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KBC Bank Debt investor presentation Autumn 2005

KBC Bank Debt investor presentation Autumn 2005. Web site: www.kbc.com. Important information. This presentation is provided for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to buy any security

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KBC Bank Debt investor presentation Autumn 2005

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  1. KBC Bank Debt investor presentationAutumn 2005 Web site: www.kbc.com

  2. Important information • This presentation is provided for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to buy any security • KBC believes that this presentation is reliable, although some information may be condensed or incomplete • This presentation contains forward-looking statements with respect to our earnings development involving assumptions and uncertainties. The risk exists that these statements may not be fulfilled and that future results differ materially. • By receiving this presentation, each investor is deemed to represent that it possesses sufficient expertise to understand the risks involved

  3. Company profile 2005 financial highlights - KBC Group, financial performance - Financial headlines, KBC Bank - Overview, other Group segments Future earnings drivers Capital position Foto gebouw

  4. Reminder: group structure KBC Group KBCBank KBCInsurance KBCAM KBL European private bankers Gevaert 1H05 net profit contribution

  5. Credit ratings, KBC Bank S&P Moody's Fitch LT credit rating A+ Aa3 AA-(outlook) (stable) (stable) (stable) ST credit rating A-1 P1 F1+ • Recent rating actions: • March 2005: all ratings confirmed on the occasion of the merger of ‘KBC Holdings’ and ‘Almanij’ to ‘KBC Group’ • March 2004: S&P’s outlook from ‘negative’ to ‘stable’ • Jan 2003: Moody’s outlook from ‘negative’ to ‘stable’

  6. Group business portfolio • KBC Group is a top bancassurer and asset manager in Belgium and has successfully expanded its operations in CEE-5, its 2nd home market. • Recently, Private Banking has become more of a key focus. The PB business was expanded to include a Western European network. KBC is also active – be it rather selective – in commercial banking (mostly in W. Europe) and financial markets. Revenue geographical breakdown(1H 2005) Selected other markets (mostly in W. Europe):- private banking- SME/corporate- capital markets CEE:- retail bancassurance- asset management- private banking- SME/corporate Belgium:- retail bancassurance- asset management- private banking- SME/corporate

  7. Group strategy headlines • Strategy headlines include: • Retail- and wealth-management-oriented, with focus on Belgium and CEE-5 and selected Western European markets • Further enhancement of efficiency (with emphasis on - but not exclusively in - CEE and European private banking) • Standalone basis (opportunistic operational alliances in certain areas to generate economies of scale, if needed) • Steady dividend growth and solid level of financial strength/solvency • The solid ‘growth and value’ outlook is reflected in ambitious financial targets, valid until 2008:

  8. Company profile 2005 financial highlights - KBC Group, financial performance - Financial headlines, KBC Bank - Overview, other Group segments Future earnings drivers Capital position Foto gebouw

  9. 1H 2005 at a glance • Group net profit at 1 253 m, up 55% y/y, generating a return on equity of 20% • Underlying Group profit (excl. one-offs) growing at 34% • Comparison of individual P/L lines with pro forma 2004 figures distorted by application of IFRS 32/39 and IFRS 4 as of 2005 • Strong business volume growth (deposits / loans / AUM / insurance) generating strong commission income (+23%) and offsetting impact of flattening yield curve on net interest income • Further downtrend in expenses - cost/income ratio (banking) at 57 % • Very low credit-risk provisioning (loan-loss ratio at 0.06%) • High levels of return in most business segments, especially in Belgian retail (29%) and in CEE (54%) • Outlook for 2005 remains positive

  10. Profit trend, 1H 05 • Notes: • One-offs include the disinvestment loss at Agfa Gevaert (net bottom-line impact of –80 m) in Q2 2004, the write-back of of provisions for operating expenses after a legal settlement (net +48m) in Q2 2004, the income related to the settlement of a ‘historic’ Slovakian loan (net +68 m) in Q1 2005, the ‘non-recurring’ value gains on shares of Irish insurer FBD (net +68m) in Q1 2005 and merger-related expenses (net 13m) in Q2 2005 • All 2004 figures exclude impact of IAS 32/39 and IFRS 4

  11. Solid business growth Note: Growth trend, excl. (reverse) repo activity, from 31-Dec-04 to 30-Jun-05

  12. Solid revenue trend • Down 693 m y/y, mainly due to non-recognition of 1.1 bn new unit-linked premium volume under IFRS 2005 • Apart from one-offs (136 m in Q1), solid revenue ‘quality’: • NII: volume growth almost offsetting negative impact on NIM from flattening yield curve (-13 bps) • High level of life insurance premium income (2 bn) • Strong commission line (+23%)

  13. Sustained favourable y/y cost trend -3% • Ytd expenses down 3%, mainly driven by (a) cost cutting in Belgium and (b) lower staff profit-sharing bonuses (esp. at KBC Financial Producs) • Cost/income, banking, down from 61% to 57%

  14. Historic low impairment level -76% • Impairments down 185 m (-76%) on the back of limited credit risk and solid equity markets • Loan-loss ratio down from 0.20% in FY 04 to 0.06% • Impairments on investments limited to 16 m versus 130 m in 1H 04

  15. Company profile 2005 financial highlights - KBC Group, financial performance - Financial headlines, KBC Bank - Overview, other Group segments Future earnings drivers Capital position Foto gebouw

  16. Key points, banking segment • 1H 05 profit at record level of 784 m, driven by: • Strong commission income (+21%) • NII almost stable despite flatening yield curve due to solid volume growth • Strict cost control (C/I at 57% incl. AM) • Limited credit cost (0.06 bp) • One-off income in 1Q related to settlement of historic Slovakian loan (net 68 m) • Q2 05 (314 m), down q/q due to: • One-off income in 1Q ( 68m) • expected higher cost level: • Elimination of time lag in usage of IT and marketing budgets ( Q2/Q1 40m) • Higher income-related staff costs ( 27 m esp. at KBC Financial Products) • Restructuring costs (20 m) • Q2 05 y/y trend: Q2 04 includes write-back (73 m) of provision for operating charges (after legal settlement) BANKING Net profit (in m) 784 699 564 2Q05 2Q04 4Q04 1Q04 1Q05 3Q04 IFRS 2005 Pro forma IFRS 2004

  17. NII trend, banking activities 1H 05 (y/y trend)

  18. Competitive landscape in Belgium Spreads on new mortgages (bps), KBC, Belgium Net Interest Margin, KBC Bank, Belgium 0.88 0.76 0.48 0.41 • In 1H 05, NIM was stable y/y at 2.0 %. • In Q4 04 and Q1 05 the (obviously lagging) effect of the flattening of the yield curve was offset by the improved product mix (shift to low-yielding liquid savings deposits in anticipation of an interest rate hike). In Q2 05, customers switched to long-term investments, anticipating deposit rate cuts (-25 bps as of Q3 03). • Volume growth (deposits/loans) was strong in Belgium, further boosting NII • Since mid-2004, credit spreads have seen a significant deterioriation as a result of increased price competition. Currently, pricing rationality is tending to be restored.

  19. Competitive landscape in Belgium Change in retail market share since the beginning of 2004 (avg. deposits and loans), proxy Source: Febelfin (market sample)Includes consumer loans, mortgages, saving accounts and saving certificates • In 2004, the large banks, representing >80% of the market, lost roughly 1% market share to the benefit of smaller players. But from 1H05, this trend seems to be on the wane. • KBC has been able to keep its market share stable (and may have further increased its market share in unit-linked insurance and probably mutual funds).

  20. Company profile 2005 financial highlights - KBC Group, financial performance - Financial headlines, KBC Bank - Overview, other Group segments Future earnings drivers Capital position Foto gebouw

  21. Segment structure KBC Group NV KBCBank KBCInsurance KBCAM KBL epb Gevaert Primary segmentation by business segment

  22. EUROPEAN PRIVATE BANKING INSURANCE 246 Net profit (in m) Net profit (in m) 94 66 119 2Q05 8 2Q05 3 2Q04 4Q04 1Q04 3Q04 1Q05 2Q04 3Q04 1Q05 4Q04 1Q04 IFRS 2005 Pro forma IFRS 2004 IFRS 2005 Pro forma IFRS 2004 GEVAERT ASSET MANAGEMENT Net profit (in m) 36 Net profit (in m) 126 63 119 109 2Q05 -48 4Q04 3Q04 1Q05 1Q04 2Q05 4Q04 2Q04 2Q04 1Q04 3Q04 1Q05 IFRS 2005 Pro forma IFRS2004 IFRS 2005 Pro forma IFRS 2004

  23. Segment structure – cont’d. 2 KBC Group NV 1 KBCBank KBCInsurance KBCAM KBL epb Gevaert Retail Business customers CEE Markets European private banking 1 . Primary segmentation by business segment 2. Additional breakdown by area of activity Gevaert

  24. BUSINESS CUSTOMERS Net profit (in m) RETAIL BELGIUM Net profit (in m) 539 225 226 185 357 2Q05 219 2Q05 2Q04 4Q04 2Q04 4Q04 1Q05 1Q05 1Q04 3Q04 1Q04 3Q04 Pro forma Pro forma CAPITAL MARKETS CEE Net profit (in m) 137 Net profit (in m) 312 92 106 164 2Q05 2Q04 120 2Q05 4Q04 2Q04 4Q04 1Q05 1Q04 3Q04 3Q04 1Q04 1Q05 Pro forma Pro forma

  25. Company profile 2005 financial highlights - KBC Group financial performance - Financial headlines KBC Bank - Overview other Group segments Future earnings drivers Capital position Foto gebouw

  26. Earnings drivers in Belgium - overview Do not underestimate the market: KBC Group is well positioned: • Consolidated banking market (80% of assets held by top-4 players) • Savings ratio amongst highest in the world (every year, ca. 15% of GDP flows into fin. assets) • Market highly receptive to cross-selling of AM & insurance, fueling strong growth trend in AM and life insurance business • Strong mortgage growth trend (ca. 10% per year) expected to continue, as residential property price levels are still below other European markets • Fee rates for retail banking services only 50% of European average (gradual increase expected) • Credit quality has proven to be solid over the cycle • Top-3 market position, esp. strong in Northern region (one of the wealthiest regions in the EU) • Of the top players, level of customer satisfaction is highest • Innovative product offering in retail AM (steadily increasing market share over the past 10 yrs.) • Still high cross-selling potential for (non-life) insurance products and well-performing bancassurance distribution model • Well-diversified revenue structure (50% fee income) and further increase in fee income targeted • Further cost efficiency improvement potential, among other things, via co-sourcing of back offices with other banks

  27. Mid-term financial outlook, Belgium

  28. Earning drivers in CEE - overview Strong market growth momentum: KBC Group is well positioned: • Nom. GDP growth in 2005/06 at 6.3%. Although prospects have been revised due to global economic slowdown, growth will still outgrow EMU by c. 3% • Ongoing catch-up in product penetration (currently, an avg. of 45% for banking accounts and 5% for mortgages) • Mortgage volumes growing at double-digit pace (up 51% on avg. in 2004) • Financial sector could grow five-fold if financial assets to GDP were to reach current levels of S. Europe • Solid market position in retail and corporate businesses (excl. banking in Poland) with nationwide branch networks • Competitive advantage in enhancing cross-selling of asset management and insurance products • Well positioned in HNWI and private banking through epb know-how • C/I still on the high side overall, inducing further improvement, e.g., by setting up cross-border platforms for processing transactions • Adequately provisioned balance sheet (risks under control) • Availability of capital within the Group

  29. Bancassurance fueling CEE earnings Results are encouraging: Now the model is in place: • Transfer of product know-how and streamlining of business processes and IT systems • Implementation of KBC’s distribution model and setting up of sales incentives and adequate sales approach • Unified management responsibility (joint management committee of bank and insurance) = competitive advantage relative to other CEE players

  30. Growth in AM fueling CEE earnings KBC is well positioned: • Strong appetite for ‘risk-free’ investments in the market (money-market, capital-guaranteed funds), fully in line with KBC’s core competencies and successful track record in Belgium • Cost/AUM below average (around 16 bps vs. 20 bps for Europe) = competitive advantage relative to other CEE players Results are encouraging: • AUM grew in ’04 by 25%. Continued high growth expected in coming years (CAGR of 15-20% in mutual funds and 10-15% in pension products) • Via the funds business, new customers are recruited. Existing customers using deposits to buy funds replenish deposit accounts after one year

  31. Mid-term financial outlook, CEE

  32. Dual brand strategy: network-led vs. ‘independent boutique’ Growth drivers: network trade-up, extension of product offer and hiring of private bankers Private banking in higher gear Belgium W. Europe onshore W. Europe offshore CEE Business model: integrated private banking business in selected European markets focusing on clients with >€1m of investable assets Total assets currently amounts to 76 bn (Sep-05) • Small today , but high market growth expected (>15% p.a.) • Strengthening a network-led model, leveraging Belgian experience • Integrated network of local pure-play private banking brands (boutique style) • Priority of reducing costs by creating synergies in a central ‘hub’ (IT, operations, support) • Growth drivers: increased share of wallet, hiring of PB managers and opportunistic M&A • Low-growth market • Focus on profitability (leveraging the hub) • If possible, steer repatriated assets to KBC onshore • No expansion, except in IFAs with short payback AUM 27 bn AUM 3 bn AUM 18 bn AUM 28 bn Opportunistic acquisitions may imply investments of 150-250 m per year

  33. Mid-term financial outlook, PB

  34. FY 2005 profit outlook • KBC continues to be positive on its strategy in the various business lines • Banking costs are expected to decrease in 2005 • There are no signs of any substantial decline in credit quality or in underwriting performance, non-life • The interest rate and stock market environments remain factors of uncertainty • KBC has already set a mid-term objective of >10% CAGR EPS growth • On the basis of the solid 1H 05 earnings and the prevailing view regarding the relevant economic and financial parameters, KBC’s 2005 net profit is expected to exceed the10% growth level, amounting to more than 2 bn euros

  35. Company profile 2005 financial highlights - KBC Group financial performance - Financial headlines KBC Bank - Overview other Group segments Future earnings drivers Capital position Foto gebouw

  36. Solvency KBC Bank (Tier-1) KBL epb(Tier-1) KBC Insurance (solvency margin) In m EUR In m EUR In m EUR 9.8% 10.1% 397% 347% 8.1% 8.5%

  37. Capital position 1 Regulatory capital under Basel I/Solvency I (incl. hybrids and minority interests, after elimination of intangibles and goodwill), based on capital position as at 30-Mar-05 2 Difference between available capital and internal minimum level 3 Surplus capital excl. expected adverse IFRS impact on Tier-1, banking (as of 2006), unrealized gains on tied-up assets (insurance) and value of Agfa-Gevaert (timing of disposal uncertain)

  38. Foto gebouw Appendices - Issue activity KBC Bank, overview- Other

  39. Issue activity 2002 • A total of 75 senior debt transactions issued through KBC Ifima subdivided in: • 5 strategic FRN transactions for 2 200 m EUR equivalent • 70 (structured) private/ public placements for 531 m EUR equivalent

  40. Detail of FRN issuance over 2002 FRN issuance in International Markets over 2002 (*) fungible tranches

  41. Issue activity 2003 • A total of 142 senior debt transactions issued through KBC Ifima subdivided in : • 3 strategic FRN transactions for 610 m EUR equivalent • 139 (structured) private/public placements for 1 259 m EUR equivalent • An ad hoc Tier-I issue of 200 m GBP (perpetual NC 16 years)

  42. Detail of FRN+Tier-1 issuance over 2003 FRN and Tier-1 in International Markets over 2003

  43. Issue activity 2004 • A total of 301 seniordebt transactions and 2 subordinated Lower Tier-II transactions (101 m EUR equivalent) issued through KBC Ifima subdivided in: • 8 strategic FRN transactions for 2 698 m EUR equivalent • 295 (structured) private/ public placements for 1 940 m EUR equivalent • An ad hoc Tier-I issue of 175 m GBP (perpetual NC 15 years)

  44. Detail of FRN issuance +Tier-1 issuance over 2004 FRN and Tier-1 issuance in International Markets over 2004

  45. Issue activity 2005 (till 31st august) • A total of 402 seniordebt transactions and 7 subordinated Lower Tier-II transactions (409 m EUR equivalent) issued through KBC Ifima subdivided in: • 3 strategic FRN transactions for 615 m EUR equivalent • 399 (structured) private/ public placements for 3 053 m EUR equivalent

  46. Detail of FRN issuance over 2005(till 31st August) FRN issuance in International Markets over 2005

  47. Maturity buckets of strategic FRN

  48. Foto gebouw Appendices - Issue activity KBC Bank, overview- Other

  49. Market cap ranking in Euroland Dec 2002 Aug 2005 Aug 2004 DJ Euro Stoxx Banksconstituents

  50. Shareholder structure CERA/Almancora27.1% Free float47.3% MRBB11.6% Other committed shareholders 11.7% (own shares: 2.3%, including ESOP hedge) Situation as at 30-Jun-05 • KBC is majority-owned by a group of committed shareholders, thereby providing continuity for the pursuit of long-term strategic goals • Core shareholders include the Cera/Almancora Group (co-operative investment company), a farmers’ association (MRBB) and a syndicate of industrialist families

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