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KBC Groupe NV

Quarterly Report • Nov 8, 2012

3968_10-q_2012-11-08_6ba5db8e-f52a-45a8-b956-1c6954947292.pdf

Quarterly Report

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3Q2012 KBC Group

Extended Quarterly Report

Management certification of financial statements and quarterly report

'I, Luc Popelier, Chief Financial Officer of the KBC Group, certify on behalf of the Executive Committee of KBC Group NV that, to the best of my knowledge, the abbreviated financial statements included in the quarterly report are based on the relevant accounting standards and fairly present in all material respects the financial condition and results of KBC Group NV including its consolidated subsidiaries, and that the quarterly report provides a fair view of the main events, the main transactions with related parties in the period under review and their impact on the abbreviated financial statements, and an overview of the main risks and uncertainties for the remainder of the current year.

Forward-looking statements

The expectations, forecasts and statements regarding future developments that are contained in this report are, of course, based on assumptions and are contingent on a number of factors that will come into play in the future. Consequently, the actual situation may turn out to be (substantially) different.

Glossary of ratios used

CAD ratio: [consolidated total regulatory capital] / [total weighted risks].

Combined ratio (non-life insurance): [technical insurance charges, including the internal cost of settling claims / earned premiums] + [expenses / written premiums] (after reinsurance).

(Core) Tier-1 capital ratio: [consolidated tier-1 capital] / [total weighted risks]. The calculation of the core tier-1 ratio does not include hybrid instruments (but does include the core-capital securities sold to the Belgian and Flemish governments).

Cost/income ratio (banking): [operating expenses of the banking businesses of the group] / [ total income of the banking businesses of the group].

Cover ratio: [impairment on loans] / [outstanding non-performing loans]. For a definition of 'non-performing', see 'Non-performing ratio'. Where appropriate, the numerator may be limited to individual impairment on non-performing loans.

Credit cost ratio: [net changes in individual and portfolio-based impairment for credit risks] / [average outstanding loan portfolio]. Note that, inter alia, government bonds are not included in this formula.

Earnings per share, basic: [result after tax, attributable to equity holders of the parent)] / [average number of ordinary shares, less treasury shares]. If a coupon is expected to be paid on the core-capital securities sold to the Belgian and Flemish governments, it will be deducted from the numerator (pro rata). If a penalty has to be paid, it will likewise be deducted.

Earnings per share, diluted: [result after tax, attributable to equity holders of the parent, adjusted for interest expense (after tax) for non-mandatorily convertible bonds] / [average number of ordinary shares, less treasury shares, plus the dilutive effect of options (number of stock options allocated to staff with an exercise price less than the market price) and non-mandatorily convertible bonds]. If a coupon is expected to be paid on the core-capital securities sold to the Belgian and Flemish governments, it will be deducted from the numerator (pro rata). If a penalty has to be paid, it will likewise be deducted.

Net interest margin, group: [net interest income of the banking activities (underlying)] / [average interestbearing assets of the banking activities].

Non-performing ratio: [amount outstanding of non-performing loans (loans for which principal repayments or interest payments are more than ninety days in arrears or overdrawn)] / [total outstanding loan portfolio]

Parent shareholders' equity per share: [parent shareholders' equity] / [number of ordinary shares, less treasury shares (at period-end)].

Return on allocated capital (ROAC) for a particular business unit: [result after tax, including minority interests, of a business unit, adjusted for income on allocated capital instead of real capital] / [average capital allocated to the business unit]. The result of a business unit is the sum of the result of all the companies in that business unit, adjusted for the funding cost of goodwill (related to the companies in the business unit) and allocated central overheads. The capital allocated to a business unit is based on riskweighted assets for banking and risk-weighted asset equivalents for insurance.

Return on equity: result after tax, attributable to equity holders of the parent] / [average parent shareholders' equity, excluding the revaluation reserve for available-for-sale investments]. If a coupon is expected to be paid on the core-capital securities sold to the Belgian and Flemish governments, it will be deducted from the numerator (pro rata). If a penalty has to be paid, it will likewise be deducted.

Solvency ratio, insurance: [consolidated available capital of KBC Insurance] / [minimum required solvency margin of KBC Insurance].

Investor relations contact details

[email protected] - www.kbc.com/ir - m.kbc.com KBC Group NV , Investor Relations Office, Havenlaan 2, BE 1080 Brussels, Belgium

Visit www.kbc.com

Contents

Report on 3Q and 9M2012

  • Summary5
  • Underlying result: highlights of 3Q20127
  • IFRS result: highlights of 9M2012 10
  • Selected balance sheet data 12
  • Selected ratios 12
  • Strategy highlights and main events13

Analysis of 3Q2012 underlying results

  • Underlying versus IFRS figures 16
  • Analysis of the underlying result, KBC Group16
  • Belgium Business Unit 19
  • CEE Business Unit21
  • Merchant Banking Business Unit26
  • Group Centre29

Consolidated financial statements according to IFRS

  • Consolidated income statement32
  • Consolidated statement of comprehensive income (condensed)33
  • Consolidated balance sheet 34
  • Consolidated statement of changes in equity 35
  • Condensed consolidated cash flow statement36
  • Notes on statement of compliance and changes in accounting policies36
  • Notes on segment reporting37
  • Other notes 41
  • Report of the statutory auditor 53

Risk and capital management

  • Credit risk56
  • Solvency 63

Analyst presentation

KBC Group Report on 3Q and 9M2012

This press release contains information that is subject to transparency regulations for listed companies. Date of release: 8 November 2012

Summary: Strategy guidelines set, capital strengthened, risks reduced, profit sustained.

IFRS-based net profit reported for the quarter under review came to 531 million euros, compared with a net loss of 539 million euros in the previous quarter and a net loss of 1 579 million euros in the year-earlier quarter. This means the group has generated a total net profit of 372 million euros for the first nine months of 2012, as opposed to a net loss of 424 million euros for the corresponding period of 2011.

Excluding all exceptional and non-operating items, KBC ended the third quarter of 2012 with an underlying net profit of 406 million euros, compared with a net profit of 372 million euros in the previous quarter and a net loss of 248 million euros in the corresponding quarter of 2011. The underlying results for the first nine months of 2012 amounted to 1 233 million euros, compared to 937 million euros for the corresponding period in 2011.

Johan Thijs, Group CEO:

'Good business performance, significant derisking and a further strengthening of our capital and liquidity position were the main features of the third quarter for KBC, a period in which we recorded 406 million euros in underlying net profit.

In terms of operating income, our underlying result went up by 10% on a comparable basis this quarter, driven by the good commercial performance of our strategic banking and insurance

business model in our home markets in Belgium and Central and Eastern Europe. Net interest income continued to contract, although this was due primarily to the lower income from asset and liability management as well as the deconsolidation of various companies. Loans and deposits, on the other hand, continued to grow at a good rate in our core markets. Fee income was up and commercial insurance results remained good. The quarter also featured an excellent (hence low) combined ratio but slightly higher levels of loan loss impairments. These impairments are mainly the result of loan loss provisioning in Ireland.

We have also finalized the sale of KBL epb, Żagiel and KBC Lease Deutschland. In addition, we lowered our exposure to Southern European government bonds, and the volatility of our profit by further reducing exposure to CDOs. These actions have led to a further reduction in the risk profile of our company.

We have improved our already strong liquidity position, with a loan-to-deposit ratio of 82% at the end of September. We have covered all funding needs for 2012 and are looking forward to issuing covered bonds in the foreseeable future.

At the beginning of the fourth quarter we successfully placed 350 million worth of treasury shares in the market, pushing up our solvency ratios even further.

Our tier-1 capital ratio has risen further, bringing it to 15.3% in the third quarter of 2012. This ratio amounts to 16.8% on a pro forma basis when the sale of Kredyt Bank – which has been signed, but not yet closed – as well as the sale of the treasury shares are included. Our estimated common equity ratio under Basel III at the end of 2013 stands at 10.2% (fully loaded).

We are continuing our efforts to ensure that 4.67 billion euros in state aid (before any penalty) is reimbursed by the end of 2013, as set out in the plan agreed with the European Commission, with the aim of paying back a substantial part before the end of 2012.

At the beginning of October we announced our updated strategy for the group for 2013 and beyond. Our goal is to become more agile and efficient and thus more competitive. In doing so, we will not only adapt to changing client behaviour but will also meet the legitimate expectations from society as a whole, to the benefit of our clients, employees, shareholders and other stakeholders.'

Main exceptional and non-operating items impacting the reported IFRS result for 3Q2012:

A number of exceptional items were not part of the normal course of business and were therefore excluded from the underlying results. Their combined impact in 3Q2012 amounted to 0.1 billion euros. Apart from some smaller items, the main non-operating items in 3Q2012 were a valuation mark-up of 0.3 billion euros on CDO exposure (resulting mainly from a tightening of corporate and ABS credit spreads) and a negative 0.1 billion euros marked-to-market adjustment in relation to KBC's own credit risk.

Financial highlights for 3Q2012 compared to 2Q2012:

  • Good commercial results.
  • Decline in net interest income due to lower reinvestment yield and deconsolidation of Warta.
  • Growth in loan and deposit volumes in our core markets.
  • Excellent combined ratio at 90% year-to-date.
  • Robust sales of unit-linked life products.
  • Net fee and commission income up 1% on a comparable basis.
  • Strong gains from financial instruments at fair value, mainly driven by positive CVA changes.
  • Underlying cost/income ratio at 57% year-to-date.
  • Credit cost ratio up slightly, to 0.63% year-to-date. Excluding Ireland, this ratio stands at 0.27%.
  • Further reduction in exposure to Southern European government bonds (by almost one-third in this quarter).
  • Strong liquidity with an excellent loan-to-deposit ratio of 82%.
  • Solvency: continued strong capital base: pro forma tier-1 ratio including the effect of the sale of Kredyt Bank, which has been signed, but not yet closed, and the sale of treasury shares – at approximately 16.8% (with a core tier-1 ratio of 14.7%).
Overview
KBC Group (consolidated)		 3Q2011 2Q2012 3Q2012 Cumul.
9M2011		 Cumul.
9M2012
Net result, IFRS (in millions of EUR) -1 579 -539 531 -424 372
Basic earnings per share, IFRS (in EUR)1 -5.08 -1.99 1.16 -2.56 -0.13
Underlying net result (in millions of EUR) -248 372 406 937 1 233
Underlying basic earnings per share (in EUR)1 -1.17 0.69 0.79 1.45 2.41
Breakdown of underlying net result per business unit (in millions of EUR)
Belgium 32 226 290 551 782
Central & Eastern Europe -40 188 169 229 475
Merchant Banking -196 -65 10 43 -12
Group Centre -44 23 -64 114 -11
Parent shareholders' equity per share (in EUR, end of period) 28.9 28.5 31.3 28.9 31.3

The IFRS and underlying income statement summary tables are provided below in this earnings statement.

1 Note: If a coupon is expected to be paid on the core-capital securities sold to the Belgian and Flemish governments, it will be deducted from the numerator (pro rata). If a penalty has to be paid, it will likewise be deducted.

In addition to the figures according to IFRS (next section), KBC provides 'underlying' figures aimed at giving more insight into the business performance. The differences with the IFRS figures relate to the exclusion of exceptional or non-operating items and a different accounting treatment of certain hedging results and capital-market income.

A full explanation of the differences between the IFRS and underlying figures is provided in the 'Consolidated financial statements' section of the quarterly report, under 'Notes on segment reporting'. A reconciliation table for the net result is provided below.

Consolidated income statement, underlying
KBC Group (in millions of EUR)		 1Q
2011		 2Q
2011		 3Q
2011		 4Q
2011		 1Q
2012		 2Q
2012		 3Q
2012		 4Q
2012		 Cumul
9M2011		 Cumul
9M2012
Net interest income 1 374 1 390 1 342 1 298 1 211 1 150 1 087 - 4 106 3 448
Earned premiums, insurance (before reinsurance) 1 141 975 972 1 033 884 890 578 - 3 088 2 352
Technical charges, insurance (before reinsurance) -1 016 -843 -817 -880 -752 -757 -499 - -2 676 -2 009
Ceded reinsurance result -17 -8 -18 -1 -14 -1 -12 - -43 -27
Dividend income 8 37 14 15 5 21 10 - 59 36
Net result from financial instruments at fair value
through profit or loss		 259 102 10 138 326 113 256 - 371 695
Net realised result from available-for-sale assets 53 42 11 85 31 6 57 - 106 95
Net fee and commission income 399 394 367 374 306 310 349 - 1 161 965
Other net income 73 72 -210 12 -8 53 74 - -64 120
Total income 2 274 2 161 1 673 2 075 1 989 1 786 1 900 - 6 107 5 676
Operating expenses -1 227 -1 155 -1 172 -1 133 -1 110 - 1 016 -990 - -3 553 -3 116
Impairment - 105 -333 -740 -730 -271 -241 -305 - -1 179 -816
on loans and receivables -97 -164 -475 -599 -261 -198 -283 - -736 -742
on available-for-sale assets -6 -135 -228 -85 -5 -24 -4 - -369 -33
on goodwill 0 0 0 0 0 0 0 - 0 0
on other -2 -35 -38 -46 -5 -18 -18 - -75 -41
Share in results of associated companies 1 0 -23 -35 -9 -9 -13 - -22 -32
Result before tax 943 673 -262 177 599 520 592 - 1 353 1 711
Income tax expense - 271 -138 22 -9 -136 -144 -177 - -388 -457
Result after tax 671 534 -240 167 463 376 415 - 966 1 254
attributable to minority interests 14 6 8 7 7 5 9 - 28 21
attributable to equity holders of the parent 658 528 -248 161 455 372 406 - 937 1 233
Belgium 280 238 32 251 266 226 290 - 551 782
Central & Eastern Europe 123 146 -40 98 118 188 169 - 229 475
Merchant Banking 177 63 -196 -153 42 -65 10 - 43 -12
Group Centre 77 81 -44 -35 30 23 -64 - 114 -11
Basic earnings per share (EUR) 1.50 1.11 -1.17 -0.19 0.93 0.69 0.79 - 1.45 2.41
Diluted earnings per share (EUR) 1.50 1.11 -1.17 -0.19 0.93 0.69 0.79 - 1.45 2.41
Reconciliation of underlying and IFRS result 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Cumul Cumul
KBC Group (in millions of EUR)
Result after tax, attributable to equity holders of		 2011 2011 2011 2011 2012 2012 2012 2012 9M2011 9M2012
the parent: UNDERLYING 658 528 -248 161 455 372 406 - 937 1 233
+ MTM of derivatives for ALM hedging 96 -77 -245 -46 45 -29 -33 - -226 -16
+ gains/losses on CDOs 114 -108 -628 154 149 -32 274 - -621 391
+ impairment on goodwill 0 -17 -57 -41 0 -16 0 - -74 -16
+ result on legacy structured derivative business
(KBC FP)		 14 43 5 -12 -11 -7 6 - 62 -13
+ MTM of own debt issued -16 -25 185 215 -340 41 -144 - 144 -444
+ results on divestments -45 -12 -591 8 81 -868 23 - -647 -764
Result after tax, attributable to equity holders of
the parent: IFRS		 821 333 -1 579 437 380 -539 531 - -424 372

The underlying net result for the quarter under review amounted to 406 million euros, compared to 372 million euros in 2Q2012 and -248 million euros in 3Q2011.

Gross income up by 10% quarter-on-quarter on a comparable basis.

  • Underlying net interest income stood at 1 087 million euros, down 19% year-on-year and 5% quarter-on-quarter. The yearon-year performance was accounted for partly by the deconsolidation of KBL epb, Warta, Żagiel and Fidea, the quarter-onquarter performance by the deconsolidation of Warta and Żagiel. Leaving these items out, net interest income was down by 13% year-on-year and 4% quarter-on-quarter. This was due primarily to the lower income from asset and liability management. The net interest margin came to 1.74% for the quarter under review, 8 basis points lower than in the previous quarter and 25 basis points less than the high level of a year earlier. In the Belgium Business Unit, both deposit and credit volumes were up quarter-on-quarter and year-on-year (credit: +6% year-on-year and +1% quarter-on-quarter; deposits: +4% year-on-year and 1% quarter-on-quarter). The loan book in the CEE Business Unit increased by 6% year-on-year (attributable to the Czech Republic and Slovakia), and by 2% quarter-on-quarter, while deposits rose by 3% year-on-year and 1% quarter-on-quarter. The loan portfolio in the Merchant Banking Business Unit was down 4% year-on-year and 5% quarter-on-quarter, while the deposit base shrunk by 25% year-on-year (primarily in the last quarter of 2011, caused mainly by reduced short-term deposits in our New York branch and at KBC Bank Ireland), and 4% quarter-on-quarter. The reduction was in line with the building down of our overseas balance sheet in the Merchant Banking business.
  • Both the life and non-life insurance businesses performed well during the quarter under review. In total, gross earned premiums less gross technical charges and the ceded reinsurance result came to 67 million euros, down 51% year-on-year and 49% quarter-on-quarter. However, when account is taken of the deconsolidation of Fidea, VITIS and Warta, this result was up 22% quarter-on-quarter and down 3% year-on-year.

The non-life segment was characterised by a good level of premiums and relatively low claims. The combined ratio for the year to date came to an excellent 90%.

In the life segment and on a comparable basis, sales of life insurance products fell by 24% quarter on quarter (compared to the very successful second quarter). Year-on-year, these sales rose by as much as 17%.

It should be noted that the strong insurance results were also driven by good investment income, as well as by strict control of general administrative expenses.

  • The net result from financial instruments at fair value amounted to 256 million euros in the quarter under review, well up on the figure for the previous quarter and on the year-earlier figure. This item was impacted by a significant positive CVA adjustment in the third quarter.
  • Net realised gains from available-for-sale assets stood at 57 million for the quarter under review, well above the 33-millioneuro average for the last four quarters. This item was characterised by significant gains on the sale of shares as well as lower losses on the sale of bonds.
  • Net fee and commission income amounted to 349 million euros, up 12% quarter-on-quarter but down 5% year-on-year. The year-on-year performance was accounted for partly by the deconsolidation of KBL epb, Warta, Żagiel and Fidea, the quarter-on-quarter performance by the deconsolidation of Warta and Żagiel. Leaving these items out, income was up by 7% year-on-year and 1% quarter-on-quarter. Assets under management stood at 155 billion euros, up 3% on the year-earlier figure and on the figure for the second quarter of 2012, thanks to a positive investment performance.
  • Other net income came to 74 million euros, 44 million euros of which was recovered with respect to the KBC Lease UK fraud case.

Operating expenses well under control.

Operating expenses came to 990 million euros in the third quarter of 2012, down 3% on their level in the previous quarter and 15% on their year-earlier level. The year-on-year performance was accounted for partly by the deconsolidation of KBL epb, Warta, Żagiel and Fidea, the quarter-on-quarter performance by the deconsolidation of Warta and Żagiel. Excluding deconsolidated companies, underlying costs increased by 1% compared to the previous quarter but decreased by 2% compared to the year-earlier quarter. The amount recovered under the Belgian deposit guarantee scheme (partly offsetting the additional bank tax in Belgium) in the second quarter is the main explanation of the quarterly increase. The year-to-date cost/income ratio came to 57%, a clear indication that costs remain well under control.

Low credit cost ratios overall; loan loss provisions for Ireland still sizeable and increase in corporate credit cost ratio.

  • Loan loss impairment stood at 283 million euros in the third quarter, up on the 198 million euros recorded in the previous quarter, but down on the 475 million euros recorded a year earlier. The quarterly increase was accounted for by the fact that loan loss impairment of 129 million euros was recorded at KBC Bank Ireland, as well as 49 million euros at KBC Finance Ireland with a few large files. The credit cost ratios were low in the other business activities, resulting in an annualised credit cost ratio of 0.63% year-to-date. This breaks down into a very low 0.06% for the Belgian retail book (compared to 0.10% for FY2011), 0.40% in Central and Eastern Europe (down from 1.59% for FY2011, which had been adversely affected by Hungary and Bulgaria) and 1.38% for Merchant Banking (marginally up from 1.36% for FY2011). Excluding Ireland, the credit cost ratio for Merchant Banking stood at 0.24% (down from 0.59% for FY2011).
  • Impairment charges on available-for-sale assets came to 4 million euros and other impairment charges amounted to 18 million euros in the quarter under review.

Strong solvency capital position under Basel II.

  • The group's tier-1 ratio (under Basel II) increased to a strong 15.3% at 30 September 2012 (core tier-1 ratio of 13.4%). Including the effect of the sale of Kredyt Bank, which has been signed, but not yet closed, as well as the sale of treasury shares, the pro forma tier-1 ratio was as high as 16.8% (core tier-1 ratio of 14.7%).
  • The solvency ratio for KBC Insurance stood at an excellent 365% at 30 September 2012, up from 314% at the end of the previous quarter.

Highlights of underlying performance per business unit.

  • The Belgium Business Unit contributed 290 million euros to profit in 3Q2012, compared to 226 million euros in the previous quarter. The quarter was characterised by lower net interest income due to lower reinvestment yields, good insurance sales and a very good combined ratio, stable fee income, a low level of loan impairment and a high level of realised gains on shares. Operating expenses remained very well under control.
  • The CEE Business Unit (Czech Republic, Slovakia, Hungary and Bulgaria) posted a profit of 169 million euros in 3Q2012, compared to 188 million euros in the previous quarter, partly driven by somewhat higher impairment on loans and receivables. Overall, impairment levels in the third quarter remained low.
  • The Merchant Banking Business Unit recorded a profit of 10 million euros in 3Q2012, compared to a loss of 65 million euros in 2Q2012. Profit was impacted in part by the high – although decreasing – level of loan impairment in Ireland, as well as by the large positive CVA at KBC Bank Belgium, the satisfactory dealing room results and a recovery of an amount related to the fraud case at KBC Lease UK. Excluding KBC Bank Ireland, net profit for the Merchant Banking Business Unit in 3Q2012 would be 101 million euros.
  • It should be noted that all planned divestments in 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 3Q2012, the Group Centre's net result came to a negative 64 million euros, compared to 23 million euros in the previous quarter. This result was driven largely by the impairments in a small number of files in the project finance portfolio of KBC Finance Ireland.

Exceptional and non operating items.

The quarter also featured a number of exceptional items that were not part of the normal course of business and were therefore excluded from the underlying results. Their combined impact in 3Q2012 amounted to 0.1 billion euros. Apart from some smaller items, the main non-operating items in 3Q2012 were:

  • o a valuation mark-up of 0.3 billion euros on CDO exposure (resulting mainly from a tightening of corporate and ABS credit spreads);
  • o a negative 0.1 billion euros marked-to-market adjustment in relation to KBC's own credit risk.

IFRS result Highlights of 9M2012

A full overview of the IFRS consolidated income statement and balance sheet is provided in the 'Consolidated Financial Statements' section of this quarterly report. Condensed statements of comprehensive income, changes in shareholders' equity, and cash flow, as well as several notes to the accounts, are also available in the same section. In order to provide a good insight into the underlying business performance, KBC also publishes its 'underlying' results (see above).

Consolidated income statement, IFRS
KBC Group (in millions of EUR)		 1Q
2011		 2Q
2011		 3Q
2011		 4Q
2011		 1Q
2012		 2Q
2012		 3Q
2012		 4Q
2012		 Cumul
9M2011		 Cumul
9M2012
Net interest income 1 395 1 406 1 341 1 337 1 261 1 190 1 097 - 4 142 3 548
Interest income 3 047 3 195 2 910 2 732 2 695 2 563 2 493 - 9 151 7 752
Interest expense -1 651 -1 789 - 1 569 -1 395 -1 434 -1 374 -1 396 - -5 009 -4 204
Earned premiums, insurance (before reinsurance) 1 141 974 972 1 033 884 890 578 - 3 087 2 352
Technical charges, insurance (before reinsurance) -1 012 -840 -812 -877 -752 - 757 -499 - -2 665 -2 009
Ceded reinsurance result -17 -8 -18 -1 -14 -1 -12 - -43 -27
Dividend income 12 41 17 15 6 21 13 - 70 39
Net result from financial instruments at fair value
through profit or loss		 472 -194 -892 436 60 43 275 - -613 378
Net realised result from available-for-sale assets 34 42 10 83 32 9 56 - 86 97
Net fee and commission income 300 297 281 287 304 309 343 - 877 955
Fee and commission income 518 530 480 514 492 479 494 - 1 529 1 464
Fee and commission expense -218 -233 -200 -227 -188 -170 -151 - -651 -509
Other net income 92 110 -149 3 73 368 106 - 53 547
Total income 2 416 1 829 749 2 317 1 853 2 072 1 954 - 4 994 5 879
Operating expenses -1 143 -1 081 -1 077 -1 043 -1 132 -1 033 -1 003 - -3 301 -3 167
Impairment -105 -332 -940 -746 -273 -1 473 -302 - -1 377 -2 048
on loans and receivables -97 -164 -473 -599 -261 -198 -283 - -733 -742
on available-for-sale assets -6 -118 -223 -71 -5 -75 -4 - -347 -83
on goodwill 0 -17 -62 -41 0 -414 0 - -79 -414
on other -2 -33 -183 -35 -7 -786 -15 - -218 -809
Share in results of associated companies 1 0 -23 -35 -9 17 -6 - -22 2
Result before tax 1 170 416 -1 292 492 439 -417 644 - 294 666
Income tax expense -334 -76 165 -75 -93 -110 -103 - -245 -306
Net post-tax result from discontinued operations 0 0 -445 26 40 -8 0 - -445 33
Result after tax 835 340 -1 571 443 387 -535 540 - -396 392
attributable to minority interests 14 6 8 6 7 5 9 - 28 21
attributable to equity holders of the parent 821 333 -1 579 437 380 -539 531 - -424 372
Belgium 385 158 -348 226 489 204 321 - 196 1 014
Central & Eastern Europe 141 145 -91 94 119 171 182 - 195 472
Merchant Banking 203 69 -255 -225 17 -65 -8 - 17 -56
Group Centre 92 -39 -885 342 -246 -849 37 - -831 -1 059
Basic earnings per share (EUR) 1.98 0.54 -5.08 0.63 0.71 -1.99 1.16 - -2.56 -0.13
Diluted earnings per share (EUR) 1.98 0.54 -5.08 0.63 0.71 -1.99 1.16 - -2.56 -0.13

IFRS net result for 9M2012 at 372 million euros, compared to -424 million euros a year earlier.

  • Net interest income amounted to 3 548 million euros, compared to 4 142 million euros a year earlier. The decline was caused primarily by the deconsolidation of KBL epb, Warta, Żagiel and Fidea and lower re-investment yields. Year-on-year, credit volumes grew by 2%. Customer deposits expanded by 4% in Belgium and by 3% in Central Europe, while the deposit base at Merchant Banking contracted by 25% (primarily in 4Q2011). The net interest margin shrunk to 1.83%, year-to-date, 14 basis points lower than the high figure a year ago.
  • Gross earned premiums less gross technical charges and the ceded reinsurance result came to 316 million euros, down 17% year-on-year, primarily because of the deconsolidation of VITIS, Warta and Fidea.

For the non-life activities, the year-to-date combined ratio came to an excellent 90% (87% in Belgium, 97% in CEE), an improvement on the 92% for FY2011. For the life activities and on a comparable basis, there was a 42% year-on-year increase in the sale of life insurance products (thanks to higher sales of unit-linked products). It should be noted that the insurance results are also affected by investment income and charges, as well as by general administrative expenses. Investment income, in particular, was good for both the life and non-life businesses.

  • Net fee and commission income amounted to 955 million euros in the first three quarters of 2012, up 9% on its level a year ago, thanks, inter alia, to the successful sale of unit-linked products. Assets under management stood at 155 billion euros up 3% on the year-earlier figure, due to a positive investment performance.
  • The net result from financial instruments at fair value (trading and fair value income) came to 378 million euros in the first nine months of 2012, compared to a negative 613 million euros a year earlier. On an underlying basis (i.e. excluding exceptional items such as value adjustments to structured credit, fair valuing of the group's own debt, results related to the activities of KBC Financial Products that are being wound down, and after shifting all trading-related income items to this income statement line), trading and fair value income amounted to 695 million euros on 30 September 2012, almost double the year-earlier figure, due to the very good performance turned in by the dealing room, especially in the first quarter, and the positive CVA in the third quarter.
  • The remaining income components were as follows: dividend income from equity investments amounted to 39 million euros, the net realised result from available-for-sale assets (bonds and shares) stood at 97 million euros and other net income totalled 547 million euros, accounted for primarily by the capital gain realised on the closure of the Warta divestment in the second quarter.
  • Operating expenses amounted to 3 167 million euros in the first three quarters of 2012, 4% lower than the year-earlier figure. This was caused by the divestments, but offset somewhat by such factors as inflation and wage indexation. The underlying cost/income ratio for banking – a measure of cost efficiency – stood at 57% at the end of September 2012, an improvement on the 60% recorded for FY2011.
  • Total impairment stood at 2 048 million euros for the first nine months of 2012. Impairment on loans and receivables amounted to 742 million euros, comparable to the 733 million euros recorded in the same period in 2011, essentially due to the high level recorded for Ireland. As a result, the annualised credit cost ratio for 2012 came to 0.63%, which is still an improvement on the figure of 0.82% for FY2011. Impairment on available-for-sale assets stood at 83 million euros. Impairment on goodwill totalled 414 million euros and other impairment charges 809 million euros. These impairment charges were accounted for by the planned divestment files (primarily NLB, Absolut Bank, Antwerp Diamond Bank, KBC Banka and KBC Bank Deutschland) and were recorded in the second quarter.
  • Income tax amounted to 306 million euros for the first nine months of 2012.
  • At the end of September 2012, total equity came to 17.7 billion euros up 0.9 billion euros on its level at the start of the year – due mainly to the inclusion of the net profit for the first three quarters of 2012 (0.4 billion euros), the substantial change in the available-for-sale revaluation reserve (1.2 billion euros), as well as the deduction of the coupon on non-voting core capital securities subscribed by the Federal and Flemish governments (-0.6 billion euros). The group's tier-1 capital ratio – a measure of financial strength – stood at a sound 15.3% at 30 September 2012. Including the effect of divestments for which an agreement has so far been signed (Kredyt Bank) as well as the sale of treasury shares, the pro forma tier-1 ratio is as high as approximately 16.8% (core tier-1 ratio of 14.7%).

Selected balance sheet data

Highlights of consolidated balance sheet
KBC Group (in millions of EUR)		 31-03-
2011		 30-06-
2011		 30-09-
2011		 31-12-
2011		 31-03-
2012		 30-06-
2012		 30-09-
2012		 31-12-
2012
Total assets 322 493 312 899 305 109 285 382 290 635 285 848 270 010 -
Loans and advances to customers* 147 625 143 182 143 451 138 284 135 980 133 326 131 048 -
Securities (equity and debt instruments)* 88 839 85 144 74 062 65 036 65 853 64 227 65 171 -
Deposits from customers and debt certificates* 192 412 188 116 184 453 165 226 166 551 163 685 160 945 -
Technical provisions, before reinsurance* 23 870 24 084 21 064 19 914 19 925 19 539 19 637 -
Liabilities under investment contracts, insurance* 6 568 6 638 6 787 7 014 7 871 8 856 9 680 -
Parent shareholders' equity 11 011 11 500 9 834 9 756 10 949 9 687 10 629 -
Non-voting core-capital securities 7 000 7 000 7 000 6 500 6 500 6 500 6 500 -

* Note: in accordance with IFRS 5, the assets and liabilities of a number of divestments were moved to 'Non-current assets held for sale and assets associated with disposal groups' and 'Liabilities associated with disposal groups', which slightly distorts the comparison between periods.

Selected ratios

Selected ratios
FY2011
KBC Group (consolidated)		 9M2012
Profitability and efficiency (based on underlying results)
Return on equity*
5%		 11%
Cost/income ratio, banking
60%		 57%
Combined ratio, non-life insurance
92%		 90%
Solvency
Tier-1 ratio
12.3%		 15.3%
Core tier-1 ratio
10.6%		 13.4%
Credit risk
Credit cost ratio
0.82%		 0.63%
Non-performing ratio
4.9%		 5.5%

* Note: If a coupon is expected to be paid on the core-capital securities sold to the Belgian and Flemish governments, it will be deducted from the numerator (pro rata). If a penalty has to be paid, it will likewise be deducted.

Strategy highlights and main events

KBC's core strategy remains centred around bancassurance in Belgium and a selection of countries in Central and Eastern Europe (Czech Republic, Slovakia, Hungary and Bulgaria). In line with its strategic plan, the group has made considerable progress in the sale or run-down of a number of (non-core) activities (see below).

In 3Q2012 to date, we advanced substantially in the implementation of our strategic refocusing plan.

  • On 2 July 2012, after very careful and thorough consideration and in consultation with all relevant parties, KBC decided not to participate in the capital increase proposed by NLB and the Republic of Slovenia.
  • On 31 July 2012, KBC finalised the sale, announced on 10 October 2011, of its private banking subsidiary KBL European Private Bankers to Precision Capital S.A. for a total consideration of approximately 1 billion euros. The sale released a substantial amount of capital (approximately 0.7 billion euros) for KBC, increasing its tier-1 ratio by 0.7% in the third quarter of 2012.
  • On 31 July 2012, after having received all the necessary regulatory approvals, KBC Bank finalised the sale of 100% of the shares of Żagiel, its consumer finance business in Poland, to Santander Consumer Finance S.A., the Polish consumer finance subsidiary of Santander Group, for a total purchase price of 10 million Polish zloty. The impact on KBC's earnings and capital is negligible given the size of the activities.
  • On 19 September 2012, KBC Lease Holding NV completed the management buy-out deal for its subsidiary KBC Lease Deutschland. The impact of this deal on KBC's earnings and capital is negligible given the size of the activities.
  • On 8 October 2012, the group's CEO presented its updated strategy and explained how KBC will address the challenges presented by the changed business environment. He also presented KBC's major financial targets for 2015, setting the course for the group to become the reference in bank-insurance in its core markets.
  • On 16 October 2012, KBC Group NV and KBC Bank announced the successful completion of the private placement of 18.2 million treasury shares. The gross proceeds from the transaction amounted to 350 million euros.
  • A number of companies are still scheduled for divestment. The divestment processes for KBC Bank Deutschland, KBC Banka, Antwerp Diamond Bank and Absolut Bank are in progress.

Other main events in 9M2012

  • On 2 January 2012, KBC repaid 500 million euros in state aid (plus a 15% penalty) to the Belgian Federal Government. KBC's main objective in this respect is and remains to implement the strategic plan approved by the European Commission within the agreed timeframe and to repay the Belgian authorities in a timely manner. KBC aims to repay a substantial part of the aid received from the federal government before the end of this year.
  • On 3 October 2012, the European Banking Authority and National Bank of Belgium announced the final assessment of the capital exercise and fulfillment of the EBA December 2011 Recommendation, which showed that KBC Bank meets the 9% core tier-1 ratio including the sovereign buffer as stated in the EBA December 2011 recommendation.
  • In Ireland, growth is still driven by exports but signs of emerging stabilisation in parts of the domestic economy have been accompanied by an improvement in financial sentiment towards Ireland. Slightly better than expected tax revenues, broadly flat unemployment and a range of surveys point towards a tentative turning point in domestic activity of late. There are indications that the housing market may have bottomed out in terms of prices and transaction levels. However, the Irish domestic market remains a challenging environment for commercial customers. A loan loss provision of 129 million euros was recorded in 3Q2012. Impairment charges at KBC Bank Ireland for the full year are estimated to end between 500 and 600 million euros.
  • As has been the case in previous quarters, KBC has acted to reduce volatility in its results, and further reduced its exposure to Southern European government bonds in the third quarter by almost a third, mainly through cutting back its holdings of Spanish and Italian government bonds.
  • KBC reduced the profit and loss sensitivity of its CDO portfolio significantly through de-risking activities.

Statement of risk

Mainly active in banking, insurance and asset management, KBC is exposed to a number of typical risks such as – but not exclusively – credit default risk, movements in interest rates, capital markets risk, currency risk, liquidity risk, insurance

underwriting risk, operational risk, exposure to emerging markets, changes in regulations, customer litigation, as well as the economy in general. It is part of the business risk that the macroeconomic environment and the ongoing restructuring plans may have a negative impact on asset values or could generate additional charges beyond anticipated levels.

  • Risk management data are provided in KBC's annual reports, the extended quarterly reports and the dedicated risk reports, all of which are available at www.kbc.com.
  • Significant progress has been made towards stabilising the euro area over the past few months, both on the political and financial front, with the plan to create a banking union as a possible game changer. The very accommodating monetary policy in the EMU ('OMT') and the US ('QE3') should help to overcome an austerity-induced recession in the EMU and the post-election 'fiscal cliff' in the US, and therefore restore economic confidence and growth in the early months of 2013.

Financial calendar

The financial calendar, including analyst and investor meetings, is available at www.kbc.com/ir/calendar.

KBC Group Analysis of 3Q2012 underlying results

Unless otherwise specified, all amounts are given in euros

Underlying versus IFRS figures

The underlying figures, which are discussed in this section, exclude a number of non-operating or exceptional items. A full overview of these items is provided in the table 'Reconciliation of underlying result and IFRS result' in the first part of this report, while the impact for each business unit is summarised separately in the sections below.

In 3Q2012, the main exceptional or non-operating items were:

  • +0.3 billion (after tax) valuation mark-up on CDO exposure (tightening of spreads)
  • -0.1 billion (after tax) related to m-t-m of own credit risk (narrowing of KBC credit spreads)

In the reference quarters, the main exceptional or non-operating items were:

  • 2Q2012: +0.3 billion in total (after tax) related to closure of the sale of the insurance company Warta in Poland and -1.2 billion (after tax) in impairment charges for the remaining companies that are up for divestment (NLB (Slovenia), Absolut Bank (Russia), KBC Bank Deutschland (Germany), Antwerp Diamond Bank (Belgium) and KBC Banka (Serbia)).
  • 3Q2011: -0.6 billion (after tax) valuation markdown on CDO exposure and -0.6 billion (after tax) resulting from sales agreements for KBL epb and Fidea.

Analysis of the underlying result, KBC Group

Total income, underlying
KBC Group (in millions of EUR)		 1Q
2011		 2Q
2011		 3Q
2011		 4Q
2011		 1Q
2012		 2Q
2012		 3Q
2012		 4Q
2012
Net interest income 1 374 1 390 1 342 1 298 1 211 1 150 1 087 -
Earned premiums, insurance (before reinsurance) 1 141 975 972 1 033 884 890 578 -
Non-life
Life		 451
691		 468
507		 477
496		 466
567		 438
446		 442
448		 307
271		 -
-
Technical charges, insurance (before reinsurance) -1 016 -843 -817 -880 -752 -757 -499 -
Non-life
Life		 -234
-782		 -245
-599		 -259
-557		 -258
-622		 -234
-518		 -243
-514		 -150
-350		 -
-
Ceded reinsurance result -17 -8 -18 -1 -14 -1 -12 -
Dividend income 8 37 14 15 5 21 10 -
Net result from financial instruments at fair value through profit or loss 259 102 10 138 326 113 256 -
Net realised result from available-for-sale assets 53 42 11 85 31 6 57 -
Net fee and commission income 399 394 367 374 306 310 349 -
Banking
Insurance		 497
-98		 488
-93		 468
-101		 475
-102		 396
-89		 394
-84		 401
-52		 -
-
Other net income 73 72 -210 12 -8 53 74 -
Total income 2 274 2 161 1 673 2 075 1 989 1 786 1 900 -
Belgium 845 864 692 860 829 795 851 -
CEE 556 537 538 544 531 531 522 -
Merchant Banking 469 340 105 323 425 248 383 -
Group Centre 404 420 338 348 204 212 144 -

Net interest income in the quarter under review amounted to 1 087 million.

This was, at first sight, down 5% on the figure in the previous quarter and 19% lower than its level in the year-earlier quarter. However, on a comparable basis (i.e. excluding Fidea, KBL epb, Zagiel and Warta, which have since been deconsolidated), net interest income was down 4% on the previous quarter and 13% on its 3Q2011 level. The year-on-year decrease was related, among other things, to the reduction in the (high-yield) GIIPS government bond portfolio, generally lower reinvestment yields and higher senior debt costs. This also caused the 25 basis-point year-on-year decline in the overall net interest margin of the group's banking activities, to 174 basis points in 3Q2012 (183 basis points year-to-date).

On a comparable basis (excluding divestments and all entities falling under IFRS 5), the group's total loan portfolio decreased slightly by 1% quarter-on-quarter, but still increased by 2% year-on-year. Broken down by business unit, credit volumes went as follows: in the Belgium Business Unit, the retail credit portfolio continued to go up, by 1% in the quarter under review, leading to a year-on-year increase of no less than 6%. In the CEE Business Unit, credit volumes went up by 2% in the quarter under review (small drop in Hungary more than offset by increases in all other countries), leading to a year-on-year increase of 6% (again, the decline in Hungary – mainly in FX mortgage loans – was more than offset by the growth of the credit portfolios in the other countries, especially the Czech Republic). In the Merchant Banking Business Unit (corporate credit portfolio in Belgium and abroad), credit volumes were down 5% in the quarter under review and 4% year-on-year, due entirely to the reduction in the group's non-core international loan portfolio.

On a comparable basis (excluding divestments and all entities falling under IFRS 5), the group's total deposit volume stayed flat quarter-on-quarter and contracted 6% year-on-year. Deposit volumes in the Belgium Business Unit were up 1% in 3Q2012, and 4% year-on-year; in the CEE Business Unit, they increased by 1% quarter-on-quarter and 3% year-on-year (again, they were down in Hungary, but up in the other countries); in the Merchant Banking Business Unit, deposit volumes fell by 4% in the quarter under review, and – bearing also in mind the significant drop in the last quarter of 2011 – were hence down 25% yearon-year.

Earned insurance premiums amounted to 578 million in 3Q2012, which breaks down into 271 million for life insurance and 307 million for non-life insurance.

On a comparable basis (excluding deconsolidated entities), non-life premium income was up almost 2% both quarter-on-quarter and year-on-year. The level of claims was relatively low in the quarter under review. As a result, the non-life combined ratio in 3Q2012 stood at a good 92%, leading to a ratio of 90% for the first nine months of 2012. The latter ratio breaks down into an excellent 87% for Belgium and an acceptable 97% for CEE.

Earned premiums for life insurance under IFRS (271 million) exclude certain types of life insurance contracts (in simplified terms, the unit-linked contracts). When these contracts are included, total life insurance sales amounted to 951 million in the quarter under review. On a comparable basis (excluding deconsolidated companies), this figure was down 24% on the high level recorded in the previous quarter, but still up 17% on its 3Q2011 level. As was the case in previous quarters, life insurance sales remained very much focused on unit-linked products, which accounted for close to 80% of life insurance sales in the quarter under review, with interest-guaranteed products accounting for the remainder.

Note that, in general, net profit from the non-life and life insurance activities as a whole not only benefitted from a good technical performance, but also from an improved investment result in the quarter under review. Note that the insurance investment result is included in a number of P/L lines described below, though these line items evidently also include banking activities.

Net fee and commission income stood at 349 million in 3Q2012.

On a comparable basis (excluding deconsolidated entities), this income item was up slightly (+1%) quarter-on-quarter and some 7% higher than the 3Q2011 figure. The quarter under review benefitted from increased fee income related to investment funds and still relatively high fee income related to the sale of unit-linked insurance products. Total assets under management of the group stood at 155 billion at the end of September 2012, up 3% on a comparable basis (excluding KBL epb) on the level three months earlier, due entirely to a positive price effect.

The other income components were as follows.

Dividend income amounted to 10 million, somewhat below the level recorded in the year-earlier quarter, and naturally significantly below the figure for the previous quarter as the bulk of dividend income is traditionally received in the second quarter of the year.

Trading and fair value income (recorded under 'Net result from financial instruments at fair value through profit or loss') amounted to 256 million, up on the average of 147 million for the four preceding quarters, as the quarter under review was characterised by both satisfactory dealing room income and significant positive credit value adjustments (versus significant negative credit value adjustments in both reference figures).

The net realised result on available-for-sale assets stood at 57 million, up on the average of 33 million for the four preceding quarters as the quarter under review included considerable realised gains on the sale of shares in Belgium (at KBC Insurance).

Other net income amounted to 74 million in 3Q2012, significantly more than the average of -38 million for the four preceding quarters (which had been greatly impacted by the amounts which had to be recognised for the 5-5-5-product, especially in 3Q2011). Moreover, in 3Q2012 other net income includes a positive 44 million recovered in the KBC Lease UK fraud case.

Operating expenses, underlying
KBC Group (in millions of EUR)		 1Q
2011		 2Q
2011		 3Q
2011		 4Q
2011		 1Q
2012		 2Q
2012		 3Q
2012		 4Q
2012
Staff expenses -694 -701 -719 -693 -628 -633 -630 -
General administrative expenses -444 -366 -367 -354 -404 -305 -283 -
Depreciation and amortisation of fixed assets -89 -87 -86 -85 -78 -78 -77 -
Operating expenses -1 227 -1 155 -1 172 -1 133 -1 110 - 1 016 -990 -
Belgium -429 -446 -462 -453 -458 -425 -431 -
CEE -350 -302 -297 -243 -349 -290 -292 -
Merchant Banking -152 -142 -143 -132 -147 -148 -147 -
Group Centre -296 -265 -269 -305 -156 -154 -120 -

Comparatively (i.e. excluding deconsolidated entities), costs (990 million) were up 1% quarter-on-quarter, due to the positive impact of amounts recovered under the former Belgian deposit guarantee scheme in 2Q2012. Costs were down 2% on a comparable basis on the year-earlier figure, since 3Q2011 included, among other things, significant restructuring provisions. As a result, the cost/income ratio (operating expenses versus total income) of the group's banking activities stood at 54% in 3Q2012, leading to a ratio of 57% for the first nine months of 2012, an improvement on the 60% recorded for FY2011. The 9M2012 cost/income ratio breaks down per business unit as 60% for Belgium, 58% for CEE and 42% for Merchant Banking.

Impairments, underlying
KBC Group (in millions of EUR)		 1Q
2011		 2Q
2011		 3Q
2011		 4Q
2011		 1Q
2012		 2Q
2012		 3Q
2012		 4Q
2012
Impairment on loans and receivables -97 -164 -475 -599 -261 -198 -283 -
Impairment on available-for-sale assets -6 -135 -228 -85 -5 -24 -4 -
Impairment on goodwill 0 0 0 0 0 0 0 -
Impairment on other -2 -35 -38 -46 -5 -18 -18 -
Impairment - 105 -333 -740 -730 -271 -241 -305 -
Belgium -15 -74 -165 -58 -2 -39 -16 -
CEE -52 -96 -280 -191 -47 -21 -32 -
Merchant Banking -57 -112 -215 -384 -205 -166 -180 -
Group Centre 19 -51 -81 -97 -17 -14 -77 -

Impairment on loans and receivables (loan loss provisions) stood at 283 million. The loan loss provisions in 3Q2012 were higher than the 198 million recorded in the previous quarter, but significantly lower than the 475 million recorded in 3Q2011, which had included substantial impairment charges for Hungary (92 million related to FX mortgage relief measures), Bulgaria (96 million) and Ireland (187 million).

In the quarter under review, loan loss provisions went up for Belgian corporate loans, at KBC Finance Ireland (project finance) and at the foreign branches, while in KBC Bank Ireland a still high 129 million was recognised (down, however, on the 187 million recorded in 3Q2011 and more or less in line with the 136 million posted in 2Q2012).

Overall, this led to an annualised 9M2012 credit cost ratio of 63 basis points for the group as a whole, an improvement on the 82 basis points recorded for FY2011. The credit cost ratio for 9M2012 breaks down as follows: an excellent 6 basis points for the Belgium Business Unit, 40 basis points for the CEE Business Unit and 138 basis points for the Merchant Banking Business Unit (only 24 basis points excluding Ireland). At the end of September 2012, non-performing loans accounted for some 5.5% of the total loan book, up slightly on the figure recorded three months earlier (5.3%).

Other impairment in the quarter under review totalled 22 million and related mainly to available-for-sale securities and real estate investment property. In 3Q2011, the (high) impairment on available-for-sale assets related to Greek government bonds and to shares. Please note that impairments related to group companies that have to be divested are excluded from the underlying results.

In the following sections, the underlying results of the KBC group are broken down by business unit. In order to create more transparency and to avoid substantial quarter-on-quarter distortion in the results of the business units every time a company is divested, all the results of the companies that are earmarked for divestment have been grouped together in the Group Centre. The results of the other business units (Belgium, Central & Eastern Europe (CEE) and Merchant Banking) therefore exclude these companies and the analysis of their results is, in principle, not distorted by the deconsolidation of group companies that have been divested.

Analysis of the underlying results, Belgium Business Unit

The Belgium Business Unit encompasses the retail and private bancassurance activities in Belgium. More specifically, it includes the retail and private banking activities of the legal entity KBC Bank in Belgium, the activities of the legal entity KBC Insurance, and the activities of a number of subsidiaries (primarily CBC Banque, ADD, KBC Asset Management, part of KBC Lease, KBC Group Re, KBC Consumer Finance and VAB).

It should be noted that the entities that are earmarked for divestment under the strategic plan are not included here, but grouped together in the Group Centre (until their sale date).

Income statement, Belgium Business Unit, underlying
(in millions of EUR)		 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012
Net interest income 567 581 581 591 585 561 532 -
Earned premiums, insurance (before reinsurance) 615 512 473 534 490 411 394 -
Technical charges, insurance (before reinsurance) -593 -507 -436 -488 -468 -393 -356 -
Ceded reinsurance result -8 -1 -11 -5 -8 -6 -12 -
Dividend income 6 26 9 11 5 19 4 -
Net result from financial instruments at fair value through
profit or loss		 10 12 10 13 15 8 21 -
Net realised result from available-for-sale assets 22 24 7 45 41 -16 44 -
Net fee and commission income 186 178 169 166 177 197 195 -
Other net income 41 37 -110 -8 -6 15 28 -
Total income 845 864 692 860 829 795 851 -
Operating expenses -429 -446 -462 -453 -458 -425 -431 -
Impairment -15 -74 -165 -58 -2 -39 -16 -
on loans and receivables -11 -16 -10 -23 2 -15 -12 -
on available-for-sale assets -4 -53 -142 -31 -4 -24 -4 -
on goodwill 0 0 0 0 0 0 0 -
on other 0 -5 -13 -5 0 0 0 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 402 344 65 348 369 332 404 -
Income tax expense -121 -105 -32 -97 -103 -105 -113 -
Result after tax 281 238 33 251 266 227 290 -
attributable to minority interests 1 0 1 0 1 0 0 -
attributable to equity holders of the parent 280 238 32 251 266 226 290 -
Banking 175 147 64 148 137 159 173 -
Insurance 106 91 -32 103 128 68 117 -
Risk-weighted assets, group (end of period, Basel II) 29 104 29 158 29 161 28 929 29 101 25 273 25 434 -
of which banking 18 086 18 013 17 988 18 038 18 179 14 519 14 733 -
Allocated capital (end of period, Basel II) 2 775 2 786 2 787 2 746 2 763 2 453 2 465 -
Return on allocated capital (ROAC, Basel II) 39% 32% 3% 34% 37% 33% 46% -
Cost/income ratio, banking 57% 60% 77% 60% 65% 58% 57% -
Combined ratio, non-life insurance 74% 89% 95% 106% 82% 92% 89% -

The underlying figures exclude exceptional and non-operating items.

The following table is a reconciliation of the underlying result and the result according to IFRS.

Result after tax, attributable to equity holders of the
parent: underlying		 280 238 32 251 266 226 290 -
+ MTM of derivatives for ALM hedging 57 -56 -213 -38 68 -26 -25 -
+ gains/losses on CDOs 48 -24 -167 16 155 4 55 -
+ impairment on goodwill 0 0 0 -4 0 0 0 -
+ results on divestments 0 0 0 0 2 0 0 -
Result after tax, attributable to equity holders of the
parent: IFRS		 385 158 -348 226 489 204 321 -

In 3Q2012, the Belgium Business Unit generated an underlying profit of 290 million, above the average of 194 million for the four preceding quarters. The quarter under review was characterised by lower net interest income, an excellent non-life performance and still strong sales of unit-linked life insurance products, stable net fee and commission income, significant realised gains on the sale of shares, good cost control and continued low loan impairment. Banking activities accounted for 60% of the underlying result of the Belgium Business Unit in the quarter under review, and insurance activities for 40%.

Net interest income decreases; credit and deposit volumes continue to increase

Net interest income stood at 532 million in the quarter under review, down 5% on the previous quarter and 8% year-on-year. This decline is due, inter alia, to the reduction in the (high-yield) GIIPS government bond portfolio (especially in the year-on-year comparison), as well as to lower reinvestment yields in general (low interest environment). At 115 basis points, the net interest margin of KBC Bank in Belgium narrowed by 13 basis points quarter-on-quarter and by 28 basis points year-on-year. In line with the group's strategy to focus on its core markets (Belgium and four Central European countries), the Belgian retail loan book continued to expand, by 1% quarter-on-quarter, leading to a year-on-year increase of 6%. Mortgage loans remained an important driver of this retail volume growth (up 8% year-on-year). Customers' deposits likewise increased, going up by 1% quarter-on-quarter and 4% year-on-year.

Non-life combined ratio remains excellent; still strong sales of unit-linked products

Earned insurance premiums in the quarter under review amounted to 394 million, breaking down into 166 million for life insurance and 228 million for non-life insurance. Non-life premium income continued its upward trend, increasing by 1% compared to the previous quarter and some 3% on the year-earlier quarter (with increases in, inter alia, the Fire Insurance class). The quarter under review was also characterised by a generally low level of claims. As a result, the combined ratio further improved, by another 3 basis points quarter-on-quarter, to 89%, leading to an excellent 87% for the first nine months of the year. Life sales, including unit-linked products (which – in simplified terms – are not included in the premium figures under IFRS), amounted to a relatively strong 839 million in 3Q2012. Although this figure is 20% down on the very high level in the previous quarter due to less favourable market conditions, it is still up 19% compared to the year-earlier quarter. As was the case in the previous quarters, life insurance sales were primarily focused on unit-linked products, which accounted for over 80% of such sales in 3Q2012. The remaining 20% was accounted for by interest-guaranteed products. At the end of September 2012, the life reserves of this business unit amounted to 24.3 billion (up 4% quarter-on-quarter).

Fee and commission income stable quarter-on-quarter

Total net fee and commission income amounted to a satisfactory 195 million in the quarter under review, roughly comparable to the previous quarter but up as much as 16% on the year-earlier quarter. The latter increase was largely thanks to the still robust sales of unit-linked insurance products in 3Q2012 (the margin on which is included in net fee and commission income), though somewhat down on the very high unit linked sales in 2Q2012, and to higher fee income from mutual funds. Assets under management of this business unit stood at 145 billion at the end of September 2012, some 3% more than three months earlier, due to a positive price effect.

Other income components

Fair value income (recorded under 'Net result from financial instruments at fair value through profit or loss') came to 21 million in the quarter under review, up on the average of 12 million for the four preceding quarters. Dividend income stood at 4 million, somewhat down on the level recorded a year earlier, and evidently below the previous quarter, since dividends are traditionally received in the second quarter of the year. The realised result on available-for-sale assets amounted to 44 million and included, inter alia, significant realised gains on the sale of shares at the insurance company (57 million), which more than offset the realised losses on the sale of (mainly Italian and Spanish) government bonds. Other net income came to 28 million in 3Q2012; note that the figure for the year-earlier quarter (-110 million) had been severely impacted by the recognition of some 132 million related to the 5-5-5 product.

Costs under control

The operating expenses of the Belgium Business Unit stood at 431 million in the quarter under review. At first sight this is a slight increase (2%) on the previous quarter, but the lower figure in that quarter was attributable entirely to the fact that it had benefitted from the recovery of a significant amount under the former deposit guarantee scheme. Moreover, 3Q2012 also included, inter alia, lower marketing expenses compared to the previous quarter. Costs were down 7% on the year-earlier quarter, due to a combination of various factors (lower restructuring charges, ICT expenses, marketing costs, etc.). The cost/income ratio in the quarter under review amounted to 57%, which leads to a ratio of 60% for the first nine months, an improvement of 3 percentage points on the 63% recorded for FY2011.

Continued low impairment on loans

Impairment on loans and receivables (loan loss provisions) remained quite limited (only 12 million). Consequently, the annualised credit cost ratio for 9M2012 stood at an excellent 6 basis points, even less than the already very favourable 10 basis points for FY2011. At the end of 3Q2012, some 1.6% of the Belgian retail loan book was non-performing, more or less in line with the figure recorded three months earlier (1.5%). Other impairment charges amounted to a mere 4 million in the quarter under review and related to shares in portfolio; in 3Q2011 other impairment charges had totalled 155 million due to large impairments on both shares and Greek government bonds.

Analysis of the underlying results, CEE Business Unit

The CEE Business Unit encompasses the banking and insurance activities in the Czech Republic (ČSOB Bank and ČSOB Insurance), Slovakia (ČSOB Bank and ČSOB Insurance), Hungary (K&H Bank and K&H Insurance) and Bulgaria (CIBANK and DZI Insurance).

Since they are earmarked for divestment, Absolut Bank in Russia, KBC Banka in Serbia, NLB and NLB Vita in Slovenia, and Kredyt Bank and Warta (both Poland) are not included here, but grouped together in the Group Centre (until they are sold).

Income statement, CEE Business Unit, underlying
(in millions of EUR)		 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012
Net interest income 385 381 388 370 357 347 348 -
Earned premiums, insurance (before reinsurance) 241 163 182 159 173 264 186 -
Technical charges, insurance (before reinsurance) -189 -115 -135 -108 -127 -216 -141 -
Ceded reinsurance result -5 -4 -6 -6 -3 -4 -2 -
Dividend income 0 1 1 0 0 0 1 -
Net result from financial instruments at fair value through
profit or loss		 33 14 5 22 55 49 46 -
Net realised result from available-for-sale assets 6 3 6 17 -11 8 5 -
Net fee and commission income 76 86 84 83 77 71 77 -
Other net income 9 9 13 7 11 11 3 -
Total income 556 537 538 544 531 531 522 -
Operating expenses -350 -302 -297 -243 -349 -290 -292 -
Impairment -52 -96 -280 -191 -47 -21 -32 -
on loans and receivables -51 -42 -234 -151 -46 -18 -29 -
on available-for-sale assets 0 -52 -45 -30 0 0 0 -
on goodwill 0 0 0 0 0 0 0 -
on other -1 -2 0 -11 -1 -3 -3 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 154 139 -39 111 136 220 199 -
Income tax expense -31 8 -1 -14 -19 -32 -29 -
Result after tax 123 147 -40 97 118 188 169 -
attributable to minority interests 0 0 0 -1 0 0 0 -
attributable to equity holders of the parent 123 146 -40 98 118 188 169 -
Banking 113 136 -43 85 112 178 162 -
Insurance 10 11 3 12 6 10 8 -
Risk-weighted assets, group (end of period, Basel II) 25 607 25 810 26 062 26 128 26 260 26 314 25 555 -
of which banking 24 140 24 300 24 541 24 563 24 742 24 820 24 048 -
Allocated capital (end of period, Basel II) 2 137 2 155 2 176 2 184 2 192 2 195 2 135 -
Return on allocated capital (ROAC, Basel II) 19% 22% -11% 14% 17% 30% 27% -
Cost/income ratio, banking 63% 55% 53% 43% 65% 54% 55% -
Combined ratio, non-life insurance 88% 89% 101% 93% 95% 96% 99% -

The underlying figures exclude exceptional and non-operating items.

The following table is a reconciliation of the underlying result and the result according to IFRS.

Result after tax, attributable to equity holders of the
parent: underlying		 123 146 -40 98 118 188 169 -
+ MTM of derivatives for ALM hedging 22 -1 2 21 2 -2 13 -
+ gains/losses on CDOs 2 0 0 -3 0 0 0 -
+ impairment on goodwill 0 -1 -53 -21 0 -15 0 -
+ results on divestments -5 1 0 0 0 0 0 -
Result after tax, attributable to equity holders of the
parent: IFRS		 141 145 -91 94 119 171 182 -

In the quarter under review, the CEE Business Unit generated an underlying net result of 169 million, considerably more than the average figure of 91 million for the four preceding quarters. The quarter under review was characterised by stable interest income, increased fee and commission income, a somewhat higher combined ratio and lower life insurance sales, a stable cost level and low loan loss provisions. The CEE Business Unit's net result for 3Q2012 includes 143 million for the Czech Republic, 18 million for Slovakia, 36 million for Hungary, and 3 million for Bulgaria.

Net interest income roughly stable quarter-on-quarter

Net interest income generated in this business unit amounted to 348 million in the quarter under review. Excluding the exchange rate impact, this is roughly the same (-1%) as the previous quarter but a decline of 7% on the year-earlier quarter. The latter was primarily attributable to K&H Bank in Hungary (inter alia related to the repayment of FX mortgages consequent on the FX mortgage relief programme). At 303 basis points, the net interest margin was more or less unchanged compared with the previous quarter and 30 basis points less than the year-earlier quarter. As regards volumes, the combined loan book of the business unit was up 2% quarter-on-quarter and almost 6% year-on-year (with a decrease in Hungary being offset by increases in the loan books of the Czech Republic, Slovakia and to a lesser extent, Bulgaria). As regards customer deposits, the total volume for CEE-4 was up 1% quarter-on-quarter, and 3% year-on-year (again, a decrease in Hungary and increase in the other countries).

Year-to-date combined ratio at 97%; life sales down on the high level of the previous quarter

Earned insurance premiums in the quarter under review amounted to 186 million, which breaks down into 101 million for life insurance and 85 million for non-life insurance. Non-life premium income was up 4% on its level in the previous quarter and down 3% on the year-earlier quarter. Compared to the previous quarter, technical charges were somewhat higher (related, among other things, to the weather conditions and some big insurance claims in the Czech Republic), which caused the combined ratio for the quarter under review to deteriorate somewhat to 99%. Year-to-date, the combined ratio now stands at 97%.

Life sales, including insurance products not recognised under earned premiums under IFRS, amounted to 107 million in the quarter under review, comparable to the level for 3Q2011, but down on the strong sales recorded in the previous quarter (in particular, a decline in sales of unit-linked life products in the Czech Republic). As was the case in the previous quarters, life sales remained focused on unit-linked products, which accounted for some 72% of total life insurance sales in the quarter under review, with interest-guaranteed products accounting for the remaining part. At the end of September 2012, the outstanding life reserves in this business unit stood at 1.7 billion (up 3% quarter-on-quarter).

Other income components

Net fee and commission income amounted to 77 million in the quarter under review, up 8% on the previous quarter (mainly attributable to the Czech Republic), but down 5% compared to 3Q2011 (in both cases excluding FX impact). Total assets under management of this business unit totalled roughly 10 billion at quarter-end, down 2% compared to three months earlier, which was essentially the result of net outflows, combined with a small negative price effect.

Trading and fair value income (recorded under 'Net result from financial instruments at fair value through profit or loss') came to 46 million, up on the average of 33 million for the four preceding quarters. The figure for 3Q2012 included good fair value results in Slovakia and Hungary, which were offset by somewhat weaker fair value results in the Czech Republic. The net realised result from available-for-sale assets came to 5 million and related solely to sales of (mainly Czech) bonds. Other net income totalled 3 million .

Costs remain roughly the same

The operating expenses of this business unit came to 292 million, which is more or less comparable to both the previous and year-earlier quarters (disregarding FX effects). The cost/income ratio of the CEE banking activities stood at 55% in the quarter under review, or 58% for 9M2012, compared to 54% for FY2011.

Loan loss provisions relatively low

As was the case in the previous quarter, impairment on loans and receivables (loan loss provisions) stood at a relatively low 29 million. This is evidently a considerable decrease compared to the high 234 million recognised in 3Q2011, which had been impacted by high loan loss provisions in Hungary (largely related to the FX relief measures) and for Bulgaria (following an indepth evaluation of the Bulgarian portfolio). As a result, the annualised credit cost ratio of this business unit for 9M2012 amounted to a favourable 40 basis points, well below the 159 basis points recorded for FY2011. At the end of the quarter under review, non-performing loans accounted for some 5.5% of the CEE loan book, comparable to the level recorded three months earlier (5.6%). Impairment on assets other than loans and receivables amounted to 3 million in the quarter under review; the figure for the quarter a year earlier (45 million) had been significantly impacted by impairment on Greek bonds.

Breakdown per country

The underlying income statements for the Czech Republic, Slovakia, Hungary and Bulgaria are given below.

Income statement, Czech Republic, underlying 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012
(in millions of EUR)
Net interest income		 259 261 268 257 260 258 259 -
Earned premiums, insurance (before reinsurance) 178 96 119 99 111 201 129 -
Technical charges, insurance (before reinsurance) -151 -71 -92 -68 -86 -173 -105 -
Ceded reinsurance result -2 -2 -3 -5 -1 -2 0 -
Dividend income 0 1 1 0 0 0 1 -
Net result from financial instruments at fair value through
profit or loss		 26 12 -1 16 31 23 15 -
Net realised result from available-for-sale assets 5 3 6 15 -11 7 5 -
Net fee and commission income 42 49 50 49 45 38 43 -
Other net income 4 2 9 5 10 6 0 -
Total income 361 351 357 368 358 358 347 -
Operating expenses -158 -165 -169 -182 -160 -160 -161 -
Impairment -18 -65 -52 -70 -13 -14 -19 -
Of which on loans and receivables -18 -13 -9 -33 -13 -12 -17 -
Of which on available-for-sale assets 0 -52 -43 -29 0 0 0 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 185 121 136 116 185 184 167 -
Income tax expense -28 -13 -19 -16 -29 -27 -24 -
Result after tax 157 108 116 100 156 158 143 -
attributable to minority interests 0 0 0 0 0 0 0 -
attributable to equity holders of the parent 157 108 116 100 156 158 143 -
banking 148 101 112 91 151 152 137 -
insurance 8 7 5 9 5 5 6 -
Risk-weighted assets, group (end of period, Basel II) 13 854 13 937 14 342 14 869 15 590 15 715 15 121 -
of which banking 13 015 13 080 13 477 14 013 14 709 14 836 14 218 -
Allocated capital (end of period, Basel II) 1 159 1 166 1 199 1 241 1 300 1 310 1 264 -
Return on allocated capital (ROAC, Basel II) 46% 30% 32% 27% 42% 42% 38% -
Cost/income ratio, banking 43% 46% 46% 49% 44% 44% 46% -
Combined ratio, non-life insurance 87% 91% 97% 84% 91% 94% 99% -
Income statement, Slovakia, underlying 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012
(in millions of EUR)
Net interest income		 48 46 48 51 46 44 45 -
Earned premiums, insurance (before reinsurance) 19 20 16 15 18 21 17 -
Technical charges, insurance (before reinsurance) -13 -14 -9 -6 -10 -14 -10 -
Ceded reinsurance result -1 0 -1 -1 -1 0 -1 -
Dividend income 0 0 0 0 0 0 0 -
Net result from financial instruments at fair value through
profit or loss 3 1 -3 -7 10 4 8 -
Net realised result from available-for-sale assets 0 0 0 0 0 0 0 -
Net fee and commission income 11 10 9 10 9 9 10 -
Other net income 2 4 1 1 2 2 1 -
Total income 70 67 60 64 75 67 71 -
Operating expenses -40 -42 -39 -36 -44 -44 -45 -
Impairment -1 -8 -5 0 -3 -2 -4 -
Of which on loans and receivables -1 -7 -3 1 -3 -2 -4 -
Of which on available-for-sale assets 0 0 -2 0 0 0 0 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 29 17 16 27 28 21 22 -
Income tax expense -5 0 -4 -4 -5 -5 -5 -
Result after tax 24 18 13 23 23 16 18 -
attributable to minority interests 0 0 0 0 0 0 0 -
attributable to equity holders of the parent
banking		 24
19		 18
15		 13
13		 23
20		 23
19		 16
14		 18
15		 -
-
insurance 6 3 0 4 4 3 3 -
Risk-weighted assets, group (end of period, Basel II) 4 208 4 382 4 435 4 261 4 102 4 034 4 028 -
of which banking 4 038 4 205 4 258 4 084 3 926 3 855 3 849 -
Allocated capital (end of period, Basel II) 347 361 365 352 339 333 333 -
Return on allocated capital (ROAC, Basel II) 23% 16% 9% 24% 22% 15% 16% -
Cost/income ratio, banking 61% 63% 65% 58% 60% 66% 64% -
Income statement, Hungary, underlying
( in millions of EUR)		 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012
Net interest income 103 100 95 83 70 65 66 -
Earned premiums, insurance (before reinsurance) 22 23 23 20 19 17 19 -
Technical charges, insurance (before reinsurance) -11 -17 -18 -16 -15 -13 -12 -
Ceded reinsurance result -1 -1 -1 -1 -1 -1 -1 -
Dividend income 0 0 0 0 0 0 0 -
Net result from financial instruments at fair value through 4 12 12 13 15 21 26 -
profit or loss
Net realised result from available-for-sale assets
Net fee and commission income		 0
24		 0
25		 0
25		 2
24		 0
22		 0
22		 0
23		 -
-
Other net income 1 2 1 0 -2 1 -1 -
Total income 143 143 138 125 109 113 120 -
Operating expenses -130 -71 -68 0 -122 -64 -65 -
Impairment -29 -19 -126 -117 -29 -4 -7 -
Of which on loans and receivables -28 -18 -126 -116 -28 -3 -6 -
Of which on available-for-sale assets 0 0 0 0 0 0 0 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax -15 54 -56 8 -41 45 49 -
Income tax expense -1 -13 6 -1 5 -10 -13 -
Result after tax -16 40 -50 7 -36 35 36 -
attributable to minority interests 0 0 0 0 0 0 0 -
attributable to equity holders of the parent -16 40 -50 7 -36 35 36 -
banking
insurance		 -19
3		 38
2		 -50
0		 5
2		 -35
-1		 33
2		 34
2		 -
-
Risk-weighted assets, group (end of period, Basel II) 6 666 6 587 6 505 6 123 5 759 5 413 5 472 -
of which banking 6 424 6 335 6 253 5 834 5 513 5 178 5 238 -
Allocated capital (end of period, Basel II) 548 542 536 507 475 447 452 -
Return on allocated capital (ROAC, Basel II) -18% 24% -41% -1% -35% 24% 25% -
Cost/income ratio, banking 93% 49% 48% 2% 112% 57% 53% -
Combined ratio, non-life insurance 74% 92% 109% 109% 98% 103% 92% -
Income statement, Bulgaria, underlying 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012
(in millions of EUR)
Net interest income 12 10 8 9 10 9 10 -
Earned premiums, insurance (before reinsurance)
Technical charges, insurance (before reinsurance)		 23
-15		 25
-14		 24
-16		 25
-19		 25
-18		 24
-15		 21
-15		 -
-
Ceded reinsurance result -2 -1 -1 1 0 0 -1 -
Dividend income 0 0 0 0 0 0 0 -
Net result from financial instruments at fair value through
profit or loss 0 0 0 0 0 0 0 -
Net realised result from available-for-sale assets 0 0 0 0 0 0 0 -
Net fee and commission income 1 0 1 0 0 1 1 -
Other net income 0 0 0 0 1 1 0 -
Total income 19 21 17 17 19 21 17 -
Operating expenses
Impairment		 -14
-4		 -14
-3		 -14
-2		 -15
-8		 -14
-2		 -14
-1		 -12
-2		 -
-
Of which on loans and receivables -4 -3 -2 -6 -2 -1 -2 -
Of which on available-for-sale assets 0 0 0 0 0 0 0 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 2 4 1 -6 3 6 3 -
Income tax expense 0 0 0 0 0 0 0 -
Result after tax 2 5 1 -6 3 6 3 -
attributable to minority interests 0 0 0 -1 0 0 0 -
attributable to equity holders of the parent 2 4 1 -5 3 6 3 -
banking 0 0 1 -5 2 3 3 -
insurance 1 4 1 0 1 3 0 -
Risk-weighted assets, group (end of period, Basel II) 846 867 750 848 808 817 808 -
of which banking 628 643 523 604 593 614 614 -
Allocated capital (end of period, Basel II) 81 83 74 82 77 78 76 -
Return on allocated capital (ROAC, Basel II)
Cost/income ratio, banking		 -17%
66%		 -15%
74%		 -13%
82%		 -49%
83%		 -10%
69%		 6%
71%		 -4%
61%		 -
-
Income statement, CEE – other*, underlying
(in millions of EUR)		 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012
Net interest income -36 -36 -31 -31 -29 -29 -33 -
Earned premiums, insurance (before reinsurance) -1 -1 -1 -1 -1 0 -1 -
Technical charges, insurance (before reinsurance) 0 0 0 0 1 0 0 -
Ceded reinsurance result 0 0 0 0 0 0 0 -
Dividend income 0 0 0 0 0 0 0 -
Net result from financial instruments at fair value through
profit or loss		 0 -11 -3 0 0 0 -2 -
Net realised result from available-for-sale assets 0 0 0 0 0 0 0 -
Net fee and commission income -2 2 -1 0 0 0 0 -
Other net income 2 1 2 2 0 1 2 -
Total income -38 -45 -34 -30 -29 -28 -33 -
Operating expenses -9 -11 -8 -9 -9 -8 -9 -
Impairment 0 -1 -95 4 0 0 0 -
Of which on loans and receivables 0 0 -96 4 0 0 0 -
Of which on available-for-sale assets 0 0 0 0 0 0 0 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax -47 -57 -136 -35 -38 -36 -43 -
Income tax expense 3 34 17 7 11 9 12 -
Result after tax -43 -23 -120 -28 -27 -27 -31 -
attributable to minority interests 0 0 0 0 0 0 0 -
attributable to equity holders of the parent -43 -23 -120 -28 -27 -27 -31 -
banking -36 -19 -118 -25 -25 -24 -27 -
insurance -7 -5 -2 -3 -3 -3 -3 -

* includes, among other things, funding costs of goodwill and certain other items allocated from KBC Bank Belgium and KBC Insurance.

Analysis of the underlying results, Merchant Banking Business Unit

The Merchant Banking Business Unit encompasses the financial services provided to large SMEs & corporate customers and capital market activities (merchant banking activities of the CEE group companies are included in the CEE Business Unit). More specifically, it includes commercial banking and market activities of KBC Bank in Belgium and its branches elsewhere, and the activities of a number of subsidiaries, the main ones being KBC Lease (partial), KBC Securities, KBC Commercial Finance, KBC Credit Investments and KBC Bank Ireland. The entities that are earmarked for divestment under the strategic plan (the main ones being KBC Financial Products, Antwerp Diamond Bank and KBC Bank Deutschland) are not included here, but are grouped together in the Group Centre (until they are sold).

Income statement, Merchant Banking Business Unit,
underlying (in millions of EUR)		 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012
Net interest income 180 167 168 147 148 125 125 -
Earned premiums, insurance (before reinsurance) 0 0 0 0 0 0 0 -
Technical charges, insurance (before reinsurance) 0 0 0 0 0 0 0 -
Ceded reinsurance result 0 0 0 0 0 0 0 -
Dividend income 0 4 2 0 0 1 5 -
Net result from financial instruments at fair value through
profit or loss		 213 87 9 97 239 45 171 -
Net realised result from available-for-sale assets 2 11 0 22 -1 5 1 -
Net fee and commission income 51 53 43 55 56 46 47 -
Other net income 22 17 -117 2 -17 27 34 -
Total income 469 340 105 323 425 248 383 -
Operating expenses -152 -142 -143 -132 -147 -148 -147 -
Impairment -57 -112 -215 -384 -205 -166 -180 -
on loans and receivables -57 -95 -205 -368 -203 -152 -165 -
on available-for-sale assets 0 -1 -2 -3 0 0 0 -
on goodwill 0 0 0 0 0 0 0 -
on other 0 -16 -7 -13 -1 -14 -14 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 259 86 -253 -193 74 -66 57 -
Income tax expense -78 -21 61 44 -27 3 -43 -
Result after tax 182 65 -192 -149 46 -63 14 -
attributable to minority interests 5 2 4 4 4 2 3 -
attributable to equity holders of the parent 177 63 -196 -153 42 -65 10 -
Banking 176 62 -197 -154 41 -66 9 -
Insurance 1 1 1 1 1 1 1 -
Risk-weighted assets, group (end of period, Basel II) 45 945 42 446 39 736 42 126 40 319 40 884 38 028 -
of which banking 45 945 42 446 39 736 42 126 40 319 40 884 38 028 -
Allocated capital (end of period, Basel II) 3 676 3 396 3 179 3 370 3 225 3 271 3 042 -
Return on allocated capital (ROAC, Basel II) 19% 6% -25% -19% 6% -7% 3% -
Cost/income ratio, banking 32% 42% 138% 41% 35% 60% 38% -
The underlying figures exclude exceptional and non-operating items.
The following table is a reconciliation of the underlying result and the result according to IFRS.
Result after tax, attributable to equity holders of the
parent: underlying		 177 63 -196 -153 42 -65 10 -
+ MTM of derivatives for ALM hedging 9 -7 -31 -28 -24 0 -20 -
  • MTM of derivatives for ALM hedging 9 -7 -31 -28 -24 0 -20 - + gains/losses on CDOs 18 18 -13 -30 -1 1 -1 - + impairment on goodwill 0 -5 -4 -8 0 -1 0 - + results on divestments -1 0 -10 -6 0 0 2 - Result after tax, attributable to equity holders of the parent: IFRS 203 69 -255 -225 17 -65 -8 -

In the quarter under review, the Merchant Banking Business Unit generated an underlying result of 10 million, an improvement on the -93 million average for the four preceding quarters. The quarter under review was characterised by stable net interest income, significant positive credit value adjustments and satisfactory dealing room results, a recovery of amounts on the 2010 KBC Lease UK fraud case, stable costs and slightly higher loan loss provisions. The underlying result for 3Q2012 breaks down as follows: 38 million for market activities and -27 million for commercial banking activities (64 million excluding KBC Bank Ireland).

Total income considerably higher than both reference quarters

Total income for this business unit amounted to 383 million in the quarter under review.

Trading and fair value income (recorded under 'Net result from financial instruments at fair value through profit or loss') amounted to a good 171 million in the quarter under review, considerably up on the average of 98 million for the four preceding quarters. The quarter under review included satisfactory dealing room income, as well as significant positive credit value adjustments (whereas both reference quarters had been adversely impacted by significant negative credit value adjustments).

Net interest income stood at 125 million in 3Q2012, in line with 2Q2012 but down by a quarter on 3Q2011. The latter decline is due in part to the reduction in the (high-yield) GIIPS government bonds portfolio, generally lower reinvestment yields, higher funding costs and reduced volumes. The total credit portfolio of the Merchant Banking Business Unit decreased by 5% in the quarter under review and by 4% year-on-year, entirely as a result of a decline in the non-core international loan book. Customer deposits fell by 4% in the quarter under review, and – still impacted by the large decline in 4Q2011 – , were down by 25% compared to a year ago.

The other income components combined totalled 87 million in the quarter under review and included net fee and commission income of 47 million (slightly higher than in the reference quarters), a net realised result from available-for-sale assets of 1 million (compared with an average of 7 million in the four preceding quarters) which included gains from the sale of shares and Belgian bonds being offset by losses on the sale of mainly Italian bonds, and other net income of 34 million. The latter included a recovery of 44 million in relation to the 2010 fraud case at KBC Lease UK. In 3Q2011, other net income (-117 million) had been impacted by a charge of 132 million related to the 5-5-5 product.

Costs virtually unchanged quarter-on-quarter

Operating expenses in the quarter under review amounted to 147 million, down 1% quarter-on-quarter and up 2% year-on-year (mainly due to higher banking tax). The underlying cost/income ratio stood at 38% in 3Q2012, leading to a ratio of 42% for the first nine months of 2012, an improvement on the 46% recorded for FY2011.

Somewhat higher loan loss provisions in the quarter under review

Impairment on loans and receivables (loan loss provisions) amounted to 165 million in the quarter under review, up somewhat on the 152 million recognised in the previous quarter, but still down on the 205 million recorded in the year-earlier quarter. The quarter under review includes increased loan loss provisions for Belgian corporate files and at the foreign branches, and a loan loss provision of 129 million at KBC Bank Ireland (in line with the 136 million posted in 2Q2012 but lower than the 187 million recognised in 3Q2011). Consequently, the annualised credit cost ratio for the first nine months for the Merchant Banking Business Unit came to 138 basis points, comparable to the 136 basis points recorded for FY2011. Excluding Ireland*, the credit cost ratio for 9M2012 would have come to just 24 basis points, an improvement on the 59 basis points recorded for FY2011. At the end of September 2012, approximately 10.1% of the Merchant Banking Business Unit's loan book was non-performing, up on the 9.5% recorded three months earlier. Excluding Ireland*, non-performing loans accounted for 4.1% of the unit's loan book at 30 September 2012 (3.9% three months earlier).

Other impairment charges for this business unit amounted to 14 million in the quarter under review (relating to real estate investment); in 3Q2011, other impairment charges related mainly to Greek government bonds.

Breakdown by commercial banking activities and market activities

The underlying figures for the Merchant Banking Business Unit are broken down into 'Commercial Banking' (mainly lending and banking services to large SMEs and corporate customers) and 'Market Activities' (sales and trading on money and capital markets, corporate finance, etc.) on the next page.

* The annualised credit cost ratio for KBC Bank Ireland stood at 371 basis points for 9M2012, compared to 301 basis points for FY2011 (which included two quarters of relatively low impairment charges), while the non-performing ratio rose to 22.5% at the end of 3Q2012, up from 21.4% three months earlier.

Income statement, Commercial Banking, underlying
(in millions of EUR)		 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012
Net interest income 180 167 168 148 148 125 125 -
Earned premiums, insurance (before reinsurance) 0 0 0 0 0 0 0 -
Technical charges, insurance (before reinsurance) 0 0 0 0 0 0 0 -
Ceded reinsurance result 0 0 0 0 0 0 0 -
Dividend income 0 4 2 0 0 1 5 -
Net result from financial instruments at fair value through
profit or loss		 10 -25 -48 0 41 -50 74 -
Net realised result from available-for-sale assets 2 11 0 22 -1 5 1 -
Net fee and commission income 26 29 26 36 36 30 33 -
Other net income 22 24 21 37 61 27 55 -
Total income 242 210 169 242 286 138 293 -
Operating expenses -87 -88 -90 -86 -92 -102 -98 -
Impairment -72 -100 -208 -385 -202 -172 -199 -
Of which on loans and receivables -72 -83 -200 -368 -201 -157 -184 -
Of which on available-for-sale assets 0 -1 -1 -3 0 0 0 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 83 23 -130 -229 -8 -136 -4 -
Income tax expense -28 -6 19 53 -10 28 -20 -
Result after tax 55 17 -111 -176 -18 -108 -24 -
attributable to minority interests 4 3 4 3 4 2 3 -
attributable to equity holders of the parent 51 14 -115 -179 -22 -110 -27 -
Banking
Insurance		 50
1		 13
1		 -116
1		 -180
1		 -23
-1		 -111
1		 -28
1		 -
-
Risk-weighted assets, group (end of period, Basel II) 32 176 30 934 30 733 31 065 31 300 31 226 30 710 -
of which banking 32 176 30 934 30 733 31 065 31 300 31 226 30 710 -
Allocated capital (end of period, Basel II) 2 574 2 475 2 459 2 485 2 504 2 498 2 457 -
Return on allocated capital (ROAC, Basel II) 7% 2% -19% -30% -3% -16% -3% -
Cost/income ratio, banking 36% 42% 54% 36% 32% 75% 34% -
Income statement, Market Activities, underlying 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012
(in millions of EUR)
Net interest income		 0 0 0 0 0 0 0 -
Earned premiums, insurance (before reinsurance) 0 0 0 0 0 0 0 -
Technical charges, insurance (before reinsurance) 0 0 0 0 0 0 0 -
Ceded reinsurance result 0 0 0 0 0 0 0 -
Dividend income 0 0 0 0 0 0 0 -
Net result from financial instruments at fair value through
profit or loss		 203 112 57 96 198 95 97 -
Net realised result from available-for-sale assets 0 0 0 0 0 0 0 -
Net fee and commission income 25 25 17 19 19 16 15 -
Other net income 0 -8 -138 -35 -78 0 -21 -
Total income 227 129 -64 80 139 110 91 -
Operating expenses -65 -53 -53 -46 -55 -46 -48 -
Impairment 15 -12 -6 1 -2 5 19 -
Of which on loans and receivables 15 -12 -5 0 -2 5 19 -
Of which on available-for-sale assets 0 0 -1 1 0 0 0 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 177 63 -123 36 82 70 61 -
Income tax expense -50 -15 42 -9 -17 -25 -23 -
Result after tax 127 48 -81 27 64 45 38 -
attributable to minority interests 1 -1 0 1 0 0 0 -
attributable to equity holders of the parent 126 48 -81 26 65 45 38 -
banking 126 48 -81 26 65 45 38 -
insurance 0 0 0 0 0 0 0 -
Risk-weighted assets, group (end of period, Basel II)
of which banking		 13 769
13 769		 11 512
11 512		 9 003
9 003		 11 061
11 061		 9 018
9 018		 9 658
9 658		 7 318
7 318		 -
-
Allocated capital (end of period, Basel II) 1 102 921 720 885 721 773 585 -
Return on allocated capital (ROAC, Basel II) 46% 18% -41% 14% 34% 26% 26% -

Analysis of the underlying results, Group Centre

The Group Centre comprises the results of the holding company, KBC Group NV, KBC Global Services, some results that are not attributable to the other business units and the elimination of the results of intersegment transactions.

It also comprises the results of the companies that have been designated as non-core in the group's strategy and are therefore earmarked for divestment (included in the figures until they are sold). The main entities are Centea, Fidea, Absolut Bank, KBC Banka, NLB and NLB Vita, Kredyt Bank, Warta, KBC Financial Products, Antwerp Diamond Bank, KBC Bank Deutschland and the KBL epb group.

Income statement, Group Centre, underlying
(in millions of EUR)		 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012
Net interest income 242 261 205 190 121 117 82 -
Earned premiums, insurance (before reinsurance) 284 299 317 341 222 216 -2 -
Technical charges, insurance (before reinsurance) -234 -221 -245 -283 -157 -149 -2 -
Ceded reinsurance result -4 -3 -2 9 -3 9 2 -
Dividend income 2 6 2 3 0 0 0 -
Net result from financial instruments at fair value through
profit or loss		 4 -11 -14 6 16 11 18 -
Net realised result from available-for-sale assets 22 3 -2 2 3 9 7 -
Net fee and commission income 86 77 72 70 -4 -3 29 -
Other net income 2 9 4 11 5 0 9 -
Total income 404 420 338 348 204 212 144 -
Operating expenses -296 -265 -269 -305 -156 -154 -120 -
Impairment 19 -51 -81 -97 -17 -14 -77 -
on loans and receivables 21 -11 -26 -58 -14 -13 -76 -
on available-for-sale assets -2 -29 -38 -21 0 0 0 -
on goodwill 0 0 0 0 0 0 0 -
on other -1 -12 -17 -18 -3 -1 -1 -
Share in results of associated companies 1 0 -23 -35 -10 -10 -13 -
Result before tax 127 104 -35 -89 20 34 -67 -
Income tax expense -42 -19 -6 58 12 -9 9 -
Result after tax 85 85 -41 -32 32 25 -58 -
attributable to minority interests 8 3 3 3 3 2 6 -
attributable to equity holders of the parent 77 81 -44 -35 30 23 -64 -
Banking 86 57 -19 -29 17 13 -52 -
Insurance 20 26 -10 3 12 22 -5 -
Holding company -29 -2 -16 -9 1 -12 -7 -
Risk-weighted assets, group (end of period, Basel II) 30 933 29 959 25 693 29 149 27 429 25 258 22 097 -
of which banking 27 732 26 637 22 347 25 814 25 850 25 033 21 880 -
Allocated capital (end of period, Basel II) 2 628 2 556 2 216 2 491 2 283 2 028 1 775 -

The underlying figures exclude exceptional and non-operating items.

The following table is a reconciliation of the underlying result and the result according to IFRS.

Result after tax, attributable to equity holders of the
parent: underlying		 77 81 -44 -35 30 23 -64 -
+ MTM of derivatives for ALM hedging 8 -13 -2 0 1 0 -1 -
+ gains/losses on CDOs 47 -102 -447 169 -4 -37 220 -
+ impairment on goodwill and other 0 -11 0 -8 0 0 0 -
+ fair value changes of own debt outstanding -16 -25 185 215 -340 41 -144 -
+ legacy structured derivative business (KBC FP) 14 43 5 -12 -11 -7 6 -
+ results on divestments -38 -12 -581 14 80 -868 20 -
Result after tax, attributable to equity holders of the
parent: IFRS		 92 -39 -885 342 -246 -849 37 -

The Group Centre's net result amounted to -64 million in 3Q2012. As mentioned before, this includes a number of group items and the results of the companies that are earmarked for divestment, whose combined net result came to -47 million in 3Q2012, compared to 31 million in 2Q2012.

The contribution to the net result of the companies up for divestment can be broken down by former business unit as follows:

  • Formerly recognised under the Belgium Business Unit: zero (the planned divestments for this business unit Centea and Fidea – have been completed).
  • Formerly recognised under the CEE Business Unit: 12 million, compared with 44 million in the previous quarter. The difference is due mainly to the deconsolidation of the Polish insurance company Warta (sold mid 2012), a lower contribution by Absolut Bank and a higher contribution by Kredyt Bank.
  • Formerly recognised under the Merchant Banking Business Unit: -37 million, compared with 8 million in the previous quarter. 3Q2012 includes high loan loss provisions at KBC Finance Ireland (project finance).
  • Formerly recognised under the European Private Banking Business Unit: zero (KBL epb has been excluded from the underlying results since the beginning of the year and the agreement to sell it was finalised at the end of July 2012).
  • Other (relating mainly to funding of goodwill paid in relation to companies that are earmarked for divestment): -22 million, in line with the previous quarter.

KBC Group Consolidated financial statements according to IFRS 3Q and 9M2012

This section is reviewed by the auditors.

Consolidated income statement

In millions of EUR Note 3Q 2011 2Q 2012 3Q 2012 9M 2011 9M 2012
Net interest income 3 1 341 1 190 1 097 4 142 3 548
Interest income 3 2 910 2 563 2 493 9 151 7 752
Interest expense 3 - 1 569 - 1 374 - 1 396 - 5 009 - 4 204
Earned premiums, insurance (before reinsurance) 9 972 890 578 3 087 2 352
Non-life 11 477 442 307 1 395 1 187
Life 10 495 448 271 1 691 1 165
Technical charges, insurance (before reinsurance) 9 - 812 - 757 - 499 - 2 665 - 2 009
Non-life 9 - 259 - 243 - 150 - 738 - 626
Life 9 - 553 - 514 - 350 - 1 927 - 1 383
Ceded reinsurance result 9 - 18 - 1 - 12 - 43 - 27
Dividend income 4 17 21 13 70 39
Net result from financial instruments at fair value through profit or loss - 892 43 275 - 613 378
Net realised result from available-for-sale assets 6 10 9 56 86 97
Net fee and commission income 7 281 309 343 877 955
Fee and commission income 7 480 479 494 1 529 1 464
Fee and commission expense 7 - 200 - 170 - 151 - 651 - 509
Other net income 8 - 149 368 106 53 547
TOTAL INCOME 749 2 072 1 954 4 994 5 879
Operating expenses 12 - 1 077 - 1 033 - 1 003 - 3 301 - 3 167
Staff expenses 12 - 653 - 639 - 634 - 1 938 - 1 907
General administrative expenses 12 - 345 - 316 - 292 - 1 117 - 1 024
Depreciation and amortisation of fixed assets 12 - 79 - 79 - 77 - 246 - 236
Impairment 14 - 940 - 1 473 - 302 - 1 377 - 2 048
on loans and receivables 14 - 473 - 198 - 283 - 733 - 742
on available-for-sale assets 14 - 223 - 75 - 4 - 347 - 83
on goodwill 14 - 62 - 414 0 - 79 - 414
on other 14 - 183 - 786 - 15 - 218 - 809
Share in results of associated companies 15 - 23 17 - 6 - 22 2
RESULT BEFORE TAX - 1 292 - 417 644 294 666
Income tax expense 16 165 - 110 - 103 - 245 - 306
Net post-tax result from discontinued operations 46 - 445 - 8 0 - 445 33
RESULT AFTER TAX - 1 571 - 535 540 - 396 392
Attributable to minority interest 8 5 9 28 21
of which relating to discontinued operations 0 0 0 0 0
Attributable to equity holders of the parent - 1 579 - 539 531 - 424 372
of which relating to discontinued operations - 445 - 8 0 - 445 33
Earnings per share (in EUR) 17
Basic 17 -5.08 -1.99 1.16 -2.56 -0.13
Diluted 17 -5.08 -1.99 1.16 -2.56 -0.13

Consolidated statement of comprehensive income (condensed)

In millions of EUR 3Q 2011 2Q 2012 3Q 2012 9M 2011 9M 2012
RESULT AFTER TAX - 1 571 - 535 540 - 396 392
attributable to minority interest 8 5 9 28 21
attributable to equity holders of the parent - 1 579 - 539 531 - 424 372
OTHER COMPREHENSIVE INCOME
Net change in revaluation reserve (AFS assets) - Equity - 193 - 47 - 46 - 228 - 55
Net change in revaluation reserve (AFS assets) - Bonds 427 93 467 359 1 292
Net change in revaluation reserve (AFS assets) - Other 0 0 0 - 1 0
Net change in hedging reserve (cash flow hedge) - 222 - 118 - 44 - 78 - 167
Net change in translation differences - 117 - 57 37 - 104 87
Other movements 4 0 - 1 2 - 2
TOTAL COMPREHENSIVE INCOME - 1 672 - 663 954 - 446 1 547
attributable to minority interest - 6 2 17 16 39
attributable to equity holders of the parent - 1 666 - 665 937 - 462 1 508

Consolidated balance sheet

ASSETS (in millions of EUR) Note 31-12-2011 30-09-2012
Cash and cash balances with central banks 6 218 3 841
Financial assets 18 249 439 239 503
Held for trading 18-29 26 936 23 816
Designated at fair value through profit or loss 18-29 13 940 19 328
Available for sale 18-29 39 491 29 704
Loans and receivables 18-29 153 894 138 834
Held to maturity 18-29 14 396 26 778
Hedging derivatives 18-29 782 1 043
Reinsurers' share in technical provisions 35 150 141
Fair value adjustments of hedged items in portfolio hedge of interest rate risk - 197 216
Tax assets 31 2 646 2 186
Current tax assets 31 201 162
Deferred tax assets 31 2 445 2 024
Non-current assets held for sale and assets associated with disposal groups 46 19 123 17 673
Investments in associated companies 32 431 104
Investment property 33 758 633
Property and equipment 33 2 651 2 590
Goodwill and other intangible assets 34 1 898 1 364
Other assets 30 1 871 1 759
TOTAL ASSETS 285 382 270 010
LIABILITIES AND EQUITY (in millions of EUR) Note 31-12-2011 30-09-2012
Financial liabilities 18 225 804 216 146
Held for trading 18-29 27 355 22 393
Designated at fair value through profit or loss 18-29 28 678 23 905
Measured at amortised cost 18-29 167 842 167 496
Hedging derivatives 18-29 1 929 2 352
Technical provisions, before reinsurance 35 19 914 19 637
Fair value adjustments of hedged items in portfolio hedge of interest rate risk - 4 42
Tax liabilities 31 545 547
Current tax liabilities 31 255 158
Deferred tax liabilies 31 290 388
Liabilities associated with disposal groups 46 18 132 11 850
Provisions for risks and charges 36 889 547
Other liabilities 37 3 322 3 575
TOTAL LIABILITIES 268 611 252 343
Total equity 39 16 772 17 667
Parent shareholders' equity 39 9 756 10 629
Non-voting core-capital securities 39 6 500 6 500
Minority interests - 516 539
TOTAL LIABILITIES AND EQUITY 285 382 270 010

In line with IFRS 5, the assets and liabilities of the largest part of the remaining divestments were moved from various balance sheet lines towards the lines 'Non-current assets held for sale and assets associated with disposal groups' and 'Liabilities associated with disposal groups'. Note that reference figures were not adjusted (not required by IFRS 5), however for the financial assets and liabilities pro forma figures for 31 December 2011 are shown in note 18. More information on divestments and all data required by IFRS 5 can be found in a separate note (note 46).

On 2 January 2012, KBC Group reimbursed 0.5 billion euros (and 15% penalty) to the Belgian State. This has already been taken into account in the balance sheet on 31-12-2011 (0.5 billion euros shift from equity to liabilities, and the extraction of the penalty from equity by presenting it as a liability).

Consolidated statement of changes in equity

of E
In m
illio
UR
ns		 Rev
alu
atio
n		 Par
ent		 Non
ing
-vot
Iss
ued
d p
aid
an		 Sha
re		 Tre
asu
ry		 res
erve		 Hed
gin
g re
ser
ve		 Tra
nsl
atio
n		 sha
reh
old
'
ers		 api
tal
cor
e-c		 Min
orit
y
sha
api
tal
up
re c		 miu
pre
m		 sha
res		 (AF
S a
ts)
sse		 (ca
shf
s)
low
he
dge		 Re
ser
ves		 diffe
ren
ces		 ity
equ		 urit
ies
sec		 inte
ts
res		 Tot
al e
qui
ty
30-
09-
201
1
Bal
t th
e b
egi
nni
of t
he
iod
anc
e a
ng
per		 1 2
45		 4 3
40		 - 1
529		 66 - 4
43		 7 7
49		 - 2
81		 11
14
7		 7 0
00		 52
7		 18
67
4
Net
ult
for
the
riod
res
pe		 0 0 0 0 0 - 4
24		 0 - 4
24		 0 28 - 3
96
Oth
hen
sive
inc
e fo
r th
erio
d
er c
om
pre
om
e p		 0 0 0 13
1		 - 7
8		 2 - 9
2		 - 3
8		 0 - 1
2		 - 5
0
Tot
al c
hen
siv
e i
om
pre
nco
me		 0 0 0 13
1		 - 7
8		 - 4
23		 - 9
2		 - 4
62		 0 16 - 4
46
Div
ide
nds		 0 0 0 0 0 - 8
50		 0 - 8
50		 0 0 - 8
50
Ca
pita
l in
cre
ase		 0 0 0 0 0 0 0 0 0 0 0
Pur
cha
of
har
trea
ses
sur
y s
es		 0 0 0 0 0 0 0 0 0 0 0
Sa
les
of
har
trea
sur
y s
es		 0 0 0 0 0 0 0 0 0 0 0
Res
ults
(de
riva
tive
n) t
har
on
s o
rea
sur
y s
es		 0 0 0 0 0 0 0 0 0 0 0
Imp
bu
sin
mb
ina
tion
act
ess
co
s		 0 0 0 0 0 - 1 0 - 1 0 0 - 1
Cha
in
min
orit
ies
nge		 0 0 0 0 0 0 0 0 0 - 2
6		 - 2
6
Cha
in
nge
sco
pe		 0 0 0 0 0 0 0 0 0 0 0
Tot
al c
han
ge		 0 0 0 13
1		 - 7
8		 - 1
274		 - 9
2		 - 1
313		 0 - 1
0		 - 1
323
Ba
lan
he
end
of
the
rio
d
at t
ce
pe		 1 2
45		 4 3
40		 - 1
529		 19
7		 - 5
21		 6 4
75		 - 3
73		 9 8
34		 7 0
00		 5
17		 17
35
1
of w
hic
h re
valu
atio
ve f
har
n re
ser
or s
es		 20
8
of w
hic
h re
valu
atio
ve f
or b
ond
n re
ser
s		 - 1
1
of w
hic
h re
valu
atio
ve f
the
s th
set
n re
ser
or o
r as		 bon
ds
and
sh
an
are
s		 0
of w
hic
h re
lati
s h
eld
for
to n
t as
set
ng
on-
cur
ren		 le a
nd
dis
al g
sa
pos
rou		 ps 3 10 13 13
30-
09-
201
2
Bal
t th
e b
egi
nni
of t
he
iod
anc
e a
ng
per		 1 2
45		 4 3
41		 - 1
529		 - 1
17		 94
- 5		 6 8
31		 - 4
22		 9 7
56		 6 5
00		 16
5		 16
2
77
Net
ult
for
the
riod
res
pe		 0 0 0 0 0 37
2		 0 37
2		 0 2
1		 39
2
Oth
hen
sive
inc
e fo
r th
erio
d
er c
om
pre
om
e p		 0 0 0 1 2
33		 - 1
69		 - 2 75 1
136		 0 18 1
154
Tot
al c
hen
siv
e i
om
pre
nco
me		 0 0 0 1 2
33		 - 1
69		 36
9		 75 1 5
08		 0 39 1 5
47
Div
ide
nds		 0 0 0 0 0 99
- 5		 0 99
- 5		 0 0 99
- 5
Ca
pita
l in
cre
ase		 0 0 0 0 0 0 0 0 0 0 0
Rep
of
ing
api
tal
urit
ies
ent
-vot
aym
non
co
re-c
sec		 0 0 0 0 0 0 0 0 0 0 0
Pur
cha
of
trea
har
ses
sur
y s
es		 0 0 0 0 0 0 0 0 0 0 0
Sa
les
of
har
trea
sur
y s
es		 0 0 0 0 0 0 0 0 0 0 0
Res
ults
(de
riva
tive
n) t
har
on
s o
rea
sur
y s
es		 0 0 - 1 0 0 0 0 - 1 0 0 - 1
Imp
bu
sin
mb
ina
tion
act
ess
co
s		 0 0 0 0 0 - 6 0 - 6 0 0 - 6
Cha
in
min
orit
ies
nge		 0 0 0 0 0 0 0 0 0 - 1
6		 - 1
6
Cha
in
nge
sco
pe		 0 0 0 3
- 5		 0 0 23 - 3
0		 0 0 - 3
0
Tot
al c
han
ge		 0 0 - 1 1
180		 - 1
69		 - 2
36		 98 87
2		 0 23 89
5
of
rio
Ba
lan
at t
he
end
the
d
ce
pe		 1 2
45		 4 3
41		 - 1
529		 1 0
63		 - 7
62		 6 5
95		 - 3
24		 10
62
9		 6 5
00		 53
9		 17
66
7
of w
ve f
hic
h re
valu
atio
har
n re
ser
or s
es		 17
5
of w
hic
h re
valu
atio
ve f
or b
ond
n re
ser
s		 88
8
of w
ve f
hic
h re
valu
atio
the
set
s th
n re
ser
or o
r as		 bon
ds
and
sh
an
are
s		 0
of w
hic
h re
lati
s h
eld
for
to n
t as
set
ng
on-
cur
ren		 le a
nd
dis
al g
sa
pos
rou		 ps 29 13 - 6
8		 - 2
6		 16
8		 14
1

The changes in equity during 9M 2012 include the accounting of a gross dividend of 0.01 euros per share (3.6 million euros in total) and the coupon on the core-capital securities sold to the Belgian Federal and Flemish Regional governments (595 million euros or 8.5% of 7 billion euros). Both paid in the second quarter 2012.

On 2 January 2012, KBC Group reimbursed 0.5 billion euros (and 15% penalty) to the Belgian State. This has already been taken into account in the balance sheet on 31-12- 2011 (0.5 billion euros shift from equity to liabilities, and the extraction of the penalty from equity by presenting it as a liability).

Consolidated cash flow statement (condensed)

In millions of EUR 9M 2011 9M 2012
Operating activities
Net cash from (used in) operating activities 2 127 5 087
Investing activities
Net cash from (used in) investing activities - 832 - 13 963
Financing activities
Net cash from (used in) financing activities - 1 521 - 2 517
Change in cash and cash equivalents
Net increase or decrease in cash and cash equivalents - 227 - 11 393
Cash and cash equivalents at the beginning of the period 20 557 13 997
Effects of exchange rate changes on opening cash and cash equivalents - 109 140
Cash and cash equivalents at the end of the period 20 222 2 744

As mentioned in note 45, Fidea has been sold in the first half of 2012. The sale of Fidea had a positive impact on the cash flows included in investing activities of +0.2 billion euros. The sale of Warta – as well as the closing of the sale of KBL EPB on 31 July 2012 – had an impact on the third quarter cash flows from investing activities of +0.8 billion euros and -1.9 billion euros respectively (sale price minus cash and cash equivalents belonging to the disposal group).

Notes on statement of compliance and changes in accounting policies

Statement of compliance (note 1a in the annual accounts 2011)

The consolidated financial statements of the KBC Group have been prepared in accordance with the International Financial Reporting Standards (IAS 34) as adopted for use in the European Union ('endorsed IFRS'). The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2011.

Summary of significant accounting policies (note 1b in the annual accounts 2011)

A summary of the main accounting policies is provided in the annual report. In the first nine months of 2012, no changes in content were made in the accounting policies that had a material impact on the results.

Notes on segment reporting

Segment reporting1 according to the management structure of the group (note 2a in the annual accounts 2011)

KBC is structured and managed according to a number of segments (called 'business units'). This breakdown is based on a combination of geographic criteria (Belgium and Central and Eastern Europe, being the two core geographic areas the group operates in) and activity criteria (retail bancassurance versus merchant banking). The Shared Services and Operations business unit, which includes a number of divisions that provide support to and serve as a product factory for the other divisions (ICT, leasing, payments, asset management etc.) is not shown as a separate segment, as all costs and income of this business unit are allocated to the other business units and are hence included in their results.

The segment reporting (see below) is based on this breakdown, but also brings together all companies that are up for divestment under the Group Centre.

For reporting purposes, the business units hence are:

  • Belgium (retail bancassurance, asset management and private banking in Belgium; companies that are planned for divestment are moved to Group Centre).
  • Central & Eastern Europe (retail bancassurance, asset management, private banking and merchant banking in the Czech and Slovak Republics, Hungary and Bulgaria; companies in other countries that are planned for divestment are moved to Group Centre).
  • Merchant Banking (commercial banking and market activities in Belgium and selected countries in Europe, America and Southeast Asia; companies that are planned for divestment are moved to Group Centre)
  • Group Centre (companies that are planned for divestment, as well as KBC Group NV, KBC Global Services NV and some allocated costs (the allocation of results of KBC Bank Belgium and KBC Insurance NV to the Group Centre are limited to those results that cannot be allocated in a reliable way to other segments).

The basic principle of the segment reporting is that an individual subsidiary is allocated fully to one segment (see note 44 in annual report 2011). Exceptions are made for costs that cannot be allocated reliably to a certain segment (grouped together in a separate Group Centre) and KBC Bank NV (allocated to the different segments and to the Group Centre by means of different allocation keys).

Funding costs of goodwill regarding participations recorded in KBC Bank and KBC Insurance are allocated to the different segments in function of the subsidiaries concerned. As a principle the funding costs regarding leveraging at the level of KBC Group are not allocated.

Inter-segment transactions are presented at arm's length.

The figures of the segment reporting have been prepared in accordance with the general KBC accounting policies (see Note 1) and are thus in compliance with the International Financial Reporting Standards as adopted for use in the European Union (endorsed IFRS). Some adjustments to these accounting policies have been made to better reflect the underlying performance (the resulting figures are called 'underlying results'):

  • In order to arrive at the underlying group profit, factors that are not related to the normal course of business are eliminated. These factors also include exceptional losses (and gains), such as those incurred on structured credit investments and on trading positions that were unwound due to the discontinuation of activities of KBC Financial Products. In view of their exceptional nature and materiality, it is important to separate out these factors to understand the profit trend fully. The realised gain or impairment from divestments is considered as non-recurring too.
  • Fair value changes (due to marking-to-market) of a large part of KBC's ALM derivatives (who are treated as 'trading instruments') are recognised under 'net result from financial instruments at fair value', while most of the underlying assets are not fair-valued (i.e. not marked-to-market). The remaining volatility of the fair value changes in these ALM derivatives is excluded in the underlying results.
  • In the IFRS accounts, income related to trading activities is split across different components. While trading gains are recognised under 'net result from financial instruments at fair value', the funding costs and commissions paid in order to

1 Note that, on 8 October 2012 KBC announced an updated strategy which amongst other things includes a change in segmentation into business units. This updated segmentation is planned to be implemented from 1 January 2013 onward. For more information see www.kbc.com.

realise these trading gains are recognised respectively under 'net interest income' and 'net fee and commission income'. Moreover, part of the 'dividend income', 'net realised result on available-for-sale assets' and 'other net income' are also related to trading income. In the underlying figures, all trading income components within the investment banking division are recognised under 'net result from financial instruments at fair value', without any impact on net profit.

  • In the IFRS accounts, the effect of changes in own credit risk was taken into account to determine the fair value of liabilities at fair value through profit or loss. This resulted in value changes that had an impact on reported net profit. Since this is a nonoperating item, the impact is excluded from the 'underlying figures'.
  • In the IFRS accounts, discontinued operations (this refers only to KBL EPB) are booked according to IFRS 5 (meaning that results relating to such a discontinued operation are moved from the various P/L lines towards one line 'Net post-tax result from discontinued operations', as soon as the criteria for IFRS 5 are fulfilled). In the underlying results, such discontinued operations follow the same rules as other divestments (all relevant P/L lines relating to the divestment or discontinued operation are moved to Group Centre). No results of KBL EPB have been included anymore in the underlying results as of 1 January 2012. The sale was closed on 31 July 2012.

A table reconciling the net profit and the underlying net profit is provided below.

Reconciliation between underlying result and result according to IFRS *
KBC Group, in millions of EUR		 3Q
2011		 2Q
2012		 3Q
2012		 9M
2011		 9M
2012
Result after tax, attributable to equity holders of the parent, UNDERLYING -248 372 406 937 1 233
+ MTM of derivatives for ALM hedging -245 -29 -33 -226 -16
+ gains and losses on CDOs -628 -32 274 -621 391
+ impairment on goodwill -57 -16 0 -74 -16
+ result on legacy structured derivative business (KBC FP) 5 -7 6 62 -13
+ change in fair value of own debt instruments (due to own credit risk) 185 41 -144 144 -444
+ Results on divestments -591 -868 23 -647 -764
Result after tax, attributable to equity holders of the parent: IFRS -1 579 -539 531 -424 372

* A breakdown of this reconciliation table per business unit is provided in the 'Underlying results per business unit' section of the Extended quarterly report.

Gains and losses on CDO's: In the third quarter of 2012, the market price for corporate credit decreased, as reflected in credit default swap spreads, generating a value mark-up of KBC's CDO exposure (including the impact of the government guarantee, the related fee and the coverage of the CDO-linked counterparty risk against MBIA, the US monoline insurer which remained at the level of 31 December 2011, namely 70%). Remark that in January 2012, KBC collapsed two CDOs which on the one hand reduced the total nominal value of the CDO portfolio at that time by 1.7 billion euros and on the other hand resulted in a negative P/L impact of approximately 0.1 billion euros.

Changes in fair value of own debt instruments: The negative impact on the results of the third quarter of 2012 can be explained by a decrease of the senior and subordinated credit spreads of KBC, leading to a higher MtM of debt certificates included in the financial liabilities designated at fair value through profit or loss. Remark that over the first nine months of 2012, the credit spreads of KBC decreased substantially.

Results on divestments: In the third quarter of 2012, the positive result was mainly driven by a positive final price adjustment related to the closure of the sale of Warta.

Group Centre
Belgium Merchant excluding
Business CEE Banking intersegment Intersegment
In millions of EUR unit Business unit Business unit eliminations eliminations KBC Group
UNDERLYING INCOME STATEMENT - 9M 2011
Net interest income 1 729 1 154 516 708 0 4 106
Earned premiums, insurance (before reinsurance) 1 601 586 0 953 - 52 3 088
Non-life 650 250 0 520 - 25 1 395
Life 951 336 0 433 - 27 1 693
Technical charges, insurance (before reinsurance) - 1 537 - 439 0 - 737 37 - 2 676
Non-life - 319 - 129 0 - 298 9 - 738
Life - 1 217 - 310 0 - 439 28 - 1 938
Ceded reinsurance result - 19 - 15 0 - 18 9 - 43
Dividend income 40 2 6 11 0 59
Net result from financial instruments at fair value through profit or loss 31 52 309 - 22 0 371
Net realised result from available-for-sale assets 53 15 13 24 0 106
Net fee and commission income 533 246 147 237 - 2 1 161
Other net income - 32 31 - 78 24 - 10 - 64
TOTAL INCOME 2 401 1 631 913 1 180 - 18 6 107
Operating expenses - 1 337 - 950 - 437 - 848 18 - 3 553
Impairment - 253 - 428 - 384 - 113 0 - 1 179
on loans and receivables - 37 - 327 - 357 - 15 0 - 736
on available-for-sale assets - 199 - 98 - 3 - 69 0 - 369
on goodwill 0 0 0 0 0 0
on other - 18 - 4 - 24 - 30 0 - 75
Share in results of associated companies 0 1 0 - 23 0 - 22
RESULT BEFORE TAX 811 255 93 196 0 1 353
Income tax expense - 258 - 24 - 38 - 67 0 - 388
Net post-tax result from discontinued operations 0 0 0 0 0 0
RESULT AFTER TAX 552 230 54 128 0 966
attributable to minority interests 2 1 11 14 0 28
attributable to equity holders of the parent 551 229 43 114 0 937
UNDERLYING INCOME STATEMENT - 9M 2012
Net interest income 1 678 1 052 398 320 0 3 448
Earned premiums, insurance (before reinsurance) 1 294 622 0 456 - 21 2 352
Non-life 680 248 0 280 - 20 1 187
Life 614 374 0 177 0 1 165
Technical charges, insurance (before reinsurance) - 1 217 - 485 0 - 314 7 - 2 009
Non-life - 329 - 137 0 - 167 7 - 626
Life - 887 - 347 0 - 148 0 - 1 383
Ceded reinsurance result - 27 - 8 0 1 8 - 27
Dividend income 28 1 6 1 0 36
Net result from financial instruments at fair value through profit or loss 44 151 455 46 0 695
Net realised result from available-for-sale assets 69 2 5 19 0 95
Net fee and commission income 569 225 149 23 0 965
Other net income 37 25 43 17 - 2 120
TOTAL INCOME 2 475 1 585 1 056 567 - 8 5 676
Operating expenses - 1 314 - 931 - 441 - 439 8 - 3 116
Impairment - 57 - 100 - 551 - 109 0 - 816
on loans and receivables - 25 - 93 - 521 - 103 0 - 742
on available-for-sale assets - 32 0 0 0 0 - 33
on goodwill
on other		 0
0		 0
- 6		 0
- 30		 0
- 5		 0
0		 0
- 41
Share in results of associated companies 0 1 0 - 33 0 - 32
RESULT BEFORE TAX 1 105 555 65 - 13 0 1 711
Income tax expense - 321 - 80 - 68 13 0 - 457
Net post-tax result from discontinued operations 0 0 0 0 0 0
RESULT AFTER TAX
attributable to minority interests		 783
1		 475
0		 - 3
9		 - 1
11		 0
0		 1 254
21
attributable to equity holders of the parent 782 475 - 12 - 11 0 1 233

In the table below, an overview is provided of certain balance sheet items divided by segment.

In millions of EUR Belgium
Business unit		 CEE Business
unit		 Merchant Banking
Business unit		 Group Centre KBC Group
Balance sheet information 31-12-2011
Total loans to customers 55 254 25 648 43 832 13 550 138 284
Of which mortgage loans 29 417 10 533 12 288 5 194 57 431
Of which reverse repos 0 16 1 413 0 1 429
Customer deposits 71 156 38 216 46 168 9 687 165 226
Of which repos 0 3 209 12 633 0 15 841
Balance sheet information 30-09-2012
Total loans to customers 57 319 26 851 45 154 1 724 131 048
Of which mortgage loans 30 646 11 183 11 760 28 53 617
Of which reverse repos 46 9 4 717 0 4 772
Customer deposits 75 427 39 955 45 172 391 160 945
Of which repos 0 4 001 6 548 0 10 549

Segment reporting according to geographic segment (note 2b in the annual accounts 2011)

Central and Eastern Rest of
In millions of EUR Belgium Europe and Russia the world KBC Group
9M 2011
Total income from external customers (underlying) 2 628 2 330 1 149 6 107
31-12-2011
Total assets (period-end) 181 036 60 898 43 448 285 382
Total liabilities (period-end) 171 262 55 189 42 159 268 611
9M 2012
Total income from external customers (underlying) 2 941 2 092 642 5 676
30-09-2012
Total assets (period-end) 181 407 63 831 24 773 270 010
Total liabilities (period-end) 171 823 57 751 22 769 252 343

The geographical information is based on geographic areas, and reflects KBC's focus on Belgium (land of domicile) and Central and Eastern Europe (including Russia) – and its selective presence in other countries ('rest of the world', i.e. mainly the US, Southeast Asia and Western Europe excluding Belgium). The geographic segmentation is based on the location where the services are rendered. Since at least 95% of the customers are local customers, the location of the branch or subsidiary determines the geographic breakdown of both the balance sheet and income statement. The geographic segmentation differs significantly from the business unit breakdown, due to, inter alia, a different allocation methodology and the fact that the geographic segment 'Belgium' includes not only the Belgium business unit, but also the Belgian part of the Merchant Banking Business unit.

Net interest income (note 3 in the annual accounts 2011)

In millions of EUR 3Q 2011 2Q 2012 3Q 2012 9M 2011 9M 2012
Total 1 341 1 190 1 097 4 142 3 548
Interest income 2 910 2 563 2 493 9 151 7 752
Available-for-sale assets 438 311 277 1 386 938
Loans and receivables 1 645 1 540 1 469 4 944 4 589
Held-to-maturity investments 169 229 259 469 671
Other assets not at fair value 9 7 7 25 22
Subtotal, interest income from financial assets not measured at
fair value through profit or loss 2 261 2 086 2 012 6 824 6 220
Financial assets held for trading 385 313 300 1 552 957
Hedging derivatives 155 135 143 397 440
Other financial assets at fair value through profit or loss 109 29 39 379 135
Interest expense - 1 569 - 1 374 - 1 396 - 5 009 - 4 204
Financial liabilities measured at amortised cost - 829 - 776 - 769 - 2 430 - 2 306
Other - 6 - 6 - 2 - 6 - 8
Investment contracts at amortised cost 0 0 0 0 0
Subtotal, interest expense for financial liabilities not measured at
fair value through profit or loss - 835 - 782 - 770 - 2 436 - 2 315
Financial liabilities held for trading - 443 - 381 - 356 - 1 726 - 1 129
Hedging derivatives - 191 - 169 - 220 - 603 - 609
Other financial liabilities at fair value through profit or loss - 100 - 42 - 50 - 244 - 151

Net realised result from available-for-sale assets (note 6 in the annual accounts 2011)

In millions of EUR 3Q 2011 2Q 2012 3Q 2012 9M 2011 9M 2012
Total 10 9 56 86 97
Breakdown by portfolio
Fixed-income securities 2 - 22 - 4 12 - 55
Shares 8 31 60 74 152

In 1Q 2012, a net realised loss from available for sale assets of -39 million euros stemming from the finalisation of the events regarding Greece was incurred.

In 2Q 2012, further reductions of Spanish, Italian and Portuguese government bonds led to net realised losses from available for sale assets to the tune of -53 million euros, -8 million euros and -6 million euros (before tax) respectively. These were partly compensated by gains on the sale of other securities.

In 3Q 2012, KBC reduced mainly its Italian government bond portfolio. This constituted a reduction to the tune of -0.5 billion euros and resulted in a total realised loss from available for sale assets of -12 million euros. Next to this, KBC also decided to sell all its Spanish regional government bonds, which resulted in a -13 million euros P/L impact. These were for a part compensated by gains on the sale of other securities.

More information is presented in note 47.

Net fee and commission income (note 7 in the annual accounts 2011)

In millions of EUR 3Q 2011 2Q 2012 3Q 2012 9M 2011 9M 2012
Total 281 309 343 877 955
Fee and commission income 480 479 494 1 529 1 464
Securities and asset management 201 202 214 681 617
Margin on deposit accounting (life insurance investment contracts w ithout DPF) 17 33 24 35 81
Commitment credit 73 70 71 216 218
Payments 144 139 146 416 421
Other 47 35 39 181 128
Fee and commission expense - 200 - 170 - 151 - 651 - 509
Commission paid to intermediaries - 114 - 105 - 71 - 356 - 276
Other - 86 - 65 - 80 - 295 - 233

Other net income (note 8 in the annual accounts 2011)

In millions of EUR 3Q 2011 2Q 2012 3Q 2012 9M 2011 9M 2012
Total - 149 368 106 53 547
Of which net realised result following
The sale of loans and receivables - 9 - 3 - 22 - 21 - 74
The sale of held-to-maturity investments - 14 - 5 2 - 14 - 7
The repurchase of financial liabilities measured at amortised cost 0 0 0 - 1 - 1
Other: of which: - 126 376 126 89 628
KBC Lease UK 0 0 44 2 85
Income concerning leasing at the KBC Lease-group 22 19 23 66 63
Income from consolidated private equity participations 11 5 5 39 15
Income from Group VAB 19 15 15 51 48
5/5/5 loans - 263 0 0 - 263 - 56
Realised gains or losses on divestments 53 334 20 68 426

In 1Q 2012:

  • the net realised result following the sale of loans and receivables includes -51 million euros related to assets formerly assigned to Atomium, leading to a reduction in risk weighted assets of roughly 2 billion euros.
  • the realised results relating to the sale of held to maturity investments includes mainly the exchange operation regarding Greek bonds (more information in note 47).
  • there were further recuperations to the tune of 41 million euros in light of the fraud case at KBC Lease UK.
  • KBC also recorded a negative P/L impact of 37 million euros after tax (56 million, pre-tax) as a result of KBC's voluntary compensation with respect to the 5/5/5 bonds (KBC IFIMA 5/5/5 and KBC Group 5-5-5) sold to retail customers.
  • the closing of the divestments of Fidea and Dynaco (KBC Private Equity participation), resulted in a gain of respectively 51 and 21 million euros.

In 2Q 2012 there was significant impact in realised gains or losses on divestments. This results mainly from closing the divestment of Warta, which resulted in a gain of 0.3 billion euros at that time.

In 3Q 2012, KBC recorded further recuperations to the tune of 44 million euros before tax in light of the fraud case at KBC Lease UK.

Breakdown of the insurance results (note 9 in the annual accounts 2011)

Non
technical
In millions of EUR
9M 2011		 Life Non-life account TOTAL
Technical result - 320 378 32 91
Earned premiums, insurance (before reinsurance) 1 694 1 410 - 3 104
Technical charges, insurance (before reinsurance) - 1 930 - 742 - - 2 671
Net fee and commission income - 82 - 249 32 - 299
Ceded reinsurance result - 2 - 41 0 - 43
Financial result 481 100 76 657
Net interest income 765 765
Dividend income 45 45
Net result from financial instruments at fair value - 206 - 206
Net realised result from AFS assets 54 54
Allocation to the technical accounts 481 100 - 581 0
Operating expenses - 111 - 270 - 6 - 386
Internal costs claim paid - 6 - 57 - - 63
Administration costs related to acquisitions - 31 - 74 - - 105
Administration costs - 74 - 139 - - 213
Management costs investments 0 0 - 6 - 6
Other net income 14 14
Impairments - 416 - 416
Share in results of associated companies 0 0
RESULT BEFORE TAX 50 209 - 300 - 41
Income tax expense - 36
Net post-tax result from discontinued operations - 13
RESULT AFTER TAX - 90
attributable to minority interest 2
attributable to equity holders of the parent - 93
9M 2012
Technical result - 287 333 55 100
Earned premiums, insurance (before reinsurance) 1 167 1 202 - 2 369
Technical charges, insurance (before reinsurance) - 1 383 - 633 - - 2 016
Net fee and commission income - 70 - 211 55 - 226
Ceded reinsurance result - 1 - 25 0 - 27
Financial result 566 117 376 1 059
Net interest income 643 643
Dividend income 28 28
Net result from financial instruments at fair value 300 300
Net realised result from AFS assets 88 88
Allocation to the technical accounts 566 117 - 683 0
Operating expenses - 99 - 232 0 - 331
Internal costs claim paid - 6 - 55 - - 61
Administration costs related to acquisitions - 29 - 65 - - 94
Administration costs - 64 - 112 - - 176
Management costs investments 0 0 0 0
Other net income 382 382
Impairments - 159 - 159
Share in results of associated companies 0 0
RESULT BEFORE TAX 179 219 654 1 052
Income tax expense - 178
Net post-tax result from discontinued operations 0
RESULT AFTER TAX 874
attributable to minority interest 1
attributable to equity holders of the parent 873

Note: Figures for premium income exclude the investment contracts without DPF, which roughly coincide with the unit-linked products. Figures are before elimination of transactions between the bank and insurance entities of the group (more information in the 2011 annual report).

Operating expenses (note 12 in the annual accounts 2011)

The operating expenses for the first quarter of 2011 and 2012 include the expenses related to the special tax imposed on financial institutions in Hungary (62 million euros cost in 2011 fully booked in the first quarter of 2011, 57 million euros cost in 2012 fully booked in the first quarter of 2012; deductible expense).

The second quarter of 2012 includes a recuperation from the Belgian deposit guarantee fund to the tune of 51 million euros following the finalisation of governmental agreement regarding the recuperation of the non-recurring contribution of the deposit guarantee scheme.

The first nine months of 2012, include the new Belgian banking tax which is composed of mainly the following two elements which are taken up pro rata in the results: the contribution to the deposit guarantee scheme (46 million euros in 9M 2012) and the financial stability contribution (28 million euros in 9M 2012).

Impairment – income statement (note 14 in the annual accounts 2011)

In millions of EUR 3Q 2011 2Q 2012 3Q 2012 9M 2011 9M 2012
Total - 940 - 1 473 - 302 - 1 377 - 2 048
Impairment on loans and receivables - 473 - 198 - 283 - 733 - 742
Breakdown by type
Specific impairments for on-balance-sheet lending
Provisions for off-balance-sheet credit commitments
Portfolio-based impairments		 - 402
6
- 77		 - 182
- 1
- 16		 - 304
- 17
38		 - 703
13
- 43		 - 785
- 22
66
Breakdown by business unit
Belgium
Central and Eastern Europe
Merchant Banking
Group Centre		 - 10
- 234
- 205
- 24		 - 15
- 18
- 152
- 13		 - 12
- 29
- 165
- 76		 - 37
- 327
- 357
- 13		 - 25
- 93
- 521
- 103
Impairment on available-for-sale assets - 223 - 75 - 4 - 347 - 83
Breakdown by type
Shares
Other		 - 87
- 136		 - 24
- 50		 - 4
0		 - 106
- 240		 - 33
- 50
Impairment on goodwill - 62 - 414 0 - 79 - 414
Impairment on other - 183 - 786 - 15 - 218 - 809
Intangible assets, other than goodwill
Property and equipment and investment property
Held-to-maturity assets		 0
1
- 34		 0
- 14
0		 0
- 15
0		 - 1
- 12
- 50		 0
- 29
0
Associated companies
Other		 0
- 150		 - 334
- 438		 0
0		 0
- 156		 - 334
- 445

In 2Q 2012:

  • The impairment on other available for sale assets includes the impairment on subordinated securities of NLB, which were repurchased by NLB at the beginning of July 2012 at 45% of their nominal value. Remark that the share in results of associated companies of 2Q 2012 includes +26 million euros which are also related to repurchases of subordinated securities at NLB
  • The impairment on goodwill includes for a large part impairments booked on companies included in the scope of IFRS 5 as at 30 June 2012 (see further note 46).
  • The impairment on associated companies is calculated as the difference between the carrying amount of the shares in NLB (using the equity method) and the estimated recoverable amount. The recoverable amount is based on the fair value used in the most recent capital increase. Previously, the recoverable value was based on a value-in-use calculation, but considering the lack of reliable business plans available to KBC and taking into account the uncertainty of the future stake of KBC in NLB (given NLB has issued a substantial convertible loan towards the Republic of Slovenia), a value-in-use calculation is no longer considered appropriate.
  • The impairment on other (other) include as is the case for the impairment on goodwill for a large part impairments booked on companies included in the scope of IFRS 5 as at 30 June 2012 (see further note 46).

In 3Q 2012, the impairment on loans and receivables for the business unit Merchant Banking, includes an impairment on loans and receivables in Ireland of -129 million euros in 3Q 2012 (-460 million euros for the first nine months of 2012). For business unit Group Centre, the impairment on loans and receivables in the third quarter of 2012, includes an impairment at KBC Finance Ireland to the tune of -49 million euros.

Financial assets and liabilities: breakdown by portfolio and product (note 18 in the annual accounts 2011)

Whereas in previous years, 'accrued interest income' and 'accrued interest expense' were disclosed separately in note 18, they are as of 30 June 2012 included in the corresponding products in the breakdown of the financial assets and financial liabilities. The reference figures were not adjusted retroactively.

Held for
trading		 Designated
at fair value		 Available for
sale		 Loans and
receivables		 Held to
maturity		 Hedging
derivatives		 Measured at
amortised
cost		 Total
excluding
IFRS 5
In millions of EUR Total companies*
FINANCIAL ASSETS, 31-12-2011
Loans and advances to credit institutions and
investment firms a 4 600 305 0 14 253 - - - 19 158 c 18 700
Loans and advances to customers b 203 1 879 0 136 201 - - - 138 284 126 323
Excluding reverse repos 136 855 124 894
Discount and acceptance credit 0 0 0 137 - - - 137 136
Consumer credit 0 0 0 3 910 - - - 3 910 3 268
Mortgage loans 0 178 0 57 253 - - - 57 431 52 265
Term loans 203 1 531 0 61 880 - - - 63 614 59 340
Finance leasing 0 11 0 4 647 - - - 4 658 4 173
Current account advances 0 0 0 4 876 - - - 4 876 3 598
Securitised loans
Other		 0
0		 0
159		 0
0		 0
3 499		 -
-		 -
-		 -
-		 0
3 659		 0
3 543
Equity instruments 1 028 28 1 446 - - - - 2 501 2 491
Investment contracts (insurance) 7 652 - - - - - 7 652 7 652
Debt instruments issued by 4 286 3 997 37 299 2 890 14 063 - - 62 535 59 822
Public bodies 3 101 3 594 29 183 224 13 365 - - 49 467 47 122
Credit institutions and investment firms 647 204 3 862 211 491 - - 5 415 5 078
Corporates 538 199 4 255 2 455 207 - - 7 653 7 621
Derivatives 16 750 - - - - 624 - 17 375 17 096
Total carrying value excl. accrued intrest income 26 867 13 861 38 745 153 345 14 063 624 0 247 505 232 083
Accrued interest income 69 79 746 549 334 158 0 1 934 1 824
Total carrying value incl. accrued interest income 26 936 13 940 39 491 153 894 14 396 782 0 249 439 233 907
a Of which reverse repos 5 982 5 982
b Of which reverse repos 1 429 1 429
FINANCIAL ASSETS, 30-09-2012
Loans and advances to credit institutions and
investment firms a 4 206 2 500 0 10 421 - - - 17 127 c
Loans and advances to customers b 28 4 814 0 126 207 - - - 131 048
Excluding reverse repos 126 276
Discount and acceptance credit 0 0 0 107 - - - 107
Consumer credit 0 0 0 3 364 - - - 3 364
Mortgage loans 0 150 0 53 467 - - - 53 617
Term loans 28 4 593 0 57 137 - - - 61 758
Finance leasing 0 10 0 4 083 - - - 4 094
Current account advances 0 0 0 3 750 - - - 3 750
Securitised loans 0 0 0 0 - - - 0
Other 0 60 0 4 299 - - - 4 358
Equity instruments 541 35 1 096 - - - - 1 672
Investment contracts (insurance) 10 684 - - - - - 10 684
Debt instruments issued by 4 611 1 296 28 608 2 206 26 778 - - 63 499
Public bodies 3 905 847 20 368 197 25 591 - - 50 909
Credit institutions and investment firms 265 207 3 386 9 671 - - 4 539
Corporates 441 241 4 854 1 999 516 - - 8 052
Derivatives 14 429 - - - - 1 043 - 15 472
Total carrying value excl. accrued interest income 23 816 19 328 29 704 138 834 26 778 1 043 0 239 503
Accrued interest income 0 0 0 0 0 0 0 0
Total carrying value incl.accrued interest income 23 816 19 328 29 704 138 834 26 778 1 043 0 239 503
a Of which reverse repos 6 601
b Of which reverse repos 4 772

* Absolut Bank, Antwerp Diamond Bank, KBC Banka, KBC Bank Deutschland and Kredyt Bank

In the first nine months of 2012, a total amount of 4.6 billion euros of government securities were reclassified from available-forsale to held-to-maturity.

Measured at Total
Held for Designated Available for Loans and Held to Hedging amortised excluding
IFRS 5
In millions of EUR trading at fair value sale receivables maturity derivatives cost Total companies*
FINANCIAL LIABILITIES, 31-12-2011
Deposits from credit institutions and investment firms a 843 3 831 - - - - 21 259 25 934 c 24 828
Deposits from customers and debt certificates b
4 288 17 565 - - - - 143 373 165 226 156 810
Excluding repos 149 385 140 969
Deposits from customers 3 774 13 277 - - - - 117 410 134 461 126 119
Demand deposits 0 0 - - - - 37 472 37 472 32 909
Time deposits
Savings deposits		 3 774
0		 13 277
0		 -
-		 -
-		 -
-		 -
-		 42 010
32 624		 59 061
32 624		 55 520
32 624
Special deposits 0 0 - - - - 3 887 3 887 3 886
Other deposits 0 0 - - - - 1 417 1 417 1 180
Debt certificates 514 4 288 - - - - 25 963 30 766 30 692
Certificates of deposit 0 20 - - - - 4 597 4 617 4 617
Customer savings certificates 0 0 - - - - 710 710 710
Convertible bonds 0 0 - - - - 0 0 0
Non-convertible bonds 514 4 167 - - - - 12 694 17 375 17 316
Convertible subordinated liabilities 0 0 - - - - 0 0 0
Non-convertible subordinated liabilities 0 101 - - - - 7 961 8 063 8 048
Liabilities under investment contracts - 7 014 - - - - 0 7 014 7 014
Derivatives 21 699 0 - - - 1 601 - 23 300 23 060
Short positions 497 0 - - - - - 497 497
in equity instruments 4 0 - - - - - 4 4
in debt instruments 493 0 - - - - - 493 493
Other 0 173 - - - - 2 408 2 581 2 581
Total carrying value excl. accrued interest expense 27 327 28 584 - - - 1 601 167 041 224 553 214 791
Accrued interest expense 27 94 - - - 328 801 1 251 1 222
Total carrying value incl. accrued interest expense 27 355 28 678 - - - 1 929 167 842 225 804 216 013
a Of which repos 6 574 6 563
b Of which repos 15 841 15 841
FINANCIAL LIABILITIES, 30-09-2012
Deposits from credit institutions and investment firms a 757 1 628 - - - - 20 506 22 891 c
Deposits from customers and debt certificates b
3 935 12 541 - - - - 144 469 160 945
Excluding repos 150 397
Deposits from customers 3 503 7 296 - - - - 119 796 130 595
Demand deposits 0 0 - - - - 36 515 36 515
Time deposits 3 503 7 296 - - - - 43 434 54 233
Savings deposits 0 0 - - - - 34 737 34 737
Special deposits 0 0 - - - - 3 896 3 896
Other deposits 0 0 - - - - 1 213 1 213
Debt certificates 432 5 245 - - - - 24 674 30 351
Certificates of deposit 0 4 - - - - 5 267 5 271
Customer savings certificates 0 0 - - - - 551 551
Convertible bonds 0 0 - - - - 0 0
Non-convertible bonds 432 4 650 - - - - 12 621 17 703
Convertible subordinated liabilities 0 0 - - - - 0 0
Non-convertible subordinated liabilities 0 590 - - - - 6 235 6 825
Liabilities under investment contracts - 9 680 - - - - 0 9 680
Derivatives 16 956 0 - - - 2 352 - 19 307
Short positions 746 0 - - - - - 746
in equity instruments 20 0 - - - - - 20
in debt instruments 726 0 - - - - - 726
Other 0 56 - - - - 2 520 2 577
Total carrying value excl. accrued interest expense 22 393 23 905 - - - 2 352 167 496 216 146
Accrued interest expense 0 0 - - - 0 0 0

Total carrying value incl. accrued interest expense 22 393 23 905 - - - 2 352 167 496 216 146

a Of which repos 2 415

b Of which repos 10 549

* Absolut Bank, Antwerp Diamond Bank, KBC Banka, KBC Bank Deutschland and Kredyt Bank

Additional information on quarterly time series

Total customer loans excluding reverse repo

In millions of EUR 30-09-2011 31-12-2011 31-03-2012 30-06-2012 30-09-2012
Total 136 281 136 855 131 940 127 321 126 276
Breakdown per business unit
Belgium 54 190 55 254 55 776 56 798 57 274
Central and Eastern Europe 25 826 25 632 26 220 26 164 26 841
Merchant Banking 42 542 42 419 42 561 42 540 40 437
Group Centre (*) 13 723 13 550 7 383 1 819 1 724

(*) figures as of 31-03-2012 excluding Kredyt Bank; figures as of 30-06-2012 excluding a.o. Absolut Bank, Antwerp Diamond Bank, KBC Bank Deutschland, KBC Banka

Total mortgage loans

In millions of EUR 30-09-2011 31-12-2011 31-03-2012 30-06-2012 30-09-2012
Total 57 081 57 431 53 951 52 884 53 617
Breakdown per business unit
Belgium 28 457 29 417 29 703 30 131 30 646
Central and Eastern Europe 11 019 10 533 10 871 10 791 11 183
Merchant Banking 12 460 12 288 12 093 11 933 11 760
Group Centre (*) 5 145 5 194 1 284 29 28

(*) figures as of 31-03-2012 excluding Kredyt Bank; figures as of 30-06-2012 excluding a.o. Absolut Bank, Antwerp Diamond Bank, KBC Bank Deutschland, KBC Banka

Total customer deposits excluding repos

In millions of EUR 30-09-2011 31-12-2011 31-03-2012 30-06-2012 30-09-2012
Total 167 683 149 385 149 685 150 328 150 397
Breakdown per business unit
Belgium 72 687 71 156 71 324 74 593 75 427
Central and Eastern Europe 35 193 35 007 35 874 35 121 35 954
Merchant Banking 51 474 33 535 39 548 40 079 38 624
Group Centre (*) 8 329 9 687 2 940 534 391

(*) figures as of 31-03-2012 excluding Kredyt Bank; figures as of 30-06-2012 excluding a.o. Absolut Bank, Antwerp Diamond Bank, KBC Bank Deutschland, KBC Banka

Technical provisions plus unit linked, life insurance

Technical provisions, Life Insurance
(In millions of EUR)		 30-09-2011 31-12-2011 31-03-2012 30-06-2012 30-09-2012
Interest Interest Interest Interest Interest
Guaranteed Unit Linked Guaranteed Unit Linked Guaranteed Unit Linked Guaranteed Unit Linked Guaranteed Unit Linked
Total 18 860 7 579 18 891 7 936 16 296 8 820 15 651 9 595 15 481 10 684
Breakdown per business unit
Belgium 15 363 6 466 15 414 6 859 15 240 7 713 14 784 8 687 14 604 9 741
Central and Eastern Europe 865 779 836 742 859 796 835 853 844 887
Group Centre 2 632 334 2 641 335 197 311 32 56 33 56

(*) figures as from 30/09/2011 are excluding Fidea, and as from 31/12/2011 also excluding Warta.

Parent shareholders' equity and non-voting core-capital securities (note 39 in the annual accounts 2011)

in number of shares 31-12-2011 30-09-2012
Ordinary shares 357 980 313 357 980 313
of which ordinary shares that entitle the holder to a dividend payment 344 619 736 344 619 736
of which treasury shares 18 169 054 18 167 854
Non-voting core-capital securities 220 338 982 220 338 982
Other information
Par value per ordinary share (in euros) 3,48 3,48
Number of shares issued but not fully paid up 0 0

The ordinary shares of KBC Group NV have no nominal value and are quoted on NYSE Euronext (Brussels) and on the Luxembourg Stock Exchange.

The number of KBC-shares held by group companies is shown in the table under 'treasury shares'. On 16 October 2012 KBC sold its 18.2 million treasury shares. This represents all treasury shares previously owned by KBC Group and KBC Bank. 302 shares owned by other group companies where not sold. See also, note 48 on post balance sheet events.

On 2 January 2012, KBC Group reimbursed 0.5 billion euros (and 15% penalty) to the Belgian State representing 16 949 152 non-voting core-capital securities. This has already been taken into account in the balance sheet on 31-12-2011 (0.5 billion euros shift from equity to liabilities, and the extraction of the penalty from equity by presenting it as a liability) and in the number of non-voting core-capital securities as presented in the table above.

Related-party transactions (note 42 in the annual accounts 2011)

In the course of the first nine months of 2012, there was no significant change in related parties compared to the end of 2011. In 2009, KBC entered into a guarantee agreement with the Belgian State to cover most of its potential downside risk exposure to CDOs. The pro rata amount of the commitment fee in 3Q 2012 equals 30 million euros pre tax (90 million euros pre tax for 9M 2012), which is recognised in 'Net result from financial instruments at fair value through profit or loss'.

On 2 January 2012, KBC Group reimbursed 0.5 billion euros (and 15% penalty) to the Belgian State. This has already been taken into account in the balance sheet on 31-12-2011 (0.5 billion euros shift from equity to liabilities, and the extraction of the penalty from equity by presenting it as a liability). In the second quarter of 2012, the coupon on the core-capital securities sold to the Belgian Federal and Flemish Regional governments was paid (595 million euros or 8.5% of 7 billion euros).

Main changes in the scope of consolidation (note 45 in the annual accounts 2011)

Company Consolidation
method		 Ownership percentage
at KBC Group level		 Comments
For income statement comparison 9M 2011 9M 2012
Additions
None
Exclusions
Centea Full 100,00% ------ Sold in 3Q 2011
Fidea NV Full 100,00% ------ Sold in 1Q 2012
KBC Clearing NV Full 100,00% ------ Deconsolidated in 2Q12 due to immateriality
TUIR WARTA SA Full 100,00% ------ Deconsolidated on 30 June 2012 due to sale
KBL EPB (Group) Full 100,00% ------ Sold in 3Q 2012
Name Changes
None
Changes in ownership percentage and internal mergers
DZI Insurance Full 90,35% 100,00% Increase with 9,65% (mainly 4Q 2011)
Groep VAB NV Full 74,81% 79,81% Increase with 5% (2Q 2012)
KBC Real Estate NV Full 100,00% ------ Merger with KBC Bank on 1 July 2012
Nova Ljubljanska banka d.d. (group) Equity 25,00% 22,04% Decrease with 2,96% (3Q 2012)
For balance sheet comparison 31-12-2011 30-09-2012
Additions
None
Exclusions
Fidea NV Full 100,00% ------ Sold in 1Q 2012
KBC Clearing NV Full 100,00% ------ Deconsolidated in 2Q12 due to immateriality
TUIR WARTA SA Full 100,00% ------ Deconsolidated on 30 June 2012 due to sale
KBL EPB (Group) Full 100,00% ------ Sold in 3Q 2012
Name Changes
None
Changes in ownership percentage and internal mergers
Groep VAB NV Full 74,81% 79,81% Increase with 5% (2Q 2012)
KBC Real Estate NV Full 100,00% ------ Merger with KBC Bank on 1 July 2012
Nova Ljubljanska banka d.d. (group) Equity 25,00% 22,04% Decrease with 2,96% (3Q 2012)

Non-current assets held for sale and discontinued operations (IFRS 5) (note 46 in the annual accounts 2011)

Situation as at 30 September 2012

On 30 September 2012, following planned divestments fulfill the criteria of IFRS 5:

  • as disposal groups without being part of a discontinued operation, mainly: Absolut Bank, Antwerp Diamond Bank, KBC Bank Deutschland, KBC Banka and Kredyt Bank. The results of these companies are still included in the income statement's lines.
  • as disposal groups which are part of a discontinued operation: none

The assets and liabilities of these divestments are shown separately on the balance sheet (Non-current assets held for sale and assets associated with disposal groups on the asset side and Liabilities associated with disposal groups on the liability side): see table below for more details.

In the second quarter of 2012, mainly Absolut Bank, Antwerp Diamond Bank, KBC Bank Deutschland and KBC Banka were added to the scope of IFRS 5 based on:

  • ongoing advanced discussions in the concerned divestment files whereby considerable progress is made (including additional insights in prices).
  • the due date for these divestment files as included in the EC restructuring plan coming closer
  • the intention of KBC's management to implement the divestment plan as soon as possible in order to be able to further focus on KBC's core strategy as integrated bancassurer in its five home markets.

Summary of facts and circumstances regarding divestments which have been signed, but not yet closed on 30 September 2012

Kredyt Bank:

Activity: Banking Segment: Group Centre

Other information: On 28 February 2012, KBC Group has reached an agreement with Santander for the merger of its subsidiary Kredyt Bank and Bank Zachodni WBK. Following the proposed merger, Santander will hold approximately 76.5% of the merged bank and KBC around 16.4%. The rest will be held by other minority shareholders. Banco Santander S.A. has committed to help KBC to lower its stake in the merged bank to below 10% immediately after the merger. Furthermore, KBC's intention is to divest its remaining stake, with a view to maximising value. Based on the market valuations at the time of reaching the agreement, the transaction will have a positive effect on KBC's income statement of approximately +0.1 billion euros at the time of closing the transaction. Closing of the transaction is subject to the customary regulatory approvals and is expected to be completed in the last quarter of 2012. Mid-May 2012 a signed merger plan was filed for the approval by the Financial Supervisory Commission.

Upon the deconsolidation of Kredyt Bank as a result of the proposed merger, and after a committed reduction of KBC's participation below 10% shortly after the registration of the merger and at the market valuations at the time of reaching the agreement approximately 0.7 billion euros of capital will be released, predominantly based on a reduction of Risk Weighted Assets – corresponding with a pro forma tier-1 impact at KBC-group consolidated level (calculated at year-end 2011) of approximately +0.8%.

Assuming a full exit and based on current market valuations, the pro forma tier-1 impact at KBCgroup consolidated level (calculated at year-end 2011) is estimated at approximately +0.9%.

Impact on P/L, Balance sheet and Cash flow:

3Q 2012 9M 2011 9M 2012
38 26 0 112 55
84 79 0 272 167
2
- 12		 14 0 13 34
110 120 0 397 257
- 115 - 110 0 - 320 - 220
- 9 - 14 0 - 29 - 22
0
0		 0 0 0 0
- 15 - 4 0 48 15
- 4
2		 - 1 0 - 13 - 8
- 13 - 5 0 35 7
0
- 432 - 3 0 - 480 25
0
0		 0 0 0 0
- 432 - 3 0 - 480 25
0
- 445		 - 8 0 - 445 32
1 205 - 1 612
- 16 8
5 6
1 193 - 1 597
40
89
131
- 97
- 18
15
11
- 11
- 11

B: NON-CURRENT ASSETS HELD FOR SALE AND ASSETS ASSOCIATED WITH DISPOSAL GROUPS AND LIABILITIES ASSOCIATED WITH DISPOSAL GROUPS

31-12-2011 of which:
Discontinued
operations		 30-09-2012 of which:
Discontinued
operations
Assets
Cash and cash balances with central banks 1 076 1 076 493 -
Financial assets 16 797 12 523 16 726 -
Fair value adjustments of hedged items in portfolio hedge of interest rate risk 12 12 0 -
Tax assets 110 95 128 -
Investments in associated companies 13 13 0 -
Investment property and property and equipment 278 224 170 -
Goodwill and other intangible assets 352 196 101 -
Other assets 485 103 54 -
Total assets 19 123 14 242 17 673 0
Liabilities
Financial liabilities 12 901 12 710 11 694 -
Technical provisions insurance, before reinsurance 4 533 424 0 -
Tax liabilities 38 6 16 -
Provisions for risks and charges 30 22 22 -
Other liabilities 631 304 118 -
Total liabilities 18 132 13 466 11 850 0
Other comprehensive income
Available-for-sale reserve - 81 - 72 100 78
Deferred tax on available-for-sale reserve 29 20 - 26 - 22
Cash flow hedge reserve 0 0 7 0
Translation differences 7 7 57 - 4
Total other comprehensive income - 45 - 46 137 52
Sovereign bonds on selected European countries, in millions of euros (carrying amounts), 30-09-2012
Portfolio breakdown Maturity breakdown
AFS* HTM* FIV* Trading
book		 Total Maturity date in
2012		 Maturity date in
2013		 Maturity date in &
after 2014
Greece 44 0 1 0 45 0 0 45
Portugal 35 55 0 0 90 0 0 90
Spain 209 0 0 0 209 8 0 201
Italy 681 141 0 19 842 4 57 780
Ireland 132 307 0 0 440 0 0 440
Total 1 101 504 1 19 1 626 13 57 1 556

Update government bonds on selected countries (note 47 in the annual accounts 2011)

* AFS (available-for-sale), HTM (held-to-maturity), FIV (designated at fair value through profit and loss).

Evolution of Sovereign bond portfolio on selected European countries, banking and insurance (carrying amount in billions of EUR)
30-09-2011 31-12-2011 31-03-2012 30-06-2012 30-09-2012
Greece 0.3 0.2 0.0 0.0 0.0
Portugal 0.1 0.1 0.1 0.1 0.1
Spain 2.1 1.9 1.9 0.3 0.2
Italy 3.8 2.1 2.0 1.4 0.8
Ireland 0.4 0.4 0.4 0.4 0.4
Total 6.7 4.8 4.4 2.3 1.6

During the first quarter of 2012, KBC took part in the exchange operation regarding Greek government bonds. The new Greek government bonds received as part of the exchange of the 'old' Greek government bonds (31.5% of the nominal value of the 'old' government bonds) were valued (prices between 21% and 29%) at the moment of exchange end of March 2012 leading to a limited remaining carrying value of 43 million euro and a realised loss on AFS and HTM (above the impairments booked in 2011) of about 42 million euros. At the end of September 2012, the carrying value of these bonds amounted to 44 million euro. The new Greek government bonds are classified in level 1 (while the former Greek bonds were classified in level 2).

During the second quarter of 2012, KBC further reduced its GIIPS portfolio substantially:

  • KBC reduced its Spanish sovereign bond exposure by selling all its HTM positions (0.2 billion euros) as well as a large portion of its AFS bonds (approximately 1.0 billion euros) leading to a realised loss of approximately -53 million euros before tax. More and above, about 0.4 billion euros of Spanish sovereign bonds matured in the course of the quarter.
  • Also Italian sovereign bonds were sold. KBC Group's total exposure on Italian sovereign bonds decreased by a total carrying amount of approx. -0.5 billion euros. These sales resulted in a realised loss of -8 million euros.
  • KBC also sold Portuguese government bonds maturing in 2014 and 2015. This resulted in a further reduction of around -14 million euros in carrying value and in an additional realised loss on AFS bonds of -6 million before tax.

During the third quarter of 2012, KBC further reduced its GIIPS portfolio:

  • The sovereign exposure is partially affected by the closure of the sale of KBL EPB and Vitis. This resulted in a reduction of sovereign bonds from Italy and Spain for an amount of -0.1 billion euros for each.
  • KBC Group's total exposure on Italian sovereign bonds further decreased by a total amount of about -0.5 billion euros. These sales resulted in a realised loss of approximately -12 million euros before tax.
  • KBC furthermore decided to sell all its Spanish regional government bonds which resulted in an additional realised loss of -13 million euros before tax.

At 30 September 2012, the carrying amounts of the AFS government bonds contained a negative revaluation. This effect is included in the revaluation reserve for AFS financial assets for a total amount before tax of -62 million euros (Italy: -7 million, Portugal: -6 million, Spain: -44 million, Ireland: -2 million, Greece: -1 million).

Post-balance sheet events (note 48 in the annual accounts 2011)

Significant event between the balance sheet date (30 September 2012) and the publication of this report (8 November 2012).

On 16 October 2012 KBC sold its 18.2 million treasury shares. This represents all treasury shares previously owned by KBC Group and KBC Bank. 302 shares owned by other group companies where not sold. See also, note 39 on Parent shareholders' equity and non-voting core-capital securities.

KBC Group Risk and capital management 3Q and 9M2012

Snapshot of the credit portfolio (banking activities, excl. entities marked as 'disposal groups' under IFRS 5)

The main source of credit risk is the loan portfolio of the bank. A snapshot of the banking portfolio is shown in the table below. It includes all payment credit, guarantee credit (except for confirmations of letters of credit and similar export-/import-related commercial credit), standby credit and credit derivatives, granted by KBC to private persons, companies, governments and banks. Bonds held in the investment portfolio are included if they are corporate- or bank-issued, hence government bonds and trading book exposure are not included. Further on in this chapter, extensive information is provided on the credit portfolio of each business unit. Structured credit exposure is described separately. Information specifically on sovereign bonds can be found under 'note 47 (in the annual accounts 2011)'. Following entities have been recognised as 'disposal groups' under IFRS 5 and have been excluded from the figures: Kredyt Bank as from 31-03-2012 ; Absolut Bank, Antwerp Diamond Bank, KBC Bank Deutschland and KBC Banka are excluded as from 30-06-2012.

Total loan portfolio (in billions of EUR)
Amount granted
186
169
168
Amount outstanding2
156
142
141
Total loan portfolio, by business unit (as a % of the portfolio of credit granted)
Belgium
34%
37%
39%
CEE
19%
21%
22%
Merchant Banking
37%
40%
38%
Group Centre
10%
1%
1%
Total
100%
100%
100%
Impaired loans (in millions of EUR or %)
Amount outstanding
11 234
9 992
10 746
Specific loan impairments
4 870
4 152
4 452
Portfolio-based loan impairments
371
317
260
Credit cost ratio, per business unit
Belgium
0.10%
0.10%
0.06%
CEE
1.59%
1.59%
0.40%
Czech Republic
0.37%
0.37%
0.28%
Slovakia
0.25%
0.25%
0.27%
Hungary
4.38%
4.38%
0.86%
Bulgaria
14.73%
14.73%
1.03%
Merchant Banking
1.36%
1.36%
1.38%
0.36%3
0.85%3
Group Centre
0.36%
0.83%3
0.63%3
Total
0.83%
Non-performing (NP) loans (in millions of EUR or %)
Amount outstanding
7 580
6 754
7 722
Specific loan impairments for NP loans
3 875
3 263
3 620
Non-performing ratio, per business unit
Belgium
1.5%
1.5%
1.6%
CEE
5.6%
5.6%
5.5%
Merchant Banking
7.8%
7.8%
10.1%
Group Centre
5.5%
2.2%
2.5%
Total
4.9%
4.8%
5.5%
Cover ratio
Specific loan impairments for NP loans / Outstanding NP loans
51%
48%
47%
Idem, excluding mortgage loans
62%
60%
59%
Specific and portfolio-based loan impairments for performing and NP loans / outstanding NP loans
69%
66%
61%
Idem, excluding mortgage loans
89%
88%
84%		 Credit risk: loan portfolio overview 31-12-2011 31-12-2011
(pro forma)1		 30-09-2012

  1. Outstanding amount includes all on-balance sheet commitments and off-balance sheet guarantees.

  2. CCR including IFRS 5 entities. Excluding IFRS 5 entities the CCR per 30/09/2012 would be 3.56% for Group Centre and 0.64% for the Total.

Credit portfolio per business unit (banking activities, excl. entities marked as 'disposal groups' under IFRS 5*)

Legend:

  • ind. LTV Indexed Loan to Value: current outstanding loan / current value of property
  • NPL Non-Performing Loans: loans assigned a PD 11 or 12
  • Specific provisions: provisions for defaulted exposure (i.e. exposure with PD 10, 11 or 12)
  • portfolio provisions: provisions for non-defaulted exposure (i.e. exposure with PD < PD 10)
Loa
foli
o B
usi
s U
nit
Bel
ium
ort
n p
nes
g
30-
09-
201
2, i
illio
of E
UR
n m
ns		 Bel
ium
g
Tot
al o
din
uts
tan
unt
g a
mo		 58.
486
Cou
bre
ak
dow
nte
rty
rpa
n		 % o
uts
t.
SM
E /
ate
cor
por		 1.5
40		 2,6
%
reta
il		 56
.94
6		 97,
4%
/w
ivat
o
pr
e		 31
.84
5		 54,
4%
/w
ies
o
com
pan		 25
.10
1		 42,
9%
(
*)
Mo
rtg
loa
age
ns		 % o
uts
t.		 ind
. LT
V
l
tota		 30
8
.57		 52,
3%		 64%
/w
FX
rtga
o
mo
ges		 0 0,0
%		 -
/w
vint
20
07
and
20
08
o
age		 4.3
19		 7,4
%		 -
/w
LTV
> 1
00%
o		 2.8
08		 4,8
%		 -
Pro
bab
ility
of
def
aul
t (
PD
)		 % o
uts
t.
low
ris
k (p
d 1
-4;
0.0
0%
-0.8
0%
)		 47
.30
1		 80,
9%
diu
isk
(p
d 5
-7;
0.8
0%
-6.4
0%
)
me
m r		 8.0
57		 13,
8%
hig
h ri
sk
(p
d 8
-10
; 6.4
0%
-10
0.0
0%
)		 2.1
86		 3,7
%
(p
12)
rfor
min
loa
d 1
1 -
non
-pe
g
ns		 935 1,6
%
ate
d
unr		 7 0,0
%
Oth
risk
er
me
asu
res		 % o
uts
t.
ndi
rfor
min
loa
(
NP
L)
out
sta
ng
non
-pe
g
ns		 935 1,6
%
vis
ion
s fo
r N
PL
pro		 460
all
vis
ion
s (s
ific
ortf
olio
ba
sed
)
pro
pec
+ p		 539
er N
PL
by a
ll p
isio
(sp
eci
fic +
rtfo
lio)
cov
rov
ns
po		 58%
201
1 C
red
it co
atio
(
CC
R)
st r		 0,1
0%
YTD
20
12
CC
R		 0,0
6%

Remark

(*) mortgage loans: only to private persons (as opposed to the accounting figures)

* Following entities have been recognised as 'disposal groups' under IFRS 5 and have been excluded from the figures: Kredyt Bank as from 31-03-2012 ; Absolut Bank, Antwerp Diamond Bank, KBC Bank Deutschland and KBC Banka are excluded as from 30-06-2012.

Loa
rtfo
lio B
usin
Un
it Ce
ntra
l & E
aste
rn E
n po
ess
uro
pe
30-0
9-20
12,
in m
illio
f EU
R
ns o		 Cze ch r
blic
epu		 Slo
vak
ia		 Hun
gar
y		 Bul
ia
gar		 Tot
al C
EE
Tota
l ou
tsta
ndin
t
g am
oun		 21.1
57		 4.39
2		 5.32
2		 703 31.5
74
Cou
nter
part
y br
eak
dow
n
SME
/ co
ate
rpor
il
reta
/w p
rivat
o
e
/w c
anie
o
omp
s		 6.94
0
14.2
16
10.6
32
3.58
5		 % o
utst
32,8
%
67,2
%
50,3
%
16,9
%		 2.30
2
2.09
0
1.75
6
333		 % o
utst
52,4
%
47,6
%
40,0
%
7,6%		 2.72
7
2.59
5
2.15
6
439		 % o
utst
51,2
%
48,8
%
40,5
%
8,2%		 293
410
253
157		 % o
utst
41,7
%
58,3
%
35,9
%
22,4
%		 12.2
62
19.3
11
14.7
97
4.51
4		 % o
utst
38,8
%
61,2
%
46,9
%
14,3
%
Mor
tgag
e lo
(1)
ans
tota
l
/w F
X m
ortg
o
age
s
/w v
inta
ge 2
007
and
200
8
o
/w L
TV >
100
%
o		 7.07
3
0
1.99
7
476		 % o
utst
33,4
%
0,0%
9,4%
2,3%		 ind.
LTV
68%
-
-
-		 1.47
5
0
284
0		 % o
utst
33,6
%
0,0%
6,5%
0,0%		 ind.
LTV
58%
-
-
-		 1.90
4
1.52
4
983
546		 % o
utst
35,8
%
28,6
%
18,5
%
10,3
%		 ind.
LTV
81%
89%
-
-		 116
73
52
14		 % o
utst
16,4
%
10,4
%
7,3%
2,0%		 ind.
LTV
63%
60%
-
-		 10.5
67
1.59
7
3.3
15
1.03
6		 % o
utst
33,5
%
5,1%
10,5
%
3,3%
Pro
bab
ility
of d
efau
lt (P
D)
low
risk
(pd
1-4
; 0.0
0%-
0.80
%)
med
ium
risk
(pd
%)
5-7
; 0.8
0%-
6.40
high
risk
(pd
8-1
0; 6
.40%
-100
.00%
)
form
ing
loan
s (p
d 11
- 12
)
non
-per
ted
unra		 12.9
40
6.55
1
919
739
7		 % o
utst
61,2
%
31,0
%
4,3%
3,5%
0,0%		 2.65
5
1.11
5
283
144
195		 % o
utst
60,4
%
25,4
%
6,4%
3,3%
4,5%		 2.24
5
1.72
7
718
631
0		 % o
utst
42,2
%
32,4
%
13,5
%
11,9
%
0,0%		 9
263
134
216
81		 % o
utst
1,2%
37,5
%
19,1
%
30,7
%
11,5
%		 17.8
49
9.65
6
2.05
4
1.73
1
284		 % o
utst
56,5
%
30,6
%
6,5%
5,5%
0,9%
Oth
isk
er r
mea
sur
es
outs
tand
ing
form
ing
loan
s (N
PL)
non
-per
isio
ns f
or N
PL
prov
(sp
ecif
folio
ed)
all p
rovis
ions
ic +
port
bas
r NP
L by
all
isio
ns (
cific
ortfo
lio)
cove
prov
spe
+ p
1 C
redi
tio (
CC
R)
201
t co
st ra
YTD
201
2 C
CR
(loc
al c
ncy)
(2)
urre		 739
431
525
71%
0,37
%
0,28
%		 % o
utst
3,5%		 144
85
118
82%
0,25
%
0,27
%		 % o
utst
3,3%		 631
341
405
64%
4,38
%
0,86
%		 % o
utst
11,9
%		 216
105
127
59%
14,7
3%
1,03
%		 % o
utst
30,7
%		 1.73
1
962
1.17
5
68%
1,59
%
0,40
%		 % o
utst
5,5%

Remarks

(1) mortgage loans: only to private persons (as opposed to the accounting figures)

(2) individual CCR's in local currencies.

folio
ines
it Me
nkin
Loan
port
Bus
s Un
rcha
nt Ba
g
30-0
9-20
12, i
n mi
llion
s of
EUR		 Belg
ium		 Wes
Eur
tern
ope		 o/w
Irela
nd		 USA Sou
thea
st As
ia		 Othe
r		 Cred
it Inv
estm
ents		 Tota
l Me
rcha
nt Ba
nkin
g
Tota
l out
stan
ding
unt
amo		 20.4
05		 20.6
25
16.2		 49 2.76
2		 918 2.14
6		 2.78
7		 49.6
43
Coun
brea
k do
terp
arty
wn
SME
/ co
te
rpora
retai
l
o/w
priv
ate
o/w
pani
com
es		 % ou
tst.
20.4
05
100,
0%
0
0,0%
0
0,0%
0
0,0%		 % ou
tst.
8.07
7
39,2
%
3.70
12.5
48
60,8
%
12.5
12.5
48
60,8
%
12.5
0
0,0%		 % ou
tst.
1
22,8
%
48
77,2
%
48
77,2
%
0
0,0%		 % ou
tst.
2.76
2
100,
0%
0
0,0%
0
0,0%
0
0,0%		 % ou
tst.
918
100,
0%
0
0,0%
0
0,0%
0
0,0%		 % ou
tst.
2.14
6
100,
0%
0
0,0%
0
0,0%
0
0,0%		 % ou
tst.
2.78
7 1
00,0
%
0
0,0%
0
0,0%
0
0,0%		 % ou
tst.
37.0
95
74,7
%
12.5
48
25,3
%
12.5
48
25,3
%
0
0,0%
Mort
loan
s (*)
gage
total
o/w
FX m
ortga
ges
o/w
vinta
ge 2
007
and
2008
o/w
LTV
> 10
0%		 % ou
tst. i
nd. L
TV
0
0,0%
0
0,0%
0
0,0%
0
0,0%		 % ou
tst.
ind.
LTV
- 1
2.54
8
60,8
%
120%
12.5
0
0,0%
-
-
4.61
7
22,4
%
4.61
-
-
8.38
9
40,7
%
8.38
-
-		 % ou
tst.
ind.
LTV
48
77,2
%
120%
0
0,0%
-
7
28,4
%
-
9
51,6
%
-		 % ou
tst.
ind.
LTV
0
0,0%
-
0
0,0%
-
0
0,0%
-
0
0,0%
-		 % ou
tst.
ind.
LTV
0
0,0%
-
0
0,0%
-
0
0,0%
-
0
0,0%
-		 % ou
tst.
ind.
LTV
0
0,0%
0
0,0%
0
0,0%
0
0,0%		 % ou
tst.
ind.
LTV
0
0,0%
-
0
0,0%
-
-
0
0,0%
-
-
0
0,0%
-
-		 % ou
tst.
12.5
48
25,3
%
-
0
0,0%
4.61
7
9,3%
8.38
9
16,9
%
ty of
defa
ult (P
D)
Prob
abili
low r
isk (
pd 1
-4; 0
.00%
-0.80
%)
(pd 5
%)
med
ium
risk
-7; 0
.80%
-6.40
high
risk
(pd
8-10
; 6.40
%-10
0.00
%)
perfo
rmin
g loa
ns (p
d 11
- 12
)
non-
ted
unra		 % ou
tst.
12.8
10
62,8
%
4.84
7
23,8
%
975
4,8%
597
2,9%
1.17
5
5,8%		 % ou
tst.
8.52
1
41,3
%
6.47
3.60
0
17,5
%
2.57
4.55
3
22,1
%
3.54
3.91
1
19,0
%
3.65
41
0,2%		 % ou
tst.
3
39,8
%
7
15,9
%
6
21,8
%
3
22,5
%
0
0,0%		 % ou
tst.
2.16
4
78,4
%
319
11,6
%
195
7,1%
83
3,0%
0
0,0%		 % ou
tst.
485
52,8
%
332
36,2
%
78
8,5%
23
2,5%
0
0,0%		 % ou
tst.
751
35,0
%
816
38,0
%
180
8,4%
399
18,6
%
0
0,0%		 % ou
tst.
1.51
9
54,5
%
1.10
1
39,5
%
167
6,0%
0
0,0%
0
0,0%		 % ou
tst.
26.2
02
52,8
%
11.0
15
22,2
%
6.17
12,4
%
7
5.03
3
10,1
%
1.21
6
2,5%
Othe
r ris
k me
asur
es
outs
tand
ing n
erfor
ming
loan
s (N
PL)
on-p
ision
s for
NPL
prov
all p
rovis
ions
(spe
cific
rtfoli
o ba
sed)
+ po
r NP
L by
all p
rovis
ions
(spe
cific
rtfoli
o)
cove
+ po
Cre
tio (C
CR)
2011
dit co
st ra
YTD
201
2 CC
R		 % ou
tst.
597
2,9%
503
713
119%
n.a.
n.a.		 % ou
tst.
3.91
1
19,0
%
3.65
1.46
6
1.33
1.91
6
1.64
49%
45%
3,01
n.a.
3,71
n.a.		 % ou
tst.
3
22,5
%
7
5
%
%		 % ou
tst.
83
3,0%
74
85
102%
n.a.
n.a.		 % ou
tst.
23
2,5%
14
28
122%
n.a.
n.a.		 % ou
tst.
399
18,6
%
119
156
39%
n.a.
n.a.		 % ou
tst.
0
0,0%
0
1
-
n.a.
n.a.		 % ou
tst.
5.03
3
10,1
%
2.17
7
2.91
2
58%
1,36
%
1,38
%

Remarks

Belgium = Belgian Corporate Branches, KBC Lease (Belgium) and KBC Commercial Finance

Western Europe = Foreign branches in Western Europe (UK, France, Netherlands); KBC Bank Ireland (incl. former Homeloans), KBC Lease UK, Ex-Atomium assets

Ireland = KBC Bank Ireland (incl. former KBC Homeloans)

USA = foreign branch in USA

Southeast Asia = Foreign branches in Asia (Hong Kong, Singapore, China)

Other = Real estate, (international) Trade finance, Specialised finance and Syndicated loans

Credit Investments = KBC Credit Investments

(*) mortgage loans: only KBC Homeloans exposure and only to private persons (as opposed to the accounting figures)

KBC Group I Extended quarterly report 3Q2012 59

Loa
fol
io B
usi
s U
nit
Gro
Ce
e (e
l. IF
RS
5 s
)
ort
ntr
n p
nes
up
xc
co
pe
30-
09-
20
12,
in
mil
lion
f E
UR
s o		 Tot
(m
ain
ly
KB		 Ce
al G
ntr
rou
p
C F
ina
nce		 e
Ire
lan
d)		 for
inf
atio
ia
n: R
orm
uss
(
inc
lud
ed
in I
FRS
5 s
)
co
pe
Tot
al o
din
uts
tan
unt
g a
mo		 1.7
45		 2.0
38
Co
bre
ak
dow
unt
art
erp
y
n		 % o
uts
t.		 % o
uts
t.
SM
E /
rate
cor
po		 1.7
45		 100
0%
,		 1.0
24		 50,
3%
il
reta		 0 0,
0%		 1.0
13		 49,
7%
/w
iva
te
o
pr		 0 0,
0%		 940 46,
1%
/w
ies
o
com
pan		 0 0,
0%		 73 3,
6%
(
*)
Mo
rtg
loa
age
ns		 % o
uts
t.		 ind
. LT
V		 % o
uts
t.		 ind
. LT
V
l
tota		 0 0,
0%		 - 79
5		 39,
0%		 53%
/w
FX
rtga
o
mo
ges		 0 0,
0%		 - 16
3		 8,
0%		 51%
/w
vin
e 2
007
d 2
008
tag
o
an		 0 0,
0%		 - 35
5		 17,
4%		 -
/w
LTV
100
%
o
>		 0 0,
0%		 - 7 0,
3%		 -
Pro
bab
ility
of
def
lt (
PD
)
au		 % o
uts
t.		 % o
uts
t.
low
ris
k (p
d 1
-4;
0.0
0%
-0.8
0%
)		 43
1		 24
7%
,		 987 48,
5%
(p
)
diu
isk
d 5
-7;
0.8
0%
-6.4
0%
me
m r		 82
4		 47,
2%		 818 40,
1%
hig
h ri
sk
(p
d 8
-10
6.4
0%
-10
0.0
0%
)
;		 44
9		 25
7%
,		 54 2,
6%
rfor
min
loa
(p
d 1
1 -
12)
non
-pe
g
ns		 43 2,
5%		 115 5,
6%
d
ate
unr		 0 0,
0%		 64 3,
1%
Oth
ris
k m
er
eas
ure
s		 % o
uts
t.		 % o
uts
t.
ndi
rfor
min
loa
(
NP
L)
out
sta
ng
non
-pe
g
ns		 43 2,
5%		 115 5,
6%
vis
ion
s fo
r N
PL
pro		 22 88
all
vis
ion
s (s
ific
ortf
olio
ba
sed
)
pro
pec
+ p		 85 11
4
(sp
fic
ortf
)
NP
L b
ll p
isio
eci
olio
cov
er
y a
rov
ns
+ p		 20
0%		 10
0%
20
11
Cre
dit
tio
(
CC
R)
t ra
cos		 0,
70%		 -1,
99%
YT
D 2
012
CC
R (
loc
al c
)
urr
enc
y		 3,
56%		 -1,
03%

Legend

ind. LTV Indexed Loan to Value: current outstanding loan / current value of property

avg. PD Average Probability of Default

Outstanding structured credit exposure (banking and insurance activities)

(figures exclude all expired, unwound or terminated CDO positions)

In the past, KBC acted as an originator of structured credit transactions and also invested in such structured credit products itself.

  • KBC (via its subsidiary KBC Financial Products) acted as an originator when structuring CDO deals (based on third-party assets) for itself or for third party investors. For several outstanding transactions, protection was bought from the US monoline credit insurer MBIA ('CDO exposure protected with MBIA' in the table).
  • KBC invested in structured credit products, both in CDOs (notes and super senior tranches), largely those originated by KBC itself ('other CDO exposure' in the table) and in other ABS ('other ABS exposure' in the table). The main objective at that time was to differentiate risk and to enhance the yield for the re-investment of the insurance reserves and bank deposits it held in surplus of its loans.
KBC investments in structured credit products (CDOs and other ABS), in billions of EUR 30-09-2012
Total nominal amount 17.3
o/w CDO exposure protected with MBIA 10.1
o/w other CDO exposure 5.5
o/w other ABS exposure 1.8
Cumulative value markdowns (mid 2007 to date)* -4.3
Value markdowns -3.7
for other CDO exposure -3.5
for other ABS exposure -0.2
Credit value adjustment (CVA) on MBIA cover -0.6

* Note that, value adjustments to KBC's CDOs are accounted for via profit and loss (instead of directly via shareholders' equity), since the group's CDOs are mostly of a synthetic nature (meaning that the underlying assets are derivative products such as credit default swaps on corporate names). Their synthetic nature is also the reason why KBC's CDOs are not eligible for accounting reclassification under IFRS in order to neutralise their impact.

Over the third quarter of 2012, there was a total notional reduction of 0.6 billion euros. This reduction was mainly observed at the level of the 'other ABS exposure' (0.5 billion euros) mainly due to the finalisation of the sale of KBL and for a lesser extent due to sales and repayments.

Since the inception, the outstanding other CDO positions held by KBC experienced net effective losses caused by claimed credit events until 9 October 2012 in the lower tranches of the CDO structure for a total amount of -2.2 billion euros. Of these, -2.1 billion euro's worth of events have been settled. These have had no further impact on P/L because complete value markdowns for these CDO tranches were already absorbed in P/L in the past.

Protection for CDO exposure

As stated above, KBC bought credit protection from MBIA for a large part of the (super senior) CDOs it originated.

Moreover, the remaining risk related to MBIA's insurance coverage is to a large extent mitigated as it is included in the scope of the Guarantee Agreement that was agreed with the Belgian State on 14 May 2009. The contract with the Belgian State has a nominal value of 12.2 billion euros of which 10.1 billion euros relates to the exposure insured by MBIA. The remaining 2.1 billion euros of exposure covered by the contract with the Belgian State relates to the 'other CDO exposure'. Of this portfolio (i.e. CDO exposure not covered by credit protection by MBIA) the super senior assets have also been included in the scope of the Guarantee Agreement with the Belgian State.

Details on the CDO exposure protected with MBIA (insurance for CDO-linked risks received from MBIA), in billions of EUR 30-09-2012
Total insured amount (notional amount of super senior swaps)1 10.1
Details for MBIA insurance coverage
- Fair value of insurance coverage received (modelled replacement value, after taking the Guarantee Agreement into account) 0.8
- CVA for counterparty risk, MBIA -0.6
(as a % of fair value of insurance coverage received) 70%

1 The amount insured by MBIA is included in the Guarantee Agreement with the Belgian State (14 May 2009).

Details of the underlying assets to KBC's CDOs originated by KBC FP

Solvency KBC Group

KBC reports its solvency at group, banking and insurance level, calculating it on the basis of IFRS figures and the relevant guidelines issued by the Belgian regulator. For group solvency, the so-called 'building block' method is used. This entails comparing group regulatory capital (i.e. parent shareholders' equity less intangible assets and a portion of the revaluation reserve for available-for-sale assets, plus subordinated debt, etc.) with the sum of the separate minimum regulatory solvency requirements for KBC Bank, the holding company (after deduction of intercompany transactions between these entities) and KBC Insurance. The total risk-weighted volume of insurance companies is calculated as the required solvency margin under Solvency I divided by 8%.

In millions of EUR 31-12-2011 30-09-2012
Regulatory capital
Total regulatory capital, KBC Group (after profit appropriation) 19 687 19 978
Tier-1 capital 15 523 16 972
Core Tier-1 capital 13 413 14 857
Parent shareholders' equity 9 756 10 629
Non-voting core-capital securities (2) 6 500 6 500
Intangible fixed assets (-) - 446 - 408
Goodwill on consolidation (-) - 1 804 - 1 057
Innovative hybrid tier-1 instruments (2) 420 423
Non-innovative hybrid tier-1 instruments (2) 1 690 1 692
Direct & indirect funding of investments in own shares - 250
Minority interests
Equity guarantee (Belgian State)		 145
564		 169
300
Revaluation reserve available-for-sale assets (-) 117 - 1 063
Hedging reserve, cashflow hedges (-) 594 762
Valuation diff. in fin. liabilities at fair value - own credit risk (-) - 550 - 107
Minority interest in AFS reserve & hedging reserve, cashflow hedges (-) - 3 0
Equalization reserve (-) - 139 - 104
Dividend payout (-) (3) - 598 - 417
IRB provision shortfall (50%) (-) 0 0
Limitation of deferred tax assets - 384 - 11
Items to be deducted (1) (-) - 338 - 86
Tier-2 & 3 capital 4 164 3 006
Perpetuals (incl. hybrid tier-1 not used in tier-1) 30 0
Revaluation reserve, available-for-sale shares (at 90%) 246 157
Minority interest in revaluation reserve AFS shares (at 90%) 0 0
IRB provision excess (+)
Subordinated liabilities		 403
3 778		 360
2 530
Tier-3 capital 45 44
IRB provision shortfall (50%) (-) 0 0
Items to be deducted (1) (-) - 338 - 86
Capital requirement
Total weighted risks 126 333 111 115
Banking 110 355 98 475
Insurance 15 791 12 426
Holding activities 286 288
Elimination of intercompany transactions between banking and holding activities - 100 - 74
Solvency ratios
Tier-1 ratio 12,29% 15,27%
Core Tier-1 ratio 10,62% 13,37%
CAD ratio 15,58%
,
%		 17,98%
,
%

(1) items to be deducted are split 50/50 over tier-1 and tier-2 capital. Items to be deducted include mainly participations in and subordinated claims on financial institutions in w hich KBC Bank has betw een a 10% to 50% share (predominantly NLB). (2) According to CRD II, these items are considered as grandfathered items.

(3) for 31/12/2011: includes 595 million euros coupon on non-voting core capital securities and 3 million euros dividend on ordinary shares; for 30/09/2012: includes a pro rata of the estimated dividend and coupon for 2012.

On 2 January 2012, KBC Group reimbursed 0.5 billion euros (and 15% penalty) to the Belgian State. This has already been taken into account in the balance sheet and hence also in the solvency calculation on 31-12-2011 (0.5 billion euros shift from equity to liabilities, and the extraction of the penalty from equity by presenting it as a liability). Both paid in the second quarter 2012.

The pro forma tier-1 ratio at 30 September 2012 including the impact of the sale of Kredyt Bank and KBC's treasury shares amounts to approximately 16.8%.

The Belgian regulator has confirmed to KBC that the non-voting core capital securities will be fully grandfathered as common equity under the current CRD4 proposal.

In May 2012 KBC received confirmation that it can shift as of 2Q 2012 reporting from the IRB Foundation approach under Basel II to the IRB Advanced approach for the (credit) portfolios of following entities: KBC Bank (incl. KBC Real Estate), CBC, KBC Lease Belgium, KBC Credit Investments and KBC Finance Ireland. In the third quarter of 2012, CSOB Czech Republic also moved from the IRB Foundation approach under Basel II to the IRB Advanced approach.

Basel II IRB, since its implementation in 2008, is the primary approach (used for somewhat more than 80% of the weighted credit risks, of which approx. 60% according to Advanced and approx. 20% according to Foundation approach). Note that, retail exposure treated under IRB is always subject to an Advanced approach. The remaining weighted credit risks (almost 20%) are calculated according to the Standardised approach.

Solvency banking and insurance activities separately

The tables below show the tier-1 and CAD ratios calculated under Basel II for KBC Bank, as well as the solvency ratio of KBC Insurance. More information on the solvency of KBC Bank and KBC Insurance can be found in their consolidated financial statements and in the KBC Risk Report.

Solvency, KBC Bank consolidated (in millions of EUR) 31-12-2011 30-09-2012
Total regulatory capital, after profit appropriation 16 364 15 561
Tier-1 capital 12 346 12 436
Tier-2 and tier-3 capital 4 019 3 126
Total weighted risks 106 256 97 498
Credit risk 85 786 78 071
Market risk 9 727 8 683
Operational risk 10 744 10 744
Solvency ratios
Tier-1 ratio 11,6% 12,8%
of which core tier-1 ratio 9,6% 10,6%
CAD ratio 15,4% 16,0%
Solvency, KBC Insurance consolidated (in millions of EUR) 31-12-2011 30-09-2012
Available capital 2 533 3 632
Required solvency margin (*) 1 263 994
Solvency ratio and surplus
Solvency ratio (%) 201% 365%
Solvency surplus (in millions of EUR) 1 270 2 638

(*) decrease compared to 31-12-2011 related to the closing of the sale of Fidea in 1Q 2012 and Warta in 2Q 2012

KBC Group Analyst presentation 3Q2012

+44 20 7162 0135 +32 2 290 14 12 +1 646 461 1771

Until 22 November +44 20 7031 4064 (code: 924307)

Important information for investors

This presentation is provided for informational purposes only. It does not constitute an offer to sell or the solicitation to buy any security issued by the KBC group.

KBC believes that this presentation is reliable, although some information is condensed and therefore incomplete. KBC can not be held liable for any damage resulting from the use of the information.

This presentation contains non-IFRS information and forward-looking statements with respect to the strategy, earnings and capital trends of KBC, involving numerous assumptions and uncertainties. There is a risk that these statements may not be fulfilled and that future developments differ materially. Moreover, KBC does not undertake any obligation to update the presentation in line with new developments.

By reading this presentation, each investor is deemed to represent that it possesses sufficient expertise to understand the risks involved.

Resilient business performance

  • Underlying net group profit of 406m EUR for 3Q12, demonstrating resilience of commercial franchise
  • FY2012 guidance for loan loss provisions in Ireland maintained at 500m-600m EUR

Capital and liquidity positions further strengthened

  • Pro-forma Tier-1 ratio of 16.8% in 3Q12 at KBC Group, up from 15.4% in 2Q12
  • Estimated B3 CET at the end of 2013: 11.2% phased in (10.2% fully loaded), factoring in 4.67bn EUR repayment of YES instruments by end 2013 (of which a substantial part in 2012)
  • Continued strong liquidity position (82% LTD ratio), with 2012 funding needs covered. Covered bonds will support funding mix diversification, which will reduce funding costs

Updated strategy

  • Groupwide communication updated strategy KBC 2013 and beyond: done
  • Preparation for implementation on 1st January 2013: on track

Momentum maintained on divestments and derisking

  • Sales of KBL epb, Zagiel and KBC Lease Deutschland have been closed
  • GIIPS exposure reduced again, down 67% since the end of 2011
  • P&L sensitivity to CDO positions significantly reduced thanks to derisking activities
1 3Q 2012 financial highlights
2 Divestments and derisking
3 Strong solvency and solid liquidity
4 Wrap up

Annex 1: 3Q12 underlying performance of business units

Annex 2: Other items

Section 1 3Q 2012 Financial highlights

3Q 2012 financial highlights

Underlying net profit *

Amounts in m EUR

7

Underlying profit at KBC Group

Amounts in m EUR

Premium income (gross earned premium) 984 863 769 849 839 655 653 688 658 674 578 101 205 2Q 2010 1,146 3Q 2012 2Q 2012 890 216 1Q 2012 884 226 4Q 2011 1,033 118 227 3Q 2011 972 107 212 1,075 975 102 218 1Q 2011 1,141 115 187 4Q 2010 1,151 126 176 3Q 2010 109 174 1Q 2010 1,249 118 147 2Q 2011 Premium income at Warta Premium income at Fidea and KBL epb

Combined ratio (Non-Life)

  • Insurance premium income (gross earned premium) at 578m EUR
  • Excluding deconsolidated entities,
  • Non-life premium income (307m) up almost 2% q-o-q and y-o-y. The non-life combined ratio in 9M12 stood at a very good 90%
  • Life premium income (271m) down 27% q-o-q and 23% y-o-y

Non-Life sales (gross written premium) Life sales (gross written premium)

  • Sales of Non-Life insurance products:
  • Up almost 2% year-on-year and down 2% q-o-q, excluding the divestment of Fidea and Warta
  • Sales of Life insurance products:
  • Down 34% q-o-q and 10% y-o-y (-24% and +17%, respectively, excluding deconsolidated entities)
  • Deliberate shift from guaranteed interest products to unit-linked products (mainly in the Belgium Business Unit and the Czech Republic)
  • Sales of unit-linked products already account for 79% of total life insurance sales

NIM (excl. KBL epb from 4Q10 onwards)

  • Excluding deconsolidated entities, net interest income fell by 4% q-o-q (mainly in the BE BU) and 13% y-o-y (across all BUs)
  • Net interest margin (1.74%): -25bps y-o-y and -8bps q-o-q partly due to the low interest rate environment, lower reinvestment yields (partly due to reduced GIIPS exposure) and higher senior debt costs (mainly visible in MEB BU). However, commercial margins remained sound
  • NIM in Belgium fell by 13bps quarter-on-quarter to 1.15%, while NIM in Central & Eastern Europe fell by 1bp quarter-on-quarter to 3.03%
  • On a comparable basis, loan volumes rose by 2% y-o-y, with continued growth in our home markets (+6% y-o-y in both the BE BU and CEE BU), partly offset by a reduced corporate loan book in BU MEB
  • Deposit volumes in our core markets increased (+4% y-o-y in BE BU and +3% y-o-y in CEE BU). Deposit decrease in BU MEB (-4% q-o-q) Amounts in m EUR

F&C AUM

  • Excluding deconsolidated entities, net fee and commission income:
  • increased 1% q-o-q
  • rose by 7% y-o-y driven by higher management fees on mutual funds and the impact of successful sales of unit-linked products

  • Assets under management increased by 3% quarter-on-quarter (due entirely to a positive price trend) to 155bn EUR at the end of 9M12

  • The sharply higher q-o-q figure for net gains from financial instruments at fair value (256m EUR) was primarily the result of a satisfactory dealing room performance and a positive q-o-q change in credit value adjustments (CVA)

  • Gains realised on AFS assets came to 57m EUR (mainly on shares at KBC Insurance)
  • Dividend income amounted to 10m EUR

Underlying operating expenses - Group

  • Excluding deconsolidated entities (KBL epb, Fidea and Warta), costs fell by 2% y-o-y and rose by 1% q-o-q
  • Operating expenses fell by 2% y-o-y, thanks in part to lower restructuring charges
  • Operating expenses increased by 1% q-o-q in 3Q12 due entirely to the impact of a recuperation of funds from the former Deposit Guarantee Scheme in Belgium in 2Q12 (51m EUR pre-tax and 34m EUR post-tax). Without this impact, operating expenses fell by 4% q-o-q
  • Underlying cost/income ratio for the banking business stood at 57% YTD (56% excluding the 5-5-5 bond provision in 1Q12), compared to 60% and 57%, respectively for FY 2011

Underlying asset impairment - Group

Higher impairment charges (+64m EUR q-o-q to 305m EUR)

  • Quarter-on-quarter increase of 85m EUR in loan loss provisions, mainly for the Belgian corporate entities and foreign branches (given the unsustainably low level in 1H12) and KBC Finance Ireland (project finance), despite slightly lower (though still significant) provisioning at KBC Bank Ireland (129m EUR in 3Q12 compared with 136m EUR in 2Q12, fully in line with our previous guidance)
  • Compared with the very high level recorded in 3Q11 (475m EUR), loan loss provisions were down by 191m EUR, as 3Q11 included a substantial impairment charge for Hungary (92m EUR related to FX mortgage relief measures), Bulgaria (96m EUR) and Ireland (187m EUR)
  • Impairment of 4m EUR on AFS shares (mainly at KBC Insurance) and 18m EUR on investment property

Underlying loan loss provisions – Group

  • Credit cost ratio fell to 0.63% in 9M12 (compared to 0.82% in 2011, 0.91% in 2010 and 1.11% in 2009). Excluding KBC Bank Ireland, the CCR stood at a very low 0.27% in 9M12. The NPL ratio amounted to 5.5%
  • Credit cost ratio in Belgium amounted to only 6bps
  • Somewhat higher loan losses in CEE (+11m EUR q-o-q) , due in part to 1 large corporate loan at CSOB Bank CZ, but credit cost ratio in CEE remained at a low level
  • Loan losses higher in Merchant Banking (+14m EUR q-o-q) compared with the unsustainably low level of provisioning for Belgian corporate entities and foreign branches. Excluding Ireland, the CCR in Merchant Banking still amounted to just 24bps in 9M12
outstanding
loan book		 2007
FY		 2008
FY		 2009
FY		 2010
FY		 2011
FY		 9M12
'Old' BU reporting 'New' BU reporting
Belgium 58bn 0.13% 0.09% 0.17% 0.15% 0.10% 0.06%
CEE 32bn 0.26% 0.73% 2.12% 1.16% 1.59% 0.40%
CEE (excl. one-off items in 2H11) 0.69%
Merchant B.
(incl. Ireland)		 50bn 0.02% 0.48% 1.32% 1.38% 1.36% 1.38%
Merchant B.
(excl. Ireland)		 33bn 0.02% 0.53% 1.44% 0.67% 0.59% 0.24%
Ireland 16bn 0.03% 0.31% 0.96% 2.98% 3.01% 3.71%
Total Group 141bn 0.13% 0.46% 1.11% 0.91% 0.82% 0.63%

Credit cost ratio (CCR)

NPL ratio at Group level

9M 2012 Non-Performing
Loans
(>90 days
overdue)		 High risk, excl.
restructured
loans
(probability
of default
>6.4%)		 Restructured loans
(probability of default >6.4%)
Belgium
BU		 1.6% 2.9% 0.8%
CEE BU 5.5% 4.2% 2.3%
MEB BU including
Ireland		 10.1% 7.8% 4.7%
MEB BU excluding
Ireland		 4.1% 7.0% 0.9%
Ireland 22.5% 9.3% 12.5%

NPL ratios per business unit

BELGIUM BU CEE BU

non-performing loan ratio

MEB BU

18

Section 2 Divestments and derisking

RWA reduced by more than initially planned

Update on outstanding* CDO exposure at KBC (3Q 2012)

Outstanding CDO exposure (bn
EUR)		 Notional Outstanding
markdowns
-
CDO exposure protected with MBIA
-
Other CDO exposure		 10.1
5.5		 -0.6
-3.5
TOTAL 15.6 -4.1
Amounts
in bn
EUR		 Total
Outstanding
value
adjustments
Claimed
and settled
losses
-
Of which
impact of settled
credit events		 -4.1
-2.2
-2.1
  • Claimed and settled losses amounted to 2.2bn EUR
  • Within the scope of the sensitivity tests, the value adjustments reflect a 10.7% cumulative loss in the underlying corporate risk (approx. 85% of the underlying collateral consists of corporate reference names)
  • P&L sensitivity significantly reduced thanks to derisking activities
  • Reminder: CDO exposure largely written down or covered by a State guarantee

* Figures exclude all expired, unwound or terminated CDO positions

** Taking into account the guarantee transacted with the Belgian State and a provision rate for MBIA at 70%

• The total notional amount remained stable over the last quarter. The outstanding markdowns decreased as a result of the credit spread tightening.

Breakdown of KBC's CDOs originated by KBC FP (figures as of 9 October 2012)

0% 2% 4% 6% 8% 10% 12%

Aaa Aa1

Aa3 A1 A3 Baa1 Baa2

Breakdown of assets underlying KBC's CDOs originated by KBC FP*

* Direct Corporate exposure as a % of the total Corporate Portfolio; Tranched Corporate exposure as a % of total Corporate Portfolio; Figures based on Moody's Ratings D/Credit Event

Ba1 Ba2 Ba3 B1

Corporate breakdown by industry *

Caa1 Caa2 Caa3 Ca

Direct Corporate Portfolio Tranched Corporate Portfolio

Corporate breakdown by ratings *

* Direct Corporate exposure as a % of the total Corporate Portfolio; Tranched Corporate exposure as a % of the total Corporate Portfolio

* Direct and Tranched Corporate exposure as a % of the total Corporate Portfolio

Maturity schedule of the CDOs issued by KBC FP

GIIPS exposure down by 67% since the end of 2011

Breakdown of government bond portfolio, banking and insurance (carrying value in bn EUR)

End 2010 End 1Q11 End 2Q11 End 3Q11 End 2011 End 1Q12 End 2Q12 End 3Q12
Greece 0.6 0.6 0.5 0.3 0.2 0.0 0.0 0.0
Ireland 0.5 0.4 0.4 0.4 0.4 0.4 0.4 0.4
Italy 6.4 6.2 6.1 3.8 2.1 2.0 1.4 0.8
Portugal 0.3 0.3 0.3 0.1 0.1 0.1 0.1 0.1
Spain 2.2 2.2 2.2 2.1 1.9 1.9 0.3 0.2
TOTAL 10.0 9.7 9.6 6.7 4.8 4.4 2.3 1.6

Year-to-date, KBC has reduced its GIIPS exposure (carrying amount) by roughly 67%:

  • Greece: reduction of 0.2bn EUR
  • Italy: reduction of 1.3bn EUR
  • Spain: reduction of 1.7bn EUR
  • TOTAL reduction of 3.2bn EUR

Government bond portfolio

• Notional investment of 49bn EUR in government bonds (excl. trading book) at end 9M12, primarily as a result of a significant excess liquidity position and the reinvestment of insurance reserves into fixed-income instruments

Section 3 Strong solvency and Solid liquidity

Strong tier-1 ratio of 15.3% (16.8% pro forma) at KBC Group as at end 9M12

Pro forma core tier-1 ratio – including the effect of the sale of Kredyt Bank (not yet closed) and the impact of the sale of treasury shares – of 14.7% at KBC Group

Assessment of state aid position

First repayment of 500m EUR to the Federal Government in January 2012 plus 15% penalty

  • Next reimbursement will be made once the common equity target has been decided by the National Bank of Belgium
  • We are continuing our efforts to ensure that 4.67bn EUR in state aid (before any penalty) is reimbursed by the end of 2013, as set out in the European plan, with a substantial part being repaid before the end of 2012

Look-through common equity at end 9M12 From phased in to fully loaded B3 at numerator level (given remaining YES being part of common equity as agreed with local regulator)

Estimated common equity at end 2013 Phased in B3 (given remaining YES being part of common equity as agreed with local regulator)

• Phased in B3 common equity ratio of approx. 12.6% at end 9M12

• Phased in B3 common equity ratio of approx. 11.2% at end 2013

Estimated common equity at end 2013 Fully loaded B3 (given remaining YES being part of common equity

as agreed with local regulator)

B3 impact at numerator level (bn EUR)

• Fully loaded B3 common equity ratio of approx. 11.7% at end 9M12

• Fully loaded B3 common equity ratio of approx. 10.2% at end 2013

A solid liquidity position (1)

  • Strong liquidity position strengthened even more by a solid increase in the liquid asset buffer
  • 2012 funding needs covered and buffer established given:
  • Long-term funding needs decrease as steps to reduce RWA continue
  • The issue of 2.75bn EUR unsecured long-term debt YTD (of which 0.5bn EUR on 4y issued in 3Q12)
  • Moreover, substantial increases in stable funding have been registered in different entities of the Bank Group
  • Legislative framework for covered bond in Belgium in place. KBC is in the process of obtaining a license from the NBB to issue covered bonds
  • KBC plans its first covered bond issue in 4Q12/1Q13. This will enable KBC to further diversify its investor base and funding mix, which will reduce funding costs

A solid liquidity position (2)

* According to IFRS5, the situation at 28/09/2012 (right-hand side) excludes the indivestment entities (Absolut Bank, Kredyt Bank, KBC Deutschland, KBC Banka, ADB, KBL)

** Graphs are based on Note 18 of KBC's quarterly report, except for the 'available liquid assets' and 'liquid assets coverage',which is based on the Treasury Management Report of KBC Group

The liquid asset buffer increased substantially in comparison with the end of June 2012, due to the following factors:

  • Increasing investments in highly liquid assets and positive MtM
  • The automation of the credit claims pledging process allows KBC to pledge more than 4bn EUR's worth (after haircuts) of loans at NBB
  • The total amount of unencumbered assets increased substantially as less secured funding was attracted

Therefore, the already strong liquidity position has improved further as:

  • Unencumbered assets are more than double the amount of the net recourse on short-term wholesale funding
  • Funding from non-wholesale markets is stable funding from core customer segments in our home markets

A solid liquidity position (3)

  • LTD ratio of 82% at KBC Bank at the end of 9M12
  • The LTD decrease is mainly the result of loan reduction in the MEB BU (in line with the building down of our overseas balance sheet)
  • The q-o-q LTD decrease in the Belgium BU can be explained by strong deposit growth, more than compensating the loan growth
  • The q-o-q LTD increase in the CEE BU is mainly due to CSOB CZ, where we noticed strong loan growth and very limited unsecured deposit inflow

* Excluding all the entities earmarked for divestment in Group Centre: KBL epb, ADB, KBC Deutschland, KBC Banka, Absolut Bank and Kredyt Bank

** Excluding Centea (retroactively adjusted)

*** Excluding Kredyt Bank and Absolut Bank (items earmarked for divestment in Group Centre)

A solid liquidity position (4)

• KBC Bank continues to have a strong retail/corporate deposit base in its core markets – resulting in a stable funding mix with a significant portion of the funding attracted from core customer segments & markets

Upcoming mid-term funding maturities

  • KBC successfully issued 3 new benchmark senior unsecured deals for a total amount of 2.75bn EUR in 2012
  • Long-term funding requirements for 2012 fully covered
  • KBC's credit spreads narrowing in 3Q12
  • KBC Bank has 5 solid sources of long-term funding:
  • Retail term deposits
  • Retail EMTN
  • Public benchmark transactions
  • Structured Notes using the private placement format
  • Covered bonds will support funding mix diversification

Note that the graph on left -hand side does not include the ECB LTRO for a total amount of 8.7bn EUR (3y maturity)

Section 4 Wrap up

Resilient business performance in core markets

Momentum maintained on divestments and derisking

Capital and liquidity positions further strengthened

Annex 1 3Q 2012 underlying performance of business units

Belgium Business Unit

Volume trend

Total
loans **		 Of which
mortgages		 Customer
deposits		 AuM Life
reserves
Volume 57bn 31bn 75bn 145bn 24bn
Growth q/q* +1% +2% +1% +3% +4%
Growth y/y +6% +8% +4% +5% +12%

* Non-annualised

** Loans to customers, excluding reverse repos (and not including bonds)

  • Underlying net profit at the Belgium Business Unit amounted to 290m EUR
  • The quarter under review was characterised by lower net interest income, strong unit-linked life insurance sales, an excellent non-life performance, stable net fee and commission income, only slightly higher costs despite a recuperation of funds from the Deposit Guarantee Scheme in 2Q12 and low impairment charges
  • Increase in quarter-on-quarter (+1%) and year-on-year (+6%) loan volume, driven by growth in mortgage loans
  • Deposit volumes up 4% year-on-year and 1% quarter-on-quarter

Belgium Business Unit (2)

  • Net interest income (532m EUR)
  • Down 5% q-o-q and 8% y-o-y
  • The net interest margin narrowed by 13bps quarter-on-quarter to 1.15%, largely attributable to the low interest rate environment and lower reinvestment yields partly due to the reduced exposure to GIIPS during the last quarters. However, commercial margins remained sound

Credit margins in Belgium

Product spread on new production

42

Belgium Business Unit (3)

F&C AUM

• Net fee and commission income (195m EUR)

  • Net fee and commission income increased by 16% y-o-y, mainly driven by higher management fees on mutual funds and the impact of successful sales of unit-linked products (the margin on those products is included in net fee and commission income). Customers' risk appetite remained low. Net fee and commission income fell by 1% q-o-q despite higher income from mutual funds (both entry and management fees). This was due to somewhat lower q-o-q sales of unit-linked life products and lower securities transactions (brokerage and lending)
  • Assets under management increased by 3% q-o-q (and +5% y-o-y) to 145bn EUR, thanks entirely to a positive price effect

Belgium Business Unit (4)

Premium income (gross earned premium) 778 669 574 411 394 490 534 473 512 615 694 1Q 2012 4Q 2011 3Q 2011 2Q 2011 1Q 2011 4Q 2010 3Q 2010 631 57 2Q 2010 721 52 1Q 2010 839 61 3Q 2012 2Q 2012 Premium income at Secura

Combined ratio (Non-Life)

  • Insurance premium income (gross earned premium) at 394m EUR
  • Non-life premium income (228m) up 1% q-o-q and 3% y-o-y (mainly in Fire insurance)
  • Life premium income (166m) down 10% q-o-q and 34% y-o-y due to 1) a deliberate shift from the sale of guaranteed interest products to the sale of unit-linked products and 2) a decrease in the guaranteed interest rate on Life savings products from May 2012 onwards (from 2.25% to 2.00%)
  • Combined ratio remained at an excellent level of 87% in 9M12

Non-Life sales (gross written premium) Life sales (gross written premium)

  • Sales of Non-Life insurance products:
  • fell by 6% quarter-on-quarter, but rose by 4% year-on-year
  • Sales of Life insurance products:
  • rose by 19% year-on-year (but fell by 20% quarter-on-quarter given the very high level in 2Q12). The year-on-year increase was driven entirely by higher sales of unit-linked products (thanks to extra commercial efforts), partly offset by deliberately lower sales of guaranteed interest products
  • As a result, guaranteed interest products and unit-linked products accounted for 20% and 80%, respectively, of life insurance sales in 3Q12

Belgium Business Unit (6)

  • Operating expenses: +2% quarter-on-quarter and -7% year-on-year
  • The q-o-q increase is entirely related to the +51m EUR pre-tax (and +34m EUR post-tax) recuperation of funds from the former Belgian Deposit Guarantee Scheme in 2Q12. This impact was partly offset by lower staff and marketing expenses
  • The y-o-y decrease can be explained by a combination of various items, such as lower restructuring charges and lower ICT and marketing costs
  • Underlying cost/income ratio: 60% YTD (and 59% YTD excluding the provision for the 5-5-5 product in 1Q12)
  • Loan loss provisions were again quite limited in 3Q12 (only 12m EUR). Credit cost ratio of 6 bps in 9M12. NPL ratio at 1.6%. Limited impairments on AFS shares (4m EUR)

Underlying profit at the Belgium BU

Amounts in m EUR

3Q10 4Q10 1Q11 2Q10 1Q10 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12

Underlying net profit at Secura

Underlying net profit contribution of banking to the Belgium BU *

Underlying net profit contribution of insurance to the Belgium BU *

* Difference between underlying net profit at the Belgium BU and the sum of the banking and insurance contribution is accounted for by some rounding up or down of figures

Underlying net profit

Volume trend

Total
loans **		 Of which
mortgages		 Customer
deposits		 AUM Life
reserves
Volume 27bn 11bn 36bn 10bn 2bn
Growth q/q* +2% +3% +1% -2% +3%
Growth y/y +6% +4% +3% -10% +5%

* Non-annualised

** Loans to customers, excluding reverse repos (and not including bonds)

  • Underlying net profit at CEE Business Unit of 169m EUR
  • CEE profit breakdown: 143m Czech Republic, 18m Slovakia, 36m Hungary, 3m Bulgaria, -31m Other (mainly due to the recognition at KBC Group level for funding costs of goodwill)
  • Results from the banking business were characterised by stable net interest income, increased net fee and commission income, stable costs and relatively low loan loss provisions
  • Profit contribution from the insurance business remained limited in comparison to the banking business.

48

Organic growth(*)

Total loans Mortgages Deposits
q/q y/y q/q y/y q/q y/y
CZ +2% +11% +3% +12% 0% +3%
SK +1% +8% +3% +12% +6% +12%
HU 0% -13% +1% -22% +1% -2%
BU +3% +1% 0% -6% 0% +5%
TOTAL +2% +6% +3% +4% +1% +3%
  • The total loan book rose by 2% q-o-q and 6% y-o-y. On a y-o-y basis, the increases in the Czech Republic (+11% y-o-y thanks to a continued increase in mortgage loans, but also an increase in corporate loans) and Slovakia (+8% y-o-y thanks to an increase in mortgage loans) were only partly offset by decreases in Hungary (where the trend was impacted not only by the FX mortgage relief programme, but also by a decreased corporate loan portfolio)
  • Total deposits were up 1% q-o-q and 3% y-o-y
  • Loan to deposit ratio at 76%

CEE Business Unit (3)

  • Net interest income stabilised q-o-q, but fell by 10% y-o-y to 348m EUR. Excluding the FX effect, net interest income fell by 1% q-o-q and 7% y-o-y. This can mainly be explained by a decrease in the loan portfolio at K&H Bank (following the repayment of FX mortgages in 2011 and a decreased corporate loan portfolio)

  • The net interest margin remained roughly stable quarter-on-quarter at 3.03%, but fell by 30bps year-on-year, mainly caused by the lower amount of loans & receivables at K&H (especially the result of fewer FX mortgage loans with relative high margins) and the FX impact of the CZK

  • Net fee and commission income (77m EUR) rose by 9% q-o-q, but fell 8% y-o-y (or +8% q-o-q and -5% y-o-y, respectively, excluding the FX effect)

  • Assets under management decreased by 2% q-o-q to roughly 10bn EUR, essentially as a result of net outflows. Y-o-y, assets under management fell by 10%, driven by net outflows (-11%) and a small positive price effect (+1%)

Combined ratio (Non-Life)

  • Insurance premium income (gross earned premium) stood at 186m EUR
  • Non-life premium income (85m) up 4% q-o-q and down 3% y-o-y
  • Life premium income (101m) sharply down q-o-q, mainly the result of strong sales of unit-linked products in the Czech Republic during 2Q12

  • Combined ratio at 97% in 9M12

  • Opex (292m EUR) rose by 1% q-o-q, but fell by 2% y-o-y

  • Excluding FX changes, opex remained more or less unchanged both q-o-q and y-o-y
  • YTD cost/income ratio at 58% (54% excluding Hung. bank tax)
  • Asset impairment at 32m
  • L&R impairments remained at a low level q-o-q, but decreased sharply y-o-y as 3Q11 had been impacted by high FX mortgage impairments in Hungary and one-off impairments for Bulgaria. This led to a credit cost ratio of 0.40% YTD (1.59% in FY11). NPL ratio at 5.5%
Loan
book		 2009*
CCR		 2010
CCR		 2011
CCR		 9M12
CCR
CEE 32bn 2.12% 1.16% 1.59% 0.40%
-
Czech Rep.
-
Hungary
-
Slovakia
-
Bulgaria		 21bn
5bn
4bn
1bn		 1.12%
2.01%
1.56%
2.22%		 0.75%
1.98%
0.96%
2.00%		 0.37%
4.38%
0.25%
14.73%		 0.28%
0.86%
0.27%
1.03%

* CCR according to 'old business unit reporting'

  • 3Q12 underlying net profit at the K&H Group amounted to 36m EUR (35m EUR YTD, including full-year bank tax)
  • 3Q12 loan loss provisions amounted to 6m EUR (28m EUR in 1Q12 and 3m EUR in 2Q12). The credit cost ratio came to 0.86% YTD versus 1.66% in 9M11. The favourable figures in 3Q12 are due to:
  • continued stable trends in corporate and SME portfolios
  • Re-launch of the bank's own easement programme in June
  • positive trends of performing clients signing up for the accumulation loan under the government FX debtor relief programme
  • NPL declined to 11.9% in 3Q12 (12.6% in 2Q12)
  • NPL Retail: 17.9% in 3Q12 (19.4% in 2Q12):
    • o Increase in retail NPL until May 2012
    • o Starting from June, the rise in delinquencies slowed down primarily due to the re-launch of the bank's own easement programme and first positive signs of the accumulation loan programme

Hungarian loan book – key figures as at 30 Sep 2012

Loan portfolio Outstanding NPL NPL coverage
SME/Corporate 2.7bn 7.5% 63%
Retail 2.6bn 16.5% 64%
o/w private 2.2bn 17.9% 63%
o/w companies 0.4bn 9.9% 70%
5.3bn 11.9% 64%

Proportion of High Risk and NPLs

Municipal loans

The government has announced that it will launch a second phase in the consolidation of municipal debt, whereby a total amount of 612bn HUF (2.2bn EUR) in debt will be taken over by the State. Details have not yet been announced, and consultations are going on among the relevant Ministries and the Hungarian Banking Association

Banking tax

The government originally intended to phase out banking tax in two waves (half it in 2013 and reduce to average European level from 2014). Based on recent announcements in 2013, it will be kept at the level of 2012 (57m EUR pre-tax for K&H)

Financial transaction levy

As of 1 Jan 2013 a financial transaction levy will be introduced. The general rate of the levy will be 0.3% for cash transactions and 0.2% for other transactions (with certain exceptions), with a cap of 6,000 HUF per transaction. Since it has an impact on the cost structure of the banks, it will prompt them to readjust their fee structure. The gross amount of the levy is estimated to be annually approx. 43m EUR pre-tax for K&H. The final version of the law is not yet passed in the parliament

Merchant Banking Business Unit

Volume trend

Total
loans		 Customer
deposits
Volume 40bn 39bn
Growth q/q* -5% -4%
Growth y/y* -4% -25%

*non-annualised

  • Underlying net profit in the Merchant Banking Business Unit totalled 10m EUR
  • The higher q-o-q result from this business unit's Corporate Banking activities in 3Q12 was due entirely to a positive credit value adjustment and a 44m EUR reversal regarding the fraud case at KBC Lease UK. This was only partly offset by somewhat higher loan loss provisions for Belgian corporate entities and foreign branches. The result for 3Q12 was negative, partly on account of the high loan impairment charges at KBC Bank Ireland (129m EUR in 3Q12 versus 136m in 2Q12, fully in line with our guidance). Excluding KBC Bank Ireland, the 3Q12 result would be +64m EUR
  • The 38m EUR result from the unit's Market Activities was down q-o-q due to losses realised on bond sales

Merchant Banking Business Unit (2)

NII (Commercial Banking)

  • The 3Q12 net interest income level stabilised q-o-q, but decreased roughly 25% y-o-y due to lower reinvestment yields due to the reduced GIIPS exposure, higher senior debt costs and reduced volumes
  • Stable q-o-q fair value gains within the 'Market Activities' sub-unit. The quarter under review included a satisfactory dealing room performance and positive CVAs (thanks to tightening corporate credit spreads)

Merchant Banking Business Unit (3)

  • Operating expenses decreased by 1% quarter-on-quarter, but rose by 2% year-on-year to 147m EUR mainly due to higher banking tax. Underlying cost/income ratio: 42% in 9M12 (and 41% excluding the provision for the 5-5-5 product in 1Q12)
  • Total impairments amounted to 180m EUR in 3Q12
  • The somewhat higher q-o-q impairment on L&R was accounted for by Belgian corporate entities and foreign branches. Loan loss provisions at KBC Bank Ireland amounted to 129m EUR (versus 136m EUR in 2Q12), fully in line with our guidance. The credit cost ratio came to 1.38% in 9M12 (compared to 1.36% in 2011) and the NPL ratio to 10.1% (0.24% and 4.1%, respectively, excluding KBC Bank Ireland)

Other impairment charges amounted to 14m EUR and related to real estate investments

  • Loan loss provisions in 3Q12 of 129m EUR (136m EUR in 2Q12). The loss after tax in 3Q12 was 71m EUR
  • Emerging stabilisation in parts of the domestic economy and an improvement in financial sentiment towards Ireland. Slightly better than expected tax revenues, broadly flat unemployment and a range of survey indicators reflect a tentative turning point in domestic activity of late
  • There are signs that the housing market may have bottomed out in terms of prices and transaction levels
  • KBCI is implementing longer term mortgage resolution options as part of its Mortgage Arrears Resolution Strategy that should restore a significant number of customers back to financial stability. KBCI's comprehensive outreach programme continues to have positive results
  • The Personal Insolvency Bill is expected to be enacted in 1Q13. The degree of impact on the KBCI mortgage portfolio will be determined by the final parameters including: (i) the voting rights of creditors, (ii) requirement for borrowers prior cooperation and (iii) the upper debt limit in the Personal Insolvency Arrangement
  • Commercial customers operating in the Irish domestic market continue to face a challenging environment.
  • Successful retail deposit campaign with expanded product offering. Increased gross retail deposit levels of +0.9bn EUR (YTD) to 1.7bn EUR and new customer accounts of c. 16,000 to end 3Q12
  • Local tier-1 ratio to 11.36% at the end of 3Q12 through a capital increase of 100m EUR (11.12% at the end of 2Q12)
Irish loan book –
key figures as at September 2012
Loan portfolio Outstanding NPL NPL coverage
Owner occupied mortgages 9.4bn 16.9% 31%
Buy to let mortgages 3.2bn 28.0% 40%
SME /corporate 1.8bn 17.8% 70%
Real estate investment
Real estate development		 1.3bn
0.5bn		 28.6%
90.7%		 62%
73%
16.2bn 22.5% 45%

Proportion of High Risk and NPLs

Ireland (2)

Key indicators show tentative signs of stabilisation

Continuing tentative signs of GDP stabilisation. Unemployment rate has remained broadly stable through 2012

Ireland (3) Key indicators show tentative signs of stabilisation

Residential property prices have increased in each of the last 3 months

Reduction in residential mortgage arrears & NPL growth continuing year to date in 2012

  • KBL epb and Fidea were deconsolidated in underlying as of 1Q12, while Warta and Zagiel were deconsolidated in underlying as of 3Q12
  • In addition to the results of the holding company and shared services, the results of companies scheduled for divestment have been reallocated to the 'Group Centre' (starting in 1Q10). The Group Centre posted an underlying loss of 64m EUR
  • Only the planned divestments are included. The Merchant Banking activities that will be wound down on an organic basis have not been shifted to the 'Group Centre'

Breakdown of underlying net profit at Group Centre

1Q12 2Q12 3Q12
Group item
(ongoing
business)		 9 -8 -17
Planned
divestments		 20 31 -47
-
Centea		 0 0 0
-
Fidea		 0 0 0
-
Kredyt
Bank		 10 8 22
-
Warta		 15 26 0
-
Absolut Bank		 12 19 2
-
'old' Merchant
Banking activities		 13 8 -37
-
KBL EPB		 0 0 0
-
Other		 -30 -30 -34
TOTAL underlying
net profit
at Group Centre		 30 23 -64

Mainly due to an increase in loan loss provisions for KBC Finance Ireland (a limited number of project finance files)

Mainly allocation funding cost goodwill and liquidity costs regarding divestments and the result of NLB

NPL, NPL formation and restructured loans in Russia

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12
NPL
NPL formation		 17.9%
3.9%		 17.8%
-0.1%		 18.3%
0.5%		 16.8%
-1.5%		 16.1%
-0.7%		 13.5%
-2.6%		 11.4%
-2.1%		 11.2%
-0.2%		 10.3%
-0.9%		 7.6%
-2.7%		 5.6%
-2.0%
Restructured loans 10.3% 10.3% 9.7% 6.3% 4.2% 3.9% 3.9% 3.2% 2.3% 2.3% 2.0%
Loan loss provisions
(m EUR)		 0 19 12 -9 -29 -9 -8 4 -10 -3 -3

Annex 2 Other items

Overview of divestment programme

Finalised:

KBC FP Convertible Bonds

KBC FP Asian Equity Derivatives

KBC FP Insurance Derivatives

KBC FP Reverse Mortgages

KBC Peel Hunt

KBC AM in the UK

KBC AM in Ireland

KBC Securities BIC

KBC Business Capital

Secura

KBC Concord Taiwan

KBC Securities Romania

KBC Securities Serbia

Organic wind-down of international MEB loan book outside home markets

Centea

Fidea

Warta

KBL European Private Bankers

Zagiel

Signed:

Kredyt Bank

In preparation/work-in-progress for 2012/2013 (including)

Absolut Bank

KBC Banka

NLB

Antwerp Diamond Bank

KBC Bank Deutschland

65

Summary of government transactions (1)

  • State guarantee covering 12.2bn* euros' worth of CDO-linked instruments
  • Scope
    • o CDO investments that were not yet written down to zero (2.1bn EUR) when the transaction was finalised
    • o CDO-linked exposure to MBIA, the US monoline insurer (10.1bn EUR)
  • First and second tranche: 3.2bn EUR, impact on P&L borne in full by KBC, KBC has option to call on equity capital increase up to 1.3bn EUR (90% of 1.5bn EUR) from the Belgian State
  • Third tranche: 9.0bn EUR, 10% of potential impact borne by KBC
  • Instrument by instrument approach

Summary of government transactions (2)

Originally, 7bn EUR worth of core capital securities subscribed by the Belgian Federal and Flemish Regional Governments

Belgian State Flemish Region
Amount 3.5bn 3.5bn
Instrument Perpetual fully paid up new class of non-transferable securities qualifying as core capital
Ranking Pari passu with ordinary stock upon liquidation
Issuer KBC Group
Proceeds used to subscribe ordinary share capital at KBC Bank (5.5bn) and KBC Insurance (1.5bn)
Issue price 29.5 EUR
Interest coupon Conditional on payment of dividend to shareholders
The higher of (i) 8.5% or (ii) 120% of the dividend for 2009 and 125% for 2010 onwards
Not tax deductible
Buyback option KBC Option for KBC to buy back the securities at 150% of the issue price (44.25)
Conversion option KBC From December 2011 onwards, option for KBC to convert securities
into shares (1 for 1). In that case, the State can ask for cash at 115%
(33.93) increasing every year by 5% to the maximum of 150%		 No conversion option

Investor Relations Office

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