Earnings Statement KBC Group, 1Q 2009

Regulated information* - 14 May 2009 (8.00 a.m. CEST)

Encouraging underlying  profit trends,  measures to  contain  further
structured credit exposure

For the first quarter of 2009, KBC achieved an underlying net  profit
of 465 million euros. This is significantly better than the level  of
176  million  euros  realised  in  the  difficult  previous  quarter.
Operating trends have  turned positively across  the business  units.
Business margins recovered significantly and the operating cost level
was reduced, while loan impairment charges also remained well  within
expectations and even below the previous quarter level.
When also taking asset value adjustments and other exceptional  items
into account, the reported net result came to -3.6 billion euros.  It
was decided to increase the  provision coverage against MBIA, the  US
monoline  credit   insurer,   whose   creditworthiness   deteriorated
markedly. Moreover, worsening  market conditions  were discounted  in
the value of the remaining super senior CDO investments which  brings
further down their risk profile. All non super senior CDO investments
had already been written down  in 2008. KBC was  also able to buy  an
insurance coverage that largely reduces future mark-to-market impacts
on CDO exposure.

Financial highlights - 1Q 2009

The financial highlights for 1Q 2009 can be summarised as follows:
- On  an underlying  basis,  interest income  grew by  7%  quarter-on
quarter. While loan growth has slowed, a significant margin  recovery
was achieved. On  a like-for-like  basis, the  loan book  grew by  1%
during the quarter. The net  interest margin, banking came to  1.80%,
up from  1.68% for  the previous  quarter, including  a 0.35%  margin
increase in Belgium.

- Excluding currency  effects, the operating  expense level  remained
stable  compared  to  the  year-earlier  quarter  since  normal  cost
inflation was  offset by  the effect  of the  downsizing of  merchant
banking activities, the agreed  staff remuneration reduction plan  in
Belgium and  various  cost  containment  measures  elsewhere.  On  an
underlying basis, the cost/income ratio, banking for the quarter  was
58%, compared with 64% achieved for the year 2008.

-  Loan  losses  remained  very   moderate  in  Belgium,  while,   as
anticipated,  it  increased   in  some   Eastern  European   markets,
especially in Hungary and Russia and also somewhat in Poland. For the
non-domestic loan book outside Belgium  and Eastern Europe, the  loss
fell compared to the previous quarter, including in Ireland. The loan
loss ratio stood  at 0.70%, annualised,  which is the  same level  as
that for  the entire  2008 financial  year. The  non-performing  loan
ratio currently is 2.5%.  Since the economic  cycle has not  bottomed
out yet,  the loan  loss trend  is  expected to  be upwards  for  the
quarters to come.

- Weak equity market performance  during the first quarter  continued
to  have  an  adverse  impact  on  investment  management  fees   and
triggered, in  line  with  stress tests  results  disclosed  earlier,
impairment of the equity portfolio  of the insurance division to  the
tune of 0.3  billion euros.  Given the earnings  sensitivity, it  was
decided to further reduce the  investment position in shares.  During
the first three months of the year, the value of the share  portfolio
was reduced by 0.6 billion to 2.1 billion euros. Another 0.5  billion
euros worth of share holdings were sold in the course of April.

- Although sales and trading activities on money and debt  securities
markets  performed  well,  merchant  banking  income  was   adversely
impacted by a value adjustment of -3.8 billion euros on CDO exposure.
Deteriorating economic conditions were discounted for determining the
book value of the remaining  super senior CDO investments.  Moreover,
it included  the  increase  of  the provision  amount  to  cover  the
increased counterparty  risk against  MBIA, the  US monoline  insurer
providing CDO protection, after it announced its restructuring plans.
KBC has also bought a financial  guarantee from the State to  largely
mitigate further CDO losses.

- Including all capital enhancement support received, the (pro forma)
Tier-1 ratio  for  banking  activities stands  at  11.0%  (8.3%  core
Tier-1). For the insurance division, the (pro forma) solvency  margin
stands at 158%.


Structured credit relief measures


KBC achieved an agreement with the Belgian Government about an  asset
relief solution. Luc Philips, recently appointed Chief Financial  and
Risk Officer: "Our structured credit portfolio is largely performing,
but illiquid and  therefore difficult-to-value.  That is  one of  the
reasons   that   create   uncertainty   and   earnings    volatility.
Participation to  a  state-sponsored asset  relief  program,  whereby
exposure is guaranteed,  is our  best option  to reduce  uncertainty.
Such scenario also preserves the solvency level for the future." With
the promulgation of  a law on  14 April, the  Belgian Parliament  had
taken the initiative to create a  legal framework to enable an  asset
relief program for systemic banks in Belgium.
The announced arrangement  for KBC  relates to a  notional amount  of
20.0 billion  euros  (of which  5.3  billion euros  was  marked  down
against revenue), including::

* 5.5 billion notional value of super senior CDO investments;

* 14.4 billion notional value of counterparty risk on MBIA, the US
  monoline insurer that had written credit protection to KBC.

Against payment of  a premium  KBC buys  a guarantee  from the  State
covering 90%  of  the default  risk  beyond  a set  first  loss.  The
transaction is structured as follows:
* The first loss tranche is set at 3.2 billion euros, notional (all
  credit loss to be borne by KBC, however, without net profit impact
  since covered by markdowns made in the past)
* Losses incurred in a second layer of 2.0 billion euros above the
  set first loss tranche, are compensated by the State at 90% (10%
  risk retained) via the subscription to new KBC shares at market
  value. KBC has, however, the option to opt out of the equity
  guarantee.
* All further losses (up to 14.8 billion euros) are compensated by
  the State in cash to the level of 90% (10% risk retained by KBC).

As a result, the potential negative impact on future earnings and
solvency deriving from the exposure will be largely eliminated. The
remaining downside impact relates to the marking-to-market of the
retained 10% risk tranche. If market values were to rise
substantially, reversals of earlier markdowns would be booked.
The guarantee premium  amounts to 1.2  billion euros, fully  provided
for up front,  and an  additional commitment  fee of  30 million  per
quarter, pre tax, is  payable. The premium  combined with a  positive
value adjustment of 0.4 billion  (best effort estimate), the  upfront
net profit impact of the transaction  is estimated at a negative  0.8
billion  euros.  This   will  be  booked   in  the  second   quarter.
Risk-weighted assets that are freed up amount to 6.3 billion euros.
Earlier in the first quarter, KBC secured a capital back-up  facility
of 1.5 billion from  the Flemish Regional  Government of Belgium.  To
complement the credit relief solution,  KBC intends to draw upon  the
facility by issuing core capital  securities to be subscribed by  the
Region.
Including all capital enhancement  support received, the (pro  forma)
Tier-1 ratio  for banking  activities stands  at 11.0%  (8.3%  equity
Tier-1). For the insurance division, the (pro forma) solvency  margin
has decreased to 158%.
As a  normal procedure,  all  measures need  to  be approved  by  the
competent regulatory authorities.

Strategy highlights and future developments
While the environment in the second half of 2008 was very  difficult,
operating performance  improved  since  the  start  of  the  year.  A
group-wide  cost  containment  project   is  being  implemented   and
underwriting criteria remain  tight for lending  in non-home  markets
and for  such  areas  as, for  example,  unsecured  consumer  credit,
unhedged foreign-currency lending, leasing and real estate financing.
KBC is committed to maximally safeguard its lending capacity to  core
customers in home markets.
As long  as  the  economic  cycle has  not  bottomed  out,  worldwide
non-performing  loan   trends  are   expected  to   remain   upwards.
Developments in  Central and  Eastern Europe  (including Russia)  and
also Ireland are particular areas of attention in this respect.  Loan
losses may also  rise on the  Asset-backed Securities portfolio  that
was reclassified to 'loans & receivables' at the end of 2008.
KBC also announced earlier that it has put various  derivatives-based
activities within  the  KBC  Financial  Products  entity  on  run-off
status. In the past two quarters unwinding losses were recognised.
KBC is a major player in offering investment solutions to its retail,
corporate  and  private  banking  customers.   It  takes  care   that
customers  are  adequately  informed  and  that  products  are   sold
according to  their risk  profile.  Moreover,  capital protection  is
embedded in  a significant  part of  investment products  for  retail
customers. In the current environment, when asset values have  fallen
significantly, customer complaints  throughout the  sector have  been
increasing. KBC  has  not  changed  its policy  stating  that  if  in
individual cases shortcomings on behalf of KBC have been established,
it assumes its responsibility.


* This news item contains information that is subject to the
transparency regulations for listed companies.


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