KBC Bank

1
2
Proud to deliver strong financialsHerman
AgneessensChief Financial and Risk Executive
2
Delivering strong earnings
Net profit 29 yoy
Group ROE 17
392
Net profit m EUR
355
Insurance 32
316
304
300
287
278
280
Q avg01-03 (265 m)
256
259
230
Banking 370
152
159
Holding -10
Especially strong momentum in banking
3
Key points

• Net profit at a high level, up 29 year-on-year
• 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
• 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 )
• 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

4
Improving performance levels
Combined ratio excluding reinsurance.
Solvency insurance including unrealized gains.
5
Impact of consolidation changes
Main changes in scope of consolidation
2003
2004
Q3
Q4
Q1
Q2
Q1
Q2
Full consolidation, previously equity methodat
40
Warta Insurance (Poland)
Premium income ? 99 m EUR, 3/4 non-life (21 of
non-life total, Group)
Impact on top line
Impact on bottom line
2
-1
6
Solid quality of banking earnings
Year-on-year comparison
186 m
- 65 m
1 m
Positive impact of operational items 120 m EUR
400 m
Underlyingrevenue growth 14
Expenses- 0.1
Capitalgains-53
Pre-taxprofit1Q 2003
Highlights Banking Insurance Areas of
activity Outlook
7
Strong growth of operational income
Quarterly income (m EUR)

• 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)

1572
1424
1452
1416
1364
Highlights Banking Insurance Areas of
activity Outlook
8
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)

Quarterly expenses (m EUR)
929
938
931
928
897
Highlights Banking Insurance Areas of
activity Outlook
9
Loan provisioning very limited
Quarterly loan provisions (m EUR)

• 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

252
204
141
79
43
Net specific provisions to average gross
customer loans
Highlights Banking Insurance Areas of
activity Outlook
10
Development of earnings, banking
Year-on-year comparison
33 m
- 92 m
79 m
186 m
- 65 m
175 m
- 3 m
36 m
1 m
575 m
400 m
Loanlosses- 85
Provisionfor futureexpenses
Underlyingincome growth 14
Capitalgains -53
Gain on FFA disposal
Lesssecuritiesimpair ments
Other
Pre-taxprofit1Q 2003
Pre-taxprofit1Q 2004
Expenses- 0.1

Gains of financial fixed assets Belgacom in Q1
04 versus Krefima in Q1 03
Highlights Banking Insurance Areas of
activity Outlook
11
Development of earnings, insurance
Year-on-year comparison
14 m
-40 m
-17 m
-281 m
6 m
-4 m
57 m
288 m
40 m
Pre-taxprofit1Q 2004
Less non-recurring - 9
Pre-taxprofit1Q 2003
Premiumgrowth 20
Other
Technicalcharges 23
Investmentincome 13
Expenses 9
Of which impairments on equity Of which
consolidation changes
12
Continued fast growth of premiums
1Q 2004

• 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 )

Non-life366 m
Unit-linked477 m


Interest-guaranteed life401 m

Growth rate, including extension of scope of
consolidation
13
Satisfactory efficiency and underwriting
performance in non-life
1Q 2004

• 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)

97.5
95.4
93.2
95.9
95.4
14
Insurance business suffering from low investment
yields
Investment return downto 5.6 from 5.9
Corresponds with 7.3 of the market value of
the portfolio ( 10 years adjusted average)
15
Impairments on equity portfolio largely offset

• 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

Gain on the equity tranche of an unwoud private
CDO structure
16
Market value of securities portfolio
significantly above book value
17
Updated strategy for investment book
Excl. private equity and smaller porfolios
held by subsidiaries
18
Robust performance in Belgian retail
Profit contribution (m EUR)

• 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

124
125
122
108
97
Return on average allocated capital Margin
and loan losses on average RWA
Highlights Banking Insurance Areas of
activity Outlook
19
Robust performance in Belgian retail
Working along 4 dimensions (4 Cs)

• Cost efficiency
• Programs of product simplification (less cost
  drivers) and co-sourcing (economies of scale)
• Cross selling of insurance products
• Cross selling to go beyond 40
• Customer satisfaction
• Refined segmentation and increase of
  customer-facing time
• Canvassing affluent clients
• Broadening the affluent customer basis

Highlights Banking Insurance Areas of
activity Outlook
20
Expanded horizons in CEE gradually paying off
Contribution of banking operations to KBC Group
profit
Profit contribution excl. return on excess
capital and minority interests adjusted for
currency effects

• 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

CEE 2nd home
Highlights Banking Insurance Areas of
activity Outlook
21
CEE banking, share of banking wallet
Improved cost structure under way
Risk issue under control
Benefiting from higher margins
Impact of paid goodwill
Note banking business lines only
Highlights Banking Insurance Areas of
activity Outlook
22
Expanded horizons in CEE graduallypaying off
Enhanced performance going forward

• High economic growth and increasing penetration
  rate of financial products
• Better cross selling of insurance products
• Increase of organisational efficiency and
  intensified quest for Group synergies
• In Poland, business re-engineering ? cost level
  ? / organizational strength ?

Highlights Banking Insurance Areas of
activity Outlook
23
Performing asset management activities

• 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

Profit contribution (m EUR, excl. minorities)
35
34
32
25
24
Belgium 86
CEE 4
Highlights Banking Insurance Areas of
activity Outlook
24
Corporate activities stepping up

• 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)

Profit contribution (m EUR, excl. minorities)
100
89
62
43
35
On average RWA
Highlights Banking Insurance Areas of
activity Outlook
25
Tail wind in financial markets
Profit contribution (m EUR, excl. minorities)

• 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

64
41
41
35
7
Highlights Banking Insurance Areas of
activity Outlook
26
Favourable trend in core markets
GDP, real growth
2004-05
CEE ? 1.5 - 3 above EMU avg
Belgium ? 0.5 above EMU avg
Source KBC CEE Outlook, May 2004
27
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

Highlights Banking Insurance Areas of
activity Outlook