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KBC Bank & Insurance Group

KBC Bank & Insurance Group. Interim results at 30 June 2003. www.kbc.com. Highlights Results, banking Results, insurance. Overview of results. In m EUR. 604. 596. 585. +1%. -1%. +7%. 355. 316. 304. 300. 280. Average quarter 2002. 230. Results – first half-year.

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KBC Bank & Insurance Group

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  1. KBC Bank & Insurance Group Interim results at 30 June 2003 www.kbc.com

  2. Highlights • Results, banking • Results, insurance

  3. Overview of results In m EUR 604 596 585 +1% -1% +7% 355 316 304 300 280 Average quarter2002 230

  4. Results – first half-year

  5. Highlights – 1st half-year • Stable income (+0.5%), despite difficult economic situation • Improving cost level in banking (-2%) • Strong technical result in non-life : combined ratio 95.4% (excl. reinsurance : 93.5%) • Relatively high credit loss provisions (220 m EUR) • Value impairments on shares (94 m EUR, but compensated) • Solid solvency : 8.8% (Tier 1 - bank) and 327% (insurance)

  6. 2002 2003 1 q 2 q 3 q 4 q 1 q 2 q 3 q 4 q +0.4% +0.3% +0.1% -0.7% Changes in the scope of consolidation Impact (*) CSOB Insurance Full consolidation Equitymethod NLB Bank Ergo Insurance Full consolidation Deconsolidation(previously full consolidation) Krefima Bank Limited net impact of changes in consolidation (*) Impact on gross operating income

  7. Key ratios Strategic objectives coming closer (*) Excluding reinsurance (**) Including unrealized gains

  8. Profit contribution - banking / insurance +1% Net profitin m EUR 604 585 596 -19% +9% Group result : 3/4 from banking, 1/4 from insurance

  9. Areas of activity Profit improvement in retail activities in Belgium and financial markets, result in Central Europe and corporate services below expectations (*) Profit including minority interests

  10. Areas of activity

  11. Results, banking

  12. Banking income 0% • Interest income :  2 % due to low interest rate environment(interest margin : 1.68%  1.63%) • Commission income : strong growth (investment funds) • Lower trading income ( 16%) due in part to lower FX income and MtM (*) of equity derivatives • Considerable capital gains (179 m) on ‘free’ bond portfolio • One-off ‘other income’ recorded in 2Q 02 and lower dividends -2% +12% -16% -20% +79% -28% Stable gross operating income in spite of adverse economic climate (*) MtM = Market to market

  13. Administrative expenses • Merger-related savings in Belgium : • Expenditure 1H 03 :  5% (41 m) • Follow-up headcount reduction plan :  1 350 FTE (82% of target) • Central Europe : • Expenditure 1H 03 :  4% (20 m) • Follow-up headcount reduction plan : • CSOB :  430 FTE (45% of target) • KB :  ca. 500 FTE • Better cost / income ratio : 66.1 %  64.9%. Plus, technically,cost line too high : no compensation by write-backs from provisions (impact ca. 0.5%) In m EUR 1 898 -2% 1 860 1 683 In 2001excl. KB - 4% - 4% - 5% Continuing cost control

  14. Loan loss provisions • Domestic loan losses at a relatively ‘favourable’ level (excl. Poland) : • Belgium : 23 bp • Hungary : 34 bp • CR and SR : 45 bp (no write-backs) • Credit losses in Poland : 60 m EUR (loan loss ratio : 270 bp) • International portolio : sensitivity to the economic slowdown, problem loans in energy industry in US • Loan loss ratio : 47 bp • Share of non-performing loans : 2.9%, 65% covered by loan loss provisions Loan loss ratio 1H 03:0.44% (0.55 for FY2002) Quarterly loan loss provisions (m EUR) 160 141 131 85 79 88

  15. Customer deposits : status quo (excl. repos), plus shift to life assurance Customer loans :  1% (excl. reverse repos) High level of private lending, especially mortgages ( 7%, excl. negative consolidation effect from Krefima) Belgium  4% Hungary  22% Czech Rep.  14% Poland  4% Corporate lending :slight decrease ( 2%) Risk-weighted assets : stable (95 bn) Asset growth, banking Customer deposits (in bn EUR) 137 131 128 15 10 6 123 121 122 2001 2002 30/06/2003 Repos Deposits excl. repos Customer loans (in bn EUR) 99 94 87 13 2 10 23 21 23 64 62 61 2001 2002 30/06/2003 Corporate Private Repos

  16. Value adjustments on investments + 69 m +25 m +8 m +9 m -5 m -23 m -74 m -77 m -85 m -142 m Positive second quarter of 2003 offset first quarter

  17. Unrealized gains Unrealized gains increasing due to decline in interest rates

  18. Retailbanking (Belgium) • Turnaround in retailbanking : • Profit contribution : 87 m ( 142%) • Increase in income : 5% (strong commission income, mainly from investment products) • Decrease in costs : 6% • Loan loss provisions (29 m EUR) remain low(18 bp on risk-weighted assets) Belgium 1st home market

  19. Progress of bank merger in Belgium Belgium 1st home market

  20. Facts banking business : Profit contribution : 39 m ( 49%) Strong income growth in Hungary ( 13%) Less extraordinary income in Czech Republic ( 10 m) High provisions for loan losses in Poland ( 60 m) Banking in Central Europe Central Europe 2nd home market (*) Including minority interests, results via equity method and 12 m provisions 2002 for KB in 2003-result KBC

  21. Assetmanagement 81.8 80.3 78.4 78.1 Market share, retail funds: Belgium : 31% Czech Republic : 23% Slovak Republic: 11% Hungary : 11% Retail funds in 1H 03 : Market value :  3%,Net inflow :  1% AUM including CE Stable profit contribution, volumes under management heading back up

  22. Profit contribution :79 m EUR ( 45%) No repeat of 2002 one-off revenues Cost decrease ( 6%) due to strict cost control, mainly in Belgium / Western Europe Provisions for problem loans (56 bp on RWA*), mainly for the electricity sector in US Corporate banking -51m Inm EUR -64 m 1H 01 1H 02 1H 03 1H 01 1H 02 1H 03 (*) RWA = Risk Weighted Assets

  23. 1H 03 profit contribution :76 m EUR,  35% Very strong performance in money and capital market products Equity trading: still weak, but KBC Securities’loss halved, via cost-cutting KBC Financial Products : satisfactory result but negative MtM for LT equity derivatives Market activities Profit contribution :

  24. Solvency banking Stable at a high level 8.8% 8.8% 8.8% Tier-1 ratio,banking 735 750 788 3 880 3 800 3 800 3 880 3 800 3 800

  25. Results, insurance

  26. Premium income +17% • Non-life : 19% (14% autonomous) • Premium income, life : 17% (13% autonomous) In m EUR +42% -17% +19% Very strong premium income

  27. Technical result, non-life Exceptionally low level Excl. reinsurance KBC Belgium, motor insurance loss Average amount of loss Frequency of losses 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

  28. Profitability dynamics, non-life Simplified example : Return on allocated capital (risk-weighted) : Premium100 Reserve ratio205 - Investment incomereserves10.3 Combined ratio-97.5 Profit14.8 X Return on investment5.00% ROAC28% + : + Investment income 12.3 X Tax-3.5 Investment incomecapital2.0 Allocated capital40 Low combined ratio, important leverage

  29. Technical result, life Actuarial reserves, life Net,bn EUR +9% +16% 31-12-01 30-06-02 31-12-02 30-06-03 Much higher life assurance reserves

  30. Overview of the life portfolio Overview Belgium, actuarial reserves interest-guaranteed life : Interest rate riskpartly covered by provisions Excl. death cover Premiumgrowth 02 Premiumgrowth 03 Investment mix : (*) Flexible premium payments with 10-year interest rate guarantee (no guarantee for future payments) (**) incl. insurance certficates with relatively short term (***) Financial instrumens based on corporate bonds

  31. Profitability dynamics, life (non-linked) Simplified example Return on allocated equity (risk-weighted) : Reserve 100 (1st yr) Investment income reserves4.23 Investment income4.56 X Returndeath cover + Return on investment4.23 % Profit1.31 - + Guaranteed rate 3.25 Tax X Investmentincome capital 0.33 - Allocated capital7.74 ROAC17%

  32. Investment income Pressure on financial income

  33. Value adjustments on securities +56 m +17 m +1 m -6 m -43 m -44 m - 56 m -81 m -118 m -146 m Significant value adjustments, but offset by non-recurring result

  34. Non-recurring result Value adjustments on shares offset by non-recurring income Provision for financial risks, balance : 90 m EUR

  35. Unrealized gains Unrealized losses down due to recovery of stock exchange

  36. Cross-selling, bancassurance • About 50% of the customers with a home loan also choose for buying a fire insurance, compared to 25% in 2001 (*) • Clients with both bank and insurance products in Belgium : Cross-selling continues (*) June 2003 figure

  37. Solvency 432% m EUR 327% 320% Solvency very solid : 327%

  38. Q&A session Teleconference with live audience in Brussels Analysts who want to participate in the conference call,please dial the number given in the invitation

  39. Executive Committee Willy Duron André Bergen • Group CEO • Head insurance business • Deputy Group CEO • Head banking business Herman Agneessens Christian Defrancq JanVanhevel Emile Celis • Central European banking and SE Asian activities • Payments and Securities processing • Information technology • Insurance subsidiaries Frans Florquin GuidoSegers • Corporate customers • West European and US bank network • Retail credit handling • Non life insurance & reinsurance • Insurance claims management • Retail bancassuranceand E-services • Human resources and Communication • Treasury, capital & equity markets • Asset Management • International credit handling

  40. KBC Bank & Insurance Group Investor Relations - tel.: +32 2 429 4916E-mail : investor.relations@kbc.be

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