Annual Report 2016 • KBC Bank • 1 to the Reader
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KBC Bank Annual Report for 2016 Annual Report 2016 • 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. 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 different 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. Note: Regarding the acquisition of United Bulgarian Bank and Interlease in Bulgaria announced on 30 December 2016, we expect the deal to be finalised by no later than the second quarter of 2017. Unless explicitly stated otherwise, therefore, the consolidated data in this annual report refers to the situation without the impact of the announced acquisition. Investor relations contact details [email protected] KBC Group NV, Investor Relations Office, Havenlaan 2, 1080 Brussels, Belgium Press office contact details Viviane Huybrecht (General Manager, Corporate Communication/Company Spokesperson) [email protected] KBC Group NV, Corporate Communication, Havenlaan 2, 1080 Brussels, Belgium Corporate sustainability contact details Vic Van de Moortel (General Manager, Corporate Sustainability) [email protected] KBC Group NV, Corporate Sustainability, Havenlaan 2, 1080 Brussels, Belgium Ratios used See 'Additional information'. Publisher: KBC Group NV, Havenlaan 2, 1080 Brussels, Belgium – VAT BE 403,227,515 – RLP Brussels – Bank account 734-0051374-70. Annual Report 2016 • KBC Bank • 2 Table of contents Report of the Board of Directors Group profile p. 6 Review of the consolidated financial statements p. 23 Review of the business units p. 27 Risk management p. 34 Capital adequacy p.57 Corporate governance statement p. 61 Consolidated financial statements Consolidated income statement p. 71 Consolidated statement of comprehensive income p. 72 Consolidated balance sheet p.73 Consolidated statement of changes in equity p.74 Consolidated cashflow statement p. 76 1.0 Notes on the accounting policies p. 78 Note 1.1: Statement of compliance p. 78 Note 1.2: Summary of significant accounting policies p. 80 Note 1.3: Critical estimates and significant judgements p. 86 2.0 Notes on segment reporting p.87 Note 2.1: Segment reporting based on the management structure p.87 Note 2.2: Results by segment p. 88 Note 2.3: Balance-sheet information by segment p.92 3.0 Notes to the income statement p. 93 Note 3.1: Net interest income p. 93 Note 3.2: Dividend income p. 93 Note 3.3: Net result from financial instruments at fair value through profit or loss p. 94 Note 3.4: Net realised result from available-for-sale assets p. 95 Note 3.5: Net fee and commission income p. 95 Note 3.6: Other net income p. 96 Note 3.7: Operating expenses p. 96 Note 3.8: Personnel p.97 Note 3.9: Impairment (income statement) p. 97 Note 3.10: Share in results of associated companies and joint ventures p. 98 Note 3.11: Income tax expense p. 99 Annual Report 2016 • KBC Bank • 3 4.0 Notes on the financial assets and liabilities on the balance sheet p. 101 Note 4.1: Financial assets and liabilities, breakdown by portfolio and product p. 101 Note 4.2: Financial assets and liabilities, breakdown by portfolio and quality p. 103 Note 4.3: Maximum credit exposure and offsetting p.105 Note 4.4: Fair value of financial assets and liabilities – general p. 107 Note 4.5: Financial assets and liabilities measured at fair value – fair value hierarchy p. 109 Note 4.6: Financial assets and liabilities measured at fair value – transfers between levels 1 and 2 p. 112 Note 4.7: Financial assets and liabilities measured at fair value – focus on level 3 p. 112 Note 4.8: Changes in own credit risk p. 113 Note 4.9: Reclassification of financial assets and liabilities p. 113 Note 4.10: Derivatives p. 114 5.0 Notes on other balance sheet items p. 116 Note 5.1: Other assets p. 116 Note 5.2: Tax assets and tax liabilities p. 116 Note 5.3: Investments in associated companies and joint ventures p. 117 Note 5.4: Property and equipment and investment property p. 119 Note 5.5: Goodwill and other intangible assets p. 120 Note 5.6: Provisions for risks and charges p. 122 Note 5.7: Other liabilities p. 123 Note 5.8: Retirement benefit obligations p. 124 Note 5.9: Parent shareholders’ equity and AT1 instruments p. 127 Note 5.10: Non-current assets held for sale and discontinued operations p. 127 6.0 Other notes p.128 Note 6.1: Commitments and guarantees granted and received p. 128 Note 6.2: Leasing p. 129 Note 6.3: Related-party transactions p. 130 Note 6.4: Statutory auditor's remuneration p. 131 Note 6.5: List of subsidiaries and associated companies p. 132 Note 6.6: Main changes in the scope of consolidation p. 137 Note 6.7: Risk management p. 138 Note 6.8: Post-balance-sheet events p. 138 Note 6.9: General information p. 138 Statutory auditor’s report p. 140 Company annual accounts p. 144 Additional information Ratios used Management certification Annual Report 2016 • KBC Bank • 4 Report of the Board of Directors Annual Report 2016 • KBC Bank • 5 Group profile Statement by the Chairman of the Board of Directors and the Chief Executive Officer KBC revamped its sustainability approach in 2016. What are the key takeaways from that? Johan Thijs: First of all, we view sustainability for a financial institution much more broadly than simply from the traditional angle, which is based mainly on environmental, philanthropic or corporate governance considerations. To us, sustainability means that we have to be able to live up to the expectations of all our stakeholders, not just today but also in the future, and to do so, of course, without assistance from outside sources. We have developed a group-wide sustainability framework to this end with clear guiding principles and views. This forms the sustainable backbone of our operations. In brief, our approach to sustainability is based on three cornerstones. Firstly, we want to enhance our positive impact on society. To achieve this, we have chosen a number of focus areas in which we can make a difference. The chosen areas are financial literacy, environmental responsibility, promoting entrepreneurship, and demographic ageing and health. Secondly, we want to limit any negative impact we may have as much as possible. We do this primarily by reducing our own ecological footprint and by means of our updated policy guidelines in areas such as lending to the energy sector. We are also placing even greater emphasis on socially responsible investment funds. Thirdly, we want to encourage responsible behaviour on the part of all our employees. What other event stood out for you in 2016? Thomas Leysen: An obvious one is the acquisition of United Bulgarian Bank and Interlease in Bulgaria, which was announced at the end of 2016. It is a logical and important step in our expansion in Central and Eastern Europe, a strategy we embarked on almost twenty years ago. Combining this latest development with our existing presence through CIBANK puts us into third place for banking, and bringing DZI Insurance into the equation means that KBC Group also becomes the reference for bank-insurance in Bulgaria, which is an attractive growth market. We can share our know-how and extensive experience in the field of bank-insurance, leasing, asset management and factoring there, generating all sorts of synergies and so create value for our shareholders. We expect the acquisition to be finalised in the second quarter of 2017. Our net profit came to 2 billion euros in 2016. What were the most important contributors to that figure? Johan Thijs: Firstly, it’s important to bear in mind when comparing our results with last year’s that the numbers for 2015 were enhanced by the liquidation of a group company, which had a net positive impact of 765 million euros, and that we recorded substantial goodwill impairment charges in this year.