2003 kbc bank & insurance group interim results at 30 june 2003

2 0 0 3

KBC Bank & Insurance Group

Interim results at 30 June 2003

www.kbc.com

KBC Bank & Insurance Group – Half-year results

2

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Highlights

Results, banking

Results, insurance


3

2 0 0 3

1Q 01 2Q 01 1H 01 1Q 02 2Q 02 1H 02 1Q 03 2Q 03 1H 03

Overview of results

596

316

Average quarter2002

604

300

585

355

230

+1%

280304

In m EUR

+7% -1%


4

2 0 0 3Results – first half-year

In mln. EUR 1H 02 1H 03 % Auton. %

Gross operating income 3 287 3 302 +0.5% + 0.5% - banking 2 871 2 867 0% +1% - insurance 422 433 +3% -2%Administrative expenses -2 120 -2 127 +0.3% -0.3% - banking -1 898 -1 860 -2% -2% - insurance -221 -264 +19% +10%Operating result 1 167 1 175 + 0.7% + 2.1% - banking 973 1 007 +4% +5% - insurance 201 169 -16% -15%Loan loss provisions

Value adjustments, banking

Value adjustments, insurance

Other non-recurring result, insurance

Other and extraordinary results

-174

-70

-

-7

+24

-220

-4

-90

+86

-10

Pre-tax profit 939 937 - 0.2% + 0.5%

Taxes -250 -255

Minority interests -93 -78

Net profit 596 604 + 1.4% + 2.0%


5

2 0 0 3Highlights – 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

2 0 0 3Changes in the scope of consolidation

Impact (*)

CSOB Insurance

NLB Bank

Full consolidation

Equitymethod

+0.4%

+0.3%

+0.1%

-0.7%

1 q 2 q 3 q 4 q 1 q 2 q 3 q 4 q

2002 2003

Ergo Insurance

Krefima Bank

Full consolidation

Deconsolidation(previously full consolidation)

(*) Impact on gross operating income

Limited net impact of changes in consolidation


7

2 0 0 3Key ratios

In m EUR 30 June 02 31 Dec 02 30 June 03

Cost / income, banking 66.1% 65.2% 64.9%

Combined ratio, insurance (*) 96.7% 101.4% 93.5%

Solvency (Tier 1), banking 8.8% 8.8% 8.8%

Solvency, insurance (**) 432% 320% 327%

Return on equity 14.8% 12.7% 14.1%

Growth in EPS (y-o-y) +1% +1% +1%

(*) Excluding reinsurance(**) Including unrealized gains

Strategic objectives coming closer


8

2 0 0 3

442

170

422

183

459

147

1H 01 1H 02 1H 03

Profit contribution - banking / insurance

Net profit in m EUR 585 596 604

Group result : 3/4 from banking, 1/4 from insurance

+1%

+9%

-19%


9

2 0 0 3Areas of activity

Profit contribution

KBC Group (*) % ROE

Retail (Belgium) 219 m 17% 15.5%

Central Europe 48 m -56% 4.4%

Asset management 61 m 1% -

Corporate services 78 m -45% 7.4%

Market activities 76 m 35% 13.2%

(*) Profit including minority interests

Profit improvement in retail activities in Belgium and financial markets, result in Central Europe and

corporate services below expectations


10

2 0 0 3Areas of activity

Profit contribution (incl. minority interests)

Allocated capital

Retail (Belgium) 36% 32%

Central Europe 8% 24%

Asset management 10% -

Corporate services 13% 24%

Market activities 13% 13%

Group 20% 8%

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Results, banking


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2 0 0 3Banking income

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

Stable gross operating income in spite of adverse economic climate

1 492

640

280 179 79 190

2 867

0%

+79%-16%

+12%

-2%

-28% -20%

(*) MtM = Market to market


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2 0 0 3Administrative expenses

920

264

499

882

513

503

841

491

528

1H 01 1H 02 1H 03

Rest of the world

Central Europe

Belgium

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 1 860-2%

- 4%

- 5%

Continuing cost control

- 4%

In 2001excl. KB

1 683


14

2 0 0 3Loan 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)

1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03

Quarter Moving average since start of 2002

88 85

131

160

79

141

Quarterly loan loss provisions (m EUR)


15

2 0 0 3Asset growth, banking

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)64

21

2

62

23

13

61

23

10

2001 2002 30/06/2003

Corporate Private Repos

121

10

123

15

122

6

2001 2002 30/06/2003

ReposDeposits excl. repos

Customer deposits (in bn EUR)

Customer loans (in bn EUR)

131

99 9487

137

128


16

2 0 0 3

4Q 00 1Q 01 2Q 01 3Q 01 4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03

Value adjustments DJ Eurostoxx

Value adjustments on investments

+8 m

-77 m

-142 m

+9 m

-74 m

+ 69 m

Positive second quarter of 2003 offset first quarter

-85 m

-23 m-5 m

+25 m


17

2 0 0 3Unrealized gains

In m EUR 31-12-2002 30-06-2003

Banking Total 1 742 1 980 + 14%

Bonds 1 630 1 827

Shares 86 80

Other 27 73

Unrealized gains increasing due to decline in interest rates


18

2 0 0 3Retail banking (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)

Belgium1st home market


19

2 0 0 3Progress of bank merger in Belgium

Targets

To be achieved by 2004 : Status30-06-03

Planned2H 03

Integration of central departments 100% -

Downsizing of branches by 650 (-43% ) 91% 94%

ICT migration : from 3 to 1 new platform 99.9% 100%

Rightsizing of headcount by 1 650 (-11%) 82% 91%

Increase in cross-selling from 20% 40% 38.3%

Belgium1st home market


20

2 0 0 3Banking in Central Europe

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)

Central Europe2nd home market

(*) Including minority interests, results via equity method and 12 m provisions 2002 for KB in 2003-result KBC

(mln.EUR) 1H 01 1H 02 2H 02 1H 03

CSOB Czech Rep.Slovak Rep.

97 103 72 92

K&H Bank Hongary -7 11 28 24

Kredyt Bank

Poland 2 -6 -85 -54

Others(*) -31 -32 16 -23

71 76 31 39


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2 0 0 3Asset management

Market share, retail funds: Belgium : 31% Czech Republic : 23% Slovak Republic: 11% Hungary : 11%

Stable profit contribution, volumes under management heading back up

42.1

24.3

11.5

43.2

25.4

11.7

40.9

26.1

11.5

42.5

27.4

11.9

2000 2001 2002 30/06/2003

Private bankingInstitutional funds Retail funds (including AUM Central Europe)

78.1 80.3 78.481.8

Retail funds in 1H 03 : Market value : 3%,

Net inflow : 1%

AUM including CE


22

2 0 0 3Corporate banking

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

In m EUR 253290

239

124143

79

Operating result Net profit

- 64 m

-51m

1H 02

1H 01

1H 03

1H 02

1H 01

1H 03

(*) RWA = Risk Weighted Assets


23

2 0 0 3Market activities 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

4043

35

22

60

17

1H 01 1H 02 1H 03

Money & cap. market prod.Shares and derivatives

Profit contribution :


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2 0 0 3Solvency banking

Stable at a high level

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1H 02 FY 02 1H 03

Legal minimum Comfort zone Surplus

Tier-1 ratio,banking

8.8% 8.8% 8.8%

3 880 3 800 3 800

3 8003 8003 880

735 788 750

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Results, insurance


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2 0 0 3

2 176

525 500

1 151

Non-Life Life,guaranteed

rate

Life, Unit-linked

Total

Premium income

Non-life : 19% (14% autonomous)

Premium income, life : 17% (13% autonomous)

Very strong premium income

In m EUR

+17%

-17%

+42%

+19%


27

2 0 0 3Technical result, non-life

67.6% 64.4% 61.8%

33.5% 32.2% 31.7%

101.1%96.7%

93.5%

Net loss ratio Net expense ratio Combined ratio

1H 01 1H 02 1H 03

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Average amount of loss

Frequency of losses

Exceptionallylow level

KBC Belgium, motor insurance loss

Excl. reinsurance


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2 0 0 3Profitability dynamics, non-life

Reserve ratio205

Return on investment5.00%

Allocated capital

40

Investment incomereserves

10.3

Investment incomecapital

2.0

Premium100

Combined ratio-97.5

Investment income

12.3

Profit14.8

Tax-3.5

ROAC28%

X

X

+ +

-

:

Investmentmix : 45% shares Return : 6.00%50% treasury bonds 4.00%

5% real estate 6.00%5.00%

Combined ratio 105 % 100% 95%

ROAC 16 % 24 % 32%

Low combined ratio, important leverage

Return on allocated capital (risk-weighted) :

Simplified example :


29

2 0 0 3

4.6 5.3 5.96.8

33

2.8

3.1

0

2

4

6

8

10

12

Interest-guaranteed Unit-linked

Technical result, lifeActuarial reserves, life

Much higher life assurance reserves

Net,bn EUR

+16%

+9%

31-12-01 30-06-02 31-12-02 30-06-03


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2 0 0 3Overview of the life portfolio

Overview Belgium, actuarial reserves interest-guaranteed life :

4.75% 3.75% 3.25% Other (**)

Traditional life 15% - 9% -

Universal life (*) 27% 23% 23% 3%

Interest rate riskpartly covered by provisions

Excl. death cover

Government bonds

75%

Corporate

bonds(***)

0%

Equities 20%

Real estate 5%

30%

65%

5%

0%

(*) 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

Premiumgrowth 03

Premiumgrowth 02

Investment mix :


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2 0 0 3Profitability dynamics, life (non-linked)

Reserve 100 (1st yr)

Return on investment4.23 %

Allocated capital7.74

Investment income reserves

4.23

Investmentincome capital

0.33

Investment income4.56

Guaranteed rate3.25

Profit1.31

X

X

+ -

Investmentmix : 30% treasury bonds 4.00%

65% corporate bonds 4.20%

5% shares 6.00%

4.23%

Return on allocated equity (risk-weighted) :

Simplified example

ROAC17%

Returndeath cover

Tax

+

-


32

2 0 0 3Investment income

6m 02 6m 03 Autonomous

Interest, dividend,rent

236 248 +5% +0%

Recurring value gains on shares

75 46 -39% -39%

Total 312 294 -6% -9%

Pressure on financial income


33

2 0 0 3Value adjustments on securities

4Q 00 1Q 01 2Q 01 3Q 01 4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03

Value adjustments DJ Eurostoxx

-6 m

+17 m

- 56 m

-118 m

-81 m

-44 m

-146 m

+56 m

+1 m

-43 m

Significant value adjustments, but offset by non-recurring result


34

2 0 0 3Non-recurring result

In m EUR 6m 03

Non-recurring result

Value adjustments, shares -90

Transfer from equalization reserve 92

Realized gains 122

Transfer to provision for financial risks -122

Other -6

Total non-recurring result -4

Value adjustments on shares offset by non-recurring income

Provision for financial risks, balance : 90 m EUR


35

2 0 0 3Unrealized gains

In m EUR 31-12-2002 30-06-2003

Insurance Total 82 240 +192%

Bonds 497 511

Shares -516 -376

Other 101 105

Unrealized losses down due to recovery of stock exchange


36

2 0 0 3Cross-selling, bancassurance

34.5%35.2%

37.5%38.3%

40.0%

2000 2001 2002 jun/03 Target

Cross-selling continues

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 :

(*) June 2003 figure


37

2 0 0 3Solvency

449

449

1 041

496

496

595

556

556

705

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1H 02 31/12/2002 1H 03

Surplus

Comfort zone

Legal minimum

432%

320%

327%m EUR

Solvency very solid : 327%


38

2 0 0 3

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

2 0 0 3Executive Committee

Herman Agneessens

• Central European banking and SE Asian activities

• Payments and Securities processing

Emile Celis

Christian Defrancq

Frans Florquin

GuidoSegers

JanVanhevel

• Corporate customers• West European and

US bank network• Retail credit handling

• Retail bancassuranceand E-services

• Human resources and Communication

• Treasury, capital & equity markets

• Asset Management• International credit

handling

• Information technology

• Insurance subsidiaries• Non life

insurance & reinsurance

• Insurance claims management

• Group CEO• Head insurance business

• Deputy Group CEO• Head banking business

André BergenWilly Duron

2 0 0 3

KBC Bank & Insurance Group

Investor Relations - tel.: +32 2 429 4916E-mail : [email protected]

2003 kbc bank & insurance group interim results at 30 june 2003

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