Bâle 2 & les entreprises ACI Belgium 20 octobre 2005

1. Bâle 2 & les entreprisesACI Belgium20 octobre 2005 • La vision du banquier • Alain de Brauwere - Basel2 Coordinator - Fortis Bank

2. Agenda 1. Bank’s objectives and constraints 2. Fortis Bank overall targets 3. Relationship between the bank and its customer

3. MinimumRequired Capital Supervisory Review Market Discipline BASEL REVISED FRAMEWORK (June 2004) Strengthen soundness & stability of international banking system Promote stronger risk mgt practices

4. PILLAR 1Minimum capital requirement PILLAR 2Supervisory review PILLAR 3Market discipline Evolutionary approaches Disclosure requir’ts 4 principles Credit Risk (New) Standardised Approach - NSA Internal Ratings Based - IRB Foundation IRB Approach - FIRBAAdvanced IRB Approach - AIRBA Operational Risk Supervisory intervention Capital > minimum Supervisory review Internal assessment Risk Exposures P 1measurement methods and results Capital adequacy Capital Basic Indicator Approach - BIA Standardised Approach - STA Advanced Measurement Appr - AMA Market Risk Standard Method (Conversion CRD risk) Simulation Analysis Method Value at Risk models BASEL REVISED FRAMEWORK (June 2004)

5. Capital (Tier 1 + 2 + 3)  8% Credit risk + Market risk + Operational risk Basel RF - PILLAR 1 : MINIMUM REQUIRED CAPITALRisk assets ratio • Unchanged, but • Impacted by IFRS • Limited to Unexpected Loss • Under review by BC & EC • Unchanged, but • Capital covers Unexpected Loss • Shortfall coverage EL by provisions New : Add-on • New approaches • Risk sensitive • Based on Bank own estimates • Credit risk mitigation integrated Unchanged, but Definition of Banking & Trading Books reviewed

6. European Capital Requirements Directive - CRD • Scope • All credit institutions (=banks) • All investment firms • Level of application • CRD is applicable primarily on an individual basis • CRD is also to be applied at sub- and consolidated levels • Supervision - Responsibilities • Consolidating supervisor • Pillar 1 - Modelling • Pillar 1 - Permission to go IRB and/or AMA • Pillar 3 • Coordination role • Host supervisors

7. Diversified Financial Group Holding Company Ultimate Parent Credit Institution Parent CI Credit Institution Investment Firm Credit Institution CRD - Level of application Subsidiaries other than credit institutions & investment firms not submitted at solo level

8. CRD - 3 Pillars - Key drivers PILLAR 1MINIMUM REQUIRED CAPITALSUPERVISOR - DRIVEN BANKs CHOICE Choice of approachesModelling : PD LGD EAD VAR Data Use Systems Policy SUPERVISOR’S REQ. Approaches Quantitative requirement Qualitative requirementCalculation FormulaPermission to go : AIRBA AMA Pillar 2Capital Adequacy Assessment Bank’s -Driven Pillar 3DisclosureMarket - Driven

9. CRD - 3 Pillars - Key drivers PILLAR 2CAPITAL ADEQUACY ASSESSMENTBANK’s -DRIVEN Pillar 1Minimum RequiredCapitalSupervisor - Driven ICAAP Produce ICAAP number and assessment SREP Produce conclusions Dialogue Challenge Pillar 3DisclosureMarket - Driven ICAAP Iteration Supervisory measures

10. CRD - 3 Pillars - Key drivers PILLAR 3DISCLOSUREMARKET -DRIVEN Pillar 1Minimum RequiredCapitalSupervisor - Driven Institution DisclosuresMinimum List CRD = Pillar 1 Market pressure => Bank’s Policy Supervisory DisclosuresCRD requirements Banking industry pressure Market pressure => Supervisors Policy Pillar 2Capital AdequacyAssessmentBank’s - Driven

11. < < P1 Min.Req.Capital P2 Adequate Capital Prudential Own funds Only CR, OR & MR Supervisory requirements Supervisory calculation formula Operate above MRC All risks Bank’s requirements ICAAP = Bank’s own process + own calculation formula SREP = Supervisory challenge Capital Mgt Strategy = Numerator P1 Supervisory filters Accountancy figure amended by prudential filters CRD - 3 Pillars - Link between Pillars

12. < < P1 Min.Req.Capital P2 Adequate Capital Prudential Own funds Only CR, OR & MR Supervisory requirements Supervisory calculation formula Operate above MRC All risks Bank’s requirements ICAAP = Bank’s own process + own calculation formula SREP = Supervisory challenge Capital Mgt Strategy = Numerator P1 Supervisory filters Accountancy figure amended by prudential filters Rating agencies figures Rating AA CRD - 3 PillarsSome banks use economic capital ECAP = ICAAP

13. CRD - 3 Pillars - Reporting PILLAR 1Only credit, operational, market risks Minimum Required Capital Supervisor - Driven CoRep PILLAR 2All risks Capital Adequacy Assessment Bank’s - Driven Dialogue PILLAR 3Bank’s disclosures Pillar 1 Market - Driven PILLAR 3Supervisors disclosures CRD implementation Market - Driven Publications

14. CRD - 3 Pillars - Reporting PILLAR 1Only credit, operational, market risks Minimum Required Capital Supervisor - Driven CoRep PILLAR 2All risks Capital Adequacy Assessment Bank’s - Driven Dialogue FinancialStatements Financial Reporting (FinRep) Other Reportings PILLAR 3Bank’s disclosures Pillar 1 Market - Driven PILLAR 3Supervisors disclosures CRD implementation Market - Driven Publications

15. Agenda 1. Bank’s objectives and constraints 2. Fortis Bank overall targets 3. Relationship between the bank and its customer

16. FORTIS BANK OVERALL TARGET • FROM IMPLEMENTATION DATE, i.e. 1 January 2008,START WITH THE MOST ADVANCED APPROACHES • Pillar 1 Credit risk AIRBA • Pillar 1 Operational risk AMA • Pillar 1 Market risk VaR (unchanged) • Pillar 2 All risks VaR • Pillar 3 Disclosures Market high standards • GOALS • Have in use an embedded high-performance risk management Keep in line with the most advanced peer banks aiming our competitive position • Reconcile the management tools and the supervisory constraints Ensure convergence between regulatory and economic capital Minimise the P1 Minimum Required Capital and P2 Adequate Capital • Accelerate cross-border integrationUse Basel Program as a leverage

17. FORTIS BANK OVERALL TARGET • ACT AS ONE COMPANY • One cross-border bank, based on business lines • FB-wide consistent choices of Basel approaches • Models developed centrally or under central supervision • Centralised data repositories • Centralised calculation of Risk Weighted Assets& Capital requirements • Centralised solvency reporting and market disclosures • Consolidated supervisory review • Top-down : From consolidated level to local level • Customer is the cornerstone of our business

18. FORTIS BANK OVERALL TARGET • P1 - CREDIT RISK = Advanced Internal Ratings Based Approach • Materiality assessment performed on consolidated level and consistent top-down • Outstandings to customers can be linked to B/L and legal entity • One single FB-wide rating by customer • Central repository and central computing of risk weighted assets and minimum required capital • Economic capital computed bottom-up and using as inputs the P1 data • P1 - OPERATIONAL RISK = Advanced Measurement Approach • “AMA on a unified basis for parent and subsidiaries” (CRD art. 105)FB-wide single policy & framework, consistently implemented • “Qualifying criteria met by the parent and subsidiaries considered together” (CRD art 105) • AMA applied at top consolidated level and based on business lines • Central computing of capital requirementsand Risk sensitive apportionment of the capital to the legal entities • Same methodology for computing economic and regulatory capital

19. Pillar 2ICAAP = ECAP = ForCap Pillar 2 Internal Capital Adequacy Assessment Process (ICAAP) = Economic Capital (ECAP) = Internal management tool (ForCap) • Integrated risk management and organisation based on Business Lines. • One single approach, one single management tool, one single capital figure • One single tool ForCAp and one single figure • ForCap incorporates the full diversification within and between risk types • Bottom-up computing • Supervisory challenging • In line with principles 1 (ICAAP) & 2 (SREP) of Pillar 2 • Approach, methodologies and models fully documented • SREP conclusions => Dialogue => ICAAP iteration

20. Pillar 2ICAAP = ECAP = ForCap Pillar 2 Internal Capital Adequacy Assessment Process (ICAAP) = Economic Capital (ECAP) = Internal management tool (ForCap) • UNEXPECTED LOSS • Bank must hold capital to ensure it will remain solvent even if it experiences an unusually adverse outcome inits activities and thereby suffers a large loss. This amount is directly proportional to the amount of risk to which the bank is exposed. • Economic capital is the appropriate tool ; Not the Pillar 1 Minimum Required Capital • The cost of capital is one of the element to be covered by the margins • EXPECTED LOSS • Bank suffers “expected losses” linked to the current operating of their activities. • Those “expected losses” are supported by the P/L • Expected losses in one of the element to be covered by the margins.

21. Model approved Ready for use In use System ready Value at default Ready for sourcing Dwh & calculator ready Other P2 risks Central DWH sourced= Pillar 1 Supervisory formula Internal Ecap method ForCap calculator P1 calculator P1 Min Req Capital P2 Adequate Capital Pillars 1 & 2Consistency

22. Agenda 1. Bank’s objectives and constraints 2. Fortis Bank overall targets 3. Relationship between the bank and its customer

23. Credit Risk: Pillar 1 Advanced IRB ApproachRisk components • Risk components are all based on bank’s own estimates • Probability of Default: is the assessment of the likelihood of default of the borrower over one year.Expressed as a %, and counterparty specific.(PD) • Loss Given Default: is the assessment of the loss incurred on a facility at default of a counterparty. Expressed as a %, and transaction specific.(LGD) • Exposure at Default: expected gross exposure of the facility upon default of the obligor. Expressed in amounts, and transaction specific.(EAD) • Maturity: the effective maturity of a credit facility with a maximum of 5 years (M)

24. Dialogue Corporate Relation Customer Internaldata Externaldata provider Customer Information Flashing lights Qualitative Quantitative Review Override Models Final PD - LGD -EAD - M Calculated PD - LGD - EAD - M Inputs calculator Credit Risk: Risk drivers