KBC confirms position as solid bancassurance pl...

Regulated information* - 18 November 2009 (12.00 a.m. CET)

While the global economy gradually  recovers from its worst  downturn
in decades, KBC has been working on a strategic review to enhance its
position in the post-crisis period. The new business plan will enable
KBC to continue to  act as a solid  European regional player that  is
attractive  for  its  customers,  employees,  shareholders  and   the
communities in which  it operates.  The strategy  will also  generate
enough capacity to redeem the capital securities that were issued  to
the  State.  The  strategic   plan,  which  was   the  basis  for   a
restructuring plan  as  requested  by the  European  Commission,  was
cleared by European regulatory authorities today.

Highlights

* Crisis lesson learnt: more focus on core businesses, risk levels to
  be reduced
* Core bancassurance model largely untouched by crisis, growth
  options in Eastern Europe maintained
* Non-dilutive exit from State liabilities, predominantly based on
  earnings accrual and reduced scope of international activities (and
  some divestments)
* Group total risk-weighted assets to be reduced by 25%
* Aim to resume dividend payout as of 2011
* Plan cleared by European Commission
* Institutional investor conference (Investor Day) scheduled for
  tomorrow, 19 November (London)

Core business strategy
Until the credit crisis started,  KBC's performance track record  had
been solid. Its strategy  to invest in  Central and Eastern  European
growth  markets  added  great   value  and  its  distinctive   retail
bancassurance business  model  proved  to be  highly  effective.  Jan
Vanhevel, Group CEO: 'When analysing the effects of the crisis, it is
reassuring to  note that  our core  business model  remained  largely
untouched and that  the strategic  rationale remained  valid for  our
Central and Eastern European presence. Unlike many of our peers,  our
high deposit-to-loan ratio means that  our future growth will not  be
constrained by  funding  concerns. Moreover,  customer  and  employee
surveys show that loyalty levels have remained sound.'
Past market  turbulence,  however, has  shown  the need  to  markedly
reduce the risk profile of the group and, accordingly, to reduce  the
scope of activities  and geographic  markets to  which KBC  allocates
capital. The refocus project will  also free up capital sources  that
will contribute to redeeming the capital securities subscribed by the
State.
Jan Vanhevel: 'While reducing business risk,  we will focus on a  set
of core  activities where  we have  a strong  value proposition.  Our
priority will be  to build  on our  existing bancassurance  platforms
within Belgium and five selected  Eastern European markets, where  we
will continue to  target local  retail and  SME customers,  including
local mid-caps. We will significantly reduce exposure to non-domestic
corporate lending and capital market  activities and will divest  KBL
European  Private  Bankers.  This   will  be  complemented  by   some
additional capital optimisation measures in core markets.'
As regards asset management activities, the geographic focus will  be
on KBC's  core  markets,  offering best-in-class  products  -  mainly
retail funds - through KBC distribution channels.
Over the next years,  organic growth will  be pursued, without  major
acquisitions. In terms of  size, KBC positions  itself as a  European
regional player.  KBC believes  that  a strategy  of 'refocus'  is  a
competitive  advantage  for   its  core  business   and  that   size,
international presence  or  ability  to make  large  acquisitions  in
themselves do not necessarily lead to better performance.
In order to achieve  the refocus objectives set,  a number of  assets
need to be divested. KBC has  opted for assets that can be  monetised
today at a fair valuation, while avoiding ending up in a position  of
forced selling at distressed prices. By doing so, the business plan's
execution risk  is  minimised, which  is  important given  the  still
uncertain economic environment.
Fully aware of the increasing demands for accountability placed on it
by many actors  in society,  KBC is  also committed  to continue  its
ongoing process of improving the way it conducts its business.  KBC's
business  model  is  geared   towards  direct  and   service-oriented
relationships with its customer base. Employee professionalism and  a
deep connection with  local markets  are key contributors  to such  a
strategy. Jan Vanhevel, Group  CEO: 'Offering value-adding  solutions
for  customers,  while  building  strong  ties  with  employees   and
contributing to the development of  our local economies. That is  our
commitment.  That's  how  we   create  sustainable  value  for   both
shareholders and for the community at large.'
In  order   to   align   remuneration   principles   with   long-term
stakeholders'  interests,   KBC  has   approved  a   new   group-wide
remuneration  policy,  including  high  level  principles,   internal
guidelines and  a  governance  framework, aligned  with  most  recent
international standards.  Moreover,  KBC  Group  Executive  Committee
members have decided to forego their remuneration bonus for the  2009
financial year, just as they did last year.

Reduction of  scope  of  international  lending  and  capital  market
activities
As previously announced, KBC decided to markedly reduce the scope  of
its Merchant  Banking  Business  Unit,  mainly  in  relation  to  the
international corporate loan  book (outside Belgium  and Central  and
Eastern Europe) and capital market activities.
Through a mostly European network of corporate branches and corporate
banking  subsidiaries,  KBC  has  an  international  loan   portfolio
amounting to 42 billion  euros. While one of  the aims is to  service
the financial needs of domestic  corporate customers abroad, a  large
part of  the  lending  activity is  oriented  towards  local  foreign
corporate customers  or  to certain  specific  areas such  as  global
project finance.  Jan Vanhevel,  Group CEO:  'The new  business  plan
encompasses the refocus  on that  part of  the business  for which  a
natural link exists with our customer base in our core markets.  Some
parts of the portfolio without such a link will become available  for
sale, while  others will  be run  off  at maturity  and will  not  be
renewed.'
As regards  the  capital  market  activities,  it  has  already  been
announced that KBC had put its derivatives-based structured  products
business  within  KBC  Financial  Products  on  run-off  status.   In
addition, a number  of other  lines of  international capital  market
business with a low level of synergy with the core strategy have been
earmarked for divestment. On the other hand, KBC will continue to act
as a major player  in the securities markets  in Belgium and  Central
and Eastern  Europe, with  a  complete set  of capabilities  to  give
domestic corporate customers  access to capital  markets and  capital
market products.
The corporate  and  market activities  that  are to  be  discontinued
(excl.  Ireland)   represent  some   23  billion   euros'  worth   of
risk-weighted assets (position as at 31 December 2008). Over the last
five years,  these  activities  contributed on  average  roughly  150
million euros  net annually  to group  net profit  (some 400  million
euros as best annual performance, -150 million euros as worst  annual
performance).

New strategic partner for KBL European Private Bankers
Through a cluster of local brands,  KBC also has a pure play  private
banking business  outside Belgium  and  Central and  Eastern  Europe.
Given its lower than average level of synergy with the  bancassurance
strategy, it has been decided to look for a new strategic partner for
this activity. In the meantime, KBC will ensure that it continues  to
grow the  value  of  the  business and  to  offer  superior  customer
service.
Jan Vanhevel, Group CEO: 'This business line was originally set up as
a private banking  activity in Luxembourg,  but has diversified  over
the last  20 years  to  manage currently  some  47 billion  euros  in
customer assets  from 9  European  locations.' The  network  operates
under   the   umbrella   of   KBL   European   Private   Bankers,   a
Luxembourg-based 99.9% subsidiary  of KBC group.  Over the past  five
years, it generated  some 175  million euros in  net profit  annually
(corresponding to a net average  contribution to group profit,  after
funding costs, of 125  million euros). At the  start of the year,  it
represented some 6 billion euros' worth of risk-weighted assets.
The KBC-branded private banking activities in Belgium and Central and
Eastern Europe remain unchanged.

Business portfolio adjustments in core markets
The core countries are Belgium, the Czech Republic, Poland,  Hungary,
Slovakia and  Bulgaria. In  these markets  (all within  the  European
Union), KBC owns banking,  insurance and asset management  operations
and has a platform for sustainable organic growth.
In order to unlock capital in a way that enhances value, KBC  intends
to make a public offering of a minority stake in its Czech subsidiary
CSOB that will be  listed on the Prague  Stock Exchange in 2010.  Jan
Vanhevel: 'CSOB has a  leading market position  in what is  currently
one of the best markets in  the region.' Its net asset value  amounts
to 2.1 billion  euros, while it  has realised an  average annual  net
profit of 360 million euros  over the last five years  (corresponding
with a group profit  contribution of some 300  million euros, net  of
funding costs). This listing on the local stock market also  supports
our home market strategy for  that market. A similar transaction  can
be set  up in  the  future for  selected  other Central  and  Eastern
European subsidiaries, such as K&H in Hungary.
Recently KBC  also made  inroads in  banking in  a number  of  non-EU
markets, such as Russia and Serbia.  With market shares of less  than
1%, its presence  in these  countries is still  limited and  strategy
synergies are 'early  phase'. Nevertheless,  KBC does  not intend  to
start a divestment process soon. Jan Vanhevel: 'We are lucky to  have
the capital  flexibility not  to have  to divest  today, because  the
timing for that would not be on our side anyway. The difficult  local
economic conditions  would  mean  any  deal would  take  place  at  a
distressed price and would destroy considerable value.' The situation
will be  reviewed in  due time  when market  conditions permit,  also
taking into account how the risk/return profiles of these  activities
develop. We would also repeat  that KBC's non-strategic 31% stake  in
NLB in Slovenia remains for sale.
In various core regions, KBC uses complementary distribution channels
in addition to  its core  bancassurance platform.  Operating under  a
different brand name, a differentiated  product and service offer  is
made to customers through independent resellers. In order to be  able
to strengthen its capital base, KBC intends to divest the  activities
of Centea (retail banking,  Belgium), Fidea (insurance, Belgium)  and
Zagiel (consumer finance, Poland). This  step does not undermine  the
strength of the  primary business  model in  the respective  markets.
Centea and Fidea represent a market share of around 1 to 2% for total
loans, deposits and insurance in  Belgium. Zagiel has a market  share
of around 3% in the Polish unsecured consumer finance market.

Over the  past five  years, these  last three  companies generated  a
combined  average  annual  net  profit  of  some  130  million  euros
(contribution of 110  million euros  to group  profit, after  funding
costs). Jan Vanhevel: 'We had to make choices in order to ensure  the
future strength of the group. We believe these companies can be  even
more  valuable  for  new  strategic   partners  which  can  add   new
competences and create development  opportunities for staff  members.
KBC is also  strongly committed  to keeping  customer service  levels
high during the transfer period.'

Financial highlights
KBC wants to  position itself  as a  well-capitalised and  risk-aware
group. This  is  reflected in  the  regulatory capital  target  ratio
(group tier-1  ratio)  of  10%,  of  which 8%  is  core  tier  1.  On
30 September 2009, the group  tier-1 ratio stood  at 10.2%, of  which
8.8% core tier 1. The core capital base includes the 7 billion euros'
worth of capital securities subscribed  by the State. KBC intends  to
offload most of the State securities by 2013.
The main sources  of capital formation  for the years  ahead will  be
operating  earnings  combined  with  gains  realised  on   divestment
transactions, on the  one hand,  and freeing up  capital by  reducing
non-core activities and  listing the  Czech subsidiary  CSOB, on  the
other. A total of 39 billion euros of risk-weighted assets have  been
earmarked  to  be  run-off  or   sold  over  the  2009-2013   period,
corresponding with 25% of the  group total (combined for banking  and
insurance, as at 31 December 2008). At 23 billion euros, the  largest
decrease of risk-weighted  assets will  be realised  in the  Merchant
Banking Business Unit. The divestment of KBL European Private Bankers
will  reduce  risk-weighted   assets  by  6   billion  euros,   while
divestments in Belgium (related to subsidiaries Centea and Fidea) and
Central and Eastern  Europe (activities  in Russia  and Serbia)  will
reduce them by a further 10 (or 2 times five) billion euros.
Besides repaying the  State securities,  the above-mentioned  capital
inflows will enable KBC to continue solid organic growth in its  core
geographies.
Stretching performance goals will be set for each individual line  of
business in  accordance  with  the  various  stages  of  development.
Moreover, adequate cost  management principles  will be  consistently
applied  throughout  the   group,  resulting  in   a  'low   fifties'
cost/income ratio as soon as  economic conditions reach a fair  level
of normalisation (post 2010).
There is  enough flexibility  in place  to absorb  the effects  of  a
prolonged  recessionary  environment  causing  more  sluggish  market
growth and customer  debt servicing problems.  Jan Vanhevel: 'From  a
cautious point of view, the business  plan enables us to deal with  a
loan provision charge  in Central and  Eastern Europe markedly  above
our historic through-the-cycle loan loss experience.'
Capital will  also be  boosted by  additional financial  optimisation
measures, such as value gains to be realised on real estate property,
the optimisation of  risk-weighted assets  recognition and  modelling
and the sale of  treasury shares. Jan Vanhevel,  Group CEO: 'A  large
share issue is not our preferred scenario. We prefer to earn our  way
out of the  crisis. If the  cautious macro outlook  that we used  for
budgeting purposes were to  materialise, we would  sell our stock  of
18 million treasury shares'.
KBC aims to resume cash dividend  payments as of 2011 (based on  2010
earnings).  Also  the  payment  of  coupons  on  all  hybrid  capital
instruments outstanding  will  be  continued. KBC  has  no  immediate
intention to call hybrid capital instruments on call dates.
Jan Vanhevel: 'From a shareholder's  perspective, it is also good  to
understand that the  change in  business mix being  pursued not  only
includes lower risk, but  - all other things  remaining equal -  also
includes an  improved  average  return  level.  Since  the  share  of
'below-average-margin' merchant banking assets is being significantly
reduced, a positive  mix effect  is working  its way  through to  the
average return on capital ratio.'

Approval from the European Commission
In order to avoid distortion of competition within the European Union
and to ensure that  the temporary stimuli received  by KBC from  both
the Belgian  Federal  and  Flemish  Regional  Governments  have  been
adequately financially remunerated, the European Commission needed to
approve these transactions.  Final approval from  the Commission  was
granted on 18 November 2009.
Jan Vanhevel:  'Discussions with  the  European Commission  were  not
always easy  since  difficult  trade-offs  had to  be  made.  But  we
appreciated the  open and  constructive  way these  discussions  were
held.  The   same  holds   true  for   our  discussions   with   lead
representatives from both  the Belgian Federal  and Flemish  Regional
authorities.'

Investor Day, 19 November
A conference for capital market participants on the renewed  strategy
is scheduled for tomorrow, 19  November 2009 in the financial  centre
of London (advance registration is  required and can be done  today).
All PowerPoint presentations,  including financial  details, will  be
published on  www.kbc.com  at  the  start of  the  event  (9.30  a.m.
GMT/10.30 a.m. CET).  The conference  will also be  webcast live.  In
order  to  avoid  (apparent)  selective  disclosure,  no   additional
quantitative information will  be made available  between the end  of
today's analysts' conference call and the start of the conference.

Conclusion from the CEO
Jan Vanhevel: 'We are  ready for the future.  We have a clear  vision
for the years  ahead supported  by a  strong business  case. We  will
start executing the plan immediately and will closely follow this up.
We will make  sure that change  processes are professionally  managed
and internal  dialogue remains  unambiguous and  respectful, in  line
with our corporate culture.
The decisions  on divestment  were not  taken lightly.  We will  work
carefully to manage the divestment process in a way that will support
the success  of  our business  in  the interests  of  our  customers,
employees and shareholders alike.
In addition, several of the intended measures are conditional on  the
approval  or  advice  of  the  relevant  works  councils  and   local
regulatory authorities.'

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


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