Annual Report • Apr 3, 2012
Annual Report
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KBC Annual Report
KBC is an integrated bancassurance group, catering mainly for retail, SME and mid-cap customers. It concentrates on its home markets of Belgium and certain countries in Central and Eastern Europe. Elsewhere around the globe, the group has established a presence in selected countries.
| KBC Ancora | 23% |
|---|---|
| Cera | 7% |
| MRBB | 13% |
| Other core shareholders | 11% |
| KBC group companies | 5% |
| Free float | 41% |
| Total | 100% |
four Central and Eastern European home markets) 9 million
| Total (in FTEs) | 47 530 |
|---|---|
| Belgium | 844 |
|---|---|
| Central and Eastern Europe (four home markets) | 806 |
| Belgium | 492 tied agencies |
|---|---|
| Central and Eastern Europe (four home markets) | various distribution channels |
| Fitch | Moody's | Standard & Poor's | |
|---|---|---|---|
| KBC Bank NV | A- | A1 | A |
| KBC Insurance NV | A- | – | A |
| KBC Group NV | A- | A2 | BBB+ |
| Website | www.kbc.com |
|---|---|
| KBC-Telecenter | [email protected] |
Data relates to year-end 2011, unless otherwise indicated. For definitions and comments, please see the detailed tables and analyses in this report.
1 Not including companies that fell within the scope of IFRS 5 at balance sheet date (Fidea, KBL EPB, WARTA). 2 Outlook/watch/review data for these ratings is given elsewhere in this report.
Results
Group tier-1 ratio (Basel II)
| 2007 | 2008 | 2009 | 2010 | 2011 | |
|---|---|---|---|---|---|
| Consolidated balance sheet and assets under management, end of period (in millions of EUR) | |||||
| Total assets | 355 597 | 355 317 | 324 231 | 320 823 | 285 382 |
| Loans and advances to customers | 147 051 | 157 296 | 153 230 | 150 666 | 138 284 |
| Securities | 105 023 | 94 897 | 98 252 | 89 395 | 65 036 |
| Deposits from customers and debt securities | 192 135 | 196 733 | 193 464 | 197 870 | 165 226 |
| Technical provisions and liabilities under investment contracts, insurance | 26 833 | 26 724 | 29 951 | 29 948 | 26 928 |
| Total equity (including non-voting core-capital securities) | 18 487 | 15 376 | 17 177 | 18 674 | 16 772 |
| Risk-weighted assets at group level (Basel II) | 146 998 | 155 291 | 143 359 | 132 034 | 126 333 |
| Assets under management | 230 890 | 206 842 | 205 234 | 208 813 | 192 795 |
| Consolidated income statement according to IFRS (in millions of EUR) | |||||
| Total income | 9 802 | 4 827 | 4 625 | 8 378 | 7 310 |
| Operating expenses | -5 219 | -5 600 | -4 779 | -4 436 | -4 344 |
| Impairment | -267 | -2 234 | -2 725 | -1 656 | -2 123 |
| Net result, group share | 3 281 | -2 484 | -2 466 | 1 860 | 13 |
| Basic earnings per share (in EUR) | 9.46 | -7.31 | -7.26 | 3.72 | -1.93 |
| Diluted earnings per share (in EUR) | 9.42 | -7.28 | -7.26 | 3.72 | -1.93 |
| Consolidated underlying1 results (in millions of EUR) |
|||||
| Total income | 9 481 | 9 172 | 9 111 | 8 744 | 8 182 |
| Operating expenses | -5 164 | -5 591 | -4 888 | -4 832 | -4 686 |
| Impairment | -191 | -743 | -1 913 | -1 525 | -1 909 |
| Net result, group share | 3 143 | 2 270 | 1 724 | 1 710 | 1 098 |
| Basic earnings per share (in EUR) | 9.06 | 6.68 | 5.08 | 3.28 | 1.26 |
| Diluted earnings per share (in EUR) | 9.02 | 6.66 | 5.08 | 3.28 | 1.26 |
| Net result per business unit | |||||
| Belgium | – | – | – | 1 051 | 802 |
| Central & Eastern Europe (four home markets) | – | – | – | 570 | 327 |
| Merchant Banking | – | – | – | 133 | -110 |
| Group Centre (including planned divestments) | – | – | – | -44 | 79 |
| KBC share | |||||
| Number of shares outstanding, end of period ('000) | 355 115 | 357 753 | 357 918 | 357 938 | 357 980 |
| Parent shareholders' equity per share, end of period (in EUR) | 50.7 | 31.5 | 28.4 | 32.8 | 28.7 |
| Highest share price for the financial year (in EUR) | 106.2 | 95.0 | 39.4 | 38.0 | 32.6 |
| Lowest share price for the financial year (in EUR) | 85.9 | 18.2 | 5.5 | 25.5 | 7.7 |
| Average share price for the financial year (in EUR) | 95.8 | 65.2 | 20.9 | 32.6 | 22.3 |
| Share price at year-end (in EUR) | 96.2 | 21.5 | 30.4 | 25.5 | 9.7 |
| Gross dividend per share (in EUR)2 | 3.78 | 0.0 | 0.0 | 0.75 | 0.01 |
| Equity market capitalisation, end of period (in billions of EUR) | 34.2 | 7.7 | 10.9 | 9.1 | 3.5 |
| Ratios | |||||
| Return on equity | 21% | -18% | -23% | 12% | -6% |
| Return on equity (based on underlying profit) | 20% | 16% | 16% | 11% | 5% |
| Cost/income ratio, banking (based on underlying profit) | 57% | 64% | 55% | 56% | 60% |
| Combined ratio, non-life insurance | 96% | 95% | 101% | 100% | 92% |
| Credit cost ratio, banking | 0.13% | 0.70% | 1.11% | 0.91% | 0.82% |
| Tier-1 ratio, group (Basel II) | 8.8% | 8.9% | 10.8% | 12.6% | 12.3% |
For definitions and comments, please see the detailed tables, analyses and glossary of ratios in this report.
1 The underlying results are explained in the 'Results in 2011' section. Given that the breakdown by business unit was changed in 2011, the reference figures for 2010 have been restated retroactively.
2 Dividend for 2011 subject to the approval of the General Meeting of Shareholders.
p. 134 Note 14: Impairment (income statement)
p. 135 Note 15: Share in results of associated companies
p. 172 Note 46: Non-current assets held for sale and discontinued operations (IFRS 5)
p. 174 Note 47: Risk management
Company name 'KBC', 'the group' or 'the KBC group' as used in this annual report refer to the consolidated entity, i.e. KBC Group NV plus all the group companies (subsidiaries and sub-subsidiaries, etc.) included in the scope of consolidation. 'KBC Group NV' refers solely to the parent company. KBL European Private Bankers is abbreviated in this annual report to 'KBL EPB'.
Translation This annual report is available in Dutch, French and English. The Dutch version is the original; the other language versions are unofficial translations. KBC warrants that every reasonable effort has been made to avoid any discrepancies between the different language versions. However, should such discrepancies exist, the Dutch version will take precedence.
Forward-looking statements The expectations, forecasts and statements regarding future developments that are contained in this annual report are based on assumptions and assessments. By their nature, forward-looking statements involve risk and uncertainty, because they relate to events and depend on circumstances that will occur in the future. Various factors, including, but not limited to, those described in the context of such forward-looking statements in this annual report, could cause actual results and developments to differ materially from those expressed in or implied by such statements.
Annual reports of KBC Bank and KBC Insurance KBC is a bancassurance group and, therefore, most of the financial information contained in this report is presented on an integrated basis (i.e. banking and insurance information combined). If you are interested in separate details of KBC's banking or insurance activities and results, these may be found in the individual annual reports of KBC Bank NV and KBC Insurance NV.
Articles 96 and 119 of the Belgian Companies Code These articles specify the minimum content of company and consolidated annual reports required by law. This information has been incorporated into the different sections of the 'Report of the Board of Directors', which also contains additional, non-compulsory information. To avoid repetition, reference is sometimes made to information presented in other sections of this brochure. Pursuant to Article 119, KBC Group NV has combined the reports for its company and consolidated annual accounts. The Risk Report and CSR Report 4referred to in certain sections do not form part of the annual report.
• Agreement is reached with Value Partners Ltd. for the sale of KBC's stake in KBC Concord Asset Management Co. in Taiwan.
• A new generation of Mobile Banking apps is launched for KBC customers in the Belgian market.
• Publication of third-quarter results for 2011: consolidated net loss of -1 579 million euros. Adjusted for exceptional items, the 'underlying' net loss comes to -248 million euros. The results are negatively influenced by the decline in value of CDOs, divestment losses, loan loss provisioning in Hungary, Bulgaria and Ireland, impairment on shares and the impact of Greece. On the other hand, holdings of Southern European government bonds are significantly reduced and the exposure to CDOs/ ABS lowered.
2011 was another highly turbulent year on both the economic and financial fronts. The turmoil generated by the sovereign debt crisis, the uncertainty surrounding the euro, the falling stock markets and the deteriorating economic situation all had a significant impact on our results. Even so, we ended the year in profit, albeit a very modest one. More importantly, we made decisive progress in implementing our divestment plan, a major part of which was realised by the opening months of 2012. At the same time, we succeeded in further lowering our risk profile in a number of areas.
Our consolidated net result for 2011 came to just 13 million euros. Although the figure is considerably lower than in 2010, the decrease is largely attributable to non-operating items, such as valuation losses on our portfolio of structured products and the negative impact of several major divestments. If we disregard the principal non-operating items, our underlying result came to 1.1 billion euros in 2011, compared with 1.7 billion euros a year earlier. Among the positive elements within that underlying figure are a good level of net interest income, excellent technical insurance results and ongoing rigorous cost control. Negative elements included high provisioning in Hungary, Bulgaria and Ireland, higher impairment on shares, and the impact of the sovereign debt crisis, particularly in Greece. The fact that our underlying result came to 1.1 billion euros, in spite of factors that were largely shaped externally, demonstrates that our business model is fundamentally sound. Indeed, when the impact of Greece and the new Hungarian law relating to the repayment of foreign-currency mortgages are excluded, our underlying net profit would be at the same level as in 2010. Given the modest net result, the Executive Committee decided in November to forego its variable remuneration for financial year 2011.
2011 was a decisive year in terms of the further implementation of our strategic plan, which aims to make us an even more focused, regional European player with a lower risk profile. This plan also entails the divestment of several group companies and a number of other measures that – together with organic profit generation – are needed to build up the funds that will enable us to redeem the core-capital securities subscribed by the Belgian State and the Flemish Region within a reasonable period of time. We began that process at the start of 2012, when we repaid 0.5 billion euros plus a
15% penalty to the Belgian State. We announced a change in this strategic plan in mid-2011. A number of measures, including the planned IPO of a minority stake in our Czech banking subsidiary Cˇ SOB, were cancelled and replaced by others, such as the sale of our Polish subsidiaries, Kredyt Bank and WARTA. This move was largely prompted by regulatory amendments that had rendered the originally planned measures less effective. We were able to announce as early as the start of 2012 that an agreement had been signed for the sale of WARTA. And at the end of February 2012, we announced that we had concluded an agreement with Banco Santander with regard to the merger of our respective Polish subsidiaries, Bank Zachodni WBK and Kredyt Bank, ultimately with the aim of selling our stake in the merged bank. Of course, the remaining measures in the original strategic plan continued to be implemented in 2011. The second half of the year turned out to be a particularly busy period as far as divestments were concerned, with sale agreements being reached for important entities like Centea, Fidea and KBL EPB. As a result, we had completed the bulk of our divestment programme by the opening months of 2012.
We also continued to work on other risk-mitigating measures. For instance, we further scaled back our exposure to Southern European and Irish government bonds, reducing it from just over 10 billion euros at the beginning of the financial year to 4.8 billion euros at year-end. What's more, our CDO and ABS exposure continued to be lowered, with almost 7 billion euros being trimmed from it in the space of a year.
At the end of 2011, our pro-forma tier-1 capital ratio – including the impact of the sale agreements for WARTA, Fidea and KBL EPB – was a solid 13.8%, according to Basel II rules and including the remaining core-capital securities subscribed by the government. In our view, that represents a comfortable capital position, especially since the Belgian regulator has confirmed that these core-capital securities qualify as common equity under the current CRD4 proposal. Our liquidity position – a long-standing strength of our group – also remains robust and is underpinned by a stable, retail customer deposit base in our home markets.
In addition to our financial goals, we paid close attention in our business operations to our role in society. This was reflected in the numerous initiatives we took in the past year in relation to community involvement and the environment. One example in this regard was the approval and implementation of a new Climate Change Policy for the entire group. You can find full details of these initiatives in our Corporate Social Responsibility Report.
It is far from easy in turbulent times to make a statement regarding economic developments in the near future. In saying that, we are fully aware of the many challenges that lie ahead of us. There is still uncertainty about the direction the global economy will take and the sovereign debt crisis in the euro area continues to take centre stage. However, the downward economic spiral would appear to have ended and business confidence indicators are even pointing towards a gradual economic recovery. We have, moreover, demonstrated over the past two years that, thanks to the persistent efforts of our employees, we have bounced back. We are more focused than ever on pursuing our core bancassurance business in a number of carefully selected countries and we are making good progress in dealing with the legacies of the past.
We would like to thank all our customers, employees, shareholders and all other stakeholders, including the Belgian Federal and Flemish Regional governments, for the confidence they have placed in our group. Although we are well aware that the financial sector is a frequent target for criticism within the current social debate, we will continue to do everything in our power to strengthen trust in the group. In closing, we would like to extend a special word of thanks to Jan Huyghebaert, who ended his career at KBC in September 2011. He was the architect behind the current KBC group, keeping it on track for many years as Chairman of the Board of Directors, and doing so with authority and style in both calm times and the more challenging ones of the past few years. KBC owes him a huge debt of gratitude for his unrelenting work.
Jan Vanhevel, President of the Executive Committee
Thomas Leysen, Chairman of the Board of Directors
KBC annual report 2011 7
We announced our new strategic plan at the end of 2009. This plan formed the basis of the reform plan approved by the European Commission in respect of the financial support received from the authorities. In mid-2011, we announced a few changes to this plan, more details of which are covered in this section. However, the basic principle remains the same, i.e. to make our group an even more focused, regional European bancassurer which has a lower risk profile and which retains past strengths, notably the successful bancassurance concept and a presence in Central and Eastern Europe.
The KBC group focuses on providing financial services to retail, SME and mid-cap customers in several home markets, namely Belgium and selected countries in Central and Eastern Europe (the Czech Republic, Slovakia, Hungary and Bulgaria). Its presence outside these home markets is geared primarily towards catering for network customers, i.e. customers who also use KBC's services or who are linked with it in its home markets. The bulk of its activities in the other remaining countries will be run down or sold (see below).
We are very firmly embedded in our home markets and prefer a modified approach to each market. In some markets, we aim to position ourselves (or continue positioning ourselves) among the market leaders, i.e. to be a top-five player with a general approach to the market. In other markets, we see ourselves more as a selective champion, which means we will concentrate on specific customer segments and/or products where we enjoy a comparative advantage and/or which generate an above-average return. We will continue to operate as a bancassurer in all our home markets, but it remains the intention that the bank and the insurance company individually remain profitable in each home market.
Products and services are developed centrally or locally, depending on which is the most efficient. The product providers will, moreover, form effective partnerships in each of the relevant markets with the group's local distributors (banks and insurers), as these are close to customers and know which products they want. We will take account of risk and of responsible use of capital when making all important business decisions. Under Basel II, the core tier-1 ratio must come to at least 11% for the group as a whole.
As a major player in our home markets, we also attach considerable importance to the social and environmental aspects of our activities, as well as to their profitability and efficiency. In practice, this is reflected in the relationship of respect we have with our customers and employees, and in a variety of projects and initiatives relating to the environment and to community involvement, several examples of which are given in this annual report. This area is dealt with in more detail in our Corporate Social Responsibility Report, which is available at www.kbc.com.
The group's focus also means that a substantial proportion of its non-core activities and its presence in non-core countries have been or will be run down. Therefore, the group's strategic plan includes a summary of the group companies and activities that need to be divested.
That plan was adjusted somewhat in mid-2011, due in part to the fact that the impact of certain changes in the regulatory environment – especially Basel III and the draft IFRS rules on leases – had reduced the effectiveness of some measures. In light of this situation, the European Commission agreed that the originally planned IPOs of minority stakes in Cˇ SOB Bank in the Czech Republic and K&H Bank in Hungary, as well as the sale and lease back of KBC's head office in Belgium, could be cancelled and that the Polish banking and insurance subsidiaries, Kredyt Bank and WARTA, could be divested and selected ABS and CDO assets sold or unwound instead.
The following schematic contains a simplified overview of the main elements of the divestment programme and the current status. More details can be found in the sections devoted to the individual business units.
| Project | Situation* (up to beginning of March 2012) | |
|---|---|---|
| Sale of complementary distribution channels in Belgium |
Centea sold mid-2011. Agreement for the sale of Fidea signed in October 2011. |
|
| Sale, termination or run-down of various specialised non-core activities (chiefly investment banking) |
Sold in 2010: Secura, KBC Peel Hunt, KBC Securities Baltic Investment Company, KBC Asset Management's British and Irish operations, KBC Business Capital, many of KBC Financial Products' activities. Sold in 2011 and at the start of 2012: stake in KBC Concord Asset Management (Taiwan) and in KBC Goldstate (China), KBC Securities' Romanian and Serbian operations. Awaiting divestment: Antwerp Diamond Bank, KBC Bank Deutschland, and a number of other activities (private equity, real estate development). |
|
| Run-down of a significant proportion of the loan portfolios outside the home markets |
Largely completed. The risk-weighted assets of the corporate banking operations have been reduced by more than 9 billion euros in the space of two years. |
|
| Sale of the European private banking network |
Agreement for the sale of KBL EPB reached in October 2011. | |
| Divestment of Polish subsidiaries Kredyt Bank and WARTA |
Agreement for the sale of WARTA signed at the start of 2012. Announcement at the end of February 2012 that KBC had concluded an agreement with Banco Santander with regard to the merger of the two groups' respective Polish subsidiaries, Bank Zachodni WBK and Kredyt Bank. KBC ultimately aims to sell its stake in the merged bank. |
|
| Sale of the activities in Russia, Serbia and Slovenia |
– | Planned for 2012/2013. |
| Sale or run-down of certain CDO and ABS assets |
CDO and ABS exposure reduced by a nominal amount of almost 7 billion euros in 2011, ahead of the figure set out in the plan (see 'Further improvement in the risk profile' below). |
|
| The graph shows the change in the group's risk-weighted assets (RWA). Although this change is also influenced by other factors (including changes in the activities to be retained, new regulations (CRD III, etc.)), the significant reduction reflects primarily the divestments already completed and activities already run down. |
RWA of the group (Basel II, in billions of EUR) 155 143 132 -19% 126 End of 2008 End of 2009 End of 2010 End of 2011 |
* = virtually completed; = largely completed; = partially completed. Based on reaching a sales agreement, not on closure of the deal (some deals still have to be closed).
In addition to the measures set out in the divestment plan, the group continued to lower its overall risk profile through a number of other measures. These included:
Both subjects are discussed at greater length in the 'Value and risk management' section.
Following the aforementioned repayment of 0.5 billion euros and payment of a 15% penalty (on 2 January 2012 and recognised at year-end 2011 – see comments to the 'Consolidated statement of changes in equity' table in the 'Consolidated financial statements' section), the capital base still includes 6.5 billion euros in core-capital securities issued to the Belgian Federal and Flemish Regional governments in 2008 and 2009. More information about this and the CDO guarantee agreement concluded with the Belgian State in 2009 can be found in the 'Additional information' section of this report.
KBC intends to redeem all the remaining core-capital securities within a reasonable period of time. It is continuing its efforts to ensure that the 4.7 billion euros in state aid is reimbursed (before penalties) by the end of 2013, as set out in the European plan.
The legal structure of the group is shown below in simplified form. Essentially, it comprises one holding company – KBC Group NV – in control of two large underlying companies, viz. KBC Bank and KBC Insurance. KBL EPB is no longer included in light of the sale agreement reached in October 2011. Each of these companies has several subsidiaries and sub-subsidiaries, the most important of which are listed in Note 44 of the 'Consolidated financial statements' section.
The group's management structure has been built around a number of business units, which are discussed separately in this report. The breakdown into business units is based on geographic criteria (Belgium and Central and Eastern Europe, the group's two core markets) and business criteria (either retail bancassurance or merchant banking). The Shared Services & Operations Business Unit incorporates a number of services that provide support and products to the other business units.
Each business unit is managed by its own management committee, which operates under the group's Executive Committee. Each one of these committees is chaired by a Chief Executive Officer (CEO), except at the Shared Services & Operations Business Unit, where it is chaired by the Chief Operating Officer (COO). Together with the Group CEO, the Chief Financial Officer (CFO) and the Chief Risk Officer (CRO), these individuals constitute the Group Executive Committee.
The results by segment or business unit that are dealt with in this report are based on the business units, with two exceptions:
the results of the holding company and certain head-office services, as well as costs that cannot be allocated.
The segments were adjusted slightly in 2011 to take account of the changes made to the strategic plan in the middle of that year. The results for Kredyt Bank and WARTA were transferred from the Central & Eastern Europe Business Unit to the Group Centre, where the other businesses scheduled for divestment are grouped, while the portion of the results for Cˇ SOB in the Czech Republic, which related to the originally planned IPO of a minority interest in that company – and which had been recognised under Group Centre – has now been reallocated to the Central & Eastern Europe Business Unit. These changes have been made retroactively to preserve comparability.
| Belgium Business Unit |
Central & Eastern Europe Business Unit1 |
Merchant Banking Business Unit |
Shared Services & Operations Business Unit |
|---|---|---|---|
| Brief description | |||
| Retail and private bancassurance in Belgium |
Retail and private bancassurance and merchant banking in Central and Eastern Europe |
Corporate banking and market activities in Belgium and abroad (apart from those in Central and Eastern Europe) |
Services providing support and products to other business units |
| Main group companies or services Excluding the activities earmarked for sale or run-down (these are listed in the sections dealing with the individual business units) |
|||
| KBC Bank (retail and private banking activities), KBC Insurance, CBC Banque, KBC Asset Management, ADD, KBC Lease (retail), KBC Group Re, KBC Consumer Finance, |
Cˇ SOB and Cˇ SOB Pojišt'ovna (Czech Republic), Cˇ SOB and Cˇ SOB Poist'ovnˇ a (Slovakia), K&H Bank and K&H Insurance (Hungary), CIBANK and DZI Insurance (Bulgaria) |
KBC Bank (merchant banking activities), KBC Commercial Finance, KBC Bank Ireland, KBC Credit Investments, KBC Lease (corporate), KBC Internationale Financieringsmaatschappij, |
Asset management, payments, consumer finance, trade finance, ICT, leasing, organisation |
| VAB | KBC Securities Network |
||
| 818 retail and private banking branches, 492 insurance agencies, various electronic channels |
806 bank branches in the four home markets, insurance sales via different channels, various electronic channels |
26 branches in Belgium, 24 branches outside Belgium2, various electronic channels |
– |
| Contribution to the group's underlying net result in 2011 (excluding Group Centre, which accounted for 79 million euros) |
|||
| 802 million euros | 327 million euros | -110 million euros | – |
| Financial ratios based on underlying results (definitions in the 'Glossary of ratios used') |
|||
| Return on allocated capital: 27% Cost/income ratio: 63% Credit cost ratio: 0.10% Combined ratio: 90% |
Return on allocated capital: 11% Cost/income ratio: 54% Credit cost ratio: 1.59% Combined ratio: 93% |
Return on allocated capital: -3% Cost/income ratio: 46% Credit cost ratio: 1.36% |
– |
| More information | |||
| Belgium Business Unit section |
Central & Eastern Europe Business Unit section |
Merchant Banking Business Unit section |
Shared Services & Operations Business Unit section |
| transferred to the Group Centre, this business unit is referred to as the 'Central & Eastern Europe Business Unit' throughout this annual report. | 1 The full name of this business unit is the 'Central & Eastern Europe and Russia Business Unit'. However, for the sake of simplicity, and since the results from Russia (and some other countries) have been |
2 Branches belonging to KBC Bank, KBC Bank Deutschland and KBC Bank Ireland.
Jan Vanhevel Danny
Doctorate in Law and Master's Degree in Notarial Sciences (KU Leuven)
John Hollows Luc Popelier Johan Thijs Marko Voljcˇ
Master's Degree in Law and Economics (Cambridge University)
KU Leuven: Katholieke Universiteit Leuven (Belgium).
De Raymaeker
Degree in Commercial and Business-Economic Engineering (KU Leuven); Master's Degree in Internal Auditing (Universiteit Antwerpen) Joined KBC in 1971 Joined KBC in 1984 Joined KBC in 1977
Master's Degree in Applied Economic Sciences (Universiteit Antwerpen)
Master's Degree in Law (KU Leuven)
Group CEO Chief Operating Officer CEO of the Merchant Banking Business Unit
Master's Degree in Science (Applied Mathematics) and Actuarial Sciences (KU Leuven)
Joined KBC in 1996 Joined KBC in 1988 Joined KBC in 1988 Joined KBC in 2004 Chief Risk Officer Chief Financial Officer CEO of the Belgium Business Unit
Information on the management of KBC (Board of Directors, Executive Committee, etc.) can be found in the 'Corporate governance statement'. On 31 December 2011, the Group Executive Committee comprised seven members.
Master's Degree in Economics (Universities of Ljubljana and Belgrade)
CEO of the Central & Eastern
Europe Business Unit
Jan Vanhevel, President of the Executive Committee and Group CEO, expressed his intention to retire with effect from the General Meeting of 3 May 2012. At that time, he will have spent his entire career of almost 41 years at KBC, 16 of which as a member of its Executive Committee. He will be succeeded by Johan Thijs, who will remain CEO of the Belgium Business Unit until that date.
Thomas Leysen, Chairman of the Board of Directors: 'KBC owes an enormous debt of gratitude to Jan Vanhevel. He was prepared to take the helm in exceedingly difficult circumstances in 2009, postponing the retirement he had been planning to take that year. Since then, he has shown unconditional dedication to the group in leading the development and implementation of a far-reaching restructuring plan. With the most challenging phase of divestments now drawing to a close, the Board of Directors has acceded to Jan's wish to hand over control to a new CEO.'
The shareholder structure of KBC Group NV is given in the table below. For the core shareholders, this is the situation stated in the most recent notifications made under the transparency rules or (if more recent) disclosures made under the law on public takeover bids. For KBC group companies, this is the situation on 31 December 2011. Notifications of shareholdings that were received in 2011 and information on treasury shares held by group companies are listed in the 'Corporate governance statement' and 'Company annual accounts'.
| Shareholder structure on 31-12-2011 |
Number of ordinary |
% |
|---|---|---|
| shares | ||
| KBC Ancora | 82 216 380 | 23% |
| Cera | 26 127 166 | 7% |
| MRBB | 46 289 864 | 13% |
| Other core shareholders | 39 202 997 | 11% |
| Subtotal for core shareholders | 193 836 407 | 54% |
| KBC group companies | 18 169 054 | 5% |
| Free float | 145 974 852 | 41% |
| Total | 357 980 313 | 100% |
The table shows the long-term and short-term credit ratings of KBC Group NV, KBC Bank NV and KBC Insurance NV. The ratings were revised as follows in the course of 2011 and at the start of 2012:
| Credit ratings* on 29-02-2012 | Long-term rating | Outlook/watch/review | Short-term rating |
|---|---|---|---|
| Fitch | |||
| KBC Bank NV | A- | (Stable outlook) | F1 |
| KBC Insurance NV | A- | (Stable outlook) | – |
| KBC Group NV | A- | (Stable outlook) | F1 |
| Moody's | |||
| KBC Bank NV | A1 | (Under review for downgrade) | P-1 |
| KBC Group NV | A2 | (Under review for downgrade) | P-1 |
| Standard & Poor's | |||
| KBC Bank NV | A- | (Stable outlook) | A-2 |
| KBC Insurance NV | A- | (Stable outlook) | – |
| KBC Group NV | BBB+ | (Stable outlook) | A-2 |
* Please refer to the respective credit rating agencies for definitions of the different ratings and methodologies.
A gross dividend of 0.01 euros per share entitled to dividend will be proposed for financial year 2011 (payment in 2012), subject to the approval of the General Meeting of Shareholders on 3 May 2012. Payment of a coupon on the core-capital securities sold to the Belgian Federal and Flemish Regional governments is related to payment of a dividend on ordinary shares. For financial year 2011, therefore, a total of 595 million euros (8.5% of 7 billion euros) will be paid in this regard to the relevant governments in 2012. The accounting treatment under IFRS is comparable with that for dividends.
| 2010 | 2011 |
|---|---|
| 358.0 | |
| Increase of 42 120 | |
| due to capital increase | |
| reserved for staff1 | |
| 344.6 | 344.6 |
| 38.0 | 32.6 |
| 25.5 | 7.7 |
| 32.6 | 22.3 |
| 25.5 | 9.7 |
| -16% | -62% |
| 9.1 | 3.5 |
| 0.74 | 0.89 |
| 24.2 | 19.3 |
| 32.8 | 28.7 |
| 357.9 |
1 For more information, see the 'Company annual accounts' section. 2 Based on closing prices and rounded to one decimal place.
The financial calendar and contact details can be found under 'Additional information'. For the most up-to-date version of the financial calendar, see www.kbc.com/InvestorRelations.
✓ Good level of underlying net interest income and an increase in the technical insurance result and realised gains, but lower net fee and commission income, trading and fair value income and other net income.
✓ Underlying expenses down slightly.
✓ Impairment up: high loan losses in Ireland, Hungary and Bulgaria and significant impairment on Greek government bonds and on shares.
✓ Overall, underlying net result of 1.1 billion euros; including all exceptional and non-operating items, net result under IFRS of 13 million euros.
✓ Total equity of 16.8 billion euros.
| IFRS | Underlying result | |||
|---|---|---|---|---|
| Consolidated income statement, KBC group (in millions of EUR) | 2010 | 2011 | 2010 | 2011 |
| Net interest income | 6 245 | 5 479 | 5 603 | 5 404 |
| Interest income | 10 542 | 11 883 | 1 | 1 |
| Interest expense | -4 297 | -6 404 | 1 | 1 |
| Earned premiums, insurance (before reinsurance) | 4 616 | 4 119 | 4 621 | 4 122 |
| Non-life | 1 916 | 1 861 | 1 916 | 1 861 |
| Life | 2 700 | 2 258 | 2 705 | 2 261 |
| Technical charges, insurance (before reinsurance) | -4 261 | -3 541 | -4 281 | -3 556 |
| Non-life | -1 249 | -996 | -1 249 | -996 |
| Life | -3 012 | -2 545 | -3 031 | -2 560 |
| Ceded reinsurance result | -8 | -44 | -9 | -44 |
| Dividend income | 97 | 85 | 73 | 74 |
| Net result from financial instruments at fair value through profit or loss | -77 | -178 | 855 | 509 |
| Net realised result from available-for-sale assets | 90 | 169 | 98 | 191 |
| Net fee and commission income | 1 224 | 1 164 | 1 666 | 1 535 |
| Fee and commission income | 2 156 | 2 043 | 1 | 1 |
| Fee and commission expense | -932 | -878 | 1 | 1 |
| Other net income | 452 | 56 | 118 | -52 |
| Total income | 8 378 | 7 310 | 8 744 | 8 182 |
| Operating expenses | -4 436 | -4 344 | -4 832 | -4 686 |
| Impairment | -1 656 | -2 123 | -1 525 | -1 909 |
| on loans and receivables | -1 483 | -1 333 | -1 481 | -1 335 |
| on available-for-sale assets | -31 | -417 | -34 | -453 |
| on goodwill | -88 | -120 | 0 | 0 |
| other | -54 | -253 | -10 | -121 |
| Share in results of associated companies | -63 | -58 | -61 | -57 |
| Result before tax | 2 224 | 786 | 2 326 | 1 530 |
| Income tax expense | -82 | -320 | -587 | -397 |
| Net post-tax result from discontinued operations | -254 | -419 | 0 | 0 |
| Result after tax | 1 888 | 47 | 1 739 | 1 133 |
| Result after tax, attributable to minority interests | 28 | 34 | 29 | 35 |
| Result after tax, attributable to equity holders of the parent | 1 860 | 13 | 1 710 | 1 098 |
| Breakdown by business unit | ||||
| Belgium Business Unit | 1 187 | 421 | 1 051 | 802 |
| Central & Eastern Europe Business Unit2 | 609 | 289 | 570 | 327 |
| Merchant Banking Business Unit | 172 | -208 | 133 | -110 |
| Group Centre2 | -107 | -489 | -44 | 79 |
| Return on equity | 12% | -6% | 11% | 5% |
| Cost/income ratio, banking | 56% | 61% | 56% | 60% |
| Combined ratio, non-life insurance | 100% | 92% | 100% | 92% |
| Credit cost ratio, banking | 0.91% | 0.82% | 0.91% | 0.82% |
For a definition of the ratios, see 'Glossary of ratios used'. The underlying results are defined in this section of the report.
1 Not available, as the analysis of these underlying result components is performed on a net basis within the group.
2 The breakdown by business unit has been restated for 2011 (and with retroactive effect for 2010) to reflect the modified strategy. See the 'Structure and management' section.
This section of the annual report deals with the consolidated results. A review of the non-consolidated results and balance sheet is provided in the 'Company annual accounts' section.
In addition to results prepared in accordance with IFRS as approved for use in the European Union ('results according to IFRS' in this annual report), KBC publishes results which exclude certain exceptional and non-operating items and in which certain items have been rearranged to provide a clearer picture of how the results from ordinary business activities are developing ('underlying results'). These results are presented in segment reporting in the consolidated financial statements and thus comply with IFRS 8. This standard specifies that IFRS principles should be deviated from if such deviation reflects the management view. That is indeed the case, as underlying results are an important element in assessing and managing the business units. The statutory auditor has audited the segment reporting presentation as part of the consolidated financial statements.
A description of the differences between the IFRS results and the underlying results is provided under 'Notes on segment reporting' in the 'Consolidated financial statements' section. Items influencing the net result that have not been included in the underlying results in 2010 and 2011 are summarised below.
| between IFRS results and underlying results | Results according to IFRS | Underlying results |
|---|---|---|
| Changes in fair value of ALM hedging instruments* |
Under 'Net result from financial instruments at fair value' |
Excluded |
| Changes in fair value of own debt instruments | Included | Excluded |
| Exceptional items (including results from actual divestments, changes in the value of CDOs, |
||
| impairment on goodwill, etc.) Interest on ALM hedging instruments |
Included Under 'Net result from financial instruments at fair value' until year-end 2010 (Under 'Net interest income' as of 2011) |
Excluded Under 'Net interest income' |
| Income from professional trading activities | Divided up among different items | Grouped together under 'Net result from financial instruments at fair value' |
| Contribution to results from discontinued operations | Under 'Net post-tax result from discontinued operations' |
Under the different result components |
* Dealt with in more detail under 'Notes on segment reporting'.
| Overview of items excluded from the underlying result (in millions of EUR, after tax) | 2010 | 2011 |
|---|---|---|
| Changes in fair value of ALM hedging instruments | -179 | -273 |
| Gains/losses relating to CDOs | 1 027 | -416 |
| Fee for government guarantee scheme to cover CDO-related risks | -68 | -52 |
| Impairment on goodwill and associated companies | -118 | -115 |
| Result from legacy structured derivatives business (KBC Financial Products) | -372 | 50 |
| Changes in fair value of own debt instruments | 39 | 359 |
| Results on divestments | -176 | -640 |
| Other | -4 | 0 |
| Total exceptional items | 150 | -1 085 |
The -0.6-billion-euro impact of divestments in 2011 was accounted for primarily by KBL EPB and Fidea.
The -0.4 billion euros relating to CDOs in 2011 was due mainly to widening credit spreads on corporate bonds and ABS, which caused the value of our CDO position to decline. More information about this and the other items excluded from the underlying result is provided under 'Notes on segment reporting' in the 'Consolidated financial statements' section.
| Selected balance-sheet and solvency items, KBC group (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Total assets | 320 823 | 285 382 |
| Loans and advances to customers | 150 666 | 138 284 |
| Securities (equity and debt instruments) | 89 395 | 65 036 |
| Deposits from customers and debt securities | 197 870 | 165 226 |
| Technical provisions (before reinsurance) and liabilities under investment contracts, insurance | 29 948 | 26 928 |
| Risk-weighted assets | 132 034 | 126 333 |
| Total equity* | 18 674 | 16 772 |
| Parent shareholders' equity | 11 147 | 9 756 |
| Non-voting core-capital securities | 7 000 | 6 500 |
| Minority interests | 527 | 516 |
| Parent shareholders' equity per share (in EUR) | 32.8 | 28.7 |
| Tier-1 ratio, group (Basel II) | 12.6% | 12.3% |
| Core tier-1 ratio, group (Basel II) | 10.9% | 10.6% |
* For movements in equity, see 'Consolidated statement of changes in equity' in the 'Consolidated financial statements' section. For changes in capital, treasury shares held by the company, etc., see the 'Company annual accounts' section.
• The comparison of results between 2010 and 2011 is affected by the ongoing divestment programme:
Net interest income came to 5 479 million euros in 2011. On an underlying basis, the figure was 5 404 million euros, roughly on a par with its year-earlier level when Centea (sold in mid-2011) and Secura (sold at the end of 2010) are excluded. At 1.96%, the underlying net interest margin of the banking activities was roughly 4 basis points higher than in 2010. On a comparable basis, the total volume of credit outstanding rose by 2% in the course of 2011. Implementation of the refocused strategy meant that loan portfolio growth (+6%) at the Belgium and Central & Eastern Europe business units was partially cancelled out by the ongoing deliberate reduction in international loan portfolios outside the home markets (-1% at the Merchant Banking Business Unit and -1% at the Group Centre). On a comparable basis, the total volume of deposits went up by 5% in the Belgium Business Unit and by 4% in the Central & Eastern Europe Business Unit, but fell by 45% in the Merchant Banking Business Unit, owing to a decline in (volatile) short-term deposits from corporate and institutional entities outside the home markets (see the Merchant Banking Business Unit section).
Earned premiums in non-life insurance came to 1 861 million euros in 2011, up 5% on the year-earlier figure (excluding Secura, which was sold in 2010). As in previous years, premium income again increased in Belgium, going up by 2% (excluding Secura), while it rose by 4% in organic terms in the four Central and Eastern European core markets combined, and by almost 10% in the Group Centre, thanks to WARTA. The combined ratio at group level improved from 100% to 92%. It was an excellent 90% in Belgium, a further improvement on the 95% recorded in 2010, due primarily to fewer big claims and storms in 2011. The ratio stood at 93% in Central and Eastern Europe (for the four home markets combined), a significant improvement on the 103% for 2010, which had been adversely affected by storms and flooding, among other things.
Life insurance premiums
Earned premiums in life insurance came to 2 258 million euros in 2011. However, in compliance with IFRS, certain types of life insurance (i.e. unit-linked products) have been excluded from this figure. If the premium income from such products is included, premium income from the life insurance business totalled approximately 4 billion euros (excluding VITIS Life), 3% higher than the figure for 2010. There was an increase in both Belgium and Central and Eastern Europe, with lower sales of guaranteed-interest products being offset by increased sales of unit-linked products in each case. Overall, products offering guaranteed rates still accounted for about 53% of premium income from the life insurance business, and unit-linked products for 47%. On 31 December 2011, the group's life reserves came to 22.3 billion euros for the Belgium Business Unit and to 1.6 billion euros for the Central & Eastern Europe Business Unit.
Sales of guaranteed-rate life insurance (in millions of EUR, excluding VITIS Life, non-IFRS figures)
Net fee and commission income came to 1 164 million euros in 2011. On an underlying basis, it was 1 535 million euros, down 8% on the previous year's figure. In addition to the divestments, this was attributable to a number of other factors, including a decline in fee and commission income from asset management activities, which was due in part to the fall in the group's assets under management and to investors' diminished appetite for risk. On the other hand, the higher contribution made by unit-linked life insurance products and the commission received on the sale of Belgian state notes in Belgium were positive factors.
At the end of 2011, the group's total assets under management (investment funds and assets managed for private and institutional investors) amounted to approximately 193 billion euros, 8% less than the year-earlier figure, due to a combination of lower volumes and prices. The Belgium Business Unit was responsible for the bulk of assets under management (138 billion euros) at year-end 2011, while the Central & Eastern Europe Business Unit accounted for roughly 11 billion euros and the Group Centre (KBL EPB) for approximately 44 billion euros.
The net result from financial instruments at fair value through profit or loss (trading and fair value income) came to -178 million euros in 2011, compared with -77 million euros in 2010. This item was significantly influenced by various exceptional and non-operating items, including valuation markdowns on CDOs (-0.4 billion euros in 2011), adjustments to the value of certain government bonds used for the fair value option (-0.3 billion euros in 2011) and changes in fair value of own debt instruments. If this and other exceptional items are excluded from this trading and fair value income, and all tradingrelated income recorded under IFRS in various other income items is included, underlying trading and fair value income amounted to a positive 509 million euros in 2011, compared with 855 million euros a year earlier, partly reflecting a less robust performance in the dealing rooms, a lower contribution by companies earmarked for divestment and negative counterparty valuation adjustments for derivative financial instruments in 2011.
Dividends, realised gains and other net income came to an aggregate 310 million euros in 2011. On an underlying basis, they amounted to 213 million euros, down 76 million euros on the figure for 2010. The difference is primarily attributable to the combination of higher realised gains from available-for-sale shares and bonds, and a significantly lower level of other net income. The latter item had been adversely affected by the recognition of 175 million euros for irregularities at KBC Lease UK in 2010. In 2011, it was negatively impacted by the recognition of 334 million euros for the 5-5-5 investment product (partly related to Greece; more information about this product can be found in Note 8 of the 'Consolidated financial statements' section).
Net fee and commission income (underlying, in millions of EUR)
Trading and fair value income (underlying, in millions of EUR)
Operating expenses came to 4 344 million euros in 2011, or 4 686 million euros on an underlying basis. This underlying figure is 3% down on its year-earlier level, due in part to divestments and a reduction in activities (reflected primarily in the Group Centre), despite inflationary pressures pushing up staff expenses slightly. It should also be noted that the figures for both 2010 and 2011 include additional expenses (58 and 6 million euros) relating to the new bank tax in Hungary. The low er figure for 2011 was accounted for by the partial compensation of losses related to the new legislation on foreign-currency mortgage loans in Hungary. The underlying cost/income ratio for the group's banking activities (operating expenses/ total income) was roughly 60% in 2011, or 57% excluding the impact of the 5-5-5 investment products, slightly up on its year-earlier level of 56%. It was 63% for the Belgium Business Unit, 54% for the Central & Eastern Europe Business Unit, and 46% for the Merchant Banking Business Unit.
Impairment on loans and receivables (loan loss provisions) amounted to 1.3 billion euros in 2011, compared with 1.5 billion euros in 2010. This fall resulted from lower provisioning in a number of countries, including Poland, Russia, the Czech Republic and Slovakia, and lower provisioning for US asset-backed securities, partially offset by higher provisioning in Hungary (chiefly related to the new legislation on foreign-currency loans) and Bulgaria, while loan loss provisions in Ireland remained relatively high (510 million euros in 2011, compared with 525 million euros in 2010). Overall, the group's credit cost ratio improved from 91 basis points in 2010 to 82 basis points in 2011 (136 basis points at the Merchant Banking Business Unit, 159 basis points at the Central & Eastern Europe Business Unit and a very favourable 10 basis points at the Belgium Business Unit). The proportion of nonperforming loans in the total loan portfolio was 4.9% at year-end 2011, compared with 4.1% in 2010.
Other impairment charges in 2011 related chiefly to the recognition of 0.4 billion euros for Greek government bonds, which were marked down to fair value (this corresponds to an impairment of roughly 71%). Due to the fall in stock market prices, a further impairment of 114 million euros was recognised on shares in investment portfolios. Impairment on goodwill in respect of certain subsidiaries and associated companies (goodwill markdowns of this kind have been eliminated from the underlying results) came to 120 million euros, and related primarily to Bulgaria. In compliance with IFRS 5, the impairment on goodwill relating to the divestment of KBL EPB has been recognised under 'Net post-tax result from discontinued operations' and excluded from the underlying figures.
The group's net result under IFRS in 2011 breaks down as follows among its different business units: Belgium 421 million euros, Central & Eastern Europe 289 million euros, Merchant Banking -208 million euros and the Group Centre (which also includes the results of group companies earmarked for divestment) -489 million euros. When adjusted for exceptional items, the underlying result stood at 802 million euros for the Belgium Business Unit (down 24% on the figure for 2010, due almost entirely to provisioning for the 5-5-5 product and to impairment charges relating to Greece), 327 million euros for the Central & Eastern Europe Business Unit (down 43% year-on-year, due primarily to additional impairment charges in Hungary and Bulgaria and for Greece), -110 million euros for the Merchant Banking Business Unit (243 million euros less than in 2010, owing in part to the lower level of income generated by the dealing room, the impact of the 5-5-5 product and relatively high loan loss provisioning for Ireland), and 79 million euros for the Group Centre.
An overview of all the items not included in the underlying results is given towards the start of this section. A further analysis of the results for each business unit can be found in the relevant sections of this annual report.
At the end of 2011, the KBC group's consolidated total assets came to 285 billion euros, down 11% year-on-year. Riskweighted assets fell by 4% to 126 billion euros in 2011, a trend that is accounted for primarily by the ongoing deliberate rundown of loan portfolios not linked to the home markets and divestments.
'Loans and advances to customers' (137 billion euros in loans at the end of 2011, not including reverse repos) and 'Securities' (65 billion euros, 96% of which were debt instruments) continued to be the main products on the assets side of the balance sheet. On a comparable basis, lending was up 2%, due to the scaling back of loan portfolios outside the home markets, combined with an increase at the Belgium Business Unit (+6%) and the Central & Eastern Europe Business Unit (+6%). The main credit products (including reverse repos) were again term loans (64 billion euros) and mortgage loans (57 billion euros, up 3% year-on-year). On a comparable basis, total customer deposits (excluding repos) fell by 14% to 149 billion euros at group level. Although there was an increase in deposits at the Belgium Business Unit (+5%) and the Central & Eastern Europe Business Unit (+4%), there was a significant decline at the Merchant Banking Business Unit (-45%, see 'Net interest income' above). As in 2010, the main products (including repos) were time deposits (59 billion euros), demand deposits (37 billion euros) and savings deposits (33 billion euros). Technical provisions and liabilities under the insurer's investment contracts totalled 27 billion euros at year-end 2011.
On 31 December 2011, the group's total equity came to 16.8 billion euros. This figure included parent shareholders' equity (9.8 billion euros), minority interests (0.5 billion euros) and non-voting corecapital securities sold to the Belgian Federal and Flemish Regional governments (6.5 billion euros). On balance, total equity fell by 1.9 billion euros in 2011, due primarily to the combined effect of the 0.3-billion-euro decrease in the revaluation reserve for available-for-sale financial assets and the cashflow hedge reserve, the dividend and coupon payments on the core-capital securities sold to the governments in respect of 2010 (an aggregate -0.85 billion euros), and repayment of 0.5 billion euros (plus a 15% penalty) to the Belgian State. At year-end 2011, the group's tier-1 ratio amounted to 12.3% (core tier-1 ratio of 10.6%). For a detailed overview of changes in equity, see the 'Consolidated statement of changes in equity' in the 'Consolidated financial statements' section.
802
-110
Merchant Banking Business Unit
327
Central & Eastern Europe Business Unit
Belgium Business Unit
79
Group Centre (incl. planned divestments)
The Belgium Business Unit brings together all the group's retail and private bancassurance activities in Belgium. The main group companies that belonged to this unit in 2011 were ADD, CBC Banque, KBC Asset Management, KBC Bank (Belgian retail and private banking activities), KBC Insurance, KBC Lease (Belgian retail activities), KBC Group Re, KBC Consumer Finance and VAB Group. Secura was sold in 2010. Centea and Fidea, which were or will be divested under the strategic plan, also belong or belonged to this business unit until the completion of sale. However, their results have been allocated to the Group Centre, which incorporates the results of all group companies scheduled for divestment.
Market shares and customer numbers: based on own estimates. Market shares for traditional bank products: average estimated market share for loans and deposits. Market share for life insurance: guaranteed-interest and unit-linked products (combined). Loan portfolio: amount drawn down, excluding reverse repos. Deposits: excluding repos.
| IFRS | Underlying | |||
|---|---|---|---|---|
| Belgium Business Unit* (in millions of EUR) | 2010 | 2011 | 2010 | 2011 |
| Net interest income | 2 496 | 2 320 | 2 243 | 2 320 |
| Earned premiums, insurance (before reinsurance) | 2 886 | 2 135 | 2 886 | 2 135 |
| Technical charges, insurance (before reinsurance) | -2 851 | -2 025 | -2 851 | -2 025 |
| Ceded reinsurance result | -11 | -24 | -11 | -24 |
| Dividend income | 50 | 52 | 50 | 52 |
| Net result from financial instruments at fair value through profit or loss | -252 | -512 | 60 | 45 |
| Net realised result from available-for-sale assets | 51 | 98 | 51 | 98 |
| Net fee and commission income | 770 | 700 | 770 | 700 |
| Other net income | 248 | -31 | 119 | -39 |
| Total income | 3 388 | 2 712 | 3 318 | 3 260 |
| Operating expenses | -1 703 | -1 790 | -1 702 | -1 790 |
| Impairment | -109 | -316 | -104 | -312 |
| on loans and receivables | -82 | -59 | -82 | -59 |
| on available-for-sale assets | -23 | -230 | -23 | -230 |
| on goodwill | -6 | -4 | 0 | 0 |
| other | 0 | -22 | 0 | -22 |
| Share in results of associated companies | 0 | 0 | 0 | 0 |
| Result before tax | 1 576 | 607 | 1 513 | 1 159 |
| Income tax expense | -384 | -183 | -457 | -355 |
| Net post-tax result from discontinued operations | 0 | 0 | 0 | 0 |
| Result after tax | 1 192 | 423 | 1 056 | 804 |
| attributable to minority interests | 5 | 2 | 5 | 2 |
| attributable to equity holders of the parent | 1 187 | 421 | 1 051 | 802 |
| Banking | 599 | 297 | 725 | 534 |
| Insurance | 588 | 124 | 326 | 268 |
| Risk-weighted assets (period-end) (Basel II) | 28 744 | 28 929 | 28 744 | 28 929 |
| Allocated capital (period-end) | 2 751 | 2 746 | 2 751 | 2 746 |
| Return on allocated capital | 42% | 13% | 37% | 27% |
| Cost/income ratio, banking | 59% | 74% | 55% | 63% |
| Combined ratio, non-life insurance | 95% | 90% | 95% | 90% |
* The results of companies scheduled for divestment have been reallocated to the Group Centre. For information on how the underlying figures are calculated, see the 'Results in 2011' section and the reconciliation table below.
| Reconciliation of IFRS and underlying figures1 (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Result after tax, attributable to equity holders of the parent (underlying) | 1 051 | 802 |
| Changes in fair value of ALM hedging instruments | -143 | -251 |
| Gains/losses relating to CDOs | 205 | -118 |
| Fair value of CDO guarantee and commitment fees2 | -11 | -9 |
| Impairment on goodwill and associated companies | -6 | -4 |
| Results on divestments | 79 | 0 |
| Other | 11 | 0 |
| Result after tax, attributable to equity holders of the parent (IFRS) | 1 187 | 421 |
1 A more detailed explanation can be found under 'Notes on segment reporting' in the 'Consolidated financial statements' section.
2 For more information, see Note 5 of the 'Consolidated financial statements'.
In 2011, the Belgium Business Unit generated a net result of 421 million euros, compared with 1 187 million euros a year earlier. At 802 million euros, the underlying figure was 249 million euros lower than in 2010, though it was due almost entirely to impairment recorded on Greek government bonds and the recognition of a provision for the 5-5-5 investment product (an aggregate impact of -213 million euros after tax). As mentioned above, the results of divested companies or companies scheduled for divestment have been reallocated to the Group Centre.
Net interest income totalled 2 320 million euros in 2011. On an underlying basis and excluding Secura, which was sold in 2010, that figure was 5% up on the previous year's level and was attributable primarily to higher income related to lending and deposits. Although the net interest margin at KBC Bank fell slightly – by 4 basis points to 1.42% – loan and deposit volumes went up by 6% and 5%, respectively, in the space of a year. Net interest income was also positively influenced by the higher return from the bond portfolio of the insurance business.
Earned insurance premiums came to 2 135 million euros, 1 263 million euros of which related to life insurance and 872 million euros to non-life insurance. On a comparable basis (excluding Secura), non-life insurance premiums rose by roughly 2%, a continuation of the steady growth of recent years. The combined ratio amounted to an excellent 90%, which was a further improvement of 5 percentage points on the 2010 figure, due in part to the lower level of claims (fewer large claims, fewer storms, etc.) in 2011.
Sales of life insurance – including investment contracts without a discretionary participation feature (roughly equivalent to unit-linked life insurance policies), which are excluded from the IFRS figures – ended the year at 2.6 billion euros. That was a little higher than in 2010 and chiefly reflects an increase in sales of unit-linked products (e.g., KBC Life MI Interest products – see below) that more than compensated for the drop in sales of guaranteed-interest products. Overall, products offering guaranteed rates thus accounted for 48% of life insurance sales in 2011, and unit-linked products for 52%. At year-end 2011, the outstanding life reserves in this business unit totalled 22 billion euros, up 3% on the year-earlier figure.
Net fee and commission income amounted to 700 million euros, down 9% on the figure for 2010 (-12% excluding Secura). This decline was accounted for by several factors, including lower fee and commission income from asset management activities (cf. reduced entry and management fees for investment funds), and reflects the more difficult investment climate. It was only partially offset by a higher contribution from the sale of unit-linked products (under IFRS, the margin on these products is included in this income item) and commission on the sale of the Belgian state notes. At 138 billion euros, assets under management fell by 6% year-on-year, due to the combined effect of lower volumes and, to a lesser extent, lower prices.
As regards the other income items, the net realised result from available-for-sale assets stood at 98 million euros (+47 million euros, with an increase for both shares and bonds), dividend income amounted to 52 million euros, the net result from financial instruments at fair value through profit or loss came to -512 million euros (or 45 million euros on an underlying basis, i.e. after excluding certain exceptional and non-operating items, among other things), and other net income came to -31 million euros. The latter was 279 million euros less than in 2010, which had benefited from the capital gain on the sale of Secura, whereas 2011 was negatively influenced by the recognition of -167 million euros for the 5-5-5 investment product (see Note 8 in the 'Consolidated financial statements' section).
Operating expenses totalled 1 790 million euros in 2011. That is roughly 5% more than a year earlier (+6% excluding Secura), attributable in part to the increased contribution to the Belgian deposit protection fund, higher staff expenses and inflation in general. The underlying cost/income ratio of the banking activities amounted to 63%. Excluding the provision for the 5-5-5 product, the figure came to 59%, compared with 55% in 2010.
Impairment recorded on loans and receivables amounted to a low 59 million euros in 2011. As in previous years, this resulted in a very favourable credit cost ratio of 10 basis points (15 basis points in 2010). Approximately 1.5% of the Belgian retail loan portfolio was non-performing at year-end 2011, unchanged from the year-earlier figure. The other impairment charges related primarily to shares (-97 million euros in 2011, owing to the general decline in stock market prices) and to Greek government bonds (-156 million euros in 2011, on account of the decrease in the market value of these bonds).
The downturn that set in after the spring of 2011 pushed the Belgian economy back into recession in the second half of the year. The budgetary austerity measures introduced by the government will adversely affect household income and consumption in 2012. On the other hand, the business climate is gradually improving. With limited, export-driven growth of around 0.2%, 2012 will be a lean year, although this weak figure is still better than the 0% projected for the euro area as a whole. These figures are based on forecasts made in early March 2012. The actual figures could, therefore, differ (considerably).
The strategy pursued by the Belgium Business Unit is based on being deeply embedded locally through a close-knit network of bank branches and insurance agencies, backed up by a complementary online channel. At the end of 2011, this network consisted of around 800 KBC Bank and CBC Banque retail and private banking branches, and some 500 tied KBC Insurance and CBC Assurances agencies.
The focus is on relationship bancassurance, tailored to each customer and offering them readily available expertise. KBC's approach is also characterised by a unique model of co-operation between KBC Bank branches and KBC Insurance agencies in so-called micro markets. This model enables KBC to provide its customers with a comprehensive product offering, which is aligned to their individual needs, while stimulating cross-selling of bank and insurance products. In recent
years, for instance, a fire insurance policy from the group has been sold with 70-80% of home loans granted, as has been the case with loan balance insurance and home loans.
Bank branches accounted for some 87% of life insurance sales in 2011. Generating around 75% of sales, insurance agents were the principal channel for non-life insurance policies, with bank branches accounting for more than 20%. Centea and Fidea are excluded from these figures.
A programme was launched in 2010 to optimise the commercial network in Belgium, with the goal of safeguarding KBC's position within a highly competitive and constantly changing environment (see the annual report for 2010 for further information). The project is called 'Net 3.0' in Flanders and Brussels and was rolled out in early 2011. In 2011, the structures were put in place to support the business, premium and private-banking customer segments. For example, a Wealth Office was established specifically to cater for private banking clients with more than 5 million euros' worth of assets under management at KBC. As of 2012, this office will offer specific services from a Brussels-based competence centre that will work closely with the group's existing private banking branches in Belgium.
The group's strategic plan includes the divestment of certain group companies. In Belgium's case, that relates to the sale of Centea and Fidea. In March 2011, an agreement was reached with Landbouwkrediet for the sale of Centea, and the deal was finalised on 1 July 2011. An agreement for the sale of Fidea was reached with J.C. Flowers & Co. in October 2011. Additional information and a summary of all the divestments are provided in the 'Group Centre' section.
The Internet has an important place within the new distribution network, functioning as a support channel with particular emphases on specific customer groups. Another series of sales applications were added to the 'www.kbc.be' website in 2011, during which the site received over 1.4 million unique visitors a month. New functionalities were added to KBC-Online, too. It is now possible, for instance, to order cash (euros or foreign currency) through this channel. At year-end 2011, KBC-Online and CBC-Online had roughly 950 000 active subscribers in total, an increase of about 8% on the year-earlier figure.
In 2011, KBC introduced mobile banking for smartphones, iPads, etc., an extra service for KBC-Online users. This means that they can now also use their smartphone or tablet to check their account balance, perform credit transfers and review their statements. With its new range of mobile products, KBC is responding to the constantly changing needs of its customers, who are indicating an ever greater desire to bank whenever they want and on whatever platform they choose to use. In February 2012, the KBC Mobile Banking app won the public vote in the 'Financial Services' category of Accenture's Innovation Award. Other mobile applications were developed as well, including the KBC Home Project app, which guides customers through their building and renovation plans. KBC also launched a first on the Belgian market in 2011 with its 'scashing' (scan & cash) mobile function. Scashing is a simple way of transferring money via a smartphone using a QR (scash) code.
It goes without saying that KBC constantly adjusts its product offering to the evolving needs of its customers and to social trends. A good example is KBC Insurance's launch in April 2011 of a guaranteed-interest savings scheme to pre-finance the KBC Hospitalisation Insurance policy. Known as the KBC Hospitalisation Plan, this scheme extends life-long, tailored cover to customers, while ensuring that the insurance remains affordable as they get older. Other examples include the introduction of optional dog cover within the KBC Family Insurance policy, thus offering additional protection to dog-owners, the launch of KBC Life MI Inflation (investment-type insurance whose return is linked to the euro area's Harmonised Index of Consumer Prices excluding Tobacco) and the new electronic applications mentioned above.
Based on provisional data and in-house projections, KBC's share of the market in 2011 remained fairly stable on a comparable basis (excluding Centea and Fidea), i.e. roughly 21% in lending and just over 17% in deposits (where there was a shift from savings accounts to various savings and investment products offered by the group, including time deposit accounts, investment funds, and investment type insurance, and to the Belgian state note issued in December 2011).
Its share of the insurance market came to an estimated 16% for life insurance (guaranteed-interest and unit-linked products, combined) and a little more than 8% for non-life insurance (a slight increase on its 2010 share). As in previous years, the group did very well on the investment fund market with an estimated share of almost 40%.
Given its importance within a relationship bancassurance approach, KBC tracks customer satisfaction very closely. The half-yearly surveys on bank branches conducted in 2011 confirmed the trend of recent years, which is that customers continue to show a high level of satisfaction. In statistical terms, 96% of customers are satisfied compared with 95% a year earlier.
KBC also scored very well in terms of employee satisfaction. Moreover, the company was proclaimed one of the 'Best Employers in Belgium' for the sixth year in a row in the survey conducted by the Great Place to Work® Institute in collaboration with Vlerick Leuven Gent Management School. KBC also won the 2011 'Best Bank in Belgium' award from Global Finance magazine.
The group attaches great importance not only to its relationship with customers and employees, but also to its role in society in general. This is expressed through a range of initiatives in areas like patronage, combating social deprivation and exclusion, the environment, its product offering and social engagement. Further details of KBC's corporate social responsibility initiatives can be found in its dedicated CSR Report, available from www.kbc.com.
The Central & Eastern Europe Business Unit comprises all group activities pursued in Central and Eastern Europe. The main group companies that belonged to this unit in 2011 were CIBANK and DZI Insurance (Bulgaria), CˇSOB and CˇSOB Poist'ovnˇ a (Slovakia), CˇSOB and CˇSOB Pojišt'ovna (Czech Republic), and K&H Bank and K&H Insurance (Hungary). Absolut Bank (Russia), KBC Banka (Serbia), NLB Vita (Slovenia), Nova Ljubljanska banka (Slovenia, minority interest) and Kredyt Bank and WARTA (Poland) – all earmarked for divestment under the strategic plan – also belong to this business unit, but their results have been allocated to the Group Centre (which incorporates the results of all group companies scheduled for divestment).
| bank products | investment funds | life insurance | non-life insurance | |
|---|---|---|---|---|
| Czech Republic | 20% | 31% | 13% | 6% |
| Slovakia | 10% | 10% | 5% | 2% |
| Hungary | 9% | 20% | 3% | 5% |
| Bulgaria | 3% | – | 13% | 13% |
Loan portfolio by country (in billions of EUR): 17 in the Czech Republic, 4 in Slovakia, 5 in Hungary, 0.5 in
* Market shares and customer numbers: based on own estimates. Market shares for traditional bank products: average estimated market share for loans and deposits (the pro rata market share of the 55% joint venture with CMSS has been taken into account for the Czech
Market shares for life insurance: guaranteed-interest and unit-linked products (combined). Loan portfolio: amount drawn down, excluding reverse repos.
Deposits: excluding repos.
Slovakia, 246 in Hungary, and 117 in Bulgaria (plus an aggregate total of some 500 branches in the nonhome markets of Poland, Serbia and Russia).
| IFRS | Underlying | |||
|---|---|---|---|---|
| Central & Eastern Europe Business Unit* (in millions of EUR) | 2010 | 2011 | 2010 | 2011 |
| Net interest income | 1 549 | 1 524 | 1 527 | 1 524 |
| Earned premiums, insurance (before reinsurance) | 657 | 745 | 657 | 745 |
| Technical charges, insurance (before reinsurance) | -504 | -548 | -504 | -548 |
| Ceded reinsurance result | -11 | -21 | -11 | -21 |
| Dividend income | 2 | 2 | 2 | 2 |
| Net result from financial instruments at fair value through profit or loss | 146 | 131 | 154 | 74 |
| Net realised result from available-for-sale assets | 13 | 32 | 12 | 32 |
| Net fee and commission income | 308 | 329 | 308 | 329 |
| Other net income | 58 | 32 | 30 | 38 |
| Total income | 2 219 | 2 226 | 2 175 | 2 175 |
| Operating expenses | -1 184 | -1 192 | -1 184 | -1 192 |
| Impairment | -350 | -694 | -350 | -619 |
| on loans and receivables | -340 | -477 | -340 | -477 |
| on available-for-sale assets | 0 | -127 | 0 | -127 |
| on goodwill | 0 | -75 | 0 | 0 |
| other | -9 | -14 | -9 | -14 |
| Share in results of associated companies | 1 | 1 | 1 | 1 |
| Result before tax | 686 | 341 | 643 | 365 |
| Income tax expense | -77 | -53 | -73 | -38 |
| Net post-tax result from discontinued operations | 0 | 0 | 0 | 0 |
| Result after tax | 609 | 289 | 570 | 327 |
| attributable to minority interests | 0 | 0 | 0 | 0 |
| attributable to equity holders of the parent | 609 | 289 | 570 | 327 |
| Banking | 578 | 266 | 540 | 291 |
| Insurance | 31 | 23 | 30 | 36 |
| Risk-weighted assets (period-end) (Basel II) | 24 771 | 26 128 | 24 771 | 26 128 |
| Allocated capital (period-end) | 2 065 | 2 184 | 2 065 | 2 184 |
| Return on allocated capital | 24% | 9% | 22% | 11% |
| Cost/income ratio, banking | 52% | 52% | 53% | 54% |
| Combined ratio, non-life insurance | 103% | 93% | 103% | 93% |
* The results of companies scheduled for divestment have been reallocated to the Group Centre. For information on how the underlying figures are calculated, see the 'Results in 2011' section and the reconciliation table below. The breakdown by business unit has been restated for 2011 (and with retroactive effect for 2010) to reflect the amendment of the strategic plan in mid-2011. See the 'Structure and management' section.
| Reconciliation of IFRS and underlying figures* (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Result after tax, attributable to equity holders of the parent (underlying) | 570 | 327 |
| Changes in fair value of ALM hedging instruments | 10 | 43 |
| Gains/losses relating to CDOs | 29 | -1 |
| Impairment on goodwill and associated companies | 0 | -75 |
| Results on divestments | 0 | -5 |
| Other | 0 | 0 |
| Result after tax, attributable to equity holders of the parent (IFRS) | 609 | 289 |
* A more detailed explanation can be found under 'Notes on segment reporting' in the 'Consolidated financial statements' section.
In 2011, the Central & Eastern Europe Business Unit generated a net profit of 289 million euros, compared with 609 million euros in 2010. Underlying net profit was 327 million euros, 43% lower than the year-earlier figure, due primarily to impairment recorded on Greek government bonds and additional loan loss provisioning in Hungary and Bulgaria.
Exchange rate fluctuations have been omitted when calculating organic growth. As already mentioned, the results of group companies scheduled for divestment under the strategic plan (amended mid-2011) have been reallocated to the Group Centre. Consequently, in addition to those of Absolut Bank, KBC Banka and the NLB group, the results of Kredyt Bank and WARTA have now also been reallocated to the Group Centre, while 100% of Cˇ SOB's results have once again been included in the net profit of the Central & Eastern Europe Business Unit (40% had previously been allocated to the Group Centre). The reference figures for 2010 have also been restated.
On an underlying basis, net interest income totalled 1 524 million euros in 2011, a year-on-year organic decline of 2%. In organic terms, the business unit's loan portfolio grew by 6% in 2011, with substantial growth in the Czech Republic and Slovakia and a decline primarily in Hungary. The total volume of deposits in the region went up by 4% in 2011 (attributable mainly to the Czech Republic). The average interest margin was 3.29% in 2011, virtually unchanged from its 2010 level.
Earned insurance premiums came to 745 million euros, 411 million euros of which related to life insurance and 334 million euros to non-life insurance. Non-life premiums rose by around 4% on an organic basis in 2011, and were generated chiefly in the Czech Republic which was good for 159 million euros. The combined ratio improved sharply to 93%, following a relatively high 103% in 2010, which had been adversely affected by storms and flooding in the region. Moreover, the ratio remained below 100% in the Czech Republic, Slovakia and Hungary, and came to 100% in Bulgaria.
Earned life insurance premiums, including premiums on certain life insurance products which – as required under IFRS – are not recognised under earned premiums, totalled 0.4 billion euros in 2011, almost 25% more than in 2010. Growth among unit-linked products (in the Czech Republic in particular) more than compensated for lower sales of guaranteed-rate products. Most of the total premium income from life insurance was earned in the Czech Republic (333 million euros). At year-end, outstanding life reserves for the four home markets combined stood at approximately 1.6 billion euros.
Net fee and commission income came to 329 million euros in 2011, a year-on-year increase in organic terms of 5% that was attributable to a number of factors, including a rise in fee and commission income from payments. Assets under management in the business unit stood at around 11 billion euros at the end of the year. As regards the other income items, the net realised result from availablefor-sale assets totalled 32 million euros, dividend income amounted to 2 million euros, the net result from financial instruments at fair value through profit or loss stood at 131 million euros (the underlying figure totalled 74 million euros), and other net income came to 32 million euros.
Operating expenses amounted to 1 192 million euros. On an organic basis, that is more or less the same as in the previous year, with various factors cancelling each other out. For instance, the expense item also included the special bank tax in Hungary, which had an adverse effect of 58 million euros in 2010 and 6 million euros in 2011 (the latter figure was lower because it was possible to set off some of the loan loss provisions for foreign-currency mortgage loans (see below) against the special bank tax). The underlying cost/income ratio for the banking activities of this business unit stood at 54%, in line with the 53% recorded in 2010.
Impairment on loans and receivables (loan loss provisions) came to 477 million euros, compared with 340 million euros in 2010. Loan loss provisions in the Czech Republic and Slovakia were down on their 2010 level. However, there was a significant increase in Bulgaria (106 million euros in 2011) and Hungary (288 million euros in 2011, more than twice as much as the previous year owing mainly to a new law that allows foreign-currency loans to be repaid in local currency at a preferential exchange rate; see below). Consequently, the overall credit cost ratio rose from 116 basis points in 2010 to 159 basis points in 2011. At year-end 2011, around 5.6% of the loan portfolio in the four home markets combined was non-performing, compared with 5.3% a year earlier. Other impairment charges related primarily to Greek government bonds (129 million euros in 2011 on account of the decrease in the market value of these bonds) and to goodwill (75 million euros, largely related to Bulgaria in 2011, and excluded from the underlying figures).
| Breakdown by country of the underlying results of the Central & Eastern Europe Business Unit |
Czech Republic | Slovakia | Hungary | Bulgaria | Other* | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in millions of EUR) | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 |
| Result after tax, attributable to equity holders of the parent |
534 | 481 | 51 | 78 | 78 | -19 | 4 | 2 | -97 | -215 |
| Banking | 500 | 452 | 44 | 66 | 75 | -26 | 0 | -3 | -81 | -198 |
| Insurance | 34 | 28 | 7 | 12 | 3 | 7 | 3 | 5 | -17 | -17 |
| Risk-weighted assets (period-end) (Basel II) | 13 496 | 14 869 | 4 142 | 4 261 | 6 219 | 6 123 | 877 | 848 | – | – |
| Allocated capital (period-end) | 1 127 | 1 241 | 341 | 352 | 510 | 507 | 84 | 82 | – | – |
| Return on allocated capital | 37% | 33% | 10% | 18% | 10% | -9% | -19% | -22% | – | – |
| Cost/income ratio, banking | 44% | 46% | 57% | 62% | 57% | 48% | 69% | 76% | – | – |
| Combined ratio, non-life insurance | 96% | 90% | 106% | 81% | 111% | 96% | 109% | 100% | – | – |
* The 'Other' heading comprises the funding for the goodwill paid for companies in this business unit and certain items not allocated to individual countries/companies.
KBC's four Central European home markets had a mixed record in 2011. Whereas economic growth came to 3.3% in Slovakia, it was slower in Bulgaria (1.9%), the Czech Republic (1.7%) and Hungary (1.7%). This divergence will continue in 2012. Weak growth in the euro area, combined with austerity measures to cut the budget deficit, will ensure that growth in the Czech Republic will fluctuate around 0%. Slovakia and Bulgaria are doing better and will record positive figures, whereas Hungary's economy is likely to contract on account of structural domestic problems, which are putting pressure on household spending and investment. KBC expects that growth in the region – excluding Hungary – will outpace the European Monetary Union area again, starting in 2013. This stronger economic growth and the anticipated continued catch-up in the penetration of bank and insurance products mean that KBC's presence in these markets can be viewed as a genuine growth driver for the group. Please note that these figures are based on forecasts made in early March 2012. The actual figures could of course differ (considerably).
As already mentioned, KBC focuses on a number of home markets in Central and Eastern Europe. Since the approval of the amended strategic plan in mid-2011, the focus has been on the Czech Republic, Slovakia, Hungary and Bulgaria. In each of these four countries, the group owns a bank and an insurer that work closely together. Whereas KBC works exclusively with a network of tied agents in Belgium, the group's insurers in Central and Eastern Europe also co-operate with other distribution channels, including insurance brokers and multi-agents.
The changes made to the strategic plan in mid-2011 are described in the 'Strategy and company profile' section. As far as the Central & Eastern Europe Business Unit is concerned, these changes mean that the planned IPOs of a minority stake in Cˇ SOB Bank (Czech Republic) and K&H Bank (Hungary) have been replaced by the sale of the Polish subsidiaries Kredyt Bank and WARTA. The
main reasons for doing this were regulatory changes (most notably the treatment of minority interests under Basel III), which rendered the plan less effective, and the introduction of the special bank tax in Hungary, which made a successful IPO of a minority stake in K&H Bank more difficult. As early as the start of 2012, an agreement was reached to sell WARTA. At the end of February 2012, KBC concluded an agreement with Banco Santander SA with regard to the merger of the two groups' respective Polish subsidiaries, Bank Zachodni WBK SA and Kredyt Bank SA. Following the merger, KBC ultimately aims to sell its remaining shareholding in the merged bank (see the 'Group Centre' section below).
In addition to the aforementioned planned divestments of the Polish activities, it is still the intention – as stated in the original strategic plan – to sell the KBC operations in Russia (Absolut Bank), Serbia (KBC Banka) and Slovenia (NLB Vita and a minority interest in Nova Ljubljanska banka).
Under the new strategy, the group will not, in principle, make any acquisitions in the region in the years ahead. However, KBC Bank and International Finance Corporation (IFC) signed an agreement that enabled KBC Bank to take over a large part of IFC's 5% stake in Absolut Bank. The deal came about after IFC exercised the put option it had agreed with KBC Bank in 2007. Consequently, KBC Bank now has a 99% stake in Absolut Bank. Following a public bid, KBC also strengthened its shareholding in the Bulgarian insurer, DZI Insurance, raising it from 90.35% to 99.95% at the end of 2011. Neither transaction had a material impact on KBC's capital position.
KBC's estimated market share in traditional bank products (average of both loans and deposits) remained more or less unchanged in 2011, coming to roughly 20% in the Czech Republic, almost 10% in Slovakia, just under 9% in Hungary and practically 3% in Bulgaria.
As in Belgium, the share of the market in investment funds is greater than that of the market in traditional deposit products. At yearend, it was estimated at 31% in the Czech Republic, 10% in Slovakia and 20% in Hungary, again comparable with the percentages in 2010.
The respective shares of the life and non-life insurance markets were an estimated 13% and 6% in the Czech Republic (an increase on the 2010 figures), 5% and 2% in Slovakia (more or less unchanged), 3% and 5% in Hungary (up on the year-earlier figures) and 13% and 13% in Bulgaria (as per 2010).
Estimated shares for traditional bank products in the non-home markets were just over 1% in Serbia, less than 1% in Russia and between 3% and 4% in Poland. WARTA's estimated share of the Polish insurance market was 8% for the life business and 9% for the non-life business.
An overview of K&H Bank's loan portfolio can be found in the 'Value and risk management' section. A specific feature of the retail portion of this portfolio is the relatively large share of foreign-currency loans, in particular in Swiss francs. A new law came into force in Hungary in 2011 which, simply put, gives customers the option for a limited period of time to pay off foreign-currency mortgage loans in Hungarian forints at an exchange rate that is more favourable to them, and which obliges the banks to cover the difference between this rate and the actual market rate. In the last quarter of 2011, additional measures were taken, including those for defaulted mortgage loans that have not been converted into Hungarian forints.
KBC recorded additional impairment charges of 173 million euros on K&H Bank's mortgage portfolio in 2011 (based on an assessment that 30% of borrowers opt to redeem their foreign-currency loans early), bringing total impairment on loans in Hungary to a relatively high pre-tax figure of 288 million euros for the year, which represents a credit cost ratio of 438 basis points (175 basis points excluding the impact of the law on foreign-currency mortgage loans). At year-end, roughly 10.5% of the loan portfolio was classified as nonperforming.
K&H Bank and K&H Insurance again had to pay the special bank tax in 2011. However, following an agreement between the banking sector and Hungarian government at the end of 2011, 30% of the cost attendant on the new legislation on foreign-currency mortgage loans could be deducted from the tax due. Consequently, the special bank tax came to 6 million euros on balance, compared with 58 million euros in 2010.
As a major financial player in Central and Eastern Europe, KBC sets great store – as it does in Belgium – by the role it plays in society. Examples of environmental and community involvement initiatives are provided in the group's CSR Report, which is available at www.kbc.com.
As in previous years, Global Finance magazine announced its awards in 2011 for the best banks, including one for Cˇ SOB in the Czech Republic. K&H Bank, meanwhile, was named 'Bank of the Year in Hungary' by The Banker. The group's insurers also pick up awards on a regular basis. In Bulgaria, for instance, DZI was named 2011 'Insurer of the Year' for non-life insurance in a competition organised by the Higher School of Insurance and Finance, the Association of Bulgarian Insurers, the Bulgarian Association of Supplementary Pension Security Companies, and the Professor Veleslav Gavriiski Foundation. World Finance magazine awarded Cˇ SOB Poist'ovnˇ a the title of 'Insurance Company of the Year 2011' in Slovakia.
The Merchant Banking Business Unit comprises corporate banking (the services provided to larger SME and corporate customers) and market activities in Belgium and abroad (apart from those in Central and Eastern Europe). The main group companies belonging to this business unit in 2011 were KBC Bank (merchant banking activities), KBC Commercial Finance, KBC Bank Ireland, KBC Credit Investments, KBC Lease (corporate), KBC Internationale Financieringsmaatschappij and KBC Securities. Antwerp Diamond Bank, KBC Bank Deutschland, KBC Financial Products (various activities already sold), KBC Peel Hunt (already sold) – which have been earmarked for divestment under the strategic plan – also belong to this business unit. However, their results have been allocated to the Group Centre, which incorporates the results of all group companies scheduled for divestment.
* Market shares: based on own estimates.
Loan portfolio: amount drawn down, excluding reverse repos. The loan portfolios of companies scheduled for divestment have been reallocated to the Group Centre.
Deposits: excluding repos.
The number of corporate branches in Belgium includes CBC Banque's main branches (succursales). The number of corporate branches abroad relates to bank branches and representative offices of KBC Bank, KBC Bank Deutschland and KBC Bank Ireland.
| IFRS | Underlying | |||
|---|---|---|---|---|
| Merchant Banking Business Unit* (in millions of EUR) | 2010 | 2011 | 2010 | 2011 |
| Net interest income | 1 428 | 944 | 836 | 663 |
| Earned premiums, insurance (before reinsurance) | 0 | 0 | 0 | 0 |
| Technical charges, insurance (before reinsurance) | 0 | 0 | 0 | 0 |
| Ceded reinsurance result | 0 | 0 | 0 | 0 |
| Dividend income | 21 | 18 | 6 | 7 |
| Net result from financial instruments at fair value through profit or loss | -21 | -3 | 539 | 405 |
| Net realised result from available-for-sale assets | 7 | 31 | 3 | 35 |
| Net fee and commission income | 206 | 194 | 225 | 202 |
| Other net income | -15 | -36 | -70 | -76 |
| Total income | 1 626 | 1 148 | 1 540 | 1 236 |
| Operating expenses | -580 | -576 | -576 | -569 |
| Impairment | -823 | -785 | -796 | -768 |
| on loans and receivables | -789 | -725 | -789 | -725 |
| on available-for-sale assets | -7 | -6 | -7 | -6 |
| on goodwill | -27 | -17 | 0 | 0 |
| other | 1 | -37 | 1 | -37 |
| Share in results of associated companies | 0 | 0 | 0 | 0 |
| Result before tax | 223 | -214 | 168 | -101 |
| Income tax expense | -35 | 20 | -19 | 6 |
| Net post-tax result from discontinued operations | 0 | 0 | 0 | 0 |
| Result after tax | 188 | -194 | 149 | -95 |
| attributable to minority interests | 16 | 14 | 16 | 15 |
| attributable to equity holders of the parent | 172 | -208 | 133 | -110 |
| Banking | 166 | -212 | 127 | -114 |
| Insurance | 6 | 4 | 6 | 4 |
| Risk-weighted assets (period-end) (Basel II) | 47 317 | 42 126 | 47 317 | 42 126 |
| Allocated capital (period-end) | 3 785 | 3 370 | 3 785 | 3 370 |
| Return on allocated capital | 4% | -6% | 3% | -3% |
| Cost/income ratio, banking | 36% | 50% | 37% | 46% |
* The results of companies scheduled for divestment have been reallocated to the Group Centre. For information on how the underlying figures are calculated, see the 'Results in 2011' section and the reconciliation table below.
| Reconciliation of IFRS and underlying figures* (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Result after tax, attributable to equity holders of the parent (underlying) | 133 | -110 |
| Changes in fair value of ALM hedging instruments | -23 | -58 |
| Gains/losses relating to CDOs | 113 | -7 |
| Impairment on goodwill and associated companies | -27 | -17 |
| Results on divestments | -9 | -17 |
| Other | -15 | 0 |
| Result after tax, attributable to equity holders of the parent (IFRS) | 172 | -208 |
* A more detailed explanation can be found under 'Notes on segment reporting' in the 'Consolidated financial statements' section.
In 2011, the Merchant Banking Business Unit generated a net result of -208 million euros, compared with 172 million euros a year earlier. The underlying figure came to -110 million euros, compared with 133 million euros in 2010. The performance in 2011 was adversely affected by provisioning for the 5-5-5 investment product in Belgium, the weaker performance of the dealing room and – as was the case in 2010 – relatively high loan loss provisions for Ireland. Excluding Ireland, the underlying net result for the business unit would have been in the region of 212 million euros for the year. As already mentioned, the results of group companies scheduled to be divested or already divested under the strategic plan have been reallocated to the Group Centre.
Total income amounted to 1 148 million euros. On an underlying basis, it came to 1 236 million euros, down 20% on the figure for 2010.
Net interest income totalled 944 million euros in 2011, which – on an underlying basis – was 21% less than its year-earlier level, attributable in part to the loan portfolio (which has been scaled back by 14% in the space of two years). The decline in the size of the loan portfolio reflects the group's strategy of refocusing on its home markets, which resulted in a run-down of the international loan portfolios not related to those markets. The volume of deposits fell sharply (by 45%), primarily on account of a drop in institutional and corporate deposits outside the home markets, arising from risk aversion in some foreign markets to the euro area and the downgrading by Standard & Poor's of KBC Bank's short-term rating.
The net result from financial instruments at fair value through profit or loss came to -3 million euros. After including all trading-relating income – which is recognised in various other income items under IFRS – and excluding exceptional items, the underlying result stood at 405 million euros, a year-on-year decline of some 25% which is attributable to a weaker performance in the dealing room and the negative trend in credit value adjustments on derivatives.
Net fee and commission income totalled 194 million euros, down 10% on an underlying basis, and again related largely to the rundown of activities (including the sale of a number of entities of KBC Securities). As regards the other income items, the net realised result from available-for-sale assets stood at 31 million euros, dividend income amounted to 18 million euros, and other net income came to -36 million euros (-15 million euros in 2010). The latter item was adversely affected in 2010 by the recognition of -175 million euros for a case of irregularities at KBC Lease UK, and in 2011 by the recognition of -167 million euros for the 5-5-5 investment product (see Note 8 in the 'Consolidated financial statements' section).
Operating expenses at this business unit came to 576 million euros, virtually unchanged on an underlying basis from the year-earlier figure (with the impact of a reduction in activities, slightly higher staff expenses and a number of other factors offsetting each other). The underlying cost/income ratio ended the year at 46% – or 41% excluding the impact of the provision for the 5-5-5 product – compared with 37% in 2010.
Impairment recorded on loans and receivables amounted to 725 million euros, lower than the 789 million euros recorded in 2010. This decrease was accounted for mainly by KBC Bank in Belgium, and related in particular to US asset-backed securities. As in 2010, relatively high impairment charges were recorded at KBC Ireland for the Irish loan portfolio (510 million euros in 2011 compared with 525 million euros in 2010; see below). Nevertheless, at business unit level, the credit cost ratio fell slightly to 136 basis points in 2011, compared with 138 basis points in 2010. Excluding Ireland, those figures would have been 59 basis points and 67 basis points for 2011 and 2010, respectively. At year-end 2011, around 7.8% of the business unit's loan portfolio was non-performing, compared with 5.2% a year earlier. Other impairment charges amounted to 60 million euros in 2011, which related, among other things, to Greek government bonds (18 million euros for the year, on account of the decrease in the market value of these bonds) and to investment property (21 million euros).
The following table contains the business unit's underlying net result, broken down into corporate banking (the services provided to SMEs and larger companies) and market activities (e.g., currency dealing, securities trading and corporate finance).
| Breakdown by activity of the underlying results of the Merchant Banking Business Unit |
Corporate banking (figure between brackets excludes Ireland) |
Market activities | |||
|---|---|---|---|---|---|
| (in millions of EUR) | 2010 | 2011 | 2010 | 2011 | |
| Result after tax, attributable to equity holders of the parent | -149 [62] | -229 [93] | 281 | 119 | |
| Banking | -155 [56] | -233 [89] | 281 | 119 | |
| Insurance | 6 [6] | 4 [4] | 0 | 0 | |
| Risk-weighted assets (period-end) (Basel II) | 32 993 | 31 065 | 14 324 | 11 061 | |
| Allocated capital (period-end) | 2 639 | 2 485 | 1 146 | 885 | |
| Return on allocated capital | -6% | -9% | 26% | 12% | |
| Cost/income ratio, banking | 39% | 41% | 35% | 58% |
The Merchant Banking Business Unit comprises both the market activities (money market activities, capital market products, stockbroking, corporate finance, etc.) and corporate banking (lending, cash management, payments, trade finance, leasing, factoring, etc.) for customers in Belgium and abroad, provided there is a link with KBC's home markets in Belgium or Central Europe. Activities with other professional or institutional counterparties depend on the degree to which they support the group's core activities.
Services are provided via a network of 26 branches in Belgium (13 KBC Bank corporate centres and 13 CBC Banque succursales), 24 establishments abroad (slightly fewer than at year-end 2010) and various specialist service-providers and subsidiaries. KBC Bank Ireland also belongs to the Merchant Banking Business Unit, but its activities are discussed separately below. KBC's share of the Belgian corporate credit market is estimated at about 24%.
Operations abroad have been reoriented to the maximum possible extent to supporting customers from the home markets. Any activities falling outside that remit have been either terminated or scaled back. Various activities have already been sold in 2010 and 2011 (including KBC Peel Hunt, certain subsidiaries of KBC Securities and various activities of KBC Financial Products, KBC Business Capital, etc.) and the portfolio of KBC Private Equity continued to be divested. The results of companies scheduled for divestment have been reallocated to the results for the Group Centre. More information on the divestments already completed can be found in the 'Group Centre' section.
A number of activities at branches abroad have also been or will be run down, since a considerable portion of the loan portfolio of those
branches related to purely local foreign corporate clients or to niche activities which had no natural link with KBC's customer base in its home markets. The group had made exceptionally good progress by year-end 2011 with the reduction of this international loan portfolio, and that has helped reduce the risk-weighted assets of the corporate banking activities by some 9 billion euros in the space of two years. A number of branches abroad have also been closed in the past few years. An overview of KBC Bank's remaining corporate branches abroad (including KBC Bank Deutschland and KBC Bank Ireland) at year-end 2011 is provided in the diagrammatic map.
In addition to its presence in Belgium, KBC Securities – a subsidiary of KBC specialising in stockbroking, securities services and corporate finance – has a number of establishments in Central and Eastern Europe, where it is one of the larger regional players. However, as part of the group's strategic refocus on its home markets, management buyouts were agreed in 2011 for KBC Securities' Serbian and Romanian activities. Innovation is very important to KBC Securities. Mid-2011, for instance, saw the launch in Belgium of the completely revamped KBC Securities Trader platform, featuring rapid order routing and the possibility of integration with the existing Bolero platform. Innovation and the ability to adapt are also of paramount importance to the business unit's other departments. For instance, as a major Belgian bank, KBC is increasingly involved in Public Private Initiatives. Examples include participation in the construction of the world's biggest lock, the Deurganckdok lock in Antwerp, and a number of medium-sized projects, such as the building of regional road links.
The Deurganckdok lock will improve access to the docks on the left bank of the river Scheldt in Antwerp. It will be equal in size to the existing Berendrecht lock – currently the world's largest – but the new lock will be deeper. KBC is jointly funding its construction.
The international portfolio includes an Irish loan portfolio of around 17 billion euros at KBC Bank Ireland. Most of this portfolio (approximately three quarters) relates to mortgage loans, and the rest is more or less equally divided across SME and corporate loans and loans related to real estate investment and development.
Ireland's domestic market did not recover as well as expected in 2011 and the austerity measures are putting pressure on Irish households. This – in combination with the difficult economic situation – means that the climate on the credit market remains challenging. The situation is exacerbated by the unrelenting downward pressure on underlying asset values and by mounting financing costs which in turn are leading to higher interest rates, which are exerting pressure on borrowers. This led on balance to additional loan loss provisions of about 0.5 billion euros being set aside in 2011, on top of the 0.5 billion euros in 2010. At the end of 2011, some 17.7% of the total Irish loan portfolio was non-performing, compared with 10% at year-end 2010. The credit cost ratio came to 301 basis points in 2011 and the cover ratio for the Irish portfolio (all loan loss provisioning relative to the non-performing loan portfolio) to 42%. The group is also taking account of relatively high impairment charges for the Irish portfolio in 2012.
This business unit provides support to and serves as a product provider for the other business units. It encompasses a number of divisions that provide products and services to the entire group. The main divisions belonging to this unit in 2011 were Asset Management, Payments, Consumer Finance, Trade Finance, ICT, Leasing and Organisation.
• No result is reported for this business unit as all its income and expenses are allocated to the group's other units.
1 Market shares and number of payment transactions are based on own estimates. Payment transactions: card and cash transactions, domestic and cross-border credit transfers and international cash management. Share of the consumer finance market: the figure for Belgium is solely for revolving credit cards.
The mission of the Shared Services & Operations Business Unit is to provide its internal customers (e.g., the group's distribution channels) and external customers with quality service at a competitive price. Consequently, initiatives are constantly being taken to increase efficiency and the quality of service on the one hand, and to reduce costs on the other. To achieve this goal, the 'Lean' project was launched in mid-2010. Lean aims to create a culture of continuous improvement, where everybody takes responsibility for identifying and eliminating waste, so that ultimately maximum value is generated for the customer. The objective is that all the relevant divisions operate according to the project's principles by the end of 2012.
In accordance with group strategy, this unit's geographical focus is on the home markets in Belgium and in Central and Eastern Europe, with activities elsewhere being largely run down. Examples include the sale of KBC Asset Management's Irish and UK operations in 2010, and the sale of KBC Asset Management's stake in the Taiwanese asset manager KBC Concord in 2011 and of its stake in KBC Goldstate in China at the start of 2012. KBC Lease Group sold its operations in Romania (INK), Spain and Italy. As part of the scheduled divestment of Kredyt Bank and WARTA in Poland, KBC Asset Management signed an agreement with both companies to acquire their shares (30% in each case) in Polish asset manager, KBC TFI. This deal means that KBC Asset Management has become the sole owner of KBC TFI and will continue to operate on the Polish market.
Like the group's other entities, the divisions belonging to this business unit continually strive to improve service by exploiting synergies and sharing best practices. At Payments, for instance, certain Central and Eastern European countries have been connected to a central SWIFT hub and to the group platform for international payments, while a shared service centre has been established at Brno in the Czech Republic to centralise a number of activities and processes that are currently carried out at various locations across the group. The launch of the new twin data centre near Budapest, which will gradually replace the group's 20-plus data centres in Central and Eastern Europe, is a good example at ICT.
The product offering is also regularly screened and optimised in consultation between the product developers in this business unit and the distribution network in the different countries and markets in which the group is active. This collaboration is set out in concrete service level agreements, with clear commitments and objectives. Asset Management once again developed numerous innovative investment products, among them the KBC Participation Flexible Portfolio formula, an investment strategy that chooses in a highly
active and controlled way between equity and bond investments. Another example is the KBC Life MI Inflation product range, which generates an inflation-linked return on top of a fixed return. Consumer Finance also launched several new products, including the KBC Visa Vision and KBC MasterCard Globe cards in Belgium. Its successful business model (focusing on sales through banks) – which had already been rolled out in Belgium, the Czech Republic and Poland – was also implemented in Hungary and launched in Slovakia in 2011.
The business unit's approach has proved successful, as illustrated for instance by persistently strong shares of the investment fund market in Belgium and Central and Eastern Europe, where the group performs much better than with traditional loan and deposit products. The group also picked up another set of awards in 2011, including Global Finance magazine's 'Best Trade Finance Provider Belgium' title for KBC Bank. KBC Asset Management's funds also featured regularly among fund awards in Belgium and elsewhere. And KBC won the 'best Belgian distributor' prize at the 2011 Euromoney Structured Retail Products Awards.
New products and services are constantly being developed within the group to align the offering as closely as possible with market demand. That was also the case in 2011. A new process was rolled out across the group to support research and development of new products even more effectively. This process enhances the efficiency with which approval is sought for new product launches and entails a thorough analysis of all relevant risks, with actions proposed where appropriate to avoid or manage those risks. Moreover, all products are subject to regular review, so that existing products can be adapted to evolving customer needs and changing market conditions.
Besides the projects and products mentioned in this section, various examples of new product developments in 2011 are provided in the other sections of this annual report, and include KBC Securities Trader, the launch of the guaranteed-interest savings scheme to pre-finance a KBC Hospitalisation Insurance policy in Belgium, and several new mobile banking applications. New products and services are often developed in tandem with new software. Details of software developed in-house can be found in Note 34 of the 'Consolidated financial statements'.
The Group Centre includes the results of the holding company KBC Group NV, KBC Global Services, a small portion of the results of KBC Bank NV and KBC Insurance NV not attributable to the other business units, and elimination of intersegment transactions.
The Group Centre also contains the results of companies designated for divestment under the strategic plan. The most important of these are Centea, Fidea, Absolut Bank, KBC Banka, NLB Vita and the minority interest in Nova Ljubljanska banka, Kredyt Bank, WARTA, KBC Financial Products, KBC Peel Hunt, Antwerp Diamond Bank, KBC Bank Deutschland and the KBL EPB group. Sale agreements were reached or completed for several divestments in 2010 and 2011.
* Loan portfolio: amount drawn down, excluding reverse repos. Deposits: excluding repos. In both cases, KBL EPB is excluded.
| IFRS | Underlying | |||
|---|---|---|---|---|
| Group Centre* (in millions of EUR) | 2010 | 2011 | 2010 | 2011 |
| Net interest income | 772 | 691 | 997 | 897 |
| Earned premiums, insurance (before reinsurance) | 1 073 | 1 239 | 1 077 | 1 241 |
| Technical charges, insurance (before reinsurance) | -906 | -969 | -926 | -984 |
| Ceded reinsurance result | 13 | 1 | 13 | 0 |
| Dividend income | 25 | 13 | 15 | 13 |
| Net result from financial instruments at fair value through profit or loss | 50 | 206 | 101 | -15 |
| Net realised result from available-for-sale assets | 18 | 8 | 32 | 26 |
| Net fee and commission income | -60 | -57 | 363 | 304 |
| Other net income | 161 | 92 | 39 | 26 |
| Total income | 1 146 | 1 224 | 1 711 | 1 510 |
| Operating expenses | -968 | -786 | -1 370 | -1 135 |
| Impairment | -374 | -328 | -276 | -210 |
| on loans and receivables | -272 | -71 | -270 | -73 |
| on available-for-sale assets | -1 | -54 | -4 | -90 |
| on goodwill | -55 | -24 | 0 | 0 |
| other | -46 | -180 | -2 | -47 |
| Share in results of associated companies | -64 | -59 | -62 | -58 |
| Result before tax | -261 | 51 | 2 | 106 |
| Income tax expense | 414 | -104 | -38 | -10 |
| Net post-tax result from discontinued operations | -254 | -419 | 0 | 0 |
| Result after tax | -101 | -471 | -36 | 97 |
| attributable to minority interests | 7 | 18 | 7 | 18 |
| attributable to equity holders of the parent | -107 | -489 | -44 | 79 |
| Banking | 172 | 139 | -45 | 96 |
| Insurance | 50 | -127 | 27 | 38 |
| Holding-company activities | -329 | -501 | -26 | -55 |
| Risk-weighted assets (period-end) (Basel II) | 31 202 | 29 149 | 31 202 | 29 149 |
| Allocated capital (period-end) | 2 650 | 2 491 | 2 650 | 2 491 |
* The results of companies scheduled for divestment have been reallocated to the Group Centre. For information on how the underlying figures are calculated, see the 'Results in 2011' section and the reconciliation table below. The breakdown by business unit has been restated for 2011 (and with retroactive effect for 2010) to reflect the amendment of the strategic plan in mid-2011. See the 'Structure and management' section.
| Reconciliation of IFRS and underlying figures1 (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Result after tax, attributable to equity holders of the parent (underlying) | -44 | 79 |
| Changes in fair value of ALM hedging instruments | -23 | -7 |
| Gains/losses relating to CDOs | 680 | -290 |
| Fair value of CDO guarantee and commitment fees2 | -57 | -43 |
| Impairment on goodwill and associated companies | -86 | -19 |
| Result from legacy structured derivatives business (KBC Financial Products) | -372 | 50 |
| Changes in fair value of own debt instruments | 39 | 359 |
| Results on divestments | -246 | -618 |
| Other | 0 | 0 |
| Result after tax, attributable to equity holders of the parent (IFRS) | -107 | -489 |
1 A more detailed explanation can be found under 'Notes on segment reporting' in the 'Consolidated financial statements' section.
2 For more information, see Note 5 of the 'Consolidated financial statements'.
In 2011, the Group Centre generated a net loss of 489 million euros, compared with a loss of 107 million euros a year earlier. Excluding exceptional items, the underlying net result totalled 79 million euros (-44 million euros in 2010). As already mentioned, the changes to the strategic plan in mid-2011 have also been incorporated into the figures retroactively. In concrete terms, that means that the results of Cˇ SOB in the Czech Republic are now fully recognised in the Central & Eastern Europe Business Unit (40% had previously been allocated to the Group Centre) and that the results of Kredyt Bank and WARTA in Poland (previously reported under the Central & Eastern Europe Business Unit) are now recognised under the Group Centre. The reference figures have been restated in each case.
The impact of items classified as exceptional is set out in the table. These items concern primarily CDO-related value adjustments, fees for the guarantee agreement with the Belgian Federal Government for the CDO exposure (see Note 5 of the 'Consolidated financial statements' section), gains or losses on the legacy structured derivatives business of KBC Financial Products, divestments, impairment on goodwill and associated companies and the valuation of own credit risk. After excluding these items, the bulk of the Group Centre's underlying net result was attributable to companies scheduled for divestment under the strategic plan. Together, they accounted for an underlying result of 148 million euros in 2011, compared with 42 million euros in 2010. The positive impact of significantly lower loan loss provisions (197 million euros fewer than in 2010) at Absolut Bank, Kredyt Bank and Antwerp Diamond Bank, among others, was offset partly by the negative effect of impairment losses recorded on Greek government bonds held at several entities (aggregate total of -98 million euros) and by the deconsolidation of certain other entities (e.g., Centea).
| (in millions of EUR), Group Centre | 2010 | 2011 |
|---|---|---|
| Result of group companies scheduled for divestment under the strategic plan | 42 | 148 |
| Formerly recognised under Belgium Business Unit (Centea – stated in the results until sold in mid-2011 – and Fidea) | 108 | 39 |
| Formerly recognised under Central & Eastern Europe Business Unit (chiefly Absolut Bank, KBC Banka, NLB group, Kredyt Bank, WARTA) |
-62 | 111 |
| Formerly recognised under Merchant Banking Business Unit (Antwerp Diamond Bank, KBC Deutschland, etc.) | 16 | 18 |
| Formerly recognised under European Private Banking Business Unit (KBL EPB) | 75 | 54 |
| Other (mainly funding costs of goodwill relating to the companies scheduled for divestment) | -94 | -74 |
| Other results* | -86 | -69 |
| Total | -44 | 79 |
* Comprises chiefly the results of the holding company, KBC Group NV, the results of KBC Global Services, and several results that cannot be allocated to the other business units.
A brief description of the divestments completed in 2010 and 2011 under the group's new, more focused strategy is set out below. Although a number of companies belong to business units other than the Group Centre, they are also included here for the sake of completeness.
The main activities and group companies that were sold in 2010 were:
The main activities and group companies sold in 2011 and the start of 2012 were (some sales are not yet finalised, see below):
• WARTA
For details on Kredyt Bank, see below.
In the middle of 2011, KBC Group NV and Landbouwkrediet Group finalised the sale of Centea for 527 million euros. In addition to the sale price, KBC received a dividend of 66 million euros from Centea for financial year 2010. The deal freed up around 0.4 billion euros of capital for KBC, primarily by reducing riskweighted assets by 4.2 billion euros, which boosted its tier-1 ratio by some 0.4%. The gain on this deal was limited.
It was announced in March 2011 that the original agreement the group had reached with the Hinduja Group regarding the sale of KBL EPB would not go ahead (see the annual report for 2010 for more details). The sale process was subsequently restarted and KBC reached an agreement with Precision Capital in October 2011 regarding the sale of KBL EPB for around 1 billion euros. The deal entails the sale of KBC's entire holding in KBL EPB and includes all KBL EPB's private banking subsidiaries and its custody and life insurance businesses. The
deal will free up a total of around 0.7 billion euros of capital for KBC, boosting its tier-1 ratio by some 0.6%. It also had a negative impact of approximately 0.4 billion euros, which was recognised in the income statement in the third quarter of 2011. KBC will continue to provide private banking services in Belgium and Central and Eastern Europe under the KBC brand name. At the time the annual report went to print, the deal had not yet been finalised.
In October 2011, KBC reached agreement to sell Fidea to private equity group J.C. Flowers & Co. for around 0.2 billion euros. In total, this deal will free up some 0.1 billion euros of capital for KBC, primarily by reducing risk-weighted assets by 1.8 billion euros, but has also had a negative impact of approximately 0.1 billion euros on the group's income statement. It will boost KBC's tier-1 ratio by around 0.1%. At the time the annual report went to print, the deal had not yet been finalised.
In January 2012, an agreement was reached with Talanx International AG for the sale of WARTA (the group's Polish insurance company) for 770 million euros, a figure which will be adjusted to take account of changes in the net asset value between 30 June 2011 and the date of completion. Based on figures at 30 September 2011, it is expected to release almost 0.7 billion euros of capital for KBC and boost its tier-1 ratio by just under 0.7%. When completed, the deal will have a positive impact of around 0.3 billion euros on KBC's income statement. At the time the annual report went to print, the deal had not yet been finalised.
In February 2012, Banco Santander SA and KBC announced that they had agreed to merge Bank Zachodni WBK SA and Kredyt Bank SA in Poland. With almost 900 branches and more than 3.5 million retail customers, the merged bank will be Poland's third largest in terms of deposits, loans, number of branches and profit. Following the proposed merger, Banco Santander will own approximately 76.5% of the merged bank and KBC around 16.4%. Banco Santander has undertaken to help KBC reduce its stake in the merged bank from 16.4% to below 10% immediately after the merger. In addition, KBC intends to sell its remaining stake. Following the deconsolidation of Kredyt Bank as a result of the proposed merger, and after the committed reduction of KBC's holding
to below 10% shortly after registration of the merger, approximately 0.7 billion euros' worth of capital will be released (based on market valuations at the time the deal was announced), predominantly based on a reduction in risk-weighted assets. This will have a positive impact on KBC's tier-1 capital of around 0.8%, or 0.9% when the group sells its entire shareholding (both percentages calculated at year-end 2011). Moreover, based on market valuations at the time it was announced, the deal will positively affect KBC's income statement by some 0.1 billion euros, which will be recognised when it is completed. The merger is subject to independent evaluation by Bank Zachodni WBK and Kredyt Bank, and to obtaining regulatory approval from the Polish Financial Supervision Authority and relevant competition clearance. Banco Santander has also undertaken to acquire Z. agiel, KBC's consumer finance operation in Poland, at adjusted net asset value and likewise subject to obtaining competition clearance. For additional information, see the press release at www.kbc.com. The legal information and disclaimer provided in that press release apply in full.
A sale agreement was reached in April 2011 with Value Partners Ltd. concerning KBC Asset Management's 55.46% stake in KBC Concord Asset Management Co. Ltd. in Taiwan. The deal was completed on 10 August 2011. Early in 2012, another agreement was reached with Value Partners Ltd., this time for the sale of KBC Asset Management's 49% shareholding in KBC Goldstate in China. In August 2011, KBC Securities completed the divestment of its operations in Serbia and Romania, by concluding buy-out deals with the local management teams. The impact of these sales on KBC's profit and capital was negligible.
Much of the reduction in risk-weighted assets originally planned was completed by the beginning of 2012, due to the divestments listed above and the run-down of the international loan portfolio. The 'Strategy and company profile' section contains a graph depicting the total risk-weighted assets of the KBC group.
The principal divestments still to be carried out concern Absolut Bank (Russia), KBC Banka (Serbia), NLB Vita and the minority interest in Nova Ljubljanska banka (Slovenia), Antwerp Diamond Bank (Belgium), KBC Bank Deutschland (Germany) and a number of other activities (private equity, real estate development). Preparatory work for most of these projects has already started. Moreover, an agreement was reached with the European Commission to extend the original deadline for the sale of Antwerp Diamond Bank and KBC Bank Deutschland.
Corporate social responsibility (CSR) is a long-term process which requires ongoing adaptation of and improvement in the way a company conducts its business, not only for the purpose of making a financial profit, but in response to the increasing demands for transparency and accountability placed on the company by its stakeholders (employees, customers, shareholders, suppliers, etc.) and by society as a whole. KBC's vision on CSR is embedded in its mission statement, and more specific commitments are set out in KBC's Principles for Socially Responsible Business.
For a number of years now, the group has also been publishing an annual Corporate Social Responsibility Report, which deals with its vision and achievements in this area. This report provides group-wide information on CSR, including quantitative data on staff and the group's ecological footprint. It is compiled in accordance with the reporting requirements set out in the Global Reporting Initiative G3 Guidelines and the United Nations Global Compact principles, and is available at www.kbc.com.
At the beginning of 2012, the group decided it would publish a broader 'report to society', dealing with all the society-related themes encountered in its business operations of the past year.
As in previous years, KBC embarked on various new initiatives in the field of CSR in 2011, more details of which appear in the CSR Report. A few examples of the initiatives taken and the awards received for environmental and community involvement are listed below.
• KBC teamed up with the University of Antwerp to launch an initiative focusing on financial risk management, a topical issue in the financial sector. The result of this collaboration saw the creation of the KBC Chair in Risk Management in February 2011. The group also focuses attention on financial education in its other home markets. In Hungary, for instance, K&H Bank organised 'K&H Ready, Steady, Money', a nationwide competition to test students' financial knowledge.
• To strengthen team spirit, KBC's entities and branches in Belgium organise an annual team event. Under the KBC4Society initiative launched in September 2011, rather than organising the usual type of event, they can now dedicate their allocated time and budget to a project offering added social, cultural or ecological value. KBC is working on this initiative with Time4Society, a non-profit organisation that has been involved with projects of this kind at other companies for some time now.
| Environmental efficiency data for the KBC group in Belgium (per FTE) | 2010 | 2011 |
|---|---|---|
| Energy consumption (in GJ) | ||
| Electricity | 24.3 | 21.3 |
| Provided by renewable energy sources | 100% | 100% |
| Fossil fuels (gas and heating oil) | 15.0 | 12.6 |
| Distances travelled (in km) | ||
| Commuter travel | 9 542 | 9 175 |
| Business travel | 5 294 | 5 388 |
| Paper and water consumption | ||
| Paper (in tonnes) | 0.17 | 0.14 |
| Water (in m3 ) |
9.3 | 8.2 |
| Greenhouse gas emissions (in tonnes) | 2.2 | 1.9 |
Employee satisfaction is important for attracting and keeping motivated staff. In an external survey organised by the Vlerick Leuven Gent Management School and the Great Place to Work® Institute in 2011, KBC was again recognised as one of the ten 'Best Employers in Belgium'. It also received a Lifelong Learning award for its training initiatives. KBC conducts annual employee satisfaction surveys of its own, too, and uses the findings to take selective measures.
By continually assessing and adjusting its remuneration policy to take account of the latest labour-market trends, KBC aims to increase its employees' potential for development and to pay them a salary that is commensurate with their performance. In 2011, KBC embarked on a thorough updating of its HR policy in Belgium, which it
called 'HRinEvolution'. Progress was made on updating the job classification system, on a new policy on developing talent, on the career growth path of new junior managerial staff and on alternative remuneration schemes. An example in this particular area is the 'cafeteria plan', where staff can opt for a salary-only package or a salary package plus benefits they choose themselves. The updated HR policy will be rolled out to managerial staff in 2012. Sensitive to its employees' mobility problems, KBC runs projects for staff to work locally or from home, organises free shuttle buses between railway stations and head office buildings, encourages carpooling, cycling and the use of public transport, and is working on making its vehicle fleet more environmentally friendly.
In its staff regulations, its selection and promotion policy, as well as in its performance appraisal systems, the group does not make any distinction whatsoever on the grounds of sex, religion, ethnic background or sexual orientation. Equal treatment of employees is also addressed in the KBC Code of Conduct and in the various anti-discrimination manifestos and charters KBC has endorsed.
The group devotes considerable attention to the training of its employees and offers them an extensive range of development opportunities. They can choose from a number of training programmes which complement and reinforce each other, including conventional training courses, individual study, e-learning, learning on the job and mentoring. Developmental needs are also an important element in the annual performance appraisal reviews held between employees and their managers.
KBC works very closely with the employee organisations, holding talks with the works council and its committees, and consulting with the health and safety committees and union representatives. This consultation led, for example, to collective labour agreements for the period 2012-13 on purchasing power and employment. Representatives from its establishments in Central and Eastern Europe also participate in the European Works Council.
The table provides an overview of the total workforce and a breakdown into various categories. In 2011, the total number of employees in the group fell further to 47 530 full-time equivalents (FTEs). This total excludes companies that fell under the scope of IFRS 5 at yearend (i.e. companies for which a sale agreement has been signed but the sale has not yet been finalised). Additional information on staff expenses, employee stock options and the average number of persons employed can be found in Notes 12 and 13 of the 'Consolidated financial statements' section.
| Number of staff, KBC group | 31-12-2010 | 31-12-2011 |
|---|---|---|
| In FTEs* | 50 494 (excluding KBL EPB) |
47 530 (excluding KBL EPB, Fidea and WARTA) |
| In % | ||
| Belgium | 35% | 35% |
| Central & Eastern Europe and Russia | 61% | 60% |
| Rest of the world | 4% | 4% |
| Belgium Business Unit | 23% | 24% |
| Central & Eastern Europe Business Unit |
31% | 33% |
| Merchant Banking Business Unit | 6% | 6% |
| Shared Services & Operations Business Unit |
17% | 18% |
| Group Centre (scheduled divest ments) |
23% | 18% |
| Men | 40% | 41% |
| Women | 60% | 59% |
| Full-time | 84% | 84% |
| Part-time | 16% | 16% |
| Average age | 40 | 40 |
| Average seniority | 11.5 | 11.6 |
* The breakdown by business unit has been restated for 2011 (and with retroactive effect for 2010) to reflect the amendment of the strategic plan in mid-2011.
Mainly active in banking, insurance and asset management, KBC is exposed to a number of typical industry-specific risks and uncertainties such as – but not exclusively – credit default risk (including country risk), movements in interest rates and exchange rates, liquidity risk, insurance underwriting risk, operational risks, exposure to emerging markets, changes in regulations, customer litigation, as well as the economy in general. Moreover, it is exposed to business risks where not only the macroeconomic environment, but also the ongoing restructuring plans may have a negative impact on asset values or could generate additional charges beyond anticipated levels. Obviously, the activities of a large financial group are inherently exposed to other risks that only become apparent with the benefit of hindsight.
This section of the annual report focuses on KBC's risk governance and most of the material risks it faces, namely credit risk, market risk, liquidity risk, technical insurance risk, operational risk, as well as its capital adequacy.
The information in this section that forms part of the IFRS financial statements has been audited by the statutory auditor, viz.:
Extensive information regarding KBC's value and risk management can be found in the Risk Report for 2011 at www.kbc.com.
KBC's risk governance model is characterised primarily by:
Relevant risk management bodies and control functions:
• Group Executive Committee:
Credit risk is the potential negative deviation from the expected value of a financial instrument arising from the non-payment or nonperformance by a contracting party (for instance, a borrower, guarantor, insurer or re-insurer, counterparty in a professional transaction or issuer of a debt instrument), due to that party's insolvency, inability or lack of willingness to pay or perform, or to events or measures taken by the political or monetary authorities of a particular country (country risk). Credit risk thus encompasses default risk and country risk, but also includes migration risk which is the risk for adverse changes in credit ratings.
Credit risk is managed at both transactional and portfolio level. Managing credit risk at the transactional level means that there are sound processes, tools and applications in place to identify and measure the risks before and after accepting individual credit exposures. Limits and delegations (based on parameters such as internal risk class, type of counterparty) are set to determine the maximum credit exposure allowed and the level at which acceptance decisions are taken. Managing the risk at portfolio level encompasses inter alia periodic measuring and analysing of risk embedded in the consolidated loan and investment portfolios and reporting on it, monitoring limit discipline, conducting stress tests under different scenarios, taking risk mitigating measures and optimising the overall credit risk profile.
Sound acceptance policies and procedures are in place for all kinds of credit risk exposure. The description here is limited to exposures related to traditional loans to businesses and to lending to individuals, as these account for the largest part of the group's credit risk exposure.
Lending to individuals (e.g., mortgages) is subject to a standardised process, during which the output of scoring models plays an important role in the acceptance procedure. Lending to businesses is subject to a more integrated acceptance process in which relationship management, credit acceptance committees (cf. delegations) and model-generated output are taken into account.
For most types of credit risk exposure, monitoring is determined primarily by the risk class, with a distinction being made based on the Probability of Default (PD) and the Loss Given Default (LGD). The latter reflects the estimated loss that would be incurred if an obligor defaults.
In order to determine the risk class, KBC has developed various rating models for measuring how creditworthy borrowers are and for estimating the expected loss of various types of transactions. A number of uniform models are used throughout the group (models for governments, banks, large companies, etc.), while others have been designed for specific geographic markets (SMEs, private individuals, etc.) or types of transaction. The same internal rating scale is used throughout the group.
The output generated by these models is used to split the normal loan portfolio into internal rating classes ranging from 1 (lowest risk) to 9 (highest risk) for the PD. A defaulted obligor is assigned an internal rating ranging from PD 10 to PD 12. PD class 12 is assigned when either one of the obligor's credit facilities is terminated by the bank, or when a court order is passed instructing repossession of the collateral. Class 11 groups obligors that are more than 90 days past due (in arrears or overdrawn), but that do not meet PD 12 criteria. PD class 10 is assigned to obligors for which there is reason to believe that they are unlikely to pay (on time), yet are still performing and do not meet the criteria for classification as PD 11 or PD 12.
Loans to large corporations are reviewed at least once a year, with the internal rating being updated, as a minimum. If ratings are not updated in time, a capital add-on is imposed. Reviews of loans to small and medium-sized enterprises are based primarily on risk signals (such as a significant change in the risk class). Loans to individuals are screened periodically at aggregate level for review purposes.
For credit linked to defaulted borrowers in PD classes 10, 11 and 12 (impaired loans), KBC records impairment losses based on an estimate of the net present value of the recoverable amount. This is done on a case-by-case basis (and on a statistical basis for smaller credit facilities). In addition, for non-defaulted credit in PD classes 1 to 9, impairment losses are recorded on a 'portfolio basis', using a formula based on the IRB Advanced models used internally (or an alternative method if an IRB Advanced model is not yet available).
In order to avoid a situation where an obligor facing financial difficulties ends up defaulting, a decision can be taken to renegotiate its loans. Renegotiation may involve changing the contractual repayment schedule, lowering or postponing interest or fee payments, or some other appropriate measure. At the end of 2011, loans that were renegotiated to avoid impairment accounted for some 2.6% of the total loan portfolio (amount outstanding), compared with 2.5% at the end of 2010. More details in this regard can be found in the Risk Report for 2011, which is available at www.kbc.com.
Monitoring is also conducted on a portfolio basis, inter alia by means of quarterly reports on the consolidated credit portfolio in order to ensure that lending policy and limits are being respected. In addition, the largest risk concentrations are monitored via periodic and ad hoc reports. Limits are in place at borrower/guarantor, issuer or counterparty level, at sector level and for specific activities or geographic areas. Moreover, stress tests are performed on certain types of credit (for instance, mortgages), as well as on the full scope of credit risk.
Whereas some limits are still in notional terms, concepts such as 'expected loss' and 'loss given default' are being used as well. Together with 'probability of default' and 'exposure at default', these concepts form the building blocks for calculating the regulatory capital requirements for credit risk, as KBC has opted to use the Basel II Internal Rating Based (IRB) approach. Consequently, the main group entities now adopt an IRB Foundation approach and are scheduled to shift to the IRB Advanced approach. Other entities are still preparing for the IRB Foundation and Advanced approaches, while 'non-material entities' will continue to adopt the Basel II Standardised approach.
Credit risk arises in both the banking and insurance activities of the group. The credit risk related to the insurance activities, KBC's investments in structured credit products, government bonds, and KBC's Irish and Hungarian portfolios are examined in greater detail in separate sections below.
As far as the banking activities are concerned, the main source of credit risk is the loan and investment portfolio, as summarised in the following table. This portfolio is mainly the result of what can be considered as pure, traditional lending activities. It includes all retail lending such as mortgage loans and consumer loans, all corporate lending such as (committed and uncommitted) working capital credit lines, investment credit, guarantee credit and credit derivatives (protection sold) and all non-government debt securities in the investment books of the group's bank entities. The table excludes other credit risks, such as trading exposure (issuer risk), counterparty risk associated with interprofessional transactions, international trade finance (documentary credit, etc.) and government bonds. These items are described separately below.
The loan and investment portfolio as defined in this section differs significantly from 'Loans and advances to customers' in Note 18 of the 'Consolidated financial statements' section (that particular heading, for instance, does not include loans and advances to banks, guarantee credit and credit derivatives, the undrawn portion of credit lines or corporate and bank bonds, but does include repurchase transactions with non-banks). The loan and investment portfolio is broken down according to different criteria in the table below.
| Loan and investment portfolio, banking 31-12-20105 |
31-12-20115 |
|---|---|
| Total loan portfolio (in billions of EUR) | |
| Amount granted 192.2 |
186.1 |
| Amount outstanding 161.3 |
155.9 |
| Loan portfolio breakdown by business unit (as a % of the portfolio of credit granted) | |
| Belgium 31% |
34% |
| CEE 18% |
19% |
| Merchant Banking 36% |
37% |
| Group Centre (including planned divestments) 15% |
10% |
| Total 100% |
100% |
| Loan portfolio breakdown by counterparty sector (as a % of the portfolio of credit granted)1 | |
| Private individuals 37% |
36% |
| Financial and insurance services 7% |
6% |
| Governments 3% |
4% |
| Corporates 52% |
54% |
| Non-financial services 10% |
10% |
| Retail and wholesale trade 8% |
8% |
| Real estate 7% |
7% |
| Construction 5% |
5% |
| Other2 22% |
23% |
| Total 100% |
100% |
| Loan portfolio breakdown by region (as a % of the portfolio of credit granted)1 | |
| Western Europe 68% |
68% |
| Central and Eastern Europe (including Russia) 25% |
25% |
| North America 4% |
4% |
| Other 3% |
3% |
| Total 100% |
100% |
| Loan and investment portfolio, banking (continued) | 31-12-20105 | 31-12-20115 |
|---|---|---|
| Loan portfolio breakdown by risk class (part of the portfolio, as a % of the portfolio of credit granted)1, 3 | ||
| PD 1 (lowest risk, default probability ranging from 0.00% up to, but not including, 0.10%) | 25% | 27% |
| PD 2 (0.10%–0.20%) | 12% | 12% |
| PD 3 (0.20%–0.40%) | 18% | 17% |
| PD 4 (0.40%–0.80%) | 15% | 15% |
| PD 5 (0.80%–1.60%) | 11% | 11% |
| PD 6 (1.60%–3.20%) | 8% | 7% |
| PD 7 (3.20%–6.40%) | 6% | 5% |
| PD 8 (6.40%–12.80%) | 2% | 2% |
| PD 9 (highest risk, ≥ 12.80%) | 3% | 3% |
| Total | 100% | 100% |
| Impaired loans4 (PD 10 + 11 + 12; in millions of EUR or %) | ||
| Impaired loans | 10 950 | 11 234 |
| Specific impairment | 4 696 | 4 870 |
| Portfolio-based impairment (i.e. based on PD 1 to 9) | 353 | 371 |
| Credit cost ratio | ||
| Belgium Business Unit | 0.15% | 0.10% |
| CEE Business Unit | 1.16% | 1.59% |
| Czech Republic | 0.75% | 0.37% |
| Slovakia | 0.96% | 0.25% |
| Hungary | 1.98% | 4.38% |
| Bulgaria | 2.00% | 14.73% |
| Merchant Banking Business Unit | 1.38% | 1.36% |
| Group Centre (including planned divestments) | 1.17% | 0.36% |
| Total | 0.91% | 0.83%6 |
| Non-performing loans (PD 11 + 12; in millions of EUR or %) | ||
| Amount outstanding | 6 551 | 7 580 |
| Specific impairment for non-performing loans | 3 283 | 3 875 |
| Non-performing ratio | ||
| Belgium Business Unit | 1.5% | 1.5% |
| CEE Business Unit | 5.3% | 5.6% |
| Merchant Banking Business Unit | 5.2% | 7.8% |
| Group Centre (including planned divestments) | 5.8% | 5.5% |
| Total | 4.1% | 4.9% |
| Cover ratio | ||
| [Specific impairment for non-performing loans] / [outstanding non-performing loans] | ||
| Total | 50% | 51% |
| Total excluding mortgage loans | 60% | 62% |
| [Specific & portfolio-based impairment for performing and non-performing loans] / [outstanding non-performing loans] | ||
| Total | 77% | 69% |
| Total excluding mortgage loans | 96% | 89% |
| For a definition of the above ratios, see the 'Glossary of ratios used'. |
1 Audited figures.
2 Individual sector shares not exceeding 3%.
3 Internal rating scale.
4 Figures differ from those appearing in Note 21 of the 'Consolidated financial statements' section, due to differences in scope.
5 Excluding entities classified as 'disposal groups' under IFRS 5. At year- end 2011, they accounted for 3.1 billion euros' worth of credit granted, 2.9 billion euros of which is outstanding (3.1 billion euros in 2010, 2.9 billion euros of which was outstanding) and is concentrated mainly in the financial services and private individuals sectors. KBL EPB's non-performing ratio amounts to 1.9% (4.0% in 2010), while 68% of its portfolio of non-performing loans is covered by specific impairment (93% in 2010).
6 Including KBL EPB: 0.82%.
The following additional information has been provided for the loan and investment portfolios in Ireland and Hungary, due to the specific situation on these markets.
| 31-12-2010 | 31-12-2011 | |
|---|---|---|
| KBC Bank Ireland (Ireland) – loan and investment portfolio1 | ||
| Total portfolio (outstanding, in billions of EUR) | 17 | 17 |
| Breakdown by loan type | ||
| Home loans | 76% | 77% |
| SME & corporate loans | 13% | 12% |
| Real estate investment and real estate development | 11% | 11% |
| Breakdown by risk class | ||
| Normal performing (PD 1-9) | 87% | 78% |
| Impaired, still performing (PD 10) | 3% | 4% |
| Impaired, non-performing (PD 11+12) | 10% | 18% |
| Credit cost ratio2 | 2.98% | 3.01% |
| Cover ratio [total impairment (for both performing and non-performing loans)] / [outstanding non-performing loans] | 42% | 42% |
| Renegotiated distressed loans3 | 9% | 9% |
| K&H Bank (Hungary) – loan and investment portfolio1 | ||
| Total portfolio (outstanding, in billions of EUR) | 7 | 6 |
| Breakdown by loan type | ||
| Retail loans | 53% | 50% |
| FX mortgage loans | 35% | 33% |
| SME & corporate loans | 47% | 50% |
| Breakdown by risk class | ||
| Normal performing (PD 1-9) | 86% | 88% |
| Impaired, still performing (PD 10) | 3% | 2% |
| Impaired, non-performing (PD 11+12) | 8% | 10% |
| Unrated | 3% | 0% |
| Credit cost ratio2 | 1.98% | 4.38% |
| Cover ratio [total impairments (for both performing and non-performing loans)] / [outstanding non-performing loans] | 71% | 77% |
| Renegotiated distressed loans | 6% | 8% |
1 For a definition, see 'Overview of credit risk exposure in the banking activities' (i.e. excluding inter alia government bonds).
2 Unaudited.
3 Special attention has also been given to renegotiated distressed loans, i.e. credit that has avoided impairment status by having its terms renegotiated. Besides distressed loan renegotiations, it has been a traditional commercial feature at KBC Ireland Homeloans (as is generally the case in the Irish and UK mortgage markets) that customers may be offered the possibility of paying interest only for a limited period of time.
For K&H Bank, an important issue is the historical forex mortgage lending portfolio, which amounted to 1.9 billion euros at year-end 2011. This portfolio was subject to local legislation that permitted such mortgages to be repaid in full at a fixed exchange rate that was unfavourable for the bank. As a result, additional impairment charges of 173 million euros were taken in 2011 (95 million euros of which for losses incurred in 2011 and the remainder for further losses in the near term).
Besides the credit risks in the loan and investment portfolio, credit risks arise in other banking activities. The main sources of other credit risk are:
Short-term commercial transactions. This activity involves export or import finance (documentary credit, pre-export and post-import finance, etc.) and only entails exposure to financial institutions. Risks associated with this activity are managed by setting limits per financial institution and per country or group of countries.
Trading book securities. These securities carry an issuer risk (potential loss on default by the issuer). Exposure to this type of risk is measured on the basis of the market value of the securities. Issuer risk is curtailed through the use of limits both per issuer and per rating category. The exposure to asset-backed securities and collateralised debt obligations in the trading book is not included in the figures shown in the table, but is reported separately (see the 'Overview of outstanding structured credit exposure' section).
Interprofessional transactions (deposits with professional counterparties and derivatives trading). These transactions result in counterparty risk. The amounts shown in the table are the group's pre-settlement risks, measured as the sum of the (positive) current replacement value ('mark-to-market' value) of a transaction and the applicable add-on. Risks are curtailed by setting limits per counterparty. Close-out netting and collateral techniques are also used. Financial collateral is only taken into account if the assets concerned are considered eligible risk-mitigants for regulatory capital calculations (Basel II).
Government securities in the investment portfolio of banking entities. Exposure to governments is measured in terms of nominal value and book value and relates mainly to EU states (particularly Belgium). Limiting caps are in place for so-called non-home-country sovereign bond exposure. They had been supplemented by 'warning signals' for the home country sovereign bond exposure (i.e. exposure to Belgium and the core countries in Central and Eastern Europe), but these signals were replaced by limits in 2012. More details on the exposure of the combined banking and insurance activities to government bonds is provided in a separate section below.
| Other credit exposure, banking1 (in billions of EUR) 31-12-2010 |
31-12-2011 |
|---|---|
| Short-term commercial transactions 2.5 |
2.8 |
| Issuer risk2 0.4 |
0.3 |
| Counterparty risk in interprofessional transactions3 12.7 |
11.6 |
| Government bonds in the investment portfolio 49.1 |
34.1 |
1 Excluding entities classified as 'disposal groups' under IFRS 5. Their exposure to issuer risk is approximately 0.8 billion euros (0.13 billion euros in 2010) and their counterparty risk exceeds 1.6 billion euros (over 1 billion euros in 2010). They also hold about 1.9 billion euros' worth of government bonds in their investment portfolios (1.8 billion euros in 2010).
2 Excluding OECD government bonds with an 'A-' rating or higher.
3 After deduction of collateral received and netting benefits.
Where the insurance activities are concerned, credit exposure exists primarily in the investment portfolio (towards issuers of debt instruments) and towards reinsurance companies. Guidelines for the purpose of controlling credit risk within the investment portfolio are in place with regard to, for instance, portfolio composition and ratings. The table provides an overview of the total investment portfolio of the group's insurance entities.
| Per balance sheet item | 31-12-20105 | 31-12-20115 |
|---|---|---|
| Securities | 22 677 | 18 447 |
| Bonds and other fixed-income securities | 21 139 | 17 490 |
| Held to maturity | 3 483 | 3 518 |
| Available for sale | 17 448 | 13 912 |
| At fair value through profit or loss and held for trading | 136 | 49 |
| As loans and receivables | 72 | 9 |
| Shares and other variable-yield securities | 1 534 | 948 |
| Available for sale | 1 531 | 946 |
| At fair value through profit or loss and held for trading | 3 | 2 |
| Other | 4 | 8 |
| Loans and advances to banks | 87 | 20 |
| Property and equipment and investment property | 566 | 381 |
| Investment contracts, unit-linked2 | 7 329 | 7 652 |
| Other | 298 | 326 |
| Total | 30 957 | 26 824 |
| Details for bonds and other fixed-income securities | ||
| By rating3, 4 | ||
| Investment grade | 97% | 98% |
| Non-investment grade | 0% | 1% |
| Unrated | 3% | 1% |
| Total | 100% | 100% |
| By sector3 | ||
| Governments | 66% | 66% |
| Financial | 18% | 23% |
| Other | 16% | 11% |
| Total | 100% | 100% |
| By currency3 | ||
| Euro | 92% | 94% |
| Other European currencies | 8% | 5% |
| US dollar | 0% | 0% |
| Total | 100% | 100% |
| By remaining term to maturity3 | ||
| Not more than 1 year | 7% | 8% |
| Between 1 and 3 years | 22% | 22% |
| Between 3 and 5 years | 20% | 14% |
| Between 5 and 10 years | 34% | 34% |
| More than 10 years | 16% | 21% |
| Total | 100% | 100% |
1 The total carrying value amounted to 26 613 million euros at year-end 2011 (excluding VITIS Life, Fidea and WARTA) and to 30 732 million euros at year-end 2010 (excluding VITIS Life). See note at the start of this section.
2 Representing the assets side of unit-linked (class 23) products and completely balanced on the liabilities side. No credit risk involved for KBC Insurance.
3 Excluding investments for unit-linked life insurance. In certain cases, based on extrapolations and estimates.
4 External rating scale.
5 Excluding entities classified as 'disposal groups' under IFRS 5. In 2011, their investment portfolios amounted to 6.5 billion euros (2.2 billion euros at VITIS Life, 3.1 billion euros at Fidea and 1.2 billion euros at WARTA), compared with 2.3 billion euros in 2010 (relates solely to VITIS Life's investment portfolio). The scope has changed since the annual report for 2010 and, therefore, the amounts for 2010 have been duly adjusted (intercompanies with both banking and insurance entities have been filtered out in the figures for 2011, whereas only insurance intercompanies were eliminated in 2010).
KBC is also exposed to a credit risk in respect of (re)insurance companies, since they could default on their commitments under (re)insurance contracts concluded with KBC. This particular type of credit risk is measured by means of a nominal approach (the maximum loss) and expected loss, among other techniques. Name concentration limits apply. PD – and by extension – expected loss is calculated using internal or external ratings. The exposure at default is determined by adding up the net loss reserves and the premiums, and the loss given default percentage is fixed at 50%.
| Credit exposure to (re)insurance companies by risk class1 : |
EAD | EL | EAD | EL |
|---|---|---|---|---|
| Exposure at Default (EAD) and Expected Loss (EL)2 (in millions of EUR) |
2010 | 2010 | 2011 | 2011 |
| AAA up to and including A- | 423 | 0.07 | 309 | 0.06 |
| BBB+ up to and including BB- | 137 | 0.13 | 150 | 0.17 |
| Below BB- | 0 | 0.00 | 0 | 0 |
| Unrated | 15 | 0.34 | 5 | 0.10 |
| Total | 576 | 0.54 | 463 | 0.33 |
1 Based on internal ratings when available. Otherwise external ratings.
2 EAD figures are audited, whereas EL figures are unaudited.
The group holds a significant portfolio of government bonds, primarily as a result of the considerable excess liquidity position and the reinvestment of insurance reserves into fixed instruments. A breakdown per country is provided in the following table.
| Total | maturity | Breakdown by remaining term to | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Banking and insurance book | Held for | Total | For com | Amounts | Amounts | Amounts | ||||
| Available for sale |
Held to maturity |
Designated at fair value through profit or loss |
Loans and receivables |
trading | parison purposes: total at year-end 2010 |
maturing in 2012 |
maturing in 2013 |
maturing in 2014 and later |
||
| PIIGS countries | ||||||||||
| Greece | 0.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.2 | 0.6 | 0.1 | 0.0 | 0.1 |
| Portugal | 0.1 | 0.1 | 0.0 | 0.0 | 0.0 | 0.1 | 0.3 | 0.0 | 0.0 | 0.1 |
| Spain | 1.7 | 0.2 | 0.0 | 0.0 | 0.0 | 1.9 | 2.3 | 0.5 | 0.4 | 1.0 |
| Italy | 1.6 | 0.4 | 0.0 | 0.0 | 0.0 | 2.1 | 6.6 | 0.2 | 0.3 | 1.5 |
| Ireland | 0.1 | 0.3 | 0.0 | 0.0 | 0.0 | 0.4 | 0.5 | 0.0 | 0.0 | 0.4 |
| KBC home countries | ||||||||||
| Belgium | 17.7 | 1.7 | 3.2 | 0.0 | 0.3 | 22.9 | 28.6 | 1.6 | 4.0 | 17.4 |
| Czech Rep. | 2.1 | 5.3 | 0.2 | 0.0 | 0.9 | 8.6 | 9.7 | 0.6 | 0.6 | 7.3 |
| Hungary | 0.5 | 1.3 | 0.1 | 0.2 | 0.2 | 2.2 | 3.3 | 0.3 | 0.6 | 1.4 |
| Slovakia | 0.6 | 0.6 | 0.0 | 0.0 | 0.1 | 1.3 | 1.8 | 0.1 | 0.2 | 1.0 |
| Bulgaria | 0.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.1 | 0.1 | 0.0 | 0.0 | 0.1 |
| Other countries | ||||||||||
| France | 2.1 | 1.4 | 0.0 | 0.0 | 0.0 | 3.4 | 3.3 | 0.2 | 0.2 | 3.0 |
| Poland | 1.9 | 0.9 | 0.0 | 0.1 | 0.0 | 2.8 | 3.8 | 0.4 | 0.4 | 2.0 |
| Germany | 0.9 | 0.3 | 0.0 | 0.0 | 1.0 | 2.1 | 2.5 | 0.7 | 0.2 | 1.2 |
| Austria | 0.3 | 0.5 | 0.0 | 0.0 | 0.0 | 0.8 | 0.9 | 0.2 | 0.1 | 0.6 |
| Netherlands | 0.5 | 0.2 | 0.0 | 0.0 | 0.0 | 0.7 | 0.9 | 0.1 | 0.0 | 0.6 |
| Finland | 0.2 | 0.1 | 0.0 | 0.0 | 0.0 | 0.3 | 0.4 | 0.0 | 0.0 | 0.3 |
| Rest2 | 2.3 | 0.5 | 0.1 | 0.0 | 0.4 | 3.3 | 4.1 | 1.4 | 0.1 | 1.8 |
| Total | 32.7 | 13.8 | 3.6 | 0.3 | 3.1 | 53.5 | 69.7 | 6.5 | 7.3 | 39.7 |
1 Including entities classified as 'disposal groups' under IFRS 5 (Fidea, KBL EPB and WARTA, accounting for an aggregate 4 billion euros at year-end 2011 and 1.6 billion euros (KBL EPB only) at year-end 2010). Excludes exposure to supranational entities of selected countries. The figures for 2010 have been restated from notional to carrying amounts to better represent the actual situation.
2 Sum of countries whose individual exposure is less than 0.5 billion euros at year-end 2011.
The turbulence on the market for sovereign bonds has not had any relevant impact on KBC's liquidity position and strategy.
As of the second quarter of 2011, KBC considered Greek government bonds to be impaired. As a result of the decrease in traded volumes in the third quarter of 2011, KBC decided that a level 1 classification was no longer appropriate for these instruments. However, it was still possible to determine the fair value of these bonds using observable inputs. Therefore, KBC reclassified its portfolio of Greek government bonds (carrying value of 0.3 billion euros at 30 September 2011) from level 1 to level 2 (see Note 25 of the 'Consolidated financial statements' for more information).
For full-year 2011, the following impairment was recorded on Greek government bonds:
No impairment losses were recognised on the sovereign bonds of other European countries, since there was no evidence at the time that the future cashflows of these securities would be negatively impacted.
For full-year 2011, KBC recognised a total of -201 million euros in fair value changes in profit or loss on sovereign bonds 'designated at fair value through profit or loss' (-114 million euros for Italy, -81 million euros for Greece, 14 million euros for Spain, 6 million euros for Portugal and -23 million euros for Belgium). KBC also recorded -55 million euros on the realised results for the sale of available-for-sale sovereign bonds and -12 million euros on the sale of held-to-maturity sovereign bonds. At 31 December 2011, the carrying values of available-for-sale government bonds incorporated a negative revaluation. Totalling -162 million euros (after tax), this effect has been included in the revaluation reserve for available-for-sale financial assets (-95 million euros for Italy, -23 million euros for Portugal, -53 million euros for Spain, -22 million euros for Ireland, -46 million euros for Hungary, and 76 million euros for Belgium).
The table below provides sensitivity analysis information on the government bond portfolio.
| Impact of a parallel 10-basis-point upward shift in government bond yield curves (31-12-2011) (in millions of EUR) |
Impact on equity | Impact on profit or loss* |
Weighted average duration (in years) |
|---|---|---|---|
| Total | -123 | -14 | 4.7 |
| of which Belgium | -74 | -13 | 4.4 |
* This impact was largely eliminated as most of the government bonds classified as 'designated at fair value through profit or loss' were used to hedge the mark-to-marking effect of interest rate swaps.
In the past, KBC acted as an originator of structured credit transactions and also invested in such structured credit products itself.
The figures exclude all expired, unwound and terminated CDOs.
| KBC investments in structured credit products (CDOs and other ABS)* (in billions of EUR) | 31-12-2010 | 31-12-2011 |
|---|---|---|
| Total nominal amount | 27.2 | 20.4 |
| hedged CDO exposure | 14.9 | 10.9 |
| unhedged CDO exposure | 7.7 | 6.4 |
| other ABS exposure | 4.7 | 3.1 |
| Cumulative value markdowns (mid-2007 to date)* | -6.3 | -5.5 |
| of which value markdowns | -5.2 | -4.5 |
| for unhedged CDO exposure | -4.2 | -4.1 |
| for other ABS exposure | -1.0 | -0.4 |
| of which Credit Value Adjustment (CVA) on MBIA cover | -1.2 | -1.0 |
* It should be noted that value adjustments to KBC's CDOs are accounted for via profit or 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.
In 2011, there was a total notional reduction of 6.8 billion euros, due mainly to the:
Nominal amount (excluding deduction of value adjustments); it should be noted that a significant portion of the exposure to CDOs is covered by the guarantee arrangement with the Belgian State.
In the meantime, KBC is continuing its de-risking strategy for its CDO and structured credit exposures, reflected in the collapse (i.e. de-risking) of two CDOs in January 2012. More details in this regard can be found in Note 48 of the 'Consolidated financial statements' section.
Since the inception, the unhedged CDO positions held by KBC have experienced net effective losses, caused by claimed credit events until 9 January 2012 in the lower tranches of the CDO structure for a total amount of -2.1 billion euros. Of these, -1.8 billion euros' worth of events have been settled. These have had no further impact on P/L because complete value markdowns for these CDO tranches had already been 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. In February 2009, MBIA announced a restructuring plan, which included a spin-off of valuable assets, provoking a steep decline in its creditworthiness. The increase in the market value of the underlying swap – in combination with the increased counterparty risk – resulted in significant additional negative value adjustments at KBC. KBC and other institutions filed court cases after MBIA announced its restructuring plan. After reaching an out-of-court settlement with MBIA, KBC dropped out of the litigation on 6 September 2011. However, this had no impact on the protection bought from MBIA for the still outstanding CDOs.
Moreover, the remaining risk related to MBIA's insurance coverage is largely mitigated, as it is included in the scope of the guarantee agreement that was agreed with the Belgian State on 14 May 2009. At 31 December 2011, this agreement related to a nominal value of 13.9 billion euros, 10.9 billion euros of which relates to the exposure insured by MBIA. The remaining 3.0 billion euros of exposure covered by the agreement with the Belgian State relates to the unhedged element. Of this portfolio (i.e. CDO exposure not covered by credit protection bought from MBIA), the super senior assets have also been included in the scope of the guarantee agreement with the Belgian State. More details in this regard can be found in the 'Additional information' section of this report.
| Details on the hedged CDO exposure (insurance for CDO-linked risks received from MBIA) (in billions of EUR) | 31-12-2010 | 31-12-2011 |
|---|---|---|
| Total insured amount (notional amount of super senior swaps)1 | ||
| - MBIA | 14.4 | 10.9 |
| - Channel | 0.4 | 0.0 |
| Impact of settled credit events2 | -0.3 | -0.2 |
| Details for MBIA insurance coverage | ||
| - Fair value of insurance coverage received (modelled replacement value, after taking the guarantee agreement into account) | 1.7 | 1.4 |
| - CVA for counterparty risk, MBIA | -1.2 | -1.0 |
| (as a % of fair value of insurance coverage received) | 70% | 70% |
1 The amount insured by MBIA is included in the guarantee agreement with the Belgian State (14 May 2009).
2 Until 9 January 2012.
Details of the underlying assets of the CDOs and ABS can be found in the Risk Report for 2011 (available at www.kbc.com).
The process of managing KBC's structural exposure to market risks (including interest rate risk, equity risk, real estate risk, foreign exchange risk and inflation risk) is also known as Asset/Liability Management (ALM).
'Structural exposure' encompasses all exposure inherent in the commercial activity of KBC or the long-term positions held by the group (banking and insurance). Trading activities are consequently not included. Structural exposure can also be described as a combination of:
Market risk in non-trading activities is managed by the ALCO, which is supported by the Group Treasury function, the first line of defence with regard to this activity. The second line of defence, i.e. risk control, is the responsibility of a team in the Group Value and Risk Management Directorate. This team supports the GRCOC and Group Executive Committee by providing advice and drawing up reports. Similar teams exist at the different business units.
The Group Treasury function develops and implements the ALM strategies, which have been approved by the ALCO, within the boundaries of the ALM Risk Management Framework developed by the Group Value and Risk Management Directorate.
The main building blocks of KBC's ALM Risk Management Framework are:
| of various risk types to VAR)1 (in billions of EUR) |
31-12-2010 | 31-12-2011 |
|---|---|---|
| Interest rate risk | 0.90 | 0.67 |
| Equity risk | 0.57 | 0.19 |
| Real estate risk | 0.10 | 0.06 |
| Other risks2 | 0.11 | 0.05 |
| Total diversified VAR (group) | 1.68 | 0.96 |
1 Excluding a number of small group companies. The VAR in this table does not yet capture the following (material) risks: corporate credit spread, sovereign credit spread and cyclical prepayment options embedded in mortgage loans. Excluding entities classified as 'disposal groups' under IFRS 5. Their impact on the group's ALM VAR was 90 million euros at year-end 2010 and 89 million euros at year-end 2011.
2 Foreign exchange risk and inflation risk.
Two main techniques are used to measure interest rate risks: 10 BPV and VAR (see above). The 10 BPV measures the extent to which the value of the portfolio would change if interest rates were go up by ten basis points across the entire curve (negative figures indicate a decrease in the value of the portfolio). 10 BPV limits are set in such a way that interest rate positions combined with the other structural exposures (equity, real estate, etc.) remain within the overall VAR limits. Other techniques such as gap analysis, the duration approach, scenario analysis and stress testing (both from an economic value perspective and from an income perspective) are also used.
In addition, the group-wide IFRS sensitivity to interest rate movements is reported on a regular basis and includes both the banking and insurance activities. The table illustrates the impact of a 100-basis-point increase in the yield curve, given the positions at the reporting date.
| Impact on net profit (IFRS) | Impact on value2 | |||
|---|---|---|---|---|
| (in millions of EUR) | 2010 | 2011 | 2010 | 2011 |
| Insurance | -5 | -8 | -67 | 55 |
| Banking | -56 | -27 | -504 | -315 |
| Total | -61 | -35 | -572 | -260 |
1 Entities classified as 'disposal groups' under IFRS 5 have been excluded. A 100-basis-point increase in the yield curve would have a very limited impact on the net profit of these entities (-0.6 million euros) and the impact on the market value would be -25 million euros (in 2010, the figures were -0.65 million euros and -23 million euros, respectively).
2 Full market value, regardless of accounting classification or impairment rules.
The ALM interest rate positions of the banking entities are managed via a system of market-oriented internal pricing for products with a fixed maturity date, and via a replicating portfolio technique – reviewed on a dynamic basis – for products without a fixed maturity date (e.g., current and savings accounts).
The bank takes interest rate positions mainly through government bonds, with a view to acquiring interest income, both in a bond portfolio used for reinvesting equity and in a bond portfolio financed with short-term funds.
The table shows the bank's exposure to interest rate risk in terms of 10 BPV.
| BPV (10 basis points) of the ALM book, banking activities* (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Average for 1Q | -63 | -61 |
| Average for 2Q | -68 | -62 |
| Average for 3Q | -69 | -58 |
| Average for 4Q | -62 | -45 |
| As at 31 December | -55 | -40 |
| Maximum in year | -69 | -65 |
| Minimum in year | -55 | -40 |
* Excluding entities classified 'as disposal groups' under IFRS 5 (including these entities would lead to an overall BPV for the banking activities of -57 million euros at year-end 2010 and -34 million euros at year-end 2011).
In line with the Basel II guidelines, a 200-basis-point stress test is carried out at regular intervals. It sets off the total interest rate risk in the banking book (given a 2% parallel shift in interest rates) against total capital and reserves. For the banking book at KBC group level (excluding KBL EPB), this risk came to 11% of total capital and reserves at year-end 2011 (well below the 20% threshold, where a bank is considered an 'outlier bank' and which can lead to a higher regulatory capital charge).
The following table shows the interest sensitivity gap of the ALM banking book. In order to determine the sensitivity gap, the carrying value of assets (positive amount) and liabilities (negative amount) is broken down according to either the contractual repricing date or the maturity date, whichever is earlier, so as to obtain the length of time for which interest rates are fixed. Derivative financial instruments, which are used mainly to reduce exposure to interest rate movements, are included on the basis of their notional amount and repricing date.
| (in millions of EUR) | ≤ 1 month | 1–3 months | 3–12 months |
1–5 years | 5–10 years | > 10 years | Non interest bearing |
Total |
|---|---|---|---|---|---|---|---|---|
| 31-12-2010 | -5 116 | -558 | 626 | 1 513 | 5 226 | 3 852 | -5 542 | 0 |
| 31-12-2011 | -8 138 | 3 220 | 2 563 | 7 107 | 2 822 | 2 900 | -10 474 | 0 |
| * Excluding a number of small group companies. Entities classified as 'disposal groups' under IFRS 5 have also been excluded (figures for these entities are given below). | ||||||||
| 31-12-2010 | -140 | 55 | 88 | 528 | 140 | 18 | -689 | 0 |
| 31-12-2011 | -114 | 43 | 125 | 580 | 129 | 15 | -777 | 0 |
The interest sensitivity gap shows the overall long position of the KBC group in interest rate risk. Overall, assets reprice on a longer term than liabilities, which means that KBC's net interest income benefits from a normal yield curve. The economic value of the KBC group is predominantly sensitive to movements at the long-term end of the yield curve.
Where the group's insurance activities are concerned, the fixed-income investments for the non-life reserves are invested with the aim of matching the projected pay-out patterns for claims, based on extensive actuarial analysis.
The non-unit-linked life activities (class 21) combine a guaranteed interest rate with a discretionary participation feature (DPF) fixed by the insurer. The main risks to which the insurer is exposed as a result of such activities are a low-interest-rate risk (the risk that return on investments will drop below the guaranteed level) and a risk that the investment return will not be sufficient to give customers a competitive profit-sharing rate. The risk of low interest rates is managed via a cashflow-matching policy, which is applied to that portion of the life insurance portfolios covered by fixed-income securities.
Unit-linked life insurance investments (class 23) are not dealt with here, since this activity does not entail any market risk for KBC.
The table summarises the exposure to interest rate risk in KBC's life insurance activities. The life insurance assets and liabilities relating to business offering guaranteed rates are grouped according to the expected timing of cashflows.
| (in millions of EUR) | 0–5 years | 5–10 years 10–15 years 15–20 years | > 20 years | Total | ||
|---|---|---|---|---|---|---|
| 31-12-2010 | ||||||
| Fixed-income assets backing liabilities, guaranteed component | 12 353 | 7 245 | 2 250 | 1 504 | 1 074 | 24 425 |
| Liabilities, guaranteed component | 9 814 | 6 287 | 2 140 | 1 723 | 2 560 | 22 524 |
| Difference in expected cashflows | 2 539 | 958 | 109 | -219 | -1 487 | 1 901 |
| Mean duration of assets | 5.40 years | |||||
| Mean duration of liabilities | 6.36 years | |||||
| 31-12-2011 | ||||||
| Fixed-income assets backing liabilities, guaranteed component | 12 408 | 6 197 | 1 842 | 1 333 | 753 | 22 534 |
| Liabilities, guaranteed component | 10 020 | 4 330 | 1 751 | 1 341 | 1 945 | 19 387 |
| Difference in expected cashflows | 2 388 | 1 867 | 91 | -7 | -1 192 | 3 147 |
| Mean duration of assets | 5.44 years | |||||
| Mean duration of liabilities | 6.03 years | |||||
* Excluding a number of small group companies. Entities classified 'as disposal groups' under IFRS 5 have also been excluded (they accounted for 3 552 million euros in fixed-income assets backing 3 643 million euros' worth of guaranteed liabilities at year-end 2011 (573 and 508 million euros, respectively, at year-end 2010)).
As mentioned above, the main interest rate risk for the insurer is a downside one. KBC adopts a liability driven ALM approach focused on mitigating the interest rate risk in accordance with KBC's risk appetite. For the remaining interest rate risk, KBC adheres to a policy that takes into account the possible negative consequences of a sustained decline in interest rates, and has built up adequate supplementary reserves.
| Breakdown of the reserves for non-unit-linked life insurance by guaranteed interest rate, insurance activities1 |
31-12-2010 | 31-12-2011 |
|---|---|---|
| 5.00% and higher2 | 3% | 3% |
| More than 4.25% up to and including 4.99% | 11% | 6% |
| More than 3.50% up to and including 4.25% | 7% | 11% |
| More than 3.00% up to and including 3.50% | 33% | 33% |
| More than 2.50% up to and including 3.00% | 22% | 24% |
| 2.50% and lower | 19% | 22% |
| 0.00% | 5% | 2% |
| Total | 100% | 100% |
1 Excluding a number of small group companies. VITIS Life, WARTA and Fidea, which accounted for 15.2% of total nominal exposure (19% of their exposure is in the 'More than 2.50% up to and including 3.00%' category) at year-end 2011, have also been excluded.
2 Contracts in Central and Eastern Europe.
The main exposure to equity is within the insurance business, where the ALM strategies are based on a risk-return evaluation, account taken of the market risk attached to open equity positions. Please note that a large part of the equity portfolio is held for the DPF of insurance liabilities (especially profit-sharing in the Belgian market). Apart from the insurance entities, smaller equity portfolios are also held by other group entities (e.g., KBC Bank, KBL EPB, KBC Asset Management and KBC Private Equity). The tables below present more information on total non-trading equity exposures at KBC.
| Equity portfolio of the KBC group* | Banking activities | Insurance activities | Group | |||
|---|---|---|---|---|---|---|
| (breakdown by sector, in %) | 31-12-2010 | 31-12-2011 | 31-12-2010 | 31-12-2011 | 31-12-2010 | 31-12-2011 |
| Financial | 46% | 32% | 21% | 19% | 32% | 21% |
| Consumer non-cyclical | 15% | 9% | 8% | 14% | 11% | 11% |
| Communication | 2% | 2% | 6% | 3% | 4% | 3% |
| Energy | 5% | 0% | 8% | 10% | 7% | 8% |
| Industrial | 5% | 28% | 10% | 18% | 8% | 18% |
| Utilities | 4% | 3% | 5% | 3% | 4% | 4% |
| Consumer cyclical | 7% | 3% | 20% | 8% | 15% | 7% |
| Basic materials | 8% | 13% | 9% | 8% | 8% | 8% |
| Other and not specified | 8% | 10% | 13% | 15% | 11% | 21% |
| Total | 100% | 100% | 100% | 100% | 100% | 100% |
| In billions of EUR | 1.1 | 0.2 | 1.4 | 0.9 | 2.6 | 1.6 |
| of which unlisted | 0.5 | 0.1 | 0.1 | 0.0 | 0.6 | 0.2 |
* Excluding a number of small group companies. Entities classified as 'disposal groups' under IFRS 5 have also been excluded (at year-end 2011, their equity portfolios came to 0.39 billion euros (0.28 billion euros a year earlier), 28% of which was invested in unlisted equities (32% a year earlier)). The equity portfolio of KBC Pension Fund (0.5 billion euros) has only been included in the 'Group' columns and not in the 'Banking activities' or 'Insurance activities' columns in 2011, whereas it was reported under 'Banking activities' in 2010. The participation in Nova Ljubljanska banka (financial sector) was treated as equity exposure in 2010, but has not been included in the 2011 figures.
The table provides an overview of the sensitivity of income and economic value to fluctuations in the equity markets.
| Impact of a 12.5% drop in equity prices1 | Impact on net profit (IFRS) | Impact on value | |||
|---|---|---|---|---|---|
| (in millions of EUR) | 2010 | 2011 | 2010 | 2011 | |
| Insurance activities | -13 | -36 | -100 | -57 | |
| Banking activities | -27 | -28 | -142 | -26 | |
| Total2 | -40 | -67 | -242 | -145 |
1 Entities classified as 'disposal groups' under IFRS 5 have been excluded. A 12.5% drop in equity prices at year-end 2011 would have an impact of -6 million euros on the net profit of these entities and -37 million euros on economic value.
2 The total in 2011 includes KBC Pension Fund, which had an impact of -3 million euros on net profit and -61 million euros on economic value.
The table provides an overview of the realised and unrealised gains on the equity portfolio.
| Non-trading equity exposure1 | 31-12-2010 | 31-12-2011 | ||
|---|---|---|---|---|
| (in millions of EUR) | Net realised gains (in income statement) |
Net unrealised gains on year-end exposure (in equity) |
Net realised gains (in income statement) |
Net unrealised gains on year-end exposure (in equity) |
| KBC group2 | 64 | 377 | 106 | 202 |
| Banking entities | 21 | 91 | 31 | 29 |
| Insurance entities | 45 | 338 | 74 | 171 |
1 Excluding a number of small group companies. Entities classified as 'disposal groups' under IFRS 5 have also been excluded. For these entities, net unrealised gains amounted to 71 million euros (recognised in equity) (58 million euros in 2010) and the losses on year-end exposure came to 4 million euros (recognised in the income statement) (0 million euros in 2010).
2 The total figure includes gains from some equity positions directly attributable to the KBC group. Gains from joint participations involving the banking and insurance entities of the KBC group have been eliminated, since these participations are consolidated at group level.
A limited real estate investment portfolio is held by the group's real estate businesses with a view to realising capital gains over the long term. KBC Insurance also holds a diversified real estate portfolio, which is held as an investment for non-life reserves and long-term life activities. The real estate exposure is viewed as a long-term hedge against inflation risks and as a way of optimising the risk/return profile of these portfolios.
The table provides an overview of the sensitivity of economic value to fluctuations in the property markets.
| Impact of a 12.5% drop in real estate prices1 Impact on value |
|
|---|---|
| (in millions of EUR) 2010 |
2011 |
| Bank portfolios -80 |
-68 |
| Insurance portfolios -30 |
-43 |
| KBC group2 -110 |
-124 |
1 Excluding a number of small group companies. Entities classified as 'disposal groups' under IFRS 5 have also been excluded (for Fidea, a 12.5% drop in real estate prices had an impact of -8 million euros in 2011).
2 In 2011, KBC Pension Fund was included in the KBC group line and not in 'Bank portfolios' or 'Insurance portfolios'. In 2010, it was reported under 'Bank portfolios'.
KBC pursues a prudent policy as regards its structural currency exposure, essentially seeking to avoid currency risk. Foreign exchange exposures in the ALM books of banking entities with a trading book are transferred to the trading book where they are managed within the allocated trading limits. The foreign exchange exposure of banking entities without a trading book, of the insurance entities and of other entities has to be hedged, if material. Equity holdings in non-euro currencies that are part of the investment portfolio do not need to be hedged. Participating interests in foreign currency are in principle funded by borrowing an amount in the relevant currency equal to the value of the net assets excluding goodwill.
Liquidity risk is the risk that an organisation will be unable to meet its payment obligations as they come due, without incurring unacceptable losses.
The liquidity risk management framework within the KBC group covers banking entities only. Banking activities usually involve assets that have a longer tenor than corresponding liabilities, which creates liquidity risk. Insurance entities typically have more stable liabilities. An insurance entity's liquidity is managed by matching cashflows and ensuring that sufficient investments are made in liquid assets, thereby guaranteeing that unexpectedly high lapses can be covered by selling or 'repoing' liquid assets.
The principal objective of KBC's liquidity management is to be able to fund the group and to enable the core business activities of the group to continue to generate revenue, even under adverse circumstances. Since the financial crisis, there has been a greater focus on liquidity risk management throughout the industry, and this has been intensified by the minimum liquidity standards defined by the Basel Committee.
KBC is preparing for the Basel III era by gradually incorporating Basel III concepts into its liquidity and funding framework, as well as into its financial planning.
The liquidity management framework and group liquidity limits are set by the Board of Directors. Liquidity management is organised within the Group Treasury function, which is responsible for the overall liquidity and funding management of the KBC group. The Group Treasury function monitors and steers the liquidity profile on a daily basis and sets the policies and steering mechanisms for funding management (intra-group funding, funds transfer pricing). These policies ensure that local management has an incentive to work towards a sound funding profile. The local treasuries in the subsidiaries implement these policies and report to the Group Treasury function, which in turn further centralises collateral management and the acquisition of long-term funding. The local treasuries are directly responsible for liquidity management in their respective entities. However, the liquidity contingency plan requires all significant local liquidity issues to be escalated to group level. The group-wide liquidity risks are also aggregated and monitored centrally on a daily basis and are reported periodically to the GRCOC, Group Executive Committee and ARC Committee.
KBC's liquidity risk management framework is based on the following pillars:
The table on the next page illustrates structural liquidity risk by grouping the assets and liabilities according to the remaining term to maturity (contractual maturity date). The difference between the cash inflows and outflows is referred to as the 'net liquidity gap'. At year-end 2011, KBC had attracted 43 billion euros' worth of funding from the professional interbank and repo markets. Please note that US dollar funding obtained from these markets amounted to approximately 7 billion euros on the position at year-end (total US dollar funding of 13 billion euros).
• Operational liquidity risk. Operational liquidity management is conducted in the treasury departments, based on estimated funding requirements. Group-wide trends in funding liquidity and funding needs are monitored on a daily basis by the Group Treasury function, ensuring that a sufficient buffer is available at all times to deal with extreme liquidity events in which no wholesale funding can be rolled over.
| (in billions of EUR) | <= 1 month | 1-3 months |
3-12 months |
1-5 years | 5-10 years | > 10 years | Not defined |
Total |
|---|---|---|---|---|---|---|---|---|
| 31-12-2010 | ||||||||
| Total inflows | 49 | 12 | 23 | 64 | 44 | 46 | 37 | 276 |
| Total outflows | 65 | 16 | 14 | 31 | 6 | 2 | 141 | 276 |
| Professional funding | 36 | 5 | 1 | 1 | 0 | 0 | 0 | 44 |
| Customer funding | 17 | 8 | 8 | 13 | 3 | 2 | 99 | 149 |
| Debt certificates | 8 | 4 | 5 | 17 | 3 | 0 | 0 | 36 |
| Other | 4 | 0 | 0 | 0 | 0 | 0 | 43 | 47 |
| Liquidity gap (excl. undrawn commitments) |
-16 | -4 | 9 | 34 | 38 | 44 | -105 | 0 |
| Undrawn commitments | – | – | – | – | – | – | -34 | – |
| Financial guarantees | – | – | – | – | – | – | -12 | – |
| Net liquidity gap (incl. undrawn commitments) |
-16 | -4 | 9 | 34 | 38 | 44 | -151 | -46 |
| 31-12-2011 | ||||||||
| Total inflows | 32 | 11 | 17 | 55 | 40 | 36 | 50 | 241 |
| Total outflows | 51 | 17 | 12 | 36 | 5 | 2 | 118 | 241 |
| Professional funding | 28 | 10 | 1 | 4 | 0 | 0 | 0 | 43 |
| Customer funding | 17 | 6 | 8 | 11 | 3 | 1 | 77 | 123 |
| Debt certificates | 3 | 2 | 3 | 20 | 2 | 1 | 1 | 31 |
| Other | 3 | 0 | 0 | 0 | 0 | 0 | 40 | 43 |
| Liquidity gap (excl. undrawn commitments) |
-20 | -6 | 5 | 19 | 36 | 34 | -68 | 0 |
| Undrawn commitments | – | – | – | – | – | – | -34 | – |
| Financial guarantees | – | – | – | – | – | – | -12 | – |
| Net liquidity gap (incl. undrawn commitments) |
-20 | -6 | 5 | 19 | 36 | 34 | -114 | -46 |
* Cashflows exclude interest rate flows consistent with internal and regulatory liquidity reporting. Inflows/outflows that arise from margin calls posted/received for MtM positions in derivatives are reported in the 'not defined' bucket. Entities classified as 'disposal groups' under IFRS 5 have also been excluded (balance sheet total for KBL EPB: 12.6 billion euros). 'Professional funding' includes all deposits from credit institutions and investment firms, as well as all repos.
Typical for a banking group, funding sources generally have a shorter maturity than the assets that are funded, leading to a negative net liquidity gap in the shorter time buckets and positive net liquidity gap in the longer term buckets. This creates liquidity risk if KBC would be unable to renew maturing short-term funding. The KBC liquidity framework imposes a funding strategy to ensure that the liquidity risk remains within the group's risk appetite.
Despite the challenging market conditions regarding liquidity, KBC still has a solid liquidity position. Historically, KBC has always had a substantial amount of liquid assets. At year-end 2011, KBC Bank (at the consolidated level) had 48 billion euros' worth of central bank eligible assets, 34 billion euros of which in the form of liquid government bonds. Some 15 billion euros were used as collateral for attracting repo funding.
The loan-to-deposit ratio of KBC Bank amounted to 94% at the end of 2011, compared to 81% at the end of 2010. The increase is the result of an outflow of some volatile short-term corporate and institutional deposits – mainly outside our core markets – due to the shortterm rating of KBC Bank being lowered by Standard and Poor's (from A1 to A2 in December 2011) and to risk aversion towards the European market in general. The corporate and retail deposit base in the core markets remained stable.
During 2011, KBC Bank used its EMTN programme to raise 4.3 billion euros in long-term funding. Due to the success of this programme and the robust issuance of long-term funding in the retail network (KBC Bank and CBC Banque: 6.7 billion euros for 2011), sufficient long-term funding is available to cover the repayment of long-term funding that will mature in the course of 2012. In addition, new regulations allowing the issuance of covered bonds in Belgium is likely to increase the ability to attract long-term funding on the wholesale market.
KBC participated in the ECB's long-term refinancing operations (LTRO) of December 2011 and February 2012, borrowing a total of 8.67 billion euros.
Market risk is defined as the potential negative deviation from the expected value of a financial instrument (or portfolio of such instruments) due to changes in the level or in the volatility of market prices, e.g., interest rates, exchange rates and equity or commodity prices. Market risk also covers the risk of price fluctuations in negotiable securities as a result of credit risk, country risk and liquidity risk. The interest rate, foreign exchange and equity risks of the non-trading positions in the banking book and of the insurer's positions are all included in ALM exposure.
The objective of market risk management is to measure and report the market risk of the aggregate trading position at group level, taking into account the main risk factors and specific risk.
KBC is exposed to market risk via the trading books of the dealing rooms in Western Europe, Central and Eastern Europe, the United States and Asia. The traditional dealing rooms, with the dealing room in Brussels accounting for the lion's share of the limits and risks, focus on trading in interest rate instruments, while activity on the FX markets has traditionally been limited. The dealing rooms abroad focus primarily on providing customer service in money and capital market products, on funding local bank activities and engage in limited trading for own account in local niches.
KBC continued to divest trading activities in its subsidiaries by, inter alia, selling KBL EPB, continuing to wind down the remaining business lines at KBC Financial Products, and selling or unwinding selected ABS and CDO assets.
The principal tool for measuring and monitoring market risk exposures in the trading book is the Historical Value-at-Risk (HVAR) method. VAR is defined as an estimate of the amount of economic value that might be lost on a given portfolio due to market risk over a defined holding period, with a given confidence level. The measurement takes account of the market risk of the current portfolio. KBC uses the historical simulation method, observing the relevant Basel II standards (99% one-sided confidence interval, ten-day holding period, historical data going back at least 250 working days). KBC uses 500 working days of historical data. The HVAR method does not rely on assumptions regarding the distribution of price fluctuations or correlations, but is based on patterns of experience over the previous two years. Complex and/or illiquid instruments, which are not included in HVAR calculations, are subject to nominal or scenario limits.
Risk concentrations are monitored via a series of secondary limits, the most important being a three-dimensional scenario limit (based on movements in spot prices, volatilities and credit spreads). Other secondary limits include equity concentration limits, FX concentration limits and basis-point-value limits for interest rate risk. The specific risk associated with a particular issuer or country is also subject to concentration limits. In addition, secondary limits are in place to monitor the risks inherent in options (the so-called 'greeks').
In addition to the daily HVAR calculations, extensive stress tests are conducted. Whereas the HVAR model captures potential losses under normal market conditions, stress tests show the impact of exceptional circumstances and events with a low degree of probability. The historical and hypothetical stress-test scenarios incorporate both market risk and the liquidity aspects of disruptions in the market.
One of the building blocks of sound risk management is prudent valuation. A daily independent middle-office valuation of front-office positions is performed. Whenever the independent nature or the reliability of the valuation process is not guaranteed, a parameter review is performed. Where applicable, adjustments to the fair value are made to reflect close-out costs, mark-to-model-related valuation adjustments, counterparty risk, liquidity risk and operations-related costs.
In addition to the parameter review, periodic risk controls are performed, including all checks that do not entail parameter or P&L testing as carried out in the parameter review, but that are necessary for sound risk management. Moreover, a business case is set up for every new product or activity in order to analyse the risks and the way in which they will be managed.
An overall VAR is calculated for each specialised subsidiary and for all trading entities worldwide. The VAR for the latter (see 'KBC Bank' in the table) includes both the linear and non-linear exposure of the traditional dealing rooms. KBC Financial Products' VAR is also shown in the table. At the end of 2011, the VAR for KBC Securities amounted to 0.6 million euros (not shown in the table). The calculation is based on a one-day holding period.
The HVAR for KBC Financial Products comprises all trading business lines. Business lines that are of a more illiquid character and that have more of a credit nature, such as fund derivatives, do not lend themselves to VAR modelling and therefore fall outside the scope of HVAR. The fund derivatives business is considered to be a legacy activity (i.e. no new trading activity is carried out) and is monitored on the basis of Key Performance Indicators relating to, for example, strike and redemption trends.
Both KBC Bank and KBC Financial Products have been authorised by the Belgian regulator to use their respective VAR models to calculate regulatory capital requirements for part of their trading activities. Cˇ SOB (Czech Republic) has also received approval from the local regulator to use its VAR model for capital requirement purposes. These models will also be used for the calculation of Stressed VAR, which is one of the new CRD III Regulatory Capital charges entering into effect at year-end 2011. The calculation of a Stressed VAR measure is based on the normal VAR calculations and follows the same methodological assumptions, but is constructed as if the relevant market factors were experiencing a period of stress. The period of stress is based on recent history and is calibrated regularly.
In addition, KBC Financial Products has implemented models (as required by CRD III) to calculate and report an Incremental Risk Charge (IRC) for credit risk positions that carry default and migration risks (i.e. the single name corporate CDS). The risk is measured as a 99.9% loss over a one-year holding period for a constant level of risk (constant position). The liquidity horizon for the portfolio in scope is set to one year. Furthermore, a Comprehensive Risk Measure is calculated to cover all price risks in the bespoke CDO tranches. The risk attached to ABS and retained CDO positions follows the (re-)securitisation framework.
The reliability of the VAR model is tested daily via a back-test, which compares the one-day VAR figure with the 'no-action P&L' (i.e. positions remain unchanged, but market data changes to the next day's data). This is done both at the top level and at the level of the different entities and desks.
An overview of the derivative products is given under Note 29 in the 'Consolidated financial statements' section.
| 2010 | 2010 | 2011 | 2011 | 2011 | 2011 | |
|---|---|---|---|---|---|---|
| (in millions of EUR) | KBC Bank | KBC Financial Products |
KBC Bank | KBC Financial Products |
SVAR2 KBC Bank |
SVAR2 KBC Financial Products |
| Holding period | 1 day | 1 day | 1 day | 1 day | 10 days | 10 days |
| Average for 1Q | 6 | 9 | 4 | 6 | – | – |
| Average for 2Q | 8 | 9 | 4 | 5 | – | – |
| Average for 3Q | 6 | 8 | 4 | 8 | – | – |
| Average for 4Q | 5 | 8 | 8 | 3 | 46 | 14 |
| As at 31 December | 4 | 7 | 9 | 6 | 36 | 17 |
| Maximum in year | 15 | 13 | 10 | 11 | 60 | 19 |
| Minimum in year | 4 | 6 | 3 | 1 | 24 | 11 |
1 KBC Bank: excluding 'specific interest rate risk' (measured using other techniques); swap basis risk has only been included since 22 October 2011. KBC Financial Products: excluding Avebury and the fund derivatives business line.
2 SVAR (stressed VAR) calculated only as of the fourth quarter of 2011. Unaudited figures.
Technical insurance risks stem from uncertainty regarding how often insured losses will occur and how extensive they will be. All these risks are kept under control through appropriate underwriting, pricing, claims reserving, reinsurance and claims handling policies of line management and through independent insurance risk management.
The Insurance Risk Centre of Excellence in the Group Value and Risk Management Directorate develops and rolls out a group-wide framework for managing insurance risks. It is responsible for providing support for local implementation and for the functional direction of the insurance risk management process of the insurance subsidiaries.
The insurance risk management framework is designed primarily around the following building blocks:
KBC develops models, from the bottom up, for all material group-wide insurance liabilities, i.e. (i) future claims that will occur over a predefined time horizon, as well as the claims settlement pattern, (ii) the future settlement of claims (whether already reported to the insurer or not) that have occurred in the past but have not yet been fully settled, and (iii) the impact of the reinsurance programme on these claims. These models are used to steer the group's insurance entities towards creating more shareholder value, by means of applications to calculate economic capital, support decisions on reinsurance, calculate the ex post profitability of specific sub-portfolios and set off economic capital requirements against the relevant return in pricing insurance policies.
In 2011, the sensitivity of the technical insurance risks to extreme events was analysed mainly through participation in the European Insurance and Occupational Pensions Authority stress tests (see the 'Capital adequacy' section). The goal of these tests was to identify and quantify the impact of different stress scenarios on the financial position of the insurance group and included catastrophic and severe insurance events for both the life and non-life businesses.
In addition to the regulatory required stress tests, internal stress tests are performed. For the non-life business, KBC's internal natural catastrophe models are able to estimate the anticipated claim costs, should natural catastrophes that have been observed in the past occur again today. Moreover, they can determine the expected impact on bottom-line economic profit of natural catastrophe events, which are expected to occur on average only once within a given time frame (e.g., 100 or 250 years).
For the life insurance business, a sensitivity analysis is typically performed within the framework of the annual calculation of the market consistent embedded value. The results for three types of sensitivity to insurance risk are reported, viz. 'mortality rate: plus and minus 5%', 'lapses: plus and minus 10%', 'expenses: plus and minus 10%'.
The insurance portfolios are protected against the impact of serious claims or the accumulation of losses (due, for instance, to a concentration of insured risks) by means of reinsurance. These reinsurance programmes are broken down into three main groups, i.e. property insurance, liability insurance and personal insurance, and are re-evaluated and renegotiated every year.
Most of the reinsurance contracts are concluded on a non-proportional basis, which provides cover against the impact of serious claims or loss events. The independent insurance risk management function is also responsible for advising on the restructuring of the reinsurance programmes, especially with a view to creating shareholder value. This approach has resulted in optimising the retention of the KBC group particularly in respect of its exposure to natural catastrophe risk.
As part of its mission to independently monitor insurance risks, the Group Value and Risk Management Directorate regularly carries out in-depth studies. These confirm that there is a high degree of probability that the non-life technical provisions at subsidiary level are adequate. Adequacy is checked per business line at subsidiary level and the overall adequacy is assessed at subsidiary level for all business lines combined.
In addition, 'Liability Adequacy Tests' (LAT) that meet local and IFRS requirements are conducted by various group companies for the life technical provisions. Calculations are made using prospective methods (cashflow projections that take account of lapse rates and a discount rate that is set for each insurance entity based on local macroeconomic conditions and regulations), and extra market-value margins are built in to deal with the factor of uncertainty in a number of parameters. Since no deficiencies were recorded by year-end 2011, there was no need for a deficiency reserve to be set aside within the KBC group.
The table shows claims settlement figures in the non-life business over the past few years and includes KBC Insurance NV, Fidea (up to and including financial year 2010), Cˇ SOB Pojišt'ovna (Czech Republic), Cˇ SOB Poist'ovnˇ a (Slovak Republic, from financial year 2008), DZI Insurance (from financial year 2008), K&H Insurance, Secura (up to and including financial year 2009), KBC Group Re (from financial year 2005) and WARTA (from financial year 2004 up to and including financial year 2010). All provisions for claims to be paid at the close of 2011 have been included. The claims-settlement figures incorporate all amounts that can be allocated to individual claims, including the Incurred But Not Reported (IBNR) and Incurred But Not Enough Reserved (IBNER) provisions, and the external handling expenses for settling claims, but do not include internal claims settlement expenses and provisions for amounts expected to be recovered. The figures included are before reinsurance and have not been adjusted to eliminate intercompany amounts.
The first row in the table shows the total claims burden (claims paid plus provisions) for the claims that occurred during a particular year, as estimated at the end of the year of occurrence. The following rows indicate the situation at the end of the subsequent calendar years. The amounts were restated to reflect exchange rates at year-end 2011.
| (in millions of EUR) | Year of occurrence 2002 |
Year of occurrence 2003 |
Year of occurrence 20041 |
Year of occurrence 20052 |
Year of occurrence 2006 |
Year of occurrence 2007 |
Year of occurrence 20083 |
Year of occurrence 2009 |
Year of occurrence 2010 |
Year of occurrence 20114 |
|---|---|---|---|---|---|---|---|---|---|---|
| Estimate at the end of the year of |
||||||||||
| occurrence | 925 | 769 | 1 048 | 1 077 | 1 159 | 1 230 | 1 360 | 1 436 | 1 420 | 808 |
| 1 year later | 813 | 778 | 950 | 981 | 1 048 | 1 140 | 1 305 | 1 144 | 1 033 | – |
| 2 years later | 818 | 746 | 907 | 946 | 1 022 | 1 098 | 1 141 | 987 | – | – |
| 3 years later | 811 | 726 | 893 | 945 | 1 008 | 966 | 1 051 | – | – | – |
| 4 years later | 801 | 711 | 884 | 926 | 874 | 892 | – | – | – | – |
| 5 years later | 787 | 683 | 880 | 839 | 821 | – | – | – | – | – |
| 6 years later | 781 | 676 | 821 | 803 | – | – | – | – | – | – |
| 7 years later | 776 | 637 | 778 | – | – | – | – | – | – | – |
| 8 years later | 744 | 609 | – | – | – | – | – | – | – | – |
| 9 years later | 719 | – | – | – | – | – | – | – | – | – |
| Current estimate | 719 | 609 | 778 | 803 | 821 | 892 | 1 051 | 987 | 1 033 | 808 |
| Cumulative pay | ||||||||||
| ments | -662 | -556 | -714 | -709 | -729 | -776 | -896 | -801 | -763 | -322 |
| Current provisions | 57 | 54 | 64 | 94 | 91 | 116 | 155 | 186 | 270 | 486 |
1 From financial year 2004, WARTA's figures have been included. If this company had not been taken into account, the following amounts would have been arrived at for financial year 2004 (amount and year of occurrence): 773 for 2002; and 684 for 2003.
2 From financial year 2005, KBC Group Re's figures have been included. If these figures had not been taken into account, the following amounts would have been arrived at for financial year 2005 (amount and year of occurrence): 803 for 2002; 744 for 2003; and 922 for 2004.
3 From financial year 2008, the figures for CˇSOB Poist'ovnˇ a (Slovakia) and DZI Insurance (Bulgaria) have been included. If these figures had not been taken into account, the following amounts would have been arrived at for financial year 2008 (amount and year of occurrence): 780 for 2002; 681 for 2003; 882 for 2004; 928 for 2005; 1 005 for 2006 and 1 097 for 2007.
4 For financial year 2011, the figures for WARTA and Fidea have been excluded. If these figures had been taken into account, the following amounts would have been arrived at for financial year 2011 (amount and year of occurrence): 736 for 2002; 633 for 2003; 812 for 2004; 838 for 2005; 861 for 2006; 958 for 2007; 1 129 for 2008; 1 074 for 2009; 1 255 for 2010; and 1 251 for 2011.
Specific information on the insurance activities of the group can be found under Notes 9, 10, 11 and 35 in the 'Consolidated financial statements' section. A breakdown by business unit of earned premiums and technical charges is provided in the notes dealing with segment reporting.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risks include the risk of fraud, and legal, compliance and tax risks.
Information on legal disputes can be found in Note 36 of the 'Consolidated financial statements' section.
KBC has a single, global framework for managing operational risk across the entire group. It consists of a uniform operational risk language embedded in group-wide key controls, one methodology, one set of centrally developed ICT applications, and centralised and decentralised reporting.
The Group Value and Risk Management Directorate is primarily responsible for defining the operational risk management framework for the entire group. The development and implementation of this framework is supported by an extensive operational risk governance model covering all entities of the group. This framework was redesigned in 2010 and will gradually be implemented (with full implementation in 2014).
The Group Value and Risk Management Directorate creates an environment where risk specialists (in various areas, including information risk management, business continuity and disaster recovery, compliance, anti-fraud, legal and tax matters) can work together (setting priorities, using the same language and tools, uniform reporting, etc.). It is assisted by the local value and risk management units, which are likewise independent of the business.
KBC uses a number of building blocks for managing operational risks, which cover all aspects of operational risk management.
In 2011 specific attention was given to the structured set-up of process-based Group Key Controls, which will gradually replace the former Group Standards. These Controls are policies containing top-down basic control objectives and are used to mitigate key and killer risks inherent in the processes of KBC entities. As such, they are an essential building block of the Operational Risk Management Framework.
A first set was approved in 2011 for the Credit, Life, Non-life, Personal Financial Advice, Legal, Tax, Business Continuity Management and Risk & Capital Management processes. These Group Key Controls are assessed by the business and (local) control functions. The risk self-assessments are consolidated at the Group Value and Risk Management Directorate and ensure that there is a consistent relationship between (i) processes, (ii) risks, (iii) control activities and (iv) assessment scores. KBC has created an objective management tool to evaluate its internal control environment and to benchmark the approach across its entities.
Besides these Group Key Controls, there are a number of other building blocks:
The quality of the internal control environment and related risk exposure as identified, assessed and managed by means of these building blocks is reported to KBC's senior management via a management dashboard and to the National Bank of Belgium and the Belgian Financial Services and Markets Authority (FSMA) via the annual Internal Control Statement. Information on the internal control and risk management systems can be found in the 'Corporate governance statement' section.
KBC uses the Standard approach to calculate operational risk capital under Basel II. Operational risk capital for KBC Bank at the consolidated level totalled 862 million euros at the end of 2011, compared with 860 million euros at the end of 2010 (the figures exclude KBL EPB, which had contributed approximately 78 million euros to the total operational risk capital of the KBC group at year-end 2011 and 72 million euros at year-end 2010).
This is the risk arising from the negative perception on the part of customers, counterparties, shareholders, investors, debt holders, market analysts, other relevant parties or regulators that can adversely affect a financial institution's ability to maintain existing, or establish new business relationships and to have continued access to sources of funding (for instance, through the interbank or securitisation markets). Reputation risk is a secondary or derivative risk since it is mostly connected to and will materialise together with another risk.
The Reputation Risk Management Framework is currently being refined in line with the KBC Risk Management Framework. The proactive and re-active management of reputation risk is the responsibility of the business, supported by many specialist units (e.g., Group Communication, Investor Relations).
Under the pillar 2 approach to capital adequacy, the impact of reputation risk on the current business is covered in the first place by the capital charge for primary risks (such as credit or operational risk, etc.). It is also covered by the capital reserved for business risk.
Business risk is the potential negative deviation from the expected economic value arising from changes in the macroeconomic environment, the financial services industry and/or the market for products and services, as well as from inadequacies relating to business resources that impact on business potential.
Risk factors that are taken into consideration include macroeconomic conditions, changes to the law or regulations, competitor actions, changes in distribution channels or distribution models, changed customer needs, human resources issues and ICT resources. Business risk is assessed on the basis of structured risk scans.
KBC reserves a pillar 2 capital charge specifically for business risk. Business risk capital is based on the operating expenses for the various KBC group entities. The portion of operating expenses to be set aside as economic capital for business risk depends on the level of risk attached to the activities of each entity, as determined on the basis of quantitative and qualitative assessments of activities across KBC group entities.
Capital adequacy (or solvency) risk is the risk that the capital base of the group, the bank or the insurer might fall below an acceptable level. In practice, this entails checking solvency against the minimum regulatory and in-house solvency ratios. Capital adequacy is approached from both a regulatory and an internal (economic) perspective.
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 adjusted for a number of items; see table), 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%.
End of 2011 pro forma (including impact of agreements to sell KBL EPB, End of 2011 End of 2010 End of 2009 10.8% 12.6% 12.3% 13.8%
Group tier-1 ratio (Basel II)
Fidea and WARTA)
The KBC group's tier-1 solvency target under Basel II is 11%.
Regulatory minimum solvency targets were amply exceeded in 2011, not only at year-end, but also throughout the entire year.
In accordance with Basel II, pillar 2 requirements, KBC has an Internal Capital Adequacy Assessment Process (ICAAP) in place. This process uses an economic capital model (see below) to measure capital requirements based on aggregate group-wide risks, and to compare these requirements with the capital available to cover risks. The ICAAP examines both the current and future capital situation. To assess the latter situation, a three-year forecast is drawn up for required and available capital, according to a basic scenario that takes account of anticipated internal and external growth, and according to various likely alternative scenarios and a recession scenario.
In 2008 and 2009, a number of capital-strengthening measures were taken, whereby non-voting core-capital securities were issued to the Belgian State and the Flemish Region, and a guarantee agreement signed with the Belgian State for CDO risks (see the 'Additional information' section for more details).
| (in millions of EUR) | 31-12-2010 | 31-12-2011 |
|---|---|---|
| Total regulatory capital, after profit appropriation | 21 726 | 19 687 |
| Tier-1 capital1 | 16 656 | 15 523 |
| Parent shareholders' equity | 11 147 | 9 756 |
| Non-voting core-capital securities | 7 000 | 6 500 |
| Intangible fixed assets (-) | -429 | -446 |
| Goodwill on consolidation (-) | -2 517 | -1 804 |
| Innovative hybrid tier-1 instruments | 598 | 420 |
| Non-innovative hybrid tier-1 instruments | 1 689 | 1 690 |
| Minority interests | 161 | 145 |
| Equity guarantee (Belgian State) | 446 | 564 |
| Revaluation reserve, available-for-sale assets (-) | -66 | 117 |
| Hedging reserve, cashflow hedges (-) | 443 | 594 |
| Valuation differences in financial liabilities at fair value – own credit risk (-) | -190 | -550 |
| Minority interests in available-for-sale reserve and hedging reserve, cashflow hedges (-) | -3 | -3 |
| Equalisation reserves (-) | -128 | -139 |
| Dividend payout (-)2 | -854 | -598 |
| IRB provision shortfall (50%) (-)3 | 0 | 0 |
| Limitation of deferred tax assets | -243 | -384 |
| Items to be deducted (-)4 | -397 | -338 |
| Tier-2 and tier-3 capital | 5 069 | 4 164 |
| Perpetuals (including hybrid tier-1 instruments not used in tier-1 capital) | 30 | 30 |
| Revaluation reserve, available-for-sale shares (at 90%) | 392 | 246 |
| Minority interests in revaluation reserve, available-for-sale shares (at 90%) | 0 | 0 |
| IRB provision shortfall (50%) (-)3 | 0 | 0 |
| IRB provision excess (+)3 | 132 | 403 |
| Subordinated liabilities | 4 730 | 3 778 |
| Tier-3 capital | 182 | 45 |
| Items to be deducted (-)4 | -397 | -338 |
| Total weighted risks | 132 034 | 126 333 |
| Banking | 116 129 | 110 355 |
| Insurance5 | 15 676 | 15 791 |
| Holding-company activities | 264 | 286 |
| Elimination of intercompany transactions between banking and holding-company activities | -34 | -100 |
| Solvency ratios | ||
| Tier-1 ratio | 12.6% | 12.3% |
| Core tier-1 ratio | 10.9% | 10.6% |
| CAD ratio | 16.5% | 15.6% |
1 Audited figures (except for 'IRB provision shortfall/excess').
2 Includes the dividend on ordinary shares and the coupon on non-voting core-capital securities sold to the Belgian State and Flemish Region.
3 Excess/shortfall is defined as the (positive/negative) difference between the actual loan loss impairment recognised and the 'expected loss' calculation.
4 Items to be deducted, which are split 50/50 over tier-1 and tier-2 capital, include mainly participations in and subordinated claims against financial institutions in which KBC has between a 10% and 50% share (primarily Nova Ljubljanska banka).
5 Weighted risks for insurance are calculated by multiplying capital under Solvency I by a factor of 12.5 (8% rule similar to the relationship between RWA and capital for banking).
Please note that:
The table below shows the tier-1 and CAD ratios calculated under Basel II for KBC Bank, as well as the solvency ratio of KBC Insurance. More detailed information on the solvency of KBC Bank and KBC Insurance can be found in their consolidated financial statements and in KBC's Risk Report for 2011, which is available at www.kbc.com (the risk report has not been audited by the statutory auditor).
| Solvency, KBC Bank and KBC Insurance separately (in millions of EUR) | 31-12-2010 | 31-12-2011 |
|---|---|---|
| KBC Bank (consolidated, Basel II) | ||
| Total regulatory capital, after profit appropriation | 18 552 | 16 364 |
| of which tier-1 capital* | 13 809 | 12 346 |
| Total weighted risks | 111 711 | 106 256 |
| Tier-1 ratio | 12.4% | 11.6% |
| of which core tier-1 ratio | 10.5% | 9.6% |
| CAD ratio | 16.6% | 15.4% |
| KBC Insurance (consolidated, Solvency I) | ||
| Available capital* | 2 712 | 2 533 |
| Required solvency margin | 1 254 | 1 263 |
| Solvency ratio (%) | 216% | 201% |
| Solvency surplus | 1 458 | 1 270 |
* Audited figures.
As part of the Europe-wide capital adequacy exercises, KBC participated in the 2011 stress tests conducted by the European Banking Authority (EBA) and the European Insurance and Occupational Pension Authority. Based on the outcome of the stress tests, KBC is adequately capitalised and achieved a satisfactory core tier-1 ratio and solvency ratio.
The Basel III agreement and corresponding draft European CRD IV Directive and Regulation will introduce new, more stringent capital requirements for financial institutions. According to these proposals, the legal minimum tier-1 ratio, which stood at 4% under Basel II, will be increased to 4.5% in 2013, and gradually increase to 6% in 2015 (with a common equity ratio of 4.5%). On top of this, a socalled 'conservation buffer' (0% in 2013, gradually rising to 2.5% in 2019), a 'countercyclical buffer' (of between 0% and 2.5%, to be determined by the national regulatory authority) and an extra charge for global systemic banks will be applied. Certain elements used in the calculation of regulatory capital will be gradually phased out or changed. Under the current CRD IV draft, the capital injections received from the government (for KBC, the 7 billion euros' worth of core-capital securities sold to the Belgian State and Flemish Region in 2008 and 2009) will be classified as common equity tier-1 capital and will be grandfathered until 2018. Agreed in July 2009, Basel 2.5 enhances the measurement of risks related to securitisation and trading book exposures, and introduces higher capital requirements for this type of exposure. Basel 2.5 came into force at year-end 2011.
Solvency II is the new regulatory solvency regime for all EU insurance and reinsurance companies. Whereas the current insurance solvency requirements (Solvency I) are volume-based, Solvency II pursues a risk-based approach. It aims to implement solvency requirements that better reflect the risks that companies face and deliver a supervisory system that is consistent across all EU Member States. Solvency II was intended to come into effect at the start of 2013, but the European authorities have proposed that the date for its full implementation should be postponed until 1 January 2014, because of delays in the development and adoption of the regulatory framework.
An economic capital model is used to measure the overall risk KBC is exposed to through its various activities, taking the different risk factors into consideration. The estimates generated by this model are reported on a quarterly basis to the GRCOC, the Group Executive Committee, the ARC Committee and the Board of Directors.
KBC defines economic capital as the amount of capital required to absorb very severe losses, expressed in terms of the potential reduction in the economic value of the group (i.e. the difference between the current economic value and the worst-case economic value over a one-year time horizon and at a certain confidence level), in line with the risk appetite set by the Board of Directors. Economic capital is calculated per risk category using a common denominator (the same time horizon of one year and the same confidence interval) and then aggregated. Since it is extremely unlikely that all risks will materialise at the same time, an allowance is made for diversification benefits when aggregating the individual risks.
As mentioned previously, economic capital is used as a major building block for ICAAP (Basel II, pillar 2). In addition, it provides essential input for risk-adjusted performance measurement and internal valuation models, such as the Market Consistent Embedded Value model.
The breakdown of KBC's economic capital per risk type is provided in the table. The noticeable movement in the distribution of economic capital across the different risk types is only partly related to changes in risk exposures. Differences also arise from changes being made to the economic capital model. Indeed, the model – which is the result of an internal assessment – is reviewed on a regular basis.
| Economic capital distribution, KBC group* | 2010 | 2011 |
|---|---|---|
| Credit risk | 69% | 68% |
| Non-trading market risk | 12% | 12% |
| Trading market risk | 3% | 2% |
| Business risk | 6% | 8% |
| Operational risk | 5% | 6% |
| Technical insurance risk | 3% | 3% |
| Funding cost and bid/offer spread risk | 2% | 1% |
| Total | 100% | 100% |
* All percentages relate to figures at the end of September. Excluding entities classified as 'disposal groups' under IFRS 5 and whose contribution to KBC's economic capital was around 5% in 2011 (4% in 2010).
KBC Group NV has adopted the 2009 version of the Belgian Corporate Governance Code (the 'Code') as its benchmark. This Code, which can be downloaded at www.corporategovernancecommittee.be, seeks to ensure transparency in corporate governance by requiring certain information to be disclosed in the Corporate Governance Charter (the 'Charter') and the Corporate Governance Statement (the 'Statement').
The Charter sets out the main aspects of a company's corporate governance, such as its governance structure, the internal regulations of the Board of Directors, its committees, and the Executive Committee, together with other important topics. KBC Group NV publishes its Charter on www.kbc.com.
The Statement is published in the annual report and contains more factual information regarding the company's corporate governance, including the composition and activities of the Board of Directors, any relevant events during the year under review, the reasons for any non-compliance with the Code, the remuneration report, and a description of the main features of the internal control and risk management systems.
Unless otherwise indicated, the period dealt with runs from 1 January 2011 to 31 December 2011.
The Statement also contains other information required by law.
The following terms have been abbreviated as follows in this section of the annual report:
| • Board of Directors of KBC Group NV | Board |
|---|---|
| • Executive Committee of KBC Group NV | EC |
| • Audit, Risk and Compliance Committee of KBC Group NV | ARC Committee |
In 2011, KBC gave serious thought to how it wanted group corporate governance to develop going forward, with the aim of increasing the strength and efficiency of the management bodies.
The Board currently comprises 25 members, a figure that is much higher than what is stipulated in present-day corporate governance principles. The Board also lacks non-executive directors who have a solid background in our Central European home markets, and the number of female Board members is far from the targeted quota.
In consultation with its Nomination Committee, the Board has decided to reduce its membership from 25 to 22 persons at the General Meeting of 3 May 2012, and intends to reduce the number further in the years ahead. Messrs Borghgraef, Naert, Soete and Van Wymeersch were prepared to step down voluntarily – and in the exclusive interests of the group – as directors a year before their current (renewable) terms of office come to an end. The Board is extremely grateful to these gentlemen for their decision, which will speed up and facilitate the thorough modernisation of the group's management structure, and wishes to express its sincere thanks to them for their contribution over the years to the Board.
In addition, Ms Vladimira Papirnik will be nominated as a new independent director (see below). In the coming years, the group will continue to actively seek and appoint additional independent directors, which will strengthen the Board's international dimension. At the same time, it will gradually take the necessary steps to ensure that women account for one-third of the Board's membership, as required by law. While achieving these targets, the Board will endeavour to attract a number of non-executive directors with a thorough knowledge of the banking and/or insurance business.
In order to further optimise the efficiency of the decision-making process within the group in its capacity as an integrated bancassurer, the decision was also taken to make the composition of the Boards of KBC Group NV, KBC Bank and KBC Insurance the same, apart from the independent directors. In principle, these Boards will hold joint meetings. To accommodate this, all the non-executive directors of KBC Bank and KBC Insurance – apart from the independent directors and the non-executive directors who also sit on the Board of KBC Group NV – will resign voluntarily from their respective Boards at the next General Meeting. The non-executive directors of KBC Group NV – apart from independent and government-appointed directors – will then be appointed in their place. The Board also wishes to extend its sincere gratitude to the outgoing directors for their willingness to facilitate the accelerated streamlining of these management bodies.
These fundamental changes to the group's management structure will undoubtedly significantly increase the efficiency and strength of the group as an integrated bancassurer, which will be in the interests of all its stakeholders.
The table on the next page shows the members of the Board and its committees on 31 December 2011. A list of the external offices held by all members of the Board is provided at www.kbc.com, as is a brief CV for each director.
| Name | Primary responsibility | Period served on the Board in 2011 |
Expiry date of current term of office |
Board meetings attended | Non-executive directors | Core shareholders' representatives |
Independent directors | Government-appointed directors |
Members of the EC | ARC Committee | Nomination Committee | Remuneration Committee |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number of meetings in 2011 | 16 | 10 | 6 | 9 | ||||||||
| Thomas Leysen | Chairman of the Board2 | 8 months | 2015 | 10 | n | 02 | ||||||
| Philippe Vlerick | Deputy Chairman of the Board CEO, Vlerick Group |
Full year | 2013 | 14 | n | n | 5 | |||||
| Jan Vanhevel | President of the EC and Executive Director |
Full year | 2014 | 16 | n1 | 6 | ||||||
| Paul Borghgraef | Director of various companies | Full year | 2013 | 15 | n | n | ||||||
| Alain Bostoen | Managing Director, Christeyns NV | Full year | 2014 | 14 | n | n | ||||||
| Jo Cornu | Director of various companies | Full year | 2012 | 14 | n | n | 4 | 91 | ||||
| Marc De Ceuster | Professor, Accounting and Finance Department, Universiteit Antwerpen |
Full year | 2014 | 16 | n | n | 10 | |||||
| Tom Dechaene | Director of various companies | 7 months3 | 2012 | 8 | n | n | 2 | |||||
| Franky Depickere | Managing Director, Cera Beheersmaat schappij NV and Almancora Beheers maatschappij NV, Chairman of the Day-to-Day Management Committee, Cera CVBA |
Full year | 2015 | 16 | n | n | 101 | 6 | 9 | |||
| Luc Discry | Managing Director, Cera Beheersmaat schappij NV and Almancora Beheers maatschappij NV, member of the Day-to-Day Management Committee, Cera CVBA |
Full year | 2015 | 15 | n | n | ||||||
| Frank Donck | Managing Director, 3D NV | Full year | 2015 | 14 | n | n | ||||||
| Jean-Pierre Hansen | Member of the Executive Committee of GDF SUEZ |
Full year | 2014 | 12 | n | n | 4 | |||||
| Dirk Heremans | Professor Emeritus at the Faculty of Business and Economics, Katholieke Universiteit Leuven (KUL) |
Full year | 2013 | 14 | n | n | 9 | 6 | ||||
| John Hollows | Executive Director | 8 months | 2015 | 10 | n | |||||||
| Lode Morlion | Mayor of Lo-Reninge and Chairman of the Board of Directors of Cera Beheers maatschappij NV |
Full year | 2012 | 16 | n | n | ||||||
| Philippe Naert | Director of various companies | Full year | 2013 | 15 | n | n | 10 | 7 | ||||
| Luc Popelier | Executive Director | 8 months | 2015 | 8 | n | |||||||
| Theodoros Roussis | CEO, Ravago Plastics NV | Full year | 2012 | 13 | n | n | 8 | |||||
| Hendrik Soete | CEO, Aveve Group, and Director, MRBB CVBA |
Full year | 2013 | 16 | n | n | ||||||
| Eric Stroobants | Honorary Secretary-General of the Flemish Regional Government, holder of various offices |
Full year | 2014 | 14 | n | n | 9 | |||||
| Alain Tytgadt | Managing Director, Metalunion CVBA | Full year | 2013 | 15 | n | n | ||||||
| Ghislaine Van Kerckhove | Lawyer and Deputy Chairperson of the Board of Directors of Cera Beheersmaat schappij NV |
Full year | 2012 | 13 | n | n | ||||||
| Charles Van Wymeersch | Full professor at the Facultés Universitai res Notre-Dame de la Paix (Namur) and the Louvain School of Management |
Full year | 2013 | 13 | n | n | ||||||
| Piet Vanthemsche | Chairman of the Boerenbond and MRBB CVBA |
Full year | 2014 | 13 | n | n | 6 | |||||
| Marc Wittemans | Managing Director, MRBB CVBA | Full year | 2014 | 16 | n | n | 10 |
Auditor: Ernst & Young Bedrijfsrevisoren BCVBA, represented by Pierre Vanderbeek and/or Peter Telders.
Secretary to the Board: Tom Debacker.
1 Chairman of this committee.
2 Chairman with effect from 1 October 2011.
3 Four months of which as representative of the Flemish Regional Government. Co-opted as director with effect from 1 October 2011.
Master's Degrees in Applied Mahematics (KU Leuven, 1987) and in Actuarial Sciences (KU Leuven, 1989).
Joined the company in 1988 (ABB Insurance).
Starting his career at ABB Insurance in 1988, Johan Thijs held various actuary positions in the life and non-life businesses. He filled a number of increasingly senior positions between 1990 and 2000 before being appointed Senior General Manager of Non-Life Insurance. In 2006, he also became a member of the Management Committee of the Belgium Business Unit, where he dealt with both banking and insurance matters. In 2009 he took a seat on the EC and was appointed CEO of the Belgium Business Unit, taking overall charge of all retail and insurance activities in KBC's biggest market.
Born in Schoten (Belgium), in 1959.
Master's Degree in Law (Central Exams Commission, 1985), Master's Degree in Applied Economics (UFSIA Antwerp, 1986) and MBA (INSEAD Fontainebleau, 1991).
Tom Dechaene started his career at Bank Brussel Lambert (1986-1990), gaining experience in a number of departments, including Corporate Finance, where he worked for his last three years. In 1991, he joined Morgan Grenfell & Co Ltd in London to take up a position in the Corporate Finance department. His last three years in that company were spent in charge of the European Telecoms, Media & Technology Transactions Team. In 1998, he left Morgan Grenfell and joined Deutsche Bank in London where he worked until 1999 as director of the Principal Investments Group. He was a co-founder and CFO of SurfCast Inc., SurfCast (UK) Ltd, SurfCast (Denmark) ApS (2000-2001). At present, he is a non-executive/independent director of Agenus, Transics International NV, SurfCast Inc. and Bourn Hall International Ltd.
Born in Kolín (Czech Republic), in 1956.
Juris Doctor Degree (Northwestern University (US), 1982), combined Bachelor's and Master's Degrees in German and German Literature (Northwestern University (US), 1978).
Ms Papirnik started her career at the Hopkins & Sutter law firm in Chicago, practising as a finance lawyer (1982-1989) before going on to become a partner in the firm (1989-1995). She then joined the Chicago law firm of Squire Sanders as a partner and, after moving to the Czech Republic in 1995, became managing partner of the Prague office (1996 to 2011). Since 2011, she has been working for Squire Sanders in both Prague and Chicago, focusing her international business practice on banking, project finance and corporate law (mergers and acquisitions, corporate governance). She has served on the Board of Directors of the American Chamber of Commerce in the Czech Republic and was a member of its Executive Committee (1999-2008). She was a member of the Board of Trustees of the International School of Prague and head of its corporate governance committee for four years. She was also a member of the Board of Trustees of the CMC School of Business for three years.
The agenda for the General Meeting is available at www.kbc.com.
The table shows the members of the EC on 31 December 2011. More information in this regard can be found in the 'Structure and management' section of this report and at www.kbc.com.
| Name | Period on the EC in 2011 |
|---|---|
| Members of the EC on 31 December 2011 | |
| Jan Vanhevel (President) | Full year |
| Danny De Raymaeker | Full year |
| Luc Gijsens | As from 1 May |
| John Hollows | Full year |
| Luc Popelier | Full year |
| Johan Thijs | Full year |
| Marko Voljcˇ | Full year |
| Members of the EC who left in 2011 | |
| Luc Philips | Until end-April |
• Jan Vanhevel, President of the EC and Group CEO, has expressed his intention to retire with effect from the General Meeting of 3 May 2012, and will therefore relinquish his seat. At that time, he will have spent his entire career of almost 41 years at KBC, 16 of which as a member of its EC. It will be proposed that he be succeeded as President by Johan Thijs.
Thomas Leysen, Chairman of the Board of Directors: 'In his capacity as a member of the Group Executive Committee and, more specifically, as CEO of the Belgium Business Unit, Johan Thijs has guided KBC's operations in its largest market through turbulent times. Following the advice of the Nomination Committee, the Board of Directors has chosen an energetic leader with a proven track record throughout his career. Together with his colleagues on the Executive Committee, he will take KBC to a new level of performance.'
• Following the advice of the Nomination Committee, Daniel Falque to succeed Johan Thijs as CEO of the Belgium Business Unit and to be duly appointed to the EC. A brief CV for Mr Falque is given below.
Master's Degree in International Relations, Faculty of Economic, Social and Political Sciences (Université catholique de Louvain, 1989). Mr Falque started his career at De Vaderlandsche NV insurance company, where he was a production inspector (1989-1991). He then joined Deutsche Bank AG (Belgium) as a credit analyst in 1991, before taking up the post of Corporate Relationship Manager for SMEs (1991-1997), Vice-President responsible for Medium-Sized Enterprises (1997-1999), Director responsible for Large Corporations and Co-ordination Centres (1999-2001), Managing Director, Head of Corporate and Investment Banking (2001-2004). He then moved to Deutsche Bank AG, Frankfurt/(Brussels), serving as Managing Director, Head of Global Transaction Banking Western & Eastern Europe and the Middle East, with responsibility for cash management, trade finance, capital markets sales, trust & securities services and corporate relationship management (2004-2009). In 2009, he joined CBC Banque & Assurance, where he was Executive Director, President of the Executive Committee and a member of the KBC Management Committee for Belgium (2009 to date).
For composition, number of meetings and attendance figures in 2011, see the table at the start of this section.
Besides carrying out the activities required under the Companies Code, reviewing the quarterly results and the activities of the ARC Committee, Nomination Committee and Remuneration Committee, and handling and taking decisions on the dossiers submitted by these committees, the Board also dealt with the following matters in 2011:
• the remuneration policy;
• the Risk Appetite Framework and Statements;
The EC also reported monthly on the trend in the results and the general course of business at the group's various business units. It also paid regular attention to the strategy and specific challenges for the different areas of activity.
For composition, number of meetings and attendance figures in 2011, see the table at the start of this section.
The ARC Committee met in the presence of the President of the EC, the Group Chief Risk Officer, the Group Chief Financial Officer, the internal auditor and the compliance officer. The meetings were also attended by the statutory auditors. The report of the internal auditor, the report of the compliance officer and the report of the risk function were fixed agenda items. The periodic reports from the risk function primarily covered developments regarding the ALM, liquidity, market, credit, operational and insurance risks of the KBC group, as well as the group's capital requirements. The internal auditor's report provided an overview of recent audit reports, including the most important audit reports for the underlying group entities. The ARC Committee also reviewed the implementation of the 2011 audit plan, and approved the 2012 audit plan. Furthermore, it was regularly informed of the progress made with regard to the implementation of audit recommendations.
On 9 February 2011, the ARC Committee reviewed the consolidated and non-consolidated financial statements for the year ended 31 December 2010, and approved the press release. The auditor explained the key audit findings. On 11 May, 8 August and 9 November 2011, the auditors explained their key findings following their review of the accounts for the quarters ending 31 March, 30 June and 30 September, respectively. The ARC Committee also approved the respective press releases.
During the course of the year, the ARC Committee discussed several special reports concerning the statement of effective management with regard to the assessment of internal control systems, the annual report on value and risk management, implementation of the new risk organisation (Harbour), the annual report on business continuity management, the status regarding the run-down of activities at KBC Financial Products, Asset-Liability Management, Solvency II, setting of risk appetite, scaling back the CDO portfolio, CEBS stress tests, and KBC's strategic plan for 2012.
For composition, number of meetings and attendance figures in 2011, see the table at the start of this section.
The main matters dealt with were:
For composition, number of meetings and attendance figures in 2011, see the table at the start of this section.
The Remuneration Committee usually met in the presence of the Chairman of the Board and the President of the EC. The head of Group HR also regularly attended the meetings.
The main matters dealt with were:
For a more general description of the activities of the Board and its committees, see sections 5 and 6 of the Corporate Governance Charter of KBC Group NV (at www.kbc.com).
The ARC Committee of KBC Group NV has two independent directors within the meaning of and in line with the criteria set out in Article 526ter of the Belgian Companies Code and in the Corporate Governance Code.
Dirk Heremans, who holds a Ph.D in Law, a Master's Degree in Notarial Law and a Master's Degree in Economics from the Katholieke Universiteit Leuven. He also has a Post-Graduate Degree in Etudes supérieures sciences économiques (advanced economics) from the Université de Paris (Sorbonne) and a M.A., C. Phil. and Ph.D. in Economics from the University of California (U.C.L.A.). He is Professor Emeritus at the Faculty of Business and Economics at the Katholieke Universiteit Leuven. In the past, he has been an adviser to the cabinets of the Minister of Economic Affairs and of the Minister of Finance, as well as an expert for the European Commission. He is an honorary Board member of the former Belgian Banking and Finance Commission. He has been an independent director of KBC Group NV since 2005.
Philippe Naert, who holds a Master's Degree in Electrical Engineering from the Katholieke Universiteit Leuven, a Post-Graduate Diploma in Management Science from the University of Manchester (UK) and a Ph.D. in Business Administration from Cornell University (US). Besides having been director of The Intercollegiate Centre for Management Science and of the European Institute for Advanced Studies in Management, he was dean of INSEAD, of the Universiteit van Nyenrode and of the TiasNimbas Business School of the Universiteit van Tilburg and the Technische Universiteit Eindhoven. He has also worked as a consultant for numerous companies. He has been an independent director of KBC Group NV since 2005.
On the basis of the preceding information, it can be concluded that both of these directors – as members of the ARC Committee – meet the criteria set out in Article 96 §1 9° of the Companies Code relating to independence and to expertise in the area of accounting and auditing.
The Board worked out an arrangement regarding transactions and other contractual ties between the company (including its affiliated companies) and its directors, not covered by the conflict of interest rule set out in Articles 523 or 524ter of the Companies Code. It has been incorporated into the Corporate Governance Charter of KBC Group NV (see www.kbc.com). This arrangement did not have to be used in 2011.
In accordance with Directive 2003/6/EC on insider dealing and market manipulation (market abuse), and following publication of the Royal Decree of 24 August 2005 to amend, with respect to the provisions regarding market manipulation, the Act of 2 August 2002 on the supervision of the financial sector and financial services, the Board of KBC Group NV drew up a Dealing Code which, among other things, requires a list of key employees to be drawn up, annual blocking periods to be set, and transactions by persons with managerial responsibility and with persons connected with them to be reported to the Belgian Financial Services and Markets Authority (FSMA). The principles of this code have been appended to the Corporate Governance Charter of KBC Group NV. The code entered into effect on 10 May 2006 and an updated version was approved by the Board on 8 August 2011.
With a view to constantly improving its own effectiveness, the Board – led by its Chairman – evaluates a number of elements each year, including the composition of the Board, the selection, appointment and training of its members, practical operations (relating to the agenda, meetings, chairmanship, secretariat), reporting to the Board, the type of culture within the Board, the performance of its duties, remuneration, the working relationship with the EC, the shareholders and other stakeholders, the Board's committees, as well as the Board's involvement in a number of specific areas.
On the initiative of the Chairman of the Board, any director who is nominated for re-appointment is subject to an appraisal that focuses on the individual's commitment and effectiveness within the Board (including active attendance at Board meetings and training sessions, and critical contributions). Non-executive directors meet once a year in the absence of the executive directors to appraise how they interact with them.
Each Board committee carries out an annual evaluation of its own composition and workings, before reporting its findings and, where necessary, making proposals to the Board. It also provides an opportunity for, inter alia, an analysis to be performed on the skills and experience required by the committee for its specific area of responsibility.
When their terms of office as a director are renewed, the chairmen of the committees are subject to an individual appraisal by the other committee members, who focus primarily on their co-ordination skills, specialised knowledge, insight and communication skills.
On renewal of their terms of office, the President of the EC and the other executive directors are evaluated under the leadership of the Chairman of the Board.
The remuneration policy for the Board and EC is based on prevailing legislation, the Corporate Governance Code and market data. It is monitored and regularly checked by the Remuneration Committee – with the assistance of specialist members of staff – to see whether it complies with changes in the law, the aforementioned code, and prevailing market practices and trends. The Chairman of the Remuneration Committee informs the Board of the committee's activities and advises it of any changes to the remuneration policy and its practical implementation. The Board may also act on its own initiative, or on a proposal from the EC, and instruct the Remuneration Committee to examine potential changes to the remuneration policy and to advise it accordingly. If required by law, the Board will submit any policy changes to the General Meeting for approval.
Each year, on the advice of the Remuneration Committee, the Board sets aside a certain amount of net profit that is based on the established remuneration policy and that lies within the limit laid down in the Articles of Association. That amount (the fixed remuneration) is submitted to the General Meeting and, once approved, distributed among the members of the Board, with account being taken of the number of months in which they performed their offices.
Each year, on the basis of advice obtained from the Remuneration Committee and taking account of the established remuneration policy, the Board determines the remuneration to be granted to members of the EC, and assesses this amount at regular intervals. The amount in question is split into a fixed component and a profit and performance-related component.
The Remuneration Committee declares the following:
The basic principle applying to non-executive directors, executive directors and other members of the EC is that they are entitled to a fair remuneration that is commensurate with the contribution they have made to the policy and growth of the group.
The following applies to non-executive directors:
The following applies to executive directors and other members of the EC:
• Members also benefited from a retirement and survivor's pension scheme, which comprises a supplementary retirement pension or – if the insured dies while still in employment and leaves a spouse – a survivor's pension, and also provides cover in the event of disability.
The members of the EC received only a fixed emolument during financial year 2011. Given the loss recorded in the third quarter of 2011 and despite the positive result for the year as a whole, the members of the EC decided to forego all forms of variable remuneration for financial year 2011.
The total amount of annual variable remuneration (i.e. both the results-based and performance-related components) for members of the EC is paid over four years, with 50% being paid in the first year and the rest spread equally over the next three years. Furthermore, 50% of the total variable remuneration is awarded in the form of equity-related instruments called phantom stocks, whose value is linked to the price of the KBC Group NV share. These stocks must be retained for one year after being allocated. Like the cash component of variable remuneration, they are also allocated over a four-year period. The average price of the KBC share during the first three months of the year is used to calculate the number of phantom stocks to which each member of the EC is entitled. These stocks are then converted into cash a year later on the basis of the average price of the KBC share during the first three months of that year. Specifically in 2011, members of the EC received 25% of their total annual variable remuneration for 2010 in the form of phantom stocks, based on a price of 28.69 euros per share. These stocks will be converted into cash in April 2012 using the average price of the KBC share for the first three months of 2012. They are subject to the allocation and acquisition conditions described under 'Clawback provisions' below.
As regards the remuneration paid to non-executive directors, the aim is to take the fixed remuneration component, which is currently taken from net profit, and to convert it into a genuine type of non-performance-related and non-results-based fixed remuneration, which – like attendance fees – will be charged as an expense. At the same time, the ratio of the fixed remuneration component to the attendance fees will be reviewed, with the intention being to reduce the former and increase the latter.
As for members of senior management, the remuneration policy was approved by the Board on the advice of the Remuneration Committee and is described in the Remuneration Policy. The policy contained a number of group-wide principles relating primarily to the variable remuneration component. The main principles stipulate that:
Besides the risk gateway, a 'Risk-Adjusted Performance Measurement Framework' policy will also be introduced to set results-based variable remuneration for performances as from financial year 2012. The basic idea behind this policy used for capital allocation is that neither economic capital nor regulatory capital is suitable as a single driver for capital allocation. Regulatory capital is limited in terms of risk types and only partially reflects the specific characteristics of KBC. Although economic capital comprises more types of risk and reflects KBC's estimation of its own risk profile, it is not available at the same detailed level at the moment. Given these limitations, the decision was taken to allocate capital on the basis of a risk-weighted asset (RWA) coefficient that reflects the aspects of economic capital. This policy introduces the concept of risk-adjusted profit (RAP) as the (absolute) measure of company profitability, but with an inherent adjustment for capital and risk-related factors. For certain categories of key identified staff for whom the competent control function has assessed that the RAP is an inadequate risk-adjustment mechanism, this framework will be supplemented by additional performance indicators that are better designed to measure risk. The aim is to evaluate how this new framework works after one year and to adjust it, where necessary. Furthermore, the breakdown between the fixed and variable components of the total remuneration package will again be critically examined on the basis of an objective market comparison and adjusted, where necessary.
As already explained above, payment of the total annual variable remuneration is not only spread over time, half of it is also awarded in the form of phantom stocks that are to be retained for a period of one year. The variable remuneration component, including the deferred part, is only acquired when this can be reconciled with the financial situation of the entire institution and justified by the performances of the KBC group and the EC.
Action can be taken regarding payment of deferred amounts that have still to be acquired (malus arrangement), when:
In this regard, the Board takes a decision on the advice of the Remuneration Committee.
Variable remuneration already acquired will exceptionally be clawed back when there is:
Given the very modest profit posted by KBC for 2011 and the fact that, as a direct consequence, only a symbolic dividend will be paid for that year, neither KBC Group NV nor any other KBC group company in Belgium or abroad in which certain non-executive directors of KBC Group NV held office during 2011, will pay a fixed remuneration out of profits to these directors for the 2011 financial year. However, the directors in question are paid attendance fees in proportion to the number of meetings they attended of the Board of KBC Group NV and, where relevant, of the other companies of the KBC group in Belgium or abroad. As mentioned above, the chairmen of the Board and the ARC Committee both receive the remuneration specifically related to their office.
| Remuneration per individual director (on a consolidated basis, in EUR) | Remuneration (for FY 2011) |
Remuneration for ARC Committee members (for FY 2011) |
Attendance fees (for FY 2011) |
|---|---|---|---|
| Thomas Leysen1 | 137 500 | 0 | 30 000 |
| Paul Borghgraef | 0 | 0 | 37 500 |
| Alain Bostoen | 0 | 0 | 35 000 |
| Jozef Cornu | 0 | 0 | 35 000 |
| Marc De Ceuster | 0 | 30 000 | 40 000 |
| Tom Dechaene² | 0 | 6 000 | 20 000 |
| Franky Depickere | 0 | 187 000 | 176 250 |
| Luc Discry | 0 | 0 | 75 000 |
| Frank Donck | 0 | 0 | 41 250 |
| Jean-Pierre Hansen | 0 | 0 | 30 000 |
| Dirk Heremans | 0 | 27 000 | 35 000 |
| Lode Morlion | 0 | 0 | 40 000 |
| Philippe Naert | 0 | 30 000 | 37 500 |
| Theodoros Roussis | 0 | 24 000 | 32 500 |
| Hendrik Soete | 0 | 0 | 40 000 |
| Eric Stroobants | 0 | 0 | 35 000 |
| Alain Tytgadt | 0 | 0 | 37 500 |
| Ghislaine Van Kerckhove | 0 | 0 | 32 500 |
| Charles Van Wymeersch | 0 | 0 | 40 000 |
| Piet Vanthemsche | 0 | 0 | 50 000 |
| Philippe Vlerick | 0 | 0 | 105 000 |
| Marc Wittemans | 0 | 60 000 | 60 000 |
| Jan Huyghebaert³ | 311 000 | 0 | 101 500 |
1 Chairman of the Board as from 1 October 2011. The figures stated here relate to the fixed remuneration he received as chairman from 1 October 2011 and the attendance fees he received from the time of his appointment to the office of director on 28 April 2011 until 1 October 2011.
2 Observer since 11 May 2011 and director since 1 October 2011.
3 Chairman of the Board until 1 October 2011.
The members of the EC who also sit on the Board as executive directors did not receive either a fixed remuneration or any attendance fees.
For members of the EC, results-based variable remuneration is set as a percentage of the net result recorded by KBC Group NV (at the consolidated level), while performance-related variable remuneration is set as a percentage of the fixed remuneration component (between 0% and 30%), after the work they have performed has been evaluated on the basis of several pre-agreed criteria. The members of the EC forego all forms of variable remuneration for 2011.
The EC of KBC Group NV is a collective body, whose president is the first among equals and not a Chief Executive Officer (CEO) who is the sole executive and accountable representative of the company. Nevertheless, in implementation of company law and the Code, the individual remuneration paid to the President of the EC is shown in the table.
The aggregate remuneration paid by KBC Group NV and its direct and indirect subsidiaries to members of the EC of KBC Group NV other than the President of the Committee for the 2011 financial year is also shown in the table. A number of changes were made to the composition of the EC during the course of 2011, some of which had an impact on the total amount of remuneration. Consequently, the following was included in the total amounts:
| Remuneration paid to the EC of KBC Group NV during 2011 (in EUR) | Jan Vanhevel (full financial year) |
Other members of the Executive Com mittee (combined) |
|---|---|---|
| Employment status | Self-employed | Self-employed |
| Basic remuneration (fixed) | 727 605 | 3 151 949 |
| Results-based remuneration for financial year 2011 (variable) | 0 | 0 |
| Performance-related remuneration for financial year 2011 (variable) | 0 | 0 |
| Results-based remuneration for previous financial years1 (variable) |
0 | 372 059 |
| Performance-related remuneration for previous financial years1 (variable) |
0 | 116 956 |
| Total | 727 605 | 3 640 964 |
| Pension² | ||
| Supplementary defined-benefit pension plan (service cost) | 106 321 | 637 927 |
| Supplementary defined-contribution pension plan (contribution transferred to pension fund) for 2011 | 0 | 0 |
| Other benefits³ | 167 | 89 028 |
1 Results-based and performance-related variable remuneration was awarded for financial year 2010. Usually, half of the cash component (which accounts for 50% of total variable renumeration) would be paid in 2011, with payment of the other half being spread over financial years 2012, 2013 and 2014. At the start of 2011, however, the EC decided to move the vesting period for the first tranche back by one year and to link it to the repayment of government support, which meant that both the first tranche and the first portion of the deferred tranche were acquired in 2011 (payment in 2012). Consequently, the amount stated here is 66.66% of the cash component of variable remuneration for 2010. Jan Vanhevel (President of the EC) decided to further postpone payment of the (results-based and performancerelated) variable remuneration due to him for financial year 2010.
2 The pension scheme for members of the EC comprises a small defined-contribution pension plan and the main defined-benefit pension plan. The defined-contribution plan applies to all members of the EC as from the year following the year in which the member in question has sat on the EC for three years. It is funded by KBC via an annual contribution (to the KBC pension fund), the size of which is expressed as a percentage of KBC's consolidated net profit. This percentage depends on the trend in earnings per share. Given the very modest level of consolidated net profit, no contributions were paid during 2011. The defined-benefit plan applies to members of the EC as soon as they take a seat on the committee. Entitlement to a full supplementary retirement pension is acquired after 25 years' service in the KBC group, at least six of which as a member of the EC. Each supplementary pension (unless built up through personal contributions) – the right to which has been acquired elsewhere in the group in whatever capacity (self-employed or employee) – is taken into account when calculating this retirement pension, i.e. no accumulation is possible.
3 Each member of the EC receives a representation allowance of 400 euros per month. As this is a flat-rate reimbursement of expenses, the amount has not been included in the table. Each member of the EC also has a company car, the personal use of which is charged on the basis of a fixed 7 500 kilometres per year. The benefits which members of the EC do receive are hospitalisation insurance and assistance insurance. Furthermore, the two non-Belgian expatriate members of the EC receive a housing allowance and sickness insurance.
The remuneration package awarded to members of the EC does not include a long-term cash bonus.
As described above, half of the total annual variable remuneration is awarded in the form of phantom stocks that are to be retained for a period of one year. Due to the fact that the EC forewent all forms of variable remuneration for 2011, no phantom stocks were awarded for that financial year.
Given that the phantom stock plan was launched only in 2011 (for financial year 2010), the first phantom stocks will only be converted into cash in 2012.
Under the conditions stipulated by the Belgian Federal and Flemish Regional governments following the transactions to strengthen core capital in 2008 and 2009, severance payments (to be made when departure is at the initiative of the company) for executive directors and members of the EC have been limited to 12 months' fixed remuneration since the end of October 2008.
In application of the provisions of the Belgian Companies Code and the Belgian Corporate Governance Code, the main features of the internal control and risk management systems at KBC are set out below (Part 1 contains general information, while Part 2 deals specifically with the financial reporting process).
The strategy and organisational structure of the KBC group are dealt with in the 'Strategy and company profile' and 'Structure and management' sections of this annual report.
KBC aims to be an efficient bancassurer and asset manager that shows a strong affinity for its customers and careful consideration for its employees. It focuses on private individuals, the self-employed, members of the liberal professions, small and medium-sized enterprises and mid-cap customers in selected European countries, while seeking to achieve a sound level of profitability through efficiency, customer focus, employee satisfaction and sound risk management.
KBC also seeks to identify with the various communities in which it operates by using local trade names, employing local management and pursuing socially responsible business practices in line with the standards of the countries concerned.
The KBC group has a dual governance structure based on the Belgian model:
The KBC Corporate Governance Charter describes the mutual responsibilities of both management bodies, their composition and activities, as well as the qualification requirements for their members. Their composition and activities are dealt with in more detail elsewhere in this Statement.
KBC conducts its activities in compliance with both the letter and the spirit of prevailing laws and regulations, whilst also taking account of changing societal norms and ensuring that its activities contribute towards economic, social and environmental advancement in its areas of operation. KBC gives priority to the needs and interests of its customers, its shareholders, its staff and the broader community in which it operates. In its relationship with them, KBC imposes rules on itself concerning fairness and reasonableness, openness and transparency, discretion and respect for privacy.
These principles are set out in the integrity policy, as well as in specific codes, instructions and codes of conduct. The main guidelines and policy memos on socially responsible business practices can be found at www.kbc.com/csr.
The most important guidelines relating to the integrity policy are:
KBC's vision on corporate social responsibility is set out in its Principles for Socially Responsible Business (available at www.kbc.com).
To support its strategic mission and to arm itself against the risks that could prevent it from achieving its mission, the EC – under its responsibility and the supervision of the Board – has implemented a multi-layered internal control system. This system is commonly known as the 'Three Lines of Defence' model.
As the first line of defence, the business operations side is responsible for being aware of the risks in its own domain and for having adapted and effective controls in place. This responsibility extends to all types of risk, including fraud and compliance with regulatory or legal requirements. In this regard, it can call upon the services of a number of support departments, including Inspection, Value and Risk Management, Compliance, Legal and Tax units, Human Resources, Accounting and Internal Audit.
Independent of the business side and following advanced industry standards, Value and Risk Management is tasked with drawing up a group-wide framework for value, risk and capital management, monitoring implementation of the framework, and assisting line management in the use of value, risk and capital management instruments and techniques. More information on value and risk management is provided in the relevant section of this report.
KBC has installed local chief risk officers (LCROs) at various levels within the organisation. They work closely with the business operations since they participate in the local decision-making process. They report to the Group CRO, which guarantees their independence.
The Compliance function is an independent function within the KBC group, protected by its modified status (as described in the Compliance Charter), its place in the organisation chart (hierarchically under the President of the EC) and its reporting lines (reporting to the ARC Committee as the highest body). Its mission is to prevent the KBC group from incurring any financial, legal or reputational loss/ damage or sanctions due to non-compliance with applicable laws, decrees and in-house standards, or failure to measure up to the lawful expectations of customers, staff and society in general, particularly in those areas assigned to it in the integrity policy.
Internal Audit checks whether the risks faced by the KBC group are managed adequately and, where necessary, whether they are being restricted or eliminated. It is responsible for ensuring that business processes and collaboration throughout the organisation occur in an efficient and effective manner and for guaranteeing continuity of operations. Internal Audit's scope covers all legal entities, activities and departments, including the various control functions, within the KBC group.
Responsibilities, features, organisational structure and reporting lines, scope, audit methodology, co-operation between internal audit departments of the KBC group, and outsourcing of internal audit activities are set out in the Audit Charter of KBC Group NV. This charter complies with the stipulations of CBFA/FSMA Circular D1 97/4 (banks) and PPB-2006-8-CPA (insurance).
In accordance with international professional audit standards, the audit function is screened on a regular basis by an external entity (the last time this happened was in 2009). The results of that exercise were reported to the EC and ARC Committee within their remit of supervising and assessing Internal Audit.
Each year, the EC evaluates the adaptability of the internal control and risk management system and reports its findings to the ARC Committee.
The ARC Committee supervises, on behalf of the Board, the integrity and effectiveness of the internal control measures and the risk management in place – as set up under the EC – paying special attention to correct financial reporting. The committee also follows the procedures set up by the company to comply with the law and other regulations.
The role, composition, activities and qualifications of its members are laid down in the ARC Committee charter, the last one of which was approved by the Board on 23 September 2010. More information on the ARC Committee is provided elsewhere in this section.
It is vitally important that timely, accurate and understandable financial reports are provided to both internal and external stakeholders. Therefore, the underlying process needs to be robust enough to ensure this happens.
At KBC, periodic reporting at company level is based on a documented accounting process. A manual on the accounting procedures and financial reporting process is available. Periodic financial statements are prepared directly from the general ledger. Bookkeeping accounts are linked to underlying inventories. The result of these controls can be demonstrated.
Periodic financial statements are prepared in accordance with local accounting policies and periodic reports on own funds in accordance with the CBFA Resolution of 17 October 2006.
The main affiliated companies have their own accounting and administrative organisation, as well as a set of procedures for internal financial controls. A descriptive document on the consolidation process is available. The consolidation system and the consolidation process have been operational for some time and have numerous built-in consistency controls.
The consolidated financial statements are prepared in accordance with IFRS accounting policies that apply to all the companies included in the scope of consolidation. The relevant senior financial managers (CFOs) of the subsidiaries certify to the accuracy and completeness of the financial figures reported in accordance with group accounting policies. The Approval Committee chaired by the Senior General Manager of Group Finance monitors compliance with IFRS accounting policies.
Pursuant to the Act of 15 May 2007, the EC of KBC Group NV evaluated the internal control system for the financial reporting process and prepared a report on its findings.
The existence of monitored Group Standard Accounting Controls (since 2006) is one of the mainstays in the internal control of the corporate accounting process. These controls set the rules for managing the main operational risks attached to the corporate accounting process and involve the establishment and maintenance of accounting process architecture: the establishment and maintenance of accounting policies and accounting presentations, compliance with authorisation rules and the separation of responsibilities when transactions are registered in the accounts, and the establishment of appropriate first- and second-line account management.
In addition, the group-wide roll-out of 'fast close' procedures, the monitoring of intercompany transactions within the group, and permanent follow-up of a number of indicators relating to risk, performance and quality (Key Risk Indicators and Key Performance Indicators) continually help raise the quality of the financial reporting process.
The internal control and risk management system embedded in the financial reporting process was completed in 2011 by the development and implementation of the Reporting Framework. This framework defines a robust governance structure and clearly describes all the roles and responsibilities of the various players, with the aim to unambiguously demonstrate how the risks specific to the financial reporting process are kept under control. Each year (and for the first time relating to 2011), all CFOs of the entities in question are required to submit their Entity Accountability Excel sheets and the underlying Departmental Reference documents [RACIs] to the Expert Local Operational Risk Manager of Group Finance in preparation for the group-wide assessment of the internal control system. In this way, they formally confirm by substantiated means that all the defined roles and responsibilities relating to the end-to-end financial reporting process have been properly assumed within their entity. The veracity of this confirmation can be checked at any time by all the internal and external stakeholders involved.
During 2012, the essence of the internal control and risk management system will be safeguarded in the Financial Reporting Group Key Control. Using the assessment system of the Group Value and Risk Management Directorate, each entity will have to evaluate whether or not the Group Key Control has been complied with. This will ensure that such assessments become easier to follow up.
The external reporting process at both company and consolidated level is audited end-to-end by KBC Internal Audit at least once every three years.
For details of the ARC Committee's supervisory work, see the second paragraph of point 4 in the first part of this text.
The corporate governance statement included in the annual report must also indicate whether any provisions of the Code have not been complied with and state the reasons for non-compliance (the 'comply-or-explain' principle). This information is provided below.
Provision 2.1. of the Belgian Corporate Governance Code (the Code) stipulates that one of the factors for deciding the composition of the Board should be gender diversity (see 'Gender diversity' below).
Provision 5.2./1 of Appendix C to the Code stipulates that the Board should set up an audit committee composed exclusively of nonexecutive directors. Provision 5.2./4 of the same appendix additionally specifies that at least a majority of its members should be independent. Provision 5.3./1 of Appendix D to the Code stipulates that the Board should set up a nomination committee composed of a majority of independent non-executive directors.
At year-end 2011, the ARC Committee was composed of seven non-executive directors, two of whom were independent, two were appointed by the Belgian Federal and Flemish Regional governments (one each) and three who represented the core shareholders. Independent directors are, therefore, in the minority on this committee.
On 31 December 2011, the Nomination Committee was composed of seven non-executive directors, one of whom was the Chairman of the Board, one an independent director, one appointed by the government, one executive director and three representatives of the core shareholders. Independent directors are, therefore, in the minority on this committee. On 19 March 2012 and following the advice of the committee, the Board appointed Dirk Heremans (independent director) to this committee.
When selecting the members of the ARC Committee and Nomination Committee – as is also the case with the Board – account is taken of the specific shareholder structure of KBC Group NV and, in particular, of the presence of Cera, KBC Ancora, MRBB and the other core shareholders. In this way, a balance is maintained that is beneficial to the stability and continuity of the group. Moreover, by having their representatives on these Board committees, the core shareholders are able to monitor operational reporting (ARC Committee) and recruitment and nomination matters (Nomination Committee) in full knowledge of the facts. This enhances equilibrium, quality and efficiency within the Board's decision-making process.
In 2011, a provision was included in company law stipulating that, over time, at least one-third of a board's members must be of a different gender than the other members. Provision 2.1. of the Code stipulates that one of the factors for deciding the composition of a board should be gender diversity.
At present, one woman and twenty-four men sit on the Board. Committed to the principles of gender diversity, the Board is endeavouring to achieve a greater representation of women among its ranks. At present, preparations are being made to gradually increase the number of female directors to the required quota by no later than 2017.
There were no conflicts of interest during the 2011 financial year that required the application of Article 523 or 524 of the Belgian Companies Code.
At the General Meeting of KBC Group NV of 29 April 2010, the mandate granted to Ernst & Young Bedrijfsrevisoren BCVBA – represented by Pierre Vanderbeek and/or Peter Telders – was renewed for a period of three years.
Details of the statutory auditor's remuneration are provided in Note 43 of the 'Consolidated financial statements' section (consolidated figures for the entire group) and in Note 6 of the 'Company annual accounts' section (for KBC Group NV alone).
Article 10bis of the Articles of Association of KBC Group NV (available at www.kbc.com) stipulates the threshold at which individuals must disclose their shareholdings. KBC publishes these notifications on www.kbc.com. The table provides an overview of the shareholder structure at year-end 2011, based on all the notifications received by 31 December 2011. The 'Company annual accounts' section also contains an overview of notifications received in 2010 and 2011. Please note that the number of shares stated in the notifications may differ from the current number in possession, as a change in the number of shares held does not always give rise to a new notification.
| Notification relating to |
Address | Number of KBC shares (as a % of the sum of the outstanding number of shares at the time of disclosure) |
|
|---|---|---|---|
| KBC Ancora Comm.VA1 | 1 September 2008 | Philipssite 5, box 10, 3001 Leuven, Belgium | 82 216 380 (23.15%) |
| Cera CVBA1 | 1 September 2008 | Philipssite 5, box 10, 3001 Leuven, Belgium | 25 903 183 (7.29%) |
| MRBB CVBA1 | 1 September 2008 | Diestsevest 40, 3000 Leuven, Belgium | 42 562 675 (11.99%) |
| Other core shareholders1 | 1 September 2008 | C/o Ph. Vlerick, Ronsevaalstraat 2, 8510 Bellegem, Belgium |
39 867 989 (11.23%) |
| KBC group companies | 1 September 2008 | Havenlaan 2, 1080 Brussels, Belgium | 18 240 777 (5.14%) |
| BlackRock Inc.2 | 2 December 2011 | 12 Throgmorton Avenue, EC2N 2DL London, United Kingdom |
10 518 102 (2.94%)2 |
1 Of these shares, the following quantities were contributed by the entities and individuals acting in concert: 32 634 899 by KBC Ancora Comm.VA, 10 080 938 by Cera CVBA, 26 436 213 by MRBB CVBA and all 39 867 989 by other core shareholders. These shares were the subject of a separate notification.
2 Notification of a change in shareholding to below the 3% notification threshold. More information is provided in the 'Company annual accounts' section.
The share capital was fully paid up and was represented by 357 980 313 shares of no nominal value. More information on the group's capital can be found in the 'Company annual accounts' section.
Each year, KBC Group NV carries out a capital increase reserved for its employees and the employees of certain of its Belgian subsidiaries. If the issue price of the new shares is less than the reference price stated in the issue terms, these new shares may not be transferred by the employee for two years, starting from the payment date, unless he or she dies. At year-end 2011, no shares were blocked in this regard.
The options on KBC Group NV shares held by employees of the various KBC group companies and allocated to them under stock option plans set up at different points in time, may not be transferred inter vivos. For an overview of the number of stock options for staff, see Note 12 in the 'Consolidated financial statements' section.
3 Holders of any securities with special control rights None.
None.
The voting rights attached to the shares held by KBC Group NV and its direct and indirect subsidiaries have been suspended. At 31 December 2011, these rights were suspended for 18 169 054 shares, i.e. 5.08% of the number of shares in circulation at that time.
A group of legal entities and individuals act in concert and constitute the core shareholders of KBC Group NV. As indicated in their disclosure, the number of voting rights held by these entities and individuals on 1 September 2008 was:
That is a total of 109 020 039 shares carrying voting rights, or 30.70% of the total number of such shares (including those suspended: see above) on 1 September 2008 (355 122 707 shares in total). That is 30.45% compared with the total number of shares carrying voting rights on 31 December 2011 (357 980 313). A shareholder agreement was concluded between these parties in order to support and co-ordinate the general policy of KBC Group NV and to supervise its implementation. The agreement provides for a contractual shareholder syndicate. The shareholder agreement includes stipulations on the transfer of securities and the exercise of voting rights within the shareholder syndicate.
When KBC Group NV issued 3.5 billion euros' worth of securities to the Federal Holding and Investment Company in mid-December 2008 in an operation to bolster the group's core capital, the core shareholders of KBC Group NV entered into a number of commitments, including the following one. They formally undertook not to offer their shares if a voluntary or mandatory public takeover bid were to be made for all of KBC's shares nor, as the case may be, to sell a quantity of KBC shares that could trigger a mandatory bid, nor to transfer their shares prior to the start of, during or after a public takeover bid to (a) (future) bidder(s) or related party nor grant any right to that end, without obtaining a formal commitment on the part of the (future) bidder(s) that, when the bid is closed, it (they) would compel KBC to redeem all outstanding core-capital securities (subject to the approval of the NBB) or it (they) would buy all outstanding core-capital securities itself (themselves), in both cases at a price equal to 44.25 euros per security. The core shareholders gave the same undertaking when KBC Group NV issued 3.5 billion euros' worth of securities in a second operation that was subscribed by the Flemish Region in mid-July 2009.
Following the advice of the NBB, proposals to appoint nominated directors or to re-appoint directors are submitted by the Board to the General Meeting for approval. Each proposal is accompanied by a documented recommendation from the Board, based on the advice of the Nomination Committee. Without prejudice to the applicable legal provisions, nominations are communicated as a separate agenda item for the General Meeting at least thirty days before it is held. When nominating an independent director, the Board will state whether the individual meets the independence criteria of the Companies Code.
The General Meeting appoints directors by a simple majority of votes cast. From among its non-executive members, the Board elects a chairman and one or more deputy chairmen, if necessary. Outgoing directors are always eligible for re-appointment.
If, during the course of a financial year, a directorship falls vacant as a result of decease, resignation, dismissal or for any other reason, the remaining directors may provisionally arrange for a replacement and appoint a new director. In that case, the next General Meeting will proceed to a definitive appointment. A director appointed to replace a director whose term of office had not yet come to an end will complete this term of office, unless the General Meeting decides on a different term when making the definitive appointment.
Unless stipulated otherwise, the General Meeting is entitled to amend the Articles of Association. Accordingly, the General Meeting may only validly deliberate and take decisions about such amendments if they have been expressly proposed in the convening notice and if those attending the meeting represent at least half the share capital. If the latter condition is not satisfied, a new convening notice is required and the new meeting can validly deliberate and take decisions, regardless of the share of capital represented by the shareholders attending the meeting. An amendment is only adopted if it receives three-quarters of the votes cast (Article 558 of the Companies Code).
If an amendment to the Articles of Association pertains to the object of the company, the Board must justify the proposed amendment in a detailed report that is referred to in the agenda. A statement of assets and liabilities drawn up no longer than three months previously must be included in this report and be reported on separately by the statutory auditors. Copies of the reports in question can be obtained in accordance with Article 535 of the Companies Code. If these reports do not appear, decisions taken at the General Meeting will be null and void. The General Meeting may only deliberate and take decisions in a valid manner if those present not only represent half of the share capital (…). If this condition is not satisfied, a second convening notice is required. To ensure that the second meeting can deliberate and take decisions validly, it is sufficient that some of the capital is represented. An amendment will then only be adopted if it receives at least four-fifths of the votes cast. (…) (excerpt from Article 559 of the Companies Code).
The General Meeting authorised the Board until 21 May 2014 to increase, in one or more steps, the share capital by a total amount of 900 million euros, in cash or in kind, by issuing shares or convertible bonds (whether subordinated or otherwise) or warrants that may or may not be linked to bonds (whether subordinated or otherwise). Under this authorisation, the Board can suspend or restrict pre-emptive rights, subject to the limits laid down by law and the Articles of Association. The Board can exercise this authorisation, pursuant to the conditions and within the limits laid down in the Companies Code, even after the date of receipt of notification from the FSMA that it has been apprised of a public takeover bid for the company's shares. This special authorisation is valid until 28 April 2014. On 31 December 2011, the amount by which capital may be increased came to 899 208 331 euros. Consequently, when account is taken of the accounting par value of the share on 31 December 2011, a maximum of 258 393 198 new shares can still be issued, i.e. 72.2% of the number of shares in circulation at that time. On 22 September 2011, the Board decided to use its authorisation to increase capital by issuing shares without pre-emptive rights to employees at a price of 14.63 euros per share and with a limit of 49 shares per employee. On 25 November 2011, the issued share capital was increased by 146 577.60 euros (represented by 42 120 new shares).
The authorisation granted by the General Meeting to the boards of KBC Group NV and its direct subsidiaries to acquire and take in pledge KBC Group NV treasury shares (subject to certain conditions), lapsed on 23 October 2009 and was not renewed. However, the boards of KBC Group NV and its direct subsidiaries have been authorised until 27 May 2013 to purchase or sell KBC Group NV shares, whenever their purchase or sale is necessary to prevent KBC Group NV from suffering serious imminent disadvantage. One of the proposals to the Extraordinary General Meeting of Shareholders on 3 May 2012 will be to renew this authorisation for a period of three years, starting from the time the decision to renew it is announced.
Lastly, the General Meeting authorised the aforementioned Boards of Directors to sell their KBC Group NV shares on or off the exchange. In the latter case, the price may not be lower than that prevailing on the exchange at the time of sale, less 5%. One of the proposals to the General Meeting of 3 May 2012 will be to increase this percentage to 10%. On 31 December 2011, KBC Group NV and its direct subsidiaries held a total of 18 168 752 KBC Group NV shares (i.e. 5.075% of the number of shares in circulation at that time) primarily for the purpose of the buyback programmes approved by the General Meeting and for hedging KBC's employee stock option plans.
9 Significant agreements to which KBC Group NV is a party and which take effect, alter or terminate upon a change of control of KBC Group NV following a public takeover bid None.
10 Agreements between KBC and its directors or employees providing for compensation if the directors resign or are made redundant, or if employees are made redundant, without valid reason following a public takeover bid None.
Within the framework of this law, KBC Group NV received a number of updated disclosures in 2011. This information has been incorporated into the table of disclosures received. The entities and individuals referred to below act in concert. However, the quantities of shares stated are not necessarily all contributed by these entities and individuals acting in this way: some quantities may also include free shares.
entity
Moulins de
schappij
SA
A Disclosures by a legal entities b individuals holding 3% or more of securities carrying voting rights1 c legal entities with control over the legal entities referred to under a d individuals who, via control over the legal entities referred to under a, indirectly hold 3% or more of securities carrying voting rights1 Shareholder Shareholding (quantity) %2 Controlling individual/ entity Shareholder Shareholding (quantity) %2 Controlling individual/ KBC Ancora Comm.VA 82 216 3803 22.97% Cera CVBA Algimo NV 320 8163 0.09% Individual(s) MRBB 46 289 8643 12.93% HBB vzw Rodep Comm.VA 303 0003 0.08% Individual(s) Cera CVBA 26 127 1663 7.30% – SAK Berkenstede 268 9703 0.08% – SAK AGEV 12 354 6953 3.45% – Robor NV 238 9883 0.07% Individual(s) Plastiche NV 3 189 4823 0.89% Individual(s) Efiga Invest sprl 233 8063 0.07% Kleinbettingen 3D NV 2 323 0853 0.65% SAK Iberanfra La Pérégrina 220 5884 0.06% ING Trust Setas SA 1 626 4013 0.45% SAK Setas Promark International NV 189 0083 0.05% Individual(s) SAK Pula 1 434 2503 0.40% – Hermes Invest NV 180 2253 0.05% – Vrij en Vrank CVBA 1 335 2583 0.37% SAK Prof. Vlerick SAK Hermes Controle en Beheersmij 148 5273 0.04% – De Berk BVBA 1 138 2083 0.32% Individual(s) Lineago Trust 148 4003 0.04% – De Lelie GCV 1 000 0003 0.28% – Tradisud NV 146 5004 0.04% – Rainyve SA 941 9583 0.26% – SAK Iberanfra 121 2733 0.03% – Stichting Amici Almae Matris 912 7313 0.26% – Sinfonia Investments NV 115 8393 0.03% SAK Hermes Controle en Beheersmaat-Basil Finance SA 860 0003 0.24% – I.B.P. Ravago Pensioenfonds 115 8333 0.03% – Van Holsbeeck nv 770 8373 0.22% Individual(s) Inkao-Invest bvba 113 6793 0.03% Robor NV Ceco c.v.a. 568 8493 0.16% Individual(s) Meralpa NV 98 5774 0.03% – Nascar Finance SA 560 0003 0.16% – Edilu NV 70 0004 0.02% – Partapar SA 559 8183 0.16% Individual(s) Wilig NV 42 4724 0.01% – Cordalia SA 425 2503 0.12% Individual(s) Mercurius Invest NV 40 2303 0.01% – Mapicius SA 425 2503 0.12% Individual(s) Bevek Vlam 21 39 0064 0.01% ABN Amro Cecan Invest NV 397 5633 0.11% SAK Prof. Vlerick Filax Stichting 38 5293 0.01% Individual(s) Plastiche Holding Sarl 375 0003 0.10% – Lycol NV 31 9394 0.01% – Mercator NV 366 4273 0.10% Bâloise-holding Van Vuchelen en Co CVA 27 7854 0.01% – VIM CVBA 361 5623 0.10% Individual(s) Asphalia NV 14 2413 0.00% Individual(s)
Kristo Van Holsbeeck
Colver NV 322 0994 0.09% – Christeyns NV 3 2713 0.00% –
bvba 6 9503 0.00% Individual(s)
Sereno SA 333 4083 0.09% Individual(s)
| Shareholding (quantity) |
%2 | Shareholding (quantity) |
%2 | Shareholding (quantity) |
%2 | Shareholding (quantity) |
%2 |
|---|---|---|---|---|---|---|---|
| 330 8033 | 0.09% | 48 8003 | 0.01% | 15 1323 | 0.00% | 4 5494 | 0.00% |
| 274 8393 | 0.08% | 48 1413 | 0.01% | 15 1323 | 0.00% | 3 7594 | 0.00% |
| 235 0003 | 0.07% | 46 4413 | 0.01% | 15 0003 | 0.00% | 3 3754 | 0.00% |
| 141 4663 | 0.04% | 46 2003 | 0.01% | 15 0003 | 0.00% | 3 3754 | 0.00% |
| 107 5003 | 0.03% | 45 4413 | 0.01% | 15 0003 | 0.00% | 3 3754 | 0.00% |
| 96 9033 | 0.03% | 43 2003 | 0.01% | 14 5223 | 0.00% | 3 3754 | 0.00% |
| 96 9033 | 0.03% | 39 2644 | 0.01% | 13 9054 | 0.00% | 3 3754 | 0.00% |
| 96 9033 | 0.03% | 33 0694 | 0.01% | 13 9054 | 0.00% | 3 2404 | 0.00% |
| 84 0783 | 0.02% | 32 9943 | 0.01% | 12 5394 | 0.00% | 2 8003 | 0.00% |
| 82 2633 | 0.02% | 32 9943 | 0.01% | 11 0424 | 0.00% | 2 2954 | 0.00% |
| 75 0003 | 0.02% | 32 9783 | 0.01% | 11 0394 | 0.00% | 2 0253 | 0.00% |
| 69 5003 | 0.02% | 32 9783 | 0.01% | 10 9924 | 0.00% | 1 3504 | 0.00% |
| 67 5003 | 0.02% | 25 5004 | 0.01% | 9 7614 | 0.00% | 1 2694 | 0.00% |
| 67 5003 | 0.02% | 24 7254 | 0.01% | 8 8504 | 0.00% | 1 0003 | 0.00% |
| 63 5994 | 0.02% | 22 6114 | 0.01% | 8 5564 | 0.00% | 8774 | 0.00% |
| 64 5503 | 0.02% | 22 3434 | 0.01% | 8 4844 | 0.00% | 7744 | 0.00% |
| 57 8413 | 0.02% | 22 3434 | 0.01% | 8 3164 | 0.00% | 5134 | 0.00% |
| 56 9503 | 0.02% | 22 3424 | 0.01% | 8 2124 | 0.00% | 5003 | 0.00% |
| 55 4064 | 0.02% | 21 8973 | 0.01% | 8 2124 | 0.00% | 3244 | 0.00% |
| 54 9864 | 0.02% | 20 0074 | 0.01% | 7 8843 | 0.00% | 2434 | 0.00% |
| 52 4993 | 0.01% | 19 5464 | 0.01% | 6 9934 | 0.00% | 2284 | 0.00% |
| 52 0003 | 0.01% | 16 7334 | 0.00% | 6 5404 | 0.00% | 273 | 0.00% |
| 49 6003 | 0.01% | 16 0003 | 0.00% | 4 5904 | 0.00% | 243 | 0.00% |
1 No such disclosures were received.
2 Total outstanding number of shares on 30 June and 1 September 2011: 357 938 193.
3 Situation as at 30 June 2011.
4 Situation as at 1 September 2011.
5 Some of these shareholdings have been reported as being in bare ownership without voting rights and some as being held in usufruct with voting rights.
| (in millions of EUR) | Note | 2010 | 2011 |
|---|---|---|---|
| Net interest income | 3 | 6 245 | 5 479 |
| Interest income | 3 | 10 542 | 11 883 |
| Interest expense | 3 | -4 297 | -6 404 |
| Earned premiums, insurance (before reinsurance) | 9 | 4 616 | 4 119 |
| Non-life | 11 | 1 916 | 1 861 |
| Life | 10 | 2 700 | 2 258 |
| Technical charges, insurance (before reinsurance) | 9 | -4 261 | -3 541 |
| Non-life | 9 | -1 249 | -996 |
| Life | 9 | -3 012 | -2 545 |
| Ceded reinsurance result | 9 | -8 | -44 |
| Dividend income | 4 | 97 | 85 |
| Net result from financial instruments at fair value through profit or loss | 5 | -77 | -178 |
| Net realised result from available-for-sale assets | 6 | 90 | 169 |
| Net fee and commission income | 7 | 1 224 | 1 164 |
| Fee and commission income | 7 | 2 156 | 2 043 |
| Fee and commission expense | 7 | -932 | -878 |
| Other net income | 8 | 452 | 56 |
| TOTAL INCOME | 8 378 | 7 310 | |
| Operating expenses | 12 | -4 436 | -4 344 |
| Staff expenses | 12 | -2 529 | -2 569 |
| General administrative expenses | 12 | -1 546 | -1 449 |
| Depreciation and amortisation of fixed assets | 12 | -361 | -326 |
| Impairment | 14 | -1 656 | -2 123 |
| on loans and receivables | 14 | -1 483 | -1 333 |
| on available-for-sale assets | 14 | -31 | -417 |
| on goodwill | 14 | -88 | -120 |
| other | 14 | -54 | -253 |
| Share in results of associated companies | 15 | -63 | -58 |
| RESULT BEFORE TAX | 2 224 | 786 | |
| Income tax expense | 16 | -82 | -320 |
| Net post-tax result from discontinued operations | 46 | -254 | -419 |
| RESULT AFTER TAX | 1 888 | 47 | |
| attributable to minority interests | 28 | 34 | |
| of which relating to discontinued operations | 0 | 0 | |
| attributable to equity holders of the parent | 1 860 | 13 | |
| of which relating to discontinued operations | -254 | -419 | |
| Earnings per share (in EUR) | |||
| Basic | 17 | 3.72 | -1.93 |
| Diluted | 17 | 3.72 | -1.93 |
| (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| RESULT AFTER TAX | 1 888 | 47 |
| attributable to minority interests | 28 | 34 |
| attributable to equity holders of the parent | 1 860 | 13 |
| OTHER COMPREHENSIVE INCOME | ||
| Net change in revaluation reserve for shares | 49 | -162 |
| Fair value adjustments before tax | 105 | -171 |
| Deferred tax on fair value changes | -7 | 12 |
| Transfer from reserve to net result | -48 | -3 |
| Impairment | 9 | 40 |
| Net gains/losses on disposal | -60 | -43 |
| Deferred taxes on income | 3 | 0 |
| Net change in revaluation reserve for bonds | -427 | -32 |
| Fair value adjustments before tax | -874 | -251 |
| Deferred tax on fair value changes | 297 | 48 |
| Transfer from reserve to net result | 151 | 171 |
| Impairment | -54 | 158 |
| Net gains/losses on disposal | 17 | -22 |
| Amortisation and impairment of revaluation reserve for available-for-sale financial assets following reclassification to 'loans and receivables' |
284 | 81 |
| Deferred taxes on income | -96 | -46 |
| Net change in revaluation reserve for other assets | 1 | -1 |
| Fair value adjustments before tax | 1 | 0 |
| Deferred tax on fair value changes | 0 | 0 |
| Transfer from reserve to net result | 0 | -1 |
| Impairment | 0 | 0 |
| Net gains/losses on disposal | 0 | -1 |
| Deferred taxes on income | 0 | 0 |
| Net change in hedging reserve (cashflow hedges) | -68 | -150 |
| Fair value adjustments before tax | -131 | -336 |
| Deferred tax on fair value changes | 54 | 127 |
| Transfer from reserve to net result | 8 | 58 |
| Gross amount | 10 | 89 |
| Deferred taxes on income | -2 | -32 |
| Net change in translation differences | 63 | -154 |
| Gross amount | -6 | -40 |
| Deferred taxes on income | 70 | -114 |
| Other movements | -1 | 1 |
| TOTAL COMPREHENSIVE INCOME | 1 505 | -451 |
| attributable to minority interests | 35 | 21 |
| attributable to equity holders of the parent | 1 470 | -471 |
| ASSETS (in millions of EUR) |
Note | 31-12-2010 | 31-12-2011 |
|---|---|---|---|
| Cash and cash balances with central banks | 15 292 | 6 218 | |
| Financial assets | 18–29 | 281 240 | 249 439 |
| Held for trading | 18–29 | 30 287 | 26 936 |
| Designated at fair value through profit or loss | 18–29 | 25 545 | 13 940 |
| Available for sale | 18–29 | 54 143 | 39 491 |
| Loans and receivables | 18–29 | 157 024 | 153 894 |
| Held to maturity | 18–29 | 13 955 | 14 396 |
| Hedging derivatives | 18–29 | 286 | 782 |
| Reinsurers' share in technical provisions, insurance | 35 | 280 | 150 |
| Fair value adjustments of the hedged items in portfolio hedge of interest rate risk | – | 218 | 197 |
| Tax assets | 31 | 2 534 | 2 646 |
| Current tax assets | 31 | 167 | 201 |
| Deferred tax assets | 31 | 2 367 | 2 445 |
| Non-current assets held for sale and disposal groups | 46 | 12 938 | 19 123 |
| Investments in associated companies | 32 | 496 | 431 |
| Investment property | 33 | 704 | 758 |
| Property and equipment | 33 | 2 693 | 2 651 |
| Goodwill and other intangible assets | 34 | 2 256 | 1 898 |
| Other assets | 30 | 2 172 | 1 871 |
| TOTAL ASSETS | 320 823 | 285 382 | |
| LIABILITIES AND EQUITY | |||
| (in millions of EUR) | Note | 31-12-2010 | 31-12-2011 |
| Financial liabilities | 18–29 | 260 582 | 225 804 |
| Held for trading | 18–29 | 24 136 | 27 355 |
| Designated at fair value through profit or loss | 18–29 | 34 615 | 28 678 |
| Measured at amortised cost | 18–29 | 200 707 | 167 842 |
| Hedging derivatives | 18–29 | 1 124 | 1 929 |
| Technical provisions (before reinsurance) | 35 | 23 255 | 19 914 |
| Fair value adjustments of the hedged items in portfolio hedge of interest rate risk | – | 0 | 4 |
| Tax liabilities | 31 | 468 | 545 |
| Current tax liabilities | 31 | 345 | 255 |
| Deferred tax liabilities | 31 | 123 | 290 |
| Liabilities associated with disposal groups | 46 | 13 341 | 18 132 |
| Provisions for risks and charges | 36 | 600 | 889 |
| Other liabilities | 37 | 3 902 | 3 322 |
| TOTAL LIABILITIES | 302 149 | 268 611 | |
| Total equity | 39 | 18 674 | 16 772 |
| Parent shareholders' equity | 39 | 11 147 | 9 756 |
| Non-voting core-capital securities | 39 | 7 000 | 6 500 |
| Minority interests | – | 527 | 516 |
| TOTAL LIABILITIES AND EQUITY | 320 823 | 285 382 |
• In accordance with IFRS 5, the assets and liabilities of a number of divestments have no longer been recorded under various headings in the balance sheet, but have been grouped together instead under 'Non-current assets held for sale and disposal groups' and 'Liabilities associated with disposal groups'. The information required under IFRS 5 can be found in Note 46.
| (in millions of EUR) | Issued and paid up share capital |
Share premium | Treasury shares |
(available-for-sale assets) Revaluation reserve |
Hedging reserve (cash flow hedges) |
Reserves | Translation differences | Parent shareholders' equity |
Non-voting core-capital securities |
Minority interests | Total equity |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | |||||||||||
| Balance at the beginning of the period | 1 245 | 4 339 | -1 560 | 457 | -374 | 5 894 | -339 | 9 662 | 7 000 | 515 | 17 177 |
| Net result for the period | 0 | 0 | 0 | 0 | 0 | 1 860 | 0 | 1 860 | 0 | 28 | 1 888 |
| Other comprehensive income | 0 | 0 | 0 | -379 | -69 | -1 | 58 | -390 | 0 | 7 | -383 |
| Subtotal | 0 | 0 | 0 | -379 | -69 | 1 860 | 58 | 1 470 | 0 | 35 | 1 505 |
| Dividends | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Capital increase | 0 | 1 | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 0 | 1 |
| Purchases of treasury shares | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Sales of treasury shares | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 1 | 0 | 0 | 1 |
| Results on (derivatives on) treasury shares | 0 | 0 | 31 | 0 | 0 | 0 | 0 | 31 | 0 | 0 | 31 |
| Effect of business combinations | 0 | 0 | 0 | 0 | 0 | -6 | 0 | -6 | 0 | 0 | -6 |
| Change in minority interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -23 | -23 |
| Change in scope | 0 | 0 | 0 | -12 | 0 | 0 | 0 | -12 | 0 | -1 | -13 |
| Total change | 0 | 1 | 31 | -391 | -69 | 1 855 | 58 | 1 485 | 0 | 12 | 1 497 |
| Balance at the end of the period | 1 245 | 4 340 | -1 529 | 66 | -443 | 7 749 | -281 | 11 147 | 7 000 | 527 | 18 674 |
| of which revaluation reserve for shares | – | – | – | 435 | – | – | – | – | – | – | – |
| of which revaluation reserve for bonds | – | – | – | -370 | – | – | – | – | – | – | – |
| of which revaluation reserve for other assets than bonds and shares |
– | – | – | 1 | – | – | – | – | – | – | – |
| of which relating to non-current assets held for sale and disposal groups |
– | – | – | 3 | 0 | – | 10 | 12 | – | 0 | 12 |
| 2011 | |||||||||||
| 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 | 13 | 0 | 13 | 0 | 34 | 47 |
| Other comprehensive income | 0 | 0 | 0 | -194 | -151 | 1 | -141 | -484 | 0 | -13 | -498 |
| Subtotal | 0 | 0 | 0 | -194 | -151 | 14 | -141 | -471 | 0 | 21 | -451 |
| Dividends | 0 | 0 | 0 | 0 | 0 | -851 | 0 | -851 | 0 | 0 | -851 |
| Capital increase | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 0 | 1 |
| Redemption of non-voting core-capital securities | 0 | 0 | 0 | 0 | 0 | -75 | 0 | -75 | -500 | 0 | -575 |
| 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 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Effect of business combinations | 0 | 0 | 0 | 0 | 0 | -6 | 0 | -6 | 0 | 0 | -6 |
| Change in minority interests | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -32 | -32 |
| Change in scope | 0 | 0 | 0 | 11 | 0 | 0 | 0 | 11 | 0 | 0 | 11 |
| Total change | 0 | 0 | 0 | -183 | -151 | -917 | -141 | -1 391 | -500 | -11 | -1 902 |
| Balance at the end of the period | 1 245 | 4 341 | -1 529 | -117 | -594 | 6 831 | -422 | 9 756 | 6 500 | 516 | 16 772 |
| of which revaluation reserve for shares | – | – | – | 274 | – | – | – | – | – | – | – |
| of which revaluation reserve for bonds | – | – | – | -391 | – | – | – | – | – | – | – |
| of which revaluation reserve for other assets than bonds and shares |
– | – | – | 0 | – | – | – | – | – | – | – |
| of which relating to non-current assets held for sale and disposal groups |
– | – | – | 0 | 0 | – | 7 | 7 | – | 0 | 7 |
heading in 2011 includes the coupon paid on the core-capital securities sold to the Belgian Federal and Flemish Regional governments (595 million euros, i.e. 8.5% of 7 billion euros).
• KBC repaid 0.5 billion euros (and paid a 15% penalty) to the Belgian Federal Government on 2 January 2012. This was recognised in the balance sheet at year-end 2011 (with 0.5 billion euros shifting from equity to liabilities and the penalty being deducted from equity by presenting it as a liability).
| (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Operating activities | ||
| Result before tax | 2 224 | 786 |
| Adjustments for: | ||
| Result before tax from discontinued operations | 66 | 19 |
| Depreciation, impairment and amortisation of property and equipment, intangible fixed assets, investment property and securities | 603 | 1 274 |
| Profit/Loss on the disposal of investments | -192 | -130 |
| Change in impairment on loans and advances | 1 481 | 1 335 |
| Change in technical provisions (before reinsurance) | 2 436 | 1 038 |
| Change in the reinsurers' share in the technical provisions | -83 | -4 |
| Change in other provisions | -49 | 352 |
| Other unrealised gains or losses | -136 | 30 |
| Income from associated companies | 61 | 57 |
| Cashflows from operating profit before tax and before changes in operating assets and liabilities | 6 411 | 4 756 |
| Changes in operating assets (excluding cash and cash equivalents) | 8 933 | 21 133 |
| Financial assets held for trading | 9 516 | 7 255 |
| Financial assets at fair value through profit or loss | 4 983 | 10 659 |
| Available-for-sale assets | 430 | 12 345 |
| Loans and receivables | 2 167 | -4 964 |
| Hedging derivatives | -204 | -734 |
| Operating assets associated with disposal groups | -7 959 | -3 427 |
| Changes in operating liabilities (excluding cash and cash equivalents) | 2 056 | -26 858 |
| Deposits measured at amortised cost | -6 232 | -14 922 |
| Debts represented by securities measured at amortised cost | -1 485 | -10 548 |
| Financial liabilities held for trading | -5 031 | 3 352 |
| Financial liabilities at fair value through profit or loss | 3 305 | -5 937 |
| Hedging derivatives | 38 | 806 |
| Operating liabilities associated with disposal groups | 11 461 | 390 |
| Income taxes paid | -363 | -328 |
| Net cash from or used in operating activities | 17 037 | -1 296 |
| Investing activities | ||
| Purchase of held-to-maturity securities | -3 975 | -2 913 |
| Proceeds from the repayment of held-to-maturity securities at maturity | 2 039 | 1 521 |
| Acquisition of a subsidiary or a business unit, net of cash acquired (including increases in percentage interest held) | -108 | 0 |
| Proceeds from the disposal of a subsidiary or business unit, net of cash disposed of (including decreases in percentage interest held) | 1 194 | 498 |
| Purchase of shares in associated companies | 0 | 0 |
| Proceeds from the disposal of shares in associated companies | 0 | 0 |
| Dividends received from associated companies | 1 | 1 |
| Purchase of investment property | -18 | -31 |
| Proceeds from the sale of investment property | 20 | 26 |
| Purchase of intangible fixed assets (excluding goodwill) | -142 | -145 |
| Proceeds from the sale of intangible fixed assets (excluding goodwill) | 34 | 10 |
| Purchase of property and equipment | -533 | -634 |
| Proceeds from the sale of property and equipment | 293 | 244 |
| Net cash from or used in investing activities | -1 194 | -1 423 |
| Financing activities | ||
| Purchase or sale of treasury shares | 1 | 0 |
| Issue or repayment of promissory notes and other debt securities | -1 686 | -964 |
| Proceeds from or repayment of subordinated liabilities | 547 | -1 460 |
| Principal payments under finance lease obligations | 0 | 0 |
| Proceeds from the issuance of share capital | 1 | 0 |
| Redemption of non-voting core-capital securities | 0 | -575 |
| Proceeds from the issuance of preference shares | 0 | 0 |
| Dividends paid | 0 | -851 |
| Net cash from or used in financing activities | -1 137 | -3 850 |
| Change in cash and cash equivalents | ||
| Net increase or decrease in cash and cash equivalents | 14 706 | -6 568 |
| Cash and cash equivalents at the beginning of the period | 5 487 | 20 557 |
| Effects of exchange rate changes on opening cash and cash equivalents Cash and cash equivalents at the end of the period |
364 20 557 |
9 13 997 |
| (in millions of EUR) 2010 |
2011 |
|---|---|
| Additional information | |
| Interest paid -4 577 |
-6 533 |
| Interest received 11 053 |
12 163 |
| Dividends received (including equity method) 104 |
90 |
| Components of cash and cash equivalents | |
| Cash and cash balances with central banks 15 292 |
6 217 |
| Loans and advances to banks repayable on demand and term loans to banks at not more than three months 6 866 |
11 721 |
| Deposits from banks repayable on demand -4 449 |
-8 472 |
| Cash and cash equivalents belonging to disposal groups 2 849 |
4 532 |
| Total 20 557 |
13 997 |
| of which not available 0 |
0 |
10 million euros for WARTA and 32 million euros for Fidea (amounts at 31 December 2011).
| Year | 2010 | 2010 | 2010 | 2011 |
|---|---|---|---|---|
| Global Convertible Bonds & Asian Equity Derivatives |
||||
| (in millions of EUR) | Secura | KBC Peel Hunt | businesses | Centea |
| Purchase or sale | Sale | Sale | Sale | Sale |
| Percentage of shares bought (+) or sold (-) in the relevant year | 100% | 100% | – | 100% |
| Total share percentage at the end of the relevant year | 0% | 0% | – | 0% |
| For business unit/segment | Belgium | Group Centre | Group Centre | Group Centre |
| Deal date (month and year) | November 2010 | November 2010 | November 2010 | July 2011 |
| Results of the relevant company/business recognised in the group result up to and including: |
30-09-2010 | 30-09-2010 | 19-11-2010 | 30-06-2011 |
| Purchase price or sale price | 315 | 86 | 866 | 527 |
| Cashflow for acquiring or selling companies less cash and cash equivalents acquired or sold |
290 | 75 | 824 | 498 |
| Assets and liabilities bought or sold | ||||
| Cash and cash balances with central banks | 0 | 0 | 0 | 23 |
| Financial assets | 753 | 511 | 906 | 9 856 |
| Held for trading | 0 | 26 | 864 | 0 |
| Designated at fair value through profit or loss | 0 | 0 | 0 | 1 233 |
| Available for sale | 639 | 2 | 0 | 1 200 |
| Loans and receivables | 0 | 483 | 42 | 7 424 |
| Held to maturity | 114 | 0 | 0 | 0 |
| Hedging derivatives | 0 | 0 | 0 | 0 |
| of which cash and cash equivalents | 25 | 11 | 42 | 30 |
| Financial liabilities | 0 | 402 | 392 | 8 637 |
| Held for trading | 0 | 15 | 392 | 0 |
| Designated at fair value through profit or loss | 0 | 0 | 0 | 0 |
| Measured at amortised cost | 0 | 387 | 0 | 8 637 |
| Hedging derivatives | 0 | 0 | 0 | 0 |
| of which cash and cash equivalents | 0 | 0 | 0 | 0 |
| Technical provisions (before reinsurance) | 862 | 0 | 0 | 0 |
The consolidated financial statements, including all the notes, were authorised for issue on 19 March 2012 by the Board of Directors of KBC Group NV.
The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted for use in the European Union ('endorsed IFRS') and present one year of comparative information.
All amounts are shown in millions of euros and rounded to the million.
The following IFRS standards became effective on 1 January 2011 and have been applied in this report. The amendments in question do not have any material impact.
The following IFRS standards and IFRIC interpretations were issued but not yet effective for the KBC group at year-end 2011. KBC will apply these standards and interpretations when they become mandatory:
• Amendment to IAS 19 (Employee Benefits), which will become effective on or after 1 January 2013. The main change concerns the elimination of the corridor, which – under the current standard – permits actuarial gains and losses to be spread over several years. From that point on, such gains and losses will have to be recognised in other comprehensive income (with no recycling in profit or loss). The required disclosures will also be changed and expanded.
Changes in the presentation of the income statement in 2011:
• To increase transparency, interest on ALM hedging derivatives (i.e. those that do not qualify for fair value hedge accounting for a portfolio of interest rate risk) will be presented as from 2011 as 'Net interest income' whereas in previous periods it was recorded under 'Net result from financial instruments at fair value'. Since the interest earned on the related assets appears under 'Net interest income', interest on ALM hedging derivatives will also be presented under this heading from 2011 on (but not retroactively). The net interest income on ALM hedging derivatives included under 'Net interest income' amounted to -0.4 billion euros in 2011.
Changes to the notes to the balance sheet in 2011:
Changes in the presentation of segment reporting in 2011:
• See 'Notes on segment reporting'.
All (material) entities (including Special Purpose Entities) over which the consolidating entity exercises, directly or indirectly, exclusive control are consolidated according to the method of full consolidation.
(Material) companies over which joint control is exercised, directly or indirectly, are consolidated according to the method of proportionate consolidation.
(Material) investments in associates, i.e. companies over which KBC has significant influence, are accounted for using the equity method.
As allowed under IAS 28 (Investments in Associates) and IAS 31 (Interests in Joint Ventures), investments held by venture capital organisations are classified as 'held for trading' (measured at fair value through profit or loss).
Changes in ownership interests (that do not result in a loss of control) are accounted for as equity transactions. They do not affect goodwill or profit or loss.
Monetary assets and liabilities denominated in foreign currency are translated into the functional currency at the spot rate at balance sheet date.
Negative and positive valuation differences, except for those relating to the funding of shares and investments of consolidated companies in foreign currency, are recognised in profit or loss.
Non-monetary items measured at historical cost are translated into the functional currency at the historical exchange rate that existed on the transaction date. Non-monetary items carried at fair value are translated at the spot rate of the date the fair value was determined.
Translation differences are reported together with changes in fair value. Income and expense items in foreign currency are taken to profit or loss at the exchange rate prevailing when they were recognised. The balance sheets of foreign subsidiaries are translated into the reporting currency (euros) at the spot rate at balance sheet date (with the exception of the capital and reserves, which are translated at the historical rate). The income statement is translated at the average rate for the financial year as best estimate of the exchange rate at transaction date.
Differences arising from the use of one exchange rate for assets and liabilities, and another for net assets (together with the exchange rate differences – net of deferred taxes – on loans concluded to finance participating interests in foreign currency) are recognised in equity, commensurate with KBC's share.
Financial assets and liabilities are recognised in the balance sheet when KBC becomes a party to the contractual provisions of the instruments. Regular-way purchases or sales of financial assets are recognised using settlement date accounting.
All financial assets and liabilities – including derivatives – must be recognised in the balance sheet according to the IAS 39 classification system. Each classification is subject to specific measurement rules.
The IAS 39 classifications are as follows:
• Loans and receivables (L&R). These include all non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
Financial instruments are reported according to the dirty price convention. Accrued interest is presented under the same heading as the financial instruments for which the interest has accrued.
KBC applies the following general rules:
• Amounts receivable. These are classified under 'Loans and receivables'. They are measured on acquisition at fair value, including transaction costs. Loans with a fixed maturity are subsequently measured at amortised cost using the effective interest method, i.e. an interest rate is applied that exactly discounts all estimated future cashflows from the loans to the net carrying amount. This interest rate takes account of all related fees and transaction costs. Loans with no fixed maturity date are measured at amortised cost.
Impairment losses are recognised for loans and advances for which there is evidence – either on an individual or portfolio basis – of impairment at balance sheet date. Whether or not evidence exists is determined on the basis of the probability of default (PD). The characteristics of the loan, such as the type of loan, the borrower's line of business, the geographical location of the borrower and other characteristics key to a borrower's risk profile, are used to determine the PD. Loans with the same PD therefore have a similar credit risk profile.
For off-balance-sheet commitments (commitment credit) classified as uncertain or irrecoverable and doubtful, provisions are recognised if the general IAS 37 criteria are satisfied and the more-likely-than-not criterion met. These provisions are recognised at their present value.
Interest on loans written down as a result of impairment is recognised using the contractual rate of interest used to measure the impairment loss.
• Securities. Depending on whether or not securities are traded on an active market and depending on what the intention is when they are acquired, securities are classified as loans and receivables, held-tomaturity assets, held-for-trading assets, financial assets at fair value through profit or loss, or available-for-sale assets.
Securities classified as loans and receivables or held-to-maturity assets are initially measured at fair value, including transaction costs. They are subsequently measured at amortised cost. The difference between the acquisition cost and the redemption value is recognised as interest and recorded in the income statement on an accruals basis over the remaining term to maturity. It is taken to the income statement on an actuarial basis, based on the effective rate of return on acquisition. Individual impairment losses for securities classified as loans and receivables or held-to-maturity are recognised – according to the same method as is used for amounts receivable as described above – if there is evidence of impairment at balance sheet date.
Held-for-trading securities are initially measured at fair value (excluding transaction costs) and subsequently at fair value, with all fair value changes being recognised in profit or loss for the financial year.
Securities classified initially as 'Financial assets at fair value through profit or loss' that are not held for trading are measured in the same way as held-for-trading assets.
Available-for-sale securities are initially measured at fair value (including transaction costs) and subsequently at fair value, with changes in fair value being recorded separately in equity until the sale or impairment of the securities. In this case, the cumulative fair value changes are transferred from equity to profit or loss for the financial year. Impairment losses are recognised if evidence of impairment exists on the balance sheet date. For listed equity and other variable-yield securities, a significant (more than 30%) or prolonged (more than one year) decline in their fair value below cost is evidence of impairment. For fixed-income securities, impairment is measured on the basis of the recoverable amount of the acquisition cost. Impairment losses are taken to the income statement for the financial year. For equity and other variable-yield securities, impairment is reversed through a separate equity heading. Reversals of impairment on fixed-income securities occur through profit or loss for the financial year. However, if it cannot be demonstrated objectively that the reason for prolonged impairment no longer exists (i.e. the loss event triggering impairment has not completely disappeared), any increases in fair value will be recorded in equity. This continues until there is no longer any evidence of impairment. At that moment, impairment is completely reversed through profit or loss and any difference in fair value recorded in equity.
are fulfilled. These conditions are that the hedge relationship must be formally designated and documented on the inception of the hedge, the hedge must be expected to be highly effective and this effectiveness must be able to be measured reliably, and the measurement of hedge effectiveness must take place on a continuous basis during the reporting period in which the hedge can be considered to be effective. For fair value hedges, both the derivatives hedging the risks and the hedged positions are measured at fair value, with all fair value changes being taken to the income statement. Accrued interest income from interest rate swaps is included in net interest income. Hedge accounting is discontinued once the hedge accounting requirements are no longer met or if the hedging instrument expires or is sold. In this case, the gain or loss recorded in equity on the hedged position (for fixedincome financial instruments) will be taken to profit or loss on an accruals basis until maturity.
KBC uses fair value hedges for a portfolio of interest rate risk to hedge the interest rate risk for a portfolio of loans and savings deposits using interest rate swaps. The interest rate swaps are measured at fair value, with fair value changes reported in profit or loss. Accrued interest income from these swaps is included in net interest income. The hedged amount of loans is measured at fair value as well, with fair value changes reported in profit or loss. The fair value of the hedged amount is presented as a separate line item of the assets on the balance sheet. KBC makes use of the 'carved-out' version of IAS 39, so that no ineffectiveness results from anticipated repayments, as long as underhedging exists. In case of hedge ineffectiveness, the cumulative change in the fair value of the hedged amount will be amortised through profit or loss over the remaining lifetime of the hedged assets or immediately removed from the balance sheet if the ineffectiveness is due to the fact that the corresponding loans have been derecognised.
For cashflow hedges, derivatives hedging the risks are measured at fair value, with those fair value gains or losses determined to be an effective hedge being recognised separately in equity. Accrued interest income from interest rate swaps is included in net interest income. The ineffective portion of the hedge is recognised in income for the financial year. Hedge accounting will be discontinued if the hedge accounting criteria are no longer met. In this case, the derivatives will be treated as held-for-trading derivatives and measured accordingly.
Foreign currency funding of a net investment in a foreign entity is accounted for as a hedge of that net investment. This form of hedge accounting is used for investments not denominated in euros. Translation differences (account taken of deferred taxes) on the funding are recorded in equity, along with translation differences on the net investment.
Goodwill is defined as any excess of the cost of the acquisition over the acquirer's interest in the fair value of the identifiable assets acquired and liabilities and contingent liabilities assumed at the date of acquisition. It is recognised as an intangible asset and is carried at cost less impairment losses. Goodwill is not amortised, but is tested for impairment at least once a year or if there is either internal or external evidence for doing so. An impairment loss is recognised if the carrying amount of the cashgenerating unit to which the goodwill belongs exceeds its recoverable amount. Impairment losses on goodwill cannot be reversed. For each new business combination, KBC has to choose whether to measure minority interests at fair value or as their proportionate share of the acquiree's net identifiable assets. This choice determines the amount of goodwill recognised.
If the capitalisation criteria are met, software is recognised as an intangible asset. System software is capitalised and amortised at the same rate as hardware, i.e. over three years, from the moment the software is available for use. Standard software and customised software developed by a third party is capitalised and amortised over five years according to the straight-line method from the moment the software is available for use. Internal and external development expenses for internally-generated software for investment projects are capitalised and written off according to the straight-line method over five years. Investment projects are large-scale projects that introduce or replace an important business objective or model. Internal and external research expenses for these projects and all expenses for other ICT projects concerning internallygenerated software (other than investment projects) are taken to the income statement directly.
All property and equipment is recognised at cost (including directly allocable acquisition costs), less accumulated depreciation and impairment. The rates of depreciation are determined on the basis of the anticipated useful life of the assets and are applied according to the straight-line method from the moment the assets are available for use. Impairment is recognised if the carrying value of the asset exceeds its recoverable value (i.e. the higher of the asset's value in use and net selling price). Amounts written down can be reversed through the income statement. When property or equipment is sold, the realised gains or losses are taken directly to the income statement. If property or equipment is destroyed, the remaining amount to be written off is taken directly to the income statement.
The accounting policy outlined for property and equipment also applies to investment property.
External borrowing costs that are directly attributable to the acquisition of an asset are capitalised as part of the cost of that asset. All other borrowing costs are recognised as an expense in the period in which they are incurred. Capitalisation commences when expenses are incurred for the asset, when the borrowing costs are incurred and when activities that are necessary to prepare the asset for its intended use or sale are in progress. When development is interrupted, the capitalisation of borrowing costs is suspended. The capitalisation of borrowing costs ceases when all the activities necessary to prepare the asset for its intended use or sale are complete.
For primary business, the provision for unearned premiums is in principle calculated on a daily basis, based on the gross premiums. For inward treaties, i.e. reinsurance business received, the provision for unearned premiums is calculated for each contract separately on the basis of the information communicated by the ceding undertaking and, where necessary, supplemented on the basis of the company's own experience regarding the evolution of the risk over time. The provision for unearned premiums for the life insurance business is recorded under the provision for the life insurance group of activities.
Except for unit-linked life insurance products, this provision is calculated according to current actuarial principles, with account being taken of the provision for unearned premiums, the ageing reserve, provision for annuities payable but not yet due, etc. In principle, this provision is calculated separately for every insurance contract. For accepted business, a provision is constituted for each individual contract, based on the information supplied by the ceding undertaking and supplemented, where necessary, by the company's own past experience.
Besides the rules set out below, an additional provision is set aside as required by law.
The following rules apply:
For claims reported, the provision is in principle measured separately in each case, taking into account the known facts in the claims file, on the basis of the amounts still due to the injured parties or beneficiaries, plus external costs of settling claims. Where benefits have to be paid in the form of an annuity, the amounts to be set aside for that purpose are calculated using recognised actuarial methods.
For 'claims incurred but not reported' at balance sheet date, an IBNR (Incurred But Not Reported) provision is set aside. In the primary business, this IBNR provision is based on a lump sum per class of insurance depending upon past experience and the trend in the insured portfolio. For extraordinary events, additional amounts are added to the IBNR provision.
For 'claims incurred but not enough reserved' at balance sheet date, an IBNER (Incurred But Not Enough Reserved) provision is set aside if the adequacy procedures demonstrate that the other claims provisions are insufficient to meet future liabilities. This provision contains amounts for claims which have already been reported but which, for technical reasons, could not yet be recorded in the claims file. Where appropriate, a provision is set aside on a prudent basis for possible liabilities arising for claims files already closed.
A provision for the internal cost of settling claims is calculated at a percentage that is based on past experience.
Additional provisions are also constituted as required by law, such as supplementary workmen's compensation provisions.
This heading includes the provision for the profit share that has been allocated but not yet awarded at the end of the financial year for both the group of life insurance activities and the group of non-life insurance activities.
A liability adequacy test is performed to evaluate current liabilities, detect possible deficiencies and recognise them in profit or loss.
The effect of reinsurance business ceded and retrocession is entered as an asset and calculated for each contract separately, supplemented where necessary by the company's own past experience regarding the evolution of the risk over time.
Deposit accounting rules apply to financial instruments that do not include a discretionary participation feature (DPF), and to the deposit component of unit-linked insurance contracts. This means that the deposit component and insurance component are measured separately. In deposit accounting, the portion of the premiums relating to the deposit component is not taken to the income statement, nor is the resulting increase in the carrying amount of the liability. Management fees and commissions are recognised immediately in the income statement. When the value of unit-linked investments fluctuates subsequently, both the change on the assets side and the resulting change on the liabilities side are taken to the income statement immediately. Therefore, after initial recognition, the deposit component is measured at fair value through profit or loss. This fair value is determined by multiplying the number of units by the value of the unit, which is based upon the fair value of the underlying financial instruments. Settlements relating to the deposit component are not recorded in the income statement, but will result in a decrease in the carrying amount of the liability.
Financial instruments with a discretionary participation feature and the insurance component of unit-linked contracts are treated as non-unitlinked insurance contracts (see f Technical provisions), and are not unbundled into a deposit component and an insurance component. On the balance sheet date, the liabilities resulting from these financial instruments or insurance contracts are tested to see if they are adequate, according to the liability adequacy test. If the carrying amount of these liabilities is lower than their estimated future discounted cashflows, the deficiency will be recognised in the income statement against an increase in the liability.
Pension liabilities are included under the 'Other liabilities' item and relate to obligations for retirement and survivor's pensions, early retirement benefits and similar pensions or annuities.
Defined benefit plans are those under which KBC has a legal or constructive obligation to pay extra contributions to the pension fund if this last has insufficient assets to settle all the obligations to employees resulting from employee service in current and prior periods. The pension obligations under these plans for employees are calculated according to IAS 19, based on the projected-unit-credit method, with each period of service granting additional entitlement to pension benefits.
Actuarial gains and losses are recognised according to the 'corridor approach'. Any excess actuarial gains and losses are recognised as income or an expense over the average expected remaining working lives of the participating employees.
This heading includes current and deferred tax liabilities.
Current tax for the period is measured at the amount expected to be paid, using the rates of tax in effect for the balance sheet date. Deferred tax liabilities are recognised for all taxable temporary differences between the carrying amount of an asset or liability and its tax base. They are measured using the tax rates in effect on realisation of the assets or settlement of the liabilities to which they relate. Deferred tax assets are recognised for all deductible temporary differences between the carrying value of assets and liabilities and their tax base, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised.
Provisions are recognised in the balance sheet:
Equity is the residual interest in the net assets after all liabilities have been deducted.
Equity instruments have been differentiated from financial instruments in accordance with the IAS 32 rules:
Put options on minority interests (and, where applicable, combinations of put and call options resulting in forward contracts) are recognised as financial liabilities at the present value of the exercise prices. The corresponding minority interests are deducted from equity. The difference is recognised either as an asset (goodwill) or in the income statement (negative goodwill).
| Exchange rate at 31-12-2011 | Exchange rate average in 2011 | |||
|---|---|---|---|---|
| 1 EUR = currency |
Change from 31-12-2010 (positive: appreciation relative to EUR) (negative: depreciation relative to EUR) |
1 EUR = currency |
Change relative to average in 2010 (positive: appreciation relative to EUR) (negative: depreciation relative to EUR) |
|
| CZK | 25.79 | -3% | 24.57 | +3% |
| GBP | 0.8353 | +3% | 0.8723 | -2% |
| HUF | 314.6 | -12% | 279.1 | -1% |
| PLN | 4.458 | -11% | 4.118 | -3% |
| USD | 1.294 | +3% | 1.402 | -5% |
* Rounded figures.
No material changes were made to the accounting policies compared with 2010.
The KBC group's management structure has been built around a number of segments called 'business units', namely: Belgium, Central & Eastern Europe, Merchant Banking, and Shared Services & Operations. This breakdown is based on a combination of geographic criteria (Belgium and Central and Eastern Europe, the group's two core markets) and business criteria (either retail bancassurance or merchant banking). The Shared Services & Operations Business Unit includes a number of entities that provide support and products to the other business units (in the areas of ICT, leasing, etc.).
Segment reporting is based on this format, but:
Owing to the change in the group's strategic plan (see the 'Strategy and company profile' section), segment reporting was adjusted in 2011 and the reference figures restated retroactively:
For reporting purposes, therefore, the composition of the segments or business units after these adjustments is as follows:
KBC Global Services NV and certain allocated results for KBC Bank NV and KBC Insurance NV (that cannot reliably be allocated to the segments)).
The figures in the segment reporting presentation have been prepared in accordance with the general accounting method used at KBC (see Note 1) and, therefore, comply with the International Financial Reporting Standards, as adopted for use in the European Union (endorsed IFRS). A number of changes have been made to this methodology in order to provide a better insight into the underlying business activities. The results generated in this way are referred to as 'underlying results' and these form an important element in the internal assessment and management of the business units.
The differences between the IFRS figures and the underlying figures are as follows:
ments at fair value', whereas most of the related assets are not recognised at fair value. To limit the volatility arising from the marking-tomarket of these instruments, a government bond portfolio was classified as 'measured at fair value through profit or loss' (fair value option). The remaining volatility stemming from the fair value changes of these ALM hedging derivatives relative to the fair value changes in the relevant bond portfolio is excluded from the underlying results.
Reconciliation of IFRS results and underlying results
fair value through profit or loss. The resultant valuation adjustments have an impact on the net result. Since this is a non-operating item, its impact is excluded from the underlying figures.
• In the IFRS figures, discontinued operations (KBL EPB only) are recognised in accordance with IFRS 5. This means that all the results relating to such operations are moved from their various headings and grouped together under 'Net post-tax result from discontinued operations'. In the underlying figures, discontinued operations are treated in the same way as other companies earmarked for divestment. This means that they continue to be included under all the different headings (after having been adjusted to take account of the aforementioned items).
The results for each business unit are dealt with the 'Report of the Board of Directors' section, which also contains a table for each business unit providing a reconciliation of the IFRS-based results and the underlying results. The auditor has not audited these sections. A reconciliation of the figures at group level is given in the table below.
| Reconciliation of IFRS results and underlying results | Foot | |||
|---|---|---|---|---|
| (in millions of EUR) | note | Main heading(s) concerned in the income statement | 2010 | 2011 |
| Result after tax, attributable to equity holders of the parent (underlying) | 1 710 | 1 098 | ||
| Changes in fair value of ALM hedging instruments | 1 | Net result from financial instruments at fair value, Income tax expense |
-179 | -273 |
| Gains/losses relating to CDOs | 2 | Net result from financial instruments at fair value, Income tax expense |
1 027 | -416 |
| Fair value of CDO-related guarantee and commitment fees | 3 | Net result from financial instruments at fair value, Income tax expense |
-68 | -52 |
| Impairment on goodwill and associated companies | 4 | Impairment on goodwill and on other | -118 | -115 |
| Result from legacy structured derivatives business (KBC Financial Products) |
Net result from financial instruments at fair value, Income tax expense |
-372 | 50 | |
| Changes in fair value of own debt instruments (due to own credit risk) |
5 | Net result from financial instruments at fair value, Income tax expense |
39 | 359 |
| Results on divestments | 6 | Other net income, Net post-tax result from discontinued operations |
-176 | -640 |
| Other | – | -4 | 0 | |
| Result after tax, attributable to equity holders of the parent (IFRS) | 1 860 | 13 |
It should be noted that with effect from this annual report, amounts stated are after tax and minority interests.
1 See explanation in the third bullet point under 'Underlying results by segment'. 2011 figure due primarily to widening credit spreads on certain sovereign bonds.
2 Relates primarily to changes in the fair value of CDO exposures (see Notes 5 and 26), changes in provisions for and payment of CDO-related claims. Also includes the recognition of a deferred tax asset of 0.4 billion euros in 2010 (see Note 16).
3 Relates to the CDO guarantee agreement concluded with the Belgian State in 2009 (see 'Additional information').
4 In 2010, mainly group companies in Poland and Romania, and associated companies in Slovenia. In 2011, Bulgaria among other countries.
5 The positive figure in 2011 relates to heightened risk aversion to European banks (hence including KBC), which caused the market value of own debt instruments designated at fair value through profit or loss, to decline.
6 In 2010, -0.3 billion euros relating to the original sale of KBL EPB to the Hinduja Group that in the end did not go through. A new agreement was reached with Precision Capital in October 2011 on the sale of KBL EPB and -0.4 billion euros was recognised. On balance, this item also includes +0.2 and -0.2 billion euros relating to other divestments in 2010 and 2011, respectively.
| Belgium Business |
Central & Eastern Europe Busi |
Merchant Banking Business |
Group Centre (excl. interseg ment elim |
Interseg ment elim |
||
|---|---|---|---|---|---|---|
| (in millions of EUR) | Unit | ness Unit | Unit | inations) | inations | KBC group |
| UNDERLYING INCOME STATEMENT, 2010 | ||||||
| Net interest income | 2 243 | 1 527 | 836 | 997 | 0 | 5 603 |
| Earned premiums, insurance (before reinsurance) | 2 886 | 657 | 0 | 1 170 | -93 | 4 621 |
| Technical charges, insurance (before reinsurance) | -2 851 | -504 | 0 | -994 | 68 | -4 281 |
| Ceded reinsurance result | -11 | -11 | 0 | -8 | 21 | -9 |
| Dividend income | 50 | 2 | 6 | 15 | 0 | 73 |
| Net result from financial instruments at fair value through profit or loss | 60 | 154 | 539 | 101 | 0 | 855 |
| Net realised result from available-for-sale assets | 51 | 12 | 3 | 32 | 0 | 98 |
| Net fee and commission income | 770 | 308 | 225 | 363 | 0 | 1 666 |
| Other net income | 119 | 30 | -70 | 51 | -12 | 118 |
| TOTAL INCOME | 3 318 | 2 175 | 1 540 | 1 726 | -16 | 8 744 |
| Operating expensesa | -1 702 | -1 184 | -576 | -1 386 | 16 | -4 832 |
| Impairment | -104 | -350 | -796 | -276 | 0 | -1 525 |
| on loans and receivables | -82 | -340 | -789 | -270 | 0 | -1 481 |
| on available-for-sale assets | -23 | 0 | -7 | -4 | 0 | -34 |
| on goodwill | 0 | 0 | 0 | 0 | 0 | 0 |
| other | 0 | -9 | 1 | -2 | 0 | -10 |
| Share in results of associated companies | 0 | 1 | 0 | -62 | 0 | -61 |
| RESULT BEFORE TAX | 1 513 | 643 | 168 | 2 | 0 | 2 326 |
| Income tax expense | -457 | -73 | -19 | -38 | 0 | -587 |
| Net post-tax result from discontinued operations | 0 | 0 | 0 | 0 | 0 | 0 |
| RESULT AFTER TAX | 1 056 | 570 | 149 | -36 | 0 | 1 739 |
| attributable to minority interests | 5 | 0 | 16 | 7 | 0 | 29 |
| attributable to equity holders of the parent | 1 051 | 570 | 133 | -44 | 0 | 1 710 |
| a Of which non-cash expenses | -57 | -92 | -39 | -206 | 0 | -394 |
| Depreciation and amortisation of fixed assets | -59 | -91 | -35 | -197 | 0 | -381 |
| Other | 1 | -1 | -4 | -9 | 0 | -12 |
| Acquisitions of non-current assets* | 65 | 141 | 275 | 255 | 0 | 736 |
| UNDERLYING INCOME STATEMENT, 2011 | ||||||
| Net interest income | 2 320 | 1 524 | 663 | 897 | 0 | 5 404 |
| Earned premiums, insurance (before reinsurance) | 2 135 | 745 | 0 | 1 301 | -60 | 4 122 |
| Technical charges, insurance (before reinsurance) | -2 025 | -548 | 0 | -1 028 | 44 | -3 556 |
| Ceded reinsurance result | -24 | -21 | 0 | -11 | 12 | -44 |
| Dividend income | 52 | 2 | 7 | 13 | 0 | 74 |
| Net result from financial instruments at fair value through profit or loss | 45 | 74 | 405 | -15 | 0 | 509 |
| Net realised result from available-for-sale assets | 98 | 32 | 35 | 26 | 0 | 191 |
| Net fee and commission income | 700 | 329 | 202 | 304 | 0 | 1 535 |
| Other net income | -39 | 38 | -76 | 33 | -8 | -52 |
| TOTAL INCOME | 3 260 | 2 175 | 1 236 | 1 521 | -11 | 8 182 |
| Operating expensesa | -1 790 | -1 192 | -569 | -1 146 | 11 | -4 686 |
| Impairment | -312 | -619 | -768 | -210 | 0 | -1 909 |
| on loans and receivables | -59 | -477 | -725 | -73 | 0 | -1 335 |
| on available-for-sale assets | -230 | -127 | -6 | -90 | 0 | -453 |
| on goodwill | 0 | 0 | 0 | 0 | 0 | 0 |
| other | -22 | -14 | -37 | -47 | 0 | -121 |
| Share in results of associated companies | 0 | 1 | 0 | -58 | 0 | -57 |
| RESULT BEFORE TAX | 1 159 | 365 | -101 | 106 | 0 | 1 530 |
| Income tax expense | -355 | -38 | 6 | -10 | 0 | -397 |
| Net post-tax result from discontinued operations | 0 | 0 | 0 | 0 | 0 | 0 |
| RESULT AFTER TAX | 804 | 327 | -95 | 97 | 0 | 1 133 |
| attributable to minority interests | 2 | 0 | 15 | 18 | 0 | 35 |
| attributable to equity holders of the parent | 802 | 327 | -110 | 79 | 0 | 1 098 |
| a Of which non-cash expenses | -54 | -86 | -25 | -200 | 0 | -365 |
| Depreciation and amortisation of fixed assets | -54 | -79 | -18 | -198 | 0 | -348 |
| Other | 0 | -7 | -8 | -2 | 0 | -18 |
| Acquisitions of non-current assets* | 64 | 205 | 343 | 200 | 0 | 812 |
* Non-current assets held for sale and disposal groups, investment property, property and equipment, investments in associated companies, and goodwill and other intangible assets.
The table below presents some of the main on-balance-sheet products by segment.
| Belgium | Central & | Merchant | |||
|---|---|---|---|---|---|
| (in millions of EUR) | Business Unit |
Eastern Europe Business Unit |
Banking Business Unit |
Group Centre | KBC group |
| BALANCE SHEET, 31-12-2010 | |||||
| Total loans to customers | 51 961 | 28 960 | 48 202 | 21 543 | 150 666 |
| of which mortgage loans | 26 952 | 10 503 | 12 809 | 11 313 | 61 577 |
| of which reverse repos | 0 | 4 035 | 5 450 | 1 | 9 486 |
| Deposits from customers* | 67 663 | 38 192 | 73 538 | 18 477 | 197 870 |
| of which repos | 0 | 3 219 | 12 179 | 0 | 15 398 |
| BALANCE SHEET, 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 |
| Deposits from customers | 71 156 | 38 216 | 46 168 | 9 687 | 165 226 |
| of which repos | 0 | 3 209 | 12 633 | 0 | 15 841 |
* The breakdown of 'Deposits from customers' at year-end 2010 has been adjusted as a result of the changes to the way in which deposits at KBC Bank NV are allocated to the Belgium and Merchant Banking Business Units.
This segment reporting format is based on geographic areas, reflecting KBC's focus on its two home markets – Belgium and Central and Eastern Europe – and its selective presence in the rest of the world (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 customers are local, the location of the branch or subsidiary determines the geographic breakdown of both the balance sheet and income statement. This segment reporting format differs considerably from segment reporting based on business units, partly due to the fact that different allocation methodologies are used and that the Belgium geographic segment includes not only the Belgium Business Unit, but also the Belgian activities of the Merchant Banking Business Unit.
| Central & Eastern Europe |
||||
|---|---|---|---|---|
| (in millions of EUR) | Belgium | (and Russia) | Rest of the world | KBC group |
| 2010 | ||||
| Total income from external customers (underlying) | 3 889 | 3 000 | 1 855 | 8 744 |
| Total assets (period-end) | 209 103 | 61 269 | 50 452 | 320 823 |
| Total liabilities (period-end) | 194 672 | 55 030 | 52 447 | 302 149 |
| Acquisitions of non-current assets* (period-end) | 460 | 226 | 49 | 736 |
| 2011 | ||||
| Total income from external customers (underlying) | 3 576 | 3 091 | 1 515 | 8 182 |
| Total assets (period-end) | 181 036 | 60 898 | 43 448 | 285 382 |
| Total liabilities (period-end) | 171 262 | 55 189 | 42 159 | 268 611 |
| Acquisitions of non-current assets* (period-end) | 525 | 251 | 35 | 812 |
* Non-current assets held for sale and disposal groups, investment property, property and equipment, investments in associated companies, and goodwill and other intangible assets.
| (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Total | 6 245 | 5 479 |
| Interest income | 10 542 | 11 883 |
| Available-for-sale assets | 1 949 | 1 791 |
| Loans and receivables | 6 706 | 6 600 |
| Held-to-maturity investments | 567 | 633 |
| Other liabilities not at fair value | 28 | 34 |
| Subtotal, interest income from financial assets not measured at fair value through profit or loss | 9 251 | 9 059 |
| of which impaired financial assets | 90 | 84 |
| Financial assets held for trading* | 351 | 1 779 |
| Hedging derivatives | 338 | 528 |
| Other financial assets at fair value through profit or loss | 603 | 517 |
| Interest expense | -4 297 | -6 404 |
| Financial liabilities measured at amortised cost | -3 173 | -3 235 |
| Other liabilities not at fair value | -3 | -12 |
| Investment contracts at amortised cost | 0 | 0 |
| Subtotal, interest expense for financial liabilities not measured at fair value through profit or loss | -3 175 | -3 247 |
| Financial liabilities held for trading* | -85 | -2 026 |
| Hedging derivatives | -794 | -788 |
| Other financial liabilities at fair value through profit or loss | -243 | -344 |
* Including interest on hedging derivatives from 2011 on (1 506 million euros in interest income and -1 943 million euros in interest expense). For additional information, see Note 1a.
| (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Total | 97 | 85 |
| Shares held for trading | 31 | 13 |
| Shares initially recognised at fair value through profit or loss | 3 | 2 |
| Available-for-sale shares | 63 | 70 |
| (in millions of EUR) 2010 |
2011 | |
|---|---|---|
| Total | -77 | -178 |
| Trading instruments (including interest* and fair value changes in trading derivatives) | -145 | -478 |
| Other financial instruments initially recognised at fair value through profit or loss | -250 | 15 |
| of which gains/losses on own credit risk | 53 | 484 |
| Foreign exchange trading | 317 | 365 |
| Fair value adjustments in hedge accounting | 0 | -80 |
| Micro hedge | 2 | 3 |
| Fair value hedges | 2 | 0 |
| Changes in the fair value of the hedged items | 35 | -117 |
| Changes in the fair value of the hedging derivatives, including discontinuation | -33 | 117 |
| Cashflow hedges | 1 | 3 |
| Changes in the fair value of the hedging derivatives, ineffective portion | 1 | 3 |
| Hedges of net investments in foreign operations, ineffective portion | 0 | 0 |
| Portfolio hedge of interest rate risk | -2 | 0 |
| Fair value hedge of interest rate risk | 0 | 0 |
| Changes in the fair value of the hedged items | 35 | -25 |
| Changes in the fair value of the hedging derivatives, including discontinuation | -35 | 25 |
| Cashflow hedges of interest rate risk | -2 | 0 |
| Changes in the fair value of the hedging derivatives, ineffective portion | -2 | 0 |
| Discontinuation of hedge accounting in the event of cashflow hedges | 0 | -82 |
* Excluding interest on hedging derivatives from 2011 on (see Note 3).
of which can be found in 'Additional information'). Associated cost: the total fee to be paid by KBC to the Belgian State for the third tranche (the cash guarantee) is approximately 1.1 billion euros (present value at the time the agreement entered into effect and recognised upfront in 2009). There was also a positive effect on the mark-to-market value of the guaranteed positions. In addition, KBC has to pay a commitment fee of roughly 60 million euros per half year for the second tranche (the equity guarantee). The contract, including the fee due, is measured at fair value through profit or loss.
| the Belgian State (in millions of EUR, before tax) | 2009 | 2010 | 2011 |
|---|---|---|---|
| Cash guarantee (for the third tranche) | |||
| Recognised upfront in 2009 | -1 121 | – | – |
| Change in fair value | -126 | -36 | -25 |
| Equity guarantee (for the second tranche) | -162 | -67 | -53 |
| Total recognised in the income statement | -1 409 | -103 | -79 |
hedged item to offset changes in the fair value of the hedging instrument within a range of 80%–125%, which is currently the case.
| (in millions of EUR) 2010 |
2011 |
|---|---|
| Deferred day 1 profits, opening balance on 1 January 27 |
11 |
| New deferred day 1 profits 0 |
0 |
| Day 1 profits recognised in profit or loss during the period | |
| Amortisation of day 1 profits -15 |
-3 |
| Financial instruments no longer recognised -4 |
0 |
| Exchange differences 2 |
0 |
| Deferred day 1 profits, closing balance on 31 December 11 |
8 |
| (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Total | 90 | 169 |
| Fixed-income securities | 26 | 59 |
| Shares | 64 | 110 |
| (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Total | 1 224 | 1 164 |
| Fee and commission income | 2 156 | 2 043 |
| Securities and asset management | 1 118 | 898 |
| Margin on life insurance investment contracts without DPF (deposit accounting) | 28 | 50 |
| Commitment credit | 252 | 302 |
| Payments | 522 | 577 |
| Other | 236 | 215 |
| Fee and commission expense | -932 | -878 |
| Commission paid to intermediaries | -489 | -470 |
| Other | -443 | -408 |
• The lion's share of the fees and commissions related to lending is recognised under 'Net interest income' (effective interest rate calculations).
| (in millions of EUR) 2010 |
2011 |
|---|---|
| Total 452 |
56 |
| of which gains or losses on | |
| Sale of loans and receivables 4 |
-29 |
| Sale of held-to-maturity investments 1 |
-14 |
| Repurchase of financial liabilities measured at amortised cost 0 |
-3 |
| Other, including: 447 |
102 |
| Income from (mainly operational) leasing activities, KBC Lease Group 76 |
96 |
| Income from consolidated private equity participations 54 |
48 |
| Income from VAB Group 65 |
65 |
| Gains and losses on divestments 191 |
68 |
| Irregularities at KBC Lease UK -175 |
15 |
| Provision for 5-5-5 product 0 |
-334 |
structured 5-5-5 first-to-default bonds (scheduled to mature in April and May 2013) to customers. These bonds are linked to the creditworthiness of Belgium, France, Spain, Italy and Greece. An ISDAdefined credit event in one of these countries would adversely affect the invested capital and no further coupons would be paid. As a result of the Greek financial crisis, KBC Bank decided to reassure all retail customers holding 5-5-5 bonds and announced its intention to purchase the bonds at a price equal to the invested capital less any coupons paid by the issuer (all amounts before charges and taxes) should a credit event occur. At balance sheet date, no credit event had occurred. At the end of 2011, the financial markets estimated that the probability of a credit event occurring before May 2013 in one of those five countries was higher than 50%, which prompted KBC to recognise a provision of 334 million euros through profit or loss. For more information, see Note 48 (Post-balance-sheet events).
| (in millions of EUR) | Life | Non-life | Non technical account |
Total |
|---|---|---|---|---|
| 2010 | ||||
| Technical result | -424 | 345 | 35 | -43 |
| Earned premiums, insurance (before reinsurance) | 2 705 | 1 937 | 0 | 4 642 |
| Technical charges, insurance (before reinsurance) | -3 012 | -1 250 | 0 | -4 262 |
| Net fee and commission income | -115 | -339 | 39 | -415 |
| Ceded reinsurance result | -2 | -2 | -4 | -8 |
| Financial result | 885 | 176 | 228 | 1 288 |
| Net interest income | – | – | 1 002 | 1 002 |
| Dividend income | – | – | 47 | 47 |
| Net result from financial instruments at fair value through profit or loss | – | – | 195 | 195 |
| Net realised result from available-for-sale assets | – | – | 44 | 44 |
| Allocation to the technical accounts* | 885 | 176 | -1 060 | 0 |
| General administrative expenses | -136 | -364 | -9 | -509 |
| Internal claims settlement expenses | -8 | -75 | 0 | -83 |
| Indirect acquisition costs | -38 | -89 | 0 | -127 |
| Administrative expenses | -90 | -201 | 0 | -291 |
| Investment management fees | 0 | 0 | -9 | -9 |
| Other net income | – | – | 95 | 95 |
| Impairment | – | – | -19 | -19 |
| Share in results of associated companies | – | – | 0 | 0 |
| RESULT BEFORE TAX | 325 | 157 | 329 | 811 |
| Income tax expense | – | – | – | -142 |
| Net post-tax result from discontinued operations | – | – | – | 11 |
| RESULT AFTER TAX | – | – | – | 679 |
| attributable to minority interests | – | – | – | 4 |
| attributable to equity holders of the parent | – | – | – | 675 |
| 2011 | ||||
| Technical result | -401 | 499 | 42 | 140 |
| Earned premiums, insurance (before reinsurance) | 2 262 | 1 880 | 0 | 4 142 |
| Technical charges, insurance (before reinsurance) | -2 548 | -1 007 | 0 | -3 555 |
| Net fee and commission income | -112 | -333 | 42 | -403 |
| Ceded reinsurance result | -2 | -42 | 0 | -44 |
| Financial result | 690 | 137 | 152 | 979 |
| Net interest income | – | – | 1 019 | 1 019 |
| Dividend income | – | – | 55 | 55 |
| Net result from financial instruments at fair value through profit or loss | – | – | -178 | -178 |
| Net realised result from available-for-sale assets | – | – | 83 | 83 |
| Allocation to the technical accounts* | 690 | 137 | -827 | 0 |
| General administrative expenses | -150 | -376 | -1 | -527 |
| Internal claims settlement expenses | -10 | -81 | 0 | -92 |
| Indirect acquisition costs | -53 | -108 | 0 | -161 |
| Administrative expenses | -87 | -187 | 0 | -274 |
| Investment management fees | 0 | 0 | -1 | -1 |
| Other net income | – | – | 10 | 10 |
| Impairment | – | – | -473 | -473 |
| Share in results of associated companies | – | – | 0 | 0 |
| RESULT BEFORE TAX | 139 | 260 | -270 | 129 |
| Income tax expense | – | – | – | -85 |
| Net post-tax result from discontinued operations | – | – | – | -17 |
| RESULT AFTER TAX | – | – | – | 27 |
| attributable to minority interests | – | – | – | 2 |
* Also includes the allocation of impairment losses.
actions between bank and insurance entities (the results for insurance contracts concluded between the group's bank and insurance entities, interest that insurance companies receive on their deposits with bank entities, commissions that insurance entities pay to bank branches for sales of insurance, etc.) in order to give a more accurate view of the profitability of the insurance business.
• Additional information on the insurance business is provided separately in the following notes and sections:
| (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Total | 2 700 | 2 258 |
| Breakdown by IFRS category | ||
| Insurance contracts | 1 112 | 1 223 |
| Investment contracts with DPF | 1 588 | 1 035 |
| Breakdown by type | ||
| Accepted reinsurance | 27 | 1 |
| Primary business | 2 673 | 2 258 |
| Breakdown of primary business | ||
| Individual versus group | ||
| Individual premiums | 2 131 | 1 938 |
| Premiums under group contracts | 542 | 320 |
| Periodic versus single | ||
| Periodic premiums | 910 | 945 |
| Single premiums | 1 763 | 1 313 |
| Non-profit-sharing versus profit-sharing contracts | ||
| Premiums from non-profit-sharing contracts | 214 | 235 |
| Premiums from profit-sharing contracts | 2 134 | 1 545 |
| Other | 325 | 477 |
• As required under IFRS, deposit accounting is used for investment contracts without DPF. This means that the premium income (and technical charges) from these contracts is not recognised under 'Earned premiums, insurance (before reinsurance)' (and 'Technical charges, insurance (before reinsurance)'), but that the margins on them are reported under 'Net fee and commission income'. Investment contracts without DPF are more or less the same as unit-linked contracts, which in 2010 accounted for premium income of 1.8 billion euros and in 2011 for premium income of 2.0 billion euros (including VITIS Life).
| (in millions of EUR) | Earned premiums (before reinsurance) |
Claims incurred (before reinsurance) |
Operating expenses (before reinsurance) |
Ceded reinsurance |
Total |
|---|---|---|---|---|---|
| 2010 | |||||
| Total | 1 937 | -1 278 | -628 | -2 | 28 |
| Accepted reinsurance | 185 | -156 | -33 | 4 | -1 |
| Primary business | 1 752 | -1 122 | -595 | -6 | 29 |
| Accident & health (classes 1 & 2, excl. industrial accidents) | 140 | -51 | -57 | 1 | 33 |
| Industrial accidents (class 1) | 76 | -58 | -16 | -1 | 1 |
| Motor, third-party liability (class 10) | 505 | -334 | -158 | 1 | 13 |
| Motor, other classes (classes 3, 7) | 314 | -208 | -101 | 0 | 5 |
| Shipping, aviation, transport (classes 4, 5, 6, 7, 11, 12) | 43 | -25 | -11 | -7 | -1 |
| Fire and other damage to property (classes 8, 9) | 478 | -332 | -183 | 17 | -20 |
| General third-party liability (class 13) | 114 | -70 | -43 | -16 | -16 |
| Credit and suretyship (classes 14, 15) | 8 | -1 | -2 | -1 | 4 |
| Miscellaneous pecuniary losses (class 16) | 13 | -13 | -5 | 2 | -2 |
| Legal assistance (class 17) | 43 | -23 | -12 | 0 | 9 |
| Assistance (class 18) | 17 | -6 | -8 | -1 | 2 |
| 2011 | |||||
| Total | 1 880 | -1 039 | -637 | -42 | 163 |
| Accepted reinsurance | 37 | 6 | -7 | -10 | 26 |
| Primary business | 1 843 | -1 046 | -629 | -32 | 136 |
| Accident & health (classes 1 & 2, excl. industrial accidents) | 146 | -61 | -51 | 0 | 33 |
| Industrial accidents (class 1) | 72 | -52 | -17 | 0 | 3 |
| Motor, third-party liability (class 10) | 549 | -370 | -172 | -3 | 4 |
| Motor, other classes (classes 3, 7) | 328 | -196 | -103 | 0 | 28 |
| Shipping, aviation, transport (classes 4, 5, 6, 7, 11, 12) | 42 | -32 | -10 | 9 | 8 |
| Fire and other damage to property (classes 8, 9) | 505 | -224 | -204 | -29 | 49 |
| General third-party liability (class 13) | 118 | -65 | -44 | -4 | 5 |
| Credit and suretyship (classes 14, 15) | 5 | 0 | -2 | -1 | 1 |
| Miscellaneous pecuniary losses (class 16) | 16 | -9 | -7 | -3 | -3 |
| Legal assistance (class 17) | 45 | -26 | -13 | 0 | 7 |
| Assistance (class 18) | 19 | -10 | -7 | 0 | 2 |
• The figures include intragroup insurance contracts concluded between the insurance and banking businesses (see Note 9).
| (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Total | -4 436 | -4 344 |
| Staff expenses | -2 529 | -2 569 |
| of which share-based payment (equity-settled) | 0 | 0 |
| of which share-based payment (cash-settled) | 0 | -4 |
| General administrative expenses | -1 546 | -1 449 |
| Depreciation and amortisation of fixed assets | -361 | -326 |
• General administrative expenses include repair and maintenance expenses, advertising costs, rent, professional fees, various (nonincome) taxes, utilities and other such expenses. The figure includes expenses related to the special tax imposed on financial institutions in Hungary (58 million euros for 2010 and 6 million euros for 2011, deductible expense. The amount was lower in 2011, because a portion of the losses incurred by the group as a result of the new law on foreign-currency mortgages could be set off against the bank tax due in Hungary (see below)).
• Share-based payments are included under staff expenses. The main equity-settled share-based payments are described below. Since 2000, the KBC Bank and Insurance Holding Company NV (now KBC Group NV) has launched a number of share option plans for all or certain members of staff of the company and various subsidiaries. The share options were granted free to the members of staff, who only had to pay the relevant tax on the benefit when the options were allocated. The share options have a life of seven to ten years from the date of issue and can be exercised in specific years in the months of June, September or December. Not all the options need be exercised at once. When exercising options, members of staff can either deposit the resulting shares on their custody accounts or sell them immediately on NYSE Euronext Brussels. KBC Group NV has repurchased treasury shares in order to be able to deliver shares to staff when they exercise their options.
IFRS 2 has not been applied to equity-settled option plans that predate 7 November 2002, since they are not covered by the scope of IFRS 2. The option plans postdating 7 November 2002 are limited in size.
An overview of the number of stock options for staff is shown in the table.
| 2010 | 2011 | |||
|---|---|---|---|---|
| Options | Number of options1 |
Average exercise price |
Number of options1 |
Average exercise price |
| Outstanding at beginning of period | 978 045 | 48.09 | 666 596 | 49.89 |
| Granted during period | 0 | – | 0 | – |
| Exercised during period | -4 527 | 28.41 | 0 | – |
| Expired during period | -306 922 | 44.47 | -35 600 | 41.98 |
| Forfeited during period | 0 | – | 0 | – |
| Outstanding at end of period2 | 666 596 | 49.89 | 630 996 | 50.34 |
| Exercisable at end of period | 651 996 | 49.07 | 623 696 | 50.05 |
1 In share equivalents.
2 2010: range of exercise prices: 27.8–97.94 euros; weighted average residual term to maturity: 25 months.
2011: range of exercise prices: 27.8–97.94 euros; weighted average residual term to maturity: 14 months.
Information on the capital increase reserved for KBC group employees can be found in the 'Company annual accounts' section. As was the case in 2010, this did not result in the recognition of an employee benefit as the issue price was not lower than the market price.
Information regarding the (highest, lowest, average) price of the KBC share can be found under 'Information for shareholders and bondholders' in the 'Report of the Board of Directors' section.
The main cash-settled share-based payment arrangements concern 4 million euros in costs related to a phantom stock plan (included under 'Staff expenses' for 2011).
| 2010 | 2011 | |
|---|---|---|
| Total average number of persons employed (in full-time equivalents) | 52 110 | 51 127 |
| Breakdown by legal entity | ||
| KBC Bank | 38 972 | 37 663 |
| KBC Insurance | 7 496 | 7 377 |
| KBC Group NV (holding company) | 5 642 | 6 087 |
| Breakdown by employee classification | ||
| Blue-collar staff | 1 022 | 928 |
| White-collar staff | 50 693 | 49 835 |
| Senior management | 395 | 364 |
• KBL EPB is excluded from the figures.
• The figures in the table are annual averages and may differ from the end-of-year totals shown in the 'Corporate social responsibility' section (where the figures for the workforce also exclude Fidea and WARTA, and members of staff who have been inactive for more than one year).
| (in millions of EUR) 2010 |
2011 |
|---|---|
| Total -1 656 |
- 2 123 |
| Impairment on loans and receivables -1 483 |
-1 333 |
| Breakdown by type | |
| Specific impairment, on-balance-sheet lending -1 452 |
-1 316 |
| Provisions for off-balance-sheet credit commitments -19 |
17 |
| Portfolio-based impairment -12 |
-33 |
| Breakdown by business unit | |
| Belgium -82 |
-59 |
| Central & Eastern Europe -340 |
-477 |
| Merchant Banking -789 |
-725 |
| Group Centre -272 |
-71 |
| Impairment on available-for-sale assets -31 |
-417 |
| Breakdown by type | |
| Shares -32 |
-114 |
| Other 0 |
-303 |
| Impairment on goodwill -88 |
-120 |
| Impairment on other -54 |
-253 |
| Intangible fixed assets, other than goodwill 0 |
-7 |
| Property and equipment (including investment property) -4 |
-30 |
| Held-to-maturity assets 0 |
-66 |
| Associated companies (goodwill) -31 |
0 |
| Other -18 |
-150 |
lion euros, owing to the changing stock market climate) and impairment on Greek sovereign bonds (401 million euros, 30 million euros of which was recorded at KBL EPB and therefore recognised under 'Net post-tax result from discontinued operations'). No impairment was recognised on sovereign bonds issued by other European countries, due to the fact that there was no evidence on balance sheet date to suggest that future cashflows relating to these securities would be adversely affected. Impairment on Greek sovereign bonds was calculated as follows for 2011:
• Impairment on goodwill. In 2011, this heading included inter alia 68 million euros in relation to Bulgaria (due to the deteriorated economic situation and the lower estimated cashflows from Bulgarian activities discounted at a higher discount rate). In 2010, it had included inter alia 54 million euros for group companies in Poland and Romania. In most cases, the impairment reflects the difference between the carrying value before impairment and the value in use. It should be noted that impairment on goodwill in relation to KBL EPB was recognised under 'Net post-tax result from discontinued operations', as required under IFRS 5. For more information on goodwill, see Note 34.
| (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Total | -63 | -58 |
| of which Nova Ljubljanska banka | -64 | -59 |
• Impairment on (goodwill on) associated companies is included in 'Impairment' (see Note 14). The share in results of associated companies does not therefore take this impairment into account.
| (in millions of EUR) | 2010 | 2011 |
|---|---|---|
| Total | -82 | -320 |
| Breakdown by type | ||
| Current taxes on income | -358 | -328 |
| Deferred taxes on income | 276 | 7 |
| Tax components | ||
| Result before tax | 2 224 | 786 |
| Income tax at the Belgian statutory rate 33.99% |
33.99% | |
| Income tax calculated | -756 | -267 |
| Plus/minus tax effects attributable to | ||
| differences in tax rates, Belgium – abroad | 162 | 104 |
| tax-free income | 323 | 466 |
| adjustments related to prior years | 18 | 9 |
| adjustments, opening balance of deferred taxes due to change in tax rate | 4 | -5 |
| unused tax losses and unused tax credits to reduce current tax expense | 0 | 11 |
| unused tax losses and unused tax credits to reduce deferred tax expense | 604 | 72 |
| reversal of previously recognised deferred tax assets due to tax losses | -13 | -37 |
| other (mainly non-deductible expenses) | -425 | -672 |
| Aggregate amount of temporary differences associated with investments in subsidiaries, branches and associated companies and interests in joint ventures, for which deferred tax liabilities have not been recognised* |
687 | 692 |
* Reserves of joint or other subsidiaries, associated companies and branches that, at certain entities, will be taxed in full on distribution (recorded in full). For a significant number of entities, the foreign tax credit applies (5% is recorded, since 95% is definitively taxed).
• For information on tax assets and tax liabilities, see Note 31.
• In 2010, the Belgian tax authorities decided that a waiver of intercompany debt, related to losses on a CDO portfolio incurred in the past year, was tax deductible, provided certain conditions were met. In practice, this meant that KBC was able to recognise deferred tax income of 0.4 billion euros in the second quarter of 2010.
| Basic earnings per share | |
|---|---|
| Result after tax, attributable to equity holders of the parent 1 860 |
13 |
| Coupon/penalty premium on core-capital securities sold to the Belgian Federal and Flemish Regional governments -595 |
-670 |
| Net result used to determine basic earnings per share 1 265 |
-657 |
| Weighted average number of shares outstanding ('000 of units) 339 737 |
339 774 |
| Basic earnings per share (in EUR) 3.72 |
-1.93 |
| Diluted earnings per share | |
| Result after tax, attributable to equity holders of the parent 1 860 |
13 |
| Coupon/penalty premium on core-capital securities sold to the Belgian Federal and Flemish Regional governments -595 |
-670 |
| Net result used to determine diluted earnings per share 1 265 |
-657 |
| Weighted average number of shares outstanding ('000 of units) 339 737 |
339 774 |
| Dilutive potential shares ('000 of units)* 4 |
0 |
| Weighted average number of shares for diluted earnings ('000 of units) 339 741 |
339 774 |
| Diluted earnings per share (in EUR) 3.72 |
-1.93 |
* No account taken of employee stock options (630 996 in 2011 and 662 875 in 2010) which are still outstanding and could have a dilutive impact if the market price exceeds the exercise price.
Financial assets and liabilities are grouped into categories. These categories are defined and relevant valuation rules provided under the heading 'Financial assets and liabilities (IAS 39)' in Note 1b. Whenever reference is made in this section to the category 'Designated at fair value', this should be taken to mean 'Designated at fair value through profit or loss' (fair value option).
Following implementation of IFRS 5, the various balance sheet items of companies subject to this standard (see Note 46) have been reallocated to the relevant headings in the balance sheet (under 'Non-current assets held for sale and disposal groups' on the assets side and under 'Liabilities associated with disposal groups' on the liabilities side). However, the reference figures have not been restated, which means that comparability of the figures has been slightly affected. This relates to KBL EPB in 2010 and to KBL EPB, Fidea and WARTA in 2011. To preserve comparability, a separate column has been added in Note 18, containing figures for reference date 31 December 2010 that exclude the divestments concluded in 2011 and divestments that fall under the scope of IFRS 5.
| Held for | Design ated at |
Available | Loans and receiv |
Held to | Hedging deriv |
Measured at amor |
Total, excluding divest ments in |
||
|---|---|---|---|---|---|---|---|---|---|
| (in millions of EUR) | trading | fair value1 | for sale | ables | maturity | atives | tised cost | Total | 20112 |
| FINANCIAL ASSETS, 31-12-2010 | |||||||||
| Loans and advances to credit institutions and investment firmsa |
696 | 1 808 | 0 | 12 998 | – | – | – | 15 502c | 15 487 |
| Loans and advances to customersb | 4 109 | 6 471 | 0 | 140 087 | – | – | – | 150 666 | 143 183 |
| Discount and acceptance credit | 0 | 0 | 0 | 119 | – | – | – | 119 | 114 |
| Consumer credit | 0 | 0 | 0 | 4 274 | – | – | – | 4 274 | 4 024 |
| Mortgage loans | 0 | 380 | 0 | 61 198 | – | – | – | 61 577 | 55 517 |
| Term loans | 4 109 | 6 025 | 0 | 61 548 | – | – | – | 71 681 | 70 750 |
| Finance leasing | 0 | 0 | 0 | 4 909 | – | – | – | 4 909 | 4 909 |
| Current account advances | 0 | 0 | 0 | 4 456 | – | – | – | 4 456 | 4 376 |
| Other | 0 | 66 | 0 | 3 583 | – | – | – | 3 649 | 3 494 |
| Equity instruments | 1 717 | 19 | 2 098 | – | – | – | – | 3 833 | 3 576 |
| Investment contracts (insurance) | – | 7 329 | – | – | – | – | – | 7 329 | 7 036 |
| Debt instruments issued by | 7 709 | 9 727 | 51 020 | 3 477 | 13 629 | – | – | 85 562 | 79 681 |
| Public bodies | 5 806 | 8 852 | 40 612 | 132 | 12 712 | – | – | 68 114 | 63 284 |
| Credit institutions and investment firms | 731 | 266 | 5 075 | 224 | 584 | – | – | 6 879 | 6 508 |
| Corporates | 1 172 | 610 | 5 333 | 3 122 | 333 | – | – | 10 569 | 9 890 |
| Derivatives | 15 758 | – | – | – | – | 213 | – | 15 970 | 15 968 |
| Accrued interest income | 299 | 192 | 1 025 | 463 | 325 | 73 | – | 2 378 | 2 246 |
| Carrying value including accrued interest income | 30 287 | 25 545 | 54 143 | 157 024 | 13 955 | 286 | – | 281 240 | 267 178 |
| a of which reverse repos3 | 2 284 | 2 284 | |||||||
| b of which reverse repos3 | 9 486 | 9 486 | |||||||
| c of which loans and advances to banks repayable on demand and term loans to banks at not more than three months | 6 866 | 6 857 | |||||||
| FINANCIAL ASSETS, 31-12-2011 | |||||||||
| Loans and advances to credit institutions and | |||||||||
| investment firmsa | 4 600 | 305 | 0 | 14 253 | – | – | – | 19 158c | |
| Loans and advances to customersb | 203 | 1 879 | 0 | 136 201 | – | – | – | 138 284 | |
| Discount and acceptance credit | 0 | 0 | 0 | 137 | – | – | – | 137 | |
| Consumer credit | 0 | 0 | 0 | 3 910 | – | – | – | 3 910 | |
| Mortgage loans | 0 | 178 | 0 | 57 253 | – | – | – | 57 431 | |
| Term loans | 203 | 1 531 | 0 | 61 880 | – | – | – | 63 614 | |
| Finance leasing | 0 | 11 | 0 | 4 647 | – | – | – | 4 658 | |
| Current account advances | 0 | 0 | 0 | 4 876 | – | – | – | 4 876 | |
| Other | 0 | 159 | 0 | 3 499 | – | – | – | 3 659 | |
| Equity instruments | 1 028 | 28 | 1 446 | – | – | – | – | 2 501 | |
| Investment contracts (insurance) | – | 7 652 | – | – | – | – | – | 7 652 | |
| Debt instruments issued by | 4 286 | 3 997 | 37 299 | 2 890 | 14 063 | – | – | 62 535 | |
| Public bodies | 3 101 | 3 594 | 29 183 | 224 | 13 365 | – | – | 49 467 | |
| Credit institutions and investment firms | 647 | 204 | 3 862 | 211 | 491 | – | – | 5 415 | |
| Corporates | 538 | 199 | 4 255 | 2 455 | 207 | – | – | 7 653 | |
| Derivatives | 16 750 | – | – | – | – | 624 | – | 17 375 | |
| Accrued interest income | 69 | 79 | 746 | 549 | 334 | 158 | – | 1 934 | |
| Carrying value including accrued interest income | 26 936 | 13 940 | 39 491 | 153 894 | 14 396 | 782 | – | 249 439 | |
| a of which reverse repos3 | 5 982 | ||||||||
| b of which reverse repos3 | 1 429 | ||||||||
| c of which loans and advances to banks repayable on demand and term loans to banks at not more than three months | 11 721 |
1 Loans and advances in the 'Designated at fair value' column relate primarily to reverse repo transactions and a small portfolio of home loans. In each case, the carrying value comes close to the maximum credit exposure. 2 Total excluding divestments finalised in 2011 (Centea) and announced divestments that already fall under the scope of IFRS 5 in 2011 (to enable comparison with the figures for 31 December 2011).
3 A 'reverse repo' transaction is a transaction where one party (KBC) buys securities from another party and undertakes to resell these securities at a designated future date at a set price. In most cases, reverse repo transactions are governed by bilateral framework agreements (generally Global Master Repo Agreements) which include a description of the periodic exchanges of collateral. The reverse repo transactions shown in the table are related mainly to the temporary lending of bonds. In this type of lending, the risk and the income from the bonds are for the counterparty. The amount of the reverse repos is virtually identical to the amount of the underlying assets (that have been lent out).
| Held for | Design ated at |
Available | Loans and receiv |
Held to | Hedging deriv |
Measured at amor |
Total, excluding divest ments in |
||
|---|---|---|---|---|---|---|---|---|---|
| (in millions of EUR) | trading | fair value | for sale | ables | maturity | atives | tised cost | Total | 20111 |
| FINANCIAL LIABILITIES, 31-12-2010 | |||||||||
| Deposits from credit institutions and investment firmsa |
21 | 6 911 | – | – | – | – | 20 924 | 27 856c | 27 802 |
| Deposits from customers and debt securitiesb | 648 | 20 971 | – | – | – | – | 176 252 | 197 870 | 189 518 |
| Demand deposits | 0 | 57 | – | – | – | – | 48 189 | 48 246 | 47 571 |
| Time deposits | 0 | 17 012 | – | – | – | – | 42 131 | 59 142 | 58 957 |
| Savings deposits | 0 | 0 | – | – | – | – | 40 245 | 40 245 | 34 056 |
| Special deposits | 0 | 0 | – | – | – | – | 4 005 | 4 005 | 4 005 |
| Other deposits | 0 | 0 | – | – | – | – | 1 281 | 1 281 | 1 276 |
| Certificates of deposit | 0 | 22 | – | – | – | – | 14 965 | 14 987 | 14 987 |
| Customer savings certificates | 0 | 0 | – | – | – | – | 2 155 | 2 155 | 858 |
| Convertible bonds | 0 | 0 | – | – | – | – | 0 | 0 | 0 |
| Non-convertible bonds | 648 | 3 600 | – | – | – | – | 14 427 | 18 674 | 18 674 |
| Convertible subordinated liabilities | 0 | 0 | – | – | – | – | 0 | 0 | 0 |
| Non-convertible subordinated liabilities | 0 | 280 | – | – | – | – | 8 854 | 9 134 | 9 134 |
| Liabilities under investment contracts | – | 6 514 | – | – | – | – | 179 | 6 693 | 6 463 |
| Derivatives | 22 317 | – | – | – | – | 849 | – | 23 166 | 23 165 |
| Short positions | 1 119 | – | – | – | – | – | – | 1 119 | 1 119 |
| In equity instruments | 10 | – | – | – | – | – | – | 10 | 10 |
| In debt instruments | 1 110 | – | – | – | – | – | – | 1 110 | 1 110 |
| Other | 0 | 145 | – | – | – | – | 2 564 | 2 709 | 2 644 |
| Accrued interest expense | 31 | 74 | – | – | – | 276 | 789 | 1 169 | 1 125 |
| Carrying value including accrued interest expense |
24 136 | 34 615 | – | – | – | 1 124 | 200 707 | 260 582 | 251 837 |
| a of which repos2 | 8 265 | 8 212 | |||||||
| b of which repos2 | 15 398 | 15 398 | |||||||
| c of which deposits from banks repayable on demand | 4 449 | 4 449 | |||||||
| FINANCIAL LIABILITIES, 31-12-2011 | |||||||||
| Deposits from credit institutions and investment | |||||||||
| firmsa | 843 | 3 831 | – | – | – | – | 21 259 | 25 934c | |
| Deposits from customers and debt securitiesb | 4 288 | 17 565 | – | – | – | – | 143 373 | 165 226 | |
| Demand deposits | 0 | 0 | – | – | – | – | 37 472 | 37 472 | |
| Time deposits | 3 774 | 13 277 | – | – | – | – | 42 010 | 59 061 | |
| Savings deposits | 0 | 0 | – | – | – | – | 32 624 | 32 624 | |
| Special deposits | 0 | 0 | – | – | – | – | 3 887 | 3 887 | |
| Other deposits | 0 | 0 | – | – | – | – | 1 417 | 1 417 | |
| Certificates of deposit | 0 | 20 | – | – | – | – | 4 597 | 4 617 | |
| Customer savings certificates | 0 | 0 | – | – | – | – | 710 | 710 | |
| Convertible bonds | 0 | 0 | – | – | – | – | 0 | 0 | |
| Non-convertible bonds | 514 | 4 167 | – | – | – | – | 12 694 | 17 375 | |
| Convertible subordinated liabilities | 0 | 0 | – | – | – | – | 0 | 0 | |
| Non-convertible subordinated liabilities | 0 | 101 | – | – | – | – | 7 961 | 8 063 | |
| Liabilities under investment contracts | – | 7 014 | – | – | – | – | 0 | 7 014 | |
| Derivatives | 21 699 | – | – | – | – | 1 601 | – | 23 300 | |
| Short positions | 497 | – | – | – | – | – | – | 497 | |
| In equity instruments | 4 | – | – | – | – | – | – | 4 | |
| In debt instruments | 493 | – | – | – | – | – | – | 493 | |
| Other | 0 | 173 | – | – | – | – | 2 408 | 2 581 | |
| Accrued interest expense | 27 | 94 | – | – | – | 328 | 801 | 1 251 | |
| Carrying value including accrued interest expense |
27 355 | 28 678 | – | – | – | 1 929 | 167 842 | 225 804 | |
| a of which repos2 | 6 574 | ||||||||
| b of which repos2 | 15 841 | ||||||||
| c of which deposits from banks repayable on demand | 8 472 |
1 Total excluding divestments finalised in 2011 (Centea) and announced divestments that already fall under the scope of IFRS 5 in 2011 (to enable comparison with the figures for 31 December 2011).
2 A 'repo' transaction is a transaction where one party buys securities from another party (KBC) and undertakes to resell these securities at a designated future date at a set price. In most cases, repo transactions are governed by bilateral framework agreements (generally Global Master Repo Agreements) which include a description of the periodic exchanges of collateral. The repo transactions shown in the table are related mainly to the temporary lending of bonds. In this type of lending, the risk and the income from the bonds are for KBC. The amount of the repos is virtually identical to the amount of the underlying assets (that have been lent out).
| (in millions of EUR) | Held for trading |
Designated at fair value |
Available for sale |
Loans and receivables |
Held to maturity |
Hedging derivatives |
Measured at amor tised cost |
Total |
|---|---|---|---|---|---|---|---|---|
| FINANCIAL ASSETS, 31-12-2010 | ||||||||
| Belgium | 3 342 | 7 189 | 21 742 | 75 261 | 1 407 | 105 | – | 109 046 |
| Central & Eastern Europe (including Russia) | 8 439 | 986 | 10 694 | 36 327 | 9 172 | 180 | – | 65 799 |
| Rest of the world | 18 506 | 17 370 | 21 707 | 45 436 | 3 376 | 0 | – | 106 395 |
| Carrying value including accrued interest income |
30 287 | 25 545 | 54 143 | 157 024 | 13 955 | 286 | – | 281 240 |
| FINANCIAL ASSETS, 31-12-2011 | ||||||||
| Belgium | 2 798 | 4 841 | 17 527 | 72 705 | 1 626 | 556 | – | 100 052 |
| Central & Eastern Europe (including Russia) | 7 907 | 808 | 7 213 | 37 562 | 8 575 | 226 | – | 62 290 |
| Rest of the world | 16 232 | 8 292 | 14 751 | 43 626 | 4 196 | 0 | – | 87 097 |
| Carrying value including accrued interest income |
26 936 | 13 940 | 39 491 | 153 894 | 14 396 | 782 | – | 249 439 |
| FINANCIAL LIABILITIES, 31-12-2010 | ||||||||
| Belgium | 3 279 | 7 491 | – | – | – | 929 | 87 282 | 98 981 |
| Central & Eastern Europe (including Russia) | 1 142 | 5 501 | – | – | – | 124 | 44 234 | 51 001 |
| Rest of the world | 19 715 | 21 623 | – | – | – | 72 | 69 191 | 110 600 |
| Carrying value including accrued interest expense |
24 136 | 34 615 | – | – | – | 1 124 | 200 707 | 260 582 |
| FINANCIAL LIABILITIES, 31-12-2011 | ||||||||
| Belgium | 1 301 | 9 455 | – | – | – | 1 750 | 78 407 | 90 913 |
| Central & Eastern Europe (including Russia) | 5 880 | 955 | – | – | – | 128 | 43 265 | 50 227 |
| Rest of the world | 20 174 | 18 268 | – | – | – | 52 | 46 170 | 84 663 |
| Carrying value including accrued interest expense |
27 355 | 28 678 | – | – | – | 1 929 | 167 842 | 225 804 |
| (in millions of EUR) | Held for trading |
Designated at fair value |
Available for sale |
Loans and receivables |
Held to maturity |
Hedging derivatives |
Measured at amor tised cost |
Total |
|---|---|---|---|---|---|---|---|---|
| FINANCIAL ASSETS, 31-12-2010 | ||||||||
| At not more than one year | 6 336 | 9 003 | 7 836 | 47 023 | 1 653 | – | – | 71 851 |
| At more than one year | 2 229 | 9 291 | 25 413 | 106 369 | 12 301 | – | – | 155 602 |
| Not specified* | 21 723 | 7 252 | 20 894 | 3 633 | 0 | 286 | – | 53 788 |
| Total carrying value (including accrued interest income) |
30 287 | 25 545 | 54 143 | 157 024 | 13 955 | 286 | – | 281 240 |
| FINANCIAL ASSETS, 31-12-2011 | ||||||||
| At not more than one year | 6 768 | 2 064 | 5 165 | 52 631 | 1 345 | – | – | 67 971 |
| At more than one year | 2 390 | 4 228 | 32 709 | 97 330 | 13 052 | – | – | 149 709 |
| Not specified* | 17 779 | 7 648 | 1 617 | 3 933 | 0 | 782 | – | 31 759 |
| Total carrying value (including accrued interest income) |
26 936 | 13 940 | 39 491 | 153 894 | 14 396 | 782 | – | 249 439 |
| FINANCIAL LIABILITIES, 31-12-2010 | ||||||||
| At not more than one year | 1 325 | 23 822 | – | – | – | – | 127 623 | 152 770 |
| At more than one year | 94 | 5 477 | – | – | – | – | 32 110 | 37 681 |
| Not specified* | 22 717 | 5 317 | – | – | – | 1 124 | 40 974 | 70 132 |
| Total carrying value (including accrued interest expense) |
24 136 | 34 615 | – | – | – | 1 124 | 200 707 | 260 582 |
| FINANCIAL LIABILITIES, 31-12-2011 | ||||||||
| At not more than one year | 5 369 | 16 857 | – | – | – | – | 100 403 | 122 629 |
| At more than one year | 284 | 7 089 | – | – | – | – | 32 439 | 39 812 |
| Not specified* | 21 702 | 4 732 | – | – | – | 1 929 | 35 000 | 63 363 |
| Total carrying value (including accrued interest expense) |
27 355 | 28 678 | – | – | – | 1 929 | 167 842 | 225 804 |
* Maturity date has not been specified or there is no point in classifying the financial asset or liability in terms of when it matures. Financial assets that do not have a specified maturity date concern primarily hedging derivatives ('Hedging derivatives' column), derivatives and shares held for trading ('Held-for-trading' column), a large proportion of insurance investment contracts ('Designated at fair value' column), shares available for sale ('Available-forsale' column) and current account advances and irrecoverable or doubtful receivables ('Loans and receivables' column). Financial liabilities that do not have a specified maturity date relate mainly to savings deposits ('Measured at amortised cost' column), hedging derivatives ('Hedging derivatives' column), derivatives held for trading ('Held-for-trading' column) and a large proportion of the liabilities under insurance investment contracts ('Designated at fair value' column).
• The difference between short-term financial assets and short-term financial liabilities reflects, among other things, the fundamental operation of a bank, i.e. converting short-term deposits into long-term loans. Consequently, the volume of deposits at not more than one year (recognised under financial liabilities) is greater than loans at not more than one year (recorded under financial assets), a ratio that indicates liquidity risk. More information on liquidity risk and how it is monitored is provided in the 'Value and risk management' section.
| (in millions of EUR) | Held for trading |
Designated at fair value |
Available for sale |
Loans and receivables |
Held to maturity |
Hedging derivatives |
Total |
|---|---|---|---|---|---|---|---|
| FINANCIAL ASSETS, 31-12-2010 | |||||||
| Unimpaired assets | 30 287 | 25 545 | 53 825 | 151 403 | 13 955 | 286 | 275 301 |
| Impaired assets | – | – | 572 | 10 543 | 0 | – | 11 114 |
| Impairment | – | – | -254 | -4 921 | 0 | – | -5 175 |
| Total carrying value (including accrued interest income) |
30 287 | 25 545 | 54 143 | 157 024 | 13 955 | 286 | 281 240 |
| FINANCIAL ASSETS, 31-12-2011 | |||||||
| Unimpaired assets | 26 936 | 13 940 | 39 196 | 148 229 | 14 377 | 782 | 243 461 |
| Impaired assets | – | – | 735 | 10 814 | 75 | – | 11 623 |
| Impairment | – | – | -440 | -5 149 | -56 | – | -5 645 |
| Total carrying value (including accrued interest income) |
26 936 | 13 940 | 39 491 | 153 894 | 14 396 | 782 | 249 439 |
• The concept of 'impairment' is relevant for all financial assets that are not designated at fair value through profit or loss. Fixed-income financial assets are impaired when impairment is identified on an individual basis. In the case of loans, they are impaired when they have a probability of default (or PD, see explanation below) rating of 10, 11 or 12. Impairment is recognised based on an estimate of the net present value of the recoverable amount. In addition, for credit in PD classes 1 to 9, impairment losses are recorded on a portfolio basis, using a formula based on the internal rating based (IRB) advanced models (or an alternative method if an IRB advanced model is not yet available).
• KBC has developed various rating models to determine the PD class. The output generated by these models is used to split the normal loan portfolio into internal rating classes ranging from PD 1 (lowest risk) to PD 9 (highest risk). More information is provided under 'Credit risk' in the 'Value and risk management' section.
| (in millions of EUR) | Available for sale | Held to maturity |
Loans and receivables | Provisions for off-balance-sheet credit commit ments* |
||
|---|---|---|---|---|---|---|
| Fixed-income assets |
Shares | Fixed-income assets |
Individual impairment |
Portfolio based impair ment |
||
| IMPAIRMENT, 31-12-2010 | ||||||
| Opening balance | 127 | 280 | 6 | 3 667 | 302 | 111 |
| Movements with an impact on results | ||||||
| Impairment recognised | 0 | 32 | 0 | 2 906 | 214 | 119 |
| Impairment reversed | -1 | 0 | 0 | -1 454 | -199 | -104 |
| Movements without an impact on results | ||||||
| Write-offs | -50 | -11 | 0 | -391 | 0 | 0 |
| Changes in the scope of consolidation | 0 | -23 | -5 | -16 | -2 | 0 |
| Transfers to/from non-current assets held for sale and disposal groups |
-55 | 0 | 0 | -122 | 0 | 0 |
| Other | -13 | -32 | 0 | 4 | 11 | -11 |
| Closing balance | 9 | 245 | 0 | 4 594 | 327 | 116 |
| IMPAIRMENT, 31-12-2011 | ||||||
| Opening balance | 9 | 245 | 0 | 4 594 | 327 | 116 |
| Movements with an impact on results | ||||||
| Impairment recognised | 305 | 114 | 66 | 2 495 | 354 | 91 |
| Impairment reversed | -1 | 0 | 0 | -1 179 | -311 | -117 |
| Movements without an impact on results | ||||||
| Write-offs | 0 | -40 | 0 | -642 | 0 | 0 |
| Changes in the scope of consolidation | -3 | -8 | 0 | -75 | -3 | 0 |
| Transfers to/from non-current assets held for sale and disposal groups |
-42 | -34 | -10 | 0 | 0 | 0 |
| Other | -1 | -104 | 0 | -399 | -12 | -1 |
| Closing balance | 267 | 173 | 56 | 4 795 | 354 | 89 |
* These impairment losses are recognised on the liabilities side of the balance sheet. Changes in impairment losses of this kind are recorded under 'Impairment on loans and receivables' in the income statement.
| (in millions of EUR) | Less than 30 days past due |
30 days or more, but less than 90 days past due |
|---|---|---|
| 31-12-2010 | ||
| Loans and advances | 3 677 | 1 316 |
| Debt instruments | 0 | 1 |
| Derivatives | 0 | 0 |
| Total | 3 677 | 1 317 |
| 31-12-2011 | ||
| Loans and advances | 3 643 | 2 039 |
| Debt instruments | 0 | 0 |
| Derivatives | 0 | 0 |
| Total | 3 643 | 2 039 |
• Financial assets are past due if a counterparty fails to make a payment at the time agreed in the contract. The concept of 'past due' applies to a contract, not to a counterparty. For example, if a counterparty fails to make a monthly repayment, the entire loan is considered past due, but that does not mean that other loans to this counterparty are considered past due.
• Financial assets that are 90 days or more past due are always considered 'impaired'.
• See Notes 22 and 40.
• See 'Credit risk' in the 'Value and risk management' section.
| (in millions of EUR) | 31-12-2010 | |||||||
|---|---|---|---|---|---|---|---|---|
| Gross | Collateral received |
Net | Gross | Collateral received |
Net | |||
| Maximum credit exposure | ||||||||
| Equity instruments | 3 833 | 1 | 3 832 | 2 501 | 0 | 2 501 | ||
| Debt instruments | 85 562 | 0 | 85 562 | 62 535 | 0 | 62 535 | ||
| Loans and advances | 166 167 | 84 124 | 82 043 | 157 442 | 78 303 | 79 139 | ||
| of which designated at fair value | 8 279 | 7 935 | 344 | 2 185 | 1 904 | 281 | ||
| Derivatives | 15 970 | 1 536 | 14 434 | 17 375 | 1 485 | 15 889 | ||
| Other (including accrued interest) | 37 076 | 9 276 | 27 799 | 35 824 | 7 936 | 27 889 | ||
| Total | 308 609 | 94 938 | 213 671 | 275 678 | 87 724 | 187 954 |
• The maximum credit exposure relating to a financial asset is generally the gross carrying value, net of impairment in accordance with IAS 39. Besides the amounts on the balance sheet, maximum credit exposure also includes the undrawn portion of irrevocable credit lines, financial guarantees already granted and other irrevocable commitments. These amounts are included in the table under 'Other'.
Based on internal management reports, comprehensive information on the composition and quality of the loan portfolio is provided under 'Credit risk' in the 'Value and risk management' section. All parts of that particular section which have been audited by the statutory auditor are listed at the start of the section.
| Fair value of financial assets and liabilities that are not measured | Loans and receivables | Financial assets held to maturity |
Financial liabilities measured at amortised cost |
|||
|---|---|---|---|---|---|---|
| at fair value in the balance sheet (in millions of EUR) |
Carrying value |
Fair value | Carrying value |
Fair value | Carrying value |
Fair value |
| FINANCIAL ASSETS, 31-12-2010 | ||||||
| Loans and advances to credit institutions and investment firms | 12 998 | 13 168 | – | – | – | – |
| Loans and advances to customers | 140 087 | 141 209 | – | – | – | – |
| Debt instruments | 3 477 | 3 536 | 13 629 | 13 920 | – | – |
| Accrued interest income | 463 | 463 | 325 | 325 | – | – |
| Total (including accrued interest income) | 157 024 | 158 375 | 13 955 | 14 245 | – | – |
| FINANCIAL ASSETS, 31-12-2011 | ||||||
| Loans and advances to credit institutions and investment firms | 14 253 | 14 503 | – | – | – | – |
| Loans and advances to customers | 136 201 | 140 897 | – | – | – | – |
| Debt instruments | 2 890 | 2 868 | 14 063 | 14 347 | – | – |
| Accrued interest income | 549 | 549 | 334 | 334 | – | – |
| Total (including accrued interest income) | 153 894 | 158 818 | 14 396 | 14 681 | – | – |
| FINANCIAL LIABILITIES, 31-12-2010 | ||||||
| Deposits from credit institutions and investment firms | – | – | – | – | 20 924 | 21 347 |
| Deposits from customers and debt securities | – | – | – | – | 176 252 | 177 834 |
| Liabilities under investment contracts | – | – | – | – | 179 | 179 |
| Other | – | – | – | – | 2 564 | 2 564 |
| Accrued interest expense | – | – | – | – | 789 | 789 |
| Total (including accrued interest expense) | – | – | – | – | 200 707 | 202 713 |
| FINANCIAL LIABILITIES, 31-12-2011 | ||||||
| Deposits from credit institutions and investment firms | – | – | – | – | 21 259 | 21 206 |
| Deposits from customers and debt securities | – | – | – | – | 143 373 | 149 337 |
| Liabilities under investment contracts | – | – | – | – | 0 | 0 |
| Other | – | – | – | – | 2 408 | 2 408 |
| Accrued interest expense | – | – | – | – | 801 | 801 |
| Total (including accrued interest expense) | – | – | – | – | 167 842 | 173 752 |
| (in millions of EUR) | 31-12-2010 | 31-12-2011 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Fair value hierarchy | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
| Financial assets at fair value | |||||||||
| Held for trading | |||||||||
| Loans and advances to credit institutions and invest | |||||||||
| ment firms | 0 | 686 | 10 | 696 | 0 | 4 600 | 0 | 4 600 | |
| Loans and advances to customers | 0 | 4 109 | 0 | 4 109 | 0 | 203 | 0 | 203 | |
| Equity instruments | 537 | 187 | 993 | 1 717 | 170 | 108 | 749 | 1 028 | |
| Debt instruments | 5 651 | 1 443 | 614 | 7 709 | 2 981 | 1 108 | 198 | 4 286 | |
| Derivatives | 63 | 13 622 | 2 073 | 15 758 | 22 | 11 737 | 4 991 | 16 750 | |
| Accrued interest income | – | – | – | 299 | – | – | – | 69 | |
| Designated at fair value | |||||||||
| Loans and advances to credit institutions and invest | |||||||||
| ment firms | 0 | 1 808 | 0 | 1 808 | 0 | 305 | 0 | 305 | |
| Loans and advances to customers | 0 | 6 445 | 26 | 6 471 | 0 | 1 852 | 27 | 1 879 | |
| Equity instruments | 2 | 15 | 1 | 19 | 2 | 18 | 8 | 28 | |
| Investment contracts (insurance) | 7 325 | 4 | 0 | 7 329 | 7 636 | 16 | 0 | 7 652 | |
| Debt instruments | 9 097 | 256 | 373 | 9 727 | 3 642 | 218 | 136 | 3 997 | |
| Accrued interest income | – | – | – | 192 | – | – | – | 79 | |
| Available for sale | |||||||||
| Equity instruments | 1 665 | 35 | 398 | 2 098 | 1 111 | 76 | 259 | 1 446 | |
| Debt instruments | 48 677 | 1 845 | 497 | 51 020 | 33 595 | 3 207 | 498 | 37 299 | |
| Accrued interest income | – | – | – | 1 025 | – | – | – | 746 | |
| Hedging derivatives | |||||||||
| Derivatives | 0 | 213 | 0 | 213 | 0 | 624 | 0 | 624 | |
| Accrued interest income | – | – | – | 73 | – | – | – | 158 | |
| Total (including accrued interest income) | 73 017 | 30 668 | 4 986 | 110 261 | 49 160 | 24 072 | 6 866 | 81 149 | |
| Financial liabilities at fair value | |||||||||
| Held for trading | |||||||||
| Deposits from credit institutions and investment firms | 0 | 0 | 21 | 21 | 0 | 843 | 0 | 843 | |
| Deposits from customers and debt securities | 0 | 624 | 24 | 648 | 0 | 4 285 | 4 | 4 288 | |
| Derivatives | 44 | 15 868 | 6 406 | 22 317 | 56 | 12 201 | 9 442 | 21 699 | |
| Short positions | 1 076 | 44 | 0 | 1 119 | 493 | 4 | 0 | 497 | |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Accrued interest expense | – | – | – | 31 | – | – | – | 27 | |
| Designated at fair value | |||||||||
| Deposits from credit institutions and investment firms | 0 | 6 911 | 0 | 6 911 | 0 | 3 831 | 0 | 3 831 | |
| Deposits from customers and debt securities | 0 | 17 165 | 3 806 | 20 971 | 0 | 16 213 | 1 352 | 17 565 | |
| Liabilities under investment contracts | 6 514 | 0 | 0 | 6 514 | 7 014 | 0 | 0 | 7 014 | |
| Other | 0 | 0 | 145 | 145 | 0 | 0 | 173 | 173 | |
| Accrued interest expense | – | – | – | 74 | – | – | – | 94 | |
| Hedging derivatives | |||||||||
| Derivatives | 0 | 849 | 0 | 849 | 0 | 1 601 | 0 | 1 601 | |
| Accrued interest expense | – | – | – | 276 | – | – | – | 328 | |
| Total (including accrued interest expense) | 7 634 | 41 459 | 10 402 | 59 875 | 7 563 | 38 979 | 10 970 | 57 962 |
• The IAS 39 fair value hierarchy prioritises the valuation techniques and the respective inputs into three levels.
Observable inputs are also referred to as 'level 2 inputs' and reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Observable inputs reflect an active market. Examples of observable inputs are the risk-free rate, exchange rates, stock prices and implied volatility. Valuation techniques based on observable inputs can include discounted cashflow analysis, reference to the current or recent fair value of a similar instrument, or third-party pricing, provided that the third-party price is in line with alternative observable market data.
Unobservable inputs are also referred to as 'level 3 inputs' and reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions regarding the risks involved). Unobservable inputs reflect a market that is not active. For example, proxies and correlation factors can be considered to be unobservable in the market.
• When the inputs used to measure the fair value of an asset or a liability can be categorised into different levels of the fair value hierarchy, the fair value measurement is classified in its entirety into the same level as the lowest level input that is significant to the entire fair value measurement. For example, if a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement.
• The valuation methodology and the corresponding classification in the fair value hierarchy of the most commonly used financial instruments are summarised in the table. This table provides an overview of the level in which the instruments are generally classified, but exceptions are possible. In other words, whereas the majority of instruments of a certain type are within the level indicated in the table, a small portion may actually be classified in another level.
• Transfers between the various levels are dealt with below.
| Instrument type | Products | Valuation technique | |
|---|---|---|---|
| Level 1 | Liquid financial instruments for which quoted prices are regularly available |
FX spot, exchange traded financial futures, exchange traded options, exchange traded stocks, liquid government bonds, other liquid bonds, liquid asset backed securities (ABS) in active markets |
Mark-to-market (quoted prices in active markets) |
| Level 2 | Plain vanilla/liquid derivatives | (Cross-currency) interest rate swaps (IRS), FX swaps, FX forwards, forward rate agreements (FRA), inflation swaps, reverse floaters, bond future options, interest rate future options, overnight index swaps (OIS) FX resets |
Discounted cashflow analysis based on discount and estimation curves (derived from quoted deposit rates, FX swaps and (CC)IRS) |
| Caps & floors, interest rate options, stock options, European & American FX options, forward starting options, digital FX options, FX strips of simple options, European swaptions, constant maturity swaps (CMS), European cancellable IRS |
Option pricing model based on observable inputs (e.g., volatilities) |
||
| Credit default swaps (CDS) | CDS model based on credit spreads | ||
| Linear financial assets (without optional features) – cash instruments |
Deposits, simple cashflows, repo transactions | Discounted cashflow analysis based on discount and estimation curves (derived from quoted deposit rates, FX swaps and (CC)IRS) |
|
| Asset backed securities | Medium liquid asset backed securities | Third-party pricing (e.g., lead manager); prices corroborated by alternative observable market data, or using comparable spread method |
|
| Debt instruments | KBC own issues (KBC IFIMA) | Discounted cashflow analysis and valuation of related derivatives based on observable inputs |
|
| Linear financial liabilities (cash instruments) | Loans, commercial paper | Discounted cashflow analysis based on discount and estimation curves (derived from quoted deposit rates, FX swaps and (CC)IRS) |
|
| Level 3 | Exotic derivatives | Target profit forwards, Bermudan swaptions, digital interest rate options, quanto digital FX options, FX Asian options, FX simple/double European barrier options, FX simple digital barrier options, FX touch rebates, double average rate options, inflation options, cancellable reverse floaters, American and Bermudan cancellable IRS, CMS spread options, CMS interest rate caps/ floors, (callable) range accruals |
Option pricing model based on unobservable inputs (e.g., correlation) |
| Illiquid credit-linked instruments | Collateralised debt obligations (CDOs: notes and super senior tranches, including the related guar antee from the Belgian State) |
Valuation model based on correlation of prob ability of default of underlying assets |
|
| Private equity investments | Private equity and non-quoted participations | Based on the valuation guidelines of the European Private Equity & Venture Capital Association (EVCA) |
|
| Illiquid bonds/asset backed securities | Illiquid bonds/asset backed securities that are indicatively priced by a single pricing provider in an inactive market |
Third-party pricing (e.g., lead manager), where prices cannot be corroborated due to a lack of available/reliable alternative market data |
|
| Debt instruments | KBC own issues (KBC IFIMA) | Discounted cashflow analysis and valuation of related derivatives based on unobservable inputs (indicative pricing by third parties for derivatives) |
In 2010, there were a number of substantial transfers between levels 1 and 2 of the IAS 39 fair value hierarchy. These transfers were brought about by a group-wide refinement of the classification method and by the fact that the financial markets became more active. The reported reclassifications relate entirely to debt instruments. In particular, certain bond portfolios were traded more actively in 2010 than in the previous year, leading to transfers from level 2 to level 1. In addition, refining the classification method resulted in certain portfolios of debt instruments (e.g., ABS) – that were mostly allocated to a single level the year before – being spread across the various levels of the hierarchy. Consequently, positions with a combined value of around 1.1 billion euros were transferred out of level 2 and into level 1 at year-end 2010, and positions totalling some 0.1 billion euros were reclassified from level 1 to level 2.
In 2011, KBC reclassified a number of bond positions from level 1 to level 2, due to the decrease in traded volumes. These positions totalled 1.2 billion euros, 0.2 billion euros of which relate to Greek bonds (figures exclude disposal groups). KBC believes that the fair value of Greek sovereign bonds can still be determined on the basis of observable inputs, due to the fact that prices are still being set by various market participants and those prices are in line with each other. In addition, the prices are updated regularly and bid and offer sizes are still being quoted. Furthermore, a small volume of bonds (approximately 0.1 billion euros' worth) was transferred out of level 2 and into level 1.
(in millions of EUR)
| Held for trading | Designated at fair value | Available for sale | Hedging deriv atives |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Loans and advances |
Equity instru ments |
tracts (insurance) Investment con |
Debt instruments | Derivatives | Loans and advances |
Equity instru ments |
tracts (insurance) Investment con |
Debt instruments | Equity instru ments |
Debt instruments | Derivatives | |
| Opening balance | 0 | 72 | 0 | 146 | 4 150 | 0 | 0 | 0 | 231 | 325 | 162 | 0 |
| Gains or losses | 8 | 20 | 0 | -22 | -671 | -2 | 0 | 0 | 102 | -6 | 1 | 0 |
| in profit or loss* | 8 | 20 | 0 | -22 | -671 | -2 | 0 | 0 | 102 | -9 | 9 | 0 |
| in other comprehensive income | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 3 | -8 | 0 |
| Purchases | 0 | 21 | 0 | 140 | 9 | 0 | 1 | 0 | 7 | 121 | 0 | 0 |
| Disposals | 0 | -14 | 0 | -135 | -6 | 0 | 0 | 0 | -60 | -32 | 0 | 0 |
| Settlements | 0 | 0 | 0 | 0 | -1 838 | 0 | 0 | 0 | 2 | 0 | -1 | 0 |
| Transfers into level 3 | 2 | 902 | 0 | 479 | 116 | 28 | 0 | 0 | 43 | 100 | 335 | 0 |
| Transfers out of level 3 | 0 | 0 | 0 | 0 | -28 | 0 | 0 | 0 | 0 | -109 | 0 | 0 |
| Transfers into/out of non-current assets held for sale |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Translation differences | 0 | -8 | 0 | 8 | 341 | 0 | 0 | 0 | 2 | 0 | 0 | 0 |
| Changes in the scope of consolidation | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 46 | 0 | 0 | 0 |
| Closing balance | 10 | 993 | 0 | 614 | 2 073 | 26 | 1 | 0 | 373 | 398 | 497 | 0 |
| Total gains (positive figures) or losses (negative figures) included in profit or loss for assets held at the end of the reporting period |
8 | 20 | 0 | 117 | -848 | 0 | 0 | 0 | 84 | -3 | 0 | 0 |
| Held for trading | Designated at fair value | deriv atives |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| credit institutions Deposits from |
customers and Deposits from debt securities |
Liabilities under investment contracts |
Derivatives | Short positions | Other | credit institutions Deposits from |
customers and Deposits from debt securities |
Liabilities under investment contracts |
Other | Derivatives | |
| Opening balance | 0 | 105 | 0 | 5 579 | 20 | 0 | 0 | 3 414 | 0 | 168 | 0 |
| Gains or losses | 0 | -89 | 0 | -1 439 | 0 | 0 | 0 | -149 | 0 | -23 | 0 |
| in profit or loss* | 0 | -89 | 0 | -1 439 | 0 | 0 | 0 | -149 | 0 | -23 | 0 |
| in other comprehensive income | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Issues | 0 | 0 | 0 | 16 | 0 | 0 | 0 | 630 | 0 | 0 | 0 |
| Repurchases | 0 | -1 | 0 | -533 | -22 | 0 | 0 | -105 | 0 | 0 | 0 |
| Transfers into level 3 | 28 | 0 | 0 | 2 496 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfers out of level 3 | 0 | 0 | 0 | -45 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfers out of/into liabilities associated with disposal groups |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Translation differences | -7 | 9 | 0 | 331 | 2 | 0 | 0 | 17 | 0 | 0 | 0 |
| Changes in the scope of consolidation | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Closing balance | 21 | 24 | 0 | 6 406 | 0 | 0 | 0 | 3 806 | 0 | 145 | 0 |
| Total gains (negative figures) or losses (positive figures) included in profit or loss for liabilities held at the end of the reporting period |
0 | -89 | 0 | -1 134 | 0 | 0 | 0 | -2 | 0 | 0 | 0 |
Hedging
* Recognised primarily in 'Net result from financial instruments at fair value', 'Net realised result from available-for-sale assets' and 'Impairment on available-for-sale assets'.
| Level 3 financial assets | Held for trading | Designated at fair value | Available for sale | Hedging deriv atives |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Loans and advances |
Equity instru ments |
Investment (insurance) contracts |
Debt instruments | Derivatives | Loans and advances |
Equity instru ments |
Investment (insurance) contracts |
Debt instruments | Equity instru ments |
Debt instruments | Derivatives | |
| Opening balance | 10 | 993 | 0 | 614 | 2 073 | 26 | 1 | 0 | 373 | 398 | 497 | 0 |
| Gains or losses | 0 | -183 | 0 | 47 | 1 694 | 3 | -1 | 0 | -90 | -7 | -1 | 0 |
| in profit or loss1 | 0 | -183 | 0 | 47 | 1 694 | 3 | -1 | 0 | -90 | 0 | 5 | 0 |
| in other comprehensive income | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -7 | -5 | 0 |
| Purchases | 0 | 9 | 0 | 3 | 309 | 0 | 0 | 0 | 58 | 22 | 57 | 0 |
| Disposals | -10 | -72 | 0 | -321 | -428 | -2 | 0 | 0 | -1 | -99 | 0 | 0 |
| Settlements | 0 | 0 | 0 | -132 | -1 245 | 0 | 0 | 0 | -224 | 0 | -28 | 0 |
| Transfers into level 3 | 0 | 0 | 0 | 0 | 14 | 0 | 0 | 0 | 68 | 41 | 172 | 0 |
| Transfers out of level 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -43 | 0 | -14 | 0 |
| Transfers into/out of non-current assets held for sale |
0 | -8 | 0 | 0 | 0 | 0 | 8 | 0 | -10 | -75 | -20 | 0 |
| Translation differences | 0 | 10 | 0 | -14 | 74 | 1 | 1 | 0 | 5 | 0 | 0 | 0 |
| Changes in the scope of consolidation | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other2 | 0 | 0 | 0 | 0 | 2 500 | 0 | 0 | 0 | 0 | -21 | -166 | 0 |
| Closing balance | 0 | 749 | 0 | 198 | 4 991 | 27 | 8 | 0 | 136 | 259 | 498 | 0 |
| Total gains (positive figures) or losses (negative figures) included in profit or loss for assets held at the end of the reporting period |
0 | -127 | 0 | -46 | 2 041 | 3 | -1 | 0 | 0 | 0 | 0 | 0 |
| Held for trading | Designated at fair value | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| credit institutions Deposits from |
customers and Deposits from debt securities |
Liabilities under investment contracts |
Derivatives | Short positions | Other | credit institutions Deposits from |
customers and Deposits from debt securities |
Liabilities under investment contracts |
Other | Derivatives | ||
| Opening balance | 21 | 24 | 0 | 6 406 | 0 | 0 | 0 | 3 806 | 0 | 145 | 0 | |
| Gains or losses | 0 | -14 | 0 | 520 | 0 | 0 | 0 | -237 | 0 | 28 | 0 | |
| in profit or loss1 | 0 | -14 | 0 | 520 | 0 | 0 | 0 | -237 | 0 | 28 | 0 | |
| in other comprehensive income | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Issues | 0 | 0 | 0 | 1 087 | 0 | 0 | 0 | 856 | 0 | 0 | 0 | |
| Repurchases | 0 | 0 | 0 | -1 527 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Settlements | -20 | -6 | 0 | -405 | 0 | 0 | 0 | -267 | 0 | 0 | 0 | |
| Transfers into level 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Transfers out of level 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -2 806 | 0 | 0 | 0 | |
| Transfers out of/into liabilities associated with disposal groups |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Translation differences | -1 | -1 | 0 | 150 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Changes in the scope of consolidation | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Other2 | 0 | 0 | 0 | 3 211 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Closing balance | 0 | 4 | 0 | 9 442 | 0 | 0 | 0 | 1 352 | 0 | 173 | 0 | |
| Total gains (negative figures) or losses (positive figures) included in profit or loss for liabilities held at the end of the reporting period |
0 | -1 | 0 | 834 | 0 | 0 | 0 | 0 | 0 | 28 | 0 |
1 Recognised primarily in 'Net result from financial instruments at fair value', 'Net realised result from available-for-sale assets' and 'Impairment on available-for-sale assets'.
2 The 'Other' amounts in the 'Derivatives' column under 'Held-for-trading' relate to an adjustment resulting from a refinement of the method for transferring derivatives on the balance sheet to the level 3 movements table. Some level 3 assets are associated or economically hedged with identical level 3 liabilities, which means that KBC's exposure to unobservable inputs is lower than would appear from the gross figures given in the table.
Hedging deriv-
| Spreads -50% |
Spreads -20% |
Spreads -10% |
Spreads +10% |
Spreads +20% |
Spreads +50% |
|
|---|---|---|---|---|---|---|
| 31-12-2010 | 0.9 | 0.3 | 0.2 | -0.1 | -0.3 | -0.6 |
| 31-12-2011 | 0.8 | 0.3 | 0.1 | -0.1 | -0.2 | -0.5 |
performed on a counterparty value adjustment for MBIA in which not only the credit spreads of the underlying assets of the CDOs issued by KBC Financial Products change, but also the counterparty value adjustment for MBIA. The adjustment is currently 70%.
Profit/loss sensitivity tests based on corporate and ABS credit spread indices and on changes in the counterparty value adjustment for MBIA* (in billions of EUR)
| Spreads -50% |
Spreads -20% |
Spreads -10% |
Spreads +10% |
Spreads +20% |
Spreads +50% |
|
|---|---|---|---|---|---|---|
| 31-12-2010 | ||||||
| MBIA 60% | 0.9 | 0.4 | 0.3 | 0.1 | 0.0 | -0.3 |
| MBIA 70% | 0.4 | 0.2 | 0.1 | -0.1 | -0.1 | -0.3 |
| MBIA 80% | 0.3 | 0.0 | -0.1 | -0.3 | -0.3 | -0.5 |
| MBIA 90% | 0.2 | -0.1 | -0.2 | -0.4 | -0.5 | -0.7 |
| MBIA 100% | 0.1 | -0.3 | -0.4 | -0.6 | -0.7 | -1.0 |
| 31-12-2011 | ||||||
| MBIA 60% | 0.5 | 0.3 | 0.2 | 0.1 | 0.0 | -0.1 |
| MBIA 70% | 0.5 | 0.2 | 0.1 | -0.1 | -0.1 | -0.3 |
| MBIA 80% | 0.4 | 0.0 | -0.1 | -0.2 | -0.3 | -0.5 |
| MBIA 90% | 0.3 | -0.1 | -0.2 | -0.4 | -0.4 | -0.6 |
| MBIA 100% | 0.2 | -0.2 | -0.3 | -0.5 | -0.6 | -0.8 |
* Note that the results reflect only the impact on the MBIA value adjustment. The impact of changes in credit spreads on KBC Financial Products' own CDO positions is not included.
(in millions of EUR) ((+) profit (-) loss; amounts before tax)
| OWN DEBT ISSUES DESIGNATED AT FAIR VALUE, 31-12-2010 | |
|---|---|
| Impact of change in own credit spreads on the income statement | 53 |
| Total cumulative impact at balance sheet date | 258 |
| OWN DEBT ISSUES DESIGNATED AT FAIR VALUE, 31-12-2011 | |
| Impact of change in own credit spreads on the income statement | 484 |
| Total cumulative impact at balance sheet date | 742 |
• The fair value of financial liabilities designated at fair value through profit or loss takes account of own credit risk. Most of the financial liabilities designated at fair value through profit or loss relates to KBC IFIMA issues. The own credit risk of KBC IFIMA issues designated at fair value through profit or loss is measured using KBC's own funding spread. Taking into account this own credit risk, the total fair value of KBC IFIMA issues designated at fair value through profit or loss amounted to some 3.9 billion euros on 31 December 2011. The results of sensitivity tests – in which the funding spread is shifted – on the total fair value of KBC IFIMA issues is given in the table below.
| Spreads -50% |
Spreads -20% |
Spreads -10% |
Spreads +10% |
Spreads +20% |
Spreads +50% |
|
|---|---|---|---|---|---|---|
| 31-12-2010 | -0.2 | -0.07 | -0.04 | +0.04 | +0.07 | +0.2 |
| 31-12-2011 | -0.4 | -0.15 | -0.08 | +0.08 | +0.15 | +0.4 |
| Carrying value | 2 287 | ||
|---|---|---|---|
| Fair value | 2 071 | ||
| If not reclassified (available for sale) |
After reclassification (loans and receivables) |
Impact | |
| Impact on the revaluation reserve (available-for-sale assets), before tax | -541 | -353 | 188 |
| Impact on the income statement, before tax | -14 | 5 | 19 |
• In October 2008, the International Accounting Standards Board (IASB) issued amendments to IAS 39 and IFRS 7 under 'Reclassification of financial assets'. Following the implementation of these amendments, the KBC group reclassified a number of assets out of the 'available for sale' category to the 'loans and receivables' category because they had become less liquid. On the date of reclassification, the assets in question met the definition of loans and receivables, and the group has the intention and ability to hold these assets for the foreseeable future or until maturity. KBC reclassified these assets on 31 December 2008. On the reclassification date (31 December 2008), the estimated recoverable amount of these assets came to 5 billion euros and the effective interest rate varied between 5.88% and 16.77%.
| Held for trading | Micro hedging: fair value hedge | Micro hedging: cashflow hedge* | Portfolio hedge of interest rate risk | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying value | Notional amount | Carrying value | Notional amount | Carrying value | Notional amount | Carrying value | Notional amount | |||||||||
| (in millions of EUR) | Assets | Liabilities | Purchased | Sold | Assets | Liabilities | Purchased | Sold | Assets | Liabilities | Purchased | Sold | Assets | Liabilities | Purchased | Sold |
| 31-12-2010 | ||||||||||||||||
| Total | 15 758 | 22 317 | 716 047 | 696 729 | 30 | 101 | 4 466 | 4 466 | 178 | 529 | 19 938 | 19 907 | 5 | 218 | 5 457 | 5 457 |
| Breakdown by type | ||||||||||||||||
| Interest rate contracts | 8 788 | 10 436 | 426 561 | 411 750 | 30 | 101 | 4 466 | 4 466 | 132 | 523 | 19 519 | 19 519 | 5 | 218 | 5 457 | 5 457 |
| Interest rate swaps | 7 734 | 9 894 | 373 901 | 371 458 | 30 | 101 | 4 466 | 4 466 | 132 | 523 | 19 519 | 19 519 | 5 | 218 | 5 457 | 5 457 |
| Forward rate agreements | 4 | 3 | 6 207 | 13 266 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Futures | 12 | 0 | 6 558 | 8 000 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Options | 1 038 | 510 | 39 885 | 18 765 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Forwards | 0 | 29 | 10 | 262 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Foreign exchange contracts | 1 566 | 1 829 | 198 207 | 199 446 | 0 | 0 | 0 | 0 | 46 | 6 | 418 | 387 | 0 | 0 | 0 | 0 |
| operations/currency forwards Forward foreign exchange |
191 | 267 | 100 451 | 99 908 | 0 | 0 | 0 | 0 | 0 | 1 | 34 | 34 | 0 | 0 | 0 | 0 |
| Currency and interest rate swaps |
1 144 | 1 329 | 74 560 | 75 623 | 0 | 0 | 0 | 0 | 46 | 5 | 304 | 262 | 0 | 0 | 0 | 0 |
| Futures | 0 | 0 | 17 | 17 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Options | 231 | 233 | 23 180 | 23 899 | 0 | 0 | 0 | 0 | 0 | 1 | 81 | 91 | 0 | 0 | 0 | 0 |
| Equity contracts | 2 155 | 2 760 | 48 090 | 51 108 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Equity swaps | 1 109 | 950 | 22 216 | 22 217 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Forwards | 9 | 1 | 13 | 4 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Futures | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Options | 1 030 | 1 781 | 25 854 | 24 783 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Warrants | 6 | 28 | 6 | 4 104 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Credit contracts | 3 201 | 7 256 | 42 622 | 33 859 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Credit default swaps | 3 134 | 7 256 | 41 817 | 33 053 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Credit spread options | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total return swaps | 67 | 0 | 806 | 806 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Commodity and other con tracts |
47 | 35 | 567 | 567 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
* Including hedges of net investments in foreign operations.
Note 29: Derivatives
| Held for trading | Micro hedging: fair value hedge | Micro hedging: cashflow hedge* | Portfolio hedge of interest rate risk | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying value | Notional amount | Carrying value | Notional amount | Carrying value | Notional amount | Carrying value | Notional amount | |||||||||
| (in millions of EUR) | Assets | Liabilities | Purchased | Sold | Assets | Liabilities | Purchased | Sold | Assets | Liabilities | Purchased | Sold | Assets | Liabilities | Purchased | Sold |
| 31-12-2011 | ||||||||||||||||
| Total | 16 750 | 21 699 | 593 601 | 572 961 | 212 | 350 | 6 209 | 6 209 | 406 | 1 058 | 24 495 | 24 490 | 6 | 194 | 4 497 | 4 497 |
| Breakdown by type | ||||||||||||||||
| Interest rate contracts | 8 964 | 9 581 | 365 443 | 349 721 | 212 | 350 | 6 209 | 6 209 | 380 | 1 054 | 24 244 | 24 259 | 6 | 194 | 4 497 | 4 497 |
| Interest rate swaps | 7 865 | 8 998 | 285 443 | 285 526 | 212 | 350 | 6 209 | 6 209 | 380 | 1 054 | 24 244 | 24 259 | 6 | 194 | 4 497 | 4 497 |
| Forward rate agreements | 8 | 11 | 8 681 | 12 644 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Futures | 13 | 0 | 10 179 | 7 676 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Options | 1 078 | 521 | 61 140 | 43 504 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Forwards | 0 | 51 | 0 | 370 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Foreign exchange contracts | 1 676 | 1 429 | 151 987 | 153 820 | 0 | 0 | 0 | 0 | 25 | 4 | 251 | 232 | 0 | 0 | 0 | 0 |
| operations/currency forwards Forward foreign exchange |
415 | 314 | 72 576 | 72 570 | 0 | 0 | 0 | 0 | 2 | 0 | 25 | 25 | 0 | 0 | 0 | 0 |
| Currency and interest rate swaps |
1 005 | 883 | 61 121 | 61 664 | 0 | 0 | 0 | 0 | 23 | 4 | 226 | 206 | 0 | 0 | 0 | 0 |
| Futures | 0 | 0 | 170 | 170 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Options | 255 | 233 | 18 120 | 19 416 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Equity contracts | 2 629 | 3 507 | 40 708 | 43 277 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Equity swaps | 1 400 | 1 856 | 35 074 | 35 445 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Forwards | 4 | 1 | 4 | 4 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Futures | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Options | 1 224 | 1 639 | 5 630 | 7 336 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Warrants | 1 | 12 | 1 | 492 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Credit contracts | 3 453 | 7 162 | 34 956 | 25 639 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Credit default swaps | 3 453 | 7 162 | 34 956 | 25 639 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Credit spread options | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total return swaps | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Commodity and other con tracts |
28 | 19 | 507 | 504 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
* Including hedges of net investments in foreign operations.
• In addition, KBC uses micro-hedge accounting permitted under IAS 39 to limit the volatility of results in the following cases:
Fair value hedges: used in certain asset-swap constructions, where KBC buys a bond on account of the credit spread. The interest rate risk of the bond is hedged by means of an interest rate swap. This technique is also applied to certain fixed-term debt instruments issued by KBC Bank.
Following implementation of IFRS 5, the various balance sheet items of companies subject to this standard (see Note 46) have been reallocated to the relevant headings in the balance sheet (under 'Non-current assets held for sale and disposal groups' on the assets side and under 'Liabilities associated with disposal groups' on the liabilities side). However, the reference figures have not been restated, which means that comparability of the figures has been slightly affected. This relates to KBL EPB in 2010 and to KBL EPB, Fidea and WARTA in 2011.
| (in millions of EUR) 31-12-2010 |
31-12-2011 |
|---|---|
| Total 2 172 |
1 871 |
| Debtors arising out of primary insurance operations 293 |
123 |
| Debtors arising out of reinsurance operations 22 |
18 |
| Other debtors and called capital as yet unpaid 0 |
0 |
| Deposits with ceding companies 13 |
10 |
| Income receivable (other than interest income from financial assets) 1 033 |
694 |
| Other 811 |
1 026 |
| (in millions of EUR) 31-12-2010 |
31-12-2011 |
|---|---|
| CURRENT TAXES | |
| Current tax assets 167 |
201 |
| Current tax liabilities 345 |
255 |
| DEFERRED TAXES 2 243 |
2 155 |
| Deferred tax assets by type of temporary difference 3 678 |
3 653 |
| Employee benefits 230 |
205 |
| Losses carried forward 960 |
982 |
| Tangible and intangible fixed assets 83 |
82 |
| Provisions for risks and charges 71 |
175 |
| Impairment for losses on loans and advances 448 |
395 |
| Financial instruments at fair value through profit or loss and fair value hedges 859 |
811 |
| Fair value changes, available-for-sale assets, cashflow hedges and hedges of net investments in foreign operations 884 |
897 |
| Technical provisions 62 |
45 |
| Other 81 |
61 |
| Unused tax losses and unused tax credits 980 |
1 441 |
| Deferred tax liabilities by type of temporary difference 1 435 |
1 498 |
| Employee benefits 33 |
36 |
| Losses carried forward 0 |
0 |
| Tangible and intangible fixed assets 128 |
116 |
| Provisions for risks and charges 41 |
36 |
| Impairment for losses on loans and advances 110 |
116 |
| Financial instruments at fair value through profit or loss and fair value hedges 558 |
615 |
| Fair value changes, available-for-sale assets, cashflow hedges and hedges of net investments in foreign operations 357 |
423 |
| Technical provisions 27 |
10 |
| Other 180 |
146 |
| Recognised as a net amount in the balance sheet as follows: | |
| Deferred tax assets 2 367 |
2 445 |
| Deferred tax liabilities 123 |
290 |
decrease in deferred tax assets: -26 million euros;
increase in deferred tax liabilities: +62 million euros.
the decrease in deferred tax assets on account of a significant rise in the market value of hedges of net investments in foreign operations: -101 million euros.
• The change in deferred tax liabilities is made up of the following:
able primarily to KBC Bank and KBC Credit Investments. At the latter, they relate partially to the notional deduction of interest. A proposal to amend the law on notional interest deduction is currently being discussed. If the proposal is approved as it is currently formulated, KBC Credit Investments will have to accelerate the reduction of its deferred tax liabilities rather than gradually reducing them as it is currently doing. This would have a negative impact of around 55 million euros on the income statement in 2012 (based on figures calculated at yearend 2011; the actual amount will depend on the quarter in which the proposal is approved), although the negative effect would be neutralised in 2013 and 2014 as a gradual reduction would no longer be necessary.
| (in millions of EUR) | 31-12-2010 | 31-12-2011 |
|---|---|---|
| Total | 496 | 431 |
| Overview of investments, including goodwill | ||
| Nova Ljubljanska banka | 488 | 424 |
| Other | 8 | 7 |
| Goodwill on associated companies | ||
| Gross amount | 210 | 210 |
| Accumulated impairment | -31 | -31 |
| Breakdown by type | ||
| Unlisted | 496 | 431 |
| Listed | 0 | 0 |
| Fair value of investments in listed associated companies | 0 | 0 |
| MOVEMENTS TABLE | 2010 | 2011 |
| Opening balance (1 January) | 608 | 496 |
| Acquisitions | 0 | 0 |
| Carrying value, transfers | 0 | 0 |
| Share in the result for the period | -63 | -58 |
| Capital increase | 0 | 5 |
| Dividends paid | -1 | -1 |
| Share of gains and losses not recognised in the income statement | 1 | -12 |
| Translation differences | 0 | 2 |
| Changes in goodwill | -31 | 0 |
| Transfers to or from non-current assets held for sale and disposal groups | -15 | 0 |
| Other movements | -3 | 0 |
| Closing balance (31 December) | 496 | 431 |
• Associated companies are companies on whose management KBC exerts significant influence, without having direct or indirect full or joint control. In general, KBC has a 20% to 50% shareholding in such companies. Associated companies relate primarily to Nova Ljubljanska banka (group), which has the following key figures (taken from the latest available annual report – 2010): total assets of 17.9 billion euros, total liabilities of 16.9 billion euros, total income of 0.6 billion euros and a result after tax (group share) of -0.2 billion euros.
• Goodwill paid on associated companies is included in the nominal value of 'Investments in associated companies' shown on the balance sheet. An impairment test has been performed and the necessary impairment losses on goodwill have been recognised (see table). In 2010, impairment on goodwill related to Nova Ljubljanska banka (also see Note 14).
| (in millions of EUR) | 31-12-2010 | 31-12-2011 | |||
|---|---|---|---|---|---|
| Property and equipment | 2 693 | 2 651 | |||
| Investment property | 704 | 758 | |||
| Rental income | 60 | 63 | |||
| Direct operating expenses from investments generating rental income | 15 | 56 | |||
| Direct operating expenses from investments not generating rental income | 5 | 4 | |||
| MOVEMENTS TABLE | Land and | buildings IT equipment | Other equipment |
Total property and equipment |
Investment property |
| 2010 | |||||
| Opening balance | 1 712 | 176 | 1 003 | 2 890 | 762 |
| Acquisitions | 110 | 110 | 331 | 550 | 19 |
| Disposals | -19 | -19 | -148 | -186 | -12 |
| Depreciation | -82 | -89 | -52 | -223 | -24 |
| Impairment | |||||
| Recognised | -3 | 0 | -1 | -4 | -1 |
| Reversed | 2 | 0 | 0 | 2 | 0 |
| Transfers to or from non-current assets held for sale and disposal groups | -158 | -16 | -30 | -204 | -39 |
| Translation differences | 23 | 2 | 8 | 32 | 4 |
| Changes in the scope of consolidation | -3 | 0 | -6 | -10 | -5 |
| Other movements | -3 | -2 | -150 | -154 | 1 |
| Closing balance | 1 579 | 160 | 954 | 2 693 | 704 |
| of which accumulated depreciation and impairment | 1 031 | 615 | 728 | 2 374 | 196 |
| of which expenditure on items in the course of construction | 45 | 0 | 6 | 52 | – |
| of which finance lease as a lessee | 0 | 0 | 1 | 1 | – |
| Fair value 31-12-2010 | – | – | – | – | 862 |
| 2011 | |||||
| Opening balance | 1 579 | 160 | 954 | 2 693 | 704 |
| Acquisitions | 126 | 80 | 429 | 634 | 31 |
| Disposals | -33 | -1 | -151 | -185 | -16 |
| Depreciation | -84 | -81 | -43 | -207 | -28 |
| Impairment | |||||
| Recognised | 0 | 0 | 0 | 0 | -30 |
| Reversed | 0 | 0 | 0 | 0 | 0 |
| Transfers to or from non-current assets held for sale and disposal groups | -11 | -3 | -2 | -17 | -29 |
| Translation differences | -25 | -2 | -11 | -38 | -7 |
| Changes in the scope of consolidation | -16 | 0 | -25 | -41 | 113 |
| Other movements | -20 | -2 | -166 | -187 | 20 |
| Closing balance | 1 516 | 150 | 985 | 2 651 | 758 |
| of which accumulated depreciation and impairment | 995 | 621 | 704 | 2 320 | 222 |
| of which expenditure on items in the course of construction | 46 | 0 | 7 | 53 | – |
| of which finance lease as a lessee | 0 | 0 | 0 | 0 | – |
| Fair value 31-12-2011 | – | – | – | – | 892 |
| (in millions of EUR) | Goodwill | Software developed in-house |
Software developed externally |
Other | Total |
|---|---|---|---|---|---|
| 2010 | |||||
| Opening balance | 2 918 | 201 | 155 | 42 | 3 316 |
| Acquisitions | 11 | 58 | 79 | 19 | 167 |
| Disposals | 0 | 0 | -27 | -9 | -36 |
| Adjustment resulting from subsequent identification | 0 | 0 | 0 | 0 | 0 |
| Amortisation | 0 | -41 | -62 | -11 | -115 |
| Impairment | |||||
| Recognised | -88 | 0 | 0 | 0 | -88 |
| Reversed | 0 | 0 | 0 | 0 | 0 |
| Transfers to or from non-current assets held for sale and disposal groups | -994 | -10 | -5 | -1 | -1 009 |
| Translation differences | 28 | 0 | 2 | 1 | 30 |
| Changes in the scope of consolidation | -20 | 0 | 0 | 0 | -20 |
| Other movements | 6 | 1 | -2 | 6 | 11 |
| Closing balance | 1 861 | 208 | 140 | 47 | 2 256 |
| of which accumulated amortisation and impairment | 634 | 299 | 586 | 74 | 1 594 |
| 2011 | |||||
| Opening balance | 1 861 | 208 | 140 | 47 | 2 256 |
| Acquisitions | 2 | 69 | 58 | 17 | 147 |
| Disposals | 0 | -1 | -1 | -7 | -10 |
| Adjustment resulting from subsequent identification | 0 | 0 | 0 | 0 | 0 |
| Amortisation | 0 | -55 | -52 | -12 | -119 |
| Impairment | |||||
| Recognised | -120 | 0 | -3 | -4 | -127 |
| Reversed | 0 | 0 | 0 | 0 | 0 |
| Transfers to or from non-current assets held for sale and disposal groups | -160 | 0 | -1 | -1 | -162 |
| Translation differences | -41 | 0 | -4 | -3 | -48 |
| Changes in the scope of consolidation | -2 | 0 | 0 | 0 | -2 |
| Other movements | -38 | 1 | -3 | 3 | -37 |
| Closing balance | 1 502 | 222 | 134 | 40 | 1 898 |
| of which accumulated amortisation and impairment | 754 | 189 | 584 | 0 | 1 527 |
growth rate is determined using a long-term average market growth rate. The present value of these future cashflows is calculated using a compound discount rate, which is based on the Capital Asset Pricing Model (CAPM). A risk-free rate, a market-risk premium (multiplied by an activity beta), and a country risk premium (to reflect the impact of the economic situation of the country where KBC is active) are also used in the calculation. KBC has developed two distinct discounted cashflow models, viz. a bank model and an insurance model. Free cashflows in both cases are the dividends that can be paid out to the company's shareholders, account taken of the minimum capital requirements.
| Goodwill outstanding (in millions of EUR) | 31-12-2010 | 31-12-2011 | Discount rates throughout the specific period of cashflow projections (31-12-2011) |
|---|---|---|---|
| Absolut Bank | 379 | 362 | 16.9%–10.3% |
| K&H Bank | 248 | 219 | 16.6%–10.3% |
| Cˇ SOB (Czech Republic) | 267 | 254 | * |
| Cˇ SOB (Slovakia) | 191 | 191 | 12.2%–10.1% |
| CIBANK | 170 | 117 | 14.4%–10.3% |
| WARTA | 159 | – | – |
| DZI Insurance | 145 | 130 | 14.4%–10.5% |
| Kredyt Bank | 69 | 66 | * |
| Rest | 233 | 163 | – |
| Total | 1 861 | 1 502 | – |
* Via fair value analysis.
diminishingly carried forward as higher discount rates for the years ahead. Apart from the entities for which impairment had already been recorded in 2011 (CIBank and DZI Insurance), only one entity from the above list (Cˇ SOB in Slovakia) would be subject to impairment based on the additional stress scenario (the recoverable value would equal the carrying amount if the discount rate in the first year were to increase by an absolute rate of 0.4% and if this increase were to be gradually and diminishingly carried forward to the discount rates for subsequent years).
| (in millions of EUR) | 31-12-2010 | 31-12-2011 | ||
|---|---|---|---|---|
| Technical provisions (before reinsurance) (i.e. gross figures) | 23 255 | 19 914 | ||
| Insurance contracts | 10 425 | 8 156 | ||
| Provision for unearned premiums and unexpired risk | 532 | 342 | ||
| Life insurance provision | 6 580 | 5 194 | ||
| Provision for claims outstanding | 3 095 | 2 163 | ||
| Provision for profit sharing and rebates | 32 | 10 | ||
| Other technical provisions | 186 | 447 | ||
| Investment contracts with DPF | 12 830 | 11 758 | ||
| Life insurance provision | 12 768 | 11 674 | ||
| Provision for claims outstanding | 0 | 0 | ||
| Provision for profit sharing and rebates | 62 | 83 | ||
| Reinsurers' share | 280 | 150 | ||
| Insurance contracts | 280 | 150 | ||
| Provision for unearned premiums and unexpired risk | 20 | 1 | ||
| Life insurance provision | 3 | 0 | ||
| Provision for claims outstanding | 257 | 148 | ||
| Provision for profit sharing and rebates | 0 | 0 | ||
| Other technical provisions | 0 | 0 | ||
| Investment contracts with DPF | 0 | 0 | ||
| Life insurance provision | 0 | 0 | ||
| Provision for claims outstanding | 0 | 0 | ||
| Provision for profit sharing and rebates | 0 | 0 | ||
| 2010 | 2011 | |||
| MOVEMENTS TABLE | Gross | Reinsurance | Gross | Reinsurance |
| INSURANCE CONTRACTS, LIFE | ||||
| Opening balance | 5 904 | 16 | 6 678 | 4 |
| Deposits excluding fees | 980 | 0 | 686 | 0 |
| Provisions paid | -524 | 0 | -431 | 0 |
| Accretion of interest | 185 | 0 | 167 | 0 |
| Cost of profit sharing | 43 | 0 | 7 | 0 |
| Exchange differences | 38 | 0 | -50 | 0 |
| Transfers out of/into liabilities associated with disposal groups | -68 | 0 | -1 344 | -1 |
| Changes in the scope of consolidation | -71 | -14 | 0 | 0 |
| Other movements | 191 | 2 | -91 | 0 |
| Closing balance | 6 678 | 4 | 5 623 | 3 |
| INSURANCE CONTRACTS, NON-LIFE | ||||
| Opening balance | 4 340 | 268 | 3 746 | 276 |
| Change in the provision for unearned premiums | 28 | 5 | -8 | 0 |
| Payments regarding claims of previous years | -402 | -27 | -262 | -9 |
| Surplus/shortfall of claims provision in previous years | -238 | -2 | -174 | 10 |
| Provisions for new claims | 587 | 39 | 281 | 15 |
| Transfers | 0 | 0 | 0 | 0 |
| Exchange differences | 32 | 5 | -41 | -4 |
| Transfers out of/into liabilities associated with disposal groups Changes in the scope of consolidation |
0 -726 |
0 -81 |
-1 234 0 |
-121 0 |
| Other movements | 124 | 69 | 209 | 0 |
| Closing balance | 3 746 | 276 | 2 533 | 147 |
| INVESTMENT CONTRACTS WITH DPF, LIFE | ||||
| Opening balance | 11 768 | 0 | 12 830 | 0 |
| Deposits excluding fees | 1 492 | 0 | 782 | 0 |
| Provisions paid | -469 | 0 | -649 | 0 |
| Accretion of interest | 407 | 0 | 344 | 0 |
| Cost of profit sharing | 106 | 0 | 1 | 0 |
| Exchange differences | 3 | 0 | -2 | 0 |
| Transfers out of/into liabilities associated with disposal groups | -430 | 0 | -1 297 | 0 |
| Other movements | -47 | 0 | -251 | 0 |
| Closing balance | 12 830 | 0 | 11 758 | 0 |
Mortality and morbidity rates are based on standard mortality tables and adapted where necessary to reflect the group's own experience.
Expense assumptions are based on current expense levels and expense loadings.
| (in millions of EUR) | Provision for restructuring |
Provision for taxes and pending legal disputes |
Other | Subtotal | Provi sions for off-balance sheet credit commit ments |
Total |
|---|---|---|---|---|---|---|
| 2010 | ||||||
| Opening balance | 37 | 419 | 84 | 539 | 111 | 651 |
| Movements with an impact on results | ||||||
| Amounts allocated | 25 | 37 | 11 | 73 | 119 | 192 |
| Amounts used | -20 | -79 | -6 | -106 | 0 | -106 |
| Unused amounts reversed | -1 | -10 | -5 | -16 | -104 | -119 |
| Transfers out of/into liabilities associated with disposal groups | -8 | -3 | -15 | -26 | 0 | -26 |
| Changes in the scope of consolidation | 0 | 0 | 0 | 0 | 0 | 0 |
| Other movements | -6 | 23 | 2 | 20 | -11 | 9 |
| Closing balance | 27 | 387 | 70 | 484 | 116 | 600 |
| 2011 | ||||||
| Opening balance | 27 | 387 | 70 | 484 | 116 | 600 |
| Movements with an impact on results | ||||||
| Amounts allocated | 24 | 382 | 21 | 427 | 91 | 518 |
| Amounts used | -20 | -39 | -2 | -61 | 0 | -61 |
| Unused amounts reversed | -3 | -9 | -3 | -15 | -117 | -132 |
| Transfers out of/into liabilities associated with disposal groups | 0 | -1 | -7 | -8 | 0 | -8 |
| Changes in the scope of consolidation | 0 | 0 | 0 | 0 | 0 | 0 |
| Other movements | -1 | -26 | -1 | -28 | -1 | -29 |
| Closing balance | 27 | 695 | 78 | 800 | 89 | 889 |
The most important cases are listed below. The information provided is limited in order not to prejudice the position of the group in ongoing litigation.
criminal sentences were handed down. An appeal is pending. Most claims have already been settled either amicably or following an arbitral decision. Appropriate provisions have been set aside for the claims still outstanding, taking into account compensation provided by an external insurer.
Bankers SA, abbreviated to KBL EPB) accused of co-operation in tax evasion committed by customers of KBC Bank NV and KBL EPB, the Brussels criminal court ruled on 8 December 2009 that the criminal proceedings were inadmissible. The court judged that, given the extraordinary and doubtful circumstances in which the documents submitted by the public prosecutor came into the hands of the judicial authorities, they could not be used as evidence in legal proceedings. Following a close investigation into the way in which the disputed documents were incorporated into the proceedings, the court ruled that the criminal investigation had not been carried out in a fair and impartial manner. On 10 December 2010, the Brussels Court of Appeal confirmed the initial ruling and stressed that the investigating judge had not acted impartially. The Public Prosecutor's Office has appealed this decision. On 31 May 2011, the Court of Cassation handed down a judgment confirming the decision of the Court of Appeal in Brussels. Consequently, the criminal case is now closed.
| (in millions of EUR) | 31-12-2010 | 31-12-2011 |
|---|---|---|
| Total | 3 902 | 3 322 |
| Breakdown by type | ||
| Retirement benefit obligations or other employee benefits | 993 | 886 |
| Deposits from reinsurers | 93 | 69 |
| Accrued charges (other than from interest expenses on financial liabilities) | 839 | 727 |
| Other | 1 978 | 1 640 |
• For more information on retirement benefit obligations, see Note 38.
| -12 -2010 31 -12 -2011 |
|---|
| ------------------------------------ |
| (in millions of EUR) | 31 -12 -2010 |
31 -12 -2011 |
|---|---|---|
| DEFINED BENEFIT PLANS | ||
| Reconciliation of defined benefit obligations | ||
| Defined benefit obligations at the beginning of the period | 1 997 | 1 645 |
| Current service cost | 101 | 88 |
| Interest cost | 74 | 80 |
| Plan amendments | -8 | 0 |
| Actuarial gain (loss) | -156 | 129 |
| Benefits paid | -133 | -117 |
| Exchange differences | 2 | 4 |
| Curtailments | -2 | -2 |
| Transfers under IFRS 5 | -183 | -11 |
| Changes in the scope of consolidation | -28 | -2 |
| Other | -20 | 9 |
| Defined benefit obligations at the end of the period | 1 645 | 1 823 |
| Reconciliation of the fair value of plan assets | ||
| Fair value of plan assets at the beginning of the period | 1 529 | 1 439 |
| Actual return on plan assets | 105 | 95 |
| Employer contributions | 82 | 125 |
| Plan participant contributions | 17 | 18 |
| Benefits paid | -133 | -117 |
| Exchange differences | 2 | 1 |
| Settlements | 0 | -2 |
| Transfers under IFRS 5 | -115 | -7 |
| Changes in the scope of consolidation | -26 | -1 |
| Other | -22 | 6 |
| Fair value of plan assets at the end of the period | 1 439 | 1 557 |
| of which financial instruments issued by the group | 11 | 4 |
| Funded status | ||
| Plan assets in excess of defined benefit obligations | -204 | -265 |
| Unrecognised net actuarial gains | -231 | -104 |
| Unrecognised transaction amount | 0 | 0 |
| Unrecognised past service cost | 0 | 0 |
| Unrecognised assets | -2 | 0 |
| Unfunded accrued/prepaid pension cost | -437 | -372 |
| Movement in net liabilities or net assets | ||
| Unfunded accrued/prepaid pension cost at the beginning of the period | -512 | -437 |
| Net periodic pension cost | -74 | -51 |
| Employer contributions | 82 | 125 |
| Exchange differences | 0 | 0 |
| Transfers under IFRS 5 | 63 | 1 |
| Changes in the scope of consolidation | 2 | 0 |
| Other | 3 | -11 |
| Unfunded accrued/prepaid pension cost at the end of the period | -437 | -372 |
| Amounts recognised in the balance sheet | ||
| Prepaid pension cost | 75 | 80 |
| Accrued pension liabilities | -512 | -452 |
| Unfunded accrued/prepaid pension cost | -437 | -372 |
| Amounts recognised in the income statement | ||
| Current service cost | 101 | 88 |
| Interest cost | 74 | 80 |
| Expected return on plan assets | -73 | -80 |
| Adjustments to limit prepaid pension cost | -2 | -1 |
| Amortisation of unrecognised prior service costs | -8 | 0 |
| Amortisation of unrecognised net gain (loss) | -1 | -16 |
| Employee contributions | -17 | -18 |
| Curtailments | -2 | -2 |
| Settlements | 0 | -1 |
| Changes in the scope of consolidation | 0 | 0 |
| Actuarially determined net periodic pension cost* | 74 | 51 |
| Actual rate of return on plan assets | 6.9% | 6.6% |
| (in millions of EUR) 31-12-2010 |
31-12-2011 |
|---|---|
| Principal actuarial assumptions used (based on weighted averages) | |
| Discount rate 3.8% |
4.6% |
| Expected rate of return on plan assets 5.2% |
5.5% |
| Expected rate of salary increase 3.4% |
3.1% |
| Rate of pension increase 0.5% |
0.4% |
| DEFINED CONTRIBUTION PLANS | |
| Expenses for defined contribution plans 0 |
0 |
* Included under staff expenses (see Note 12).
• The pension claims of the staff of the various KBC group companies are covered by pension funds and group insurance schemes, the most important of which are defined benefit plans. The main defined benefit plans are those managed by the OFP Pensioenfonds KBC and the OFP Pensioenfonds Senior Management KBC which cover KBC Bank, KBC Insurance (since 2007) and most of their Belgian subsidiaries, and the KBC Insurance group insurance scheme (for staff employed prior to 1 January 2007). The assets of these first two plans are managed chiefly by KBC Asset Management. The benefits are dependent on, among other things, the employee's years of service, as well as on his/her remuneration in the years leading up to his/her retirement. The annual funding requirements for these plans are determined based on standard actuarial cost methods.
• The expected return on plan assets (ROA) is calculated on the basis of the OLO rate, account taken of the strategic asset allocation for the assets under management.
ROA = (X x rate on OLO T years) + (Y x (rate on OLO T years + 3%)) + (Z x (rate on OLO T years + 1.75%)), where:
The risk premiums of 3% and 1.75%, respectively, are based on the anticipated long-term returns from shares and real estate.
| Changes in main headings in the main table | 2007 | 2008 | 2009 | 2010 | 2011 |
|---|---|---|---|---|---|
| Defined benefit obligations | 1 786 | 1 884 | 1 997 | 1 645 | 1 823 |
| Fair value of plan assets | 1 520 | 1 293 | 1 529 | 1 439 | 1 557 |
| Unfunded accrued/prepaid pension cost | -508 | -512 | -512 | -437 | -372 |
| Composition of the group's largest pension plans | shares | bonds | real estate | cash | |
| 31-12-2010 | |||||
| KBC pension fund | 43% | 45% | 9% | 3% | |
| KBC Insurance group insurance scheme | 8% | 89% | 2% | 1% | |
| 31-12-2011 | |||||
| KBC pension fund | 33% | 52% | 9% | 6% | |
| KBC Insurance group insurance scheme | 32% | 51% | 9% | 8% | |
| Impact of changes in the assumptions used in the actuarial calculation of plan | |||||
| assets and gross liabilities* | 2007 | 2008 | 2009 | 2010 | 2011 |
| Impact on plan assets | -1 | 0 | 0 | 0 | 0 |
| Impact on gross liabilities | -7 | -88 | -18 | -84 | -76 |
| Contributions expected in 2012 | |||||
| KBC pension fund | 92 | ||||
| KBC Insurance group insurance scheme | 7 |
*Arising from defined benefit plans. A plus sign signifies a positive impact, a minus sign a negative impact; relates to all pension plans combined in the above section.
| In number of shares | 31-12-2010 | 31-12-2011 |
|---|---|---|
| Ordinary shares | 357 938 193 | 357 980 313 |
| of which ordinary shares that entitle the holder to a dividend payment | 344 557 548 | 344 619 736 |
| of which treasury shares | 18 171 795 | 18 169 054 |
| Mandatorily convertible bonds | 0 | 0 |
| Non-voting core-capital securities | 237 288 134 | 220 338 982 |
| Additional information | ||
| Par value per share (in EUR) | 3.48 | 3.48 |
| Number of shares issued but not fully paid up | 0 | 0 |
| MOVEMENTS TABLE In number of shares |
Ordinary shares | Non-voting core-capital securities |
| 2010 | ||
| Opening balance | 357 918 125 | 237 288 134 |
| Issue of shares/core-capital securities | 20 068 | 0 |
| Conversion of mandatorily convertible bonds into shares | 0 | 0 |
| Other movements | 0 | 0 |
| Closing balance | 357 938 193 | 237 288 134 |
| 2011 | ||
| Opening balance | 357 938 193 | 237 288 134 |
| Issue of shares/core-capital securities | 42 120 | -16 949 152 |
| Conversion of mandatorily convertible bonds into shares | 0 | 0 |
| Other movements | 0 | 0 |
| Closing balance | 357 980 313 | 220 338 982 |
equity', but in 'Minority interests'. These instruments meet the IAS 32 definition of equity instruments. As they are not owned by the shareholders, they are presented under 'Minority interests'.
• Non-voting core-capital securities: since the end of 2008, KBC Group NV has issued 7 billion euros in perpetual, non-transferable, nonvoting core-capital securities that have equal ranking (pari passu) with ordinary shares upon liquidation. These have been subscribed by the Belgian State (the Federal Holding and Investment Company) and Flemish Region (each in the amount of 3.5 billion euros). The other features of the transactions are dealt with under 'Capital transactions and guarantee agreements with the government in 2008 and 2009' in the 'Additional information' section. On 2 January 2012, KBC made a first repayment to the Belgian State of 0.5 billion euros (plus a 15% penalty). This was recognised in the balance sheet at year-end 2011 (with 0.5 billion euros shifting from equity to liabilities and the penalty being deducted from equity by presenting it as a liability).
| (in millions of EUR) 31-12-2010 |
31-12-2011 |
|---|---|
| Credit commitments – undrawn amount | |
| Given 32 422 |
33 218 |
| Irrevocable 20 799 |
21 291 |
| Revocable 11 623 |
11 927 |
| Received 1 139 |
1 090 |
| Financial guarantees | |
| Given 12 180 |
12 456 |
| Guarantees/collateral received 53 975 |
47 790 |
| For impaired and past due assets 4 808 |
3 981 |
| For assets that are not impaired or past due 49 167 |
43 809 |
| Other commitments | |
| Given 144 |
147 |
| Irrevocable 140 |
143 |
| Revocable 4 |
4 |
| Received 105 |
93 |
| Carrying value of financial assets pledged bij KBC as collateral | |
| For liabilities 30 419 |
46 963 |
| For contingent liabilities 4 151 |
4 682 |
• The definition of financial guarantees was changed in 2011 and the reference figures restated (see Note 1a).
Since both companies are included in the scope of consolidation, this is an intragroup transaction and the guarantee is not included in the above table.
• There is an obligation to return collateral received (which may be sold or repledged in the absence of default by the owner; see table) in its original form, or possibly in cash. Collateral can be called in if loans are terminated for various reasons such as default or bankruptcy. In the event of bankruptcy, the collateral will be sold by the receiver. In other cases, the bank will organise the foreclosure itself or take possession of the collateral. Collateral received that relates to OTC derivatives is primarily cash, which is recognised by KBC on the balance sheet (and is not included in the table).
| Collateral received (which may be sold or repledged in the absence of default by the owner) (in millions of EUR) |
Fair value of collateral received |
Fair value of collateral sold or repledged |
|||
|---|---|---|---|---|---|
| 31-12-2010 | 31-12-2011 | 31-12-2010 | 31-12-2011 | ||
| Financial assets | 15 423 | 10 470 | 9 015 | 7 018 | |
| Equity instruments | 37 | 12 | 0 | 0 | |
| Debt instruments | 15 199 | 10 255 | 9 015 | 7 018 | |
| Loans and advances | 184 | 202 | 0 | 0 | |
| Cash | 4 | 1 | 0 | 0 | |
| Other | 0 | 4 | 0 | 0 | |
| Property and equipment | 0 | 4 | 0 | 0 | |
| Investment property | 0 | 0 | 0 | 0 | |
| Other | 0 | 0 | 0 | 0 |
| Collateral obtained by taking possession (in millions of EUR) | 31-12-2010 | 31-12-2011 |
|---|---|---|
| Non-current assets held for sale | 0 | 0 |
| Property and equipment | 4 | 0 |
| Investment property | 0 | 170 |
| Equity instruments and debt securities | 43 | 0 |
| Cash | 218 | 237 |
| Other | 15 | 8 |
| Total | 281 | 414 |
| (in millions of EUR) | 31-12-2010 | 31-12-2011 |
|---|---|---|
| Finance lease receivables | ||
| Gross investment in finance leases, receivable | 5 790 | 5 489 |
| At not more than one year | 1 668 | 1 464 |
| At more than one but not more than five years | 2 814 | 2 690 |
| At more than five years | 1 308 | 1 335 |
| Unearned future finance income on finance leases | 836 | 826 |
| Net investment in finance leases | 4 915 | 4 659 |
| At not more than one year | 1 440 | 1 277 |
| At more than one but not more than five years | 2 461 | 2 340 |
| At more than five years | 1 014 | 1 043 |
| of which unguaranteed residual values accruing to the benefit of the lessor | 12 | 10 |
| Accumulated impairment for uncollectable lease payments receivable | 192 | 191 |
| Contingent rents recognised in income | 105 | 104 |
| Operating lease receivables | ||
| Future aggregate minimum rentals receivable under non-cancellable leases* | 856 | 430 |
| At not more than one year | 309 | 146 |
| At more than one but not more than five years | 519 | 260 |
| At more than five years | 28 | 23 |
| Contingent rents recognised in income | 2 | 0 |
* As from 2011, the residual values of operating leases have no longer been included in future aggregate minimum rentals (in 2010, 426 million euros).
leasing to real estate leasing. In Belgium, finance leasing is typically sold through KBC group's branch network, and that channel is becoming increasingly important in Central Europe, too.
• Operational leasing involves primarily full service car leasing, which is sold through the KBC Bank and CBC Banque branch network and through an internal sales team. Full service car leasing activities are being further developed in Central Europe, too.
| Transactions with related parties, excluding key management (in millions of EUR) | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2011 | |||||||||||||
| Subsidiaries | companies Associated |
es Joint ventur |
Belgian Stat e |
Flemish Reg ion |
Other | Total | Subsidiaries | companies Associated |
es Joint ventur |
Belgian Stat e |
Flemish Reg ion |
Other | Total | |
| Assets | 618 | 228 | 110 | 28 958 | 1 198 | 1 148 | 32 260 | 263 | 268 | 122 | 23 142 | 1 280 | 1 164 | 26 238 |
| Loans and advances | 55 | 107 | 73 | 71 | 0 | 1 119 | 1 425 | 58 | 154 | 85 | 762 | 0 | 1 137 | 2 196 |
| Current account advances | 2 | 1 | 0 | 0 | 0 | 367 | 369 | 2 | 1 | 0 | 0 | 0 | 379 | 381 |
| Term loans | 53 | 107 | 73 | 71 | 0 | 753 | 1 056 | 56 | 153 | 85 | 762 | 0 | 759 | 1 815 |
| Finance leases | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Consumer credit | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Mortgage loans | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Equity instruments | 283 | 32 | 29 | 0 | 0 | 0 | 344 | 115 | 36 | 28 | 0 | 0 | 0 | 178 |
| Trading securities | 34 | 0 | 0 | 0 | 0 | 0 | 34 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Investment securities | 250 | 32 | 29 | 0 | 0 | 0 | 310 | 115 | 36 | 28 | 0 | 0 | 0 | 178 |
| Other amounts receivable | 280 | 88 | 8 | 28 888 | 1 198 | 28 | 30 490 | 91 | 78 | 9 | 22 380 | 1 280 | 26 | 23 864 |
| Liabilities | 934 | 174 | 32 | 294 | 0 | 23 | 1 457 | 741 | 146 | 30 | 166 | 0 | 25 | 1 109 |
| Deposits | 902 | 133 | 32 | 176 | 0 | 22 | 1 266 | 733 | 134 | 30 | 0 | 0 | 25 | 922 |
| Deposits | 902 | 132 | 32 | 176 | 0 | 22 | 1 264 | 732 | 133 | 30 | 0 | 0 | 25 | 920 |
| Other | 1 | 1 | 0 | 0 | 0 | 0 | 2 | 1 | 1 | 0 | 0 | 0 | 0 | 2 |
| Other financial liabilities | 23 | 20 | 0 | 0 | 0 | 0 | 43 | 5 | 0 | 0 | 0 | 0 | 0 | 5 |
| Debt certificates | 1 | 20 | 0 | 0 | 0 | 0 | 21 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Subordinated liabilities | 22 | 0 | 0 | 0 | 0 | 0 | 22 | 5 | 0 | 0 | 0 | 0 | 0 | 5 |
| Share-based payments (granted) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Share-based payments (exercised) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other liabilities | 9 | 21 | 0 | 118 | 0 | 1 | 148 | 3 | 12 | 0 | 166 | 0 | 0 | 182 |
| Income statement | -14 | 0 | 2 | 951 | 39 | 39 | 1 018 | 12 | 0 | 4 | 957 | 42 | 42 | 1 056 |
| Net interest income* | 15 | 3 | 2 | 951 | 39 | 40 | 1 050 | 16 | 0 | 2 | 957 | 42 | 43 | 1 061 |
| Earned premiums, insurance (before reinsurance) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Dividend income | 4 | 5 | 0 | 0 | 0 | 0 | 9 | 3 | 4 | 1 | 0 | 0 | 0 | 9 |
| Net fee and commission income | -1 | -3 | 0 | 0 | 0 | -2 | -5 | 0 | -1 | 0 | 0 | 0 | -2 | -3 |
| Other net income | 3 | 0 | 0 | 0 | 0 | 1 | 4 | 4 | 0 | 0 | 0 | 0 | 1 | 6 |
| General administrative expenses | -35 | -5 | 0 | 0 | 0 | 0 | -40 | -12 | -3 | 0 | 0 | 0 | -2 | -17 |
| Guarantees | ||||||||||||||
| Guarantees issued by the group | 0 | 0 | ||||||||||||
| Guarantees received by the group | 0 | 0 | ||||||||||||
| * Amount in the 'Other' column has been restated for 2010 (net interest income had not been included). |
| Total* | 10 | 12 |
|---|---|---|
| Breakdown by type of remuneration | ||
| Short-term employee benefits | 7 | 6 |
| Post-employment benefits | 3 | 6 |
| Defined benefit plans | 3 | 6 |
| Defined contribution plans | 0 | 0 |
| Other long-term employee benefits | 0 | 0 |
| Termination benefits | 1 | 0 |
| Share-based payments | 0 | 0 |
| Share options (in units) | ||
| At the beginning of the period | 52 100 | 35 100 |
| Granted | 0 | 0 |
| Exercised | 0 | 0 |
| Composition-related changes | -17 000 | -14 800 |
| At the end of the period | 35 100 | 20 300 |
| Advances and loans granted to key management and partners | 1 | 1 |
* Remuneration to directors or partners of the consolidating company on the basis of their activity in that company, its subsidiaries and associated companies, including the amount of retirement pensions granted to former directors or partners on that basis.
In 2011, KBC Group NV and its subsidiaries paid Ernst & Young Bedrijfsrevisoren BCVBA fees amounting to a total of 15 530 397 euros for standard audit services (15 659 361 euros in 2010). Remuneration paid for other services came to 4 105 087 euros in 2011 (3 041 628 euros
in 2010), viz.: other certifications: 1 282 382 euros; tax advice: 174 338 euros; other non-audit assignments: 2 648 367 euros (1 058 666, 143 773 and 1 839 189 euros, respectively, in 2010).
| Company | Registered office | Ownership percentage at group level |
Business unit* |
Activity |
|---|---|---|---|---|
| KBC BANK | ||||
| Fully consolidated subsidiaries | ||||
| Absolut Bank | Moscow – RU | 99.00 | GC | Credit institution |
| Antwerp Diamond Bank NV | Antwerp – BE | 100.00 | GC | Credit institution |
| CBC Banque SA | Brussels – BE | 100.00 | B | Credit institution |
| CIBANK AD | Sofia – BG | 100.00 | CEE | Credit institution |
| Cˇ SOB a.s. (Czech Republic) | Prague – CZ | 100.00 | CEE | Credit institution |
| Cˇ SOB a.s. (Slovak Republic) | Bratislava – SK | 100.00 | CEE | Credit institution |
| KBC Asset Management NV | Brussels – BE | 100.00 | B | Asset management |
| KBC Bank NV | Brussels – BE | 100.00 | B/MB/GC | Credit institution |
| KBC Bank Deutschland AG | Bremen – DE | 100.00 | GC | Credit institution |
| KBC Bank Funding LLC & Trust (group) | New York – US | 100.00 | MB | Issuance of trust preferred securities |
| KBC Bank Ireland Plc | Dublin – IE | 100.00 | MB | Credit institution |
| KBC Clearing NV | Amsterdam – NL | 100.00 | MB | Clearing |
| KBC Commercial Finance NV | Brussels – BE | 100.00 | MB | Factoring |
| KBC Consumer Finance NV | Brussels – BE | 100.00 | B | Consumer finance |
| KBC Credit Investments NV | Brussels – BE | 100.00 | MB | Investment in credit-related securities |
| KBC Finance Ireland | Dublin – IE | 100.00 | GC | Lending |
| KBC Financial Products (group) | Various locations | 100.00 | GC | Equities and derivatives trading |
| KBC Internationale Financieringsmaatschappij NV | Rotterdam – NL | 100.00 | MB | Issuance of bonds |
| KBC Lease (group) | Various locations | 100.00 | MB/CEE/B | Leasing |
| KBC Private Equity NV | Brussels – BE | 100.00 | MB | Private equity |
| KBC Real Estate NV | Brussels – BE | 100.00 | MB | Real estate |
| KBC Securities NV | Brussels – BE | 100.00 | MB | Stock exchange broker, corporate finance |
| K&H Bank Rt. | Budapest – HU | 100.00 | CEE | Credit institution |
| Kredyt Bank SA (see Note 48) | Warsaw – PL | 80.00 | GC | Credit institution |
| Associated companies | ||||
| Nova Ljubljanska banka d.d. (group) | Ljubljana – SI | 25.00 | GC | Credit institution |
| KBC INSURANCE | ||||
| Fully consolidated subsidiaries | ||||
| ADD NV | Heverlee – BE | 100.00 | B | Insurance company |
| Cˇ SOB Pojišt'ovna (Czech Republic) | Pardubice – CZ | 100.00 | CEE | Insurance company |
| Cˇ SOB Poist'ovnˇa a.s. (Slovak Republic) | Bratislava – SK | 100.00 | CEE | Insurance company |
| DZI Insurance | Sofia – BG | 99.95 | CEE | Insurance company |
| Fidea NV (sale agreement signed) | Antwerp – BE | 100.00 | GC | Insurance company |
| VAB Group | Zwijndrecht – BE | 74.81 | B | Automobile assistance |
| K&H Insurance Rt. | Budapest – HU | 100.00 | CEE | Insurance company |
| KBC Banka A.D. | Belgrade – RS | 100.00 | GC | Credit institution |
| KBC Group Re SA (formerly Assurisk) | Luxembourg – LU | 100.00 | B | Insurance company |
| KBC Insurance NV | Leuven – BE | 100.00 | B | Insurance company |
| TUiR WARTA S.A. (sale agreement signed) | Warsaw – PL | 100.00 | GC | Insurance company |
| Proportionately consolidated subsidiaries | ||||
| NLB Vita d.d. | Ljubljana – SI | 50.00 | GC | Insurance company |
| KBL EPB (sale agreement signed) | ||||
| Fully consolidated subsidiaries | ||||
| Brown, Shipley & Co. Limited | London – GB | 99.91 | GC | Credit institution |
| KBL Richelieu Banque Privée | Paris – FR | 99.91 | GC | Credit institution |
| KBL European Private Bankers SA | Luxembourg – LU | 99.91 | GC | Credit institution |
| KBL (Switzerland) Ltd. | Geneva – CH | 99.90 | GC | Credit institution |
| Merck Finck & Co. | Munich – DE | 99.91 | GC | Credit institution |
| Puilaetco Dewaay Private Bankers SA | Brussels – BE | 99.91 | GC | Credit institution |
| Theodoor Gilissen Bankiers NV | Amsterdam – NL | 99.91 | GC | Credit institution |
| VITIS Life SA | Luxembourg – LU | 99.91 | GC | Insurance company |
| KBC GROUP NV (other direct subsidiaries) | ||||
| Fully consolidated subsidiaries | ||||
| KBC Global Services NV | Brussels – BE | 100.00 | GC | Group service provider |
| KBC Group NV | Brussels – BE | 100.00 | GC | Holding company |
* Business unit abbreviations (for presentation in the results): B = Belgium; CEE = Central & Eastern Europe; MB = Merchant Banking; GC = Group Centre.
• As set out in the accounting policies, all (material) entities (including special purpose entities) over which the consolidating entity exercises, directly or indirectly, exclusive control are consolidated according to the method of full consolidation. To assess whether or not special purpose entities have to be consolidated, KBC uses the principles set out in SIC 12, as well as materiality thresholds. Companies eligible for consolidation are effectively included in the consolidated accounts if two of the following criteria are met: (a) the group's share in equity exceeds 2.5 million euros (b) the group's share in the results exceeds 1 million euros (c) the balance sheet total exceeds 100 million euros. The combined balance sheet total of the companies excluded from consolidation may not amount to more than 1% of the consolidated balance sheet total. A number of special purpose entities meet only one of these criteria, which means that (as long as the combined balance
sheet total of the companies excluded from consolidation is not more than 1% of the consolidated balance sheet total) these entities are not effectively consolidated. This relates chiefly to the special purpose entities set up for CDO activities. Please note that these special purpose entities only exceed one of the materiality thresholds (balance sheet total) since their equity and net results are always very limited. However, the CDO-related results are recorded under KBC Financial Products, which is, of course, consolidated. Consequently, excluding these special purpose entities from the consolidated accounts only impacts presentation of the consolidated balance sheet, and not equity, the results or solvency.
• For a complete list of the companies included in or excluded from the scope of consolidation, as well as the associated companies, as at 31 December 2011, see 'Additional information' and www.kbc.com.
| Consolidation | Ownership percentage at group | |||||
|---|---|---|---|---|---|---|
| Company | Parent company | method | level | Comments | ||
| 31-12-2010 | 31-12-2011 | |||||
| Additions | ||||||
| None | ||||||
| Exclusions | ||||||
| Centea | KBC Bank | Full | 100.00 | – | Sold on 1 July 2011 | |
| Name changes | ||||||
| Assurisk became KBC Group Re SA | KBC Insurance | Full | 100.00 | 100.00 | – | |
| Changes in ownership percentage and internal mergers | ||||||
| Nova Ljubljanska banka | KBC Bank | Equity | 30.57 | 25.00 | 5.57% decrease | |
| Absolut Bank | KBC Bank | Full | 95.00 | 99.00 | 4.00% increase | |
| KBC Consumer Finance NV | KBC Bank | Full | 60.01 | 100.00 | 39.99% increase | |
| DZI Insurance | KBC Insurance | Full | 90.35 | 99.95 | 9.61% increase |
Apart from the effect of the sale of Centea, changes in the scope of consolidation had only a limited impact on both the income statement and balance sheet in 2011. The sale of Centea was finalised on 1 July 2011, which means that the group results only include Centea's results for the first six months of 2011 (16 million euros after tax). Also see Note 8.
At year-end 2011: KBL EPB, Fidea, WARTA;
Please note that KBL EPB is also classified as a 'discontinued operation'.
Description: It was announced in March 2011 that the original agreement the group had reached with the Hinduja Group regarding the sale of KBL EPB would not go ahead. The sales process was subsequently restarted and KBC reached an agreement with Precision Capital in October 2011 for the sale of KBL EPB for around 1 billion euros. The deal will free up a total of around 0.7 billion euros of capital for KBC, boosting its tier-1 ratio by some 0.6%. It also had a negative impact of approximately 0.4 billion euros, which was recognised in the income statement in the third quarter of 2011. KBC will continue to provide private banking services in Belgium and in Central and Eastern Europe under the KBC brand name. At the time the annual report went to print, the deal had not yet been finalised.
Activity: Insurance company
Segment: Group Centre
Description: In October 2011, KBC reached an agreement to sell Fidea to private equity group J.C. Flowers & Co. for around 0.2 billion euros. In total, this deal will free up some 0.1 billion euros of capital for KBC, primarily by reducing risk-weighted assets by 1.8 billion euros, but also had a negative impact on KBC's results of about 0.1 billion euros. The deal will boost KBC's tier-1 ratio by around 0.1%. At the time the annual report went to print, the deal had not yet been finalised.
Activity: Insurance company Segment: Group Centre
Description: In January 2012, an agreement was reached with Talanx International AG for the sale of WARTA in Poland for 770 million euros, a figure which will be adjusted to take account of changes in the net asset value between 30 June 2011 and the date of completion. Based on the figures at 30 September 2011, it is expected to release almost 0.7 billion euros of capital for KBC and boost its tier-1 ratio by just under 0.7%. When completed, the deal will have a positive impact of around 0.3 billion euros on KBC's income statement. At the time the annual report went to print, the deal had not yet been finalised.
| (in millions of EUR) | 31-12-2010 | 31-12-2011 |
|---|---|---|
| A DISCONTINUED OPERATIONS | ||
| Income statement | ||
| Income statement, KBL EPB | ||
| Net interest income | 159 | 151 |
| Net fee and commission income | 381 | 349 |
| Other net income | 62 | 63 |
| Total income | 602 | 563 |
| Operating expenses | -495 | -437 |
| Impairment | -42 | -107 |
| Share in results of associated companies | 2 | 1 |
| Result before tax | 66 | 19 |
| Income tax expense | -19 | 6 |
| Result after tax | 47 | 25 |
| Result from sale agreement for KBL EPB | ||
| Impairment recognised on remeasurement to fair value less costs to sell | -301 | -444 |
| Tax income relating to remeasurement to fair value less costs to sell (deferred taxes) | 0 | 0 |
| Result from sale (after taxes) | -301 | -444 |
| Net post-tax result from discontinued operations | -254 | -419 |
| Cashflow statement, KBL EPB | 2010 | 2011 |
| Net cash from or used in operating activities | 202 | 2 200 |
| Net cash from or used in investing activities | -84 | -8 |
| Net cash from or used in financing activities | -33 | -569 |
| Net cash inflows/outflows | 85 | 1 623 |
| Earnings per share from discontinued operations, KBL EPB | 2010 | 2011 |
| Basic | -0.75 | -1.23 |
| Diluted | -0.75 | -1.23 |
| Commitments, KBL EPB | 31-12-2010 | 31-12-2011 |
| Credit commitments – undrawn amount (given) | 2 774 | 3 053 |
| Credit commitments – undrawn amount (received) | 2 621 | 2 682 |
| Financial guarantees (given) | 4 403 | 3 378 |
| Financial guarantees (received) | 3 982 | 5 218 |
| Other commitments (given) | 594 | 39 |
| Other commitments (received) | 0 | 0 |
| Derivatives – notional amounts, KBL EPB | 2010 assets/liabilities |
2011 assets/liabilities |
|---|---|---|
| Held for trading | ||
| Interest rate contracts | 17 857 / 17 857 | 12 810 / 12 810 |
| Foreign exchange contracts | 5 244 / 5 267 | 8 392 / 8 326 |
| Equity contracts | 2 847 / 2 847 | 2 597 / 2 597 |
| Credit contracts | 1 / 1 | 2 / 2 |
| Commodity and other contracts | 15 / 15 | 19 / 19 |
| Micro hedging: fair value hedge | ||
| Interest rate contracts | 553 / 553 | 1 235 / 1 235 |
| Foreign exchange contracts | 7 / 9 | 7 / 10 |
| Equity contracts | 0 / 0 | 0 / 0 |
| Portfolio hedge of interest rate risk | ||
| Interest rate contracts | 168 / 168 | 171 / 171 |
| B NON-CURRENT ASSETS HELD FOR SALE AND DISPOSAL GROUPS AND LIABILITIES ASSOCIATED WITH DISPOSAL GROUPS | ||
| Balance sheet (figures between brackets relate to discontinued operations) | 31-12-2010 | 31-12-2011 |
| Assets | ||
| Cash and cash balances with central banks | 437 (437) | 1 076 (1 076) |
| Financial assets | 11 359 (11 299) | 16 797 (12 523) |
| Fair value adjustments of the hedged items in portfolio hedge of interest rate risk | 7 (7) | 12 (12) |
| Tax assets | 83 (83) | 110 (95) |
| Investments in associated companies | 14 (14) | 13 (13) |
| Investment property and other equipment | 240 (234) | 278 (224) |
| Goodwill and other intangible assets | 690 (690) | 352 (196) |
| Other assets | 109 (101) | 485 (103) |
| Total assets | 12 938 (12 863) | 19 123 (14 242) |
| Liabilities | ||
| Financial liabilities | 12 489 (12 489) | 12 901 (12 710) |
| Technical provisions (before reinsurance) | 466 (466) | 4 533 (424) |
| Tax liabilities | 11 (11) | 38 (6) |
| Provisions for risks and charges | 28 (28) | 30 (22) |
| Other liabilities | 349 (348) | 631 (304) |
| Total liabilities | 13 341 (13 341) | 18 132 (13 466) |
| Other comprehensive income | 2010 | 2011 |
| Available-for-sale reserve | 9 (8) | -81 (-72) |
| Deferred tax on above reserve | -6 (-6) | 29 (20) |
| Translation differences | 10 (10) | 7 (7) |
| Total | 12 (12) | -45 (-46) |
The information required in relation to the nature and amount of risks (in accordance with IFRS 4 and IFRS 7) and the information regarding capital (pursuant to IAS 1) is provided in those parts of the 'Value and risk management' section that have been audited by the statutory auditor. The
Events after balance sheet date are those events, favourable and unfavourable, that occur between the balance sheet date (31 December 2011) and the date when the financial statements are authorised for issue by the Board of Directors. They include both adjusting events after balance sheet date (events that provide evidence of conditions that existed at the balance sheet date) and non-adjusting events after balance sheet date (events that are indicative of conditions that arose after the balance sheet date). Adjusting events in principle lead to an adjustment of the financial statements for the financial period preceding the event, whereas nonadjusting events in principle only influence the financial statements for the following period.
The main non-adjusting events after balance sheet date were:
section also includes information on exposure to the sovereign bonds of a selection of countries and on the portfolio of structured credit (see under 'Credit risk').
divested. KBC Private Equity and the other shareholders of Dynaco Group NV (Dynaco) reached an agreement with Assa Abbloy AB for the acquisition of Dynaco. The deal is expected to be completed in the first half of 2012, following approval by the relevant anti-trust authorities. It will not have any significant impact on KBC's results or capital.
to help KBC reduce its stake in the merged bank from 16.4% to below 10% immediately after the merger. In addition, KBC intends to sell its remaining stake. Following the deconsolidation of Kredyt Bank as a result of the proposed merger, and after the committed reduction of KBC's holding to below 10% shortly after registration of the merger, approximately 0.7 billion euros' worth of capital will be released (based on market valuations at the time the deal was announced), predominantly based on a reduction in risk-weighted assets. This will have a positive impact on KBC's tier-1 capital of around 0.8%, or 0.9% when the group sells its entire shareholding (both percentages calculated at year-end 2011). Moreover, based on market valuations at the time it was announced, the deal will positively affect KBC's income statement by some 0.1 billion euros, which will be recognised when it is completed. The merger is subject to independent evaluation by Bank Zachodni WBK and Kredyt Bank, and to obtaining regulatory approval from the Polish Financial Supervision Authority and relevant competition clearance. Banco Santander has also undertaken to acquire Z. agiel, KBC's consumer finance operation in Poland, at adjusted net asset value and likewise subject to obtaining competition clearance. For additional information, see the press release at www.kbc.com. The legal information and disclaimer provided in that press release apply in full.
• General Meeting of Shareholders: A General Meeting is held annually
• On 8 March 2012, an agreement was reached with Value Partners Ltd for the sale of KBC Asset Management's 49% stake in KBC Goldstate (China). The deal has yet to be approved by China's Ministry of Commerce and will not have any material impact on KBC's earnings or capital.
at the registered office of the company or at any other place indicated in the convening notice, at 10 a.m. on the first Thursday of May, or, if this day is a statutory public holiday or bank holiday, at 10 a.m. on the business day immediately preceding it.
• The right of a shareholder to attend the General Meeting and to exercise voting rights at said meeting is granted solely on the basis of the accounting record of the shares in the name of the shareholder on the record date, i.e. at midnight (Belgian time) on the fourteenth day before the General Meeting, either by entering the shares in the share register, by entering them on the accounts of a recognised account holder or clearing house, or by presenting any bearer shares to a financial intermediary, and this regardless of the number of shares that the shareholder possesses on the day of the General Meeting. The right of a holder of bonds, warrants or certificates issued in co-operation with the company, to attend the General Meeting is similarly granted solely on the basis of the accounting record of these securities in his/her name on the record date. Every shareholder and every holder of bonds, warrants or certificates issued in co-operation with the company, who wishes to attend the General Meeting, must, by no later than the sixth day before the day of the General Meeting, inform the company or a person so designated by the company of his/her intention to attend and also indicate the number of securities he/she wishes to represent. Holders of bearer or book-entry securities wishing to attend the General Meeting must also ensure that the company or a person so designated by the company, receives on the same day at the latest, a certificate supplied by the financial intermediary, the recognised account holder or the clearing house, which states the number of bearer or book-entry securities – submitted or registered in their name on their accounts on the registration date – they wish to represent when attending the General Meeting. The provisions of this Article also apply to the holders of profit-sharing certificates – which must be in registered or book-entry form – in the cases where such holders have the right to attend the General Meeting.
The company annual accounts of KBC Group NV are presented here in abridged form. A full set of these accounts will be submitted for approval to the General Meeting of Shareholders of 3 May 2012.
As required by law, the company annual accounts, the report of the Board of Directors and the statutory auditor's report are filed with the National Bank of Belgium. These documents are available free of charge on request from KBC Group NV, Investor Relations – IRO, Havenlaan 2, 1080 Brussels, Belgium. They can be consulted at www.kbc.com after they have been filed.
The statutory auditor has delivered an unqualified audit opinion on the company annual accounts of KBC Group NV.
The company annual accounts have been prepared according to Belgian accounting standards (B-GAAP) and are, therefore, not comparable with the figures prepared in accordance with IFRS in the other sections of this report.
| (in millions of EUR) | 31-12-2010 | 31-12-2011 |
|---|---|---|
| Fixed assets | 16 928 | 16 493 |
| Financial fixed assets | 16 928 | 16 493 |
| Affiliated companies | 16 918 | 16 482 |
| Participating interests | 16 668 | 16 232 |
| Amounts receivable | 250 | 250 |
| Companies linked by participating interests | 11 | 11 |
| Participating interests | 1 | 1 |
| Amounts receivable | 10 | 10 |
| Current assets | 431 | 1 907 |
| Amounts receivable within one year | 25 | 21 |
| Trade debtors | 0 | 0 |
| Other amounts receivable | 25 | 20 |
| Investments | 370 | 1 849 |
| Own shares | 369 | 154 |
| Other investments | 0 | 1 695 |
| Cash at bank and in hand | 26 | 28 |
| Deferred charges and accrued income | 10 | 9 |
| Total assets | 17 359 | 18 400 |
| Equity | 8 198 | 10 016 |
| Capital | 1 245 | 1 245 |
| Issued capital | 1 245 | 1 245 |
| Share premium account | 4 336 | 4 337 |
| Reserves | 1 445 | 1 445 |
| Legal reserve | 124 | 125 |
| Reserves not available for distribution | 371 | 156 |
| Untaxed reserves | 190 | 190 |
| Reserves available for distribution | 760 | 975 |
| Profit (Loss(-)) carried forward | 1 171 | 2 989 |
| Amounts payable | 9 162 | 8 384 |
| Amounts payable at more than one year | 7 633 | 6 901 |
| Financial debts | 7 633 | 6 901 |
| Subordinated loans | 7 000 | 6 500 |
| Non-subordinated bonds | 633 | 401 |
| Amounts payable within one year | 1 491 | 1 457 |
| Amounts payable at more than one year falling due within the year | 200 | 730 |
| Financial debts | 424 | 113 |
| Credit institutions | 240 | 0 |
| Other loans | 184 | 113 |
| Trade debts | 1 | 6 |
| Taxes, remuneration and social security charges | 1 | 1 |
| Remuneration and social security charges | 1 | 1 |
| Other amounts payable | 865 | 607 |
| Accrued charges and deferred income | 37 | 26 |
| Total liabilities | 17 359 | 18 400 |
| (in millions of EUR) | 31-12-2010 | 31-12-2011 |
|---|---|---|
| Operating income | 3 | 2 |
| Other operating income | 3 | 2 |
| Operating charges | 31 | 57 |
| Services and other goods | 27 | 52 |
| Remuneration, social security charges and pensions | 4 | 5 |
| Operating profit (loss (-)) | -28 | -56 |
| Financial income | 45 | 3 226 |
| Income from financial fixed assets | 33 | 3 216 |
| Income from current assets | 4 | 8 |
| Other financial income | 7 | 3 |
| Financial charges | 709 | 921 |
| Debt charges | 641 | 706 |
| Write-downs on current assets: increase (decrease (-)) | 67 | 215 |
| Other financial charges | 1 | 1 |
| Profit (Loss (-)) on ordinary activities, before tax | -693 | 2 249 |
| Extraordinary income | 0 | 6 |
| Gains on disposal of fixed assets | 0 | 6 |
| Extraordinary charges | 266 | 434 |
| Amounts written down on financial fixed assets | 266 | 434 |
| Profit (Loss (-)) for the period, before tax | -959 | 1 821 |
| Income taxes | 0 | 0 |
| Profit (Loss (-)) for the period | -959 | 1 821 |
| Profit (Loss (-)) for the period to be appropriated | -959 | 1 821 |
In this lay-out, charges are also depicted with a plus sign, as opposed to the way they are presented in the consolidated income statement.
| (in millions of EUR) | 31-12-2010 | 31-12-2011 |
|---|---|---|
| Profit (Loss (-)) to be appropriated | 1 431 | 2 992 |
| Profit (Loss (-)) for the period to be appropriated | -959 | 1 821 |
| Profit (Loss (-)) carried forward from the previous period | 2 390 | 1 171 |
| Transfers to equity | 0 | 0 |
| To the legal reserve | 0 | 0 |
| To other reserves | 0 | 0 |
| Profit (Loss (-)) to be carried forward | 1 171 | 2 989 |
| Profit to be distributed | 260 | 3 |
| Dividends | 258 | 3 |
| Directors' entitlements | 1 | 0 |
| Other beneficiaries, employee profit-sharing | 0 | 0 |
It will be proposed to the General Meeting of Shareholders that the profit for appropriation for the 2011 financial year be distributed as shown in the table. If this proposal is approved, the gross dividend will come to 0.01 euros per share entitled to dividend for the 2011 financial year. At present, Belgian withholding tax amounts to 25% (with 21% being charged for dividends paid on VVPR shares). In calculating the number of shares entitled to dividend (344 619 736), account was taken of the fact that dividends on 13 360 577 shares repurchased under the previous buyback programmes are suspended.
| (in millions of EUR) | Participating interests in affiliated companies |
Amounts receivable from affiliated companies |
Participating interests in companies linked by participating interests |
Amounts receivable from companies linked by participating interests |
|---|---|---|---|---|
| Carrying value at 31-12-2010 | 16 668 | 250 | 1 | 10 |
| Acquisitions in 2011 | 0 | 0 | 0 | 0 |
| Disposals in 2011 | -2 | 0 | 0 | 0 |
| Other changes in 2011 | -434 | 0 | 0 | 0 |
| Carrying value at 31-12-2011 | 16 232 | 250 | 1 | 10 |
KBC Group NV's participating interests in affiliated companies comprise mainly the shareholdings in:
The main change in 2011 related to an additional write-down of 434 million euros on the shareholding in KBL EPB.
The amounts receivable from affiliated companies are related to a subordinated perpetual loan of 250 million euros to KBC Bank NV. The amounts receivable from companies linked by participating interests are accounted for by the portion of a bond issued in 2005 by Nova Ljubljanska banka that KBC Group NV subscribed to.
| (in millions of EUR) | 31-12-2010 | Capital increase for staff | Appropriation of results | 31-12-2011 |
|---|---|---|---|---|
| Capital | 1 245 | 0 | 0 | 1 245 |
| Share premium account | 4 336 | 0 | 0 | 4 337 |
| Reserves | 1 445 | 0 | 0 | 1 445 |
| Profit (Loss) carried forward | 1 171 | 0 | 1 818 | 2 989 |
| Equity | 8 198 | 1 | 1 818 | 10 016 |
At year-end 2011, the company's issued share capital amounted to 1 245 126 541.75 euros, represented by 357 980 313 shares. The share capital is fully paid up. In 2011, the share capital increased by 146 577.60 euros and the number of shares by 42 120. These new VVPR shares were issued as a result of a capital increase decided upon by the Board of Directors under its authority to raise capital, and were reserved exclusively for the staff of KBC Group NV and some of its Belgian subsidiaries. Consequently, the pre-emption right of existing shareholders was suspended. The shares were issued at a price of 14.63 euros and are not blocked, since the issue price was not less than the market price of the KBC share. By carrying out this capital increase, KBC Group NV aims to strengthen ties with its staff and the staff of its Belgian subsidiaries. Given the limited extent of the capital increase, the financial ramifications for existing shareholders are minor. All of the shares issued in 2011 will also be entitled to dividend from the 2011 financial year (payment in 2012).
At year-end 2011, the number of VVPR strips issued came to 58 346 625 (a VVPR strip gives entitlement to the reduced rate of withholding tax on dividends).
The authorisation to increase capital may be exercised until 21 May 2014 for an amount of 899 208 331.32 euros. Based on a par value of 3.48 euros a share, a maximum of 258 393 198 new KBC Group NV shares can therefore be issued under this authorisation.
The table below gives an overview of the notifications received in 2010 and 2011 pursuant to the Belgian Act of 2 May 2007 concerning the disclosure of significant participations in issuers whose shares are admitted to trading on a regulated market. Article 10bis of the Articles of Association of KBC Group NV (which can be viewed at www.kbc.com) stipulates the threshold at which individuals must disclose their shareholdings. KBC publishes these notifications on www.kbc.com. Please note that the number of shares stated in the notifications may differ from the current number in possession, as a change in the number of shares held does not always give rise to a new notification.
| Notifications* received in 2010 and 2011 |
Notification relating to | Explanation | Number of KBC shares (= voting rights) on date concerned |
% of total voting rights on date concerned |
|---|---|---|---|---|
| BlackRock Inc. | 2 February 2010 | Size of holding moves below the 3% notification threshold | 10 709 212 | 2.99% |
| BlackRock Inc. | 4 August 2010 | Size of holding exceeds the 3% notification threshold | 10 810 030 | 3.02% |
| BlackRock Inc. | 12 August 2010 | Size of holding moves below the 3% notification threshold | 10 693 173 | 2.99% |
| BlackRock Inc. | 15 September 2010 | Size of holding exceeds the 3% notification threshold | 11 047 165 | 3.09% |
| BlackRock Inc. | 2 March 2011 | Size of holding moves below the 3% notification threshold | 10 701 448 | 2.99% |
| BlackRock Inc. | 6 June 2011 | Size of holding exceeds the 3% notification threshold | 10 833 173 | 3.03% |
| BlackRock Inc. | 23 June 2011 | Size of holding moves below the 3% notification threshold | 10 392 675 | 2.90% |
| BlackRock Inc. | 11 July 2011 | Size of holding exceeds the 3% notification threshold | 10 840 797 | 3.03% |
| BlackRock Inc. | 2 December 2011 | Size of holding moves below the 3% notification threshold | 10 518 102 | 2.94% |
* More detailed information can be found in the respective notification forms available at www.kbc.com.
The 'Corporate governance statement' section contains an overview of the shareholder structure at year-end 2011, based on all the notifications received pursuant to the Belgian Act of 2 May 2007.
| KBC shares held by | Address | Number of KBC shares |
|---|---|---|
| KBC Group Re SA (Assurisk) | 5, Place de la Gare, 1616 Luxembourg, Grand Duchy of Luxembourg | 300 |
| KBC Bank NV* | Havenlaan 2, 1080 Brussels, Belgium | 3 919 045 |
| KBC Securities NV | Havenlaan 12, 1080 Brussels, Belgium | 2 |
| Total | 3 919 347 | |
| As a percentage of the total number of shares | 1.1% | |
| KBC Group NV itself | Havenlaan 2, 1080 Brussels, Belgium | 14 249 707 |
| Grand total | 18 169 054 | |
| As a percentage of the total number of shares | 5.1% |
* Direct subsidiary.
The average par value of the KBC share came to 3.48 euros during 2011. The number of own shares held by group companies changed only slightly in 2011 (a decrease of 2 741 shares, par value of 0.009 million euros, or 0.0008% of the issued capital; sales price of the transferred shares: 0.1 million euros).
Please note that the number of shares shown in the table may differ from the number stated in the notifications pursuant to the Belgian Act of 2 May 2007, as a change in the number of shares held does not always give rise to a new notification.
At year-end 2011, total assets came to 18 400 million euros. 'Financial fixed assets' are discussed in Note 1. Listed under 'Current assets', 'Investments' came to 1 849 million euros, a year-on-year increase of 1 479 million euros relating to the short-term investment of the interim dividend received from KBC Bank in December 2011. 'Equity' amounted to 10 016 million euros and is dealt with in Note 2. At 8 384 million euros, 'Amounts payable' were down 778 million euros on their year-earlier level. The shifts between long-term and short-term debt categories
KBC Group NV generated a net profit of 1 821 million euros in 2011, as opposed to a net loss of 959 million euros a year earlier.
The main financial income items and charges in 2011 were:
In 2011, KBC Group NV paid Ernst & Young Bedrijfsrevisoren BCVBA fees of 81 200 euros for standard audit services. Remuneration paid for non-
KBC Group NV does not have any branch offices (either in Belgium or abroad).
The information required by Article 96 of the Belgian Companies Code that has not been provided above appears in the 'Report of the Board of within this heading arose because of the repayment of a 230-millioneuro non-subordinated bond in 2012 and the agreed redemption of 500 million euros' worth of core-capital securities subscribed by the Belgian Federal Government (repaid in January 2012). The main reasons for the decline in total amounts payable were dividends to be paid (-255 million euros), the repayment of a non-subordinated bond (-200 million euros), the settlement of an advance in current account (-240 million euros) and the payment of an outstanding debt to a subsidiary (-101 million euros).
The main extraordinary charges in 2011 concerned an additional writedown of 434 million euros on KBL EPB.
audit services came to 269 032 euros, viz.: other certifications: 9 516 euros and other non-audit assignments: 259 516 euros.
Directors' section, which also includes the 'Corporate governance statement' required by law.
Since the end of 2008, KBC Group NV has issued a total of 7 billion euros in perpetual, non-transferable, non-voting core-capital securities that have equal ranking (pari passu) with ordinary shares upon liquidation. These have been subscribed by the Belgian State (the Federal Holding and Investment Company) and the Flemish Region (each in the amount of 3.5 billion euros). The transaction with the Belgian State was concluded in December 2008, while the agreement with the Flemish Region was signed in July 2009. KBC used the proceeds of these transactions to strengthen the core capital of its banking activities by 5.5 billion euros (via an ordinary capital increase at KBC Bank NV) and to raise the solvency margin of its insurance activities by 1.5 billion euros (via an ordinary capital increase at KBC Insurance NV).
Other features of the transactions (simplified):
On 2 January 2012, KBC paid an initial 500 million euros to the Belgian Federal Government, along with a 15% penalty (see the 'Exchange option' feature above). The Flemish Regional Government has agreed to waive its pari passu rights in respect of that repayment and in respect of additional repayments that are carried out before the end of 2012. The repayment of 2 January 2012 was recorded in the balance sheet at yearend 2011 (with 0.5 billion euros being moved from 'Equity' to 'Amounts payable' and the penalty being deducted from 'Equity' by presenting it as a debt).
In May 2009, KBC signed an agreement with the Belgian State regarding a guarantee for a substantial part of its structured credit portfolio. The plan basically comprises a notional amount that initially totalled 20 billion euros (now 13.9 billion euros, see below), with 5.5 billion euros relating to unhedged super senior CDO investments and 14.4 billion euros relating to counterparty exposure to MBIA. The transaction is structured as follows (the CDO portfolio consists of several different CDOs; the guarantee structure applies to each CDO; the following figures refer to the sum of all CDOs covered by the plan). It should be noted at this point that, since the agreement was signed, the CDO exposure has been reduced and, therefore, the initial amounts have now changed. Amounts at year-end 2011 and the initial amount are presented in each case below.
This agreement mitigates a substantial part of the potential negative impact of the relevant MBIA and CDO exposure. Nevertheless, the results will remain volatile in the future, since rising or falling market values, for instance, could lead to existing valuation losses being reversed or fresh valuation losses being recorded. Whatever the case, the guarantee agreement will cap the cumulative total of valuation losses (and, as stated, KBC will have to bear part of the risk). KBC has to pay a fee for this guarantee agreement. More information on its impact on the income statement can be found in Note 5 in the 'Consolidated financial statements' section.
[result after tax, attributable to equity holders of the parent] / [average number of ordinary shares, less treasury shares]. If a coupon (and/or penalty) is paid on the core-capital securities sold to the Belgian Federal and Flemish Regional governments, it will be deducted from the numerator.
[regulatory capital] / [total weighted risks]. For detailed calculations, see the 'Value and risk management' section.
[technical insurance charges, including the internal cost of settling claims / earned insurance premiums] + [operating expenses / written insurance premiums] (after reinsurance in each case).
[operating expenses of the banking activities] / [total income of the banking activities].
[impairment on loans] / [outstanding non-performing loans]. For a definition of 'non-performing', see 'Non-performing loan ratio'. Where appropriate, the numerator may be limited to individual impairment on non-performing loans.
[net changes in impairment for credit risks] / [average outstanding loan portfolio]. For a definition of the loan portfolio, see the 'Value and risk management' section (for example, governments bonds are not included).
[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 nonmandatorily convertible bonds]. If a coupon (and/or penalty) is paid on the core-capital securities sold to the Belgian Federal and Flemish Regional governments, it will be deducted from the numerator.
[closing price of KBC share] x [number of ordinary shares].
[underlying net interest income of the banking activities] / [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 to take account of allocated capital instead of actual capital] / [average allocated capital of the business unit]. The result of a business unit is the sum of the net result recorded by all the companies in that business unit, adjusted to take account of allocated central overheads and the funding cost of goodwill paid. The capital allocated to a business unit is based on the risk-weighted assets for the banking activities and risk-weighted asset equivalents for the insurance activities.
[result after tax, attributable to equity holders of the parent] / [average parent shareholders' equity, excluding the revaluation reserve for available-for-sale assets]. If a coupon (and/or penalty) is paid on the core-capital securities sold to the Belgian Federal and Flemish Regional governments, it will be deducted from the numerator.
[available solvency capital] / [minimum regulatory solvency capital].
[tier-1 capital] / [total weighted risks]. For detailed calculations, see the 'Value and risk management' section. The calculation of the core tier-1 ratio does not include hybrid instruments (but does include the core-capital securities sold to the Belgian Federal and Flemish Regional governments).
'I, Luc Popelier, Chief Financial Officer of the KBC group, certify on behalf of the Executive Committee of KBC Group NV that, to the best of my knowledge, the financial statements, which are based on the relevant standards for annual accounts, fairly present in all material respects the assets, the financial condition and results of KBC Group NV, including its consolidated subsidiaries, and that the annual report provides a fair overview of the development, the results and the situation of KBC Group NV, including its consolidated subsidiaries, as well as an overview of the main risks and uncertainties to which they are exposed.'
| Name | Registered office | National identification number |
Share of capital held at group level (in %)* |
|---|---|---|---|
| KBC Bank: subsidiaries that are fully consolidated | |||
| KBC Bank NV | Brussels – BE | 0462.920.226 | 100 |
| Commercial bank 'Absolut Bank' (ZAO) | Moscow – RU | – | 99 |
| Limited liability company 'Absolut Leasing' | Moscow – RU | – | 99 |
| Limited liability company Leasing company 'Absolut' | Moscow – RU | – | 99 |
| Antwerp Diamond Bank NV | Antwerp – BE | 0404.465.551 | 100 |
| ADB Asia Pacific Limited | Singapore – SG | – | 100 |
| Banque Diamantaire (Suisse) SA | Geneva – CH | – | 100 |
| CBC Banque SA | Brussels – BE | 0403.211.380 | 100 |
| Cˇeskoslovenská Obchodná Banka a.s. | Bratislava – SK | – | 100 |
| Cˇ SOB Asset Management, správ. spol., a.s. | Bratislava – SK | – | 100 |
| Cˇ SOB Factoring a.s. | Bratislava – SK | – | 100 |
| Cˇ SOB Leasing a.s. | Bratislava – SK | – | 100 |
| Cˇ SOB Leasing Poist'ovaci Maklér s.r.o. | Bratislava – SK | – | 100 |
| Cˇ SOB Stavebná Sporitel'nˇa a.s. | Bratislava – SK | – | 100 |
| Istrofinance s.r.o. | Bratislava – SK | – | 100 |
| Cˇeskoslovenská Obchodní Banka a.s. | Prague – CZ | – | 100 |
| Auxilium a.s. | Prague – CZ | – | 100 |
| Bankovní Informacˇní Technologie s.r.o. | Prague – CZ | – | 100 |
| Centrum Radlická a.s. | Prague – CZ | – | 100 |
| Cˇ SOB Asset Management a.s. | Prague – CZ | – | 100 |
| Cˇ SOB Factoring a.s. | Prague – CZ | – | 100 |
| Cˇ SOB Investicˇní Spolecˇnost a.s. | Prague – CZ | – | 100 |
| Cˇ SOB Investment Banking Service a.s. Cˇ SOB Leasing a.s. |
Prague – CZ | – | 100 |
| Cˇ SOB Leasing Pojist'ovaci Maklér s.r.o. | Prague – CZ | – | 100 |
| Cˇ SOB Penzijní fond Stabilita a.s. | Prague – CZ | – | 100 |
| Cˇ SOB Property Fund a.s. | Prague – CZ Prague – CZ |
– – |
100 100 |
| Merrion Properties a.s. | Prague – CZ | – | 100 |
| Property Skalika s.r.o. | Bratislava – SK | – | 100 |
| Hypotecˇní Banka a.s. | Prague – CZ | – | 100 |
| CIBANK AD | Sofia – BG | – | 100 |
| Management of Assets for Sale – 2 EOOD | Sofia – BG | – | 100 |
| Katarino Spa Hotel EAD | Sofia – BG | – | 100 |
| IIB Finance Ireland | Dublin – IE | – | 100 |
| KBC Finance Ireland | Dublin – IE | – | 100 |
| KBC Asset Management NV | Brussels – BE | 0469.444.267 | 100 |
| KBC Asset Management SA | Luxembourg – LU | – | 100 |
| KBC Fund Management Limited | Dublin – IE | – | 100 |
| KBC Participations Renta B | Luxembourg – LU | – | 100 |
| KBC Participations Renta C | Luxembourg – LU | – | 100 |
| KBC Participations Renta SA | Luxembourg – LU | – | 100 |
| KBC Towarzystwo Funduszy Inwestycyjnych a.s. | Warszawa – PL | – | 94 |
| KBC Bank Deutschland AG | Bremen – DE | – | 100 |
| KBC Bank Funding LLC II | New York – US | – | 100 |
| KBC Bank Funding LLC III | New York – US | – | 100 |
| KBC Bank Funding LLC IV | New York – US | – | 100 |
| KBC Bank Funding Trust II | New York – US | – | 100 |
| KBC Bank Funding Trust III | New York – US | – | 100 |
| KBC Bank Funding Trust IV | New York – US | – | 100 |
| KBC Bank Ireland Plc. | Dublin – IE | – | 100 |
| Bencrest Properties Limited | Dublin – IE | – | 100 |
| Boar Lane Nominee (Number 1) Limited | Dublin – IE | – | 100 |
| Boar Lane Nominee (Number 2) Limited | Dublin – IE | – | 100 |
| Boar Lane Nominee (Number 3) Limited | Dublin – IE | – | 100 |
| Danube Holdings Limited | Dublin – IE | – | 100 |
| Fermion Limited | Dublin – IE | – | 100 |
| Glare Nominee Limited | Dublin – IE | – | 100 |
| IIB Finance Limited | Dublin – IE | – | 100 |
| IIB Asset Finance Limited | Dublin – IE | – | 100 |
| IIB Commercial Finance Limited | Dublin – IE | – | 100 |
| IIB Leasing Limited | Dublin – IE | – | 100 |
| Lease Services Limited | Dublin – IE | – | 100 |
| IIB Homeloans and Finance Limited | Dublin – IE | – | 100 |
| Cluster Properties Company | Dublin – IE | – | 100 |
| Demilune Limited | Dublin – IE | – | 100 |
| KBC Homeloans and Finance Limited | Dublin – IE | – | 100 |
| National identification |
Share of capital held at group level |
||
|---|---|---|---|
| Name | Registered office | number | (in %)* |
| Premier Homeloans Limited | Surrey – GB | – | 100 |
| Intercontinental Finance Irish Homeloans and Finance Limited |
Dublin – IE Dublin – IE |
– – |
100 100 |
| KBC Mortgage Finance | Dublin – IE | – | 100 |
| KBC Nominees Limited | Dublin – IE | – | 100 |
| Linkway Developments Limited | Dublin – IE | – | 100 |
| Maurevel Investment Company Limited | Dublin – IE | – | 100 |
| Merrion Commercial Leasing Limited | Surrey – GB | – | 100 |
| Merrion Equipment Finance Limited | Surrey – GB | – | 100 |
| Merrion Leasing Assets Limited | Surrey – GB | – | 100 |
| Merrion Leasing Finance Limited | Surrey – GB | – | 100 |
| Merrion Leasing Industrial Limited | Surrey – GB | – | 100 |
| Merrion Leasing Limited | Surrey – GB | – | 100 |
| Merrion Leasing Services Limited | Surrey – GB | – | 100 |
| Monastersky Limited | Dublin – IE | – | 100 |
| Needwood Properties Limited | Dublin – IE | – | 100 |
| Phoenix Funding 2 Limited | Dublin – IE | – | 100 |
| Phoenix Funding 3 Limited | Dublin – IE | – | 100 |
| Phoenix Funding 4 Limited | Dublin – IE | – | 100 |
| Quintor Limited | Dublin – IE | – | 100 |
| Rolata Limited | Douglas – IM | – | 100 |
| KBC Clearing NV | Amsterdam – NL | – | 100 |
| KBC Commercial Finance NV | Brussels – BE | 0403.278.488 | 100 |
| KBC Consumer Finance NV KBC Credit Investments NV |
Brussels – BE Brussels – BE |
0473.404.540 0887.849.512 |
100 100 |
| KBC Financial Products UK Limited | London – GB | – | 100 |
| Baker Street Finance Limited | Jersey – GB | – | 100 |
| Baker Street USD Finance Limited | Jersey – GB | – | 100 |
| Dorset Street Finance Limited | Jersey – GB | – | 100 |
| Hanover Street Finance Limited | Jersey – GB | – | 100 |
| KBC Financial Products Hong Kong Limited | Hong Kong – HK | – | 100 |
| Pembridge Square Limited | Jersey – GB | – | 100 |
| Regent Street Finance Limited | Jersey – GB | – | 100 |
| Sydney Street Finance Limited | Jersey – GB | – | 100 |
| KBC Financial Holding Inc. | Wilmington – US | – | 100 |
| KBC Financial Products (Cayman Islands) Limited 'Cayman I' | George Town – KY | – | 100 |
| KBC Financial Products USA Inc. | Wilmington – US | – | 100 |
| Pacifica Group LLC | Wilmington – US | – | 100 |
| Equity Key LLC | Wilmington – US | – | 100 |
| Equity Key Real Estate Option LLC EK002 LLC |
San Diego – US San Diego – US |
– – |
100 100 |
| EK003 LLC | San Diego – US | – | 100 |
| EK045 LLC | San Diego – US | – | 100 |
| Lonsdale LLC | Wilmington – US | – | 100 |
| Midas Life Settlements LLC | Delaware – US | – | 100 |
| Upright RM Holdings LLC | New York – US | – | 100 |
| Reverse Mortgage Trust I | New York – US | – | 100 |
| Upright Holdings FP Inc. | New York – US | – | 100 |
| World Alliance Financial Corporation | New York – US | – | 100 |
| KBC Financial Products International Limited 'Cayman III' | George Town – KY | – | 100 |
| KBC Investments Hong Kong Limited | Hong Kong – HK | – | 100 |
| KBC Investments Asia Limited | Hong Kong – HK | – | 100 |
| KBC Investments Cayman Islands Limited 'Cayman IV' | George Town – KY | – | 100 |
| KBC Investments Cayman Islands V Limited | George Town – KY | – | 100 |
| KBC Investments Limited | London – GB | – | 100 |
| KBC Internationale Financieringsmaatschappij NV | Rotterdam – NL | – | 100 |
| KBC Lease Holding NV Fitraco NV |
Leuven – BE Leuven – BE |
0403.272.253 0425.012.626 |
100 100 |
| KBC Autolease NV | Leuven – BE | 0422.562.385 | 100 |
| KBC Bail France sas | Lyon – FR | – | 100 |
| KBC Bail Immobilier France sas | Paris – FR | – | 100 |
| KBC Immolease NV | Leuven – BE | 0444.058.872 | 100 |
| KBC Lease Belgium NV | Leuven – BE | 0426.403.684 | 100 |
| KBC Autolease Polska Sp z.o.o. | Warszawa – PL | – | 100 |
| KBC Lease France SA | Lyon – FR | – | 100 |
| KBC Lease (Nederland) BV | Bussum – NL | – | 100 |
| KBC Lease (UK) Limited | Surrey – GB | – | 100 |
| KBC Lease (Deutschland) GmbH & Co. KG | Kronberg – DE | – | 92 |
| KBC Lease (Deutschland) Vermietungs GmbH | Kronberg – DE | – | 92 |
| KBC Vendor Lease (Deutschland) Service GmbH | Kronberg – DE | – | 92 |
| National | Share of capital | ||
|---|---|---|---|
| Name | Registered office | identification number |
held at group level (in %)* |
| KBC Vendor Finance (Deutschland) GmbH | Kronberg – DE | – | 92 |
| Protection One Service GmbH | Kronberg – DE | – | 92 |
| KBC Lease (Deutschland) Verwaltungs GmbH | Kronberg – DE | – | 76 |
| KBC Lease España SA | Madrid – ES | – | 100 |
| KBC Lease Italia S.p.A. | Verona – IT | – | 100 |
| KBC Lease (Luxembourg) SA | Bertrange – LU | – | 100 |
| Romstal Leasing IFN SA | Bucharest – RO | – | 100 |
| Securitas sam | Monaco – MC | – | 100 |
| KBC North American Finance Corporation | New York – US | – | 100 |
| KBC Private Equity NV | Brussels – BE | 0403.226.228 | 100 |
| Boxco NV | Harelbeke – BE | 0874.529.234 | 95 |
| Allbox NV | Harelbeke – BE | 0417.348.339 | 95 |
| Degen Emballages SA | Herstal – BE | 0425.206.230 | 95 |
| Verkoopkantoor Allbox en Desouter NV | Harelbeke – BE | 0419.278.540 | 95 |
| Descar NV | Harelbeke – BE | 0405.322.613 | 95 |
| Dynaco Group NV | Moorsel – BE | 0893.428.495 | 89.54 |
| Dynaco Europe NV | Moorsel – BE | 0439.752.567 | 89.54 |
| Dynaco USA Inc. | Mundelein – US | – | 89.54 |
| KBC ARKIV NV | Brussels – BE | 0878.498.316 | 52 |
| 2 B Delighted NV | Roeselare – BE | 0891.731.886 | 99.58 |
| Wever & Ducré NV | Roeselare – BE | 0412.881.191 | 99.58 |
| Asia Pacific Trading & Investment Co Limited | Hong Kong – HK | – | 99.58 |
| Dark NV | Roeselare – BE | 0472.730.389 | 99.58 |
| Limis Beyond Light NV | Roeselare – BE | 0806.059.310 | 99.58 |
| Wever & Ducré BV | The Hague – NL | – | 99.58 |
| Wever & Ducré GmbH | Herzogenrath – DE | – | 99.58 |
| Wever & Ducré Iluminación SL | Madrid – ES | – | 99.58 |
| KBC Real Estate Luxembourg SA | Luxembourg – LU | – | 100 |
| KBC Real Estate NV | Brussels – BE | 0404.040.632 | 100 |
| Almafin Real Estate NV | Brussels – BE | 0403.355.494 | 100 |
| Almafin Real Estate Services NV | Brussels – BE | 0416.030.525 | 100 |
| Immo Arenberg NV Julienne Holdings S.à.r.l. |
Brussels – BE Luxembourg – LU |
0471.901.337 – |
100 93 |
| Julie LH BVBA | Brussels – BE | 0890.935.201 | 93 |
| Juliette FH BVBA | Brussels – BE | 0890.935.397 | 93 |
| KBC Vastgoedinvesteringen NV | Brussels – BE | 0455.916.925 | 100 |
| KBC Vastgoedportefeuille België NV | Brussels – BE | 0438.007.854 | 100 |
| KBC Rusthuisvastgoed NV | Brussels – BE | 0864.798.253 | 100 |
| Novoli Investors BV | Amsterdam – NL | – | 83.33 |
| Poelaert Invest NV | Brussels – BE | 0478.381.531 | 100 |
| Vastgoed Ruimte Noord NV | Brussels – BE | 0863.201.515 | 100 |
| KBC Securities NV | Brussels – BE | 0437.060.521 | 100 |
| Patria Finance a.s. | Prague – CZ | – | 100 |
| Patria Direct a.s. | Prague – CZ | – | 100 |
| K&H Bank Zrt. | Budapest – HU | – | 100 |
| K&H Csoportszolgáltató Központ Kft. | Budapest – HU | – | 100 |
| K&H Equities Consulting Private Limited Company | Budapest – HU | – | 100 |
| K&H Értékpapir Befektetési Alapkezelo˝ Zrt. | Budapest – HU | – | 100 |
| K&H Factor Zrt. | Budapest – HU | – | 100 |
| K&H Alkusz Kft. | Budapest – HU | – | 100 |
| K&H Autófinanszirozó Pénzügi Szolgáltató Zrt. | Budapest – HU | – | 100 |
| K&H Autópark Bérleti és Szolgáltató Kft. | Budapest – HU | – | 100 |
| K&H Eszközfinanszírozó Zrt. | Budapest – HU | – | 100 |
| K&H Eszközlizing Gép-és Thrgj. Bérleti Kft. | Budapest – HU | – | 100 |
| K&H Ingatlanlizing Zrt. | Budapest – HU | – | 100 |
| K&H Lizing Zrt. | Budapest – HU | – | 100 |
| Kredyt Bank SA | Warszawa – PL | – | 80 |
| Kredyt Lease SA | Warszawa – PL | – | 80 |
| Kredyt Trade Sp z.o.o. | Warszawa – PL | – | 80 |
| Reliz SA | Katowice – PL | – | 80 |
| Loan Invest NV 'Institutional company for investment in receivables under Belgian law' | Brussels – BE | 0889.054.884 | 100 |
| Old Broad Street Invest NV | Brussels – BE | 0871.247.565 | 100 |
| 111 OBS Limited Partnership | London – GB | – | 100 |
| 111 OBS (General Partner) Limited Z˙agiel SA |
London – GB | – | 100 |
| KBC Bank: subsidiaries that are not fully consolidated | Warszawa – PL | – | 100 |
| 111 OBS (Nominee) Limited1 | London – GB | – | 100 |
| 2 B Delighted Italia Srl1 | Torino – IT | – | 99.58 |
| Aldersgate Finance Limited1 | Jersey – GB | – | 100 |
| Almaloisir & Immobilier sas1 | Nice – FR | – | 100 |
| National | Share of capital | ||
|---|---|---|---|
| identification | held at group level | ||
| Name | Registered office | number | (in %)* |
| Apicinq NV1 | Brussels – BE | 0469.891.457 | 100 |
| Apitri NV1 | Brussels – BE | 0469.889.873 | 100 |
| Applied Maths Inc.1 | Austin – US | – | 65.92 |
| Applied Maths NV1 | Sint-Martens-Latem – BE | 0453.444.712 | 65.92 |
| Avebury Limited1 | Dublin – IE | – | 100 |
| Bankowy Fundusz Inwestycyjny Serwis Sp z.o.o.1 | Warszawa – PL | – | 80 |
| Brussels North Distribution NV1 | Brussels – BE | 0476.212.887 | 100 |
| Clifton Finance Street Limited1 | Jersey – GB | – | 100 |
| Cˇ SOB Nadácia1 | Bratislava – SK | – | 100 |
| Dala Beheer BV1 | Amsterdam – NL | – | 100 |
| Dala Property Holding III BV1 | Amsterdam – NL | – | 100 |
| Dala Property Holding XV BV1 | Amsterdam – NL | – | 100 |
| Di Legno Interiors NV1 | Genk – BE | 0462.681.783 | 62.50 |
| DLI International NV1 | Genk – BE | 0892.881.535 | 62.50 |
| Eurincasso s.r.o.1 | Prague – CZ | – | 100 |
| Fulham Road Finance Limited1 | Jersey – GB | – | 100 |
| Gulliver Kereskedelmi és Szolgáltató Kft.1 | Budapest – HU | – | 100 |
| Immo-Antares NV2 | Brussels – BE | 0456.398.361 | 100 |
| Immo-Basilix NV2 | Brussels – BE | 0453.348.801 | 100 |
| Immo-Beaulieu NV2 | Brussels – BE | 0450.193.133 | 50 |
| Immobilière Distri-Land NV2 | Brussels – BE | 0436.440.909 | 87.52 |
| Immo Genk-Zuid NV2 | Brussels – BE | 0464.358.497 | 100 |
| Immo Kolonel Bourgstraat NV2 | Brussels – BE | 0461.139.879 | 50 |
| Immolease-Trust NV1 | Brussels – BE | 0406.403.076 | 100 |
| Immo Lux-Airport SA2 | Luxembourg – LU | – | 100 |
| Immo Marcel Thiry NV2 | |||
| Brussels – BE | 0450.997.441 | 100 | |
| Immo NamOtt NV2 | Brussels – BE | 0840.412.849 | 100 |
| Immo NamOtt Tréfonds NV1 | Brussels – BE | 0840.620.014 | 100 |
| Immo-Quinto NV1 | Brussels – BE | 0466.000.470 | 100 |
| Immo Zenobe Gramme NV2 | Brussels – BE | 0456.572.664 | 100 |
| IPCOS BV1 | Boxtel – NL | – | 60 |
| IPCOS NV1 | Heverlee – BE | 0454.964.840 | 60 |
| IPCOS (UK) Ltd.1 | Cambridge – GB | – | 60 |
| IPCOS Engineering Solutions Pvt. Ltd.1 | Chandigarh – IN | – | 60 |
| KB-Consult NV1 | Brussels – BE | 0437.623.220 | 100 |
| KBC Alternative Investment Limited1 | London – GB | – | 100 |
| KBC Diversified Fund (part of KBC AIM Master Fund)1 | George Town – KY | – | 100 |
| KBC Financial Services (Ireland) Limited1 | Dublin – IE | – | 100 |
| KBC International Finance NV1 | Rotterdam – NL | – | 100 |
| KBC Life Harvest Capital Fund1 | Dublin – IE | – | 67.92 |
| KBC Life Opportunity Fund1 | Dublin – IE | – | 100 |
| KBC Private Equity Advisory Services Limited Liability Company1 | Budapest – HU | – | 100 |
| KBC Private Equity Advisory Services Sp.z.o.o.1 | Warszawa – PL | – | 100 |
| KBC Securities LLC1 | Moscow – RU | – | 100 |
| KBC Structured Finance Limited1 | Sydney – AU | – | 100 |
| Kredietfinance Corporation (June) Limited1 | Surrey – GB | – | 100 |
| Kredietfinance Corporation (September) Limited1 | Surrey – GB | – | 100 |
| Kredietlease (UK) Limited1 | Surrey – GB | – | 100 |
| Kredyt Bank SA i TUiR WARTA SA1 | Warszawa – PL | – | 90 |
| Lancier LLC1 | Delaware – US | – | 100 |
| Limited liability company 'Absolut Capital'1 | Moscow – RU | – | 95 |
| LIZAR Sp z.o.o.1 | Warszawa – PL | – | 80 |
| Luxembourg North Distribution SA1 | Luxembourg – LU | – | 100 |
| Mechelen City Center NV1 | Brussels – BE | 0471.562.332 | 100 |
| Mezzafinance NV1 | Brussels – BE | 0453.042.260 | 100 |
| Motokov a.s.1 | Prague – CZ | – | 69.10 |
| Newcourt Street Finance Limited1 | Jersey – GB | – | 100 |
| NV ACTIEF NV1 | Brussels – BE | 0824.213.750 | 57.14 |
| Oxford Street Finance Limited1 | Jersey – GB | – | 100 |
| Patria Finance CF a.s.1 | Prague – CZ | – | 100 |
| Patria Finance Online a.s.1 | Prague – CZ | – | 100 |
| Patria Finance Slovakia a.s.1 | Bratislava – SK | – | 100 |
| Pericles Invest NV1 | Brussels – BE | 0871.593.005 | 100 |
| Property LM s.r.o.1 | Bratislava – SK | – | 100 |
| Quasar Securitisation Company NV1 | Brussels – BE | 0475.526.860 | 100 |
| Quercus Scientific NV1 | Sint-Martens-Latem – BE | 0884.920.310 | 65.92 |
| Radiant Limited Partnership1 | Jersey – GB | – | 80 |
| Risk Kft.1 | Budapest – HU | – | 100 |
| Servipolis Management Company NV1 | Zaventem – BE | 0442.552.206 | 70 |
| Sicalis BV1 | Amsterdam – NL | – | 100 |
| National | Share of capital | ||
|---|---|---|---|
| Name | Registered office | identification number |
held at group level (in %)* |
| TEE Square Limited1 | Virgin Islands – VG | – | 100 |
| Tormenta Investment Sp.z.o.o.1 | |||
| Warszawa – PL | – | 100 | |
| Vermögensverwaltungsgesellschaft Merkur mbH1 | Bremen – DE | – | 100 |
| Weyveld Vastgoedmaatschappij NV1 | Brussels – BE | 0425.517.818 | 100 |
| Willowvale Company1 | Dublin – IE | – | 100 |
| Zipp Skutery Sp.z.o.o.1 | Przasnysz – PL | – | 100 |
| KBC Bank: joint subsidiaries that are proportionately consolidated | |||
| Cˇeskomoravská Stavební Sporˇitelna (CMSS) | Prague – CZ | – | 55 |
| Immobiliare Novoli S.p.A. | Firenze – IT | – | 44.98 |
| KBC Goldstate Fund Management Co. Limited | Shanghai – CN | – | 49 |
| Union KBC Asset Management Private Limited | Mumbai – IN | – | 49 |
| KBC Bank: joint subsidiaries that are not proportionately consolidated1 | |||
| Atrium Development SA | Luxembourg – LU | – | 25 |
| Barbarahof NV | Leuven – BE | 0880.789.197 | 30 |
| Consorzio Sandonato Est. | Firenze – IT | – | 20.32 |
| Covent Garden Development NV | Brussels – BE | 0892.236.187 | 25 |
| Covent Garden Real Estate NV | Zaventem – BE | 0872.941.897 | 50 |
| Flex Park Prague s.r.o. | Prague – CZ | – | 50 |
| FM-A Invest NV | Diegem – BE | 0460.902.725 | 50 |
| Jesmond Amsterdam NV | Amsterdam – NL | – | 50 |
| Miedziana Sp z.o.o. | Warszawa – PL | – | 47.75 |
| Panton Kortenberg Vastgoed NV 'Pako Vastgoed' | Sint-Niklaas – BE | 0437.938.766 | 50 |
| Amdale Holdings Limited NV | Diegem – BE | 0452.146.563 | 50 |
| Pakobo NV | Diegem – BE | 0474.569.526 | 50 |
| Rumst Logistics NV | Diegem – BE | 0862.457.583 | 50 |
| Perifund NV | Brussels – BE | 0465.369.673 | 50 |
| Prague Real Estate NV | Zaventem – BE | 0876.309.678 | 50 |
| Real Estate Participation NV | Zaventem – BE | 0473.018.817 | 50 |
| Resiterra NV | Leuven – BE | 0460.925.588 | 50 |
| Rumst Logistics II NV | Diegem – BE | 0880.830.076 | 50 |
| Rumst Logistics III NV | Diegem – BE | 0860.829.383 | 50 |
| Sandonato Parcheggi Srl | Firenze – IT | – | 44.98 |
| Sandonato Srl | Firenze – IT | – | 44.98 |
| UNION KBC Trustee Company Private Limited | Mumbai – IN | – | 49 |
| Val d'Europe Holding NV | Zaventem – BE | 0808.932.092 | 45 |
| Val d'Europe Invest sas | Paris – FR | – | 45 |
| Xiongwei Lighting (Guangzhou) Co., Ltd. | Guangzhou – CN | – | 49.79 |
| KBC Bank: companies accounted for using the equity method | |||
| Giro Elszámolásforgáltátó Rt. | Budapest – HU | – | 20.99 |
| HAGE Hajdúsági Agráripari Részvénytársaság | Nádudvar – HU | – | 25 |
| K&H Lizingház Zrt. (under liquidation) | Budapest – HU | – | 100 |
| Nova Ljubljanska banka d.d. | Ljubljana – SI | – | 25 |
| KBC Bank: companies not accounted for using the equity method1 | |||
| Bancontact-MisterCash NV | Brussels – BE | 0884.499.250 | 20 |
| Banking Funding Company NV | Brussels – BE | 0884.525.182 | 20.93 |
| BCC Corporate NV | Brussels – BE | 0883.523.807 | 23.95 |
| Bedrijvencentrum Regio Roeselare NV | Roeselare – BE | 0428.378.724 | 22.22 |
| Bedrijvencentrum Rupelstreek NV | Aartselaar – BE | 0427.329.936 | 33.33 |
| Czech Banking Credit Bureau a.s. | Prague – CZ | – | 20 |
| Etoiles d'Europe sas | Paris – FR | – | 45 |
| Isabel NV | Brussels – BE | 0455.530.509 | 25.33 |
| Justinvest NV | Antwerp – BE | 0476.658.097 | 33.33 |
| První Certifikacˇni Autorita a.s. | Prague – CZ | – | 23.25 |
| Rabot Invest NV | Antwerp – BE | 0479.758.733 | 25 |
| Sea Gate Logistics NV | Aalst – BE | 0480.040.627 | 25 |
| Xenarjo cvba | Mechelen – BE | 0899.749.531 | 22.95 |
| KBC Insurance: subsidiaries that are fully consolidated | |||
| KBC Verzekeringen NV | Leuven – BE | 0403.552.563 | 100 |
| ADD NV | Heverlee – BE | 0406.080.350 | 100 |
| KBC Group Re SA | Luxembourg – LU | – | 100 |
| Anglesea Financial Products Limited | Dublin – IE | – | 100 |
| KBC Financial Indemnity Insurance SA | Luxembourg – LU | – | 100 |
| Cˇ SOB Pojišt'ovna a.s. | Pardubice – CZ | – | 100 |
| Cˇ SOB Poist'ovnˇ a a.s. | Bratislava – SK | – | 100 |
| Double U Building BV | Rotterdam – NL | – | 100 |
| DZI Insurance Plc. | Sofia – BG | – | 99.95 |
| DZI – General Insurance JSC | Sofia – BG | – | 99.95 |
| DZI – Health Insurance AD | Sofia – BG | – | 99.95 |
| Fidea NV | Antwerp – BE | 0406.006.069 | 100 |
| Groep VAB NV | Zwijndrecht – BE | 0456.267.594 | 74.81 |
| National identification |
Share of capital held at group level |
||
|---|---|---|---|
| Name | Registered office | number | (in %)* |
| VAB Rijschool NV | Sint-Niklaas – BE | 0448.109.811 | 74.81 |
| VAB NV | Zwijndrecht – BE | 0436.267.594 | 74.80 |
| K&H Biztosító Zrt. | Budapest – HU | – | 100 |
| KBC Banka A.D. Beograd | Belgrado – RS | – | 100 |
| KBC Life Fund Management SA | Luxembourg – LU | – | 100 |
| KBC Verzekeringen Vastgoed Nederland I BV | Rotterdam – NL | – | 100 |
| Towarzystwo Ubezpieczen' i Reasekuracji WARTA SA | Warszawa – PL | – | 100 |
| KBC Alpha SFIO | Warszawa – PL | – | 100 |
| PTE Warta SA | Warszawa – PL | – | 100 |
| Towarzystwo Ubezpieczen' na Z˙ ycie WARTA SA | Warszawa – PL | – | 100 |
| KBC Insurance: subsidiaries that are not fully consolidated1 | |||
| Almarisk NV | Merelbeke – BE | 0420.104.030 | 100 |
| Brika 2000 NV | Hoboken – BE | 0471.300.531 | 74.81 |
| Car Dent Benelux NV | Zwijndrecht – BE | 0460.861.351 | 74.81 |
| Cˇ SOB Insurance Service Limited | Pardubice – CZ | – | 100 |
| Depannage 2000 NV | Hoboken – BE | 0403.992.429 | 74.81 |
| Fundacja WARTA | Warszawa – PL | – | 100 |
| Gdynia America Shipping Lines (London) Limited | London – GB | – | 73.68 |
| Immo Campus Blairon NV | Brussels – BE | 0475.910.902 | 100 |
| KBC Life Fund Management Ireland Limited | Dublin – IE | – | 99 |
| KBC Zakenkantoor NV | Leuven – BE | 0462.315.361 | 100 |
| Maatschappij voor Brandherverzekering cvba | Leuven – BE | 0403.552.761 | 90.55 |
| Net Fund Administration Sp z.o.o. | Warszawa – PL | – | 99.22 |
| Omnia NV | Leuven – BE | 0413.646.305 | 100 |
| Probemo Dubbele Bedieningen NV | Sint-Niklaas – BE | 0435.357.180 | 74.81 |
| Rijscholen Sanderus NV | Mechelen – BE | 0413.004.719 | 74.81 |
| Rij Wijs BVBA | Zwijndrecht – BE | 0861.204.701 | 74.81 |
| VAB Fleet Services NV | Zwijndrecht – BE | 0866.583.053 | 52.19 |
| WARTA Finance SA | Warszawa – PL | – | 100 |
| WARTA 24 Plus Sp.z.o.o. | Warszawa – PL | – | 100 |
| WARTA Nieruchomos'ci Sp.z.o.o. | Warszawa – PL | – | 100 |
| 24+ NV | Zwijndrecht – BE | 0895.810.836 | 87.40 |
| KBC Insurance: joint subsidiaries that are proportionately consolidated | |||
| NLB Vita d.d. | Ljubljana – SI | – | 50 |
| KBC Insurance: joint subsidiaries that are not proportionately consolidated1 | |||
| Sepia NV | Brussels – BE | 0403.251.467 | 50 |
| KBC Insurance: companies accounted for using the equity method | |||
| – | |||
| KBC Insurance: companies not accounted for using the equity method1 | |||
| AIA-Pool cvba | Brussels – BE | 0453.634.752 | 33.47 |
| AssurCard NV | Leuven – BE | 0475.433.127 | 33.33 |
| Optimobil Belgium NV | Brussels – BE | 0471.868.277 | 25.33 |
| KBL EPB: subsidiaries that are fully consolidated | |||
| KBL European Private Bankers SA | Luxembourg – LU | – | 99.91 |
| Brown, Shipley & Co. Limited | London – GB | – | 99.91 |
| Cawood Smithie & Co. | London – GB | – | 99.91 |
| Fairmount Pension Trustee Limited | London – GB | – | 99.91 |
| Fairmount Trustee Services Limited | Leatherhead – GB | – | 99.91 |
| Slark Trustee Company | Leatherhead – GB | – | 99.91 |
| The Brown Shipley Pension Portfolio Limited | London – GB | – | 99.91 |
| White Rose Nominee Limited | London – GB | – | 99.91 |
| Fidef Ingénierie Patrimoniale SA | La Rochelle – FR | – | 99.91 |
| Financière et Immobilière SA | Luxembourg – LU | – | 99.91 |
| KB Lux Immo SA | Luxembourg – LU | – | 99.91 |
| Centre Europe SA | Luxembourg – LU | – | 99.91 |
| Rocher Limited | Douglas – IM | – | 99.91 |
| sci KB Luxembourg Immo III (Monaco) | Monaco – MC | – | 99.91 |
| KBL Beteiligungs AG | Mainz – DE | – | 99.91 |
| Merck Finck & Co. | Munich – DE | – | 99.91 |
| Merck Finck Pension Fund | Munich – DE | – | 99.91 |
| Merck Finck Treuhand AG | Munich – DE | – | 99.91 |
| Modernisierungsgesellschaft Lübecker Strasse | Mainz – DE | – | 78.99 |
| KBL Monaco Private Bankers SA | Monaco – MC | – | 99.91 |
| sci KB Luxembourg Immo I (Monaco) | Monaco – MC | – | 99.91 |
| KBL Monaco Conseil et Courtage en Assurance | Monaco – MC | – | 99.91 |
| KBL Richelieu Banque Privée SA | Paris – FR | – | 99.91 |
| KBL France Gestion | Paris – FR | – | 99.91 |
| S.E.V. | Paris – FR | – | 68.92 |
| Kredietbank Informatique GIE | Luxembourg – LU | – | 99.91 |
| KBL (Switzerland) Ltd. | Geneva – CH | – | 99.90 |
| Name | Registered office | National identification number |
Share of capital held at group level (in %)* |
|---|---|---|---|
| Privagest SA | Geneva – CH | – | 99.90 |
| Kredietrust Luxembourg SA | Luxembourg – LU | – | 99.91 |
| Puilaetco Dewaay Private Bankers SA | Brussels – BE | 0403.236.126 | 99.91 |
| Banque Puilaetco Luxembourg SA | Luxembourg – LU | – | 99.91 |
| Theodoor Gilissen Bankiers NV | Amsterdam – NL | – | 99.91 |
| Lange Voorbehout BV | Amsterdam – NL | – | 99.91 |
| Stroeve Asset Mangement BV | Amsterdam – NL | – | 99.91 |
| TG Fund Management BV | Amsterdam – NL | – | 99.91 |
| TG Ventures BV | Amsterdam – NL | – | 99.91 |
| Theodoor Gilissen Global Custody BV | Amsterdam – NL | – | 99.91 |
| Theodoor Gilissen Trust BV | Amsterdam – NL | – | 99.91 |
| Wereldeffect BV | Amsterdam – NL | – | 99.91 |
| VITIS Life SA | Luxembourg – LU | – | 99.91 |
| KBL EPB: subsidiaries that are not fully consolidated1 | |||
| Data Office | Leuven – BE | 0413.719.252 | 99.91 |
| Plateau Real Estate Limited | Douglas – IM | – | 99.91 |
| sci KB Luxembourg Immo II (Monaco) | Monaco – MC | – | 99.91 |
| Steubag Gesellschaft für Betriebswirtschafts- und Bankendienstleistungsberatung in Rheinland-Pfalz mbH Mainz |
Mainz – DE | – | 99.91 |
| KBL EPB: joint subsidiaries that are proportionately consolidated – |
|||
| KBL EPB: joint subsidiaries that are not proportionately consolidated1 | |||
| – KBL EPB: companies accounted for using the equity method |
|||
| EFA Partners SA | Luxembourg – LU | – | 52.65 |
| European Fund Administration SA | Luxembourg – LU | – | 51.09 |
| European Fund Administration France sas | Paris – FR | – | 52.65 |
| KBL EPB: companies not accounted for using the equity method1 | |||
| Damsigt scp | Utrecht – NL | – | 24.56 |
| Forest Value Management Investment SA | Luxembourg – LU | – | 26.67 |
| KBC Group: subsidiaries that are fully consolidated | |||
| KBC Groep NV | Brussels – BE | 0403.227.515 | 100 |
| KBC Bank NV | Brussels – BE | 0462.920.226 | 100 |
| KBC Global Services NV | Brussels – BE | 0465.746.488 | 100 |
| KBC Verzekeringen NV | Brussels – BE | 0403.552.563 | 100 |
| KBL European Private Bankers SA | Luxembourg – LU | – | 99.91 |
| Kredietcorp SA | Luxembourg – LU | – | 100 |
| RTI Invest Kft. | Budapest – HU | – | 100 |
| ValueSource NV | Brussels – BE | 0472.685.453 | 100 |
| ValueSource Technologies Private Limited | Alwarpet – IN | – | 100 |
| KBC Group: subsidiaries that are not fully consolidated1 | |||
| Gebema NV | Brussels – BE | 0461.454.338 | 100 |
| KBC Group: joint subsidiaries that are proportionately consolidated – |
|||
| KBC Group: joint subsidiaries that are not proportionately consolidated1 | |||
| – KBC Group: companies accounted for using the equity method |
|||
| – KBC Group: companies not accounted for using the equity method1 |
|||
| – |
* In the overview of subsidiaries, Special Purpose Vehicles (SPVs) established by KBC are presented as 'having a share of capital held at group level' of 100% if they comply with IFRS consolidation rules (SIC 12). Among other things, these rules take account of the decision-making powers of the management body of these SPVs.
Reason for exclusion:
1 Insignificant.
2 Real estate certificates and companies whose results are not allocated to the group.
Companies qualifying for consolidation are also effectively included in the scope of consolidation if two of the following criteria are met:
The combined balance sheet total of the companies excluded from consolidation may not amount to more than 1% of the consolidated balance sheet total.
The most recent version of this list is available at www.kbc.com.
KBC Telecenter (information on products, services and publications of the KBC group can be obtained on weekdays between 8 a.m. and 10 p.m., and on Saturdays and bank holidays between 9 a.m. and 5 p.m.) + 32 78 152 153 (Dutch), + 32 78 152 154 (French, English, German) [email protected] Investor Relations Office [email protected] www.kbc.com KBC Group NV, Investor Relations Office – IRO, Havenlaan 2, 1080 Brussels, Belgium Press Viviane Huybrecht (General Manager of Group Communication/Company Spokesperson) [email protected] www.kbc.com KBC Group NV, Group Communication – GCM, Havenlaan 2, 1080 Brussels, Belgium
KBC aims to communicate as openly and transparently as possible with its shareholders. To that end, the group facilitates meetings between management and the investors/shareholders during the financial year by organising inter alia investor events, conferences and road shows or by arranging Investor Days to discuss specific matters. These events are organised by the Investor Relations Office, which also deals with questions from investors throughout the year. In addition, the group provides information all year round, such as by issuing press releases, giving presentations and publishing quarterly, half-year and annual reports when the results are announced. This information is available at www.kbc.com, as are various notifications required by law (including those relating to AGMs), general company information and specific reports, such as risk and corporate social responsibility reports.
The most up-to-date version of the financial calendar is available at www.kbc.com.
| 2011 financial year | Earnings release: 9 February 2012 |
|---|---|
| Publication of the Annual Report and the Risk Report for 2011: 3 April 2012 | |
| Publication of the CSR Report for 2011: 2 May 2012 | |
| AGM: 3 May 2012 (agenda available at www.kbc.com) | |
| Ex-coupon date/record date/dividend payment: 9/11/14 May 2012 | |
| 1Q 2012 | Earnings release: 10 May 2012 |
| 2Q 2012 | Earnings release: 7 August 2012 |
| 3Q 2012 | Earnings release: 8 November 2012 |
| 4Q 2012 | Earnings release: 14 February 2013 |
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