(23/06/2005) KBC Group updates ambitious financial targets and strategy

Today, at the first Investor Day for analysts since the merger, KBC Group will present its updated strategy and comment on its new ambitious financial targets for 2006-2008. The strategy will be a continuation of the earlier one, though more detailed with regard to the private banking business of the KBC Group. 1. Overall strategy update On 2 March 2005, the KBC Bank and Insurance Holding Company merged with its parent company, Almanij, to become KBC Group NV. 'An initial layer of "merger benefits" was immediately apparent: KBC's share price was supported by increased corporate transparency, company visibility and liquidity,' explains Mr. Willy Duron, CEO of KBC Group. During the first quarter of 2005, KBC Group announced that operational synergies in private banking and fund management would amount to a net recurring 75 million EUR before tax a year, with 50% of this sum already being realized in 2006. A series of synergy projects are currently being implemented and, by the end of the second quarter of this year, 4 million EUR in recurring synergies will already have been realized. Gevaert's activities have been reviewed and are being selectively integrated into KBC Bank's activities. 'Further value-creating potential resides in the pursuit of our existing retail and wealth-management-oriented bancassurance strategy, with a focus on Belgium and Central and Eastern Europe, and selected Western European activities. Additional efficiency enhancements and a robust profit trend on a stand-alone basis will ensure a stable dividend policy and solid financial strength. This outlook is reflected in our new ambitious financial targets, which are valid until 2008,' according to Mr. Duron. 2. Renewed financial targets

Efficiency	Cost/income, banking	max. 58%
	Combined ratio, non-life insurance	max. 95%
Financial strength	Tier-1, banking	min. 8%
	Solvency margin, insurance	min. 200%
Value creation	Adjusted ROE	min. 16%
	EPS growth (CAGR)	min. 10%

Cost/income and combined ratio KBC Group is well on track to deliver on the current 2005 cost/income target of 58% and on the combined ratio target of 95%. Although seemingly unchanged, the new cost/income target (58%) is more ambitious than before, on account of the adverse impact caused by Group enlargement and IFRS reclassification. In addition, although KBC maintains a positive view as regards the underlying drivers for the combined ratio (market growth, claims frequency and inflation, etc.), it expects the market to soften, making the new combined ratio target (95%) more ambitious than the old target of 95%, as well. EPS growth and (adjusted) ROE KBC expects to exceed the current 2005 EPS growth target (10% CAGR). However, the enlargement of the Group and IFRS reclassification may have an adverse impact on EPS. Nevertheless, KBC firmly believes that a 10% CAGR is sustainable until 2008. KBC is also well on track to achieve the current 2005 ROE target of 16%. Taking into account the carry on excess capital for additional investments in Central and Eastern Europe and IFRS reclassifications, the renewed ROE target (16%) is bolder than before. The ROE target is based on ambitious (but realistic) underlying 'return on allocated capital' assumptions for all areas of activity (20% for retail bancassurance in Belgium, 30% for Central and Eastern Europe, 15% for the SME/corporate business, 30% for private banking and 25% for financial market activities). Tier-1 and solvency margin Over the last few years, KBC has remained above the minimum safety levels and accumulated excess capital for additional investment opportunities in Central and Eastern Europe. For the years to come, the minimum solvency targets will be maintained (an 8% Tier-1 ratio in the banking business, and a 200% solvency margin in insurance). 3. Private banking in the KBC Group As a result of the merger, the private banking activities of KBC Group NV have been brought under common management to ensure optimal leverage of the available resources. Private banking is the core business of KBL (which has a presence in 11 countries) via its European Private Bankers concept, whereas KBC Bank has developed its own branch-based/retail trade-up private banking operation in Belgium. 'KBC Group intends to bolster its integrated private banking business while maintaining a sustainable advantage in selected European markets by means of two complementary models (network-led and local pure-play private banks), focusing on private banking clients with more than 1 million EUR in investable assets,' adds Mr. Etienne Verwilghen, CEO of KBL and member of the Executive Committee of KBC Group responsible for private banking. In Belgium, a dual brand strategy for KBC Private Banking and KBL European Private Bankers (Puilaetco) will be pursued, each with a distinct customer proposition, which will enable both KBC and KBL to capture different asset flows in the market. KBC Private Banking will remain integrated in the KBC retail network. KBL European Private Bankers (Puilaetco) will be positioned as an 'independent, boutique/pure-play private bank', with proximity to the local market and 'human-size' service as its chief advantages. Customers will be able to choose between the two brands. In selected Western European markets, KBC Group will strengthen the existing integrated network of local pure-play private banking brands (boutique style), with a primary focus on organic growth. Near-term priorities will be cost reduction and profitability improvement by standardizing and centralizing operations within a private banking hub and by tackling local headquarter and overhead costs. The hub will provide a platform for future revenue growth at lower cost. Subsidiaries will be able to use the hub, for example, for all international and local custody services, international cash payments, and international and local transaction processing. Offshore banking will continue to be a low-growth market. Hence, emphasis will be placed on maintaining profitability (leveraging the hub) and enhancing revenue margins. The relative weight of offshore banking in KBC's overall private banking business will continue to decline, however. Central and Eastern Europe offers an attractive long-term opportunity for KBC Group. Within this region, KBC will develop a network-led model, leveraging KBC and KBL products and capabilities wherever possible. The primary source of organic growth will be via retail trade-up. KBC does not plan to build up or seek to acquire a stand-alone private banking brand in the region in the medium term. 'Overall, KBC Group is projecting approximately 10% net income growth per year in private banking until 2008, assuming normal market conditions,' concludes Mr. Verwilghen. KBC Group NV Havenlaan 2 - 1080 Brussels Strategy & Expansion / Press Office Head of KBC Press Office / spokeswoman: Viviane Huybrecht Tel: (02) 429 85 45 Press Office: Tel.: (02) 429 65 01 Fax: (02) 429 81 60 e-mail: pressofficekbc@kbcbe © CompanynewsGroup