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KBC Group Summer presentation June 2005. Web site: www.kbc.com Ticker codes: KBC BB (Bloomberg) KBKBT BR (Reuters) ISIN code: BE0003565737. Contact information. Investor Relations Office Luc Cool Nele Kindt Marina Kanamori Tel.: +32 2 429 49 16 investor.relations @ kbc.com

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kbc group summer presentation june 2005
KBC Group

Summer presentationJune 2005

Web site: www.kbc.comTicker codes: KBC BB (Bloomberg) KBKBT BR (Reuters)ISIN code: BE0003565737

contact information
Contact information

Investor Relations OfficeLuc CoolNele KindtMarina KanamoriTel.: +32 2 429 49 16 investor.relations @ kbc.com

Surf to www.kbc.com for the latest update.

important information
Important information
  • KBC Group’s financial accounts are presented according to IFRS reporting standards as of 1Q2005
  • As IFRS have a material impact on the way earnings are presented, this presentation is drafted to increase their visibility and to help the investment community to understand the underlying profit trends
  • KBC believes that this presentation is reliable, although some information may be condensed or incomplete
  • By receiving this presentation, each investor is deemed to represent that it possesses sufficient expertise to understand the risks involved
  • 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
  • This presentation contains forward-looking statements with respect to our earnings development. By their nature, these forward-looking statements involve assumptions, uncertainties and opportunities. The risk exists that these statements may not be fulfilled and that future results differ materially.
slide4

Financial highlights - 1Q 2005

- Group performance

- Headlines per segment

FY 2005 profit outlook

Additional information on 1Q 2005 results

2004 pro forma IFRS quarterly accounts

Foto gebouw

strong earnings momentum
Strong earnings momentum

Net profit+91% yoy

Pro forma (IFRS 2004), MergCo

As published (Bel. GAAP), KBC Old

IFRS 2005

key figures
Key figures

Notes:

(1) Related to settlement of a ‘historic’ Slovakian loan (net 68 m) and value gains on shares of Irish insurer FBD (net 68 m)

(2) Comparison with 2004 figures not fully valid since IAS 32/39 and IFRS 4 not applied to 2004 figures

(3) Comparison not relevant due to significant impact of IFRS 4 application

(4) Gross income minus technical charges, insurance, plus ceded R/I result minus operating expenses

highlights
Highlights
  • Underlying profit at 581 m*, up 32% q-o-q and 55% y-o-y
  • Strong growth of commission income (+20%) due to successful sales and management of mutual funds
  • Comparison of individual P/L lines with pro-forma 2004 figures distorted by application of IFRS 32/39 and IFRS 4 as of 2005
  • Stable interest income in adverse competitive and market-yield environment
  • Further downward trend in expenses - cost/income ratio, banking at 55 %*
  • Very low combined ratio, non-life (92%)
  • Zero credit-risk provisioning (loan-loss ratio 0%)
  • Increased profitability in all business segments
  • Satisfactory results in Poland (17 million profit contribution and zero credit cost)
  • Outlook for 2005 remains positive

* Adjusted for one-off results of 136 m

main changes ifrs 2004 2005
Main changes IFRS 2004 – 2005
  • Impact of M2M of financial instruments (IAS 32/39):
    • Impact of the M2M of hedging derivatives has been to a high degree ‘hedged’ by use of the ‘FIV’ book’ (intentional M2M of part of the bond portfolio via P&L)
    • Impact on 1Q05: -29 m (before tax and minorities), recognized under ‘trading’ income (net profit of financial instruments at fair value)
  • Net impact of IFRS 4 on insurance contracts very limited (8 m)
  • Material impact on individual I/S lines: ‘net interest income’ and ‘trading income’ (IAS 32/39) and ‘premium income (IFRS 4). The most important changes are:
    • Reclassification of interest component of hedging derivatives from ‘interest income’ (+63 m) to ‘trading income’ (-63 m)
    • No recognition of premium income (-457 m) of unit-linked insurance products (additional margin recognized as commission income: +13 m)
satisfactory quality of revenue
Satisfactory quality of revenue

Gross income (m)

3 462

3 178

3 175

2 756

2 517

Excl. one-offs (169 m) and IFRS reclassifications, solid quality of banking income: stable interest income (in adverse interest rate environment), strong commission line (+17% y-o-y) and lower trading revenue

Nominal amount dropped, mainly due to a) non-recognition under IFRS 2005 of 464 m new unit-linked premium volume, b) M2M of financial instruments (IAS 32/39) and c) lower guaranteed life insurance (-667 m q-o-q and –95 m y-o-y)

IFRS 2005

Pro forma IFRS 2004

operating expenses at low level
Operating expenses at low level

1 424

Operating expenses (m)

1 269

Cost/income of banking and asset management at 51%*

1 147

1 105

1 104

1Q05 down 13% y-o-y due to cost cutting, no provisioning for future operating expenses & timing differences (y-o-y trend not to be extrapolated to Q2)

4Q04 lifted by staff profit-sharing bonuses, marketing costs, litigation provision (KBC Bank) and restructuring provision (KBL epb)

Pro forma IFRS 2004

IFRS 2005

* C/I of 55% excl. non-recurring income

without significant impairments
Without significant impairments

152

Impairments (m)

90

79

44

Historic low level of impairment charges (loan-loss provisions: net write-backs of 3 m)

15

Pro forma IFRS 2004

IFRS 2005

excellent underwriting result non life
Excellent underwriting result, non-life

Combined ratio (%))

103%

96%

95%

92%

Very low combined ratio in most markets

Pro forma IFRS 2004

IFRS 2005

asset growth
Asset growth

Note:

(1) Growth excl. (reverse) repo’s

slide14

Financial highlights - 1Q 2005

- Group performance

- Headlines per segment

FY 2005 profit outlook

Additional information on 1Q 2005 results

2004 pro forma IFRS accounts

Foto gebouw

segment structure
Segment structure

KBC Group NV

KBCBank

KBCInsurance

KBCAM

KBL epb

Gevaert

Primary segmentation by business segment

key points business segments
Key points, business segments

BANKING

Banking:

  • Profit at record level of 470 m (402 excl. one-off), driven by:
    • Strict cost control (C/I at 55% incl. AM, excl. one-off)
    • Zero credit cost
  • Good top-line quality, not boosted by gains and trading income. Commissions were strong (up 17% y-o-y) and NII stable despite adverse interest yield climate

Insurance:

  • Results increasing to 122 m on the back of:
    • Higher capital gains (esp. FBD – net non-recurring impact: 68 m)
    • Low impairment charges on portfolios (extremely high in 1Q04)
    • Excellent underwriting performance (CR, non-life 92%)
  • Interest income stable in spite of increased reserves invested due to interest yield context
  • Capital gains expected to be lower in coming quarters

Net profit (m)

IFRS 2005

Pro forma IFRS 2004

INSURANCE

Net profit (m)

IFRS 2005

Pro forma IFRS 2004

key points business segments1
Key points, business segments

Asset management:

  • AUM in 1Q05 up 8% to 85.2 bn on the back of new money entries
  • Profit contribution at 58 m, +7 m y-o-y (driven by increased AUM), down 8 m q-o-q (exceptionally high dividend income in Q4)
  • Note: total 3rd assets of the group: 150.7 bn
    • Asset management segment: 72.3 bn (3rd party) + 12.9 bn (group assets)
    • Banking segment: 28.7 bn (mostly private and HNWI assets in Belgium and CEE)
    • European private banking segment: 49.7 bn (o/w 46.0 bn of private customers via epb network)

European private banking:

  • Profit contribution at 53 m, up 10 m y-o-y and up 83 m q-o-q (Q4 heavily depressed by one-off restructuring provisions)
  • Top-line at high level (partly due to M2M of financial instruments) with sustained growth trend of commission income
  • Private banking AUM in 1Q05 up 6% to 49.7 bn
  • Cost/income at 63%
  • No relevant impairment charges

Net profit (m)

ASSET MANAGEMENT

IFRS 2005

Pro forma IFRS 2004

Net profit (m)

EUROPEAN PRIVATE BANKING

IFRS 2005

Pro forma IFRS 2004

key points business segments2
Key points, business segments

Net profit (m)

GEVAERT

Gevaert:

  • Profit contribution of 32 m, slightly higher than previous quarters (remind that in 2Q04 discontinued activities weighed heavily on the P/L)
  • Revenue shored up by M2M of private equity portfolio (15m) (according to IFRS standards)
  • Profit contribution from Afga Gevaert: 8m

Holding company:

  • Net holding company costs at 18 m, somewhat above 2004 quarterly average due to increased debt leverage related to the minority buy-out of KBL (+530 m).
  • Debt funding will be gradually reduced in the next quarters

IFRS 2005

Pro forma IFRS2004

HOLDING COMPANY

Pro forma IFRS 2004

IFRS 2005

Net profit (m)

segment structure cont d
Segment structure – cont’d

2

KBC Group NV

1

KBCBank

KBCInsurance

KBCAM

KBL epb

Gevaert

Retail

SME/Corporate

CEE

Markets

European private banking

1 . Primary segmentation by business segment

2. Additional breakdown by area of activity

Gevaert

reminder
Changes as of 1Q 2005:

Allocation of capital:

Tier-1 of 8% (with 15% hybrid), previously 7%

No further allocation of goodwill

Integration of ‘Asset management’ business into retail and corporate divisions

Additional areas: ‘European private banking’ and ‘Gevaert’ *

Use of IFRS reporting standards

Areas of activity in 2005: *

Retail bancassurance (mainly in Belgium)

Central and Eastern Europe

Corporate services (SME and corporates)

Market activities

KBL European private banking

Gevaert

Reminder

* Best-efforts approach for 2005 – will be reassessed in the future

retail belgium and cee
Retail Belgium and CEE

Retail Belgium:

  • Net profit in line with previous quarter and 3x higher y-o-y driven by:
    • sound revenue growth (investments-related)
    • sustained cost discipline
    • absence of credit provisioning and strong non-life underwriting performance
    • normalization of value impairments on the investment portfolio (delta of 115 m)
  • ‘Private banking Belgium’ sub-segment contributes 17m
  • ROAC at 33% (pro forma FY04: 22%)

CEE:

  • Profit contribution of 191 m, of which 181 m in banking (of which 68 m one-off) and 10 m in insurance. ROAC at 66% (pro forma FY04: 27%)
  • In CR/Slovakia: strong quarter (150 m), though backed by one-off (68m) and M2M of derivatives (20m) and zero credit provisioning
  • Hungary: further positive development of operating results, but higher loan-loss provisions (LLR 0.73%, similar to that of major peers). Profit at 10 m
  • Poland: strong quarter (23 m, of which 17 m in banking) with improved C/I and zero credit provisioning

Net profit (m)

RETAIL BELGIUM

Pro forma

Net profit (m)

CEE

Pro forma

earnings momentum in cee banking
Earnings momentum in CEE, banking

CSOB, C/S Rep.

Kredyt Bank, Poland

In m EUR

In m EUR

1Q05 ROAC: 120%

1Q05 ROAC: 32%

NLB, Slovenia

K&H, Hungary

In m EUR

In m EUR

1Q05 ROAC: 17%

* Pro forma

sme and wholesale activities
SME and wholesale activities

Net profit (m)

SME/CORPORATE

SME/corporate:

  • Strong profitability trend of 2004 continues as a result of, inter alia:
    • absence of loan losses
    • sustained solid technical result from reinsurance
  • Quarterly profit level even higher than that of previous quarters, thanks in particular to a commercial real estate transaction (12 m)
  • ROAC at 25% (pro forma FY04: 19%)

Capital markets:

  • Profit contribution continues to be at level registered in previous quarter, but below record high of 1Q 2004 (when exceptionally fine results were booked in share and bond derivatives)
  • Income form convertibles & equity derivatives trading was particular weak
  • ROAC at 42% (pro forma FY04: 34%)

Pro forma

Net profit (m)

CAPITAL MARKETS

Pro forma

2005 profit outlook
2005 profit outlook
  • The profit for the quarter cannot be extrapolated to the entire year. Nevertheless, KBC continues to be positive for the rest of 2005
  • Tight cost control is being maintained
  • There are no signs of any substantial decline in credit quality
  • The impact of M2M of financial instruments has so far been relatively limited, due among other things to a adequate ‘hedge policy’, which will continue to be implemented
  • The interest rate environment is a factor of uncertainty
  • Reiteration/reconfirmation of previous guidance: 2005 net profit will be at least1 825 m (= adjusted pro-forma figure for 2004)
  • KBC will renew its financial objectives (previously set for the period 2002-2005) taking into account the impact of IFRS and the group enlargement. Disclosure on 23 June 2005.
slide25

Financial highlights - 1Q 2005

- Group performance

- Headlines per segment

FY 2005 profit outlook

Additional information on 1Q 2005 results

2004 pro forma IFRS quarterly accounts

Foto gebouw

gross income reconciliation
Gross income - reconciliation

As of 1Q04: ‘gross’ instead of ‘net premium’

As of 1Q05: excluding unit-linked volumes

As of 1Q04: incl. insur. sales commissions (-) and KBL’s fee income (+)

3 462

Investment income insurance largely to ‘interest income’

3 178

3 175

2 756

2 517

1Q05: IFRS reclassification from ‘trading’(-) to ‘interest’(+)

As of 1Q04: incl. insurance and KBL

Pro forma (IFRS 2004), MergCo

As published (B-GAAP), KBC Old

IFRS 2005

Gross earned premium

Net interest incomeNet fee & commission income

Net realized gains AFSDividend income, net gains from FI at FV, other income.

operating expenses reconciliation
Operating expenses - reconciliation

Banking +AM

Insurance

4Q04 lifted at KBL by restructuring provision

Holding Co

KBL epb

1 424

Gevaert

1 269

1 147

1 129

1 105

1 103

1 104

1 071

1 004

IFRS reclassification as of 1Q04: paid commissions to ‘commission income’

4Q04 lifted by staff profit-sharing bonuses and marketing costs

IFRS reclassification as of 1Q04: incl. operating provisions

1Q05 down due to cost cutting, low provisioning & timing differences

Pro forma (IFRS 2004), MergCo

As published (B-GAAP), KBC Old

IFRS 2005

impairments reconciliation
Impairments - reconciliation

1Q04: high equity impairments (under IFRS, impact not compensated by write-back of dedicated provisioning, as was the case under B-GAAP)

Under IFRS, no further amortization of goodwill (avg. 10m/Q)

152

KBL/Gevaert’s 18 m write-back explains delta with B-GAAP

11 m real-estate impairments

90

79

Zero credit-loss provisioning

44

15

KBL’s 10 m write-back explains delta with B-GAAP

KBL’s 10 m provisioning explains delta with B-GAAP

Pro forma (IFRS 2004), MergCo

As published (B-GAAP), KBC Old

IFRS 2005

slide35

Financial highlights - 1Q 2005

- Group performance

- Headlines per segment

FY 2005 profit outlook

Additional information on 1Q 2005 results

2004 pro forma IFRS quarterly accounts

Foto gebouw

important information1
Important information
  • Pro forma figures 2004 are drafted according to the European IFRS. It is important to highlight that the impact of IFRS 32/39 on the valuation of financial instruments and of IFRS 4 on insurance contracts is therefore not included. As a result, the 2005 figures (which include the impact of the stated valuation rules) are not fully comparable with 2004 pro forma figures.
reminder impact on fy2004 accounts
Reminder: impact on FY2004 accounts

Impact on own equity *

Impact on P/L *

in m EUR

in m EUR

* Pro forma 2004 (excl. IAS 32/39 and IFRS 4) versus Belgian GAAP

impact of ifrs standards on 1q 2004
Impact of IFRS standards on 1Q 2004

Impact on P/L 1Q04 *

Impact on own equity 31Mar04*

in m EUR

in m EUR

* Pro forma 2004 (excl. IAS 32/39 and IFRS 4) versus Belgian GAAP