Earnings Statement KBC Group, 3Q 2009

Regulated information* - 13 November 2009 (07.00 a.m. CET)

Summary

KBC ended the three months to September 2009 with a net profit of 528
million euros. Excluding exceptional items, an underlying net  profit
of 631  million euros  was  achieved, 54%  higher than  the  previous
quarter and  up  15% compared  to  the  third quarter  of  2008.  Jan
Vanhevel, Group CEO: 'Although volume trends remain sluggish for  the
time being, business margins continue to be resilient and charges for
problem loans  are  lower. The  figures  presented in  this  earnings
statement provide evidence  of the underlying  earnings power of  the
group. The operating  environment further  gradually improved  during
the third quarter and leading  indicators are signalling that we  are
past the bottom of the economic cycle.'


.
Financial highlights - 3Q 2009

Jan Vanhevel, Group CEO summarises the underlying business
performance for 3Q 2009 as follows:

* 'On an underlying basis, interest income grew by 3%
  quarter-on-quarter and 17% year-on-year. While volume growth slowed
  in core markets and international loan exposure has  been reduced,
  the net interest margin remained healthy. The average net interest
  margin for the banking operations stood at 1.86%, compared to 1.78%
  for the previous quarter.'
* 'Still a mixed picture for non-interest income. Trading results
  were solid, even some 5% above the strong level of the previous
  quarter. Fee and commission income was up 2% on the previous
  quarter, benefiting further from the improved investment climate,
  though it is still, as yet, too early for a further marked rebound
  of asset-management-driven fee and commission income. Insurance
  premiums increased compared to the year-earlier quarter, but total
  insurance revenue suffered from lower investment yields.'
* 'Since late 2008, major efforts have been made to reduce costs.
  Following a marked consecutive decrease in previous quarters, the
  cost trend is bottoming out. Operating costs ended 4% lower
  year-on-year.'
* 'Compared to the previous quarter, loan losses were lower by 210
  million euros or -37%. Loan losses were considerably lower for the
  international loan book in the merchant banking unit, and also in
  Belgium. In Central & Eastern Europe, additional loan provisions
  were set aside for corporate Russia and the unsecured consumer
  finance business in Poland, two particular areas of higher risk. In
  other parts of the CEE region, loan losses were roughly stable. In
  Ireland, they were down somewhat to 40 million euros, bringing the
  year-to-date loan loss ratio to 0.74%.'

Headlines of underlying performance per business unit:
* With total income slightly up and costs and impairment charges
  slightly down compared to the previous quarter, a good pre-tax
  performance was posted again in the Belgium Business Unit. After
  tax, net profit remained stable at a fairly high level, bringing
  the year-to-date return on allocated equity to 32%.
* Compared to the preceding quarter, the net result for Central and
  Eastern Europe was impacted by additional loan impairment for
  Russia (15 million euros higher, mainly related to corporate
  credit) and Poland (13 million euros higher, mainly related to
  consumer finance). The year-to-date credit cost ratio for the
  entire region edged up to 1.83%. In the fourth quarter, additional
  loan loss provisions for Polish consumer finance are anticipated;
  however, total credit costs in Central and Eastern Europe and
  Russia for the full year are expected to remain within the
  2.00%-2.30% range (cf. earlier guidance). KBC is now planning to
  refocus its consumer finance activities in Poland, moving away from
  the stand-alone specialist model and towards an integrated
  bancassurance distribution model.
* In merchant banking, there was a major recovery of net profit on
  the back of falling corporate loan provision charges (even when
  excluding the non-recurrence of general provisions set aside in 2Q
  2009 for the US mortgage-backed securities portfolio). Results for
  capital market activities also remained solid.
* Results for the European Private Banking Business Unit were down
  slightly on the previous quarter, because some restructuring
  charges were posted. On the revenue side, increased
  securities-related income was offset by lower interbank income
  earned on available excess liquidity.
The quarter was also characterised by a number of one-off items  that
were not part of the normal course of business and were excluded from
the presented underlying results. The main items were:
* A value mark-up of KBC's CDO exposure was generated in the amount
  of +0.2 billion euros, net, primarily resulting from the further
  easing of market prices for corporate credit risk;
* A positive impact of +0.1 billion, after tax, was realised when
  perpetual subordinated hybrid Tier-1 securities were repurchased
  following a public tender offering; this repurchase also had a
  positive effect (+0.19%) on the core Tier-1 ratio of the group;
* A fair value change of KBC's own debt issued of -0.2 billion euros,
  net, was recognised due to the improvement of KBC's own credit
  default swap spread;
* A net present value change of the CDO guarantee fee of -0.1 billion
  euros, net, was posted, since the downwards shift of the interest
  yield curve resulted in lower discount rates used for the net
  present value calculation;
* A trading loss of -0.1 billion euros, net, was posted related to
  'legacy' structured derivatives positions within KBC Financial
  Products (Merchant Banking).

Financial highlights - 9M 2009
Explanations per heading  of the  income statement for  9M 2009  (see
summary table on page 5):
* The net result for the first nine months of 2009 amounted to -2.8
  billion euros. This figure includes exceptional items (totalling
  -4.3 billion euros, net), such as value losses on CDO investments,
  the fee paid for the guarantee bought to cover the remaining
  CDO-linked exposure and position losses of discontinued trading
  activities. Adjusted for those items, (underlying) profit came to a
  positive 1.5 billion euros.
* Net interest income came to 4.5 billion euros, up 21% year-on-year
  (+12% on an underlying basis). While volume growth slowed down,
  margins recovered significantly at the start of 2009. As at 30
  September 2009, the customer loan book (excluding reverse repos)
  stood, on an organic basis, 4% below the year-earlier level (up 2%
  in Belgium, but down 1% in Central & Eastern Europe and 8% in
  Merchant Banking). The net interest margin for banking came to
  1.81%, up from 1.68% for the first nine months of 2008.
* Gross earned premiums in insurance stood at 3.7 billion euros, up
  16% on the year-earlier figure. Net of technical charges and the
  ceded reinsurance result, income came to 324 million euros. The
  combined ratio for the non-life insurance activities came to a
  favourable 94%.
* Dividend income from equity investments amounted to 108 million
  euros, markedly lower than the 195 million euros reported for the
  first nine months of 2008. The equity investment portfolio shrank
  (to 1.9 billion euros, down from 2.7 billion euros at the start of
  the year) while corporate dividend payouts were also generally
  lower.
* Net gains from financial instruments at fair value came to -3.8
  billion euros. Although sales and trading activities on money and
  debt securities markets performed well, this income heading was
  strongly impacted by net negative value adjustments on structured
  credit exposure (including the cost of the acquired guarantee) and
  the marking down of discontinued derivative positions. On an
  underlying basis, this income heading came to +886 million euros.
* Gains from available-for-sale assets (mostly on investments in
  shares) were 164 million euros. Due to the pursued policy of
  reducing the share investment portfolio and the past poor equity
  market performance, this was considerably below the year-earlier
  figure of 341 million euros.
* Net fee and commission income amounted to 1.1 billion euros. This
  is 20% lower than the year-earlier level, largely due to the lower
  income from asset management activities consequent on the
  investment climate that prevailed until the first half of 2009.
* Other net income ended at 384 million euros, down somewhat on the
  year-earlier figure of 435 million euros.
* Excluding exceptional items, operating expenses were down 7%
  year-on-year. Cost containment measures were implemented across all
  business units. The underlying cost/income ratio for banking stood
  at 55%, compared to 64% for 2008.
* Total impairment charges stood at 1.8 billion euros, 1.3 billion
  euros of which related to loans and receivables. This corresponds
  with a credit cost ratio of 0.96%. Excluding the charge for US
  mortgage-backed securities classified as loans, the credit cost
  ratio for the group came to 0.79% (0.12% for the Belgium Business
  Unit, 1.83% for the Central & Eastern Europe and Russia Business
  Unit and 0.76% for Merchant Banking Business Unit).
  Available-for-sale investment securities, mainly shares, were
  impaired to the tune of 335 million euros on the back of falling
  share prices throughout 2008 and up to the end of the first quarter
  of 2009. An impairment loss of 181 million euros was recognised on
  the value of goodwill outstanding, related to, among other things,
  acquisitions made in late 2007 and in early 2008 in Bulgaria and
  Slovakia.
* As pre-tax results were negative, a deferred income tax credit of
  266 million euros was recognised.
* The result attributable to minority interests amounted to a
  negative 66 million euros (the negative amount has to do with the
  repurchase of a number of hybrid capital securities in the third
  quarter of 2009).
* At the end of September 2009, total equity came to 16.9 billion
  euros, up 1.6 billion euros on the figure at the start of the year,
  due to the fact that the negative year-to-date result (-2.8
  billion) and the effect of the buying back hybrid capital
  securities (-0.6 billion) was offset by the positive impact of the
  issue of non-voting core capital securities to the State (Flemish
  Region of Belgium, +3.5 billion euros) and the positive market
  value adjustments on assets (+1.6 billion euros). The tier-1
  capital ratio for the group stood at 10.2 % (8.8%, when excluding
  non-state hybrid tier-1 instruments).

Strategy highlights and future developments
* Jan Vanhevel, Group CEO: 'The operating environment further
  gradually improved during the third quarter and leading indicators
  are signalling that we are past the bottom of the economic cycle."
  On the other hand, fears remain that the recent economic recovery
  may not gain momentum since it has been driven by rebuilding
  inventory levels and temporary fiscal boosts without there being a
  structural rise in demand, among other factors. Jan Vanhevel: 'Of
  course, we are happy with the recent optimism and are now preparing
  for a further recovery. However, we are not assuming that we are
  back to a normal situation just yet.' Underwriting criteria remain
  tight, especially in non-core markets and higher-risk areas.
  Although a late-cyclical rise in non-performing loan levels may
  appear, impairment charges are expected to remain manageable.
* Jan Vanhevel: 'KBC has been rethinking its position and partly
  reshaping itself in the wake of the financial crisis, lowering its
  risk tolerance while maintaining core earnings power and organic
  growth potential.' The strategy review formed the basis of the
  restructuring plan that was submitted to the European Commission in
  relation to the capital support transactions with the State. Jan
  Vanhevel: 'We believe that we have entered a final stage of our
  discussions with the EU, and we remain confident about our business
  case. The highlights of the plan were made public at an earlier
  date. The business strategy will focus on organically growing
  bancassurance in Belgium and Central and Eastern Europe, while
  especially international corporate lending and capital market
  activities are planned to be reduced. The redemption of the capital
  securities issued to the State will be based largely on retained
  earnings and on the release of capital tied up in non-core assets.
* The European Commission provisionally cleared KBC's restructuring
  plan in June 2009 and is now anticipated to give final approval by
  early December at the latest. As is usual for this type of
  communication, KBC may ask the market regulator to temporarily
  suspend trading in its securities on the day the plan is published
  in order for the market to take note of the details. An investor
  conference will also be scheduled shortly after publication and
  will be open to capital market participants that have registered in
  advance (details will be available on www.kbc.com). All PowerPoint
  presentations will be made available to the public on www.kbc.com
  at the start of the conference.


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


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