Today we are pleased to be joined by Mr. Johan Thijs, Chief Executive Officer of Belgium’s bank-insurance giant KBC Group. With more than 38,000 employees and 1,560 bank branches and operations extending across Central and Eastern Europe, KBC has a significant international footprint today. Through its celebrated business model, which provides a uniquely integrated banking and insurance service, the company has delivered exceptional growth in recent years and is strongly positioned to continue doing so for the foreseeable future.
I’d like to start with that banking-insurance model, if I may. What are some of the main advantages of having a model that prefers integrated banking and insurance over one that focuses on each business separately? Also, to what extent does this unique model allow you to provide more creative, non-standard products to your customers?
The main advantage for KBC is that we are able to offer our customers the full range of financial products to answer their financial needs. We can do this seamlessly: it doesn’t matter to KBC which KBC product a customer acquires—be it a banking product, an insurance product, an asset-management product, a leasing product or whatever other financial KBC product. KBC can tailor its product offering to the customer’s need. As such, there is no “product of the month” an employee has to sell or put forward. We solely work on the basis of fulfilling customer needs. Consequently, to the customer, it is very convenient to “shop” at KBC.
Our integrated model allows us to steer our salesforce purely on the basis of customer centricity, rather than product range. That creates commercial synergies. We always work from a customer perspective. That is our strength. Pure banks or pure insurers have no other option but to push their bank or insurance products. To KBC, this doesn’t apply. Next to the commercial synergies, KBC realises great cost synergies by integrating all of its supporting back-office services.
Well, the model certainly seems to be reaping substantial rewards for KBC, especially when one looks at some of the company’s remarkable performance figures that have been recorded recently. The fully loaded common equity Tier 1 (FL CET1) ratio of 14.9 percent, for example, shows that KBC appears to be one of the best capitalised banks within the Eurozone. The fact that KBC also passed recent European stress tests with flying colours underlines this strength, I’d imagine. How has the bank managed to achieve such robust levels of capitalisation?
KBC’s strong capitalisation was achieved as a result of a fundamental intervention in our activities. Since the financial crisis, our balance sheet was reduced by 40 percent, leading to an important capital release, and our corporate structure was thoroughly simplified, both risk-wise and organisation-wise.
Last but not least, next to strict internal capital and risk-management rules we implemented a uniform performance framework. Every KBC entity, every country from the group, has to comply to the same set of performance indicators related to capital, liquidity, profit and people. The latter contains performance indicators for client, employee and stakeholder satisfaction. This is a uniform approach. In doing so in a consistent manner, we have managed to increase our profitability.
I’d like to now turn to KBC’s geographical presence. Other than the home market of Belgium, KBC has tended to focus geographically on expansion into Eastern European countries, such as the Czech Republic, Slovakia, Hungary and Bulgaria….
From the mid-1990s, KBC expanded in Central and Eastern Europe. These emerging markets (at that time) offered interesting penetration ratios and an increased potential to KBC. Moreover, these countries were in full preparation to adhere to the European Union and as such showed more economic growth potential than the Western European economies.
Has there been any related incentive, then, to also develop a presence in Ireland?
In Ireland, KBC has been active for some 42 years by now. Our presence in that country is not connected to KBC’s recent expansion strategy.
Well, it would certainly appear that KBC already covers a sizeable chunk of Europe. Do you anticipate any significant expansion beyond Europe in the coming years?
If the emphasis is on the word significant, the answer is negative. KBC carefully and permanently guards it strategy, i.e. aiming for market leadership for banking and insurance in our core countries: Belgium, Czech Republic, Slovakia, Hungary, Bulgaria and, for the banking business, also Ireland. This means that we will consider any opportunity that arises in these countries, if it strengthens our strategic and organisational position, and provided it fits within the strict financial criteria we have defined. If a file has no added value, we will not consider it.
As for yourself, Mr. Thijs, it has been about four years since you took over as the group’s chief executive officer. What have been some of the biggest challenges you have faced during your time in the role thus far?
The first and major challenge I faced was the repayment of the state support KBC received during the financial crisis in 2008 and 2009. That was not evident at all. We had to do the first and only capital increase ever in KBC’s history. The second challenge was directly linked to the first: restore trust with all of our stakeholders.
Today’s major challenge consists of leading our company in the digital-transformation era as a successful bankinsurance group. That challenge is once again a tough one, as many factors and counterparties are new or even unknown.
What seems remarkable about the “repayment of state support” that you just highlighted, which KBC received from the Belgian national government and the Flemish regional government, is that it was made a full five years ahead of schedule. How did you manage this, and does being free of this obligation have any significant implications for KBC’s future?
It may look quite simple, but you shouldn’t underestimate it: it was a difficult and sometimes painful exercise. In simple terms, we managed to do so by defining our plan and implementing it rigorously and flawlessly.
In the course of time, we had to slightly adapt our plan because of the Euro-zone crisis, but even then we consistently implemented it, however hard it was. It didn’t come without any pain, but it had a fundamental impact on our future. As a matter of fact, our ambition to repay the state support as soon as possible forced us from Day 1 to start simplifying our organisation and our company structure. We introduced a strong focus on a limited number of core markets and core activities. The repayment efforts were significant, but today, thanks to this, we have become a lean company that is ready for the digital transformation. That mere fact is our major benefit, even if a lot of work still needs to be done.
Let me use an image: my father was a landscaper, and he knew that if you want a beautiful tree in your garden, you must prune it back from time to time. When you don’t, the tree will not be able to survive its growth. We did the same to KBC: thanks to rigorous pruning, our tree is flourishing again.
Indeed, it certainly seems to be flourishing these days. You just mentioned being “ready for the digital transformation”, something which seems to be on the minds of a lot of financial institutions at present. How does the growth of fintech and digitalisation within the banking industry affect the way KBC does business today?
Digitalisation undoubtedly has a huge impact on KBC. In 2014 we adapted our business model, shifting from a traditional brick-and-mortar network to an omnichannel network. We put all channels a customer may use to access KBC—brick and mortar, mobile, Internet, call centre—on an equal level, but nonetheless we actively monitored the changes in customer behaviour in order to define our network priorities over time. In other words, the customer is in the driver’s seat to determine which direction we take. Today, for example, we notice that brick and mortar is increasingly becoming less necessary.
So then I’d imagine that you would expect technology-based companies to continue disrupting traditional-banking models for the foreseeable future?
That fully depends on the degree banks themselves will anticipate changing customer behaviour. If they don’t, other companies certainly will be disruptive. If they do, and provided this is done in a very convenient, easy way for the customer, they will indeed continue to play an important role in the financial landscape, just as fintech companies today make that claim.
Are there any specific personal philosophies that you like to implement in order to get the most from your employees?
My personal belief is that in a company like ours, where we don’t produce tangible goods, strength is embodied by our collaborators. That means we have to make optimal and maximal use of their natural skills and experiences to bring the company to a higher level. To realise this, you only need to create an environment that allows people to unlock their potential.
In other words, allow your employees to be entrepreneurs within the company, albeit respecting certain constraints. Creating such an environment is the ultimate objective and challenge for all of our managers. At KBC, we call it empowerment, which stands for the ‘E’ in our company culture PEARL. I am fully convinced of this approach. I agree it isn’t an easy one, because the idea of empowerment is somewhat contradictory to KBC’s original, far more rigid corporate culture.
The introduction of ‘PEARL’ is the reason why KBC was able to change so swiftly and so thoroughly. We were able to make the shift back in October 2012 already, in tempore non suspecto. At that time, we were still dealing with our financial issues, refocusing our strategy, reducing the group’s size and risk profile, and repaying the state support. In the midst of the financial crisis and the euro crisis, we launched our PEARL corporate culture. That was quite disruptive at that time, but it clearly paid off.
Ah, yes, PEARL, which I believe stands for Performance, Empowerment, Accountability, Responsiveness and Local embeddedness. Can you briefly explain or provide more context as to how these five concepts shape KBC’s culture in practice?
PEARL is a way of behaving, a mindset which must allow our employees to focus on one goal: implementing a customer-centric view. Servicing the customer in a proactive way, covering all of his or her financial needs. To this end, we have defined a clear framework for all of our employees, setting the lines between which we want to act.
A key element is that this mindset, this culture, is identical in all countries where KBC is present. Some of them may like this to a lesser extent, but at least the framework is clear. They are all aware that our view is based on the personal contribution of each and every employee leading to a proactive fulfilment of the customer’s needs.
And, finally, KBC has stated that its vision is “to be the reference for bank-insurance in all our core markets”. How far away from achieving this goal would you say the bank is at present?
When we consider the number of awards we have won, it seems we are pretty close. (Smiles)
Well, it’s good to know that you are near to achieving your target, Mr. Thijs. Congratulations on a highly successful year, and we wish you all the best for 2017 and beyond. Thank you for your time.