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2016-05-12

KBC Group: Strong start to 2016 reflected in profit of 392 million euros, despite high upfront bank taxes

Press Release

Outside trading hours - Regulated information*

Brussels, 12 May 2016 (07.00 a.m. CEST)

KBC Group: Strong start to 2016 reflected in profit of 392 million euros,
despite high upfront bank taxes

We aspire to being much more than just a bank and an insurance company. We
want to enable and protect the dreams of our clients and to continue to earn
their trust. We continuously strive to provide high-quality service. The
strong start to 2016 is a testimony of this. We grew lending and deposit
volumes and increased insurance sales, while the low cost of credit also
underpinned the net result. Against a background of persisting low interest
rates, modest economic growth in Belgium and firmer growth in Central Europe,
KBC kicked off 2016 by posting a strong net profit figure of 392 million
euros, compared to an exceptional 862 million euros in the preceding quarter
and a very strong 510 million euros in the first quarter of 2015. Our result
was driven by stable total income in our traditional business activities,
lower operating expenses, higher bank taxes being booked upfront and the very
low level of loan impairment charges.

Johan Thijs, our group CEO, adds:

' The persisting environment of low interest rates poses a real challenge to
financial institutions, including our own. However, clients continue to
entrust their deposits to us and count on us to help them realise their
projects. Once again, lending and deposit volumes increased, as did insurance
sales. We are genuinely grateful for this signal of trust from our clients
and this proves the success of our bank-insurance model.

The quarter was characterised by stable total income in our core business,
lower operating expenses - disregarding the upfront booking of bank taxes -
and a very low cost of credit. We can add a good performance of the insurance
business to this, particularly in sales. Our bank-insurance approach
ultimately generated a strong result of 392 million euros in the first
quarter of this year.

The solvency and liquidity positions of KBC Group remain very healthy, which
is comforting for our clients, employees and stakeholders alike.

Our goal is to ensure that our clients, shareholders and other stakeholders
benefit from our activities, something which all our employees are committed
to working towards. For 2016, we are focusing entirely on the further
development of our bank-insurance business and on supporting the local
economies and clients in the countries in which we operate. We are continuing
to invest in the future and to pro-actively roll out our financial technology
plans so we can serve our clients even better going forward. The continuing
low level of interest rates as well as the volatility on the financial
markets present a challenge for the entire financial sector. However, our
bank-insurance model, supported by a solid liquidity and capital base, allows
us to generate sustainable results.'

Financial highlights for the first quarter of 2016, compared with the fourth
quarter of 2015:

* Both the banking and insurance franchises in our core markets and core
activities performed well.
* More loans were again granted in Belgium (+1% in just one quarter), the
Czech Republic (+3%), Slovakia (+2%) and Bulgaria (+2%), while clients
further increased their deposits in most of our countries: Belgium (+3%),
the Czech Republic (+1%), Slovakia (+6%) and Ireland (+4%).
* Net interest income was slightly up thanks to rate cuts, volume growth and
lower funding costs and despite the environment of low interest rates and a
certain amount of pressure on loan margins. Our net interest margin edged
up quarter-on-quarter (from 1.95% to 1.96%).
* Sales of non-life insurance products across almost all our markets were up,
and the non-life combined ratio stood at 91% year-to-date, significantly
impacted by the claims due to terrorist attacks in Brussels. Excluding
these claims, the combined ratio stood at an excellent 82%. Aggregate sales
of life products increased.
* Clients continued to entrust their assets to KBC, but the markets performed
poorly, causing total assets under management of our group to fall slightly
to 207 billion euros. Our net fee and commission income dropped by 7%, due
mainly to lower management fees stemming from a more cautious investment
allocation.
* Excluding the 335 million euros in bank taxes heavily influencing the
financial result, costs were down by 7%. The cost/income ratio stood at 71%
year-to-date, due to bank taxes being booked upfront. After evenly
spreading the bank taxes and excluding exceptional items, the cost/income
ratio came to 57%.
* The cost of credit amounted to an unsustainably low 0.01% of our loan
portfolio.
* Our liquidity position remains solid, and our capital base - with a common
equity ratio of 14.6% (phased-in, Danish compromise) - remains well above
the regulators' target of 10.25% for 2016.

----------------------------------------------------------------------------------------------------
| Overview 1Q2015 4Q2015 1Q2016 |
| |
|KBC Group (consolidated) |
| Net result, IFRS (in millions of EUR) 510 862 392 |
| Basic earnings per share, IFRS (in EUR)* 1.19 -0.36 0.91 |
| Breakdown of the net result, IFRS, by business unit (in millions of EUR) |
| Belgium 330 348 209 |
| Czech Republic 143 119 129 |
| International Markets 24 61 60 |
| Group Centre 13 334 -6 |
| Parent shareholders' equity per share (in EUR, end of period) 33.3 34.5 34.3 |
----------------------------------------------------------------------------------------------------
* Note: if a coupon is paid on the core-capital securities sold to the Flemish
Regional Government and a coupon is paid on the additional tier-1 instruments
included in equity, it will be deducted from the numerator (pro rata
). If a penalty has to be paid on the core-capital securities, it will
likewise be deducted.

Business highlights in the quarter under review

* Our core strategy remains focused on providing bank-insurance products and
services to retail, SME and mid-cap clients in Belgium, the Czech Republic,
Slovakia, Hungary and Bulgaria.
* On the macroeconomic front, the first quarter of 2016 began with fears that
the weakness in the emerging markets would spill over and have an adverse
impact on developed markets. Producer confidence in both the manufacturing
and service sector deteriorated. This threatened Europe's recovery, which
is primarily based on domestic demand growth. Fortunately, sentiment -
particularly in the emerging markets and China - stabilised again, reducing
the risk to European economic growth for the time being. In the euro area,
economic growth doubled from 0.3% quarter-on-quarter in the fourth quarter
of 2015 to 0.6% in the first quarter of 2016, underlining the argument of
resilient domestic demand. In Belgium, growth in the first quarter slowed
down to 0.2%, from 0.5% in Q4 2015, partly due to the impact of the
Brussels terrorist attacks in March. Central European first quarter growth
figures were not yet available, but forward-looking indicators pointed at
some growth deceleration in the beginning of 2016 across the region.
Although indicators in Central Europe have been gradually deteriorating,
their decline has been moderate so far and the levels remain fairly high.
Euro-area inflation remained significantly lower (-0.2% headline inflation
and 0.8% core inflation in April), due to persistently low energy prices
and slack in the European economy. The low level of inflation led the ECB
to ease its monetary policy stance further by cutting its deposit rate to
minus 40 basis points and increasing the size of its asset purchase
programme from 60 to 80 billion euros per month. Among other measures, the
scope of these purchases was extended to the corporate bond market.
Uncertainty on the financial markets, stock market corrections and falling
benchmark bond yields continued until mid-February. Thereafter, the stock
markets recovered, volatility decreased again, and the German 10-year
government bond yield rose again from its temporary low of 10 basis points.

* We also embrace our broader role in society. To give one example, we are
convinced that we can make a positive contribution to mobility and road
safety by offering our clients appropriate solutions. KBC is the only group
in Belgium that brings together all aspects of mobility in terms of
finance, insurance and assistance. Through companies like KBC Insurance,
KBC Autolease and VAB, KBC has access to market leaders and much respected
discussion partners in specific areas of mobility. Today, these three
companies are facing the same mobility-related trends and challenges. KBC
now wants to take this to the next level. By ensuring that KBC Insurance,
KBC Autolease and VAB combine their efforts and work together within the
KBC Mobility programme, KBC aims to become the reference for sustainable,
quality mobility solutions in Belgium. Existing examples are a bicycle
loan, mobility advice, car-sharing and roadside bike assistance and our
focus on mitigating hassle following an accident using the KBC Assist app.
In this way, KBC is actively looking to respond to the changing needs of
clients and society. Next to this, on the corporate sustainability and
responsibility front, we launched the 'Renovation loan for owners
associations' in Belgium to facilitate sustainable and energy-efficient
improvements to buildings. In the Czech Republic, CSOB launched 'CSOB Helps
the Regions', a grant programme where 4 million Czech koruna will be
distributed among NGOs operating in local communities. Thanks to the
donations generated by the 'Good Will Card' scheme run by CSOB Private
Banking, the 'Help Fund' budget for 2016 increased to 1.3 million Czech
koruna, which creates the opportunity to finance special care provided by
medical institutions specialised in neuro-rehabilitation. In Hungary, K&H
Insurance achieved an outstanding 3rd place in the public vote for the
'Customer-Friendly Insurer of the Year 2015' award. K&H's efforts through
its 'Ready, Stea...

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