kbc group - invest bulgaria...
TRANSCRIPT
Christof De Mil
Member of the Management Board
and Executive Director of CIBANK JSC
Brussels, March 20, 2013
KBC Group
Overview of KBC Group
• Strong bank-insurance group present with leading market positions in core geographies
(Belgium and CEE)
• A leading financial institution in both Belgium and the Czech Republic
• Business focus on Retail, SME & Midcap clients
• Unique selling proposition: in-depth knowledge of local markets and profound relationships with clients
• Integrated bancassurance business model, leading to high cross-selling rates
• Strong value creator with good underlying results through the cycle
• Integrated model creates cost synergies by avoiding overlap of supporting entities and generates added
value for our clients through a complementary and optimized product and service offering
• Refocus of KBC Group well-advanced (during 4Q12)
• Capital operations: capital increase of 1.25bn EUR and the sale of treasury shares (350m EUR)
• Repayment of 3.5bn EUR Belgian YES (+15% penalty) in 2012
• Sales of Absolut Bank and NLB have been announced, BZWBK merged with Kredyt Bank
• Updated strategy ‘KBC 2013 and beyond’ being implemented as of 1st January 2013
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Business profile
Breakdown of allocated capital by business unit at 31 December 2012
• KBC is a leading player (retail and SME bancassurance, private banking,
commercial and local investment banking) in Belgium and our 4 core countries
in CEE
Well defined core markets provide access to ‘new growth’ in Europe
1. Excluding Centea and Fidea
2. Including 55% of the joint venture with CMSS
3. Source: KBC data, February 2013
BE CZ SK HU BG
% of Assets
2012e
2013e
2014e SPAIN
FRANCE
BELGIUM
NETHERLANDS
GERMANY
CZECH REP SLOVAKIA
HUNGARY
BULGARIA
UK
IRELAND
ITALY
GREECE Macroeconomic outlook Based on GDP, CPI and unemployment trends
Inspired by Financial Times
KBC Group’s core markets
In Belgium and CEE-4
PORTUGAL
Real
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Mark
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BE¹ CZ SK HU BG
Loans and deposits
Investment funds
Life insurance
Non-life insurance
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Key non-financial figures, KBC Group
Customers (estimate) 31/12/2012
Belgium, Czech Rep., Slovakia, Hungary,
Bulgaria 9 million
Bank branches 31/12/2012
Belgium, Czech Rep., Slovakia, Hungary,
Bulgaria 1 632
Number of staff (in FTEs) 31/12/2012
Total (excluding companies to be
divested) 37 083
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Market position
In the table below, estimates are provided regarding KBC’s position on its home markets in Belgium and Central & Eastern Europe.
Market share estimate of the KBC Group, 31-12-2012 Belgium
Czech
Rep. Slovakia Hungary Bulgaria
Traditional banking products (credits and deposits) 20% 20% 10% 9% 2%
Investment funds 35% 30% 8% 20% -
Life insurance 17% 8% 5% 3% 13%
Non-Life insurance 9% 6% 3% 4% 11%
Fiscally sound
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Government debt, % GDP, 2012 Q3
Bulgarian government debt, % GDP
Source: EUROSTAT
Source: EU Commission Economic forecasts Winter 2013
• Bulgaria has the 2nd lowest public debt as % of GDP in EU
(after Estonia). The forecast is that the country will maintain this
position in the next couple of years.
• According to the winter 2013 EU Commission forecast for 2012
Bulgaria is the country with the 3rd lowest budget deficit in EU
(after Estonia and Sweden; Germany has surplus).
• Recent political instability caused by the resignation of the
government raised fears that it will cause also economic instability.
However, the markets reacted calmly and the large debt
emission issued by the government the same day it filed its
resignation was all sold out at very low interest rate (1% interest
rate, 6 month treasury bills). Currently, a broadly well-accepted
interim government is managing the country until elections are
held in May 2013.
• Low budget deficit and low indebtedness ensure stable basis
for future economic development.
Budget deficit, % GDP
Source: actuals: EUROSTAT; forecasts: EU Commission Winter 2013
Why KBC entered the Bulgarian market 2007
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• The country at that time had experienced strong economic growth which
was expected to continue at an above EU level average.
• Especially the banking and the insurance sectors offered penetration
potential, both in the retail and SME market segments.
• At the same time, the country was on its way to EU entry and already made
use of a fixed exchange rate to the Euro which provides stability.
• Bulgaria has an ample supply of skilled labor and both the tax environment
and the labor costs are attractive
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Together with DZI it is able to propose its
customers an integrated bank-insurance
model which still leaves room for additional
leverage and market penetration.
Bulgaria is one KBC’s core markets
CIBANK over the years has become an
stable market player and a true household
brand.
The bank of the European subsidies
Europrojects funding (6+1facilities)
Standard loans
• Bridge & Investment financing
• VAT credit lines
• Bank guarantees
• Guidance for participation in
EU projects
• Partnership with leading
consulting firms
• Over 1000 loans
EIB global loans:
- 25MEUR – 100% allocated
- 30 MEUR – 70% allocated
- 105 MEUR under negotiation
EBRD- Energy Efficiency for retail - 5 MEUR (80% allocated)
Bulgarian Development Bank - 1 facility (100% allocated)
State Fund Agriculture – 2 facilities (no limit)
JEREMIE - 71 MEUR limit; 125 loans =19.3MEUR
National Guarantee Fund:
• 2 facilities – 127 credits for 10MEUR
• 1 facility for projects under the EC Rural Programme -
51.4 MEUR guarantee limit
• 1 for the Fisheries sector - 2 MEUR limit (2 credits incl.)
• 1 new to be contracted in April 2013- 4 MEUR guaranteed amount
Bulgarian Agency for Export Insurance – 51credits, 10MEUR
Bulgarian Development Bank - 93 micro credits
Municipal Guarantee Fund Sofia
RSI-EIF- for R&D projects – in pipeline
Risk sharing (6+2 facilities)
• Investment, working capital
• Attractive conditions
• DZI Insurance
Profitability of Bulgarian banking market is at average levels due to high capital requirement; good bank capitalization provides strong basis for future growth
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Profitability vs. market size
ROE (%) and Loans outstanding, 2011
• With return on equity (ROE) for 2011 of 4.6% Bulgarian banking market is slightly above the EU average of 4.2%. However, the
country has one of the highest capital adequacy requirement in EU and many banks keep addition buffers on top of the
required.
• As part of Basel III the expectation is that minimal capital requirement will be raised (currently 6% core Tier 1).
• Bulgaria will not be impacted by Basel III since the country already has very high capital requirement (10% core Tier 1).
This combined with the additional buffers kept by the local banks will provide strong basis for growth. In addition, some country
specific restrictions are expected to be removed/reduced – e. g. non-interest baring minimum reserve requirements for
deposits in the central bank, the capital deductions, ex ante deposit insurance scheme which does not take into account the
individual bank’s risk, etc.
Capital adequacy per country
31.12.2012
Source: ECB Source: CBD, ECB
Low penetration of credit in mortgage, consumer and SME lending
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Low penetration of mortgage lending.
Banking penetration – mortgage lending
Loans outstanding as % of GDP, 2011
Banking penetration – consumer lending
Loans outstanding as % of GDP, 2011 Banking penetration – companies lending
Loans outstanding as % of GDP, 2011
Low penetration of consumer lending. • High penetration of company lending.
The main reasons for this is the
underdeveloped stock exchange and
lack of alternative to banking lending
for company financing.
• Data on size of credit indicates that
the majority of lending currently
goes to large corporate entities not
to SMEs.
Source: European Banking Federation Source: European Banking Federation Source: European Banking Federation
Bulgarian insurance market in EU context
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Bulgarian insurance market size
GWP, bn EUR, 2011
• Size of Bulgarian insurance market still limited compared to Group peers and to EU average.
• Other EU-markets in Life are driven by Single Premium. Bulgarian Life insurance market is most
underdeveloped,
Bulgarian insurance market penetration
GWP as % GDP, 2011
Source: Insurance Europe, January 2013 report Source: Insurance Europe, January 2013 report
The future market potential in Insurance market
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Motor Insurance Penetration
GWP as % of GDP, 2011
Property Insurance Penetration
GWP as % of GDP, 2011
Source: Insurance Europe, January 2013 report
Life Insurance Penetration
GWP as % of GDP, 2011
• Motor insurance penetration almost at par
with EU average.
• Property has significant convergence
potential which will go hand in hand with
real estate market.
• Market surveys show that only 10% of
the buildings in the country are insured
(yet many buildings are old village
houses).
• Life insurance is long way from EU
averages. Life insurance is 20% of
Non life market, while in Europe it is
140%.
• Increasing income levels coupled with
forecasted period of low interest rates
on bank deposits are expected to give
boost to this market.
• The prolonged period of economic
stability will eventually erase bad
memories of hyperinflation from the
late 1990s and encourage people to
put savings in long term products.
The Outlook: Issues and opportunities
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Issues:
• Political Stability (recent resignation of government and upcoming elections)
• Structural reforms needed to
• Create jobs
• Increase consumer confidence
• Attract again FDI
• Stimulate growth of the Economy
Opportunities:
• Skilled labor and low labor cost
• Interest rates dropping (favourable for lending)
• Liquidity and capital available in banking system to provide loans (supported by local
subsidies/financial facilities (government support programs, NFG, ….) and supranational
financial facilities (EIB/EIF/EBRD))
• Favorable tax environment both personal and COR tax
• Prudent fiscal policy
• Stable banking system and currency board
Domestic demand and investments will be the engines for growth
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GDP growth contribution per components
2012-2015
• Private consumption and investments will
be the main drivers of economic growth in
the next 4 years.
• Government spending is expected to
remain limited.
Source: BNB