KBC Bank Annual Report for 2018

KBC Bank Annual Report for 2018 Annual Report for 2018 • KBC Bank • 1 To the reader Company name ‘KBC’, ‘the group’, ‘we’ or ‘KBC Bank’ as used in this annual report refer (unless otherwise indicated) to the consolidated bank entity, i.e. KBC Bank NV including all group companies included in the scope of consolidation. ‘KBC Bank NV’ refers solely to the non-consolidated entity. The ‘Company annual accounts' section deals only with the non-consolidated entity. Difference between KBC Bank and KBC Group KBC Bank NV is a subsidiary of KBC Group NV. The KBC group's legal structure has one single entity – KBC Group NV – in control of two underlying companies, viz. KBC Bank NV and KBC Insurance NV. All KBC Bank NV shares are owned (directly and indirectly) by KBC Group NV. A number of KBC Bank NV’s debt instruments are exchange-listed. Where mention is made of KBC Group or the KBC group in this annual report, KBC Group NV is meant, including all group companies included in the scope of consolidation. Forward-looking statements The expectations, forecasts and statements regarding future developments that are contained in this annual report are based on assumptions and assessments made when drawing up this report. By their nature, forward-looking statements involve uncertainty. Various factors could cause actual results and developments to differ from the initial statements. In terms of macroeconomic prospects, our baseline scenario assumes a soft but not smooth brexit, with the final outcome of the negotiations being an agreement acceptable to both the UK and the EU that does not derail the economy. Translation This annual report is available in Dutch and English. The Dutch version is the original and the English-language version an unofficial translation. KBC warrants that every reasonable effort has been made to avoid any discrepancies between the language versions. However, should such discrepancies exist, the Dutch version will take precedence. Articles 96 and 119 of the Belgian Companies Code These articles specify the minimum content of company and consolidated financial statements 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 report. Pursuant to Article 119, KBC Bank NV has combined the reports for its company and consolidated financial statements. The Risk Report and the www.kbc.com website referred to in certain sections do not form part of the annual report. Non-financial information statement As required by Articles 96 §4 and 119 §2 of the Companies Code, we provide a statement on non-financial information at the highest consolidated level for a Belgian entity, i.e. (in the annual report of) KBC Group NV. That particular report is available at www.kbc.com. Nevertheless, most of the information in question is also provided in KBC Bank's annual report. Contact Kurt De Baenst (General Manager, Investor Relations Office) [email protected] KBC Group NV, Investor Relations Office, Havenlaan 2, 1080 Brussels, Belgium Viviane Huybrecht (General Manager, Corporate Communication/Company Spokesperson) [email protected] KBC Group NV, Corporate Communication, Havenlaan 2, 1080 Brussels, Belgium Vic Van de Moortel (General Manager, Corporate Sustainability) [email protected] KBC Group NV, Corporate Sustainability, Havenlaan 2, 1080 Brussels, Belgium Ratios used A list of the most important ratios and terms used in this document (including the alternative performance measures) can be found at the back of this report. Publisher: KBC Group NV, Havenlaan 2, 1080 Brussels, Belgium – VAT BE 403.227.515 – RLP Brussels – Bank account 734-0051374-70. Annual Report for 2018 • KBC Bank • 2 Table of Contents Report of the Board of Directors Group profile p. 6 Review of the consolidated financial statements p. 30 Review of the business units p. 35 Risk management p. 42 Capital adequacy p. 71 Corporate governance statement p. 75 Consolidated financial statements Consolidated income statement p. 85 Consolidated statement of comprehensive income p. 86 Consolidated balance sheet p. 88 Consolidated statement of changes in equity p. 90 Consolidated cashflow statement p. 93 1.0 Notes on the accounting policies p. 95 Note 1.1: Statement of compliance p. 95 Note 1.2: Summary of significant accounting policies p. 97 Note 1.3: Critical estimates and significant judgements p. 112 Note 1.4: Transition disclosures for IFRS 9 p. 113 2.0 Notes on segment reporting p. 117 Note 2.1: Segment reporting based on the management structure p. 117 Note 2.2: Results by segment p. 118 Note 2.3: Balance-sheet information by segment p. 122 3.0 Notes to the income statement p. 123 Note 3.1: Net interest income p. 123 Note 3.2: Dividend income p. 123 Note 3.3: Net result from financial instruments at fair value through profit or loss p. 124 Note 3.4: Net realised result from available-for-sale assets p. 125 Annual Report for 2018 • KBC Bank • 3 Note 3.5: Net fee and commission income p. 125 Note 3.6: Other net income p. 126 Note 3.7: Insurance results p. 126 Note 3.8: Operating expenses p. 127 Note 3.9: Personnel p. 127 Note 3.10: Impairment (income statement) p. 128 Note 3.11: Share in results of associated companies and joint ventures p. 129 Note 3.12: Income tax expense p. 129 Note 3.13: Earnings per share p. 131 4.0 Notes on the financial assets and liabilities on the balance sheet p. 132 Note 4.1: Financial assets and liabilities, breakdown by portfolio and product p. 132 Note 4.2: Financial assets and liabilities, breakdown by portfolio and quality p. 135 Note 4.3: Maximum credit exposure and offsetting p.137 Note 4.4: Fair value of financial assets and liabilities – general p. 139 Note 4.5: Financial assets and liabilities measured at fair value – fair value hierarchy p. 141 Note 4.6: Financial assets and liabilities measured at fair value – transfers between levels 1 and 2 p. 144 Note 4.7: Financial assets and liabilities measured at fair value – focus on level 3 p. 144 Note 4.8: Derivatives p. 145 5.0 Notes on other balance sheet items p. 148 Note 5.1: Other assets p. 148 Note 5.2: Tax assets and tax liabilities p. 148 Note 5.3: Investments in associated companies and joint ventures p. 150 Note 5.4: Property and equipment and investment property p. 151 Note 5.5: Goodwill and other intangible assets p. 152 Note 5.6: Technical provisions, insurance p. 153 Note 5.7: Provisions for risks and charges p. 154 Note 5.8: Other liabilities p. 156 Note 5.9: Retirement benefit obligations p. 157 Note 5.10: Parent shareholders’ equity and additional tier-1 instruments p. 160 Note 5.11: Non-current assets held for sale and discontinued operations (IFRS 5) p. 160 6.0 Other notes p. 161 Note 6.1: Off-balance-sheet commitments and financial guarantees given and received p. 161 Note 6.2: Leasing p. 162 Note 6.3: Related-party transactions p. 163 Note 6.4: Statutory auditor's remuneration p. 164 Note 6.5: Subsidiaries, joint ventures and associated companies p. 165 Note 6.6: Main changes in the scope of consolidation p. 168 Note 6.7: Risk management and capital adequacy p. 170 Note 6.8: Post-balance-sheet events p. 171 Note 6.9: General information on the company p. 171 Statutory auditor’s report p. 173 Company annual accounts Additional information Ratios used Management certification Annual Report for 2018 • KBC Bank • 4 Report of the Board of Directors Annual Report for 2018 • KBC Bank • 5 Group profile Statement by the Chairman of the Board of Directors and the Chief Executive Officer KBC celebrated its twentieth anniversary in 2018 Johan Thijs: We did indeed. It was in 1998 that the Kredietbank, Cera and ABB merged to form a single large bank-insurance group. Through those companies, our roots actually go a lot deeper into the past. But the KBC name itself dates back twenty years. I’ve been here since the beginning and I look back over those two decades with pride. We’ve built a new financial institution on the foundations of three established players. The years that followed were marked by expansion and growth, particularly in Central and Eastern Europe, and the creation of a unique and successful bank-insurance concept. We too suffered the consequences in 2008 and 2009 of the global financial crisis, but we bounced back, repaid the state aid we received ahead of schedule and consistently and successfully focused on our core activities and core countries. Our bank-insurance model works and our strategy – which centres on what our clients want – has delivered persistently strong results, thanks to the unflagging efforts of our employees in all our core countries. The digital transformation is in full swing right now Johan Thijs: If one thing has changed over the past twenty years, it’s the overwhelming rise of the digital dimension. We’ve embraced that digital future, looking first and foremost at what our clients want. Our offering combines ‘human-to-human’ advice with digital methods and artificial intelligence. Digitalisation is not a goal in itself: our focus is on developing innovative solutions that ensure greater convenience. For instance, we were the first bank in Belgium to add multibanking possibilities to our mobile app. Not only that, we’ve integrated a variety of non-banking capabilities into it as well. I should add that this focus on digital convenience applies to all our core countries.

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