kbc group profile - ku leuven · 2012-10-31 · 28.2% to 29.2%. moreover, our unique concept of...

KBC Group profile

STRATEGY

KBC has the ambition to become a profitable multi-channel bancassurer, focusedgeographically on Europe. In Western Europe, the Group boasts a leading positionin Belgium and currently has a limited presence in other countries, as well. InCentral Europe, it is one of the premier financial services groups. KBC focuseson four activities, namely retail and private bancassurance, corporate services,asset management and market activities. The Group’s explicit aim is to createlasting value for its shareholders through the pursuit of its business activities.

Key financial figures, KBC Group(in millions of EUR)

31-12-1998 31-12-1999 31-12-2000

Total assets 147 725 156 218 187 658

Capital and reserves 5 223 4 216 5 776Risk equity 11 487 13 737 16 217Tier-1 ratio, KBC Bank 7.2% 7.4% 9.5%CAD ratio, KBC Bank 11.5% 12.8% 16.0%Explicit solvency ratio, KBC Insurance 311% 298% 307%

Consolidated net profit, Group share 1 797.8 969.7 1 820.7Consolidated net profit, Group share 2 - - 1 165.5ROE 1 16.1% 20.5% 36.4%ROE 2 - - 23.3%

Key figures per area of activity(31-12-2000)

Profit(in millions of EUR)

Share inGroup profit

ROE

Retail and private bancassurance 452.3 38.8% 21.0%Central Europe 66.3 5.7% 10.4%Corporate services 148.0 12.7% 7.1%Asset management 131.2 11.3% 4

Market activities 172.4 14.8% 24.6%Group item 2 195.3 16.7% -Total 2 1 165.5 100.0% 23.3%

Long-term ratings(31-12-2000)

Fitch Moody’s S&P’s

KBC Bank 3 AA- Aa3 A+KBC Insurance 5 AA - A+1 2000: including realized gains on sale of participating interest in CCF. The calculation of ROE takes the derogation authorized by

the BCF into account regarding the immediate deduction from capital and reserves of goodwill paid on recent acquisitions.2 2000: excluding realized gains on sale of participating interest in CCF. The calculation of ROE takes the derogation authorized by

the BCF into account regarding the immediate deduction from capital and reserves of goodwill paid on recent acquisitions.3 Fitch & Moody’s ratings: ‘on negative outlook’.4 Since there are hardly any risk-weighted assets in this area of activity, ROE is not really relevant here.5 ‘Claims paying ability’ rating.

Report of the Board of Directors to the annualmeeting of shareholders

TABLE OF CONTENTS

Statement by the Chairman of the Board of Directorsand the President of the Executive Committee ..................................................... 2Group structure and management ....................................................................... 5Strategy ............................................................................................................... 8Group results and activities ................................................................................ 12Retail and private bancassurance ........................................................................ 28Central Europe ................................................................................................... 42Corporate services .............................................................................................. 52Asset management ............................................................................................. 66Market activities ................................................................................................. 72Personnel ........................................................................................................... 80Information for shareholders and the general public .......................................... 88

ANNUAL REPORT 2000

Together, this volume, ‘Report on Activities 2000’, and the volume entitled, ‘AnnualAccounts and Additional Information 2000’ make up the 2000 annual report of theKBC Bank and Insurance Holding Company NV.If you have received only one of the volumes and would like to receive the other oneas well, you can order it from us at the address indicated at the back of each volume.

USE OF THE ANNUAL REPORT FOR THE PROVISION OF INFORMATION VIA SEPARATE DOCUMENTS

On 27 March 2001, the Belgian Banking and Finance Commission granted the KBCBank and Insurance Holding Company NV authorization to use the present annualreport as a reference document to solicit savings from the public under Title II of RoyalDecree No. 185 of 9 July 1935, by means of the procedure for the provision ofinformation via separate documents, and this until such time as the KBC Bank andInsurance Holding Company NV publishes its next annual report.For the purpose of the above procedure, this annual report must be accompanied bya transaction memorandum in order to constitute a prospectus in the sense of Article29 of the Royal Decree referred to above.This prospectus will be submitted to the Banking and Finance Commission for approvalin accordance with Article 29ter, §1, paragraph one, of Royal Decree No. 185 of9 July 1935.

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KBC Bank & Insurance Group - Report on Activities 2000 1

Statement by the Chairman of the Board ofDirectors and the President of the ExecutiveCommittee

For a number of reasons, the year 2000 was a busy one for KBC. Amid suchturbulent developments as the weakening of the euro, the collapse oftechnology, media and telecom shares and, towards the end of the year,the reversal of the US economic trend, our Group underwent significantchanges.

¶ Important investments and divestitures were carried out. Our partici-pating interest in Crédit Commercial de France (CCF) was sold at aconsiderable gain and we invested in Warta, Poland’s second-largestinsurer. IPB, a Czech financial group, was acquired by our Czech subsidiaryC{SOB and, via a successful bid in December, we purchased Peel Hunt, aLondon broker specializing in ‘small- and mid-caps’. In addition, we acquiredUlster Bank Investment Managers (now KBC Asset Management Ltd.) inIreland, Patria Finance in the Czech Republic and Keijser Effecten in theNetherlands.

¶ Considerable progress was made in effectively implementing the mergerbetween the former Kredietbank, ABB-insurance and CERA Bank, a processbegun in 1998. By the end of last year, more than 300 bank brancheshad been merged, our unique bancassurance concept had reached cruisingspeed and the first customers had been ‘migrated’ to the new KBC ITplatform.

¶ Important steps were taken, too, in restructuring and integrating oursubsidiaries in Central Europe, where we are developing a bancassuranceplatform and where our investments now amount to some two billioneuros.

¶ In both banking and insurance, record results were achieved. Our bankingbusiness, thanks to its outstanding operating results and in spite of thehigher provisions required for a few problem loans, along with the lowerlevel of gains and higher taxes, managed to raise its net profit by 22.7%.As to the insurance business, it has never had a better year: net earnedpremiums in the life assurance business went up by 39%, thanks mainlyto booming sales of unit-linked products through the bank branches,while claims in the direct non-life business remained at an exceptionallylow level.

All these factors have resulted in earnings growth of 20.2% for the KBCBank and Insurance Holding Company, or 19.5% per share, making it possibleto propose a gross dividend of 1.42 euros to the general meeting ofshareholders. This represents a 15.4% increase on the dividend for theprevious financial year, and a payout ratio of 36.4%.

These profit figures do not include the gain realized on the sale of ourinvestment in CCF. Taking this into account, our net profit went up from969.7 million euros to 1 820.7 million euros, or by 87.7%.

However, all our achievements - the outstanding operating results, theprogress made on the merger front and the expansion of our presence inCentral Europe - have required a good deal of hard work and thus reflectthe unstinting efforts of our employees in Belgium and abroad. Consequently,we would like, first of all, to extend our sincere thanks to them for theirefforts on the company’s behalf.

Our accomplishments in 2000 are illustrative of the fundamental developmentand growth of our Group. The sound operating results achieved, for instance,reflect not only the recovery of our traditional market activities and our

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KBC Bank & Insurance Group - Report on Activities 20002

successful presence on the equity markets, but also the synergies generatedby the merger. Sales of investment funds to former CERA customers, forinstance, went up sharply, helping to raise our share of this market from28.2% to 29.2%. Moreover, our unique concept of bancassurance, featuringco-operation between our bank branches and the independent, albeit tied,KBC Insurance agents, raised KBC Insurance’s share of the life assurancemarket from 11.9% to 12.8%.

During the course of 2001 and in years to come, this multi-channel distri-bution system will be augmented increasingly by the actively marketedonline bancassurance channel.

While the sale of our investment in CCF may not have been at the top ofour list of possible options, it did yield a considerable gain, helping to bringabout the sound level of solvency enjoyed at the end of 2000: a tier-1 ratioof 9.5% in the banking business and a solvency ratio of 307% in insurance(which does not take the considerable unrealized gains on shares intoaccount).

Our investments in Central Europe constituted a major step forward in thedevelopment of a bancassurance platform in that region. We are convincedthat, thanks to our know-how, our sizeable market share and the growthof the local markets, these investments will become highly profitable in thenot too distant future. Indeed, the acquisition of IPB has made C{SOB thebiggest financial institution in the Czech Republic, with a market share of20 to 25%, while the 40% stake taken in Warta has put us in a leadingposition on the large Polish insurance market. In Hungary, a major strategicstep was taken with the conclusion of the agreement with ABN AMRO tomerge our K&H Bank with their Hungarian subsidiary. KBC will own 60%of the newly merged entity, which will be the second-biggest financialinstitution in Hungary, with a market share of some 15%.

As to the acquisition of Peel Hunt, this move is consistent with our plans todevelop activities centred around KBC Securities in the area of equity marketservices, market making, research and corporate finance on behalf of smalland medium-sized companies. Besides France and the Netherlands, wherewe already have a presence, we are also looking to develop these activitiesin other European countries. In this way, we plan to make the most of ourexpertise and play a role in the development of companies in the EuropeanUnion and in the growing recourse they are having to the equity markets.

The development of this corporate finance platform for medium-sizedcompanies is part of the strategy approved by our Board of Directors in2000, a strategy strongly influenced by the Almanij-KBC Group structureand Almanij’s commitment to providing continued support to KBC. Thelinchpin of strategy is KBC’s development as a mid-size European bancassurerwith a focus on countries or regions where sufficient critical mass hasalready been achieved or is attainable, on ‘local’ clientele such as privateindividuals and medium-sized businesses that appreciate such features asproximity, commitment and customer-friendliness, and on areas of activitysuch as bancassurance, asset management, market activities and corporateservices. The use of capital and the contribution to profitability made bythese areas of activity will be closely monitored and adjusted in order tooptimize shareholder value in harmony with the interests of our customers

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and our employees, as well as with the social and cultural interests of thebroader community.

KBC is convinced that a medium-sized financial services group has a futurein Europe, in part because it believes that co-operation with other groupsin the area of administrative processing and e-technologies will enable itto deal adequately with any cost-related handicaps.

Our confidence that this strategy will ultimately prove to be the right oneis reflected in the targets our Group has set itself for the coming three tofour years: an increase in net earnings per share of an average 15% a year,with a return on equity of at least 22%.

In our view, the KBC share price has so far failed to reflect the resultsobtained and the efforts made to lay a solid foundation for the Group’sfuture, or indeed the targets we are aiming to achieve. Undoubtedly, thishas to do with the fact that the cost-savings generated by the merger andthe benefits of our investments in Central Europe will only become manifeston the medium term. In addition, the Belgian stock market on the whole isnot performing up to par, owing to the international diversification of theportfolios of Belgian institutional and private investors following theintroduction of the euro; this at a time when foreign investors are stillfocusing primarily on companies with a large equity market capitalization.

The tasks facing us in 2001 are clear. Naturally, we must continue to effectivelyimplement the merger and facilitate and encourage similar developmentsin the Czech Republic and Hungary. But we must also put the aforemen-tioned strategic decisions into practice, specifically by duly focusing ourattention and our efforts, containing costs, constantly seeking to improvecustomer service and perfecting our management information systems. Theprovision of information to our shareholders will also be enhanced, andthey will be receiving quarterly updates on their company starting in 2001.Yet, we could not possibly take up these challenges were it not for thequality and ongoing commitment of our staff, to whom we would like onceagain to express our gratitude.

Remi Vermeiren Willy BreeschPresident of the Executive Committee Chairman of the Board of Directors

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Group structure and management

GROUP STRUCTURE

A financial holding company, the KBC Bank and Insurance Holding Company NVco-ordinates the activities of KBC Bank NV, KBC Insurance NV and KBC AssetManagement NV.

It is an active shareholder, with responsibility for such matters as the Group’s strategyand major investments, the allocation of capital, profitability requirements and theintegration of its bank and insurance subsidiaries.

KBC Bank NV and KBC Insurance NV are competent to act in all matters specific tobanking and insurance, respectively.

BOARD OF DIRECTORS AND EXECUTIVE COMMITTEE

KBC BANK AND INSURANCE HOLDING COMPANY NV

BOARD OF DIRECTORS

All members of the Executive Committee andWilly BreeschJan HuyghebaertJozef CornuRik DonckelsJohn J. GoossensHerwig LangohrThomas LeysenXavier LiénartTheodoros RoussisPaul TanghePatrick Vanden AvenneGuido Van RoeyFerdinand VerdonckMarc WittemansAlfons Wouters

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Executive Committee (EC)

The Executive Committee of the KBC Bank and Insurance Holding Company NV consistsof the members of the Executive Committee of KBC Bank NV and those of the ExecutiveCommittee of KBC Insurance NV. Each member of the Executive Committee is responsiblefor supervising the activities of the respective business units as set out below.

REMI VERMEIREN

¶ President of the ExecutiveCommittee, KBC Bank andInsurance Holding Company NV

¶ President of the ExecutiveCommittee, KBC Bank NV

¶ Responsible for:¶ Control and Accounting¶ Audit, Compliance and the

staff services of KBC Bank NVand the KBC Bank andInsurance Holding Company NV

WILLY DURON

¶ President of the Executive Committee,KBC Insurance NV

¶ Vice-President of the ExecutiveCommittee, KBC Bank and InsuranceHolding Company NV

¶ Responsible for:¶ Life Assurance¶ Financial Group¶ Personnel and Facility Management¶ Audit, Control and Compliance and the

staff services of KBC Insurance NV

MANAGING DIRECTORS

HERMAN AGNEESSENS

¶ Responsible for:¶ International Directorate¶ Bank IT Development¶ Data Processing¶ Project & Trade Finance¶ Foreign bank subsidiaries and

branches (excl. KBC BankNederland, KBC Bank Franceand KBC Bank Deutschland)

¶ Brabant & Limburg CorporateOffices

RUDY BROECKAERT

¶ Responsible for:¶ Personnel¶ Private Banking¶ Organization¶ Merger and Integration¶ Province of and retail regions in

Antwerpen

EMILE CELIS

¶ Responsible for:¶ Non-life Insurance¶ Reinsurance¶ Provinces of and retail regions

in Vlaams-Brabant, Limburgand the Eastern part ofBelgium

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CHRISTIAN DEFRANCQ

¶ Responsible for:¶ IT Insurance¶ Data Processing¶ Organization¶ International Department¶ Fidea, ADD, CBC Assurances¶ Foreign insurance subsidiaries

and offices

FRANS FLORQUIN

¶ Responsible for:¶ Retail¶ Remote Banking & Insurance¶ Electronic Bancassurance

Projects¶ Marketing Services¶ Communication¶ Provinces of and retail regions

in Oost- and West-Vlaanderen

GHUNALD LOYAERTS

¶ Responsible for:¶ Payments¶ Facility Management¶ Securities and Derivatives

Processing¶ Occupational Health & Security

LUC PHILIPS

¶ Responsible for:¶ Treasury & Capital Markets¶ International Credit and Limits¶ KBC Asset Management¶ KBC Securities¶ KBC Financial Products

CLÉMENT SELLESLAGH

¶ Responsible for:¶ Domestic Credit¶ Vlaanderen Corporate Office

JAN VANHEVEL

¶ Responsible for:¶ Corporate Customers¶ Antwerpen Corporate Office¶ KBC Bank Nederland,

KBC Bank France,KBC Bank Deutschland

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Strategy

THE REVISED STRATEGY

Building on the ‘mission statement’ drawn up in 1998 when the KBC Group wascreated, the Board of Directors approved a number of new strategic accents for theKBC Bank & Insurance Group in the latter half of the year 2000.

KBC’s strategy is in keeping with the overarching structure and strategy of the AlmanijGroup and continues to be based on the multi-channel bancassurance concept. Morethan ever before, the main thrust of strategy is directed towards the creation ofshareholder value.

The new strategic accents include:¶ a clear focus as regards area of operation and activities;¶ the consistent use of ‘return on equity’ as a target and as a capital-allocation tool,

both at the level of the Group and at the level of the various areas of activity;¶ the explicit aim of improving the profitability of a number of activities that create

insufficient shareholder value;¶ the revision of the Group’s financial targets.

A CLEAR FOCUS AS REGARDS AREA OF OPERATION AND ACTIVITIES

Area of operationKBC plans to give priority to developing its activities in Europe, and in so doing willdistinguish between two home markets:

¶ Western Europe, where the main focus lies on KBC’s bancassurance activities inBelgium. Where possible, bancassurance activities will (continue to) be developedin other West-European countries, as well. Another of KBC’s intentions is to graduallybuild up a European platform to cater for the needs of medium-sized companies inthe area of ‘corporate finance’ (capital market operations, mergers and acquisitions,etc.).

¶ Central Europe, a region with better than average growth prospects, where KBC isconcentrating on creating a bancassurance network by acquiring institutions witha relatively large market share, setting up companies in specific fields (such as lifeassurance) and, where possible, co-operating with other financial institutions.Efforts will be directed primarily towards those countries that have made the greatestprogress in the transition to a market economy and which are therefore the mostlikely to join the EU in the foreseeable future.

ActivitiesKBC structures its policy around four activities:¶ Retail and private bancassurance¶ Corporate services¶ Asset management¶ Market activities

Private persons and SMEs, the Group’s core clientele, will be offered the broadestpossible range of financial services via a multi-channel approach.

The product offering for the corporate and institutional segment will be tailored tomeet the particular needs of those customers and will be underpinned by the specificknow-how and geographic presence of KBC.

KBC will also devote as much effort as possible to the continued development of onlinebanking and Internet applications for private persons, businesses, institutional customersand professional counterparties.

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In order to achieve its objectives, KBC may enter into co-operation with other Europeaninstitutions. This could involve specific transactions, the exchange of know-how, jointinvestments or joint ventures, etc., and this with a view to improving profitability,cutting costs and/or enhancing service to customers.

Non-core activitiesKBC will only continue or expand its activities outside Europe if they are importantfor the services offered to KBC’s core customers in Europe and/or if they generate ahigher return on equity than generally targeted within the Group.

FUNCTIONAL SEGMENTATION AND CAPITAL ALLOCATION

The above-mentioned focus as regards activities and geographic zones spans fivedifferent ‘areas of activity’:¶ Retail and private bancassurance¶ Central Europe¶ Corporate services¶ Asset management¶ Market activities

For each area of activity, a management committee has been set up that plays apreliminary policy-making, as well as an advisory and co-ordinating role vis-à-vis theexecutive committees of the bank, the insurer and the holding company.

Among other things, these management committees concern themselves withimplementing general strategy in the various areas of activity, achieving objectivesand submitting proposals for new initiatives (investments, acquisitions, etc.), qualityimprovements and rationalization to the relevant executive committees.

The flow of capital within the Group is facilitated by an overall plan which is basedon capital requirements and profitability targets for the entire Group and for eachindividual area of activity. Capital is made available to each area of activity in linewith the general strategic accents and on the basis of the return on equity that hasbeen or can be achieved. One of the current strategic accents involves reducing therisk-weighted assets in Corporate services, primarily by stepping up securitizationoperations and possibly reducing lending to multinationals.

FINANCIAL TARGETS

Along with strategy, the financial targets were also redefined at Group level.

Target

Return on equity (ROE) * At least 22%Growth in earnings per share At least 15% per annumCost/income ratio Bank: < 55% in 2004

Insurer: combined ratio < 103% in 2004Solvency Bank: tier-1 ratio > 7% and CAD ratio > 11%

Insurer: solvency ratio > 200%* Account taken of the derogation authorized by the BFC regarding the immediate deduction from capital and reserves of

goodwill paid on recent acquisitions.

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SOCIALLY RESPONSIBLE BUSINESS

In its mission statement, the KBC Group expressed a commitment to contributingtowards the economic, social and cultural development of the community to whichit belongs. To date, it has put this commitment into practice by, among other things,sponsoring a broad range of cultural and sporting events. For more than ten yearsnow, it has also taken a leading role in national solidarity campaigns and in supportingdrives to aid the underprivileged. Via its Stichting Leefmilieu (a foundation for thepreservation of the environment), it has championed environmental causes for overthirty years, conducting awareness-raising campaigns and taking various other initiatives.

As a bank, KBC’s actions have been consistent with this commitment, and it has madeenvironmental risk an important criterion in its lending activities. In the area ofinvestment, it has played a pioneering role, launching a fund back in 1992 designedspecifically to invest in environmentally sound companies (ECO Fund). More recently,it has focused on ethical funds and has signed the sustainable business manifesto ofthe VEV (Flemish Economic Alliance).

As an insurer, KBC has invested in a variety of accident-prevention campaigns for yearsnow, with a view to preventing as much human suffering as possible, whether physicalor psychological.

At present, the KBC Group is working to combine all the above-mentioned and otherinitiatives into a coherent ‘sustainable business’ strategy.

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Group results and activities

HIGHLIGHTS

¶ Net group profit, including the capital gain on CCF, was up 87.7% to1 820.7 million euros.

¶ Net group profit, excluding the capital gain on CCF, was up 20.2% to1 165.5 million euros.

¶ Earnings per share rose 19.5% to 3.9 euros(6.09 euros, including the capital gain on CCF).

¶ The net dividend was raised 15.4% to 1.065 euros.

¶ Return on equity increased to 23.3% (36.4%, including the capital gain on CCF).

¶ Recent acquisitions had a positive impact on net group profit.

¶ A substantial increase was recorded in capital and reserves and solvency ratios.

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KEY FIGURES, KBC GROUP

(in millions of EUR) 31-12-1998 31-12-1999 31-12-2000 Growth,1999Ä2000

Consolidated profit - Group share 797.8 969.7 1 820.7 87.7%Contribution, banking 579.0 714.7 1 520.9 112.8%Contribution, insurance 226.7 271.3 320.6 18.2%Contribution, holding-company activities -7.9 -16.3 -20.9 27.8%

Consolidated profit - Group share,excl. capital gain on CCF

1 165.5 20.2%

Earnings per share (in EUR) 2.69 3.26 6.09 86.7%Earnings per share (in EUR), excl. capital gain on CCF - - 3.90 19.5%Net dividend per ordinary share (in EUR) 0.82 0.92 1.06 15.4%Net asset value per share (in EUR) 32.3 33.8 35.2 4.1%ROE 1 16.1% 20.5% 36.4%ROE, excl. capital gain on CCF - - 23.3%Total assets 147 725.4 156 218.4 187 658.0 20.1%Capital and reserves after profit appropriation 1 5 222.5 4 216.2 5 775.5 37.0%Total risk equity, Group 2 11 486.5 13 737.3 16 216.9 18.1%Tier-1 ratio, KBC Bank 7.2% 7.4% 9.5%CAD ratio, KBC Bank 11.5% 12.8% 16.0%Solvency ratio, KBC Insurance (excl. unrealized gains) 311% 298% 307%1 From 1999, the change is related to the deduction of goodwill from equity, among other things.2 Capital and reserves after profit appropriation, preference shares, minority interests, the Fund for General Banking Risks and

subordinated liabilities.

CONSOLIDATED PROFIT *AND RETURN ON EQUITY

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RISK EQUITY

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SHAREHOLDER INFORMATION

Shareholders, 31-12-2000 In% No. of shares

Almanij and Group companies- Almanij 67.81% 202 956 390- KBC Bank & Insurance Group companies * 3.65% 10 936 840Total 71.47% 213 893 230Free float 28.53% 85 402 326

Total shares issued 100.00% 299 295 556

Mandatory Convertible Bonds (MCBs),number of shares on conversion

13 345 798

of which: held by Almanij and KBC Bank & Insurance Group companies 4 007 700* With the exception of shares held by KBC Securities and the KBC Financial Products Group (trading purposes).

Annual return (price gains and dividends) KBC BEL 20 DJ Euro StoxxBanks

2000 (1 year) -11.3% -6.0% 7.5%1997-2000 (3 years) 7.9% 11.1% 15.7%1994-2000 (6 years) 21.1% 17.6% 23.5%

Ratings as at 31-12-2000 * Fitch Moody’s Standard& Poor’s

KBC BankLong-term rating AA- Aa3 A+Short-term rating F1+ P1 A-1

KBC InsuranceLong-term rating AA - A+Short-term rating F1+ - -

KBC Holding CompanyLong-term rating A+ - AShort-term rating F1 - A-1* The long-term ratings of KBC Bank and the KBC holding company are ‘on negative outlook’ at Fitch and Moody’s.

The long-term rating accorded KBC Insurance by Fitch has to do with its ‘claims-paying ability’.

PERFORMANCE OF THE KBC SHARE *

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* Through 31-12-1997: former

Kredietbank; the 10-for-1 share split

was carried out retroactively.

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9606

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9706

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9806

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EARNINGS PER SHARE * ANDGROSS DIVIDEND

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3.3

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3.9

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■ Earnings per share■ Gross dividend

* Excluding realized gains on sale of

participating interest in CCF.

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Key figures per share (in EUR)1 31-12-1996 31-12-1997 31-12-1998 31-12-1999 31-12-2000

Number of shares outstanding (‘000) 147 829 151 281 296 905 297 772 299 296Number of shares entitled to dividend (‘000) 147 399 150 845 296 385 297 277 298 922Net earnings per share 2.21 2.42 2.69 3.26 3.90Gross dividend 0.876 0.975 1.093 1.230 1.420Net dividend per ordinary share 0.657 0.731 0.820 0.923 1.065Payout ratio 2 40.0% 40.3% 40.6% 37.7% 36.4%Net asset value per share 3 - 26.9 32.3 33.8 35.2Highest price 25.97 40.90 84.90 74.15 53.10Lowest price 19.93 24.98 37.18 44.35 35.00Average price 23.16 34.49 59.48 57.70 45.95Closing price, financial year 25.78 38.55 67.43 53.50 46.13P/E ratio, based on closing price 11.7 15.9 25.0 16.4 11.8Equity market capitalization, in billions of EUR 3.81 5.83 20.02 15.93 13.78KBC’s ranking on the Brussels stock exchange 8 7 3 3 4% of average volume traded on Brussels stock exchange 3.9% 4.5% 6.4% 5.5% 5.9%Average daily volume traded, number of shares 129 830 149 020 226 344 211 119 248 364Average daily volume traded, in millions of EUR 3.0 5.2 13.9 12.3 11.11 Figures through 31-12-1997 relate to the former Kredietbank; the 10-for-1 share split was carried out retroactively; figures do not include the capital gain

realized on the sale of the investment in CCF.2 Total dividend payout/consolidated net profit.3 Calculation: see ‘Net asset value’ table.

Net asset value (in millions of EUR) 31-12-1998 31-12-1999 31-12-2000

Capital and reserves 5 223 4 216 5 776Fund for General Banking Risks 1 604 1 825 1 841Unrealized gains on shares *

Contribution, banking 1 157 920 494Contribution, insurance 1 619 1 581 1 154

Negative goodwill on consolidation * 0 1 520 1 256Net asset value, KBC 9 602 10 062 10 521

Net asset value per share 32.3 33.8 35.2* Unrealized gains = market value − deducted goodwill − carrying value; the goodwill that is deducted is shown separately and not included in the unrealized

gains.

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CONSOLIDATED BALANCE SHEET

Consolidated balance sheet, KBC Group(in millions of EUR)

31-12-1998 31-12-1999 31-12-2000 Growth,1999Ä2000

ASSETS

Banking 139 763.2 146 483.1 176 899.0 20.8%Loans and advances to credit institutions 29 639.7 17 189.1 21 860.3 27.2%Loans and advances to customers 53 412.2 64 634.0 78 936.2 22.1%Securities 48 471.1 52 086.7 58 174.8 11.7%Financial fixed assets 468.5 1 188.4 616.4 -48.1%Tangible and intangible fixed assets 1 234.6 1 652.2 1 966.4 19.0%Other assets 6 537.1 9 732.6 15 344.9 57.7%

Insurance 8 526.2 10 217.3 11 496.5 12.5%Intangible fixed assets 92.6 83.4 81.5 -2.3%Investments 7 457.8 8 188.1 8 266.8 1.0%Investments for the benefit of life assurancepolicyholders who bear the investment risk

211.0 1 195.4 2 286.0 91.2%

Technical provisions, reinsurers’ share 229.6 221.4 178.1 -19.6%Debtors 274.4 259.0 307.9 18.9%Other assets 260.7 269.9 376.3 39.4%

Holding-company activities 45.6 347.2 475.1 36.8%

Eliminations * -609.7 -829.1 -1 212.7 46.3%

TOTAL ASSETS 147 725.4 156 218.4 187 658.0 20.1%

LIABILITIES

Total risk equity, Group 11 486.5 13 737.3 16 216.9 18.1%Capital and reserves 5 222.5 4 216.2 5 775.5 37.0%Minority interests (incl. preference shares) 100.4 1 750.9 1 892.1 8.1%Subordinated liabilities 4 559.6 5 944.7 6 707.9 12.8%Fund for General Banking Risks 1 604.1 1 825.5 1 841.4 0.9%

Banking 128 851.6 132 395.6 160 408.1 21.2%Amounts owed to credit institutions 36 067.0 28 871.4 41 961.7 45.3%Customer deposits and debts represented bysecurities

84 962.3 93 119.2 107 176.1 15.1%

Other liabilities 7 822.3 10 405.0 11 270.3 8.3%

Insurance 7 326.3 8 957.4 10 094.9 12.7%Technical provisions 6 598.4 7 045.4 7 101.8 0.8%Technical provisions for life assurance policieswhere the investment risk is borne by the policyholders

210.8 1 195.4 2 286.0 91.2%

Deposits received from reinsurers 104.0 107.0 102.4 -4.3%Other liabilities 413.1 609.6 604.8 -0.8%

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Consolidated balance sheet, KBC Group(in millions of EUR)

31-12-1998 31-12-1999 31-12-2000 Growth,1999Ä2000

Holding-company activities 627.7 1 660.5 1 835.1 10.5%Financial liabilities 301.2 1 275.7 1 331.5 4.4%Other liabilities 326.6 384.8 503.5 30.9%

Eliminations * -566.8 -532.4 -897.0 68.5%

TOTAL LIABILITIES 147 725.4 156 218.4 187 658.0 20.1%* The amounts eliminated on the assets side do not match amounts eliminated on the liabilities side, due to direct elimination

under the subordinated liabilities heading.

PROFIT AND LOSS ACCOUNT, KBC GROUP

Consolidated results, KBC Group(in millions of EUR)

31-12-1998 31-12-1999 31-12-2000 Growth,1999Ä2000

Banking 3 435.3 3 867.9 4 656.3 20.4%Net interest income 1 864.1 2 056.6 2 295.0 11.6%Dividends 95.9 100.2 142.3 41.9%Result from participating interestsvia the equity method

12.2 100.5 47.2 -53.0%

Profit (Loss) on financial transactions 731.5 636.2 835.9 31.4%On currency dealing and securities trading 153.2 170.6 590.1 246.0%Realized gains and losses 578.3 465.6 245.8 -47.2%

Net commission and other operating income 731.7 974.4 1 336.0 37.1%

Insurance 554.2 657.9 747.9 13.7%Earned premiums, net of reinsurance 1 801.0 2 095.2 2 650.5 26.5%Net technical charges -1 727.6 -2 125.7 -2 334.8 9.8%

Value adjustments, unit-linked life assurance 13.6 118.8 -182.5Investment income and charges 476.5 676.9 420.8 -37.8%

Realized gains and losses 86.1 135.0 161.2 19.4%Value adjustments, unit-linked life assurance 13.6 118.8 -182.5 -

Result from participating interestsvia the equity method

4.2 11.5 11.5 -0.3%

Holding-company activities -6.1 -8.9 -33.0 268.3%

GROSS OPERATING INCOME 3 983.4 4 516.9 5 371.2 18.9%

Banking -2 060.2 -2 524.4 -3 094.3 22.6%Staff charges -1 178.6 -1 369.3 -1 675.3 22.4%Operating charges and depreciation on tangiblefixed assets

-881.6 -1 155.2 -1 419.0 22.8%

Insurance -317.6 -344.2 -374.3 8.8%Acquisition costs -253.6 -277.4 -302.4 9.0%Operating charges -64.0 -66.8 -71.9 7.7%

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31-12-1998 31-12-1999 31-12-2000 Growth,1999Ä2000

Holding-company activities -1.8 -2.2 -3.6 61.3%

GENERAL ADMINISTRATIVE EXPENSES -2 379.7 -2 870.8 -3 472.2 20.9%

OPERATING RESULT 1 603.7 1 646.0 1 899.0 15.4%Contribution, banking 1 375.1 1 343.5 1 562.0 16.3%Contribution, insurance 236.5 313.7 373.6 19.1%

Value adjustments, banking -449.0 -555.4 -324.3 -41.6%Write-downs on and provisions for credit risks -178.8 -341.6 -241.3 -29.4%Value adjustments on securities -39.4 21.5 -82.3 -Net allocation to the contingency funds -207.0 -238.8 -15.8 -93.4%Provisions for other liabilities and charges -23.8 3.6 15.1 322.9%

Amortization of goodwill on consolidation -11.6 -10.9 -10.9 -0.1%

Non-recurring result, insurance 167.6 16.0 25.3 58.4%Non-recurring realized gains and losses 307.5 257.6 91.9 -64.3%Change in premium reserve 34.7 0.0 23.3 -Equalization and catastrophe provision -113.4 0.0 -9.4 -Extra life assurance provision -61.2 -131.1 0.0 -100.0%Extra provision for claims-settlement expenses, Fidea 0.0 -9.2 0.0 -100.0%Provision for financial risks 0.0 -71.8 -89.9 25.3%Provision for Y2K- and dioxin-related claims 0.0 -29.6 29.6 -Other charges 0.0 0.0 -20.1 -

Extraordinary results, banking & insurance -116.5 194.9 698.9 258.5%Due to the merger -126.3 -11.8 -4.3 -63.8%- Amortization of goodwill on consolidation -60.4 0.0 0.0 -- Restructuring expenses -138.4 -11.8 -4.3 -63.8%- Gains realized on financial fixed assets 72.5 0.0 0.0 -Other extraordinary results 9.9 206.7 703.2 240.1%- Other gains realized on financial fixed assets 17.5 211.1 723.6 242.8%- Other extraordinary results -7.6 -4.4 -20.4 368.7%

PROFIT (LOSS) BEFORE TAX 1 194.2 1 290.6 2 288.0 77.3%Contribution, banking 853.9 985.5 1 921.7 95.0%Contribution, insurance 348.3 316.2 391.9 23.9%

Income taxes -382.0 -228.7 -311.5 36.2%Contribution, banking -265.2 -182.8 -242.7 32.8%Contribution, insurance -116.8 -40.8 -73.6 80.4%

CONSOLIDATED PROFIT 812.3 1 061.9 1 976.5 86.1%

Minority interests -14.5 -92.2 -155.8 69.0%

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31-12-1998 31-12-1999 31-12-2000 Growth,1999Ä2000

CONSOLIDATED PROFIT, Group share 797.8 969.7 1 820.7 87.7%

Contribution, banking 579.0 714.7 1 520.9 112.8%Contribution, insurance 226.7 271.3 320.6 18.2%Contribution, holding-company activities -7.9 -16.3 -20.9 27.8%

Net earnings per share (in EUR) 2.69 3.26 6.09 86.7%

Return on equity 16.1% 20.5% 36.4%

Earnings per share (in EUR),excl. capital gain on CCF

2.69 3.26 3.90 19.5%

Return on equity, excl. capital gain on CCF 16.1% 20.5% 23.3%

COMMENTS

Group balance sheet

Group

The Group’s balance sheet total grew 20.1% to 187.7 billion euros. Some 94% of thisamount is accounted for by the banking business, slightly more than 6% by theinsurance activities.

Despite the strong expansion of activity, solvency ratios strengthened. From the closeof 1999 to the end of 2000, the bank’s tier-1 ratio rose from 7.4% to 9.5% and theinsurer’s explicit solvency ratio went up by 9 percentage points to 307%. This wasdue primarily to the closer monitoring and control of capital usage, to the securi-tization operations and profit retention, as well as to the fact that goodwill was nolonger deducted for CCF.

Banking

There was an increase to 177 billion euros in the balance sheet total for the bankingbusiness, representing a 20.8% rise on the figure as at the end of 1999, or 14.1%,disregarding the changes in the scope of consolidation. The main changes in thatscope, compared to the situation as at the end of December 1999, relate to theincrease in the participating interests in K&H Bank and KBC Financial Products Brussels− which has resulted in both companies being fully, and no longer proportionally,consolidated − and to the acquisition of the assets of IPB.

As at the end of 2000, the Central European subsidiaries accounted for approxi-mately 10% of the total assets in the banking business.

Lending to customers went up to 78.9 billion euros (up 22.1% on the figure for theend of 1999), growth that was largely generated abroad (an increase of 50%) andpart of which, over and above the organic growth in international lending, resultedfrom expansion in Central Europe.

As at the end of 2000, lending outside Belgium represented 41% of the total amountof credit outstanding, compared to 33% as at the end 1999.Within Belgium, lending was 8% up on the year-end figure for 1999, the increasebeing situated chiefly in home loans and term credit. Although the increase was less

TOTAL ASSETS

020406080

100120140160180200

20001999199819971996

127.9

150.7 147.7156.2

187.7

(in billions of EUR)

TIER-1 RATIO, KBC BANK

0123456789

10

20001999199819971996

7.1 6.77.2 7.4

9.5

(in %)

SOLVENCY, KBC INSURANCE

0

50

100

150

200

250

300

350

2000199919981997

282311 298 307

(in %)

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pronounced than in 1999, KBC managed to boost its market share in this and otherareas of activity.

Total customer deposits climbed by 15.1% to 107.2 billion euros, growth that wassituated entirely abroad (up 60%) and that was due in part to expansion in CentralEurope, as well as to a shift in funding from interbank balances to certificates ofdeposit and commercial paper.

On the other hand, total domestic customer deposits edged down. Demand depositswere up 5.4%, continuing to serve as an interim haven for funds, but savings depositsand savings certificates declined by 7.9% and 10.3% respectively, to the benefit ofinvestment funds, in respect of which KBC was able to increase its market share evenfurther.

The securities portfolio expanded by 11.7% on the year-end figure for 1999 to reach58.2 billion euros. The growth was situated wholly in the trading portfolio (up 91%)of the KBC Financial Products Group and at KBC Securities, and concerned fixed-income securities (up 51%), but primarily equities (up 168%). It was a consequenceof the expansion of activities at these two companies.Representing 81% of the overall securities portfolio, the investment portfolio grewby a modest 1.8%, which was wholly on account of fixed-income securities.

Despite the brisk rise in total assets, the tier-1 ratio strengthened to 9.5% as at theend of 2000, compared to 7.4% as at the end of 1999. The CAD ratio climbed to 16%from a year-end figure of 12.8% for 1999.Over and above profit retention (including the gain realized on the sale of CCF), theappreciable improvement in the tier-1 ratio was primarily due to goodwill on CCF nolonger being deducted. Despite the growth of lending, risk-weighted assets were keptwell under control, thanks partly to a number of securitization operations.

Insurance

In 2000, total assets grew by 1 280 million euros or 12.5% to reach 11 496 millioneuros. After profit appropriation, capital and reserves amounted to 1 233.2 millioneuros (up 9.1%). The explicit solvency ratio, calculated as the ratio between thesolvency capital − excluding unrealized gains − present in the insurance group andrequired solvency capital, expanded by nine percentage points to 307%. The corre-sponding solvency surplus rose from 748.5 million euros as at the end of 1999 to828.1 million euros as at the end of 2000.

Technical provisions accounted for 82% of liabilities.The technical provisions for unit-linked life assurance products went up by 1 090.5million euros, a consequence of the substantial premium income collected in 2000for these products, adjusted for write-downs of 182.5 million euros on the underlyinginvestment funds.There was barely any increase at all in other technical provisions for the life assurancebusiness, because a large number of insurance bonds at Vitis Life, the Luxemburginsurance subsidiary had reached maturity. A large proportion of the funds freed upwere reinvested in unit-linked life assurance.The net provision for unearned premiums in the non-life business declined slightly,due to the application of the new, mandatory calculation method (the 365ths method).The net provision for claims outstanding rose to 1 963.9 million euros.On balance, the equalization and catastrophe provision expanded by 12.2 million eurosto total 203.5 million euros as at the end of 2000.

Investments represent 91.8% of assets.The carrying value of investments in the form of participating interests accounted forvia the equity method moved down from 111.2 million euros for 1999 to 102.5 million

BANK LENDING

05

101520253035404550

200019991998

36.8

16.7

43.1

21.5

46.6

32.4


■ Belgium■ Abroad

BANK LENDING:BREAKDOWN BY TYPE OF CREDIT

■ Term credit > 1 year■ Mortgage loans■ Term credit < 1 year■ Advances in current account■ Consumer loans■ Other

7.0%

3.9%8.8%

38.5%

21.6%

20.3%

CUSTOMER DEPOSITS, BANKING

0

10

20

30

40

50

60

70

200019991998

57.3

27.7

63.3

29.9

59.5

47.7


■ Belgium■ Abroad

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euros for 2000. The decline was the resultant of the sale of the CCF participation (-53million euros), the switch to full consolidation of the Czech insurance subsidiary C{SOBPojist’ovna (-6.6 million euros), the higher share in the Polish Agropolisa (+2.2 millioneuros), the acquisition of a 40% participation in the Polish insurance company Warta(+40.7 million euros) and the increase in the value of FBD (+8 million euros).Although there was a downward trend on equity markets in 2000, the higher investmentvolume brought about a slight rise in the market value of the equity portfolio (excludingunit-linked life assurance) to 3 532 million euros for the year, as against 3 520 millioneuros for 1999. However, unrealized gains on the equities portfolio shrank by 349million euros to 1 066 million euros.The market value of the fixed-income portfolio was 215.7 million euros down on the1999 figure, due to, among other things, the sale of bonds that had served as coverfor insurance bonds.

Group profit and loss account

Group

Group profit for 2000 went up by 87.7% and was naturally boosted by the capitalgain of 763.4 million euros realized on the sale of the participating interest in CCF,655.2 million euros of which, via the extraordinary results, was reflected in the bottomline.Even excluding this gain, net Group profit rose strongly by 20.2% to 1 165.5 millioneuros. Leaving the changes in the scope of consolidation out of account, net groupprofit climbed by 15.5%.There was a 22.7% increase in the contribution of the banking business to profit(excluding the capital gain on CCF), thanks to the good operating results turned inby all core activities, albeit somewhat flattened during the second half of the year bythe provisions set aside for a number of sizeable loans in the technology and textilesectors, particularly in Belgium.The contribution of the insurance business to profit grew by 18.2%, due to goodtechnical results in non-life insurance and the continuing commercial success ofunit-linked life assurance products.

Return on equity, or ROE, the ratio between net group profit and average shareholders’equity, went up from 20.5% in 1999 to 23.3% in 2000 (excluding the capital gainrealized on CCF). This calculation takes account of the derogation granted by theBelgian Banking and Finance Commission regarding the immediate deduction fromequity of goodwill paid on recent acquisitions. If the goodwill in question were to becapitalized and amortized1 over a period of ten years, ROE would come to 16.1% for2000 (excluding the capital gain on CCF), compared with 15.6% in 1999.

Operating results, banking

At 1 521 million euros, the contribution of the banking business to net profit was up113% (22.7%, excluding the capital gain on CCF) on the figure for 1999. If the impactof the changes in the scope of consolidation (mainly the increase in the percentageof participation in K&H Bank and KBC Financial Products) are not taken into account,net profit growth came to 15.8%.

¶ Gross operating income

Gross operating income in the banking business rose 20.4%. Excluding the realizedgains on shares the gross operating income rose 26.7% compared to 1999. Aside fromthe impact of new acquisitions or changes in participating interests (resulting in a12-percentage-point increase in operating income), this was due chiefly to the substantialimprovement in the results from currency dealing and securities trading, and to the

1 In 2000, the theoretical amortization would have come to 135.1 million euros.

CUSTOMER DEPOSITS, BANKING:BREAKDOWN BY TYPE

■ Time deposits■ Deposit books■ Demand deposits■ Savings certificates■ Other

15.8%

28.9%

8.3%

29.8%

17.2%

INVESTMENTS, INSURANCE

0

2

4

6

8

10

12

200019991998

7.7

2.3

9.4

1.9

10.6

1.5


■ Carrying value■ Unrealized gains

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continuing brisk growth in net commission income, principally from securitiestransactions and the sale of investment funds and insurance.In the second half of the year, however, growth slowed as a result of, among otherthings, lower results for trading in equities and their derivatives.Leaving realized gains on shares out of account, gross operating income grew by26.7% on its level for the 1999 financial year.Total net interest income went up by 11.6%. Excluding the negative impact of thehigher cost of financing acquisitions and a number of one-off items, the increase cameto approximately 15%.

In Belgium, it came to about 5%, owing mainly to a positive volume-related andstructural effect. KBC Bank NV’s euro interest margin widened slightly from 2.03%for the 1999 financial year to 2.11% for 2000.Abroad, net interest income grew by about 40%. Factors at play here were principallythe effect of the changes in the scope of consolidation and the expansion of activitiesin Central Europe, more particularly at C{SOB.

Total profit on financial transactions climbed by 31.4%, despite the fact that realizedgains were practically halved.The result from currency dealing and securities trading tripled compared to thelow level for 1999, even though the second half of 2000 was characterized by a relativeweakening in general, as well as by problems in the dealing room of C{SOB. Despitethe significant trading loss incurred as a result of unauthorized positions, C{SOB’sdealing room still managed to show a marginally positive result for 2000.

Having been included in results for only 2 months of the 1999 financial year, KBCFinancial Products contributed 50% of the growth for the 2000 financial year.

Realized gains and losses on investment securities were more or less halved incomparison with the high level achieved in 1999.Losses of 26 million euros were realized on the portfolio of fixed-income securities −chiefly for the sake of managing the strategic interest-rate position and as a result ofopportunitistic sales − while gains of 272 million euros were realized on the equityportfolio. The much higher level of capital gains realized on shares in 1999 (+135million euros) had chiefly to do with gains realized on the Brussels stock market ontakeovers of a number of companies.

The growth in commission income is continuing unabated and is still largely due toKBC Bank’s leading position on the local investment-fund market and the ever-expanding popularity of unit-linked life assurance. Together with an increase inmanagement fees stemming from higher managed-fund volumes, this served togenerate a 33.7% increase in commission income in the securities and asset managementbusiness.The sharp rise in revenues from payments transactions, other commission and otherincome is attributable mainly to changes in the scope of consolidation. In the case ofother income, the rise is also partially due to the expansion of leasing activities.

¶ General administrative expenses

In the banking business, general administrative expenses went up by 22.6%. Excludingthe impact of acquisitions and higher participating interests, the organic rise in chargescame to 6.5%.The cost/income ratio edged up to 66.5% for 2000 as a whole. Had the scope ofconsolidation remained unchanged, though, the ratio would have declined by 1.1percentage points to 64.2%.Were no account to be taken of the gains realized on shares in 1999 and 2000, thecost/income ratio for actual operating activities in 2000 would have been 2.4 percentagepoints down on the level for 1999.

MARKET VALUE OF INVESTMENTS,INSURANCE; BREAKDOWN BY TYPE

■ Bonds■ Shares■ Unit-linked life assurance■ Other

18.9%

29.3%

44.1%

7.6%

GROSS INCOME, BANKING

■ Net interest income (incl. dividends)

■ Net commission income■ Financial transactions■ Other

18.0%

22.2%

52.3%

7.5%

NET COMMISSION INCOME, BANKING(AS A % OF GROSS INCOME)

0

5

10

15

20

25

2000199919981997

14.9

17.919.6

22.2

(in %)

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Total staff charges climbed by 22.4%. At KBC Belgium, which accounts for 60% oftotal staff charges, the increase was 3.7%. Expressed in full-time equivalents (FTEs),the number of staff fell by 0.9% on the figure as at the end of 1999.Other operating charges (including depreciation) rose by 22.8%, a rise virtuallyentirely due to the expansion of activity and to acquisitions.At KBC Belgium, the increase in other operating charges came to about 7% and waslargely the consequence of one-off effects in 1999 − recovery of VAT, for example −and higher automation costs in 2000. Out-of-pocket merger-related expenses includedin operating charges amounted to 31.9 million euros, compared to 35.2 million eurosin 1999.

¶ Value adjustments

Write-downs on and provisions for credit risks in Belgium were significantly higher,following a number of specific, fairly large problem loans in the textile and technologysectors in Belgium. However, the overall quality of the domestic credit portfolioremains good.

The negative trend in Belgium was largely offset by the favourable trend in foreignlending. The sharp fall in specific write-downs on foreign credit risks is attributableto considerably lower provisions for Southeast Asia (34 million euros lower, on balance),for international Trade Finance (down 28.5 million euros) and at C{SOB, where 62million euros less were recorded, on balance, partly because a substantial amountwas recovered on a loan for which a provision had already been allocated.

In addition, a substantial amount in provisions for country risks was written back,as a result of the recovery in the economic situation of a number of emerging markets.The remaining provision of 74.4 million euros for country risks still amply exceeds therelevant recommendations of the supervisory authority.

Lastly, 18.9 million euros were written back in 2000 from the provision for the dioxincrisis as no further losses were incurred in this respect.

On balance, write-downs on securities went up by 104 million euros. The negativeamount in 2000 related chiefly to unrealized losses on equities and perpetual bonds.

The fact that the allocation to the Fund for General Banking Risks (FGBR), a fundtraditionally topped up from realized gains, was limited to 15.8 million euros is partlyaccounted for by the gain on CCF being directly included, via profit retention, in capitaland reserves. This appropriation to capital and reserves stricto sensu rather than tothe FGBR, which (theoretically) can be written back, enhances the quality of capitaland reserves.

The net write-back from the provisions for liabilities and charges (15.1 millioneuros, compared to 3.6 million euros for 1999) was chiefly the resultant of anadditional allocation to the provision for operational risks (22.3 million euros) and awrite-back from the provision for restructuring and merger expenses (34 million euros).

Operating results, insurance

The insurance business closed 2000 showing an 18.2% increase to 320.6 million eurosin the contribution to net profit. Despite unremitting competition, the direct non-lifebusiness did very well. The sale of unit-linked life assurance products ensured furtherexpansion in the life business. In 2000, capital gains of 189.1 million euros wererealized on the sale of the participating interest in CCF and other shares, 86.3 millioneuros of which was allocated to the provision for financial risks.

BREAKDOWN OF GROSS EARNEDPREMIUMS, INSURANCE

■ Life, unit-linked products■ Life, other■ Non-life, motor■ Non-life, fire■ Non-life, other

9.6%

14.2%

6.5%

53.9%

15.8%

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¶ Recurring result

The recurring result comprises all periodically recurring income and charges arisingfrom ordinary activities. A normalized income from the equity portfolio is thus allocatedto this result. For 2000, the normalized return on the current value of the equityportfolio at the start of the financial year amounted to 6.9% (including dividend yield),compared to 6.6% for 1999.

¶ Non-life business

Net earned premiums climbed by 3.8% to 769.2 million euros. The growth of premiumincome from direct business was on the modest side and was achieved chiefly on theCentral European market. Although the number of insured risks in portfolio in Belgiumis still on the rise, competition is serving to keep premium income more or less constant,though the expansion of the portfolio of accepted reinsurance business translatedinto a 24.7% increase in net written premiums.There appeared to be an end in 2000 to the trend of declining tariffs on the reinsurancemarket. The disappointing technical results of recent years and the recent fall in shareprices oblige the reinsurance sector to increase tariffs in 2001.

The net loss ratio edged up by 0.1 of a percentage point on its level for 1999, toreach 72.6%. The greater loss burden in the reinsurance activity was virtually entirelyoffset by direct non-life business, where the net loss ratio fell by 4.6 percentage pointsto 65.3%.The provisions set aside at the end of 1999 by the reinsurance company Secura tosettle claims arising from the violent December storms, appear ultimately to have beenunderestimated. Against this, however, there was a release of provisions set asideearlier in the direct non-life business.

The net expense ratio went up slightly, registering 34.0% for 2000, as against 33.6%for 1999.

Despite keen price competition on the Belgian market and the muted performanceof reinsurance subsidiary Secura, the non-life business realized a recurring result of124.5 million euros for 2000, compared to 127.9 million euros for 1999.

¶ Life business

Net earned premiums in the life business shot up by 39% to reach 1 881 million euros.The commercial success of unit-linked life assurance products continues unabated.These are products that are ideally suited to the bancassurance concept and in 2000they generated 1 459 million euros worth of premium income, which represented avery strong increase of 56% in comparison to the figure for 1999. An upward revisionof the guaranteed rate of interest for universal life assurance products from 3.25%to 3.75% proved insufficient to boost the production of traditional life assurance, sothat premium income remained more or less constant.

Net technical charges in life assurance rose by 11.7%, the resultant of premiumgrowth, on the one hand, and an 182.5 million euros decline in the value of unit-linkedinvestment funds (a consequence of the negative stock market climate), on the other.

The net expense ratio fell from 7.1% for 1999 to 5.8% for 2000.Higher technical provisions resulted in a 15.3 million euro increase in recurring financialincome allocated to the life business.

The recurring result for the life business closed at 161.4 million euros, up 38.1% onthe 1999 figure.

GROSS EARNED PREMIUMS,UNIT-LINKED LIFE ASSURANCE

0

200

400

600

800

1 000

1 200

1 400

1 600

2000199919981997

29.5170.8

934.5

1 458.6

(in millions of EUR)

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¶ Non-technical result

The higher level of recurring financial income led to the recurring non-technical resultmoving up from 67.2 million euros for 1999 to 86.1 million euros for 2000.

¶ Non-recurring result

This result includes all non-recurring income and expenditure arising in the course ofthe normal conduct of business, as well as, among other things, realized gains overand above the normalized return on shares (for example, the capital gain on CCF).The allocation to the provision for financial risks is a non-recurring cost.

The consequence of the mandatory change to the method of calculating theprovision for unearned premiums (i.e. the three-hundred-and-sixty-fifths methodinstead of the twenty-fourths method) is that a lower premium amount is requiredto be set aside for the coming risk period. For the sake of comparability, the old methodof twenty-fourths was applied to calculate recurring earned premiums, the differencebeing recorded as non-recurring income.

The provision set aside in 1999 for possible losses in respect of the transition to theyear 2000 was written back in full, as no losses occurred. Also in 1999, an additionalamount was added to the technical provision for life assurance, in order to cover therisk of low interest rates. Given that the interest rate risk was covered in full as at theend of 1999, no additional allocation was required in 2000.

At the end of 2000, 86.3 million euros was added to the provision for financialrisks, bringing it to 158.1 million euros.

Holding company result

2000 saw the holding company making a negative contribution of 20.9 million eurosto profit. The fact that this negative contribution is 4.6 million euros up on the figurefor 1999 is due principally to the holding company having virtually no income and toits financing costs having risen.

Extraordinary results and taxes at Group level

The extraordinary results were situated almost entirely in the banking business andbesides the capital gain (655 million euros) realized on CCF during the first half ofthe year also concerned the capital gain (63 million euros) realized on the sale of theremaining participation in KB SA Luxembourgeoise during the second. Better operatingresults vis-à-vis the reference period led to higher taxes.

Breakdown per area of activityThe report on the activities of the KBC Bank & Insurance Group covers its five areas ofactivity and specific information is therefore provided on each of them:¶ Retail and private bancassurance¶ Central Europe¶ Corporate services¶ Asset management¶ Market activities

The following table summarizes the key figures for each area of activity.In the next few sections, a description of each area of activity is provided, along withdetailed key financial figures and a brief report.

The Group item is used to reconcile the figures for the various areas of activity withthose in the consolidated annual accounts. As far as results are concerned, this headingonly includes the income and charges that can not, or only arbitrarily, be allocated tothe specific areas of activity, such as non-allocable overheads, most provisions for

NET PROFIT PER AREA OF ACTIVITY *

■ Retail and private bancassurance

■ Central Europe■ Corporate services■ Asset management■ Market activities■ Group activities



11.3%

14.8%

16.7%

38.8%

5.7%12.7%

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liabilities and charges, realized gains on the sale of investment securities and financialfixed assets, the allocation to the Fund for General Banking Risks and the result fromCCF accounted for using the equity method.

As regards the allocation of costs, the figures contained in this annual report differfundamentally from those in previous reports. Costs for the support services (such asIT development, risk management, accounting) used to be included entirely underthe ‘Group item’ heading, whereas they have now been distributed for the most partover the various areas of activity.The allocation of equity is based on regulatory requirements, although higher ratioswere used than legally required for prudential reasons.In the banking business, each area of activity is allocated an amount of tier-1 capitalthat is commensurate with a tier-1 ratio of 7%. In calculating return on equity, onlyallocated equity is included in the denominator (hence not the allocated Fund forGeneral Banking Risks and the allocated preference shares).In the insurance business, one and a half times the legally required minimum amountis allocated to VITIS Life, twice the legally required minimum amount for the retailbusinesses and three times the legally required minimum amount for the corporateservices and the activities in Central Europe.

The deduction of goodwill from equity is reflected under the ‘Group item’ heading.Leveraging by the holding company (financing part of the subsidiaries’ equity capitalby borrowings) is also included in the ‘Group item’. In other words, the positive impactof deducting goodwill from equity and of leveraging by the holding company on theGroup’s total return on equity is not reflected in the return on equity for the differentareas of activity.

ProspectsFollowing the favourable trend of results in 2000, including the strong recovery ofincome from market activities and good operating results, KBC expects somewhatlower profit growth for 2001 than for the past year, partly because of the expectedslight dip in general economic growth.KBC is confident that its results will be in line with its objectives, but neverthelessdeems it inopportune at this early stage of the year to make a specific statement aboutthe growth of earnings per share.

RETURN ON ALLOCATED EQUITYPER AREA OF ACTIVITY(EXCL. ASSET MANAGEMENT *)

0

5

10

15

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30

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16.8

21.0

7.610.4

5.9 7.19.8

24.6

(in %)

■ 1999■ 2000

* Since there are virtually no

risk-weighted assets in this area of

activity, its return on equity is not

very significant.

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Amounts in millions of EUR Retail andprivate

bancassurance

CentralEurope

Corporateservices

Assetmanage-

ment

Marketactivities

Groupitem

Total

1 BankingProfit contribution, 31-12-1998 167.4 -3.8 112.9 64.7 184.4 53.3 579.0Profit contribution, 31-12-1999 110.3 23.3 112.6 90.7 90.8 287.0 714.7Profit contribution, 31-12-2000 152.8 55.1 165.7 131.2 172.4 843.6 1 520.9Allocated equity, 31-12-1998 1 438.2 14.1 1 659.3 0.0 1 011.3 341.7 4 464.6Allocated equity, 31-12-1999 1 416.0 397.0 1 916.5 0.0 848.3 -611.3 3 966.4Allocated equity, 31-12-2000 1 434.5 457.2 2 127.9 0.0 557.3 722.1 5 299.1

Key ratios, 31-12-2000- Share in result (excl. CCF) 13.1% 4.7% 14.2% 11.3% 14.8% 17.1% 75.2%- Share in risk-weighted assets 33.6% 7.2% 49.6% 0.0% 7.7% 1.8% 100.0%- Share in allocated equity 24.8% 7.9% 36.8% 0.0% 9.6% 12.5% 91.7%- ROE (excl. CCF) 10.7% 12.9% 8.2% - 24.6% - 20.3%

2 InsuranceProfit contribution, 31-12-1998 199.8 -1.4 -1.5 0.0 0.0 29.8 226.7Profit contribution, 31-12-1999 243.0 -3.1 -3.5 0.0 0.0 34.9 271.3Profit contribution, 31-12-2000 299.5 4.6 -17.8 0.0 0.0 34.3 320.6Allocated equity, 31-12-1998 649.3 11.2 59.7 0.0 0.0 332.9 1 053.0Allocated equity, 31-12-1999 675.7 114.0 63.0 0.0 0.0 278.1 1 130.8Allocated equity, 31-12-2000 680.5 245.0 60.3 0.0 0.0 247.4 1 233.2

Key ratios, 31-12-2000- Share in result (excl. CCF) 25.7% 0.4% -1.5% 0.0% 0.0% 2.9% 27.5%- Share in allocated equity 11.8% 4.2% 1.0% 0.0% 0.0% 4.3% 21.4%- ROE (excl. CCF) 41.1% 4.0% -28.8% - - 12.4% 27.1%

3 Holding-company activitiesProfit contribution, 31-12-1998 0.0 0.0 0.0 0.0 0.0 -7.9 -7.9Profit contribution, 31-12-1999 0.0 0.0 0.0 0.0 0.0 -16.3 -16.3Profit contribution, 31-12-2000 0.0 6.5 0.0 0.0 0.0 -27.3 -20.8Allocated equity, 31-12-1998 0.0 0.0 0.0 0.0 0.0 -295.1 -295.1Allocated equity, 31-12-1999 0.0 92.9 0.0 0.0 0.0 -973.9 -881.0Allocated equity, 31-12-2000 0.0 92.9 0.0 0.0 0.0 -849.6 -756.7

Key ratios, 31-12-2000- Share in result (excl. CCF) 0.0% 0.6% 0.0% 0.0% 0.0% -3.3% -2.7%- Share in allocated equity 0.0% 1.6% 0.0% 0.0% 0.0% -14.7% -13.1%

4 Total, KBC Bank and KBC InsuranceProfit contribution, 31-12-1998 367.3 -5.2 111.4 64.7 184.4 75.1 797.7Profit contribution, 31-12-1999 353.2 20.3 109.1 90.7 90.8 305.6 969.7Profit contribution, 31-12-2000 452.3 66.3 148.0 131.2 172.4 850.6 1 820.7

Allocated equity, 31-12-1998 2 087.4 25.3 1 719.0 0.0 1 011.3 379.5 5 222.5Allocated equity, 31-12-1999 2 091.6 603.9 1 979.5 0.0 848.3 -1 307.1 4 216.2Allocated equity, 31-12-2000 2 115.0 795.1 2 188.3 0.0 557.3 119.9 5 775.5

Key ratios, 31-12-2000- Share in result (excl. CCF) 38.8% 5.7% 12.7% 11.3% 14.8% 16.7% 100.0%- Share in allocated equity 36.6% 13.8% 37.9% 0.0% 9.6% 2.1% 100.0%- ROE (excl. CCF) 21.0% 10.4% 7.1% - 24.6% - 23.3%

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Retail andprivate bancassurance

HIGHLIGHTS

¶ Net profit in this area of activity was up 28.1% on the 1999 figure; ROE cameto 21.0%.

¶ The merger process is right on schedule. As a result of branch mergers, thenumber of retail branches declined in 2000 by 165. The total number shouldbe cut from the initial 1 500 to around 900 by the end of 2003. The integrationof the insurance companies is also proceeding according to plan.

¶ Internet applications will continue to be developed for both private individualsand businesses.

¶ The cross-selling potential inherent in KBC’s bancassurance concept is illustratedby the fact that already more than 500 000 private persons and local businessesare customers of both the bank and the insurance company. On top of this,there are already 156 000 ‘stable bancassurance clients’ holding at least threeKBC Bank and three KBC Insurance products. Sales of insurance products viathe bank branches are going well: in 2000, KBC obtained nearly 87% of itspremium volume from life assurance through this channel.

¶ Despite the competitive environment, KBC managed to increase its share ofthe insurance market. It also managed to capture a bigger share of the retaillending market (consumer credit and home loans).

¶ In the retail segment, KBC came out with a wide variety of new products, suchas the ‘KBC Investment Mortgage’, the ‘Plan for your future’, a home healthcare insurance policy and new kinds of payment cards. In addition, it securitizeda portfolio of car loans worth 250 million euros.

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KEY FIGURES


BankingGross income 1 808.9 1 667.7 1 965.6 17.9%General administrative expenses -1 395.0 -1 393.5 -1 650.4 18.4%Write-downs and provisions -112.3 -73.6 -67.4 -8.4%Income taxes -129.0 -86.4 -97.3 12.6%Other -5.1 -3.9 2.2 -Profit contribution 167.4 110.3 152.8 38.6%

Risk-weighted assets 27 912.6 30 781.4 30 619.7 -0.5%Allocated equity 1 438.2 1 416.0 1 434.5 1.3%

Share in Group profit (excl. CCF) 21.0% 11.4% 13.1%Cost/income ratio 77.1% 83.6% 84.0%ROE - 7.7% 10.7%

InsuranceEarned premiums, net of reinsurance 1 694.9 1 952.4 2 476.1 26.8%Net technical charges -1 622.0 -1 989.7 -2 161.6 8.6%Investment income and charges 441.8 639.5 383.3 -40.1%General administrative expenses -279.1 -296.7 -314.2 5.9%Non-recurring and extraordinary results 107.6 4.3 19.4 -Income taxes -116.2 -40.5 -73.1 80.5%Other -27.2 -26.4 -30.3 14.7%Profit contribution 199.8 243.0 299.5 23.3%

Allocated equity 649.3 675.7 680.5 0.7%Share in Group profit (excl. CCF) 25.1% 25.1% 25.7%Combined ratio 101.3% 103.9% 101.6%ROE - 35.8% 41.1%

KBC GroupProfit contribution 367.3 353.2 452.3 28.1%

Allocated equity 2 087.4 2 091.6 2 115.0 1.1%Share in Group profit (excl. CCF) 46.0% 36.4% 38.8%ROE - 16.8% 21.0%

SHARE IN GROUP PROFIT *

■ Retail and private bancassurance

■ Other areas of activity

61.2%

38.8%



RETURN ON ALLOCATED EQUITY

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5

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15

20

25

20001999

16.8

21.0

(in %)R

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DESCRIPTION OF THIS AREA OF ACTIVITY

‘Retail and private bancassurance’ covers the activities of the bank branches, agentsand brokers that cater for private persons, the self-employed and local businesses(retail bancassurance) and for high-net-worth individuals (private bancassurance).

CONTRIBUTION TO THE RESULT

In 2000, this area of activity accounted for 38.8% of Group profit (excluding CCF),and achieved an ROE of 21.0%. In banking, the contribution to profit went up by38.6%, thanks mainly to the widening of the interest margin and the continuedincrease in commission income derived from investment funds and insurance products.The cost/income ratio in 2000 was more or less unchanged from 1999, while write-downswere slightly lower, in part because of the write-back of the provision set aside tocope with the dioxin crisis. The 23.3% increase in the contribution to profit made bythe insurance business can be attributed mainly to the life assurance activities, owingto the popularity of unit-linked products, and to the favourable results achieved bythe non-life business, where 67% of the premium income is accounted for by KBC’sagency network.In both the banking and the insurance business, profit growth was achieved withoutany significant increase in allocated equity (only 1.1% higher), which accounts forthe strong rise in return on equity compared to 1999. In the insurance business, salesof unit-linked products entail hardly any charge on regulatory capital, while in thebanking business, risk-weighted assets were able to be kept at the same level as in1999.

PROGRESS ON THE MERGER FRONT

In Belgium, the process of integrating the various activities, distribution channels andIT systems of the former merger partners continued without letup, everything goingaccording to plan. In some areas, such as the transfer, or migration of customers tothe new computer platform and the deepening of relationships with former CERAcustomers, things were even ahead of schedule. Accordingly, it looks as if the objectiveof establishing a single, integrated IT platform for KBC Insurance by the end of 2001and for KBC Bank by the end of 2003 will be achieved.

Although, at this stage, merger-related costs still outweigh the savings achieved as aresult of the merger, new calculations confirm that the cumulative synergies resultingfrom the merger are far more extensive than originally believed. As a matter of fact,the net present value of the merger has turned out to be 37% higher than initiallyestimated.

Branch mergers

The merger of the bank branches that got under way in 1999 continued in 2000, theaim being to create fewer but bigger branches. At KBC Bank, the number of retailbranches was reduced by 165 during the course of 2000, bringing the number ofremaining retail branches at the end of the year to 1 272. Plans are to reduce thetotal number of retail branches from the pre-merger number of some 1 500 to roughly900 by the end of 2003. At wholly-owned subsidiary CBC Banque, too, the numberof retail branches 2 will have been scaled down from 137 at the end of 1999 to approxi-mately 95 by the end of 2001.

2 This excludes the private banking and the main branches that also cater for corporate customers.

PLANNED REDUCTION INKBC BANK BRANCH NETWORK

0

200

400

600

800

1 000

1 200

1 400

1 600

20032002200120001999

(in %)

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In the merged branches, a new approach to customer service is being introduced.Here, the main objective is to improve service by introducing longer opening hoursand reducing customer waiting time, among other things.

IT integration

The integration of the IT systems is crucial to the merger process. The new KBCcomputer platform for the domestic banking business is based on the platform usedby the former CERA Bank. The migration of customers to the new platform has begunand pains are being taken to avoid inconveniencing the customers in any way; forinstance, they are able to keep their old account numbers, payment cards and standingorders, etc. The process is fully automated, ensuring error-free transfers and allowinglarge volumes to be handled during the ‘overnight migrations’. By the end of 2000,13% more customers had been transferred to the new KBC platform than originallyplanned.

At KBC Insurance, too, the IT integration process is right on schedule. The new computerplatform there is based on the systems used by the former ABB. 1999 marked thestart of the phased transfer of the policies and dossiers of the former KredietbankGroup’s insurance companies to this new platform. By the end of 2001, the entireconversion process should be completed.

The integration of insurance applications into the bank’s computer systems is alsoon course. Besides motor, fire and family liability insurance and a few traditional lifeproducts, the bank branches can now also sell unit-linked life assurance on acomputer-aided basis.

Milestones in the integration processMarch 2000 Start of the integration of the life assurance domain, with the

transfer of the former Omniver’s modern credit-linked life assuranceportfolio.

April 2000 Start of the big wave of branch mergers (physical integration andstart of customer migration).

May 2000 Transfer of the non-life insurance portfolio of the former Omniver(sold via Centea) to the insurer’s integrated computer platform(‘KBC I’ platform).

September 2000 KBC Bank’s computer platform becomes a ‘multi-bank’ platform.In order words, the computer applications can be used indepen-dently by different banks (namely KBC Bank and CBC Banque).

October 2000 Transfer to the ‘KBC I’ platform of the former Omniver’s portfolioof new life assurance products and collective hospitalization policiesand the former Delphi’s ‘Flexibel’ portfolio.Transfer of the first ‘converted’ KBC Bank branches (branches thatwill not be merged) to the KBC computer platform; start of customermigration in these branches.

March 2001 Conversion of the non-life insurance portfolio of the former Fidelitas.

April 2001 Development of the KBC Bank platform will have reached the pointwhere it can accommodate nearly all retail customers and manyof the corporate customers.

June 2001 Switch to ‘full migration’: the migration process will take placeon fewer nights, with much higher volumes being processedovernight.

September 2001 Integration of the first corporate branches in the migration process.

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November 2001 Conversion of the non-life insurance portfolio of the former Delphi,and the traditional life assurance portfolio of the former Omniver,Fidelitas and Delphi to the ‘KBC I’ platform.

January 2002 The process of integrating the insurer will have been completed.

September 2002 Migration of the first private banking branches.

End of 2003 The process of integrating the bank branches will have beencompleted.

CUSTOMERS AND CROSS-SELLING POTENTIAL

Stable customers

At the end of 2000, KBC Bank had more than 1.3 million retail and private bankingcustomers in Belgium (all accounts registered under same address count as onecustomer, so the actual number of accounts is really a multiple of this figure). Via thesame method, the number of clients of KBC Insurance has been put at 0.75 million.

One of the main strategic objectives in the retail segment is to increase the numberof ‘stable customers’. A bank customer is considered ‘stable’ if he holds at least threeof the six basic banking products. By the same token, a ‘stable’ insurance customer isone that holds at least three of the six basic insurance products. According to thisdefinition, about 56% of the retail and private banking customers of KBC Bank wereconsidered stable at the end of 2000, and 33% of the customers of KBC Insurance. In1999, these figures were 54% and 33%, respectively.

Cross-selling potential

At both KBC and CBC, co-operation between bank branches and insurance agents isregulated by contract, and is based on the two entities teaming up within a specificoperating area. By the terms of such a contract, bank branches will only sell standardinsurance products designed for private persons, while agents can also sell non-standardproducts and have a monopoly on selling to the self-employed and members of theliberal professions. So, if a customer goes to his bank branch for non-standard insurance,he will be referred to the agent that branch is teamed up with. To file a claim, customerscan either contact the call centre or the insurance agent. The agent will always receivea portion of the sales commission, even when standard insurance is sold by a bankbranch. KBC subsidiaries Centea (banking) and Fidea (insurance) adopted a similarbancassurance concept in 2000.

At the end of last year, KBC Bank NV and KBC Insurance NV shared 511 000 customers,which means that more than 38% of the bank’s customers were also KBC Insurancecustomers. Consequently, the number of customers KBC Bank NV and KBC InsuranceNV have, combined, (when adjusted to avoid any double-counting) came to nearly1.6 million. The number of ‘stable’ shared retail and private banking customers, i.e.those holding at least three banking and three insurance products, came to 156 000at the end of 2000. In other words, 11.6% of the bank customers were ‘stable banc-assurance customers’, compared with 10.5% at the end of 1999.

The success of and the potential inherent in KBC’s bancassurance concept is alsoillustrated by the results achieved in the area of cross-selling. The bancassuranceconcept is ideally suited for sales of life assurance. At the end of 2000, nearly 87% ofthe premium volume (direct business) in the life business was generated through thebank distribution network, compared with less than 82% two years ago.

In the non-life business, too, the bank distribution network is an important saleschannel, accounting for more than 11% of premium income (direct business). Whiletotal premium income from non-life insurance (direct business) increased by just under2% in 2000, sales of this type of insurance via the KBC Bank branches actually wentup by more than 10%.

SHARED CUSTOMERS, KBC BANK NV AND KBC INSURANCE NV

■ Bank customers only■ Shared customers■ Insurance customers only

14.8%

32.5%

52.6%

LIFE ASSURANCE SOLD VIABANK BRANCHES(SHARE OF PREMIUM INCOME)

70

72

74

76

78

80

82

84

86

88

200019991998

(in %)

82

85

87

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MULTI-CHANNEL DISTRIBUTION

Traditional distribution channels

NUMBER OF BANK BRANCHES AND AGENTS

(31 December 2000) Retailbranches

Privatebanking

branches

Corporatebranches

Total,branches

KBC Bank 1 272 21 22 1 315CBC Banque 116 7 16 * 139Total 1 388 28 38 1 454

AgentsCentea 1 270KBC Insurance 765* Refers to main branches, which serve both retail and corporate customers.

At the end of 2000, KBC Bank had 1 272 retail branches located mainly in Flanders,Brussels and the Eastern part of Belgium, a decline of 11% on 1999. CBC Banque,which operates in the French-speaking part of the country, had 116 retail branches,15% fewer than in 1999. Centea, for its part, had 1 270 independent agents at theend of last year.

To serve its top-drawer clientele, KBC Bank has 21 specialized private bankingbranches. In order to cope with the increase in the number of private banking customers,it opened three new private banking branches in 2000. At the end of that year, KBC’sprivate banking branches served more than 5 700 customers. In the French-speakingpart of the country, CBC Banque operates seven private banking branches.

At the end of 2000, KBC Bank also had 22 corporate branches, while CBC Banquehad 16 main branches, serving not only retail customers, but corporate customers aswell. The network of corporate branches is dealt with in more detail in the ‘Corporateservices’ section.

As to KBC Insurance, it operates not only via the retail bank branches, but also via anextensive network of insurance agents, most of whom work in Flanders. Each insuranceagent works in partnership with a retail bank branch. In order to optimize theirbusiness, a number of independent agents merged voluntarily in 2000, which reducedthe total number of agencies from 820 to 765. The agents are considered to beself-employed from a social security and legal perspective, but are tied exclusively toKBC Insurance. Fidea, a KBC Insurance subsidiary, also sells insurance through approxi-mately 9 000 independent brokers, while VITIS Life, a Luxemburg-based KBC Insurancesubsidiary, caters for high-net-worth individuals.

Electronic distribution channelsBesides the traditional channels, there are also a variety of alternative (electronic)channels through which KBC offers its products and services to customers. The numberof transactions carried out via these non-traditional channels has grown exponen-tially in the past few years. This is illustrated by the fact that KBC was already receivingsome 70% of payments transactions via electronic channels at the end of 2000.

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ATMs, the call centre and phone banking

KBC has its own network of 1 065 KBC-Matic ATMs that customers can use to carryout most routine transactions. In 2000, these ATMs handled 1.9 million cash withdrawals(an increase of 12.5% on the end of 1999), 500 000 money transfers (an 11.6%increase) and 80 000 Proton transactions (a 12.5% increase) a month. KBC also hasits own telecentre that customers can contact in order to carry out routine transactions,place stock market orders and request information. In 2000, the KBC-Telecenterhandled an average of 17 000 ‘contacts’ a month, nearly twice as many as in 1999.In a study conducted by the Gartner Group to see how quickly customer queries sentin by e-mail were answered, the KBC-Telecenter came in second. For customers whowant to do their banking business by phone, KBC also offers the ‘KBC-Phone’ and‘Tele-KBC-Foon’ facilities. At the end of 2000, there were more than 67 000 activesubscribers to these services, and an average of 135 000 money transfers were handledeach month.

Computer and Internet applications

¶ The KBC Web site

On the KBC Web site, visitors can find a variety of information and carry out loan-,investment- and insurance-related simulations. In December 2000, the KBC Web sitewas visited more than 400 000 times, compared with an average of 250 000 timesduring the September-October period. In 2000, the number of ‘hits’ increased morethan five times over to approximately six million a month.

The KBC site was voted ‘best and most user-friendly Web site of all the financialinstitutions’ sites’ by Knack magazine readers, and took second place in the category‘Best technology site of 2000’ at the ‘Night of the Internet’ event. The KBC Web sitealso got high marks in the Financieel Economische Tijd survey into the investorinformation available on the Web sites of listed companies.

¶ KBC-Online

In the latter part of 2000, KBC came out with new Internet banking applications andoffered the basic software to customers free of charge. Using KBC-Online, customerscan now, for example, retrieve account information, transfer funds, create reportsand payee files, buy into investment funds and place buy and sell orders on tendifferent exchanges.

In all, more than 85 000 customers were actively using the various KBC Internet andPC banking packages by the end of 2000, an increase of more than 30% on the endof 1999. On an aggregate basis, this software was used to process 1 305 000 moneytransfers a month. In 2000, nearly 37 000 stock market orders were carried out for atotal of 136 million euros, two and a half times more than in 1999, and this despitethe less-than-brilliant showing made by the stock markets. These figures do not includestock market orders placed via KBC Securities’ Bolero online system (for more on this,see the ‘Market activities’ section).

¶ My KBC

Using the ‘My KBC’ facility, visitors can call up information on stock prices and loanrates, etc., via e-mail, SMS and WAP. They can also get a daily overview of the closingprices of securities they own, or be notified if a particular security exceeds the limitthey have set. ‘My KBC’ gives investors access to a virtual portfolio, too, showing them− within a time span of no more than fifteen minutes − what the return is on theirindividual securities and overall portfolio.

NUMBER OF 'HITS' ON THE KBC WEB SITE PER MONTH

0

1

2

3

4

5

6

712

-200

011

-200

010

-200

009

-200

008

-200

007

-200

006

-200

005

-200

004

-200

003

-200

002

-200

001

-200

012

-199

9

(in millions)

1.21.5 1.5

2.4

3.4 3.43.7

4.0 3.9

5.2

5.9 6.1

3.6

NUMBER OF VISITS TO THE KBC WEB SITE PER MONTH

0

100

200

300

400

500

600

12-200011-200010-200009-2000

(X 1 000)

281 382

204 527

524 146

418 680

NUMBER OF STOCK MARKET ORDERS CARRIED OUT VIA KBC-ONLINE *

0

5

10

15

20

25

30

35

40

200019991998

(X 1 000)

4 719

18 041

37 053

* Including Tele-KBC-Online.

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¶ Online payments

Since November 2000, KBC has offered SMEs a free package of services to help themstart up and run an electronic business on the Internet. The ‘KBC Payment Button’ isone such service, a tool guaranteeing safe, swift payment via the Internet.

KBC also participates in information sessions on Internet and e-commerce applicationsthat are organized by professional associations for the self-employed and localbusinesses. KBC - together with the other Banksys partners - is also one of the foundersof ‘Banxafe’, superior security technology that makes online transactions possibleusing Proton, Visa, MasterCard and Bancontact.

¶ B2B programs

KBC has joined ‘Bolero.net’, an international platform for the presentation of tradedocuments in electronic form. 2001 should also see an online forex trading platformbeing rolled out for corporate customers. In addition, KBC belongs to a number ofPKIs (Public Key Infrastructures), which guarantee the authenticity of parties involvedin electronic trades. During the first quarter of 2001, ‘Flexims’ should be introduced,enabling businesses to communicate with the bank online for trade finance services.

¶ ‘Isabel’

‘Isabel’ is a software tool enabling companies to automate their financial transactions.In 2000, all former CERA Bank customers subscribing to this service were transferredto the KBC and CBC merger platform. Sales of ‘KBC@Isabel’ remain buoyant: in 2000,the number of KBC subscribers climbed to more than 21 000, an increase of over 15%.

Among the Isabel applications shared by all participating banks, the pilot electronicinvoicing scheme is particularly innovative, as it allows companies to use Isabel tosend and receive legally valid invoices by electronic means. Not only does it offer thesecurity of a digital certificate, ‘Isabel-eInvoice’ also makes it possible for companiesto cut costs and save time, since it can be integrated into the Isabel payments systemand accounting software, among other things.

MARKET SHARE IN THE DOMESTIC RETAIL SEGMENT

At KBC Bank, domestic retail credit (credit to private persons, the self-employed andlocal businesses) accounted for roughly 69% of total domestic lending. Slightly morethan 60% of this was in the form of loans to the self-employed and legal persons,while slightly less than 40% was accounted for by loans to private individuals.

KBC’s share of the domestic retail market comes to between 25 and 27% 3. Of this,17 to 18 percentage points were accounted for by KBC Bank NV. In mortgage lending,KBC succeeded in raising its market share from 24.3% to 25.2%, despite the fact thatnew home loan production at KBC Bank was down by around a third on 1999, whichnaturally had to do with the decline in refinancing operations as a result of the higherlong-term interest rates. On the consumer credit market, too, KBC managed to increaseits market share from 24.9% to 26.7%, thanks in part to increased production followingthe Motor Show. These last percentages take no account of KBC’s securitization in2000 of a 250-million-euro portfolio of car loans, all granted via the KBC networkand well diversified in terms of geographic spread and type of borrower. This, togetherwith the securitization of a portfolio of commercial loans (see the ‘Corporate services’section), led to a reduction in risk-weighted assets and consequently enhanced thecapital ratios.

In 2000, the co-operation between KBC and the European Investment Fund on theenvironmental loan project was extended. The ‘KBC Environmental Loan’ is an investment

3 Consumer credit and home loans.

RETAIL LENDING BY CUSTOMER SEGMENT (KBC BANK NV)

■ Private individuals■ Self-employed■ Legal persons

42.6%

20.5%

36.9%

RETAIL LENDING BY TYPE OF CREDIT (KBC BANK NV)

■ Home loans■ Term credit■ Consumer credit■ Other

8.4%

36.4%

37.4%

17.8%

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credit that is 50%-backed by the European Investment Fund and granted to customersat a discount on the going commercial rate via a so-called environmental cheque. Todate, KBC has been the most active participant in this programme at European level.As at 31 December 2000, KBC had granted 635 environmental loans for a total of110 million euros.

The quality of the loan portfolio is dealt with in the ‘Risk management’ section inpart two of this annual report.

KBC’s market share in savings products also continued to develop satisfactorily. Echoingthe trend of the past few years, investment products (especially investment fundsoffering a capital guarantee) again proved enormously popular, at the expense ofdeposit books and savings certificates. Last year, KBC continued to expand its offeringof investment funds and managed to raise its market share from 28.2% to 29.2%(see the ‘Asset management’ section). Its share of the market in deposit books, onthe other hand, edged down from 19.9% to 19.4%, while its share of the savingscertificates market (including subordinated retail certificates) remained more or lessunchanged (17.9%, compared to 17.7% at the end of 1999).

RETAIL MARKET SHARE IN BELGIUM1

KBC Group Breakdown, 31-12-200031-12-1998 31-12-1999 31-12-2000 KBC

BankCentea

andKrefima

CBCBanque

KBCInsurance

Fidea

Retail bankingConsumer credit 23.1% 24.9% 26.7% 18.2% 6.1% 2.4% - -Home loans 22.8% 24.3% 25.2% 17.6% 5.5% 2.1% - -Deposit books 19.2% 19.9% 19.4% 14.9% 3.4% 1.1% - -Savings certificates 2 18.3% 17.7% 17.9% 12.8% 4.3% 0.8% - -Mutual funds 3 27.5% 28.2% 29.2%

Retail insuranceGeneral 9.3% 10.7% 11.4% - - - 10.3% 1.0%Non-life insurance 9.2% 8.9% 8.6% - - - 7.1% 1.5%Life assurance 9.4% 11.9% 12.8% - - - 12.0% 0.8%

Traditional & universal 10.4% 6.4% 6.6% - - - 5.1% 1.5%Unit-linked 5.4% 20.0% 18.1% - - - 18.0% 0.1%

1 Market share, banking: KBC vis-à-vis all Belgian credit institutions; the figure for 2000 is an extrapolation of the market share vis-à-vis the group of large creditinstitutions. Consumer credit and mortgage loans have been granted primarily, but not exclusively, to private individuals. Share of insurance market: based onestimates.

2 Including subordinated retail certificates.3 See the ‘Asset management’ section.

NEW PRODUCTS AND SERVICES FOR THE RETAIL SEGMENT

Payments

In 2000, KBC made great headway in developing ‘co-branded’ cards, cards that areissued in co-operation with another partner. Working together with the French cetelem,it also began developing revolving-credit payment cards. This type of card lets theholder spread payments for his or her purchases over a period of time. The variouscampaigns conducted in 2000 led to a 25% increase in the number of paymentsmadeusing KBC Bank cards. The number of payments effected via credit cards wentup during the same period by 10%. Lastly, in the run-up to the euro conversion in2002, a lot of information was provided on the conversion of Belgian-franc accountsinto euro accounts and the withdrawal of Belgian-franc coins from circulation.

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Home loans and insurance

In 2000, KBC came out with a more extensive version of its home insurance policy, aswell as the new ‘KBC Investment Mortgage’. Like a home loan, this mortgage can beused to finance the purchase or construction of a home. The customer only has topay interest and invest a certain sum every month in a unit-linked life assurance policy.Then, when the loan reaches maturity, the customer repays it all at once, using thereturn on his investment. If the amount of capital saved up exceeds the amount hehas to repay, the surplus capital will be paid out to him. If, on the other hand, theamount saved up is lower than the loan amount, he can pay back part of his loan andsimply extend it for the amount outstanding. If returns on the stock market are high,customers can opt either to build up an extra nest egg or pay back their loan sooner.

Wealth-building

In response to mounting demand for investment and capital-protection schemes tohelp clients prepare for retirement and the attendant drop in income, KBC came outwith its ‘Plan for your future’. This is a computer-aided form of comprehensive advice,offering customers a tailor-made combination of savings-, investment- and insurance-related services to achieve the financial part of their plans for the future. Starting in2001, this service will be expanded to cater for the needs of the self-employed.

KBC also steadily expanded its range of online wealth-building services and regularlylaunched new investment and insurance products (for more on this, see the ‘Assetmanagement’ section). In addition, concerted efforts were made to improve theprovision of advice and information to customers in such areas as asset management.

Businesses

KBC takes a pro-active approach towards serving SMEs, the self-employed, membersof the liberal professions, farmers and horticulturists by, for instance, streamliningrelationship management in the branch network and co-ordinating the actions of bankbranches and insurance agents. On top of this, new applications have been added tothe online offering for businesses. Loan pricing is now also being optimized and willbetter reflect the degree of risk associated with the underlying dossiers.

Young people

KBC has a broad array of special bank and insurance services available both off- andonline for young people, offering numerous financial and other advantages. To ensureproper service is provided to this customer segment, every KBC Bank branch has itsown adviser specifically for young people. KBC is also the only financial institution tohave opened specialized student branches in Gent, Leuven and Antwerp.

Life assurance

Business was booming on the life assurance market again in 2000, particularly onthe market for personal assurance.

On that market, unit-linked products again served as the motor for growth. Theco-operation between KBC Insurance and KBC Bank led to the launch at the end of2000 of the ‘KBC Investment Mortgage’, described above. In early 2001, KBC plansto start selling unit-linked life assurance products via the Internet, as well.

On the group assurance market, growth was slowed by the fact that companiescontinued to adhere to the official wage standard. For this reason, the focus shiftedin 2000 to the segment of the self-employed who have set up a company to handletheir business and are not subject to this standard. All the same, in 2000, KBC Insurancesaw its premium income increase by nearly 16% in group assurance, although premiumgrowth achieved by the market came to just 4.8%.

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On 30 June 2000, the government took an important step towards facilitating thecreation of supplementary pensions. The future legal framework could well lead torenewed demand for pension schemes for wage-earners, following the stagnationexperienced since 1994.

In the health insurance business, KBC Insurance launched a new hospitalizationinsurance policy in June, which got off to a great start. The early part of the year alsomarked the introduction of the new home health care policy, which enables customersto take out insurance to cover the financial consequences associated with a loss ofindependence due to age, illness or accident.

Non-life insurance

In the motor insurance business, KBC Insurance responded to the keen competitionby, among other things, dividing the passenger car portfolio up along more detailedgeographic lines and introducing extra discounts for customers with a favourable riskprofile. In this way, KBC Insurance was able to preserve its position in the better marketsegments. In addition, it came out with two new products: a modular holiday insurancepackage and a new policy for vans.

The fire and other property damage segment did quite well. However, the corporatemarket is still very vulnerable to serious claims, and the sector sustained major losses.KBC Insurance updated its product offering for the corporate segment, raising its ratesfor a number of risks and duly restructuring certain policies, where necessary. In orderto maintain its competitive position in the institutional customer segment, a numberof limited changes were made to rates, as well. Anticipating the possible introductionof natural catastrophe insurance, KBC Insurance made a thorough study of the riskof flooding in Belgium and worked out a preliminary technical solution for the attendantinsurance.

In the industrial accidents class, premiums continued to be squeezed. The burdenof loss went up as well, a normal phenomenon during an economic boom. KBCInsurance introduced a new pricing system, lowering premium rates for companieswith favourable loss statistics.

On the personal insurance market, accident insurance had already been built in to allstandard products, including the home and family liability policies, in 1999. In 2000,the company did the same with policies for child-minders and (DIY) builders, incor-porating specific accident cover.

In the sector as a whole, business has been quite good over the past few years in thegeneral liability lines. However, the positive results achieved are due to the high levelof investment income obtained, since one of the features of this class of insurance isthe long period of time that elapses before claims have to be settled. KBC Insurancelaunched a new product for recreational boating and revised its rates for liabilityinsurance for agricultural businesses and institutions in the non-profit sector.

Lastly, legal assistance insurance made a good showing only where this assistanceis vehicle-linked. Other legal assistance lines are expected to show premium growthas a result of price increases in 2001. KBC Insurance also raised its premiums to copewith the mounting charges that are expected to result mainly from higher court costsand fees for lawyers and legal experts.

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MAIN SUBSIDIARIES IN THIS AREA OF ACTIVITY

CBC BanqueCBC Banque was created in 1998 through the merger of Crédit Général, the formerKredietbank subsidiary in French-speaking Belgium, and the former CERA Bank branchesin Wallonia.

CBC has a network of 139 branches: 116 retail branches, seven private banking branchesand sixteen main branches that cater for both retail and corporate customers. At theend of 2000, it had some 330 000 customers.

For CBC, the year 2000 marked the completion of the merger process in various areas.A number of assets and liabilities that had still been on KBC Bank’s books for technicalreasons were transferred at the end of November and integrated into CBC’s systems,requiring a lot of hard work. The reorganization and rationalization of the commercialnetwork continued, too. As a result of branch closures and mergers, the total numberof branches was reduced from 199 in 1998 to 139 by the end of 2000. In 2001, therewill be a further reduction in the number of branches, bringing the total to 117. Onthe other hand, thanks to the mounting success of private banking, the number ofbranches serving this customer segment gradually went up from three at the end of1998 to seven at the end of 2000.

Despite the less buoyant climate on the stock market and a narrowing interest margin,CBC managed to increase its net profit by more than 8%, thanks in part to a remarkableimprovement in commission income. Return on equity therefore went up to 12.3%.

Non-consolidated(in millions of EUR)

1998 1999 2000 Growth,1999Ä2000

KBC participation 100.0% 100.0% 100.0% -Profit for the financial year 29.1 32.6 35.3 8.4%ROE 13.3% 12.0% 12.3%

CenteaCreated through the merger of HSA and Spaarkrediet, Centea operates via a networkof 1 270 independent agents and caters specifically for private persons, the self-em-ployed and members of the liberal professions, offering savings and investmentproducts, loans and payment services, as well as insurance (in co-operation with Fidea).

The close connection between its independent agents and the local community is amajor asset for Centea. Together with its subsidiary Krefima, it boasts a market shareof 5 to 6% in home loans and consumer credit and one of 3 to 4% in deposits andsavings certificates.

In a number of areas, Centea co-operates with other KBC Group companies.For instance, KBC Asset Management takes care of the financial aspects of Centea’sfunds. Centea also works closely with other KBC Group companies as far as expandingits network and payment cards are concerned. In the field of insurance, Centeaco-operates with Fidea, co-operation which was reinforced in 2000 with the transferto the Fidea platform of all Centea’s existing life and non-life insurance policies andwith the launch of a number of new products, such as the ‘Futura’ children’s savingsplan, the new ‘Fidea Hospi-XL’ hospitalization insurance policy and the unit-linkedinvestment product, ‘Flexinvest’. Last year, 300 Centea branches were also connectedto a new computer system, making it possible, for instance, for policies to be registeredand printed out right away in the branch.

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1998 1999 2000 Growth,1999Ä2000

KBC participation 99.6% 99.6% 99.6% -Profit for the financial year 63.4 53.8 44.9 -16.5%ROE 22.4% 17.4% 13.6% -

FideaFidea operates on the insurance market through over 9 000 independent inter-mediaries. It also co-operates with Centea on the basis of a model that, althoughsimilar to the bancassurance concept in effect at KBC Insurance and KBC Bank, hasbeen customized to ensure that the particular feature of independent distribution ispreserved.

In 2000, Fidea worked hard on establishing an online connection with its distri-bution outlets, and implemented a new front-office system for affiliated brokers.Starting in 2001, Fidea will provide online assistance to intermediaries for drawingup policies, so that − much more often than before − clients will now be able to havea printed version of their insurance contract straightaway.

In the area of new product development, the strategic focus is on personal insurance,and Fidea came out with a new range of unit-linked life assurance products in thesecond quarter of 2000. This initiative, combined with the closer co-operation withCentea, led to an increase in premium income in the life business. Growth in thenon-life lines, on the other hand, was curtailed by a stricter acceptance policy, especiallyin liability insurance.


1998 1999 2000 Growth,1999Ä2000

KBC participation 100.0% 100.0% 100.0% -Profit for the financial year 199.8 12.8 30.1 135.9%ROE 115.7% 4.9% 11.2% -

FBDFBD, in which KBC Insurance − directly and indirectly - holds a stake of over 30%,operates on the Irish insurance market, boasting a share of around 7.6% on theconcentrated non-life market (six companies have 90% of the market). In 2000, itopened a branch in Dublin, the aim being to develop over the medium term from atypical rural insurer into one that also operates in urban areas.

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VITIS LifeVITIS Life, a 94.3% Luxemburg-based subsidiary of KBC Insurance, caters primarilyfor high-net-worth clientele. To serve this customer segment, highly personalizedinsurance products and services are called for. For this reason, the professional teamof relationship managers at VITIS Life is key to its sales concept.

The year 2000 was one of internal reorganization, with staffing levels being raisedand numerous new projects launched to improve the quality of customer service.Based on its 1999 premium income, VITIS ranked ninth on the Luxemburg market.


1998 1999 2000 Growth,1999Ä2000

KBC participation 94.3% 94.3% 94.3% -Profit for the financial year 4.2 2.4 3.8 58.6%ROE 14.2% 7.1% 10.3%

KBC Bank Nederland, KBC Bank Deutschland, IIB BankKBC Bank Nederland and KBC Bank Deutschland serve both corporate customers andprivate persons (albeit to a lesser extent). IIB Bank is also active on the retail marketvia its subsidiary company, ‘IIB Homeloans and Finance’. These KBC subsidiaries arediscussed in the ‘Corporate services’ section of this report.

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Central Europe

HIGHLIGHTS

¶ Net profit in this area of activity was three times as high as in 1999; ROE cameto 10.4%.

¶ With the takeover of IPB by KBC subsidiary C{SOB, KBC became the largestfinancial services group in the Czech Republic.

¶ Likewise in the Czech Republic, KBC took over investment bank Patria Finance.

¶ In Poland, KBC Insurance upped its stake in non-life insurer Agropolisa to 49.9%and took a 40% participating interest in Warta, Poland’s second biggest non-lifeinsurance company.

¶ Kredyt Bank, in which KBC is the reference shareholder with a 49.99% stake,steadily increased its share of the flourishing Polish market to approximately6%.

¶ In Hungary, KBC and ABN AMRO reached agreement to merge their Hungariansubsidiaries, K&H Bank and ABN AMRO Magyar. KBC holds a 60% stake in thenewly merged company, which is ranked second on the Hungarian market.

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KEY FIGURES


BankingGross income 21.7 377.9 548.5 45.1%General administrative expenses -26.0 -223.2 -447.8 100.6%Write-downs and provisions 0.3 -61.1 2.0 -Income taxes 0.7 -33.6 -26.2 -22.3%Other -0.4 -36.6 -21.5 -41.4%Profit contribution -3.8 23.3 55.1 136.4%

Risk-weighted assets 267.2 3 390.5 6 595.1 94.5%Allocated equity 14.1 397.0 457.2 15.2%

Share in Group profit (excl. CCF) -0.5% 2.4% 4.7%Cost/income ratio 120.0% 59.1% 81.6%ROE - 5.9% 12.9%

InsuranceEarned premiums, net of reinsurance 15.4 18.4 29.7 61.0%Net technical charges -11.7 -17.1 -20.5 19.7%Investment income and charges 1.3 2.6 6.2 138.5%General administrative expenses -6.6 -7.0 -10.5 48.9%Non-recurring and extraordinary results 0.0 0.0 0.1 -Income taxes 0.0 0.0 0.0 -Other 0.1 0.1 -0.3 -Profit contribution -1.4 -3.1 4.6 -

Allocated equity 11.2 114.0 245.0 115.0%Share in Group profit (excl. CCF) -0.2% -0.3% 0.4%Combined ratio - - 102.0%ROE - -18.8% 4.0%

Holding-company activitiesProfit contribution 0.0 0.0 6.5 -

Allocated equity 0.0 92.9 92.9 -

KBC GroupProfit contribution -5.2 20.3 66.3 226.9%

Allocated equity 25.3 603.9 795.1 31.7%Share in Group profit (excl. CCF) -0.6% 2.1% 5.7%ROE - 7.6% 10.4%


■ Central Europe■ Other areas of activity

5.7%

94.3%




0

2

4

6

8

10

12

20001999

7.6

10.4

(in %)

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The businesses on KBC’s second home market have been assigned to the separatearea of activity referred to as ‘Central Europe’. This encompasses all retail banc-assurance services, corporate services, asset management and market activities in theCzech Republic, Slovakia, Hungary and Poland.


In 2000, the contribution made by this area of activity to profit was more than treblethat in 1999 and accounted for 5.7% of the Group result (excluding CCF). Much ofthe robust earnings growth is due to the performance of C{SOB; in 1999 just 65.67%(i.e. the participating interest acquired by KBC Bank in June 1999) of its result for thesecond half of the year had been included. The results of C{SOB in 2000 were spreadover its banking activities (in which KBC holds a 70.45% stake), its insurance business(5.55%) and its holding-company activities (5.55%). Despite last December’s problemsin the dealing rooms, the company results (in Czech koruna) of C{SOB soared, thanksto an improvement in interest income and the reduction in provisions, which had beenextremely high in 1999.

Of course, the increase in allocated equity is related to the additional investment madein this region last year, namely in IPB and K&H (banking business) and in Warta(insurance business).

ROE came to 10.4%.

SUCCESSFUL DEVELOPMENT OF A SECOND HOME MARKET

KBC’s efforts to develop a second home market in Central Europe - which began in1999 - continued unabated in 2000, and KBC has now convincingly consolidated itsposition as one of the premier financial groups in this region. Besides the robustexpansion of banking activities, which led to a significant increase in market share,insurance activities also picked up in 2000, thereby laying the foundation forimplementing the bancassurance concept in Central Europe.

KBC’s presence in Central EuropeKBC had already established a presence in Central Europe via its subsidiary banksCeskoslovenská Obchodní Banka (C{SOB) in the Czech Republic and Slovakia, Kereskedelmiés Hitelbank (K&H Bank) in Hungary and Kredyt Bank in Poland, and via its insurancesubsidiaries C{SOB Pojist’ovna in the Czech Republic, K&H Life and Argosz in Hungary,and Agropolisa in Poland. 4

Last year, however, saw KBC significantly stepping up its presence in this region. Inthe Czech Republic, it did so through the acquisition of all the assets and liabilities ofInvesticní a Postovní Banka (IPB) by its subsidiary C{SOB, and through the takeover ofinvestment bank, Patria Finance. In Hungary, KBC upped its stake in K&H to 73.3%and signed an agreement in November with ABN AMRO to merge K&H and ABN AMROMagyar. It also raised its participating interest in the life assurer, K&H Life, from 25%to 50%. In Poland, KBC increased its participation in Kredyt Bank, in which it is thereference shareholder, to 49.99%. In addition, it upped its stake in Agropolisa to 49.9%and took a 40% participating interest in the insurer, Warta.

4 Kredyt Bank also owns 95.4% of the life assurer, Heros Life.

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As a result, the KBC Group - via its subsidiary companies - is now No. 1 in the CzechRepublic, the second-largest bank group in Hungary, and is ranked fifth in bankingand second in non-life insurance in Poland. In Slovakia, the KBC Group is ranked fourth,thanks to C{SOB’s activities there.

MAIN SUBSIDIARIES AND PARTICIPATING INTERESTS

Banks Insurers

Czech Republic C{SOB (incl. IPB)1 81.5% C{SOB Pojist’ovna 75.8%Patria Finance 2 100.0%

Hungary K&H Bank 3 60.0% K&H Life 5 50.0%Argosz 95.4%

Poland Kredyt Bank 4 49.99% Agropolisa 6 49.9%Warta 40.0%

1 The C{SOB Group is also active in Slovakia and has a representative office in Moscow.2 As at 31 December 2000, KBC held 91.9% of the company’s shares, with an option on the remaining 8.1%.3 After the merger with ABN AMRO Magyar.4 With a branch in Lithuania, a representative office in Kaliningrad (Russia) and a subsidiary in the Ukraine.5 Other 50% held by K&H Bank.6 34% held by Kredyt Bank.

ProspectsKBC’s presence in Central Europe is concentrated in those countries which have madethe most progress in the transition from a planned to a market economy. This isreflected in the latest transition indices put out by the European Bank for Reconstructionand Development, in which Hungary, Poland and the Czech Republic occupy the firstthree places and Slovakia the fifth. Normally, these countries will be among the firstin Central and Eastern Europe to accede to the European Union, which should speedup their economic growth. Consequently, KBC is ideally positioned in the years aheadto tap the bancassurance potential of a region which has a population of roughly 65million (in Hungary, Poland, the Czech Republic and Slovakia) and whose economy isset to flourish in the coming decades

Further expansion and co-ordinationKBC’s plans are to transform the banks in these countries into universal banks and to(continue to) develop specialized activities, such as treasury operations, structuredtrade finance, project finance, leasing and asset management. In collaboration withthe KBC Group’s insurance companies, the bancassurance concept in this region willalso be put into practice.

The strategic projects in the Central European network are co-ordinated and theirprogress monitored by the Central European Strategy Committee, which is chairedby the president of C{SOB. Its members include the presidents of the Central Europeanbanking establishments and members of the Executive Committee of the KBC Bankand Insurance Holding Company.

KBC transfers its know-how by deploying expats - who also take up positions on thelocal executive committees - and by specially appointing staff at KBC Head Office toprovide the Central European subsidiaries with guidance and assistance for all theirmain activities (including treasury operations, auditing, risk management, accounting,IT, e-banking and retail bancassurance activities).

MARKET SHARE OF BANKING ACTIVITIES *

0

5

10

15

20

25

Slova

kia

Polan

d

Hung

ary

Czec

h Re

p.

8.6

23.4

8.6

15.1

5.5 5.84.5 5.2

(in %)

■ end of 1999■ end of 2000

* Based on provisional figures for the

average market share of lending and

customer deposits: for Hungary,

after the merger of K&H with

ABN AMRO Magyar.

MARKET SHARE OF INSURANCEACTIVITIES (LIFE AND NON-LIFE) *

0

1

2

3

4

5

6

7

8

9

PolandHungaryCzech Rep.

0.3 0.5

1.8 1.9

0.3

8.2

(in %)

■ end of 1999■ end of 2000

* Based on provisional figures.

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THE CZECH REPUBLIC: MARKET LEADERSHIP ACHIEVED

C{SOB’s acquisition of IPBSince 1999, KBC has owned approximately 82% of the Czech/Slovakian bank C{SOB,which, even before the acquisition of IPB, was ranked third in terms of customerdeposits and fourth in terms of lending in the Czech Republic. It also occupies fourthplace in Slovakia, with a market share of roughly 5%.

C{SOB stands out from its competitors by virtue of the high quality of its management,which - thanks to its cautious lending policy, among other things - succeeded inavoiding the enormous credit problems that have affected many of the company’sdirect competitors. The portfolio of problem loans that the bank inherited from thecommunist era is fully covered by loan-loss provisions and guarantees, and there arevery few new problem loans, thanks to the prudent lending policy pursued. Partly asa result of C{SOB’s excellent reputation, the European Investment Bank selected it inApril 2000 to act as intermediary in a 50-million-euro financing programme for smalland medium-sized enterprises.

C{SOB used to focus on foreign trade financing and consequently acquired a leadingposition in the corporate customer segment. When it was taken over by KBC, theexpress aim was to build up a strong position in the retail market as quickly as possible.Things speeded up when, in June 2000, C{SOB acquired all the assets and liabilities ofIPB, a Czech bank that had been experiencing difficulties. Before the takeover, IPBwas the leading bank in the Czech Republic on the basis of lending, and third on thebasis of deposits, with roughly three million retail customers. At this time, the processof integrating IPB into C{SOB is in full swing.

Because of the way this acquisition was structured, the KBC Group will only have tomake a limited additional investment and will only be exposed to a relatively limiteddegree of risk. The recapitalization of IPB, for instance, will be financed almost entirelyusing C{SOB’s excess capital. Given the exceptional circumstances under which theacquisition had to take place (after IPB had been placed under forced administration,and given the need to reopen the bank as quickly as possible in order to preventdisruption on the Czech financial market), it was also agreed that C{SOB could sellback to the government all assets and liabilities that were of unacceptable quality,which limited the risks associated with this operation.

Through its acquisition of IPB, C{SOB has become one of the premier financial servicesgroups in Central Europe and leads the field in the Czech Republic, with an estimatedmarket share of 20-25% in lending and customer deposits. In both the Czech Republicand Slovakia, the Group has roughly 3.4 million customers, which are served via asales network comprising 266 branches and about 3 300 points of sale located inpost offices.

In 2000, C{SOB’s net profit went up by about 50%, resulting in an ROE of 13.1%,compared with the 9.8% achieved in 1999. Profit growth was enhanced last year byamounts recovered on an already provisioned loan and the increase in interest income.On the other hand, unauthorized trading positions resulted in a significant loss forthis activity.

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Consolidated *(in millions of EUR)

1998 1999 2000 Growth,1999Ä2000

KBC participation 0.0% 82.4% 81.5% -Profit for the financial year 90.2 78.2 119.7 53.1%ROE 12.3% 9.8% 13.1% -* IAS; includes IPB as from 2000.

Patria FinanceIn November, an agreement was reached in principle that enabled KBC Bank (with a75% stake) and KBC Securities (25%) to acquire the renowned Czech investment bankPatria Finance (‘Patria’) from Kredietbank SA Luxembourgeoise, as well as Patria’spersonnel. 5

Patria is active in the securities business, in corporate finance, asset management,capital-market transactions and venture capital finance. In the securities business, itis one of the three biggest stockbrokers in the Czech Republic and, in 1999, was voted‘best broker’ in the Czech Republic for the second year running by Central EuropeanMagazine. Its corporate finance activities include mergers and acquisitions, jointventures, restructuring operations, privatizations, MBOs and issues. In the SME segment,it is one of the two main providers of corporate finance services to small andmedium-sized enterprises. As regards asset management, it is market leader in theCzech Republic, thanks to the activities of its wholly-owned subsidiary, Patria AssetManagement.

There are clear opportunities for synergies with C{SOB: e.g., C{SOB can operate as abusiness-acquisition channel for Patria’s corporate finance activities and also strengthenPatria’s placement capacity, while Patria’s specialized know-how in the field of investmentbanking can certainly be a source of added value for C{SOB.

C{SOB Pojist’ovnaSince the end of 1999, KBC Insurance has held a 75.8% stake in the insurer ChmelarskáPojist’ovna, whose name was changed to C{SOB Pojist’ovna to highlight its link toC{SOB.

C{SOB Pojist’ovna is licensed to sell both life and non-life insurance products, but ittargets primarily the non-life market, of which it has an 0.7% share. At the moment,it ranks fourteenth on the overall Czech insurance market (‘life’ plus ‘non-life’). In2000, C{SOB Pojist’ovna also successfully entered the recently liberalized market formotor insurance in the Czech Republic.

HUNGARY:MERGER OF K&H BANK AND ABN AMRO MAGYAR CREATES SECOND-LARGEST BANK GROUP

The merger between K&H Bank and ABN AMRO MagyarDuring the first quarter of 2000, KBC upped its stake in K&H from 32.6% to 73.3%via a capital increase of 10 billion Hungarian forint (39 million euros), as well as apublic bid. In November, agreement was reached with ABN AMRO to merge its Hungariansubsidiary, ABN AMRO Magyar Bank (AAM), with K&H, an operation that includedpart of their respective subsidiaries.

The feasibility study that preceded this agreement clearly showed that such a mergerwas the quickest and most efficient way to achieve a satisfactory level of profitability

5 On 31 December 2000, KBC Bank and KBC Securities jointly held 91.9% of the shares and had a call optionon the remaining 8.1%.

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and market share, extremely important elements in the densely populated Hungarianbanking market, which is nevertheless dominated by a single institution. Moreover,both institutions complement each other to a certain extent: K&H occupies a strongposition on the SME market, whilst AAM is well positioned in the corporate market.

This merger has created a group which, with a market share of approximately 15% inlending and customer deposits, now ranks second in Hungary. KBC will own 60% ofthe new entity, which will retain the K&H name, while ABN AMRO will own theremaining 40%. The new venture will consolidate the experience, products, capital,branch networks and other distribution channels of the merged banks, enabling abroader range of products to be offered to both companies and private individuals,as well as increasing the company’s lending capacity and improving the accessibilityand the quality of service provided. With roughly 500 000 retail customers and 80000 corporate clients, and a network of 214 branches, the new K&H entity will havemuch more commercial clout on the banking market in Hungary. The legal formalitiesrelating to the merger are expected to be completed by mid-2001. Until then, bothbanks will be under joint management.

At the end of 2000, Fitch raised its rating for K&H Bank from ‘BBB+’ to ‘A-’, the highestrating that can be achieved in Hungary (which itself is accorded an ‘A-’ rating).

Following the loss of approximately 32 million euros in 1999, which was attributableto various extraordinary factors, the company returned to profit in 2000 (9.5 millioneuros, excluding AAM), thanks to higher levels of income (interest and commissionincome, as well as income from financial transactions), a modest rise in costs andlower specific loan-loss provisions. As a result, ROE came to 9.4%.


1998 1999 2000 Growth,1999Ä2000

KBC participation 23.1% 32.6% 73.3% -Profit for the financial year -14.6 -32.4 9.5 -ROE -11.7% -33.1% 9.4% -* IAS; excluding ABN AMRO Magyar.

Argosz and K&H LifeIn Hungary, KBC’s bancassurance concept will continue to be put into practice throughK&H’s collaboration with insurance subsidiaries Argosz (non-life insurance), in whichKBC has a participating interest of 95.4%, and K&H Life (life assurance), in which K&Hholds a 50% stake and KBC Insurance the other 50%, after having raised its partici-pation from 25%.

2000 turned out to be a good year for Argosz, which recorded a profit for the firsttime ever and whose premium growth was double that achieved by the market. Thisgave Argosz a 3.1% share of the non-life insurance market and it now occupies eighthplace on the Hungarian insurance market. The net loss ratio and the expense ratiodeveloped favourably in 2000, as well.

K&H Life also put in a good performance in 2000, with its share of the Hungarianlife-assurance market amounting to 0.5% at the end of the year. The merger betweenK&H Bank and AAM offers additional opportunities for distribution based on thebancassurance concept. The expected growth in retail lending and the now generallyaccepted practice of selling life assurance via a bank network give K&H Life goodreason to be confident about the future. There is now also closer co-operation withsister company Argosz, which should lead to products being sold via this company’snetwork of agents from the start of 2001.

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Key figures, ArgoszNon-consolidated (in millions of EUR)

1998 1999 2000 Growth,1999Ä2000

KBC participation 89.8% 95.4% 95.4% -Profit for the financial year -1.0 -2.3 0.1 -ROE -19.0% -41.1% 0.9% -

POLAND: MOUNTING MARKET SHARE AND EXPANSION OF THE INSURANCE BUSINESS

Kredyt BankIn Poland, one of the fastest-growing markets in Central Europe, KBC is the referenceshareholder in Kredyt Bank with a 49.99% participating interest (up slightly from48.2% at the end of 1999). Kredyt Bank was established in the post-communist periodthrough private initiative. Unlike many of its competitors, Kredyt Bank’s network -comprising 361 branches at the end of 2000 - is therefore not restricted to a specificregion, but is spread nationwide. It has also built up a presence abroad by opening abranch in Lithuania, a representative office in Kaliningrad and a subsidiary in theUkraine (West-Ukrainian Commercial Bank).

On the basis of provisional figures and when account is taken of the impendingmergers between competitors, Kredyt Bank currently ranks fifth in Poland, with asteadily increasing market share (of around 6%). At the end of 2000, its customerbase included more than 550 000 private individuals and almost 80 000 companies,a rise of over 20% on the figure at the close of 1999.

For Kredyt Bank, 2000 was marked by various developments, including the continuedimplementation of the new Profile computer system for the retail business and therestructuring of the branch network, which involved grouping non-commercial functionsin so-called regional branches. Within the framework of the 150-million-euro creditfacility for projects in the Baltic states, Slovakia and Poland, Kredyt Bank was selectedby the European Investment Bank in September to act as intermediary in a50-million-euro financing programme for small-scale projects in Poland and Lithuania.

On a non-consolidated basis, Kredyt Bank SA’s net profit went up in 2000 by over40%, while its ROE came to 17.4%. Since Kredyt Bank is a listed company, no consolidatedfinancial information can be released prior to 18 June 2001.


1998 1999 2000 Growth,1999Ä2000

KBC participation 9.9% 48.2% 49.99% -Profit for the financial year 36.0 27.2ROE 31.6% 12.9% -* Polish accounting standards.

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AgropolisaThe fact that Kredyt Bank was already in favour of the bancassurance concept evenbefore KBC became its reference shareholder was reflected by, among other things,its participation of some 34% in non-life insurer Agropolisa.

Agropolisa is still a very young insurance company (operating since 1997) and has ashare of just 0.6% on the non-life insurance market in Poland. KBC Insurance also hasa participating interest in Agropolisa and upped its stake in this company from 23.3%to 49.9% in the second half of 2000. For Agropolisa, implementing a new IT system,trying out a bancassurance concept in co-operation with Kredyt Bank, drawing upnew claims-settlement procedures for fire and theft insurance, and marketing newinsurance products were the most important projects realized in 2000.

WartaIn the second half of 2000, KBC achieved a milestone on the fast-growing Polishinsurance market, when it became a reference shareholder in the non-life insurerWarta, after acquiring a 40% participating interest in that company (partly by subscribingto the capital increase).

Founded in 1920, Warta is No. 2 on the Polish market in non-life insurance, boastinga market share of 12% and a quality label. Besides the strong position it has acquiredover the years in transport insurance (primarily shipping/aviation) and liability insurance,Warta has in recent years also managed to build up a significant position in the motorand fire insurance markets. As far as distribution is concerned, the company worksmainly via its own agents, agents representing various companies and brokers, aswell as via a recently established call centre. Warta also has a fast-growing fledglinglife assurance subsidiary, Warta Vita, with a market share of 0.7%.

Last year, Warta succeeded in further improving its technical results. At the same time,it invested in IT development, the implementation of an updated claims-settlementsystem, the continued expansion of the sales network and the construction of a newoffice complex. It also plans to develop a bancassurance network together with KredytBank, without disrupting the existing distribution system.

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Corporate services

HIGHLIGHTS


¶ KBC’s share of the domestic corporate market edged up to 19.5%.

¶ KBC securitized a 4.3-billion-euro portfolio of international commercial loansvia a ‘synthetic securitization’ operation.

¶ The impact of a number of new, quite sizeable domestic problem loans waslargely offset by the better quality of the international loan portfolio.

¶ The implementation of the revised profitability-driven strategy led to theclosure of establishments in Lyon, Manchester and Bangkok.

¶ The project finance, structured trade finance, aerospace and shipping financeactivities were grouped together under ‘structured finance’.

¶ Together with EDS, KBC established ‘Fin-Force’, a company which specializesin processing international payments for KBC Group and other companies.

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KEY FIGURES


BankingGross income 619.5 893.5 1 039.1 16.3%General administrative expenses -280.3 -461.6 -529.9 14.8%Write-downs and provisions -162.0 -224.9 -259.4 15.3%Income taxes -56.0 -76.7 -78.7 2.4%Other -8.3 -17.6 -5.4 -69.6%Profit contribution 112.9 112.6 165.7 47.0%

Risk-weighted assets 32 583.4 41 338.6 45 132.2 9.2%Allocated equity 1 659.3 1 916.5 2 127.9 11.0%


InsuranceEarned premiums, net of reinsurance 90.8 124.3 144.7 16.4%Net technical charges -93.9 -118.9 -152.8 28.5%Investment income and charges 37.7 38.9 40.1 3.0%General administrative expenses -32.0 -40.5 -49.6 22.5%Non-recurring and extraordinary results 4.4 0.0 0.6 -Income taxes -0.6 -0.3 -0.4 55.8%Other -7.8 -7.0 -0.3 -95.2%Profit contribution -1.5 -3.5 -17.8 -

Allocated equity 59.7 63.0 60.3 -4.2%Share in Group profit (excl. CCF) -0.2% -0.4% -1.5%Combined ratio 112.8% 113.5% 125.8%ROE - -5.6% -28.8%

KBC GroupProfit contribution 111.4 109.1 148.0 35.6%

Allocated equity 1 719.0 1 979.5 2 188.3 10.5%Share in Group profit (excl. CCF) 14.0% 11.3% 12.7%ROE - 5.9% 7.1%


■ Corporate services■ Other areas of activity

12.7%

87.3%




0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

20001999

5.9

7.1

(in %)

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All banking and insurance services provided to corporate customers have been combinedunder the ‘Corporate services’ area of activity. This includes the domestic corporateand multinationals segments, most of the activities carried on in the internationalnetwork and the niche activities of such specialized subsidiaries as the AntwerpseDiamantbank, KBC Lease, International Factors, ADD, Secura and the corporate financeactivities of KBC Securities.


The roughly 35% increase in net profit was underpinned by the fine operating resultturned in by the corporate activities of KBC Bank NV and the robust earnings growthof the corporate operations at the subsidiaries (viz. at ADB, CBC Banque, IIB, KBC BankDeutschland and KBC FI).

However, the net contribution to profit made by KBC Bank’s corporate service activitieswas depressed by provisioning for a number of sizeable domestic loans. As far as thisdomestic provisioning is concerned, the negative trend was only slightly offset by thepositive effect of lower provisions and write-backs in respect of Southeast Asia, tradefinance, the dioxin crisis and country risks.

As for the insurance business, the considerable loss incurred by the reinsurer Securalay behind the higher level of losses. The claims paid out in 2000 following the severestorms in Europe at the end of 1999 exceeded the provisions set aside for this purposeat that time.

Due to the fact that earnings growth was much higher than allocated equity, the ROEfor this area of activity rose from 5.9% to 7.1%.

The relatively low return on equity achieved is attributable primarily to the substantialuse of capital made by this area of activity and the generally tight interest marginson loans to corporate customers. KBC’s intention is to reallocate capital within theGroup in order to achieve a higher average return on equity. To this end, it will attemptto improve the profitability of its lending activities, and will reduce the amount ofcapital allocated to this area of activity in the years ahead, primarily by carrying outmore securitization operations and, if necessary, scaling down its lending to multi-nationals.

CORPORATE SERVICES IN BELGIUM

NetworkKBC Bank offers specialized financial services to medium-sized and large companiesin Belgium via its twenty-two corporate branches. Included in the package of servicesoffered are the more complex bank and insurance products, as well as specializedfinancial engineering, international trade and risk management services. In the French-speaking part of Belgium, CBC Banque operates in the corporate segment via sixteenmain branches, which serve both retail and corporate customers.

In order to further optimize this network, KBC carried out a thorough review of theorganization last year, which resulted in the corporate branches adopting an evenmore commercial profile (whereby the entire team assumed responsibility for therelationship strategy), and a geographic restructuring of the branches’ area of operations(through the introduction of larger branches, among other things). The loan-decision-making procedure was improved, as well, with more attention being paidto such matters as risk and return on equity.

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In the social profit sector (hospitals, schools, etc.), where KBC is market leader,personalized relationship management is also a key feature. In 2000, this was reflectedin the introduction of specialized ‘social profit branches’ in Gent, Antwerp and Leuven.

As regards the insurance business, the KBC Group operates in the corporate segmentvia its subsidiary ADD and the reinsurer Secura. The activities of both companies arediscussed in more detail in the ‘Main subsidiaries’ section below.

Domestic lending to corporate customersAt 31 December 2000, the portfolio of loans to corporate customers in Belgiumaccounted for approximately 30% of all KBC Bank NV’s domestic lending. Almost allof this portfolio (96%) was made up of investment credit and ‘commercial loans’(advances in current account, straight loans and bank guarantees). The KBC Group’sshare of the Belgian market came to some 19.5%, up slightly on the figure at the endof 1999, with KBC Bank NV accounting for about 17 percentage points of this increase.

The quality of the loans to businesses in Belgium was adversely affected in 2000 byspecific problems with a number of clients. However, the quality of the overall loanportfolio remained good and will be discussed in more detail in the ‘Risk management’section in part two of this annual report.

DOMESTIC MARKET SHARE OF THE CORPORATE SERVICES SEGMENT *

KBC Group Breakdown, 31-12-200031-12-1998 31-12-1999 31-12-2000 KBC Bank Centea CBC Banque

Total 17.9% 19.0% 19.5% 17.2% 0.5% 1.8%* Market share vis-à-vis all Belgian credit institutions; the figure for 2000 is an extrapolation of the market share vis-à-vis the group

of large credit institutions and relates to credit granted to the self-employed and local businesses, as well as to medium-sized andlarge companies.

CORPORATE SERVICES ABROAD

NetworkExcept in Central Europe, KBC’s activities abroad are accounted for almost entirely byservices to corporate customers. The Group operates in thirty-two countries (includingthose in Central Europe) via a network of subsidiary companies, branches, represen-tative offices, etc.

DOMESTIC LENDING TO CORPORATECUSTOMERS BY CREDIT TYPE(KBC BANK NV)

■ Commercial loans■ Investment credit■ Advances in current account■ Rest

37.5%

58.3%

2.3%1.9%

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INTERNATIONAL PRESENCE (EXCL. CENTRAL EUROPE)

In Europe Outside Europe

Representative offices Milan (Italy) Tehran (Iran)Madrid (Spain) Nanjing (People’s Republic of China)

Ankara (Turkey) Sandton (South Africa)Munich (Germany) Cairo (Egypt)

Kuala Lumpur (Malaysia)Mexico City (Mexico)

New York (United States 1)Branches Dublin (Ireland) New York, Los Angeles, Atlanta

(United States)London (United Kingdom) Singapore (Singapore)

Paris, Lille (France) Hong Kong (Hong Kong)Frankfurt (Germany) Taipei, Kaohsiung, Taichung (Taiwan)

Amsterdam (Netherlands) Manila (Philippines)Shanghai, Shenzhen

(People’s Republic of China)Labuan (Malaysia)

Mumbai (India)Main subsidiaries IIB Bank (Ireland) KBC Bank (Singapore) (Singapore)

KBC Finance Ireland (Ireland) KBC Financial Products 3

(United States, Hong Kong, Japan)FBD Holdings 3 (Ireland) KBC Securities Inc. 3 (United States)

KBC Bank Nederland (Netherlands)KBC Securities Nederland 3

(Netherlands)KBC Bank Deutschland (Germany)

Banque Diamantaire Anversoise (Suisse)(Switzerland)

KBC Financial Products 3

(United Kingdom, France)

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In Europe Outside Europe

KBC Securities France 3 (France)VITIS Life 3 (Luxemburg)

KBC Clearing 3 (Netherlands)KBC Asset Management Ltd. 3 (Ireland)

Peel Hunt 2-3 (United Kingdom)Global Structured Finance units London (United Kingdom) New York (United States)

Dublin (Ireland) Sydney (Australia)Hong Kong (Hong Kong)

1 Antwerpse Diamantbank.2 At the end of 2000, KBC made a bid for all of the shares of Peel Hunt; by 31 December 2000, it owned 20.1% of this company.3 Subsidiaries engaged in other lines of business.

The branches located in Western Europe cater primarily for large domestic and inter-national enterprises, as well as for Belgian customers operating in these regions. Theproduct offering includes lending, foreign trade, trade and project finance, andpayments services. The branch situated in the International Financial Services Centrein Dublin deals mainly with syndicated loans and asset-based swaps.

The branch in the United States caters for the top 1 000 US companies and hascaptured an attractive share of the market in credit enhancements for cities, munici-palities, hospitals, etc. Besides the branch in New York, there are offices in Los Angelesand Atlanta.

The various branches in China and Southeast Asia focus on providing trade financeand serving a selection of large enterprises and network customers doing business inthe region. In Taiwan, KBC opened a sub-branch in Taichung at the beginning ofNovember in order to offer financial services to companies (mostly SMEs) operatingin central Taiwan.

In line with the policy to scale down risk-weighted assets (loans) and to make morerational use of available resources, KBC decided last year to close its establishmentsin Manchester, Lyon and Bangkok.

The main subsidiaries will be discussed separately below.

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International lendingThe KBC Group’s international lending activities are focused primarily on corporatecompanies. At the end of 2000, more than 85% of the portfolio of international loanshad been granted to businesses, while roughly 11% was accounted for by lending tobanks and 3% to governments The proportion of loans granted to countries with anon-investment-grade rating (i.e. less than ‘BBB-’) came to just 3.9%. All in all, thequality of the international loan portfolio improved considerably in 2000, due primarilyto the economic recovery in Southeast Asia. This is discussed in more detail in the‘Risk management’ section in part two of this annual report.

Last year, KBC Bank securitized a 4.3-billion-euro portfolio of what were primarilyinternational commercial loans via a so-called synthetic securitization operation. Thismeans that the underlying loan portfolio has not actually been sold, only the creditrisk has been transferred by means of credit derivatives. KBC Bank will continue touse this technique in the future to make its commercial lending activities less burdensomeand to strengthen its capital base and profitability.

SPECIALIZED SERVICES TO COMPANIES

International paymentsKBC is positioning itself as a major payments bank in the euro zone. Last year, itcontinued to build its image as a euro clearing bank by, among other things, launchingIde@, an application enabling financial institutions to access their accounts andtransactions online and in real time. In order to safeguard its position as one of thetop euro clearing banks, KBC likewise became actively involved in various newdevelopments, including MT103 (the revised S.W.I.F.T. message for customers’ transfers)and EBA STEP1 (a pan-European clearing system for low-value payments).

In 2000, as part of its endeavours to optimize cross-border payments within theEuropean Union, KBC introduced the IBAN structure (International Bank AccountNumber). This uniform European structure for account numbers was initially allocatedto all exporters and its use should help speed up cross-border transfers and avoidexpensive enquiries.

Since the advent of the euro, KBC has not only acquired a leading position amongthe payment and clearing banks, it has also developed extensively automated andefficient payment systems. In order to maximize the benefits that can be derived fromthis competency, KBC Bank (with a 90% stake) and its IT partner EDS (10%) set up aseparate company in 2000 called Fin-Force. In addition to providing services to theKBC Group, this company offers other banks the opportunity to outsource all or someof their international payments processing. Moreover, KBC is prepared to allow otherinstitutions to acquire a stake in this company, which is aiming to quadruple - withinthe next five years or so - the volume of payments currently processed by KBC Bank.

International cash managementLast year, KBC continued to expand its range of international cash managementproducts by, among other things, introducing ‘cross-border zero-balancing’, a fullyautomated system which allows a company to centralize its overall cash position(spread over various accounts held by group companies in different EMU countries)on a single account each day without any float. In addition, the popularity of Europool- a cross-border notional cash pool - has far exceeded expectations.KBC likewise improved the quality of service provided by, among other things,introducing a uniform document for opening accounts within the KBC network,standardizing the procedure for the remote electronic management of accounts, andentering into both multilateral and bilateral co-operation agreements. Within the KBC

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Group, co-operation was also strengthened with a number of institutions, includingthe banks in the Central European network.

KBC is also a member of the IBOS World Banking Alliance, which offers companiesthe opportunity to conduct their cross-border liquidity management in near time. Thegeographic scope of IBOS was further extended in 2000 and now covers nineteencountries worldwide. In the market, IBOS is being increasingly seen as the mainalternative to global banks.

Foreign trade financeForeign trade finance, which is centralized at the Foreign Trade Division, encompassesthe traditional payment and financing techniques, such as documentary collection,documentary credit, international bank guarantees and forfaiting, as well as medium-and long-term export finance, including the traditional buyer’s and supplier’s creditand more complex forms of finance.

In 2000, there was a significant increase in short-term transactions, thanks in part tothe sharp expansion in Belgian companies’ import and export business. On the organ-izational front, the medium- and long-term finance sales team was expanded in theNetherlands, France and Germany.

As far as electronic banking is concerned, a variety of projects were started up in thearea of foreign trade, which, for instance, will lead to the launch of ‘Flexims’ in 2001,an application that will enable customers to do business electronically with KBC inthe main foreign trade products.

Real estate operationsThe main real estate activities are concentrated in the Real Estate Division and includereal estate securitization, real estate investment and project development, as well asfinancing for real estate professionals. At 31 December 2000, the real estate loanportfolio amounted to 1 508 million euros, the securitized real estate portfolio to456 million euros and KBC’s own real estate investment portfolio (not however forown use) to 309 million euros.

The main achievements in 2000 included:¶ The continued growth of financing activities, with annual production coming to

633 million euros.¶ The acquisition of office buildings that were let on a long-term basis in Luxemburg

and Diegem and an office park in Zaventem.¶ The development of four real estate projects via subsidiary Pako Vastgoed, a joint

venture with the British company Slough Estates.¶ The establishment of real-estate development company Buelens Real Estate, a joint

venture with Buelens.¶ The successful bid for the shares of International Property Fund, the Luxemburg-based

real estate SICAV.¶ The acquisition of a 17% participating interest in an Italian real estate portfolio of

38 office buildings.¶ The contract awarded to the temporary association of Interbuild, Artesia and KBC

to develop a new courthouse in Antwerp.

Leasing and factoring activitiesThe KBC Group’s leasing and factoring activities are carried out by KBC Lease andInternational Factors, respectively. The activities of both companies are discussed inmore detail in the ‘Main subsidiaries’ section below.

REAL ESTATE LOAN PORTFOLIO,INCL. IMMOVABLES LEASING

0

200

400

600

800

1 000

1 200

1 400

1 600

200019991998

682

1 237

1 508

(in millions of EUR)

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Insurance broking for companies and reinsuranceThe insurance broking and reinsurance activities are carried out by ADD and Secura,respectively. The activities of both companies are discussed in more detail in the ‘Mainsubsidiaries’ section below.

Services to multinationalsThe relationships with the select group of (at present) 110 multinationals are managedby the Multinationals Division. The aim is to enter into long-term relationships withthese customers, taking on important commitments for lending and other interna-tional activities, including trade finance, project finance and derivatives. Naturally,the division co-operates in many cases with other specialized KBC Group entities, suchas Structured Finance.

In 2000, the Multinationals Division was transferred to the Corporate and Institu-tional Customers Directorate. In addition, the decision was taken to serve a morelimited number of multinationals in the future as part of the plan to optimize capitalutilization. The emphasis has now been shifted to multinationals with substantialoperations in KBC’s home markets, or to other multinationals with which a profitablerelationship can be built up in products that KBC has the expertise to provide, suchas cash management, (structured) trade and project finance, and derivatives.

Structured financeStructured finance comprises the activities engaged in by the KBC Group in respectof project finance, aerospace and shipping finance (centralized at KBC Finance Ireland),as well as structured trade finance. These are carried out around the world viaestablishments in Dublin, London, New York, Brussels, Hong Kong and Sydney.

At the end of last year, the project finance portfolio came to roughly 3.2 billion eurosand included more than 200 project finance deals in 25 different countries and a broadrange of sectors, in particular the energy, telecommunications, infrastructure, oil andgas, and petrochemical sectors. The structured trade finance portfolio came to over1 billion euros at the end of 2000, and its considerable growth was attributable inpart to the improved situation on many emerging markets. On top of this, thanks tothe more favourable circumstances that prevailed, previously provisioned amountsfor structured trade finance could be written back. Lastly, the shipping and aerospacefinance portfolios amounted to 0.6 billion euros and 1 billion euros, respectively, atthe end of 2000.

Finance for the diamond sectorThe KBC Group provides finance to the diamond sector via the AntwerpseDiamantbank. The activities of this company are discussed in more detail in the ‘Mainsubsidiaries’ section below.


KBC LeaseKBC Lease was created in 1999 through the amalgamation of a number of domesticand foreign companies.

On the domestic market, KBC Lease is active in ‘general leasing’ (financing businessinvestment in equipment, vehicles and real estate via leasing techniques), ‘full-serviceautomobile leasing’ (long-term automobile leasing, including insurance, maintenanceand fuel, etc.) and ‘vendor leasing’ (provision of a financing and/or marketing tool tovendors in the relationship with their customers via the refinancing of lease contracts,and enabling them to offer leasing options at the time of purchase, etc.). KBC Lease

MULTINATIONALS:NUMBER OF GROUPS SERVED

0

20

40

60

80

100

120

20001999199819971996

6573

80

110 110

(in %)

PROJECT FINANCE LOAN PORTFOLIO:BREAKDOWN BY SECTOR

■ Energy■ Telecom■ Petrochemical■ Infrastructure■ Mining

13.0%

3.0%

53.0%

15.0%

16.0%

STRUCTURED TRADE FINANCE LOAN PORTFOLIO: BREAKDOWN BY REGION

■ Western Europe■ Central and Eastern Europe■ Africa■ America■ Middle East

21.4%

6.3%

35.2%

25.4% 11.7%

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is the second biggest company in Belgium for both full-service automobile leasingand the leasing of other goods.

On the international front, KBC Lease specializes in pan-European vendor activities,with leading vendors and with top-quality companies as end users, and also engagesin other profitable niche activities. These activities are carried out by KBC Leaseestablishments in Western Europe and by KBC Group leasing companies in CentralEurope.

Good progress was made in leasing activities both at home and abroad compared to1999, with net profit going up by almost 16% to 4.1 million euros. In Belgium, the‘general leasing’ portfolio exceeded the 750-million-euro threshold for the first time,whilst the production of contracts for ‘full-service automobile leasing’ rose signifi-cantly and the vehicle fleet was expanded from 12 800 to 17 500 vehicles. Abroad,the healthy course of business at the various entities and the increased participationin Kredietfinance Corporation, now known as KBC Lease (UK), contributed to the goodresults despite the higher-than-expected loan losses.

Consolidated(in millions of EUR)

1998 1999 2000 Growth,1999Ä2000


International FactorsInternational Factors (IFB) is the joint factoring subsidiary of KBC Bank and BBL.However, commercial operations have been transferred to separate business units,thereby stimulating the integration of the KBC network and IFB, while still achievingback-office economies of scale.

Since the integration of CERA Factors in 1999, IFB has extended its range of productsand now positions itself as a ‘one-stop shop’ for all types of credit managementsolutions. Besides its factoring activities, IFB, as an intermediary, provides creditinsurance, commercial information and collection services. IFB has a market share of20%, which puts it in the number two spot on the Belgian factoring market.

In 2000, IFB concluded a record volume of new factoring contracts (worth practically500 million euros), almost half of this business having been acquired by the KBCnetwork. IFB also acted as broker for almost 100 new credit insurance policies, whichwas good for an insured annual volume of nearly 400 million euros.

The financial results were outstanding, as well, with IFB’s net profit climbing by 14%in 2000 and its ROE coming to 21.3%. This performance can be explained by the factthat income rose more sharply than costs, while write-downs on borrowers fell slightlyand depreciation on fixed assets was halved, due to the completion of a major IT-relatedinvestment.

Corporate

servic

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1998 1999 2000 Growth,1999Ä2000


ADDADD, a wholly-owned subsidiary of KBC Insurance, is active in insurance broking andrisk management consultancy services. This was given concrete shape in 2000 withthe establishment of a Risk Management desk. Another achievement last year wasthe merger of four existing IT platforms into a single new platform. In 2001, the currentorganizational structure of four regional establishments and three commercial brancheswill be transformed into two business units (ADD-West and ADD-Oost), to which fivesatellite branches will be linked.

SecuraSecura, a 52.5% subsidiary of KBC Insurance, operates on the reinsurance market.This market, which - up to and including 1999 - was characterized by a continuallowering of rates as a consequence of the intense competition to increase marketshare, was confronted with a number of major natural disasters in 1999. However,by the time the realization had dawned that the rates applied were no longer feasible,it was too late to change the them for 2000, which led to a sharp decline in the resultsfor the 2000 financial year.

However, now that the rates have been changed, 2001 holds out the prospect ofrecovery. Additionally, the development of synergies with other KBC Group entitiesoffers opportunities in the years ahead. Secura’s growth targets on the traditionalmarkets were accompanied by cautious steps being ventured onto emerging markets,including those in Central Europe and also Brazil, where a representative office wasopened.


1998 1999 2000 Growth,1999Ä2000

KBC participation 52.5% 52.5% 52.5% -Profit for the financial year 10.1 8.3 -4.5 -ROE 11.2% 8.7% -4.7% -

Antwerpse Diamantbank (ADB)ADB specializes in lending to the diamond sector. Its years-long presence in this sectorhas enabled it to build up a very specific expertise, while its personal approach hashelped create a bond of trust with its clientele, something that is essential in thediamond world. On the international front, it operates via its subsidiary BanqueDiamantaire Anversoise (Suisse) and its representative offices in New York and HongKong. Preparations are already under way to set up an establishment in Mumbai.

Its personal and rapid service is characterized by a streamlined decision process andexcellently organized payments handling; the bank also has a specialized forwardingdepartment for clearing incoming and outgoing diamond consignments. Theco-operation with the KBC network has enabled ADB to increase its product offeringto the diamond sector. It has also concluded operational co-operation agreementswith the KBC branches in New York and Hong Kong and begun transferring privatecustomer and non-diamond accounts to KBC Bank.

Corporate

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ADB is market leader in Antwerp, with a share of some 50% of the loan market. Inthe space of two years, the New York office has achieved market penetration ofapproximately 10% and the Hong Kong establishment has already captured 8% of itsmarket. As regards forwarding activities (encompassing the preparation of importand export documents and the clearing of incoming and outgoing consignments),ADB’s share of the Antwerp market came to 18%.

Last year was an excellent one for ADB, as reflected by its profit growth of roughly44% (after the 1999 results were adjusted to take account of capital restructuring).This growth was underpinned by the increased share of the Antwerp market, togetherwith the expansion of the market and the favourable US dollar exchange rate. Theyoung establishments abroad already contributed to profit, as well.


1998 1999 2000 Growth,1999Ä2000

KBC participation 36.9% 87.2% 87.2% -Profit for the financial year 12.5 76.1 23.9 44.2% *ROE 12.9% 16.6% 22.0% -* Profits in 1999 include a transfer of 59.5 million euros from the Fund for General Banking Risks; the ROE does not include this

transfer. Growth in 2000 is calculated on the basis of the profit excluding this transfer.

IIB BankIIB Bank is first and foremost a merchant bank and caters for Irish businesses, with acustomer base comprising most of the leading Irish companies, as well as the multi-nationals active in Ireland. Its clients also include a large number of medium-sizedenterprises, while a separate subsidiary serves private individuals.

IIB is active in many areas, including lending (e.g., syndicated loans, LBOs and projectfinance), providing financial solutions for the real estate sector, market activities andprivate banking. It also provides back office services to the KBC Dublin branch andKBC Finance Ireland, both of which are established in the International FinancialServices Centre (IFSC).

It is also active on the Irish retail market (home loans and consumer credit) via IIBHomeloans and Finance. Thanks to a combination of innovative product developmentand quality service provision, IIB Homeloans succeeded in capturing a substantial shareof the Irish mortgage loan market (roughly 12% of new production in 2000).

IIB’s published profit has risen consistently since the company was founded. True totradition, it recorded an impressive increase in profits (of 32%), achieving a return onequity of 19.5%.


1998 1999 2000 Growth,1999Ä2000

KBC participation 75.0% 100.0% 100.0% -Profit for the financial year 29.2 35.9 47.4 31.9%ROE 19.0% 18.8% 19.5% -* Including the retail activities of IIB Homeloans and Finance.

Corporate

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es


KBC Bank NederlandKBC Bank Nederland (KBC N) is a full-service institution, catering for medium-sizedand large companies, private individuals and the interbank market. KBC N has anetwork of eleven branches. KBC Group customers operating in the Netherlands canturn to KBC N for loans, foreign trade products and payment transactions, etc.Additionally, KBC N has built up a broad and diversified customer base on the Dutchcorporate market. In the private customer segment, it focuses on high-net-worthclientele.Despite the good operating results for corporate lending and the high-net-worthsegment, the setting aside of provisions for two large loans resulted in a loss for the2000 financial year.


1998 1999 2000 Growth,1999Ä2000

KBC participation 100.0% 100.0% 100.0% -Profit for the financial year 5.0 8.8 -1.9 -ROE 5.8% 9.0% - -

KBC Bank DeutschlandKBC Bank Deutschland has a network of six branches and - like KBC Bank Nederland- serves local medium-sized and large companies, private individuals (private banking),banks and Belgian companies operating in Germany.With the 1997 shift in the strategic focus of KBC Bank Deutschland’s operations -which now cater for medium-sized and large companies - its results have clearlyimproved. In 2000, KBC Bank Deutschland achieved its best results ever, with virtuallyevery line of business contributing to this fine performance.

The greater commercial clout of the branches and broader offering of products andservices (in the areas of cash pooling, leasing and international trade, etc.) resultedin a sharp expansion of the customer base and a deepening of existing relationships.A Central European Desk was also set up, specializing in providing services to a largenumber of German companies operating in Central Europe and providing assistanceand guidance to Central European companies active on the German market.

The Western European Desk in Dusseldorf, which serves primarily Belgian companies,was also able to record a brisk expansion of activity, thanks partly to the increasingsuccess of cross-border cash pooling systems. Private banking operations, which areconcentrated in Bremen, turned in a very strong performance, as well.


1998 1999 2000 Growth,1999Ä2000

KBC participation 99.3% 99.3% 99.3% -Profit for the financial year 2.3 0.0 4.9 -ROE 4.5% 0.0% 9.0% -

Corporate

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Corporate

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Asset management

HIGHLIGHTS

¶ Net profit in this area of activity was up 44.6% on the 1999 figure.

¶ The Group’s asset management activities were hived off to ‘KBC AssetManagement NV’, a subsidiary of KBC Bank NV and the KBC Bank and InsuranceHolding Company NV.

¶ No fewer than 89 new investment funds were introduced on the Belgian marketand nine new ones on the Czech market.

¶ At 29.2%, KBC’s share of the market in mutual funds surpassed the already veryhigh 1999 level.

¶ In Ireland, asset manager Ulster Bank Investment Managers (UBIM) was acquired.

¶ Assets under management reached 65.3 billion euros, a 38% increase on the figurefor the end of 1999, 20% in organic terms (excluding UBIM).

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KEY FIGURES


BankingGross income 117.5 160.9 220.2 36.9%General administrative expenses -35.2 -35.0 -31.0 -11.4%Write-downs and provisions -3.6 0.1 -0.3 -Income taxes -13.4 -34.8 -60.0 72.5%Other -0.6 -0.5 2.3 -Profit contribution 64.7 90.7 131.2 44.6%

Risk-weighted assets 0.0 0.0 0.0 -Allocated equity 0.0 0.0 0.0 -

Share in Group profit (excl. CCF) 8.1% 9.4% 11.3%Cost/income ratio 30.0% 21.7% 14.1%ROE - - -


■ Asset management■ Other areas of activity

11.3%

88.7%



ASSETS UNDER MANAGEMENT

0

10

20

30

40

50

60

70

20001999

47.3

65.3


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‘Asset management’ is the business of managing the assets of private persons,institutional investors, and of investment funds that are sold primarily via the retailnetwork.


The excellent performance put in by the asset management business continued in2000. The 44.6% increase in its contribution to profit can be attributed primarily tothe mounting fee income derived from assets under management, which were up38% in 2000 on the figure for the end of 1999.

Since asset management generates hardly any risk-weighted assets and thereforeresults in hardly any charge on regulatory capital, there is no point in expressing itsprofitability in terms of ROE, as has been done for the other areas of activity.

SPIN-OFF OF KBC ASSET MANAGEMENT

Last year, KBC hived off its asset management activities to KBC Asset ManagementNV (KBC AM), a subsidiary set up jointly at the end of 1999 by the KBC Bank andInsurance Holding Company NV (which took a 55% stake) and KBC Bank NV (45%).On 31 May 2000, KBC Bank transferred its former Asset Management & InvestmentsDirectorate to this new company.

A full-service asset management company for private persons and institutional investors,KBC AM’s business is supported by research, product development, advisory,management and marketing activities. In addition, it is responsible for conductinginternational economic research, drawing up the investment strategy and providingconcrete investment advice on all relevant financial markets for the various risk profiles.

Risk controlOnce KBC AM was spun off, procedures were immediately put in place for its variousdepartments, and a compliance entity was set up to deal with procedures and reportsregarding money-laundering, special mechanisms and the customer-identificationrequirement, among other things. Improvements were also made to the internalperformance reporting systems. In addition, KBC AM started a project to make GIPS-com-pliant reporting possible for institutional customers. GIPS is a label that offers customersa certain guarantee of quality in terms of consistency and transparency. This projectwill be completed in the early part of 2001. KBC AM also laid down the minimumrequirements that must be met by entities engaging in asset management activities.This Internal Control Policy Manual is currently being introduced throughout theGroup and action plans are being developed to improve internal control still further.

Co-operation with KBC InsuranceIn 2000, in co-operation with KBC AM, the professional management of KBC Insurance’sassets was further enhanced.

Based on detailed ALM studies, the investment strategy for the insurer’s portfolioswas refined and set out in investment mandates. At the end of 2000, KBC AM wasmanaging almost all the investment portfolios of KBC Insurance, Fidea, Delphi andADD.Every month, KBC Asset Management reports on the performance of and the positionsin the different portfolios, which are also evaluated relative to the various benchmarks,and it advises the insurer on tactical adjustments that could be made.

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For unit-linked life assurance products, the insurer and KBC Asset Management alsowork closely together. Thanks to KBC AM’s expertise in developing investment vehiclesand the infrastructure it has at its disposal for that purpose, the KBC Group has aflexible and efficient product developer to support its sales of unit-linked products.In 2000, KBC AM came out with two new products, namely KBC Life European Equitiesand KBC Life European Bonds. The assets relating to unit-linked life assurance thatare managed by KBC Asset Management increased to some 2 billion euros, more thandouble the 1999 figure.

BUSINESS EXPANSION

2000 was another outstanding year as far as the launch of new investment productswas concerned, and KBC AM came out with no fewer than 89 new funds: 87 for theretail segment and two for institutional investors. In addition, it introduced nine C{SOBfunds on the Czech market, along with a number of funds for other Belgian parties.KBC AM handles both the management and the administration of the funds for theseparties.

International expansionKBC AM also played a part in the expansion of the KBC Group in Central Europe, settingup the above-mentioned nine new funds on the Czech market, namely four capital-guaranteed products, four KBC Master Fund C{SOB funds and one money market fund.The aim is to achieve a breakthrough in asset management for institutional and privatecustomers in this region, as well.

KBC also expanded its asset management activities in Western Europe by, among otherthings, acquiring Irish asset manager Ulster Bank Investment Managers (see the ‘Mainsubsidiaries’ section below).

Launch of new funds for existing investment companiesKBC continued its policy of launching blocks of funds in 2000. Every month, six toten new funds were introduced that met the demands of the various investor profiles(some offered capital protection and/or focused on a particular sector, country orregion; some capitalized gains or paid dividends; equity, bond, mixed, index funds,etc., were issued).

At the start of the year, for instance, Multisafe Interest funds were launched, whichoffer a predefined minimum return and are linked to the long-term swap rate. KBCwas also the first to react to the announcement of the merger between the Paris,Amsterdam and Brussels exchanges, introducing KBC Equisafe First European Invest 1and KBC Click First European 1. One innovative structure it introduced was KBC EquisafeEuroCallable Invest, a capital-guaranteed structure with a built-in call option that canbe exercised after three years. Another innovative product was KBC Click BelgiumReverse, which offers a predefined return from which any decline in the value of theBEL-20 index will be deducted.

In the category of capital-guaranteed funds, attention was focused on a few newregions, with the introduction of KBC Equisafe Latin Europe 1, KBC Europe AsiaInvest 1, KBC Districlick Switzerland 1, KBC Districlick EuroSwiss Plus 1 and KBC EquisafeDigiduo EuroSwiss 1. KBC Equisafe Value Stocks Invest and KBC Equity Value Stockswere KBC’s response to the correction that took place in ‘new economy’ shares in theSpring and to the renewed confidence in traditional securities. To make new regions,themes or technology sectors accessible to the general investing public, the mutualfund Pionier 1 was set up, which proved to be a huge success.

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Equity funds, such as KBC Equity Buyback Europe, which invests in companies thatrepurchase their own shares, and KBC Equity Fund Wireless, which is KBC AM’s answerto the advance of wireless telephony, are other examples of new KBC AM products.The IN.flanderst Index Fund deserves to be mentioned, too, a fund that tracks theIN.Flanders benchmark index compiled in the latter part of 2000 on the basis of thecontribution made by the component companies to employment in Flanders.

In 2000, KBC also catered for investors interested in sustainable, or ethical investments.No fewer than four new retail funds (and one for institutional investors, see below)were launched in this category: KBC Click Ethiclick 1, KBC ECO Fund Alternative Energy,KBC ECO Fund Water and KBC Ethi Equity Euroland.

Towards the end of the year, the range of equity funds was expanded to cover newregions, with the launch of European Multi Index Fund Mexico, Brazil, Turkey and SouthAfrica. In addition, the offering of bond funds was broadened to enable investors toinvest in companies exposed to specific borrower risk (KBC Bonds Corporates USD),and in the home market (KBC Renta Medium EUR and KBC Renta Long EUR).

On the institutional investors’ market, KBC Institutional Fund currently offers thirteendifferent funds that distinguish between the euro core and the euro satellite countries,among other things. On top of this, efforts are being made to meet the specificrequirements of institutional investors in such areas as transparency and reporting.2000 saw the launch of two new funds for institutional investors: KBC InstitutionalFund Global and KBC Institutional Fund Ethical Euro Equities.

Share of the market in investment fundsBy continuously bringing out new funds, KBC has retained its lead on the Belgianmarket in undertakings for collective investment (UCIs). With a 29.2% share of themarket in Belgium, KBC surpassed the already exceptionally high share (28.2%) it hadachieved in 1999. In the market for UCIs offering capital protection, KBC even captureda share of 51.7% (compared with 51.3% at the end of 1999).

Total assets under managementAt the end of 2000, KBC AM’s assets under management came to 65.3 billion euros,a 38% increase on the figure at the end of 1999. This exceptional increase is accountedfor in part by the acquisition of UBIM (18 percentage points, see below) and in partby organic growth (20 percentage points).

KBC SHARE OF BELGIAN UCI MARKET, 31-12-2000

0

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Mixe

d fu

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Equit

y fun

ds

Bond

fund

s

19.925.9 24.6 24.9

51.7

(in %)

MARKET SHARE IN UCIs(in %)

2021222324252627282930

12-2

000

09-2

000

06-2

000

03-2

000

12-1

999

09-1

999

06-1

999

03-1

999

12-1

998

09-1

998

06-1

998

03-1

998

12-1

997

09-1

997

06-1

997

03-1

997

12-1

996

09-1

996

06-1

996

03-1

996

12-1

995

09-1

995

06-1

995

03-1

995

12-1

994

Asset

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Assets under management(in millions of EUR)

31-12-1999 31-12-2000 Growth,1999Ä2000

UCIs 1

Equity funds 6 996 10 136 45%Bond funds 6 193 5 951 -4%Mixed funds 5 843 8 047 38%Capital-guaranteed bond funds 1 506 1 785 19%Capital-guaranteed equity funds 13 581 13 396 -1%Money market funds 1 786 1 823 2%Unit-linked products 884 1 950 121%Total UCIs 36 789 43 088 17%

Institutional funds 1 721 2 043Privileged Portfolio 2 0 209

Funds of funds 2 642 5 008

Assets managed for institutional investorsGroup assets 3 6 488 8 687 34%Third-party assets 4 3 287 4 202 28%KBC Asset Management Ltd. (Ireland) 0 8 531

Total assets managed for institutional investors 5 9 775 21 421 119%

Assets managed for private persons

Discretionary management 6 756 767 1%

Total assets under management 47 320 65 276 38%

Increase, excluding KBC Asset Management Ltd. (Ireland) 20%1 All funds under management, including funds of funds, institutional funds and ‘privileged portfolio’.2 Funds set up for discretionary management of private persons’ assets.3 Including KBC Insurance.4 Including KBC pension funds.5 Including institutional funds.6 Including ‘Privileged Portfolio’.


KBC Asset Management Ltd. (Ireland)During the first six months of 2000, KBC signed a contract with Ulster Bank to purchaseUlster Bank Investment Managers (UBIM), Ireland’s fourth largest asset manager. Thisis the first time KBC has expanded its asset management activities abroad and althoughit intends to seek further expansion outside Belgium, it will do so with the requisitecaution, given the exceedingly high valuations generally accorded asset managementfirms (UBIM was acquired for approximately 1.35% of the assets under management).

The 100% stake in this Irish asset manager, whose name has since been changed toKBC Asset Management Ltd., is consistent with KBC’s strategy for Ireland, where it isalready active in providing financial services to businesses and private persons (IIB Bank)and in insurance (FBD). At the end of 2000, the assets under management at KBC AssetManagement Ltd. came to around 8.5 billion euros, and accounted for 13% of thetotal assets under management at KBC AM.

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Market activities

HIGHLIGHTS


¶ The foreign branches and subsidiaries changed the focus of their market activitiesand now concentrate mainly on sales.

¶ Still the leading securities house in Belgium, KBC Securities has also becomeone of the larger foreign stockbrokers in France.

¶ The year 2000 saw KBC Securities opening a branch in New York and gaininga foothold in the Netherlands via the acquisition of Keijser Effecten. Furtherprogress was made towards creating a pan-European platform, thanks to theco-operation with Patria Finance in the Czech Republic and the bid made forPeel Hunt in the UK.

¶ KBC Financial Products opened a branch in Paris, and from 1 January 2001 theequity derivatives activities of KBC Derivatives and KBC Financial Products havebeen under joint management, operating under the name KBC Financial Products.

¶ KBC acquired a majority stake in Labouchere Clearing, a Dutch clearing housefor market makers, which now does business under the name KBC Clearing.

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KEY FIGURES


BankingGross income 409.6 306.2 645.6 110.8%General administrative expenses -161.3 -212.3 -436.2 105.5%Write-downs and provisions -5.2 -3.3 -3.5 4.8%Income taxes -55.3 5.8 -24.8 -Other -3.4 -5.6 -8.8 57.0%Profit contribution 184.4 90.8 172.4 90.1%

Risk-weighted assets 19 654.9 17 419.0 7 034.3 -59.6%Allocated equity 1 011.3 848.3 557.3 -34.3%



■ Market activities■ Other areas of activity

14.8%

85.2%




0

5

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15

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25

30

20001999

9.8

24.6

(in %)

Market

acti

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Market activities’ comprise the activities of the bank’s dealing rooms in Belgium andabroad, the market activities of KBC Securities and all the activities engaged in byKBC Financial Products and KBC Clearing.


Following its poor performance in 1999, this area of activity practically doubled itsprofits, thanks to the recovery in KBC Bank dealing room earnings, the contributionmade by KBC Financial Products (which had only been included in the results for 1999over a period of two months) and the sustained brisk growth in earnings at KBCSecurities.The nearly 60% decline in risk-weighted assets can be attributed to the strict curtailmentof risk assets in KBC Bank’s dealing rooms. The decline in allocated equity is only partlyin line with the sharp drop in risk-weighted assets, due to the goodwill paid to increasethe shareholding in KBC Derivatives to 100%.The doubling of profit, combined with the sharp drop in allocated equity, is of coursethe reason behind the increase in ROE to 24.6%.

TREASURY AND CAPITAL MARKET ACTIVITIES

KBC Bank’s dealing roomsIn 2000, KBC Bank revamped its forex and money market business, centralizingproprietary trading with professional counterparties as much as possible in Brusselsand restricting the market activities of its branches and subsidiaries abroad to localor regional treasury and liquidity management, to expanding sales and providing salessupport, and to developing individual niche activities where possible. This shift froma trading to a sales focus in the establishments abroad has led to a further reductionin staffing levels.

With the establishment of a Credit Products Group at KBC London, expertise in creditderivatives has been centralized and the foundations laid for a professional approachtowards this niche activity.

At organizational level, the dealing rooms’ back and middle offices were transferredto the new Securities and Derivatives Processing Directorate.

EurobondsIn 2000, KBC was again a major player on the primary Eurobond market, partici-pating in 410 internationally syndicated loans. In over 60% of these issues, the bankacted as lead, or co-lead manager.

It was also very active in structured private placements on behalf of a variety of inter-national debtors. For its own funding, too, KBC Bank had considerable recourse tostructured issues in the past financial year via the intermediary of KBC InternationalFinance and KBC Ifima, with its 6-billion-euro ‘Euro Medium-Term Notes’ programme.

On the Belgian market in commercial paper (CP) and medium-term notes (MTN), thebank acted as arranger/lead manager in twelve new issue programmes. At the end oflast year, KBC boasted a share of around 23% on the Belgian CP issue market.

Market

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MARKET RISK MANAGEMENT

Market risks arise when adverse changes in the value of positions held by the bankon the interest rate, forex, equity and derivatives markets might result in a loss.

The table below provides an overview of the main indicators of the market risks towhich the ALM activities, dealing rooms and specialized subsidiaries are exposed.A detailed description and definition of the relevant concepts is given in the ‘Riskmanagement’ section in part two of this annual report.


KBC SecuritiesKBC Securities is a full-service broking house, whose activities include equity tradingfor own account, order execution, online investment for retail customers via ‘Bolero’,full-service brokerage for institutional customers, and international investment bankingservices for companies and public authorities. Intensive research underpins its salesand corporate finance activities. Besides the traditional economic sectors, KBC Securitieshas also made a name for itself in two growth sectors, namely information andcommunication technology and life sciences (primarily biotechnology).

In Belgium, KBC Securities has been No. 1 on the stock exchange for four years in arow as far as market share is concerned. Since 1998, it has also had a subsidiary inFrance. Having posted spectacular growth in recent years, KBC Securities France isnow one of the bigger foreign stockbrokers in France and in 2000 significantly expandedits corporate finance activity.

The creation of Euronext − via the merger of the exchanges in Brussels, Amsterdamand Paris − prompted KBC Securities to step up its presence in the Netherlands byacquiring Dutch broker, Keijser Effecten. This last, wholly owned by KBC Securitiessince August, has now been renamed KBC Securities Nederland.

The firm continued to pursue its strategy of building a pan-European platform thatcaters primarily for the small- and mid-cap segment, by signing an agreement enablingKBC Bank (75%) and KBC Securities (25%) to acquire Czech investment bank PatriaFinance. KBC Bank’s bid for Peel Hunt (see below) should also be seen in this light.

MARKET RISK INDICATORS (IN MILLIONS OF EUR)

ALM activities Dealing room activities andactivities carried on by specialized subsidiaries

Transformation position Equityportfolio

Interest-rate

activities

Forexactivities

KBCFinancial

Products 1

KBCFinancial

Products 2

KBCSecurities

Interest-ratesensitivity

BPV 3 VAR 4 VAR 4 VAR 4 Scenarioanalysis

Scenarioanalysis

Scenarioanalysis

End of 1999 2.4 28 8.5 22.0 2.1 0.0 1.9 7.1End of 2000 4.4 40.2 7.4 15.1 1.7 15.2 15.0 2.01 Brussels.2 New York, London, Hong Kong, Tokyo.3 BPV: Basis-Point-Value (a 10-basis-point shift in the yield curve).4 VAR: Value-at-Risk (99% confidence interval, 10-day holding period).

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Lastly, 2000 also marked the start of operations for KBC Securities Inc., theNew-York-based subsidiary that specializes in the sale of European equities to Americaninstitutional investors.

In response to the mounting success of online investment, KBC Securities came outwith ‘Bolerot online’, a tool offering investors a wide range of facilities. With Bolero,customers can check their portfolios and share prices, for instance, and give ordersto buy or sell securities on the main European and US exchanges. They can also ask tobe notified personally via SMS or e-mail when orders are executed. KBC Securitiesalso has a call centre to answer customer queries and take orders (by fax), etc. On topof this, all of the firm’s analysis reports are made available to customers free of charge.At the end of 2000, ‘Bolerot online’ had 2 600 clients, four times more than at theend of 1999. In 2000, some 80 000 stock market orders were processed via this onlinesystem.

(in millions of EUR) 1998 1999 2000 Growth,1999Ä2000

KBC Securities (Belgium)KBC participation 100.0% 100.0% 100.0% -Profit for the financial year 26.2 50.3 44.8 -10.9%ROE 53.0% 62.7% 43.7% -

KBC Securities FranceKBC participation 100.0% 100.0% 100.0% -Profit for the financial year 1.2 5.0 8.2 62.9%ROE 14.4% 43.2% 44.9% -

KBC Securities NederlandKBC participation - - 100.0% -Profit for the financial year 0.6 -ROE - -

KBC Financial ProductsFor KBC Financial Products (KBC FP), 2000 was characterized by strong growth acrossits US, European, Japanese, and Asian enterprises, as well as by a major reorgan-ization.

In the US, KBC FP played a major role in launching the International Securities Exchange(ISE), the first fully-electronic options marketplace in the US. Through a joint-ventureagreement with Adirondack Trading Partners, the firm now manages KBC AdirondackElectronic Markets LLC, the ISE’s largest market maker of listed equity options.Furthermore, KBC FP’s US convertibles business grew substantially and by mid-year,KBC FP was regularly ranked among the top three convertibles dealers.

In Europe, KBC FP expanded its warrant issuance and trading capabilities throughselect hiring and by obtaining new memberships in regional exchanges. The Europeanconvertibles team also transacted record levels of turnover, augmented by the openingof a Paris sales branch.

In Japan, KBC FP again turned in positive business results and was able to issue alarge number of equity derivative instruments. Its strong convertibles presence enabledits Tokyo team to benefit from buoyant market conditions in the first half of 2000,and the firm’s origination team facilitated overseas financing for several Japanesecorporations.

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In Asia (excluding Japan), KBC FP’s equity derivatives activities recorded a strong year,and KBC FP quickly became one of Asia’s largest issuers of warrants and structurednotes. With the hiring of additional sales professionals, the firm’s Asian convertibleoperations maintained high turnover amid turbulent market conditions.

On the organizational side, the most important development was the decision tocombine the management, product expertise, client base, and technology of KBC FPwith KBC Derivatives. As of 1 January 2001, all of KBC’s worldwide convertibles andequity derivatives activities operated under a single name, KBC Financial Products,and KBC Derivatives now operates under the name KBC Financial Products Brussels.The combination of these units significantly expands the geographic and productcapabilities of the combined Group and the services it offers clients worldwide.

KBC Financial Products Brussels will form the core of the Group’s European equityderivatives operations going forward. Their extensive derivatives activities performedwell during 2000, despite the difficult equity markets in the second half of the year,the increased costs of hedging hyped Internet-related sectors, and the decelerationof demand for retail structured note products in the unit’s core markets of Belgium,Spain, and Italy.

In 2001, the combined KBC Financial Products group will benefit from a number oftechnology investments made during 2000, such as ‘WarrantLab’, a comprehensiveInternet database of European warrants, ‘OptionLab’, a Web-based analytic that wassignificantly upgraded during the year, and ‘Insight’, an online service designed tomeet the increasingly sophisticated portfolio management and research requirementsof institutional investors active in the equity-linked markets.

(in millions of EUR) 1998 1999 2000 Growth,1999Ä2000

KBC Financial Products BrusselsKBC participation 60.0% 60.0% 100.0% -Profit for the financial year 63.6 111.4 74.6 -33.0%ROE 84.3% 80.7% 33.5% -

KBC Financial Products (excl. Brussels)KBC participation 100.0% 100.0% -Profit for the financial year -20.4 21.5 -ROE 1 - 7.2% -1 After deduction of expenses incurred on the acquisition of the Financial Products business of D.E. Shaw L.P. (including, but not

limited to ‘employee retention payments’ and amortization charges on intangible fixed assets).

KBC ClearingKBC Bank has a participating interest of 75% plus one share in Labouchere Clearing,a clearing house for market makers, which now does business under the name ‘KBCClearing’. The remaining shares are still held by three minority shareholders, namelyAOT, Delta Holding and Cross Options, each of which has an 8.33% stake. With thisacquisition, KBC Bank now has a company with cross-border clearing capabilities onthe Belgian and Dutch exchanges and can secure its position as general clearingmember for market makers on Euronext. In the near term, KBC Clearing plans todevelop an integrated pan-European clearing service for market makers.

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2000

KBC participation 75.0%Profit for the financial year 1.2ROE 10.6%

Peel HuntAt the end of December, KBC announced its plans to make a bid for all of the sharesof Peel Hunt, a British securities house for institutional investors that focuses on ‘small-and mid-caps’. Its activities include corporate finance, research, agency sales, marketmaking and private equity investment services. By 31 December 2000, KBC had alreadyacquired 20.1% of Peel Hunt.

The acquisition of Peel Hunt is consistent with KBC’s revised strategy in terms of targetgroup, activities and geographic focus. Like KBC, Peel Hunt focuses on small andmedium-sized companies and also engages in market activities and corporate finance,two of KBC’s core businesses.

In the area of corporate finance, the acquisition of Peel Hunt will enable KBC to servethe London-based market and thereby expand its pan-European platform.

In the securities business, too, Peel Hunt complements KBC Securities, which conductsmost of its business in Western Europe via a presence in Brussels, Paris and Amsterdam.Through Peel Hunt, which recently acquired Rhine Securities - a London-based securitieshouse specialized in German stocks - KBC will be able to offer its services through theLondon and, to a certain extent, the German market, as well.

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Personnel

HIGHLIGHTS

¶ At the end of 2000, the KBC Group had a workforce of 34 759 * employeesworldwide, expressed in full-time equivalents (FTEs). Based on the scope ofconsolidation in 2000, this is a decline of 3.2% on the previous year, and isaccounted for by downsizing primarily at the bank subsidiaries in the CzechRepublic and Hungary.

¶ Members of staff were briefed on the Group’s new strategic accents via anextensive series of meetings.

¶ An in-house evaluation of employee satisfaction led to concrete action beingtaken in the areas of people management, job vacancies and service to personnel,etc.

¶ A variety of initiatives were taken to support recruitment on the external labourmarket, and the selection process was speeded up. On the internal labourmarket, the freeze on in-house employee transfers introduced shortly afterthe announcement of the merger was discontinued.

¶ Various training initiatives were taken in such areas as ‘people management’and ‘change management’.

¶ KBC also drew up a stock option plan. Approximately 87% of the more than20 000 KBC Bank staff employed in Belgium accepted the options offered.

* See footnote 1 to table on page 81.

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KEY FIGURES

Full-time equivalents 1999 2000 Growth,1999Ä2000

KBC Bank 15 882 15 544 -2.1%/-0.9%*KBC Insurance 1 926 1 966 +2.1%KBC Group 27 404 34 759 +26.8%KBC Group, based on scope of consolidation in 2000 35 923 34 759 -3.2%* The 2.1% decline is attributable in part to the spin-off of KBC Asset Management; if this is not taken into account, the

workforce would have fallen by 0.9%.

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PERSONNEL POLICY

The labour marketThe external labour market remained tight in 2000 and, given the ongoing economicboom and changing demographic situation, this trend is set to continue in the nearfuture.

In 2000, KBC made considerable efforts to raise its profile on the external labourmarket by, for instance, stepping up its presence in schools and universities, adaptingits Web site and running a campaign to attract commercial staff for the retail branchnetwork. In addition, the recruitment procedure was speeded up to such an extentthat the selection tests and interview with line management now often take place onthe same day, and a decision to hire the candidate may even be taken then, too.

On the internal labour market, the freeze on in-house employee transfers, introducedshortly after the announcement of the merger, was discontinued, enabling an openinternal labour market with advertised job vacancies to be organized once again. Inthis way, many employees who had had to commute longer distances to work becauseof the merger were able to be transferred to a workplace closer to home.

Employee satisfactionFor a financial services group like KBC, the most important resource is undoubtedlyits ‘human capital’. Partly for this reason, KBC - in collaboration with an externalcompany - organized a survey last year of employee commitment and satisfactionamongst a representative sample of 3 100 members of staff.

This led to various projects being started up to further improve employee satisfaction.These included:¶ introducing training projects for supervisory and management staff;¶ promoting the internal labour market;¶ expanding service to personnel;¶ taking measures to fill vacancies more quickly;¶ looking into more flexible working arrangements.

Particular attention was paid to ‘people management’ and ‘change management’,with all senior managers being offered special courses designed to give them a greaterunderstanding of their role as ‘change managers’, among other things. Additionally,KBC started ‘upward-feedback exercises’, where employees rated their managers onthe effectiveness of their people management skills. The first group to be evaluatedwas senior management.

In 2000, special attention was also paid to the in-house communication of policy.This was achieved via several initiatives, including a number of meetings at KBCBelgium, where the new strategic accents of the KBC Group were explained in detailto employees. Roughly 8 000 members of staff attended these meetings.

Employee stock optionsOn 27 April 2000, the general meeting of shareholders of the KBC Bank and InsuranceHolding Company NV authorized the Board of Directors to repurchase a maximum of12 million KBC shares within a price range of 30-60 euros per share. The Board ofDirectors of the KBC Bank and Insurance Holding Company NV also approved theunderlying principles of the KBC Stock Option Plan. Under this plan, employees ofthe KBC Group may be offered options on existing KBC Bank and Insurance HoldingCompany NV shares within the relevant legal framework.

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The primary objective of the stock option plan is to enhance employee commitmentto the KBC Group and to enable personnel to benefit from the value that they themselvesare instrumental in creating.The options have a life of seven years and can be exercised starting from 1 June 2004during specific periods at an exercise price of 45.18 euros. Of the more than 20 000employees in Belgium, 87% accepted the options offered.

To cover its obligation to deliver shares if and when the options are exercised, theKBC Bank and Insurance Holding Company NV had - as authorized - already boughtback 2.98 million of the company’s own shares by 31 December 2000.

Negotiations with the social partnersAt KBC, just as in all large companies in Belgium, social elections were held duringthe first half of the past financial year to fill the positions on the Works Council andthe workplace health and safety committees. Ballots were subsequently held at KBCto elect new trade union representatives, as well.

At company level, negotiations were held with the unions in order to work out thedetails of a number of items (such as the youth employment scheme and measuresto combat stress) contained in the banking sector’s Collective Labour Agreement (CLA)of 9 December 1999. Negotiations were also started to adapt a number of items inKBC Bank’s merger-related CLA of 3 June 1998 (such as working hours in the mergerbranches) to take account of local circumstances and customer requirements. Withthe establishment of the new company Fin-Force, a CLA was also concluded with thesocial partners to ensure the smooth transfer of KBC employees to this new entity.

Likewise in collaboration with the social partners, a new job-classification system wasworked out for the retail segment and comprises three complementary elements(a career description, a job description and the system used for positioning retailbranches).

Lastly, in KBC Bank’s Works Council, agreement was reached on new work rules.In implementation of the insurance sector’s CLA (1999-2001), agreement was reachedto introduce shorter working hours and to look into a study of new kinds of workingarrangements. The remuneration of certain categories of white-collar staff was alsoadjusted to take account of new trends on the labour market and negotiations gotunder way to adapt the remuneration system for members of supervisory andmanagement staff.

Training

KBC Bank NV

In 2000, there was an increase not only in the number of persons taking trainingcourses, but also in the number of courses followed. For the purpose of facilitatingthe merger, a number of specific initiatives were launched, including courses for staffworking in bank branches due to be merged and courses for supervisory andmanagement staff on dealing with change processes.

‘Knowledge management’ in all its aspects remains the challenge in 2001. Specificattention will be devoted to:¶ training and skills coaching of supervisory and management staff;¶ promoting on-the-job learning and learning via new technologies;¶ providing more practical training by - among other things - working with instructors

who work part-time in the branch and who give training part-time.

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Training 1999 2000

Number of persons taking training courses 12 503 15 092Average number of training days per member of staff 4.26 5.01Cost of training, in millions of EUR 39.1 43.87Cost of training, as a% of the total payroll 4.0% 4.5%

KBC Insurance NV

At KBC Insurance NV, roughly 25 000 man-days were spent in training in 2000 byboth in-house staff and the commercial network, which is comparable to the 1999situation.

As far as IT training was concerned, more and more recourse was had to self-taughtcourses. More tailored training courses were developed, as well.

In 2000, a variety of new training courses were offered, including:¶ a special programme on insurance economics (life assurance, non-life insurance and

financial management);¶ specialization courses dealing with home health care and hospitalization insurance,

unit-linked life assurance and ‘local businesses’;¶ a three-day training course on result-oriented claims management;¶ a nine-day basic training course and various specialization modules for staff working

in the bank branches.

STAFFING LEVELS

KBC Bank NVAt 31 December 2000, KBC Bank NV - excluding the subsidiary companies - employed16 382 people or 15 544 full-time equivalents (FTEs), a decline of 2.1% on the year-earlierFTE figure. This was due to, among other things, the spin-off of the KBC AssetManagement Directorate to form KBC Asset Management NV, which employed 189FTEs at the close of the financial year. If this is not taken into account, the FTE totalwould have fallen by about 1%.

1 028 new employees were recruited, while 1 718 persons left the bank, chiefly as aresult of resignation (about 40%), transfer to other Group companies (13%) and thetermination of finite contracts (12%). The tightness of the labour market also meantthat there was a rise in the number of staff leaving KBC to take up employment inother companies. Roughly 4.2% of the workforce left the company after handing intheir resignation.

Junior and middle management account for almost 37% of the workforce. Approxi-mately 4% of the employees work abroad (representative offices and branches outsideBelgium) and roughly 17% are employed on a part-time basis. The average age is 39.4.

KBC Insurance NVAt 31 December 2000, KBC Insurance NV - excluding the subsidiary companies -employed 2 142 people or 1 966 FTEs, an increase of 40 FTEs or 2.1% on the previousyear. In 2000, 350 new employees (FTEs) were recruited, while 310 employees leftthe company, principally as a result of early retirement schemes (49%), resignation(31%) and the termination of finite contracts (7%).Junior and middle management account for roughly 25% of the workforce, a slightincrease on the 1999 figure. A negligible proportion of staff work abroad (0.2%) andabout 25% are employed on a part-time basis. The average age is 37.3.

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Number of staff, 31-12-2000 KBC Bank NV KBC Insurance NV

Number % of total Number % of total

Senior management 164 1.0% 78 3.6%Junior and middle management 6 037 36.9% 534 24.9%White- and blue-collar staff 10 181 62.1% 1 530 71.4%

Permanent 15 629 95.4% 2 000 93.4%Temporary 753 4.6% 142 6.6%

Active 15 591 95.2% 1 930 90.1%Non-active 791 4.8% 212 9.9%

Belgium 15 715 95.9% 2 138 99.8%Abroad 667 4.1% 4 0.2%

Men 9 191 56.1% 980 45.8%Women 7 191 43.9% 1 162 54.2%

100% 13 591 83.0% 1 609 75.1%80%-100% 1 440 8.8% 287 13.4%< 80% 1 351 8.2% 246 11.5%

Total 16 382 100.0% 2 142 100.0%

Total, in FTEs 15 544 1 966

GroupAt the end of 2000, the KBC Group - including the principal subsidiaries in which KBChas a majority participation - employed 34 759 FTEs, compared to 27 404 at the endof 1999. This increase is due almost entirely to the widening of the scope of consoli-dation (chiefly the takeover of IPB by KBC subsidiary C{SOB and the acquisition of amajority stake in K&H).

If the number of FTEs for 1999 is calculated on the basis of the scope of consoli-dation at the end of 2000 (see table), there would have been a decline of approxi-mately 3.2%, due largely to the reduction in staff employed at the Central Europeansubsidiaries, C{SOB and IPB (together -9.4%) and K&H Bank (-9.7%, excluding ABNAMRO Magyar).

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Number of FTEs 1 New 2 FTEs,31-12-2000

Growth,1999Ä2000

KBC BankKBC Bank 3 15 544 -2.1%Antwerpse Diamantbank 168 -2.9%CBC Banque 1 296 -3.2%Centea 598 -2.1%C{SOB (excl. IPB) 4 595 -2.4%C{SOB (IPB) * 4 644 -15.4%IIB Group 4 422 -10.2%KBC Bank Deutschland 121 0.8%KBC Bank Nederland 283 -6.3%KBC Clearing * 16 6.7%KBC Finance Ireland 36 9.1%KBC Financial Products Brussels 25 47.1%KBC Financial Products (excl. Brussels) 327 65.2%KBC Lease Group 4 391 11.1%KBC Securities (Belgium + France) 303 27.3%KBC Securities (Netherlands) * 22 37.5%Kereskedelmi és Hitelbank * 5 2 546 -9.7%Krefima 99 2.1%Patria Finance * 104 19.5%

KBC InsuranceKBC Insurance 1 966 2.1%ADD 164 4.5%Argosz 142 2.9%C{SOB Pojist’ovna 182 5.8%Fidea 344 -0.9%K&H Life * 6 13 0.0%Secura 90 1.1%VITIS Life 35 34.6%

KBC Holding CompanyKBC Asset Management 3 189 -KBC Asset Management Ltd. (Ireland) * 83 9.2%KBC Bank and Insurance Holding Company 11 37.5%

Total 34 759

Change, based on the scope of consolidation as at 31-12-2000 -3.2%1 KBC Bank, KBC Insurance and the KBC holding company, including the principal subsidiaries in which they have a majority

participation as at 31 December 2000. The distribution network has not been included where the insurance companies areconcerned. C{SOB and IPB on a company basis.

2 ‘ * ’ indicates new subsidiary companies, or subsidiaries in which a majority shareholding had not been acquired as at31 December 1999.

3 KBC Asset Management was spun off in 2000.4 KFC was a member of the IIB Group up to and including 1999; from 2000, it has been included in the KBC Lease Group.5 Excluding ABN AMRO Magyar.6 KBC Insurance and K&H Bank each have a 50% stake.

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Informationfor shareholders and the general public

GENERAL PUBLIC

Information concerning products, services and publications of the KBC GroupKBC-Telecenter, on weekdays between 7 a.m. and 10 p.m. and on Saturdays and bankholidays between 8 a.m. and 5 p.m.¶ Tel.: +32 (0)78 152 153 (Dutch)¶ Tel.: +32 (0)78 152 154 (English, French and German)¶ Fax: +32 (0)3 206 6 208¶ E-mail: [email protected]

Annual report of the KBC Bank and Insurance Holding Company NVThe annual report is published in Dutch, French and English and can be obtained via:¶ KBC-Telecenter: see above¶ Internet: www.kbc.be¶ Address: KBC Bank and Insurance Holding Company NV

Press and Public Relations DivisionHavenlaan 2B-1080 Brussels

If there are any problems regarding service, or if your branch is unable tohelp you, please contact:

Bank Insurance¶ Address: KBC Bank NV KBC Insurance NV

Customer Service Department OmbudsmanBrusselsesteenweg 100 Waaistraat 6B-3000 Leuven B-3000 Leuven

¶ Tel.: +32 (0)78 15 20 45 +32 (0)16 24 37 38¶ Fax: +32 (0)16 86 30 38 +32 (0)16 24 37 37¶ E-mail: [email protected] [email protected]

SHAREHOLDERS

Information concerning the strategy and results of the KBC Group is available from:¶ Address: Dorette Webers, Investor Relations Manager

Havenlaan 2B-1080 Brussels

¶ Tel.: +32 (0)2 429 55 94¶ Fax: +32 (0)2 429 44 16¶ Internet: www.kbc.be/investorrelations¶ E-mail: [email protected]

FINANCIAL CALENDAR

Publication of results for the 2000 financial year 5 March 2001General Meeting of Shareholders 26 April 2001Dividend payment 30 April 2001Publication of results for first quarter of 2001 22 May 2001Publication of results for first half of 2001 4 September 2001Publication of results for third quarter of 2001 22 November 2001Publication of results for the 2001 financial year First half of March 2002General Meeting of Shareholders 25 April 2002

Editor-in-chief:Luc AlbrechtCo-ordination and lay-out:Nancy Van der AuwermeulenCo-ordination, language services:Elke De BackerTranslation:Patricia Hollinger and Mark GrahamSub-editing:Elke De BackerPrint co-ordination:Denis BreynaertPrinter:Drukkerij Van der Poorten, Kessel-Lo

This annual report has been printedon paper which is not harmful tothe environment.

Publisher:Piet Jaspaert,Havenlaan 2, B-1080 Brussels.

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kbc group profile - ku leuven · 2012-10-31 · 28.2% to 29.2%. moreover, our unique concept of...

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