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KBC Bank & Insurance Group

KBC Bank & Insurance Group. Interim results at 30 September 2003. Ticker codes: KBC BB (Bloomberg) KBKBT BR (Reuters) B:KB (Datastream) ISIN code: BE0003565737. www.kbc.com. Interim results at 30 Sep 2003. Highlights. Performance, banking. Performance, insurance. Outlook.

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KBC Bank & Insurance Group

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  1. KBC Bank & Insurance Group Interim results at 30 September 2003 Ticker codes: KBC BB (Bloomberg) KBKBT BR (Reuters) B:KB (Datastream)ISIN code: BE0003565737 www.kbc.com

  2. Interim results at 30 Sep 2003 Highlights Performance, banking Performance, insurance Outlook

  3. Third Quarter Highlights In m EUR + 15% + 0% + 69% - 5% Average quarter2002 - 15% Relatively good performance (up 69 %) y-o-y

  4. Third Quarter Highlights • Robust performance in Belgium • Further improving level of costs in banking (ytd -5%) • Pressure on interest margin reversed (Q/Q: 195 -> 210 bp) • Low level of loan loss ratio (ytd 22 bp) and P&C (*) claims ratio (ytd 59 bp) • Satisfactory result in most CEE markets • ROAC (*) banking in Czech (CR) / Slovak republics (SR): ytd 17% • ROAC for banking in Hungary: ytd 19% • Improved performance by insurance operations (still limited scale) • … but very poor performance of banking business in Poland(high loan loss provisions : 124 m in 3Q) (*) P&C : Property and Casualty insurance (**) Return on allocated capital

  5. Interim results at 30 Sep 2003 Highlights Performance, banking Performance, insurance Outlook

  6. Banking, income development • Interest income : ytd 2% organic growth(margin : 6M 1.63%  9M 1.71%) • Commission income : strong growth(capital-guaranteed funds) • Lower trading income due to lower FX income and MtM of equity derivatives • Considerable capital gains (ytd 196 m) on ‘free’ bond portfolio • One-off ‘other income’ recorded in 2Q 02 and lower dividends 9M 03 -1% Total income -2% Gross income ytd +16% - 13% - 12% - 33% -30% Excluding capital gains, stable gross operating income despite difficult climate in 1H

  7. 9M 03:45 %Belgium 9M 03:27 %CEE Banking, expense development • Belgium : • Expenditures ytd : 5% (- 60 m) • Headcount reduction :target of 1 650 FTE met in Oct 03 • Central and Eastern Europe : • Expenditures ytd:  1% (6 m) • Headcount reduction : • Czech Republic :  460 FTE(48% of target) • Poland : new target of 1 000/1200 FTE Cost/Income ratio 9M 03: 65% (65% for FY 02) Ytd expenses (m EUR) 2 782 2 757 2 461 2001 excl. KB Continuing cost control

  8. Cost control in Belgium • Merger (almost) completed, full extent of cost savings in bottom-line as of 1H 04 • Lower cost/income ratio ahead, thanks to: • Greater use of bancassurance (acceleration in P&C and to SME segment) • Reduction in product complexity in retail (possibly by up to 70%) (*) • Outsourcing of transaction processing (payments) and IT (limited scale)(implementation in progress) • Stronger pooling of back-office activities of Belgian group companies • Various other co-sourcing scenarios being considered • Screening of real-estate-related costs Although Belgium is a ‘mature’ market, further improvement in performance can be expected (*) e.g. by reducing the wide range of credit cards, travellers’ cheques, mortgage loans, savings certificates, …

  9. Banking, loan provisions Loan loss ratio 9M 03: 0.60% (0.55 for FY 02) Quarterly loan loss provisions (m EUR) (1) Gross loans (2) Specific provisions - annualized Intensive clean-up of loan portfolio in Poland

  10. Retailbankingin Belgium • Ytd profit 145 m (189%), ROAC up to 10% from 3% • Growth in income : ytd  6% (strong commission income and rebound in interest income) • Cost reduction : ytd  5% • Provisions (38 m EUR) remain low (16 bp on RWA(*)) +36% Belgium 1st home market 2003 has seen a turnaround in Belgian retail on the back of robust commission business and cost savings (*) Risk -weighted assets

  11. CR & SR : stable yoy in spite of pressure on margin, thanks to commission income and zero expense growth Hungary : income and volume growth more than set off pressure on margin Poland : difficult economic conditions and high loan loss provisions (195 m) Banking in Central and Eastern Europe Central Europe 2nd home market Satisfactory performance in Czech Republic,Slovakia and Hungary (though further improvement to be expected) Still basic restructuring work to do in Poland (*) excl. minority interests, incl. 12 m provisions for KB related to 02

  12. Activities in Central and Eastern Europe • Confidence in our strategy fundamentals : • Satisfying year-to-date results in most markets (incl. insurance),excl. banking in Poland • Within 6 months : all CEE affiliates (5 countries) operating in the EU • Common shared optimism regarding rebound of economic cycle in ‘04 • Refocusing : from ‘external expansion’ to ‘improvement in performance’ • Adjustment of group governance model to encompass CEE affiliates.Key issues : • Further increase in management and controlling capacity of KBC HQ • Improved organization of transfer of know-how to CEE • Strengthened central audit teams Central Europe 2nd home market

  13. Addressing the challenges in Poland  • Capital base: strengthened (+ 666 m PLN (completed), KBC's stake up to 81%) • Risk sensitivity: to be greatly reduced • Credit risk policies redefined and credit decision authority reduced (completed) • Cleaning up ‘historic’ loan book (195 m provisions ytd) • Improving risk control and risk management • Cost base: to be further reduced • Centralizing back offices, strengthening HR and performance measurement • Reducing headcount (driven by new central IT system) by 1000/1200 FTE,real estate expenses (15-20 %) and other tangible costs (5-10%) by ‘04 • Disinvesting from non-strategic activities (Ukraine, Lithuania, PKB, Pension Fund,…) • Market position: to be improved on the retail market (sales growth 10-15 %) • Thorough customer segmentation in the nationwide network • Transfer of KBC product know-how (e.g., in the field of AM) • Acceleration of bancassurance efforts with WARTA Insurance   Central Europe 2nd home market

  14. Central Europe: 5 % Belgium:85 % Asset Management division Breakdown of retail funds Equity: 11% • Profit contribution : ytd 84 m ( 4%) • New capital-guaranteed funds : ytd 105 new mutual/unit-linked funds • AUM : ytd  5% to 84 bn from 80 bn • Retail funds (42 bn) :  4% • Private assets (13 bn) :  4% • Institutional & group assets (28 bn):  6% Other Bonds & MM: 13% Balanced: 12% Capital- guaranteed: 48% Profit contribution down slightly

  15. Corporate banking : Profit contribution: ytd 140m  10% (ROAC 9%) Cost decrease ( 7%) due to strict cost control, mainly in Belgium / Western Europe No repeat of 2002 one-off revenues Provisions for problem loans (56 bp on RWA), mainly for the electricity sector in the US Market activities : Profit contribution: ytd 117 m  51 %(ROAC 14%) Very strong performance in money and capital market products Equity trading: still weak (break-even for KBC Securities at operating level) KBC Financial Products : satisfactory result but negative MtM for equity derivatives Corporate and investment banking Profit contribution : corporate banking and market activities

  16. Interim results at 30 Sep 2003 Highlights Performance, banking Performance, insurance Outlook

  17. P&C, underwriting result Premium income Combined ratio Excl R/I Premiums ytd 15% org. growth 784 99% 95% 94% 684 614 Exceptionally low level Very sound business, in ‘03 partly driven by upward trend in rates and in general by strong risk and cost discipline

  18. 9M 03:95 %Belgium 9M 03:5%Central Europe Life business, underwriting result Quarterly net premium income 9M 03: 1 991 m 1 369 m interest-guar. 622 m unit-linked Premiums ytd 9 %organic growth 9M 02: 1816 m 1 050 m interest-guar. 766 m unit-linked 9M 01: 1 230 m 299 m interest-guar. 931 m unit-linked Very strong growth (bancassurance-driven)

  19. Insurance, investment income Suffering from low bond yields (*) incl. write-back from provision for financial risk (15m in ‘03)and excl. value adj. for unit-linked products

  20. Insurance, non-recurring items Value adjustments on shares offset by non-recurring income Provision for financial risks, balance : 100 m EUR

  21. Interim results at 30 Sep 2003 Highlights Performance, banking Performance, insurance Outlook

  22. Profit outlook • Interest rate environment and general financial climate have improved. Economic outlook is more favourable. • On the other hand, further loan losses in 4Q cannot be ruled out (credit review, Poland). • Profit ‘03 expectation : at least the ’02 level(based on current information and assumption of stable stock market)

  23. Additional information

  24. Year-to-date results, detailed overview

  25. Contribution per business, year-to-date Net profit in m EUR 860 744 747 ROE banking : 11.1% -2% ROE insurance : 16.3% +20% ROE Group: 13.2% Group result : 3/4 from banking, 1/4 from insurance

  26. Year-To-Date Highlights • In banking : high commission income (y-o-y +16%) and in 3Q strongly improving interest income. • In insurance : high premium volume (y-o-y + 11%), but pressure on investment income. • Zero cost growth y.o.y. In banking : cost level down 1%. • Strong technical result in non-life : combined ratio 95.4% (excl. reinsurance : 93.8%). • Relatively high loan loss provisions (425 m). • Value impairments on shares (100 m, but offset). • Solid solvency : 8.6% (Tier 1 - bank) and 318% (insurance)

  27. -0.4% +0.1% +0.1% Main changes in scope of consolidation 2004 2002 2003 Impact (*) Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 CSOBInsurance Full consolidation, retroactively to 1Q NLB Bank Equitymethod E X P E C T E D Ergo Insurance Full consolidation Krefima Bank Deconsolidation(previously full consolidation) Warta Insurance (full consolidation, previously equity method) Limited net impact of changes in consolidation (*) Impact on gross operating income

  28. Group, key performance ratios Getting closer to strategic objectives (*) Excluding reinsurance (**) Including unrealized gains

  29. Areas of activity, profit contribution Profit contribution (*) year-to-date Strong rebound in Belgian retail. High adverse impact of Poland. (*) Profit excluding minority interests

  30. Interest spreads in Belgium, banking Interest margin Spread on new loans Going forward, increasing market rates could fuel top-line growth

  31. Economic outlook Source : KBC Asset Management, November 2003

  32. Value adjustments, investment portfolio 125 DJ Eurostoxx -6 -35 -220 -223 Significant value adjustments in ‘02 and in 1Q 03 (offset in insurance business by non-recurring result)

  33. Unrealized gains, investment portfolio Balance of gains and losses Unrealized gains increasing, driven by upward trend of stock markets

  34. Solvency Insurance business (Solvency margin) Banking business (Tier 1) In m EUR In m EUR 8.8% 504% 8.8% 8.6% 612 m 318% 320% 668 m 3 868 m 564 m 3 868 m 564 m Solid solvency in both banking and insurance (no double gearing and no DAC)

  35. Solvency • KBC Bank 1993 / 2003 mandatory convertible bond • Conversion, 30 Nov 2003 : • Capital increase: ca. 8.1 m new shares (*)(not dividend-entitled for ’03) • Impact : • Lower interest charges (12.2% for ‘03) • EPS ‘04 dilution, ca. 1.5 pp • Tier 1: ca. + 30 bp • Free float : ca. + 1% (*) Based on outstanding MCB at 30 Sept. 2003

  36. KBC Bank & Insurance Group Investor Relations Office - tel.: +32 2 429 4916E-mail : investor.relations@kbc.bePress Office - tel.: +32 2 429 8545 / 6501 E-mail : viviane.huybrecht@kbc.bestef.leunens@kbc.be

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