KBC takes decisive measures to reduce the volat...

Regulated information* - 15 October 2008 (8.00 a.m. CEST)

Due to severely tightened rating methods, the rating agency, Moody's
Investor Service, yesterday downgraded the credit ratings on a number
of CDOs in which KBC has invested. As it has the solvency position to
do so, KBC is now applying the more stringent approach to its entire
portfolio. In so doing, it is reducing future volatility in its
results. To prevent speculation on the results' impact, KBC has
decided to release information early on its third-quarter earnings.
The group's financial position remains strong in every respect. For
instance, the Tier-1 ratio for banking activities after this action
has been taken will still be well above 8.5%.

Highlights - 3Q 2008
André Bergen, KBC Group CEO summarised the results as follows:
'Despite the difficult climate, the underlying commercial results are
satisfactory. However, as has been repeatedly pointed out, the
quarterly results are negatively affected by accounting mark-downs on
investment portfolios. Given that KBC has a strong capital position,
we have also decided to follow up the Moody's downgrades by marking
down additional amounts. This is a kind of provision to absorb the
volatility of future earnings, which should reduce customers' and
shareholders' uncertainty regarding future results." Total mark-downs
on the CDO portfolio in the third quarter will come to 1.6 billion
euros, resulting in the provisional net result for the third quarter
falling to between -880 and -930 million euros. KBC's own capital
buffer is more than adequate to absorb this and every aspect of KBC's
financial position remains very strong. For instance, the Tier-1
ratio for banking activities after this action has been taken will
still be well above 8.5%.

Underlying operating results satisfactory
Despite the difficult environment, core activities are performing
satisfactorily, with robust operating results in Eastern Europe in
particular. Due to the summer holiday period, third-quarter income is
generally somewhat lower. Provisional 'underlying' profit for the
third quarter - i.e. excluding factors outside the normal course of
business and the effect of the financial crisis (see below) -
amounted to over 500 million euros.

Satisfactory business development in Belgium continues
Despite the slowdown in economic growth, business development in
Belgium remains satisfactory. Although income during the holiday
period is traditionally lower, there has been a inflow of deposits
since July, both from retail and corporate customers. Moreover, the
credit quality remains very high.

Steady growth in Central and Eastern Europe
Organic growth of activities in Central and Eastern Europe remained
solid while costs for credit risks remained well under control. Even
after revising the macroeconomic forecasts for the region, KBC
continues to support its growth ambitions. KBC is present mainly in
those countries that are in relatively good macroeconomic shape and
are less vulnerable structurally. 'Underlying' profit growth (i.e.
excluding the impact of the financial crisis) for both the third
quarter and the first nine months of this year will exceed 25%.

Merchant Banking and Private Banking perform satisfactorily in a
difficult market
Profit generated by the group's merchant banking activities will be
negatively affected by the current market conditions. The underlying
result - i.e. excluding the effect of the financial crisis - is
satisfactory and in line with the third-quarter results for the
previous year. Loan losses remain relatively limited. The profit
potential in the Private Banking Business Unit will - as in previous
quarters - be marked by the weak stock market climate.

Weak stock market climate impacts value of the equities portfolio
In the third quarter, European stock markets fell by around 12%
(measured by the MSCI Europe index). This has led to additional
write-downs on the equities portfolio of some 165 million euros,
mainly from insurance activities (net impact on the results: idem).
This amount is in line with our expectations, announced with the
second-quarter results on 7 August. By comparison, the write-down in
the second quarter of 2008 came to 135 million euros.

Specific impact of the US banking crisis
As announced on 15 September, there is credit exposure, primarily via
bonds purchased, to the US investment bank Lehman Brothers which went
bankrupt. The final amount at the end of the third quarter will be
slightly less than was initially estimated and will be written down
at 85%. The same write-down percentage will be applied to the
outstanding bonds from the US savings bank, Washington Mutual. The
combined loss from the US bank sector amounted to 172 million euros
(net impact on results: -120 million euros).

Market valuation of the structured credit portfolio
As announced a year ago, KBC has an outstanding portfolio of
collateralized debt obligations (CDOs) for an (unchanged) nominal
amount of 9 billion euros. In accordance with IFRS accounting rules,
this portfolio is marked to market. Falls in value are recorded in
full in the income statement (in contrast to some other banks who
mark down the value against equity in the balance sheet because the
CDOs are classified differently for accounting purposes). On 30
September, the mark-down on the CDO portfolio for the third quarter
stood at 386 million euros (104 million for the counterparty exposure
to monoline insurers and 282 million for changes in credit market
prices and other factors). By comparison, the mark-down through the
income statement in the second quarter of 2008 came to 315 million
euros.

Anticipating future losses
On 14 October 2008, the rating agency, Moody's Investors Service,
announced that it had downgraded the credit rating of a number of CDO
securities. This decision was based on loss assumptions that are far
more stringent than any others before them. KBC is sticking to its
conservative policy of bringing the value of all securities with a
credit rating below Ba3 to zero and is applying this retrospectively
to its third-quarter results. Moreover, KBC has decided to apply the
new rating hypotheses to its entire CDO portfolio and to record this
mark-down in full in the third quarter. In so doing, KBC is largely
preventing its future results being affected by  additional rating
downgrade. The combined impact of these decisions on the results will
amount to around -1.25 billion euros (± -850 million euros after
tax).

KBC still has a very strong capital base
On 30 September 2008, the Tier-1 ratio for the banking business was
well above 8.5% (almost 7% of which was core capital). This is still
above the sector average and the group's own cautious minimum
threshold of 8%. The solvency margin for the insurance business was
also almost double the legally required minimum.

In addition, the group has more than enough financing options
KBC is a bancassurer that primarily focuses on private and SME
customers and therefore has a broad base of customer deposits. The
net amount borrowed on the interbank market is very small in
comparison with many competitors. KBC also has a considerable unused
buffer in bonds (more than 50 billion euros) that it can use
immediately to mobilise funds from the ECB. Lastly, KBC also has the
option - if necessary or useful - to call on the government guarantee
if it refinances on the market.

Final figures will be published on 6 November 2008
The above prognosis is based on provisional, unaudited figures from
an early stage in the process of consolidating the results. They are
therefore subject to change. In addition, the figures take no account
of possible changes to European IFRS rules that could involve a
reclassification of securities with effect from the third quarter of
2008. There is a Powerpoint presentation available at www.kbc.com.
KBC will publish its definitive quarterly results on 6 November 2008,
when detailed reports will again be provided containing information
on the results and the structured credit portfolio.  Questions can be
directed to:
*          investors: [e-mail]
*          media: [e-mail]

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


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