends of KBC, involving numerous assumptions and uncertainties. There is a risk that these statements may not be fulfilled and that future developments differ materially. Moreover, KBC does not undertake any obligation to update the presentation in line with new developments.
By reading this presentation, each investor is deemed to represent that it possesses sufficient expertise to understand the risks involved.
| 1 | Refocused KBC taking shape |
|---|---|
| --- | ---------------------------- |
| 2 |
|---|
Wrap up
Annex 1: 1Q12 underlying performance of business units
KBC FP Convertible Bonds
KBC FP Asian Equity Derivatives
KBC FP Insurance Derivatives
KBC FP Reverse Mortgages
KBC Peel Hunt
KBC AM in the UK
KBC AM in Ireland
KBC Securities BIC
KBC Business Capital
Secura
KBC Concord Taiwan
KBC Securities Romania
KBC Securities Serbia
Organic wind-down of international MEB loan book outside home markets
Centea
Fidea
KBL European Private Bankers
Warta
Kredyt Bank
Zagiel
Absolut Bank
KBC Banka
NLB
Antwerp Diamond Bank
KBC Germany
KBC Real Estate Development
Execution status, mid-May 2012:
Stream 1: Agreement to sell Warta signed in January 2012
Stream 2: The agreement between Santander and KBC to merge BZ WBK with Kredyt Bank was a major step towards a full divestment of Kredyt Bank
Stream 3: PIIGS exposure further down by 42% since the end of 2011
Stream 4: CDO/ABS exposure further reduced by roughly 2.2bn EUR notional
Stream 5: RWA at 110.8bn EUR (pro forma) including B2.5/CRD3 impact, reduction better than initially planned. Nevertheless, core profitability remains intact in difficult years
=> KBC's tier-1 ratio will rise by ±0.7% (at close)
=> KBC's tier-1 ratio will rise by ±0.8% (at close)
| End 2010 | End 1Q11 | End 2Q11 | End 3Q11 | End 2011 | End 1Q12 | End of April 2012 | |
|---|---|---|---|---|---|---|---|
| Portugal | 0.3 | 0.3 | 0.3 | 0.1 | 0.1 | 0.1 | 0.1 |
| Ireland | 0.5 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 |
| Italy | 6.4 | 6.2 | 6.1 | 3.8 | 2.1 | 2.0 | 2.0 |
| Greece | 0.6 | 0.6 | 0.5 | 0.3 | 0.2 | 0.0 | 0.0 |
| Spain | 2.2 | 2.2 | 2.2 | 2.1 | 1.9 | 1.9 | 0.3 |
| TOTAL | 10.0 | 9.7 | 9.6 | 6.7 | 4.8 | 4.4 | 2.8 |
KBC further reduced its exposure to Spanish sovereign bonds mainly during April against a cost of 34m EUR post-tax
• In 1Q12, two CDOs were de-risked, resulting in a reduction of the outstanding notional amount of CDOs by 1.7bn EUR. This had a negative impact on P&L of 64m EUR post-tax, but no material impact on the capital position
KBC Group risk weighted assets (in bn EUR)
* FY11 with neutralisation of impact of 5-5-5 bonds
Core earnings power intact, with a significantly reduced risk profile (trading), despite drastic RWA reduction (including B2.5 impact) since the end of 2008: 36.2bn EUR per end 2011 and 44.5bn EUR per end 1Q12
Underlying results
Credit cost ratio of 0.66% in 1Q12 (compared to 0.82% in 2011, 0.91% in 2010 and 1.11% in 2009). Very low levels of impairment across all business units with the exception of KBC Ireland (in line with guidance)
Net reported profit of 380m EUR, affected mainly by the negative M2M of our own credit risk (due to an improvement of our funding curve), which offset the positive M2M impact of CDOs & MBIA
3Q11 4Q11 1Q12
Underlying net profit
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Amounts in m EUR
NIM (excl. KBL epb from 4Q10 onwards)
• Excluding deconsolidated entities, net interest income fell by 1% q-o-q and 4% y-o-y, mainly in CEE (FX measures in Hungary)
Note: KBL epb and Fidea are no longer reported in underlying profit from 1Q12 onwards
Note: KBL epb and Fidea are no longer reported in underlying profit from 1Q12 onwards
Note: KBL epb and Fidea are no longer reported in underlying profit from 1Q12 onwards
| Loan book | 2007 FY |
2008 FY |
2009 FY |
2010 FY |
2011 FY |
1Q12 | |
|---|---|---|---|---|---|---|---|
| 'Old' BU reporting | 'New' BU reporting | ||||||
| Belgium | 57bn | 0.13% | 0.09% | 0.17% | 0.15% | 0.10% | -0.02% |
| CEE | 31bn | 0.26% | 0.73% | 2.12% | 1.16% | 1.59% | 0.60% |
| CEE (excl. one-off items in 2H11) | 0.69% | ||||||
| Merchant B. (incl. Ireland) |
52bn | 0.02% | 0.48% | 1.32% | 1.38% | 1.36% | 1.57% |
| Merchant B. (excl. Ireland) |
36bn | 0.02% | 0.53% | 1.44% | 0.67% | 0.59% | 0.09% |
| Total Group | 160bn | 0.13% | 0.46% | 1.11% | 0.91% | 0.82% | 0.66% |
| 1Q 2012 | Non-Performing Loans (>90 days overdue) |
High risk, excl. restructured loans (probability of default >6.4%) |
Restructured loans (probability of default >6.4%) |
|---|---|---|---|
| Belgium BU |
1.5% | 2.5% | 1.5% |
| CEE BU | 5.6% | 4.2% | 2.4% |
| MEB BU | 9.1% | 6.9% | 3.6% |
BELGIUM BU CEE BU 5,7% 5,6% 5,6% 5,3% 5,6% 5,6% 5,7% 5,2% 4,6% non performing loans
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12
MEB BU
Amounts in m EUR
Non-Life result Life result Non-technical & taxes
insurance contribution are the holding/group items and Vitis
Source: Company filings as of Dec 11, BofAML
Note: capital ratios under Basel 2.5 for EU banks and under Basel 1 for US banks (1) Excluding transition rules.
(2) Including state capital and pro forma for divestments signed as of 28-Feb-12.
(3) Proforma capital increase.
Tier 1 as of Dec 11
• KBC Bank continues to have a strong retail/corporate deposit base in its core markets – resulting in a stable funding mix with a significant portion of the funding attracted from core customer segments & markets
• LTD ratio of 90% at KBC Bank at the end of 1Q 2012. The decrease is the result of a strong deposit growth in retail/corporate and a recovery of the more volatile institutional deposits after the decrease in Q4 – (at that time due to a downgrade of our short-term rating by S&P and the risk aversion towards the European market in general)
* Excluding Centea (retroactively adjusted)
** Excluding Kredyt Bank and Absolut Bank (items earmarked for divestment in Group Centre)
The liquid asset buffer increased slightly amongst other things due to positive M2M evolutions on the portfolio
The total amount of unencumbered assets declined moderately as more secured funding was attracted
However, the liquidity position remains strong as:
Breakdown funding maturity buckets Senior vs. subordinated & callable vs. non-callable
• Notional investment of 53bn EUR in government bonds (excl trading book) at end 1Q12, primarily as a result of significant excess liquidity position and the reinvestment of insurance reserves into fixed income instruments
| Irish loan book – key figures as at March 2012 |
||||||
|---|---|---|---|---|---|---|
| Loan portfolio | Outstanding | NPL | NPL coverage | |||
| Owner occupied mortgages | 9.5bn | 14.8% | 28% | |||
| Buy to let mortgages | 3.2bn | 24.3% | 39% | |||
| SME /corporate | 2.0bn | 20.3% | 55% | |||
| Real estate investment Real estate development |
1.4bn 0.5bn |
26.7% 83.4% |
53% 72% |
|||
| 16.6bn | 20.5% | 42% |
| Hungarian loan book – key figures as at 31 March 2012 | ||||||
|---|---|---|---|---|---|---|
| Loan portfolio | Outstanding | NPL | NPL coverage | |||
| SME/Corporate | 2.8bn | 7.0% | 68% | |||
| Retail | 2.7bn | 15.9% | 67% | |||
| o/w private | 2.2bn | 17.0% | 67% | |||
| o/w companies | 0.4bn | 9.9% | 74% | |||
| 5.5bn | 11.3% | 68% |
Proportion of NPLs*
| Enacted government repayment scheme ≈ 30% of customers participated |
Enacted Act on performing customers ≈ 55% * |
Enacted Act on NPL customers ≈ 5% * |
|---|---|---|
| 30% of loan loss provisions deductible from 2011 bank tax FX conversion update: •636m EUR of FX loans repaid by the end of February 2012 •Total pre-tax effect for 2011 after recovering part of the banking tax, amounted to 119m EUR (booked in 2011) |
Instalment to be split by all stakeholders through a buffer account for maximum 5y: • Up to 180 HUF/CHF: customer pays principal and interest • Between 180-270 HUF/CHF: • Principal paid by customer through buffer account • Interest split between bank and state 50%-50% • Above 270 HUF/CHF: state pays principal + interest • Same for EUR with 250-340 limits |
25% write-off of all eligible NPLs (90+ continuously from 30 Sep 2011): • Conversion into HUF following decision of customer • 30% of loss from write-off deductible from 2012 bank tax Eligibility criteria: • Deterioration of financial standing verified by documents • Original loan amount below 83k CHF / 67k EUR • Minimum amount due 260 EUR as of Sep 30 |
| Eligibility criteria: • Original loan value below 83k CHF / 67k EUR • The debtor does not participate in any other payment easement program • The debtor is not overdue more than 90 days |
Additional support: • HUF interest subsidy based on further eligibility criteria • Social cases sold to NAMC up to 25,000 properties at a value of 55/50/35% (per law passed on Dec 5) |
|
| * Eligible customers as a % of the total customers (FX mortgage loan portfolio as at 30 Sep 2011) | ||
| The FX prepayment will have a negative impact on NII at K&H of 30m EUR in 2012, gradually decreasing in the following years |
Assuming a customer participation rate of 75%, the estimated pre-tax PV impact is 24m EUR over the 5-year period |
Considering the existing average impairment level for the eligible customers, this measure has no substantial impact 44 |
| Outstanding CDO exposure (bn EUR) |
Notional | Outstanding markdowns |
|---|---|---|
| - Hedged portfolio - Unhedged portfolio |
10.1 5.5 |
-0.8 -3.8 |
| TOTAL | 15.6 | -4.5 |
| Amounts in bn EUR |
Total |
|---|---|
| Outstanding value adjustments Claimed and settled losses - Of which impact of settled credit events |
-4.5 -2.2 -1.9 |
| 10% | 20% | 50% | |
|---|---|---|---|
| Spread tightening | +0.1bn | +0.2bn | +0.6bn |
| Spread widening | -0.1bn | -0.2bn | -0.4bn |
* Figures exclude all expired, unwound or terminated CDO positions
** Taking into account the guarantee agreed with the Belgian State and a provision rate for MBIA at 70%
7bn EUR worth of core capital securities subscribed by the Belgian Federal and Flemish Regional Governments
| Belgian State | Flemish Region | ||||
|---|---|---|---|---|---|
| Amount | 3.5bn | 3.5bn | |||
| Instrument | Perpetual fully paid up new class of non-transferable securities qualifying as core capital | ||||
| Ranking | Pari passu with ordinary stock upon liquidation | ||||
| Issuer | KBC Group Proceeds used to subscribe ordinary share capital at KBC Bank (5.5bn) and KBC Insurance (1.5bn) |
||||
| Issue price | 29.5 EUR | ||||
| Interest coupon | Conditional on payment of dividend to shareholders The higher of (i) 8.5% or (ii) 120% of the dividend for 2009 and 125% for 2010 onwards Not tax deductible |
||||
| Buyback option KBC | Option for KBC to buy back the securities at 150% of the issue price (44.25) | ||||
| Conversion option KBC | From December 2011 onwards, option for KBC to convert securities No conversion option into shares (1 for 1). In that case, the State can ask for cash at 115% (33.93) increasing every year by 5% to the maximum of 150% |
| Total loans ** |
Of which mortgages |
Customer deposits |
AuM | Life reserves |
|
|---|---|---|---|---|---|
| Volume | 56bn | 30bn | 71bn | 142bn | 23bn |
| Growth q/q* | +1% | +1% | 0% | +3% | +3% |
| Growth y/y | +6% | +9% | +4% | -2% | +7% |
* Non-annualised
** Loans to customers, excluding reverse repos (and not including bonds)
Product spread on new production
Amounts in m EUR
Underlying net profit of the Belgium BU *
Underlying net profit contribution banking to the Belgium BU
* Difference between underlying net profit of the Belgium BU and the sum of the banking and insurance contribution are some rounding differences
| Total loans ** |
Of which mortgages |
Customer deposits |
AUM | Life reserves |
|
|---|---|---|---|---|---|
| Volume | 26bn | 11bn | 36bn | 11bn | 2bn |
| Growth q/q* | 0% | 0% | -2% | +5% | +5% |
| Growth y/y | +2% | +1% | +3% | -9% | 0% |
* Non-annualised
** Loans to customers, excluding reverse repos (and not including bonds)
| Total loans | Mortgages | Deposits | |||||
|---|---|---|---|---|---|---|---|
| q/q | y/y q/q y/y |
q/q | y/y | ||||
| CZ | 1% | +6% | +3% | +11% | -2% | +3% | |
| SK | +1% | +14% | +2% | +16% | +5% | +2% | |
| HU | -3% | -14% | -12% | -28% | -5% | +4% | |
| BU | -2% | -19% | -10% | -29% | -2% | +8% | |
| TOTAL | 0% | +2% | 0% | +1% | -2% | +3% |
(*) organic growth excluding FX impact, q-o-q figures are non-annualised. Loan and mortgage figures after impairments
The net interest margin narrowed by some 11bps quarter-on-quarter to 3.16%, caused by the lower amount of loans & receivables at K&H (especially the result of lower FX mortgage loans with high margins) and a lower NIM at CSOB SK (given the exceptionally high NIM in 4Q11)
Excluding the FX effect, net fee and commission income (77m EUR) fell by 9% q-o-q, but rose by 5% y-o-y. The 9% q-o-q decrease is mainly driven by CSOB Bank CZ (lower F&C income on investment services). Excluding technical items, net F&C decreased by 9% y-o-y due to lower investment services fees in CR, lower payment fees in Hungary and higher insurance commissions paid
0,110
Combined ratio at 95% in 1Q12
| Loan book |
2009* CCR |
2010 CCR |
2011 CCR |
1Q12 CCR |
|
|---|---|---|---|---|---|
| CEE | 31bn | 2.12% | 1.16% | 1.59% | 0.60% |
| - Czech Rep. - Hungary - Slovakia - Bulgaria |
20bn 6bn 4bn 1bn |
1.12% 2.01% 1.56% 2.22% |
0.75% 1.98% 0.96% 2.00% |
0.37% 4.38% 0.25% 14.73% |
0.26% 1.92% 0.29% 1.16% |
* CCR according to 'old business unit reporting'
| Total loans |
Customer deposits |
|
|---|---|---|
| Volume | 43bn | 40bn |
| Growth q/q* | 0% | +18% |
| Growth y/y* | 0% | -34% |
*non-annualised
No additional impairments for Greek government bonds given the exchange deal
KBL epb and Fidea were deconsolidated in underlying as of 1Q12
| 1Q12 | |
|---|---|
| Group item (ongoing business) |
9 |
| Planned divestments |
20 |
| - Centea |
0 |
| - Fidea |
0 |
| - Kredyt Bank |
10 |
| - Warta |
15 |
| - Absolut Bank |
12 |
| - 'old' Merchant Banking activities |
13 |
| - KBL EPB |
0 |
| - Other |
-30 |
| TOTAL underlying net group profit |
30 |
| 1Q 2010 | 2Q 2010 | 3Q 2010 | 4Q 2010 | 1Q 2011 | 2Q 2011 | 3Q 2011 | 4Q 2011 | 1Q 2012 | |
|---|---|---|---|---|---|---|---|---|---|
| NPL NPL formation |
17.9% 3.9% |
17.8% -0.1% |
18.3% 0.5% |
16.8% -1.5% |
16.1% -0.7% |
13.5% -2.6% |
11.4% -2.1% |
11.2% -0.2% |
10.3% -0.9% |
| Restructured loans | 10.3% | 10.3% | 9.7% | 6.3% | 4.2% | 3.9% | 3.9% | 3.2% | 2.3% |
| Loan loss provisions (m EUR) |
0 | 19 | 12 | -9 | -29 | -9 | -8 | 4 | -10 |
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