1

GROWTH IN CEE COUNTRIES“Czech Evidence”

Jaromír Sladkovský

FPK Conference, London 14 December 2004

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LEGAL DISCLAIMER

• THIS PRESENTATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY.

• ALTHOUGH THE STATEMENTS OF FACT IN THIS PRESENTATION HAVE BEEN OBTAINED FROM AND ARE BASED UPON SOURCES THAT KBC BELIEVES TO BE RELIABLE, KBC DO NOT GUARANTEE THEIR ACCURACY, AND ANY SUCH INFORMATION MAY BE CONDENSED OR INCOMPLETE.

• THIS PRESENTATION CONTAINS FORWARD-LOOKING STATEMENTS WITH RESPECT TO OUR STRATEGIES AND EARNINGS DEVELOPMENT BY THEIR NATURE, THESE FORWARD-LOOKING STATEMNTS INVOLVE NUMEROUS ASSUMPTIONS, UNCERTAINTIES AND OPPORTUNITIES. THE RISK EXISTS THAT THESE STATEMENTS MAY NOT BE FULFILLED AND THAT FUTURE RESULTS DIFFER MATERIALLY.

• BY RECEIVING THIS PRESENTATION EACH INVESTOR IS DEEMED TO REPRESENT THAT IT IS A SOPHISTICATED INVESTOR AND POSSESSES SUFFICIENT INVESTMENT EXPERTISE TO UNDERSTAND THE RISKS INVOLVED.

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TABLE OF CONTENTS

INTRODUCTION

CURRENT SITUATION IN CR

FUTURE GROWTH POTENTIAL IN CR

KBC POSITIONING IN CR

4

COUNTRIES WITH KBC PRESENCE

POLANDpopulation 38.2mGDP* 46%bank assets** 104m

Source: OECD, Statistics of National Banks*) GDP per capita - EU25=100% (PPP)

**) as of the end of 2003 (EUR)

CZECH REPUBLICpopulation 10.2mGDP 73%bank assets 80m

SLOVAKIApopulation 5.4mGDP 51%bank assets 24m

HUNGARYpopulation 10.1mGDP 61%bank assets 56m

SLOVENIApopulation 2.0mGDP 77%bank assets 22m

5

WHERE WILL THE VALUE CREATION COME FROM IN CR IN FUTURE ?

M&A Activities

• Limited on the local market (privatization completed; 85% of bank equity and 96% of bank assets in hands of foreign strategic investors: KBC, ERSTE, SG, HVB, GE etc.)

• Market concentrated enough (top 3 players have 75% market share in total bank deposits and 50% in bank loans; the concentration in retail banking is even higher as top 4 players have 85% in retail deposits and 90% in retail outstanding loans)

Cost Management

• Main strategic focus after strategic takeover (centralization of processes such as back-office activities; headcount rightsizing; close control of central procurement etc.)

• Still not sufficiently exploited

Revenue Based Growth

• Large potential (low penetration of the population and companies with financial products; low loan to deposit volume ratio compared to EU countries etc.

• Dynamic volume growth in key products

6

INTRODUCTION

CURRENT SITUATION IN CR

FUTURE GROWTH POTENTIAL IN CR

KBC POSITIONING IN CR

7

RETAIL LOANS SPEEDED UP COMPARED TO RETAIL DEPOSITS IN 2001-2003

Source: CNB, Czech Statistical Bureau (data without individual entrepreneurs)

13%

18%

23%

27%

5%7%

8%10%

12%

4%

0%

5%

10%

15%

20%

25%

30%

2000 2001 2002 2003 F2004

Retail Loans to Deposits

Retail Loans to GDP

Percent

8

LEVEL OF HOUSEHOLDS’ DEBT IS FAR BEHIND THE EURO-ZONE AVERAGE

0%

10%

20%

30%

40%

50%

60%

Eurozone Czech Republic Slovak Republic

Other loans** Consumer lending Housing loans*

Source: ECB, CNB, NBS

48%

10% 8%

*) Including mortgages and building loans**) Including loans provided to individual entrepreneurs, non-residents etc.

Retail loans as % of GDP (2003)

9

CZECH FAMILIES HAVE IMPROVED THEIR STANDARDS OF LIVING

Source: Czech Statistical Bureau

111

138

70

80

90

100

110

120

130

140

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Real GDP per capita

Real Wages

1990 BASE LINE = 100

INCREASING PURCHASING POWER REDUCES FUTURE

UNCERTAINTY AND ENHANCES WILLINGNESS

TO BOROW MONEY*

*) Average Czech Family owes over EUR 3 thousand at the end of 2003

10

PORTFOLIO OF THE MOST DEMANDED PRODUCTS HAS CHANGED SINCE 1990

Saving Deposits

Social LoansBefore 1990Before 1990

SME LoansCurrent AccountsSaving Deposits

1990-19951990-1995

Building SavingsSaving Deposits

Car LeasingNon-bank consumer

credits

Consumer LendingBuilding Savings

Building LoansMutual FundsLife Insurance

1996-20001996-2000

2001-20032001-2003

MortgagesSME Loans

Consumer LendingMutual Funds

Pension FundsLife Insurance

2004Future2004

Future

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PENETRATION OF RETAIL CLIENTS WITH BASIC PRODUCTS IS LOW

34%

61%

15%5% 9%

71%

C/A S/A Debit Cards Overdraft Credit Cards ConsumerLoans

54%

18%

2% 5% 1%

58%

ConstructionSavings

LifeInsurance

PensionFunds

MutualFunds

BuildingLoans

Mortgage

Source: GfK Research – Czech Republic (Spring 2004)

12

PENETRATION OF SME WITH PRODUCTS IS ALSO FAR BEHIND THE POTENTIAL

38% 36%28% 21%

14%

96%

C/A S/A Debit Cards CommercialLoans

Overdraft Credit Cards

Source: GfK Research – Czech Republic (Spring 2004)

19%

36%

7%14% 10%

97%

C/A S/A Debit Cards CommercialLoans

Overdraft Credit Cards

CO

MP

AN

IES

*IN

DIV

IDU

AL

E

NT

RE

PR

EN

EU

RS

*) firms with annual turnover up to EUR 10m

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INTRODUCTION

CURRENT SITUATION IN CR

FUTURE GROWTH POTENTIAL IN CR

KBC POSITIONING IN CR

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WHICH CLIENTS WILL BRING THE HIGHEST REVENUE GROWTH?

RETAIL

SME

CORPORATE

• Growing profits resulting in higher volume of deposits

• Limited potential in terms of number of customers

• Significantly penetrated with loan and leasing products

• Highly competitive market – squeezing margins

• Unsaturated clients’ needs (only 5% of SME have a loan)

• Interesting margins and fees

• New business opportunities resulting from EU accession

• Risk management (new scoring based methods)

• Gradually reducing fees from FX transaction (accession to the Euro-zone)

• Insufficient penetration with financial products

• Growing wealth of the population

• Unexploited marketing instruments (propensity models etc.)

• Robust risk management techniques (scoring-based)

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WHAT FACTORS WILL SHAPE FUTURE RETAIL BANKING IN CR ?

Former antipathy of households against money borrowing originated

from the communist-time has been gradually disappearing

Demographic development

strong generation in their 30’s has financing and life-time

investment needs (life insurance, pension funds)

strong generation in their 50’s (becoming retired in 5-10 years)

require mainly short-term investments (mutual funds)

Continuing enhancement of living standards

Interest rates will very likely stay at current low level

…

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STRONG POPULATION YEARS ARE BECOMING ACTIVE

50

75

100

125

150

175

200

19

51

19

53

19

55

19

57

19

59

19

61

19

63

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

Newly-born childrenin a given year

25-35 years old population now

Source: Czech Statistical Bureau

Thousand of people

17

20 23 25 3215

2026

46

1117

25

39

89

14

13

0

20

40

60

80

100

120

140

160

180

2001 2002 2003 F2004** F2007

Mortgages

Building loans

Consumer lending***

MORTGAGE SEEMS TO BE A KEY DRIVER IN RETAIL LENDING

*) Fixed exchange rate of 31 CZK/EUR **) 2004 Forecast based on the actual results in October 2004 ***) Including consumer loans, overdrafts, credit cards and other loans

3851

68

90

167

8%

20%

32%

CAGR2004-2007

Source: CNB, ČSOB Forecast

EUR Billion*

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PENSION FUNDS AND MUTUAL FUNDS WILL MAINTAIN THEIR HIGH GROWTH

Source: CNB, ČSOB Forecast

244 227 221 222 243

19 33 40 487258 76

88

117

2125

30

48

3238

4247

63

43

16

0

100

200

300

400

500

600

2001 2002 2003 F2004** F2007

Life Insurance** Pension Funds Building Savings Mutual Funds Bank Deposits*

*) current and saving accounts **) technical reserves of life insurance

354376

405435

543

3%3%

15%15%

10%10%

17%17%

10%10%

EUR Billion* CAGR2004-2007

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INTRODUCTION

CURRENT SITUATION IN CR

FUTURE GROWTH POTENTIAL IN CR

KBC POSITIONING IN CR

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SUMMARY

Revenue growth is the topic for value creation in the future

Imbalance in deposit to loan ratio of the banking industry shows

clear potential

Key segments of growth potential are SME clients and

individuals (specifically the affluent segment)

Housing needs will drive the credit market growth

Improving regulatory framework will play an important role

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ČSOB POTENTIAL

Critical mass of customers

Ability to retain and attract clients (mainly affluent clients)

Focus on lending growth (SME loans, mortgages, etc.)

Robust risk management techniques (mainly for SME)

Efficiency in „the back” and in the internal supply chain

WINNING FORMULA

Largest financial group in CR with 5 million retail clients

Affluent clients turnover below 1%; growing private banking

Strengthening in SME business (35% y-on-y growth)

New scoring based approach towards SME

Centralization of card mgmt within CEE region

KBC (ČSOB)

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GROWTH IN CEE COUNTRIES“Czech Evidence”

Jaromír Sladkovský

FPK Conference, London 14 December 2004

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INTRODUCTION

CURRENT SITUATION IN CR

FUTURE GROWTH POTENTIAL IN CR

KBC POSITIONING IN CR

APPENDICES ON THE KBC GROUP

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1 BNP Paribas (35 bn) 1 BNP Paribas (45 bn) 1 BSCH (57 bn)2 BSCH (31 bn) 2 BSCH (45 bn) 2 BNP Paribas (48 bn)

3 BBVA (29 bn) 3 Deutsche Bank (38 bn) 3 BBVA (42 bn)4 Deutsche Bank (26 bn) 4 BBVA (35 bn) 4 Deutsche Bank (35 bn)

5 ABN AMRO (25 bn) 5 Société Gén. (31 bn) 5 Crédit Agricole (35 bn)

6 Société Gén. (24 bn) 6 ABN AMRO (30 bn) 6 Société Gén. (34 bn)

7 Unicredit (24 bn) 7 Crédit Agricole (28 bn) 7 ABN AMRO (32 bn)8 Fortis (22 bn) 8 Unicredit (27 bn) 8 Unicredit (27 bn)

9 Crédit Agricole (14 bn) 9 Fortis (21 bn) 9 Fortis (26 bn)10 Dexia (14 bn) 10 Intesa BCI (18 bn) 10 Intesa BCI (21 bn)11 Intesa BCI (12 bn) 11 Dexia (16 bn) 11 Dexia (18 bn)

12 Allied Irish Banks (12 bn) 12 San Paolo IMI (15 bn) 12 KBC (18 bn)13 Bank of Ireland (10 bn) 13 KBC (11 bn) 13 San Paolo IMI (15 bn)

14 KBC (9 bn) 14 Bco Popular (11 bn) 14 Allied Irish Banks (12 bn)

15 San Paolo IMI (9 bn) 15 Allied Irish Banks (11 bn) 15 HVB (12 bn)16 Banco Popular (8 bn) 16 Bank of Ireland (11 bn) 16 Bank of Ireland (11 bn)17 HVB (7 bn) 17 HVB (10 bn) 17 Bco Popular (10 bn)

18 Mediobanca (6 bn) 18 Commerzbank (9 bn) 18 Commerzbank (9 bn)

19 Bca MPS (6 bn) 19 Mediobanca (7 bn) 19 BA-CA (9 bn)

20 Bco Popular (5 bn) 20 Bca MPS (6 bn) 20 Mediobanca (9 bn)

Dec 2002 Dec 2003 Nov 2004

(*) DJ Euro Stoxx Banks Constituents - Ranking by Market Capitalization – Situation as at 16 Nov 2004

TOP-20 IN EUROLAND BANKING (*)

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PROMINENT PLAYER IN 2 MARKETS

• Top financial player in Belgium

• Succesfully expanded in 5 most advanced countries in CEE (new EU)

• Selected ‘other’ areas: international mid-corporate banking (mostly in W. Eur.) and financial markets

• As investments in CEE have continued to increase, the ‘other’ activities have been progressively scaled down

Breakdown of revenue :

Treasury & other 9%

CEE25%

Belgium

48%

Financial markets 11%

Internaternational corporate 7%

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• KBC is one of the largest international players in the region

• In contrast to the other players, KBC limits its presence to the new EU Member States (the Czech Republic, Slovakia, Hungary, Poland and Slovenia) and is active in both the banking and insurance fields

8.7

13.2

13.5

14.3

19.0

21.6

23.5

24.6

28.6

29.0

ING (NL)

OTP (HU)

Citibank (US)

Intesa BCI (IT)

Société Générale (FR)

RZB (AT)

HVB / BA-CA (GE/AT)

UniCredit (IT)

Erste Bank (AT)

KBC (BE)

TOP-3 PLAYER IN THE CEE REGION

International banks in CEE (by total assets, in bn EUR):

Source: RZB – assets as at 31 Dec 03, ownership structure as at 30 Jun 04

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Core targets:

* Capital allocated on the basis of risk-weighted assets and non-amortised goodwill

Cost/income ratio, banking 58%

Combined ratio, non-life insurance 95%

EPS growth (4-y CAGR) 10%

Return on equity, Group 16%

Return on allocated capital *:

- Retail in Belgium 16%

- Central and Eastern Europe 17%

- Corporates 12%

- Financial markets 18%

Tier-1 ratio, banking 8%

Solvency margin, insurance 200%

CHALLENGING FINANCIAL TARGETS

Minimumtargets for 2005

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SOLID GROUP PERFORMANCE

Profitability

Efficiency

SolvencyTier-1, banking

Solvency, insurance

Cost/income, banking

Combined ratio, insurance

Return on equity

Growth in EPS

8.8%

320%

65%

101%

13%

Dec 02

+1%

9.5%

316%

65%

95%

13%

Dec 03

+8%

Combined ratio, insurance excluding reinsurance. Solvency, insurance including unrealized gains.

9.6%

341%

60%

94%

17%

+36%

Sep 04

+

+

+

+

+

+

Trend

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2001 2002 2003 2004e

STRONG EARNINGS MOMENTUM

Net profitin m EUR

1 0221 119

1 034

Consensusestimate

3-y CAGR: +15%

9M 04 profit : +40% year-on-yearWell on track to deliver on all our targets

1 537

1 201

Consensus estimate as at 7 December 2004

30

1.421.48 1.52

1.64

2000 2001 2002 2003

3.90

3.39 3.42

3.68

2000 2001 2002 2003

EPS

36%44% 44% 45%

2000 2001 2002 2003

Payout ratio

3.1% 3.6%4.2%

4.9%

2000 2001 2002 2003

DPS

Dividend yield

STEADILY GROWING DIVIDEND

EUREUR

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VALUATION

P/E 05

CEE banks (1) 13.4

CEE-exposed banks (2) 12.1

Euro-zone banks (3) 11.6

KBC 10.9

BEL banks (4) 9.9

Key figures:

Share price: 57.3 EURNet Asset Value: 38.2 EUR

Analysts’ estimates:

EPS 2004 consensus: 4.97EPS 2005 consensus: 5.27P/E 2005: 10.9

Analysts’ recommendations :

Positive: 41%Neutral: 23%Negative: 36%

Valuation relative to peer group :

Unweighted average of IBES data :(1) OTP, Komercni, Pekao, BPH PBK, BRE(2) Erste, Unicredit, BA-CA, Soc Gen, Intesa BCI(3) Top 20 of DJ Euro Stoxx banks (4) Fortis, Dexia

Situation as at 7 December 2004