KBC Bank

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KBC Bank Insurance Group

• Investor presentation Yearend 2004

www.kbc.com
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Contact information

• Visit www.kbc.com
• Investor Relations Office Luc Cool Nele
  Kindt Marina Kanamori Tel. [phone]
  E-mail investor.relations_at_kbc.com

Ticker codes KBC BB (Bloomberg) KBKBT BR
(Reuters) BKB (Datastream)ISIN code
BE0003565737
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Disclaimer

• 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.

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Table of contents

1. Company profile
2. Developments in Belgium
3. Developments in CEE

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Company profile
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Top-20 player in Euroland banking ()
Nov 2004
Dec 2002
Dec 2003
1 BNP Paribas (35 bn) 1 BNP Paribas (45 bn) 1 BSCH (57 bn)
2 BSCH (31 bn) 2 BSCH (45 bn) 2 BNP Paribas (48 bn)
3 BBVA (29 bn) 3 Deutsche Bank (38 bn) 3 BBVA (42 bn)
4 Deutsche Bank (26 bn) 4 BBVA (35 bn) 4 Deutsche Bank (35 bn)
5 ABN AMRO (25 bn) 5 Société Gén. (31 bn) 5 Crédit Agricole (35 bn)
6 Société Gén. (24 bn) 6 ABN AMRO (30 bn) 6 Société Gén. (34 bn)
7 Unicredit (24 bn) 7 Crédit Agricole (28 bn) 7 ABN AMRO (32 bn)
8 Fortis (22 bn) 8 Unicredit (27 bn) 8 Unicredit (27 bn)
9 Crédit Agricole (14 bn) 9 Fortis (21 bn) 9 Fortis (26 bn)
10 Dexia (14 bn) 10 Intesa BCI (18 bn) 10 Intesa BCI (21 bn)
11 Intesa BCI (12 bn) 11 Dexia (16 bn) 11 Dexia (18 bn)
12 Allied Irish Banks (12 bn) 12 San Paolo IMI (15 bn) 12 KBC (18 bn)
13 Bank of Ireland (10 bn) 13 KBC (11 bn) 13 San Paolo IMI (15 bn)
14 KBC (9 bn) 14 Bco Popular (11 bn) 14 Allied Irish Banks (12 bn)
15 San Paolo IMI (9 bn) 15 Allied Irish Banks (11 bn) 15 HVB (12 bn)
16 Banco Popular (8 bn) 16 Bank of Ireland (11 bn) 16 Bank of Ireland (11 bn)
17 HVB (7 bn) 17 HVB (10 bn) 17 Bco Popular (10 bn)
18 Mediobanca (6 bn) 18 Commerzbank (9 bn) 18 Commerzbank (9 bn)
19 Bca MPS (6 bn) 19 Mediobanca (7 bn) 19 BA-CA (9 bn)
20 Bco Popular (5 bn) 20 Bca MPS (6 bn) 20 Mediobanca (9 bn)
() DJ Euro Stoxx Banks Constituents - Ranking
by Market Capitalization Situation as at 16 Nov
2004
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Prominent player in 2 core markets
Breakdown of revenue (9M 04)
Treasury other 9
Belgium 48
Financial markets 11
International corporate 7
CEE25

• KBC is a top financial player in Belgium and has
  succesfully expanded its operations in the 5 most
  advanced countries in CEE (new EU members)
• Besides these core markets, KBC is active in
  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

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Top-3 player in Belgium
Market share (1)

• Consolidated banking landscape (80-90 of market
  held by Top-4)
• Market highly receptive to cross-selling of AM
  insurance products
• KBC is particularly strong in the Northern region
  (one of the wealthiest regions in Europe)

(1) Figures for 2003. Sources FEBELFIN, KBC
Asset Management, Uw Vermogen (Flemish investment
journal)
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Top-3 player in the CEE region
International banks in CEE (by total assets, bn
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 other players, KBC limits its
  presence to new EU Member States (the Czech and
  Slovak Republics, Hungary, Poland and
  Slovenia)and is active in both the banking and
  insurance fields

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Top-3 position in the CEE region
Banking
Insurance
Czech RepublicMarket share 18 (No.
1)Inhabitants 10 mTotal assets18 bn EUR
Czech RepublicLife M share 7 (No. 4)Non-life
M share 4 (No. 6)
SlovakiaMarket share 6 (No. 4)Inhabitants 5
mTotal assets 2 bn EUR
SlovakiaLife M share 4 (No. 8)Non-life M
share 1 (No. 6)
HungaryMarket share 11 (No. 2)Inhabitants
10 mTotal assets 6 bn EUR
HungaryLife M share 2 (No. 13)Non-life M
share 4 (No. 6)
PolandMarket share 5 (No. 8)Inhabitants 38
mTotal assets 5 bn EUR
PolandLife M share 4 (No. 5)Non-life M
share 13 (No. 2)
SloveniaMinority interest (34)Inhabitants 2
mMarket share 42 (No. 1)
SloveniaLife M share 4 (No. 5)

• KBC invested 3.6 bn to acquire a prominent
  banking and insurance position in a growth market
  of 65 m inhabitants
• In Poland, KBC is looking for external growth in
  banking (lack of scale)

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Developments in Belgium
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Do not underestimate the market
Nominal GDP growth
Savings rate
KBC estimates, 2005
EU forecast report Spring 04, of GDP, 2003

• Belgian GDP outgrowing European average
  (slightly) in 2004-05
• Savings ratio amongst the highest in the world
  (every year, ca. 15 of disposable income flows
  into financial assets)
• Belgiums high savings rate a key driver for
  sustained growth of the financial industry

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KBC is well positioned
Life insurance, written premiums
Retail AUM
1998 100total market (LH)vs. KBC (RH)
1998 100total market (LH)vs. KBC (RH)
CAGR KBC 18
CAGR KBC 10

• AM and Life insurance markets growing at ca.
  8-10 per year
• KBC outgrowing the market on the back of its
  favourable position
• Especially strong in the (wealthy) Northern
  region
• Innovative product offering in retail AM (as a
  result, steadily increasing market share over
  the past 10 yrs. )
• A differentiating bancassurance distribution
  model (on the back of which life reserves grew
  gt20 p.a. over the last 3 yrs.)

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Do not underestimate the market
Mortgage loan growth
Mortgage debt / GDP per capita
Total market
CAGR 9
Source ECB
Source NBB

• Mortgages growing at 8-10 per year, driven by
  housing inflation (loan-to-value for new loans
  is typically 75)
• Real estate prices still below other European
  markets, ensuring a) sustained mortgage growth
  and b) acceptable risk position
• More modest corporate loan growth, in line with
  nominal GDP growth trend (expected at 4.2 in
  2005)

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Margin development
Spreads on new mortgages
Spreads on new small business loans
KBC
KBC

• Loan spreads increased substantialy (doubled),
  following consolidationon market at the end of
  the 90s
• Recently, renewed margin pressure on both the
  credit and deposit sides, since large players
  are eager to defend their market share
• KBCs net-interest margin in Belgium currently at
  1.97 (2.04 in 03)

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Do not underestimate the market
Core banking service fee rates
World retail banking report (EFMA) EUR, 2003

• Fee rates still cheap, allowing for further
  (gradual) repricing
• Greatest hindrance to repricing (probably) not
  from market competition, but from public opinion

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Solid credit quality
Non-secured retail loans / total loans
Loan loss charges, KBC
Source central banks
, 2003
KBC (net provisions to gross loans)

• Markets savings culture implies low demand for
  unsecured consumer lending
• Commercial loan exposure well-diversified,
  spanning a large number of SMEs (limited number
  of very large corporates)
• Credit quality proven to be solid, with low loan
  loss charges over the cycle

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Further cost reduction potential
Cost/income, total market
Cost/income, KBC Belgium
, 2003
Retail banking(incl. AM)
Banking
- 16 pp

• KBC committed to bring cost/income further down
  by
• Reducing product and business-process complexity
  (360 projects)
• Co-sourcing of back offices with other
  (international) banks, e.g.
• Orbay project with Rabobank (securities
  processing) unit cost to be reduced by 2/3,
  generating 15-20 m recurring cost savings
• Fin-Force project (cross-border payments)
• Similar areas

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Developments in CEE
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Above-average GDP growth
2005e
Real GDP growth inflation - KBC estimates
8.7
7.3
7.6
6.5

• Nominal GDP growth in 2005 expected at ca. 7 in
  the region, outgrowing EU level by ca. 3.5
• GDP expected to outgrow European averages for a
  long time(similar to previous EU entrants)

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Increasing product penetration
1997
2003
Deposits as of GDP (EMU avg 100)
Deposits as of GDP (EMU avg 100)

• Current level of financial intermediation and
  product penetration still low (e.g., 45 of the
  population in our markets have a bank account,
  30 a savings account and 5 a mortgage loan)
• Levels steadily catching up with that of the EU
• Size of retail financial sector could multiply
  five-fold in 10 yrs. time,if financial assests
  to GDP were to reach current levels of S. Europe

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Strong momentum in retail business
Mortgage loan growth
Mutual fund growth
FEFSI
Total market, 2003
Total market CEE-3, in m EUR
NBP, NMB, CNB
CAGR 48

• Retail business growing at double-digit pace
  (albeit starting from a low basis), on the back
  of a) increasing disposable income and b)
  underpenetration of financial products
• This explains KBCs (and other FIs) key focus on
  the retail market
• Corporate market more mature, including corporate
  loan growth, which is more in line with (higher)
  GDP growth trend

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Margin levels have been normalizing
Mortgage loan spreads
NMB, NBP, CNB
Total market
N/a
N/a
N/a

• Due to increased competition, margin pressure has
  already come through to a large extent
• KBCs net-interest margin currently at 2.7 in
  CR/SR (vs. 2.5 in 03), 3.8 in Hungary (vs.
  4.0) and 4.6 in Poland (vs. 4.9)
• As rates continue to converge towards euro
  levels, somewhat more margin compression
  expected to be offset by volume growth and fees

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Cost-reduction potential
Cost/income ratio
KBC

• C/I levels significantly down in the the last 2
  yrs. (except in Poland)
• Still existing efficiency gap vis-à-vis local
  market average, in the process of being closed
• In Poland, resolution to structural issue (lack
  of scale) may be critical

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Expanded horizons in CEE paying off
Banking results 9M04
In m EUR Stand-alonenet profit Contribution to Group Contribution y-o-y Return onallocated capital Return on invested capital
CR/SLK (o/w SLK) 16313 124 7 17 12
Hungary 65 25 5 19 16
Poland 32 25 - 11 6
Slovenia 65 22 - - 7
Contribution to Group profit excl. minority
interests and return on excess capital incl.
allocated Group overhead.

• Ytd figures clearly illustrating internal return
  target of 17 is achievable (except in Poland)
• Since we are closing the efficiency gap, higher
  return in these market levels seems to be within
  reach (assuming stable cost of risk)
• In Poland, returns can be further increased, but
  structural issue (scale) may be critical for
  creating value above cost of capital

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Update on restructuring efforts in Poland
Key achievements

• Risk issue adequately dealt with in 2003
• Historic loan book cleaned-up (one of the
  highest provision coverage rates on the market
  and ytd 04 provisions below market avg.)
• Risk management procedures upgraded and
  distressed asset portfolio closely monitored
• Cost basis significantly reduced
• Centralization of back offices, outsourcing of
  non-core functions and divestiture of non-core
  assets (Ukraine, Lithuania, etc.)
• Headcount reduced by 1 300 FTEs (-19)
• Renewed focus on business development as of 2H04
• Including intensive transfer of KBC know-how
• Acceleration in bancassurance and AM sales

- Risk
Clearprofitability turnaround
- Costs
Volumes
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KBC Bank Insurance Group
Foto gebouw

www.kbc.com