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KBC confirms position as solid bancassurance player in core markets
To repay State liabilities in full and on its own
- Crisis lesson learnt: more focus on core businesses, risk levels to be reduced
- Core bancassurance model largely untouched by crisis, growth options in Eastern Europe maintained
- Nondilutive exit from State liabilities, predominantly based on earnings accrual and reduced scope of international activities (and some divestments)
- Group total riskweighted assets to be reduced by 25%
- Aim to resume dividend payout as of 2011
- Plan cleared by European Commission
- Institutional investor conference (Investor Day) scheduled for tomorrow, 19 November (London)
Core business strategy
Until the credit crisis started, KBC's performance track record had been solid. Its strategy to invest in Central and Eastern European growth markets added great value and its distinctive retail bancassurance business model proved to be highly effective. Jan Vanhevel, Group CEO: 'When analysing the effects of the crisis, it is reassuring to note that our core business model remained largely untouched and that the strategic rationale remained valid for our Central and Eastern European presence. Unlike many of our peers, our high deposittoloan ratio means that our future growth will not be constrained by funding concerns. Moreover, customer and employee surveys show that loyalty levels have remained sound.'
Past market turbulence, however, has shown the need to markedly reduce the risk profile of the group and, accordingly, to reduce the scope of activities and geographic markets to which KBC allocates capital. The refocus project will also free up capital sources that will contribute to redeeming the capital securities subscribed by the State.
Jan Vanhevel: 'While reducing business risk, we will focus on a set of core activities where we have a strong value proposition. Our priority will be to build on our existing bancassurance platforms within Belgium and five selected Eastern European markets, where we will continue to target local retail and SME customers, including local midcaps. We will significantly reduce exposure to nondomestic corporate lending and capital market activities and will divest KBL European Private Bankers. This will be complemented by some additional capital optimisation measures in core markets.'
As regards asset management activities, the geographic focus will be on KBC's core markets, offering bestinclass products - mainly retail funds - through KBC distribution channels.
Over the next years, organic growth will be pursued, without major acquisitions. In terms of size, KBC positions itself as a European regional player. KBC believes that a strategy of 'refocus' is a competitive advantage for its core business and that size, international presence or ability to make large acquisitions in themselves do not necessarily lead to better performance.
In order to achieve the refocus objectives set, a number of assets need to be divested. KBC has opted for assets that can be monetised today at a fair valuation, while avoiding ending up in a position of forced selling at distressed prices. By doing so, the business plan's execution risk is minimised, which is important given the still uncertain economic environment.
Fully aware of the increasing demands for accountability placed on it by many actors in society, KBC is also committed to continue its ongoing process of improving the way it conducts its business. KBC's business model is geared towards direct and serviceoriented relationships with its customer base. Employee professionalism and a deep connection with local markets are key contributors to such a strategy. Jan Vanhevel, Group CEO: 'Offering valueadding solutions for customers, while building strong ties with employees and contributing to the development of our local economies. That is our commitment. That's how we create sustainable value for both shareholders and for the community at large.'
In order to align remuneration principles with longterm stakeholders' interests, KBC has approved a new groupwide remuneration policy, including high level principles, internal guidelines and a governance framework, aligned with most recent international standards. Moreover, KBC Group Executive Committee members have decided to forego their remuneration bonus for the 2009 financial year, just as they did last year.
Reduction of scope of international lending and capital market activities
As previously announced, KBC decided to markedly reduce the scope of its Merchant Banking Business Unit, mainly in relation to the international corporate loan book (outside Belgium and Central and Eastern Europe) and capital market activities.
Through a mostly European network of corporate branches and corporate banking subsidiaries, KBC has an international loan portfolio amounting to 42 billion euros. While one of the aims is to service the financial needs of domestic corporate customers abroad, a large part of the lending activity is oriented towards local foreign corporate customers or to certain specific areas such as global project finance. Jan Vanhevel, Group CEO: 'The new business plan encompasses the refocus on that part of the business for which a natural link exists with our customer base in our core markets. Some parts of the portfolio without such a link will become available for sale, while others will be run off at maturity and will not be renewed.'
As regards the capital market activities, it has already been announced that KBC had put its derivativesbased structured products business within KBC Financial Products on runoff status. In addition, a number of other lines of international capital market business with a low level of synergy with the core strategy have been earmarked for divestment. On the other hand, KBC will continue to act as a major player in the securities markets in Belgium and Central and Eastern Europe, with a complete set of capabilities to give domestic corporate customers access to capital markets and capital market products.
The corporate and market activities that are to be discontinued (excl. Ireland) represent some 23 billion euros' worth of riskweighted assets (position as at 31 December 2008). Over the last five years, these activities contributed on average roughly 150 million euros net annually to group net profit (some 400 million euros as best annual performance, -150 million euros as worst annual performance).
New strategic partner for KBL European Private Bankers
Through a cluster of local brands, KBC also has a pure play private banking business outside Belgium and Central and Eastern Europe. Given its lower than average level of synergy with the bancassurance strategy, it has been decided to look for a new strategic partner for this activity. In the meantime, KBC will ensure that it continues to grow the value of the business and to offer superior customer service.
Jan Vanhevel, Group CEO: 'This business line was originally set up as a private banking activity in Luxembourg, but has diversified over the last 20 years to manage currently some 47 billion euros in customer assets from 9 European locations.' The network operates under the umbrella of KBL European Private Bankers, a Luxembourgbased 99.9% subsidiary of KBC group. Over the past five years, it generated some 175 million euros in net profit annually (corresponding to a net average contribution to group profit, after funding costs, of 125 million euros). At the start of the year, it represented some 6 billion euros' worth of riskweighted assets.
The KBCbranded private banking activities in Belgium and Central and Eastern Europe remain unchanged.
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