KBC Group

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KBC Group

• Is it important to participate in the
  Pan-European Consolidation ?Goldman Sachs
  Conference, June 2006

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Important information for investors

• This presentation is provided for informational
  purposes only. It does not constitute an offer to
  sell or the solicitation to buy any security
  issued by the KBC Group.
• KBC believes that this presentation is reliable,
  although the information is condensed and
  therefore incomplete.
• This presentation contains forward-looking
  statements, involving numerous assumptions and
  uncertainties. The risk exists that these
  statements may not be fulfilled and that future
  developments differ materially. Moreover, KBC
  does not undertake any obligation to update the
  presentation in line with new developments.
• By reading this presentation, each investor is
  deemed to represent that it possesses sufficient
  expertise to understand the risks involved.

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Growing consolidation optimism
MA activity European banking sector (in bn USD)

• Over the last 2 yrs., bankers have shown
  increasing MA optimism with an increasing
  cross-border dimension, partly driven by
• Strong profit growth (sectors 2004-05 CAGR gt30)
• Solid equity markets sector return (gt50 since
  start of 2004)
• MA activity prompting new MA activity
  (self-fulfilling catalyst)

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Growing consolidation optimism (2)

• In the coming years, cross-border consolidation
  in Europe may become even more intensive on the
  back of
• (Sustained) favourable economic environment
• Large capital surplus (and limited organic
  reinvestment opportunities)
• Search for growth areas / exposure to emerging
  economies
• Search for economies of scale
• Attempts to become larger in order to combine
  capital base or to leverage capital arbitrage
• And not least fear of being left behind (or
  taken over)

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Growing consolidation optimism (3)
European and US banks, ranking per market cap
Scale differences between US and EU refer
especially to top-3(no significant differences
in lower ranking)

• Eye-opener is the European market so
  unconsolidated? (compared to the US)

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KBCs consolidator track record
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• 1998 Belgian domestic merger of equals (3
  parties) Rationale
• Unlocking cross-selling potential (bancassurance)
• Reducing overlaps of systems and distribution
  channels
• Combining capital resources (to fund
  international growth)
• 1999-2003 First mover in CEE-5 acquisitions
  (step 1), followed by local, in-country mergers
  (step 2)
• Rationale for step 1 growth
• Rationale for step 2 strenghtening of market
  positions
• 2004-2005
• Study of various add-on acquisitions in CEE
  (Poland, Bulgaria, Romania, Croatia)
• Study of cross-border transaction scenarios in
  which equal forces would be joined at CEE-level
  
• However, no transactions have been realised

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KBCs consolidator track record (2)

• What we learned over the past few years?
• We have gone through various deal types with
  different geographic scopes
• In many fields, our experience saw confirmation
  of conventional wisdom that MA benefits may
  easily be overestimated (or underestimation of
  execution risk)
• On day 1, all MAs destroy valuevalue creation
  comes later
• Cross-border barriers are real (cultural,
  regulatory, linguistic differences, the political
  agenda, etc.)
• A merger of equals is a complex delicate
  process (especially in cross-border cases)
• Scale is (highly) important but not in all
  fields to the same extent
• Asset inflation has been high return on (new)
  investments are at risk

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Our view on the future
Household debtand GDP per capitain Europe
Householdsdebt/GDP
CEE
GDP per capital (USD)
Belgium

• Over the past year, KBC has strenghtened its
  bancassurance position in its historic market,
  Belgium (representing 55 of FY05 Group income),
  while building up an additional franchise in 5
  CEE countries (25 of income)
• By doing so, KBC managed to secure long-term
  growth propsects
• Growth in Belgium is surprisingly high, driven by
  strong wealth flows and a still low-endebted
  private economic sector
• The CEE region obviously is a double-digit growth
  franchise on the back of higher economic growth
  and an underpenetrated consumer base

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Our view of the future (2)
Market share of 5 largest banks per country

• We are operating in markets with relatively high
  concentration no need for further domestic
  consolidation (except in Poland)
• In the markets in which we operate, buying time
  is largely over(few opportunities, high asset
  prices)

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Our view of the future (3)
Return versus scale Europes top 50 and
Belgiums top 10
ROE In
Total assets In millions of EUR
Source McKinsey, 2003 data

• In retail financial services, scale in itself is
  not necessarily a decisive factor in our view
  (retail local SME business still highly
  dependent on confidence and local presence)
• However, it is vital
• to hold significant market share (10 to 20) in
  the individual markets
• to excel in the implementation of operating
  models

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Our view of the future (4)

• KBC therefore focuses on
• Strenghtening current franchises further
• Highly performing distribution channels
• More sophisticated product offering (in areas
  such as SME, HNWI,)
• Intelligent marketing
• Adequate customer service
• gt Moreover, add-on acquisitions may take place to
  further strenghten local market positions
  (dependent on opportunities)
• Ensuring lean operations and use of scale in
  areas where this is relevant, such as
• Wholesale activities (incl. leasing asset
  management)
• Technology and technology-driven transaction
  processing
• gt Moreover, operational alliances with
  third-parties (co-sourcing) may be set up
  in certain areas to generate scale effects

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Our view of the future (5)
KBCs role in future MA transactions
KBC as an acquirer KBC in a merger of equals KBC as a target
At the level of the entire group Highly improbable(focused strategy capital restrictions) Highly improbable(locked by shareholder syndicate) Highly improbable(locked by shareholder syndicate)
In-local-market scope Add-on investments possibleif clear strategic fit / return, but few opportunities available (e.g., in Poland) Add-on investments possibleif clear strategic fit / return, but few opportunities available (e.g., in Poland) Highly improbable(no material divestment plans in home markets)
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Conclusion

• is it important to participate in the
  Pan-European Consolidation trend?
• Maybe
• But , in our view, not for a company with our
  profile, i.e.
• Focus on retail and local companies
• Assured organic growth potential CEE and
  (surprise?) Belgium
• Sufficient levers for cross-border scale effects
  intra-group via co-sourcing
• No capital constraints to fund growth, open mind
  for periodically considering return of surplus to
  shareholders

• gt Confidence that our stand-alone business case
  includes growth, value and low(er) execution risk

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Additional information
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KBC at a glance

• COMPANY PROFILE
• Top-20 financial player in Europe with a 32 bn
  euros market cap
• Active in banking, wealth management and
  insurance with a strongly integrated business
  model
• Focus on retail and SME
• Key geographical markets
• Top-3 position in Belgium (3m customers)
• Top-3 position in CEE(9m customers)

• SHAREHOLDER PROPOSITION
• Attractive franchises
• Interesting growth potential CEE and
  (surprise?) Belgium
• Winning bancassurance model
• Modest risk profile
• Capital discipline
• Dvidend policy oriented towards yearly
  increasing dividend
• Conservative investment policy
• 2006 share buy-back (1 bn)
• Increased share visibility, liquidity,
  transparancy

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Solid growth potential
Total loans Mortgages Customer deposits Life reserves AUM
Growth, 1Q06 (y/y) 12 23 8 40 27
Belgium 9 16 0 43 28
CEE 15 36 18 38 44

• By selecting its core markets, KBC managed to
  secure long-term growth prospects
• Growth in Belgium is surprisingly high, driven by
  strong savings flows (AM / Life) and a still
  underleveraged private economic sector
• The CEE region obviously is a double-digit
  franchise on the back of higher economic growth
  and an underpenetrated consumer base

Note growth trend excl. (reverse) repo and
interbank activity
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Financial track record
Return on equity
Net profit
In m EUR
39
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• Over the last yrs, the financial performance
  improved significantly.
• In 2005, net profit was up 39, resulting from
  solid revenue dynamics and also supported by
  historically low loan losses. This trend
  continued in 2006 Q1 net profit was up 37.

Pro forma for the new KBC group
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Capital deployment 2006-07 initiatives
Objective Allocation of management time Allocation of capital
Strengthening CEE- Buy-out of third parties- Acquisitions- Accelerated organic growth
Strengthening the private banking franchise
Strengthening the Belgian franchise
Distribution excellence
Lean operations
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• We identified additional growth options in order
  to strengthen the current franchises and to
  ensure distribution excellence and lean
  processing
• If we execute them rightly, they will enable KBC
  to safeguard its growth prospects in the long term

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Contact information

• Investor Relations OfficeLuc Cool, Head of
  IRE-mail investor.relations_at_kbc.com
• Surf to www.kbc.com for the latest update