KBC Group
“Is Benelux boring?”
UBS Benelux Financials Conference, September 2006
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 the
information is condensed and therefore incomplete.
 This presentation contains forward-looking statements, involving
numerous assumptions and uncertainties. The risk exists 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.
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Contents
 The Benelux demystified
 What makes KBC different
 Conclusions
2
The Benelux “demystified”
There are many common misunderstandings about the Benelux market.
I would like to invite you to identify the valid and false statements:






The
The
The
The
The
The
Benelux
Benelux
Benelux
Benelux
Benelux
Benelux
is a small market
is a “consolidated” market
is a “low growth” market
ia a “low efficiency / high cost” market
is a low risk market
is a “low margin / low profitability” market
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Is the Be(ne)lux a small market ?
 Banking assets per capita in the Benelux are at the high end
of the European spectrum, higher than e.g. France and
Germany
 As a consequence, unlike the limited number of inhabitants,
total banking assets in the Benelux are approx. 1.5 times
higher than in countries like Spain and Italy
 However, “the Benelux market does not exist”. It comprises
3 sovereign states, 3 languages, 3 markets with different
players and different characteristics and dynamics
 KBC is a Belux player, operating on the Belgian market with a
significant (off-shore) wealth-management presence in
Luxembourg
Banking assets per capita
(in ‘000 euros)
Mutual funds, AUM per capita
(in ‘000 euros) – May 2006
1 600
25
1 500
20
140
120
100
80
60
40
20
0
15
Avg EU12
10
5
0
IT
Source: ECB
SP
FR
GE
BE
NL
UK
LU
NL
SP
GE
IT
UK
FR
BE
Source: Feri FMI
4
Is Belgium a consolidated market ?
Share of the 5 largest banks in total assets
Market share of 4 largest Belgian banks
100%
100%
80%
80%
60%
60%
Avg EU12
40%
40%
20%
20%
0%
0%
GE
IT
Source: ECB
LU
UK
SP
FR
NL
BE
Savings deposits
Mortgages
Mutual funds
Source: Annual reports
 Concentration is high, with top-5 institutions holding appx. 85% of the
market
 In Belgium, the bancassurance model prevails (all important players are
bancassurers) and cross selling rates typically are very high:
banking products X mortgages X asset management X insurance
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Is Belgium a low growth market ?
KBC, Belgium,
% y/y
Total
loans
Mort
gages
Customer
deposits
Life
reserves
Assets under
management
Growth, 1H06
+9%
+15%
+3%
+34%
+21%
Growth, 2005
+8%
+16%
+4%
+38%
+31%
Growth, 2004
+5%
+9%
+10%
+28%
+20%
 Belgium has experienced “high” growth in
many fields
Mutual funds, AUM, est. net sales
 Core growth drivers are:
(in m euros)June 2005 - May 2006
• House price inflation (from low average
80000
house price levels) driving mortgage book
70000
growth and, consequently, building the
60000
basis for further cross selling
50000
• High savings rate, historic low private
40000
pension building and muted popularity of
30000
20000
offshore investments driving wealth
10000
management growth
0
 Shift from traditional customer deposits to offNL
SP
UK
GE
IT
BE
FR
balance sheet products (incl. unit-linked Life)
Source: Feri FMI
driven by “overliquid” bank balance sheets
(sector average loans to deposits at 75%)
6
Is Belgium a high cost market ?
Branches/’ 000 population
KBC, Cost/income ratio, Belgium
0.6
100%
90%
80%
0.5
0.4
70%
60%
0.3
50%
0.2
40%
30%
0.1
20%
10%
0%
0
NL
UK
FR
BE
IT
GE
LU
2001
2002
2003
2004
2005
1H06
Source: ECB
 Average staff cost tends to be high with high fiscal/social securities charges
and high proportion of higher-educated (better paid) staff
 Nevertheless, productivity gains have brought C/I levels to decent averages
(however, best-in-class C/I levels, such as e.g. in the UK and Spain seem to
be out of reach)
7
Is Belgium a low risk area ?
KBC, loan loss ratio, Belgium
Private loans to GDP
0.32%
250%
0.29%
0.24%
200%
Avg EU12
0.24%
0.23%
150%
100%
0.09%
50%
0.03%
0.02%
2005
1H06
0%
BE
IT
FR
GE
NL
SP
UK
LU
1999
2000 *
2001
2002
2003
2004
Source: ECB
 The (private) economy is moderately leveraged:
• Household and corporate loans to GDP: 70% (vs. 95% average in Europe)
• Savings rate is high – has been for decades amongst the highest in Europe
 Credit exposure is well-diversified:
• Mostly retail / SME business
• The number of corporates with a market cap > 1 bn is only 30
* restated
8
Is Belgium a low profit market ?
KBC, Belgium, NIM and
gross revenue margin vs RWA*
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
NIM
2001
Gross margin to RWA
2002
2003
2004
2005
1H06
 NIM in Belgium is at the low side (1.94% at KBC in 6M06) due to:
• The high government bond portfolios (reinvestment of excess of deposits)
• Competitive presssure in the mortgage field
 However, NI spreads are not a good denominator for profitability:
• Risk is low -> please look at risk-adjusted margins
• Cross selling (F&C income) is high:
– Explains why competition in ‘customer binding products’ such as mortgages is
high
– Far less price competition in Fee & Commission generating products
– Gross margin (incl. F&C) to RWA was at ca. 9% !
* The increase in gross margin as of 2005 is due to new accounting treatment (IFRS)
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What makes KBC different to its peers ?
We believe KBC has the following “competitive” advantages:
 Geographical presence
 Structuring capabilities in the Asset Management field
 Distribution business model
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KBC’s geographical presence
Number of branches in 2005
Belgium
Total
KBC
Brussels
North
South
946
80%
10%
4 564
60%
30%
a.o. Fortis
1 109
-
-
Dexia
1 054
-
-
804
-
-
Sector
ING
Source: Annual reports
 For historicial reasons, KBC is mainly present in the Northern part of the country:
• 90% of branches in the North, 10% in the South
• 35% market share in the North, 5% in the South
 This is highly important since the Northern region is much wealthier that the
Southern
Population
(in m)
GDP/
capita
(euros)
GDP
growth
Unemployment rate
Avg sales
price houses
(in ‘000 EUR)
North
6.1
27 356
2.2%
6%
122
South
3.4
19 858
1.7%
12%
81
2004 figures
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KBC’s structuring capabilities in AM
KBC, retail funds, market share, Belgium
Breakdown of KBC’s retail funds, Belgium
30 June 2006
35%
33%
31%
Funds of
funds, 18%
29%
27%
Unit-linked
products,
4%
Equity funds,
11%
25%
23%
21%
19%
17%
15%
2001
2002
2003
2004
2005
1Q06
Capitalguaranteed
funds, 40%
Fixedincome &
balanced
funds, 27%
 Since >10 consecutive years, KBC has been able to increase its market share
in mutual funds
 The market has a predominantly risk-adverse investment culture and is highly
receptive for “structured retail funds”, (e.g. capital guaranteed products) for
which KBC has strong product design capabilities:
• Broad product range: 200 new “products” launched in 2006
• Short term to market: 20 days on average from idea to launch
• Highly cost effective AM product factory : C/I ratio 15% (excl. distribution
cost)
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KBC’s distribution business model
 Integrated business model:
• One single “governance” from top to bottom (no seperate management,
no seperate budgets, no seperate marketing, …)
• Integrated distribution channels:
– Single branding, product offering and pricing
– Shared customer database
– Streamlined product profitability (shadow accounting)
 High level of “customer ownership” via branches and tied agents (limited share
of broker channel)
KBC, insurance distribution channels
Tied agents
Bank branches
KBC, insurance, sales volume
and market share
Independent brokers
21%
20%
Market share
Sales volume (m EUR)
9 000
8 000
7 000
6 000
5 000
4 000
3 000
2 000
1 000
0
15%
10%
5%
10%
69%
0%
2001
2002
2003
2004
2005
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Conclusions
KBC has an attractive proposition for you:
 Interesting growth potential : in Belgium (and, moreover, in CEE)
 Winning business model : bancassurance – asset management
 Modest risk profile
 Strict capital discipline and conservative acquisition policy at Group level
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Additional information
KBC at a glance
COMPANY PROFILE
 Top-20 financial player in Europe
with a 32 bn euros market cap
 Active in banking, wealth
management and insurance with a
strongly integrated business
model
 Focus on retail and SME
 Key geographical markets:
• Top-3 position in Belgium
(3m customers)
• Top-3 position in CEE
(9m customers)
SHAREHOLDER PROPOSITION
 Attractive franchises:
• Interesting growth potential:
CEE and (surprise?) Belgium
• Winning bancassurance model
• Modest risk profile
 Capital discipline:
• Dividend policy oriented towards
yearly increasing dividend
• Conservative acquisition policy
• 2006 share buy-back (1 bn)
 Increased share visibility, liquidity,
transparancy
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Financial track record
Return on equity
Net profit
In m EUR
25%
12%
14%
FY03*
FY04*
2 249
18%
1 305
FY05
1H06
FY03*
1 615
FY04*
1 725
FY05
1H06

Over the last years, the financial performance improved significantly.

FY06 profit is expected to outgrow 3.2 bn euros

KBC will update its mid-term financial objectives before the end of
the year.
*Pro forma for the “new” KBC group
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Share return track record
Share price (31 December 2005= 100)
KBC
DJ EURO STOXX banks
( da ily c lo s ing pric e s )
Se
p06
Au
g06
Ju
l-0
6
Ju
n06
06
M
ay
-
06
Ap
r-
06
M
ar
-
Fe
b06
Ja
n06
D
ec
-0
5
119%
117%
115%
113%
111%
109%
107%
105%
103%
101%
99%
97%
95%
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Current valuation
Key figures:
 Share price: 84.4 euros
 Book value: 42.9 euros
 Daily traded volume 8M06 : 54m euro
Analyst estimates:1
 2006 EPS consensus: 9.11 euros (+46%)²
 2007 EPS consensus: 7.87euros
 2007 P/E: 10.7
Recommendations:
 Positive: 67%
 Neutral: 33%
 Negative: 0%
Valuation relative to peer group
weighted
P/E 2007
unweighted
P/E 2007
CEE banks 3
14.8
14.6
CEE-exposed banks 3
12.2
11.4
Euro-zone banks 4
10.7
11.0
KBC 1
10.7
10.7
BEL banks 5
9.8
9.8
Weighted and unweighted averages of IBES data :
3 OTP, Komercni, Pekao, BPH PBK, BRE
4 Erste, Unicredit, Soc. Gen., Intesa BCI, BA-CA, RZB Int.
5 Top-20 DJ Euro Stoxx Banks
6 Fortis, Dexia
Situation as at 4 September 2006
1
2
Smart consenus collected by KBC (21 estimates)
2006 estimates contain one-off items
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Analysts’ opinions
Broker
Name analyst
Tel
Ron Heydenrijk
+44 20 7678 0442
Ivan Lathouders
Situation on 4 September 2006
Rating
Target
price
Buy
110
+32 2 287 91 76
Accumulate
95
Jaap Meijer
+31 20 573 06 66
Outperform
105
Kiri Vijayarajah
+44-20-7986-4258
Buy
98
Ivan Vatchkov
+44 20 7888 0873
Outperform
101
Carlo Ponfoort
+32 3 204 77 11
Accumulate
99
Gaelle Jarrousse
+44 20 7547 6226
Hold
88
Patrick Leclerc
+33 1 42 99 25 12
Outperform
105
Kurt Debaenst
+32 2 565 60 42
Hold
97
Alain Tchibozo
+33 1 56 39 32 84
Buy
106
Christophe Ricetti
+33 1 58 55 05 22
Buy
95
Paul Formanko
+44 20 7325 6028
Overweight
92
Jean-Pierre Lambert
+44 20 7663 5292
Market perform
96
Albert Ploegh
+31 20 563 2382
Buy
100
Manus Costello
+44 20 7996 1953
Neutral
88
Scander Bentchikou
+33 1 44 51 83 08
Add
95
Ton Gietman
+31 20 573 54 63
Hold
92
Bart van der Feen de Lille
+31 20 460 48 65
Hold
95
Eric Vanpoucke
+33 142 13 82 43
Neutral
93
Simon Chiavarini
+44 20 7568 2131
Buy
110
Ralf Breuer
+49 211 826 4987
Buy
103
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Contact information
Investor Relations Office
Luc Cool, Director of IR
E-mail: investor.relations@kbc.com
Surf to www.kbc.com for the latest update
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