2003 challenges in the central european banking environment herman agneessens, managing director
TRANSCRIPT
2 0 0 3
Challenges in the Central European banking environment
Herman Agneessens, Managing Director
2
Investor Day
2 0 0 3Agenda
Overview of Central European presence
Overview on the bank’s performance in ‘02 and 1Q '03
Comments on the ‘02 earnings in Poland
Poland : the outlook
Overall growth outlook for CE banking
3
Investor Day
2 0 0 3Central Europe, current presence
PolandKredyt Bank (77%)Warta (40%)Czech Republic
CSOB (84%)CSOB Pojist’ovna (84%)Patria Finance (100%)
SlovakiaCSOB (84%)Ergo Poist’ovna (69%)
HungaryK&H Bank (59%)K&H Life (80%)Argosz (99%)
SloveniaNLB (34%)NLB Vita (67%)
Indirect presenceLituania & Ukraine (via Kredyt Bank) Bosnia, Serbia & Macedonia(via NLB)
Percentages concern direct + indirect presence
4
Investor Day
2 0 0 3Central Europe,
market postion bankingPoland (banking)Ranking: 6thMarket share: 6%Clients: 1.2 m *Branches: 385
Czech Republic (banking)Ranking: 1stMarket share: 18%Clients: 3.1 mBranches: 205
Slovakia (banking)Ranking: 4thMarket share: 5%Clients: 0.2 mBranches: 51
Hungary (banking)Ranking: 2ndMarket share: 12%Clients: 0.8 mBranches 163
Slovenia (banking)Ranking 1stMarket share: 44%Clients: 0.9 mBranches 217
Market share is average of share in customer credits and in customer deposits* estimate
(31-12-2002)
5
Investor Day
2 0 0 3Central Europe,
market postion insurance
Poland (non-life / life insur.)Ranking: 2nd/10thMarket share: 13%/1%
Czech Republic (non-life / life insur.)Ranking: 5th/4thMarket share: 5%/10%
Slovakia (non-life / life insur.)Ranking: 7th/7thMarket share: 2%/4%
Hungary (non-life / life insur.)Ranking: 6th/14thMarket share: 4%/1%
SloveniaStart-up phase of life assurance cy
(31-12-2002)
6
Investor Day
2 0 0 3Central European banking,
the genesis1994 Policy to pursue presence in CE countries
(other than Baltic states) likely to join EU in 1st wave
1996 First minority stake purchase in Kredyt Bank, Poland
1997 Reference shareholdership in K&H Bank, Hungary through privatisation
1999 Majority shareholding in CSOB, Czech & Slovak Republics, through privatisation
1999 KBC becomes majority shareholder in K&H Bank
2000 Take-over of IPB assets & liabilities by CSOB
2001 Merger K&H Bank & ABN AMRO Magyar
2001 Majority shareholding in Kredyt Bank in November
2002 34% shareholding in Nova Ljubljanska Banka, Slovenia
7
Investor Day
2 0 0 3Central European banking,
the investments
Breakdown investment in banks KBC participation
Investment (EUR m)
P/BV
Czech and Slovak Republics
CSOB
Patria Finance
84%
100%
1 369
53
2.3
4.1
Hungary K&H Bank 59% 276 1.3
Poland Kredyt Bank 77% 524 1.4
Slovenia NLB 34% 434 2.7
Total investment EUR m
Banks 2 656
Insurance companies 298
Total 2 954
8
Investor Day
2 0 0 3Central European banking performance,
stand-alone 2002 earnings
186 199
-3
-82
1648 63
-150
-100
-50
0
50
100
150
200
CSOB Kredyt Bank K&H NLB
2001
2002
In m EUR
CSOB (IAS) Kredyt Bank K&H (IAS) NLB (IAS)
2001 2002 2001 2002 2001 2002 2002
RoE 17% 16% -1% -17% 7% 13% 13%
C/I 63% 63% 78% 70% 91% 80% 61%
RoI 10% -9% 10%
(+7%)
(+7%)
(+210%)
9
Investor Day
2 0 0 3Central European banking performance,
contribution to 2002 group profit
159182
-13
-91
-2
38
-150
-100
-50
0
50
100
150
200
CSOB Kredyt Bank K&H
2001
2002
In m EUR
CSOB Kredyt Bank K&H
2001 2002 2001 2002 2001 2002
RoE 18% 19% -3% -19% -1% 14%
C/I 68% 69% 85% 75% 90% 83%
(+15%)
Before minority interests
10
Investor Day
2 0 0 3Central European banking performance,
share in group banking business
Credit portfolio 13%
Gross operating income 24%
Interest income 27%
Expenses 27%
Net profit * 15%
Allocated equity ** 25%
* after minorities** excl. investment in NLB
(FY 2002)
11
Investor Day
2 0 0 3Central European banking performance,
stand-alone 1Q03 earnings
ČSOB KB K&H NLB
2002 2003 2002 2003 2002 2003 2002 2003
RoE 22 % 11 % 2 % 4 % 13 % 18 % 14 % 13 %
C/I 54 % 71 % 73 % 81% 84 % 75 % 61 % 69 %
RoI 16 % 8 % 1 % 3 % 10 % 16 % 5 %
71
37
3 4
1218
6 6
0
20
40
60
80
CSOB Kredyt Bank K&H NLB
1Q 2002
1Q 2003
In m EUR
12
Investor Day
2 0 0 3
ČSOB KB K&H NLB
2002 2003 2002 2003 2002 2003 2003
RoE 27 % 12 % - 2 % 1 % 12 % 21 % 5 %
C/I 58 % 75 % 76 % 84 % 88 % 78 % 69 %
61
30
-21
815
3
-10
0
10
20
30
40
50
60
70
CSOB Kredyt Bank K&H NLB
1Q 2002
1Q 2003
Central European banking performance, contribution to 1Q03 group profit
In m EUR
Before minority interests
13
Investor Day
2 0 0 3Central European banking performance,
the 1Q03 analysis
K&H Bank, Hungary Outstanding overall performance Current trendlines appear stable
ČSOB, Czech & Slovak Republics The Q-comparison predictably suffered
from exceptional income items in 2002 Even so, the Q1 performance disappoints Measures on the cost side are in hand Measures on the income generation side
particularly relate to retail banking and SME-banking
14
Investor Day
2 0 0 3
Kredyt Bank, Poland New management appointed Market share loss reversed For 1st time in 7 quarters, stabilisation in ACL's (°)
and NPL's, but too soon for predictions Economic environment remains extremely challenging Cost-cutting clearly underway Bancassurance initiative clearly successful Asset management product launches being prepared
Central European banking performance,the 1Q03 analysis
(°) adversely classified loans
15
Investor Day
2 0 0 3Banking presence in Poland,
past milestones
1989 Kredyt Bank founded
1996 KBC becomes 5% shareholder of Kredyt Bank
1997 KBC raises shareholding to 9.9%
1997 Kredyt Bank takes over PBI and Prosper Bank, gaining significant retail market share
1998 Strategic plan to increase branch network from 180 to 380 branches from 1999 to 2001
1999 KBC shareholding increased to 23%
1999 KBC shareholding reaches 49.9%
2001 Kredyt Bank has 382 branches
2001 In November, KBC becomes 56% majority shareholder
2002 In September, introduction of entirely new IT system completed
2002 KBC raises shareholding to 76.5%
16
Investor Day
2 0 0 3Banking presence in Poland,
earnings 2002 vs bank peer group
Largest loss of all Polish banks at 415 million PLN
Second worst RoE performance (-21 %)
Worst RoA performance (-1.8%)
Largest loan provisions addition (105 million EUR)
4th worst cost-income ratio (79 %)
But
3rd best in adversely classified loan levels
17
Investor Day
2 0 0 3
NPL in total loan portfolio as of Dec 2002
16.8%
23.6%
19.0%
21.7%
29.2%
20.7%
26.2%
19.4%
14.0%
16.7%
26.8%
21.4%
0%
5%
10%
15%
20%
25%
30%
35%
KB S.A
.
BIG-B
G
BOS
BPH PBK BH
BRE
ING
BSKPek
ao S
.A.
PKO B
PBZ W
BK BG
Jun 01Dec 02
Jun 02Dec 02
avg
Banking presence in Poland, asset quality 2002 vs bank peer group
18
Investor Day
2 0 0 3
NPL in total loan portfolio as at Mar. 2003
8.6%
19.5%
21.2%
15.5%13.3%
16.6%
21.3%
30.6%28.2%
21.0%
0%
5%
10%
15%
20%
25%
30%
35%
KB S.A
.
BPH PBK
BH
ING
BSK
Pekao
S.A
.
June 2001
December2001
June 2002
December2002
March 2003
blue figures : June 2001
yellow figures :March 2003
Banking presence in Poland, asset quality 1Q03 vs bank peer group
19
Investor Day
2 0 0 3
Largest loss of all Polish banks at 415 million PLN Second worst RoE performance (-20.8%) Worst RoA performance (-1.8%) Largest loan provisions addition (€105 million) 4th worst cost-income ratio (79.4%)
But 3rd best in adversely classified loans levels
5th largest, and arguably 3rd best, retail branch network coverage
Loan provisioning now fully in line with KBC methodology
New ICT system performing up to expectationsproviding the tool required for structure and
efficiency optimisation
Successful launch of bancassurance activity
Excellent position in automated channels
Banking presence in Poland, earnings 2002 vs bank peer group
20
Investor Day
2 0 0 3Kredyt Bank vs K&H Bank, K&H Bank’s performance
Acquisition price paid by KBC : 1.3 to book value
Stand-alone results K&H :
In m EUR 1998 1999 2000 2001 2002 Q1 2003
Net profit -15 -32 10 16 48 18
RoE -12% -33% 9% 7% 13% 18%
21
Investor Day
2 0 0 3Kredyt Bank vs K&H Bank, Kredyt Bank’s performance
Acquisition price paid by KBC : 1.4 to book value
Stand-alone results Kredyt Bank
In m EUR 1998 1999 2000 2001 2002 Q1 2003
Net profit 36 28 39 -3 -82 4
RoE 32% 13% 12% -1% -17% 4%
22
Investor Day
2 0 0 3Kredyt Bank,the outlook
AGENDA :
Priorities of the new management
Cost-efficiency enhancement measures
Income generation measures
Vulnerability issues
Conclusion
23
Investor Day
2 0 0 3Kredyt Bank,
new management’s priorities
Priority for retail bancassurance development
Introduction of asset management products
Maintenance of corporate lending position
Full integration in KBC’s risk control systems
Reduce cost-income ratio
Thus becoming a leading Polish bank
24
Investor Day
2 0 0 3Kredyt Bank,
cost efficiency enhancement
2003 : head-count reduction target of 1.000 (ca 15%) by leveraging the potential of the new ICT system Network staff optimisation Administrative overlap elimination Head office streamlining
Q1 2003 : already headcount reduction of 432
25
Investor Day
2 0 0 3Kredyt Bank,
income enhancement measures
Continue market share gains in retail bancassurance by leveraging penetration levels of a young network
Develop a new model for SME-market approach
Introduce market-tailored asset management products
Fill remaining gaps in the product range for both banking and bancassurance
26
Investor Day
2 0 0 3Kredyt Bank,
vulnerability issues
Vulnerability of the loan portfolio to a further weakening of the Polish/European economies
The lack of a perspective for a short term economic recovery in Poland
Effective implementation of cost efficiency enhancement program
27
Investor Day
2 0 0 3Kredyt Bank,
conclusion
Kredyt Bank offers excellent franchise value A dynamic new management team A well positioned retail network A promising bancassurance start Acceptable market shares in both deposits (5.2%)
and loans (7.2%) A new and meanwhile proven IT system
In the short term, a difficult economic environment is likely to continue to prevail
In the longer term, however, Poland offers excellent growth perspectives
KBC is a committed long term shareholder, providing access to both capital and know-how
28
Investor Day
2 0 0 3Central European banking,
the growth outlook
Annual growth real GDP,in % (period averages) 1991-1995 1996-2000 2000-2010 2010-2020
Belgium 1.5 2.8 2.0 to 2.5 1.5 to 2.0
EU-15 1.5 2.6 2.0 to 2.5 1.5 to 2.0
Central Europe -0.4 3.3 3.5 to 4.0 3.0 to 3.5
US 2.4 4.1 3.0 to 3.5 2.5 to 3.0
Source : EC, OECD, UN
29
Investor Day
2 0 0 3Central European banking,level of banking penetration
Deposits as % of GDP (EMU-average = 100)
45.6
79.6
43.7
67.4
62.9
34
72.9
43.5
67
44.4
0 20 40 60 80 100
Poland
Czech Republic
Hungary
Slovakia
Slovenia
1997
2002
30
Investor Day
2 0 0 3Central European banking,
high potential for bancassuranceInsurance premiums as % of GDP
(EMU-average = 100)
0 50 100
Hungary
Poland
Slovakia
Slovenia
CzechRepublic
2000
2001
Insurance premiums per capita(EMU-average = 100)
0 50 100Sloven
iaCzech
Rep
ublic
Hunga
ry
Poland
Slovak
ia
2000
2001
Source: Swiss Re
31
Investor Day
2 0 0 3
Austria Germany CzechRepublic
Hungary Poland Slovakia Slovenia
Account 89 97 64 46 34 55 79
Bank card 57 n.a. 49 35 21 36 57
Savings books 68 n.a. 38 16 13 58 53
Time deposits 29 n.a. 12 8 6 14 15
Mortgages 56 30 20 2 0 15 3
Loans 18 22 7 7 14 6 17
Securities 15 n.a. 3 4 n.a. 4 7
Source: HVB
% of total population over 15 years who use this product
Use of banking products not widely spread room for further development
Central European banking,the growth outlook
32
Investor Day
2 0 0 3
Financial assets as % of GDP reach current average level in Southern Europe
Average nominal GDP growth ± 7%
X
Size financial sector might rise by as much as factor 5 (in absolute terms) during catch-up process !
Rough measure : over next 10 years :
Central European banking,the growth outlook