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Growth ambitions in the CEE region. Foto gebouw. Agenda. Reminder: KBC’s presence in CEE Update on economic and financial background KBC’s opportunities Update on Poland Financial outlook. Reminder: KBC’s presence in CEE. Other 22%. Retail 57%. SME/Corp 21%. 17%. 27%. 2005 Q1.

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agenda
Agenda
  • Reminder: KBC’s presence in CEE
  • Update on economic and financial background
  • KBC’s opportunities
  • Update on Poland
  • Financial outlook
reminder kbc s presence in cee
Reminder: KBC’s presence in CEE

Other22%

Retail 57%

SME/Corp 21%

17%

27%

2005 Q1

2004

Profit contribution, Slovenia

2002

2003

2004

n/a

10

26

Minority stake (34%) Market share, bank: 41% (No. 1)Market share, life: 6% (No. 5)

CEE profit contribution to KBC Group

Share of retail segment in gross income, CEE Banking

agenda4
Agenda
  • Reminder: KBC’s presence in CEE
  • Update on economic and financial background
  • KBC’s opportunities
  • Update on Poland
  • Financial outlook
growth fundamentals maintained
Growth fundamentals maintained

(Source: IMF)

Financial services (banking & insurance) in % of GDP (2004)

(Source: Vienna Institute for International Economic Studies)

GDP growth prospects adjusted…

(Source: IMF)

  • 2005/2006 growth prospects have recently been reviewed downwards due to global economic slowdown
  • But growth in CEE will still be at higher rate (+/-2%) than euro zone

…but positive gap maintained

eu entry catalyst for development
EU entry - catalyst for development

EU accession acts as catalyst

(Source: OECD)

Results of one-year EU membership

Adoption of EU-compatible regulation and legislation

 EU-10 economic growth double of EU-25 (5% vs. 2%)

 Exports to EU-15 rose spectacularly (market share from 2% in 1997 up to probably 4% in 2005)

 FDIs in EU-10 continue (2004: 11 bn EUR or 3% of CEE-10’s GDP)

 Agricultural subsidies / EU funds

 Stimulation of macroeconomic stability

 Strong financial integration with EU

 Declining inflation (11.7% in 1998 down to 4.3% in 2004)

 No budgetary deterioration

 Decrease in unemployment, though rather slow

Limited impact on KBC of French and Dutch ‘NO’ to the treaty establishing a constitution for Europe

  • KBC is currently operating within EU countries only
  • Entry into euro is guaranteed by EU membership once economic criteria are met
uci hvb merger may transform landscape somewhat
UCI-HVB merger may transform landscape somewhat
  • In the Polish market, the UniCredit-HVB combination will strengthen their already strong individual positions; the impact will be somewhat less in Slovakia and very limited in the other markets where KBC is active.
  • The UniCredit-HVB merger should be seen as much an opportunity as a threat:
    • In Poland, the merger efforts may temporarily weaken the commercial clout of the parties involved, enabling other parties to increase market share
    • Potential for gaining new customers preferring to be ‘multi-banked’ rather than ‘uni-banked’
    • The merger could trigger the much-needed start of early consolidation in Poland
    • In the short run, UniCredit-HVB may partly divest from some markets, creating investment opportunities for other players.
agenda8
Agenda
  • Reminder: KBC’s presence in CEE
  • Update on economic and financial background
  • KBC’s opportunities
  • Update on Poland
  • Financial outlook
kbc s opportunities in cee
KBC’s opportunities in CEE
  • Unique bancassurance concept, enabling cross-selling
  • Outstanding track record in the promising AM market
  • Well positioned in the emerging markets of HNWI and private banking through the epb know-how
  • Nationwide branch network in all countries
  • Introduction of uniform corporate image
  • Setting up of technology for centralization of processing
  • Increasing hands-on management approach
bancassurance to fuel earnings
Bancassurance to fuel earnings

Achievements:

  • Transfers of product know-how and implementation of KBC’s distribution model
  • Setting up of sales-incentive schemes
  • Unified management responsibility (joint management committee of bank and insurance)
  • Focus on:
    • ‘Plugged-in’ non-life and life products
    • Life investment insurance (savings & investment)

Major challenges to exporting the model to CEE:

  • Re-organization of insurance network & implementation of new branch organization models
  • Enhancement of pro-active sales approach in both bank branches and agents’ networks
  • Streamlining of business processes and IT systems in both bank and insurance company
key developments in am
Key developments in AM
  • Total AUM in CEE as at 31/03/2005: 5.5 bn
  • AUM grew in 04 by 25%; in Q105 up by 7.3% Projected growth: 1-2 bn EUR p.a.
  • Continued high growth of revenue:
    • CAGR revenue on mutual funds: 15-20%
    • CAGR revenue on pension funds: 11-14%
    • Margins on mutual funds already aligned with rest of Europe
  • Strong appetite for ‘risk-free’ investments: money-market and capital-guaranteed funds, KBC’s speciality

Breakdown of AUM

Pension Funds

8%

Life Assurance

2%

Funds - Retail

42%

Discretionary

Assets

34%

Funds -

Funds -

Other

Institutional

5%

9%

key developments in am12
Key developments in AM
  • Market challenger with excellent reputation in foreign funds and as product innovator (hedge funds, capital-guaranteed funds, etc.)
  • Adequate risk-control measures and state-of-the-art front-office systems developed over the past years
  • Cost/AUM ratios well below European average (around 16 bp vs. 20 bp for Europe)
  • Through the funds business, new clients are brought in and retained
  • Existing clients using their deposits to buy funds will replenish their deposit accounts after one year

Poland:

  • big succes: capital-guaranteed funds
  • 20% of clients in funds are new clients

Slovakia:

  • Recently created AM and pension fund companies
  • 7.4% market share in mutual funds

Czech Rep:

  • Most important market player
  • KBC-owned pension funds companies (10% market share, No. 3 in the market)

Slovenia:

  • Recently created AM company (mutual funds’ market share from 0 to 10% in < 1 year)
  • Pension fund company with market share of 21% (first player on the market)

Hungary:

  • 3rd in mutual funds (10% market share)
necessary pension reforms will lead to growth in pension funds
Necessary pension reformswill lead to growth in pension funds

Assets of insurance companies and pension funds

Assets in pension funds

Source: Eurostat (2003)

Source: FI-AD Financial Advisory (2003)

% of GDP

2002, % of GDP

Share of elderly (65+) in total population (%)

(Source: Eurostat)

  • e.g., in Slovakia:
  • recently begun 2nd pillar will provide growth rate of above 25% for CSOB Pension Fund
centralized organization for am
Centralized organization for AM

Results:

  • Lower costs (e.g., for Warta in Poland: -37%)
  • Independent risk control and compliance
  • Better investment process

Integration of companies (situation as at 1Q 2005)

Former entities

KBC AM

nationwide branch networks
Nationwide branch networks

The density of KBC’s branch network is amongst the highest in the CEE region

  • In the Czech Rep.: branches in 123 of the 264 municipalities having more than 5 000 inhabitants. Additionally, products distributed via dense network of PSB (Postal Bank), which covers all 264 municipalities
  • In Slovenia: twice as many branches as the next competitor, being present in almost all municipalities having more than 5 000 inhabitants
  • In Hungary: presence in all larger towns and in half of the smaller towns. Only OTP has denser branch network
  • In Slovakia: branches in 58 of the 124 municipalities with more than 5 000 inhabitants
  • In Poland: presence in almost all major cities and in 25% of the smaller cities, comparable to or greater than competitors with similar market share. Further branch openings may be considered (under review)

Percent of towns with KBC Group branch

Density of KBC Group’s branch network

centralized card purchasing processing
Centralized card purchasing & processing
  • KBC card business:
    • Portfolio of 7.5 million cards, of which 4.5 million smart cards
    • Portfolio of 200 000 merchants
    • Yearly volume of 500 million transactions
  • Cards will be one of the key drivers for extending the retail activity in CEE
  • Central card processing:
    • enlarging scale
    • standardized technology to prepare for future developments (SEPA)

to reduce costs

0.12 €

/trans

0.10 €

0.08 €

0.06 €

0.04 €

0.02 €

0.00 €

-

500

1 000

1 500

2 000

2 500

million trans

  • Centralized card purchasing:
    • Licence contract to use same open technology
    • Common supplier contract for purchase of cards
    • Common supplier contract for personalizing the cards
centralized cash management product
Centralized cash management product

Key decision criteria

  • Single corporate e-Banking product:
    • Local & cross-border payments and collections
    • Statement reporting
  • Benefits:
    • Avoid multiple product development at Group level
    • Savings on software licence fees
  • Objective = > 5 000 users after 5 years
  • Investment payback = 3.5 years

Survey of multinational corporates

centralized processing cross border payments
Centralized processing, cross-border payments

2003

2004

2005

2006

2007 …

Sepa

2010

CEE

pre-study

legal/

fiscal

Implementations

in CEE

100

94

83

  • Business case: co-sourcing of cross-border transactions will lead to lower costs for the entire KBC Group
cee entities hands on governance
CEE entities: hands-on governance

KBC’s management expats in CEE

KBC Group ExecutiveCommittee

CEE Management Committee

CEE business co-ordinators

& task forces

Steering committees

CEEDirectorate

- General Manager

- Co-ordination unit

- Projects unit

- Controlling unit

  • Expats in banking: 35% of Management Board (of which 2 CEOs)*
  • Expats in insurance: 28% of Management Board (of which 4 CEOs)
  • Many KBC managers involved in CEE businesses and projects
  • For each business area, co-ordinators supervising the area, looking for synergies
  • CEE Directorate co-ordinates / supervises

CEEGroup companies

KBC expats

(+ temporary presence via various projects)

* Additionally 6 CEOs in AM and securities subsidiaries

agenda20
Agenda
  • Reminder: KBC’s presence in CEE
  • Update on economic and financial background
  • KBC’s opportunities
  • Update on Poland
  • Financial outlook
update on poland
Update on Poland
  • Restructuring milestones:
update on poland22
Update on Poland

1Q 2005 achievements:

  • Portfolio risk profile:
    • Portfolio quality improvement (NPL -20% y/y)
    • Zero cost of risk in 1Q 2005
    • Safe coverage ratio level (67%, one of the highest in the banking sector)
  • High net profit (23 m 1) and satisfactory ROE (21% 1 vs. 7% in 1Q 2004)
  • Continuous improvement of Cost/Income ratio (76% 1 vs. 86% in 1Q 2004)
  • Visible signs of growth acceleration:
    • 18% increase in housing loans granted in PLN (y/y)
    • 26% increase in loans granted in CHF(y/y)
    • 75 000 new savings accounts (y/y) and 187% increase in saving accounts volume (y/y)
    • 175% increase of mutual funds (y/y)

Today, we believe we are in a better shape than ever. We even intend to accelerate organic growth

1 Statutory accounts

agenda23
Agenda
  • Reminder: KBC’s presence in CEE
  • Update on economic and financial background
  • KBC’s opportunities
  • Update on Poland
  • Financial outlook