KBC: Strong operating performance, clouded by n...

Regulated information* - 7 August 2008 (7 a.m. CEST)

Net profit (IFRS)  for the  quarter ending  30 June  was 493  million
euros, bringing net profit for  the first half of  the year to 1  047
million euros.  Underlying net  profit -  i.e. excluding  exceptional
items - for the second quarter of  2008 came to 510 million euros,  a
42% drop compared  with the very  strong year-earlier quarter.  While
business cash flows remained highly resilient throughout the quarter,
non-cash factors had  a significant  negative impact  on the  results
reported today.

According to André  Bergen, Group  CEO, 'During  the second  quarter,
operating performance showed  clear evidence  of resiliency.  Lending
and deposit-gathering  trends remained  solid, while  capital  market
activities also performed well.  Especially Eastern Europe  continued
to do very  well. On the  other hand, the  adverse equity and  credit
markets in June resulted in  the recognition of additional  markdowns
at the end of the quarter. If the effect of these were stripped  out,
the underlying quarter profit would have exceeded 800 million  euros,
well above the previous quarter  and the quarterly average  delivered
over the last year.'

Financial highlights - 2Q 2008

André Bergen, Group CEO, summarised  the financial highlights for  2Q
2008, as follows:
'The   operating   performance   was   strong.   Loan   growth    and
deposit-gathering remain  highly encouraging.  The size  of the  loan
book in Belgium was 10% up on the year-earlier level, while  customer
loans in Central and Eastern Europe grew organically by 23% over  the
same period.  On an  organic basis,  underlying net  interest  income
increased by 13%  in Belgium and  24% in Central  and Eastern  Europe
compared with the second quarter of 2007.
Income  from  investment  banking   rebounded  well  following   weak
institutional sales and  a poor trading  performance in the  previous
quarter. With an  underlying net  profit contribution  of 76  million
euros, the investment banking  unit was on a  par with the  quarterly
averages of the last few years.
Delinquencies on customer debt are on the rise from very low  levels.
The loan loss ratio for the first half-year came to 19 basis  points.
Credit conditions  showed  signs  of  worsening,  especially  in  the
commercial banking book, while  remaining virtually unchanged in  the
Belgian retail and Central and Eastern European markets.
Although no defaults  were recognised,  the value  of our  structured
credit investments portfolio  was marked down  further. An  after-tax
earnings impact  of  161  million  euros  was  posted,  including  an
increase in  the  provision  for  exposure  towards  monoline  credit
insurers, while the additional impact on shareholders' equity was -71
million euros.
Fee income  from  fund management  started  the quarter  strong,  but
investor sentiment turned towards the end of May, becoming  depressed
again in June. Moreover,  adherence to conservative impairment  rules
led to further  impairment of 138  million euros on  the back of  the
adverse equity market climate in  June, mostly on proprietary  equity
holdings of the Belgian insurance division.
We are in a  comfortable position in terms  of capital. Our  solvency
levels are amongst the best in the financial sector. The Tier-1 ratio
for the banking activities came to 8.8% and 9.3%, according to  Basel
I and  Basel  II  capital adequacy  rules,  respectively,  while  the
solvency ratio for the insurance activities amounted to 210%.'

Financial highlights - 1H 2008

Net profit for the six months ending  30 June 2008 amounted to 1  047
million euros according to IFRS. This figure includes a net amount of
-36 million  euros for  items that  do not  occur during  the  normal
course of  business. Excluding  this  charge, underlying  net  profit
amounted to 1 083 million euros.

Net interest  income came  to 2  474  million euros,  up 20%  on  the
year-earlier figure (+15%  on an  underlying basis)  thanks to  solid
volume growth achieved across all markets. Moreover, the net interest
margin in the Central & Eastern  Europe and Russia Business Unit  was
increased.

Gross earned premiums, insurance,  stood at 2  245 million euros,  up
33% compared to the first half of 2007. Net of technical charges, the
income was 63  million higher (+25%).  The combined ratio,  non-life,
amounted to 90%.

Dividend income from equity holdings  amounted to 159 million  euros,
similar to the year-earlier figure (166 million ).

Net gains from financial instruments at  fair value came to a mere  8
million euros  (59 million  euros on  an underlying  basis).  Trading
income was negatively impacted by the adverse capital market climate,
especially in the first  quarter of the year.  The line item for  the
first half of 2008 also included a valuation markdown of 456  million
euros on asset-backed securities and collateralised debt  obligations
(255 million euros after tax).

Gains from available-for-sale assets were  realised in the amount  of
260 million euros (mostly on  shares), 164 million euros down on  the
year-earlier figure.

Net fee and commission income amounted to 914 million euros. This  is
10% below  the  year-earlier  level, mainly  due  to  lower  customer
investment activities as a  result of the  high volatility in  equity
markets.

Other net income stood at 225  million euros, 35 million euros  below
the year-earlier level.

Operating expenses  came to  2  588 million  euros. Compared  to  the
year-earlier period,  the 3%  growth  in costs  is explained  by  new
acquisitions and currency appreciations. Excluding these factors, the
cost level was down 3%, largely  on the back of lower bonus  accruals
due to the lower trading revenue.

Impairment charges stood at 430  million euros, 170 million euros  of
which related  to  the loan  portfolio  (loan loss  ratio:  19  basis
points).  Impairment  of   250  million  euros   was  taken  on   the
available-for-sale share  portfolio  (held mainly  by  the  insurance
business) due to the fall of around 25% in European equity markets.

The contribution  from associated  companies amounted  to 24  million
euros, while  taxes  and the  share  in the  result  attributable  to
minority interests  were  264 million  euros  and 54  million  euros,
respectively.

As at the end of June 2008, parent shareholders' equity came to  15.5
billion euros (45.5 euros per  share). Shareholders' equity was  down
on the  start of  the year  as profit  for the  period (+1.0  billion
euros) was more than offset by dividends paid out and treasury shares
repurchased  (-1.3  and  -0.3  billion  euros,  respectively)  and  a
decrease in the  revaluation reserve  for available-for-sales  assets
(-1.6 billion euros).

Future developments

André Bergen:  'While  overall  economic  activity  is  slowing,  the
quality of our overall franchise remains strong, with our Central and
Eastern European operations and Russian  driving growth. KBC has  the
clear ambition  to double  its  net earnings  in  the region  in  the
foreseeable future. Furthermore, we  have recently enhanced our  cost
discipline throughout  the group  to cope  adequately with  increased
cost inflation. We are  also happy to see  that our balance sheet  is
robust. Asset  quality has  proven  to be  quite solid  across  asset
classes, while our solvency  position is amongst  the most secure  in
the financial sector.'



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transparency regulations for listed companies.