Earnings Statement KBC Group, 3Q 2010

Regulated information* - 10 November 2010 (07.00 a.m. CET)



Summary

KBC ended the third quarter of 2010 with a net profit of 545 million euros,
compared with a net profit of 149 million euros in the previous quarter and 528
million euros in the corresponding quarter of 2009. As a result, net profit came
to 1 136 million euros in the first nine months of the year, as opposed to a net
loss of 2 770 million euros in the first nine months of 2009 (which included a
significant CDO-related loss in the first quarter of 2009).

Excluding exceptional items, the 'underlying' net result for the quarter under
review came to 445 million euros, compared with 554 million euros in 2Q 2010 and
631 million euros in 3Q 2009.

Jan Vanhevel, Group CEO: 'A third quarter is often impacted by seasonal effects,
but after taking these into account, we are satisfied with the results. Our core
strategy, which focuses on bancassurance in Belgium and selected Central
European countries, generated 445 million euros through a combination of stable
revenues and well-controlled operating expenses, notwithstanding higher credit
costs. With respect to exceptional items, the most noteworthy item this quarter
is a mark-up on the CDO portfolio. The total impact of all exceptional items is
a positive 100 million euros, leading to a reported profit for 3Q of 545 million
euros'.


Financial highlights 3Q 2010


Jan Vanhevel, Group CEO, summarises the underlying business performance for
3Q 2010 as follows:

 ·           Underlying  net  interest  income  stood  at  1 406 million  euros,
comparable  to the figure recorded  in the previous quarter  and a year earlier.
There was some pressure on the net interest margin in Belgium, but credit volume
growth  continued in the third quarter,  especially in mortgages. In Central and
Eastern  Europe, the net  interest margin widened  somewhat. For the  group as a
whole, the average net interest margin in the quarter stood at 1.92%.

 ·         Net fee and commission income amounted to 367 million euros, down 8%
year-on-year  and 19% quarter-on-quarter. Sales of commission-based products had
a  difficult third  quarter, which  was due  to more  than just  the traditional
seasonal  effect.  This  led  to  lower  front-end  loads  and  management fees,
resulting in the above-mentioned drop in net fee and commission income.

 ·          The  net  result  from  financial  instruments  at fair value, which
includes  dealing room activities,  stood at 264 million  euros, recovering from
the low 147 million euros recorded in the previous quarter.

 ·          Net of technical charges and the ceded reinsurance result, technical
insurance  income stood at 90 million euros, up one-third on the second quarter,
due to inter alia lower claims in Central and Eastern Europe.

 ·         Operating expenses came to 1 214 million euros. Excluding the booking
of  the bank tax for the full year in  Hungary, this was roughly the same as the
previous quarter.

 ·          Loan loss impairment stood at  356 million euros, up on 2Q 2010, and
comparable to 3Q 2009. The year-to-date credit cost ratio stood at 0.80%: 0.12%
for  the Belgian  retail book,  1.32% in Central  and Eastern  Europe (down from
1.70% for 2009) and 1.01% for Merchant Banking (down from 1.19% for 2009).

 ·         At the end of the current quarter, the KBC group generated capital in
excess  of  the  10% tier-1 target  of  roughly 4.3 billion euros (including the
effect of all divestments for which a sale agreement has been signed to date).



Headlines of underlying performance per business unit:

 ·          All  business  units  contributed  positively  to the net underlying
result.

 ·         The profit contribution of the Belgium Business Unit amounted to 220
million  euros  in  3Q 2010, down  78 million  euros  on  the 2Q 2010 figure due
primarily  to lower fees and commissions from  the sale and management of funds,
lower  realised gains on the sale of  bonds and shares, the traditional seasonal
drop  in dividend  income and  a cost  related to  the Belgian deposit guarantee
scheme.

 ·          The profit contribution  of the Central  and Eastern Europe Business
Unit  amounted to 53 million  euros in 3Q 2010. This  was 59 million euros lower
than  in 2Q 2010, and for a large part caused by the booking of the bank tax for
the  full year in Hungary. Higher loan loss impairment, notably in Hungary, also
impacted  the result. Insurance  results improved after  a weak 2Q 2010 that had
been impacted by the bad weather conditions.

 ·          The  profit  contribution  of  the  Merchant  Banking  Business Unit
amounted  to 156 million euros  in 3Q 2010, up 35 million  euros on the previous
quarter.  The main  driver was  the good  dealing room  result, partly offset by
higher impairment charges for Ireland and a few large credit files.

 ·          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, in order to clearly indicate the financial performance of the
long-term  activities and  the planned  divestments separately.  In 3Q 2010, the
Group Centre's net result came to 16 million euros.



The  quarter was also characterised by a  number of one-off or exceptional items
that  were not part of the normal course of business and were therefore excluded
from  the underlying  results. Their  combined impact  in 3Q 2010 amounted  to a
positive  0.1 billion  euros.  Apart  from  some  smaller  items,  the main non-
operational  item in  3Q 2010 was the  valuation mark-up  of CDO exposure in the
amount  of  0.2 billion  euros,  resulting  mainly  from  a tightening of credit
spreads between the end of June 2010 and the end of September 2010.




First nine months of 2010: results per heading

Explanations  per heading of the IFRS  income statement for 9M 2010 (see summary
table on the next page):

·          The net result for  the first nine months  of 2010 amounted to 1 136
million  euros, compared to -2 770 million  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
nine  months of 2010 totalled  1 542 million euros, up  2% on the figure for the
first nine months of 2009.

·          Net interest income  amounted to 4 647 million  euros, up 8% year-on-
year.  On a  comparable basis,  credit volumes  were down 2% year-on-year, while
customer deposits were up by 8%. The net interest margin increased from 1.81% in
9M 2009 to 1.87% in 9M 2010.

·          Earned insurance premiums, before reinsurance, stood at 3 466 million
euros,  down 6% year-on-year. Net of technical charges and the ceded reinsurance
result,  technical insurance income came to  240 million euros. The claims level
was relatively high during the first nine months of 2010, due to factors such as
the storm Xynthia and flooding in Central and Eastern Europe.

·          Net fee and commission income  amounted to 917 million euros, up 14%
year-on-year.  Sales of commission-based  products were up  on the low levels of
2009, a year still very much impacted by the effects of the financial crisis.

·          The net result from financial  instruments at fair value (trading and
fair  value income) came to -506 million euros, compared to ‑3 846 million euros
a year earlier. 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,  and after shifting all trading-
related  income items to this P&L line),  trading and fair value income amounted
to 731 million euros, down 17% year-on-year.

·          The remaining income components were as follows: dividend income from
equity  investments  amounted  to  76 million  euros  (104  million euros a year
earlier),  the  net  realised  result  from available-for-sale assets (bonds and
shares)  stood at 61 million euros (128 million  euros a year earlier) and other
net income totalled 345 million euros (384 million euros a year earlier).

·          Operating expenses amounted to 3 246 million euros, down 12% year-on-
year.  This reflects the  strategic refocus programme  where non-core activities
are  being wound down, as well as the continued effects of rigorous cost control
measures  throughout the group. The underlying cost/income ratio for banking - a
measure  of cost efficiency  - stood at  53%, a further improvement  on the 55%
recorded for the first nine months of 2009.

·          Impairment on loans and receivables  stood at 990 million euros, down
21% year-on-year.  This  decrease  was  most  pronounced  in Central and Eastern
Europe  and Merchant Banking. As a result,  the annualised credit cost ratio for
9M 2010 amounted  to  0.80%, down  on  the  figure  of  1.11% for FY 2009. Other
impairment  charges  totalled  112 million  in  9M 2010 and  related  mainly  to
available-for-sale  assets (shares and  bonds) and goodwill  on subsidiaries and
associated companies.

·          Income  tax  amounted  to  16 million  euros in the nine months under
review.  This figure includes a positive deferred tax asset of 0.4 billion euros
booked in the second quarter of the year.

·          The net  post-tax result  from discontinued  operations amounted to a
negative 278 million euros. This comprises the results and impairment related to
the  sale agreement on  KBL EPB, which  are regrouped in  this single line under
IFRS accounting rules (reference figures were adjusted accordingly).

·          At end-September  2010, total equity  came to  18.8 billion euros, an
increase  of 1.6 billion compared to the start of the year, due predominantly to
the inclusion of the positive result for the first nine months of 2010 and to an
increase  in the revaluation reserve  for available-for-sale assets. The group's
tier-1 capital  ratio  -  a  measure  of  financial  strength - stood at a sound
12.1%. Including  the effect of  all sale agreements  announced to date (such as
KBL EPB), the pro forma tier-1 ratio amounts to approximately 13.4%.



Other information

Strategy highlights and main events

 ·           In the third  quarter of this  year, we continued  to implement our
strategic  refocusing  plan.  At  the  start  of  the  quarter,  we  signed sale
agreements for the Global Convertible Bond and Asian Equity Derivatives business
(with  Daiwa Capital  Markets), for  Secura (with  QBE Insurance Group), for KBC
Securities  Baltic Investment Company  (with the management),  for KBC Peel Hunt
(with  the  management)  and  for  KBC  Business  Capital  (with  PNC  Financial
Services).  Some of these agreements have already been closed, while the closing
of  others is expected to follow in the  months to come. The gradual run-down of
the  loan portfolio  outside the  home markets  also continued  during the third
quarter: at the end of September 2010, we had executed roughly two thirds of the
targeted  organic run-down. In addition, a number of companies are scheduled for
divestment  to  help  reduce  the  international loan portfolio. Preparations to
float  a minority stake in our Czech banking  subsidiary are on track and we are
on  stand-by  to  launch  the  IPO  program  once  optimal  conditions have been
identified  for  a  successful  transaction.  Our  Belgian  supplementary  sales
channels  (Centea and  Fidea) are  currently in  the sales process, according to
plan.

·          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  or run-off. KBC also intends to maintain a regulatory tier-1 capital
ratio  of 10%, of which  8% is core capital,  according to the  Basel II banking
capital adequacy rules.

·          The latest statements on  the Basel III framework  have led to a need
for  additional clarification from financial institutions on the exact impact on
their  capital needs. Although the exact framework for Basel III is not entirely
clear  or decided upon, the main conclusion is that KBC is in a position to meet
the common equity ratio under Basel III without the need to raise capital.

·         On 22 July 2010, the Hungarian Parliament passed a law that introduces
a  new bank tax for 2010, 2011 and 2012. This tax will have a negative impact of
about 57 million euros before tax (or 46 million euros after tax) on the profits
of  K&H  Bank  and  K&H  Insurance  in  2010. The  impact for FY 2010 was booked
entirely  in 3Q 2010. Moreover, under the  Belgian deposit guarantee scheme, the
actual cost for 2010 will be 14 million euros higher than initially planned.

·           Concerns   continued   during  the  third  quarter  about  financial
institutions' exposure to certain 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 0.8 billion euros as at 30
September 2010. More information on KBC's sovereign bond exposure to a selection
of  Southern European  countries and  Ireland is  provided in  the 'Consolidated
Financial Statements' section of the quarterly report.




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





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