kbc bank & insurance group company presentation autumn 2004

KBC Bank & Insurance Group

Company presentation Autumn 2004

www.kbc.com

2

Table of contents

1. Company profile

2. Strategy and earnings drivers

3. Financial highlights year-to-date

4. Additional information

Company profile

Foto gebouw

1

4

Top-20 player in Euroland banking

1 BNP Paribas (35 bn) 1 BNP Paribas (45 bn) 1 BNP Paribas (43 bn)2 BSCH (31bn) 2 BSCH (45 bn) 2 BSCH (37 bn)3 BBVA (29 bn) 3 Deutsche Bank (38 bn) 3 BBVA (36 bn)4 Deutsche Bank (26bn) 4 BBVA (35 bn) 4 Société Générale (30 bn)5 ABN AMRO (25bn) 5 Société Gén. (31 bn) 5 Deutsche Bank (30 bn)6 Société Gén. (24 bn) 6 ABN AMRO (30 bn) 6 Crédit Agricole (29 bn)7 Unicredit (24 bn) 7 Crédit Agricole (28 bn) 7 ABN AMRO (28 bn)8 Fortis (22 bn) 8 Unicredit (27 bn) 8 Unicredit (24 bn)9 Crédit Agricole (14 bn) 9 Fortis (21 bn) 9 Fortis (23 bn)

10 Dexia (14 bn) 10 Intesa BCI (18 bn) 10 Intesa BCI (17 bn)11 Intesa BCI (12 bn) 11 Dexia (16 bn) 11 Dexia (16 bn) 12 Allied Irish Banks (12bn) 12 Sanpaolo IMI (15 bn) 12 KBC (15 bn)13 Bank of Ireland (10 bn) 13 KBC (11 bn) 13 Sanpaolo IMI (13 bn)

14 KBC (9 bn) 14 Bco Popular (11 bn) 14 Allied Irish Banks (11 bn) 15 SanPaolo IMI (9 bn) 15 Allied Irish Banks (11 bn) 15 HVB (10 bn)16 Banco Popular (8 bn) 16 Bank of Ireland (11 bn) 16 Commerzbank (8 bn)17 HVB (7 bn) 17 HVB (10 bn) 17 Erste Bank (8 bn)18 Mediobanca (6 bn) 18 Commerzbank (9 bn) 18 Bank Austria (8 bn)19 Bca MPS (6 bn) 19 Mediobanca (7 bn) 19 Mediobanca (7 bn)20 Bco Popular (5 bn) 20 Bca MPS (6 bn) 20 Bca MPS (6 bn)

Dec 2002 Dec 2003 Aug 2004

DJ Euro Stoxx Banksconstituents

Market cap ranking

5

Top-3 bancassurer in Belgium

Market share: 31% (1st) 19% (2nd ) 13% (3rd)

Mutual funds

Mortgages Business loans Non-life insurance

Market share: 24% (2nd) 22% (2nd) 9% (4th)

Individual Life Savings deposits

6

8.7

13.2

13.5

14.3

19.0

21.6

23.5

24.6

28.6

29.0

0 5 10 15 20 25

ING (NL)

OTP (HU)

Citibank (US)

Intesa BCI (IT)

Société Générale (FR)

RZB (AT)

HVB / BA-CA (GE/AT)

UniCredit (IT)

Erste Bank (AT)

KBC (BE)

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 CEESource: RZB – assets as at 31 Dec 03, ownership structure as at 30 Jun 04

*

7

Business model extended to CEE-5

Bank branches

986 1 039

Belgium CEE

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

Bank ranking

Belgium 3 rd

CEE:- Czech Rep. - Slovakia- Hungary- Poland- Slovenia

1 st

1 st

4 th

2 nd

8 th

1 st

Workforce

Belgium CEE

Customers (m)bottom = banking,

top = insurance

3.35.9

1.4

2.8

Belgium CEE

18 842

26 765

8

Group profile

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

CEE18 bn

Other8 bn

W. Europe20 bn

US4 bn Belgium,

retail40 bn

Belgium, ME & corporates15 bn

Asset managment3 %

Other11 %

CEE23 %

Belgium, retail38%

Belgium, ME & corporates8%

Financial markets13 %

International corporate6 %

Breakdown per business segment

Credit portfolio Gross revenue1H 200430 Jun 04

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.

9

Key business strengths

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

10

Solid group performance

Profitability

Efficiency

SolvencyTier-1, banking

Solvency, insurance

Cost/income, banking

Combined ratio,insurance

Return on equity

Growth in EPS

8.8%

320%

65%

101%

13%

Dec 02

+1%

9.5%

316%

65%

95%

13%

Dec 03

+8%

Combined ratio, excluding reinsurance. Solvency insurance including unrealized gains.

9.4%

322%

59%

95%

18%

+40%

Jun 04

=

=

+

=

+

+

Trend

Improving profitability. Solid solvency.

11

Stable shareholder structure

Cera GroupOther stable shareholders MRBB

Almanij

StockMarket

Gevaert Private equity

KBC Bank & Insurance

KBLPrivate bank

± 17%± 16%± 38%

± 79%

100%

± 67%

± 30%

± 31%

• 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.

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

98 99 00 01 02 03

Payout 41% 38% 36% 44% 44% 45%

Yield 1.8% 2.1% 3.1% 3.6% 4.2% 4.9%

Yield = gross DPS versus average share price. Figures for 2000 excl. capital gain on CCF

2.69

3.26

3.90

3.39 3.423.68

1.42 1.48 1.52 1.64 1.23 1.09

1998 1999 2000 2001 2002 2003

EPS DPS

13

Attractive shareholder return, outperforming market indexes

Return at end July 2004, dividend reinvested

26%

-5%

14%

-12%

4%11%

-7%

12%21%

37%

18%

8%

45%

20%

-2%

-22%

1 year 3 year 5 year 7 year

BEL-20DJ Euro Stoxx DJ Euro Stoxx BanksKBC

14

Valuation still not too demanding related to other CEE exposed banks

Situation at 15 August, 2004

P/E 04-05

CEE banks (1) 12.4

Euro zone banks (2) 11.8

CEE exposed banks (3) 11.7

KBC 10.1

BEL banks (4) 9.3Unweighted 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

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 relative to peer group :

EPS consensus forecasts for KBC: KBC (2004) and I.B.E.S. (2005)

Strategy and earnings drivers

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16

Strategy and earnings drivers

1. From an international perspective, Belgium is a somewhat underestimated market

2. The expanded horizons in ‘emerging/converging’ Europe will fuel top-line growth at acceptable risk

Multiple OPPORTUNITIES to unlock value

17

Savings rate (15%) and personal financial assets/capita (77 000 EUR) amongst the highest in Europe/the world

Consolidated banking market facilitating more adequate pricing than in the past and margins at

fairer levels

Market highly ‘receptive’ to bancassurance, allowing intensive cross-selling of insurance products

A

C

Underestimated potential in Belgium

Cost-to-income levels still somewhat on the high side, allowing for further improvement in efficiency

Sustained inflows of long-term savings money, driven

by ageing population (private pension funding)

GDP to slightly outpace euro zone average in 2004-05

B

D

E

F

Belgianmarket

environment

18

Historicalpresence in CEE:

• Niche markets

• Minority stakes

• Acquisitions in 5 markets, leveraged onEU accession

• Domestic mergers

• Management

• Technology

• Asset quality and risk management

• Bancassurance model

• Cost efficiency

• Transfer of knowhow

• Add-on acquisitions

• Organic growth

• Cross-selling

• Refinement of consolidation/efficiencyprograms

• Cross-border integration/ synergies

• Profit growth

Leading bancassurerdelivering superior levels of

return

Consolidation

Creation of newbusiness platform

Realisation full potential

Achieved Advanced

Started

Promising potential in CEE

19

5%6% 6%

10% 10%

21%

0%

5%

10%

15%

20%

25%

Deposits Loans Personal loans

Euro area CEE (8)

Loans/deposits, in EUR (% growth ‘99 to ‘03 p.a.)

Source: BA-CA

-20%

-10%

0%

10%

20%

30%

40%

50%

Promising potential in CEE

GDP per capita, in EUR(% growth ‘99 to ’03)

Ac EU

EU-15

LatAm

Asia (ex China)

China

US

20

1.3

4.8

2.62.3

3.1

3.7

2.8

3.4

2.0

3.52.9

3.53.9

3.4

5.2

1.1

3.8

1.1

2.3

0.70.6 0.5

1.6 1.8

0.9

0

2

4

6

2001 2002 2003 2004 (F) 2005 (F)

Czech Hungary Poland Belgium EMU

Source : KBC Outlook, August 2004

Favourable trend in core markets

GDP, real growth

21

Core targets:

Combined ratio excl. re-insurance

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%

Demanding financial objectives

Minimumtargets for 2005

Financial highlights,year-to-date

Foto gebouw

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23

Overview of earnings headlines

Performance, bankingPerformance, banking

Performance, insurancePerformance, insurance

Performance, areas of activitiesPerformance, areas of activities

OutlookOutlook

24

1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03 4Q 03 1Q 04 2Q 04

Banking Insurance

Q avg‘02-’03(269)

1H 04 profit : 869 m EUR+ 44% year-on-year

ROE : 18.5 %

Proud to deliver strong earnings

Net profit m EUR

316

259300304287

152

280 256

Especially strong momentum in banking

Banking: 786 m EUR

Holding:- 12 m EUR

Insurance:95 m EUR

1H04 profit

contribution392

476

Highlights — Banking — Insurance — Areas of activity — Outlook

25

Key points 2nd quarter 2004

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

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

High profitability

Efficiency

Controlled risks

Solid solvencyTier-1, banking

Solvency, insurance

Loan loss ratio, banking

Claims ratio, non-life

Cost/income, banking

Expense ratio, non-life

Return on equity

Growth in EPS


9.4%

322%

0.21%

63%

59%

31%

18%

+40%

1H 04

9.5%

316%

0.71%

66%

65%

30%

13%

+8%

8.0%

200%

58%

16%

+10%

FY 03Target

28

Impact of consolidation changes

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 headlinesOverview of earnings headlines

Performance, banking



OutlookOutlook

30

459 m

Solid quality of banking earnings

Underlyingrevenuegrowth+10%

Expenses- 1%

Capitalgains- 26%

+ 275 m - 48 m

Net profit

1H 2003

Year-on-year comparison

Positive impact of operational items: + 249 m EUR

+ 22 m


1H 2004

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

719 773 826 800 806 796

610 587 520 570 708 653

123

5873

54

0

200

400

600

800

1 000

1 200

1 400

1 600

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04

Interest income Non-interest income Capital gains

1452 1416 13641424

Quarterly income (m EUR)

15221572

32

* excl. reverse repo’s

Asset growth

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%

13 610

62 59 62

23 25 26

2002 2003 30/06/04 Business lending Private lending Reverse repo's

Customer loans (in bn EUR)

909898


33

1.40%

1.45%

1.50%

1.55%

1.60%

1.65%

1.70%

1.75%

1.80%

1.85%

1.90%

1Q 03 2Q 03 3Q 03 4Q 03 1Q 04 2Q 04

3.5%

4.0%

4.5%

5.0%

5.5%

Interest margin, Group (left)10 y EUR T-bonds (right)

Development of interest margins

Interest margin, Group Spread on new loans, Belgium

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

jul/02 jan/03 jul/03 jan/04 jul/04

Investment credit, Belgian SME loan book

Corporate bond spread, A-rating


34

ALM TRANSFORMATION POSITIONBasis-Point-Value

0

10

20

30

40

50

60

70

80

90

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

(in

mln

. EU

R)

Risk Quarterly averages Limit

Sensitivity to changes in interest rates

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

The interest rate sensitivity has been greatly reduced over time


35

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)

Sensitivity to changes in interest rates


36

Expenses well under control


1H 2004

546 527 540

241 255 258 239 249

552 553 548

253

1Q 03 2Q 03 3Q 03 4Q03 1Q04 2Q04

Belgium CEE Rest o/t World

929 931 897 938

Quarterly expenses (m EUR)

910928

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%

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

Recurring cost savings:

15-20 m per year

Expected payback period of 2-3 yr


Shared platform for securities processing

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


39

Net specific provisions to average gross customer loans

25 27

28

139

175

12

41

35

38

36 12 25 31

6126

49

40

1Q 03 2Q 03 3Q 03 4Q03 1Q04 2Q04

Belgium CEE Other

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)

79

141

204


252

…43

Quarterly loan provisions (m EUR)

1H 2004

77

40



Performance, insurance


OutlookOutlook

41

1H 2004

Continued fast growth of premiums


301

850

218 307

401

775 384

116

122 141

477

255272

366

343253

259

264

0

200

400

600

800

1 000

1 200

1 400

1 600

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04

Life, non-linked Life, unit-linked Non-Life

Quarterly premium income (m EUR)

712599

1219

957

12451373

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

42

75% 74% 72% 67% 66% 63%

32% 32%32% 30% 31%

32%

6M 99 6M 00 6M 01 6M 02 6M 03 6 M04

Claims Expenses

Favourable underwriting performance in non-life

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

94%95%106%107%

104% 99%

43

Enhancing cross-selling of insurance products in Belgium

Banking Insurance

22%66% 12%

1999 2000 2001 2002 2003 2004*

Cross-sellingsmall business customers

Premium incomenon-life

(1999 = 100)


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)

KBC- bank branches

Total market -traditional network

Total market - bank branches

* 6 months 2004

44

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

4Q02

1Q03

2Q03

3Q03

4Q03

1Q04

2Q04

Effective interest yield, bonds 10 y EUR market rate, T-bonds

1H 03 1H 04

Interest yield 5.3% 4.9%

Return on shares * 7.7% 6.7%

Total 6.0% 5.4%

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)


Insurance business suffering from low investment yields

45

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)

In m EUR 1H 04

Value adjustments, shares -163

Transfer from financial provision +93

Non-recurring capital gains +44

Other -

Total non-recurring result -25


Insurance business suffering from impairments on equity portfolio

46

Investment strategy,insurance business


Asset allocation,outstanding portfolio

Fixed-income Shares Real estate

Outstanding, EUR 9 bn 3 bn 0.3 bn

Rating: AAA 30%AA 58%A 9%BBB 3%Below BBB 0%

Currency: EUR 99% 91%

USD - 4%

Issuer: Governments 64%Financials 31% 30%

Listed: 90% 94%Duration: ± 6 yr

Portfolio Belgium = 75% of total

47

Investment strategy, insurance business

Basic asset allocation

new premium inflow

Fixed-income

Equity Real Estate

Non-linked life

- periodic premiums 75% 20% 5%

- single premiums 90% 10% 0%

Non-life 63% 32% 5%

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, …

Inflow Belgium = 80% of total


48




Performance, areas of activities

OutlookOutlook

49

1 352 812 115 476 453 Gross operating income (m)

+4% +19% +1% +9% +18% (% yoy)

402 227 85 286 181 Net operating income (m)

+13% +46% +1% +17% +30% (% yoy)

226 149 71 193 129 Net profit, group share (m)

-5% +313% +8% +136% +75% (% yoy)

34.2 15.4 - 31.9 10.9 Risk-weighted assets (bn)

+6% +2% - -2% + 7% (% yoy)

3.1 2.4 - 2.0 1.1 Allocated capital (bn)

+9% +12% - - 1% +2% (% yoy)

15% 15% - 20% 23% ROAC

Areas of activity

Areas of activity

Retail CEE AM Corporate Markets


1H 2004

50

Revenues ExpensesProvisions

73 50

45

23

38

58 64

80

101

49 56

61

1Q 03 2Q 03 3Q 03 4Q 03 1Q 04 2Q 04

Banking Insurance

Robust performance in Belgian retail


Profit contribution (m EUR)

122 117108

125 124

1H 2004

1H04 at a glance :RevenueExpensesCredit risk

102

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)

51

CR & SR : strong contribution to Group profit driven by a) robust revenue growth in retail and treasury (improved ‘interest-rate environment’) and b) the sustained low loan loss ratio (13 bp, excl. recuperation of written-off loans)

Hungary : strong return on the back of favourable revenue development (but also including a one-off positive impact from a credit provision write-back)

Poland : "in black again" thanks to a) progress in the cost reduction program, bringing expenses down 6%* y-o-y and b) much lower loan losses (12 m)

Contribution to group: profit excl. minority interests, excl. return on excess capital and incl. allocated Group overhead.

In m EUR

Stand-alone

net profit

Contribution to Group

Contribution% yoy

Return onallocated capital

Return on invested capital

CR / SR 119 92 + 17% 19% 13%

Hungary 43 18 + 25% 21% 16%

Poland 13 10 - 7% 4%

Slovenia 19 6 + 35% - 3%

Highlights — Banking — Insurance — Areas of activity — Outlook* Adjusted for currency effect

Expanded horizons in CEE paying offBanking results – 1H04

52

CEE

CSOB K&H KB NLB Insurance

Expanded horizons in CEE paying off


1H 04 (m EUR, % chg yoy)

392(+17%)

186(+15%)

148(-5%)

115 Gross operating income

-233(+7%)

-134(+11%)

-121(-6%)

-92 General Expenses

+5 -1 -12 - Provisions

-45 -8 - 2 -1 Taxes

119(+12%)

43(+42%)

13(n.r.)

19(+37%)

21 Stand-alone profit

-16 -13 -1 - +4 Adjustments, o/w yield on excess capital

-11 -12 -2 -13 -3 Minorities

92(+17%)

18(+25%)

10(n.r.)

6(+35%)

22(n.r.)

Profit contributionto Group

19% 21% 7% - 10% ROAC

53

Revenues Expenses

1Q 03 2Q 03 3Q 03 4Q 03 1Q 04 2Q 04


Profit contribution : 71 m (after allocation of distribution fee to retail business), up 8% thanks to higher AUM, cost control and (structural) lower tax pressure

Assets (97 bn) up 14% y-o-y (of which ½ net inflow) Mutual funds (47 bn) : +13% Private assets (17 bn) : +20% Institutional assets (21 bn) : +13% Group assets (11 bn): +11%

Assets in 2Q04 up 3 % q-o-q (of which 85% net inflow) and in 1H04 up 9 % ytd (of which 60% net inflow)

Performing asset management activities


Belgium :86 %

CEE : 5 %

35

3134

42

34

1H 2004

1H04 at a glance :RevenueExpenses

37

54

Revenues ExpensesProvisions

58 83 88 91

72

43 39

11

1Q 03 2Q 03 3Q 03 4Q03 1Q04 2Q04Banking Insurance

1H profit contribution: 193 m, up 136% (ROAC 20%) mainly driven by lower loan loss provisions (and increased revenue)

Turnaround in banking (started in 2H03): Substantially lower cost of risk (21 bp

in 1H04 versus 65 bp in 1H03) Gross income margin up y-o-y from

2.4% to 2.7% (increased fee business)

Cost/income down from 39% to 36 % Profit increase most remarkable in

‘ME/corporate Belgium’, ‘corporate US’ and the global structured finance activities.

Better return in re-insurance thanks to improved underwriting performance (CR 92 % versus 100% in 1H03)


Corporate activities stepping up

39

62

90100

43


1H 2004

1H04 at a glance :RevenueExpensesCredit risk

93

55

Revenues

Expenses

32

19

38 41

24

33 31

25

10 9

1Q 03 2Q 03 3Q 03 4Q03 1Q04 2Q04

Equity-related activities

Money and capital markets

1H04 profit contribution: 129 m, up 75% (ROAC 23%) mainly driven by strong income growth

Sustained strong performance in M/CM

Strong rebound in in equity derivatives business (up 153% y-o-y) driven by significant growth in trading income, the non-recurrence of negative MtM (for long derivatives taken in 2003) and additional commission income out of (structured) investment management

In line with strategic focus, modest profit amount for cash equity business (7 m)

Q2 profit apparantly similar to Q1, though thanks to a 15 m ‘exceptional’. Underlying trend down –35% q-o-q to 51 m (lower income in 2nd half of Q2)


Good performance in ‘financial markets’

41

33

41

7

64


1H 2004

1H04 at a glance :RevenueExpenses

66

56





Outlook

57

Outlook 2004

Strong 1H04 revenue momentum is likely to slowdown in 2H04

2H04 loan loss level expected to be much lower than in 2H03

Commitment to sustained strict cost and underwriting discipline in 2H04

On balance, FY04 net earnings are expected to be at least 20% higher than FY03 If the current economic and financial climate proves to be more or

less sustainable Assuming stable stock exchange levels


Additional information

Foto gebouw

4

59

To improve quality of customer

relationships

To increase commercial productivity

Core targets : Key action plans : Major achievements :

Cross-selling of insurance products

Product simplification (program to reduce product range)

Co-sourcing (economies of scale)

Encouraging use of electronic channels

Better CRM and strengthening of commercial processes

Customer care program

Amount of outstanding deposits/loans per FTE up 13% y-o-y (end ‘03)

Premium income per FTE non-life up 19% y-o-y (end ‘03)

Customer facing time: 34% of time available in branch network, up from 23% in 1H03

Enhancing performance in Belgian retail

60

BE

No of KBC Rabo

Trades p.a. ± 3 m ± 5 m

Accounts ± 620 000

± 640 000

Shared processingplatform for securities

& derivatives

NE

Capitalresources(50% KBC)

Management& knowhow (50% KBC)

Systems:- development by external provider- servicing by KBC

Staff : 160 FTE

(50% KBC)

1H 2005 1H 2006

Platform and capital structure open for third-parties

Including confirmation, settlement, custody and reconciliation, excluding commercial clearing and processing of securities in physical form

Headcount KBC to be reduced with ± 280 FTE in 2006

Belgian banking activities

Enhancing cost efficiency in Belgium

The joint venture with Rabobank

61

Developments in 1H Enhanced performance going forward Strengthening top management

in KB, WARTA, NLB Planned headcount reductions

completed in Poland (ahead of plan) and at 80% in CR

Further efforts for cost control in CR and Hungary

Sale of KB Ukraïne and of KB Lithuania (pending), focus on domestic market

Capital increase in KB (Poland) Upstream of super dividend of

190 m (at CSOB in which 1.6 bn invested)

Closing of EU’s initial probe on state aid in CR

High economic growth

Increasing penetration of financial products driven by rising purchasing power

Enhanced commercial clout

Better cross selling of insurance products

Further focus on operational efficiency

Intensified quest for Group synergies (leveraging cross border our scale in CEE)

Expanded horizons in CEE paying off

Central Europe2nd home market

62

Update on the restructuring in Poland

Customer retention program Segmentation of the branch network Intensified transfer of KBC product know-how Acceleration of bancassurance with WARTA

Centralization of business processes and back-office functions

Outscourcing of cash handling and other “non core” functions

Workforce reduction (1 200 FTE) completed

Clear responsibilities for new ‘bad bank’ division Close monitoring of loan portolio

Closing of capital increase (130 m) Credit recovery acceleration Divesture of non-core assets (Ukraine, Lithuania)

Key achievements in 1H 04:

Profitabilityturnaround

+ Volumes

- Costs

- Risk

+ Capital

63

Market value of securities portfolio significantly above book value

In m EUR * Book value

Market value

Non-realised

Fixed-income 49 593 50 724 1 131

- Banking 40 680 41 514 834

- Insurance 8 913 9 210 297

Equity 4 746 5 099 353

- Banking 1 636 1 808 172

- Insurance 3 110 3 291 181

30 June 2004

A parallel interest rate rise of 25 bp has an adverse impact on the market value of bonds of 375 m of which 284 m in the banking book.

* Excluding trading portfolio

64

Non-audited simulation based on 31/12/2003 figures. Impact partly to be reported in opening balance sheet per 1 Jan 2004 and partly per 1 Jan 2005. For more detailed information, visit www.kbc.com

Simulated impact on own equity at Dec 2003 m EUR

Profit appropriation + 498

Value adjustment of financial instruments (IAS 32 / 39) +272

Reversal of provisions (IAS 4 / 37) + 215

Correction of depreciations of tangible assets and capitalisation of internally generated software (IAS 16/38)

+ 34

Inclusion of special purpose vehicles in consolidation scope + 10

Reclassification from operational to financial leasing (IAS 17) + 9

Adjustment of deferred tax assets and liabilities (IAS 12) + 3

Impairment testing of goodwill (IAS 36) - 0

Translation differences - 2

Underfunding of defined benefit pension plans (IAS 19) - 402

Total equity correction + 637

Impact of IFRS

65

Impact from Basle II regulation

Updated quantitative impact simulation – 1st half 2004 :required capital compared with current required capital level :

Approach Credit risk Total risk IRB Foundation 89 % 96 %

Strong positive impact from the lower weight of retail/SME credit portfolio

Capital requirement for CEE still need to be re-verified

66

Emile CelisChristian DefrancqJan Vanhevel Guido Segers

Herman AgneessensAndré BergenWilly Duron Frans Florquin

Senior management

67

•Group CEO•Head of insurance business

•Deputy Group CEO•Head of banking business

•Co-ordination CEE

•Retail bancassurance

•HRM and Communication

•Group CFRO•Transaction processing

•Non-life & reinsurance

•Claims management

•Corporate banking•West-European,US & SE Asian bank network

•Retail credit

• Information technology

• Insurance subsidiaries

•Treasury & markets•Asset Management• International credit

Emile CelisChristian DefrancqJan Vanhevel Guido Segers

Herman AgneessensAndré BergenWilly Duron Frans Florquin

Senior management

kbc bank & insurance group company presentation autumn 2004

Documents

bn belgium

bn eur of capital

bn asset managment

deutsche bank

cee region

bank of ireland

cee source

bank austria