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KBC Groupe NV

Quarterly Report Nov 10, 2011

3968_10-q_2011-11-10_5539c297-dc39-417a-b597-4a2ab4f4eabd.pdf

Quarterly Report

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KBC GROUP

EXTENDED QUARTERLY REPORT

Extended Quarterly Report – KBC Group – 3Q2011 1

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.

Investor relations contact details

[email protected]

www.kbc.com/ir m.kbc.com

KBC Group NV Investor Relations Office (IRO) Havenlaan 2, BE 1080 Brussels, Belgium

Glossary of ratios used

CAD ratio

[consolidated total regulatory capital] / [total risk-weighted volume].

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 risk-weighted volume]. 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].

Cost ratio, non-life insurance

[expenses / written premiums] (after reinsurance).

Cover ratio

[individual impairment on non-performing loans] / [outstanding nonperforming loans]. For a definition of 'non-performing', see 'Non-performing ratio'. The cover ratio may also include the individual impairment on still performing loans and portfolio-based impairments.

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 the equity holders of the parent)] / [average number of ordinary shares, plus mandatorily convertible bonds, 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).

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, plus mandatorily convertible bonds, 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).

Net interest margin group

[net interest income of the banking activities (underlying)] / [average interest-bearing 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 and mandatorily convertible bonds, 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 instead of real equity] / [average equity allocated to the business unit]. The result of a business unit is the sum of the result of the companies belonging to the business unit, adjusted for the funding cost of goodwill (related to the companies in the business unit) and allocated central governance expenses. The equity allocated to a business unit is based on risk-weighted assets for banking and risk-weighted asset equivalents for insurance.

Return on equity

[result after tax, attributable to the equity holders of the parent] / [average parent shareholders' equity, excluding the revaluation reserve for availablefor-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).

Solvency ratio, insurance

[consolidated available capital of KBC Insurance] / [minimum required solvency margin of KBC Insurance].

Contents

Report on 3Q and 9M2011 3

  • Summary4
  • Financial highlights 3Q2011(underlying)7
  • First nine months of 2011: results per heading (IFRS) 9
  • Table of results according to IFRS10
  • Table of underlying results12
  • Other information14

Analysis of underlying earnings components 16

  • Analysis of total income17
  • Analysis of costs and impairment 18
  • Analysis of other earnings components 19

Underlying results per business unit 20

  • Belgium Business Unit 21
  • CEE Business Unit23
  • Merchant Banking Business Unit28
  • Group Centre31

Consolidated financial statements according to IFRS 33

  • Consolidated income statement 34
  • Condensed consolidated statement of comprehensive income 35
  • Consolidated balance sheet 36
  • Consolidated statement of changes in equity 37
  • Condensed consolidated cash flow statement 38
  • Notes on statement of compliance and changes in accounting policies 39
  • Notes on segment reporting 40
  • Other notes 45
  • Auditor's report 58

Risk and capital management 59

  • Credit risk 60
  • Structured credit exposure 65
  • Solvency 67

Presentation 69

Extended Quarterly Report – KBC Group – 3Q2011 2

Report on 3Q and 9M2011 KBC Group

This news release contains information that is subject to transparency regulations for listed companies. Date of release: 10 November 2011, 7 a.m. CET.

Summary: Considerable progress on execution of strategic plan, 3Q results affected by exceptional and one-off items.

KBC ended the third quarter of 2011 with an underlying net result of -248 million euros but excluding one-off items induced by the prevailing and exceptional market circumstances, the net result would have amounted to 222 million euros. This compares with +528 million euros in 2Q2011 and +445 million euros in 3Q2010. The underlying result for the first nine months of 2011 amounted to +937 million euros, compared to +1 542 million euros for the corresponding period in 2010.

The IFRS-based net result reported for the quarter under review came to a net loss of 1 579 million euros, compared with a net profit of 333 million euros in the previous quarter and 545 million euros in the year-earlier quarter. This means that the group has generated a total net loss of 424 million euros in the first nine months of 2011, as opposed to a net profit of 1 136 million euros for the corresponding period in 2010.

Jan Vanhevel, Group CEO: 'The third quarter for KBC was characterised by a continuing good level of underlying income and considerable progress in both our divestment and de-risking plans. We concluded the sales agreements for KBL EPB and Fidea. We further reduced our CDO and ABS exposure and have already reached our initial target (capital relief of 0.5 billion euros). We have also substantially reduced our exposure to Southern European government bonds.

Unfortunately, the third quarter results were also affected significantly by exceptional items related to the uncertain macroeconomic climate and challenging, turbulent market conditions. We are disappointed to record a loss in the third quarter, largely on account of these market-driven items.

However, our core strengths remain fundamentally sound and we have a very solid customer base in our core markets of Belgium and Central Europe, where there was further loan and deposit growth, and an excellent underlying insurance performance. Our liquidity profile is robust and supported by a stable and resilient customer deposit base. Moreover, our solvency position is and remains strong and has enabled us to continue to increase lending to our customers.

I would like to add that our already comfortable capital position has been further enhanced by the fact that the Belgian regulator has recognised the Yield Enhanced Securities (YES) as common equity under the current CRD4 proposal . We continue to strive to reimburse 7 billion euros to the state by the end of 2013, in line with the European plan.

KBC has expressed its intention to repay a first tranche of the YES to the amount of 500 million euros by year end to the Federal Government under the conversion mechanism. The Federal Government has confirmed that the 15% penalty will be applicable. The Flemish Government has agreed to waive its "pari passu" rights for this repayment and any further repayments effected before end of 2012.

We remain committed to executing our strategic plan with the same diligence and determination to ensure timely repayment of the state aid and are committed to playing an active role in the European financial sector, which will benefit our customers, employees, shareholders and other stakeholders. The good results we have observed during October, lead us to guide for a full year underlying net profit of 1.2 billion to 1.4 billion euros.'

Further to a continued strong RWA management (RWA reduction of 6.7 billion euros in the third quarter), KBC has also acted to reduce volatility in its results.

CDO exposure

During the third quarter, our CDO exposure was reduced by 2.5 billion euros, which constitutes a 12% decline in the notional amount outstanding. This was achieved by early terminations and sales at limited cost.

ABS exposure

During the third quarter, our ABS exposure was reduced by 0.7 billion euros, which constitutes a 17% decline in the notional amount outstanding. This was achieved by sales at limited cost.

Southern European government bond exposure

In the third quarter, we substantially reduced our exposure to Southern European government bonds. The reduction amounted to 2.9 billion euros, or more than 30% compared to the exposure at the end of June. We have further reduced this exposure since the end of September by another 1.6 billion euros.

Main exceptional factors in 3Q2011 that have impacted the reported IFRS result :

Divestments: one-off impact

Notwithstanding the particularly challenging market circumstances, the execution of our strategic plan has gained further momentum with, for instance, sales agreements being signed for KBL EPB and Fidea. The transactions related to the sale of Centea and KBC Asset Management's stake in KBC Concord Asset Management Co. Ltd. (Taiwan) have been closed, and KBC Securities completed the divestment of its operations in Serbia and Romania. Other planned divestments are well on track. The divestments of KBL EPB and Fidea had a combined negative impact of 0.6 billion euros on KBC's thirdquarter net result, but a positive impact on our capital.

Impact of the credit spread on CDOs

During the third quarter, global economic uncertainty intensified, resulting in volatile markets and significantly wider corporate and ABS credit spreads. This resulted in a valuation markdown of some 0.6 billion euros on the CDO exposure. 30% of the unrealised losses booked in 3Q11 could already be reversed in October 2011.

Main important one-off factors in 3Q2011 that have impacted the underlying result :

Greece: one-off impact

As a result of the deteriorating credit position of Greece in the financial markets, we recorded an additional impairment of 126 million euros after tax (176 million pre-tax) on our Greek government bond portfolio in this quarter (as a result, the impairment on Greek government bonds at 30 September 2011 was recognised in full at 58% of the nominal amount of these bonds).

We also recorded a provision of 174 million euros after tax (263 million pre-tax) on the contingent intention to repurchase on a voluntary basis the bonds (KBC IFIMA 5/5/5 and KBC Group 5-5-5) sold to retail customers, conditional on the occurrence of a credit event. These structured bonds were launched in the spring of 2008, have a term to maturity of five years, a gross coupon of 5% (which so far have all been paid) and are linked until their maturity to the creditworthiness of five countries (Belgium, France, Spain, Italy and Greece). All holders of these bonds had been informed in March 2011 of this contingent intention. Untill the date of this press release no credit event occurred, but since the probability of a credit event is estimated by the financial markets to be higher than 50% on 30 September 2011, we decided to book the provision in the third quarter results. If no credit event under ISDA definitions occurs, the provision will be reversed.

Hungary: one-off impact

During September, new legislation designed to help households with foreign-currency-based mortgages was introduced in Hungary. This legislation allows households during a limited period to pay off foreign-currency debts in one lump sum at a fixed, discounted exchange rate. The shortfall between the fixed and market rates is to be covered by the banks. The Hungarian Banking Association has taken the matter to the Constitutional Court in Budapest. Nevertheless, KBC has recorded an impairment of 74 million euros (after tax) on its FX retail mortgage portfolio (92 million euros, pre-tax), reflecting that an estimated 20% of all debtors will pay off their foreign currency loans.

Bulgaria: one-off impact

KBC performed an in-depth evaluation of its Bulgarian assets for which the Group has recorded an additional impairment of 96 million euros.

Main special items in 3Q2011 that have impacted the underlying result :

Share portfolio

Following the downturn on the stock market, an impairment of 87 million euros (before and after tax) had to be booked on the share portfolio.

Ireland

We indicated during the 2Q11 results presentation in August that we had seen some deterioration in the number of payment arrears. The economic situation and the Irish marketplace have not improved in the way we envisaged and the austerity measures put in place by the Irish authorities have had a considerable impact on the financial strength of households. Besides that, we have observed a change in behaviour of some borrowers. As a consequence, a loan loss provision of 164 million euros after tax (187 million euros, pre-tax) was recorded in 3Q2011.

These factors aside, underlying income in the third quarter was characterised by a good level of net interest income, strict cost control, an excellent combined ratio, good life insurance results, and robust liquidity and solvency positions. The credit cost ratio in our core markets remains low (barring the specific situation in Hungary and Bulgaria). Fundamentally, KBC continues to have a strong loan-to-deposit ratio (85% at the end of September 2011) which translates into a robust liquidity position.

With a total tier-1 ratio of 14.4% and a core tier-1 ratio of 12.6% (including the impact of the sale of KBL EPB and Fidea), solvency remains not only firm, but also exceeds the threshold set under the recent EBA stress test.

Under the preliminary EBA exercise based on data as at the end of June (see press release of 27 October 2011), both KBC group and KBC Bank complied with the 9% core tier-1 threshold as determined by the EBA (capital position according to Basel2.5, corrected with the marked-down sovereign exposures based on market prices as at 30 September 2011). The preliminary capital buffer as identified at the end of June is sufficient to cover 3Q11 results. An update of the outcome of the EBA exercise based on positions and market prices as of 30 September is expected to be published in November 2011.

Jan Vanhevel concludes: 'The operating environment has been harsh in the third quarter and we realise that these are tough times for most economies and for millions of people. KBC has obviously not been immune to this and our results have been severely impacted. However, KBC continues to build on and reap the benefits of its sound customer-driven bancassurance model, as illustrated by the good results during October. This resulted in a strong liquidity and robust solvency position, helping us to remain a solid European financial player committed to actively financing our customers' projects, even in extremely difficult conditions. The Executive Committee has decided to forego all variable remuneration for financial year 2011, regardless of how profits develop in the remainder of the year.'

Overview (consolidated) 3Q2010 2Q2011 3Q2011 Cumul.
9M2010
Cumul.
9M2011
Net result, IFRS (in millions of EUR) 545 333 -1 579 1 136 -424
Earnings per share, basic, IFRS (in EUR)1 1.17 0.54 -5.08 2.03 -2.56
Underlying net result (in millions of EUR) 445 528 -248 1 542 937
Underlying earnings per share, basic (in EUR)1 0.87 1.11 -1.17 3.23 1.45
Breakdown of underlying net result per business unit (in millions of EUR)2
Belgium 220 238 32 797 551
Central & Eastern Europe 84 146 -40 412 229
Merchant Banking 156 63 -196 361 43
Group Centre -15 81 -44 -28 114
Parent shareholders' equity per share (in EUR, end of period) 33.1 33.8 28.9 33.1 28.9

1 Note: the coupon that is expected to be paid on the core-capital securities sold to the Belgian State and Flemish Region is deducted from earnings (pro rata) in the EPS calculation.

2 The changes in the strategic plan announced in mid-2011 are reflected in the breakdown by business unit; all reference figures have been adjusted retroactively.

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

Financial highlights for 3Q2011 compared to 2Q2011:

  • Net loss caused by the impact of a difficult financial climate on several results components.
  • Net interest income sustained. Stable margins and volumes up in Belgium and Central Europe.
  • Net fee and commission income somewhat lower on account of lower sales of investment products, as Europe's continuing debt crisis and market volatility reduce investors' risk appetite.
  • Combined ratio of 90% year-to-date.
  • Increased sales of life products and premium income on non-life products.
  • Weak dealing room performance.
  • Underlying cost/income ratio at 61% year-to-date (58% excluding the impact of the provision for 5-5-5 products ).
  • Credit cost ratio 0.61% year-to-date.
  • Consistently strong liquidity position.
  • Solvency: continued strong capital base: pro forma tier-1 ratio including the effect of divestments for which a sale agreement has been signed to date – at approximately 14.4% (with core tier-1 at 12.6%).

Extended Quarterly Report – KBC Group – 3Q2011 6

Financial highlights 3Q2011 (underlying)

Jan Vanhevel, Group CEO, summarises the underlying business performance for 3Q2011 as follows:

Gross income benefits from stable interest income and better technical insurance results, but is affected by lower commission income, weak trading results and the provision set aside for the 5-5-5 products.

  • Underlying net interest income stood at 1 342 million euros, at first sight -5% year-on-year and -3% quarter-on-quarter, but this was due mainly to the deconsolidation of Centea (excluding this factor, net interest income was virtually flat). The net interest margin came to 1.98% for the quarter under review, stable compared to the previous quarter and up 6 basis points on its level of 3Q2010. In the Belgium Business Unit, both credit and deposit volumes were up year-on-year and quarter-on-quarter (credit: +5% year-on-year and +2% quarter-on-quarter; deposits +9% year-on-year and +3% quarter-on-quarter). The loan book in the CEE Business Unit increased by 3% year-on-year (thanks to the Czech Republic and Slovakia) and by 1% quarter-on-quarter, while deposits also increased 3% year-on-year and 1% quarteron-quarter. In line with the strategy to run down the international loan books, the loan portfolio in the Merchant Banking Business Unit fell 4% year-on-year (stable in the last quarter), while the deposit base shrunk by 17% year-on-year (8% in the last quarter), commensurate with the reduction in the international loan book.
  • A very good performance was turned in on the technical insurance front during the quarter under review: net of technical charges and ceded reinsurance result, technical insurance income came to 138 million euros in 3Q2011, up 52% yearon-year and 12% quarter-on-quarter. Moreover, non-life premium income increased by 7% year-on-year on a comparable basis, and the year-to-date combined ratio came to an excellent 90%. In life insurance, we witnessed a significant increase in the sale of unit-linked products, both in Belgium and in CEE, which more than offset the decrease in interest-guaranteed products.
  • The net result from financial instruments at fair value amounted to 10 million in 3Q2011, significantly below its level both in the previous quarter and a year earlier, due to the weak performance turned in by the dealing room in the quarter under review.
  • Net fee and commission income amounted to 367 million euros, unchanged on the year-earlier quarter, but down 7% on the previous quarter. Net fee and commission income was hit by the relatively low level of fees generated by the asset management business (reduced investor risk appetite).
  • The other income components came to an aggregate -185 million euros. The 263-million-euro provision set aside for the contingent repayment intention that KBC has provided its retail clients in relation to the 5-5-5 products had a significantly adverse impact in this regard (recorded under 'Other net income').

Operating expenses stable, significant loan loss provisions for Hungary, Bulgaria and Ireland, and additional impairment on Greek government bonds.

  • Operating expenses came to 1 172 million euros in the third quarter of 2011. This was in line (+1%) with the previous quarter and – disregarding the booking in 3Q2010 of the Hungarian bank tax for FY2010 – also comparable to its yearearlier level. The year-to-date cost/income ratio came to 61% (58% excluding the impact of the 5-5-5 product), a clear indication that costs remain under control.
  • Loan loss impairment stood at 475 million euros in the third quarter, up on the 356 million euros recorded a year ago, and up on the 164 million euros recorded in the previous quarter, due to significant additional provisions being set aside for Ireland, Hungary (following the new legislation on forex loans) and Bulgaria. As a consequence, the annualised credit cost ratio stood at 0.61% for the first nine months of 2011; this breaks down into an excellent 0.09% for the Belgian retail book (down even further on the 0.15% recorded for FY2010), 1.44% in Central and Eastern Europe (up from 1.16% for FY2010) and 0.90% for Merchant Banking (down from 1.38% for FY2010).
  • Other impairment charges came to 265 million in the quarter under review and related mainly to shares in the investment portfolio (87 million euros) and an additional impairment on Greek government bonds (176 million euros, over and above the 139 million euros booked in the previous quarter), bringing the fully recognised impairment to 58% of the nominal amount of these bonds.

Strong solvency capital position under Basel II.

• The group's tier-1 ratio (under Basel II) came to a strong 13.6% at 30 September 2011 (core tier-1 ratio of 11.7%). Including the effect of divestments for which a sale agreement has been signed to date (Fidea and KBL EPB), the pro forma tier-1 ratio even stands at approximately 14.4% (core tier-1 ratio of 12.6%).

Highlights of underlying performance per business unit.

  • The Belgium Business Unit contributed 32 million euros to profit in 3Q2011. This was 206 million euros less than in 2Q2011. The quarter was characterized by stable net interest income, excellent insurance results and a very low level of loan impairments. The quarter-on-quarter decrease is entirely related to a provision of 132 million euros (pre-tax) on the contingent repayment intention that KBC has provided its retail clients in relation to 5-5-5 products, and to significant impairment on shares and Greek government bonds in the investment portfolio.
  • The CEE Business Unit (Czech Republic, Slovakia, Hungary and Bulgaria) posted a loss of 40 million euros in 3Q2011, as opposed to a profit of 146 million euros in the previous quarter. Good life insurance sales, a favourable combined ratio and a stable net interest income defined this quarter. The decrease was almost entirely due to the impairment taken on the loan portfolios of Hungary (forex mortgages) and Bulgaria, and on Greek government bonds.
  • The Merchant Banking Business Unit posted a loss of 196 million euros in 3Q2011, as opposed to 63 million euros in profit recorded in 2Q2011. The decrease is due mainly to the provision of 132 million euros (pre-tax) on the contingent repayment intention the KBC has provided its retail clients in relation to the 5-5-5 products, to higher impairment charges on loans and receivables in Ireland and a weak dealing room result.
  • It should be noted that all planned divestments in the KBC group (including those that originated from the change to the strategic plan in mid-2011, i.e. Kredyt Bank and Warta in Poland) 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 3Q2011, the Group Centre's net result came to -44 million euros, compared to 81 million euros in the previous quarter. The result was impacted by the -43-million-euro (pre-tax) impairment on Greek bonds (over and above the -36 million euros recorded in the previous quarter) and the divestment of Centea, among other factors.

Substantial negative value adjustments dominate exceptional items.

  • The quarter was also characterised by 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 3Q2011 amounted to a negative 1.3 billion euros. Apart from some smaller items, the main non-operating items in 3Q2011 were:
  • o a valuation markdown of 0.6 billion euros on the CDO exposure (resulting mainly from a widening of corporate and ABS credit spreads).
  • o a negative 0.2 billion euros marked-to-market change in the value of the position in trading derivatives used for hedging purposes, primarily because of a further widening of government spreads.
  • o a positive 0.2 billion euros marked-to-market change regarding KBC's own credit risk.
  • o a negative 0.1 billion euros impairment on goodwill for CIBank in Bulgaria.
  • o a negative 0.6 billion euros as a result of the sales agreements signed for KBC EPB and Fidea.

First nine months of 2011: results per heading (IFRS)

Explanations per heading of the IFRS income statement for the first nine months of 2011 (see summary table on the next page):

  • The IFRS net result for the first nine months of 2011 (further referred to as 9M2011) amounted to -424 million euros, as opposed to +1 136 million euros recorded in the same period of 2010.
  • Net interest income amounted to 4 142 million euros in 9M2011. On an underlying basis and excluding companies that have since been sold, net interest income was up 1% year-on-year. On a comparable basis, the loan book increased by 1% year-on-year. In line with our intention to scale down our international loan book outside our home markets, the loan portfolio contracted by 4% year-on-year in Merchant Banking and by 2% in the Group Centre. On the other hand, the loan books in our core markets of Belgium and CEE, grew by 5% and 3% year-on-year, respectively. Mortgage loans contributed significantly to this growth, with a year-on-year increase of as much as 8% for Belgium and 4% for CEE. Customer deposits rose by 9% in Belgium, by 3% in CEE and fell significantly in Merchant Banking and the Group Centre. The net interest margin remained more or less the same, both in Belgium and in CEE.
  • Net of technical charges and the ceded reinsurance result, technical insurance income came to 379 million euros, up a good 57% on the year-earlier figure. The first nine months of 2011 were characterised by a relatively low level of claims. The combined ratio for the group's non-life insurance companies came to an excellent 90% for 9M2011 (85% in Belgium, 93% in CEE), a significant improvement on the 100% for FY2010.
  • Net fee and commission income amounted to 877 million euros in 9M2011, down 4% on its 9M2010 level. In the period under review, sales of commission-based products remained subdued, and assets under management fell 9% year-onyear to 193 billion euros at the end of September 2011(150 billion euros when excluding KBL EPB), both on account of the negative investment performance and net entry effect.
  • The net result from financial instruments at fair value (trading and fair value income) came to -613 million euros in 9M2011, compared to -506 million euros in 9M2010. On an underlying basis (i.e. excluding exceptional items such as value adjustments to structured credit, 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 371 million euros in 9M2011, down 49% on its year-earlier figure.
  • The remaining income components were as follows: dividend income from equity investments amounted to 70 million euros, the net realised result from available-for-sale assets (bonds and shares) stood at 86 million euros and other net income totalled 53 million euros. This last item has been impacted by a provision of 263 million euros recorded in 3Q2011 for the contingent repayment intention that KBC has provided its retail clients in relation to the 5-5-5 products.
  • Operating expenses amounted to 3 301 million euros in 9M2011, 2% higher than in 9M2010, with such factors as inflation, wage increases and the higher banking tax offsetting the effect of deconsolidated entities. The underlying cost/income ratio for banking – a measure of cost efficiency – stood at 61% in 9M2011, up on the 56% recorded for FY2010 (increase also clearly attributable to the lower level of total income, cf. provisioning for the 5-5-5 product).
  • Total impairment stood at 1 377 million euros in 9M2011. Impairment on loans and receivables amounted to 733 million euros, down on the 990 million euros recorded in 9M2010, notwithstanding the high level recorded in 3Q2011 for Ireland, Hungary and Bulgaria. As a result, the annualised credit cost ratio for 9M2011 came to 0.61%, an improvement on the figure of 0.91% for FY2010. Other impairment charges totalled 644 million euros in 9M2011 (versus 111 million euros in 9M2010) and relate mainly to the impairment recorded on Greek government bonds in the second and third quarters (315 million euros, pre-tax), on shares in the investment portfolio (106 million euros) and on goodwill (79 million euros, related to CIBank in Bulgaria, among other things).
  • Income tax amounted to 245 million euros for 9M2011.
  • At the end of September 2011, total equity came to 17.4 billion euros, a 1.3-billion-euro decrease compared to the start of the year, due mainly to the inclusion of the negative result (-0.4 billion euros) for 9M2011 and the dividend and state coupon paid (-0.9 billion euros, combined). The group's tier-1 capital ratio – a measure of financial strength – stood at a sound 13.6% at end-September 2011.

Extended Quarterly Report – KBC Group – 3Q2011 9

Table of results according to IFRS

A summary of the income statement of KBC Group, based on the International Financial Reporting Standards (IFRS) is given below. A full overview of the IFRS consolidated income statement and balance sheet is provided in the 'Consolidated Financial Statements' section of the 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 trends, KBC also publishes its 'underlying' results (see the following section).

Consolidated income statement according to
IFRS, KBC Group (in millions of EUR)
1Q
2010
2Q
2010
3Q
2010
4Q
2010
1Q
2011
2Q
2011
3Q
2011
4Q
2011
Cumul.
9M2010
Cumul
9M2011
Net interest income 1 519 1 567 1 562 1 598 1 395 1 406 1 341 - 4 647 4 142
Interest income 2 621 2 651 2 627 2 642 3 047 3 195 2 910 - 7 900 9 151
Interest expense -1 103 -1 085 -1 065 -1 045 -1 651 -1 789 - 1569 - -3 253 - 5 009
Earned premiums, insurance (before 1 248 1 144 1 074 1 150 1 141 974 972 - 3 466 3 087
reinsurance)
Technical charges, insurance (before
reinsurance)
-1 163 -1 123 -957 -1 018 -1 012 -840 -812 - -3 243 -2 665
Ceded reinsurance result -9 50 -23 -26 -17 -8 -18 - 18 -43
Dividend income 15 40 21 21 12 41 17 - 76 70
Net result from financial instruments at fair
value through profit or loss
-11 -721 227 429 472 -194 -892 - -506 -613
Net realised result from available-for-sale
assets
19 30 11 29 34 42 10 - 61 86
Net fee and commission income 322 336 259 307 300 297 281 - 917 877
Fee and commission income 549 578 480 549 518 530 480 - 1 607 1 529
Fee and commission expense -227 -242 -221 -242 -218 -233 -200 - -690 -651
Other net income 98 182 65 107 92 110 -149 - 345 53
Total income 2 038 1 504 2 239 2 597 2 416 1 829 749 - 5 781 4 994
Operating expenses -1 072 -1 044 -1 130 -1 190 -1 143 -1 081 -1 077 - -3 246 -3 301 1
Impairment -383 -299 -420 -555 -105 -332 -940 - -1 102 -1 377
on loans and receivables -355 -278 -357 -492 -97 -164 -473 - -990 -733
on available-for-sale assets -1 -16 -5 -9 -6 -118 -223 - -23 -347
on goodwill -27 -1 -13 -47 0 -17 -62 - -41 -79
on other 0 -3 -45 -6 -2 -33 -183 - -48 -218
Share in results of associated companies -2 -9 -5 -46 1 0 -23 - -16 -22
Result before tax 581 153 683 806 1 170 416 -1 292 - 1 418 294
Income tax expense -164 304 -124 -97 -334 -76 165 - 16 -245
Net post-tax result from discontinued operations 31 -302 -7 24 0 0 -445 - -278 -445
Result after tax 448 155 553 733 835 340 -1 571 - 1 156 -396 6
attributable to minority interests 6 6 8 8 14 6 8 - 20 28
attributable to equity holders of the
parent
442 149 545 724 821 333 -1 579 - 1 136 -424
Belgium 283 131 321 453 385 158 -348 - 734 196
Central & Eastern Europe* 146 173 113 178 141 145 -91 - 431 195
Merchant Banking 64 73 173 -138 203 69 -255 - 310 17
Group Centre* -50 -228 -61 231 92 -39 -885 - -339 -831
Earnings per share, basic (EUR) 0.86 0.00 1.17 1.69 1.98 0.54 -5.08 - 2.03 -2.56
Earnings per share, diluted (EUR) 0.86 0.00 1.17 1.69 1.98 0.54 -5.08 - 2.03 -2.56

* The changes in the strategic plan announced in mid-2011 are reflected in the figures for these business unit; all reference figures have been adjusted retroactively.

Highlights, consolidated balance sheet and ratios,
KBC Group (in millions of EUR or %)
31-03-
2010
30-06-
2010
30-09-
2010
31-12-
2010
31-03-
2011
30-06-
2011
30-09-
2011
31-12-
2011
Total assets 340 128 350 232 328 590 320 823 322 493 312 899 305 109 -
Loans and advances to customers* 153 640 157 024 149 982 150 666 147 625 143 182 143 451 -
Securities (equity and debt instruments)* 101 984 95 910 96 876 89 395 88 839 85 144 74 062 -
Deposits from customers and debt certificates* 203 367 205 108 198 825 197 870 192 412 188 116 184 453 -
Technical provisions, before insurance* 23 222 22 384 22 843 23 255 23 870 24 084 21 064 -
Liabilities under investment contracts, insurance* 7 908 6 496 6 488 6 693 6 568 6 638 6 787 -
Parent shareholders' equity 10 677 10 259 11 245 11 147 11 011 11 500 9 834 -
Non-voting core-capital securities 7 000 7 000 7 000 7 000 7 000 7 000 7 000 -
KBC Group ratios (based on underlying results, year-to-date)
Return on equity 11% 6% -
Cost/income ratio, banking 56% 61% -
Combined ratio, non-life insurance 100% 90% -
KBC Group solvency
Tier-1 ratio 12.6% 13.6% -
Core tier-1 ratio 10.9% 11.7% -

* 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.

Table of underlying results

Over and above the figures according to IFRS, KBC provides a number of 'underlying' figures aimed at providing more insight into the business trends. 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. In view of their nature and materiality, it is important to adjust the results for these factors to understand the profit trend fully. A full explanation of the differences between 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, KBC Group,
underlying (in millions of EUR)
1Q
2010
2Q
2010
3Q
2010
4Q
2010
1Q
2011
2Q
2011
3Q
2011
4Q
2011
Cumul.
9M2010
Cumul
9M2011
Net interest income 1 344 1 394 1 406 1 459 1 374 1 390 1 342 - 4 144 4 106
Earned premiums, insurance (before reinsurance) 1 249 1 146 1 075 1 151 1 141 975 972 - 3 470 3 088
Technical charges, insurance (before reinsurance) -1 168 -1 129 -962 -1 022 -1 016 -843 -817 - -3 259 -2 676
Ceded reinsurance result -9 50 -23 -26 -17 -8 -18 - 18 -43
Dividend income 8 36 12 18 8 37 14 - 55 59
Net result from financial instruments at fair value
through profit or loss
320 147 264 124 259 102 10 - 731 371
Net realised result from available-for-sale assets 24 41 6 28 53 42 11 - 71 106
Net fee and commission income 429 454 367 417 399 394 367 - 1 249 1 161
Other net income 85 68 62 -96 73 72 -210 - 215 -64
Total income 2 282 2 205 2 206 2 051 2 274 2 161 1 673 - 6 693 6 107
Operating expenses -1 158 -1 150 -1 214 -1 311 -1 227 -1 155 -1 172 - -3 521 -3 553
Impairment -356 -298 -361 -510 - 105 -333 -740 - -1 015 -1 179
on loans and receivables -355 -278 -356 -492 -97 -164 -475 - -989 -736
on available-for-sale assets -1 -17 -5 -10 -6 -135 -228 - -23 -369
on goodwill 0 0 0 0 0 0 0 - 0 0
on other 0 -3 0 -7 -2 -35 -38 - -3 -75
Share in results of associated companies -1 -9 -5 -46 1 0 -23 - -15 -22
Result before tax 767 749 626 184 943 673 -262 - 2 142 1 353
Income tax expense -218 -189 -173 -7 - 271 -138 22 - -580 -388
Result after tax 549 559 453 177 671 534 -240 - 1 562 966
attributable to minority interests 6 6 8 9 14 6 8 - 20 28
attributable to equity holders of the parent 543 554 445 168 658 528 -248 - 1 542 937
Belgium 279 298 220 255 280 238 32 - 797 551
Central & Eastern Europe* 156 171 84 158 123 146 -40 - 412 229
Merchant Banking 85 121 156 -228 177 63 -196 - 361 43
Group Centre* 24 -36 -15 -16 77 81 -44 - -28 114
Earnings per share, basic (EUR) 1.16 1.19 0.87 0.06 1.50 1.11 -1.17 - 3.23 1.45
Earnings per share, diluted (EUR) 1.16 1.19 0.87 0.06 1.50 1.11 -1.17 - 3.23 1.45

* The changes in the strategic plan announced in mid-2011 are reflected in the figures for these business unit; all reference figures have been adjusted retroactively.

Reconciliation between underlying result
and result according to IFRS
KBC Group (in millions of EUR)
1Q
2010
2Q
2010
3Q
2010
4Q
2010
1Q
2011
2Q
2011
3Q
2011
4Q
2011
Cumul.
9M2010
Cumul
9M2011
Result after tax, attributable to equity
holders of the parent, UNDERLYING
543 554 445 168 658 528 -248 - 1 542 937
+ MTM of derivatives for ALM hedging -57 -179 16 41 96 -77 -245 - -220 -226
+ gains/losses on CDOs 176 326 221 304 124 -86 -618 - 723 -580
+ MTM of CDO guarantee and commitment
fee
-33 -18 -23 6 -10 -22 -10 - -74 -41
+ impairment on goodwill (and associated
companies)
-27 -1 -43 -47 0 -17 -57 - -71 -74
+ result on legacy structured derivative
business (KBC FP)
-126 -210 6 -42 14 43 5 - -330 62
+ MTM of own debt issued -2 33 -34 41 -16 -25 185 - -3 144
+ Results on divestments 0 -338 -44 206 -45 -12 -591 - -382 -647
+ other -32 -18 2 46 0 0 0 - -48 0
Result after tax, attributable to equity
holders of the parent: IFRS
442 149 545 724 821 333 -1 579 - 1 136 -424

Other information

Strategy highlights and main events

  • KBC's core strategy remains centred around bancassurance in Belgium and a selection of countries in CEE (Czech Republic, Slovakia, Hungary and Bulgaria). In line with its strategic plan, which was amended in July 2011 (the intended IPO of a minority share in ČSOB was replaced by the divestment of Kredyt Bank and Warta in Poland, among other things), the group is continuing with the sale or run-down of a number of (non-core) activities (see further).
  • In 3Q2011, we continued to implement our strategic refocusing plan:
  • o On 1 July 2011, the sale of Centea to Crédit Agricole (Belgium) was closed. This deal freed up around 0.4 billion euros of capital for KBC, primarily by reducing risk-weighted assets by 4.2 billion euros, which boosted KBC's tier-1 ratio by around 0.4%. The gain on the deal is limited.
  • o On 3 August 2011, it was announced that KBC Securities had divested its operations in Serbia and Romania, after reaching an agreement on management buy-outs with local management (very limited impact on the earnings and capital of the group).
  • o On 10 August 2011, the sale of KBC Asset Management's 55.46% stake in KBC Concord Asset Management Co. Ltd. to Value Partners Ltd. was closed (very limited impact on the earnings and capital of the group).
  • o On 10 October 2011, KBC reached an agreement with Precision Capital for the sale of its private banking subsidiary KBL European Private Bankers ('KBL EPB') for a total consideration of 1 050 million euros (50 million of which depends on the results of KBL EPB ('conditional earn out')). The transaction will release a total of approximately 0.7 billion euros in capital for KBC, resulting in a 0.6 % increase in KBC's tier-1 ratio. In addition, over the last 18 months, some 115 million euros in capital has already been released as a result of a reduction in risk-weighted assets. The transaction impacted the 3Q2011 results to the tune of approximately -0.4 billion euros. Closure of the transaction is subject to the customary regulatory approval.
  • o On 17 October 2011, KBC reached an agreement with J.C. Flowers & Co. for the sale of its subsidiary Fidea for a total consideration of 243.6 million euros, including a 22.6 million euros pre-completion dividend and subject to pricing adjustments on closing accounts. In total, this deal will free up around 0.1 billion euros in capital for KBC, primarily by reducing risk-weighted assets by 1.8 billion euros. The overall positive impact on KBC's tier-1 ratio is around 0.1%. The transaction impacted the results to the tune of roughly -0.1 billion euros. Closure of the transaction is subject to the customary regulatory approval.
  • o A number of companies are still scheduled for divestment. The sales processes for Kredyt Bank, Warta and KBC Bank Deutschland have started, and the files for the sales process for Antwerp Diamond Bank are being prepared.
  • o KBC's main objective in this respect is and remains to implement the plan within the agreed timeframe and to repay the Belgian authorities in a timely manner. KBC also intends to maintain a regulatory tier-1 capital ratio of 11%, according to Basel II banking capital adequacy rules.
  • Other main events in 3Q2011:
  • o The deteriorating credit position of Greece in the financial markets led to an impairment of an additional 126 million euros (after tax) being recorded on our Greek government bond portfolio (fully recognised at 58% of the nominal amount), while a provision of 174 million euros (after tax) was set aside for the contingent repayment intention that KBC has provided its retail clients in relation to the 5-5-5 products.
  • o During September, the bill on FX debt rescheduling became law in Hungary. Although the matter has been taken to the Constitutional Court in Budapest, KBC has recorded an impairment of 74 million euros (after tax) on this portfolio, reflecting an anticipated 20% participation rate in the scheme.
  • o In Bulgaria, a thorough evaluation of the underlying asset values has led to an impairment of 96 million euros being recorded. An impairment of 53 million euros has also been recorded on the goodwill for CIBank.
  • o Following the stock market downturn, impairment of 87 million euros (before and after tax) had to be recorded on the share portfolio.
  • o Given that the economy and Irish marketplace have not improved in the way we envisaged and that the austerity measures have had a considerable impact on households, a loan loss provision of 164 million euros (after tax) was recorded for the Irish loan book.
  • o The substantial widening of corporate ABS credit spreads between end-June and end-September resulted in a valuation markdown of 0.6 billion euros (after tax) on the CDO exposure.
  • o The considerable widening of government spreads between end-June and end-September resulted in a negative 0.2 billion euros (after tax) marked-to-market change in the value of the position in trading derivatives used for hedging purposes.
  • o The widening of KBC's credit spread between end-June and end-September resulted in a positive 0.2 billion euros (after tax) marked-to-market change regarding KBC's own credit risk.
  • o Under the preliminary EBA exercise based on data as at the end of June (see press release of 27 October 2011), both KBC group and KBC Bank complied with the 9% core tier-1 threshold as determined by the EBA (capital position according to Basel2.5, corrected with the marked-down sovereign exposures based on market prices as at 30 September 2011). The preliminary capital buffer as identified at the end of June is sufficient to cover 3Q11 results. An update of the outcome of the EBA exercise based on positions and market prices as of 30 September is expected to be published in November 2011.

  • o We have also acted to reduce volatility in our results. During the third quarter, our CDO exposure was reduced by 2.5 billion euros, which constitutes a 12% decline in the notional amount outstanding. This was achieved by early terminations and sales at limited cost. During the third quarter, our ABS exposure was reduced by 0.7 billion euros, which constitutes a 17% decline in the notional amount outstanding. This was achieved by sales at limited cost.

  • o KBC responded to the market developments of recent months by further reducing in an efficient manner its government bond exposure to PIIGS countries, cutting it from 9.6 billion euros at 30 June 2011 to 6.7 billion euros at 30 September 2011. Moreover, KBC has since further reduced its exposure by a nominal amount of 1.6 billion euros (by the end of October).
  • o The Belgian regulator has confirmed to us that the YES (Yield Enhanced Securities) will be fully grandfathered as common equity under the current CRD4 proposal.

Statement of risk

  • Mainly active in banking, insurance and asset management, KBC Group 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.
  • For the remainder of 2011 and early 2012, the main risk for economic growth is the potential for further contagion of the financial crisis to the real economy. In particular, a credible and sustainable solution for the EMU sovereign debt problem is necessary to restore general confidence and stabilise the financial sector.

The financial calendar, including the dates of earnings releases as well as analysts and investor meetings, is available at www.kbc.com.

Analysis of underlying earnings components KBC Group, 3Q2011 Unless otherwise specified, all amounts are given in euros

Please note that the breakdown of results by business unit in this report is based on the situation after the changes to the strategic plan (approved on 27 July 2011), whereby all reference figures have been adjusted retroactively.

Analysis of total income (underlying figures)

Total income, underlying (in millions of EUR) 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Net interest income 1 344 1 394 1 406 1 459 1 374 1 390 1 342 -
Earned premiums, insurance (before reinsurance) 1 249 1 146 1 075 1 151 1 141 975 972 -
Non-life 489 480 495 451 451 468 477 -
Life 760 666 580 699 691 507 496 -
Technical charges, insurance (before reinsurance) -1 168 -1 129 -962 -1 022 -1 016 -843 -817 -
Non-life -330 -378 -307 -234 -234 -245 -259 -
Life -838 -751 -655 -788 -782 -599 -557 -
Ceded reinsurance result -9 50 -23 -26 -17 -8 -18 -
Dividend income 8 36 12 18 8 37 14 -
Net result from financial instruments at fair value
through profit or loss
320 147 264 124 259 102 10 -
Net realised result from available-for-sale assets 24 41 6 28 53 42 11 -
Net fee and commission income 429 454 367 417 399 394 367 -
Banking 542 547 470 510 497 488 468 -
Insurance -113 -93 -104 -93 -98 -93 -101 -
Other net income 85 68 62 -96 73 72 -210 -
Total income 2 282 2 205 2 206 2 051 2 274 2 161 1 673 -
Belgium 818 864 768 868 845 864 692 -
Central & Eastern Europe 538 541 540 557 556 537 538 -
Merchant Banking 482 361 495 202 469 340 105 -
Group Centre 444 439 403 425 404 420 338 -

Net interest income in the quarter under review amounted to 1 342 million.

This was, at first sight, down some 5% on its year-earlier level. However, excluding the effect of divestments (including Centea), net interest income was more or less stable year-on-year. The net interest margin widened by 6 basis points yearon-year to 1.98% in 3Q2011. On a comparable basis, the group's total loan portfolio was slightly up (+1%) on its year-earlier level, and deposits decreased by 4%. The situation was very different at business unit level: whereas the loan books of the Merchant Banking Business Unit and the Group Centre are being run down intentionally (resulting in a 4% and 2% year-onyear decrease, respectively), the loan book of the Belgium and CEE Business Units are expanding (+5% for the Belgian retail loan book and +3% for the four combined core CEE loan books). Roughly the same situation applies for the year-onyear change in customer deposits: significant decreases in the Merchant Banking Business Unit and the Group Centre, and an increase in the Belgium (+9%) and CEE Business Units (+3%).

Compared to the previous quarter (2Q2011), net interest income was down 3%. However, it was stable quarter-on-quarter, when the effect of divestments (Centea) is excluded. Quarter-on-quarter movements in loan book and deposit volumes were clearly more limited. However, here too, credit and deposit volumes increased in Belgium and CEE. The net interest margin was flat in the quarter under review.

Earned insurance premiums amounted to 972 million in 3Q2011, which breaks down into 496 million for life insurance and 477 million for non-life insurance.

Compared to 3Q2010, non-life premium income was up 7% (Secura was excluded from the comparison, since it was sold in 4Q2010). Thanks in part to a relatively low claims level, the non-life combined ratio for the first nine months of the year stood at a very good 90%, a significant improvement on the 100% recorded for FY2010. The 9M2011 combined ratio breaks down into an excellent 85% for Belgium and a good 93% for CEE (significantly better than the 103% for FY2010, which was impacted by the storms and floods in the region). Compared to 2Q2011, non-life premium income was up 2%.

Earned premiums for life insurance under IFRS exclude certain types of life insurance contracts (simplified, the unit-linked contracts). When these contracts are included, total life insurance sales amounted to almost 1.1 billion in the quarter under review. Compared to 3Q2010 and 2Q2011, this figure was up 27% and 8%, respectively, thanks in both cases to increased sales of unit-linked insurance in Belgium and CEE in the quarter under review. As a result, sales of interest-guaranteed products for the group as a whole accounted for 52% of life insurance sales in 9M2011, while unit-linked insurance products increased their share to 48%.

Net fee and commission income stood at 367 million in 3Q2011.

This is virtually unchanged on its weak year-on-year level and down 7% quarter-on-quarter. A relatively low level of fee income was generated by the asset management business in the quarter under review (lower management fees and lower entry fees for mutual funds), which is clearly related to investors losing their appetite for risk. At end-September 2011, total assets under management of the group stood at 193 billion (150 billion excluding KBL EPB), 5% less than three months ago and 9% less than one year ago, in both cases due to a combination of negative net entries and a negative price effect.

The other income components were as follows: dividend income amounted to 14 million (down on 2Q2011, as the bulk of dividends is traditionally received in the second quarter) , trading and fair value income ('Net result from financial instruments at fair value') amounted to a very low 10 million (modest dealing room result), the realised result on available-for-sale assets stood at 11 million (down on the average of 32 million for the last four quarters) and other net income amounted to -210

million. The latter figure was negatively impacted by a 263 million provision related to the 5-5-5 investment product (see the 'Report on 3Q and 9M2011' section of this report).

As usual, the underlying figures exclude a number of non-operating items, such as the fair value changes in ALM hedging instruments (a negative amount in 3Q2011), the CDO-related impact (a significant negative amount), fair value changes in own debt instruments (a positive amount), results related to divestments (mainly KBL EPB and Fidea; a significant negative amount), etc. A full overview of these items is provided in the table 'Reconciliation between underlying result and result according to IFRS' in the first part of this report, while the impact for each business unit is summarised separately in the following section of the report.

Analysis of costs and impairment (underlying figures)

Operating expenses, underlying (in millions of EUR) 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Staff expenses -691 -674 -697 -745 -694 -701 -719 -
General administrative expenses -371 -382 -422 -468 -444 -366 -367 -
Depreciation and amortisation of fixed assets -96 -94 -95 -97 -89 -87 -86 -
Operating expenses -1 158 -1 150 -1 214 -1 311 -1 227 -1 155 -1 172 -
Belgium -407 -394 -414 -488 -429 -446 -462 -
Central & Eastern Europe -264 -270 -339 -310 -350 -302 -297 -
Merchant Banking -140 -137 -142 -157 -152 -142 -143 -
Group Centre -346 -349 -320 -355 -296 -265 -269 -

Operating expenses amounted to 1 172 million in the quarter under review and remain under control.

At first sight, costs were down 3% on their 3Q2010 level. However, this comparison is distorted by the fact that Hungary's special bank tax for FY2010 was booked in 3Q2010 (whereas the amount for FY2011 was recorded in 1Q2011). Excluding this element, costs were slightly up (+1%) year-on-year, which was due largely to such offsetting elements as slightly higher staff expenses (wage increases, inflation), voluntary redundancy costs, changes in the scope of consolidation (Centea, KBC Peel Hunt, etc.), among other factors.

Compared to the previous quarter, costs increased by 1%, due mainly to the above-mentioned voluntary redundancy costs, increased staff expenses, changes in the scope of consolidation (Centea), etc. Broken down by business unit, quarter-onquarter costs increased by 4% in the Belgium Business Unit (stable, excluding voluntary redundancy costs in 3Q2011), decreased by 1% on an organic basis in the CEE Business Unit and remained virtually unchanged in the Merchant Banking Business Unit.

As a result, the cost/income ratio (operating expenses versus total income) of the group's banking activities stood at 61% in the first nine months of the year, up on the FY2010 level (56%) though this was partly caused by the drop in total income (the denominator in the formula). Excluding the impact of provisioning for 5-5-5 products, the cost/income ratio would have amounted to 58% in 9M2011. The 9M2011 cost/income ratio breaks down per business unit as follows: 64% for Belgium, 57% for CEE and 48% for Merchant Banking.

Impairment, underlying (in millions of EUR) 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Impairment on loans and receivables -355 -278 -356 -492 -97 -164 -475 -
Impairment on available-for-sale assets -1 -17 -5 -10 -6 -135 -228 -
Impairment on goodwill 0 0 0 0 0 0 0 -
Impairment on other 0 -3 0 -7 -2 -35 -38 -
Impairment -356 -298 -361 -510 -105 -333 -740 -
Belgium -3 -39 -27 -35 -15 -74 -165 -
Central & Eastern Europe -89 -82 -113 -66 -52 -96 -280 -
Merchant Banking -219 -91 -130 -355 -57 -112 -215 -
Group Centre -44 -86 -91 -55 19 -51 -81 -

In 3Q2011, total impairment charges stood at 740 million.

Impairment on loans and receivables (loan loss provisions) stood at 475 million. This is a significant increase on both the 356 million recorded in the year-earlier quarter and the 164 million recorded in 2Q2011, as the quarter under review included a substantial impairment charge for Hungary (some 92 million related to the impact of the new legislation for forex mortgage loans; calculation based on a 20% participation rate), Bulgaria (96 million) and Ireland (187 million).

Overall, this led to a credit cost ratio of 61 basis points for the first nine months, still below the 91 basis points recorded for FY2010. The credit cost ratio for 9M2011 breaks down as follows: a (continued) excellent low level of 9 basis points for the Belgium Business Unit, 144 basis points for CEE, 90 basis points for Merchant Banking and 9 basis points for the Group Centre (including all companies to be divested). At the end of September 2011, non-performing loans accounted for some 4.6% of the total loan book, somewhat up on the 4.3% registered three months earlier.

Other impairment in the quarter under review totalled 265 million and related mainly to impairment on shares in portfolio (87 million, because of falling stock markets) and to additional impairment on Greek government bonds (a further marking down of these bonds to market value as at 30 September 2011 resulted in an additional 176 million impairment being recorded in 3Q2011, over and above the 139 million that had been booked for Greece in 2Q2011). It should be noted that impairment on goodwill booked on group companies is always excluded from the underlying results, and hence it is always zero in the table above.

Analysis of other earnings components (underlying figures)

Other components of the result, underlying
(in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Share in result of associated companies -1 -9 -5 -46 1 0 -23 -
Income tax expense -218 -189 -173 -7 -271 -138 22 -
Minority interests in profit after tax 6 6 8 9 14 6 8 -

The share in the results of associated companies was -23 million in the quarter under review (this item traditionally includes the result of KBC's minority participation in NLB in Slovenia). Underlying group tax amounted to a positive 22 million in 3Q2011 (cf. the negative pre-tax result) and minority interests in the result amounted to 8 million, in line with the reference quarters.

Underlying results per business unit KBC Group, 3Q2011 .

Unless otherwise specified, all amounts are given in euros.

In order to create more transparency and to avoid substantial quarter-on-quarter distortion in the results of the business units upon each divestment, 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. Please note that the breakdown of results by business unit in this report is based on the situation after the changes to the strategic plan (approved on 27 July 2011), whereby all reference figures have been adjusted retroactively. More information is provided in the CEE Business Unit and Group Centre sections.

Belgium Business Unit (underlying trend)

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, Secura (now sold), KBC Group Re (the former Assurisk) and VAB). It should be noted that the entities that are earmarked for divestment under the strategic plan (Centea, now sold, and Fidea, sale agreement already signed) are not included here, but grouped together in the Group Centre.

Income statement, Belgium Business Unit,
underlying (in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Net interest income 550 562 553 577 567 581 581 -
Earned premiums, insurance (before reinsurance) 839 721 631 694 615 512 473 -
Technical charges, insurance (before reinsurance) -823 -721 -608 -699 -593 -507 -436 -
Ceded reinsurance result -4 10 -12 -5 -8 -1 -11 -
Dividend income 5 25 8 13 6 26 9 -
Net result from financial instruments at fair value
through profit or loss
21 25 9 6 10 12 10 -
Net realised result from available-for-sale assets 2 13 -5 42 22 24 7 -
Net fee and commission income 193 207 170 201 186 178 169 -
Other net income 35 23 24 38 41 37 -110 -
Total income 818 864 768 868 845 864 692 -
Operating expenses -407 -394 -414 -488 -429 -446 -462 -
Impairment -3 -39 -27 -35 -15 -74 -165 -
on loans and receivables -2 -25 -21 -33 -11 -16 -10 -
on available-for-sale assets -1 -13 -7 -2 -4 -53 -142 -
on goodwill 0 0 0 0 0 0 0 -
on other 0 0 0 0 0 -5 -13 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 408 432 327 346 402 344 65 -
Income tax expense -127 -133 -106 -91 -121 -105 -32 -
Result after tax 280 299 222 255 281 238 33 -
attributable to minority interests 2 1 1 0 1 0 1 -
attributable to equity holders of the parent 279 298 220 255 280 238 32 -
Banking 197 221 156 151 175 147 64 -
Insurance 81 77 64 103 106 91 -32 -
Risk-weighted assets, group (end of period, Basel II) 29 038 28 609 28 358 28 744 29 104 29 158 29 161 -
of which banking 18 293 17 699 17 288 17 669 18 086 18 013 17 988 -
Allocated equity (end of period, Basel II) 2 771 2 741 2 726 2 751 2 775 2 786 2 787 -
Return on allocated equity (ROAC, Basel II) 39% 42% 30% 35% 39% 32% 3% -
Cost/income ratio, banking 53% 48% 57% 62% 57% 60% 77% -
Combined ratio, non-life insurance 90% 96% 96% 103% 74% 89% 95% -

These underlying figures exclude exceptional items. A table reconciling the underlying result and the result according to IFRS is provided below (amounts are after taxes and minority interests).

Reconciliation between underlying result and result
according to IFRS
Belgium Business Unit (in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Result after tax, attributable to equity holders of the
parent: underlying
279 298 220 255 280 238 32 -
+ MTM of derivatives for ALM hedging -31 -124 1 11 57 -56 -213 -
+ gains/losses on CDOs 40 -51 103 113 49 -20 -165 -
+ MTM of CDO guarantee and commitment fee -5 -3 -4 1 -1 -4 -2 -
+ impairment on goodwill 0 0 0 -6 0 0 0 -
+ result on divestments 0 0 0 79 0 0 0 -
+ other 0 11 0 0 0 0 0 -
Result after tax, attributable to equity holders of the
parent: IFRS
283 131 321 453 385 158 -348 -

In the quarter under review, the Belgium Business Unit generated an underlying profit of 32 million, significantly below the average of 248 million for the last four quarters, as the current quarter has been considerably impacted by the booking of a provision for the 5-5-5 investment product (132 million pre-tax) and an additional impairment on Greek government bonds (79 million, pre-tax) and on shares (77 million, pre-tax).

Net interest income performing well; credit and deposit volumes increasing

Net interest income stood at 581 million in the quarter under review, unchanged on the level recorded in the previous quarter and up almost 7% on the year-earlier quarter (in the latter comparison, we have excluded Secura, which was sold in 4Q2010). The year-on-year increase was due mainly to higher interest income from loans and deposits. At 1.43%, the net interest margin of the bank in Belgium remained stable compared to its quarter-earlier and year-earlier levels. In line with the group's refocus on its home markets, the Belgian retail loan book increased by 5% year-on-year (2% in the last three months), with mortgage loans remaining an important driver of this volume growth (+8% year-on-year). Customers' deposits increased by 9% year-on-year (3% in the last three months).

Excellent year-to-date combined ratio for the non-life business; increased sales of unit-linked life insurance products

Earned insurance premiums in the quarter under review amounted to 473 million and break down into 252 million for life insurance and 221 million for non-life insurance.

Non-life sales went up 3% compared to the previous quarter and 2% on the year-earlier quarter (comparison excludes Secura). Notwithstanding the impact of some storm damage in 3Q2011, the overall claims level for 9M2011 remained favourable, which resulted in an excellent combined ratio of 85% for the first nine months of the year, a further improvement on the already good 95% registered for FY2010.

Life sales, including unit-linked products (which – simplified – are not included in the premium figures under IFRS), amounted to 0.7 billion in 3Q2011, significantly up on their level in 2Q2011 and 3Q2010. In both cases, the decrease in the sales of interest-guaranteed products was more than offset by a strong increase in sales of unit-linked insurance products (successful issuance of KBC Life MI products). As a result, interest-guaranteed products and unit-linked products each accounted for roughly half of life insurance sales in the first nine months of 2011. At the end of September 2011, the life reserves of this business unit amounted to 21.8 billion.

Rather weak asset management related fee and commission income

Total net fee and commission income amounted to 169 million in the quarter under review, down 5% on the previous and year-earlier quarters (the latter comparison excludes Secura). Both decreases were again largely attributable to the asset management business, which generated lower entry and management fees on mutual funds, due to the more difficult investment climate in general and a further decline in assets under management in particular. The overall drop in net fee and commission income was mitigated somewhat by a higher margin generated by increased sales of unit-linked insurance products (under IFRS, the margin on these products is included in net fee and commission income). At 30 September 2011, assets under management of this business unit stood at 138 billion, down 4% quarter-on-quarter and 9% year-on-year, in both cases due to a combination of a negative net entry and price effect.

Other income components: provision for 5-5-5 product impacts 'Other net income'

Trading and fair value income (recorded under 'Net result from financial instruments at fair value') came to 10 million in the quarter under review, in line with the average of the last four quarters. Dividend income stood at 9 million, down on its 2Q2011 level, as dividends are traditionally received in the second quarter of the year. The realised result on available-forsale assets amounted to 7 million (including the result of the sale of some PIIGS government bonds), down on the average of 21 million for the last four quarters. Other net income came to -110 million in 3Q2011, and was adversely impacted by the booking of a provision for the 5-5-5 investment product (see 'Report on 3Q and 9M2011' section of this report), 132 million of which was assigned to the Belgium Business Unit.

Costs up somewhat due to voluntary redundancy charges

The operating expenses of the Belgium Business Unit stood at 462 million in the quarter under review, 4% higher than the level recorded in the previous quarter, owing mainly to increased charges related to voluntary redundancies (stable excluding this element). Costs were 13% higher than the year-earlier quarter (excluding Secura), roughly half of which was due to technical elements and the remainder to higher staff costs, the higher contribution to the deposit guarantee scheme and increased charges related to voluntary redundancies. The cost/income ratio for the first nine months of the year stood at 64% (excluding the provisions for the 5-5-5 product from the denominator, the cost-income ratio was 59%), as opposed to 55% for FY2010.

Very low loan loss provisions, but significant additional impairment on Greek government bonds

As was the case in previous quarters, loan loss impairment on the Belgian retail loan book remained at a low level (10 million in the quarter under review, a further reduction on the 16 million in the previous quarter). This resulted in a very favourable annualised credit cost ratio of 9 basis points for the first nine months of the year, down on the 15 basis points recorded for FY2010. At the end of 3Q2011, around 1.6% of the Belgian retail loan book was non-performing, in line with the figure recorded three months earlier (1.5%).

The other impairment charges amounted to 155 million in the quarter under review and mainly related to shares (77 million, due to the stock market downturn) and Greek government bonds (additional impairment of 79 million, over and above the 45 million recorded in the previous quarter).

CEE Business Unit (underlying trend)

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, Żagiel (consumer finance in Poland) and Kredyt Bank and Warta (both Poland*) are not included here, but grouped together in the Group Centre.

* Please note that the impact of the recent changes to the strategic plan are included in this report. Hence, Poland (Warta and Kredyt Bank) has been shifted to the Group Centre and the portion of ČSOB's results related to the originally planned IPO of a minority stake in this company, which used to be included in Group Centre, has been included in the CEE Business Unit again (hence, this business unit now includes ČSOB's results in their entirety). All reference figures have been adjusted to enhance comparability.

Income statement, CEE Business Unit, underlying
(in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Net interest income 366 376 385 400 385 381 388 -
Earned premiums, insurance (before reinsurance) 156 184 148 169 241 163 182 -
Technical charges, insurance (before reinsurance) -115 -156 -109 -123 -189 -115 -135 -
Ceded reinsurance result -5 0 -3 -3 -5 -4 -6 -
Dividend income 0 1 0 0 0 1 1 -
Net result from financial instruments at fair value
through profit or loss
38 29 38 49 33 14 5 -
Net realised result from available-for-sale assets 7 11 5 -11 6 3 6 -
Net fee and commission income 81 78 72 76 76 86 84 -
Other net income 9 17 3 1 9 9 13 -
Total income 538 541 540 557 556 537 538 -
Operating expenses -264 -270 -339 -310 -350 -302 -297 -
Impairment -89 -82 -113 -66 -52 -96 -280 -
on loans and receivables -89 -80 -112 -59 -51 -42 -234 -
on available-for-sale assets 0 0 0 0 0 -52 -45 -
on goodwill 0 0 0 0 0 0 0 -
on other 0 -2 0 -7 -1 -2 0 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 186 188 88 181 154 139 -39 -
Income tax expense -29 -17 -4 -23 -31 8 -1 -
Result after tax 156 171 84 158 123 147 -40 -
attributable to minority interests 0 0 0 0 0 0 0 -
attributable to equity holders of the parent 156 171 84 158 123 146 -40 -
Banking 145 167 83 145 113 136 -43 -
Insurance 11 4 2 13 10 11 3 -
Risk-weighted assets, group (end of period, Basel II) 26 154 25 097 24 927 24 771 25 607 25 810 26 062 -
of which banking 24 778 23 719 23 528 23 376 24 140 24 300 24 541 -
Allocated equity (end of period, Basel II) 2 175 2 090 2 078 2 065 2 137 2 155 2 176 -
Return on allocated equity (ROAC, Basel II) 24% 28% 12% 26% 19% 22% -11% -
Cost/income ratio, banking 48% 48% 61% 55% 63% 55% 53% -
Combined ratio, non-life insurance 97% 110% 110% 96% 88% 89% 101% -

These underlying figures exclude exceptional items. A table reconciling the underlying result and the result according to IFRS is provided below (amounts are after taxes and minority interests).

Reconciliation between underlying result and result
according to IFRS
CEE Business Unit (in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Result after tax, attributable to equity holders of the
parent: underlying
156 171 84 158 123 146 -40 -
+ MTM of derivatives for ALM hedging -17 -24 31 21 22 -1 2 -
+ gains/losses on CDOs 6 26 -2 -1 2 0 0 -
+ MTM of CDO guarantee and commitment fee 0 0 0 0 0 0 0 -
+ impairment on goodwill 0 0 0 0 0 -1 -53 -
+ result on divestments 0 0 0 0 -5 1 0 -
+ other 0 0 0 0 0 0 0 -
Result after tax, attributable to equity holders of the
parent: IFRS
146 173 113 178 141 145 -91 -

The change in the average exchange rate against the euro of the main currencies in the region compared to both reference quarters is provided in the table. In order not to distort the comparison, the 'organic' growth figures mentioned below exclude this impact of changes in exchange rates.

CEE average exchange rate changes
+: appreciation against the euro
-: depreciation against the euro
CZK
Czech Rep.
EUR
Slovakia
HUF
Hungary
BGN
Bulgaria
3Q2011 / 2Q2011 +1% - -3% 0%
3Q2011 / 3Q2010 +3% - +4% 0%

In the quarter under review, the CEE Business Unit generated an underlying net result of -40 million, significantly below the average figure of +128 million for the last four quarters, due mainly to higher loan loss impairment in Hungary (92 million pre-tax, related to forex loans) and Bulgaria (96 million booked at KBC Group level, pre-tax) and an additional impairment on Greek Government bonds (45 million, pre-tax). It should be remembered that Poland is no longer included in the CEE Business Unit (shifted to Group Centre, with retroactive impact)

The CEE Business Unit's net result for 3Q2011 breaks down as follows: 116 million for the Czech Republic, 13 million for Slovakia, -50 million for Hungary (due to additional loan loss provisions for forex loans – see further), 1 million for Bulgaria and -120 million included under 'Other results' (including also the booking for Bulgaria at KBC Group level) .

Net interest income roughly stable

Net interest income generated in this business unit amounted to 388 million in the quarter under review. On an organic basis, this represents a 2% increase on the previous quarter and a 2% decline on the year-earlier quarter. Excluding the foreign currency impact, the net interest margin remained more or less stable compared to both reference quarters (3.33% in 3Q2011). As regards volumes, the combined loan book for the business unit was up 3% year-on-year and customer deposits increased by the same percentage. Movements were more marked at country level, with significant year-on-year increases in the Czech and Slovak loan books being partially offset by decreases in Hungary and Bulgaria.

Life insurance sales up; combined ratio in the non-life business remains favourable in 9M2011

Earned insurance premiums in the quarter under review amounted to 182 million, which breaks down into 95 million for life insurance and 87 million for non-life insurance.

On an organic basis, non-life premium income was up 4% quarter-on-quarter (thanks mainly to the Czech Republic and Hungary) and 5% year-on-year (thanks mainly to Hungary). Notwithstanding a deterioration in the third quarter, the year-todate combined ratio for the first nine months of the year still stood at a favourable 93%, well below the high 103% recorded for FY2010, which had been impacted by storms and floods in the region. Moreover, the combined ratio for 9M2011 remained well below 100% in each of the four CEE countries.

Life sales, including insurance products not booked under earned premiums under IFRS, amounted to 106 million in the quarter under review, roughly 20% and 40% up on the previous and year-earlier quarters, thanks mainly to increased sales of unit-linked products in the Czech Republic. In the first nine months of the year, interest-guaranteed life products accounted for some one-third of life insurance sales, with unit-linked products accounting for the remaining two thirds. At the end of 3Q2011, the outstanding life reserves in this business unit stood at 1.6 billion.

Net fee and commission income more or less in line with reference quarters

Net fee and commission income amounted to 84 million in the quarter under review, which is only slightly below the previous quarter's figure (-2%, on an organic basis), and – excluding technical items – slightly up on the year-earlier figure. Total assets under management of this business unit amounted to 11 billion at end-September 2011, down on their quarter-onquarter and year-on-year levels, due mainly to a negative price effect.

Other income components: low trading and fair value income

Trading and fair value income (recorded under 'Net result from financial instruments at fair value') came to 5 million, well below the average of 34 million for the last four quarters. The net realised result from available-for-sale assets amounted to 6 million, while dividend income came to 1 million and other net income to 13 million.

Costs more or less in line with reference quarters

The operating expenses of this business unit came to 297 million. In organic terms, this was 1% less than costs in the previous quarter. At first sight, costs fell 14% on their 3Q2010 level, but this was attributable to the Hungarian banking tax for FY2010 being booked in 3Q2010 (the FY2011 banking tax was booked in the first quarter of 2011) and a technical element; excluding these items, costs were more or less unchanged year-on-year. The cost/income ratio of the CEE banking activities stood at 57% for the first nine months of the year, compared to 53% for FY2010.

Loan loss provisions increase in Hungary and Bulgaria; additional impairment on Greek government bonds

In the quarter under review, impairment on loans and receivables (loan losses) stood at a high 234 million, considerably up on both 2Q2011 (42 million) and 3Q2010 (112 million).The increase related mainly to Hungary (where loan loss provisions went up 126 million in 3Q2011, 92 million of which attributable to the effect of the new legislation on forex loans in that country; the calculation takes into account a 20% participation rate relating to the repayment option) and Bulgaria (KBC performed an in-depth evaluation of its Bulgarian assets for which the Group has booked an additional impairment of 96 million euros). In the Czech Republic and Slovakia, on the other hand, loan loss provisions in 3Q2011 decreased compared to both the previous and year-earlier quarters. As a result, the annualised credit cost ratio of this business unit amounted to 144 basis points for the first nine months of the year, compared to 116 basis points recorded for FY2010. At the end of 3Q2011, non-performing loans accounted for some 5.7% of the CEE loan book, in line with the 5.6% recorded three months earlier.

Impairment on assets other than loans and receivables amounted to 45 million and related entirely to additional impairment on Greek Government bonds (over and above the 53 million recorded in 2Q2011).

Breakdown per country

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

Income statement, Czech Republic,
underlying (in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Net interest income 240 250 257 276 259 261 268 -
Earned premiums, insurance (before reinsurance) 91 121 88 102 178 96 119 -
Technical charges, insurance (before reinsurance) -67 -96 -67 -74 -151 -71 -92 -
Ceded reinsurance result -4 -4 -1 -3 -2 -2 -3 -
Dividend income 0 1 0 0 0 1 1 -
Net result from financial instruments at fair value
through profit or loss
21 6 8 19 26 12 -1 -
Net realised result from available-for-sale assets 3 7 5 -11 5 3 6 -
Net fee and commission income 46 47 42 42 42 49 50 -
Other net income 7 7 -1 0 4 2 9 -
Total income 337 341 331 350 361 351 357 -
Operating expenses -134 -145 -154 -170 -158 -165 -169 -
Impairment -31 -38 -46 -31 -18 -65 -52 -
Of which on loans and receivables -31 -36 -46 -25 -18 -13 -9 -
Of which on available-for-sale assets 0 0 0 0 0 -52 -43 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 171 158 131 148 185 121 136 -
Income tax expense -26 -16 -11 -22 -28 -13 -19 -
Result after tax 146 142 120 127 157 108 116 -
attributable to minority interests 0 0 0 0 0 0 0 -
attributable to equity holders of the parent 146 142 120 127 157 108 116 -
banking 135 132 114 119 148 101 112 -
insurance 11 10 5 8 8 7 5 -
Risk-weighted assets, group (end of period, Basel II) 14 833 14 001 13 582 13 496 13 854 13 937 14 342 -
of which banking 14 060 13 229 12 790 12 707 13 015 13 080 13 477 -
Allocated equity (end of period, Basel II) 1 233 1 166 1 134 1 127 1 159 1 166 1 199 -
Return on allocated equity (ROAC, Basel II) 40% 40% 34% 37% 46% 30% 32% -
Cost/income ratio, banking 40% 42% 46% 48% 43% 46% 46% -
Combined ratio, non-life insurance 92% 98% 103% 92% 87% 91% 97% -
Income statement, Slovakia,
underlying (in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Net interest income 51 52 54 53 48 46 48 -
Earned premiums, insurance (before reinsurance) 21 19 18 20 19 20 16 -
Technical charges, insurance (before reinsurance) -15 -21 -9 -14 -13 -14 -9 -
Ceded reinsurance result 0 6 -4 0 -1 0 -1 -
Dividend income 0 0 0 0 0 0 0 -
Net result from financial instruments at fair value
through profit or loss 7 2 5 2 3 1 -3 -
Net realised result from available-for-sale assets 0 0 0 0 0 0 0 -
Net fee and commission income 8 8 7 9 11 10 9 -
Other net income 1 0 2 -1 2 4 1 -
Total income 71 66 74 68 70 67 60 -
Operating expenses -39 -41 -39 -40 -40 -42 -39 -
Impairment -16 -13 -12 -11 -1 -8 -5 -
Of which on loans and receivables -17 -13 -12 -11 -1 -7 -3 -
Of which on available-for-sale assets 0 0 0 0 0 0 -2 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 16 11 23 17 29 17 16 -
Income tax expense -3 -4 -5 -4 -5 0 -4 -
Result after tax 13 7 18 13 24 18 13 -
attributable to minority interests 0 0 0 0 0 0 0 -
attributable to equity holders of the parent 13 7 18 13 24 18 13 -
banking 11 6 17 11 19 15 13 -
insurance 2 1 2 2 6 3 0 -
Risk-weighted assets, group (end of period, Basel II) 4 056 4 133 4 139 4 142 4 208 4 382 4 435 -
of which banking 3 913 3 983 3 986 3 976 4 038 4 205 4 258 -
Allocated equity (end of period, Basel II) 333 340 340 341 347 361 365 -
Return on allocated equity (ROAC, Basel II) 11% 4% 17% 10% 23% 16% 9% -
Cost/income ratio, banking 55% 62% 52% 58% 61% 63% 65% -
Combined ratio, non-life insurance 84% 131% 110% 104% 85% 88% 89% -
Income statement, Hungary, 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
underlying( in millions of EUR)
Net interest income 94 96 98 95 103 100 95 -
Earned premiums, insurance (before reinsurance) 17 17 17 18 22 23 23 -
Technical charges, insurance (before reinsurance) -11 -19 -10 -15 -11 -17 -18 -
Ceded reinsurance result -1 -1 0 -1 -1 -1 -1 -
Dividend income 0 0 0 0 0 0 0 -
Net result from financial instruments at fair value
through profit or loss
10 10 24 22 4 12 12 -
Net realised result from available-for-sale assets 4 4 -1 0 0 0 0 -
Net fee and commission income 29 27 24 26 24 25 25 -
Other net income 1 8 0 0 1 2 1 -
Total income 143 141 152 145 143 143 138 -
Operating expenses -70 -66 -127 -75 -130 -71 -68 -
Impairment -35 -28 -50 -19 -29 -19 -126 -
Of which on loans and receivables -35 -28 -50 -19 -28 -18 -126 -
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 37 47 -25 51 -15 54 -56 -
Income tax expense -11 -11 1 -10 -1 -13 6 -
Result after tax 26 35 -24 41 -16 40 -50 -
attributable to minority interests 0 0 0 0 0 0 0 -
attributable to equity holders of the parent 26 35 -24 41 -16 40 -50 -
banking 23 38 -26 40 -19 38 -50 -
insurance 3 -2 1 1 3 2 0 -
Risk-weighted assets, group (end of period, Basel II) 6 275 6 005 6 270 6 219 6 666 6 587 6 505 -
of which banking 6 056 5 788 6 051 6 010 6 424 6 335 6 253 -
Allocated equity (end of period, Basel II) 515 493 515 510 548 542 536 -
Return on allocated equity (ROAC, Basel II) 14% 21% -24% 27% -18% 24% -41% -
Cost/income ratio, banking
Combined ratio, non-life insurance
49%
87%
44%
133%
83%
116%
50%
112%
93%
74%
49%
92%
48%
109%
-
-
Income statement, Bulgaria,
underlying (in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Net interest income 11 10 11 11 12 10 8 -
Earned premiums, insurance (before reinsurance) 27 28 26 30 23 25 24 -
Technical charges, insurance (before reinsurance) -22 -20 -23 -19 -15 -14 -16 -
Ceded reinsurance result 0 -2 1 1 -2 -1 -1 -
Dividend income 0 0 0 0 0 0 0 -
Net result from financial instruments at fair value
through profit or loss 0 1 0 0 0 0 0 -
Net realised result from available-for-sale assets 0 0 1 0 0 0 0 -
Net fee and commission income -1 -1 0 -1 1 0 1 -
Other net income 0 1 0 1 0 0 0 -
Total income 17 17 17 23 19 21 17 -
Operating expenses -13 -13 -13 -14 -14 -14 -14 -
Impairment -4 -3 -4 -4 -4 -3 -2 -
Of which on loans and receivables -4 -3 -4 -4 -4 -3 -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 0 1 -1 4 2 4 1 -
Income tax expense 0 0 0 -1 0 0 0 -
Result after tax 0 1 -1 4 2 5 1 -
attributable to minority interests 0 0 0 0 0 0 0 -
attributable to equity holders of the parent 0 1 0 3 2 4 1 -
banking 0 0 0 0 0 0 1 -
insurance 0 0 -1 3 1 4 1 -
Risk-weighted assets, group (end of period, Basel II) 955 926 902 877 846 867 750 -
of which banking 715 688 668 645 628 643 523 -
Allocated equity (end of period, Basel II) 91 88 86 84 81 83 74 -
Return on allocated equity (ROAC, Basel II) -23% -21% -28% -7% -17% -15% -13% -
Cost/income ratio, banking 70% 72% 65% 69% 66% 74% 82% -
Combined ratio, non-life insurance 115% 112% 119% 91% 107% 83% 104% -
Income statement, CEE – funding cost and other
results, underlying (in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Net interest income -30 -33 -35 -36 -36 -36 -31 -
Earned premiums, insurance (before reinsurance)
-1 -1 -1 -1 -1 -1 -1 -
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 0 10 0 6 0 -11 -3 -
Net realised result from available-for-sale assets 0 0 0 0 0 0 0 -
Net fee and commission income 0 -2 0 0 -2 2 -1 -
Other net income 1 1 1 1 2 1 2 -
Total income -29 -24 -34 -29 -38 -45 -34 -
Operating expenses -8 -5 -6 -10 -9 -11 -8 -
Impairment -3 0 0 0 0 -1 -95 -
Of which on loans and receivables -3 0 0 0 0 0 -96 -
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 -40 -28 -40 -39 -47 -57 -136 -
Income tax expense 12 14 12 13 3 34 17 -
Result after tax -28 -14 -29 -26 -43 -23 -120 -
attributable to minority interests 0 0 0 0 0 0 0 -
attributable to equity holders of the parent
banking
-28
-23
-14
-9
-29
-22
-26
-26
-43
-36
-23
-19
-120
-118
-
-

Merchant Banking Business Unit (underlying trend)

The Merchant Banking Business Unit encompasses the financial services provided to 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 Clearing, KBC Commercial Finance, KBC Credit Investments, KBC Real Estate, KBC Private Equity and KBC Bank Ireland. The entities that are earmarked for divestment under the strategic plan (the main ones being KBC Financial Products (various activities already sold), KBC Peel Hunt (sold), KBC Finance Ireland, Antwerp Diamond Bank and KBC Bank Deutschland) are not included here, but are grouped together in the Group Centre.

Income statement, Merchant Banking Business Unit,
underlying (in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Net interest income 189 202 213 232 180 167 168 -
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 2 2 1 0 4 2 -
Net result from financial instruments at fair value
through profit or loss
210 67 196 67 213 87 9 -
Net realised result from available-for-sale assets 1 1 2 0 2 11 0 -
Net fee and commission income 54 63 56 52 51 53 43 -
Other net income 28 27 26 -150 22 17 -117 -
Total income 482 361 495 202 469 340 105 -
Operating expenses -140 -137 -142 -157 -152 -142 -143 -
Impairment -219 -91 -130 -355 -57 -112 -215 -
on loans and receivables -219 -89 -132 -350 -57 -95 -205 -
on available-for-sale assets 0 -2 2 -7 0 -1 -2 -
on goodwill 0 0 0 0 0 0 0 -
on other 0 0 0 1 0 -16 -7 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 122 133 223 -311 259 86 -253 -
Income tax expense -35 -8 -63 88 -78 -21 61 -
Result after tax 88 125 160 -223 182 65 -192 -
attributable to minority interests 3 4 5 5 5 2 4 -
attributable to equity holders of the parent 85 121 156 -228 177 63 -196 -
Banking 83 119 155 -230 176 62 -197 -
Insurance 2 2 1 1 1 1 1 -
Risk-weighted assets, group (end of period, Basel II) 51 703 51 880 47 447 47 317 45 945 42 446 39 736 -
of which banking 51 703 51 880 47 447 47 317 45 945 42 446 39 736 -
Allocated equity (end of period, Basel II) 4 136 4 150 3 796 3 785 3 676 3 396 3 179 -
Return on allocated equity (ROAC, Basel II) 8% 11% 15% -24% 19% 6% -25% -
Cost/income ratio, banking 29% 38% 28% 79% 32% 42% 138% -

These underlying figures exclude exceptional items. A table reconciling the underlying result and the result according to IFRS is provided below (amounts are after taxes and minority interests).

Reconciliation between underlying result and result
according to IFRS
Merchant Banking Business Unit (in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Result after tax, attributable to equity holders of the
parent: underlying
85 121 156 -228 177 63 -196 -
+ MTM of derivatives for ALM hedging 0 -18 -4 -1 9 -7 -31 -
+ gains/losses on CDOs 12 4 34 63 18 18 -13 -
+ MTM of CDO guarantee and commitment fee 0 0 0 0 0 0 0 -
+ impairment on goodwill 0 -2 -13 -12 0 -5 -4 -
+ result on divestments 0 -3 -2 -4 -1 0 -10 -
+ other -32 -29 2 46 0 0 0 -
Result after tax, attributable to equity holders of the
parent: IFRS
64 73 173 -138 203 69 -255 -

In the quarter under review, the Merchant Banking Business Unit generated an underlying result of -196 million, substantially below the +42 million average for the last four quarters, as 3Q2011 was characterised by a weak dealing room result, high loan loss impairment charges in Ireland (187 million, pre-tax) and a provision for the 5-5-5 investment product (132 million, pre-tax). The underlying result for 3Q2011 breaks down as follows: -115 million for commercial banking activities and -81 million for market activities.

Total income down significantly, due to weak dealing room income and a provision for the 5-5-5 product

Total income for this business unit amounted to a very low 105 million in the quarter under review. Trading and fair value income (Net result from financial instruments at fair value through profit or loss, traditionally a big contributor to income in this business unit) stood at a very weak 9 million in the quarter under review, below the 87 million registered in the previous quarter, and significantly down on the high level of 196 million recorded in 2Q2010. In both cases, the difference was accounted for mainly by the performance of the dealing rooms (weak in the quarter under review, modest in the previous quarter, very good in the year-earlier quarter).

Net interest income stood at 168 million, comparable to the previous quarter, but down 21% year-on-year, which, in the latter case, was due for a significant part to the ongoing reduction in the international loan portfolio outside the home markets, in line with the group's strategic plan, which (re)focuses credit activities on customers that have a relationship with KBC's home markets in Belgium and Central and Eastern Europe. As a result, the Merchant Banking's loan portfolio contracted some 4% in one year's time.

The other income components came to to a negative 72 million in the quarter under review and comprised net fee and commission income of 43 million (down on the 53 million average for the last four quarters, in line with the decline in activity and the ongoing divestment programme), dividend income of 2 million, a net realised result from available-for-sale assets of 0 million (versus 4 million average in the last four quarters), and other net income of -117 million. The latter figure was negatively impacted by the booking in 3Q2011 of a provision for the 5-5-5 investment product (see 'Report on 3Q and 9M2011' section of this report), 132 million of which was assigned to the Merchant Banking Business Unit.

Costs remain more or less stable

Operating expenses in the quarter under review amounted to 143 million, roughly comparable to both 2Q2011 and 3Q2010, with a number of elements largely offsetting each other (higher restructuring charges, deconsolidation of some smaller entities, branch closures, etc.). The cost/income ratio stood at 48% for the first nine months of the year (excluding the provisions for the 5-5-5 product from the denominator, the cost-income ratio was 42%), as opposed to 37% for FY2010.

Loan losses up, due to an increase in Ireland

Following a relatively low loan loss impairment of 95 million in the previous quarter, impairment on loans and receivables amounted to a high 205 million in the quarter under review. The quarter-on-quarter increase was due mainly to higher loan loss impairments for the Irish loan book (187 million in the quarter under review, compared to 49 million in the previous quarter and 53 million in the year-earlier quarter).

As a result, the credit cost ratio for the first nine months of the year now stands at an annualised 90 basis points, which is still below the 138 basis points recorded in FY2010. At the end of 3Q2011, approximately 7.1% of the Merchant Banking Business Unit's loan book was non-performing, up on the 6.4% recorded three months earlier. Specifically for KBC Bank Ireland, the annualised credit cost ratio stood at 222 basis points in 9M2011, compared to 298 basis points for FY2010, while the non-performing ratio rose to 15.2% at the end of 3Q2011, up from 13.2% three months earlier.

Other impairment charges for this business unit stood at 10 million in 3Q2011, and consisted almost entirely of additional impairment on Greek government bonds (over and above the 5 million recorded in 2Q2011). The previous quarter had also included 12 million impairment related to investment property.

Breakdown into 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 SMEs) and 'Market activities' (sales and trading on money and capital markets, corporate finance, etc.) on the next page.

Income statement, Commercial Banking,
underlying (in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Net interest income 189 202 213 232 180 167 168 -
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 2 2 1 0 4 2 -
Net result from financial instruments at fair value
through profit or loss 14 0 18 0 10 -25 -48 -
Net realised result from available-for-sale assets 1 1 2 0 2 11 0 -
Net fee and commission income 35 33 35 28 26 29 26 -
Other net income 28 27 26 -150 22 24 21 -
Total income 267 265 296 110 242 210 169 -
Operating expenses -92 -87 -89 -99 -87 -88 -90 -
Impairment -162 -85 -127 -354 -72 -100 -208 -
Of which on loans and receivables -162 -83 -128 -354 -72 -83 -200 -
Of which on available-for-sale assets 0 -2 2 -1 0 -1 -1 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 13 92 81 -342 83 23 -130 -
Income tax expense -16 -11 -23 74 -28 -6 19 -
Result after tax -3 81 58 -269 55 17 -111 -
attributable to minority interests 3 4 5 4 4 3 4 -
attributable to equity holders of the parent -5 77 53 -273 51 14 -115 -
Banking -8 75 52 -274 50 13 -116 -
Insurance 2 2 1 1 1 1 1 -
Risk-weighted assets, group (end of period, Basel II) 38 295 36 689 33 812 32 993 32 176 30 934 30 733 -
of which banking 38 295 36 689 33 812 32 993 32 176 30 934 30 733 -
Allocated equity (end of period, Basel II) 3 064 2 935 2 705 2 639 2 574 2 475 2 459 -
Return on allocated equity (ROAC, Basel II) -1% 9% 6% -41% 7% 2% -19% -
Cost/income ratio, banking 34% 33% 30% 91% 36% 42% 54% -
Income statement, Market Activities,
underlying (in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
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 196 67 178 67 203 112 57 -
Net realised result from available-for-sale assets 0 0 0 0 0 0 0 -
Net fee and commission income 19 30 20 24 25 25 17 -
Other net income 0 0 0 0 0 -8 -138 -
Total income 215 97 199 91 227 129 -64 -
Operating expenses -48 -50 -53 -59 -65 -53 -53 -
Impairment -57 -6 -4 -1 15 -12 -6 -
Of which on loans and receivables -57 -6 -4 4 15 -12 -5 -
Of which on available-for-sale assets 0 0 0 -6 0 0 -1 -
Share in results of associated companies 0 0 0 0 0 0 0 -
Result before tax 109 41 142 32 177 63 -123 -
Income tax expense -19 3 -40 14 -50 -15 42 -
Result after tax 90 44 102 46 127 48 -81 -
attributable to minority interests 0 0 0 1 1 -1 0 -
attributable to equity holders of the parent 90 44 103 45 126 48 -81 -
banking
insurance
90
0
44
0
103
0
45
0
126
0
48
0
-81
0
-
-
Risk-weighted assets, group (end of period, Basel II) 13 408 15 191 13 635 14 324 13 769 11 512 9 003 -
of which banking 13 408 15 191 13 635 14 324 13 769 11 512 9 003 -
Allocated equity (end of period, Basel II)
Return on allocated equity (ROAC, Basel II)
1 073
35%
1 215
16%
1 091
36%
1 146
17%
1 102
46%
921
18%
720
-41%
-
-

Group Centre (underlying trend)

The Group Centre comprises, inter alia, 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. The main ones are Centea (Belgium – sold early July 2011), Fidea (Belgium, sale agreement signed), Absolut Bank (Russia), KBC Banka (Serbia), NLB and NLB Vita (Slovenia), Żagiel (Poland), Kredyt Bank and Warta (Poland*), KBC Financial Products (various countries – various activities already sold), KBC Peel Hunt (UK – sold), KBC Finance Ireland (Ireland), Antwerp Diamond Bank (Belgium), KBC Bank Deutschland (Germany) and the KBL EPB group including VITIS Life (various countries – sale agreement signed).

* Please note that the impact of the recent changes to the strategic plan are included in this report. Hence, Poland (Warta and Kredyt Bank) has been shifted to the Group Centre and the portion of ČSOB's results related to the originally planned IPO of a minority stake in this company, which used to be included in Group Centre, has been included in the CEE Business Unit again. All reference figures have been adjusted to enhance comparability.

Income statement, Group Centre,
underlying (in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Net interest income 239 254 254 250 242 261 205 -
Earned premiums, insurance (before reinsurance) 254 240 296 287 284 299 317 -
Technical charges, insurance (before reinsurance) -230 -252 -245 -200 -234 -221 -245 -
Ceded reinsurance result -1 40 -8 -18 -4 -3 -2 -
Dividend income 3 8 1 4 2 6 2 -
Net result from financial instruments at fair value
through profit or loss
52 27 21 2 4 -11 -14 -
Net realised result from available-for-sale assets 13 16 5 -3 22 3 -2 -
Net fee and commission income 101 106 69 88 86 77 72 -
Other net income 14 1 10 15 2 9 4 -
Total income 444 439 403 425 404 420 338 -
Operating expenses -346 -349 -320 -355 -296 -265 -269 -
Impairment -44 -86 -91 -55 19 -51 -81 -
on loans and receivables -44 -83 -91 -51 21 -11 -26 -
on available-for-sale assets 0 -2 0 -2 -2 -29 -38 -
on goodwill 0 0 0 0 0 0 0 -
on other 0 0 0 -2 -1 -12 -17 -
Share in results of associated companies -2 -9 -5 -46 1 0 -23 -
Result before tax 51 -4 -12 -32 127 104 -35 -
Income tax expense -26 -31 -1 19 -42 -19 -6 -
Result after tax 25 -35 -13 -13 85 85 -41 -
attributable to minority interests 1 0 2 3 8 3 3 -
attributable to equity holders of the parent 24 -36 -15 -16 77 81 -44 -
Banking 40 -27 -21 -36 86 57 -19 -
Insurance -3 0 8 22 20 26 -10 -
holding company -14 -8 -2 -1 -29 -2 -16 -
Risk-weighted assets, group (end of period, Basel II) 36 654 33 502 32 386 31 202 30 933 29 959 25 693 -
of which banking 33 397 30 260 29 255 27 997 27 732 26 637 22 347 -
Allocated equity (end of period, Basel II) 3 087 2 833 2 742 2 650 2 628 2 556 2 216 -

These underlying figures exclude exceptional items. A table reconciling the underlying result and the result according to IFRS is provided below (amounts are after taxes and minority interests).

Reconciliation between underlying result and result
according to IFRS, Group Centre (in millions of EUR)
1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011
Result after tax, attributable to equity holders of the
parent: underlying
24 -36 -15 -16 77 81 -44 -
+ MTM of derivatives for ALM hedging -9 -13 -12 10 8 -13 -2 -
+ gains/losses on CDOs 118 347 87 129 55 -84 -439 -
+ MTM of CDO guarantee and commitment fee -28 -15 -20 5 -8 -18 -8 -
+ impairment on goodwill (incl. associated companies) -27 0 -31 -29 0 -11 0 -
+ MTM of own debt issued -2 33 -34 41 -16 -25 185 -
+ legacy structured derivative business (KBC FP) -126 -210 6 -42 14 43 5 -
+ Results on divestments 0 -335 -42 132 -38 -12 -581 -
+ other 0 0 0 0 0 0 0 -
Result after tax, attributable to equity holders of the
parent: IFRS
-50 -228 -61 231 92 -39 -885 -

The Group Centre's net result amounted to -44 million in 3Q2011. As mentioned before, this mainly includes the results of the companies that are earmarked for divestment, whose combined net result came to -27 million in 3Q2011, down on the 86 million recorded in 2Q2011. The 3Q2011 result was impacted by the -43 million (pre tax) impairment on Greek bonds (over and above the -36 million booked in the previous quarter) and the divestment of Centea, among other factors.

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

  • Ex-Belgium Business Unit: -15 million, compared with 26 million in the previous quarter. Please note that Centea has been sold and is no longer included in 3Q2011. Fidea is still included, as the sale agreement has not yet been finalised; its 3Q2011 results were impacted by the impairment recorded for shares and Greek government bonds, among other things.
  • Ex-CEER Business Unit: 22 million, compared with 46 million in the previous quarter, with the decrease due primarily to a lower contribution of NLB (Slovenia) to the results. The Polish subsidiaries (Kredyt Bank and Warta) together account for 26 million (32 million in the previous quarter).
  • Ex-Merchant Banking Business Unit: -8 million, compared to 15 million in the previous quarter, due mainly to higher impairment in a number of companies, among other things.
  • Ex-European Private Banking Business Unit: -13 million, compared with 11 million in the previous quarter. Please note that an agreement to sell KBL EPB has recently been signed.
  • Other (relating mainly to funding of goodwill paid in relation to companies that are earmarked for divestment): -12 million, in line with the figure recorded in the previous quarter.

.

Consolidated financial statements according to IFRS KBC Group, 3Q2011 and 9M2011

Reviewed by the auditors

Consolidated income statement

In millions of EUR Note 3Q 2010 2Q 2011 3Q 2011 9M 2010 9M 2011
Net interest income 3 1 562 1 406 1 341 4 647 4 142
Interest income 2 627 3 195 2 910 7 900 9 151
Interest expense - 1 065 - 1 789 - 1 569 - 3 253 - 5 009
Earned premiums, insurance (before reinsurance) 9 1 074 974 972 3 466 3 087
Non-life 495 468 477 1 464 1 395
Life 10 579 506 495 2 001 1 691
Technical charges, insurance (before reinsurance) 9 - 957 - 840 - 812 - 3 243 - 2 665
Non-life - 307 - 245 - 259 - 1 015 - 738
Life - 650 - 595 - 553 - 2 228 - 1 927
Ceded reinsurance result 9 - 23 - 8 - 18 18 - 43
Dividend income 21 41 17 76 70
Net result from financial instruments at fair value through profit or loss 5 227 - 194 - 892 - 506 - 613
Net realised result from available-for-sale assets 6 11 42 10 61 86
Net fee and commission income 7 259 297 281 917 877
Fee and commission income 480 530 480 1 607 1 529
Fee and commission expense - 221 - 233 - 200 - 690 - 651
Other net income 8 65 110 - 149 345 53
TOTAL INCOME 2 239 1 829 749 5 781 4 994
Operating expenses 12 - 1 130 - 1 081 - 1 077 - 3 246 - 3 301
Staff expenses - 634 - 648 - 653 - 1 876 - 1 938
General administrative expenses - 407 - 351 - 345 - 1 101 - 1 117
Depreciation and amortisation of fixed assets - 88 - 83 - 79 - 270 - 246
Impairment 14 - 420 - 332 - 940 - 1 102 - 1 377
on loans and receivables - 357 - 164 - 473 - 990 - 733
on available-for-sale assets - 5 - 118 - 223 - 23 - 347
on goodwill - 13 - 17 - 62 - 41 - 79
on other - 45 - 33 - 183 - 48 - 218
Share in results of associated companies - 5 0 - 23 - 16 - 22
RESULT BEFORE TAX 683 416 - 1 292 1 418 294
Income tax expense - 124 - 76 165 16 - 245
Net post-tax result from discontinued operations 46 - 7 0 - 445 - 278 - 445
RESULT AFTER TAX 553 340 - 1 571 1 156 - 396
Attributable to minority interest 8 6 8 20 28
of which relating to discontinued operations 0 0 0 0 0
Attributable to equity holders of the parent 545 333 - 1 579 1 136 - 424
of which relating to discontinued operations - 7 0 - 445 - 278 - 445
Earnings per share (in EUR) 17
Basic 1,17 0,54 -5,08 2,03 -2,56
Diluted 1,17 0,54 -5,08 2,03 -2,56

Condensed consolidated statement of comprehensive income

In millions of EUR 3Q 2010 2Q 2011 3Q 2011 9M 2010 9M 2011
RESULT AFTER TAX 553 340 - 1 571 1 156 - 396
attributable to minority interest 8 6 8 20 28
attributable to equity holders of the parent 545 333 - 1 579 1 136 - 424
OTHER COMPREHENSIVE INCOME
Net change in revaluation reserve (AFS assets) - Equity 72 - 25 - 193 6 - 228
Net change in revaluation reserve (AFS assets) - Bonds 388 224 427 714 359
Net change in revaluation reserve (AFS assets) - Other 0 0 0 1 - 1
Net change in hedging reserve (cash flow hedge) - 68 - 27 - 222 - 350 - 78
Net change in translation differences 30 - 6 - 117 63 - 104
Other movements - 1 - 3 4 - 3 2
TOTAL COMPREHENSIVE INCOME 975 502 - 1 672 1 587 - 446
attributable to minority interest 14 12 - 6 29 16
attributable to equity holders of the parent 961 490 - 1 666 1 558 - 462

Consolidated balance sheet

ASSETS (in millions of EUR) Note 31-12-2010 30-09-2011
Cash and cash balances with central banks 15 292 10 906
Financial assets 18 281 240 267 553
Held for trading 30 287 30 922
Designated at fair value through profit or loss 25 545 23 580
Available for sale 54 143 43 016
Loans and receivables 157 024 154 544
Held to maturity 13 955 14 767
Hedging derivatives 286 723
Reinsurers' share in technical provisions 280 232
Fair value adjustments of hedged items in portfolio hedge of interest rate risk 218 195
Tax assets 2 534 2 457
Current tax assets 167 185
Deferred tax assets 2 367 2 271
Non-current assets held for sale and assets associated with disposal groups 46 12 938 15 529
Investments in associated companies 496 473
Investment property 704 788
Property and equipment 2 693 2 618
Goodwill and other intangible assets 2 256 2 107
Other assets 2 172 2 250
TOTAL ASSETS 320 823 305 109
LIABILITIES AND EQUITY (in millions of EUR) Note 31-12-2010 30-09-2011
Financial liabilities 18 260 582 245 533
Held for trading 24 136 24 899
Designated at fair value through profit or loss 34 615 32 814
Measured at amortised cost 200 707 186 225
Hedging derivatives 1 124 1 595
Technical provisions, before reinsurance 23 255 21 064
Fair value adjustments of hedged items in portfolio hedge of interest rate risk 0 2
Tax liabilities 468 539
Current tax liabilities 345 237
Deferred tax liabilies 123 302
Liabilities associated with disposal groups 46 13 341 16 254
Provisions for risks and charges 600 795
Other liabilities 3 902 3 572
TOTAL LIABILITIES 302 149 287 758
Total equity 18 674 17 351
Parent shareholders' equity 39 11 147 9 834
Non-voting core-capital securities 39 7 000 7 000
Minority interests 527 517
TOTAL LIABILITIES AND EQUITY 320 823 305 109

Consolidated statement of changes in equity

In millions of EUR Issued and
paid up share
capital
Share
premium
Treasury shares Revaluation
reserve (AFS
assets)
Hedging
reserve
(cashflow
hedges)
Reserves Translation
differences
Parent
shareholders'
equity
Non-voting
core-capital
securities
Minority
interests
Total equity
Balance at the beginning of the period (31/12/2009) 1 245 4 339 - 1 560 457 - 374 5 894 - 339 9 662 7 000 515 17 177
Net result for the period 0 0 0 0 0 1 136 0 1 136 0 20 1 156
Other comprehensive income for the period 0 0 0 717 - 352 - 3 59 422 0 9 431
Total comprehensive income 0 0 0 717 - 352 1 133 59 1 558 0 29 1 587
Dividends
Capital increase
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Results on (derivatives on) treasury shares 0 0 30 0 0 0 0 30 0 0 30
Impact business combinations 0 0 0 0 0 - 6 0 - 6 0 0 - 6
Change in minorities 0 0 0 0 0 0 0 0 0 - 9 - 9
Total change 0 0 30 717 - 352 1 128 59 1 583 0 20 1 603
Balance at the end of the period (30/9/2010) 1 245 4 339 - 1 529 1 174 - 726 7 022 - 280 11 245 7 000 535 18 780
of which revaluation reserve for shares
of which revaluation reserve for bonds
392
780
of which revaluation reserve for other assets than bonds and shares 1
of which relating to non-current assets held for sale and disposal groups
Balance at the beginning of the period (31/12/2010)
1 245 4 340 - 1 529 35
66
- 443 7 749 12
- 281
47
11 147
7 000 527 47
18 674
Net result for the period
Other comprehensive income for the period
0
0
0
0
0
0
0
131
0
- 78
- 424
2
0
- 92
- 424
- 38
0
0
28
- 12
- 396
- 50
Total comprehensive income 0 0 0 131 - 78 - 423 - 92 - 462 0 16 - 446
Dividends 0 0 0 0 0 - 850 0 - 850 0 0 - 850
Capital increase 0 0 0 0 0 0 0 0 0 0 0
Results on (derivatives on) treasury shares
Impact business combinations
0
0
0
0
0
0
0
0
0
0
0
- 1
0
0
0
- 1
0
0
0
0
0
- 1
Change in minorities 0 0 0 0 0 0 0 0 0 - 26 - 26
Total change 0 0 0 131 - 78 - 1 274 - 92 - 1 313 0 - 10 - 1 323
Balance at the end of the period (30/9/2011) 1 245 4 340 - 1 529 197 - 521 6 475 - 373 9 834 7 000 517 17 351
of which revaluation reserve for shares
of which revaluation reserve for bonds
208
- 11
of which revaluation reserve for other assets than bonds and shares 0
of which relating to non-current assets held for sale and disposal groups 3 10 13 13

The changes in equity of the first nine months of 2011 include the accounting of a gross dividend of 0.75 euros per share as approved by the General Meeting for the 2010 financial year. The total dividend on ordinary shares amounts to 258 million euros of which 4 million euros related to treasury shares. The dividend payment also includes the payment of a coupon on the core-capital securities sold to the Belgian Federal and Flemish Regional governments of 595 million euros (i.e. 8.5% of 7 billion euros).

Condensed consolidated cash flow statement

In millions of EUR 9M 2010 9M 2011
Net cash from (used in) operating activities 7 437 2 127
Net cash from (used in) investing activities - 1 214 - 832
Net cash from (used in) financing activities - 695 - 1 521
Change in cash and cash equivalents
Net increase or decrease in cash and cash equivalents 5 528 - 227
Cash and cash equivalents at the beginning of the period 5 487 20 557
Effects of exchange rate changes on opening cash and cash equivalents 555 - 109
Cash and cash equivalents at the end of the period 11 571 20 222

As mentioned in note 46, KBL EPB and Fidea form a disposal group. The planned divestments of KBL EPB and Fidea (of which the closing of the sale transaction is planned in the first quarter of 2012) will have the following main impacts on the cash flows included in investing activities:

• receipt of the sale price : 1 billion euro and 0.2 billion euros for KBL EPB and Fidea respectively

• reduction of cash and cash equivalents which are part of the disposal group: 3.3 billion euros and 0.2 million euros for KBL EPB and Fidea respectively (amounts of 30 September 2011).

Notes on statement of compliance and changes in accounting policies

Statement of compliance (note 1a in the annual accounts 2010)

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 consolidated financial statements of KBC present one year of comparative information. 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 2010.

To improve transparency, as of 2011 interest on ALM hedging derivatives (i.e. those that do not qualify for fair value hedge accounting for a portfolio hedge of interest rate risk) appears as 'net interest income', whereas in previous periods this was presented under 'Net result from financial instruments at fair value'. Since the interest earned on the related assets appears under 'Net interest income', as of 2011 (not retroactively) the interest on the ALM hedging derivatives is also included in this heading. The net interest income on ALM hedging derivatives included in 'net interest income' totals -353 million euros for the first nine months of 2011.

On the 13th of July, KBC Group NV has applied to the European Commission to amend its strategic plan. On 27 July KBC Group has received approval from the European Commission to amend its strategic plan. This amendment has changed the segment reporting of the KBC Group (retroactively) as of 3Q 2011, whereby Kredyt Bank and Warta are now fully allocated to Group Centre (previously CEE business unit) and CSOB a.s. (Czech Republic) fully allocated to CEE Business unit (previously 40% of the net result was allocated to Group Centre).

Summary of significant accounting policies (note 1b in the annual accounts 2010)

A summary of the main accounting policies is provided in the annual report. In 9M2011, no changes in content were made in the accounting policies that had a material impact on the results.

Segment reporting according to the management structure of the group (note 2a in the annual accounts 2010)

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, as of 2010, also brings together all companies that

For reporting purposes, the business units hence are:

are up for divestment (according to the new strategic plan) under the Group Centre.

  • 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).

On the 13th of July, KBC Group NV has applied to the European Commission to amend its strategic plan. On 27 July KBC Group has received approval from the European Commission to amend its strategic plan. This amendment has changed the segment reporting of the KBC Group (retroactively) as of 3Q2011. See further under 'Statement of compliance'.

The basic principle of the segment reporting is that an individual subsidiary is allocated fully to one segment (see note 44 in annual report 2010). 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. The funding costs regarding leveraging at the level of KBC Group are not allocated.

The transactions conducted between the different segments occur 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 exceptions 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.
  • In the IFRS accounts, a large part of KBC's derivatives used for Asset and Liability Management (ALM) are treated as 'trading instruments'. These include those derivatives that do not qualify for fair value hedge accounting for a portfolio hedge of interest rate risk. Consequently, interest results on such hedges are recognised as 'net result from financial

instruments at fair value', while the interest paid on the underlying assets is recognised as 'net interest income'. In the underlying accounts, the interest on these derivatives is also recognised in the 'net interest income' heading (where interest results on the underlying assets are already presented), without any impact on net profit. As of 2011, the net interest income on 'ALM derivatives' is included in the Net Interest Income heading in the IFRS figures (see also note 1A).

  • Moreover, fair value changes (due to marking-to-market) of these ALM derivatives 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). In order to limit the volatility of this MtM, a (government) bond portfolio has been classified as financial assets at fair value through profit or loss (fair value option). The remaining volatility of the fair value changes in these ALM derivatives versus the fair value changes in the bond portfolio at fair value through profit or loss 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 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 non-operating item, the impact is excluded from the 'underlying figures'.
  • In the IFRS accounts, discontinued operations (in KBC's new strategic plan, 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).

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

Reconciliation between underlying result and result according to IFRS 1
KBC Group, in millions of EUR
3Q
2010
2Q
2011
3Q
2011
9M
2010
9M
2011
Result after tax, attributable to equity holders of the parent, UNDERLYING 445 528 -248 1 542 937
+ MTM of derivatives for ALM hedging 16 -77 -245 -220 -226
+ gains/losses on CDOs 221 -86 -618 723 -580
+ MTM of CDO guarantee and commitment fee -23 -22 -10 -74 -41
+ impairment on goodwill (and associated companies) -43 -17 -57 -71 -74
+ result on legacy structured derivative business (KBC FP) 6 43 5 -330 62
+ MTM of own debt issued -34 -25 185 -3 144
+ Results on divestments -44 -12 -591 -382 -647
+ other 2 0 0 -48 0
Result after tax, attributable to equity holders of the parent: IFRS 545 333 -1579 1 136 -424

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

In order to provide a more transparent view, taxes and minority interests are allocated to the different elements and not separately reported anymore.

MTM of derivatives for ALM hedging:

The negative impact in the third quarter of 2011 is mainly caused by the widening of the credit spreads of government bonds in the designated at fair value through profit or loss portfolio. In KBC, a part of the government bond portfolio in the banking book is classified as financial assets designated at fair value through profit or loss (the fair value option) in order to significantly reduce a measurement inconsistency ('an accounting mismatch' that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases). This method is used specifically to avoid the remaining accounting mismatches relating to the loan portfolio (measured at amortized cost) and the interest rate swaps (measured at fair value) in ALM. For this purpose, a (government) bond portfolio has been classified as a financial asset at fair value through profit or loss.

Gains and losses on CDO's

In the third quarter of 2011, the market price for corporate credit decreased, as reflected in credit default swap spreads, generating a value mark-down of KBC's CDO exposure. The negative earnings impact from CDO revaluation amounted to -0.6 billion euros for 3Q 2011 (-0.6 billion euros for 9M2011), including the impact of the government guarantee but excluding the related fee and including the coverage of the CDO-linked counterparty risk against MBIA, the US monoline insurer which remained at the level of 31 December 2010, namely 70%.

Impairment on goodwill:

The impairment on goodwill in the third quarter of 2011 mainly includes -53 million euros on the Bulgarian banking activities.

MTM of own debt issued:

The positive impact on the results of the third quarter of 2011 can be explained by the increased risk aversion towards European banks in general (and hence also KBC), leading to a lower MTM of debt certificates included in the financial liabilities designated at fair value through profit or loss.

Result on divestments:

The third quarter results on divestments includes mainly an impairment on the sale of KBL EPB and Fidea for a total amount of 0.6 billion euro (see further note 46).

Belgium
Business
CEE
Business
Merchant
Banking
Business
Group
Centre
excluding
interseg
ment
Inter
segment
In millions of EUR unit unit unit eliminations eliminations KBC Group
INCOME STATEMENT - underlying results - 9M 2010
Net interest income 1 665 1 127 604 747 0 4 144
Earned premiums, insurance (before reinsurance) 2 192 488 0 864 - 74 3 470
Non-life 787 237 0 476 - 36 1 464
Life 1 404 251 0 388 - 38 2 006
Technical charges, insurance (before reinsurance) - 2 152 - 380 0 - 777 51 - 3 259
Non-life - 490 - 156 0 - 377 8 - 1 015
Life - 1 662 - 225 0 - 400 43 - 2 244
Ceded reinsurance result
Dividend income
- 5
37
- 8
2
0
5
14
11
17
0
18
55
Net result from financial instruments at fair value through
profit or loss 54 105 472 99 0 731
Net realised result from available-for-sale assets 10 23 3 34 0 71
Net fee and commission income 569 232 173 275 0 1 249
Other net income 81 30 80 33 - 9 215
TOTAL INCOME 2 450 1 619 1 338 1 301 - 15 6 693
Operating expenses - 1 214 - 874 - 419 - 1 030 15 - 3 521
Impairment - 69 - 284 - 441 - 221 0 - 1 015
on loans and receivables - 49 - 282 - 440 - 219 0 - 989
on available-for-sale assets - 20 0 - 1 - 2 0 - 23
on goodwill 0 0 0 0 0 0
on other 0 - 2 0 0 0 - 3
Share in results of associated companies 0 1 0 - 16 0 - 15
RESULT BEFORE TAX 1 167 462 479 34 0 2 142
Income tax expense - 366 - 50 - 106 - 58 0 - 580
Net post-tax result from discontinued operations
RESULT AFTER TAX
0
801
0
412
0
372
0
- 23
0
0
0
1 562
attributable to minority interests 4 0 11 4 0 20
attributable to equity holders of the parent 797 412 361 - 28 0 1 542
INCOME STATEMENT - underlying results - 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
Net realised result from available-for-sale assets
31
53
52
15
309
13
- 22
24
0
0
371
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
attributable to minority interests
552
2
230
1
54
11
128
14
0
0
966
28
attributable to equity holders of the parent 551 229 43 114 0 937

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

Merchant
Belgium CEE Banking
Business Business Business Group KBC
In millions of EUR unit unit unit Centre Group
Balance sheet information 31-12-2010
Total loans to customers 51 961 28 960 48 202 21 543 150 666
Of which mortgage loans 26 952 10 503 12 809 11 313 61 577
Of which reverse repos 0 4 035 5 450 1 9 486
Customer deposits 67 663 38 192 73 538 18 477 197 870
Of which repos 0 3 219 12 179 0 15 398
Balance sheet information 30-09-2011
Total loans to customers 54 190 25 915 49 595 13 752 143 451
Of which mortgage loans 28 457 11 019 12 460 5 145 57 081
Of which reverse repos 0 89 7 052 29 7 170
Customer deposits 72 687 38 502 64 935 8 329 184 453
Of which repos 0 3 309 13 461 0 16 770

Note: The time series of customer deposits excluding repos have been restated for all previous periods. This was caused by a different allocation of the deposits of KBC Bank towards BU Belgium and BU Merchant Banking.

Segment reporting according to geographic segment (note 2b in the annual accounts 2010)

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.

Central and
Eastern
Europe and Rest of the
In millions of EUR Belgium Russia world KBC Group
9M 2010
Total income from external customers (underlying) 3 033 2 221 1 439 6 693
31-12-2010
Total assets (period-end) 209 103 61 269 50 452 320 823
Total liabilities (period-end) 194 672 55 030 52 447 302 149
9M 2011
Total income from external customers (underlying) 2 628 2 330 1 149 6 107
30-09-2011
Total assets (period-end) 196 794 61 341 46 974 305 109
Total liabilities (period-end) 182 213 55 532 50 013 287 758

Other notes

Net interest income (note 3 in the annual accounts 2010)

In millions of EUR 3Q 2010 2Q 2011 3Q 2011 9M 2010 9M 2011
Total 1 562 1 406 1 341 4 647 4 142
Interest income 2 627 3 195 2 910 7 900 9 151
Available-for-sale assets 468 481 438 1 438 1 386
Loans and receivables 1 688 1 671 1 645 5 013 4 944
Held-to-maturity investments 143 160 169 411 469
Other assets not at fair value 7 8 9 23 25
Subtotal, interest income from financial assets not
measured at fair value through profit or loss
2 307 2 321 2 261 6 884 6 824
Financial assets held for trading 79 620 385 277 1 552 (*)
Hedging derivatives 85 134 155 251 397
Other financial assets at fair value through profit or loss 156 121 109 488 379
Interest expense - 1 065 - 1 789 - 1 569 - 3 253 - 5 009
Financial liabilities measured at amortised cost - 796 - 828 - 829 - 2 383 - 2 430
Other - 1 0 - 6 1 - 6
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 - 797 - 828 - 835 - 2 382 - 2 436
Financial liabilities held for trading - 18 - 667 - 443 - 65 - 1 726 (*)
Hedging derivatives - 194 - 215 - 191 - 610 - 603
Other financial liabilities at fair value through profit or loss - 57 - 79 - 100 - 195 - 244

(*) including interest on ALM derivatives as of 9M 2011: +1 337 million euro interest income and -1 690 million euro interest expense

Net realised result from available-for-sale assets (note 6 in the annual accounts 2010)

In millions of EUR 3Q 2010 2Q 2011 3Q 2011 9M 2010 9M 2011
Total 11 42 10 61 86
Breakdown by portfolio
Fixed-income securities 0 3 2 36 12
Shares 11 39 8 25 74

Net fee and commission income (note 7 in the annual accounts 2010)

In millions of EUR 3Q 2010 2Q 2011 3Q 2011 9M 2010 9M 2011
Total 259 297 281 917 877
Fee and commission income 480 530 480 1 607 1 529
Securities and asset management 240 235 201 838 681
Margin on deposit accounting (life insurance investment contracts
w ithout DPF) 5 10 17 18 35
Commitment credit 54 73 73 188 216
Payments 133 137 144 385 416
Other 48 76 47 179 181
Fee and commission expense - 221 - 233 - 200 - 690 - 651
Commission paid to intermediaries - 123 - 120 - 114 - 372 - 356
Other - 98 - 113 - 86 - 318 - 295

Other net income (note 8 in the annual accounts 2010)

In millions of EUR 3Q 2010 2Q 2011 3Q 2011 9M 2010 9M 2011
Total 65 110 - 149 345 53
Of which net realised result following
The sale of loans and receivables 1 - 10 - 9 5 - 21
The sale of held-to-maturity investments 0 0 - 14 1 - 14
The sale of financial liabilities measured at amortised cost 0 - 1 0 0 - 1
Other: of which: 64 121 - 126 340 89
Irregularities in KBC Lease UK 0 2 0 0 2
Income concerning leasing at the KBC Lease-group 19 23 22 56 66
Income from consolidated private equity participations 13 12 11 40 39
Income from Group VAB 16 15 19 49 51
Moratorium interests on tax recuperation 0 0 0 14 0
Realised gain on sale of building Louvain 0 15 0 0 15
Provisions re 5-5-5 bonds 0 0 - 263 0 - 263
Realised gains or losses on divestments 0 20 53 0 68

Provision regarding 5/5/5 bonds:

In April and May 2008 KBC Bank and its Belgian subsidiaries sold structured 5/5/5 bonds 'First to default' with maturity in April and May 2013 to retail and institutional customers for a total amount of 670 million euros.

The 5/5/5 bonds are linked to the creditworthiness of Belgium, France, Spain, Italy and Greece. A credit event (as defined by the ISDA) in one of these countries would adversely affect the capital invested and no further coupons would be paid.

As a result of the Greek financial crisis, KBC Bank decided to offer comfort to retail holders of the 5/5/5 notes, by proactively clarifying KBC's contingent intention to purchase the notes, at a price equal to the invested capital less any coupons paid by the issuer (all amounts before costs and taxes), whereby such intention is conditional on the occurrence of a credit event. Until the date of this disclosure no credit event occured, but since the probability of a credit event before May 2013 on one of these countries is estimated by the financial markets to be higher than 50% on 30 September 2011, KBC had decided to book a provision of 263 million euros in the third quarter results (impact after tax of -174 million euros).

Realised gains or losses on divestments:

In the third quarter of 2011 the sale of Centea was finalised. The other net income of the third quarter of 2011 include a realised gain of 63 million euros on the sale of Centea. On the other hand, a negative net result from financial instruments at fair value through profit or loss was caused by the sale of Centea for an amount of -85 million euros (-56 million euros after tax) related to the discontinuation of cash flow hedges which were economically connected to Centea.

Breakdown of the insurance results (note 9 in the annual accounts 2010)

Non
technical
Life Non-life account TOTAL
9M 2010
Technical result -
308
223 25 -
60
Earned premiums, insurance (before reinsurance) 2 005 1 480 0 3 485
Technical charges, insurance (before reinsurance) - 2 228 - 1 016 0 - 3 243
Net fee and commission income - 83 - 264 28 -
319
Ceded reinsurance result -
1
23 -
3
18
Financial result 616 152 107 875
Net interest income 748 748
Dividend income 37 37
Net result from financial instruments at fair value 79 79
Net realised result from AFS assets 12 12
Allocation to the technical accounts 616 152 - 768 0
Operating expenses - 102 - 268 - 6 -
376
Internal costs claim paid - 6 - 54 0 -
60
Administration costs related to acquisitions -
29
-
68
0 -
97
Administration costs - 67 - 145 0 -
212
Management costs investments 0 0 - 6 -
6
Other net income 19 19
Impairments - 15 -
15
Share in results of associated companies 0 0
RESULT BEFORE TAX 206 108 130 444
Income tax expense - 110
Net post-tax result from discontinued operations 9
RESULT AFTER TAX 343
attributable to minority interest 4
attributable to equity holders of the parent 340
9M 2011
Technical result -
320
378 32 91
Earned premiums, insurance (before reinsurance) 1 694 1 410 0 3 104
Technical charges, insurance (before reinsurance) - 1 930 -
742
0 - 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
0 -
63
Administration costs related to acquisitions -
31
-
74
0 -
105
Administration costs -
74
-
139
0 -
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
attributable to minority interest
- 90
2
attributable to equity holders of the parent - 93

Note: Figures for premium income exclude the investment contracts without DPF, which roughly coincide with the unitlinked products. Figures are before elimination of transactions between the bank and insurance entities of the group (more information in the 2010 annual report).

Operating expenses (note 12 in the annual accounts 2010)

In 2010 the Hungarian government has decided to impose a new extraordinary bank tax on the financial institutions. The bank tax was introduced for 2010, 2011 and 2012 and is due by both K&H Bank and K&H Insurance. The operating expenses for the first quarter of 2011 include the expenses related to the special tax imposed on financial institutions in Hungary payable for 2011 (62 million euros cost in 2011 fully booked in the first quarter of 2011, deductible expense).

Impairment – income statement (note 14 in the annual accounts 2010)

In millions of EUR 3Q 2010 2Q 2011 3Q 2011 9M 2010 9M 2011
Total - 420 - 332 - 940 - 1 102 - 1 377
Impairment on loans and receivables - 357 - 164 - 473 - 990 - 733
Breakdown by type
Specific impairments for on-balance-sheet lending - 328 - 182 - 402 - 913 - 703
Provisions for off-balance-sheet credit commitments - 22 - 1 6 - 30 13
Portfolio-based impairments - 7 19 - 77 - 48 - 43
Breakdown by business unit
Belgium - 21 - 16 - 10 - 49 - 37
Central and Eastern Europe - 112 - 42 - 234 - 282 - 327
Merchant Banking - 132 - 95 - 205 - 440 - 357
Group Centre - 92 - 11 - 24 - 220 - 13
Impairment on available-for-sale assets - 5 - 118 - 223 - 23 - 347
Breakdown by type
Shares - 5 - 14 - 87 - 23 - 106
Other 0 - 104 - 136 0 - 240
Impairment on goodwill - 13 - 17 - 62 - 41 - 79
Impairment on other - 45 - 33 - 183 - 48 - 218
Intangible assets, other than goodwill 0 0 0 0 - 1
Property and equipment and investment property 0 - 13 1 - 1 - 12
Held-to-maturity assets 0 - 16 - 34 0 - 50
Associated companies (goodwill) - 31 0 0 - 31 0
Other - 14 - 4 - 150 - 15 - 156

The impairment on loans and receivables for Merchant Banking business unit includes an impairment on loans & receivables in Ireland of 282 million euros for the first nine months in 2011 and an impairment of 187 million euros in 3Q2011.

For Bulgaria, KBC performed an in-depth evaluation of its Bulgarian assets for which the Group has booked an additional impairment of 96 million euros. In Hungary 92 million euros additional impairments were booked as a consequence of a new act of the Hungarian government. The Hungarian government act concerning FX mortgage lending gives an option to the clients to fully repay their FX-mortgages at a forex rate predetermined by law. This act came into force on 29 September, 2011. The 92 million impairment booked in the 3Q11 results takes into account an anticipated 20% participation rate of the client side in the program and considering the exchange rates of 30 September 2011 compared to the fixed rates. The Hungarian Banking Association has taken the matter to the Constitutional Court in Budapest and the relevant institutions of the European Union.

The impairment charge on AFS (240 million euros for 9M11 and 136 million euros for 3Q11) and HTM bonds (50 million euros for 9M11 and 34 million euros in 3Q11) is almost entirely related to impairment charges on Greek bonds. More information on this impairment charge can be found in note 47.

The impairment charge on goodwill includes in 3Q11 -53 million euros on the Bulgarian banking activities reflecting both the worsening macroeconomic situation in Bulgaria and the reduced expected cash flows from CIBANK discounted at a higher discount rate.

The impairment on other includes 148 million euros regarding the sale of Fidea based on the sale price below book value. Regarding Fidea's available for sale portfolio, an unrealized gain of 52 million euros (after tax) is included in parent shareholders' equity on 30 September 2011. At the latest at the time of closing (expected in 1Q12), these unrealized gains will be reclassified from equity to profit or loss.

Financial assets and liabilities: breakdown by portfolio and product (note 18 in the annual accounts 2010)

Total
Measured excluding
at Centea &
Held for Designated Available Loans and Held to Hedging amortised Fidea
In millions of EUR trading at fair value for sale receivables maturity derivatives cost Total (IFRS 5)
FINANCIAL ASSETS, 31-12-2010
Loans and advances to credit institutions and investment
firms a 696 1 808 0 12 998 - - - 15 502 15 497
Loans and advances to customers b 4 109 6 471 0 140 087 - - - 150 666 143 183
Discount and acceptance credit 0 0 0 119 - - - 119 114
Consumer credit 0 0 0 4 274 - - - 4 274 4 024
Mortgage loans 0 380 0 61 198 - - - 61 577 55 517
Term loans 4 109 6 025 0 61 548 - - - 71 681 70 750
Finance leasing 0 0 0 4 909 - - - 4 909 4 909
Current account advances 0 0 0 4 456 - - - 4 456 4 376
Securitised loans 0 0 0 0 - - - 0 0
Other 0 66 0 3 583 - - - 3 649 3 494
Equity instruments 1 717 19 2 098 - - - - 3 833 3 613
Investment contracts (insurance) 7 329 - - - - - 7 329 7 277
Debt instruments issued by 7 709 9 727 51 020 3 477 13 629 - - 85 562 80 487
Public bodies 5 806 8 852 40 612 132 12 712 - - 68 114 63 991
Credit institutions and investment firms 731 266 5 075 224 584 - - 6 879 6 530
Corporates 1 172 610 5 333 3 122 333 - - 10 569 9 966
Derivatives 15 758 - - - - 213 - 15 970 15 970
Total carrying value excluding accrued intrest income 29 988 25 353 53 117 156 562 13 629 213 0 278 862 266 027
Accrued interest income 299 192 1 025 463 325 73 0 2 378 2 259
Total carrying value including accrued interest income 30 287 25 545 54 143 157 024 13 955 286 0 281 240 268 286
a Of which reverse repos 2 284 2 284
b Of which reverse repos 9 486 9 486
FINANCIAL ASSETS, 30-09-2011
Loans and advances to credit institutions and investment
firms a 4 758 2 260 0 14 776 - - - 21 794
Loans and advances to customers b 97 7 317 0 136 037 - - - 143 451
Discount and acceptance credit 0 0 0 85 - - - 85
Consumer credit 0 0 0 3 938 - - - 3 938
Mortgage loans 0 171 0 56 910 - - - 57 081
Term loans 97 7 071 0 61 637 - - - 68 805
Finance leasing 0 0 0 4 687 - - - 4 687
Current account advances 0 0 0 5 400 - - - 5 400
Securitised loans 0 0 0 0 - - - 0
Other 0 75 0 3 381 - - - 3 456
Equity instruments 1 054 31 1 575 - - - - 2 661
Investment contracts (insurance) 7 535 - - - - - 7 535
Debt instruments issued by 6 739 6 359 40 719 3 113 14 471 - - 71 401
Public bodies 5 266 5 673 32 500 330 13 824 - - 57 592
Credit institutions and investment firms 864 268 4 036 213 406 - - 5 787
Corporates 609 418 4 183 2 570 241 - - 8 022
Derivatives 18 205 - - - - 611 - 18 816
Total carrying value excluding accrued interest income
Accrued interest income
30 853
69
23 502
78
42 295
721
153 926
618
14 471
297
611
112
0
0
265 659
1 895
Total carrying value including accrued interest income 30 922 23 580 43 016 154 544 14 767 723 0 267 553
a Of which reverse repos
b Of which reverse repos 7 456
7 170

Reclassification of Available for sale (AFS) government bonds to Held to Maturity (HTM): In the third quarter of 2011, KBC shifted 1.7 billion euros high-rated government bonds from the AFS to the HTM portfolio.

Reclassification of AFS bonds to Loans and receivables (L&R): In the third quarter of 2011, KBC shifted 0.2 billion euros Hungarian municipal bonds from AFS to L&R

Total
Measured excluding
Designated at Centea &
Held for at fair Available Loans and Held to Hedging amortised Fidea
In millions of EUR trading value for sale receivables maturity derivatives cost Total (IFRS 5)
FINANCIAL LIABILITIES, 31-12-2010
Deposits from credit institutions and investment firms a 21 6 911 - - - - 20 924 27 856 27 856
Deposits from customers and debt certificates b 648 20 971 - - - - 176 252 197 870 189 518
Deposits from customers 0 17 069 - - - - 135 851 152 920 145 865
Demand deposits 0 57 - - - - 48 189 48 246 47 571
Time deposits 0 17 012 - - - - 42 131 59 142 58 957
Savings deposits 0 0 - - - - 40 245 40 245 34 056
Special deposits 0 0 - - - - 4 005 4 005 4 005
Other deposits 0 0 - - - - 1 281 1 281 1 276
Debt certificates 648 3 902 - - - - 40 400 44 950 43 654
Certificates of deposit 0 22 - - - - 14 965 14 987 14 987
Customer savings certificates 0 0 - - - - 2 155 2 155 858
Convertible bonds 0 0 - - - - 0 0 0
Non-convertible bonds 648 3 600 - - - - 14 427 18 674 18 674
Convertible subordinated liabilities 0 0 - - - - 0 0 0
Non-convertible subordinated liabilities 0 280 - - - - 8 854 9 134 9 134
Liabilities under investment contracts - 6 514 - - - - 179 6 693 6 642
Derivatives 22 317 0 - - - 849 - 23 166 23 166
Short positions 1 119 0 - - - - - 1 119 1 119
in equity instruments 10 0 - - - - - 10 10
in debt instruments 1 110 0 - - - - - 1 110 1 110
Other 0 145 - - - - 2 564 2 709 2 644
Total carrying value excluding accrued interest expense 24 105 34 541 - - - 849 199 919 259 414 250 946
Accrued interest expense 31 74 - - - 276 789 1 169 1 125
Total carrying value including accrued interest expense 24 136 34 615 - - - 1 124 200 707 260 582 252 070
a Of which repos
b
8 265 8 265
Of which repos 15 398 15 398
FINANCIAL LIABILITIES, 30-09-2011
Deposits from credit institutions and investment firms a 21 2 983 - - - - 21 118 24 122
Deposits from customers and debt certificates b 318 23 101 - - - - 161 034 184 453
Deposits from customers 0 18 333 - - - - 130 890 149 224
Demand deposits 0 174 - - - - 48 155 48 329
Time deposits 0 18 159 - - - - 44 127 62 287
Savings deposits 0 0 - - - - 33 227 33 227
Special deposits 0 0 - - - - 3 945 3 945
Other deposits 0 0 - - - - 1 435 1 435
Debt certificates 318 4 768 - - - - 30 144 35 230
Certificates of deposit 0 62 - - - - 7 450 7 511
Customer savings certificates 0 0 - - - - 746 746
Convertible bonds 0 0 - - - - 0 0
Non-convertible bonds 318 4 509 - - - - 13 756 18 583
Convertible subordinated liabilities 0 0 - - - - 0 0
Non-convertible subordinated liabilities 0 197 - - - - 8 192 8 389
Liabilities under investment contracts - 6 633 - - - - 154 6 787
Derivatives 23 567 0 - - - 1 351 - 24 918
Short positions 784 0 - - - - - 784
in equity instruments 3 0 - - - - - 3
in debt instruments 781 0 - - - - - 781
Other 187 0 - - - - 2 702 2 889
Total carrying value excluding accrued interest expense 24 876 32 717 - - - 1 351 185 008 243 953
Accrued interest expense 23 97 - - - 244 1 217 1 580
Total carrying value including accrued interest expense 24 899 32 814 - - - 1 595 186 225 245 533
a Of which repos 4 152
b Of which repos 16 770

Additional information on quarterly time series

Total customer loans excluding reverse repo

In millions of EUR 30-09-2010 31-12-2010 31-03-2011 30-06-2011 30-09-2011
Total 142 413 141 179 134 214 135 674 136 281
Breakdown per business unit
Belgium 51 554 51 961 52 413 53 364 54 190
Central and Eastern Europe 25 040 24 924 25 279 25 950 25 826
Merchant Banking 44 284 42 752 42 561 42 389 42 542
Group Centre (*) 21 534 21 542 13 962 13 972 13 723

(*) Figures as from 31/03/2011 are excluding Centea.

Total mortgage loans

In millions of EUR 30-09-2010 31-12-2010 31-03-2011 30-06-2011 30-09-2011
Total 60 879 61 577 55 795 56 731 57 081
Breakdown per business unit
Belgium 26 466 26 952 27 337 27 833 28 457
Central and Eastern Europe 10 338 10 503 10 677 11 045 11 019
Merchant Banking 13 025 12 809 12 633 12 550 12 460
Group Centre (*) 11 050 11 313 5 149 5 303 5 145

(*) Figures as from 31/03/2011 are excluding Centea.

Total customer deposits excluding repos

In millions of EUR 30-09-2010 31-12-2010 31-03-2011 30-06-2011 30-09-2011
Total 183 219 182 473 173 492 171 388 167 683
Breakdown per business unit
Belgium 66 570 67 663 68 554 70 802 72 687
Central and Eastern Europe 34 524 34 973 35 543 35 692 35 193
Merchant Banking 61 793 61 360 60 175 56 010 51 474
Group Centre (*) 20 332 18 477 9 221 8 884 8 329

(*) Figures as from 31/03/2011 are excluding Centea.

Technical provisions plus unit linked, life insurance

Technical provisions, Life Insurance
(In millions of EUR)
30-09-2010 31-12-2010 31-03-2011 30-06-2011 30-09-2011
Interest Interest Interest Interest Interest
Guaranteed Unit Linked Guaranteed Unit Linked Guaranteed Unit Linked Guaranteed Unit Linked Guaranteed Unit Linked
Total 18 327 7 117 7 330 18 704 7 267 18 885 7 356 18 860 7 579
Breakdown per business unit
Belgium 14 959 6 076 15 343 6 294 15 260 6 148 15 374 6 217 15 363 6 466
Central and Eastern Europe 838 701 841 691 868 783 879 803 865 779
Group Centre 2 530 340 2 586 345 2 576 336 2 633 335 2 632 334

Provisions for risks and charges (note 36 in the annual accounts 2010)

See note 8 (Other net income), for more detail on provision regarding 5/5/5 bonds.

Parent shareholders' equity and non-voting core-capital securities (note 39 in the annual accounts 2010)

in number of shares 31-12-2010 30-09-2011
Ordinary shares 357 938 193 357 938 193
of which ordinary shares that entitle the holder to a dividend payment 344 557 548 344 577 616
of which treasury shares 18 171 795 18 169 054
Non-voting core-capital securities 237 288 134 237 288 134
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'. As at 30 September 2011, this number includes, inter alia:

  • the shares that are held to meet requirements under the various employee stock option plans (889 130 shares).
  • the shares that were bought in relation to the 2007-2009 3-billion-euro share buyback program (13 360 577 shares).

Related-party transactions (note 42 in the annual accounts 2010)

During the first 9 months of 2011, there was no significant change in related parties compared to the end of 2010. In 2009, KBC entered into a guarantee agreement with the Belgian State to cover most of its potential downside risk exposure to CDOs. Included in the 3Q2011 results is the related cost of -15 million euros (-63 million euro for 9M2011), which is recognized in 'Net result from financial instruments at fair value through profit or loss'.

Note that during the second quarter of 2011, KBC paid a coupon on the non-voting core capital securities subscribed by the Belgian Federal and Flemish Regional governments for a total amount of 595 million euro.

Main changes in the scope of consolidation (note 45 in the annual accounts 2010)

9M 2010
9M 2011
For income statement comparison
Additions
None
Exclusions
Secura
Full
95,04%
------
Sold in 4Q2010
KBC Peel Hunt Ltd.
Full
100,00%
------
Sold in 4Q2010
KBC Financial Products Group
Full
100,00%
100,00%
Centea
Full
100,00%
------
Sold in 3Q2011
Name Changes
Assurisk became KBC Group Re SA
Changes in ownership percentage and internal mergers
Cibank AD
Full
83,91%
100,00%
Increase % with 16,09 (4Q10)
Nova Ljubljanska banka
Equity
30,57%
25,00%
Decrease with 5,57% (1Q11)
99,00%
Increase with 4,00% (2Q11)
Absolut Bank
Full
95,00%
For balance sheet comparison
31/12/2010
30/09/2011
Additions
None
Exclusions
Centea
Full
100,00%
------
Sold in 3Q2011
Name Changes
Assurisk became KBC Group Re SA
Changes in ownership percentage and internal mergers
Nova Ljubljanska banka
Equity
30,57%
25,00%
Decrease with 5,57% (1Q11)
Company Consolidation
method
Ownership percentage
at KBC Group level
Comments
Sale of a number of activities in 2010
Absolut Bank Full 95,00% 99,00% Increase with 4,00% (2Q11)

The sale of Centea to Crédit Agricole Group was finalised on 1 July 2011. Hence the results of the first 9 months of 2011 only include the result of the first 6 months of Centea (16 million euro after tax).

Non-current assets held for sale and discontinued operations (IFRS 5) (note 46 in the annual accounts 2010)

Situation as at 30 September 2011

On 30 September 2011, following planned divestments fulfill the criteria of IFRS 5:

  • as disposal groups without being part of a discontinued operation: Fidea. The results of Fidea are still included in the income statement's lines.
  • as disposal groups which are part of a discontinued operation: KBL EPB-group (including Vitis Life). As required by IFRS 5, the results of a discontinued operation are shown (retroactively) on one line in the income statement: Net post-tax result from discontinued operations.

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.

The other participations which are up for divestment in the future do not fulfill one or more of the criteria mentioned above on 30 September 2011:

  • for a number of them the sale within one year is not planned
  • and/or: an active program to locate a buyer has not been launched
  • and/or: it is preliminary to conclude that in the current volatile financial markets the desired sale price can be obtained so that also significant changes to the plan can be made

Summary of facts and circumstances regarding divestments

KBL EPB:

Activity:
Segment:
Other information:
Private banking
Group Centre
On 10 October, the KBC group has reached an agreement with Precision Capital for the sale of
its dedicated private banking subsidiary KBL European Private Bankers ('KBL EPB') for a total
consideration of EUR 1050 million, 50 million euros of which depend on the results of KBL
EPB ('conditional earn out')
The transaction will release a total of approximately 0.7 billion euros in capital for KBC,
resulting in a 0.6 % increase in KBC's tier-1 ratio (impact calculated on 30 June 2011). In
addition, over the last 18 months, some 115 million euros in capital have already been
released as a result of a reduction in risk-weighted assets. The transaction has a negative
impact of approximately 0.4 billion euros on KBC's third-quarter P&L.

Fidea:

Activity: Insurance
Segment: Group Centre
Other information: On 17 October, KBC Group has reached an agreement with J.C. Flowers & Co. for the sale of
its subsidiary Fidea for a total consideration of 243,6 million euros, including 22,6 million euros
pre-completion dividend and subject to pricing adjustments on closing accounts. A potential
'conditional earn out' is subject to Fidea's future results.
In total, this deal will free up around 0.1 billion euros in capital for KBC, primarily by reducing
risk-weighted assets by 1.8 billion euros, but also taking into account that the transaction has a
negative impact of approximately 0.1 billion euros on KBC's P&L. The overall positive impact
on KBC's tier-1 ratio is around 0.1% (impact calculated on 30 June 2011).

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

In millions of EUR 3Q 2010 2Q 2011 3Q 2011 9M 2010 9M 2011
A: DISCONTINUED OPERATIONS
Income statement
Income statement KBL EPB (including Vitis Life)
Net interest income 42 40 38 120 112
Net fee and commission income 89 89 84 288 272
Other income 8 2 - 12 58 13
Total income 139 131 110 466 397
Operating expenses - 112 - 97 - 115 - 346 - 320
Impairment 1 - 18 - 9 1 - 29
Share in results of associated companies 0 0 0 1 0
Result before tax 29 15 - 15 123 48
Income tax expense - 9 - 4 2 - 41 - 13
Result after tax 19 11 - 13 82 35
Result of sale of KBL EPB (including Vitis Life)
Impairment loss recognised on the remeasurement to fair value less costs to sell - 26 - 11 - 432 - 359 - 480
Tax income related to measurement to fair value less costs to sell (deferred tax) 0 0 0 0 0
Result of sale after tax - 26 - 11 - 432 - 359 - 480
Net post-tax result from discontinued operations - 7 0 - 445 - 278 - 445
Cashflow statement KBL EPB (including Vitis Life)
Net cash from (used in) operating activities 760 1 205
Net cash from (used in) investing activities - 78 - 16
Net cash from (used in) financing activities - 6 5
Net cash outflow/inflow 676 1 193

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

of which: of which:
Discon Discon
tinued tinued
Balance sheet 31-12-2010 operations 30-09-2011 operations
Assets
Cash and cash balances with central banks 437 437 186 186
Financial assets 11 359 11 299 14 580 11 468
Fair value adjustments of hedged items in portfolio hedge of interest rate risk 7 7 11 11
Tax assets 83 83 80 77
Investments in associated companies 14 14 13 13
Investment property and property and equipment 240 234 263 227
Goodwill and other intangible assets 690 690 216 216
Other assets 109 101 181 104
Total assets 12 938 12 863 15 529 12 302
Liabilities
Financial liabilities 12 489 12 489 12 214 12 171
Technical provisions insurance, before reinsurance 466 466 3 401 442
Tax liabilities 11 11 12 8
Provisions for risks and charges 28 28 28 23
Other liabilities 349 348 599 362
Total liabilities 13 341 13 341 16 254 13 006
Other comprehensive income
Available-for-sale reserve 9 8 - 67 - 67
Deferred tax on available-for-sale reserve - 6 - 6 18 18
Translation differences 10 10 10 10
Total other comprehensive income 12 12 - 39 - 39

Update government bonds on selected countries (note 47 in the annual accounts 2010)

Banking and Insurance book Trading
book
Total Banking and insurance book maturity
breakdown
AFS HTM FIV* Maturity date
in 2011
Maturity date
in 2012
Maturity date
in & after
2013
Greece 0,2 0,1 0,1 0,0 0,3 0,0 0,1 0,2
Portugal 0,1 0,1 0,0 0,0 0,1 0,0 0,0 0,1
Spain 1,8 0,2 0,0 0,0 2,1 0,1 0,5 1,5
Italy 1,7 0,5 1,6 0,0 3,8 0,0 0,4 3,3
Ireland 0,1 0,3 0,0 0,0 0,4 0,0 0,0 0,4
Total 3,9 1,2 1,7 0,0 6,7 0,1 1,0 5,5

Sovereign bonds on selected European countries, in billions of EUR, 30-09-2011, carrying amounts

* Designated at fair value through profit and loss.

Sovereign bonds on selected European countries, banking and insurance book, in billions of EUR, 30-09-2011, carrying amounts

End 2010 End 1Q11 End 2Q11 End 3Q11
Greece 0,6 0,6 0,5 0,3
Portugal 0,3 0,3 0,3 0,1
Spain 2,2 2,2 2,2 2,1
Italy 6,4 6,2 6,1 3,8
Ireland 0,5 0,4 0,4 0,4
Total 10,0 9,7 9,6 6,7

Market turbulences for sovereign bonds have not had any relevant impact on KBC's liquidity position and strategy. All sovereign bonds remain eligible for being pledged against the ECB.

In 2Q11, KBC considered Greek government bonds with maturities up to and including 2020 to be impaired due to the state of the Greek economy, discussions on restructuring the debt, downgrades of the debt, strongly decreased fair values, very high credit spreads and the expectation that financial institutions were to participate in the restructuring plan put forth on 21 July 2011 which included significant private sector support. For Greek government bonds maturing after 2020, KBC assessed the bonds not to be impaired since these bonds were not included in the scope of the private sector support.

In the third quarter the activity in the market for Greek government bonds continued to decline. As a result of the decrease in the traded volumes, KBC decided that a level 1 classification was no longer appropriate for these instruments. However, in our view the fair value for Greek government bonds can still be determined based on observable inputs. More specific, prices are still being quoted by several providers and these prices are in line with each other. In addition, the prices are frequently updated and bid and offer sizes are still quoted as well. Therefore, KBC reclassified its portfolio of Greek government bonds (carrying value at 30/09: 270 million euros) from level 1 to level 2 (for further information, see note 25 in the annual accounts 2010).

In 3Q11, KBC decided to book additional impairment on Greek government bonds due to the lower quoted prices in comparison with 30 June 2011. Contrary to the 2Q 2011, this decision applied to bonds maturing after 2020 as well.

Following impairments were recorded on the Greek bonds in 3Q 2011:

For the AFS portfolio:

The impairment was calculated as the difference between the amortized cost and the fair value as of 30 September 2011. This results in a recognition of additional impairment loss in the income statement of 140 million euros before taxes (YTD 262 million euros).

For the HTM portfolio:

The impairment was calculated as the difference between amortized cost and fair value as of 30 September 2011, resulting in an additional impairment loss of 36 million euros before taxes recognized in the income statement (YTD 54 million euros).

Carrying amount of Greek government bonds on 30 September 2011 forms on average 42% of the nominal amount of these bonds in available-for-sale and held-to-maturity portfolios.

The bonds held in the FIV and the trading portfolio are already recorded at fair value through P&L, thus no additional adjustment is needed.

No impairments were booked on the sovereign bonds of other European countries, since there is no evidence at this point that the future cash flows of these securities will be negatively impacted.

Post-balance sheet events (note 48 in the annual accounts 2010)

Significant events between the balance sheet date (30 September 2011) and the publication of this report (10 November 2011)

  • KBL EPB: (on 10 October 2011), see note 46 (Summary of facts and circumstances regarding divestments);
  • Fidea: (on 17 October 2011), see note 46 (Summary of facts and circumstances regarding divestments);

Auditor's report

Report of the statutory auditor to the shareholders of KBC Group nv on the review of the interim condensed consolidated financial statementsas of 30 September 2011 and for the nine months then ended

Introduction

We have reviewed the accompanying interim condensed consolidated balance sheet of KBC Group nv (the "Company") as at 30 September 2011 and the related interim consolidated income statement, the condensed consolidated statement of comprehensive income, the consolidated statement of changes in equity and the condensed consolidated cash flow statement for the nine-month period then ended, and explanatory notes. Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting ("IAS 34") as adopted for use in the European Union. Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.

Scope of Review

We conducted our review ("revue limitée/beperkt nazicht" as defined by the "Institut des Reviseurs d'Entreprises/Instituut van de Bedrijfsrevisoren") in accordance with the recommendation of the "Institut des Reviseurs d'Entreprises/Instituut van de Bedrijfsrevisoren" applicable to review engagements. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with the auditing standards of the "Institut des Reviseurs d'Entreprises/Instituut van de Bedrijfsrevisoren" and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 as adopted for use in the European Union.

Brussels, 10 November 2011

Ernst & Young Bedrijfsrevisoren bcvba Statutory auditor Represented by

Pierre Vanderbeek Peter Telders Partner Partner

12PVDB0041

Risk and capital management KBC Group, 3Q 2011 and 9M 2011

Not reviewed by the auditors

Extensive risk management and solvency data for 31-12-2010 is provided in KBC's 2010 Annual Report. A summary update of this information is provided below. For an explanation regarding the methodology used, please refer to the annual report.

Credit Risk

Snapshot of the credit portfolio (Banking activities, excl. KBL EPB)

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 2010)'.

Credit risk: loan portfolio overview (KBC Banking activities excl. KBL-EPB) 31-12-20101 30-09-20112
Total loan portfolio (in billions of EUR)
Amount granted 192 184
Amount outstanding 161 155
Total loan portfolio, by business unit (as a % of the portfolio of credit granted)
Belgium 31% 34%
CEE 18% 20%
Merchant Banking 36% 36%
Group Centre 15% 10%
Total 100% 100%
Impaired loans (in millions of EUR or %)
Amount outstanding 10 950 10 360
Specific loan impairments 4 696 4 505
Portfolio-based loan impairments 353 388
Credit cost ratio, per business unit
Belgium 0.15% 0.09%
CEE 1.16% 1.44%
Czech Republic 0.75% 0.27%
Slovakia 0.96% 0.37%
Hungary 1.98% 3.38%
Bulgaria 2.00% 19.12%
Merchant Banking 1.38% 0.90%
Group Centre 1.17% 0.09%
Total 0.91% 0.61%
Non-performing (NP) loans (in millions of EUR or %)
Amount outstanding 6 551 7 190
Specific loan impairments for NP loans 3 283 3 634
Non-performing ratio, per business unit
Belgium 1.5% 1.6%
CEE 5.3% 5.7%
Merchant Banking 5.2% 7.1%
Group Centre 5.8% 5.4%
Total 4.1% 4.6%
Cover ratio
Specific loan impairments for NP loans / Outstanding NP loans 50% 51%
Idem, excluding mortgage loans 60% 61%
Specific and portfolio-based loan impairments for performing and NP loans / outstanding NP loans 77% 68%
Idem, excluding mortgage loans 96% 85%
  1. 31-12-2010 figures have been restated to represent the shift of Kredyt Bank from Business Unit CEE to Business Unit Group Centre.

  2. From 30-09-2011 onward Centea is no longer included.

Further information on the provisions made for Hungary, Bulgaria and Ireland in Ireland can be found under 'Impairment – income statement (note 14 in the annual accounts 2010)'.

Credit portfolio per business unit (Banking activities, excl. KBL EPB)

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)

Loan portfolio Business Unit Belgium 30-09-2011, in millions of EUR Total outstanding amount 55.930 Counterparty break down % outst. SME / corporate 1.799 3,2% retail 54.130 96,8% o/w private 29.706 53,1% o/w companies 24.424 43,7% Mortgage loans (*) % outst. ind. LTV total 28.419 50,8% 51% o/w FX mortgages 0 0,0% o/w vintage 2007 and 2008 5.409 9,7% o/w LTV > 100% 1.177 2,1% - Probability of default (PD) % outst. low risk (PD 1-4; 0.00%-0.80%) 45.016 80,5% medium risk (PD 5-7; 0.80%-6.40%) 7.456 13,3% high risk (PD 8-10; 6.40%-100.00%) 2.516 4,5% non-performing loans (PD 11 - 12) 871 1,6% unrated 71 0,1% Other risk measures % outst. outstanding non-performing loans (NPL) 871 1,6% provisions for NPL 466 all provisions (specific + portfolio based) 554 cover NPL by all provisions (specific + portfolio) 64% 2010 Credit cost ratio (CCR) 0,15% YTD 2011 CCR 0,09% Belgium

Remark

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

Loan portfolio Business Unit Central & Eastern Europe

30-09-2011, in millions of EUR Czech republic Slovakia Hungary Bulgaria Total CEE
Total outstanding amount 19.522 4.217 6.170 711 30.621
Counterparty break down
SME / corporate
retail
o/w private
o/w companies
6.174
13.348
9.866
3.481
% outst.
31,6%
68,4%
50,5%
17,8%
2.326
1.891
1.594
297
% outst.
55,2%
44,8%
37,8%
7,0%
2.805
3.366
3.045
320
% outst.
45,5%
54,5%
49,4%
5,2%
306
406
237
169
% outst.
43,0%
57,0%
33,3%
23,8%
11.610
19.010
14.742
4.268
% outst.
37,9%
62,1%
48,1%
13,9%
Mortgage loans (1)
total
o/w FX mortgages
o/w vintage 2007 and 2008
o/w LTV > 100%
6.210
0
2.206
424
% outst.
31,8%
0,0%
11,3%
2,2%
ind. LTV
67%
-
-
-
1.332
0
336
0
% outst.
31,6%
0,0%
8,0%
0,0%
ind. LTV
58%
-
-
-
2.584
2.251
1.343
532
% outst.
41,9%
36,5%
21,8%
8,6%
ind. LTV
75%
79%
-
-
111
65
56
12
% outst.
15,5%
9,2%
7,9%
1,6%
ind. LTV
61%
-
-
64% 10.237
2.317
3.942
968
% outst.
33,4%
7,6%
12,9%
3,2%
Probability of default (PD)
low risk (PD 1-4; 0.00%-0.80%)
medium risk (PD 5-7; 0.80%-6.40%)
high risk (PD 8-10; 6.40%-100.00%)
non-performing loans (PD 11 - 12)
unrated
12.082
5.857
869
713
1
% outst.
61,9%
30,0%
4,5%
3,7%
0,0%
2.800
902
162
190
164
% outst.
66,4%
21,4%
3,8%
4,5%
3,9%
3.327
1.550
706
583
3
% outst.
53,9%
25,1%
11,4%
9,4%
0,1%
3
222
134
246
106
% outst.
0,5%
31,2%
18,9%
34,6%
14,9%
18.213
8.531
1.872
1.731
274
% outst.
59,5%
27,9%
6,1%
5,7%
0,9%
Other risk measures
outstanding non-performing loans (NPL)
provisions for NPL
all provisions (specific + portfolio based)
cover NPL by all provisions (specific + portfolio)
2010 Credit cost ratio (CCR) (2)
YTD 2011 CCR (local currency) (2)
713
403
517
72%
0,75%
0,27%
% outst.
3,7%
190
117
154
81%
0,96%
0,37%
% outst.
4,5%
583
322
488 (5)
84%
1,98%
3,38%
% outst.
9,4%
246
138
140
57%
2,00%
19,12%
% outst.
34,6%
1.731
980
1.299
75%
1,16%
1,44%
% outst.
5,7%

Remarks

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

(2) individual CCR's in local currencies.

(3) pre-tax loss if currency depreciates further by 30%

(4) pre-tax loss if both currency depreciates further by 30% and property value falls further by 30%

(5) provision during 3Q 2011 for the FX loans, based on a 20% client participation rate in the new act by the Hungarian government, where booked as portfolio based impairments (see 'Impairment – income statement (note 14 in the annual accounts 2010)').

Loan portfolio Business Unit Merchant Banking
30-09-2011, in millions of EUR
Belgium Western Europe o/w Ireland USA Southeast Asia Global Credit Investments Total Merchant Banking
Total outstanding amount 19.874 21.518 16.780 4.375 1.062 2.293 3.754 52.876
Counterparty break down
SME / corporate
retail
o/w private
o/w companies
19.874
0
0
0
% outst.
100,0%
0,0%
0,0%
0,0%
8.673
12.845
12.845
0
% outst.
40,3%
59,7%
59,7%
0,0%
3.934
12.845
12.845
0
% outst.
23,4%
76,6%
76,6%
0,0%
4.375
0
0
0
% outst.
100,0%
0,0%
0,0%
0,0%
1.062
0
0
0
% outst.
100,0%
0,0%
0,0%
0,0%
2.293
0
0
0
% outst.
100,0%
0,0%
0,0%
0,0%
3.754
0
0
0
% outst.
100,0%
0,0%
0,0%
0,0%
40.031
12.845
12.845
0
% outst.
75,7%
24,3%
24,3%
0,0%
Mortgage loans (*)
total
o/w FX mortgages
o/w vintage 2007 and 2008
o/w LTV > 100%
0
0
0
0
% outst. ind. LTV
0,0%
0,0%
-
0,0%
-
0,0%
-
- 12.845
0
4.691
7.527
59,7%
0,0%
21,8%
35,0%
% outst. ind. LTV
106%
-
-
-
12.845
0
4.691
7.527
% outst. ind. LTV
76,6%
0,0%
28,0%
44,9%
106%
-
-
-
0
0
0
0
% outst. ind. LTV
0,0%
0,0%
0,0%
0,0%
-
0
-
0
-
0
-
0
% outst. ind. LTV
0,0%
0,0%
0,0%
0,0%
-
0
-
0
-
0
-
0
% outst. ind. LTV
0,0%
0,0%
0,0%
0,0%
-
0
-
0
-
0
-
0
0,0%
0,0%
0,0%
0,0%
% outst. ind. LTV
-
-
-
- 12.845
0
4.691
7.527
% outst.
24,3%
0,0%
8,9%
14,2%
Probability of default (PD)
low risk (PD 1-4; 0.00%-0.80%)
medium risk (PD 5-7; 0.80%-6.40%)
high risk (PD 8-10; 6.40%-100.00%)
non-performing loans (PD 11 - 12)
unrated
13.033
4.117
911
701
1.113
% outst.
65,6%
20,7%
4,6%
3,5%
5,6%
10.051
4.767
3.688
2.878
134
% outst.
46,7%
22,2%
17,1%
13,4%
0,6%
7.756
3.690
2.780
2.553
0
% outst.
46,2%
22,0%
16,6%
15,2%
0,0%
3.456
571
195
90
63
% outst.
79,0%
13,0%
4,5%
2,0%
1,4%
674
302
62
23
0
% outst.
63,4%
28,5%
5,8%
2,2%
0,0%
1.206
809
207
61
11
% outst.
9,0%
2,6%
2.768
804
144
0
38
% outst.
73,7%
21,4%
3,8%
0,0%
1,0%
31.188
11.370
5.206
3.752
1.360
% outst.
59,0%
21,5%
9,8%
7,1%
2,6%
Other risk measures
outstanding non-performing loans (NPL)
provisions for NPL
all provisions (specific + portfolio based)
cover NPL by all provisions (specific + portfolio)
2010 Credit cost ratio (CCR)
YTD 2011 CCR
701
501
634
90%
n.a.
n.a.
% outst.
3,5%
2.878
956
1.328
46%
n.a.
n.a.
% outst.
13,4%
2.553
789
1.017
40%
2,98%
2,22%
% outst.
15,2%
90
70
81
90%
n.a.
n.a.
% outst.
2,0%
23
17
38
163%
n.a.
n.a.
% outst.
2,2%
61
58
60
98%
n.a.
n.a.
% outst.
2,6%
0
0
29
-
n.a.
n.a.
% outst.
0,0%
3.752
1.601
2.216
59%
1,38%
0,90%
% outst.
7,1%

Remarks

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

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)

Global = Structured Trade Finance, Foreign branch in Dublin (Syndicated loans), KBC Bank Head-office

Credit Investments = KBC Credit Investments

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

Loan portfolio Business Unit Group Centre (excl. EPB)
30-09-2011, in millions of EUR
Belgium CEER o/w Poland o/w Russia Western Europe Global Total Group Centre (excl. EPB)
Total outstanding amount 1.422 9.771 7.491 2.020 2.460 1.929 15.582
Counterparty break down
SME / corporate
retail
o/w private
o/w companies
1.422
0
0
0
% outst.
100,0%
0,0%
0,0%
0,0%
3.702
6.069
5.821
248
% outst.
37,9%
62,1%
59,6%
2,5%
2.489
5.002
4.830
172
% outst.
33,2%
66,8%
64,5%
2,3%
1.046
975
899
76
% outst.
51,8%
48,2%
44,5%
3,8%
2.460
0
0
0
% outst.
100,0%
0,0%
0,0%
0,0%
1.929
0
0
0
% outst.
100,0%
0,0%
0,0%
0,0%
9.513
6.069
5.821
248
% outst.
61,1%
38,9%
37,4%
1,6%
Mortgage loans (*)
total
o/w FX mortgages
o/w vintage 2007 and 2008
o/w LTV > 100%
0
0
0
0
0,0%
0,0%
0,0%
0,0%
% outst. ind. LTV
51%
-
-
-
4.913
3.062
3.041
1.720
50,3%
31,3%
31,1%
17,6%
% outst. ind. LTV
-
-
-
-
4.092
2.779
2.567
1.687
% outst. ind. LTV
54,6%
37,1%
34,3%
22,5%
95%
110%
-
-
747
210
431
22
37,0%
10,4%
21,3%
1,1%
% outst. ind. LTV
55%
55%
-
-
0
0
0
0
% outst. ind. LTV
0,0%
0,0%
0,0%
0,0%
-
-
-
-
0
0
0
0
% outst. ind. LTV
0,0%
0,0%
0,0%
0,0%
-
-
-
-
4.913
3.062
3.041
1.720
% outst.
31,5%
19,7%
19,5%
11,0%
Probability of default (PD)
low risk (PD 1-4; 0.00%-0.80%)
medium risk (PD 5-7; 0.80%-6.40%)
high risk (PD 8-10; 6.40%-100.00%)
non-performing loans (PD 11 - 12)
unrated
113
896
232
162
19
% outst.
7,9%
63,0%
16,3%
11,4%
1,3%
5.078
2.884
789
565
455
% outst.
52,0%
29,5%
8,1%
5,8%
4,7%
4.240
1.940
695
309
307
% outst.
56,6%
25,9%
9,3%
4,1%
4,1%
829
847
71
230
44
% outst.
41,0%
41,9%
3,5%
11,4%
2,2%
1.510
658
211
71
10
% outst.
61,4%
26,7%
8,6%
2,9%
0,4%
405
1.326
150
37
11
% outst.
7,8%
1,9%
7.106
5.764
1.381
835
495
% outst.
45,6%
37,0%
8,9%
5,4%
3,2%
Other risk measures
outstanding non-performing loans (NPL)
provisions for NPL
all provisions (specific + portfolio based)
cover NPL by all provisions (specific + portfolio)
2010 Credit cost ratio (CCR)
YTD 2011 CCR (local currency)
162
138
145
90%
n.a.
n.a.
% outst.
11,4%
565
379
493
87%
n.a.
n.a.
% outst.
5,8%
309
221
310
100%
1,45%
0,36%
% outst.
4,1%
230
146
171
74%
0,90%
-2,87%
% outst.
11,4%
71
54
92
130%
1,39%
1,17%
% outst.
2,9%
37
14
43
114%
0,78%
0,75%
% outst.
1,9%
835
586
824
99%
1,17%
0,09%
% outst.
5,4%

Remarks

Belgium = Antwerpse Diamantbank (incl. ADB Asia Pacific) CEER = Kredyt Bk, KBC Banka, Absolut Bk Western Europe = KBC Bank Deutschland Global = KBC Finance Ireland

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

Outstanding1 structured credit exposure (banking – including KBL EPB - and insurance activities)

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 ('hedged CDO-linked exposure' in the table).
  • KBC invested in structured credit products, both in CDOs (notes and super senior tranches), largely those originated by KBC itself ('unhedged CDO exposure' in the table) and in other ABS ('other ABS' 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.
In billions of EUR – 30-09-2011
KBC investments in structured credit products (CDOs and other ABS)*
Total nominal amount
o/w hedged CDO exposure
o/w unhedged CDO exposure
20.6
10.9
6.4
o/w other ABS exposure 3.3
Cumulative value markdowns (mid 2007 to date)* -5.7
o/w value markdowns -4.7
for unhedged CDO exposure -4.2
for other ABS exposure -0.5
o/w Credit Value Adjustment (CVA) on MBIA cover -1.1

* 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 2011, KBC continued its de-risking strategy related to the CDO and structured credit exposures resulting in a total notional reduction of 3.2 billion EUR in Q3.

The most important components of this decrease of exposure are the early termination of the Fulham Road CDO, the sale of KBC's exposure in the Wadsworth CDO and the sale of the underlying assets for the expired Aldersgate and Chiswell CDOs as well as further sales of impaired assets of the ex-Atomium portfolio.

The early termination of the Fulham Road CDO led to a nominal reduction of -1.7 billion EUR of hedged exposure and -0.3 billion EUR of unhedged exposure.

The sale of KBC's exposure in the Wadsworth CDO resulted in a reduction of nominal hedged exposure of -0.5 billion EUR.

In terms of ABS, the sale of the underlying assets for the expired Aldersgate and Chiswell CDOs as well as the sale of the impaired assets of the ex-Atomium portfolio along with other minor sales resulted in a further nominal reduction of exposure of -0.7 billion EUR.

Since the inception, the unhedged CDO positions held by KBC experienced net effective losses caused by claimed credit events until 7 October 2011 in the lower tranches of the CDO structure for a total amount of -2.1 billion euro's. Of these, -1.7 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.

In February 2009, MBIA announced a restructuring plan, which included a spin-off of valuable assets, provoking a steep decline in its creditworthiness. The increase of the market value of the underlying swap in combination with the increased counterparty risk, resulted in significant additional negative value adjustments at KBC. KBC and other institutions filed court

1 Figures exclude all expired, unwound and terminated CDOs.

cases after MBIA announced its restructuring plan. After reaching an out of court settlement with MBIA, KBC on 6 September 2011 dropped out of the litigation. However, this has no impact on the protection bought from MBIA for the still outstanding CDOs.

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 13.9 billion EUR of which 10.9 billion EUR relates to the exposure insured by MBIA. The remaining 3 billion EUR of exposure covered by the contract with the Belgian State relates to the unhedged 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 hedged CDO exposure (insurance for CDO-linked risks received from MBIA), 30-09-2011 In billions of EUR

Total insured amount (notional amount of super senior swaps)1 10.9
Details for MBIA insurance coverage
- Fair value of insurance coverage received (modelled replacement value, after taking the Guarantee Agreement into account) 1.5
- CVA for counterparty risk, MBIA -1.1
(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, KBL EPB and 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%. The internal target for the tier-1 capital ratio at group level has been set at 10%.

In millions of EUR 31-12-2010 30-09-2011
Regulatory capital
Total regulatory capital, KBC Group (after profit appropriation) 21 726 20 644
Tier-1 capital 16 656 16 399
Parent shareholders' equity 11 147 9 834
Non-voting core-capital securities (2) 7 000 7 000
Intangible fixed assets (-) - 429 - 436
Goodwill on consolidation (-) - 2 517 - 1 887
Innovative hybrid tier-1 instruments (2) 598 606
Non-innovative hybrid tier-1 instruments (2) 1 689 1 690
Minority interests 161 153
Equity guarantee (Belgian State) 446 628
Revaluation reserve available-for-sale assets (-) - 66 - 197
Hedging reserve, cashflow hedges (-) 443 521
Valuation diff. in fin. liabilities at fair value - own credit risk (-) - 190 - 334
Minority interest in AFS reserve & hedging reserve, cashflow hedges (-) - 3 - 3
Equalization reserve (-) - 128 - 135
Dividend payout (-) (3) - 854 - 449
IRB provision shortfall (50%) (-) 0 0
Limitation of deferred tax assets - 243 - 234
Items to be deducted (1) (-) - 397 - 357
Tier-2 & 3 capital 5 069 4 245
Perpetuals (incl. hybrid tier-1 not used in tier-1) 30 30
Revaluation reserve, available-for-sale shares (at 90%) 392 187
Minority interest in revaluation reserve AFS shares (at 90%) 0 0
IRB provision excess (+) 132 515
Subordinated liabilities 4 730 3 822
Tier-3 capital 182 48
IRB provision shortfall (50%) (-) 0 0
Items to be deducted (1) (-) - 397 - 357
Capital requirement
Total weighted risks 132 034 120 652
Banking 116 129 104 446
Insurance 15 676 16 040
Holding activities 264 256
Elimination of intercompany transactions between banking and holding activities - 34 - 90
Solvency ratios
Tier-1 ratio 12,62% 13,59%
Core Tier-1 ratio 10,88% 11,69%
CAD ratio 16,45% 17,11%

(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 31/12/2010: includes 595 million euros coupon on non-voting core capital securities and 259 million euros dividend on ordinary shares

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.

KBC Bank (consolidated)

In millions of EUR 31-12-2010
Basel II
30-09-2011
Basel II
Regulatory capital
Total regulatory capital, KBC Bank (after profit appropriation) 18 552 16 675
Tier 1-capital 13 809 12 498
Tier 2- & 3-capital 4 743 4 177
Total weighted risk volume 111 711 100 208
Credit risk 97 683 86 292
Market risk 3 279 3 166
Operational risk 10 749 10 749
Solvency ratios
Tier-1 ratio 12,36% 12,47%
Core tier-1 ratio 10,48% 10,37%
CAD ratio 16,61% 16,64%

KBC Insurance (consolidated)

in millions of EUR 31-12-2010 30-09-2011
Available capital 2 712 2 634
Required solvency margin 1 254 1 283
Solvency ratios and surplus
Solvency ratio (%) 216% 205%
Solvency surplus, in millions of EUR 1 458 1 350

Presentation KBC Group, 3Q 2011

Investor Relations Office

E-mail: [email protected]

Go to www.kbc.com for the latest update

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.

Execution of our strategic plan gains further momentum

Core profitability in home markets remains intact, but 3Q11 results were affected by the execution of our strategy (KBL, Fidea), one-off items (Greek government bonds, 5-5-5 bonds, Hungary, Bulgaria) and market-driven items (CDO, Ireland, share portfolio)

Impairment on Greek gov. bonds at 30 Sep 2011 was fully booked at 58% of the nominal amount

  • Sizeable reduction of volatile elements: CDO, ABS, Southern European government bond exposure
  • Comfortable capital position. The Belgian regulator confirmed to us that the YES (Yield Enhanced Sec.) will be fully grandfathered as common equity under the current CRD4 proposal
  • Intention to reimburse 500m EUR at 15% premium before end 2011 to Federal Government without pari passu, waived by the Flemish Government until end of 2012
  • Solid liquidity position remains strong
  • The run-rate of loan loss provisions in Ireland is estimated at roughly 200m EUR for the next couple of quarters

4

Good Oct'11 results lead to FY11 guidance for underlying net profit of 1.2bn EUR – 1.4bn EUR

1 Refocused KBC taking shape
2 3Q 2011 results affected by a range of one-off and market-driven items
3 Core profitability of KBC remains intact in difficult years
4 Comfortable solvency and solid liquidity position
5 Areas of attention
6 Wrap up
Annex: 3Q11 underlying performance of business units

Section 1 Refocused KBC Taking Shape

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

Signed:

KBL European Private Bankers

Fidea

In preparation / work-in-progress for 2011/2012/2013
Kredyt
Bank
Warta
Absolut
Bank
KBC Banka
NLB
Zagiel
Antwerp Diamond Bank
KBC Germany
Global Project Finance
International leasing outside home markets
KBC Real Estate Development

Strategic plan progress Execution risk sharply reduced

Where are we mid-November 2011, in terms of execution?

Stream 1: We have signed an agreement to sell KBL epb

Stream 2: We have completed the sale of Centea + signed an agreement to sell Fidea

Stream 3: The divestment process of Warta and Kredyt Bank is on track, with a sufficient number of interested candidates, given the strategic importance

Stream 4: PIIGS exposure down by 47% between end 2Q11 and end October 2011, impairment on Greek government bonds fully booked at 58% on notional amount

Stream 5: CDO/ABS exposure reduced by 3.6bn EUR, projected capital relief (0.5bn EUR) already reached target

Stream 6: RWA at 115bn EUR (pro forma), reduction better than initially planned

Stream 1: Divestment of KBL epb

KBC branded private banking in Belgium maintained

KBL epb: Pure play private banking with network of local brands

Key data at KBC consolidated level at end 9M11:

  • AuM: 44bn EUR
  • RWA: 4.2bn EUR
  • Book value: 0.9bn EUR (incl. 0.2bn EUR goodwill at sublevel)
  • Goodwill at parent level: 0bn EUR (fully impaired)
  • Underlying net profit YTD: 47m EUR

  • Transaction immediately restarted in March 2011

  • Beginning of October: agreement with Precision Capital (Qatar) signed
  • Transaction price: 1.05bn EUR
    • o 2.4% of AuM
    • o 1.5x KBL's Tangible Book Value
  • Capital contribution of 0.8bn EUR (incl. impact reduced RWAs in meantime) was still within the targeted capital relief range of 0.8bn – 1.5bn EUR
  • KBC's tier-1 ratio will rise by 0.6% (at closing)
  • Closing expected in 1Q12

Stream 2: Divestment of Belgian complementary distribution channels

1H11
Total assets 10.3bn EUR
RWA 4.2bn EUR
Market share 1%-2%
Agents approx. 700
Book value
Goodwill
Underlying net profit YTD +23m EUR
9M11
Total assets 3.4bn EUR
RWA 1.8bn EUR
Market share 1%-2%
Agents approx. 4200
Book value
(after 'impairment on other' of 0.1bn EUR)
231m EUR
Goodwill 0
Underlying net profit YTD +8m EUR
  • 4 March: agreement with Crédit Agricole Group (Belgium) announced
  • 1 July: Sale of Centea to Crédit Agricole Group (Belgium) finalised
  • Transaction price: 0.53bn EUR + 0.07bn EUR dividend ≈ 1x BV
  • Total capital relief of 0.4bn EUR

=> KBC's tier-1 ratio rose by 0.4%

  • 17 October: agreement with J.C. Flowers & Co. announced
  • Transaction price: 0.24bn EUR + 0.02bn EUR dividend ≈ 0.65x BV
  • Total capital relief of 0.1bn EUR
  • Closing expected in 1Q12

=> KBC's tier-1 ratio will rise by 0.1% (at closing)

Stream 3: Divestment of Kredyt Bank and Warta

  • 12 July : KBC Group proposed an amendment to its strategic review plan announced in November 2009: replacing the IPO of a minority stake of CSOB Bank and K&H Bank + the sale & lease back of the headquarter offices by the divestment of Kredyt Bank and Warta + the accelerated sale or unwind of selected ABS and CDO assets
  • 27 July : Amendment approved by European Commission
  • We are sticking to our previous guided range in terms of expected capital relief expected from the divestments (i.e. 1.8bn EUR - 2.4bn EUR), including the increase in earnings power

Stream 4: PIIGS exposure down by 47%

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

End 2010 End 1Q11 End 2Q11 End 3Q11 End Oct'11
Portugal 0.3 0.3 0.3 0.1 0.1
Ireland 0.5 0.4 0.4 0.4 0.4
Italy 6.4 6.2 6.1 3.8 2.2
Greece 0.6 0.6 0.5 0.3 0.3
Spain 2.2 2.2 2.2 2.1 2.1
TOTAL 10.0 9.7 9.6 6.7 5.1

Between end 2Q11 and end October 2011, KBC reduced its PIIGS exposure (carrying amount) by 47%:

  • Italy: reduction of 3.9bn EUR
  • Portugal: reduction of 0.2bn EUR
  • Greece: reduction of 0.2bn EUR
  • Spain: reduction of 0.1bn EUR
  • TOTAL reduction of 4.5bn EUR

Stream 5: CDO/ABS exposure reduced

  • 12 July: KBC Group proposed an amendment to its strategic review plan announced in November 2009
  • 27 July: Amendment approved by European Commission
  • Projected capital range of 0.3-0.4bn EUR from the sale of selected ABS assets and unwinding of CDO assets has already been exceeded, without any substantial impact on P&L:
  • Sold 0.7bn EUR in notional amount of US ABS assets to the market
  • Unwound 3 CDOs, reducing the outstanding notional amount of CDOs by 2.9bn EUR (of which 2.5bn EUR in 3Q11)
  • Total capital relief: 0.5bn EUR

=> KBC's tier-1 ratio rose by 0.7%

• We will continue to look at reducing our ABS and CDO exposure, which will lead to additional capital relief and lower P&L volatility

Stream 6: RWA reduction better than initially planned

KBC Group risk weighted assets (in bn EUR)

Section 2 3Q results affected by a range of one-off and market-driven items

Financial highlights 3Q 2011

  • Net group profit in 3Q11 has been affected by the execution of our strategy (KBL epb, Fidea), one-off items (Greek government bonds, 5-5-5 bonds, Hungary, Bulgaria) and market-driven items (CDO, Ireland, share portfolio). Excluding these one-offs, underlying net group profit amounted to 222m in 3Q11
  • Sustained level of net interest margin and volumes up in Belgium and Central & Eastern Europe
  • Slight decrease in net fee and commission income, in line with the trend in assets under management given investors' reduced risk appetite and the negative price trend
  • Excellent combined ratio of 90% YTD as a result of low claims. Increased premium income for non-life and higher life insurance sales attributable entirely to higher sales in unit-linked products
  • Weak level of income generated by the dealing room
  • Underlying cost/income ratio at 58% YTD (excluding the provision for the 5-5-5 bonds)
  • Credit cost ratio at 0.61% YTD and only 0.32% YTD excluding one-offs. Post-tax impairment of 126m EUR for Greek government bonds
  • Consistently strong liquidity position
  • Solvency: continued strong capital base. Pro forma tier-1 ratio including the effect of divestments for which a sale agreement has been signed to date – at approximately 14.4%

Underlying net profit

Amounts in m EUR

17

3Q results affected by a range of one-offs and market-driven items (1)

3Q11 underlying profit level includes -470m EUR one-offs (Greece, Hungary and Bulgaria):

Additional impairments on our Greek government bonds : 176m EUR pre-tax and 126m EUR post-tax (58% impairment and M2M change through P&L in total versus nominal amount)

Impact of 5-5-5 bonds: 263m EUR pre-tax and 174m EUR post-tax. If no credit event under ISDA definition occurs, the provision will be reversed

  • New FX mortgage repayment law in Hungary led to additional provisions of 92m EUR in 3Q11 (74m EUR post-tax), based on an estimated participation rate of 20%
  • Critical assessment of exposures in Bulgaria led to additional impairments of 96m EUR (pre- = post-tax)

In addition, 3Q11 underlying results were also impacted by market-driven items:

Impairments on AFS shares: 87m EUR (pre-tax = post-tax)

Loan loss provisions in Ireland amounted to 187m EUR pre-tax in 3Q11 (versus 49m EUR in 2Q11) and 164m EUR post-tax. Going forward, the run-rate of loan loss provisions in Ireland is estimated at roughly 200m EUR for the next couple of quarters

3Q results affected by a range of one-offs and market-driven items (2)

At non-recurring profit level: total impact of -1 331m EUR (post-tax)

  • 3Q11 results already include the impairment of 0.6bn EUR on the divestments of KBL and Fidea.
  • Widening corporate credit spread during 3Q11 resulted in unrealised losses of 0.6bn EUR on CDOs/MBIA. Since the end of 3Q11, the corporate credit spreads have tightened again. As a result, 30% of the unrealised losses booked in 3Q11 could already be reversed in October 2011.
  • M2M losses of 245 m EUR relating to ALM derivatives used for hedging purposes, partly offset by +185m EUR M2M of own credit risk
  • Goodwill impairment at CIBank (Bulgaria) of 53m EUR

Underlying net profit adjusted for one-offs

Adjusted for one-offs (Greek government bonds, 5-5-5 bonds, Hungary and Bulgaria), underlying net group profit amounted to 222m EUR in 3Q11 (of which 171m EUR in BE BU, 167m EUR in CEE BU, -102m EUR in MEB BU and -15m EUR in GC BU)

  • Net interest income fell by 5% year-on-year and 3% quarter-on-quarter, mainly due to the deconsolidation of Centea
  • Net interest margin (1.98%)
  • NIM at group level remained at the same level as last quarter
  • Pattern of NIM in Belgium stable (+1bp quarter-on-quarter to 1.43%).
  • NIM in Central/Eastern Europe increased 9bps quarter-on-quarter to 3.33%, largely attributable to the currency impact
  • Loan volumes rose by 1% y-o-y. The growth of loan volumes in the Belgium and CEE business units (respectively 5% and 3% y-o-y) was partly offset by a further reduction in the international loan book (Merchant Banking and Russia) in line with strategic focus. Deposit volumes fell by 4% y-o-y mainly due to a decrease in institutional deposits (deposit volumes -17% y-o-y in MEB BU), only partly offset by increased deposit volumes in the BE and CEE BU(resp. +9% and +3% y-o-y)

  • Net fee and commission income stabilised year-on-year (+2% y-o-y excluding Secura, which was sold in 4Q10), but fell by 7% quarter-on-quarter

  • Net F&C income from the banking business went down by 5% q-o-q in line with the trend in assets under management
  • Assets under management dropped by 9% year-on-year and 5% quarter-on-quarter (partly by negative price trend, partly by net outflows) to 193bn EUR at the end of 3Q11

Sales Non-Life Sales Life

  • The sale of Non-Life insurance products (gross written premium) fell by 5% quarter-on-quarter (decrease is mainly visible in the Belgium Business Unit and the Group Center Business Unit)
  • The sale of Non-Life insurance products rose by roughly 7% year-on-year excluding Secura, which was sold in 4Q10
  • The sale of Life insurance products rose by 27% year-on-year and 8% quarter-on-quarter. This increase was driven by higher sales of unit-linked products, partially offset by lower sales of interest guaranteed product.
  • The increased sale of unit-linked products is mostly attributable to the Belgian business unit, mainly thanks to the successful issue of the KBC Life MI product (deliberate shift from interest guaranteed products to unitlinked products in Belgium)

975 972 2Q 2011 1Q 2011 1,141 4Q 2010 1,151 3Q 2010 1,075 2Q 2010 1,146 1Q 2010 1,249 4Q 2009 1,169 3Q 2009 1,122 2Q 2009 1,256 1Q 2009 1,308 3Q 2011

  • Insurance premium income at 972m EUR
  • Non-life premium income (477m) up 2% q-o-q and up 7% y-o-y excluding Secura, which was sold in 4Q10
  • Life premium income (496m) down 2% q-o-q and 14% y-o-y, mainly due to lower sales of guaranteed-interest products at the Belgium Business Unit and the Group Centre unit. This was offset by higher sales of unit-linked products, especially at the Belgium Business Unit
  • Excellent combined ratio of 96% in 3Q11, down from 103% recorded in 3Q10 attributable entirely to a lower level of claims (compared with the high claims for floods in CEE in 3Q10). Combined ratio of 90% YTD
  • The low figure for net gains from financial instruments at fair value (10m EUR) is primarily the result of weak dealing room activity

  • Gains realised on AFS came to 11m EUR

  • Dividend income amounted to 14m EUR (slightly higher than in 3Q10)

Underlying operating expenses - Group

  • Costs remained well under control: +1% q-o-q and -3% y-o-y
  • Operating expenses rose by 1% q-o-q to 1,172m EUR in 3Q11 mainly due to an increase in staff expenses (due to inflation, a slight increase in FTE and voluntary redundancy payments), offset partly by the deconsolidation of Centea
  • Operating expenses fell by 3% y-o-y in 3Q11. Main drivers were the impact of deconsolidated entities and the Hungarian bank tax (which was booked in 3Q10 for the full year 2010). Excluding these items, operating expenses rose by 5% y-o-y
  • Underlying cost/income ratio for banking stood at 61% YTD (and 58% YTD excluding the 5-5-5 bond provision)

Underlying asset impairment - Group

  • Substantially higher impairments (740m EUR)
  • Quarter-on-quarter increase of 311m EUR in loan loss provisions, mainly due to the high impairment levels at K&H Bank, Bulgaria and KBC Bank Ireland
  • Impairment of 176m EUR for Greek government bonds (126m EUR post-tax)
  • Impairment of 87m EUR on AFS shares, mainly at KBC Insurance

Underlying loan loss provisions – Group

  • Credit cost ratio fell to 0.61% YTD (compared to 0.91% in 2010 and 1.11% in 2009). Excluding several impairment releases in 1Q11 and excluding the 3Q11 'one-off 'impairments booked for Bulgaria, K&H Bank (due to new FX measure) and KBC Bank Ireland, the credit cost ratio was 0.32% YTD. The NPL ratio amounted to 4.6%
  • Credit cost ratio in Belgium remained at a (very) low level
  • Sharply higher credit cost in CEE (+193m EUR q-o-q) due to Bulgaria (very illiquid domestic Real Estate marketplace) and K&H Bank (impact of new law on FX mortgages), partly offset by a decrease at CSOB Bank CZ and SK. Excluding the 'one-off' impairments for CI Bank and K&H Bank, the CCR amounted to 0.62% YTD
  • Credit cost significantly higher in Merchant Banking (+110m EUR q-o-q) driven by KBC Bank Ireland (+138m EUR q-o-q). Excluding Ireland, the CCR in Merchant Banking remained low at 28bps YTD
Loan
book
2007
FY
2008
FY
2009
FY
2010
FY
9M11
YTD
'Old' BU reporting 'New' BU reporting
Belgium 56bn 0.13% 0.09% 0.17% 0.15% 0.09%
CEE 31bn 0.26% 0.73% 2.12% 1.16% 1.44%
CEE (excl. 3Q11 one-offs) 0.62%
Merchant B.
(incl. Ireland)
53bn 0.02% 0.48% 1.32% 1.38% 0.90%
Merchant B.
(excl. Ireland)
36bn 0.02% 0.53% 1.44% 0.67% 0.28%
Total Group 155bn 0.13% 0.46% 1.11% 0.91% 0.61%

Credit cost ratio (CCR)

NPL ratio at Group level

3Q 2011 Non-Performing
Loans
(>90 days
overdue)
High risk
(probability
of
default
>6.4%)
Restructured
loans (probability
of default >6.4%)
Belgium
BU
1.6% 3.2% 1.3%
CEE BU 5.7% 3.4% 2.7%
MEB BU 7.1% 5.3% 4.5%

NPL ratios per business unit

BELGIUM BU CEE BU

non performing loans

3Q 11 2Q 11 1Q 11 4Q 10 3Q 10 2Q 10 1Q 10 4Q 09 3Q 09 2Q 09 1Q 09

MEB BU

Section 3 Core profitability of KBC remains intact in difficult years

Core earnings power intact

* 9M11 annualised with neutralisation of impact of 5-5-5 bonds

Core earnings power intact, with a significantly reduced risk profile (trading), despite drastic RWA reduction of 41bn EUR

Section 4 Comfortable solvency and solid liquidity position

Comfortable capital position

Strong core tier-1 ratio of 11.7% at KBC Group as at 30 September 2011

Pro forma core tier-1 ratio – including the effect of divestments for which a sale agreement has been signed to date – of 12.6% at KBC Group

Favourable peer group comparison

Source: Company filings, BoAML, SNL as of June 2011

(1) Pro forma Tier 1 ratio of 14.3% if taking into account effect of divestments for which a sale agreement has been signed to date (i.e. 9th August 2011)

(2) Group solvency

(3) Excluding cashes

Core Tier 1 as of Jun-11 (Basel II)

Tier 1 as of Jun-11 (Basel II)

Comfortable capital position

  • Strong tier-1 ratio of 13.6% (14.4% pro forma) at KBC group as at 30 September 2011 comfortably meets the minimum required tier-1 ratio of 11% (under Basel 2)
  • Both KBC Group and KBC Bank meet the 9% core tier-1 threshold under the EBA definition (capital position as per 30 June 2011 according to B2.5 and adjusted to take account of the sovereign exposures marked down (at 30 June 2011)). The preliminary capital buffer as identified at the end of June is sufficient to cover 3Q11 results
  • The Belgian regulator confirmed to us that the YES (Yield Enhanced Securities) will be fully grandfathered as common equity under the current CRD4 proposal
  • Ambition to repay 7bn EUR by the end of 2013

36 As of 19 December 2011, conversion of all or part of the federal YES into ordinary shares (1 for 1) may be requested by KBC Group. If KBC Group seeks such conversion, the Belgian State may choose to receive a cash payment with redemption at 15% premium until mid-December 2012. Intention to reimburse 500m EUR at 15% premium before end 2011 to Federal Government without pari passu, waived by the Flemish Government until end of 2012

RWA at end 2013 substantially lower than initially communicated

Taking into account the sale of our Polish entities, the lower-than-initially-estimated impact on RWA of CRD3, B3 and Solvency2, the reduction in RWA due to the shift from IRB Foundation to IRB Advanced and lower-than-expected organic growth, we estimate that RWA will amount to110bn EUR at the end of 2013 (instead of the 151bn EUR previously estimated)

A solid liquidity position (1)

• KBC Bank further improved its already excellent funding profile, as reflected by the increased part of stable funding from customers. This underlines our retail, SME, mid-cap bancassurance model with a relatively low risk profile

A solid liquidity position (2)

  • No need to issue new benchmarks/term debt in the next quarters given that
  • Our total mid/long-term funding (22bn EUR) only represents 7%-8% of total assets/funding (which is relatively limited) – with only limited amounts maturing each year
  • Long-term funding needs decrease as actions to reduce RWA continue
  • KBC has increased the amount of mid-term/long-term funding attracted from its retail customer base. As such, we have already attracted 5.7bn EUR LT funding YTD from our retail clients (funding with term > 1 year apart from other stable retail funding)
  • A regulation for the issuance of covered bonds is expected to be approved soon in Belgium
  • LTD ratio of 85% at KBC Bank at the end of September 2011 LTD ratio KBC Bank

A solid liquidity position (3)

The recourse on net short-term funding is limited, and this latter is three times covered by a buffer consisting of central banks eligible assets

Upcoming mid-term funding maturities in 2011

KBC Bank NV has 3 solid sources of EMTN Funding:

  • Public Benchmark transactions
  • Structured Notes using the Private Placement format
  • Retail EMTN

Overview of LT EMTN funding attracted in 2011 in wholesale and Belgian Retail market through KBC Ifima N.V.

  • KBC Bank NV (through KBC Ifima N.V.) using its EMTN programme (40bn EUR)) has raised 4.1bn EUR LT in 2011 (YTD 03/11/2011). This debt programme was updated on 13 July 2011
  • KBC Bank NV also has a US MTN programme (10bn USD) available for structuring debt capital market transactions in the US. This debt programme was updated on 15 April 2011

Section 5 Areas of attention

Effects of Greek assistance programme

  • With regard to all Greek sovereign bonds it holds (also those maturing after 2020), KBC recorded impairments amounting to an additional 176m EUR pre-tax / 126m post-tax at underlying level in 3Q11 (on top op the 139m EUR pre-tax / 102m post-tax already recognised in 2Q11)
  • Calculation method:
  • Both the AFS and HTM bonds are impaired to their fair value (market prices) as at 30 September 2011
  • As a result, the carrying amount of Greek government bonds on 30 September 2011 forms on average 42% of the nominal amount of these bonds and KBC has impaired 58%, fully booked
  • Breakdown of the impairments per business unit at underlying level:
(m EUR) Impairments
on
AFS
Impairments
on
HTM
Total
pre-tax
impairments
Total post-tax
impairments
Belgium
BU
-66 -13 -79 -52
CEE BU -45 0 -45 -37
MEB BU -1 -7 -9 -7
GC BU -28 -16 -43 -29
TOTAL -140 -36 -176 -126
  • Ireland's implementation of severe austerity measures led to a 13% decline in average household income from peak to current. This resulted in intensifying mortgage arrears and NPL in 3Q11. Retail mortgage loss provisions for 3Q11 were 62m EUR compared to a run rate of 25m EUR per quarter in 1H11
  • The weak domestic economy and virtual absence of new transactional activity led to further downward valuations of collateral supporting the commercial portfolio. Commercial loan loss provisions for 3Q11 were 125m EUR compared to 22.5m EUR per quarter in 1H11
  • The NPL coverage ratio for the mortgage portfolio when compared on a like for like basis is in line with the Bank's Irish mortgage peer group 12% 14% 16% 18%
  • Considering the continued deterioration in the loan portfolio during 3Q11, we anticipate a continuing high level of loan loss provisions in the next couple of quarters of 200m EUR (pre-tax)
  • Net income before loan provisions for the 9 months was 172m EUR with a loss after provisions of 110m EUR (post-tax)
  • The core tier-1 ratio amounted to 9.24% at the end of 3Q11
Irish loan book –
key figures September 2011
Loan portfolio Outstanding NPL NPL
coverage
Owner occupied 9.6bn 10.5% 27%
mortgages 29%
Buy to let mortgages 3.2bn 16.2% 33%
SME /corporate 2.1bn 16.1% 43%
Real estate investment 1.4bn 23.3% 42%
Real estate development 0.5bn 67.4% 81% 63%
16.8bn 15.2% 40%

Proportion of High Risk and NPLs

  • The negative underlying result of K&H Group (-26m EUR YTD) is due to the recognition of the Hungarian bank tax for the full year 2011 in 1Q11 (62m EUR before tax / 51m post-tax) and impairment for the expected impact of the new law on FX mortgage repayment in 3Q11 (92m EUR before tax)
  • Loan loss provisions in 3Q11 amounted to 126 m EUR, 92m EUR of which is for the expected impact of the new law on FX mortgage repayment (see details on the next slide). The CCR came to 3.38% YTD (and 1.66% YTD excluding the loan loss provision of 92m EUR)
  • NPL rose to 9.4% in 3Q11 (9.1% in 2Q11), an increase attributable mainly to retail lending
  • New law on FX mortgage repayment: 20% participation rate expected (see details on the next slide)
  • As a result, NPL ratio for the mortgage loans (private) is expected to increase to roughly 15% by the end of the year, partly due to technical reasons

Hungary (2): new law on FX mortgages

  • Newly implemented measure: possibility for a full repayment of FX mortgage loans at a fixed exchange rate (for CHF it is a HUF/CHF of 180, which represents a discount of approx. 25% on the prevailing market FX rates). The possibility is open until year-end 2011 for customers to announce their intention to repay with a deadline of end of February 2012 to actually settle
  • Impact on K&H: still difficult to define given the uncertainty about the participation rate
  • The eligible FX mortgage portfolio is approximately 2.0bn EUR (denominated largely in CHF)
  • Impairment estimation: Q3 financial statement includes impairment of 92m EUR for the expected impact of FX mortgage repayment assuming a 20% participation rate (i.e. approx. 17,000 K&H customers repaying)

Hungary (3)

Hungarian loan book – key figures September 2011
Loan portfolio Outstanding
NPL
NPL coverage
SME/Corporate 2.8bn 7.7% 69%
Retail 3.4bn 10.8% 94%
o/w private 3.0bn 10.8% 96%*
o/w companies 0.3bn 10.3% 76%
6.2bn 9.4% 84%**

* Includes the loan loss provisions of 92m EUR for the expected impact of the new law on FX mortgage repayment.

** Excluding the loan loss provisions of 92m EUR, the NPL coverage ratio for Hungary would have been 68%

Proportion of NPLs

• The Bulgarian credit portfolio contains a part of loans granted before the acquisition by KBC, which is primarily linked to the Commercial Real Estate sector. It is monitored separately from the core SME and retail business

• Given the domestic Real Estate market has not improved, KBC reassessed its required provisioning levels in 3Q11. This led to additional loan loss provisions totaling 96m EUR in 3Q11, which the Group will book resulting in a NPL coverage ratio of 57%

• Due to the more difficult macroeconomic environment, KBC also decided to impair goodwill in the amount of 53m EUR

Update on outstanding* CDO exposure at KBC (end 3Q11)

Outstanding CDO exposure (bn
EUR)
Notional Outstanding
markdowns
-
Hedged portfolio
-
Unhedged
portfolio
10.9
6.4
-1.1
-4.2
TOTAL 17.3 -5.3
Amounts
in bn
EUR
Total
Outstanding
value
adjustments
Claimed
and settled
losses
-
Of which
impact of settled
credit events
-5.3
-2.1
-1.7

P&L impact** of a shift in corporate and ABS credit spreads (reflecting credit risk)

10% 20% 50%
Spread tightening +0.2bn +0.3bn +0.8bn
Spread widening -0.0bn -0.1bn -0.4bn
  • The total notional amount decreased by roughly 2.5bn EUR, mainly as a result of the early termination of the Fulham CDO (roughly -2.0 bn EUR) and the sale of the position in the Wadsworth CDO (roughly -0.5 bn EUR)
  • Outstanding value adjustments amounted to 5.3bn EUR at the end of 3Q11
  • Claimed and settled losses amounted to 2.1bn EUR
  • Within the scope of the sensitivity tests, the value adjustments reflect a 17% cumulative loss in the underlying corporate risk (approx. 86% of the underlying collateral consists of corporate reference names)
  • Reminder: CDO exposure largely written down or covered by a State guarantee

* Figures exclude all expired, unwound or terminated CDOs

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

Maturity schedule for CDO portfolio

Maturity schedule for CDO positions issued by KBC Financial Products

The total FP CDO exposure includes the 'unhedged' own investment portfolio as well as the 'hedged' portfolio that is insured by MBIA

Summary of government transactions (1)

  • State guarantee on 13.9bn* euros' worth of CDO-linked instruments
  • Scope
    • o CDO investments that were not yet written down to zero (3.0bn EUR) when the transaction was finalised
    • o CDO-linked exposure to MBIA, the US monoline insurer (10.9bn EUR)
  • First and second tranche: 3.6bn EUR, impact on P&L borne in full by KBC, KBC has option to call on equity capital increase up to 1.5bn EUR (90% of 1.6bn EUR) from the Belgian State
  • Third tranche: 10.3bn EUR, 10% of potential impact borne by KBC
  • Instrument by instrument approach

Summary of government transactions (2)

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

Section 6 Wrap up

Execution of our strategic plan gains further momentum

Core profitability in home markets remains intact, but 3Q11 results were affected by the execution of our strategy (KBL, Fidea), one-off items (Greek government bonds, 5-5-5 bonds, Hungary, Bulgaria) and market-driven items (CDO, Ireland, share portfolio)

Impairment on Greek gov. bonds at 30 Sep 2011 was fully booked at 58% of the nominal amount

  • Sizeable reduction of volatile elements: CDO, ABS, Southern European government bond exposure
  • Comfortable capital position. The Belgian regulator confirmed to us that the YES (Yield Enhanced Sec.) will be fully grandfathered as common equity under the current CRD4 proposal
  • Intention to reimburse 500m EUR at 15% premium before end 2011 to Federal Government without pari passu, waived by the Flemish Government until end of 2012
  • Solid liquidity position remains strong
  • The run-rate of loan loss provisions in Ireland is estimated at roughly 200m EUR for the next couple of quarters
  • 55 Good Oct'11 results lead to FY11 guidance for underlying net profit of 1.2bn EUR – 1.4bn EUR

Annex 3Q 2011 underlying performance of business units

Belgium Business Unit

Volume trend

Total
loans **
Of which
mortgages
Customer
deposits
AuM Life
reserves
Volume 54bn 28bn 73bn 138bn 22bn
Growth q/q* +2% +2% +3% -4% +1%
Growth y/y +5% +8% +9% -9% +4%

* Non-annualised

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

  • The contribution of the Belgium Business Unit to underlying net group profit came to only 32m EUR. This can be explained by i) the provision of 132m EUR pre-tax/87m EUR post-tax for the 5-5-5 product, ii) the impairment of 79m EUR pre-tax/52m EUR post-tax for Greek government bonds, iii) the impairment of 77m EUR pre-tax/post-tax on AFS shares, iv) lower net realised gains from AFS assets and v) lower dividend income
  • Increase in quarter-on-quarter and year-on-year loan volume, driven by mortgage loan growth
  • Deposit volumes went up by 3% quarter-on-quarter and as much as 9% year-on-year

3Q11 underlying net profit in Belgium Business Unit adjusted for one-offs

Corrected for one-offs (impairments Greek government bonds and impact 5-5-5 product), the underlying net group profit in the Belgium Business Unit amounted to 171m EUR in 3Q11

Belgium Business Unit (2)

• Net interest income (581m EUR) remained healthy

  • An increase of 5% y-o-y (no less than +7% y-o-y excluding Secura in 3Q10) and flat q-o-q
  • The net interest margin increased by 1bp q-o-q to 1.43%. The negative impact of increased competition on the mortgage loan portfolio and the lower margins on current accounts were more than offset by higher margins on saving deposits. The current NIM remains much higher than the 2H 2008 level (1.19% in 3Q08 and 1.25% in 4Q08)

Credit margins in Belgium

Product spread on new production

Belgium Business Unit (3)

• Net fee and commission income (169m EUR)

  • Net fee and commission income from banking activities (206m EUR) decreased by 3% q-o-q due to lower risk appetite, leading to lower entry fees on mutual funds. Management fees on mutual funds were impacted by lower assets under management. Net fee and commission income from banking activities decreased by 5% y-o-y, partly due to the sale of KBC Asset Management Ltd (sold in 4Q10)
  • Commission related to insurance activities (-37m EUR, mainly commission paid to insurance agents) was higher than the previous quarter (+9%), but considerably lower than a year earlier (-21%), partly related to the sale of Secura
  • Assets under management fell by 4% q-o-q to 138bn EUR, partly driven by the negative price trend

Belgium Business Unit (4)

  • Operating expenses: +4% quarter-on-quarter and +12% year-on-year
  • Operating expenses rose by 4% q-o-q due to several one-offs (mainly voluntary redundancy payments). Excluding these one-offs, operating expenses were flat q-o-q
  • Operating expenses were up 12% y-o-y (and 13% y-o-y excluding Secura), half of which is due to technical items and the remainder to higher staff costs, higher contribution to the Belgian Deposit Guarantee Scheme and staff expenses
  • Underlying cost/income ratio: 64% YTD (and 59% YTD excluding the provision for the 5-5-5 product)
  • Loan loss provisions remained at a low level (10m EUR). Credit cost ratio of 9 bps YTD. NPL ratio at 1.6%. Furthermore, impairment of 79m EUR pre-tax was recorded for Greek government bonds and of 77m EUR was recognised on shares at KBC Insurance

Volume trend

Total
loans **
Of which
mortgages
Customer
deposits
AUM Life
reserves
Volume 26bn 11bn 35bn 11bn 2bn
Growth q/q* +1% +0% +1% -8% -2%
Growth y/y +3% +4% +3% -15% +7%

* Non-annualised

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

  • Underlying profit at CEE Business Unit of -40m EUR
  • CEE profit breakdown: 116m Czech Republic, 13m Slovakia, -50m Hungary, 1m Bulgaria, other -120m other (mainly due to the booking at KBC Group level for Bulgaria and funding costs of goodwill)
  • Results from the banking business were negatively impacted by significantly higher loan loss provisions (Bulgaria and K&H Bank) and impairment of 37m EUR post-tax for Greece (almost fully borne by the Czech Republic)
  • Results from the insurance business were impacted by a higher combined ratio (due almost entirely to higher claims ratio)

3Q11 underlying net profit in CEE Business Unit adjusted for one-offs

Corrected for one-offs (Greek government bonds, Hungary and Bulgaria), underlying net group profit in the CEE Business Unit amounted to 167m EUR in 3Q11

Organic growth(*)

Total loans Mortgages Deposits
q/q y/y q/q y/y q/q y/y
CZ +3% +8% +2% +9% 1% +4%
SK +2% +9% +4% +20% -2% 0%
HU -3% -10% -5% -11% +4% +3%
BU -16% -21% -19% -21% +4% +3%
TOTAL +1% +3% +0% +4% +1% +3%
  • The total loan book rose by 1% q-o-q and 3% y-o-y. On a y-o-y basis, the increases in Slovakia (+9% y-o-y thanks to an increase in mortgage loans) and the Czech Republic (+8% y-o-y) was only partly offset by decreases in Hungary and Bulgaria
  • Total deposits increased by 1% q-o-q and 3% y-o-y
  • Loan to deposit ratio at 74%

  • At 388m EUR, net interest income rose by 2% q-o-q, but fell by 2% y-o-y (organic growth only)

  • The net interest margin increased by 9bps to 3.33% (largely thanks to the FX effect). Net interest income was up slightly q-o-q thanks to CSOB Bank CZ

86 84 76 76 72 78 81 2Q 2011 1Q 2011 4Q 2010 3Q 2010 2Q 2010 1Q 2010 3Q 2011 2Q 2011 12.2 1Q 2011 12.3 4Q 2010 12.7 3Q 2010 13.2 2Q 2010 12.6 1Q 2010 13.4 3Q 2011 11.2 F&C AUM Amounts in bn EUR

  • Net fee and commission income (84m EUR). Excluding technical items, net fee and commission income rose by 3% y-o-y
  • Assets under management fell by 8% q-o-q to roughly 11bn EUR, mainly driven by the negative price trend (-6% q-o-q)

• Operating expenses (297m EUR) fell by 1% q-o-q and 14% y-o-y on an organic basis (excluding FX impact)

  • The 14% y-o-y decrease was mainly caused by the recording of the Hungarian bank tax in 3Q10 for the full year 2010 (57m EUR pre-tax / 46m EUR post-tax). Excluding the Hungarian bank tax and other technical items, opex fell by 1% y-o-y
  • YTD cost/income ratio at 57% (53% excluding Hung. bank tax)
  • Asset impairment at 280m
  • L&R impairments increased sharply due to Bulgaria (very illiquid domestic Real Estate marketplace) and K&H Bank (impact of new law on FX mortgages), leading to a credit cost ratio of 1.44% YTD (1.16% in FY10). NPL ratio at 5.7%
  • Impairment of 45m EUR pre-tax was recorded for Greek gov. bonds
Loan
book
2008*
CCR
2009*
CCR
2010
CCR
9M11
CCR
CEE 31bn 0.73% 2.12% 1.16% 1.44%
-
Czech Rep.
-
Hungary
-
Slovakia
-
Bulgaria
20bn
6bn
4bn
1bn
0.38%
0.41%
0.82%
1.49%
1.12%
2.01%
1.56%
2.22%
0.75%
1.98%
0.96%
2.00%
0.27%
3.38%
0.37%
19.12%

* CCR according to 'old' business unit reporting'

Merchant Banking Business Unit

Volume trend

Total
loans
Customer
deposits
Volume 43bn 51bn
Growth q/q* 0% -8%
Growth y/y* -4% -17%

*non-annualised

  • Underlying net profit in the Merchant Banking Business Unit totalled -196m EUR. Adjusted for the one-offs (Greece), underlying net profit amounted to -102m EUR
  • The lower q-o-q result from Commercial Banking of 129m EUR in 3Q11 can be explained entirely by higher loan loss provisions at KBC Bank Ireland. Excluding KBC Bank Ireland, the 3Q11 result would be 3m EUR higher q-o-q
  • The result from Market Activities of -81m EUR was also down sharply q-o-q, due mainly to provisions of 132m EUR pre-tax / 87m EUR for the 5-5-5 product and substantially lower dealing room results at KBC Bank Belgium
  • Reminder: a significant part of the merchant banking activities (assets to be divested) has been shifted to the Group Centre since 1Q10

3Q11 underlying net profit in MEB Business Unit adjusted for one-offs

Adjusted for one-offs (Greek government bonds and 5-5-5 bonds), underlying net group profit in the Merchant Banking Business Unit amounted to -102m EUR in 3Q11

Merchant Banking Business Unit (2)

  • Risk weighted assets in Commercial Banking stabilised, while risk weighted assets in Market Activities fell by 2.5bn EUR (mainly thanks to reduced CDO/ABS exposure)
  • Net interest income (relating to the Commercial Banking division) remained roughly at the same level q-o-q, despite slightly higher senior debt costs. Net interest income sharply fell y-o-y due to Ireland, a reduced loan portfolio and higher senior debt costs.

Merchant Banking Business Unit (3)

  • Net fee and commission income of 43m EUR was 10m EUR lower q-o-q, partly on account of the deconsolidation in 3Q11 of the subsidiaries of KBC Securities that had been sold
  • Low fair value gains within the 'Market Activities' sub-unit, largely due to weak dealing room activities

Merchant Banking Business Unit (4)

  • Operating expenses increased by 1% both year-on-year and quarter-on-quarter to 143m EUR. Underlying cost/income ratio: 48% YTD (and 42% YTD excluding the provision for the 5-5-5 product)
  • Total impairments amounted to 215m EUR in 2Q11
  • Higher q-o-q L&R impairments can be accounted for in full by KBC Bank Ireland (loan loss provisions in 3Q11 of 187m EUR compared with 49m EUR in 2Q11). Credit cost ratio at 0.90% YTD and NPL ratio at 7.1% (0.28% YTD and 3.3%, respectively, excluding KBC Bank Ireland)
  • Impairment of 9m EUR pre-tax for Greek government bonds

  • Besides the existing activities of the holding and shared-services companies at 'Group Centre', all upcoming divestments were shifted to 'Group Centre' from 1Q10 onwards. The q-o-q decrease in net group profit is chiefly attributable to the results of the companies that have been earmarked for divestment in the coming years. Note that the divestment of Centea was finalised on 1 July 2011 (3Q11), while the sale of KBL epb and Fidea was announced in October 2011

  • Only the planned divestments are included. The Merchant Banking activities that will be wound down organically have not been shifted to the 'Group Centre'

3Q11 underlying net profit in Group Centre Business Unit adjusted for one-offs

Adjusted for one-offs (Greek government bonds), underlying net group profit in the Group Centre Business Unit amounted to -15m EUR in 3Q11

Breakdown of underlying net group profit

3Q11
Group item
(ongoing
business)
-17
Planned
divestments
-27
-
Centea
0
-
Fidea
-15
-
Kredyt
Bank
11
-
Warta
15
-
Absolut Bank
17
-
'old' Merchant
Banking activities
-8
-
KBL EPB
-13
-
Other
-34
TOTAL underlying
net group
profit
-44

NPL, NPL formation and restructured loans in Russia

1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011
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%
Restructured loans 10.3% 10.3% 9.7% 6.3% 4.2% 3.9% 3.9%
Loan loss provisions (m EUR) 0 19 12 -9 -29 -9 -8

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