KBC Bank & Insurance Group Company presentation Summer 2004 Website: Ticker codes: KBC BB...

KBC Bank & Insurance Group

Company presentation Summer 2004

Website: www.kbc.com

Ticker codes: KBC BB (Bloomberg) KBKBT BR (Reuters)

B:KB (Datastream)

ISIN code: BE0003565737

2

Table of contents

1. Company profile

2. Strategy overview

3. 1Q 04 - Financial highlights

4. Additional information

Company profile

4

Considerable scale in Euroland

Note: DJ Euro Stoxx Banks constituents as of 31 Jan 2004

0

5

10

15

20

25

30

35

40

45

50

BN

P P

BS

CH

DB

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VA

AB

N A SG

CA

SA

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tesa

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CA

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span

Bo

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VB

Alm

anij

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mer

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Irish

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b.

Giant cap

Large cap

Mid cap

Number 12 in Euroland

bank ranking

KBC is a top-20 financial service provider in the Euro-zone with a market cap of ± 14 bn

5

Successful core businesses

Top bancassurer in Belgium : 3rd bank (market share: ± 22%) 1st asset manager (± 31% in funds) 3rd retail insurer (± 13% Life, ± 8% PC)

Successful expansion in the 5 most advanced countries in ‘Emerging Europe’ : Growth market of ± 65 m inhabitants ± 3.4 bn capital invested Prominent position in banking

Focused activities in corporate and investment banking. As investments in CEE progressed, CIB activities have been scaled down.

1998 1999 2000 2001 2002 2003

Retail (B) CEE CIB

Share in allocated capital

(excl. goodwill and group items)

KEY FIGURES :

Total assets : ± 226 bn

Net profit ‘03 : 1.12 bn

ROE ’03 : 12.7 %

Headcount : ± 50 000

Customers : ± 12 m

Credit rating : AA-, AA3, A+

6

Banking Insurance

Allocated capital

Slovakia:Market share: 6% (no 4)

Czech Republic:Market share: 18% (no 1)Total assets: 18.3 bn

Hungary:Market share: 11% (no 2)Total assets: 5.5 bn

Poland:Market share: 6% (no 7)Total assets: 4.8 bn

Slovenia:Minority interest (34%)Market share: 43% (no 1)

Czech Republic:Life M share: 9% (no 4)Non-life M share: 4% (no 6)

Slovakia:Life M share: 4% (no 8)Non-life M share: 2% (no 6)

Hungary:Life M share: 2% (no 13)Non-life M share: 4% (no 6)

Poland:Life M share: 5% (no 5)Non-life M share: 14% (no 2)

Slovenia:Startup life business

Prominent player in the region

1998 1999 2000 2001 2002 2003

7

Building a 2nd home in CEE

Minority in CSOB

Insurance

Majority in CSOB Bank

& CSOB Insurance

Take-over of IPB banking

Take-over of IPB

Insurance& majority in ERGO

Minority in K&H Bank & creation of

Argosz Non-life &

K&H Life

Majority in K&H Bank

Merger of K&H/

ABNAmro Magyar

Minority in Kredyt Bank

Majority in Agropolisa

Minority in WARTA

Majority in Kredyt Bank Majority in

WARTA

Minority in NLB Bank

Creation of NLB Life

1999 20012000 2002 2003< 1999

Czech/

Hungary

Poland

Slovenia

Slovak

8

Group revenue profile

7%

50%

4%

7%

13%

19% Commission income

Technicaland investment income, insurance

Other

Yield income(Interest &dividend),banking

Trading income

Capital gains on disposals, banking

9

Balanced credit portfolio

3.0%1.0%

15.9%

3.0%

10.0%

5.0% 4.0% 3.0% 3.0%1.1% 1.0%

13.0%

17.0%20.0%

Indiv

iduals

Finance

Servic

esTra

de

Real esta

te

Constru

ction

Electri

city

Sovere

igns

Autom

otive

Food

Aviatio

n

Teleco

m

Shippin

gOth

er

CEE.17 bn

Other3 bn

W. Eur23 bn

Note : credit portfolio as of 31 Dec 03, incl. corporate bonds and loans to banks, excl. reverse repos.

US6 bn

Retail

CEE

Corporate

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec 00 Dec 01 Dec 02 Dec 03

Sector breakdown

Geographical breakdown Breakdown by area of activity

Belgium, retail38 bn

Belgium, corporate15 bn

10

Performing asset manager

11%

16%

12%

47%

6%

5% 3%

Assets under management (bn EUR) Breakdown of retail funds

Equity, Belgium

Bonds & MM,

Belgium

Mixed, Belgium

Capital-guaranteed, Belgium

Funds of funds, Belgium

Market share, retail funds

Belgium : 31% Czech Republic : 19% Slovak Republic : 6% Hungary : 8%

Belgium:87%

CEE: 5%

42

14

17

9

40

14

17

9

45

15

19

11

2001 2002 2003

Institutional, group assets Institutional, third-party assets Retail, private assets Retail, funds

Retail

Corporate

89 bn81 bn82 bn

Retail CEE

Unit-linked, Belgium

11

Long-term shareholdership

Cera Holding& Almancora

Other stable shareholders

MRBB

Almanij

StockMarket

Gevaert Private equity

KBC Bank & Insurance

KBLPrivate bank

± 17%± 16%± 37%

± 78%

100%

± 67%

± 29%

± 31%

Almanij is an investment company(of which KBC is ± 75% of the assets) committed to supporting KBC in the long run

Core holders include the Ceragroup (co-operative investment company), a farmers’ association (MRBB) and a syndicate of industrialist families. KBC/Almanij is a major asset for all of them.

Institutionals Belgium

28%

Retail Belgium

29%

Institutionals UK9%

Institutionals Continental

Europe13%

Institutionals North

America20%

Institutionals Rest of the

world1%

Free float (October 2003)

12

Steadily growing dividend

Board of Directors’ policy to maintain a steadily growing dividend

Gross dividend up every year over the past 5 years (at a CAGR of 9%)

Average payout : 40-45%(usually cash). Payout may be raised to keep dividend stable in case of temporary drop in profit

1998 1999 2000 2001 2002 2003

EPS 2.69 3.26 3.90 3.39 3.42 3.68

DPS 1.09 1.23 1.42 1.48 1.52 1.64

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

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

Note: yield = gross DPS versus average share price.Figures 2000 excl. value gain on CCF

2.69

3.26

3.90

3.39 3.423.68

1.42 1.48 1.52 1.641.23

1.09

1998 1999 2000 2001 2002 2003

EPS DPS

13

Valuation still not too demanding

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

Situation as of 31 May, 2004

P/E 04-05

CEE banks (1) 13.8

Eurozone banks (2) 12.3

CEE exposed banks (3) 11.5

KBC 10.3

Bel banks (4) 9.8

Unweighted IBES data :(1) OTP, Komercni, Pekao, BPH PBK, BRE(2) Top 25 of DJ Euro Stoxx banks (3) BACA, Erste, KBC, Unicredito, Soc Gen(4) KBC, Fortis, Dexia

Key figures : Price : 46.8 EUR Net Asset Value : 35.4 EUR EPS 2003: 3.68 EUR

Analysts estimates : EPS 2004 consensus : 4.35 EPS 2005 consensus : 4.75 P/E forward 2 years : 10.3

Recommendations : Positive : 10 Neutral : 7 Negative : 5

Valuation relative to peer group :

Strategy overview

15

Group focus and profit growth

Traditionalstrenghts:

- Belgium - retail /SME

Merger:• Cross selling

banking/insurance• Cost synergies

(1st phase)

Expansion to CEE:• New home

markets/ acquisitions

• Mitigated ‘wholesale’ profile

Consolidation (6 C dimensions):

• Cross selling• Customer

satisfaction• Canvassing

affluent customers• Control of risks• Cost efficiency

enhancement• Cross border

synergies

• Stronger organic growth (and add-on acquisitions)

• Refinement of C- programs

• Profit growth

Leading bancassurer in Belgium and CEE, delivering superior

return levels

“Consolidatingbusiness platform"

"Broadeningbusiness platform"

"Realising full potential

of the platform"

1998-2001

2001-2004

2004-…

Reconfirmed confidence in our strategy fundamentals

16

The potential of the Belgian market should not be underestimated.

Strategy and earnings drivers

Multiple OPPORTUNITIES to unlock value

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

17

Group strategy

Key objectives :

1. Cross selling (bancassurance) in Belgium

2. Reducing banking costs in Belgium

3. Strengthening the second home market in CEE

KBC is a bancassurer focusing on local clients (individuals and SME)

in Belgium and selected countries in (Central) Europe

18


Achieved to date :

Premium income boosted :

Life premiums more than doubled from 1.1 bn in ’98 to 2.4 in ’03 (81% sold via bank outlets)

Bank distribution of non-life products

growing faster (+ 33%) than distribution via traditional channels (+5%)

Going forward :

Tap growth potential, though not to the detriment of technical performance :

For SMEs (<10% market share in insurance vs > 20% in banking)

For non-life insurance (10% via bank channel vs 81% in life)

Key objective 1 :Cross selling (bancassurance) in Belgium

19


Achieved to date :

Merger synergies :

Integrated IT-infrastructure

Branch mergers (-41%)

Headcount objective reached (-12%)

Going forward :

Further cost reduction:

Reduce product complexity in retail(action plan consisting of 364 items)

Out-/co-sourcing of processing and back-office functions (within the group and with third-parties)

Rationalisation of head office space and other non-FTE expenses

Key objective 2 :Reducing banking costs in Belgium

20


Achieved to date :

Expansion in 5 target countries :

Prominent franchises

Renewed IT-infrastructure

Bancassurance models set up

Strengthened of internalgovernance model/central management structure

Going forward :

Performance enhancement : Sales of banking, insurance, AM

products (deposits/ GDP at 45%-80% and premium/cap < 20 % of EU avg)

Business reorganization in CR (HQ) and Poland 10-15% FTE downsizing

Cross border cost-sharing (payments systems, IT procurement, etc.)

If opportunities arise, acquisitions in Poland (banking) and Hungary (insurance)

Key objective 3 :Developing a second home market in CEE

21

Note: combined ratio excl. re-insurance

Cost/income ratio, banking 58%

Combined ratio, non-life insurance 95%

Tier-1, banking 8%

Solvency, insurance 200%

EPS growth (4y CAGR) 10%

ROE, group 16%

ROAC

Retail in Belgium 16%

Central and Eastern Europe 17%

Corporates 12%

Markets 18%

Demanding financial objectives

Minimumtargets for 2005

1Q 04 - Financial highlights

23

1Q 01 2Q 01 3Q 01 4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03 Q4 03 1Q04

Banking Insurance

Q avg‘01-’03(265 m)

Net profit+ 29% yoy

Delivering strong earnings

Net profit m EUR

Group ROE 17 %

355

304 300256 259

392

152

280

316

278

159

230

287

Insurance: 32

Especially strong momentum in banking

Banking: 370

Holding: -10

Highlights — Banking — Insurance — Areas of activity — Outlook

24


Net profit at a high level, up 29% year-on-year :1. Very strong underlying revenue growth, especially in banking :

Top-line growth in banking: +8 % year-on-year Organic premium growth in insurance: +19 % year-on-year, but

pressure on investment yields

2. Expenses well under control and low risk charges : Cost/income ratio, banking at 59 % Loan loss ratio, banking at 11 bp Combined ratio, non-life well below 100 % (at 97.5 %)

3. No net support impact of ‘exceptional items’ : capital gain on ‘Belgacom’ (57 m) significant provision amounts (-81 m) set aside for various future

liabilities and charges In insurance: impairments on equity portfolio (-128 m) to a large

degree offset by use of provision for financial risks

Key points

25

Target 2005

Dec 2002

Dec 2003

Mar2004

Cost / income, banking <=58% 65% 65% 59%

Combined ratio, insurance * <=95% 101% 95% 99%

Solvency (Tier 1), banking > 8% 8.8% 9.5% 9.5%

Solvency, insurance ** > 200% 320% 316% 333%

Return on equity 16% 13% 13% 17%

EPS growth 10% +1% +8% +25%

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

Improving performance levels


26

Q3 Q4

2003

Full consolidation, previously equity method

at 40 %

2004

Warta Insurance (Poland)

Q1 Q2 Q1 Q2

Impact of consolidation changes

Impact on top line

+2 %

Impact on bottom line

-1 %

Main changes in scope of consolidation :

Premium income 99 m EUR, 3/4 non-life (21% of non-life total, Group)


27

400 m

Solid quality of banking earnings

Underlyingrevenuegrowth+ 14 %

Expenses- 0.1%

Capitalgains-53%

+ 186 m - 65 m

Pre-taxprofit

1Q 2003

Year-on-year comparison

Positive impact of operational items: +120 m EUR

+ 1 m


28

Strong growth of operational income

Gross income up 8 % yoy : Interest income in line with

strong previous quarter and +12 % yoy (interest margin up yoy from 1.6 % to 1.8 %)

Sustained high commission income, up 16 % qoq (‘seasonal’) and +2 % yoy

Robust trading revenu (up 51 % yoy) after somewhat depressed 2003 numbers

No ‘exceptionals’, capital gains on investment portfolio in line with previous quarter (4% of total)

719 773 826 800 806

610 587 520 570 708

123

58

54

0

200

400

600

800

1 000

1 200

1 400

1 600

1Q03 2Q03 3Q03 4Q03 1Q04

Interest income Non-interest income Capital gains

1452 1416 13641424

1572

Quarterly income (m EUR)


29

Expenses at stable level

Cost basis stable yoy (-1% qoq) : In Belgium: - 5 % yoy (- 26 m)

Headcount continued to reduce at 250 FTE (-2 %)

In CEE: - 1 % yoy (-2 m) Headcount reduction programs running: 67 % of target achieved in CR and 50 % in Poland

Increase in expenditures in rest of the world, mainly related to trading bonuses

Cost/income ratio significantly improved to 59 % (65% for FY03)

546 527

241 255 258 239

128 162

552 553 568

253

135 110 96

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

Belgium CEE Other

929 931 897 938 928

Quarterly expenses (m EUR)


30

Loan provisioning very limited

Loan loss provisions at very low level (charge of 11 bp* versus 71 for FY 2003)

No problem areas/regions recognised, but cautiousness prevails about quarters ahead !(same level in all probability not sustainable)

Loan losses in Poland only 4 m (charge of 42 bp)

Loan loss ratio: 10 bp in Belgium, 16 bp in C/SR, 46 bp in Hungary and 5 bp for the international portfolio

79

141

204

43

Quarterly loan provisions (m EUR)


252

* Net specific provisions to average gross customer loans

25

28

139

175

41

35 36

12 25 31

6126

49

40

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

Belgium CEE Other

31

400 m

Development of earnings, banking

Underlyingincomegrowth+ 14 %

Expenses- 0.1%

Loanlosses- 85%

Lesssecurities

impairments

OtherCapitalgains -53%

Gain on FFA

disposal

Provisionfor futureexpenses

+ 186 m - 65 m

+ 1 m

+ 36 m

+ 79 m

+ 33 m - 92 m

575 m

Pre-taxprofit

1Q 2003

Pre-taxprofit

1Q 2004

+ 175 m- 3 m



*

* Gains of financial fixed assets: Belgacom in Q1 04 versus Krefima in Q1 03

+38 % organic growth

32

40 m57 m

Development of earnings, insurance

Premiumgrowth+ 20%

Other **

+288 m

-281 m

-40 m

-4 m

Technicalcharges+ 23%

Investmentincome+ 13%

Expenses+ 9%

Less non-recurring

- 9% *

+14 m

Pre-taxprofit

1Q 2003

Pre-taxprofit

1Q 2004

+6 m -17 m


* Of which impairments on equity ** Of which consolidation changes


-23 % organic change

33

Continued fast growth of premiums

Sustained robust growth in Life (mainly Belgium) : In organic terms, up again, +24 %

and almost double as 2 previous quarters,

Renewed interest for linked products (54% of Life total)

Non-life: in organic terms up 6 % yoy Stronger in direct underwriting

(+11%) Drop in re-insurance (- 6 %)

1Q 2004

Non-life366 mUnit-linked

477 m

Interest-guaranteed life401 m

24 % 35 %

33 %*

**

* Growth rate, including extension of scope of consolidation Highlights — Banking — Insurance — Areas of activity — Outlook

34

Satisfactory efficiency and underwriting performance in non-life

Combined ratio at fair level (97.5 %)

Less strong year-on-year (-4.3 pp): Non-life claims are volatile by

nature Exceptional circumstances in 2003

in Belgium (no large loss cases) Changes in consolidation scope

(adverse impact 1 pp)

1Q 2004

65.9% 65.6% 65.1% 64.6% 68.5%

27.3% 29.7% 31.2% 29.0%30.3%

1Q 03 6M 03 9M 03 FY 03 1Q 04

Claims Expenses


97.5 %95.9 %95.4 %95.4 %93.2 %

35

Insurance business suffering from low investment yields

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

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

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

1Q 03 1Q 04

Interest yield 5.5 % 5.0 %

Return on shares 7.0 % 7.1 %*

Total 5.9 % 5.6 %

Investment return downto 5.6 % from 5.9 %

* Corresponds with 7.3 % of the market value of the portfolio (= 10 years’ adjusted average)


36

P/L-impact largely neutralized by write-back of provision for financial risks

Non-realized gains on shares untouched

Additional impairment of 56 m expected in Q2-Q4 (market level of Apr 2004) but adequately offset by unrealized gains

Impairments on equity portfolio largely offset

In m EUR 1Q 04

Value adjustments, shares -128

Transfer from financial provision +93

Non-recurring capital gains * +22

Other - 4

Total non-recurring result - 17

* Gain on the equity tranche of an unwoud private CDO structure Highlights — Banking — Insurance — Areas of activity — Outlook

37

Market value of securities portfolio significantly above book value

In m EUR Book value Market value Unrealised

Bankingbook 42 033 43 819 1 786

Bonds 40 868 42 470 1 602

Shares 1 165 1 349 184

Insurancebook 11 912 12 538 626

Bonds 7 962 8 421 459

Shares 3 198 3 267 69

Other 747 845 98

38

Updated strategy for investment book

* Excl. private equity and smaller porfolios held by subsidiaries

Previous Current

Equity portfolio banking *

Basic portfolio :35 % Belgian blue chips

(Bel 20)65 % European stoxx

sectors

Basic portfolio :100% MSCI Pan Euro

Financials (ca. 50 m EUR) Financials (ca. 25 m EUR)

Asset-mix new inflowLife insurance

75% Fixed income

20 % Equity

5% Real Estate

90 % Fixed income

10 % Equity

39

58

73 50

45

23

80

101

49 38

59

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

Banking Insurance

Profit contribution 124 m, return 17 %*

Strong momentum in banking : Widening gross margin

(up yoy from 5.8 % tot 6.4 %*) Maintained cost reduction

(C/I down yoy from 81 % to 69 %) Sustained low level of problem

loans (loan loss ratio 11 bp*)

Although strong premium income, pression on insurance contribution : Higher claims ratio (69 % versus

58 % in Q1 03) Lower investment yields

Robust performance in Belgian retail


Profit contribution (m EUR)

122

97108

125 124

* Return on average allocated capital Margin and loan losses on average RWA

40

Working along “4 dimensions” (4 C’s)

Robust performance in Belgian retail

1. Cost efficiency Programs of product simplification (less ‘cost drivers’) and

co-sourcing (economies of scale)

2. Cross selling of insurance products Cross selling to go beyond 40%

3. Customer satisfaction Refined segmentation and increase of customer-facing time

4. Canvassing affluent clients Broadening the affluent customer basis


41

Expanded horizons in CEE gradually paying off

CR & SR : strong contribution to Group profit driven by strong revenue growth in a) retail and b) due to the improved ‘interest rate environment’ and a sustained low loan loss ratio (16 bp)

Hungary : strong return number on the back of a) favourable development of revenue and b) a one-off writeback of a general provision for credit risk

Poland : "back in black" thanks to a) progress in the cost reduction program, bringing expenses down 3%* yoy and b) the - in all probability exceptional - low loan loss amount of 4 m EUR

* Profit contribution excl. return on excess capital and minority interests** adjusted for currency effects

CEE2nd home

Net profit(statutory)

Contributionto Group *

Contribution % yoy **

Return on allocated

captial

Return on invested capital

CR / SR 55 m 42 m +84 % 19 % 13%

Hungary 30 m 13 m +39 % 31 % 22%

Poland 5 m 3 m - 5 % 3 %

Contribution of banking operations to KBC Group profit :


42

15% 23% 21% 15% 17%

35% 25%37%

32%36%

31%23%

13%20%

24%

10%14% 16%

16%

17%

Risk-weighted assets Allocated capital Gross operatingincome

Operating result Net profit

CEE Belgian retail (incl AM) Corporates Markets Non allocated

CEE banking, share of banking wallet

Impact of paid

goodwill

Benefiting from higher margins

Note : banking business lines only

Risk issue under control


Improved cost structure

under way

43

Expanded horizons in CEE graduallypaying off

Enhanced performance going forward

1. High economic growth and increasing penetration rate of financial products

2. Better cross selling of insurance products

3. Increase of organisational efficiency and intensified quest for Group synergies

4. In Poland, business re-engineering cost level / organizational strength


44


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

Profit contribution : 34 m (after allocation of distribution fee to retail), in line with previous quarter and 1Q 03

Assets up 6 % qoq (3% net inflow)

Assets up 18 % yoy : Mutual funds (47 bn) : +20 % yoy Private assets (16 bn) : +17 % yoy Institutional (20 bn) : +16 % yoy

Performing asset management activities

Profit contribution (m EUR, excl. minorities)

Belgium :86 %

CEE : 4 %

35

25 24

3234

45

Profit contribution 100 m (return 21 %)

Turnaround in banking since 3Q 03 : mainly driven by lower cost of risk

(9 bp* versus 57 bp in FY 03) gross income margin and cost/income

stable at 2.6 %* and 36 % respectively

move towards lower risk lending, in a quest for more stable results (target loss ratio: 35 bp over the cycle)

Turnaround in in re-insurance since 3Q 03 : mainly driven by improved underwriting

performance (combined ratio : 90 % versus 100 % in FY 03)


Corporate activities stepping up

58

83 88

7

43 36

11

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

Banking Insurance

35

62

89100

* On average RWA

43


46

Profit contribution 64 m (return 23 %)

Strong performance in M/CM activity (x2 qoq and up 24 % yoy), mainly on the back of strong income growth

(Modest) profit contribution for cash equity business (4 m), in line with previous quarter (loss in 1Q 03)

Good results in equity derivatives business (up 14 % yoy) on the back of : Significant income growth and the non-

recurrence of negative MtM for long derivatives in previous quarters

Additional income sources (without higher risk exposure) out of (structured) investment management


32

19

38 34 31

25

10 9

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

Equity-related activities

Money and capital markets

Tail wind in ‘financial markets’

4135

41

7

64


47

3.1

3.73.4

1.3

4.8

2.6

0.4

2.1

3.2

2.0

3.3

2.7

3.4

3.9

3.2

3.7

1.1

4.8

1.1

2.2

0.6 0.7

0.9

1.61.6

0

2

4

6

2001 2002 2003 2004 (F) 2005 (F)

Czech Hungary Poland Belgium EMU

Source : KBC CEE Outlook, May 2004

Favourable trend in core markets

GDP, real growth

Belgium: 0.5 % above EMU avg

CEE: 1.5 % - 3 % above EMU avg

2004-05


48

Outlook 2004

Positive momentum in economic environment : Fuelling top-line growth Mitigating costs of risk

Commitment to sustained cost and underwriting discipline

Should the current economic and financial context prove to be sustainable, and taking into account stable stock exchange levels, then net earnings for 2004 are expected to be at least 15 % higher than in 2003


Additional information

50

1.80%

1.85%

1.90%

1.95%

2.00%

2.05%

2.10%

2.15%

1Q01

2Q01

3Q01

4Q 01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

4Q03

3.5%

4.0%

4.5%

5.0%

5.5%

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

Interest spreads in BelgiumInterest margin, banking Spread on new loans

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

Investment credit, Belgian SME loan book

Corporate bond A-rating

Going forward, increasing market rates could fuel top-line growth

51

Credit portfolio : cyclical sectors

% of total portfolio Dec '01 Dec '02 Dec '03 EUR bn Chg 03-02

Real estate 5% 5% 5% 7.2 -6%

Electricity & water 6% 4% 4% 4.6 -24%

Aviation 1% 1% 1% 1.5 -7%

Shipping 1% 1% 1% 1.4 -7%

Telecom 2% 2% 1% 1.4 -37%

Hotel & restaurant 1% 1% 1% 1.2 -16%

IT 0.4% 0.4% 0.4% 0.6 8%

Media 0.5% 0.4% 0.3% 0.5 -16%

52

Low Interest rate risk covered by

provisions (4% ref. rate)

Premium growth 2002

Life portfolio

Life reserves, Belgium (non-linked)

Rate 4.75% 3.75% 3.25% 2.75% Other Total

Traditional 14% - 8% - - 22%

Universal 28% 23% 22% 2% 3% 78%

Note : Universal life: flexible premium payments with 10-year interest rate guarantee on current premiums and without guarantee for future premiums

Premium growth 1H2003

Premium growth 2H2003

Asset-backing allowing hedging

of Interest rate risk

53

Sound business, even in low-interest-rate environment

Profitability dynamics, life (non-linked)

Reserve (1st yr) 100

Return on investment4.83 %

Allocated capital9.25

Investment income, reserves

4.83

Investmentincome, capital

0.45

Investment income5.27

Guaranteed rate2.75

Profit BT2.52X

X

+ -

Simplified example :

ROAC20%

Tax0.68

Investment mix :

75% Treasury bonds Return : 4.20%

(Example) 20% Shares 6.70%

5% Real estate 6.70%

4.83%Return on allocated capital

Note : reserve for year n = 100 x 1.048 ^n

ROAC Year1 Year 2 Year3 Year n

Rate at 2.75 % 20% 21 % 23%

Rate at 3.25 % 16 % 17 % 19%

-

54

Low combined ratio, significant leverage on return

Profitability dynamics, non-life

Reserve ratio200

Return on investment5.45%

Allocated capital40

Investment income,reserves

10.9

Investment income,capital

2.2

Premium100

Combined ratio-95.0

Investment income+13.1

Profit BT18.1

Tax- 3.7

ROAC36%

X

X

+ +

-

Investment mix :

50% Treasury bonds Return : 4.20%

(Example) 45% Shares 6.70%5% Real estate 6.70%

5.45%

Combined ratio 105 % 100% 95%

ROAC 16 % 26 % 36 %

-

Simplified example :

Return on allocated capital

55

Czech & Slovak republics - CSOB

Market position :• Inhabitants : 15 m• Market share : 18% / 6 %• Customers : ± 3.2 m• Branches : 281 (+3400 POS)• Workforce : ± 10 400 FTE

KBC’s footprint :

• 1999 : Majority (privatization)

• 2000 : Take-over of IPB Bank Current stake : 90% Investment : ± 1.4bn (± 2.3 xBV)

Financial track record :

m EUR, IAS ‘99 ‘00 ‘01 ‘02 ‘ 03

Net profit 78 134 175 214 196

RWA : 6.8 bn (7% of KBC’s banking operations)

• Allocated equity : 1.0 bn (13% of KBC banking)

Gross margin

Cost/income

Loan loss

Pretax margin

Ratio 10.0% 71% 34bp 2.5%

Share in KBC banking total

12% 13% 6% 13%

Margins on RWA

Profit contribution 2003 :

Sustained satisfactory results(though positive impact of exceptionals mainly in ‘01-’02)

Note: participation including increase from 85% to 90% in 2004

56

Hungary - K&H Bank

Market position :• Inhabitants : 10 m• Market share : 11%• Customers : ± 0.7 m• Branches : 155• Workforce : ± 3 800 FTE

KBC’s footprint :

• 1997 : Reference stake (32%)

• 2000 : Full ownership (100%)

• 2001 : Merger ABN Amro Magyar

Current stake : 59% Investment : 0.3 bn (1.3 x BV)


m EUR, IAS ‘99 ‘00 ‘01 ‘02 ‘ 03

Net profit - 32 10 15 46 36


• Allocated equity : 0.3 bn (4% of KBC banking)

Gross margin

Cost/income

Loan loss

Pretax margin

Ratio 8.2% 78% 32bp 1.6% /0.8%

Share in KBC banking total

6% 7% 2% 2% /5%

Margins on RWA


Turnaround proven to be successful.K&H Equities loss in '03.

Stand-alone incl. minorities

57

Poland - Kredyt Bank

Market position :• Inhabitants : 38 m• Market share : 6%• Customers : ± 0.8 m• Branches : 359• Workforce : ± 9 600 FTE

KBC’s footprint :

• 1997 : First stake (5%)

• 1999 : Reference shareholder (49%)

• 2001 : Full ownership (56%)

• 2002 : Full control (76%)

Current stake : 85% * Investment : 0.8 bn (c.2x est BV)


m EUR, IAS ‘99 ‘00 ‘01 ‘02 ‘ 03

Net profit 28 39 -9 -108 -353


Allocated equity : 0.4 bn (5% of KBC banking)

Gross margin

Cost/income

Loan loss

Pretax margin

Ratio 7.8% 87% 9% Neg

Share in KBC total

6% 8% 54% Neg

Margins on RWA


Stand-alone, incl. minoritiesThorough clean-up of loan book since '02 (late in the cycle)

In-depth restructing plan being implemented.Turnaround to come

Note: investments including capital increase of 4Q03 and 1Q04

58

CEE, credit ratings upgrade in 2003

Update Country rating Company rating Outlook

CSOB (CR) Jan. 2001 BBB+ BBB+ Stable

Sept. 2003 A- A- Stable

K & H (Hungary) Oct. 2000 BBB+ BBB+ Stable

July 2003 A- A- Stable

KB (Poland) Oct. 1999 BBB+ BBB+ Stable

Sept. 2003 BBB+ BBB+ Stable

NLB (Slovenia) Feb. 1997 BBB+ BBB+ Stable

Sept. 2003 A+ A- stable

Fitch credit ratings

59

KBC in CEEStrengths Prominent market positions with

nationwide branch networks

Geographical diversification

Satisfying results to date in most markets, except banking in Poland

Common shared optimism on rebound of economic cycle in ’04 and long-term market growth in general

As of May 2004 : all CEE affiliates (5 countries) operating in the EU

Successful bancassurance and asset management concept at group level (knowhow is being transfered)

Excess capital at group level with stable core shareholders (long term)

Weaknesses Still high cost/income ratios

(work in progress)

Converging business margins

CEE still a higher risk zone(allthough tempered by EU entry)

Still unsatisfactory stability and scale in Poland (work in progress)

Central Europe2nd home market

Reconfirmed confidence in our strategy fundamentals

60

0

500

1000

1500

2000

2500

FY 01 FY 02 FY 03

Legal Buffer Excess

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

FY 01 FY 02 FY 03

Legal Buffer Excess

Solvency

8.8% 8.8%9.5%

504%

320%316%

Banking business

(Tier 1)

Insurance business

(Solvency margin)

581 m

581 m

676 m

1 458 m

3 793 m

3 793 m

In m EUR In m EUR

Solid solvency in both banking and insurance allowing further investments if needed

(no double gearing and no DAC)

61

Basle II regulation Quantitative impact study (QIS 3) – 1st half 2003 :

required capital compared with current required capital level :

Approach Credit risk Total risk Standardized 95% 105% IRB Foundation 76% 87% IRB Advanced 74% 85%

Positive impact from the lower weight of retail/SME portfolio

But : for the time being, uncertainty prevails regarding risk classification in the CEE portfolio and on the changes emanating from the Jan-04 Basle Committee meeting

Basle II may free up some capital

62

EU directive : 1Q03 Regulation: 3Q04 Application : 1Q05

Requirements Impact for KBC

Group solvency

No double gearing

Appropriate leverage

Minimum group solvency level

OK

OK

OK

Groupgovernance

'fit and proper‘ organization

Appropriate financial and risk procedures

Reporting and supervision on risk concentrations and intragroup transactions

Already anticipated :

Integrated Executive level

New Group CFRO function

Centralized group risk department

No material financial impact to be expected

Financial conglomerate regulation

63

Outstanding convertible bonds

In 2003, a mandatory convertible bond reached maturity :(coupon 12.2% in ’03) creating ± 6.8 m new KBCN shares (not dividend-entitled for 2003)

Outstanding convertible bonds : Convertible bond 2005 :

417 m EUR (coupon 2.50%), maturing Dec. 2005, optionally convertible in 5.2 m shares (± 80 EUR/ share) of which ± 2 m held by KBC

Mandatory convertible bond 2008 : 186 m EUR (coupon 3.50%), maturing 2008, to be converted in 2.7 m shares (± 69 EUR/share)

No relevant dilutive instruments in the coming 4 years

64

Contact information

Investor Relations Office :

Luc CoolNele Kindt

Tel. : +32 2 429 49 16 E-mail : [email protected]

Visit www.kbc.com for the latest update on our company :

Press releases and E-mail alert service Financial information, annual and quarterly reports Company background, strategy and governance related items

mailto:[email protected]

http://www.kbc.com/

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