Earnings Statement KBC Group, 2Q 2010 and 1H 2010

Regulated information* - 5 August 2010 (07.00 a.m. CEST)



Summary

KBC ended the second quarter of 2010 with a net profit of 149 million euros,
compared with a net profit of 442 million euros in the previous quarter and 302
million euros in the corresponding quarter of 2009. Excluding exceptional items,
the 'underlying' net result for the quarter under review came to 554 million
euros, compared with 543 million euros in 1Q 2010 and 409 million euros in
2Q 2009.

As a result,  net profit came to 591 million in the first six months of the
year, as opposed to a net loss of 3 298 million euros in the first half of 2009
(which included a significant CDO-related loss in the first quarter of 2009).

Jan Vanhevel, Group CEO: 'Overall, we are satisfied with the result for the
second quarter of the year. Our underlying business result, derived from
focusing on our core markets and activities, came to an excellent 554 million
euros, thanks to continuing good revenue generation combined with an ongoing
decrease in credit costs. A number of exceptional items, which  have led on
balance to a negative impact of some 400 million euros on the results, brought
the reported net profit to a positive 149 million euros in the quarter under
review. These items are to a large extent linked to our wind-down programme,
which we are executing at a steady pace.'


Financial highlights 2Q 2010

Jan Vanhevel, Group CEO, summarises the underlying business performance for
2Q 2010 as follows:

  * Underlying, net interest income from our deposit and lending business stood
    at 1 394 million euros. The average net interest margin stood at 1.87%,
    compared to 1.82% in the previous quarter. Deposit and credit spreads
    remained healthy both in Belgium and in Central Europe.
  * Fee and commission income amounted to 454 million euros, up 16%
    year-on-year. This figure confirms the positive trend we have seen, although
    the global economic scenario impacting the business is one of moderate and
    fragile growth.
  * Net gains from financial instruments at fair value, which includes dealing
    room activities, were impacted by a difficult quarter and stood at 147
    million euros (320 million euros in the previous quarter).
  * Our operating expenses continue to bottom out and came to 1 150 million
    euros, compared to 1 158 million euros in the previous quarter.
  * The turn in the credit cycle we highlighted last quarter seems to have been
    confirmed this quarter, with loan loss provisioning of 278 million euros.
    This compares to 355 million euros in the previous quarter and 567 million
    euros a year ago. The credit cost ratio came to 0.77% for the whole group
    year-to-date. Notably in Central Europe this ratio has moved from 1.70% in
    2009 to 1.23% year-to-date 2010. In Merchant Banking, the credit cost ratio
    came to 1.03% for the first half of 2010, down from 1.19% for 2009.
  * At the end of the current quarter, the KBC group has generated excess
    capital over the 10% tier-1 target of roughly 3 billion euros (including the
    effect of the sale of KBL EPB).


    Headlines of underlying performance per business unit:
  * All business units contributed positively to the net underlying result.
  * In Belgium, income from net interest and from fees and commissions has
    remained at a satisfactory level and has been driving the revenue side.
    Combined with operating expenses bottoming out, this has led to a good 298
    million euros profit contribution in the quarter under review.
  * Year-on-year, higher revenues in Central Europe combined with lower
    impairment charges led to a bottom line of 112 million euros. Notably higher
    insurance premium income has been offset by the higher claims resulting from
    the flooding in Central Europe. As an overall conclusion, Central Europe
    continues to perform well.
  * The dealing rooms of the Merchant Banking Business Unit have been faced with
    a tough environment, resulting in a sizeably lower net result for these
    activities. The commercial banking activities have been thriving under a
    good climate though, resulting in stable revenues and substantially lower
    impairment charges, mainly in Ireland. The total bottom line for Merchant
    Banking amounted to 121 million euros.
  * It should be noted that all planned divestments of the KBC group are not
    included in the respective business units, but have been grouped together in
    the Group Centre. The aim here is to clearly indicate the financial
    performance of the long-term activities and the planned divestments
    separately. In 2Q 2010, the Group Centre's net result came to 23 million
    euros.

    The quarter was also characterised by a number of one-off items that were
    not part of the normal course of business and were therefore excluded from
    the underlying results. Their combined impact in 2Q 2010 amounted to a
    negative 0.4 billion euros. The main items were as follows:
  * At the end of April, the Belgian tax authorities ruled positively that a
    waiver of intercompany debt related to CDO-linked losses incurred in past
    years, is tax deductible, provided certain conditions are met. In practice,
    this means KBC was able to book a positive deferred tax of 0.4 billion euros
    in the second quarter of 2010, partly compensating the losses it has
    suffered in previous periods.
  * The sale of KBL EPB resulted in a goodwill impairment of 0.3 billion euros,
    which was recognised in the results during the second quarter, despite the
    fact that the sales transaction has not yet been closed . This is expected
    during the second half of the year.
  * A valuation markdown of CDO exposure in the amount of 0.2 billion euros,
    resulting mainly from the worsening credit environment.
  * A trading loss of 0.1 billion euros, related to 'legacy' structured
    derivatives positions within KBC Financial Products (Merchant Banking
    Business Unit). As mentioned in the previous quarters, additional losses
    cannot be excluded for the next few quarters of 2010 as we continuously
    unwind our risk exposure.
  * The marked-to-market valuation of trading derivatives for hedging purposes
    suffered from a negative credit environment during the second quarter,
    resulting in a 0.3 billion euro-markdown (pre-tax). The main driver has been
    the increase in credit spreads, particularly in the PIIGS countries and in
    Belgium.




First six months of 2010: results per heading

Explanations  per heading  of the  IFRS income  statement for  the first half of
2010 (see summary table on the next page):

  * The net result for the first six months of the 2010 financial year amounted
    to 591 million euros, compared to -3.3 billion euros a year earlier, which
    included significant losses related to CDOs and shares in the first quarter,
    among other things. Excluding exceptional items, the underlying net result
    for the first six months of 2010 totalled 1097 million euros, up 25% on the
    figure for the first six months of 2009.
  * Net interest income came to 3 086 million euros, up 11% year-on-year. On a
    comparable basis, credit volumes were down on their year-earlier level
    (mainly in Merchant Banking), while customer deposits were up. The net
    interest margin moved to 1.84% in 1H2010, up from 1.79% a year earlier.
  * Gross earned insurance premiums stood at 2 392 million euros, down 7% on the
    year-earlier figure. Net of technical charges and the ceded reinsurance
    result, technical insurance income came to 147 million euros. The claims
    level continued to be high during first half of 2010 because of factors such
    as storm Xynthia and flooding in Central Europe.
  * Net fee and commission income amounted to 658 million euros, up 28% on the
    year-earlier level. Commission-based business continues to recover in volume
    terms after the historical low levels due to the financial crisis.
  * Net (un)realised gains from financial instruments at fair value (trading and
    fair value income) came to -733 million euros. On an underlying basis (i.e.
    excluding exceptional items such as value adjustments on structured credits,
    losses related to activities of KBC Financial Products that are being wound
    down etc.), trading and fair value income amounted to 467 million euros,
    compared to 551 million euros in 1H 2009.
  * The other income components were as follows: dividend income from equity
    investments amounted to 56 million euros (77 million euros a year earlier),
    net realised gains from available-for-sale assets (bonds and shares) stood
    at 50 million euros (33 million euros a year earlier) and other net income
    totalled 280 million euros (266 million euros a year earlier).
  * Operating expenses came to 2 116 million euros, down 16% year-on-year. This
    is obviously due to our strategic refocus programme where activities are
    being wound down. The underlying cost/income ratio for banking - a measure
    of cost efficiency - stood at 52%, compared to 56% for the first half of
    2009.
  * Impairment on loans and receivables stood at 633 million euros, 28% lower
    than in 1H 2009, thanks mainly to Central Europe and Merchant Banking
    (notably in our ABS and our Irish portfolio). As a result, the annualised
    credit cost ratio for 1H 2010 amounted to 0.77%, down on the figure of
    1.11% for 2009 as a whole. Other impairment charges totalled 47 million in
    1H 2010 and related to available-for-sale assets (shares and bonds; 17
    million euros), goodwill on subsidiaries (28 million euros) and other
    impairment charges (2 million euros).
  * Income tax amounted to a positive 140 million euros in the six months under
    review. This figure includes a positive deferred tax asset of 0.4 billion
    euros.
  * Net post-tax income from discontinued operations amounted to a negative 271
    million euros. This comprises the results and impairment related to the sale
    of KBL EPB, which are regrouped in this single line under IFRS accounting
    rules (reference figures were adjusted accordingly).
  * At the end of the first half of 2010, total equity came to 17.8 billion
    euros. This constitutes an increase of 0.6 billion compared to the start of
    the year, which is predominantly due to the inclusion of the positive result
    for the first six months of 2010. The group's Tier-1 capital ratio - a
    measure of financial strength - stood at a sound 11.4% of risk-weighted
    assets. Disregarding KBL EPB, the pro forma Tier-1 ratio even amounted to
    approx. 12.2%.



Strategy highlights and main events

  * In the second quarter of the year, we continued to implement our strategic
    refocusing exercise, and even managed to complete one of our most important
    projects in terms of capital release, namely the sale of our European
    private banking network (KBL EPB). In May, the agreement was signed for the
    sale of these activities to the Hinduja Group of India for 1.35 billion
    euros. This led to the release of 1.3 billion euros' worth of capital
    (partly thanks to the reduction of 5.5 billion euros in risk-weighted
    assets).
  * Over and above this project, we also made progress concerning some other
    divestments, such as the sale agreements on both the UK activities and the
    Dublin activities of KBC Asset Management through a management buyout and
    sale to RHJ International, respectively. Other companies that have been the
    subject of a signed sales agreement are Secura (to QBE), BIC (management
    buyout), KBC Peel Hunt (management buyout) and the global convertible bond
    and Asian equity derivatives business of KBC Financial Products (to Daiwa).
    All of these projects are expected to be closed in the coming months. We
    also completed the novation transactions reducing significantly the group's
    credit derivatives (as part of the restructuring of KBC Financial Products)
    to the tune of approx. 1.5 billion euros in risk-weighted assets in 2Q2010.
    The gradual run-down of the credit portfolio outside the home markets is
    progressing well too: at the end of June 2010, some 50% of the intended
    organic risk-weighted assets reduction in the international credit portfolio
    was already realised. Preparations to float a minority stake in our Czech
    banking subsidiary are well progressed. The disentaglement process for our
    Belgian supplementary sales channels (Centea and Fidea), which is designed
    to prepare these companies for sale, has been completed, which means we are
    on standby for the launch of the sales process in the second half of the
    year.
  * As stated on previous occasions, KBC intends to redeem the core capital
    securities issued to the State largely by retaining earnings and releasing
    capital currently tied up in non-core assets, which are earmarked for
    divestment. KBC also intends to maintain a regulatory Tier-1 capital ratio
    of 10%, of which 8% core capital, according to the Basel II banking capital
    adequacy rules (in a first phase, the core capital also includes the core
    capital securities issued to the State).
  * Concerns have arisen during the second quarter about financial institutions'
    exposure to government bonds. In this respect, it is worth mentioning that
    following a reduction in both the banking and trading book, KBC's exposure
    to Greek sovereign bonds dropped to 1 billion euros as at 30 June 2010. More
    information on KBC's sovereign bond exposure to a selection of Southern
    European countries is provided in the 'Consolidated Financial Statements'
    section of the quarterly report.
  * The CEBS organised a stress test for 91 European Banks as a way of checking
    solvency strength. KBC was pleased to have passed the test with a Tier-1
    ratio of 9.4% in an adverse scenario, with additional government bond shocks
    applied. Obviously, KBC conducts regular internal stress tests based on its
    own risk management framework.





* This news item contains information that is subject to the transparency
regulations for listed companies.



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