Remaining highly profitableon the Belgian market

Foto gebouw

Activities overview

Earnings drivers, retail

Earnings drivers, SME and corporate

Mid-term financial outlook

3

46%

24%

10%

7%11% 2%

Reminder : business portfolio

Although KBC has successfully expanded its operations in CEE, it is primarily a top bancassurer and asset manager in Belgium, its historical home market

CEE

Capital markets

International SME/corporate

Europeanprivate banking

Revenue breakdown - 2004*

Belgium :- retail bancassurance- private banking- asset management- SME and corporates

Gevaert

* 2004 pro-forma figures, excl. group items

4

0% 10% 20% 30%

Other

Argenta

ING

DEXIA

KBC

FORTIS

Client deposits

0% 10% 20% 30%

Other

ING

DEXIA

FORTIS

KBC

Mutual funds

0% 10% 20% 30%

Other

ING

KBC

AXA

ETHIAS

FORTIS

Insurance premiums

Market headlinesMarket shares:

Belgium’s banking landscape is highly consolidated (80% held by top-4 banks)

KBC is a top-3 player, especially strong in the Northern region

The market is highly receptive to cross-selling of AM & insurance products

Growth in the field of wealth management is significant (high savings rate)

31-Dec-03

5

Financial highlights, Belgium

1 Including bancassurance, private banking Belgium and asset management2 Core SME/Corporate activities only (at parent company level)

569 622725

6564

121

2002 2003 2004

Retail SME/Corporate

Financial performance in Belgium has been strong, mainly due to: Solid growth momentum for commission business (investment products in retail, non-lending income in SME/Corporate Consecutive years of cost reduction Over-the-cycle low loan losses

+8% +23%634 686

846

Net Profit (mln)

1 2

6

Business model

Segmented approach by customer group:

Basic activity (parent company)

Specific activities / segments (subsidiaries)

Retail 820 retail bank branches

600 insurance agents

Funds management (KBC AM)

Network of bank agents (Centea) and insurance brokers (Fidea)

110 branches in South Belgium (CBC)

HNW individuals 20 private banking branches

4 private banking ‘boutiques’ (Puilaetco)

SME / Corporate 1

16 branches

4 social profit and public sector branches

Multinational customers branch

Real estate activities

Corporate finance(KBC Securities)

Leasing (KBC Lease)

Factoring (International Factors)

Diamond center (Antwerp Diamond Bank)

Re-insurance (Secura)

1 Mostly SMEs (sales turnover > 8m), incl. 75 large corporate customers

Activities overview

Earnings drivers, retail

Earnings drivers, SME and corporate

Mid-term financial outlook

8

Sharp increase in productivity

Efficiencystrategy

100

93

116 115119

143

154

1998 1999 2000 2001 2002 2003 2004

+5% p.a.

+10% p.a.

Strong growth in revenue per FTE

Revenues per FTE, 1998 = 100

100 102

139

152

170

218

236

1998 1999 2000 2001 2002 2003 2004

+15% p.a.

Strong growth in revenue per branch

Revenues per branch, 1998 = 100

Sharp increase in productivity (to large extent driven by reduction in density of branches and cutback in branch FTEs)

9

+3.6%estimate

-7.5%

-4.0%

+4.2%

Cost containment has been successful

Cost inflation

3 Integration of ICT platforms and of products and support services

Cutbacks in branch FTEs and in number of branches

Cost inflation

Up to 2004: significant decline in costs

Henceforth: upward pressure on costs

2001 costs

2004 costs

2007 costs

Core retail only, excl. activities of subsidiaries

2

3

1 1

1

2

1

Target:cost growth below wageinflation rate

Efficiencystrategy

10

Strict cost control remains important

Efficiency strategy

Number of bank branchesper million inhabitants

611

537

514

427

371

289

275

245

219

200

Germany

Belgium

Italy

France

Switzerland

Japan

USA

UK

Sweden

Netherlands

Source: Febelfin

1. Wage costs in Belgium are higher than in other European countries

2. Average level of education of branch staff is higher than in other European countries

High wage costs(structural characteristic)

High density of network(Competition does not permit further branch cutbacks)

11

Trend of impairments of credit portfolio

Net write-downs vs. risk-weighted assets

0.21% 0.21%

0.09%

2002 2003 2004

Low over-the-cycle credit-loss charges

Target:< 0.25%

over-the-cycle

Risk strategy

1q05

0.00%

Credit-loss charges in Belgian retail are expected to be relatively low over the cycle (< 0.25%)

12

+1.8%

+3.0%

+6.5%

+5.7%

2001 income

Savings &investments

Lending

Insurance (excl.S&I)

Other

2004 income

+5% p.a.

Focus on revenue growth

Revenue growth in 2001-2004 partly driven by positive pricing effects

Revenue growth in 2004-2007 mainly driven by positive volume effects

½ due to positive pricing effects

+3.7%

+1.8%

+9.0%

0.3%

2004 income

Savings &investments

Lending

Insurance (excl.S&I)

Other

2007 income

Slower income growth due to

margin pressure

Mid-term ambition:maintain

growth trend

Growth strategy

Core retail only (excl. activities in subsidiaries)

Achieved+5% p.a.

revenue growth

13

Growth in savings & investments

Growthstrategy

How to grow within a mature market?

1.0%1.7% 1.8%

2.7% 3.0%

NL Germany Italy Belgium France

Market potential

Estimated nominal GDP growth rate

9.0%

15.0%

Euro zone Belgium

3.4 3.3

5.3

2002 2003 2004

1

Attracting new funds

Proven performance

Savings rate New funds attracted – in bn

31%31%30%29%29%28%28%25%23%22%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Market share of mutual funds

14

Growth in insurance field

Growthstrategy

How to grow within a mature market?

1

Attracting new funds

2Insurance

High cross-selling potential Proven performance

4% 2%17%20%24%

76% 80% 83%96% 98%

Home Family Car Hospital Accident

% bank client households w/o product

% bank client households w/ product

8%5%

8%

12% 14%

3% 3%

6% 6% 5%

2000 2001 2002 2003 2004

Bank branches Tied agents

56%

34% 40%60%

bank x bank areas (> 3 out of 6 products)

bank x insurance

2000 2004

Premium growth, non-life

X-sell results

15

Growth in lending field

Growthstrategy

How to grow within a mature market?

1

Attracting new funds

2

Insurance3

Lending

100108

118128

2001 2002 2003 2004e

Total market – Mortgage loans

CAGR 9%

Source: NBB

Small business loans:

• Moderate growth trend, in line with nominal GDP growth (+2.7% in 2005)

• But, further additional growth potential via raising amounts of advances in current account (with higher margins) and increasing non-credit-linked revenues

High expectations for growth in retail lending

Strong mortgage loans growth on the back of: sustained rise in Belgian real estate prices real estate prices still below level of other

European markets

16

Obstacles to growth

Growthstrategy

How to grow within a mature market?

1

Attracting new funds

2

Insurance

3

Lending

Sharper price competition

85%

16%

Pressure onmargins

Slowdown ineconomic

growth

Mortgages

Small business loans

Threats to growth according to analysts Hardening credit-pricing cycle

17

Catalysts for growth

Growthstrategy

How to grow within a mature market?

1

Attracting new funds

2

Insurance

3

Lending

Enhancing customer satisfaction Customer satisfaction at KBC

2001 2002 2003 (*) 2004Top-4 bancassurers only

* Extrapolation

Closure of branches

Customer-orientation program started

Would you recommend your bank to others?Yes, definitely + Yes, probably

80%

76%

71%

68%

KBC

Competitor A

Competitor B

Competitor C

Activities overview

Earnings drivers, retail

Earnings drivers, SME and corporate

Mid-term financial outlook

19

Growth in lending income

0.88%

1.06%

2002 2004

Lending income vs. RWA

Until 2004: Revenue growth driven by increased credit margins (up from 0.88%

in 2002 to 1.06% in ‘04) Despite low credit demand (and ensuing greater competition ), KBC

consolidated its market share in lending (even rising slightly from 22% in 2002 to 23% in ‘04)

Recent trends: Loan demand remains relatively limited (and competition increases

as a result) Pressure on margins makes growth in fee income a key priority

20

Growth in fee business: key priority

1.30%1.40%

2002 2004

Fee income vs. RWA

Mid-term target: > 2%

Fee revenue increased slightly in 2002-04 period due to higher sales of: corporate risk management products (average growth 15% p.a.) foreign trade products (average growth 28% p.a.) insurance products (average growth 59% p.a., but from a low base)

… offsetting stagnation of revenues from payment services (adverse impact of EU regulation)

21

Growth potential in fee income

Further growth of fee income targeted (to reach >2% on RWA) by means of: Continued growth in risk management, foreign trade and insurance products Increasing sale of ‘investment banking products’, in line with market trend,

giving SMEs direct access to capital markets (e.g., debt capital, private equity)

Implementation of training / tools to assist sales force in shifting from ‘operational’ relationship to ‘partnership’ with client

Internal performance / remuneration model increasingly focused on boosting fee income

76

38

8 7 5 5 2

-3 -4 -7Peer1 Peer2 KBC Peer3 Peer4 Peer5 Peer7

% change in commission income 2002-04*

local players

peers with substantial investment banking acitivities

* Boston Consulting survey, peers are corporate bankers in Western Europe

22

Monitoring credit riskRisk

strategy

1 KBC core SME/corporate banking excl. activities in specialized subsidiaries

0.34%

0.60%

0.07%0.00%

2002 2003 2004 1Q05

Impairments on loan portfolio 1

Mid-term target:loan loss ratio < 0.35%

LLR on RWA

Average 3yr-loan losses at 0.35%, in line with target, but rather cyclical (N.B. 2004/2005 historically low)

23

Monitoring credit risk

To maintain loan losses below ‘maximum’ level (0.35%): Increased monitoring of individual credit risks Active credit portfolio management:

avoiding risk concentration hedging credit risk exposure limits/caps on sub-portfolios (e.g., real estate, acquisition finance)

24

44%

38%

2002 2004

Strict cost control

Cost/income ratio 1

114 118

2002 2004

Efficiencystrategy

1 KBC core SME/corporate banking excl. activities in specialized subsidiaries

Expenses (m) 1

Mid-term cap:43%

Up to 2004: significant decline in C/I ratio to very low level (38%) cost inflation offset by FTE cutbacks and operational cost savings (reduced

number of branches)

Future: Continued cost control (without lessening commercial clout)

Activities overview

Earnings drivers, retail

Earnings drivers, SME and corporate

Mid-term financial outlook

26

92%72% 68%

2001 2004 2004new

14%19%

22%

2001 2004 2004 new

100%93% 93%

2001 2004 2004new

382

583725

2001 2004 2004new

Mid-term target:20%

Mid-term target:further down

to low 60s

Mid-term target:max 95%

over-the-cycle

Cost/income ratio, banking 1

Return on allocated capital 2Contribution to Group profit (m) 1

Mid-term outlook, retail

Combined ratio, non-life

1 Adjusted definition as of 2005: including asset management2 Adjusted definition as of 2005: including asset management and 8% allocated Tier-1 capital (instead of 7%)

27

3%

18%

2002 2004

1.30%

1.40%

2002 2004

2.18%

2.46%

2002 2004

65

121

2002 2004

Mid-term target:CAGR >10%

Mid-term target: >2%

Return on allocated capital, banking 1Contribution to Group profit (m) 1

Mid-term outlook, SME and corporate

Total revenue vs. RWA, banking 1

1 KBC core SME/corporate banking excl. activities in specialised subsidiaries

Mid-term target: 3.30%

Fee income vs. RWA, banking 1