GROWTH IN CEE COUNTRIES “Czech Evidence”

GROWTH IN CEE COUNTRIES“Czech Evidence” Jaromír Sladkovský FPK Conference, London 14 December 2004

THIS PRESENTATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY. ALTHOUGH THE STATEMENTS OF FACT IN THIS PRESENTATION HAVE BEEN OBTAINED FROM AND ARE BASED UPON SOURCES THAT KBC BELIEVES TO BE RELIABLE, KBC DO NOT GUARANTEE THEIR ACCURACY, AND ANY SUCH INFORMATION MAY BE CONDENSED OR INCOMPLETE. THIS PRESENTATION CONTAINS FORWARD-LOOKING STATEMENTS WITH RESPECT TO OUR STRATEGIES AND EARNINGS DEVELOPMENT BY THEIR NATURE, THESE FORWARD-LOOKING STATEMNTS INVOLVE NUMEROUS ASSUMPTIONS, UNCERTAINTIES AND OPPORTUNITIES. THE RISK EXISTS THAT THESE STATEMENTS MAY NOT BE FULFILLED AND THAT FUTURE RESULTS DIFFER MATERIALLY. BY RECEIVING THIS PRESENTATION EACH INVESTOR IS DEEMED TO REPRESENT THAT IT IS A SOPHISTICATED INVESTOR AND POSSESSES SUFFICIENT INVESTMENT EXPERTISE TO UNDERSTAND THE RISKS INVOLVED. LEGAL DISCLAIMER

TABLE OF CONTENTS • INTRODUCTION • CURRENT SITUATION IN CR • FUTURE GROWTH POTENTIAL IN CR • KBCPOSITIONING IN CR

COUNTRIES WITH KBC PRESENCE POLANDpopulation 38.2m GDP* 46% bank assets** 104m CZECH REPUBLICpopulation 10.2m GDP 73% bank assets 80m SLOVAKIApopulation 5.4m GDP 51% bank assets 24m HUNGARY population 10.1m GDP 61% bank assets 56m SLOVENIA population 2.0m GDP 77% bank assets 22m *) GDP per capita - EU25=100% (PPP) **) as of the end of 2003 (EUR) Source: OECD, Statistics of National Banks

WHERE WILL THE VALUE CREATION COME FROM IN CR IN FUTURE ? • M&A Activities • Limited on the local market (privatization completed; 85% of bank equity and 96% of bank assets in hands of foreign strategic investors: KBC, ERSTE, SG, HVB, GE etc.) • Market concentrated enough (top 3 players have 75% market share in total bank deposits and 50% in bank loans; the concentration in retail banking is even higher as top 4 players have 85% in retail deposits and 90% in retail outstanding loans) • Cost Management • Main strategic focus after strategic takeover (centralization of processes such as back-office activities; headcount rightsizing; close control of central procurement etc.) • Still not sufficiently exploited • Revenue Based Growth • Large potential (low penetration of the population and companies with financial products; low loan to deposit volume ratio compared to EU countries etc. • Dynamic volume growth in key products

INTRODUCTION • CURRENT SITUATION IN CR • FUTURE GROWTH POTENTIAL IN CR • KBCPOSITIONING IN CR

RETAIL LOANS SPEEDED UP COMPARED TO RETAIL DEPOSITS IN 2001-2003 Percent Source: CNB, Czech Statistical Bureau (data without individual entrepreneurs)

LEVEL OF HOUSEHOLDS’ DEBT IS FAR BEHIND THE EURO-ZONE AVERAGE Retail loans as % of GDP (2003) 48% 10% 8% *) Including mortgages and building loans **) Including loans provided to individual entrepreneurs, non-residents etc. Source: ECB, CNB, NBS

CZECH FAMILIES HAVE IMPROVED THEIR STANDARDS OF LIVING INCREASING PURCHASING POWER REDUCES FUTURE UNCERTAINTY AND ENHANCES WILLINGNESS TO BOROW MONEY* 1990 BASE LINE = 100 Source: Czech Statistical Bureau *) Average Czech Family owes over EUR 3 thousand at the end of 2003

PORTFOLIO OF THE MOST DEMANDED PRODUCTS HAS CHANGED SINCE 1990 2004 Future Mortgages SME Loans Consumer Lending Mutual Funds Pension Funds Life Insurance Consumer Lending Building Savings Building Loans Mutual Funds Life Insurance 2001-2003 Building Savings Saving Deposits Car Leasing Non-bank consumer credits 1996-2000 SME Loans Current Accounts Saving Deposits 1990-1995 Saving Deposits Social Loans Before 1990

PENETRATION OF RETAIL CLIENTS WITH BASIC PRODUCTS IS LOW Source: GfK Research – Czech Republic (Spring 2004)

PENETRATION OF SME WITH PRODUCTS IS ALSO FAR BEHIND THE POTENTIAL COMPANIES* INDIVIDUAL ENTREPRENEURS Source: GfK Research – Czech Republic (Spring 2004) *) firms with annual turnover up to EUR 10m

WHICH CLIENTS WILL BRING THE HIGHEST REVENUE GROWTH? RETAIL • Insufficient penetration with financial products • Growing wealth of the population • Unexploited marketing instruments (propensity models etc.) • Robust risk management techniques (scoring-based)  • Unsaturated clients’ needs (only 5% of SME have a loan) • Interesting margins and fees • New business opportunities resulting from EU accession • Risk management (new scoring based methods) • Gradually reducing fees from FX transaction (accession to the Euro-zone) SME  CORPORATE • Growing profits resulting in higher volume of deposits • Limited potential in terms of number of customers • Significantly penetrated with loan and leasing products • Highly competitive market – squeezing margins 

WHAT FACTORS WILL SHAPE FUTURE RETAIL BANKING IN CR ? • Former antipathy of households against money borrowing originated from the communist-time has been gradually disappearing • Demographic development • strong generation in their 30’s has financing and life-time investment needs (life insurance, pension funds) • strong generation in their 50’s (becoming retired in 5-10 years) require mainly short-term investments(mutual funds) • Continuing enhancement of living standards • Interest rates will very likely stay at current low level • …

STRONG POPULATION YEARS ARE BECOMING ACTIVE Thousand of people 25-35 years old population now Newly-born children in a given year Source: Czech Statistical Bureau

MORTGAGE SEEMS TO BE A KEY DRIVER IN RETAIL LENDING EUR Billion* CAGR 2004-2007 167 32% 90 68 20% 51 38 8% *) Fixed exchange rate of 31 CZK/EUR **) 2004 Forecast based on the actual results in October 2004 ***) Including consumer loans, overdrafts, credit cards and other loans Source: CNB, ČSOB Forecast

PENSION FUNDS AND MUTUAL FUNDS WILL MAINTAIN THEIR HIGH GROWTH EUR Billion* CAGR 2004-2007 543 10% 435 405 17% 376 354 10% 15% 3% *) current and saving accounts **) technical reserves of life insurance Source: CNB, ČSOB Forecast

SUMMARY • Revenue growth is the topic for value creation in the future • Imbalance in deposit to loan ratio of the banking industry shows clear potential • Key segments of growth potential are SME clients and individuals (specifically the affluent segment) • Housing needs will drive the credit market growth • Improving regulatory framework will play an important role

ČSOB POTENTIAL WINNING FORMULA KBC (ČSOB) • Critical mass of customers • Ability to retain and attract clients (mainly affluent clients) • Focus on lending growth (SME loans, mortgages, etc.) • Robust risk management techniques (mainly for SME) • Efficiency in „theback” and in the internal supply chain • Largest financial group in CR with 5 million retail clients • Affluent clients turnover below 1%; growing private banking • Strengthening in SME business (35% y-on-y growth) • New scoring based approach towards SME • Centralization of card mgmt within CEE region

GROWTH IN CEE COUNTRIES“Czech Evidence” Jaromír Sladkovský FPK Conference, London 14 December 2004

INTRODUCTION • CURRENT SITUATION IN CR • FUTURE GROWTH POTENTIAL IN CR • KBCPOSITIONING IN CR • APPENDICES ON THE KBC GROUP

TOP-20 IN EUROLAND BANKING (*) Nov 2004 Dec 2003 Dec 2002 (*) DJ Euro Stoxx Banks Constituents - Ranking by Market Capitalization – Situation as at 16 Nov 2004

PROMINENT PLAYER IN 2 MARKETS Breakdown of revenue : Treasury & other 9% • Top financial player in Belgium • Succesfully expanded in 5 most advanced countries in CEE (new EU) • Selected ‘other’ areas: international mid-corporate banking (mostly in W. Eur.) and financial markets • As investments in CEE have continued to increase, the ‘other’ activities have been progressively scaled down Belgium 48% Financial markets 11% Internaternational corporate 7% CEE25%

TOP-3 PLAYER IN THE CEE REGION International banks in CEE (by total assets, inbn EUR): Source: RZB – assets as at 31 Dec 03, ownership structure as at 30 Jun 04 • KBC is one of the largest international players in the region • In contrast to the other players, KBC limits its presence to the new EU Member States (the Czech Republic, Slovakia, Hungary, Poland and Slovenia) and is active in both the banking and insurance fields

CHALLENGING FINANCIAL TARGETS Core targets: Minimumtargets for 2005 Cost/income ratio, banking 58% Combined ratio,non-life insurance 95% EPS growth (4-y 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 ratio,banking 8% Solvency margin, insurance 200% * Capital allocated on the basis of risk-weighted assets and non-amortised goodwill

SOLID GROUP PERFORMANCE Dec 02 Dec 03 Sep 04 Trend Return on equity Profitability 13% 13% 17% + Growth in EPS +1% +8% +36% + Efficiency Cost/income, banking 65% 65% 60% + Combined ratio, insurance 101% 95% 94% + Tier-1, banking Solvency 8.8% 9.5% 9.6% + Solvency, insurance 320% 316% 341% + Combined ratio, insurance excluding reinsurance. Solvency, insurance including unrealized gains.

STRONG EARNINGS MOMENTUM 9M 04 profit : +40% year-on-yearWell on track to deliver on all our targets 3-y CAGR: +15% Net profitin m EUR 1 537 Consensusestimate 1 119 1 034 1 022 1 201 Consensus estimate as at 7 December 2004

STEADILY GROWING DIVIDEND EPS DPS EUR EUR Dividend yield Payout ratio

Key figures: Share price: 57.3 EUR Net Asset Value: 38.2 EUR Analysts’ estimates: EPS 2004 consensus: 4.97 EPS 2005 consensus: 5.27 P/E 2005: 10.9 Analysts’ recommendations : Positive: 41% Neutral: 23% Negative: 36% VALUATION Valuation relative to peer group : Unweighted average of IBES data : (1) OTP, Komercni, Pekao, BPH PBK, BRE (2) Erste, Unicredit, BA-CA, Soc Gen, Intesa BCI (3) Top 20 of DJ Euro Stoxx banks (4) Fortis, Dexia Situation as at 7 December 2004

GROWTH IN CEE COUNTRIES “Czech Evidence”