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KBC Bank & Insurance Group

KBC Bank & Insurance Group. Company presentation Autumn 2004. www.kbc.com. Table of contents. Company profile Strategy and earnings drivers Financial highlights year-to-date Additional information. Foto gebouw. 1. Company profile. Top-20 player in Euroland banking. Market cap ranking.

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KBC Bank & Insurance Group

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  1. KBC Bank & Insurance Group Company presentation Autumn 2004 www.kbc.com

  2. Table of contents • Company profile • Strategy and earnings drivers • Financial highlights year-to-date • Additional information

  3. Foto gebouw 1 Company profile

  4. Top-20 player in Euroland banking Market cap ranking Dec 2002 Aug 2004 Dec 2003 DJ Euro Stoxx Banksconstituents

  5. Top-3 bancassurer in Belgium Savings deposits Individual Life Mutual funds Market share: 31% (1st) 19% (2nd ) 13% (3rd) Non-life insurance Mortgages Business loans Market share: 24% (2nd) 22% (2nd) 9% (4th)

  6. Top-3 player in the CEE region 10 largest international banks in CEE (total assets) : * * KBC limits its presence to the 5 new EU-countries of CEE Source: RZB – assets as at 31 Dec 03, ownership structure as at 30 Jun 04

  7. Business model extended to CEE-5 26 765 18 842 • Approx. 3.6 bn EUR of capital invested in the region in building a prominent position, especially in banking • Substantial untapped potential in a fast-growing market with roughly 65 m inhabitants Bank ranking on the basis of total assets

  8. Group profile Breakdown per business segment Gross revenue Credit portfolio 1H 2004 30 Jun 04 Other8 bn Other11 % US 4 bn Belgium, retail 40 bn Financial markets13 % Belgium, retail 38% W. Europe 20 bn International corporate6 % Belgium, ME & corporates 8% CEE 18 bn Belgium, ME & corporates 15 bn CEE23 % Asset managment3 % Besides the core businesses in Belgium and CEE, activities include also selected areas of corporate and investment banking. These activities have been gradually scaled down, as investments in CEE have increased. Credit portfolio incl. corporate bonds and loans to banks, excl. reverse repos.Gross revenue from CEE excl. profit on excess capital, gross profit in AM after distribution fee allocated to retail division

  9. Prominent market positions in home markets, both in Belgium and in CEE Successful bancassurance concept and highly performing retail asset manager Growth and cost efficiency potential in CEE Good Group profitability track record Geographical and business diversification and all main franchises within the EU Adequately provisioned balance sheet Stable core shareholders (long term) and availability of capital Key business strengths

  10. Solid group performance Dec 02 Dec 03 Jun 04 Trend Return on equity Profitability 13% 13% 18% + Growth in EPS +1% +8% +40% + Efficiency Cost/income, banking 65% 65% 59% + Combined ratio,insurance 101% 95% 95% = Tier-1, banking Solvency 8.8% 9.5% 9.4% = Solvency, insurance 320% 316% 322% = Improving profitability. Solid solvency. Combined ratio, excluding reinsurance. Solvency insurance including unrealized gains.

  11. Stable shareholder structure • Almanij is an investment company of which KBC constitutes ± 75% of the assets. It is committed to supporting KBC in the long run and aims to remain a majority shareholder. • Core shareholders include Cera (a co-operative with close to half a million individual holders), a syndicate of industrialist families and a farmers association (MRBB). These were shareholders in the companies that merged to form KBC. • Almanij promotes a culture of no interference in business management. MRBB Other stable shareholders Cera Group ± 16% ± 38% ± 17% Almanij StockMarket 100% Gevaert Private equity ± 30% ± 79% KBLPrivate bank ± 67% ± 31% KBCBank & Insurance

  12. Steadily growing dividend • Policy of paying a steadily growing dividend • Dividend up 9 % per year over the past 5 years • Average cash payout : 40-45% • Payout may be raised to maintain dividend in case of drop in profit Yield = gross DPS versus average share price. Figures for 2000 excl. capital gain on CCF

  13. Attractive shareholder return, outperforming market indexes Return at end July 2004, dividend reinvested

  14. Key figures : Share price : 46.8 EUR Net Asset Value : 37.2 EUR EPS 2003: 3.68 EUR Analysts estimates : EPS 2004 consensus : 4.44 EPS 2005 consensus : 4.78 P/E forward 2 years : 10.1 Recommendations : Positive : 41% Neutral : 32% Negative : 27% Valuation still not too demanding related to other CEE exposed banks Situation at 15 August, 2004 Valuation relative to peer group : Unweighted IBES data : (1) OTP, Komercni, Pekao, BPH PBK, BRE (2) Top 20 of DJ Euro Stoxx banks (3) BA-CA, Erste, Unicredito, Soc Gen, Intesa BCI (4) Fortis, Dexia EPS consensus forecasts for KBC: KBC (2004) and I.B.E.S. (2005)

  15. Foto gebouw 2 Strategy and earnings drivers

  16. Strategy and earnings drivers Multiple OPPORTUNITIES to unlock value • From an international perspective, Belgium is a somewhat underestimated market • The expanded horizons in ‘emerging/converging’ Europe will fuel top-line growth at acceptable risk

  17. Underestimated potential in Belgium Savings rate (15%) and personal financial assets/capita (77 000 EUR) amongst the highest in Europe/the world A Sustained inflows of long-term savings money, driven by ageing population (private pension funding) B Belgianmarketenvironment Market highly ‘receptive’ to bancassurance, allowing intensive cross-selling of insurance products C GDP to slightly outpace euro zone average in 2004-05 D Consolidated banking market facilitating more adequate pricing than in the past and margins at fairer levels E Cost-to-income levels still somewhat on the high side, allowing for further improvement in efficiency F

  18. Promising potential in CEE Realisation full potential Leading bancassurerdelivering superior levels ofreturn Consolidation • Organic growth • Cross-selling • Refinement of consolidation/efficiencyprograms • Cross-border integration/ synergies • Profit growth • Management • Technology • Asset quality and risk management • Bancassurance model • Cost efficiency • Transfer of knowhow • Add-on acquisitions Creation of newbusiness platform • Acquisitions in 5 markets, leveraged onEU accession • Domestic mergers • Historicalpresence in CEE: • Niche markets • Minority stakes Started Achieved Advanced

  19. Promising potential in CEE Loans/deposits, in EUR (% growth ‘99 to ‘03 p.a.) GDP per capita, in EUR(% growth ‘99 to ’03) Ac EU China Asia (ex China) EU-15 US LatAm Source: BA-CA

  20. Favourable trend in core markets GDP, real growth Source : KBC Outlook, August 2004

  21. Demanding financial objectives Core targets: Minimumtargets for 2005 Cost/income ratio, banking 58% Combined ratio,non-life insurance 95% EPS growth (4y CAGR) 10% Return on equity, group 16% Return on allocated capital: - Retail in Belgium 16% - Central and Eastern Europe 17% - Corporates 12% - Financial markets 18% Tier-1,banking 8% Solvency margin, insurance 200% Combined ratio excl. re-insurance

  22. Foto gebouw 3 Financial highlights,year-to-date

  23. Overview of earnings headlines Performance, banking Performance, insurance Performance, areas of activities Outlook

  24. Proud to deliver strong earnings Highlights — Banking — Insurance — Areas of activity — Outlook 1H 04 profit : 869 m EUR+ 44% year-on-yearROE : 18.5 % Net profit m EUR 1H04 profitcontribution 476 392 Insurance:95 m EUR 316 304 300 287 Q avg‘02-’03 (269) 280 259 256 Banking: 786 m EUR 152 Holding:- 12 m EUR Especially strong momentum in banking

  25. Key points 2nd quarter 2004 Highlights — Banking — Insurance — Areas of activity — Outlook • Net profit (476 m) at very high level, up 59% y-o-y and 21% q-o-q • Strong operating result (+26% y-o-y) driven by robust top-line growth (+10%) (especially in banking) and strict cost control (+1%) • Operating result up 5% q-o-q on the back of lower expenses (-3%) and the very low claims ratio in non-life (57%) • Record level in life premium income in Belgium (1 030 m) • Sustained low credit risk charges (77 m), including Poland (8 m) • Strong rebound of the profit contribution from CEE operations (up 51% q-o-q and multiple 6 y-o-y, bringing ROAC for the quarter to 18 %) • In line with previous quarter: highly satisfying return of asset management, corporates and financial markets. Return of retail activities in Belgium somewhat less favourable than in previous quarters. • Exceptional write-back of provisions (52 m), mainly thanks to a favourable court’s decision on a tax-issue

  26. Key points 1st half 2004 Highlights — Banking — Insurance — Areas of activity — Outlook • Substantial increase in profitability - net profit (869 m) up 44% y-o-y • Very strong underlying revenue growth, especially in banking • Top-line growth in banking: +8% • Organic premium growth in insurance: +11%, but pressure on investment yields • Expenses well under control and risk charges low • Cost/income ratio, banking at 59% • Loan loss ratio, banking at 21bp • Combined ratio (non-life) at 94% • No net support impact of ‘exceptional items’ • Extraordinary income (51 m), mainly the capital gain on ‘Belgacom’ • Significant provisioning for various ‘other liabilities and charges’(net -28 m after write-back of ‘tax provision‘ in Q2) • In insurance: impairments on equity portfolio (net -25 m after use of provision for financial risks and gains on investment securities) • Well on track to deliver on all our financial targets

  27. Key points 1st half 2004 Highlights — Banking — Insurance — Areas of activity — Outlook Target FY 03 1H 04 High profitability Return on equity 16% 13% 18% Growth in EPS +10% +8% +40% Cost/income, banking 58% 65% 59% Efficiency Expense ratio, non-life 30% 31% 0.71% Loan loss ratio, banking 0.21% Controlled risks Claims ratio, non-life 66% 63% 9.5% Tier-1, banking Solid solvency 8.0% 9.4% 316% Solvency, insurance 200% 322%

  28. Impact of consolidation changes Highlights — Banking — Insurance — Areas of activity — Outlook Main changes in scope of consolidation: • Full consolidation of WARTA Insurance (Poland)as of 1Q 2004 (previously equity method) • Premium income: 195 m EUR(1H04),4/5 non-life (22% of non-life total of the Group) • Impact on Group top-line (1H04): + 1.9% • Impact on bottom-line (1H04): - 0.6%

  29. Overview of earnings headlines Performance, banking Performance, insurance Performance, areas of activities Outlook

  30. Solid quality of banking earnings 1H 2004 Year-on-year comparison + 275 m - 48 m + 22 m Positive impact of operational items: + 249 m EUR 459 m Expenses- 1% Underlyingrevenue growth +10% Capitalgains- 26% Net profit1H 2003 Highlights—Banking — Insurance — Areas of activity — Outlook

  31. Strong growth of operational income • Total 1H04 income up 8% y-o-y : • Interest income up 7%, driven by increased deposit spreads. Net interest margin up y-o-y from 1.63% to 1.73% • Sustained high commission income (+4%), partly on the back of income growth out of corporate finance and investment management • Robust trading revenue (+43%) after somewhat depressed2003 numbers • Capital gains on investments (4% of total) down 26% y-o-y • Q2 lower than Q1 mainly due to seasonal effect for commissions and lower trading income 1H 2004 Quarterly income (m EUR) 1572 1522 1452 1424 1416 1364 Highlights—Banking — Insurance — Areas of activity — Outlook

  32. Accelerating growth of customer loan book: ytd up 5%* (=> 10% annualised) Sustained considerable growthin mortgages: ytd up 8% Belgium + 4% Hungary +21% Czech Rep. +18% Poland +11% Sound growth in corporate lending, in line with economic cycle: ytd up 4%* (o/w in CEE: Hungary and C/SR: both +8%, Poland –9%) Risk-weighted assets (97 bn) ytd up 2% Asset growth Customer loans(in bn EUR) 98 98 90 * excl. reverse repo’s Highlights—Banking — Insurance — Areas of activity — Outlook

  33. Development of interest margins Interest margin, Group Spread on new loans, Belgium Highlights—Banking — Insurance — Areas of activity — Outlook

  34. Sensitivity to changes in interest rates ALM TRANSFORMATION POSITION Basis-Point-Value 90 80 70 60 50 (in mln. EUR) 40 30 20 10 0 May 02 Jul 02 Sep 02 Nov 02 Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04 May 04 Risk Quarterly averages Limit The interest rate sensitivity has been greatly reduced over time The BPV is the expected change in the market value of the banking bookif interests were to fall by 10 bp across the entire curve Highlights—Banking — Insurance — Areas of activity — Outlook

  35. Sensitivity to changes in interest rates • The interest rate risk of the customer loan book is fully (macro) hedged • The interest rate risk is mainly related to the “excess liquidity” (the excess of the customer funding base that is not invested in loans). This deposit base (without notice) is cyclically re-invested in bonds (duration: 3 years). • The impact of an increase in interest rates (0.25% parallel shift of the yield curve): • On the value of the banking book (BPV): -37 m • On the unrealized gains of the bonds portfolio in the banking book: -284 m • On the P/L: highly dependent on the need for repricing of the savings deposits (pricing quite inelastic to changes of market rates) Highlights—Banking — Insurance — Areas of activity — Outlook

  36. Expenses well under control • 1H04 cost basis down 1% y-o-y (-23 m) • Q2 lower than Q1, though mainly on the back of lower trading income • In Belgium: 1H04 -3% y-o-y (-34 m). Headcount continued to reduce at 440 FTE ytd (y-o-y -860 m or -7%) • CEE: 1H04 -1% y-o-y (-7m). 80% of planned headcount reduction achieved in CR and >100% in Poland • Elsewhere: 1H04 +7% (+18 m), mainly related to trading bonuses • Cost/income ratio significantly improved to 59% from 65% 1H 2004 Quarterly expenses (m EUR) 938 929 931 910 928 897 Highlights—Banking — Insurance — Areas of activity — Outlook

  37. The joint venture with Rabobank Up front investment charge : + procurement of core system, customisation & plug-in + staff redundancy - cost saving for development of own platform Shared platform for securities processing Recurring cost savings: 15-20 m per year Expected payback period of 2-3 yr Highlights—Banking — Insurance — Areas of activity — Outlook

  38. Headcount development in Belgium • Since end 2001 till mid 2004 : ‘zero hiring’ policy: • In principle, no new entrants • Exception made for IT and very specific jobs: (111 in ‘02, 58 in ‘03 and 21 in ‘04) • Headcount down with 2 200 FTE without forced redundancies • As of 2005 : • New hirings: 300-400 p.a. (to start gradually as of Oct-’04) • Trend to increased part-time employment and ‘longer’ (higher age) employment (gradual closing down of ‘early retirement concept’) • Headcount expected to remain more or less stable Highlights—Banking — Insurance — Areas of activity — Outlook

  39. Limited loan provisioning • Loan loss provisions in 1H04 at very low level, , down 45% y-o-y (charge of 21 bp versus 71 bp for FY03) • Very low loan loss charges again in Belgium (16 bp), in C/SR (13 bp, excl. recuperation of written-off loans) and in the international corporate loan book (18 bp) • Loan losses in Poland only 12 m (charge of 64 bp, below market average) • Somewhat higher loan loss charge in Hungary (83 bp, excl. the write-back of a general provision), on the back of a small number of problem loans (no general deterioration of asset quality expected) 1H 2004 Quarterly loan provisions (m EUR) 252 204 141 79 77 43 … Net specific provisions to average gross customer loans Highlights—Banking — Insurance — Areas of activity — Outlook

  40. Overview of earnings headlines Performance, banking Performance, insurance Performance, areas of activities Outlook

  41. Continued fast growth of premiums Highlights—Banking — Insurance— Areas of activity — Outlook • Sustained robust growth in Life (mainly in Belgium) • In organic terms, up again in 1H04: +13% y-o-y (record level of 1.9 bn EUR) • Higher interest for linked products in Q1 reversed in Q2 (38% of 1H total) • Belgian life market expected to continue to outgrow GDP driven by ageing population • Non-life: in organic terms up 5% • Primary (direct) business: +8% • Drop in re-insurance: -8% • 32% of premium volume is currently realized in CEE 1H 2004 Quarterly premium income (m EUR) 1373 1245 1219 957 712 599

  42. Favourable underwriting performance in non-life Highlights—Banking — Insurance— Areas of activity — Outlook • 1H04 combined ratio at good level (94%) • Combined ratio down 1 pp y-o-y on the back of lower claims charges, especially in CEE and R/I • Claims ratio CEE down y-o-y to 62% from 75% • Claims ratio R/I down to 66%from 76% • Much more favourable claims environment in Q2, strong driver for q-o-q insurance earnings growth: • In Belgium: claims charges q-o-q down 42 m (ratio 56% vs 69%) • In CEE (esp. CR and Poland): claims charges q-o-q down 12 m (ratio 55% vs 69%) 1H 2004 107% 106% 104% 99% 94% 95%

  43. Enhancing cross-selling of insurance products in Belgium Highlights—Banking — Insurance— Areas of activity — Outlook Cross-sellingsmall business customers Premium incomenon-life(1999 = 100) KBC- bank branches Insurance Banking Total market - bank branches 12% 66% 22% Total market - traditional network * 6 months 2004 • Untapped potential, especially for SME customers (cross-selling ratio at 22 % versus 40 % for individuals) • Non-life growth via banking network materially higher than traditional channels (though impact on market share still moderate)

  44. Insurance business suffering from low investment yields Highlights—Banking — Insurance— Areas of activity — Outlook Investment return downto 5.4% from 6.0% * Corresponds for 2004 with 7.3% of the market value of the portfolio (= 10 years’ adjusted average)

  45. Insurance business suffering from impairments on equity portfolio Highlights—Banking — Insurance— Areas of activity — Outlook • Adverse P/L-impact (-163 m) partly compensated by write-back of provision for financial risks (+93 m) and capital gains (+44 m) • Additional impairment of 44 m expected in H2 (mainly in Q3)(market level of Aug 2004)

  46. Investment strategy,insurance business Highlights—Banking — Insurance— Areas of activity — Outlook Portfolio Belgium = 75% of total

  47. Investment strategy, insurance business Highlights—Banking — Insurance— Areas of activity — Outlook Inflow Belgium = 80% of total Tactical over/underweighting typically within 5-10% deviation margin. Further limits are related to currency, type and rating of counterparty, type and liquidity of security, …

  48. Overview of earnings headlines Performance, banking Performance, insurance Performance, areas of activities Outlook

  49. Areas of activity 1H 2004 Areas of activity Retail CEE AM Corporate Markets Highlights—Banking — Insurance— Areas of activity — Outlook

  50. 1H profit contribution: 226 m (ROAC 15%), down 5% due to a 55% drop in contribution from insurance Banking profit up 57% y-o-y driven by strong income growth (+9%), maintained cost control (C/I down from 80 % to 74 %) and sustained low level of problem loans (loan loss ratio 5 bp). Contribution from subsegment ‘private banking’ up from 10 to 20 m. Although strong premium income, pressure on insurance contribution due to higher claims ratio (63% vs 60% in 1H 03), especially in Q1, and lower investment yields Q2 less favourable in banking (partly seasonal), but much better in insurance (low claims charges) Robust performance in Belgian retail Profit contribution (m EUR) 1H 2004 125 124 122 117 108 102 1H04 at a glance :RevenueExpensesCredit risk Highlights—Banking — Insurance— Areas of activity — Outlook

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