KBC strengthens already solid financial position

Regulated information* - 27 October 2008 (8 a.m. CET)


KBC and the Belgian government have reached an agreement to further
strengthen KBC's financial position. This will create an additional
core capital buffer for KBC and enable it to cope with any future
challenges.

Highlights
* KBC's solid capital position over the past few weeks and days
  remains unchanged
* KBC to issue 3.5 billion euros' worth of securities to the Belgian
  State following similar initiatives worldwide
* Securities qualified as core capital by the single Belgian
  financial-sector regulator CBFA, without dilution for existing
  shareholders
* Core Tier-1 ratio for banking boosted to above 8% (from close to
  7%)
* No impact whatsoever on business strategy and day-to-day operations
  for customers and staff

Rationale
André Bergen, CEO of KBC: 'Our solvency position is solid and well
above the sector average and regulatory requirements. This has not
changed in recent months or in the past few days.
However, capital market sentiment has changed dramatically and has
led in recent weeks to a unanimous call for higher capital
requirements for financial institutions. In this context, it is
prudent to proactively strengthen our excess capital further in order
to consolidate and reinforce our competitive position, which will be
to the benefit of our customers, shareholders and staff.'

The transaction follows multiple initiatives taken across the world
to make capital available to banking institutions that are
fundamentally sound in order to boost confidence in the financial
system and to safeguard access to funding for private individuals and
non-financial corporate entities.

'The structure of the transaction is designed to avoid dilution of
existing shareholders, while providing additional certainty to
customers, counterparties and debt holders. It reinforces our
commitment to our business strategy and to our disciplined approach
towards risk and capital management,' added Mr Bergen.

Financial details
KBC will issue 3.5 billion euros' worth of non-transferable,
non-voting core-capital securities to the Belgian State. KBC will use
the proceeds of the transaction to increase core Tier 1- capital in
the banking business by 2.25 billion euros and the solvency margin of
the insurance business by 1.25 billion euros.

After the transaction, the banking Tier-1 capital ratio will be
further strengthened to 10.7% (of which 8.2% core Tier-1 capital) and
the insurance solvency margin to 280%. These levels are more than two
and a half times the regulatory required minimum. The gearing ratio
of the holding company will remain virtually unchanged at 106%,
leaving the additional holding company gearing capacity intact.

The transaction is expected to be settled by the end of 2008. The
debt securities will be issued at a price of 29.50 euros per security
(i.e. the average closing price for the last three trading days). The
annual cash coupon per security will be the higher of 2.51 euros
(reflecting an interest rate of 8.5%) or an amount equal to 105% of
the dividend paid on ordinary shares for the year 2008, 110% for the
year 2009 and 115% from 2010 and onwards. No coupon will be paid,
however, if no dividend is paid on ordinary shares.

Given the exceptional circumstances, KBC has decided not to pay a
dividend for 2008. As a result, no coupon will be paid on the newly
issued securities for 2008.

The securities are pari passu with ordinary shares, which means that
the State will have the same rank as common shareholders. KBC has the
right to buy back all or some of the securities at any time at 150%
of the issue price (cash settlement). However, in this case, the
State can require the buyback to be settled by exchanging one
security for one ordinary share. Furthermore, KBC is entitled to
exchange all or some of the securities into ordinary shares on a
one-for-one basis, from three years after the issuance onwards. If
KBC chooses to do so, the State can opt to redeem the securities in
cash at 100% of the issue price. All these transactions are subject
to the approval of the CBFA, the financial-sector regulator.

Corporate governance
Under the terms of the agreement, the State has the right to nominate
two members for KBC Group's Board of Directors, to be appointed at
the next Annual General Meeting of Shareholders.
A representative of the State will sit on the Audit Committee, the
Remuneration and the Nomination Committee of the Board of Directors.
They will have approval rights for a limited number of decisions,
including those relating to share issuance or share buybacks (except
in connection with this transaction), acquisitions whose value equal
more than one quarter of KBC's share capital and reserves, and the
remuneration policy for the members of the Executive Committee.

KBC Group's Executive Committee had already previously decided to
forego all bonuses - either in cash, options or shares - relating to
the performance in 2008.


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


This announcement was originally distributed by Hugin. The issuer is 
solely responsible for the content of this announcement.