KBC Bank & Insurance Group - Annual Report

KBC Bank & Insurance Group - Annual Report 

2 0 0 3

AREA OF OPERATION AND ACTIVITIES 

KBC Group Profile 

KBC is a multi-channel bancassurer with a geographic focus on Europe, catering mainly for retail customers and small and medium-sized enterprises. Occupying very 

significant, even leading positions in its two home markets located in Belgium and Central Europe, the Group has selectively established a presence in a number of 

other countries and regions around the globe, as well. KBC focuses on providing retail and private bancassurance services in its two home markets and is also active 

in the provision of corporate services, in asset management and in market activities. 

KEY FIGURES, BALANCE SHEET 1 

(In millions of EUR) 1999 2000 2001 2002 2003 

Total assets 156 218.4 187 658.0 228 076.6 221 730.5 225 586.8 

Loans and advances to credit institutions, banking 17 189.1 21 860.3 28 291.3 29 298.6 27 068.8 

Loans and advances to customers, banking 64 634.0 78 936.2 87 046.9 98 775.1 90 293.3 

Securities, banking 52 086.7 58 174.8 66 224.7 61 895.3 69 556.5 

Investments, insurance 8 188.1 8 266.8 8 657.6 10 064.0 11 105.2 

Investments, unit-linked life assurance 1 195.4 2 286.0 2 952.1 2 813.2 3 238.9 

Capital resources, Group 13 737.3 16 216.9 16 817.4 16 681.9 17 071.5 

Capital and reserves, Group 4 216.2 5 775.5 7 852.3 8 428.9 9 147.8 

Fund for General Banking Risks 1 825.5 1 841.4 0.0 0.0 0.0 

Amounts owed to credit institutions, banking 28 871.4 41 961.7 41 199.6 39 683.3 38 224.1 

Customer deposits and debts represented by securities, banking 93 119.2 107 176.1 131 142.4 137 375.3 133 581.4 

Technical provisions, insurance 7 045.4 7 101.8 7 367.0 8 860.6 10 196.9 

Technical provisions, unit-linked life assurance 1 195.4 2 286.0 2 952.1 2 813.2 3 238.9 

KEY FIGURES, PROFIT AND LOSS ACCOUNT 1 

(In millions of EUR) 1999 2000 2001 2002 2003 

Net interest income (including dividends), banking 2 156.8 2 437.3 2 661.9 3 203.9 3 224.4 

Profit (Loss) on financial transactions, banking 636.2 835.9 884.8 1 013.6 730.2 

Net commission and other income, banking 1 074.9 1 383.2 1 430.5 1 538.2 1 700.7 

Earned premiums net of reinsurance, insurance 2 095.2 2 650.5 2 508.5 3 155.9 3 486.0 

Net technical charges, insurance -2 125.7 -2 334.8 -1 960.9 -2 274.0 -3 457.7 

Investment income and charges, insurance 676.9 420.8 256.8 -33.2 802.2 

Other, insurance 11.5 11.5 5.0 3.5 16.7 

Gross operating income, holding-company activities -8.9 -33.0 -29.2 -15.3 -4.3 

Gross operating income 4 516.9 5 371.2 5 757.3 6 592.7 6 498.3 

General administrative expenses, banking -2 524.4 -3 094.3 -3 510.0 -3 750.7 -3 694.5 

General administrative expenses, insurance -344.2 -374.3 -407.0 -456.5 -499.0 

General administrative expenses, holding-company activities -2.2 -3.6 -3.8 -4.5 -8.0 

General administrative expenses -2 870.8 -3 472.2 -3 920.8 -4 211.7 -4 201.5 

Value adjustments, banking -555.4 -324.3 -367.4 -663.0 -624.1 

Amortization of goodwill on consolidation -10.9 -10.9 -10.4 -20.5 -40.1 

Non-recurring result, insurance 16.0 25.3 7.8 9.5 -35.0 

Extraordinary result 194.9 43.7 77.7 4.2 43.0 

Income taxes -228.7 -311.5 -365.8 -511.1 -441.8 

Minority interests -92.2 -155.8 -156.1 -165.8 -79.7 

Consolidated profit, Group share 969.7 1 165.5 1 022.4 1 034.2 1 119.0 

Banking 714.7 876.7 697.6 708.0 858.4 

Insurance 271.3 320.6 359.9 348.1 274.7 

Holding-company activities -16.3 -31.8 -35.1 -21.9 -14.1 

1 In 2001, the Fund for General Banking Risks (FGBR) was transferred to the reserves directly, without crossing the profit and loss account. The reference figures for the 

previous financial years are shown in these tables as published in previous years. In calculating ROE and ROA, the annual transfer to/from the FGBR was added retroactively 

to net profit and (for the ROE) the FGBR was added retroactively to capital and reserves. The figures on the results for 2000 do not include the capital gain realized 

on the sale of the participation in CCF.

KEY FIGURES PER SHARE AND RATIOS 1 

1999 2000 2001 2002 2003 

Number of shares outstanding (’000) 297 772 299 296 301 857 302 239 310 710 

Earnings per share (in EUR) 3.26 3.90 3.39 3.42 3.68 

Gross dividend per share (in EUR) 1.23 1.42 1.48 1.52 1.64 

Net asset value per share (in EUR) 33.8 35.2 33.8 31.6 33.8 

ROE 2 

18.8% 17.3% 13.2% 12.7% 12.7% 

ROA 2 

0.80% 0.69% 0.49% 0.46% 0.50% 

Cost/income ratio, bank 65.3% 66.5% 70.5% 65.2% 65.3% 

Combined ratio, non-life insurance 106.1% 106.6% 103.8% 105.1% 95.9% 

Tier-1 ratio, KBC Bank 7.4% 9.5% 8.8% 8.8% 9.5% 

CAD ratio, KBC Bank 12.8% 16.0% 14.7% 13.7% 13.4% 

Solvency ratio, KBC Insurance (including unrealized gains and losses) 802% 683% 504% 320% 316% 

KEY FIGURES PER AREA OF ACTIVITY (31-12-2003) 

Share in Group profit ROE 

Retail and private bancassurance 40.5% 16.4% 

Central Europe -13.2% -9.5% 

Corporate services 20.5% 10.9% 

Asset management 10.4% - 

Market activities 11.2% 10.7% 

Other (Group item) 30.7% - 

Total 100.0% 12.7% 

LONG-TERM RATINGS (10-03-2004) 

Fitch Moody’s Standard & Poor’s 

Rating Outlook Rating Outlook Rating Outlook 

KBC Bank AA- Stable Aa3 Stable A+ Stable 

KBC Insurance (claims-paying ability) AA Stable - - A+ Stable 

NETWORK 3 

1999 2000 2001 2002 2003 

Bank branches in Belgium (KBC Bank and CBC Banque) 1 636 1 454 1 312 1 155 1 026 

Bank branches in Central Europe 71 480 824 1 021 1 006 

(including NLB) (including NLB) 

Insurance agencies in Belgium (KBC Insurance) 820 743 684 640 618 

2 The ROE and ROA figures take account of the derogation authorized by the Belgian Banking, Finance and Insurance Commission (BFIC) 

regarding the immediate deduction from equity of goodwill paid on acquisitions in 1999, 2000 and 2001. 

3 For definitions and comments, please see the detailed tables and analyses elsewhere in this annual report. Bank branches in Central Europe: 

a subsidiary’s branch network is included once KBC has a majority shareholding. In 2002 and 2003, the total including NLB is shown. 

1

2 

USE OF THE ANNUAL REPORT 

FOR THE PROVISION OF INFORMATION VIA SEPARATE DOCUMENTS 

On 31 March 2004, the Belgian Banking, Finance and Insurance Commission (BFIC) granted the 

KBC Bank and Insurance Holding Company NV authorization to use the present annual report as a 

reference document to solicit savings from the public under the Act of 22 April 2003, by means of 

the procedure for the provision of information via separate documents, and this until such time as 

the KBC Bank and Insurance Holding Company NV publishes its next annual report. For the purpose 

of the above procedure, this annual report must be accompanied by a transaction memorandum in 

order to constitute a prospectus within the meaning of Chapter 4 of the Act of 22 April 2003. This 

prospectus will be submitted to the BFIC for approval in accordance with Article 14 of the Act of 

22 April 2003.

Report 

of the Board of Directors 

to the Annual General Meeting 

of Shareholders 

Statement by the Chairman of the Board of Directors and 

the President of the Executive Committee ................................................................ p. 4 

Executive Committee .............................................................................................. p. 6 

Group structure ...................................................................................................... p. 7 

Strategy ................................................................................................................. p. 9 

Shareholder information ......................................................................................... p. 13 

Group results ......................................................................................................... p. 17 

Retail and private bancassurance ............................................................................. p. 29 

Central Europe ........................................................................................................ p. 37 

Corporate services .................................................................................................. p. 47 

Asset management .................................................................................................. p. 53 

Market activities .................................................................................................... p. 59 

Risk management ................................................................................................... p. 63 

Socially responsible business .................................................................................. p. 85 

Corporate governance .............................................................................................. p. 91 

Consolidated annual accounts − KBC Bank and Insurance Holding Company NV ............ p. 101 

Company annual accounts − KBC Bank and Insurance Holding Company NV .................. p. 147 

International presence of the KBC Group .................................................................. p. 156 

Additional information ........................................................................................... p. 159 

3

WILLY BREESCH AND WILLY DURON 

4 

Statement by the Chairman 

of the Board of Directors 

and the President of the 

Executive Committee 

In 2003, our Group celebrated its fifth anniversary. 

Created through the merger of a number of leading banks and insurance companies, KBC has 

become one of the premier bancassurers in Belgium and a major player in Central Europe, more 

specifically in five selected countries that will be joining the European Union in 2004. 

Partly as a result of the acquisitions made in Central Europe, the Group’s workforce has grown over 

the past five years from around 21 000 to some 50 000, and its total assets have increased from 

148 billion to 226 billion euros. During this same period, assets under management have doubled 

to nearly 90 billion euros and consolidated net profit has gone up from just under 800 million 

euros to 1 119 million euros, despite the fact that 2001 and 2002 were extremely turbulent and 

challenging years on both the macroeconomic and the financial fronts. 

But then 2003 can hardly be considered a troublefree year in macroeconomic, geopolitical or 

financial terms either, even though, after a problematical first quarter, there were some 

glimmerings of hope during the rest of the year. Share prices, for instance, rose consistently from 

the second quarter, and the economic recovery now seems to be taking hold. Mirroring a cautious 

optimism, the Group’s consolidated net profit rose by 8% in 2003. 

In our banking business, net profit went up by a handsome 21%, thanks to sustained cost-cutting 

and higher commission income, among other things. On the other hand, earnings from currency 

dealing and securities trading fell and more loan losses were incurred than anticipated, primarily 

because of the provisioning required by our Kredyt Bank subsidiary in Poland. 

The contribution to net profit made by our insurance business last year fell by 21%, mainly due to 

a decline in investment income. The underwriting results were highly satisfactory, however, with a 

sound rise in premium income in both the life and the non-life businesses and a remarkably low 

loss ratio in the latter. 

Considerable progress was made in 2003 on several operational aspects of the merger in Belgium. 

We completed the migration of customer accounts to the uniform KBC computer system, for 

instance, and reduced the number of KBC Bank and CBC Banque retail branches from some 1 650 

at the time the Group was created to 970 by the end of the year. The collaboration between our 

Group’s bank branches and insurance agents resulted in 2003 in a cross-selling ratio of 39% in 

Belgium, which is very close to our in-house target of 40%. Non-core activities, such as the 

distribution of consumer credit through independent brokers (Krefima), were sold. As a result of 

all this, the return on equity allocated to the retail and private bancassurance business in 2003 

came to over 16%. We were particularly pleased by the robust improvement in our retail banking 

business, where return on equity went from 2% to 12%. In 2004, we will keep to our chosen path

and, among other things, continue to rationalize our product 

offering and our business processes in order to reduce our costs 

and improve our service even further. 

In Central Europe, our second home market, we continued to 

implement our strategy. This included raising our shareholding 

in WARTA, Poland’s second largest property and casualty insurer 

from 40% to just over 75%. In addition, a number of smaller 

banks in the republics of former Yugoslavia were acquired 

through Nova Ljubljanska banka (NLB), in which we have a 34% 

interest. 

In 2003, our subsidiaries ČSOB in the Czech and Slovak 

Republics and K&H Bank in Hungary again made a fine contribution 

to Group profit. At Kredyt Bank in Poland, unexpectedly 

large loan losses caused the contribution to the Group result to 

end up deep in the red. Along with a fresh injection of capital, 

a far-reaching restructuring plan has now been devised to bring 

about a sharp reduction in the cost base and, among other 

things, strengthen the commercial clout of the sales network. 

The profit contribution turned in by our insurance activities in 

Central Europe was better, though still slightly negative. On 

balance, therefore, the return on the equity allocated to this 

area of activity came to a negative 9.5%, clearly far from our 

target of 17%. 

In the corporate business, we concentrated on providing 

services to medium-sized companies. We have also succeeded 

over the past few years in reducing the charge against capital 

represented by this business area to around 24% of Group 

capital. This has been achieved thanks to a greater risk/return 

awareness, for example, and to the gradual rationalization of 

the corporate network both in Belgium and abroad. 

Owing in part to the stock market upturn, assets under management 

at the KBC Group went up by 10% to just under 90 billion 

euros. The profit contribution made by our asset management 

business remained more or less unchanged. As to our market 

activities, their profit contribution rose by 35% in 2003, partly 

on account of the fine performance put in by the dealing rooms. 

The brisk growth and development of our second home market 

in Central Europe also prompted us to take a close look at our 

governance structure and to make a few selective changes. We 

decided, in keeping with our bancassurance ambitions, to hold 

joint meetings of the executive committees of the bank and the 

insurance company, and enhanced the governance of our 

Central European establishments by introducing clearer structures 

and strengthening various control mechanisms. 

In short, we can look back with satisfaction on a year of hard 

work and look forward with confidence to what the future will 

bring. We would like to thank our shareholders for the confidence 

they have shown in our Group, our employees, who are 

the backbone of our organization, and, last but not least, our 

customers, who have made KBC what it is today: one of the 

leading financial-services providers in Belgium and Central 

Europe. 

Willy Duron 

President, 


Willy Breesch 

Chairman, 

Board of Directors 

Statement by the Chairman of the Board of Directors and the President of the Executive Committee 

KBC Bank & Insurance Group − 2003 Annual Report 

5

WILLY DURON ANDRÉ BERGEN HERMAN AGNEESSENS EMILE CELIS 

6 


The Executive Committee of the KBC Bank and Insurance Holding Company NV consists of the 

eight members named below (situation as at 31 December 2003): 

*Willy Duron, President and CEO 

*André Bergen, Vice-President and Deputy CEO 

*Herman Agneessens, CFO and CRO 

*Emile Celis 

*Christian Defrancq 

*Frans Florquin 

*Guido Segers 

*Jan Vanhevel 

Each member of the Executive Committee is responsible for supervising the activities of a number 

of specific business units. During the course of 2003, the supervisory responsibilities of the 

various members of the Executive Committee were redistributed and the specific positions of Chief 

Risk Officer (CRO) and Chief Financial Officer (CFO) were created. A description of the supervisory 

responsibilities of each member of the Executive Committee is available on the KBC Web site: 

www.kbc.com. 

In 2003, the Executive Committee membership was subject to the following changes: 

*On 24 April 2003, Mr. Remi Vermeiren stepped down as CEO of the KBC Group. He was succeeded 

by Mr. Willy Duron, the former Deputy CEO of the Group. Willy Duron will remain CEO of 

KBC Insurance. 

*André Bergen has been appointed Deputy CEO of the KBC Group and CEO of KBC Bank. 

*Mr. Guido Segers has joined the KBC Group Executive Committee, succeeding Mr. Luc Philips, who 

has moved on to Almanij. 

In 2003, the Group also made a number of changes to the way in which it is governed in order to 

facilitate the further integration of the banking and insurance businesses (in full compliance with 

the relevant legislation) and to create a more efficient and transparent steering and control structure 

for top management. These measures included: 

*Doing away with the separate meetings of the Executive Committees of KBC Bank and 

KBC Insurance. The respective matters will now be discussed jointly. 

*Reorganizing the top management committees to which some management responsibility is delegated. 

These committees always consist of one supervisory member of the Executive Committee 

and may include other members of the Executive Committee or members of senior management. 

Most of these committees focus on a specific group-wide risk (Market Risk Committee, Credit Risk 

Committee, etc.) or are responsible for managing one of the Group’s core activities (Central 

Europe Committee, Retail and Private Bancassurance Committee, Insurance Committee, etc.). 

*Introducing a new steering structure for the Central European businesses (see the ‘Central Europe’ 

section).

CHRISTIAN DEFRANCQ FRANS FLORQUIN GUIDO SEGERS JAN VANHEVEL 

Group structure 

A financial conglomerate, the KBC Bank and Insurance Holding Company encompasses KBC Bank, 

KBC Insurance and KBC Asset Management. The holding company is responsible for, among other 

things, the Group’s strategy and main investments, its allocation of capital and its profitability 

requirements. In addition, it is a driving force behind the integration of the banking and insu- 

rance businesses. The holding company also encompasses a number of support services (such as 

the marketing, communication, logistics and IT divisions), whose expenditure is shared amongst 

the Group companies via a cost-sharing structure according to objective criteria. 

The bank, insurance and asset management subsidiaries engage in the full range of activities 

specific to their fields. A detailed description of how responsibilities are divided up can be found 

Main subsidiaries 

and participating interests 

Belgium 

Antwerpse Diamantbank 

CBC Banque 

Centea 

Fin-Force 

International Factors 

KBC Investco 

KBC Lease 

KBC Securities 

Central Europe 

ČSOB (Czech Republic en Slovakia) 

K&H Bank (Hungary) 

Kredyt Bank (Poland) 

Nova Ljubljanska banka (Slovenia) 

Patria Finance (Czech Republic) 

Rest of the world 

Assurisk (Luxembourg) 

IIB Bank (Ireland) 

KBC Bank Deutschland (Germany) 

KBC Bank Nederland (Netherlands) 

KBC Clearing (Netherlands) 

KBC Finance Ireland (Ireland) 

KBC Financial Products (various countries) 

KBC IFIMA (Netherlands) 

KBC Lease (various countries) 

KBC Peel Hunt (UK) 

in the ‘Corporate governance’ section. 

BASIC GROUP STRUCTURE 

KBC Bank and Insurance Holding Company 

Departments 

100% 45% 

55% 100% 

KBC Bank 

➜ 

KBC Asset Management 

KBC Insurance 

Departments 

Departments 

Departments 




KBC Asset Management Limited (Ireland) 

ADD 

Fidea 

Secura 



Belgium 


Argosz (Hungary) 

ČSOB Pojisˇt’ovna (Czech Republic) 

ERGO Poist’ovňa (Slovakia) 

K&H Life (Hungary) 

NLB Vita (Slovenia) 

WARTA (Poland) 


FBD (Ireland) 

Lucare (Luxembourg) 

VITIS Life (Luxembourg) 

7

Strategy 

KBC has the ambition to be an independent, multi-channel bancassurer, 

serving private persons and small and medium-sized enterprises in 

selected European countries, with expertise in asset management and 

the financial markets and the aim of achieving high profitability 

targets through efficiency, customer-centricity, employee-friendly policies 

and sound risk management. 

AREA OF OPERATION AND ACTIVITIES 

KBC focuses on providing bancassurance services to private persons and small and medium-sized 

enterprises. It is also active in asset management − by definition an important aspect of banc- 

assurance − as well as in various market activities and services for businesses. 

Geographically, KBC’s focus lies on Europe. One of the leading financial services groups in its first 

home market (Belgium), KBC has developed a second home market over the past few years in 

Central Europe, where it has become one of the premier financial services groups, 

with a strong position in the Czech Republic, Hungary, Poland, Slovakia and Slovenia. 

Through its network of representative offices, branches and subsidiaries, 

KBC is present in some thirty countries worldwide. 

This focus with regard to activities and the geographical regions in which it operates is reflected 

in the segmentation of its business into the following five areas of activity: retail and private 

bancassurance, Central Europe, corporate services, asset management and market activities. 

For each of these areas, profitability targets have been set (see below) and equity allocated. 

A description of and simplified profit and loss account for each area of activity is 

provided in this report. 

9

Strategy KBC Bank & Insurance Group − 2003 Annual Report 10 

GROUP FINANCIAL TARGETS FOR 2005 

FINANCIAL TARGETS FOR 2005 

The Group’s financial targets for 2005 1 are shown in the table. 

The solvency targets of the bank (tier-1 ratio of 8% and CAD ratio of 12%) and of the 

insurer (solvency ratio − including unrealized gains and losses − of 200%) are well above 

those required by law (tier-1 ratio of 4%, CAD ratio of 8% and solvency ratio for the 

insurer of 100%) and reflect KBC’s intention to ensure that the Group has a solid capital 

base. They are also a reflection of the Group’s credit-rating objectives. 

The Group has ambitious profitability objectives too, aiming to achieve a return on 

equity (ROE) 2 of at least 16%. In addition, it has set specific targets for return on 

(allocated) equity for each area of activity (see table). 

For the 2001-2005 period, average growth in earnings per share has been targeted of at 

least 10% per annum. The Group also aims to achieve a cost/income ratio 3 of 58% at the 

bank and a combined ratio 4 of maximum 95% for its non-life insurance business 

(excluding reinsurance). 

In 2003, all the solvency targets were exceeded; the bank’s tier-1 ratio came to 9.5% 

and its CAD ratio to 13.4%, while the insurer’s solvency ratio came to 316%. In the 

direct non-life insurance business, the combined ratio came to 95%, which is in line 

with the target. Thanks to cost-cutting, the cost/income ratio in the banking business is 

clearly moving in the right direction (from 70.5% in 2001 to 65.3% in 2003), though it 

is still some way from the targeted 58%. 

Targeted Achieved, 31-12-2003 

Return on equity, Group* 16% 12.7% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Return on allocated equity for each area of activity 

*Retail and private bancassurance 16% 16.4% 

*Central Europe 17% -9.5% 

*Corporate services 12% 10.9% 

*Asset management - - 

*Market activities 18% 10.7% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Growth in earnings per share (2001-2005) 10% average per annum 7.6% in 2003 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Cost/income ratio, bank 58% 65.3% 

Combined ratio, insurer (non-life business, excluding reinsurance) 95% 94.8% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Solvency, bank (tier-1 ratio − CAD ratio) 8% − 12% 9.5% − 13.4% 

Solvency, insurer (account taken of unrealized gains and losses) 200% 316% 

* Account taken of the derogation authorized by the BFIC (the Belgian Banking, Finance and Insurance Commission) regarding the immediate deduction from capital and 

reserves of goodwill paid on acquisitions in 1999, 2000 and 2001.

KBC is relying on a number of factors to drive profitability up in the years ahead, 

including the potential for expansion in Central Europe, a region expected to achieve 

above-average economic growth and which also holds out considerable promise as far as 

the further penetration of banking and insurance products is concerned. 

In Belgium, KBC is aiming to develop its retail bancassurance activities by gradually 

increasing the number of customers who buy both banking and insurance products from 

the Group. The cost/income ratio is also set to improve thanks to such factors as the 

rationalization of the product offering (discussed in more detail later) and the fact that 

the merger process has now been largely completed. 

When the merger creating the KBC Group was carried out, a variety of operational targets 

were set (see table), and the majority were achieved in 2003. For more details, please 

see the ‘Retail and private bancassurance’ section. 

1 Account is taken of Belgian accounting standards in setting these targets. 

2 Consolidated net profit (Group share) divided by the Group’s average equity. 

3 General administrative expenses divided by gross operating income. 

4 The net loss ratio (ratio of claims incurred, net of reinsurance, to earned premiums, net of reinsurance) 

plus the net expense ratio (ratio of net expenses to net written premiums). 

OPERATIONAL TARGETS 

Targeted Achieved, 31-12-2003 

KBC Bank retail bank branches Reduction to around 800 in 2004 89.3% 

Merger-related reduction in KBC Bank workforce in Belgium Cut-back of 1 650 FTEs by 2004 Completed 

Migration of bank customers to the new KBC computer platform Completed by the end of 2003 Completed 

Migration of insurance customers to the new KBC computer platform Completed by the end of 2001 Completed 

Number of shared customers in Belgium, KBC Bank − KBC Insurance 40% of the total customer base 39% of the total customer base 

Strategy 


11

Shareholder information 

SHAREHOLDERS (31-12-2003) 1 

% Number of shares 

Ordinary shares 

Almanij 66.73% 207 324 572 

KBC Group companies 2 

1.90% 5 896 755 

Subtotal 68.62% 213 221 327 

Free float 31.38% 97 488 470 

.................................................................................................................................................................................................................................................................................................................................................................................... 

Total shares issued 100.00% 310 709 797 

Mandatory convertible bonds (MCBs) 

Number of shares on conversion 2 648 990 

of which: held by Almanij and KBC Group companies 0 

Shareholders may exercise their financial rights at KBC Bank NV and CBC Banque NV. 

1 More information on the number of shares and the instruments that are convertible into shares is given in the section entitled 

‘Company annual accounts − KBC Bank and Insurance Holding Company NV’. Allowing for the number of convertible bonds and 

warrants in circulation, the number of shares at present and in future comes to a maximum of 318 587 790. 

2 With the exception of shares in the trading book of KBC Securities and KBC Financial Products. 

KBC SHARE, ANNUAL RETURN 

(Price gains and dividends) KBC BEL 20 DJ EURO STOXX Banks 

1 year (2002-2003) 26.8% 15.1% 34.5% 

3 years (2000-2003) -3.5% -5.8% -5.8% 

5 years (1998-2003) -8.3% -5.2% 1.5% 

7 years (1996-2003) 8.5% 5.7% 12.4% 

DIVIDEND POLICY 

It is KBC Bank and Insurance Holding Company policy to pay out around 40-45% of the consolidated profit for the year in the 

form of dividends, save in exceptional circumstances. If there is a drop in profit for the year which is temporary in nature, then 

the payout percentage may be raised to keep the dividend relatively stable. 

2003 DIVIDEND 

At the general meeting of shareholders on 29 April 2004, the Board of Directors will propose that a gross dividend of 1.64 euros 

be paid out per share entitled to dividend. This corresponds to a net dividend per ordinary share of 1.23 euros and a net dividend 

per share with VV strip of 1.394 euros. 

13 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 

26 

3.2 

23 

1.2 

1999 

90 

3.9 

42 

1.4 

2000 2 

Earnings per share* 

and gross dividend 

39 

3.3 

48 

1.4 

2001 2 

Earnings per share 

Gross dividend 

42 

3.4 

52 

1.5 

2002 2 

(In EUR) 

68 

3.6 

64 

1.6 

2003 2 

* For 2000, excluding the capital gain realized on 

the sale of the participation in CCF. 

150 

140 

130 

120 

110 

100 

90 

80 

70 

12-2002 

Performance of the KBC share 

06-2003 

KBC 

DJ EURO STOXX Banks 

BEL 20 

(31-12-2002 = 100)* 

12-2003 

* The graph is based on end-of-week prices 

between 31-12-2002 and 13-02-2004.

Shareholder information KBC Bank & Insurance Group − 2003 Annual Report 14 

INDICES THAT INCLUDE THE KBC SHARE (SELECTION) 

BEL 20 Dow Jones EURO STOXX Mid FTSE Eurotop 300 Eurobloc MSCI Europe 

Dow Jones EURO STOXX Dow Jones STOXX Mid 200 FTSE Eurotop 300 Financials MSCI Financials 

Dow Jones EURO STOXX 600 FTSE Eurotop 300 FTSE4Good Europe MSCI World 

Dow Jones EURO STOXX 600 Banks FTSE Eurotop 300 Banks MSCI Banks VLAM-21 

Dow Jones EURO STOXX Banks FTSE Eurotop 300 Economic Sector MSCI Belgium 

TICKER CODES, KBCSHARE 

Bloomberg KBC BB 

Datastream B:KB 

Reuters KBKBt.BR 

KEY FIGURES PER SHARE 

(In EUR, at year-end) 1999 2000 2001 2002 2003 

Number of shares outstanding (’000) 297 772 299 296 301 857 302 239 310 710 

Number of shares entitled to dividend (’000) 297 277 298 922 301 465 302 090 303 707 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Earnings per share entitled to dividend 1 

3.26 3.90 3.39 3.42 3.68 

Operating result per share entitled to dividend 2 

5.54 6.35 6.09 7.88 7.56 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Gross dividend 1.230 1.420 1.480 1.520 1.640 

Net dividend per ordinary share 0.923 1.065 1.110 1.140 1.230 

Payout ratio (dividend payout/consolidated net profit) 37.7% 36.4% 43.6% 44.4% 44.5% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Net asset value per share (see below) 33.8 35.2 33.8 31.6 33.8 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Highest price during financial year 74.15 53.10 49.99 42.65 37.50 

Lowest price during financial year 44.35 35.00 29.05 28.35 24.40 

Average price during financial year 57.70 45.95 40.83 36.15 33.23 

Closing price, financial year 53.50 46.13 37.70 30.39 37.02 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

P/E ratio (based on closing price) 16.4 11.8 11.1 8.9 10.1 

Equity market capitalization (in billions of EUR) 15.93 13.78 11.38 9.19 11.50 

Average daily volume traded (number of shares) 211 119 248 364 273 402 255 740 207 693 

Average daily volume traded (in millions of EUR) 12.3 11.1 11.0 9.3 6.9 

1 In 2001, the Fund for General Banking Risks was transferred to the reserves directly, without crossing the profit and loss account. The reference figures for the previous 

financial years are shown in this table as published in previous years. The results for 2000 exclude the capital gain on CCF. 

2 The operating result is the difference between gross operating income and general administrative expenses. 

SHARE BUY-BACK PLAN 

The General Meeting of Shareholders on 24 April 2003 renewed the authorization to buy back treasury stock up to the statutory limit of 10% of capital. During the 

course of 2003, this authorization was exercised to buy back shares needed for the option schemes that were offered to employees in certain establishments and 

subsidiaries of KBC Group companies. 

TREASURY SHARES 

Own shares repurchased in 2003 411 200 

Total number of treasury shares held by the KBC Bank and Insurance Holding Company at 31 December 2003 5 808 674

NET ASSET VALUE 

(In millions of EUR, at year-end) 1999 2000 2001 2002 2003 

Capital and reserves 4 216 5 776 7 852 8 429 9 148 

Fund for General Banking Risks 1 825 1 841 0 0 0 

Unrealized gains and losses on shares 

- banking 920 494 319 113 201 

- insurance 1 581 1 154 427 -516 -92 

Negative goodwill on consolidation* 1 520 1 256 1 617 1 520 1 250 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Net asset value 10 062 10 521 10 215 9 545 10 507 

Net asset value per share (in EUR) 33.8 35.2 33.8 31.6 33.8 

* Relates to the immediate deduction from capital and reserves of goodwill paid on acquisitions between 1999 and 2001. For more information, please see ‘Accounting principles 

and valuation rules’ in the ‘Consolidated annual accounts - KBC Bank and Insurance Holding Company NV’ section. 

RATINGS (10-03-2004) 

Fitch Moody’s Standard & Poor’s 

Rating Outlook Rating Outlook Rating Outlook 

KBC Bank Long-term rating AA- Stable Aa3 Stable A+ Stable 

Short-term rating F1+ - P1 - A-1 - 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

KBC Insurance Long-term rating * 

AA Stable - - A+ Stable 

Short-term rating F1+ - - - - - 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

KBC Holding Company Long-term rating A+ Stable - - A Stable 

Short-term rating F1 - - - A-1 - 

* Claims-paying-ability rating. 

INVESTOR RELATIONS 

The Investor Relations Office handles communication intended for shareholders and analysts. It is responsible for publishing the company’s quarterly results in press 

releases and reports, for sending out press releases when other important events take place, for developing and managing the corporate Web site, for organizing 

international road shows, etc. KBC also organized another special Investor Day in June 2003, where KBC’s top management explained a number of activities in detail 

(information on this event is available at www.kbc.com). 

CONTACT DETAILS 

Investor Relations Office Luc Cool, Head of Investor Relations 

Nele Kindt, Investor Relations Assistant 

Lucas Albrecht, Financial Communications Officer 

Tel. 02 429 49 16 

Fax 02 429 44 16 

E-mail investor.relations@kbc.be 

Web site www.kbc.com 

Address KBC Bank and Insurance Holding Company, Strategy and Expansion Division − SEE, 2 Havenlaan, BE-1080 Brussels 

FINANCIAL CALENDAR* 

Publication of results for the 2003 financial year 4 March 2004 

Annual report available 14 April 2004 

General Meeting of Shareholders 29 April 2004 

Dividend payment 3 May 2004 

Publication of first-quarter results for 2004 3 June 2004 

Publication of first-half results for 2004 2 September 2004 

Publication of third-quarter results for 2004 25 November 2004 

* For the most up-to-date version of the financial calendar, see the KBC Web site (www.kbc.com). 

Shareholder information 


15

Group results 

KEY FINANCIAL FIGURES, KBCGROUP 

Income from all the core activities headed up, with a conspicuously strong increase in commission 

income (+15%), sound growth in premium revenues (+10%) and mounting net interest income 

(+2%) in the banking business from the second half of the year on. On the other hand, earnings 

from currency dealing and securities trading were lower (-22%), as were gains realized on invest- 

ments in the banking business (-37%) and investment income in the insurance business (-8%). 

The cost trend is well under control. Zero growth was registered in the Group’s operating charges, 

while expenditures in banking were down by 1%. The non-life insurance business turned in a 

strong underwriting result (combined ratio of 96%; 95% excluding reinsurance). However, 

substantial provisions had to be set aside in banking for problem loans (676 million euros), 

especially in Poland (365 million euros). 

The impact of the recent stock market malaise on profit (downward value adjustments on equity 

investments) came to a net 42 million euros (96 million euros in amounts written down in the 

insurance business, partly offset by the reversal of 54 million euros worth of prior write-downs in 

the banking business). 

Net profit (1 119 million euros) went up by 8% on balance, with no noteworthy impact from 

changes in the scope of consolidation. Profit in the banking business (which generates three 

quarters of Group profit) rose by 21%, while profit in the insurance business fell by 21%. 

In Belgium, the retail banking business made a very robust contribution to the bottom line, while 

most of the banking and insurance markets in Central Europe turned in a satisfactory performance 

at the operating level. Nonetheless, disappointing results were posted by the Polish banking 

activities, which are undergoing a far-reaching restructuring programme. The Group’s corporate 

KEY FIGURES, RESULTS 

and market activities also turned in good results. 

(In millions of EUR) 2001 2002 2003 Change 

Consolidated profit, Group share 1 022.4 1 034.2 1 119.0 8.2% 

- banking 697.6 708.0 858.4 21.2% 

- insurance 359.9 348.1 274.7 -21.1% 

- holding-company activities -35.1 -21.9 -14.1 -35.6% 

.................................................................................................................................................................................................................................................................................................................................................................................... 

ROE 1 

13.2% 12.7% 12.7% - 

KEY FIGURES, BALANCE SHEET AND SOLVENCY 

(In millions of EUR) 31-12-2001 31-12-2002 31-12-2003 Change 

Total assets 228 077 221 731 225 587 1.7% 

.................................................................................................................................................................................................................................................................................................................................................................................... 

Capital and reserves after profit appropriation 7 852 8 429 9 148 8.5% 

Total capital resources, Group 2 

16 817 16 682 17 072 2.3% 

.................................................................................................................................................................................................................................................................................................................................................................................... 

Tier-1 ratio, KBC Bank 8.8% 8.8% 9.5% - 

CAD ratio, KBC Bank 

Solvency ratio, KBC Insurance 

14.7% 13.7% 13.4% - 

(including unrealized gains and losses) 504% 320% 316% - 

1 Changes are related to inter alia the direct deduction of goodwill from capital and reserves for acquisitions between 1999 and 

2001. 

2 Capital and reserves after profit appropriation, preference shares, minority interests, Fund for General Banking Risks and subordinated 

liabilities. 

17 

1 400 

1 200 

1 000 

800 

600 

400 

200 

0 

0 

97 

1999 

166 

1 1 

2000 

Consolidated profit 

(Group share)* 

022 

1 0 

2001 

(In millions of EUR) 

034 

1 0 

2002 

119 

1 1 

2003 

* For 2000, excluding the capital gain realized 

on the sale of the participation in CCF. 

18 

16 

14 

12 

10 

8 

6 

4 

2 

0 

.7 

13 

1999 

Total capital resources* 

(In billions of EUR) 

.2 

16 

2000 

.8 

16 

2001 

.7 

16. 

2002 

.1 

17 

2003 

* Capital and reserves after profit appropriation, 

preference shares, minority interests, Fund for 

General Banking Risks and subordinated 

liabilities.

Group results KBC Bank & Insurance Group − 2003 Annual Report 18 

CONSOLIDATED BALANCE SHEET, KBCGROUP 


ASSETS 

Banking 215 881.0 208 501.2 210 858.4 1.1% 

Loans and advances to credit institutions 28 291.3 29 298.6 27 068.8 -7.6% 

Loans and advances to customers 87 046.9 98 775.1 90 293.3 -8.6% 

Securities 66 224.7 61 895.3 69 556.5 12.4% 

Financial fixed assets 193.8 686.4 610.0 -11.1% 

Tangible and intangible fixed assets 2 298.7 2 690.0 2 692.4 0.1% 

Other assets 31 825.6 15 155.9 20 637.3 36.2% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Insurance 12 583.8 14 124.1 16 226.7 14.9% 

Intangible fixed assets 82.3 100.9 205.9 - 

Investments 8 657.6 10 064.0 11 105.2 10.3% 

Investments for the benefit of life assurance policyholders who bear the investment risk 2 952.1 2 813.2 3 238.9 15.1% 

Technical provisions, reinsurers’ share 173.9 250.1 179.5 -28.2% 

Debtors 335.3 478.2 618.3 29.3% 

Other assets 382.6 417.8 878.8 - 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Holding-company activities 626.6 802.7 831.6 3.6% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Eliminations* -1 014.8 -1 697.5 -2 329.8 37.3% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

TOTAL ASSETS 228 076.6 221 730.5 225 586.8 1.7% 

LIABILITIES 

Total capital resources, Group 16 817.4 16 681.9 17 071.5 2.3% 

Capital and reserves 7 852.3 8 428.9 9 147.8 8.5% 

Minority interests (including preference shares) 2 219.1 1 967.1 1 825.5 -7.2% 

Subordinated liabilities 6 746.0 6 285.8 6 098.3 -3.0% 

Fund for General Banking Risks 0.0 0.0 0.0 - 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 


Amounts owed to credit institutions 41 199.6 39 683.3 38 224.1 -3.7% 

Customer deposits and debts represented by securities 131 142.4 137 375.3 133 581.4 -2.8% 

Other liabilities 26 802.8 15 238.6 22 508.4 47.7% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Insurance 11 047.2 12 251.6 14 371.9 17.3% 

Technical provisions 

Technical provisions for life assurance policies where the investment risk is borne by the 

7 367.0 8 860.6 10 196.9 15.1% 

policyholders 2 952.1 2 813.2 3 238.9 15.1% 

Deposits received from reinsurers 98.1 96.5 93.3 -3.3% 

Other liabilities 630.0 481.3 842.9 75.1% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Holding-company activities 1 731.0 1 842.9 1 899.7 3.1% 

Financial liabilities 1 208.7 1 316.9 1 334.6 1.3% 

Other liabilities 522.3 526.0 565.2 7.4% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Eliminations* -663.7 -1 343.0 -2 070.4 54.2% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

TOTAL LIABILITIES 228 076.6 221 730.5 225 586.8 1.7% 

* The amounts eliminated on the assets side do not match eliminations on the liabilities side, due to direct elimination under the subordinated liabilities heading.

CONSOLIDATED PROFIT AND LOSS ACCOUNT, KBCGROUP 

(In millions of EUR) 2001 2002 2003 Change 

Banking 4 977.3 5 755.7 5 655.4 -1.7% 

Net interest income 2 541.2 3 046.1 3 117.9 2.4% 

Dividends 120.8 157.8 106.5 -32.5% 

Results from participating interests accounted for using the equity method 2.9 7.4 17.6 - 

Profit (Loss) on financial transactions 884.8 1 013.6 730.2 -28.0% 

On currency dealing and securities trading 609.6 615.1 479.9 -22.0% 

Realized gains and losses 275.2 398.4 250.2 -37.2% 

Net commission income 1 056.8 1 090.6 1 250.8 14.7% 

Other operating income 370.8 440.3 432.3 -1.8% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Insurance 809.3 852.3 847.2 -0.6% 

Earned premiums, net of reinsurance 2 508.5 3 155.9 3 486.0 10.5% 

Net technical charges -1 960.9 -2 274.0 -3 457.7 52.1% 

Value adjustments, unit-linked life assurance 369.3 679.8 -209.3 - 

Investment income and charges 256.8 -33.2 802.2 - 

Realized gains and losses 183.5 198.0 91.2 -53.9% 

Value adjustments, unit-linked life assurance -369.3 -679.8 209.3 - 

Results from participating interests accounted for using the equity method 5.0 3.5 16.7 - 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Holding-company activities -29.2 -15.3 -4.3 -71.8% 

GROSS OPERATING INCOME 5 757.3 6 592.7 6 498.3 -1.4% 

Banking -3 510.0 -3 750.7 -3 694.5 -1.5% 

Staff charges -1 842.9 -1 982.5 - 2 044.4 3.1% 

Operating charges and depreciation on tangible fixed assets -1 667.1 -1 768.2 -1 650.2 -6.7% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Insurance -407.0 -456.5 -499.0 9.3% 

Acquisition costs -323.5 -361.6 -397.5 9.9% 

Operating charges -83.4 -95.0 -101.5 6.8% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Holding-company activities -3.8 -4.5 -8.0 79.2% 

GENERAL ADMINISTRATIVE EXPENSES -3 920.8 -4 211.7 -4 201.5 -0.2% 

OPERATING RESULT 1 836.5 2 381.0 2 296.7 -3.5% 

Banking 1 467.2 2 005.0 1 960.8 -2.2% 


................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Value adjustments, banking -367.4 -663.0 -624.1 -5.9% 

Write-downs on and provisions for credit risks -321.4 -465.3 -676.3 45.4% 

Value adjustments on securities -88.7 -202.1 36.2 - 

Transfer to, transfer from the contingency funds 0.0 0.0 0.0 - 

Provisions for other liabilities and charges 42.6 4.4 16.0 - 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Amortization of goodwill on consolidation -10.4 -20.5 -40.1 95.5% 

Non-recurring result, insurance 7.8 9.5 -35.0 - 

Extraordinary result, banking and insurance 77.7 4.2 43.0 - 

PROFIT (LOSS) BEFORE TAX 1 544.2 1 711.1 1 640.5 -4.1% 



................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Income taxes -365.8 -511.1 -441.8 -13.6% 

Banking -312.5 -461.5 -413.3 -10.4% 

Insurance -51.2 -47.5 -26.7 -43.9% 

CONSOLIDATED PROFIT 1 178.4 1 200.0 1 198.7 -0.1% 

Minority interests -156.1 -165.8 -79.7 -51.9% 

CONSOLIDATED PROFIT, Group share 1 022.4 1 034.2 1 119.0 8.2% 

Banking 697.6 708.0 858.4 21.2% 


Holding-company activities -35.1 -21.9 -14.1 -35.6% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Earnings per share entitled to dividend (in EUR) 3.39 3.42 3.68 7.6% 



19


An overview of the consolidated results per quarter is given in the section entitled 

’Additional information’. 

Return on equity, or the ratio between net Group profit and average equity, came to 

12.7% in 2003, the same level as in 2002. Account has been taken of the derogation 

authorized by the Belgian Banking, Finance and Insurance Commission (BFIC) regarding 

the immediate deduction from equity of goodwill paid on acquisitions between 1999 and 

2001. If the goodwill in question were capitalized and amortized over a period of twenty 

years 1 , the return on equity would come to 9.7% in 2002 and 8.3% in 2003. 

COMMENTS 

MAIN CHANGES IN THE SCOPE OF CONSOLIDATION IN 2002-2003, RESULTS 

The various components of the results were affected by changes in the scope of consolidation 

during the course of 2003. The main changes are shown in the first table below. 

The second table shows the actual growth of the main components of the results as well 

as the organic growth (i.e. based on the scope of consolidation at year-end 2002, thus 

not taking changes in the scope of consolidation into account). 

Changes in the scope of consolidation, valuation rules and currency translation 

For 2003, changes in the scope of consolidation (mainly due to the sale of Krefima) did 

affect a number of income items (in the banking business), but their impact on the 

bottom line was negligible (0.3%). The results of WARTA Insurance (Poland), in which 

2002 2003 

Nova Ljubljanska banka Equity method from the 4 th quarter Equity method for the full year 

ERGO Poist’ovňa Not consolidated Fully consolidated for the full year 

Krefima Fully consolidated for the full year Sold 

ACTUAL AND ORGANIC GROWTH, 2002-2003 

1 For 2003, the theoretical amortization comes to 279.5 million euros. 

Actual growth Organic growth 

Gross operating income -1.4% -1.1% 

- banking -1.7% -1.3% 

- insurance -0.6% -1.4% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

General administrative expenses -0.2% -0.4% 

- banking -1.5% -1.5% 

- insurance 9.3% 7.4% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Operating result -3.5% -2.4% 

- banking -2.2% -0.9% 

- insurance -12.0% -11.6% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Profit (Loss) before tax -4.1% -3.5% 

- banking 1.1% 1.8% 

- insurance -23.7% -23.3% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Consolidated profit, Group share 8.2% 7.9% 

- banking 21.2% 20.6% 

- insurance -21.1% -20.7%

KBC recently stepped up its shareholding to 75%, will be fully consolidated from 2004 

(in 2003, they had been accounted for via the equity method). 

In 2003, a number of changes were made to the valuation rules (or to the way in which 

they are applied) in order to prepare for the transition to the ‘International Financial 

Reporting Standards’ (IFRS), and these changes are explained in greater detail below. 

Given the uncertainty prevailing with regard to the legal framework for these new 

accounting standards, however, KBC has found itself obliged to abandon its plans to 

implement them in 2004, which would have been sooner than required by law. Aside 

from the changes mentioned, no other changes were made to the valuation rules that 

had a significant impact on the results. 

In the calculation of the results for 2003, the (average) rates of exchange used for the 

Czech koruna, the Hungarian forint, the Polish zloty and the US dollar were 3%, 4%, 

13% and 17% lower, respectively, than the year-earlier rates. There were no other 

significant year-on-year fluctuations in exchange rates that were relevant for KBC. 

OPERATING RESULT, BANKING 

For 2003, gross income was down by 2%, although the smaller scope of consolidation 

accounted for one percentage point of this decline. Moreover, in 2002, substantial gains 

had been realized on investments. Discounting the gains, income would have edged up 

by 1%. 

The main income-related developments included: 

*A 2% increase in net interest income, with the higher interest earnings in the second 

half of the year more than compensating for the pressure on net interest income 

during the first half. On an organic basis, i.e. not taking changes in the scope of 

consolidation into account, there was an increase of 5%. From 1.67% in 2002, 

the interest margin widened to 1.73% in 2003. 

NET INTEREST INCOME, BANKING 

(In millions of EUR) 2002 2003 Change 

Interest receivable and similar income 9 501.0 7 980.7 -16.0% 

Interest payable and similar charges -6 454.9 -4 862.8 -24.7% 

............................................................................................................................................................................................................................................................................................................................ 

Net interest income 3 046.1 3 117.9 2.4% 

NET COMMISSION INCOME, BANKING 


Commission receivable 1 527.0 1 686.5 10.4% 

Securities and asset management 776.9 919.9 18.4% 

Commitment credit 127.5 127.7 0.1% 

Payments 324.1 332.5 2.6% 

Insurance 57.6 62.1 7.7% 

Other 240.8 244.4 1.5% 

Commission payable -436.4 -435.6 -0.2% 

............................................................................................................................................................................................................................................................................................................................ 

Net commission income 1 090.6 1 250.8 14.7% 



21


9% 

22% 

4% 

75% 

70% 

65% 

60% 

55% 

50% 

Gross income, banking (2003) 

Net interest income 

(including dividends) 

Net commission income 

Currency dealing & securities trading 

Realized gains and losses 

Other 

65% 5% 

1999 

8% 

57% 

Cost/income ratio, banking 

67% % 

2000 

% 

71 

2001 

65% 5% 

2002 

65% 

5% 

2003 

*Robust growth in commission income (+15%, +12% on an organic basis), due mainly to 

brisk sales of capital-protected mutual funds and life assurance on the Belgian market. 

In Central Europe, too, commission income from investment products continued to 

mount (+9%). 

*A relatively poor result from currency dealing and securities trading (-22%), accounted 

for primarily by currency and equity derivatives trading. Fixed-income products yielded 

a good result, and trading income from (cash) equity trading went up, although it is 

still very limited within the Group (in keeping with the strategic focus). 

*A comparatively low level of capital gains on investments (4% of total income); these 

were realized mainly in the first half of the year on a ‘free’ bond portfolio put together 

in the past specifically to cope with an anticipated decline in interest rates. 

*Relatively low dividend income (-32%), partly due to exchange rate effects. 

*A virtually unchanged level of ‘other operating income’ compared to last year (-2%), 

with a brisk increase in leasing income (+12% on an organic basis) and other factors 

making up for the non-recurrence of income recorded in 2002. 

In 2003, costs were down by 1% (changes in the scope of consolidation had no signifi- 

cant impact here). In Belgium, costs were 5% lower, in Central Europe 1%. Despite the 

improvement in costs, the cost/income ratio remained unchanged (65%) year-on-year, 

owing to the lower amount of realized gains (if these had been equal, the ratio would 

have fallen from 67% to 65%). 

OPERATING RESULT, INSURANCE 

In 2003, an improvement was posted in the operating result in the life assurance busi- 

ness (+4%): 

*Premium income was up 9% year-on-year (+8% on an organic basis), thanks entirely to 

products offering a guaranteed rate of interest. The volume of premiums from unit- 

linked life assurance products fell in line with the market trend. The bank branch 

distribution channel generated 81% of total premium volume, with the Belgian market 

(which accounts for 95% of premium income) recording premium growth of 8% and 

Central Europe an (organic) increase of 13%. 

PROFIT ON FINANCIAL TRANSACTIONS, BANKING 


Currency dealing and securities trading 615.1 479.9 -22.0% 

Realized gains and losses on investment securities 398.4 250.2 -37.2% 

Fixed-income securities 374.8 217.4 -42.0% 

Variable-yield securities 13.6 21.9 60.8% 

Securitization of receivables 10.0 10.9 8.5% 

............................................................................................................................................................................................................................................................................................................................ 

Profit (Loss) on financial transactions 1 013.6 730.2 -28.0% 

GENERAL ADMINISTRATIVE EXPENSES, BANKING 


Staff charges -1 982.5 -2 044.4 3.1% 

Depreciation, fixed assets -419.5 -385.3 -8.1% 

Other administrative expenses -1 348.7 -1 264.8 -6.2% 

............................................................................................................................................................................................................................................................................................................................ 

General administrative expenses -3 750.7 -3 694.5 -1.5%

*Investment income in the life business rose vigorously (+11%), as a result of the strong 

growth in volume achieved in 2002 and 2003. 

*Operating charges (+9%) increased in line with premium growth. 

The operating result in the non-life business improved noticeably in 2003 (+16%), 

thanks to robust premium growth and lower expense and loss ratios: 

*Premium income was 15% higher than the year-earlier figure (there was no significant 

impact from changes in the scope of consolidation), with growth of 7% being regis- 

tered in Belgium. In Central Europe, earned premiums went up by 33% (on an organic 

basis). There was also a striking increase (34%) in premium income from reinsurance 

activities, supported by higher premium rates. The growth in the direct insurance busi- 

ness was spread quite well across the various product lines. Premium volume generated 

via the network of bank branches went up by 34% and accounted for 10% of total 

volume, while the traditional channel recorded growth of 5%. 

*The income derived from invested reserves fell slightly (-1%). The claims reserve ratio 

(excluding the premium reserve and the equalization provision) stood at 200%, some- 

what lower than the year-earlier figure (217%), due to fewer (major) claims (chiefly in 

Belgium). 

*The loss ratio fell from 72% to 65%, thanks to the decline in the number of (major) 

claims and the good weather conditions on the various geographical markets. This 

contrasted with the situation in 2002, when the floods in Central Europe had had an 

adverse effect both directly and via reinsurance. The increase in charges (+10%) was 

also smaller than the increase in premium volume, causing the expense ratio to fall 

from 33% to 31%. 

The improvement in the result from companies accounted for by the equity method in 

2003 can be attributed to the good results achieved by the associated company in 

Ireland. The non-technical result has been negative for the past five quarters, owing to 

the generally low level of investment income. 

OPERATING RESULT, INSURANCE 

(In millions of EUR)* 2002 2003 Change 

Earned premiums, net of reinsurance 3 155.9 3 486.0 10.5% 

Life 2 245.6 2 438.4 8.6% 

Guaranteed-interest-rate products 1 275.0 1 676.0 31.5% 

Unit-linked products 970.7 762.4 -21.5% 

Non-life 910.3 1 047.6 15.1% 

Net technical charges -2 953.8 -3 248.4 10.0% 

Life -2 302.7 -2 518.3 9.4% 

Non-life -651.1 -730.1 12.1% 

Investment income and charges 646.6 592.9 -8.3% 

Results from participating interests accounted for 

3.5 16.7 - 

using the equity method 

General administrative expenses -456.5 -499.0 9.3% 

............................................................................................................................................................................................................................................................................................................................ 

Operating result 395.8 348.3 -12.0% 

Life 194.8 202.3 3.9% 

Non-life 164.0 191.0 16.5% 

Non-technical result 37.0 -45.1 - 

* Excluding value adjustments borne by the holders of unit-linked policies. 

Gross earned premiums, 

insurance (2003) 

7% 

10% 

7% 

21 21% 

8% 

47% 

Life, guaranteed-interest-rate products 

Life, unit-linked products 

Non-life, motor (direct business) 

Non-life, fire (direct business) 

Non-life, other (direct business) 

Accepted business 

Combined ratio, 

non-life insurance 

120% 

110% 

100% 

90% 

80% 

70% 

60% 

50% 

6% 

10 

1999 

07% 

10 

2000 

4% 

104 

2001 

05% 

105 

2002 

6% 

96 

2003 



23


250 

200 

150 

100 

50 

0 

1566 

1999 

Total assets, KBC Group 


1888 

2000 

2288 

2001 

2222 

2002 

2266 

2003 

Risk-weighted volume, KBC Bank 

120 

100 

80 

60 

40 

20 

0 

94 

1999 

91 

2000 

99 

2001 


95 

2002 

95 

2003 

VALUE ADJUSTMENTS, BANKING 

For 2003, details regarding loan loss provisioning were as follows: 

*For domestic loans, amounts provisioned were low in most countries. The loan loss ratio 

came to 0.24% in Belgium (0.29% in 2002), to 0.32% in Hungary (0.34% in 2002) and 

to 0.34% in the Czech Republic and Slovakia (in 2002, there was a net write-back 

which had left the ratio at -0.62%). 

*Losses in the international loan portfolio also improved (loan loss ratio of 0.48%, 

compared to 0.70% in 2002). 

*In Poland, a credit screening project was carried out, leading to substantial loan loss 

provisioning (365 million euros). 

*The total loan loss ratio for the Group went up from 0.55% to 0.71% (0.35% excluding 

Poland). The non-performing ratio amounted to 3.7%, with 61% of non-performing 

loans being covered by provisions. 

The uptrend on the stock markets meant that value impairments previously recorded on 

the investment portfolio were able to be reversed. This had a positive impact of 36 

million euros for the year as a whole. As regards the provisions for other liabilities and 

charges, on balance, 16 million euros was written back over the entire year. 

NON-RECURRING RESULT, INSURANCE 

For the 2003 financial year, the non-recurring result came to -35 million euros, which 

can be attributed to the following: 

*The realization of capital gains (122 million euros) on the bond portfolio of the 

non-life business and on the bond portfolio of equity not allocated to insurance activities. 

*The recording of downward value adjustments on equity investments (96 million euros). 

*The transfer of 140 million euros to the provision for financial risks. 

*Other items, including the write-back in the first quarter of the ‘surplus amount’ from 

the equalization and catastrophe provision (92 million euros) for the purpose of 

applying the IFRS. 

VALUE ADJUSTMENTS, BANKING 


Write-downs on and provisions for credit risks -465.3 -676.3 45.4% 

............................................................................................................................................................................................................................................................................................................................ 

Write-downs on securities -202.1 36.2 - 

Variable-yield securities -168.5 14.0 - 

Fixed-income securities -33.7 22.2 - 

NON-RECURRING RESULT, INSURANCE 


Non-recurring realized gains and losses on securities 113.0 122.0 8.0% 

Provision for financial risks 156.7 -140.2 - 

Value adjustments, shares -298.7 -96.0 -67.9% 

Amounts recoverable from third parties 45.0 0 - 

Equalization and catastrophe provision 0.0 92.2 - 

Other -6.5 -13.0 - 

............................................................................................................................................................................................................................................................................................................................ 

Non-recurring result 9.5 -35.0 -

EXTRAORDINARY RESULT, 

TAXES AND RESULTS OF THE HOLDING COMPANY 

In 2003, the extraordinary result amounted to 43 million euros. 

At the end of December 2003, taxes came to 442 million euros, down 14% year-on-year. 

This decline was partly attributable to a deferred tax asset (91 million euros) being 

recorded for the life business in implementation of the IFRS principles. 

The result achieved by the holding company amounted to -14 million euros in 2003, 

an improvement on 2002, when the profit contribution had come to -22 million euros. 

The lower level of interest charges and higher dividend income in 2003 account for this 

better performance. 

BALANCE SHEET AND SOLVENCY 

On 31 December 2003, the Group’s capital and reserves came to 9.1 billion euros, a 9% 

increase on the previous year. Total capital resources (including preference shares, 

subordinated loans and minority interests) amounted to 17.1 billion euros. 

For the banking business, the core capital ratio (tier 1) came to 9.5%, much higher than 

the year-earlier figure (8.8%), due to a stronger capital base (+8%) and the unchanged 

volume of risk-weighted assets. The solvency margin for the insurance business 

(including unrealized capital gains and losses) amounted to 316%, on a par with the 

figure for 2002 (320%), owing to higher unrealized gains on investments, but also to 

increased capital requirements (greater volumes). 

Customer deposits came to 134 billion euros at year-end 2003. Disregarding repos, this 

represents an increase of 5%, characterized by a shift from time deposits to demand 

deposits, and from bank deposits to life-assurance products and investment funds. The 

life-assurance reserves expanded by 21% to 10.5 billion euros (for unit-linked products, 

they rose by 15% to 3.2 billion euros). Assets under management in the asset manage- 

ment business rose by 10% to 89.1 billion euros. 

On 31 December 2003, the customer loan portfolio amounted to 90.2 billion euros, 

unchanged from the previous year (in organic terms), disregarding reverse repo volumes. 

A striking feature in this regard is the organic, 16% growth in the volume of home loans 

(+10% in Belgium and +35% in Central Europe). At 94.8 billion euros, risk-weighted 

assets remained stable (drop of 3% in organic terms, which was offset by the impact 

stemming from the end of a loan securitization operation). 

At the end of December 2003, the balance of unrealized gains on the security portfolios 

came to 1.7 billion euros (110 million euros of which on shares). 

Tier-1 ratio, KBC Bank 

10% 

9% 

8% 

7% 

6% 

5% 

4% 

3% 

2% 

1% 

0% 

4% 

7.4 

1999 

5% 

9.5 

2000 

8% 

8.8 

2001 

Tier-1 ratio, KBC Bank 

Statutory minimum 

8% 

8.8 

2002 

Solvency ratio, KBC Insurance 

900% 

800% 

700% 

600% 

500% 

400% 

300% 

200% 

100% 

0% 

2% 

802 

8% 

298 

1999 

3% 

683 

7% 

307 

2000 2 

4% 

504 

8% 

318 

2001 2 

32 20% 

3066 

% 

2002 2 

5% 

9.5 

2003 

316 316% 

2633% 

2003 2 

Including unrealized capital gains 

Excluding unrealized gains 

Statutory minimum 



25


50% 

40% 

30% 

20% 

10% 

0% 

-10% 

-20% 

-30% 

18% 

13% 

8% 

3% 

-2% 

-7% 

-12% 

.5% 

40. 

-13.2% 

Share in net profit 

per area of activity 

.5% 

20 

0.4% 

10 

.2% 

11. 

.7% 

30. 

Retail and private bancassurance 


Corporate services 

Asset management 

Market activities 

Group item 

12.9% 

16. .4% 

Retail 

2002 

2003 

Return on allocated equity 

per area of activity 

2% 

5.2 

-9.5% 

Central 

Europe 

9.0 0% 

10.9% 

Corp. 

serv. 

8.00% 

10.7% 

Market 

act. 

PROFIT OUTLOOK FOR 2004 

The basic strategy will remain focused on strengthening the market position in banc- 

assurance in Belgium, continuing to enhance efficiency there and reinforcing the new 

retail home markets in the Czech Republic, Hungary, Poland, Slovakia and Slovenia. 

There is a relatively broad consensus that the economy is set to improve and that stock 

markets will be buoyant in 2004 in most of the geographical markets in which 

KBC operates. This should stimulate income growth and lead to fewer downward value 

adjustments in the loan and investment portfolios. KBC also intends to maintain strict 

cost discipline. Given these conditions, KBC expects net profit for 2004 to exceed the 

figure for 2003. 

BREAKDOWN BY AREA OF ACTIVITY 

Five areas of activity 

The activities of the KBC Group can be broken down into five areas: 

*Retail and private bancassurance 

*Central Europe 

*Corporate services 

*Asset management 

*Market activities 

The ‘Group item’ includes capital gains in the banking business, value adjustments 

recorded on securities, income and charges that cannot be directly allocated to the 

specific areas of activity, goodwill that is deducted from capital and reserves (for acqui- 

sitions between 1999 and 2001), and debt-service charges on leveraging by the holding 

company. Consequently, the positive impact of the deduction of goodwill and of lever- 

aging on return on equity is only reflected in return on equity for the whole Group, not 

in the return on equity for the different areas of activity. 

Allocation of equity 

The different areas of activity are allocated an amount of tier-1 capital that is commen- 

surate with a tier-1 ratio of 7%. This tier-1 capital consists of pure equity and 15% 

preference shares. In calculating return on equity, only pure equity is taken into account 

in the denominator. 

In the insurance business, one and a half times the legally required minimum amount is 

allocated to VITIS Life, twice the legally required minimum amount to the retail 

businesses and three times the legally required minimum amount to corporate services 

and the activities in Central Europe. 

Minority interests 

Since 100% of the risk-weighted assets are consolidated in the banking business, the 

equity allocated also reflects 100% of these assets. Consequently, minority interests are 

included in net profit when return on equity is calculated for the areas of activity.

Amortization of capitalized goodwill 

Net profit (and return on equity) for the areas of activity is shown before the amortization 

of capitalized goodwill. The amortization of capitalized goodwill is included under 

the ‘Group item’. 

Overview table 

The overview table shows the key figures per area of activity, and is followed by a 

description, detailed financial figures and a brief report on each area of activity in the 

ensuing sections. 

OVERVIEW OF AREAS OF ACTIVITY (31-12-2003) 

(In millions of EUR) Retail and 

private 

bancassurance 

Central 

Europe 

Corporate 

services 

Asset 

management 

Market 

activities 

1 Banking 

Profit contribution (including minority interests)* 225.4 -200.0 219.7 116.0 124.8 372.4 858.4 

(excluding minority interests)* 225.1 -144.7 219.7 116.0 124.8 317.5 858.4 

Allocated equity 1 947.6 1 920.5 2 007.5 - 1 194.4 808.9 7 879.0 

Share in result (excluding minority interests) 20.1% -12.9% 19.6% 10.4% 11.2% 28.4% 76.7% 

Share in allocated equity 21.3% 21.0% 21.9% - 13.1% 8.8% 86.1% 

ROE 11.7% -10.3% 11.2% - 10.7% - 11.3% 

2 Insurance 

Profit contribution (including minority interests)* 228.3 -3.1 8.6 - - 40.9 274.7 

(excluding minority interests)* 227.8 -3.5 9.8 - - 40.6 274.7 

Allocated equity 765.5 196.2 163.1 - - 582.3 1 707.2 

Share in result (excluding minority interests) 20.4% -0.3% 0.9% - - 3.6% 24.5% 

Share in allocated equity 8.4% 2.1% 1.8% - - 6.4% 18.7% 

ROE 27.2% -1.7% 6.9% - - - 17.4% 

3 Holding-company activities 

Profit contribution (including minority interests)* - - - - - -14.1 -14.1 

(excluding minority interests)* - - - - - -14.1 -14.1 

Allocated equity - - - - - -438.2 -438.2 

Share in result (excluding minority interests) - - - - - -1.3% -1.3% 

Share in allocated equity - - - - - -4.8% -4.8% 

4 Group 

Profit contribution (including minority interests)* 453.7 -203.0 228.3 116.0 124.8 399.2 1 119.0 

(excluding minority interests)* 453.0 -148.2 229.6 116.0 124.8 343.8 1 119.0 

Allocated equity 2 713.1 2 116.8 2 170.6 - 1 194.4 953.0 9 147.8 

Share in result (excluding minority interests) 40.5% -13.2% 20.5% 10.4% 11.2% 30.7% 100.0% 

Share in allocated equity 29.7% 23.1% 23.7% - 13.1% 10.4% 100.0% 

ROE 16.4% -9.5% 10.9% - 10.7% - 12.7% 

* At the level of the areas of activity; figures in the ‘Total’ column relate to the profit contribution excluding minority interests. 

Group 

item 

Total 



27

Retail and private 

bancassurance 

‘Retail and private bancassurance’ encompasses the activities of 

the bank branches, agents and brokers, as well as those conducted via 

electronic channels, that cater for private persons, the self-employed and 

local businesses (retail bancassurance) and for high-net-worth individuals 

(private bancassurance). 

CONTRIBUTION TO THE RESULT 

In 2003, this area of activity contributed 454 million euros to consolidated profit 

(including minority interests), representing a 24% increase on the year-earlier figure. 

This performance was thus good for 41% of Group profit (compared with 35% in 2002) and a 

return on allocated equity of 16.4% (12.9% in 2002). Allocated equity edged down to 2.7 billion 


euros, which represents 30% of Group equity. 


Banking 

Gross income 1 738.5 1 904.1 9.5% 

General administrative expenses -1 609.6 -1 502.6 -6.6% 

Write-downs and provisions -66.6 -67.3 1.1% 

Income taxes -20.6 -108.8 - 

Other 0.0 0.0 - 

Profit contribution 41.7 225.4 - 

Profit contribution, Group share 40.9 225.1 - 

.................................................................................................................................................................................................................................................................................................................................................................................... 

Risk-weighted assets 32 320.3 32 358.7 0.1% 

Allocated equity 1 945.1 1 947.6 0.1% 

.................................................................................................................................................................................................................................................................................................................................................................................... 

Share in Group profit 4.0% 20.1% - 

Cost/income ratio 92.6% 78.9% - 

ROE 2.1% 11.7% - 

Insurance 

Earned premiums, net of reinsurance 2 737.1 2 958.3 8.1% 

Net technical charges -2 594.2 -2 811.0 8.4% 

Investment income and charges 599.7 552.2 -7.9% 


Non-recurring and extraordinary results 9.6 -44.1 - 

Income taxes -42.4 -24.7 -41.6% 

Other -41.5 -37.7 -9.3% 

Profit contribution 323.2 228.3 -29.4% 

Profit contribution, Group share 322.5 227.8 -29.4% 

.................................................................................................................................................................................................................................................................................................................................................................................... 

Allocated equity 908.0 765.5 -15.7% 

.................................................................................................................................................................................................................................................................................................................................................................................... 


Combined ratio 100.2% 93.1% - 

ROE 37.4% 27.2% - 

KBC Group 

Profit contribution 364.9 453.7 24.3% 

Profit contribution, Group share 363.4 453.0 24.6% 

.................................................................................................................................................................................................................................................................................................................................................................................... 

Allocated equity 2 853.1 2 713.1 -4.9% 

.................................................................................................................................................................................................................................................................................................................................................................................... 


ROE 12.9% 16.4% - 

29 

18% 

16% 

14% 

12% 

10% 

8% 

6% 

4% 

2% 

0% 

Share in Group profit (2003) 

59.5% 

40.5% 


Other areas of activity 


.9% 

12 

2002 

.4% 

16. 

2003

Retail and private bancassurance KBC Bank & Insurance Group − 2003 Annual Report 30 

In the banking business, gross income went up by just under 

10%. The main reasons for this increase were the strong growth 

in commission income, especially in the securities and asset 

management business and, to a less extent, the rise in interest 

income (despite the sale of Krefima). Thanks to the cost-savings 

achieved through staff cutbacks and the integration of the ICT 

systems, among other things and to the sale of Krefima, costs 

fell by around 7% in 2003. The combination of mounting 

income and declining costs resulted in a more than threefold 

increase in the operating result of the retail banking business in 

2003. The write-downs and provisions in the retail segment 

remained more or less unchanged, at the same low level as a 

year earlier (21 basis points on risk-weighted assets), while 

taxes went up sharply in line with profit growth. On balance, 

therefore, the profit contribution made by the retail banking 

activities rose from 41 million euros in 2002 to 225 million 

euros in 2003. As a result, the return on equity allocated to the 

retail banking business went up from 2.1% to 11.7%. 

In the retail insurance business, premium income rose 8%. In 

the non-life business, this increase was helped along by higher 

rates (for car insurance, for instance). In life assurance, 

premium income growth can be attributed to products offering a 

guaranteed rate of interest (class-21 insurance). General administrative 

expenses (including commissions) increased by 6%. 

The loss ratio for the non-life business improved appreciably, 

falling from 65% in 2002 to 59% in 2003. This can be attributed 

in part to the absence of major claims, such as those incurred in 

2002 as a result of extensive storm damage. Accordingly, the 

combined ratio (i.e. the loss ratio plus the expense ratio) came 

to a very low 93%, as opposed to 100% a year earlier. Recurring 

investment income and charges were down on the previous 

year’s figure and the non-recurring results were negative, 

whereas they had been positive during the reference period. 

RATIONALIZATION OF THE RETAIL BANK NETWORK IN BELGIUM 

These results include value adjustments on shares, an allocation 

to the provision for financial risks and the writing-back of the 

surplus in the equalization provision. Income taxes were much 

lower, owing in part to the posting of a deferred tax asset for 

the interest buffer in the life assurance business. On balance, 

the profit contribution made by the retail insurance activities 

fell by some 30% from 323 million euros in 2002 to 228 million 

euros in 2003 (including minority interests). 

HIGHLIGHTS 

MERGER PROCESS VIRTUALLY COMPLETED 

2003 saw KBC meeting many of the specific objectives it had 

set itself at the start of the merger. In September, the last 

customer account was transferred to the new KBC computer 

platform, completing the migration to a uniform IT system. 

Consequently, during the first half of 2004, the old systems can 

be phased out for good. 

The process of merging the bank branches has also been largely 

completed. After the number of KBC Bank retail branches was 

reduced in 2003 by 124 to 874, approximately 90% of the 

target (a reduction to around 800 retail branches) had already 

been achieved by the end of the year. The rationalization of the 

branch network at subsidiary CBC Banque is also more or less at 

an end, with another five retail branches having been closed in 

2003 (see table below). 

At Centea, too, the restructuring designed to create larger and 

better-performing agencies resulted in their number being 

reduced from 885 to 794. With insurance agents taking the 

initiative to set up joint agencies, the number of KBC Insurance 

agencies also fell last year from 640 to 618. 

1998 1999 2000 2001 2002 2003 

KBC Bank 1 490 1 430 1 272 1 150 998 874 

CBC Banque 167 138 116 102 101 96 

BANK BRANCHES AND AGENCIES IN BELGIUM, 31-12-2003 

Bank branches Retail Private banking Corporate Total 

KBC Bank 874 20 17 911 

CBC Banque 96 6 13* 115 

Agencies 

Centea − − − 794 

KBC Insurance − − − 618 

* Main branches catering for both retail and corporate customers.

The table on the preceding page shows the total number of 

bank branches (retail branches, corporate branches and private 

banking branches) and bank and insurance agencies at the end 

of 2003. Via this network, KBC serves roughly 3.3 million bank 

and 1.4 million insurance customers in Belgium. 

Besides the reduction in the number of branches and agencies, 

the structure of the bank and insurance network has been 

changed too. Among other things, the bank branches have been 

reorganized into ‘clusters’. A cluster is the product of a 

far-reaching co-operation agreement between an average of six 

bank branches, viz. one larger central branch (the hub branch) 

surrounded by a number of smaller branches and outlets. 

Clustering branches makes it possible to improve customer 

service, since arrangements can be made within the cluster 

regarding business hours, the availability of product know-how, 

training and staffing. Each cluster also has one or more SME 

relationship managers on staff, who work closely together with 

KBC Insurance’s specialized business agents. The aim is of 

course to improve the efficiency of the retail network and 

provide the best possible service to customers. Clustering 

branches is also wholly consistent with KBC’s new, customercentric 

approach, which was underpinned by various campaigns 

during the year. 

ACQUISITIONS AND DISINVESTMENT 

Partly with a view to rationalizing its sales network, KBC 

decided in the first quarter of 2003 to sell Krefima to the Dutch 

ZBG. Krefima operates on the Belgian consumer credit market 

through independent brokers, but this was no longer considered 

to be consistent with KBC’s strategy of conducting relationship 

banking through its own distribution channels. 

At the end of 2003, it was decided that KBC Insurance would 

acquire Gevaert’s shareholding in VTB-VAB, which resulted in its 

stake in the latter being increased from 28.3% to 64.8%. 

CROSS-SELLING INDICATORS 

VTB-VAB consists primarily of the operating company VAB, an 

automobile association active mainly in providing automobile 

assistance and travel insurance. This move fits in perfectly with 

the longstanding relationship between KBC Insurance and 

VTB-VAB, a relationship that has now been strengthened. 

INCREASED CROSS-SELLING 

The success of KBC’s bancassurance concept can be measured by 

various factors, including the number of customers the bank 

and insurer share, as well as by sales of insurance products via 

the bank distribution channels. 

In 2003, the number of customers shared by KBC Bank and 

KBC Insurance rose by 3%. This pushed the cross-selling ratio 

(the number of customers who have bought both banking and 

insurance products from KBC, divided by the total number of 

KBC customers) up to 39%, very near the 40% target. To make 

this calculation (which only covers KBC Bank and KBC Insurance 

in Belgium), all accounts registered under the same address 

were counted as one customer. 

The bank branches are also proving to be an efficient distribution 

channel for insurance products. In the life assurance business, 

the branch network remained the leading sales channel by 

far, accounting for no less than 81% of total premium volume 

for that class of insurance, not including reinsurance. For 

class-21 universal life assurance products, the bank channel was 

good for 73%, and for class-23 unit-linked products, 98%. 

Insurance agents (11%) and brokers (8%) accounted for the 

remainder. 

In the non-life business, agents (64% of total premium volume, 

excluding reinsurance) and brokers (26%) were still the main 

sales channel, but distribution via bank branches already 

accounted for 10%. Three years ago, the bank branches 

generated a mere 7% of premium volume. 

31-12-2001 31-12-2002 31-12-2003 Change 

Shared customers, KBC Bank − KBC Insurance (number of addresses) 555 000 574 000 592 000 +3.1% 

Shared stable 1 customers, KBC Bank − KBC Insurance (number of addresses) 169 000 182 000 199 000 +9.3% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Class-21 life assurance sold via the bank channel 2 

46.4% 68.0% 73.4% +5.4 perc. points 

Class-23 life assurance sold via the bank channel 2 

97.1% 97.9% 98.3% +0.4 perc. points 

Non-life insurance sold via the bank channel 2 

88% 8.2% 10.2% +2.0 perc. points 

1 Stable: at least three banking and three insurance products. 

2 Asa%ofpremium income, direct business. 



31


SUCCESSFUL AND SOCIALLY RESPONSIBLE 

E-BANCASSURANCE 

Besides its network of branches and agencies, there are many 

alternative channels (including the telephone and the Internet) 

through which KBC offers its products and services to customers. 

Illustrating the success of these alternative channels 

was the brisk increase by over 40% in the number of KBC-Online 

customers in 2003. This can be attributed in part to a successful 

advertising campaign, which was awarded an Effie by the advertising 

industry for being one of the most effective advertising 

campaigns in Belgium. 

KBC is constantly expanding its offering of PC and Internet 

banking services both in scope, by adding new applications, and 

in depth, by refining and further developing existing applications. 

In 2003, for instance: 

*KBC increased the number of functions available in KBC-Online. 

Thanks to new insurance-related improvements, customers can 

now view their insurance portfolios and file claims online, 

make additional payments for investment insurance and, 

among other things, send messages to their insurance agents. 

Other improvements to electronic account and portfolio 

management capabilities will also enable customers to manage 

direct debits online, make credit transfers within the EU more 

easily, buy shares online and create detailed portfolio overviews, 

etc. In the March 2003 edition of PC-Magazine, KBC- 

Online was described as being ‘without a doubt one of the 

best bank services available on the Internet’. 

*A whole new site for young people was added to the KBC Web 

site, along with a list of Internet shops that use the KBC 

Payment Button, and a more detailed housing site that 

features search functions for finding architects or the ideal 

home, as well as a new simulation module for the KBC Home 

Policy, etc. 

*The AssurCard system launched in co-operation with KBC Insurance 

was expanded. The AssurCard is an electronic insurance 

card that can be used for all kinds of interaction and communication 

between the insured and service-providers. It is 

E-BANKING INDICATORS − RETAIL SEGMENT 

gaining in popularity, with nearly 150 000 KBC customers and 

some seventy hospitals signed up at the end of 2003. 

KBC aims to pursue a socially responsible and customer-centric 

policy with regard to its products and consequently devotes a 

good deal of attention to the needs of its older customers. 

Since some of these customers are not comfortable using the 

range of electronic services on offer, KBC decided not to charge 

them extra for carrying out more non-electronic transactions 

than normally covered by the standard charge for bank 

accounts. Handicapped customers who have trouble using electronic 

channels also qualify for this special treatment. 

In addition, KBC opted to take a number of specific initiatives 

to help its older customers overcome any reluctance they might 

have to doing their banking and insurance business electronically. 

It plans to organize Senior Road Shows, for instance, to 

give customers some insight into the benefits Internet bancassurance 

can offer. It will also be giving a series of PC and 

Internet courses and will provide free help by phone (and sometimes 

at home) to older customers who subscribe to KBC-Online. 

SHARE OF THE DOMESTIC RETAIL MARKET 

KBC’s share of the Belgian banking and insurance market (see 

table on the next page) remained relatively stable in 2003, if 

Krefima − which was sold during the first quarter of 2003 − is 

not taken into account. 

There was a slight drop in the market share in savings deposits, 

partly because the successful savings campaign that had been 

launched in October 2002 offering savers a temporarily higher 

growth premium on savings deposits had come to an end. In 

2003, the base rate on savings deposits went down from 2% to 

1.50%. At the end of last year, KBC announced that it would 

again be raising the growth premium on private persons’ savings 

accounts temporarily from 0.5% to 2.0% for any new deposits 

made from January through March 2004. Savers will be entitled 

31-12-2001 31-12-2002 31-12-2003 Change 

Percentage of payments transactions via electronic channels 75.2% 78.8% 86.2% +7.4 perc. points 

Number of KBC-Matic ATMs 1 238 1 206 1 221 +1.2% 

Number of cash withdrawals at KBC-Matic ATMs per month 2.3 million 2.5 million 2.7 million +8.0% 

Active subscribers (private persons) to KBC’s Internet and PC banking facilities 132 000 199 000 283 000 +42.2% 

Active subscribers to KBC’s phone banking facilities 79 000 69 000 49 000 -29.0%* 

* The decline in the number of active phone-banking subscribers is due to their switching to PC banking.

to the higher growth premium if they keep their deposits on 

their accounts for a full six months. 

KBC is also the market leader in investment funds in Belgium 

and had a share of no less than 31% of this market at year-end, 

compared to 30% at the end of 2002 (see the ‘Asset management’ 

section below). 

On the consumer credit market (and to a less extent the home 

loan market), KBC saw its market share shrink, but this was 

largely due to the sale of Krefima in the first quarter of 2003. 

KBC’s total share of the Belgian market in loans (all kinds, retail 

and corporate loans combined) and deposits is put at 23% and 

20%, respectively. 

The share of the retail insurance market remained broadly 

unchanged (at just over 11%), as regards both non-life insurance 

(8%) and life assurance (13%). In the life assurance business, 

the share of the market in class-21 products edged down 

to 9%, as a result of KBC curtailing growth in this segment by 

channelling business into unit-linked products, where it is 

market leader with a share of nearly 25%. 

RETAIL MARKET SHARE IN BELGIUM 1 

RATIONALIZATION OF THE RETAIL PRODUCT 

OFFERING AND COST CONTROL 

KBC is firmly convinced that it can achieve substantial costsavings 

by rationalizing its product offering. To this end, it has 

decided to screen a large number of its products and processes 

and significantly cut back on the number of products and 

product variants it offers. 

Sound product rationalization will not only result in savings on 

IT systems (they will become less complex) and on back-up and 

training requirements, it will also − first and foremost − benefit 

the customer. If the product offering is complex, conversations 

with bank or insurance employees might become overly technical, 

leaving customers feeling overwhelmed or less confident 

about taking decisions. If the product offering is transparent 

and clearly defined, on the other hand, conversations will be 

warmer, and both customers and staff will feel more selfassured. 

The consequences of this rationalization affect various fields of 

banking and insurance and include: 

*Lending: a drastic reduction in the number of different types 

of home loans offered by KBC Bank. 

*Insurance: the discontinuation of most of the ‘traditional’ life 

assurance products, as there are enough flexible, modern 

alternatives that better meet the needs of today’s customers. 

*Payments: a reduction in the number of different credit cards 

from eight to four and a reduction in the number of credit 

transfer forms from thirty-four to five (by making them trilingual 

and affixing the logo when the customer’s personal 

details are printed on the forms). 

*Savings and investments: the discontinuation of sales of investment 

funds issued by institutions other than the KBC Group in 

31-12-2001 31-12-2002 31-12-2003 

Retail banking 

Consumer credit 26.3% 25.5% 20.8% 

Home loans 25.6% 25.6% 24.0% 

Savings deposits 19.8% 21.0% 19.2% 

Savings certificates 2 

17.5% 15.8% 16.0% 

Investment funds 29.3% 30.1% 31.0% 

Retail insurance 

General 10.9% 11.3% 11.2% 

Non-life insurance 8.5% 8.5% 8.4% 

Life assurance 12.2% 12.8% 12.8% 

Traditional & Universal 5.7% 9.8% 8.7% 

Unit-linked 20.9% 21.1% 24.7% 

1 The share of the retail banking market in 2003 is an estimate based on extrapolations of information concerning a large (but not complete) portion of the Belgian market. 

Consumer credit and home loans have been granted primarily, but not exclusively, to private individuals. The share of the insurance market in 2003 is based on estimates. 

2 Including subordinated retail certificates. 



33


the retail network. Because of the limited demand for these 

products, there are not many orders for them and costs are 

high, while profitability is too low. 

The processes and procedures for various products and services 

will also be subject to a thorough screening in order to come up 

with more logical and more efficient processing chains. 

The simplification of the product offering is only one of a series 

of measures designed to reduce costs going forward. Other 

measures include: 

*The outsourcing of certain transactions, i.e. inland payments 

and − on a limited scale − ICT activities. 

*A thorough screening of expenses for the head office premises 

in Brussels. 

*Exploring the co-sourcing of certain services in collaboration 

with other banks and institutions, such as the co-operation 

with Rabobank to develop a shared securities platform (see 

the ‘Market activities’ section). 

*The pooling of a number of back-office services. For instance, 

KBC Bank, KBC Insurance, CBC Banque, Centea, KBC Lease and 

the Antwerpse Diamantbank decided at the end of 2003 to set 

up a new logistical centre to manage their archives and 

handle their printing, post-processing and mail distribution 

needs. This has significantly reduced the operating expenses 

of the individual companies. 

NEW DEVELOPMENTS IN THE RETAIL MARKET 

The rationalization of the existing product offering does not 

mean that no new products or services have been or will be 

developed. Because the customer’s banking and insurance needs 

are all-important for determining what the product offering 

should include, a number of new banking and insurance 

products were launched in 2003, besides the extended 

e-bancassurance services referred to above. 

At the end of 2003, for instance, KBC launched an innovative 

motor insurance policy designed specifically for young people 

and senior citizens. For the 18-to-25 age group, KBC has come 

out with a very affordable product, based on the principle of 

‘family solidarity’. For 25 to 29 year-olds, age is no longer taken 

into account as a risk factor. Senior drivers get a lifelong 

guarantee that KBC will continue to insure them, provided they 

have a good track record as prudent drivers. In addition, a new 

bonus-malus system will be introduced to reward good drivers 

better and more quickly, and a new comprehensive insurance 

policy made available to provide full cover for new cars for 

twenty-four months. 

On 1 January 2004, the Supplementary Pensions Act entered 

into effect. The initiative taken by Belgian lawmakers to make 

voluntary supplementary pensions more easily obtainable, 

simpler and more fiscally attractive to the self-employed will of 

course open up a large window of opportunity for KBC as 

regards the target group of self-employed entrepreneurs. 

In addition, KBC will continue to position itself as the leading 

specialist in pension-related products and services, since this 

segment of what is predominantly a mature insurance market 

still has considerable potential for growth in view of demographic 

trends. Thanks to a well thought out sales campaign 

and the co-operation between the bank and the insurer, KBC 

has succeeded within a short span of time in building up a 

major position in this market and has also come out with 

various initiatives in the field of pension savings. At the end of 

last year, for instance, KBC entered into a co-operation agreement, 

with Acerta, the largest social insurance fund in Belgium 

for the purpose of facilitating cross-referrals of self-employed 

customers for complementary products and services and regulating 

co-operation with regard to voluntary supplementary 

pensions for the self-employed. 

The offering of pension savings funds was also expanded 

through the addition of KBC PRICOS Defensive. While most 

pension savings funds have a more dynamic risk profile with a 

high percentage of equity holdings, this new pension savings 

fund targets primarily the more risk-averse investor (see the 

‘Asset management’ section below). 

At the end of October 2003, KBC also started issuing chip-based 

credit cards. Holders of these cards will be asked to confirm 

payments made with their card by using a PIN, whereas 

previously payments had to be confirmed by means of a signature. 

These credit cards are being introduced to meet the new, 

worldwide security standards that apply for all kinds of international 

payments made using debit and credit cards, and they 

have also been introduced by the Central European subsidiaries. 

Lastly, several new investment funds and unit-linked insurance 

products were rolled out in 2003, as well. Many of these 

products offer capital protection, or are linked to equities or 

stock market indices in order to take full advantage of any 

upside potential. For more details on innovative investment 

funds and unit-linked insurance products, please see the ‘Asset 

management’ section.

PRIVATE BANKING 

KBC’s private banking clients are catered for via KBC Bank’s 

twenty and CBC Banque’s six specialized private banking 

branches. KBC Bank offers both advisory and discretionary 

management services via its private banking branches, and has 

personal relationship managers to serve its clientele. It goes 

without saying that the private banking clients are catered for 

on a privileged basis, having access to special services reserved 

specifically for them, such as exclusive investment funds and 

bond issues, range notes and private real estate certificates. 

Since 2003, options trading services, funds issued by third-party 

asset managers and VITIS Life insurance products have been 

reserved exclusively for private banking clients. Moreover, 

investment products normally offered only to institutional 

investors were made available to private banking clients 

in 2003, and KBC substantially expanded its active equity management 

service. 

KEY FIGURES FOR THE MAIN SUBSIDIARIES 


Besides KBC Bank NV and KBC Insurance NV, a number of their 

subsidiary companies are active exclusively or mainly in the 

‘Retail and private bancassurance’ area of activity: 

*CBC Banque: a universal bank in French-speaking Belgium, with 

a network of 115 branches in Wallonia and Brussels, including 

ninety-six retail branches, six private banking branches and 

thirteen main branches that cater for both retail and corporate 

customers. 

*Centea: a Belgian savings bank that caters exclusively for 

private persons, the self-employed and members of the liberal 

professions, offering a comprehensive package of banking and 

insurance products via its network of independent agents in 

close co-operation with its sister company, Fidea. In the first 

quarter of 2003, Krefima, a subsidiary of Centea, was sold to 

the Dutch company, ZBG. 

*KBC Lease: via various companies, the KBC Lease Group is 

active in Belgium and abroad in financial leasing, real estate 

leasing, renting, full-service car leasing and European vendor 

finance. In Belgium, the network of KBC Group bank branches 

is the main distribution channel for the KBC Lease Group, 

which occupies second place in both the financial leasing and 

full-service car leasing markets. At European level, in addition 

to direct leasing activities, the company focuses mainly on 

collaboration with international vendors. 

*Fidea: a domestic insurance subsidiary operating on the market 

through independent brokers. Fidea is active in both the life 

assurance and non-life insurance business. 

*VITIS Life: a Luxemburg-based insurance company that caters 

primarily for high-net-worth clientele. 

(Stand-alone figures) KBC percentage interest Net profit (in millions of EUR) Return on equity 

2001 2002 2003 2001 2002 2003 2001 2002 2003 

CBC Banque 100.0% 100.0% 100.0% 45.8 50.8 56.1 12.3% 12.9% 13.8% 

Centea 99.6% 99.6% 99.6% 75.9 16.2 135.5 14.6% 3.0% 24.9% 

Fidea (including Delphi) 100.0% 100.0% 100.0% 43.7 55.5 16.0 14.3% 16.1% 4.6% 

KBC Lease 100.0% 100.0% 100.0% 1.9 12.0 17.9 2.6% 14.7% 16.5% 

VITIS Life 94.3% 94.3% 94.3% 5.0 0.1 5.3 12.0% 0.3% 11.3% 



35


KBC’s businesses on its second home market are grouped 

under the separate area of activity referred to as ‘Central Europe’. 

This encompasses all retail banking and insurance services, corporate 

services, asset management and market activities in the Czech Republic, 

Slovakia, Hungary, Poland and Slovenia. 


In 2003, this area of activity made a contribution to consolidated profit of a negative 203 million 

euros (of which 55 million euros in minority interests), compared with a positive 118 million euros 

a year earlier. This performance thus accounted for -13% of Group profit (compared with 10% in 

2002) and a return on allocated equity of -9.5% (5.2% in 2002). Allocated equity went down by 


5% to 2.1 billion euros, which represents 23% of Group equity. 



Gross income 1 401.1 1 319.7 -5.8% 

General administrative expenses -1 018.4 -1 019.1 0.1% 

Write-downs and provisions -152.1 -447.1 - 

Income taxes -101.6 -53.5 -47.3% 

Other 0.0 0.0 - 

Profit contribution 129.0 -200.0 - 

Profit contribution, Group share 118.0 -144.7 - 

.................................................................................................................................................................................................................................................................................................................................................................................... 

Risk-weighted assets 15 999.4 15 066.0 -5.8% 


.................................................................................................................................................................................................................................................................................................................................................................................... 

Share in Group profit 11.4% -12.9% - 


ROE 6.4% -10.3% - 


Earned premiums, net of reinsurance 207.5 252.8 21.8% 

Net technical charges -185.7 -213.5 14.9% 

Investment income and charges 21.6 21.6 0.0% 


Non-recurring and extraordinary results 0.4 0.1 -64.7% 

Income taxes -4.3 -1.6 -62.8% 

Other -1.9 -0.8 -58.2% 

Profit contribution -11.5 -3.1 -73.3% 

Profit contribution, Group share -10.3 -3.5 -66.0% 

.................................................................................................................................................................................................................................................................................................................................................................................... 

Allocated equity 220.0 196.2 -10.8% 

.................................................................................................................................................................................................................................................................................................................................................................................... 

Share in Group profit -1.0% -0.3% - 


ROE -4.3% -1.7% - 


Profit contribution 117.5 -203.0 - 

Profit contribution, Group share 107.7 -148.2 - 

.................................................................................................................................................................................................................................................................................................................................................................................... 


.................................................................................................................................................................................................................................................................................................................................................................................... 

Share in Group profit 10.4% -13.2% - 

ROE 5.2% -9.5% - 

37 

6% 

4% 

2% 

0% 

-2% 

-4% 

-6% 

-8% 

-10% 

-12% 


-13.2% 




5.2% 2% 

2002 

-9.5 .5% 

2003

Central Europe KBC Bank & Insurance Group − 2003 Annual Report 38 

The table to the right provides an overview of the contribution 

to profit made by the main subsidiaries in Central Europe. 

The overall result of the banking activities in Central Europe 

ended in the red in 2003, owing to the substantially negative 

results turned in by Kredyt Bank in Poland (a contribution to 

the result of a -385 million euros, including minority interests, 

or -295 million euros, excluding minority interests). This was 

due mainly to the very high level of loan loss provisions this 

subsidiary had to set aside as a result of the generally unfavourable 

economic situation prevailing in Poland and consequent on 

the in-depth screening of the loan portfolio (see below), which 

resulted in Kredyt Bank having to set aside ‘catch up’ loan 

provisions. In addition, a far-reaching reorganization 

programme was launched, which is described in greater detail 

below. 

Both ČSOB in the Czech Republic and K&H Bank in Hungary 

made a positive profit contribution. At ČSOB, still the main 

profit engine in Central Europe, the profit contribution (169 

million euros including minority interests, and 143 million euros 

excluding minority interests) was smaller than in 2002, which 

can be put down to that year’s results having been enhanced by 

various non-recurring revenues and to the pressure on the 

interest margin. On the other hand, there was an increase in 

commission income, only a modest rise in costs, and a relatively 

limited loan loss ratio (0.34%). In 2003, ČSOB’s profit figure 

also benefited from the reversal of a provision for deferred 

taxes. Despite turning in very good operating results (with a 

brisk increase in operating profit and a relatively low loan loss 

ratio of 0.32%), K&H Bank also made a lower profit contribution 

(23 million euros in 2003 including minority interests; 

13 million euros excluding minority interests) than in 2002, 

owing to the provision it had to set aside for the fraud at 

K&H Equities (see below). Lastly, NLB, the Slovenian bank in 

which KBC has a minority stake, made a contribution (via the 

equity method) of 10 million euros before funding costs. 

Although the performance turned in by the insurance business 

in Central Europe was still negative in 2003 (-3 million euros), 

it was nevertheless significantly better than in 2002. The main 

PROFIT CONTRIBUTION, CENTRAL EUROPE 1 

(Including minority interests and 

in millions of EUR) 

2002 2003 

ČSOB 197.9 169.2 

K&H Bank 27.3 22.6 

Kredyt Bank -91.2 -385.3 

Insurance companies -18.4 2 

-3.0 

Other 3 

MILESTONES IN THE CENTRAL EUROPEAN STRATEGY OF THE KBC GROUP* 

BANKS 

1992 

HUNGARY 

Argosz started up 

INSURANCE COMPANIES 

1996 

1.9 -6.6 

................................................................................................................................................................................................................................. 

Total 117.5 -203.0 

1 Using the methodology described in ‘Group results’, under ‘Breakdown by area 

of activity’ (consequently, the figures differ from the stand-alone results of 

these companies shown at the end of this section). In 2003, significant 

methodological changes were made with regard to Central Europe (with 

figures being adjusted retroactively for 2002). 

2 The figures were restated for the share KBC Insurance still held in C{SOB in 

2002 (in this table, the related profit contribution is included in the C{SOB 

figure). 

3 Relates mainly to NLB (accounted for using the equity method; the profit 

contribution shown is net of funding costs). 

POLAND 

Minority shareholding 

taken in Kredyt Bank 

1997 

HUNGARY 

Reference shareholder 

position taken in K&H Bank 

1998 

HUNGARY 

K&H Life started up 

CZECH REPUBLIC 

Minority shareholding taken in 

Chmelarˇská Pojisˇt'ovna 

(now ČSOB Pojisˇt'ovna)

1999 

factors accounting for this were the better results achieved by 

ČSOB Pojisˇt’ovna in the Czech Republic (the considerable flood 

damage in 2002 had exerted pressure on the loss ratio in that 

year) and by WARTA in Poland (a slightly negative contribution 

in 2002, a positive contribution in 2003; the results were not 

yet affected by the increase in the participation percentage at 

the end of 2003). Also worthy of note was the brisk growth in 

premium income in Hungary (at Argosz and K&H Life). 

At Argosz, however, this was offset by a significant increase in 

the loss ratio (due to the strengthening of its loss reserves). 

HIGHLIGHTS 

STRONG POSITION ON THE SECOND HOME MARKET 

Although Kredietbank and ABB-insurance, two of the companies 

that merged to form the KBC Group, already had a limited 

presence in Central Europe, the first big step in KBC’s policy of 

expansion in this part of the world was only really taken in 

1999, with the acquisition of a majority shareholding in ČSOB in 

the Czech Republic and Slovakia. In the years that followed, the 

KBC Group rapidly expanded its banking and insurance presence 

in this region and is now one of the leading financial groups in 

Central Europe, catering for approximately 5.8 million bank 

customers via a network of some 1 000 bank branches and an 

estimated 2.8 million insurance customers, thanks to its 

important position in the region’s insurance markets. 

The milestones achieved in the KBC Group’s Central European 

strategy are shown in the diagram below. 

CZECH REPUBLIC – SLOVAKIA 

Majority 

shareholding taken in ČSOB 

POLAND 

Shareholding in Kredyt Bank 

increased 

2000 


ČSOB acquires 

IPB's assets and liabilities, 

and Patria Finance acquired 

HUNGARY 

Shareholding in K&H Bank 

increased to majority 

shareholding 


POLAND 

Shareholding in Chmelarˇská Minority shareholding 

Pojisˇt'ovna increased to taken in WARTA 

majority shareholding 

POLAND 

Majority shareholding taken in 

Agropolisa 

2001 

HUNGARY 

K&H Bank merges with 

ABN AMRO Magyar Bank 

POLAND 

Shareholding in Kredyt Bank 

increased to majority 

shareholding 

KBC plans to confine its presence in the region to five core 

countries (Czech Republic, Slovakia, Hungary, Poland and 

Slovenia), although it has acquired a foothold in a few other 

countries as well via sub-subsidiaries and branches of subsidiaries. 

KBC expects these core countries to achieve significantly 

higher economic growth than the European Union in the 

next few years and to gradually catch up with the EU as far as 

the penetration of banking and insurance products is 

concerned. In other words, the prospects for growth in the field 

of financial services look very promising indeed. It should also 

be noted that any country or systemic risk remaining in these 

countries will be greatly mitigated by their accession to the EU 

in mid-2004, a move backed by a vast majority of the population 

(an approval rating ranging from 77% in the Czech 

Republic and Poland to as much as 92% in Slovakia). 

KBC’S POSITION IN CENTRAL EUROPE (31-12-2003) 

Banks Insurance companies 

Total investment 2.9 billion EUR 0.4 billion EUR 

Number of customers 1 

5.8 million 2.8 million 

Number of staff (in FTEs) 2 

23 879 4 351 

Branches 1 006 - 

2002 

SLOVENIA 

Minority shareholding 

taken in NLB 


Majority shareholding taken 

in IPB Pojisˇt'ovna 

and integration with 

ČSOB Pojisˇt'ovna 

SLOVAKIA 

Majority shareholding taken 

in ERGO Poist'ovňa 

* Majority and minority shareholdings are determined on the basis of KBC’s direct and indirect interest in the relevant company. 

1 Estimate. 

2 These figures relate exclusively to subsidiaries in which KBC has a majority 

stake and exclude the distribution network of the insurance companies. 

2003 

SLOVENIA 

NLB Vita started up 

POLAND 

Shareholding in WARTA 

increased to 

majority shareholding 



39


NEW GOVERNANCE STRUCTURE FOR THE CENTRAL 

EUROPEAN ACTIVITIES 

As part of its reorganization of the Group’s top governance 

structure (see the ’Executive Committee’ section), KBC decided 

in 2003 to further strengthen its steering capability in respect 

of the Central European operations by introducing a new management 

structure for Central Europe. 

A Central Europe Committee operates at a level below the 

Executive Committee to direct all Central European operations. 

Its remit includes the general monitoring of the results, as well 

as the budgets, planning and projects on KBC’s second home 

market. In addition, the head office audit team for this region 

has been strengthened significantly and a separate control unit 

set up to handle a variety of tasks, such as directing planning 

and budgeting in the Central European establishments and 

KBC’S POSITION IN THE CZECH REPUBLIC (31-12-2003)* 


monitoring and reporting on these entities’ results. A Central 

Europe steering committee supervises and co-ordinates the 

various regional projects. In addition, a new management position 

− General Manager for Central Europe − was created and 

will be filled by Mr. Marko Voljč, former CEO of Nova Ljubljanska 

banka. 

Lastly, with a view to facilitating the exchange of know-how, 

the number of co-ordinators was increased. Chosen from among 

the specialists at head office to act as a point of contact for 

and to provide support to the Central European entities, 

co-ordinators were already being used in a few areas and have 

now been appointed in all fields of banking and insurance. 


Participating interests ČSOB (85.0%) 

ČSOB Pojisˇt’ovna (96.3%) 

Patria Finance (100.0%) 

......................................................................................................................................................................................................................................................................................................................... 

Ranking 1 st 

6 th in non-life, 4 th in life 

......................................................................................................................................................................................................................................................................................................................... 

Market share 18.4% 4.4% in non-life, 8.7% in life 

......................................................................................................................................................................................................................................................................................................................... 

Customers 3.0 million 0.7 million 

......................................................................................................................................................................................................................................................................................................................... 

Workforce (FTEs) 8 736 (+ 52 at Patria) 897 

......................................................................................................................................................................................................................................................................................................................... 

Branches 208 

(+ 3 400 points of sale located in post offices) 

- 

......................................................................................................................................................................................................................................................................................................................... 

* Figures for ranking, market share and customers are estimates. The bank ranking is based on total assets. 

The market share in banking is the average share of the market for loans and customer deposits. The figures 

on the workforce do not include the distribution network of the insurance companies.

KBC’S POSITION IN THE CZECH REPUBLIC AND 

SLOVAKIA 

In the Czech Republic, KBC had, at the end of 2003, an 85% 

shareholding in ČSOB, the country’s largest bank, with some 

3 million customers, a 12% share of the loan market and a 24% 

share of the deposit market. 

In 2003, ČSOB concentrated on building up its position on the 

retail market, while maintaining its very strong position on the 

corporate market. Its success was illustrated by a doubling of 

the volume of consumer credit and an increase in the number of 

home loans by more than a third. Besides a credit card, ČSOB 

also started issuing chip-based payment cards in June in close 

co-operation with KBC (see below). Thanks in part to its new 

approach to the mass retail market (with a greater emphasis 

being placed on advisory services), ČSOB has captured the lead 

in investment fund sales. Since September 2002, ČSOB has also 

been downsizing its head office, aiming to reduce its workforce 

there by some 1 000 employees by the end of 2004. By 31 

December 2003, over 50% of this target had been achieved. 

Due in part to the definitive integration of IPB into ČSOB, the 

number of seats on the Management Board was also reduced 

from seven to five. 

In Slovakia, ČSOB continued its policy of expansion, opening 

over twenty new branches in 2003 to bring the total to seventythree. 

Its market share in that country also continued to grow, 

and now stands at just under 6%. Exceptionally good results 

were achieved in mortgage lending, consumer credit and the 

sale of investment funds. In early March 2004, KBC purchased 

KBC’S POSITION IN SLOVAKIA (31-12-2003)* 


Participating interests ČSOB (85.0%) ERGO Poist’ovňa 

(75.1% in mid-February 2004) 

......................................................................................................................................................................................................................................................................................................................... 

Ranking 4 th 


......................................................................................................................................................................................................................................................................................................................... 


......................................................................................................................................................................................................................................................................................................................... 


......................................................................................................................................................................................................................................................................................................................... 

Workforce (FTEs) 1 623 182 

......................................................................................................................................................................................................................................................................................................................... 

Branches 73 - 

......................................................................................................................................................................................................................................................................................................................... 



on the workforce do not include the distribution network of the insurance companies. 

the stake held by the International Finance Corporation in 

ČSOB, bringing KBC’s total shareholding in ČSOB to 89.7%. 

To put the bancassurance concept into practice, ČSOB works 

together with the insurers ČSOB Pojisˇt’ovna in the Czech 

Republic and ERGO Poist’ovňa in Slovakia. ČSOB Pojisˇt’ovna, 

75%-owned by KBC Insurance and 25%-owned by ČSOB, is a 

leading insurer in the Czech Republic, with a share of nearly 9% 

of the life assurance market and over 4% of the non-life market. 

In 2003, an important step was taken in selling life, property 

and casualty insurance in co-operation with ČSOB bank, which 

is also used as a distribution channel for travel, payment card 

and other types of insurance. 

ERGO Poist’ovňa, which has been 75%-owned by KBC Insurance 

since the middle of February 2004 (previously 40%-owned, and 

35% indirect ownership via ČSOB Pojisˇt’ovna), is Slovakia’s 

eighth largest insurer, with a share of 4% of the life assurance 

market and nearly 2% of the non-life insurance market. ERGO is 

concentrating on restructuring its extensive network of independent 

agents into a streamlined distribution network of 

professional, tied agents. 2003 also saw the company taking its 

first steps in bancassurance in collaboration with ČSOB bank. 

SLOVAKIA 



41


KBC’S POSITION IN HUNGARY 

In Hungary, KBC owns 59% of K&H Bank, the country’s second 

biggest bank, with a market share of some 11%. In 2003, K&H 

Bank succeeded in maintaining its leading position on the 

corporate market, and, on the retail market (where it is ranked 

second), it managed to increase its lending substantially, 

thanks in part to the boom in home loans. 

Operationally, K&H Bank’s results for 2003 were excellent, with 

income clearly rising faster than charges and loan losses at a 

low level. However, the bottom line was adversely affected by 

the case of fraud at K&H Equities, a subsidiary originally owned 

by ABN AMRO and K&H Bank, but which has now been wholly 

acquired by K&H Bank. Because of this incident, Tibor Rejtö, 

the bank’s CEO, resigned, and has now been replaced by John 

Hollows, the former general manager of KBC’s Asia-Pacific 

network. To offset the potential losses caused by this fraud, 

some 33 million euros were set aside. However, the exact extent 

of these losses cannot yet be ascertained with certainty. 

At the end of 2003, both KBC and ABN AMRO decided to 

subscribe to a capital increase carried out by K&H Bank in the 

amount of 22.7 billion Hungarian forint (around 86 million 

euros). The underlying aim of this capital increase is to enable 

K&H to finance its future growth and strategic long-term 

objectives of achieving expansion in the retail market and 

maintaining leadership in the corporate banking market. Thanks 

to this capital increase, K&H Equities’ own funds can also be 

increased. 

KBC’S POSITION IN HUNGARY (31-12-2003)* 

HUNGARY N R 

In Hungary, KBC owns the insurers K&H Life and Argosz. Argosz 

is Hungary’s sixth largest property and casualty insurer. 

In 2003, its market share went up to 4.2% from the 3.8% 

recorded in 2002, while life assurer K&H Life, a joint venture 

between KBC Insurance and K&H Bank, had some 2% of the life 

assurance market. Argosz’s main distribution channel is its 

network of agents, who also sell K&H Life products. However, 

the main distribution channel for K&H Life is the branch 

network of K&H Bank. K&H Bank is also stepping up its collaboration 

with Argosz with a view to developing bancassurance 

services: in 2003, for instance, there was already a cross-selling 

ratio between K&H Bank home loans and Argosz home insurance 

policies of 60%. 


Participating interests K&H Bank (59.4%) K&H Life (79.7%) 

Argosz (98.8%) 

......................................................................................................................................................................................................................................................................................................................... 

Ranking 2 nd 


......................................................................................................................................................................................................................................................................................................................... 


......................................................................................................................................................................................................................................................................................................................... 


......................................................................................................................................................................................................................................................................................................................... 


......................................................................................................................................................................................................................................................................................................................... 

Branches 155 - 

......................................................................................................................................................................................................................................................................................................................... 



on the workforce do not include the distribution network of the insurance companies.

KBC’S POSITION IN POLAND 

In Poland, Kredyt Bank is the fourth largest bank in terms of 

lending and the seventh largest in terms of deposits. The 

difficulties the bank encountered in 2002 persisted last year, as 

illustrated primarily by the sharp increase in loan loss provisions. 

Among the reasons for this increase were the ongoing implementation 

of strict KBC methods (which involved a screening of the 

loan portfolio in co-operation with KBC specialists on the spot) 

and the poor economic situation prevailing in Poland, which 

created problems for a number of (large) borrowers. 

To remedy the predicament its Polish subsidiary finds itself in, 

KBC has taken a number of measures, including: 

*Making changes to the company’s top management. Stanisław 

Pacuk, the CEO of Kredyt Bank, has left the company and been 

replaced by Malgorzata Kroker-Jachiewicz, the former Deputy 

CEO. In 2003, Guy Libot was appointed to the Management 

Board, with responsibility for supervising credit and market 

activities, among other things. At the beginning of 2004, he 

was joined on the Management Board by Fedele Di Maggio, 

who has been assigned responsibility for supervising ICT and 

co-ordinating the programme of reorganization (see below). 

These and other changes have led to a reduction in the 

number of seats on the Management Board from seven to five. 

*Increasing capital by 666 million Polish zlotys (93% of this 

increase was subscribed by KBC) and issuing 330 million Polish 

zlotys’ worth of perpetual notes (fully subscribed by KBC) in 

order to strengthen the capital ratios. The CAD ratio was also 

strengthened by KBC’s provision of a temporary guarantee for 

the repayment of loans for an amount of 6.4 billion Polish 

zlotys. In addition, the decision was taken to carry out 

another capital increase in 2004 in the amount of 604 million 

Polish zlotys and to issue perpetual notes again. 

*Screening and improving risk control and risk management 

mechanisms, as well as significantly reducing the local 

decision authority delegated for loans. 

KBC’S POSITION IN POLAND (31-12-2003) 1 


Participating interests Kredyt Bank (81.4%) WARTA (75.1% at 12 January 2004) 

......................................................................................................................................................................................................................................................................................................................... 

Ranking 7 th 

2 nd in non-life, 5 th in life 2 

......................................................................................................................................................................................................................................................................................................................... 

Market share 5.5% 13.6% in non-life, 4.5% in life 2 

......................................................................................................................................................................................................................................................................................................................... 


......................................................................................................................................................................................................................................................................................................................... 

Workforce (FTEs) 9 651 3 027 

......................................................................................................................................................................................................................................................................................................................... 


......................................................................................................................................................................................................................................................................................................................... 

1 Figures for ranking, market share and customers are estimates. The bank ranking is based on total assets. 


on the workforce do not include the distribution network of the insurance companies. The number of Kredyt 

Bank customers does not take subsidiaries’ customers into account. 

2 Including the short-term life assurance product WARTA Gwarancja. 

*Deciding to concentrate available resources entirely on the 

Polish market and consequently to sell the presence in Lithuania 

(a small branch network) and in Ukraine (the subsidiary 

Kredyt Bank Ukraine). Kredyt Bank’s pension fund was also put 

up for sale. 

*Starting up a far-reaching reorganization programme in Poland, 

aimed at introducing clear segmentation into the branch 

network, centralizing various processes (such as lending) and 

back-office functions, and improving human resources 

management. Thanks in part to the roll-out of the new IT 

system, it should be possible to reduce the workforce by 1 000 

to 1 200 full-time equivalents (FTEs) by the end of 2004. 

As regards bancassurance, Kredyt Bank works closely together 

with WARTA, the country’s second largest non-life insurer. One 

of the products of this co-operation is the ‘Loyalty Program’ 

that has been introduced to provide certain Kredyt Bank 

customers with discounts on WARTA insurance products. 

In December, a deal was struck with the Kulczyk Holding 

company to enable KBC Insurance to raise its shareholding in 

WARTA from 40% to 51%. KBC Insurance subsequently made a 

public bid for the remaining shares and by year-end 2003 had 

acquired a stake of 74.7%. When the bid finally closed on 

12 January, it had obtained a 75.13% shareholding. In early 

2004, Agenor Gawrzyal, WARTA’s CEO, announced that he would 

be relinquishing his position in order to take up new challenges. 

Albert Kessler, general manager at KBC Insurance, is 

being put forward for appointment to WARTA’s executive board. 

In 2003, WARTA also started reorganizing its network, with 

sub-branches being closed and so-called commercial ‘outposts’ 

being set up. WARTA and WARTA Vita (the WARTA group’s life 

assurance company) are also gradually being integrated. At the 

end of December 2003, the relatively small non-life insurer Agropolisa, 

controlled by KBC and Kredyt Bank, was sold to WARTA. 

POLAND 



43


KBC’S POSITION IN SLOVENIA 

Since September 2002, KBC Bank has had a 34% shareholding in 

Nova Ljubljanska banka (NLB), Slovenia’s leading bank, which − 

account taken of its domestic subsidiaries and participating 

interests − holds a market share of 40-45%. With its network of 

211 branches, NLB serves nearly 1 million customers in 

Slovenia. 

Despite the downtrend in interest rates, NLB turned in a creditable 

performance in 2003. It continued to pursue its policy of 

prudent expansion in the other republics of former Yugoslavia, 

acquiring Montenegrobanka in Montenegro and Prva 

preduzetnička banka in Serbia. These acquisitions strenghten 

NLB’s presence in the former Yugoslav republics (Commercebank 

and VB banka in Bosnia-Herzegovina and Tutunska banka in FYR 

Macedonia). NLB also acquired a 24.5% shareholding in the 

newly established West-East Bank in Bulgaria. 

NLB’S CEO, Mr. Marko Voljč, resigned from the company in 

October to take KBC up on its offer of a position as General 

Manager for Central Europe for the KBC Group. This position was 

created as part of the reorganization of the Group governance 

structure for Central Europe. Marko Voljč has been replaced at 

NLB by Marjan Kramar. 

KBC’S POSITION IN SLOVENIA (31-12-2003) 1 

SLOVENIA 

In June, NLB and KBC Insurance officially launched their joint 

venture life assurance company, NLB Vita, in Slovenia. This 

company, that sells its products exclusively via NLB’s bank 

branch network, has got off to a successful start. Thanks primarily 

to the popularity of single-premium policies offering capital 

protection (new to the Slovenian market), NLB Vita managed to 

capture some 4% of the life assurance market in its first year of 

operations. NLB also set up a new asset management company 

(NLB Skladi) with the help of KBC Asset Management. 


Participating interests Nova Ljubljanska banka (34.0%) NLB Vita (67.0%) 

......................................................................................................................................................................................................................................................................................................................... 

Ranking 1 st 

5 th in life 

......................................................................................................................................................................................................................................................................................................................... 

Market share 43.0% 4% in life 

......................................................................................................................................................................................................................................................................................................................... 

Customers 1.0 million - 

......................................................................................................................................................................................................................................................................................................................... 


10 

......................................................................................................................................................................................................................................................................................................................... 


......................................................................................................................................................................................................................................................................................................................... 

1 The figures on NLB are for the NLB Group (NLB, Banka Domzˇale, Banka Zasavje, Korosˇka banka); figures on 

the market share also take Banka Celje into account. Figures for ranking, market share and customers are 

estimates. The bank ranking is based on total assets. The market share in banking is the average share of the 

market for loans and customer deposits. The figures on the workforce do not include the distribution network 

of the insurance companies. 

2 Not included in the personnel figures shown in the ‘Personnel and in-house social policy’ section, since KBC 

only has a minority interest in NLB.

PLANS FOR THE FUTURE IN CENTRAL EUROPE 

KBC has now established a presence more or less throughout the 

geographic region it has chosen for its second home market. In 

a few countries, KBC has yet to capture the targeted 10% of the 

banking and insurance markets, but it will endeavour to do so 

by stepping up or consolidating its existing investments − by 

means of new acquisitions where necessary. 

KBC will also continue to integrate and co-ordinate its existing 

Central European investments, and in expanding its operations 

in that region will continue to give priority to the development 

of bancassurance in each of the core countries. In 2003, for 

instance, a major project was launched to improve the approach 

taken to the local retail market. KBC also aims to transfer the 

expertise it has acquired in asset management to its second 

home market and in 2003 made a start on increasing integration 

in other fields (trade finance, project finance, payments, 

human resources management, etc.). 

Lastly, co-operation amongst the Central European group 

companies is also being encouraged. A fine example of crossborder 

co-operation is the signing of the agreement licensing 

KBC to use Proton PRISMA multi-application chip-card technology 

for a number of its Central European companies. In June 

2003, KBC also signed a long-term agreement with Oberthur 

Card Systems for the delivery of Proton PRISMA EMV cards to 

KBC in Belgium and the Central European companies, which will 

result in significant cost savings. At the end of 2003, both ČSOB 

and Kredyt Bank were already issuing Proton PRISMA cards, 


placing them amongst the first banks in their respective countries 

to introduce EMV smart cards. 

In December 2003, KBC signed a letter of intent to have SiNSYS 

handle the centralized processing of credit and debit cards for 

K&H Bank, ČSOB and Kredyt Bank. This agreement covers both 

centralized processing and local service provision for a total of 

4 million bank cards, 50 000 terminals and 177 million transactions 

(in 2003) in this region and is another step towards 

realizing group-wide synergies within the KBC Group in Central 

Europe and Belgium. 


2001 2002 2003 2001 2002 2003 2001 2002 2003 

Argosz 98.8% 98.8% 98.8% 2.0 1.4 0.2 19.7% 9.3% 1.1% 

ČSOB 83.8% 84.1% 85.0% 174.7 214.2 195.9 16.5% 16.7% 14.3% 

ČSOB Pojisˇt’ovna 100.0% 84.1% 96.3% -1.6 -4.9 -0.7 - - -1.2% 

ERGO Poist’ovňa - 69.4% 75.1% 1 

- 0.0 -0.4 - 0.0% -5.4% 

K&H Bank 59.0% 59.3% 59.4% 14.7 46.3 35.6 6.7% 13.2% 8.5% 

K&H Life 79.5% 79.7% 79.7% 0.0 0.3 0.8 0.7% 6.9% 16.7% 

Kredyt Bank 54.6% 76.5% 81.4% -9.2 -107.9 -352.3 -2.0% -22.2% - 

NLB (minority interest) - 34.0% 34.0% - 62.8 n.a. 2 

- 12.5% n.a. 2 

Patria Finance 100.0% 100.0% 100.0% -1.5 1.9 0.7 -11.8% 13.5% 4.7% 

WARTA 40.0% 40.0% 75.1% 3 

-1.8 -1.1 n.a. 2 

-2.0% -1.3% n.a. 2 

1 Mid-February 2004. 

2 Figures may not be released or are not yet available. 

3 Mid-January 2004. 



45


All banking and insurance services provided to corporate customers 

are grouped together under ‘Corporate services’. This area of activity 

encompasses the domestic corporate and the multinationals segments, 

most of the activities conducted in the international network, and the 

niche activities of such specialized subsidiaries as the 

Antwerpse Diamantbank, International Factors, ADD, Secura and the 

corporate finance activities of KBC Securities. 


In 2003, this area of activity contributed 228 million euros to consolidated profit (including minor- 

ity interests), up 18% on the year-earlier figure. This performance was thus good for 21% of Group 

profit (compared with 19% in 2002) and a return on allocated equity of 10.9% (9.0% in 2002). 

Allocated equity rose by 6% to 2.2 billion euros, which represents 24% of Group equity. If the 

effects of the CLO operation rounded off during the first half of 2003 are not taken into account, 

the return on allocated equity in 2003 would have come to 12%, compared with 7% in 2002. 




Gross income 839.0 820.8 -2.2% 

General administrative expenses -322.8 -304.1 -5.8% 

Write-downs and provisions -208.0 -184.5 -11.3% 

Income taxes -102.6 -112.5 9.7% 

Other 0.0 0.0 - 



.................................................................................................................................................................................................................................................................................................................................................................................... 



.................................................................................................................................................................................................................................................................................................................................................................................... 



ROE 10.1% 11.2% - 


Earned premiums, net of reinsurance 211.3 274.9 30.1% 

Net technical charges -173.8 -223.9 28.8% 

Investment income and charges 29.0 35.8 23.3% 


Non-recurring and extraordinary results -8.8 0.0 - 

Income taxes -0.8 -0.3 -62.5% 

Other -7.5 -5.4 -28.1% 

Profit contribution -12.9 8.6 - 

Profit contribution, Group share -12.2 9.8 - 

.................................................................................................................................................................................................................................................................................................................................................................................... 

Allocated equity 122.2 163.1 33.5% 

.................................................................................................................................................................................................................................................................................................................................................................................... 

Share in Group profit -1.2% 0.9% - 


ROE -10.0% 6.9% - 




.................................................................................................................................................................................................................................................................................................................................................................................... 


.................................................................................................................................................................................................................................................................................................................................................................................... 


ROE 9.0% 10.9% - 

47 

12% 

10% 

8% 

6% 

4% 

2% 

0% 


79.5% 

20.5% 




0% 

9.0 

2002 

.9% 

10 

2003

Corporate services KBC Bank & Insurance Group − 2003 Annual Report 48 

In 2003, the profit contribution made by the corporate banking 

activities increased by 7% to 220 million euros. Gross income 

was down slightly, owing to such factors as the negative effect 

of the depreciation of the US dollar relative to the euro and the 

non-recurrence of revenues generated by a CLO operation. Costs 

fell last year, as well, by around 6%, on account of the strict 

cost control achieved by all entities and, to a less extent, 

exchange rate effects. As a result, the cost/income ratio fell 

further from 39% to 37%, which meant it stayed below the 

in-house target of 40%. Provisioning, too, was lower (by 11%) 

than in 2002, when considerable amounts had had to be set 

aside for a few large borrowers. Focusing on the individual 

companies within the Group, the very strong performances put 

in by the diamond sector niche (robust income growth), by the 

traditional banking business in Ireland and the UK (again, 

robust income growth), by the leasing business, and by the US 

operations (lower loan loss provisions) stand out. In keeping 

with the increase in the result, the return on equity allocated to 

corporate banking activities edged up from 10.1% to 11.2%. 

Contrary to the situation in 2002, the corporate insurance 

business made a positive profit contribution (9 million euros), 

thanks to the fine results achieved in the reinsurance sector 

(Secura) partly on the back of changes in insurance rates and a 

marked improvement in the loss ratio. 

HIGHLIGHTS 

A RATIONALIZED NETWORK 

REDUCES THE CHARGE AGAINST CAPITAL 

For various reasons, including a desire to keep the charge 

against capital accounted for by this area of activity down to 

25% of Group capital, extensive rationalization has been carried 

out over the past few years. 

The various rationalization exercises have resulted in the optimization 

of the number of corporate branches in Belgium 

(which went from twenty-three in 1999 to seventeen in 2003), 

the centralization of relationship management for public sector 

and social profit institutions, the closure of a number of 

branches abroad and the repositioning of KBC Bank Nederland 

(including the sale of some of its retail and corporate activities 

to Fortis Bank and the sale of its private banking activities to 

de Hollandsche Bank-Unie). 

In addition, official authorization was obtained at the start of 

2003 to convert the branch in India into a representative office, 

while the private banking activities of the KBC Bank branch in 

France were sold to NORFINANCE Gilbert Dupont (Crédit du Nord 

group), enabling KBC France to focus on providing services to 

businesses through its offices in Lille and Paris. 

Besides this rationalization of the network, there has also been 

a gradual shift in the focus of this business area away from 

large corporations and multinationals to medium-sized businesses. 

Risk/return awareness has also been raised through a 

variety of measures, such as the introduction of RAROC and 

internal rating models, more active portfolio management and 

the limiting of exposure to certain industry sectors (e.g., the 

electricity sector). 

Thanks to these measures, KBC managed to reduce the charge 

against capital accounted for by its corporate services business 

to under 24% of Group capital in 2003. 

E-BANKING FOR BUSINESSES 

KBC’s banking and insurance products are also made available to 

businesses via a number of electronic channels, including: 

*Isabel: a multi-bank network for communication between 

banks and businesses. 

*KBC-Online for Business: an online application in the Isabel 

software package that Belgian corporate customers can use to 

check bank information (such as the processing status of 

instructions sent in) and carry out transactions in real time. 

*KBC Flexims: an Internet-based tool that can be used to send 

applications and modification requests to KBC for documentary 

credits, documentary collections and international 

bank guarantees. It enables customers to keep close track of 

transactions throughout the processing chain. 

These e-banking facilities were upgraded in various ways during 

the course of 2003. The activation procedure in Isabel was 

made more user-friendly, for instance, and a ‘signing area’ 

added to KBC-Online for Business. Preparations were also made 

to roll out a new version of KBC Flexims that can be used for a 

broader range of products. 

In the field of e-commerce, KBC has become market leader in 

Belgium, thanks to the KBC Payment Button, which guarantees 

businesses safe, swift payment via the Internet. 

KBC also plans to use electronic channels to support its bancassurance 

concept. For instance, it intends to develop electronic 

applications for employers in 2004 for group assurance 

and stock option plans.

TRANSFER OF CORPORATE CUSTOMERS TO THE NEW 

KBC COMPUTER PLATFORM COMPLETED 

Because companies generally have a more complex product mix 

than retail customers, the transfer from the old IT systems to 

the new KBC computer system was technically more complicated 

for corporate customers than for retail customers. Consequently, 

it took longer to complete the ‘corporate migration’, and a 

considerable amount of work (about one third) still had to be 

done in 2003. However, on 19 September 2003, the last corporate 

customer − a multinational − was transferred to the new 

KBC computer platform, bringing the total number of core 

accounts migrated to 1.8 million (corporate and retail accounts 

combined) and successfully rounding off a complex operation. 

RELATIONSHIP MANAGEMENT AND SYNERGY 

Harnessing synergy is and will remain a prime concern in the 

provision of services to business customers, who are becoming 

more and more internationally oriented. In June 2003, KBC 

organized ‘Synergy Days’, an event that gave relationship managers 

based abroad the chance to make business visits to a 

number of corporate customers in Belgium accompanied by their 

Belgian colleagues. The ‘foreign’ relationship managers are 

based at network desks, or commercial departments in the 

foreign branches that provide support to customers who have a 

business relationship with various KBC establishments around 

the globe (‘network customers’). The Synergy Days gave the 

Belgium- and foreign-based relationship managers the opportunity 

to strengthen their co-operation and improve relations with 

the companies they serve. 

E-BANKING INDICATORS − CORPORATE SEGMENT 

MARKET SHARE 

Just as in 2002 and 2001, KBC succeeded in keeping its share of 

the corporate lending market in Belgium more or less 

unchanged at an estimated 22% at the end of 2003. 

SPECIALIZED SERVICES TO COMPANIES 

Besides lending, KBC provides companies with a range of 

specialized services, a number of which are commented on 

below. 

International cash management (ICM) 

KBC’s ICM-related achievements in 2003 included the roll-out of 

a high-performance ‘payments factory’, an application that can 

be used to send payment instructions to a payee bank that are 

tailored to meet its requirements. Access to the SWIFT network 

was also enhanced through the addition of new message types 

for international corporate customers. On top of this, the ICM 

co-operation programme between Belgium and the Central 

European group companies was stepped up and a similar 

programme embarked upon with NLB in Slovenia and its establishment 

in Italy. Lastly, in October, the bank-wide Internet 

application, W1SE Corporate e-Banking, was launched in Belgium 

and the UK. This e-banking system is a transparent, easy-to-use 

tool for companies to carry out and keep track of all their 

payment and collection transactions with all the entities of the 

KBC Group. It should be available in KBC’s other European establishments 

by mid-2004. 

31-12-2001 31-12-2002 31-12-2003 Change 

Active subscribers to KBC@Isabel 14 000 16 000 20 000 +25.0% 

Total number of transactions processed via KBC Flexims* - 3 000 5 600 +86.7% 

* Documentary import credits, documentary collections and international guarantees. 

SHARE OF THE CORPORATE MARKET IN BELGIUM* 

31-12-2001 31-12-2002 31-12-2003 

Total (lending) 22.4% 22.1% 22.2% 

* The share of the market in 2003 is an estimate based on extrapolations of information concerning a large (but not complete) portion of the Belgian market. Market share 

relates to credit granted to the self-employed and local businesses, as well as to medium-sized and large companies. 



49

Corporate services KBC Bank & Insurance Group − 2003 Annual Report 50 

Cross-border payments 

1 July 2003 marked the start of the second phase of the European 

regulation on cross-border credit transfers. Under this 

legislation, charges for cross-border credit transfers in euros 

within the EU must be brought into line with charges for 

domestic transfers, provided certain conditions are met (e.g., 

the international bank account number and SWIFT address have 

to be used). At the end of 2003, 70% of the international credit 

transfers already satisfied these conditions, which of course had 

an adverse effect on the bank’s income from international 

payments. 

The bank has also committed itself to actively co-operating in 

the realization of a single European payment system. Partly 

because of the blurring of the distinction between domestic and 

international payments, the processing of KBC Bank’s domestic 

payments has, from the start of 2004, been entrusted to 

Fin-Force, which had previously only processed cross-border 

payments (see ‘Key figures for the main subsidiaries’ at the end 

of this section). 

In November, KBC also became a direct participant in STEP2, 

a pan-European clearing house set up to process payments 

covered by the aforementioned European regulation that qualify 

for automatic, or straight-through processing. 

Foreign trade finance 

In 2003, KBC added a new documentary export collection 

service to its range of foreign trade products, which allows 

customers to obtain a clear operational, written quality commitment 

from the bank as regards timing, information, etc. In view 

of the resounding success of this new service, a similar service 

will be developed for documentary credits in 2004. 

As already mentioned above, the transactional Internet-based 

application KBC Flexims was also enhanced, and the third 

generation of the application − covering all trade finance 

products − should be available by mid-2004. 

Structured finance 

Encompassing project finance, structured trade finance and 

aerospace finance, KBC’s structured finance business is managed 

by KBC Finance Ireland in Dublin, with establishments in 

Brussels, London, New York, Hong Kong and Sydney. Thanks to 

a significant market upturn, particularly in Europe, 2003 proved 

to be a very good year for project finance. Although the 

situation in the US energy sector was still problematical, there 

was a noticeable improvement in the UK compared to last year. 

In Europe, infrastructure works financing experienced particu- 

larly strong growth. There was also marked growth in the structured 

trade finance portfolio, though this was largely offset 

when translated into euros because of the US dollar trend. 

In keeping with the policy that has been pursued since 2002, 

the portfolio of aerospace finance was scaled down in 2003, 

although it is still well covered by collateral consisting predominantly 

of latest-generation aircraft. 

Acquisition finance 

March 2003 saw ‘Acquisition Finance Benelux’ being set up to 

supplement similar departments that already existed in a 

number of branches abroad. These departments are specialized 

in financing acquisitions of corporate assets or entire companies, 

with repayment being derived primarily from future cash 

flows. KBC has now joined the small group of banks active in 

this specialized field in the Benelux. Thanks in part to the 

intensive co-operation with corporate branches and such specialized 

Group companies as KBC Investco and KBC Securities, 

Acquisition Finance Benelux generated a substantial dealflow in 

its first year of operations. 

Real estate services 

KBC also offers its corporate clientele a variety of real estate 

services, including financing for real estate professionals, real 

estate securitization, real estate investments and project 

development. Its main achievements in 2003 included financing 

a major residential development on the Kattendijkdok in 

Antwerp, as well as large office renovation projects in the 

Noordwijk and on the Poelaert Square in Brussels, issuing the 

public Zénobe Gramme real estate certificate and managing the 

successful capital increases carried out by the closed-ended 

investment companies, Retail Estates and WDP. Lastly, in 

co-operation with the Dutch construction group Heijmans and 

the Catholic University of Leuven, a start was made on the 

Hertogendal urban development project in Leuven. 

Corporate insurance 

KBC provides businesses with a full package of advisory and 

other services. Besides the usual bank products, this package 

includes a variety of insurance products, such as group assurance, 

hospitalization insurance and industrial accident insurance. 

To ensure continuing growth in the corporate services 

market and to facilitate referrals by bank branches to insurance 

agents, recourse has been had to a selection of specialist 

corporate agents since 2002. These insurance agents are 

specially trained and equipped not only to manage retail portfolios, 

but also to provide corporate services to larger businesses. 

Under the cluster system, they work closely together 

with the SME relationship managers in the bank branches.

At the end of 2003, there were approximately 130 of these 

corporate agents in the field. 

Other specialized services 

Via specialized subsidiaries (see below), KBC also provides 

leasing and factoring services, as well as insurance broking, 

reinsurance, derivatives and corporate finance services (via KBC 

Securities, see the ‘Market activities’ section). 


Besides KBC Bank NV and KBC Insurance NV, a number of their 

subsidiary companies are also active exclusively or mainly in the 

provision of corporate services: 

*International Factors Belgium (IFB), the joint factoring 

company of KBC Bank and ING, occupying the number two 

spot in Belgium with a market share of approximately 23%. In 

addition to its factoring activities, IFB, as a broker, provides 

credit insurance, business information and collection services. 

*ADD, a subsidiary of KBC Insurance specializing in insurance 

broking and risk management consultancy services. 

*Secura, a subsidiary of KBC Insurance specializing in reinsurance. 

Secura confines its activities to a number of core 

markets and insurance lines. 

*Antwerpse Diamantbank, a subsidiary bank that specializes in 

global lending to the diamond trade. With a market share of 

roughly 55%, this company is the premier financier of the 

diamond industry in Belgium. Outside Antwerp, it is present in 

the leading diamond centres of Mumbai, New York and Hong 

Kong and also has a subsidiary in Switzerland. Its share of the 

global market is estimated at 25%. 


*IIB Bank, a KBC Bank subsidiary and merchant bank that caters 

for Irish businesses, with a customer base comprising most of 

the leading Irish companies, as well as the multinationals 

active in Ireland. Its clients also include a large number of 

mid-caps, while its subsidiary, IIB Homeloans and Finance, 

serves private individuals. 

*KBC Bank Deutschland, a KBC Bank subsidiary with a relatively 

small branch network, that provides banking services to local 

mid-sized and large companies, private individuals (private 

banking), banks and network customers operating in Germany. 

KBC Bank Deutschland also engages in acquisition finance in 

collaboration with the other acquisition finance teams in 

France, the UK and the Benelux. 

*KBC Bank Nederland, a KBC Bank subsidiary based in Rotterdam 

and active in corporate banking and relationship management. 

It also provides operational support for the KBC Group’s 

corporate network customers and offers real estate finance to 

a select group of property developers in close collaboration 

with the Group’s real estate division at head office. 

*Fin-Force, a company set up in 2000 by KBC Bank and 

Electronic Data Systems (which at year-end 2003 had a 90% 

and 10% shareholding, respectively). It handles the processing 

of cross-border payments for KBC Bank and, from 2004, 

domestic payments as well. Although it concentrates on 

processing KBC Group transactions, Fin-Force is open to 

co-operation with other financial institutions. 


2001 2002 2003 2001 2002 2003 2001 2002 2003 

ADD 100.0% 100.0% 100.0% -0.3 0.3 0.8 -5.8% 5.3% 14.8% 

Antwerpse Diamantbank 87.2% 100.0% 100.0% 14.4 21.6 27.7 12.0% 17.0% 20.5% 

Fin-Force 90.0% 90.0% 90.0% 1.1 -0.5 0.5 - -2.5% 2.5% 

IIB Bank 100.0% 100.0% 100.0% 53.2 58.0 71.5 19.2% 19.0% 21.3% 

International Factors 50.0% 50.0% 50.0% 3.3 3.8 4.4 23.8% 24.7% 25.5% 

KBC Bank Deutschland 99.7% 99.7% 99.7% 6.9 9.8 11.4 8.1% 8.6% 9.8% 

KBC Bank Nederland 100.0% 100.0% 100.0% -7.2 -26.8 3.4 -7.6% -34.9% 5.4% 

Secura 95.0% 95.0% 95.0% 0.6 -30.3 2.5 0.4% -19.7% 2.0% 



51


‘Asset management’ is the business of managing the assets of private 

persons and institutional investors, as well as the assets of investment 

funds that are sold primarily via the retail network. 


Income from this area of activity is derived from the annual management fee and transaction fees 

paid by investment funds to KBC Bank for carrying out transactions in the financial markets. The 

retail network receives all of the entry fees for selling investment funds, along with part of the 

annual management fee (50 basis points on the assets under management). 

In 2003, this area of activity contributed 116 million euros to consolidated profit, the same as last 

year. This performance was thus good for 10% of Group profit (compared with 11% in 2002). 

The fact that this business area’s profit contribution remained unchanged was the resultant 

of the slightly lower level of gross income (-6%), which was offset by cost cuts (-4%) 


and lower taxes (-30%). 


Gross income 207.6 194.8 -6.2% 

General administrative expenses -57.5 -55.0 -4.3% 

Write-downs and provisions 0.0 0.0 - 

Income taxes -34.1 -23.8 -30.2% 

Other 0.0 0.0 - 



.................................................................................................................................................................................................................................................................................................................................................................................... 

Risk-weighted assets - - - 

Allocated equity - - - 

.................................................................................................................................................................................................................................................................................................................................................................................... 



ROE - - - 

53 

100 

90 

80 

70 

60 

50 

40 

30 

20 

10 


89.6% 

10.4% 



0 

82 

Assets under management 

2001 

81 

2002 


89 

2003

Asset management KBC Bank & Insurance Group − 2003 Annual Report 54 

HIGHLIGHTS 

CONTINUOUS PRODUCT INNOVATION 

KBC Asset Management (KBC AM) provides asset management 

services for individuals and institutions (pension funds, insurance 

companies and corporations), as well as collective asset 

management services. All this is backed up by research, product 

development, advisory, risk management and marketing activities. 

The company operates internationally, assisting KBC’s Central 

European subsidiaries, for instance, with the development of 

their asset management activities and the launch of proprietary 

or KBC investment funds. KBC AM also manages the pension 

fund of KBC Bank and the bulk of the investment portfolio of 

KBC Insurance. 

In 2003, KBC AM launched no fewer than 130 new investment 

(sub-)funds. Eight of these were for Centea, eleven were 

launched on the Czech market in collaboration with ČSOB and 

four were introduced in co-operation with K&H Bank on the 

Hungarian market. In addition, a first fund was rolled out on 

the Slovenian market and two funds introduced on the Polish 

market. 

Last year also saw KBC AM continuing to live up to its reputation 

as an innovator in investment services and funds. A prime 

example of its innovativeness is the PRICOS Defensive fund, the 

only defensively-oriented pension savings fund on the Belgian 

market that primarily targets investors approaching retirement 

age, as well as the more risk-averse investor. In keeping with 

its defensive nature, PRICOS Defensive expressly keeps its 

equity holdings at the lower end of the relevant Belgian statutory 

limits. The fund also allows investors to switch from other 

pension savings funds free of charge. 

KBC’S SHARE OF THE BELGIAN UCI MARKET 

A good example of an innovative unit-linked product (class-23 

insurance) is KBC-Life Booster Europe 1. The return on this fund 

depends on the performance of the Dow Jones EURO STOXX 50 

index. Any drop in the value of the index will be deducted, but 

any increase will count double (up to a ceiling of 30%). 

Many new capital-protected investment funds were launched as 

well, such as KBC EquiPlus Fix Upside 1, a short-dated product 

based on a worldwide equities basket. It offers considerable 

potential on the upside and capital protection on the downside. 

If, on the final maturity date, one of the shares in the basket 

has gone up relative to its starting value, then, regardless of 

how big the increase is, a fixed gain of 30% will accrue. Any 

drop in value relative to the starting value will be deducted in 

full, so the maximum return is capped at 30% (an 8.95% yield 

to maturity). 

Of the interest-rate-linked products, KBC Maxisafe Interest 

attracted the most attention. Besides offering a minimum 

return, this product affords protection against any decline in 

the fund’s net asset value prior to maturity. KBC Maxisafe was 

named ‘Wealth Management Product of the Year 2003’ by the 

international professional journal Risk Magazine, an award given 

to the most innovative investment funds worldwide in any 

particular year. 

31-12-2001 31-12-2002 31-12-2003 

Bond funds 20.3% 20.1% 22.7% 

Equity funds 24.0% 23.3% 23.2% 

Balanced funds 26.8% 26.5% 23.5% 

Capital-guaranteed funds 53.7% 56.0% 55.3% 

Total share of UCI market 29.3% 30.1% 31.0%

FOCUS ON SUSTAINABLE INVESTMENT 

KBC has offered customers a range of sustainable investment 

funds for some time now, and in March 2002 became the first 

bank in Belgium to set up its own in-house Sustainability 

Research Department to screen European companies and 

countries. The idea is to facilitate the selection of sustainable 

shares and bonds for funds and to assist customers in their 

choice of sustainable investments. In January 2003, it achieved 

its first objective by completing the screening of its selected 

‘universe’ of countries (covering 118 European companies, 

spread in keeping with the MSCI EMU sectors). The results of 

this sustainability screening are made available to the public at 

no charge on KBC AM’s Web site, in keeping with its policy of 

actively and transparently communicating the results of its 

research. 

In March 2003, KBC AM launched its third solidarity fund: KBC 

Click Solidarity 3 − KOTK. With this new sub-fund, the increase 

or decrease in value of the underlying basket of ‘sustainable’ 

equities is locked in every two years. The first 3% of the return 

is donated to the anti-cancer charity Kom op tegen Kanker. 

At the end of 2003, the amount of capital in sustainable investments 

came to over 200 million euros (excluding private mandates). 

SUCCESS IN THE INSTITUTIONAL MARKET 

2003 was also a good year for the institutional segment. Assets 

held in the discretionary management portfolio for institutional 

investors went up by more than 11% year-on-year. On balance, 

KBC AM won six new mandates to manage the investments of 

institutional customers (e.g., pension funds and non-profit 

organizations) and VIP clientele (high-net-worth customers 

catered for jointly by the VIP desk and private banking 

branches). At year-end 2003, the number of accounts managed 

for both customer groups combined came to 289. 

KBC AM also successfully launched new investment funds for 

institutional investors, coming out with three new moneymarket 

funds, including KBC Institutional Cash Upper Grade 

Euro, which was awarded an AAA rating by Standard & Poor’s. 

This fund closed the 2003 financial year with assets of some 

600 million euros. The range of passively managed funds was 

also expanded with the addition of two new sub-funds (North 

American Equity and Pacific Equity, both based on the relevant 

MSCI indices) to supplement the Plato Institutional Index Fund 

that was launched in 2002. 

MOUNTING SHARE 

OF THE INVESTMENT FUND MARKET 

In 2003, KBC remained the undisputed leader on the Belgian 

market in investment funds or Undertakings for Collective 

Investment (UCIs), with a market share of no less than 31%, 

slightly more than the already high share recorded at the end of 

2002 (30.1%). Last year, KBC’s share of the market in investment 

funds offering capital protection came to over 55%. 

The KBC Group companies in Central Europe also have a strong 

market share in retail investment funds. In 2003, for instance, 

the market share in the Czech Republic came to around 19%, 

in Slovakia to 6% and in Hungary to 8%. 



55

Asset management KBC Bank & Insurance Group − 2003 Annual Report 56 

TOTAL ASSETS UNDER MANAGEMENT 

The total assets under management in the KBC Group (KBC Asset 

Management, KBC Financial Products, CBC Banque and the 

Central European subsidiaries) came to some 89 billion euros at 

the end of last year, 10% more than a year earlier. 

Growth in retail investment funds came to 11%, owing in equal 

measure to an increase in the volume and the value of the 

funds themselves, thanks to the stock market upturn that got 

underway during the second quarter of 2003. The capitalguaranteed 

fixed-income funds, in particular, made an excellent 

showing (+35%). 

Assets managed for institutional investors grew by around 10% 

in 2003, thanks mainly to the hedge funds launched by KBC 

Financial Products in co-operation with KBC Asset Management, 

the increase in Group assets and the discretionary management 

services provided to institutional investors at KBC Asset Management 

in Belgium (+11%). At KBC Asset Management Limited in 

Ireland, on the other hand, institutional assets under discretion- 

ASSETS UNDER MANAGEMENT* 

ary management fell by roughly 20%. Assets entrusted for 

management by private persons, lastly, rose by nearly 8%, 

mainly on account of assets under advisory management. 

The assets under management at the Central European subsidiaries 

(already included in the above categories) went up by 

4% year-on-year and came to some 4 billion euros at the end of 

2003. There was a brisk increase particularly in the sale of retail 

funds, both KBC’s and those of the Central European subsidiaries 

themselves. If currency fluctuations are not taken into account 

(especially the depreciation of the Hungarian forint and the 

Polish zloty), the increase in total assets under management in 

Central Europe would have come to 11%. 


Retail UCIs 

Equity funds 8 192 4 930 4 995 1.3% 

Bond funds 5 121 5 192 5 682 9.4% 

Capital-guaranteed equity funds 13 310 13 349 14 431 8.1% 

Capital-guaranteed fixed-income funds 3 239 4 994 6 739 34.9% 

Balanced funds 5 437 4 951 5 166 4.4% 

Money market funds 1 044 1 339 1 447 8.0% 

Hedge funds - 158 195 23.3% 

Unit-linked life assurance 2 560 2 145 2 650 23.6% 

Funds of funds 3 171 2 208 2 198 -0.5% 

Retail funds − Central Europe 135 822 1 114 35.5% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Total 42 210 40 088 44 617 11.3% 

Assets managed for institutional investors 

Institutional funds 3 179 3 490 3 961 13.5% 

Hedge funds 420 1 049 2 596 147.5% 

Third-party assets, discretionary management 12 054 10 824 9 968 -7.9% 

Third-party assets, advisory management 317 301 341 13.5% 

Group assets (KBC Insurance, KBC pension funds) 8 945 9 215 10 828 17.5% 

Institutional asset management − Central Europe 1 112 1 828 1 676 -8.3% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Total 26 027 26 707 29 370 10.0% 

Assets managed for private persons 

Discretionary management 1 782 1 587 1 512 -4.7% 

Advisory management 11 315 11 209 12 329 10.0% 

Discretionary management − Central Europe 971 1 217 1 228 0.9% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Total 14 068 14 013 15 069 7.5% 

Total assets under management 

Total 82 305 80 808 89 056 10.2% 

* The information was restated retroactively to include CBC Banque and KBC Financial Products; the breakdown into assets managed for institutional investors and assets 

managed for private persons is based on estimates where Central Europe is concerned.



57


‘Market activities’ encompass the activities of the bank’s dealing rooms 

in Belgium and abroad, the market activities of KBC Securities, 

and all the activities engaged in by KBC Financial Products, 

KBC Clearing and KBC Peel Hunt. 


In 2003, this area of activity contributed 125 million euros to consolidated profit 

(including minority interests), 35% more than a year earlier. This performance was thus good for 

11% of Group profit (compared with 9% in 2002) and a return on allocated equity of 10.7% 

(8.0% in 2002). Allocated equity inched up by 2% to 1.2 billion euros, accounting for 


13% of Group equity. 


Gross income 606.1 673.9 11.2% 


Write-downs and provisions -8.7 -4.9 -43.5% 

Income taxes -73.2 -72.1 -1.5% 

Other 0.0 0.0 - 



.................................................................................................................................................................................................................................................................................................................................................................................... 



.................................................................................................................................................................................................................................................................................................................................................................................... 



ROE 8.0% 10.7% - 

59 

12% 

10% 

8% 

6% 

4% 

2% 

0% 


88.8% 

11.2% 




0% 

8.0 

2002 

.7% 

10 

2003

Market activities KBC Bank & Insurance Group − 2003 Annual Report 60 

The sharp increase in the market activities’ profit contribution 

was largely accounted for by the traditional dealing rooms 

(primarily in Brussels), that managed to up their contribution 

from 81 million euros to 115 million euros, thanks to an 

increase in gross income (13%) and sound cost control (just 3% 

higher). 

As in 2002, the profit contribution made by the equity subsidiaries 

(chiefly KBC Securities, KBC Peel Hunt and KBC Financial 

Products) was limited (10 million euros in 2003). Following the 

far-reaching restructuring carried out in 2002, the contribution 

made by KBC Securities, although still slightly negative, was 

vastly improved compared to the heavily negative result turned 

in for 2002. The sub-standard performance of KBC Financial 

Products was accounted for mainly by the equity derivatives 

business in Brussels. 

HIGHLIGHTS 

KBC BANK’S DEALING ROOMS TURN IN GOOD 

RESULTS 

The dealing rooms made a strong showing in 2003, with the 

dealing rooms in Brussels, London and Asia putting in a particularly 

good performance. The fine results achieved in Belgium 

were spread over a broad range of products. Both the money 

and capital market units (including the repo business) and 

virtually all the derivative and structured product desks 

(currency and interest rate options, interest rate swaps, financial 

engineering, etc.) made a major contribution to these 

results. The dealing rooms’ fine performance was achieved in 

markets marked by sudden major swings in long-term interest 

rates, as well as by substantial volatility in exchange rates relative 

to the euro, the aftermath of the Iraq war and the SARS 

epidemic. At the same time, the volatility of earnings declined. 

Helping to keep earnings growth steady were the mounting 

sales to all customer segments. Consequently, the strategic 

focus on sales will be maintained and heightened. Lastly, KBC 

plans to expand its e-trading capacity for money market, FX 

spot and FX forward products, mainly to serve its corporate 

customers. 

ISSUES 

KBC Bank was again a prominent player on the primary Eurobond 

market last year, participating in more than 320 internationally 

syndicated bond loans as lead, co-lead or comanager. 

Its biggest transaction entailed joint lead managing 

a 5-billion-euro OLO issue for the Belgian State. KBC also maintained 

a high profile in 2003 in the issuing syndicates for a 

number of Central European government borrowers making their 

debut on the international capital markets. 

Under a 10-billion-euro Medium-Term-Note programme (issued 

by KBC IFIMA), KBC Bank raised 1.85 billion euros last year, 

mainly via private − generally structured − issues. On top of 

this, the bank strengthened its shareholders’ equity last year by 

issuing a hybrid capital market instrument for an amount of 200 

million pounds sterling. 

Thanks to strong demand from Belgian and French institutional 

investors for short-dated paper and to a keen interest in 

issuance mainly among European corporate borrowers, the bank 

managed to expand its business in Belgian commercial paper 

programmes on the European capital market. The vast majority 

of the issues are denominated in euros. 

SPECIALIZED SUBSIDIARIES 

Through its specialized subsidiaries, KBC Securities, KBC Peel 

Hunt, Patria Finance and KBC Financial Products, the Group 

engages in trading in equities and their derivatives, such as 

convertible bonds. Via KBC Financial Products, KBC also engages 

in trading in credit derivatives and hedge funds. In the Netherlands, 

KBC owns KBC Clearing, an Amsterdam clearing house for 

market makers. 

In 2003, KBC Securities maintained its leading position on Euronext 

Brussels. After the far-reaching restructuring carried out in 

2002, 2003 was a year of transition and of ongoing costcutting. 

By year-end 2003, overheads had fallen to 40% of the 

level they had been at prior to the restructuring exercise. At the 

operating level, a small profit was recorded in 2003, but this 

was offset by the provisions that had to be charged for a 

number of non-operating items relating to the past (such as a 

risk position in France). The first six months were difficult in 

operating terms, but a remarkable recovery set in after the 

Summer and has persisted into early 2004. The high point of 

this recovery was KBC Securities’ appointment as lead manager 

for Belgacom’s IPO, the biggest ever Belgian stock market introduction, 

scheduled for 2004. At present, KBC Securities’ main

strategic accents lie on the approach taken to the segment of 

mainly Belgian mid-caps, institutional sales of shares from KBC’s 

second home market of Central Europe and the further development 

of KBC Securities’ online broker, Bolero. 

KBC Securities works not only with KBC Peel Hunt, a British 

securities house for institutional investors and one of the UK’s 

biggest market makers in small and mid-cap shares, but also 

with KBC Financial Products. At the start of 2004, the decision 

was taken to merge KBC Securities’ New York office with KBC 

Financial Product’s office there. 

Overall, the KBC Financial Products Group produced moderate 

2003 results. The convertible bond business performed robustly, 

with volumes and revenues slightly higher than those achieved 

in 2002. The equity derivatives business had mixed results, with 

the good performance in Japan and Asia being offset by disappointing 

results in the US and especially in the exotic European 

equity derivatives books. For organizational reasons, it was 

decided that KBC Financial Products Brussels should be integrated 

into KBC Bank. The credit derivatives business produced 

strong revenue growth, thanks to KBC Financial Products closing 

three managed synthetic Collateralized Debt Obligation transactions 

during the year. Lastly, the hedge fund business (in 

co-operation with KBC Asset Management) saw strong growth in 

assets under management, which went from around 1.1 billion 

US dollars to just over 3 billion US dollars. 


JOINT DEVELOPMENT WITH RABOBANK OF A SHARED 

SECURITIES PLATFORM 

At the start of 2004, KBC Bank and Rabobank Nederland 

announced that they would be setting up a shared cross-border 

platform to process securities transactions. They aim to design a 

system that will meet changing market needs in a flexible, 

non-volume-dependent and cost-conscious way. Since both KBC 

and Rabobank needed to replace their current systems, this 

co-operation will enable them to share the cost of investing in 

new systems. The joint platform will not be operational before 

2006. 


2001 2002 2003 2001 2002 2003 2001 2002 2003 

KBC Financial Products (Group) 100.0% 100.0% 100.0% -40.2 50.1 5.3 -5.5% 6.0% 0.7% 

KBC Securities (Group) 100.0% 100.0% 100.0% -17.3 -66.8 -6.7 -12.9% -72.6% -11.2% 

KBC Peel Hunt* 100.0% 100.0% 100.0% 4.8 3.4 6.4 8.8% 5.9% 11.7% 

* 2001 was a shortened financial year (1 April to 31 December). Return on equity has been annualized. 



61

Risk management 

There are a number of typical risks associated with the business of 

banking and insurance. Credit risk, market risk and liquidity risk are the 

main ones affecting the banking business, while the insurance business is 

exposed primarily to investment risk and a variety of technical risks. 

On top of this, both the banking and the insurance activities are exposed 

to operational risks and solvency risks, as well as strategic and 

reputation risks. Curtailing all these risks and keeping them manageable 

is one of the most crucial tasks of KBC Group management. 

NEW RISK GOVERNANCE MODEL 

KBC’s new governance model for value and risk management, which will be operational from 2004, 

seeks to define the responsibilities and tasks of various bodies and persons within the organiza- 

tion with a view to ensuring the sound management of value creation and all the associated risks 

for the banking and insurance business. 

KBC’s risk governance model is organized in three tiers: 

*Overarching company and risk committees: besides the Board of Directors, the Audit 

Committee and the Executive Committee, these specifically include a Group Value and Risk 

Committee and a Group ALCO (Asset and Liability Committee). These committees concentrate 

on global risk management and on monitoring value creation and capital adequacy for the 

entire KBC Group. 

*Risk committees: these are specialized committees that concentrate on developing a company-wide 

framework for one particular type of risk and monitoring the associated risk procedure. 

They also have Group-wide responsibility. 

*Line management and activity-specific committees: line management has primary responsibility 

for value and risk management. The Value and Risk Management Division measures 

risks, capital allocation and value creation for the relevant lower-tier levels and reports its 

findings directly to line management and the competent activity-specific committees. 

63

Risk management KBC Bank & Insurance Group − 2003 Annual Report 64 

Market Risk Committee 

Audit Committee 

BOARD OF DIRECTORS AND AUDIT COMMITTEE 

The Board of Directors and the Audit Committee have an important 

role to play in value creation and risk governance. Regular 

reporting to the Audit Committee ensures that there is an ample 

flow of information to the relevant members of the Board of 

Directors over the course of the year. Moreover, through the 

involvement of the entire Board in the annual round of approvals 

of risk-tolerance limits, all Board members are able to take 

informed decisions on the degree of risk they find acceptable 

for KBC and on the adequacy of its risk management structure. 

THE EXECUTIVE COMMITTEE, THE GROUP VALUE 

AND RISK COMMITTEE AND THE GROUP ALCO 

The Executive Committee is responsible for implementing the 

value and risk management strategy. It outlines the structure 

and makes the necessary resources available to allow the 

requisite risk management tasks to be carried out. In order to 

strengthen governance, a Chief Risk Officer has been appointed 

within the Executive Committee, with the specific task of supervising 

risk management and the internal control structure. 

The Group Value and Risk Committee is responsible for developing 

a management framework for capital allocation and capital 

planning and for measuring, reporting and monitoring value 

creation. The Group ALCO has a more operational function in 

Board of Directors 



(Chief Risk Officer) 

Insurance Risk Committee 

Overarching 

Group Value and Risk Committee 

Group ALCO Value and Risk Management Division 

Per risk type 

Operational Risk Committee 

the management of KBC’s ALM positions (including the management 

of Group-wide credit risks at portfolio level), and in supervising 

preparations for implementing the Basel II guidelines 

and Solvency II directive. 

RISK COMMITTEES 

Credit Risk Committee 

Chaired by the Chief Risk Officer, the risk committees are 

composed of representatives from line management and the 

Value and Risk Management Division. There is a specific 

committee for each type of risk: 

*Market risks: the Market Risk Committee monitors the market 

risks in forex and securities trading. However, ALM risks are 

managed and monitored by the Group ALCO. 

*Credit risks: the Credit Risk Committee is responsible for supervising 

the composition and quality of the loan portfolio 

(including the counterparty risk in respect of (re)insurance 

and market transactions). 

*Operational risks: the Operational Risk Committee is charged 

with following up policy in the area of operational risk 

management at KBC. 

*Insurance risks (premium and reserve risk for the non-life 

insurance business and various types of life assurance risks, 

such as longevity risks, the risk of invalidity and mortality 

risks): a new Insurance Risk Committee has been set up to 

monitor these risks.

RISK MANAGEMENT AT KBC BANK 1 

CREDIT RISK 

Credit risk is the potential for loss occasioned by the counterparty’s 

insolvency or lack of willingness to pay, or by events or 

measures taken by the political or monetary authorities of a 

particular country. The latter risk is also referred to as country 

risk. 

Managing credit risk 

Credit risk is managed on the basis of rules and procedures 

approved by the Executive Committee regarding the acceptance 

process for new loan and limit applications, the process of 

monitoring and supervising credit risks, and portfolio management. 

The specific procedures relating to country risk are 

discussed below. 

Acceptance process 

Credit proposals must always be submitted in writing by a 

commercial entity. Any applications for larger or riskier loans 

will be screened by a credit adviser who, in formulating his 

advice, will take account of general lending policy, as well as 

risk-related aspects. 

In principle, decisions are taken jointly by two or more individuals, 

whether meeting as a credit committee or otherwise. For 

the larger or riskier loans, at least one of these individuals must 

be a loan officer who works independently of the commercial 

network. Under the new risk governance structure, the Central 

Credit Committee itself will take decisions with regard to the 

largest and riskiest loans. Two members of the Executive 

Committee sit on this body, one of whom acts as chairman. The 

other decision levels are on different rungs of the bank’s hierarchy, 

ranging from the branch to the Extended Credit 

Committee, whose powers are second only to those of the 

Central Credit Committee itself and whose chairman is a member 

of the Executive Committee. 

Decision matrices that take account of such parameters as the 

group risk total 2 , the class of risk 3 and the type of counterparty 

(private persons, companies, governments, financial institutions) 

are used to determine what the decision level should be. 

Supervision and monitoring 

In principle, a member of a credit committee will supervise 

decisions taken at the decision level immediately below, by 

checking whether the decision is consistent with lending policy. 

Credit is monitored on the basis of risk classes. In the new 

approach, which is based on internal rating models, a distinction 

is made between the Expected Default Frequency (EDF) and 

the Expected Loss (EL). The latter takes account not only of the 

EDF, but also of the amount expected to be left outstanding on 

default and the non-recoverable loss in that event. 

The ‘normal’ loan portfolio is split up into classes, ranging from 

1 (lowest risk) to 9 (highest risk), and this for both the EDF and 

the EL. Loans in this portfolio are reviewed periodically; just 

how often depends on such factors as the class of risk 

concerned. In addition, the portfolio is screened regularly for 

internal and external signals which might indicate that the 

credit risk has increased. Any event that substantially increases 

risk must be reported immediately to the competent level of 

authority, which may result in the risk class being changed. 

The riskiest credits in the normal loan portfolio (depending on 

the loan segment, these are classified as EDF 8-9 and/or EL 

7-8-9) are subject to special monitoring, which includes 

reporting to a higher decision level every quarter. 

Defaulting borrowers (in keeping with the Basel II definition) 

are broken down into EDF classes 10, 11 and 12 (as far as EL is 

concerned, no further distinction is made and EL 9 is the 

highest possible risk class). Class 10 represents still performing 

borrowers and classes 11 and 12 non-performing 4 borrowers. 

Class 12 includes borrowers whose credits have been cancelled 

and bankrupt borrowers. An overview of defaulting borrowers is 

submitted to the Executive Committee every quarter. 

1 Situation in 2003. 

2 The ‘group risk total’ is the sum of all credit and limits that all companies in the 

counterparty’s group already have or have applied for from all KBC Group 

companies. No amounts are deducted for collateral or guarantees received. 

Collateral is moreover also included in the group risk total of the counterparty 

providing it. 

3 The ‘risk class’ reflects the assessment of the risk relating to the credit and can 

be determined in two ways: the ‘old’ way, in which a credit is categorized on the 

basis of experience (from ‘low risk’ to ‘loss’), and the new way, which uses rating 

models developed in-house (see ‘Internal credit risk models and Basel II’) and is 

becoming more prevalent. 

4 See definition on page 69. 



65


Write-downs 

If there is a risk that credit granted to a defaulting borrower 

(EDF 10-12) might entail a loss for the bank, KBC will record 

write-downs based on the estimated loss, with account therefore 

being taken of the collateral provided (among other 

things). This estimate is made for each individual loan, except 

for smaller ones in the retail segment, for which write-downs 

are calculated on a portfolio basis. 

For special events that might have a negative impact in the 

(near) future on credit quality, additional (general) provisions 

are set aside, too, if necessary. On top of this, a general loan 

loss provision is formed (based on risk class) for foreign credit 

risks, as well as a provision for country risk (see below). 

Portfolio management 

Supervision on a portfolio basis is carried out by means of, inter 

alia, quarterly reports that are drawn up by the Risk Management 

Division regarding the size and composition of the consolidated 

loan portfolio. These reports are then submitted to 

the Executive Committee, among others. The largest risk 

concentrations are monitored via various periodic and ad hoc 

reports, and an overview prepared each year for the Board of 

Directors. 

As part of the credit function, the portfolio management desk 

aims to actively manage and monitor the loan portfolio. Its 

more specific objectives include gaining a good insight into the 

risk profile and increasing the liquidity of the portfolio. This 

desk also actively seeks out risk concentrations and reduces 

them by, inter alia, buying credit protection in the credit 

derivatives market. To achieve these objectives, it can call on 

the services of a number of companies, including KBC Financial 

Products, which has a significant market-making business in 

credit derivatives, and a London-based KBC entity specialized in 

trading syndicated loans on the secondary market. Lastly, the 

portfolio management desk is charged with co-ordinating 

securitization operations. KBC is active in the loan securitization 

market with a view to actively managing its credit risk 

and saving on capital in the process. 


In principle, the same procedures apply for KBC Bank’s majorityheld 

Central European subsidiaries as for the other international 

KBC entities. Accordingly, the Central European subsidiaries 

have their own local decision authority, which − as is the case 

for the other KBC entities − is linked to the group risk total on 

a consolidated basis and to the risk class. All applications for 

credit above a certain limit and all applications involving finan- 

cial institutions and country limits must be submitted to head 

office. 

With regard to Nova Ljubljanska banka, in which KBC has a 

minority shareholding, various procedures are currently being 

streamlined, primarily with a view to the adoption of each 

other’s best practices. 

At Kredyt Bank, a number of measures were taken to improve 

the risk profile of the loan portfolio. These included significantly 

reducing credit delegations for corporate loans and 

screening the loan portfolio, a move which resulted in additional 

loan loss provisions being set aside. Other measures 

have been taken to improve the loan decision process and especially 

risk monitoring, including the supervision of problem 

loans. 

Loan portfolio 5 

The loan portfolio detailed in the tables on pages 68 and 69 

includes all payment credit, standby credit, guarantee credit 

and credit derivatives (protection sold) granted by KBC Bank 

and all its majority-held subsidiaries to private persons, companies, 

governments and banks 6 . Bonds held in the investment 

portfolio are included if they are corporate- or bank-issued, 

hence government bonds (which are used more for treasury and 

liquidity management purposes) and securities in the trading 

book are not included. 

The amount granted (as it appears in the tables) comprises both 

committed and uncommitted loans. 

Based on the above definition, the total portfolio of credit 

granted came to 140 billion euros at the end of 2003, roughly 

2% less than a year earlier. Disregarding exchange rate effects 

(including the depreciation of the US dollar), there was an 

increase of almost 3%. Because KBC only has a minority shareholding 

in Nova Ljubljanska banka, the latter’s loan portfolio 

has not been included in the figures. 

5 All data on the loan portfolio, non-performing loans, write-downs and provisions, 

total credit risk and country risk is derived from internal risk management databases. 

In a few cases, the data is based on assumptions or extrapolations. 

The data is unaudited. 

6 Not included are inter alia all professional transactions (placements with financial 

institutions, exchange transactions, swaps, repos, reverse repos, etc.), shortterm 

commercial transactions (documentary credit, pre-export finance, etc.) and 

all intragroup transactions.

Credit risk breakdown by origin, type of credit and sector 

The loan portfolio is well diversified in geographical terms, with 

the network in Belgium accounting for the lion’s share of the 

portfolio of credit granted (49%), followed by the network in 

the rest of the world (37%). The ‘rest of the world’ portfolio 

comprises the branches and subsidiaries in the United States 

(8 percentage points), Western Europe (24 percentage points) 

and Asia (2 percentage points), as well as a few divisions at 

head office (3 percentage points). The Central European subsidiaries 

ČSOB, K&H Bank and Kredyt Bank (referred to as ‘Central 

Europe’ in the table) account for approximately 14% of the total 

portfolio of credit granted (or nearly 17% of the portfolio of 

outstanding credit). In recent years, there has been a shift 

within the portfolio from the ‘rest of the world’ to ‘Central 

Europe’. 

The bulk (99%) of the loan portfolio is accounted for by credit 

to borrowers (or guarantors) in investment-grade countries 

(i.e. countries with an AAA through BBB- rating). 

Most (some 0.8 percentage points) of the relatively limited 

credit risk in respect of non-investment-grade countries 

concerns countries with BB or B ratings. 

Payment credit is by far the biggest type of credit, followed by 

standby credit and commitment credit (guarantees). Standby 

credit − which includes ‘liquidity backup’ facilities − is 

increasing slightly, owing in part to the growth in the securitization 

markets where it serves as a backup. 

The loan portfolio is also well diversified in terms of sector 

exposure. On the basis of the sectoral breakdown in the table, 

five sectors have a share of more than 5%. The ‘Financial and 

insurance services’ sector, which traditionally has a rather low 

risk profile, and ‘Private individuals’, a segment in which the 

risk is by definition spread over many relatively small loans, are 

the largest. Next come the ‘Non-financial services’ and ‘Retail 

and wholesale trade’ sectors, though both are a compilation of 

different sub-sectors, and finally there is the ‘Real estate’ 

sector, whose share has fallen to 5% in recent years. Lending to 

this last sector is well spread over many countries and includes 

loans which entail little or no property market risk for the bank 

branch (for instance, because repayment of the loan is secured 

by a long-term lease with a creditworthy tenant). 

Among the more cyclically-sensitive sectors, the ‘aviation’, ‘telecom’ 

and ‘electricity’ sectors have been most prominent in 

recent years. Last year, just as in 2002, the electricity sector 

was in a state of flux. In Europe, continuing liberalization in 

Flanders and elsewhere gave the private consumer complete 

freedom to choose an electricity supplier. In the UK, restructuring 

and consolidation continued, but now against a backdrop of 

more balanced supply and demand. Massive power failures on 

both sides of the Atlantic (New York and Italy) triggered a lively 

public debate on the economic importance and future structure 

of the sector. Thanks to a cautious lending policy, which 

imposes very strict sector limits, the share of the electricity 

sector in the total loan portfolio fell from 4.2% at the end of 

2002 to 3.3% in 2003. The US and Europe each account for 

approximately 40% of the portfolio, with over 40% of total 

lending in the form of project finance. 

While 2003 was still marked by additional provisioning for a 

number of loans (mainly in the US and the UK), 2004 looks 

more promising. The gradually recovering economy, but primarily 

the considerable efforts made in 2002 and 2003 to improve 

the risk profile of the loan portfolio, should start to yield 

results in 2004. 

Loan portfolio breakdown by risk 

By way of illustration, a breakdown is provided in the table of 

the ‘normal loan portfolio’ (EDF classes 1 through 9) on 

page 69. However, only part of the normal loan portfolio is 

included in the breakdown, i.e. primarily loans made to large 

and medium-sized businesses representing roughly 31 billion 

euros in credit granted. Accordingly, the EDF figures cannot be 

extrapolated for the entire loan portfolio. 



67


3% 

4% 

Loan portfolio 

Breakdown by sector (31-12-2003) 

5% 

28% 

10% 

20% 

13% 1 

17% % 

Private individuals 

Financial and insurance services 

Non-financial services 

Retail and wholesale trade 

Real estate 

Construction 

Governments 

Rest 

Loan portfolio (31-12-2003) 

Breakdown by country rating 

0.9% 

99.1% 

Investment-grade countries 

Non-investment-grade countries 

Loan portfolio 

Breakdown by origin (31-12-2003) 

37% 

14% 

49% 

Network in Belgium 

Network in Central Europe 

Network in the rest of the world 

LOAN PORTFOLIO 

(Including corporate and bank bonds) 31-12-2001 31-12-2002 31-12-2003 

Total loan portfolio (in billions of EUR) 

Amount granted 150.0 143.7 140.4 

Amount outstanding 99.3 99.6 102.2 

Breakdown by origin (as a % of the portfolio of credit granted) 

Network in Belgium 44.8% 47.3% 49.0% 

Network in Central Europe 10.8% 13.2% 14.2% 

Network in the rest of the world 44.4% 39.5% 36.7% 

............................................................................................................................................................................................................................................................................................................................ 

Total 100.0% 100.0% 100.0% 

Breakdown by credit type (as a % of the portfolio of credit granted) 

Payment credit 81.9% 79.8% 79.5% 

Standby credit 4.6% 7.2% 7.6% 

Guarantee credit 7.8% 7.1% 6.6% 

Credit derivatives sold 0.6% 0.5% 0.2% 

Bonds (only corporate and bank issues) 5.1% 5.5% 6.1% 

............................................................................................................................................................................................................................................................................................................................ 

Total 100.0% 100.0% 100.0% 

Breakdown by type of counterparty and sector (as a % of the portfolio of credit granted) 

Private individuals 1 

14.9% 16.3% 19.7% 

Financial and insurance services 15.8% 17.3% 17.0% 

- banks 11.4% 9.1% 8.5% 

- insurance companies 0.2% 0.3% 0.3% 

- other 1 

4.1% 7.9% 8.2% 

Governments 2 

4.0% 4.0% 3.4% 

Corporates 65.3% 62.4% 59.9% 

- non-financial services 3 

10.3% 11.0% 12.7% 

- retail and wholesale trade 10.1% 10.5% 9.5% 

- real estate 5.2% 5.4% 5.1% 

- construction 4.7% 4.5% 4.2% 

- automobile industry 3.7% 3.3% 3.4% 

- electricity 5.6% 4.2% 3.3% 

- agriculture, stock farming and fishing 2.4% 2.5% 2.6% 

- chemical industry 3.6% 3.2% 2.5% 

- food industry 3.0% 2.6% 2.3% 

- oil, gas and other fuels 1.8% 1.8% 1.7% 

- metals 1.9% 1.6% 1.7% 

- electronics 1.9% 1.8% 1.4% 

- traders 1.1% 1.3% 1.3% 

- aviation 1.2% 1.1% 1.1% 

- telecom 1.9% 1.5% 1.0% 

- shipping 1.1% 1.0% 1.0% 

- hotels, restaurants and cafés 1.1% 1.0% 0.9% 

- other 4.7% 4.1% 4.1% 

............................................................................................................................................................................................................................................................................................................................ 

Total 100.0% 100.0% 100.0% 

Breakdown by country rating of the counterparty or guarantor (as a % of the portfolio of credit granted) 

Investment-grade countries 98.8% 99.2% 99.1% 

AAA, AA and A countries and international institutions 90.4% 94.1% 94.1% 

BBB countries 8.4% 5.1% 4.9% 

Non-investment-grade countries 1.2% 0.8% 0.9% 

BB and B countries 1.1% 0.7% 0.8% 

CCC, CC, C and D countries 0.2% 0.1% 0.1% 

............................................................................................................................................................................................................................................................................................................................ 

Total 100.0% 100.0% 100.0% 

1 Adjusted retroactively to include the IIB Homeloans and Finance portfolio. 

2 Decline in 2003 largely attributable to technical factors (changes in sector codes). 

3 Including services relating to consultancy, education, recreation and leisure time, health care, rent and leasing 

(not bank-linked).

Non-performing loans and write-downs 

Non-performing loans are loans (and corporate and bank bonds 

in the investment portfolio) for which principal repayments or 

interest payments are more than ninety days in arrears (EDF 11 

and 12: ‘new definition’ referred to in the table). For the 

network in Belgium, the ‘bankruptcies and loans called in’ 

approach (EDF 12: ‘old definition’ in the table) was being used 

up to the end of 2002 for loans classified as non-performing. 

However, the switch to the new definition in the network in 

Belgium will be completed during the first quarter of 2004 and 

BREAKDOWN OF PART OF THE LOAN PORTFOLIO BY INTERNAL RATING 

will lead to an estimated increase in the non-performing ratio 

of up to 0.1 percentage points. 

At year-end 2003, roughly 3.7% of the portfolio was non-performing, 

some 56% of which was covered by specific write-downs for 

non-performing loans. Taking the specific write-downs for nonperforming 

loans and the general, credit-related provisions (see 

below) into account, 61% of the non-performing loans were 

covered. If the specific write-downs for still performing loans are 

also taken into account, then 73% were covered. 

EDF 1 (lowest probability of default) 

31-12-2003 

8.9% 

EDF 2 13.8% 

EDF 3 18.9% 

EDF 4 22.0% 

EDF 5 16.9% 

EDF 6 9.9% 

EDF 7 6.4% 

EDF 8 1.6% 

EDF 9 (highest probability of default) 1.5% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Total for the ‘normal’ classes 100.0% 

NON-PERFORMING LOANS* 

(Including corporate and bank bonds) 31-12-2002 31-12-2003 

Old definition for 

the network in 

Belgium 

Old definition for 


Belgium 

New definition for 


Belgium 

Non-performing loans and specific write-downs (in millions of EUR) 

Non-performing loans 2 774 3 526 3 755 

Specific write-downs for non-performing loans 1 742 2 057 2 089 

Non-performing ratio 

(non-performing loans as a%oftherespective portfolios of credit outstanding) 

By origin 




................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Total 2.8% 3.5% 3.7% 

Cover ratio (specific write-downs for non-performing loans 

asa%oftherespective, non-performing loan portfolios) 

By origin 




................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Total 62.8% 58.3% 55.6% 

* Non-performing: see definition in this section. Cover amounts take contingent tax savings into account. Excluding C{SOB’s ‘legacy portfolio’, which is fully covered by 

collateral and write-downs. 

GENERAL CREDIT-RELATED PROVISIONS* 

(In millions of EUR) 31-12-2001 31-12-2002 31-12-2003 

General provision for foreign loan losses 240.0 147.7 164.2 

General provision for country risks 102.3 67.8 38.7 

* Including contingent tax savings (approximate amounts, given the variety of tax regimes concerned). For Belgium, account has been taken of the reduced marginal tax rate 

of 33.99% (the figures for 2001 and 2002 were also restated, account taken of this new rate). 



69


Using the same definitions, the non-performing ratio went up 

by 0.7 of a percentage point in 2003. This was due almost 

entirely to the loan portfolio at Polish subsidiary Kredyt Bank 

being subject to a thorough screening, which led to a considerable 

increase in credit provisions and a more precise classification 

of loans. Disregarding Kredyt Bank (and using the same 

definition), the non-performing ratio came to 2.6% at year-end 

2003, roughly the same level as at the end of 2002. 

Besides the specific write-downs for non-performing loans, KBC 

also sets aside specific write-downs for loans that are classified 

as ‘still performing’. At year-end 2003, these write-downs came 

to some 0.5 billion euros (cover amount, including contingent 

tax savings). 

The bank also has a number of general provisions, as shown in 

the table. 

The general provision for foreign loan losses is a provision 

based on the breakdown of (part) of the loan portfolio by risk 

class (i.e. low, average and high risk, according to the ‘old’ 

definition). The provision for country risks is required by the 

regulatory authorities (the Belgian Banking, Finance and Insurance 

Commission) for certain countries (see the paragraph on 

country risks). 

The loan loss ratio shows the impact on profit of the net change 

in specific write-downs (and write-offs) before tax effects, and 

is expressed in basis points (100 basis points = 1 per cent) relative 

to the average gross amounts receivable from customers (in 

contrast to the above figures, this excludes corporate and bank 

bonds and off-balance-sheet items). Movements in this ratio are 

shown in the table. 

KBC Bank’s total loan loss ratio went up from 0.55% in 2002 to 

0.71% in 2003. The loan loss ratio for Central Europe can be 

broken down as follows: 0.32% for K&H Bank, 8.68% for Kredyt 

Bank and 0.34% for ČSOB. 

LOAN LOSS RATIO 

Total credit risk 

Besides the credit risks covered above in the ‘Loan portfolio’ 

section, there are other credit risks that arise in other banking 

activities. 

Trading in securities or derivatives (forex products, swaps, 

options, etc.) also generates a risk in respect of the counterparty 

with whom the transaction has been carried out if the 

transaction has a positive replacement value for the bank. These 

risks are monitored via counterparty limits, which are subject to 

an acceptance process that is similar to the one used for loans. 

The settlement of a number of transactions also generates a risk 

that sums due will not be received. These risks are monitored 

via specific settlement limits for counterparties. 

The counterparty risks arising from these professional transactions 

are calculated according to the relevant BIS regulations 

(mark-to-market, if positive, plus add-ons). For part of KBC 

Financial Products’ portfolio, however, the calculation is based 

on ‘potential future exposure’. Where possible, the counterparty 

risk is reduced via a number of techniques. For instance, enforceable 

netting contracts are concluded whenever possible, so that 

mutual positions can be set off in the event of default. 

Collateral agreements are also signed with a number of counterparties, 

assuring daily cover for positive market risk via the 

deposit of securities or cash. In addition, thanks to KBC Bank’s 

active participation in the Continuous Linked Settlement system 

since September 2002, the settlement risks in respect of 

counterparties to forex transactions settled via this system are 

effectively neutralized. 

Besides bonds held in the investment portfolio, securities in the 

trading book also generate risks for a brief period of time. In 

this case, too, the relevant risks are monitored via limits which 

were adjusted in 2003. 

Short-term commercial transactions, such as documentary 

export credit and pre-export and post-import finance also entail 

a credit risk. Limits are used to monitor this risk, as well. 

31-12-2002 31-12-2003 

Belgium 0.29% 0.24% 

Central Europe 1.17% 2.75% 

Rest of the world 0.70% 0.48% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Total, KBC Bank 0.55% 0.71%

For the sake of completeness, the credit risks relating to placements 

with financial institutions or the holding of government 

bonds in the investment portfolio should also be mentioned. In 

view of the quality of the counterparties/issuers, however, the 

credit risks here are limited. Moreover, a large proportion of this 

risk is covered by collateral (primarily reverse repos). In this 

case, too, the relevant risks are monitored via limits. 

Country risk 

Managing country risk 

Country risk is managed by limits set per country and per tenor 

for both ‘transfer risks’ and ‘performance risks’. Despite the mitigated 

country risk, IFC ‘B’ loans are also charged to the limit for 

transfer risks. Country risk is calculated for each country separately 

according to a conservative method (see text to the 

right). Country exposures include risks which are actually rather 

limited, such as the above-mentioned performance risks, IFC ‘B’ 

loans and loans and advances to governments and credit institutions. 

Proposals for setting or changing country limits are handled 

centrally at head office and, after independent credit advice is 

taken, submitted for approval to the competent level of 

decision authority. Before any new transactions are entered 

into, availability under the country limits and, where relevant, 

the relevant sublimits has to be checked. Any overruns must be 

cleared in advance with the bank officers who have the requisite 

decision authority. 

Method used to calculate country risk: 

The following risks are included: 

* credit, such as payment credit, commitment credit and credit derivatives, 

including so-called medium-term export credit, IFC ‘B’ loans and 

performance risks; 

* bonds and shares in the investment portfolio; 

* placements and other professional transactions, such as exchange transactions 

and swaps; 

* short-term commercial transactions, such as documentary credit and preexport 

finance. 

In principle, individual transactions are charged against country limits 

according to the following rules: 

* fully fledged guarantees transfer the country risk to the guarantor’s country; 

* if a transaction is carried out with the office/branch of a company which 

has its head office in another country, the transaction will be assigned to 

the country with the lower rating, whether this is the country the 

office/branch is in or the country the head office is in; 

* exposure in the counterparty’s national currency and risks in respect of 

countries in the euro zone are not included, but are reported separately. 

COUNTRY RISK, 31-12-2003 (EXCLUDING TRANSACTIONS IN THE LOCAL CURRENCY, IN MILLIONS OF EUR) 

Total Breakdown by 

remaining tenor 

31-12-2002 31-12-2003 < 1 year > 1 year IFC ‘B’ 

loans 

Performance 

risk 

Loans Bonds & 

shares 

Breakdown by transaction type 

Professional 

MLT export 

finance 

Country exposure per region 

Western Europe* 10 413 12 283 6 417 5 866 7 14 2 157 1 340 8 659 25 83 

Central and Eastern Europe 6 753 8 026 3 133 4 893 8 405 5 749 719 1 084 8 54 

North America 4 470 4 401 1 456 2 945 0 0 1 664 770 1 956 0 10 

Asia 3 388 3 023 2 078 945 14 35 1 712 296 761 5 201 

Middle East 881 955 413 542 4 63 276 0 132 5 475 

Latin America 673 485 183 302 25 72 308 24 8 2 47 

Oceania 431 375 148 228 0 0 128 145 102 0 0 

Africa 397 366 190 177 17 147 66 0 72 8 56 

International institutions 144 147 35 112 1 0 37 63 28 2 16 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Total 27 549 30 060 14 052 16 008 76 735 12 095 3 358 12 800 53 943 

Problem countries (BFIC list) 

Argentina 45 52 31 21 2 26 16 0 0 0 9 

Indonesia 49 27 9 18 3 0 23 0 0 0 1 

Turkey 99 85 67 18 4 9 17 0 2 1 51 

* Excluding the euro zone. 

ST commercial 



71


Country risk 

Given KBC’s strong presence in Central Europe, its country risk 

in respect of this region is fairly high. At the end of 2003, it 

amounted to 8 billion euros, which meant that the second home 

market came second after Western Europe, where exposure to 

the UK, as a non-euro country, is highest. 

Country risk in respect of North America and Asia fell, partly as 

a result of the appreciation of the euro. At year-end 2003, 

country exposure to Asia came to around 3 billion euros and 

was mainly to South Korea, Singapore, Taiwan, China and Hong 

Kong. 

Exposure to other regions was relatively minor. In Latin 

America, barely 52 million euros was accounted for by Argentina 

(largely short-term commercial transactions and performance 

risks) and 23 million euros by Brazil. 

Country risk in respect of the Middle East was accounted for 

primarily by Iran (mainly commercial transactions), Israel 

(professional transactions), Saudi Arabia (short-term commercial 

transactions) and the United Arab Emirates (loans and 

short-term commercial transactions). 

The Belgian Banking, Finance and Insurance Commission (BFIC) 

requires banks to set aside loan loss provisions for a number of 

countries (as at 31 December 2003: Argentina, Indonesia and 

Turkey), equal to a certain percentage of the outstanding credit 

risk (except for transactions for which the country risk is 

limited). It is up to the banks to decide, within a certain 

bracket, what percentage precisely they set aside, but KBC has 

always opted for the upper limit. KBC has itself added a number 

of countries to the BFIC list (as at 31 December 2003: Cuba and 

Iraq). Consequently, at 31 December 2003, the provision for 

country risks came to some 39 million euros (cover amount). 

INTERNAL CREDIT RISK MODELS AND BASEL II 

Basel II and the QCR programme 

In 1999, KBC rolled out a programme designed to allow accurate, 

more quantitative measurement of credit risks (‘Quantitative 

Credit Risk’ or QCR) with a view to, inter alia, enhancing the 

assessment and alignment of risks and return (RAROC), facilitating 

the supervision of credit risks and controlling credit 

processes more efficiently. 

This is consistent with the Basel II proposals, which are aimed 

at bringing capital and risks better into line with one other. 

These proposals offer a more advanced way of determining regulatory 

capital based on a consistent, quantitative, internal 

assessment of credit risks, among other things. 

Preparations for Basel II have been incorporated into the QCR 

programme from the outset as far as credit risk is concerned. It 

goes without saying that KBC Bank will pass the ‘use test’ set 

out in the Basel II Accord, requiring that banks effectively use 

their internal credit risk ratings. 

IRB Approach 

KBC has chosen to adopt the Internal Ratings Based (IRB) 

Approach. Initially, KBC Bank will apply the IRB Foundation 

Approach to determine the minimum level of regulatory capital, 

which calls for an in-house estimate to be made of the probability 

of default by a client. 

In the meantime, preparations are also being made to make it 

possible to switch to the IRB Advanced Approach at a later 

stage. Where possible, the additional components required for 

this Advanced Approach are already being used in-house, i.e. 

own estimates are being made of the ‘Loss Given Default’ and of 

‘Exposure at default’. 

Internal models 

By the end of 2003, the internal model used to estimate the 

probability of default for all of KBC Bank’s main borrower or 

counterparty types was virtually completed for the first home 

market (Belgium), for Western Europe and for the US and Asia. 

All models are developed by the Risk Management Division 

(from 2004, the Value and Risk Management Division), with the 

help of experts from the credit function and the network. 

In lending to private individuals, statistics-based behavioural 

scores play a prominent role. After many years of work in this 

field, these scores have become a highly effective tool for 

predicting whether a client will default and, therefore, are ideal 

as a basis for pooling retail exposures. 

In commercial lending to smaller SMEs, these behavioural scores 

are combined with score cards which are drawn up on the basis 

of both financial and qualitative data. For bigger SMEs and large 

businesses, special score cards have been developed for the 

various geographical regions (Western Europe, the US and Asia), 

likewise based on a specific combination of financial and 

qualitative data. 

For governments and banks, too, a specific methodology is used 

to assign internal ratings, with specialized models being

developed for this type of counterparty and borrower based on 

the many years of analytical experience acquired by KBC Bank. 

Internal models (score cards) have also been developed for a 

number of more specialized activities (e.g., for agriculture, 

commercial real estate, hospitals, schools and old people’s 

homes) or are in the planning stage (e.g., for project finance). 

Pragmatic solutions have been worked out for a number of less 

significant types of borrower and counterparty. 

Under ‘Loan portfolio’, the results generated by the models 

(estimates of the probability of default) are given for part of 

the loan portfolio. 

The QCR ‘modelling’ sub-programme also charts in-house estimates 

of ‘Loss Given Default’ and ‘Exposure at Default’ for the 

main types of security and guarantees in the above markets. 

Where possible, these estimates are based on KBC’s own historical 

data. However, when such data is not yet available, estimates 

are used that have been based on expert advice, 

combined with the indicative values given in the Basel II 

Accord. These will continue to be refined in the future. 

Network applications 

The QCR programme also encompasses the actual integration of 

the models in the network for the various areas of activity. 

The aim is to raise risk awareness at both the acceptance and 

monitoring stage. This will be accomplished through intensive 

training and communication, by integrating the models into the 

existing credit systems and, in particular, through the practical 

application of risk measurement in the credit processes 

(including credit delegation, monitoring and pricing). 


In Central Europe, standard preparations for Basel II are being 

made by means of local projects supervised by KBC Bank, with 

the aim of harnessing as many synergies as possible. Where 

counterparties are similar (such as governments and banks), the 

same rating models are used. However, for portfolios that are 

more local in nature (in particular, retail portfolios), specific 

models which include behavioural scores are called for. 

The IRB Approach will be followed at ČSOB, K&H Bank, Kredyt 

Bank and NLB, too, though its implementation will be phased 

in. 

Calculation of regulatory capital at portfolio level 

After extensive selection and test procedures, KBC concluded an 

agreement with a supplier of financial software. The new software 

will calculate regulatory capital in accordance with Pillar 

One of the Basel Accord and satisfy the reporting requirement 

under Pillar Three. A specific QCR sub-programme has been 

launched in order to implement this software. This implementation 

follows on the considerable preparatory work carried out 

in gathering data from numerous source systems. 

Of course, a precise calculation of regulatory capital in accordance 

with the Basel II principles will only be possible once the 

relevant European directives and national regulations have been 

finalized, and after the software for making the calculations is 

up and running. However, KBC Bank has already run a number of 

simulations to estimate the expected impact as part of the 

Quantitative Impact Studies (QIS) co-ordinated by the Basel 

Committee. For KBC Bank, the results of the simulations (which 

also include capital requirements for operational risks) are in 

line with the average results of other large, diversified and 

internationally active banks with tier-1 capital in excess of 

3 billion euros, as published by the Basel Committee. 

Evaluation by and approval of the regulatory authorities 

After the model development stage and the integration of the 

model into the network, the focus of the QCR programme will 

gradually shift in 2004 to obtaining internal and external 

approval. 

As regards internal approval, an appropriate plan has been 

drawn up, which of course takes account of the requirements 

set out in the Basel II Accord. The internal audit division has a 

role to play here, and actually already performed an internal 

audit on the development and use of models in the network in 

2003. 

The procedure for obtaining external approval (from the regulatory 

authorities) can only get under way when the Basel II 

proposals are finalized and reflected in a European directive and 

transposed into national legislation. In the meantime, however, 

KBC will remain in close contact with the regulatory authorities, 

both in Belgium and in the countries where the subsidiaries 

operate. In Belgium, the regulatory authorities have already 

carried out a preliminary study of the ‘system’ banks, including 

KBC Bank, and the specific points arising from this study are 

already being taken into consideration. 



73


ALM: 

BPV of the transformation position 

KBC Bank, CBC Banque, Centea 


50 

45 

40 

35 

30 

25 

20 

15 

10 

5 

0 

01-2003 

70 

60 

50 

40 

30 

20 

10 

12-2003 

ALM: VAR, equity portfolio 

KBC Bank, CBC Banque, Centea 

0 

01-2003 


12-2003 

MARKET RISK 

Market risk is the potential for loss due to adverse changes in the value of positions held 

by the bank on the interest rate, foreign exchange, equity and derivatives markets 7 . 

Asset/Liability Management 

Description 

At the bank, Asset/Liability Management (ALM) entails managing the market risks attendant 

on balance-sheet and off-balance-sheet transactions in the banking book (i.e. all 

activities not belonging to the trading book, which encompasses the forex and securities 

trading activities of the bank and the specialized subsidiaries). 

The relevant types of risk are: 

*the interest rate risk linked to the branch network’s acquisition of working funds 

(demand accounts, savings accounts, savings certificates, etc.) and the use of those 

funds (via lending, among other things); 

*the interest rate and equity risk linked to holding an investment portfolio of bonds and 

shares; 

*a structural currency risk, stemming from the activities abroad (participating interests 

in a foreign currency, results posted at branches/subsidiaries abroad). 

Method 

The bank’s ALM interest rate activities are managed via a system of market-oriented 

internal pricing for dated products and via a benchmarking system (replicating portfolio 

approach) for undated products (demand and savings accounts, capital and reserves). 

For these last products, a benchmark maturity or maturity mix and a core amount 

(an amount that is relatively certain to remain available to the bank) are established, 

so that these products can be incorporated without difficulty into the internal riskmeasurement 

system. 

7 It also covers a number of credit risks, inasmuch as the relevant positions are held and used for trading purposes 

(e.g., the credit derivatives activities of KBC Financial Products). 

ALM ACTIVITIES 

(In millions of EUR) Transformation position 

BPV 

Equity portfolio 

VAR 

Average, 1 st quarter 2003 33.5 50.9 

Average, 2 nd quarter 2003 20.5 56.7 

Average, 3 rd quarter 2003 23.5 55.4 

Average, 4 th quarter 2003 27.4 54.0 

............................................................................................................................................................................................................................................................................................................................ 

End of 2003 25.4 52.0 

............................................................................................................................................................................................................................................................................................................................ 

Maximum in 2003 45.6 60.4 

Minimum in 2003 15.3 45.2

The bank may also hold an interest rate position with a view to acquiring interest 

income by creating a bond portfolio using short-term funds, based on the interest rate 

outlook and the short- and long-term interest rate gap. The entire interest rate position 

in these different books is referred to as the ‘transformation position’. 

The bank also manages, in a risk-neutral way, all the activity of the branch network in 

products that are not covered by the benchmarking method. 

No changes were made to this system in 2003. 

The bank pursues a prudent policy in managing its structural currency risk, essentially 

seeking to avoid currency risk. Participating interests in foreign currency are in principle 

funded by borrowing an amount in the relevant currency equal to the value of the net 

assets. The income expected from activities abroad is systematically and progressively 

hedged on a quarterly basis, so that the bank is only exposed to a limited extent to the 

impact of exchange rate fluctuations. 

To measure its vulnerability, the bank uses techniques designed to keep track of the 

market value (e.g., Basis-Point-Value and Value-at-Risk). In addition, such techniques as 

gap analysis, duration approach and scenario analysis are used. 

Risk in 2003 

During the first half of 2003, the total Basis-Point-Value (BPV) of the interest rate position 

fell to a low of 15.3 million euros in mid-June, before increasing again (figures 

include CBC Banque and Centea). This occurred against the backdrop of the sharp drop in 

interest rates. However, because of improved economic growth, rates are expected to 

rise again in 2004. 

The equities position (expressed as Value-at-Risk or VAR) increased slightly, due to 

mounting share prices. During the second half of 2003, limited selling took place on 

upward markets. 

The table shows the extent to which the value of the portfolio (Basis-Point-Value) would 

change if interest rates were to fall by ten basis points across the entire curve (positive 

figures indicate an increase in the value of the portfolio). It also shows the Value-at- 

Risk of the equity investment portfolio (ten-day holding period and 99% one-sided 

confidence interval). 

Besides KBC Bank NV, the figures also cover CBC Banque and Centea. Aside from this, the 

main risk the bank group runs is a transformation risk at its Central European subsidiaries. 

The BPV of these subsidiaries was estimated at -1.2 million euros at the end of 

2003. 

VAR, interest rate activities 

Dealing rooms 


35 

30 

25 

20 

15 

10 

5 

0 

01-2003 

Scenario analysis 

KBC Financial Products 


80 

70 

60 

50 

40 

30 

20 

10 

0 

01-2003 

12-2003 

12-2003 



75


Dealing rooms and specialized subsidiaries 

Description 

KBC Bank has a number of money and capital market dealing 

rooms in Western and Central Europe, the US and the Far East, 

though the dealing room in Brussels accounts for the lion’s 

share of the limits and risks. The dealing rooms abroad focus 

primarily on providing customer service in money and capital 

market products, funding local bank activities and engaging in 

limited trading for own account in local niches. All of the 

dealing rooms focus on trading in interest rate instruments, 

and activity on the forex markets has traditionally been very 

limited. 

Through its specialized subsidiaries, KBC Securities, KBC Peel 

Hunt, Patria Finance and KBC Financial Products, the Group also 

engages in trading in equities and their derivatives, such as 

options and convertible bonds. Via KBC Financial Products, the 

bank is also becoming increasingly involved in trading in credit 

derivatives, managing and providing services relating to hedge 

funds and launching and managing other instruments, including 

Collateralized Debt Obligations (CDOs). 

Method 

To measure and monitor interest rate and forex exposures in the 

trading book, the bank resorts to the Value-at-Risk (VAR) 

method. This method is designed to gauge the potential loss 

the bank may incur during a specific holding period, given a 

certain confidence interval. The bank uses the BIS standards 

(ten-day holding period and 99% one-sided confidence interval, 

historical data going back at least 250 days) and historical 

simulation, a method that does not rely on assumptions regarding 

the distribution of price fluctuations or underlying correlations, 

but is based rather on experience patterns over the 

previous year. 

To supplement the VAR method, the bank uses various other 

instruments such as gap analysis, Basis-Point-Value, concen- 

DEALING ROOM ACTIVITIES AND SPECIALIZED SUBSIDIARIES 

(In millions of EUR) VAR − interest 

rate activities 

tration limits, maturity restrictions and stop-loss limits. The FX 

VAR system is supplemented primarily by concentration limits. 

Standard VAR estimates are also systematically supplemented by 

stress-testing. This involves testing the impact of extraordinary 

market scenarios on the market value of the positions held. 

In 2003, this set of simulations was extended considerably to 

include position-dependent and historical stress-testing. The 

results of this testing are reported to the Market Committee at 

regular intervals. 

For option-linked products, the bank uses a method which 

entails estimating the potential loss by means of a scenario 

analysis that covers a broad range of shocks to a number of 

significant risk components, with a limit being imposed for the 

most negative outcome. For this purpose, two-dimensional 

(e.g., shocks to the underlying and volatility) or threedimensional 

(if other risk components, such as credit risk, 

undergo a shock) scenario analysis is used. 

Positions are also tracked on the basis of one-dimensional risk 

benchmarks (the so-called Greeks) in order to measure risks 

inherent in such developments as price changes (delta and 

gamma), changes in volatility (vega), changes to dividends 

(epsilon), shifts in interest rates (rho) and the passing of time 

(theta). 

Options activities on forex and interest rate markets are limited. 

However, KBC is exposed to a more pronounced risk in its 

options business on the equity markets and in its credit derivatives 

activity, for which the above-mentioned three-dimensional 

scenario analysis has been introduced. The parameters used in 

the scenario analysis for KBC Financial Products have been 

adjusted to match market movements more closely. 

Risk in 2003 

The Value-at-Risk of the bank’s interest rate and forex positions 

remained fairly stable at the 2002 level until the start of June. 

VAR − forex 

activities 

Scenario 

analysis, 

KBC Financial 

Products 

VAR − equity 

positions, 

KBC 

Securities 

Average, 1 st quarter 2003 19.6 1.3 55.8 0.4 

Average, 2 nd quarter 2003 19.2 2.2 51.7 0.2 

Average, 3 rd quarter 2003 23.7 2.2 32.4 0.6 

Average, 4 th quarter 2003 15.0 2.7 26.9 0.2 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

End of 2003 12.9 4.0 21.7 0.1 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Maximum in 2003 30.0 4.0 75.6 4.1 

Minimum in 2003 11.7 0.3 19.9 0.0

During the Summer, it increased sharply, chiefly as a result of 

pronounced volatility on the interest rate markets. However, 

(primarily interest rate) positions were actively reduced from 

September on. 

The table on the previous page shows the Value-at-Risk (99% 

confidence interval, ten-day holding period) for the bank’s 

dealing rooms on the money and capital markets, based on 

historical simulation. The results of the scenario analysis are 

given for KBC Financial Products. 

The reliability of the historical simulation model, which the 

bank has been using since mid-2002 to estimate potential loss, 

is tested daily via a theoretical back-test, which compares the 

VAR figure with the ‘no-action P&L’ (i.e. the result calculated 

for a position that is the same as the previous day’s). Despite 

the sharp market movements midway through 2003, the number 

of outliers at the consolidated level was still very limited, since 

the number of exceptional results that overshot the model estimate 

(the ‘outliers’) turned out to be lower than expected based 

on the statistical confidence interval. 

At KBC Financial Products, there was an increase in risks during 

the first half of 2003, due mainly to increased activity in arbitrage 

positions between the equity and credit markets and the 

issue of synthetic CDOs (pending the conclusion of the super 

senior swap − buying credit protection − credit protection was 

already being sold, leading to temporarily higher risk during 

this period). 

Derivatives 

See explanatory note 36: ’Off-balance-sheet headings’. 

LIQUIDITY RISK 

Liquidity risk relates to the loss the bank might incur if it is no 

longer able to fund its ordinary activities at acceptable terms. 

KBC Bank is able to limit its liquidity risk thanks mainly to its 

stable and broad customer base and widespread international 

reputation. However, it also observes conservative principles in 

determining the core amounts for benchmarking undated 

products: a considerable proportion of the available funds are, 

for instance, invested on the very short term in order to be able 

to cope with any deterioration of the deposit base. Lastly, longterm 

funding was attracted in 2003 in order to anchor the 

Group’s liquidity position. 

At various levels in the bank, there are a number of liquidity 

ratios and limits in place, following the Stock Liquidity Ratio 

and Liquidity Mismatch Ratio examples set by the UK’s Financial 

Services Authority. ‘Structural’ liquidity is monitored via a cover 

ratio for one-year to five-year time buckets (ratio of all liabilities 

to assets). Periodic reports are submitted to the competent 

committee, and in the event of a limit-overrun, a penalty is 

imposed in the form of a liquidity premium. 

The volume of unutilized ‘committed’ lines of credit has also 

been capped. These lines can be drawn on at any time and can 

therefore have a major impact on the bank’s liquidity management. 

OPERATIONAL RISK 

Operational risk is the likelihood that a loss will be incurred as 

a result of inadequacies or shortcomings in procedures or 

systems, human error or outside events. 

Under the guidance of the Operational Risk Committee, KBC 

continued to actively develop operational risk management in 

2003, paying particular attention to identifying operational 

risks in business processes and to designing a control structure 

and capturing operational losses. 

Identification of operational risks 

By the end of 2003, roughly thirty-five generic business 

processes were in place throughout the entire Group (i.e. 

commercial, administrative and support processes). Risk 

diagnostics are being carried out for each process, with each 

phase or step in the process being checked for possible operational 

risks and how they manifest themselves. The risks are 

then inventoried according to the Basel II classification. 

KBC Best Practice control principles are being drawn up for each 

type of risk. These are internal guidelines for managing risks by 

means of better internal controls or the transfer of risks outside 

the Group (e.g., via insurance). The risk diagnostics will make it 

possible not only to conduct a thorough review of the Internal 

Control Policy Manual that was drawn up by the bank a couple 

of years ago, but also to give it greater depth and integrate it. 

The intention is to roll out KBC’s best practices throughout the 

entire Group via ‘control self-assessments’. Each entity will be 

asked to award a score that reflects the extent to which each of 

the best practices has already been incorporated into its local 

procedures. If a certain minimum score (set by head office) is 

not achieved, a specific plan of action will have to be drawn up 

to implement the relevant best practice. 



77


Separate risk assessments will be used to gauge the frequency 

and financial impact of the different operational risks and 

(extreme) risk scenarios, at the level of both the individual 

entities and the entire organization. 

At a later stage, Group-wide (and, if possible, leading) risk indicators 

will be designed to measure how operational risks have 

developed, which should facilitate proper monitoring. 

Capture of operational losses 

With effect from 1 January 2004, a uniform method will be used 

in the entire bank group to register all operational losses in 

special ‘loss event accounts’. In addition, a full record of each 

event representing a potential loss of at least 1 000 euros will 

be kept in the KBC Loss Event Reporter, which should make it 

possible to link the loss event to a process, type of risk, etc., in 

keeping with the requirements of the Basel II Capital Accord. 

Targets for 2004 

The risk diagnostics for a number of processes are set to be 

completed in 2004, which means that a start can be made on 

the self-assessments within the Group. Initially, they will be 

aimed at the control environment and control structure, and to 

a lesser extent at the risks themselves (frequency, impact). 

2004 will also be the first year in which KBC employs a uniform 

method to capture operational loss event data throughout the 

Group. As a result, management reporting will gradually be 

developed on operational loss events, as well. These loss events 

will provide valuable indications of shortcomings in the control 

structure, which can then be rectified. 

Technology 

Managing operational risks, including reporting loss events and 

other details, will be supported throughout the Group by an 

integrated software package, which is currently being implemented 

and tested. The plans are to phase in this application, 

which will be used, for instance, when the first round of Groupwide 

self-assessments takes place. 

SOLVENCY RATIOS, KBCBANK 

Basel II method 

To calculate regulatory capital for operational risks under Basel 

II, KBC Bank is making preparations to apply the Standardized 

Approach. 

SOLVENCY RISK 

Solvency risk is the risk that the bank’s capital base will fall 

below an acceptable level. Solvency is checked against the 

minimum, in-house solvency ratios (tier-1 ratio and CAD ratio). 

The in-house targets for the tier-1 ratio and CAD ratio are 8% 

and 12%, respectively. 

As can be seen from the table, KBC Bank’s solvency ratios are 

excellent and well above the minimum required. A detailed 

breakdown of and changes in the solvency ratios can be found 

under ‘Solvency’ in the section entitled, ‘Consolidated annual 

accounts − KBC Bank and Insurance Holding Company NV’. 

Minimum requirement In-house target Actual figure 

31-12-2003 

Tier-1 ratio 4.0% 8% 9.5% 

CAD ratio 8.0% 12% 13.4%

RISK MANAGEMENT AT KBC INSURANCE 8 

INVESTMENT RISK 

This includes credit risk, liquidity risk and market risks. 

Organization 

The lion’s share of KBC Insurance’s investment portfolio is 

managed by KBC Asset Management. A specialized team within 

KBC Insurance’s Value and Risk Management Division handles 

the ALM studies and provides guidance to the asset managers at 

KBC Asset Management, who use their expertise for the tactical 

and operational management of the portfolios. 

An Investments Committee, which meets once a month, handles 

tactical asset allocation (within the confines of the strategic 

framework set by the Executive Committee) and supervises the 

policy pursued by the asset managers. Its members include 

representatives from KBC Insurance and its subsidiaries, KBC 

Asset Management and a number of risk management and 

macroeconomics experts from KBC Bank and KBC Insurance. 

ALM and investment policy in 2003 

The insurance company’s liabilities are broken down into more 

or less homogeneous groups on the basis of a number of 

criteria. Valuation and ALM models are used to determine the 

optimal composition of the investment portfolio (the strategic 

mix) per group, based on risk/return considerations. After being 

checked carefully in-house by the Executive Committee, 

the strategic mix is submitted to the Board of Directors. 

In 2003, particular attention was paid to the solvency risk 

attached to the investment mix used (see below) and to the risk 

of low interest rates. This latter risk is managed via the ALM 

policy of cash-flow matching, which is applied to that portion 

of the life portfolios covered by fixed-income securities. 

Given the uncertain financial climate, the life assurance business 

in 2003 (just as in 2002) was marked by buoyant sales of 

single premium products offering a guaranteed rate of interest 

for ten years. This called for a suitable investment strategy to 

ensure that both the interest rate guarantee and the surrender 

risk could be adequately managed. This strategy makes 

increasing use of new instruments that are set up in collaboration 

with other specialized Group entities. For instance, the 

historically very high interest rate on the credit markets at the 

start of 2003 was capitalized on, so that credit risks could be 

included in the investment portfolios via highly rated CDO 

tranches. This called for close co-operation with the credit 

portfolio management department at KBC Bank and with 

KBC Financial Products, which has the expertise to set up such 

products. To streamline this co-operation even more, the 

product development division of the life business, ALM, and the 

Group’s various market participants meet each month to 

exchange information about new developments in their specific 

fields and to examine ways in which product development and 

the investment strategy can be steered in new directions. 

Investment guidelines 

In addition to the strategic guidelines per sub-portfolio, KBC 

Insurance also has a number of general investment guidelines 

to ensure that the quality of the investment portfolio remains 

sound. 

Borrower risk 

A number of the guidelines for borrower risk are shown in the 

table below. 

8 Situation in 2003. 

SELECTION OF INVESTMENT GUIDELINES FOR BORROWER RISK, KBCINSURANCE 

Fixed-income securities 

% listed minimum 90% 

% government bonds of OECD countries minimum 40% current strategic mix: 80% 

% with A rating or higher minimum 95% current strategic mix: 100% 

% with AA rating or higher minimum 75% current strategic mix: 90% 

% subordinated bonds maximum 15% (and always with borrower rating of AA or higher) 

% corporate bonds maximum 20% 

Shares 

% listed 100% (excluding portfolio managed by KBC Investco) 



79


In 2003, for the purpose of monitoring borrower risk, increasing 

recourse was already being had to the KBC Bank departments 

specialized in that area. The intention is to develop a formal 

framework for monitoring credit risk at Group level in 2004. 

Currency risk, congruency policy and diversification 

Towards the end of 2003 and the start of 2004, the policy for 

hedging currency risks in respect of investments in financial 

fixed assets was adjusted to bring it in line with the method 

used at the bank. Moreover, KBC Insurance is not exposed to 

any significant currency risk through its investment portfolio. 

A minimum congruency is targeted of 90%. As regards geographical 

diversification, the focus lies on the euro zone. 

Decisions on the diversification of the equity portfolio across 

industry sectors are the purview of the Investments Committee. 

As to concentration risk and ‘free investments’ (which do not 

serve as cover for the insurer’s underwriting obligations), the 

guidelines issued by the former Belgian Insurance Supervisory 

Authority (now the Belgian Banking, Finance and Insurance 

Commission) apply. 

Liquidity risk 

Strict standards are observed as regards the percentage of 

bonds and shares that cannot be sold within one day with a 

minimum deviation in price. 

UNDERWRITING RISK 

The technical or underwriting risks include tariffication and 

acceptance risk, the risk that the reserves will prove inadequate 

and the risk of insurance fraud. 

Tariffication and acceptance risk 

The acceptance and tariffication policy is based on the 

company’s own technical analyses and market data. This policy 

determines what risk and market combinations KBC Insurance is 

prepared to do business in and at what price it is prepared to 

accept the relevant risks. In order to curtail exposures even 

further, the company also draws up an adequate reinsurance 

policy. 

When accepting an insurance risk, KBC Insurance not only takes 

account of its own internal rules governing acceptance, but also 

of external laws and regulations, such as anti-money-laundering 

legislation. 

KBC Insurance has its acceptance and tariffication policy 

double-checked. A certifying actuary uses technical analyses 

and models to determine whether the company is able to maintain 

underwriting equilibrium. In addition, the Audit, Control 

and Compliance Department ensures that acceptance and 

pricing meet all the relevant guidelines. 

Non-life business 

To set an appropriate price for a specific risk, all the relevant 

information is needed, and this is where the agent and the bank 

branch have an important role to play. To support its intermediaries, 

KBC Insurance makes available to them a whole array 

of instruments such as product guides describing the kind of 

information that is needed and what selection criteria the 

proposed risks have to meet. 

For a number of standard risks, sales staff use an online acceptance 

system that checks whether the proposed risk meets the 

specified acceptance criteria and then calculates the premium. 

If the outcome is positive, the policy can be signed straightaway; 

if it is negative, the information will be sent to the policy 

departments of KBC Insurance for appropriate acceptance and 

pricing. Non-standard risks must also be processed via the 

policy departments of KBC Insurance for acceptance. 

Also absolutely essential is the constant monitoring of the 

actuarial return on the insurance portfolio. For this purpose, 

KBC Insurance uses a business-economic model to evaluate the 

profitability of insurance activities on an annual basis and, by 

means of portfolio monitoring, the quality and homogeneity of 

the portfolio is enhanced. Moreover, an analysis carried out per 

point of sale enables KBC Insurance to pinpoint distribution 

outlets whose technical results might be improved upon. 

In addition, every product officer has to keep track of the 

profitability of the products for which he or she is responsible, 

and may suggest changes. 

Medical acceptance in the life business 

Where death, sickness and disability risks are concerned, the 

prior medical screening of the insured is necessary to preclude 

‘anti-selection’ and to price higher risks properly. Consequently, 

medical acceptance is a process designed to keep the portfolio 

from becoming unbalanced. In certain, exceptional cases, the 

process of acceptance will result in a person being refused 

insurance. Generally, however, higher risks are ‘normalized’ by 

charging a higher premium or taking measures to curtail risk.

Higher risks are assessed on the basis of statistical information 

obtained primarily from international studies conducted by 

reinsurers. Obtaining medical information on prospective policyholders 

is of course a very delicate matter, and is conducted 

entirely in line with the rules of professional secrecy observed 

in the medical profession and with privacy legislation. The data 

is assessed exclusively by specially medically trained personnel. 

Adequacy of technical provisions 

Non-life business 

To determine how extensive the technical provisions should be, 

systematic loss assessment is carried out on a case-by-case 

basis. Specialist claims managers for each class of property and 

casualty insurance, assisted by technical, legal and medical 

advisers, ensure that these assessments are constantly updated. 

An automated monitoring and reporting system ensures that 

claims managers are advised automatically at certain intervals 

of the need to update provisions for all their claims files. 

Life business 

For a number of years now, a policy has been conducted that 

takes into account the possible negative consequences of a 

sustained decline in interest rates. Sizeable supplementary 

reserves have already been built up, primarily for those products 

that are most susceptible to interest rate risk. For instance, 

technical provisions for products with a guaranteed rate of 

interest of 4.75% are calculated at a rate of 4%. In addition, 

supplementary provisions have been accumulated progressively 

under the ‘flashing lights’ system since 2000. This system 

requires insurance companies to set aside extra provisions if the 

guaranteed interest rate on a contract exceeds the ‘flashing 

light’ threshold by more than 0.1% (this threshold is equal to 

80% of the average interest rate over the past five years on 

10-year government bonds). 

Senescence reserves 

Senescence reserves are set aside for health insurance products 

contracted without a risk premium. To determine how extensive 

these reserves should be, account is taken of the higher risk 

attendant on the increase in age of the insured. 

Reinsurance 

Provisions for outstanding accepted reinsurance contracts are 

estimated on a case-by-case basis. The provisions for claims for 

the current year are estimated on the basis of the expected 

technical results. The provisions for claims of earlier years are 

based on the estimates of the companies having the risk 

reinsured. For all these estimates, KBC Insurance takes a conservative 

approach and explicitly takes account of extraordinary 

loss developments and changes in interest rates. If KBC Insurance 

expects a contract to result in a claim due to the nature 

of the risk, such as liability insurance, additional reserves are 

set aside for claims incurred, but not yet reported. 

Major accidents and catastrophes 

Reinsurance programme 

The insurance portfolios are protected against the impact of 

major claims by means of reinsurance. Reinsurance is taken out 

in close collaboration with Secura, the reinsurance subsidiary of 

KBC Insurance, which acts primarily as a consultant. 

The reinsurance programmes are divided up into three main 

groups: property insurance, liability insurance and personal 

insurance, which are re-evaluated and renegotiated every year. 

Most of the reinsurance contracts are concluded on a nonproportional 

basis, which provides cover against the impact of 

major claims or loss events. Where necessary, the general or 

‘treaty’ reinsurance programme is supplemented by facultative 

contracts, i.e. reinsurance contracts for individual risks. 

Equalization provision 

The insurance companies in the KBC Insurance Group set aside 

equalization provisions according to the guidelines laid down by 

their respective supervisory bodies. 

Claims control and anti-fraud measures 

Claims are handled quickly and efficiently via either the ‘KBC 

Call Center 24+’ or insurance agents, using the direct claims 

settlement procedure. Other claims not qualifying for settlement 

via this procedure are handled in the area offices of 

KBC Insurance, which will appoint loss adjusters if necessary. 

Serious accidents or accidents for which specific know-how is 

required are handled at the Central Claims Settlement Department. 

The activities of the internal loss adjusters and external advisers 

are monitored via a system which not only checks turnaround 

times and costs, but the quality of the work performed, as well. 

The work done by approved garages is also supervised closely. 

A good deal of attention is paid to assisting new loss adjusters, 

who are assigned an in-house claims co-ordinator as their 

personal coach. 

All the internal claims departments and loss adjusters are 

provided with a list of ‘flashing lights’ for detecting possible 

cases of fraud. Any indications of possible fraud turned up by 

this means are looked into by specialists who may call on the 

Anti-Fraud Unit for assistance. This unit also conducts an active 



81


anti-fraud policy. Additionally, the company has introduced the 

requisite procedures for disbursements in the life business in 

compliance with anti-money-laundering legislation. 

Lastly, mention should be made of the system KBC Insurance 

uses for the continuous, random checking of claims files. This 

serves as a tool to adjust and monitor the claims-handling 

process. Depending on what it turns up, changes may be made 

to the claims-handling process or other corrective measures 

taken, such as the introduction of appropriate training 

programmes for in-house staff. The Audit, Control and 

Compliance Department supervises whether the random 

checking is carried out properly and whether claims are handled 

correctly. 

OPERATIONAL RISKS 

Operational risk is the likelihood that a loss will be incurred as 

a result of inadequacies or shortcomings in procedures or 

systems, human error or outside events. 

Operational management at KBC Insurance is in the process of 

developing an internal control system for identifying and 

controlling critical operational risks. Various departments, 

functions and projects are involved in this process, including 

the Internal Audit Department, which is conducting a methodical 

evaluation of the existing internal control system, and − 

at the highest level − the Audit Committee, which assists the 

Board of Directors in its task of overseeing the insurance business. 

Within the KBC Group, an ICT policy has been drawn up which is 

aimed at safeguarding the integrity, confidentiality and availability 

of information and systems. To this end, numerous 

guidelines, procedures and codes of conduct have been drawn 

up. Their implementation is handled at KBC Insurance by a 

specially appointed Security Officer, who supports operational 

management in controlling operational risks that might crop up 

if the ICT policy does not work as it should. 

In 2004, the framework for operational risk management at KBC 

Insurance will be brought into line with the amended framework 

that is being developed at KBC Bank, which will require new 

arrangements to be made as regards the role of line management, 

the Audit Division and the Value and Risk Management 

Division in this regard. 

VALUE MANAGEMENT 

At the end of 1999, KBC Insurance began developing an 

environment for measuring the growth of the company in terms 

of value creation. KBC Insurance NV’s fast-growing portfolio of 

life assurance was tackled first. 

The value of the life assurance portfolio is expressed as ‘Embedded 

Value’. This is the sum of KBC Insurance’s Adjusted Net 

Asset Value, or ANAV, and the discounted value of all future 

cash flows from the existing portfolio (Value of Business in 

Force or VBI), account taken of the capital charge associated 

with this activity. Any form of goodwill or value of new business 

acquired in the future is not taken into account. 

The method, which had been developed to calculate embedded 

value, can also be used to analyse the value added by new 

contracts (Value of New Business or VNB) and to check the 

profitability of products under development (Profit Testing). 

Each year, a simulation model is used to chart the embedded 

value of the life assurance portfolio. Last year, this model was 

extended to include Group companies Fidea (a network of 

brokers in Belgium) and VITIS Life (Luxemburg), with 99.7% of 

new premium income, 92.8% of total premium income and 87% 

of the legal reserves being modelled for these companies. 

In 2003, the VBI of the life assurance portfolio went up yearon-year. 

The increase in value is attributable primarily to new 

production (at year-end 2002, the value of the existing portfolio 

remained quite stable), due chiefly to the considerable 

premium inflow into the Life Capital product (a modern, singlepremium 

class-21 product offering a guaranteed rate of interest 

for eight years), the mathematical reserves for which increased 

more than twice over in 2003. This product was sold with a 

guaranteed rate of interest of 3.25% in the first half of 2003 

and 2.75% in the second half. 

KBC aims to be able to provide more detailed embedded value 

information for year-end 2003 in the first half of 2004.

SOLVENCY RISK 

The insurer’s solvency, just as the bank’s, is checked regularly to 

see whether it meets statutory and in-house targets. 

The in-house target for the solvency ratio (implicit ratio) 

is 200% (i.e. twice the statutory minimum). 

Explicit solvency excludes unrealized gains and losses on the 

investment portfolio and came to 263% of the statutory 

minimum by year-end 2003, compared with 306% a year earlier. 

The implicit solvency ratio, which includes unrealized gains and 

losses on the investment portfolio, fell slightly from 320% at 

the end of 2002 to 316% at the end of 2003. A detailed breakdown 

of and changes in the solvency ratios can be found under 

‘Solvency’ in the section entitled, ‘Consolidated annual accounts 

- KBC Bank and Insurance Holding Company NV’. 

Consolidated solvency is evaluated every three months on the 

basis of an internal model and checked against the solvency 

criteria included in the ALM models, so that the investment mix 

can be adjusted if necessary. 

SOLVENCY RATIOS, KBCINSURANCE 

Minimum requirement In-house target Actual figure 

31-12-2003 

Explicit solvency ratio 100% - 263% 

Implicit solvency ratio 100% 200% 316% 



83

Socially responsible business 

Through its activities, KBC aims to contribute to the economic and social 

advancement of the communities it serves. Accordingly, it conducts its 

activities in compliance with both the letter and the spirit of prevailing 

laws and regulations. It also takes account of changing societal norms, 

norms which generally foreshadow subsequent legislation. 

FRAMEWORK 

Our view of and approach to community and 

social issues is reflected in the various commitments and guidelines that are encompassed in: 

*our mission statement; 

*the corporate anti-racism charter Ondernemers tegen racisme; 

*the Code of Conduct for the KBC Group; 

*the KBC Principles for Socially Responsible Business; 

*the KBC Environmental Policy Statement; 

*the Eco-dynamic Business Charter (KBC Bank Head Office − Brussels). 

In 2003, KBC continued its socially responsible business endeavours, embarking on numerous 

projects in the area of communication, ethics, conservation, social policy and community 

involvement. The main projects are described below. 

85

Socially responsible business KBC Bank & Insurance Group − 2003 Annual Report 86 

BUSINESS ETHICS 

The basic principle underlying ethical business practice is this: the 

desire to make an immediate profit should never take precedence 

over the long-term interests of the company and society. 

At KBC, this principle is upheld by means of various guidelines 

and codes of conduct, such as KBC’s lending policies: 

*KBC will only finance transactions if it can reasonably be 

assumed that, in doing so, normal ethical, legal and fiscal 

standards will be respected; 

*Criminal and other socially unacceptable activities are ruled out; 

*KBC is unwilling to finance companies which are exposed to 

significant environmental risks, such as the nuclear sector; 

*Specific and strict legislation will be complied with as regards 

the financing of arms transactions. 

Much attention is also paid to maintaining the confidentiality of 

information and to respecting privacy. KBC has, for example, set 

up a Financial Ethics Unit to check whether the relevant policy 

guidelines are being observed. 

Specific policies are also in place to help combat corruption and 

fraud. To prevent the laundering of money derived from criminal 

activities, a mandatory e-training course has been developed for 

all branch staff, and detection software installed to spot signs of 

money laundering. A number of measures have also been taken to 

combat insider trading, such as limiting the period in which 

employees working with sensitive statistical information may 

trade in securities. Insider trading, market manipulation and the 

intentional dissemination of erroneous or misleading information 

is dealt with at length in the Code of Conduct for KBC Currency 

Traders. 

ENVIRONMENTAL STEWARDSHIP 

Even though a financial group such as KBC has less of a direct 

impact on the environment than, say, an industrial company, 

its impact is not negligible, especially in the area of energy 

consumption and employee mobility. 

ENVIRONMENTAL EFFICIENCY 

The essence of its environmental endeavours is set out in 

the KBC Environmental Policy Statement 

(see the KBC Web site: www.kbc.com). 

Recent concrete initiatives in this area include: 

*The establishment of an Environmental Consultative Committee 

to gain as thorough a knowledge as possible of the relevant 

legislation and monitor any ongoing environmental projects. 

*The introduction (in 2003) of an environmental performance 

system at the head office buildings in Brussels. In this regard, 

KBC took part in the Eco-dynamic Business Project run by the 

Brussels Institute for Management of the Environment (Brussels 

Instituut voor Milieubeheer) and was awarded two stars out of a 

possible three. A selection of the environmental efficiency data 

for the head office buildings in Brussels is provided in the table 

below. The intention is to extend the information in this report 

gradually to cover the other Group head office buildings in 

Belgium. Attention was also paid to ecological matters in 

various other KBC Group company head offices. Last year, for 

instance, K&H Bank launched a project for the selective collection 

of waste at its head office premises in Hungary. It also 

installed a monitoring system for electricity consumption in 

various larger buildings and is gradually introducing modern and 

more energy-efficient systems. 

*The launch of various projects in Belgium for rational energy 

consumption, the purchase of green power, the selective collection 

of hazardous waste and the reduction of paper consumption. 

For instance, the quantity of printed advertising material 

will be cut by 50% by the start of 2004. 

*The introduction of KBC’s Environmental Policy, which provides 

insurance cover for mandatory soil decontamination. With this 

insurance, the clean-up operation is organized and paid for. 

*The exclusive financial and logistical support of ARGUS (the 

former Stichting Leefmilieu), a non-profit association that takes 

a scientific and objective approach to raising environmental 

awareness. 

*The adoption of the Equator Principles, which were established 

by the International Finance Corporation (a World Bank Group 

company) to ensure that large projects are carried out in accordance 

with social and environmental criteria. The principles are 

Data for all Havenlaan premises in Brussels 2002 2003 

Absolute Per FTE Absolute Per FTE 

Energy and raw material consumption 

Energy consumption (electricity, gas, heating oil, in GJ) 132 710 39.5 126 232 39.1 

Water consumption (in m 3 ) 49 077 14.6 39 893 12.4 

Paper consumption (number of sheets of white paper*) 85 million 12 957 66 million 10 262 

CO2 production, energy consumption (in tonnes) 9 223 2.8 8 742 2.7 

* Paper for printers and photocopiers in all of KBC Bank’s head office departments (i.e. including the other head office buildings, but excluding the branch network).

applied worldwide to projects in all industry sectors that entail a 

capital cost of 50 million US dollars or more. Through its subsidiary 

KBC Finance Ireland (which has offices in Brussels, Dublin, 

London, New York, Hong Kong and Sydney), KBC has extensive 

experience in financing large-scale projects of this kind in the 

energy, infrastructure, natural resources and telecom sectors. 

PERSONNEL AND IN-HOUSE SOCIAL POLICY 

EMPLOYEE SATISFACTION 

For a financial services group like KBC, employees are by far the 

most important resource. Their commitment, motivation and 

determination are the driving force behind much of the Group’s 

success. Consequently, employee satisfaction is an ongoing 

concern, and regular surveys are carried out to measure it. Based 

on the results of these surveys, specific actions are taken, such as 

projects to improve the quality of leadership and initiatives to 

improve the balance between employees’ professional and private 

lives. For instance: 

*KBC has a flexi-time system for head office employees, so staff 

have a broad window of time within which they can start and 

stop work. A significant percentage of employees also work on a 

part-time basis (see table). In addition, the maximum number of 

employees who can participate in the ‘time credit’ scheme was 

increased from 5% to 10% of the workforce in 2003. 

*KBC also wants to promote alternatives to using a car. 

Consequently, it has set up a car-pool database, put on a shuttle 

bus service between the railway stations and its head offices in 

Leuven and Brussels, and introduced an allowance for employees 

who cycle to work. 

*In the bank, the ‘Time-for-Money’ principle was put into practice, 

with staff in Belgium being given the opportunity to trade the 

premium agreed in the Collective Labour Agreement (CLA) for 

extra days off. More than 20% of the employees eligible elected 

to take the additional holidays. The scheme supplements KBC’s 

existing generous holiday plan which, in addition to statutory 

and non-statutory holidays, also entitles employees to days off 

for specific family events, civic duties or the illness of a resident 

family member. 

*Since 2002, KBC has run day-care pilot projects for children of 

head office staff in Belgium during the holiday months of July 

and August. In October 2003, KBC − in collaboration with an 

external partner − also launched a helpline for parents wanting 

to find suitable day-care facilities for their children. 

Over the past few years, KBC has organized a number of stock 

option plans for its employees. However, given the stock market 

malaise of recent years, it was far from certain that they would 

derive any benefit from exercising their options during the set 

periods. Hence, KBC decided in 2003 to extend the exercise 

periods, so that its employees stood a greater chance of gaining 

financially from any future rise in the price of the share. 

A number of insurance policies have also been introduced or 

adapted for staff and standardized for the entire KBC Group in 

Belgium. These include the hospitalization expenses policy, the 

new personal assistance policy and the comprehensive motor 

vehicle policy for occasional business trips. 

EQUAL TREATMENT 

It is basic KBC Group policy to treat all members of staff equally. 

For instance, in its staff regulations, selection and promotion 

policy and performance appraisal systems, KBC does not make any 

distinction whatsoever on the grounds of sex, religion, ethnic 

background, sexual inclination, etc. 

KBC, in its Code of Conduct for KBC Group Employees, explicitly 

endorses the Flemish Business Manifesto against the Exclusion of 

Migrants from Society (Vlaams Manifest van het Bedrijfsleven tegen 

Sociale Uitsluiting van Migranten), drawn up by the Flemish 

Economic Association. 

In its mission statement, KBC clearly indicates that it will not 

tolerate any undesirable behaviour whatsoever and it has 

developed and communicated a procedure in order to preclude or 

do away with all forms of violence, bullying and sexual harassment 

at work. 

NEGOTIATIONS WITH THE SOCIAL PARTNERS 

KBC attaches a great deal of importance to good social relations. 

In addition to holding constructive talks at works council meetings 

and at meetings with union representatives and with other 

consultative bodies, KBC also worked very closely in other areas 

with employee associations in 2003. 

For instance, the agreement reached at the end of 2002 on the 

amended working hours for the new retail network structure was 

implemented in KBC Bank in 2003. The bank also concluded a 

number of CLAs on the training and deployment of employees in 

so-called ‘risk groups’, the transfer of bank staff to Fin-Force, 

employee profit-sharing arrangements, supplementary pension 

schemes and employment conditions. 

At the insurance company, negotiations with the social partners 

were dominated by sector-specific talks which led to the conclusion 

of a CLA. This agreement focuses on qualitative elements, 

such as arrangements regarding job security, job classification, 

training and welfare, and the quality of life in the workplace. 



87

Socially responsible business KBC Bank & Insurance Group − 2003 Annual Report 88 

TRAINING 

KBC Bank and KBC Insurance are collaborating more and more 

closely in various areas, including human resources management. 

In 2004, a number of head-office training departments will be 

transferred to the KBC Bank and Insurance Holding Company and 

their area of operation extended to the entire KBC Group. 

As far as training is concerned, the KBC Bank and KBC Insurance 

training departments in Belgium have been integrated and located 

in the same building since September 2003. Career screening is 

also organized on a joint basis and regular meetings are held to 

discuss various staff-related matters. Special modules are used to 

train bank personnel in insurance (for instance, insurance advisers 

and SME relationship managers working in bank branches). 

In 2003, numerous training courses were again organized to teach 

communication and various process- and project-related skills, 

among other things. In some cases, training was carried out 

entirely or partially via e-training packages or workplace learning. 

The different change projects under way within the Group (such as 

the development of the new regional-area structure and the clustering 

of branches) were supported through various training 

initiatives. 

A separate knowledge management unit was set up to handle 

questions from the branch network and to look for training 

providers elsewhere in the KBC Group by, inter alia, using 

so-called ‘knowledge matrices’ to systematically map employees’ 

knowledge-related strengths and weaknesses. 

As part of the collaboration between KBC’s first home market in 

Belgium and the Central European entities, a wide range of training 

initiatives were again taken in 2003. One recurring scheme 

saw some 70 high-potential junior executives from the Group’s 

NUMBER OF STAFF 

Central European companies following a two- to three-month, allround 

bancassurance training course in Belgium. 

STAFFING LEVELS 

The employment trends within the KBC Group (including the principal 

subsidiaries in which KBC has a majority participation) are 

shown in the table. 

The increase in the Group’s workforce is largely attributable to the 

inclusion of the Polish company WARTA, in which KBC acquired a 

majority shareholding at the end of 2003 and, to a less extent, to 

VTB-VAB, in which KBC likewise took a majority shareholding last 

year. On the other hand, staffing levels were reduced at KBC Bank 

in Belgium (merger-related downsizing), at Centea (due to various 

factors, including the sale of Krefima), at KBC Nederland and KBC 

Securities (resulting from the repositioning of these subsidiaries) 

and in Central Europe (at Kredyt Bank, ČSOB, K&H Bank and a 

number of insurance subsidiaries). 

The reduction in the workforce at KBC Bank and the KBC Bank and 

Insurance Holding Company that stemmed partly from the virtual 

completion of the operational side of the merger was achieved 

through natural attrition, an increase in part-time work and a 

strict limit on external recruitment. Because of this limit, when 

filling job vacancies at KBC, priority is given to employees whose 

job has become redundant as a result of the internal reorganization. 

Many vacancies are also reserved for employees who transfer 

from another company within the Group. For instance, it has been 

decided that, when jobs open up at KBC Insurance, priority should 

be given to members of staff whose job has become redundant at 

KBC Bank. 

(In FTEs) * 

31-12-2002 31-12-2003 Change 

Total 

Total, excluding main changes in the scope of consolidation (chiefly WARTA and VTB-VAB in 2003, and 

47 729 49 725 4.2% 

Krefima in 2002) 47 633 46 266 -2.9% 

Breakdown by activity 

Banking 41 530 40 119 -3.4% 

Insurance 3 825 7 161 87.2% 

Asset management 310 282 -9.3% 

Holding-company activities 2 063 2 164 4.9% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Total 47 729 49 725 4.2% 

Breakdown by country/region 

Belgium 19 808 19 323 -2.4% 

Central Europe 25 583 28 231 10.3% 

Rest of the world 2 337 2 171 -7.1% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Total 47 729 49 725 4.2% 

* KBC Bank, KBC Insurance and the KBC Bank and Insurance Holding Company, including the principal subsidiaries in which they have a majority participation on 

31 December 2003. The figures do not include the distribution network of the insurance companies. Otherwise than in previous annual reports, the principal subsidiary 

companies of Kredyt Bank and C{SOB have been included in the figures (adjusted retroactively for 2002).

The table below provides a more detailed breakdown of the workforce 

at KBC Bank, KBC Insurance (excluding staff at their respective 

subsidiary companies) and the KBC holding company. 

COMMUNITY INVOLVEMENT 

KBC considers it to be one of its duties to contribute to the 

economic, social and cultural development of the communities it 

serves. 

This social commitment is reflected in any number of initiatives, 

including: 

*Various projects to fight social deprivation. By working together 

with community houses and other social associations, KBC 

endeavours to help restore the urban/social fabric in Belgium. 

Many of these projects aim to develop the ability of immigrant 

groups to cope on their own and to improve the employment 

prospects of the underprivileged by means of training schemes 

or other suitable projects. 

*Initiatives that encourage KBC employees to become more 

socially involved. In certain cases, for instance, employees may 

receive financial aid from KBC for charitable organizations that 

they do volunteer work for. KBC also encourages employees to 

participate in events organized for a good cause, such as Kom op 

tegen Kanker (an anti-cancer campaign). 

*Cultural sponsorship. In Belgium, KBC concentrates mainly on 

low-threshold projects designed to boost cultural participation, 

such as town and city cultural festivals. In 2003, KBC was title 

sponsor of the Beaufort project, which presented modern art to 

the general public in a contemporary way, free of charge. 

KBC also has a considerable historical patrimony of its own 

NUMBER OF STAFF (31-12-2003) 

which, in addition to buildings, includes an important collection 

of objects and works of art. These collections are regularly 

exhibited to the public. 

*Sponsorship in our second home market. KBC’s Central European 

subsidiaries also have a commitment to the community. For 

instance, ČSOB has worked for many years with ‘The Committee 

of Good Will − Olga Havlova Foundation’ on healthcare, education, 

social care and human rights projects, and with the ‘Our 

Child Foundation’, which offers help to children in crisis. It is 

also the main partner in the Světlusˇka project, which provides 

support to people with a visual handicap in the Czech Republic. 

As regards sports sponsorship, K&H Bank supports Hungary’s 

Olympic team. In Poland, the Mental Health Association in 

Lublin was able to open a home for the mentally ill, thanks to 

the financial support provided by Kredyt Bank. 

Lastly, the social role played by the KBC Group in the community 

is also reflected in the range of products and services it offers: 

*KBC does not charge senior citizens for non-electronic banking 

transactions carried out at its counters. 

*KBC also endeavours to offer insurance products that meet social 

needs. Examples include insurance cover against flooding, the 

environmental policy (see above) and the launch of a new motor 

insurance policy that features affordable rates for young people 

and a lifelong guarantee for seniors who have a good track 

record as prudent drivers. 

*KBC also runs regular prevention campaigns, such as anti-theft 

campaigns and road-safety campaigns (e.g., to promote the 

wearing of cycling helmets). 

KBC Bank NV KBC Insurance NV KBC Bank and Insurance 

Holding Company NV 

Number % of total Number % of total Number % of total 

Senior management 109 0.8% 43 2.2% 22 1.0% 

Junior and middle management 4 931 36.7% 490 24.9% 1 618 70.6% 

White- and blue-collar staff 8 414 62.5% 1 437 72.9% 652 28.4% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Permanent 13 454 100.0% 1 851 94.0% 2 292 100.0% 

Temporary 1 0.0% 119 6.0% 0 0.0% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Active 12 224 90.9% 1 752 88.9% 2 247 98.0% 

Non-active 1 230 9.1% 218 11.1% 45 2.0% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Belgium 12 796 95.1% 1 965 99.7% 2 292 100.0% 

Abroad 658 4.9% 5 0.3% 0 0.0% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Men 7 262 54.0% 808 41.0% 1 541 67.2% 

Women 6 192 46.0% 1 162 59.0% 751 32.8% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Full-time (100%) 9 908 73.6% 1 392 70.7% 1 785 77.9% 

Part-time (80%-100%) 1 789 13.3% 303 15.4% 375 16.4% 

Part-time (< 80%) 1 757 13.1% 275 14.0% 132 5.7% 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Total 13 454 100.0% 1 970 100.0% 2 292 100.0% 

Total in FTEs 12 324 - 1 782 - 2 164 - 

Average age 41.8 - 40.5 - 39.3 - 



89

Corporate governance 

MANAGEMENT STRUCTURE 

The management structure of the KBC Bank and Insurance Holding Company 

is based on a distinction between: 

*the development of general strategy, the supervision of management and the 

exercise of the specific powers laid down in company law and the Articles of 

Association, tasks that fall within the competence of the Board of Directors; 

*and the management of the holding company, a task conducted autonomously by 

the Executive Committee, which is made up of managing directors and acts within 

the framework of the general strategy defined by the Board of Directors. 

This dual management structure is set out in the Articles of Association, in the agreement on the 

autonomy of the banking business concluded among the KBC Bank and Insurance Holding 

Company, KBC Bank and the Belgian Banking, Finance and Insurance Commission (BFIC), and in 

the matching agreement on the autonomy of the insurance business concluded by the KBC Bank 

and Insurance Holding Company, KBC Insurance and the BFIC. 

91

Corporate governance KBC Bank & Insurance Group − 2003 Annual Report 92 

GROUP STRUCTURE 

As a financial holding company, the KBC Bank and Insurance 

Holding Company co-ordinates the activities of KBC Bank, 

KBC Insurance and KBC Asset Management. Within this group 

structure, tasks and responsibilities are divided up as follows: 


The KBC Bank and Insurance Holding Company (‘the holding 

company’) is responsible for the Group’s general strategy, the 

allocation of capital, profitability requirements, major strategic 

investments, risk management in the broad sense, general ALM 

policy, supervising the coherence of budgets, the profit planning 

of the banking and insurance businesses, and the overarching 

audit function. 

The holding company acts as the driving force in the integration 

of the banking and insurance activities and encourages 

the establishment of a number of committees for consultation 

between them. It is also involved in establishing the policies 

for the appointment and remuneration of directors and general 

managers. 

A number of support services have been transferred to the 

holding company (primarily marketing, communication, logistics 

and IT in 2002; certain risk management and human resources 

THE COMPOSITION AND ACTIVITIES OF THE BOARD OF DIRECTORS 

services towards the end of 2003 and the start of 2004) in an 

effort to integrate certain banking and insurance services as 

much as possible. By means of a cost-sharing structure, the cost 

of these services is allocated according to objective criteria 

amongst the Group companies. 

KBC Bank and KBC Insurance 

KBC Bank has competence in all matters specific to the banking 

business: 

*all bank-related matters, such as the lending function, 

the securities business, corporate and investment banking 

activities, and dealing room activities; 

*the organization and supervision of these bank-related 

matters, including audit and compliance, control and accounting, 

personnel policy and logistic support; 

*the drafting and implementation of commercial policy within 

the strategic framework defined by the holding company. 

KBC Insurance has competence in all matters specific to the 

insurance business: 

*all insurance-related matters, particularly all those inherent in 

the underwriting policy, such as the pricing and acceptance of 

risks, the claims-handling policy, the investment policy and 

the appropriation of the result with a view to enabling the 

insurance company to build up the capital required for 

business-economic purposes; 

Chairman A member of the Board who is not a member of the Executive Committee. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Members 23 (on 31 December 2003)*, appointed by the General Meeting of Shareholders (‘the General Meeting’) and consisting of managing 

directors (who together constitute the Executive Committee), representatives of the principal shareholders and independent directors. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Legal persons holding the None. 

office of director 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Term of office No longer than six years and expires after the General Meeting. Directors leaving office are eligible for re-election by the General 

Meeting. Non-executive directors and managing directors are subject to an age limit of 70 and 65, respectively. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Appointments Proposals to appoint non-executive directors have to be submitted to the Board by the Agenda Committee that acts in this matter as 

an appointments committee. In the appointment of directors and the renewal of their terms of office, consideration is given to 

creating a balance between knowledge of banking and insurance, the interests of the shareholders and external management 

expertise. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Meetings In principle, eleven a year. 

Additional meetings are held whenever this is in the company’s interest. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Resolutions A simple majority of votes is required to pass resolutions. 

In the case of a tie-vote, the chairman of the meeting has the deciding vote. In practice, the Board acts collectively and resolutions 

are passed by consensus. Where the law allows, the resolutions of the Board may be passed by unanimous written agreement of the 

directors. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Information All memoranda explaining agenda items have to be circulated to Board members by no later than three days prior to a meeting 

(unless this is impracticable), so that, if they so desire, Board members can obtain additional information from the Chairman of the 

Board or from members of the Executive Committee prior to the meeting. 

Directors will be briefed between meetings if any important events occur which affect the KBC Group. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Advice Directors may, at the company’s expense, seek the advice of an independent expert, if this initiative is approved by a majority of nonexecutive 

directors on the basis of a reasoned request. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

* This exceeds the number recommended by Euronext Brussels and the Belgian Banking, Finance and Insurance Commission as regards corporate governance, because the 

eight members of the Executive Committee also have a seat on the Board and because, both in the above-mentioned agreements on the autonomy of the banking and insurance 

businesses and in the corporate governance recommendations, it is stipulated that the Board must have a majority of non-executive directors serving on it.

*the organization and supervision of these insurance-related 

matters, including profitability management, financial 

management, protection of the rights of the insured and 

beneficiaries, audit and compliance, control and accounting, 

personnel policy and logistic support; 

*the drafting and implementation of commercial policy within 

the strategic framework defined by the holding company. 


The Group’s asset management activities are handled by KBC 

Asset Management. The fact that this subsidiary is a spin-off 

reflects the independent nature of asset management and 

demonstrates the importance the Group attaches to this area of 

activity, which is equally important to both the banking and 

insurance business. 

COMPOSITION OF THE BOARD OF DIRECTORS (31-12-2003) 

Name 

Primary 

responsibility 

BOARD OF DIRECTORS 

THE COMPOSITION AND 

ACTIVITIES OF THE BOARD OF DIRECTORS 

The activities of the Board of Directors (‘the Board’) are regulated 

by the Companies Code and the Articles of Association. 

Information regarding the composition of the Board and of the 

Executive Committee, the capacity of the directors as representatives 

of the principal shareholders or as independent directors, 

the main function of each director and the date upon which his 

term of office comes to an end is given in the table. The designation 

‘independent director’ is based on the criteria set out in 

the new Article 524 §§2 and 4 of the Companies Code. 

Willy Breesch Chairman of the Board of Directors 2004 v v v v* 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Jan Huyghebaert Vice-Chairman of the Board of Directors/Chairman, Almanij NV 2008 v v v v v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Willy Duron President of the Executive Committee 2004 v* v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

André Bergen Vice-President of the Executive Committee 2007 v v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Herman Agneessens Managing Director and member of the Executive Committee 2006 v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Emile Celis Managing Director and member of the Executive Committee 2004 v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Jozef Cornu Managing Director, Alcatel NV 2008 v v v* 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Christian Defrancq Managing Director and member of the Executive Committee 2004 v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Frank Donck Managing Director, 3D NV 2007 v v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Rik Donckels Member of the Executive Committee, Cera Holding CV 2004 v v v v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Frans Florquin Managing Director and member of the Executive Committee 2004 v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Herwig Langohr Professor, INSEAD 2007 v v v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Xavier Liénart Director of various companies 2004 v v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Paul Peeters Director, Pharmacia NV 2004 v v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Luc Philips Managing Director, Almanij NV 2005 v v v* v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Theodoros Roussis CEO, Ravago Plastics NV 2008 v v v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Guido Segers Managing Director and member of the Executive Committee 2009 v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Patrick Vanden Avenne Managing Director, Vanden Avenne-Ooigem NV 2004 v v v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Jan Vanhevel Managing Director and member of the Executive Committee 2009 v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Germain Vantieghem Member of the Executive Committee, Cera Holding CV 2004 v v v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Marc Wittemans Director, Maatschappij voor Roerend Bezit van de Belgische Boer- 2004 v v v 

enbond CV 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Dirk Wauters Vice-President, Siemens Atea NV 2008 v v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Alfons Wouters Chairman, Board of Directors, KBC Insurance NV 2004 v v v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

* Chairman of the committee. 

End, current 

term of office 

Secretary to the Board of Directors and the Executive Committee: Jos Aerts. 

Auditor: Ernst & Young Bedrijfsrevisoren BCV, represented by Jean-Pierre Romont and Danielle Vermaelen. 

Non-executive 

directors 

Representatives, 

principal shareholders 

Independent directors 



Agenda/Appointments 

Committee 

Remuneration 

Committee 



93


In 2003, the following changes occurred in the composition of 

the Board: 

At the General Meeting of 24 April 2003: 

*Remi Vermeiren stepped down as director and President of the 

Executive Committee, and was replaced by André Bergen as 

director; 

*Thomas Leysen retired as director and was replaced by 

Dirk Wauters; 

*Frank Donck was appointed director, replacing (the late) 

John Goossens; 

*Guido Segers was appointed director. 

Ferdinand Verdonck retired as director with effect from 

1 July 2003. 

MEETINGS OF THE BOARD IN 2003 

The Board met eleven times in 2003; the meetings were 

attended by virtually all members. 

Besides carrying out the activities required under the Companies 

Code (such as preparing the consolidated and non-consolidated 

annual financial statements and the annual report for the 2002 

financial year, setting the agenda for the General Meeting and 

proposing how profit should be appropriated), monitoring the 

monthly performance of KBC Bank, KBC Insurance, KBC Asset 

Management and their respective subsidiaries, reviewing the 

quarterly results and the activities of the Audit and Remuneration 

Committees, the Board also dealt with the following 

matters: 

*progress on the merger front; 

*the establishment of an Internal Code on the incompatibility 

of company offices; 

*the organization of risk management within the Group; 

*the restructuring of the retail network; 

*the policy on management development and exchanges with 

Central Europe; 

*the extension of the life of the stock options issued between 

1 January 1999 and 31 December 2002; 

*employee satisfaction; 

*the development and strategy of the various areas of activity; 

*the approval of the budget for 2004 and the annual plans for 

2004-2006; 

*the development of the various Central-European Group companies. 

MANAGEMENT SUPERVISION 

In order to permit the Board to fulfil its supervisory task, the 

Executive Committee reports to it each month on the trend of 

results at KBC Insurance and KBC Bank. The Board monitors 

these results by checking them against the profit plan it has 

approved. 

In addition, the Board keeps abreast of the general course of 

business at KBC Insurance, KBC Bank and KBC Asset 

Management, as well as of major events or projects that have 

taken place since the previous Board meeting. The Board may 

also request from the Executive Committee or the auditor 

special reports on all matters that could have a material impact 

on the company. The Board and its Chairman may require that 

all information or documents be submitted to it and may have 

inquiries carried out. 

A key role in the Board’s supervisory activities is played by the 

Audit Committee (see below). 

SUPERVISION OF SUBSIDIARIES AND COMPANIES IN 

WHICH A PARTICIPATING INTEREST IS HELD 

Because the KBC Bank and Insurance Holding Company is a 

financial holding company whose object is to keep and manage, 

both directly and indirectly, its holdings in KBC Bank, 

REMUNERATION AND SHAREHOLDINGS OF MEMBERS OF THE BOARD OF DIRECTORS (31-12-2003) 

Members of the Executive Committee Non-executive directors Board of Directors (total) 

Remuneration (gross, before tax, in EUR) 5 285 714, 1 

1 578 618 

1 513 072 of which by way of a variable emolument 

2 

6 864 332 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Total number of KBC shares 10 234 80 962 91 196 

Total number of MCBs maturing in 2008 630 1 173 1 803 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Total number of options on KBC shares 63 200 23 100 86 300 

Number of options on KBC shares allotted in 2003 7 700 0 0 

1 Remuneration paid to the current members of the Executive Committee and those members who stepped down in 2002 and 2003; the amount includes the emoluments 

received for the offices held in other Group companies. 

2 Including the profit share awarded under the Articles of Association for financial year 2002 and paid out in 2003.

KBC Insurance, KBC Asset Management and their respective 

subsidiaries, the deliberations of the Board are focused on 

supervising the activities and the performance of these subsidiaries 

and companies in which participating interests are held. 

The Board monitors developments at the sub-subsidiaries for 

the purpose of reporting the consolidated results. Whenever 

major developments occur at these companies, the Board is 

informed thereof on an ad hoc basis. 

The two subsidiaries likewise have audit committees. The 

chairman of the audit committee of the KBC Bank and Insurance 

Holding Company presides over both the other audit committees, 

as well. 

THE MANAGEMENT FUNCTION 

Non-executive directors and members of the Executive 

Committee perform their management function according to the 

dual management structure explained at the beginning of this 

section. Otherwise, the Board has not established any further 

rules regarding the performance of the management function. 

REMUNERATION AND SHAREHOLDINGS 

The remuneration of non-executive directors consists exclusively 

of an attendance fee (set by the General Meeting) for each 

meeting of the Board attended and a proportion of the profit 

share allotted annually to the Board. 

Pursuant to the Articles of Association, up to 5% of the dividend 

paid out may be allotted to the Board by way of profit 

share. Distribution of this profit share is on the basis of an 

arrangement established by the Board, the annual allocation 

being handled by the Remuneration Committee. The Chairman of 

the Board also receives a fixed monthly emolument. 

The KBC Bank and Insurance Holding Company does not grant 

loans to directors. Such loans may, however, be granted by KBC 

COMPOSITION AND ACTIVITIES OF THE EXECUTIVE COMMITTEE (EC) 

Bank in compliance with Article 28 of the law of 22 March 1993 

on the status and supervision of credit institutions, meaning 

that the loans may be granted at terms applying to customers. 

EXECUTIVE COMMITTEE 

The Board constitutes an Executive Committee from among its 

members that is responsible for managing the KBC Bank and 

Insurance Holding Company in line with the general strategy set 

by the Board. The names of the members of the Executive 

Committee and the date on which their term of office comes to 

an end are given in the table at the start of this section. 

In keeping with the resolutions which were passed at the 

General Meeting relating to terms of office, the following 

appointments were made to the Executive Committee at the 

meeting of the Board of Directors on 24 April 2003: 

*Willy Duron was appointed President of the Executive 

Committee, succeeding Remi Vermeiren; 

*André Bergen was appointed member and Vice-President of the 

Executive Committee; 

*Guido Segers was appointed member of the Executive 

Committee, replacing Luc Philips, who stood down as a 

member on the same day, because of his imminent appointment 

to Almanij NV. 

The financial remuneration of the members of the Executive 

Committee (including the supplementary pension scheme) is set 

by the Board, based on a proposal by the Remuneration 

Committee. For this purpose, a regular comparison is made with 

remuneration levels prevailing in the market. 

The members of the Executive Committee are remunerated by 

means of a fixed monthly emolument, a variable annual emolument 

(the amount of which depends on the consolidated profit 

of the holding company) and options on KBC Bank and 

Insurance Holding Company shares (this depends on a minimum 

annual increase in earnings per share being achieved, and allotment 

is also progressive on this basis). They also participate in 

Members Eight (on 31 December 2003), comprising the members of the ECs of both KBC Bank and KBC Insurance. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Age limit 65 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Appointments The President, the Vice-President and the other members of the EC are appointed by the Board and, by virtue of their appointment, 

become managing directors. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Meetings One a week, but additional meetings are held whenever demanded by the interests of the company. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Resolutions The EC acts collectively. It may divide its duties up amongst its members, but this does not detract from their collective responsibility. 

Resolutions are passed by consensus. 



95


the stock option plans organized for KBC staff. Moreover, the 

President and Vice-President receive a number of additional 

stock options each year, based on the consolidated profit of the 

holding company. An income ceiling applies to the aggregated 

(fixed and variable) emoluments paid annually to each member 

of the Executive Committee. The emoluments they receive for 

the offices they hold in other companies are set off against the 

above-mentioned remuneration. 

The total remuneration (fixed and variable emoluments) paid to 

members of the Executive Committee in 2003 is shown in the 

‘Remuneration and shareholdings of members of the Board of 

Directors (31-12-2003)’ table. In 2003, a total of 7 700 stock 

options, with an exercise price of 34.91 euros and a life of 

seven years, were allotted gratis to members of the Executive 

Committee. 

The supplementary pension scheme comprises a supplementary 

retirement pension or − if the insured dies and leaves a spouse 

− a survivor’s pension. The annuity payable under the supplementary 

retirement pension amounts to a maximum 33-36% 

of the annual income ceiling, depending on whether the beneficiary 

is the president of the Executive Committee, the vicepresident 

or an ordinary member. The survivor’s pension is equal 

to a maximum of 50% of this figure. 

Remuneration of the members of the Executive Committee is 

charged to KBC Bank or KBC Insurance, depending on which 

Executive Committee the individual in question belongs to. 

COMMITTEES SET UP BY THE BOARD OF DIRECTORS 

The Executive Committees of the holding company and of KBC 

Bank and KBC Insurance have been meeting jointly since mid- 

September 2003, which considerably improves their efficiency 

and has led to the de facto integration of the bank and the 

insurer right up to the highest level. 

At the same time, these Executive Committees delegated some 

of their authority to a number of committees. Several members 

of the Executive Committee and a number of senior managers 

sit on each of these committees, viz.: the Retail and Private 

Bancassurance Committee, the Central Europe Committee, the 

Insurance Committee, the Central Credit Committee, the ICT 

Committee, the Market Risk Committee, the Insurance Risk 

Committee, the Credit Risk Committee, the Operational Risk 

Committee and the Investment Committee (the Group ALCO 

since the start of 2004). The establishment of these committees 

led to the discontinuation of the previous management committees. 

At the beginning of 2004, the Group Value and Risk 

Committee was set up at the level of the holding company to 

serve as an overarching steering committee for the various risk 

committees, among other things. 

Without detracting from their collective responsibility, each 

member of the Executive Committee has the specific task of 

following up certain business areas. This division of responsibility, 

which is decided upon in the Executive Committee itself, 

is regularly examined and adapted, if necessary. 

Agenda Committee 

Members Six, comprising the Chairman of the Board, the President and Vice-President of the Executive Committee and three non-executive 

directors. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Responsibilities Prepares the agenda and the matters for deliberation by the Board. 

Acts as an appointments committee, formulating proposals regarding the appointment of directors. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Meetings Prior to each Board meeting, at least. 


Members Nine non-executive directors, three of whom are independent directors 1 . 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Responsibilities Assists the Board in the performance of its supervisory task. Its remit is to ensure compliance with legal and regulatory requirements, 

with policy guidelines and procedures approved by the Board, and to supervise risk and internal control. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Meetings Six a year, in the presence of the President of the Executive Committee, the internal auditor, the officers of the control and accounting 

divisions of KBC Bank and KBC Insurance 2 . After each meeting, the committee submits a report on its work to the Board. 

Remuneration Committee 

Members Three, comprising one independent director and two representatives of the principal shareholders. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Responsibilities Determines, within the bounds of the authority delegated by the Board, the remuneration of the members of the Executive Committee 

and prepares the decisions concerning the profit share awarded under the Articles of Association to the members of the Board. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Meetings Ad hoc. The committee submits a report on its work annually to the Board. 

1 The fact that these last do not constitute a majority, as recommended by Euronext Brussels is due to the desire to have the composition of this committee reflect that of the 

Board and largely correspond to that of the audit committees of KBC Insurance and KBC Bank. 

2 A number of its meetings, including those convened to discuss the publication of the results and the financial situation, are also attended by the auditor.

COMMITTEES SET UP 

BY THE BOARD OF DIRECTORS 

To carry out the preparatory work for the activities of the Board 

and to support it in carrying out its duties, three ad hoc 

committees have been established within it (see table), the 

composition of which is set out in the table at the beginning of 

this section. 

Detailed description of the Audit Committee’s responsibilities: 

*to approve the annual audit plan of the internal auditor, take 

cognizance of the external auditor’s audit plan and discuss 

their reports; 

*to discuss the reports of the Risk Management Division, with 

briefings focusing on recent developments in market risk 

monitoring; 

*to review the drafts of the annual accounts and of the press 

releases on the quarterly results prior to their submission to 

the Board; 

*to subject to scrutiny any matter that falls within its competence 

and to that end requisition all relevant information. 

In 2003, the Audit Committee reviewed reports on the following 

topics, among others: 

*evaluation of the risk-management methodology; 

*development of the compliance function in Central Europe; 

*implementation of audit recommendations; 

*inspection activities in the branch network; 

*crisis management; 

*loan loss provisioning at Kredyt Bank; 

*the fraud at K&H Equities; 

*new circulars issued by the BFIC; 

*satisfaction survey on the service provided by the auditor. 

Furthermore, it may consult external experts if a reasoned 

request to that end is submitted by its chairman and approved 

by the Board. 

PROFIT APPROPRIATION POLICY 

It is the intention of the Board to propose to the General 

Meeting of Shareholders that approximately 40-45% of the 

consolidated profit for the year be paid out in the form of dividends. 

Barring exceptional circumstances, this policy will 

continue to be adhered to in the future. Should the profit for 

the year experience a decline which the Board deems to be 

temporary in nature, then the payout ratio may be increased to 

ensure that the dividend remains relatively stable. 

RELATIONS WITH THE PRINCIPAL SHAREHOLDERS 

On 31 December 2003, Almanij NV (with registered office at 33 

Schoenmarkt, Antwerp) held a controlling participation in the 

KBC Bank and Insurance Holding Company NV of 66.73%. 

A shareholder agreement was concluded in December 1999 

between Cera Holding and the other permanent shareholders in 

Almanij. The purpose of this agreement is to support and coordinate 

Almanij’s general policy and to supervise its implementation. 

By the terms of the agreement, the voting rights linked 

to the shares allocated to each party under the shareholder 

agreement are to be exercised collectively and reciprocal preemptive 

rights have been granted with respect to these shares. 

In addition, the co-operative Maatschappij voor Roerend Bezit 

van de Belgische Boerenbond, or MRBB, acts as stable shareholder 

for the Almanij Group. 

KBC is not aware of the existence of any shareholder or management 

committees other than the above. 

Commercial transactions between KBC and Almanij do not take 

place at the level of the KBC Bank and Insurance Holding 

Company, but at the level of the operating companies, principally 

KBC Bank, based on ‘arm’s length’ principles and objective 

evaluations carried out by the competent division or committee. 

These transactions are supervised by the management bodies of 

the operating companies concerned. 

APPOINTMENTS 

At the 2004 General Meeting, the terms of office of 

Willy Breesch, Willy Duron, Emile Celis, Christian Defrancq, 

Rik Donckels, Frans Florquin, Xavier Liénart, Paul Peeters, 

Patrick Vanden Avenne, Germain Vantieghem, Marc Wittemans 

and Alfons Wouters will come to an end. It is proposed that the 

general meeting re-appoint them for a further period of six 

years, pursuant to the Articles of Association, with 

Willy Breesch and Alfons Wouters being re-appointed as independent 

directors within the meaning of and in line with the 

criteria laid down in Article 524 of the Companies Code. It is 

also proposed that the appointment of Jozef Cornu and Herwig 

Langohr as independent directors within the meaning of and in 

line with the criteria laid down in Article 524 of the Companies 

Code be confirmed for the remainder of their terms of office. 

On the date of the 2004 General Meeting, the auditor’s mandate 

will likewise come to an end. 



97


The Board of Directors proposes that Ernst & Young Bedrijfsrevisoren 

BCV, represented by Jean-Pierre Romont and Danielle 

Vermaelen, be re-appointed as auditor for the statutory period 

of three years. 

KBC STOCK OPTION PLAN - 

CONFLICT OF INTERESTS 

At the Board meeting of 24 April 2003, the life of the stock 

options issued under the KBC Stock Option Plans between 

1 January 1999 through 31 December 2002 was extended. In 

view of the fact that these options are allocated not only to the 

BOARD OF DIRECTORS OF KBC BANK (31-12-2003) 

staff of the KBC Group, but also to the Chairman of the Board 

and the members of the Executive Committee, this resolution 

was passed in compliance with Article 523 of the Companies 

Code. The minutes of the above-mentioned Board meeting, 

where they relate to the aforementioned extension, are given in 

detail on page 99. 

PROSPECTS FOR THE KBC BANK AND 

INSURANCE HOLDING COMPANY 

Please see the ‘Group results’ section, more particularly the 

passage entitled ‘Profit outlook’. 

Executive Committee Audit Committee 

Willy Breesch (Chairman of the Board) v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Jan Huyghebaert (Vice-Chairman of the Board) v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

André Bergen (President of the Executive Committee) v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Herman Agneessens v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Rik Donckels 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Frans Florquin v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Eric Mertens 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Luc Philips v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Guido Segers v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Jan Vanhevel v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Herman Van Thillo 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Germain Vantieghem v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Marc Wittemans v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Secretary to the Board of Directors and the Executive Committee: Jos Aerts. 

Auditor: Ernst & Young Bedrijfsrevisoren BCV, represented by Jean-Pierre Romont and Danielle Vermaelen. 

BOARD OF DIRECTORS OF KBC INSURANCE (31-12-2003) 

Executive Committee Audit Committee 

Alfons Wouters (Chairman of the Board) v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Willy Duron (President of the Executive Committee) v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Emile Celis v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Ann Collin 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Christian Defrancq v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Noël Devisch 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Rik Donckels 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Carla Durlet 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Jan Huyghebaert 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Herwig Langohr 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Luc Philips v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Harold Vanden Avenne v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Germain Vantieghem v 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Secretary to the Board of Directors and the Executive Committee: Dirk Verdonckt. 

Auditor: Ernst & Young Bedrijfsrevisoren BCV, represented by Jean-Pierre Romont and Jan De Landsheer.

‘Prior to the discussion of item number six on the agenda, the meeting noted that 

the members of the Executive Committee (with the exception of Mr. André 

Bergen), as well as Messrs. Willy Breesch, Alfons Wouters and Luc Philips 

announced that they had a conflicting interest under property law with regard to 

agenda item number six, and that Messrs. W. Breesch, A. Wouters and L. Philips 

announced that they had a similar conflicting interest with regard to agenda item 

number seven. 

The directors in question declared that their conflicting interest under property 

law arose from the fact that they held stock options eligible for the extension 

proposed in agenda item number six. 

Since the company is offering to extend the life of the stock options held by 

Messrs. W. Breesch, A. Wouters and L. Philips, Messrs. W. Breesch, A. Wouters and 

L. Philips have a conflicting interest with regard to the seventh item on the 

agenda. 

Nevertheless, they were all of the opinion that, particularly since the average 

exercise price of the stock options was almost 50% higher than the current market 

price of the underlying share, extending the life of the stock options would be in 

the interests of the company and of the entire KBC Group, as it would continue to 

enhance the commitment of the directors (Mr. A. Bergen excepted) active in the 

company and the KBC Group on a full-time basis, of the Chairman of the Board of 

Directors of the company, of Messrs. A. Wouters and L. Philips and of the 

personnel of the KBC Group, as well as their involvement in the affairs of the KBC 

Group. 

Moreover, extending the life of the stock options would be to the benefit of the 

other Group companies, because, if the stock options were not exercised, the 

companies in question would be obliged − when the stock options expire − to pay 

the company any positive difference between the exercise price of the stock 

option and the market price of the underlying share, and this commensurate with 

the number of stock options allocated to their employees. 

The directors in question likewise declared that they had informed the auditor of 

the company of their interest. 

The Chairman of the Board of Directors asked the secretary to record the declaration 

of the directors in question and the justification provided in the minutes of 

this meeting of the Board of Directors. 

The directors in question then left the meeting during the deliberations and the 

vote on items six and seven on the agenda in respect of which they had 

announced that they had a conflicting interest. The Vice-Chairman of the Board, 

Mr. Jan Huyghebaert, chaired the meeting for these agenda items. 

6. Three-year extension of the life of the stock options issued by the company 

under the stock option plans concluded between 1 January 1999 and 

31 December 2002, on the suspensive condition that the beneficiaries accepted 

this extension. 

The Board unanimously passed the following resolutions: 

A. The Board of Directors resolved to extend by three years the life of the stock 

options issued by the company under the stock option plans concluded 

between 1 January 1999 and 31 December 2002, on the suspensive condition 

that the beneficiaries of the stock options accept this extension. 

B. This extension concerns the life of the stock options issued by the company 

under: 

- the KBC Stock Option Plan in 2000, which was approved by the Board of 

Directors on 27 March 2000 and by the ad hoc committee on 10 May 2000; 

- the KBC Stock Option Plan for Private Banking in 2000, which was 

approved by the ad hoc committee on 23 November 2000; 

- the KBC Stock Option Plan for Expats in 2000, which was approved by the 

ad hoc committee on 21 December 2000; 

- the KBC Stock Option Plan for the best-performing employees in 2001, 

which was approved by the ad hoc committee on 2 May 2001; 

- the KBC Stock Option Plan in 2002, which was approved by the ad hoc 

committee on 13 May 2002; 

- the KBC Stock Option Plan for Expats in 2002, which was approved by the 

ad hoc committee on 13 May 2002; 

(hereinafter referred to collectively as the ‘Plans’ or individually as a ‘Plan’). 

C. The cost of the extension will be passed on to the Group companies (defined 

as all the companies, other than the company, which have allocated options 

to their employees under a Plan, including Cera Holding), as well as to 

Krefima and Finmatic. The company itself will bear the cost of extending the 

life of the stock options allocated to its own employees. 

The cost of extending the life of each stock option involved is calculated as 

follows: the interest charged on funding (before tax) an amount equal to 

the exercise price of the share option less (-) the pre-tax dividend expected 

on the share underlying the stock option during the extended life of the 

stock option, whereby 

- this interest is equal to the market rate prevailing on 4 August 2003 for a 

funding operation commencing on the first day of the extension and 

ending on the (extended) expiry date of the stock option, times three 

(years). 

- the pre-tax dividend is equal to the sum of the pre-tax dividends which 

the company expects to collect on the share underlying the stock option 

during the extended life of three years. The calculation of these expected 

dividends is based on the pre-tax dividend for the 2002 financial year and 

the assumption that the dividends for the following financial years will 

increase by 5% per year. 

Of course, if the outcome of the above calculation turns out to be negative, 

no ‘costs’ will be passed on to the Group companies, to Krefima or to 

Finmatic. 

The cost concerned will be borne by the Group company (as well as by 

Krefima and Finmatic) employing the beneficiary on the date the extension 

is proposed or which last employed the beneficiary who has retained his/her 

stock options, pursuant to the applicable resolutions and regulations, 

inasmuch as and to the extent that the beneficiaries have accepted the 

extension in question. 

D. The extension is only acceptable if each Group company, Krefima and 

Finmatic, extends by three years the duration of the guarantee (whether or 

not in the form of an undertaking to pay a price supplement) provided under 

a Plan or otherwise for the purpose of hedging the risk of any drop in price 

relative to the exercise price, which could arise for the KBC Bank and 

Insurance Holding Company, if the stock options are not exercised. The cost 

of extending the duration of the guarantee will be borne by the Group 

company (including Krefima and Finmatic) employing the beneficiary on the 

date the extension is proposed or which last employed the beneficiary who 

has retained his/her stock options, pursuant to the applicable resolutions 

and regulations, inasmuch as and to the extent that the beneficiaries have 

accepted the extension in question. 

E. The Board of Directors delegated authority to the Executive Committee − 

which may sub-delegate this authority − to take the decisions required to 

implement this resolution and to enter into an agreement on behalf of the 

company with the Group companies, Krefima and Finmatic, containing the 

terms, conditions and provisions governing the extension of the stock 

options. 

F. This extension means that all stock options issued by the company under 

the Plans will have a life of ten years instead of seven. The terms and conditions 

for exercising the stock options during the extended life are the 

same as those in force during the original life, as described in the applicable 

resolutions and regulations. 

The Board of Directors was of the opinion that, particularly since the 

average exercise price of the stock options is almost 50% higher than the 

current market price of the underlying share, extending the life of the stock 

options would be in the interests of the company and of the entire KBC 

Group, as it would enhance the commitment of the directors (Mr. A. Bergen 

excepted) active in the company and the KBC Group on a full-time basis, of 

the Chairman of the Board of Directors of the company, of Messrs. 

A. Wouters and L. Philips and of the personnel of the KBC Group, as well as 

their involvement in the affairs of the KBC Group. 

Moreover, extending the life of the stock options is to the benefit of the 

Group companies, because, if the stock options were not exercised, the 

companies in question would be obliged − when the stock options expire − 

to pay the company any positive difference between the exercise price of 

the stock options and the market price of the underlying share. 

Any involvement on the part of certain directors in this extension will have 

only a limited impact on the financial position of the company. The impact 

on the financial position of the company resulting from the extension of the 

life of the stock options granted under the Plans to the managing directors, 

with the exception of Mr. A. Bergen, and to Messrs. W. Breesch, A. Wouters 

and L. Philips will be that the company may have to retain the repurchased 

shares corresponding to the number of options granted to the aforementioned 

directors for three years longer. 

7. Proposal, which is being made to the employees of the company who have been 

granted stock options under the stock option plans concluded between 

1 January 1999 and 31 December 2002, to extend the life of the stock options 

by three years. 

The Board of Directors unanimously passed the resolution to offer the persons 

granted stock options by the company under a Plan the possibility of extending 

the life of the stock options for a period of three years. 

The Board of Directors delegated authority to the Executive Committee − which 

may sub-delegate this authority − to take the decisions required to implement 

this resolution and to fulfil any formalities with regard to, inter alia, the 

employees and any supervisory bodies.’ 



99

100

Consolidated annual accounts 

KBC Bank and Insurance 


STATUTORY AUDITOR’S REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS 

STATUTORY AUDITOR’S REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 

DECEMBER 31, 2003 TO THE SHAREHOLDERS’ MEETING OF KBC BANK AND INSURANCE HOLDING 

COMPANY NV 

‘In accordance with legal and regulatory requirements, we are pleased to report to you on the performance of the 

audit mandate which you have entrusted to us. 

We have audited the consolidated financial statements as of and for the year ended December 31, 2003 which have 

been prepared under the responsibility of the Board of Directors and which show a balance sheet total of 225 586 771 

thousand EUR and a share of the group in the profit for the year of 1 118 989 thousand EUR. We have also examined 

the Directors’ consolidated report. 

UNQUALIFIED AUDIT OPINION ON THE CONSOLIDATED FINANCIAL STATEMENTS 

We conducted our audit in accordance with the standards of the ‘Institut des Reviseurs d’Entreprises/Instituut der 

Bedrijfsrevisoren’. Those standards require that we plan and perform the audit to obtain reasonable assurance about 

whether the consolidated financial statements are free of material misstatement, taking into account the legal and 

regulatory requirements applicable to consolidated financial statements in Belgium. 

In accordance with those standards, we considered the group’s administrative and accounting organisation, as well as 

its internal control procedures. We have obtained explanations and information required for our audit. We examined, 

on a test basis, evidence supporting the amounts in the consolidated financial statements. We have assessed the 

validity of the accounting principles, the consolidation policies and significant accounting estimates made by management, 

as well as the overall presentation of the consolidated financial statements. We believe that our procedures 

provide a reasonable basis for our opinion. 

In our opinion, taking into account the legal and regulatory requirements applicable in Belgium, the consolidated 

financial statements give a true and fair view of the group’s assets, liabilities and financial position as of December 

31, 2003 and the consolidated results of its operations for the year then ended, and the information given in the 

notes to the consolidated financial statements is adequate. 

ADDITIONAL CERTIFICATIONS 

We supplement our report with the following certifications which do not modify our audit opinion on the consolidated 

financial statements: 

* The Directors’ consolidated report contains the information required by law and is consistent with the consolidated 

financial statements. 

* The notes to the financial statements contain adequate comments on: 

+ the changes in the valuation rules, 

+ the derogations from the general law on annual accounts regarding: 

- the treatment of positive consolidation differences, 

- the presentation of the financial statements and 

- the application of valuation rules which take into account the specificity of the areas of activity (banking 

including asset management, insurance and holding-company activities).’ 

Brussels, March 4, 2004 

Ernst & Young Bedrijfsrevisoren BCV 

Statutory auditor 

represented by 

Jean-Pierre Romont Danielle Vermaelen 

Partner Partner 

101

Consolidated annual accounts − KBC Bank and Insurance Holding Company NV KBC Bank & Insurance Group − 2003 Annual Report 

102 

CONSOLIDATED BALANCE SHEET AFTER PROFIT APPROPRIATION 

ASSETS 

(In thousands of EUR) Note 31-12-2001 31-12-2002 31-12-2003 Change 

BANKING 1 215 880 978 208 501 227 210 858 390 1.1% 

I Loans and advances to credit institutions 2; 4 28 291 266 29 298 616 27 068 844 -7.6% 

II Loans and advances to customers 3; 4 87 046 937 98 775 117 90 293 340 -8.6% 

III Securities 5 66 224 733 61 895 263 69 556 511 12.4% 

A Fixed-income 60 525 434 57 214 470 58 635 576 2.5% 

B Variable-yield 5 699 299 4 680 793 10 920 935 - 

IV Financial fixed assets 6 193 817 686 385 610 016 -11.1% 

V Intangible fixed assets and goodwill on consolidation 7 207 322 542 580 541 779 -0.1% 

VI Tangible fixed assets 7 2 091 340 2 147 372 2 150 575 0.1% 

VII Other assets 7 31 825 563 15 155 894 20 637 324 36.2% 

INSURANCE 12 583 847 14 124 091 16 226 664 14.9% 

VIII Intangible fixed assets and goodwill on consolidation 9 82 344 100 894 205 879 - 

IX Investments 8 8 657 609 10 063 997 11 105 222 10.3% 

X Investments for the benefit of life assurance policyholders who bear the 8 2 952 108 2 813 191 3 238 898 15.1% 

investment risk 

XI Technical provisions, reinsurers’ share 19 173 889 250 066 179 545 -28.2% 

XII Debtors 9 335 332 478 166 618 321 29.3% 

XIII Other assets 9 382 565 417 776 878 800 - 

HOLDING-COMPANY ACTIVITIES 10 626 596 802 673 831 561 3.6% 

XV Financial fixed assets 336 955 341 313 250 412 -26.6% 

XVI Investments and cash at bank and in hand 246 132 445 458 490 263 10.1% 

XVII Other assets 43 509 15 903 90 886 - 

ELIMINATIONS* 22 -1 014 818 -1 697 451 -2 329 843 37.3% 

TOTAL ASSETS 228 076 604 221 730 540 225 586 771 1.7% 

LIABILITIES 

(In thousands of EUR) 

Capital resources 

Note 31-12-2001 31-12-2002 31-12-2003 Change 

I Capital 11 590 388 591 138 607 740 2.8% 

II Share premium account 11 2 009 421 2 018 180 2 161 756 7.1% 

III Revaluation reserve 11 10 162 9 702 9 243 -4.7% 

IV Reserves 11 6 871 067 7 355 959 7 697 395 4.6% 

V Negative goodwill on consolidation 11 15 934 16 611 16 611 0.0% 

V bis Imputed goodwill on consolidation 11 -1 617 451 -1 519 707 -1 250 289 -17.7% 

VI Translation differences 11 -27 240 -42 951 -94 663 - 

Total capital and reserves 11 7 852 280 8 428 932 9 147 793 8.5% 

VIII Minority interests (including preference shares) 12 2 219 123 1 967 094 1 825 496 -7.2% 

IX Subordinated liabilities 13 6 745 978 6 285 850 6 098 253 -3.0% 

X Fund for General Banking Risks 14 0 0 0 - 

Total capital resources 16 817 380 16 681 876 17 071 543 2.3% 

BANKING 199 144 753 192 297 185 194 313 974 1.0% 

XI Amounts owed to credit institutions 15 41 199 589 39 683 320 38 224 138 -3.7% 

XII Amounts owed to customers 16 110 097 895 113 719 463 108 622 973 -4.5% 

XIII Debts represented by securities 16 21 044 512 23 655 798 24 958 475 5.5% 

XIV Provisions and deferred taxes 17 668 243 724 452 524 657 -27.6% 

XV Other liabilities 18 26 134 514 14 514 152 21 983 732 51.5% 

INSURANCE 11 047 212 12 251 604 14 371 925 17.3% 

XVI Technical provisions 19 7 366 963 8 860 576 10 196 859 15.1% 

XVII Technical provisions for life assurance policies where the investment risk 

is borne by the policyholders 

19 2 952 108 2 813 191 3 238 898 15.1% 

XVIII Deposits received from reinsurers 98 136 96 535 93 307 -3.3% 

XIX Provisions and deferred taxes 17 263 316 44 488 128 273 - 

XX Other liabilities 20 366 689 436 814 714 589 63.6% 

HOLDING-COMPANY ACTIVITIES 21 1 730 987 1 842 874 1 899 714 3.1% 

XXI Financial liabilities 1 208 715 1 316 899 1 334 554 1.3% 

XXII Provisions and deferred taxes 0 2 189 3 899 78.1% 

XXIII Other liabilities 522 272 523 786 561 261 7.2% 

ELIMINATIONS* 22 -663 728 -1 343 000 -2 070 385 54.2% 

TOTAL LIABILITIES 228 076 604 221 730 540 225 586 771 1.7% 

* The amounts eliminated on the assets side do not match amounts eliminated on the liabilities side, due to direct elimination under the subordinated liabilities heading.

CONSOLIDATED PROFIT AND LOSS ACCOUNT 

(In thousands of EUR) Note 31-12-2001 31-12-2002 31-12-2003 Change 


A Net interest income 23; 28 2 541 177 3 046 115 3 117 895 2.4% 

1 Interest receivable and similar income 11 543 950 9 501 009 7 980 744 -16.0% 

2 Interest payable and similar charges -9 002 774 -6 454 894 -4 862 849 -24.7% 

B Income from variable-yield securities 24; 28 120 775 157 758 106 503 -32.5% 

1 From shares and other variable-yield securities 101 564 133 287 85 549 -35.8% 

2 From participating interests and shares constituting financial fixed assets 19 211 24 470 20 954 -14.4% 

C Profit (Loss) on financial transactions 25;28 884 770 1 013 571 730 179 -28.0% 

1 From currency dealing and securities trading 609 557 615 140 479 943 -22.0% 

2 On the disposal of investment securities 275 213 398 432 250 236 -37.2% 

D Net commission and other operating income 26; 28 1 427 645 1 530 845 1 683 137 9.9% 

1 Net commission income 1 056 811 1 090 588 1 250 841 14.7% 

2 Other operating income 370 834 440 256 432 296 -1.8% 

E Results from participating interests in companies accounted for using 27; 28 2 907 7 411 17 643 - 

the equity method 

F General administrative expenses and other charges 29 -3 510 048 -3 750 667 -3 694 548 -1.5% 

1 Staff charges -1 842 934 -1 982 473 -2 044 356 3.1% 

2 Depreciation on fixed assets -357 528 -419 456 -385 349 -8.1% 

3 Other operating charges -1 309 586 -1 348 738 -1 264 843 -6.2% 

G Write-downs on and provisions for credit risks 30 -321 383 -465 298 -676 317 45.4% 

H Transfer to, transfer from the contingency funds 0 0 0 - 

I Value adjustments on securities 31 -88 690 -202 142 36 221 - 

J Provisions for other liabilities and charges 17 42 640 4 425 15 985 - 

K Amortization of goodwill on consolidation -8 706 -17 840 -36 814 - 

I Profit (Loss) on ordinary activities, banking 1 091 087 1 324 176 1 299 884 -1.8% 

Insurance 32 

A Earned premiums, net of reinsurance 2 508 461 3 155 934 3 485 982 10.5% 

1 Gross premiums earned 2 570 387 3 244 829 3 559 361 9.7% 

2 Reinsurers’ share -61 925 -88 896 -73 379 -17.5% 

B Net technical charges -1 960 899 -2 273 978 -3 457 708 52.1% 

Value adjustments, unit-linked life assurance 369 280 679 777 -209 338 - 

C Investment income and charges 256 753 -33 180 802 249 - 

Realized gains and losses 183 549 197 971 91 227 -53.9% 

Value adjustments, unit-linked life assurance -369 280 -679 777 209 338 - 

D Results from participating interests in companies accounted for using 

4 978 3 543 16 719 - 

the equity method 

E General administrative expenses and other charges -406 965 -456 540 -498 976 9.3% 

F Amortization of goodwill on consolidation -1 724 -2 669 -3 291 23.3% 

Recurring result from ordinary activities 400 604 393 110 344 974 -12.2% 

G Non-recurring income 37 165 314 628 248 367 -21.1% 

H Non-recurring charges -29 377 -305 146 -283 394 -7.1% 

II Profit (Loss) on ordinary activities, insurance 408 392 402 593 309 947 -23.0% 

Holding-company activities 33 

A Net interest income -34 109 -26 439 -22 203 -16.0% 

B Income from variable-yield securities 0 5 011 8 204 63.7% 

D Other operating income 4 883 6 101 9 679 58.6% 

E General administrative expenses and other charges -3 790 -4 473 -8 015 79.2% 

III Profit (Loss) on ordinary activities, holding-company activities -33 016 -19 800 -12 335 -37.7% 

IV Extraordinary income 34 113 544 50 951 76 342 49.8% 

V Extraordinary charges 34 -35 808 -46 798 -33 320 -28.8% 

VI Profit for the financial year, before tax 1 544 199 1 711 122 1 640 518 -4.1% 

VII A Transfer from deferred taxes 35 731 22 556 63 925 - 

B Transfer to deferred taxes 35 -643 -15 818 -6 419 -59.4% 

VIII Income taxes 35 -365 859 -517 836 -499 300 -3.6% 

A Income taxes -380 495 -535 111 -520 991 -2.6% 

B Adjustments to income taxes and amounts written back from tax provisions 14 636 17 275 21 691 25.6% 

IX Consolidated profit 1 178 428 1 200 024 1 198 724 -0.1% 

A Minority interests 156 076 165 820 79 735 -51.9% 

B Profit attributable to the Group 1 022 352 1 034 204 1 118 989 8.2% 

Consolidated annual accounts − KBC Bank and Insurance Holding Company NV 


103


104 

BASIS OF CONSOLIDATION AND VALUATION RULES: 

GENERAL PRINCIPLES 

CRITERIA FOR CONSOLIDATION AND FOR INCLUSION IN 

THE CONSOLIDATED ACCOUNTS ACCORDING TO THE 

EQUITY METHOD 

1 Full and proportional consolidation 

The method of full consolidation is applied for all subsidiaries and subsubsidiaries 

over which the consolidating company exercises exclusive 

control de jure (participating interests of more than 50%) or de facto. 

Companies over which joint control is exercised, de jure or de facto, together 

with a limited number of partners, are consolidated according to the method 

of proportional consolidation. 

2 Equity method 

This method is applied for associated companies over whose management 

policy the Group exercises considerable control. This method is also applied 

for companies in liquidation. 

3 Valuation at acquisition cost 

Participating interests in non-associated companies are included in the 

consolidated annual accounts at acquisition cost (less any amounts written 

down). 

4 Cases where these criteria are departed from 

Companies qualifying for consolidation are also effectively included in the 

consolidated annual accounts if two of the following criteria are met: 

* if the Group share in capital and reserves exceeds 1.25 million euros; 

* if the Group share in the results exceeds 0.5 million euros (in absolute 

terms); 

* if the total assets and the off-balance-sheet rights and commitments that 

can be taken into account for the purpose of calculating the CAD ratio 

exceed 6.25 million euros. 

The aggregated total assets of the companies excluded from consolidation 

may not exceed the lower of the following amounts: 1% of the consolidated 

total assets or 1 billion euros. If a company, which used to be consolidated 

no longer meets the stated criteria, it will in principle continue to be 

included in the consolidation, unless the situation is permanent. 

The associated companies that issue real estate certificates are not consolidated, 

as the economic risk attaching to the assets of these companies is 

borne by the holders of the certificates. 

5 Main companies included in the consolidation 

Shown below is a brief overview of the main companies included in the 

consolidation. The complete list is contained in the annual accounts that 

have been filed with the National Bank of Belgium (NBB) and is also 

available on request. 

COMPANY 

Registered 

office 

% 

interest 

A FULLY CONSOLIDATED 


Antwerpse Diamantbank NV Antwerp − BE 100.00 

Assurisk SA Luxembourg − LU 100.00 

CBC Banque SA Brussels − BE 100.00 

Centea NV Antwerp − BE 99.56 

Československá obchodní banka a.s. (ČSOB) Prague − CZ 85.03 

Fin-Force NV Brussels − BE 90.00 

IIB Bank Limited (Group) Dublin − IE 100.00 

Investco NV Brussels − BE 100.00 

KBC Asset Management NV Brussels − BE 100.00 

KBC Asset Management Limited Dublin − IE 100.00 

KBC Bank NV Brussels − BE 100.00 

KBC Bank Deutschland AG Bremen − DE 99.68 

KBC Bank Funding LLC & Trust (Group) New York − US 100.00 

KBC Bank Nederland NV Rotterdam − NL 100.00 

KBC Clearing NV Amsterdam − NL 94.90 

KBC Exploitatie NV Mechelen − BE 100.00 

KBC Finance Ireland Dublin − IE 100.00 

KBC Financial Products (Group) Various locations 100.00 

KBC Internationale Financieringsmaatschappij NV Rotterdam − NL 100.00 

KBC Lease (Group) Various locations 100.00 

KBC Peel Hunt Limited London − GB 100.00 

KBC Securities (Group) Various locations 100.00 

Kereskedelmi és Hitelbank Rt. (K&H Bank) Budapest − HU 59.43 

Kredyt Bank SA Warsaw − PL 81.40 

Patria Finance a.s. 


Prague − CZ 100.00 

ADD NV Heverlee − BE 100.00 

Almarisk NV Brussels − BE 100.00 

Argosz Insurance Corporation Limited Budapest − HU 98.76 

ČSOB Pojisˇt’ovna a.s. Pardubice − CZ 96.26 

ERGO Poist’ovňa a.s. Bratislava − SK 73.83 

Fidea NV Antwerp − BE 100.00 

K&H Életbiztositó Rt. (K&H Life) Budapest − HU 79.71 

KBC Life Fund Management SA Luxembourg − LU 100.00 

KBC Insurance NV Leuven − BE 100.00 

Lucare Captive SA Luxembourg − LU 99.99 

Maatschappij voor Brandherverzekering CV Leuven − BE 90.91 

Secura NV Brussels − BE 95.04 

VITIS Life Luxembourg SA 

Holding-company activities 

Luxembourg − LU 94.32 

KBC Bank and Insurance Holding Company NV Brussels − BE 100.00 

B PROPORTIONALLY CONSOLIDATED 


International Factors NV Brussels − BE 50.00 

C ACCOUNTED FOR USING THE EQUITY METHOD 


Bank Card Company NV Brussels − BE 21.55 

Banksys NV Brussels − BE 20.55 

Nova Ljubljanska banka d.d. 


Ljubljana − SL 34.00 

Agropolisa SA Warsaw − PL 73.71 

FBD Holdings Plc. Dublin − IE 22.75 

FBD Limited Dublin − IE 19.30 

VTB-VAB NV Antwerp − BE 64.80 

TUiR WARTA SA Warsaw − PL 74.70

6 Main changes in the scope of consolidation in 2003 

The balance sheet and profit and loss account were affected in the 2003 

financial year by changes in the scope of consolidation. The main changes 

are shown below; the complete list is contained in the annual accounts that 

have been filed with the National Bank of Belgium and is also available on 

request. 

MAIN CHANGES IN THE SCOPE OF CONSOLIDATION IN 2003 

Company Consolidation method Percentage interest Effect on 

results since 

31-12-2002 31-12-2003 

Comments 

Additions 


ERGO Poist’ovňa a.s. Full consolidation 69.42 73.83 01-01-2003 Consolidated in the balance sheet at 

year-end 2002, but not in the profit and 

loss account 

Exclusions 


KBC Securities Nederland NV Full consolidation 100.00 - - Sold; included in the results through 

30 November 2002 

Krefima NV Full consolidation 99.48 - - Sold; included in the results through 

31 December 2002 

Changes in the method and period of consolidation 


KBC Lease France SA Full consolidation 100.00 100.00 - Equity method in 2002, 

full consolidation in 2003 

Nova Ljubljanska banka d.d. Equity method 34.00 34.00 01-10-2002 Equity method for one quarter in 2002, 

for full year in 2003 

Changes in percentage interest 


Kredyt Bank SA Full consolidation 76.46 81.40 01-11-2003 


ČSOB Pojisˇt’ovna a.s. Full consolidation 84.05 96.26 01-01-2003 Sale of 75% shareholding by ČSOB to 


VTB-VAB NV Equity method 28.26 64.80 01-01-2004 No effect on results in 2003 

TUiR WARTA SA Equity method 40.03 74.70 01-01-2004 No effect on results in 2003 



105


106 

ACCOUNTING PRINCIPLES AND VALUATION RULES: 

GENERAL PRINCIPLES 

1 General 

The accounting principles and valuation rules conform to the Belgian general 

annual accounts legislation set out in the Companies Code and the implementing 

decree of 30 January 2001 (primarily for the holding-company activities), 

the provisions of the Royal Decree of 23 September 1992 on the 

consolidated annual accounts of credit institutions (for the banking activities) 

and the Royal Decree of 13 February 1996 on the consolidated annual 

accounts of insurance and reinsurance companies (for the insurance activities), 

save however for the divergent presentation. 

The KBC Bank and Insurance Holding Company NV is a financial conglomerate 

by nature and groups the activities of KBC Bank NV, KBC Insurance NV 

and KBC Asset Management NV. 

KBC uses a functional layout that takes into account the mixed activities 

engaged in by a financial services group and that is based on the application 

of Article 116 of the Companies Code implementing decree, which permits 

derogations for the sake of providing a true and fair picture. A breakdown 

per area of activity (banking including asset management, insurance and 

holding-company activities) was opted for. This presentation respects the 

specificity of the different activities and allows for flexibility with regard to 

differences in regulations and valuation. 

The consolidated annual accounts are made up as at 31 December, the 

year-end for the parent company and the vast majority of the consolidated 

companies. For those companies with a different year-end, interim accounts 

are drawn up at 31 December for the purpose of consolidation. The consolidated 

annual accounts are made up after profit appropriation by the KBC 

Bank and Insurance Holding Company NV. The annual accounts of the other 

consolidated companies are included before profit appropriation. 

In accordance with Article 152 §2 of the Royal Decree of 30 January 2001, 

the valuation rules of companies accounted for using the equity method are 

not adjusted to bring them into line with those of the consolidating 

company. 

For reasons of materiality, one exception to this rule is made with regard to 

FBD Holdings, an associated company of KBC Insurance. Its unrealized gains 

and losses are eliminated from the results. 

The assets and liabilities belonging to one and the same activity are, in principle, 

valued according to uniform rules. Differences persist between the 

activities, owing to the specific rules that apply in the sector. These differences 

have not, however, been harmonized, in view of the specificity of the 

areas of activity, and they relate primarily to the securities portfolio. 

In the profit and loss account, income and expenditure which arise between 

the various areas of activity (banking, insurance and holding-company activities) 

in the course of ordinary activities are not eliminated. The corresponding 

positions on the balance sheet are, however, adjusted via the ‘Eliminations’ 

heading. This accounting treatment provides better insight, in business-economic 

terms, into the results of each business area. Within the 

separate areas of activity, the intercompany balances on the balance sheet 

and the profit and loss account are eliminated, starting from an amount of 

2.5 million euros. In Note 22, moreover, an indication is given of the intercompany 

transactions between the banking, the insurance and the holdingcompany 

activities. 

Intragroup gains and losses are eliminated commensurate with the 

percentage share (direct and indirect) held by the consolidating company in 

each of the subsidiaries concerned. Internal gains and losses of less than 

1 million euros are not eliminated, unless the total amount of these 

non-eliminated results exceeds 5 million euros. If this is the case, the nonelimination 

threshold will be lowered to 0.5 million euros, but no cumulative 

ceiling will apply. 

2 Valuation rules 

a Currency translation 

All monetary items denominated in foreign currency are translated into their 

equivalent in euros at the spot rate at balance sheet date. 

* Banking 

Negative and positive valuation differences, except for those relating to the 

financing of shares and participating interests in foreign currency, are 

recorded in the profit and loss account. 

Non-monetary items are valued on the basis of the historical rate at acquisition 

or, where appropriate, on the basis of the exchange rate at which the 

currency used to pay the price was purchased. 

For transactions that entailed funding (lending), the rate of the day is used 

if there is no exchange rate. 

Income and charges denominated in foreign currency are stated in the profit 

and loss account at the rate prevailing when they are recognized. Foreigncurrency 

income and expenditure which is hedged in advance is recorded in 

euros on the basis of the fixed rate. 

* Insurance 

The balance of the positive and negative differences arising from the translation 

of the technical provisions denominated in foreign currency are 

included under the corresponding ‘Adjustments to the technical provisions’ 

headings in the profit and loss account. The balances arising from the translation 

of the technical non-life reinsurance provisions denominated in 

foreign currency are included under the corresponding ‘Other technical 

charges’ heading in the technical account for the non-life business. 

The balance of the positive and negative differences arising from the translation 

of monetary items, other than the technical provisions, denominated in 

foreign currency, is taken to the profit and loss account as financial income 

or a financial charge. 

For non-monetary items whose acquisition cost is expressed in foreign 

currency, the equivalent in euros at which these items are posted to the 

annual accounts is calculated on the basis of the exchange rate prevailing at 

the end of the month preceding the acquisition of the non-monetary items. 

Charges and income expressed in foreign currency are translated quarterly 

and included in the profit and loss account at the spot rate prevailing at the 

end of the quarter. 

* Holding-company activities 

The negative translation differences are taken into account via the 

‘Unrealized exchange differences’ heading in the profit and loss account. 

The positive translation differences are included in the balance sheet under 

the ‘Accrued charges and deferred income’ heading, with the exception of 

the positive differences on EMU currencies, which were included in the result 

for the (financial) year in which those currencies were incorporated into the 

euro, as they became definitive at that time. 

b Translation of the financial statements of foreign subsidiaries 

The balance sheets of foreign subsidiaries are translated into euros at the 

spot rate at balance sheet date (with the exception of the capital and 

reserves, which are translated at the historical rate). The profit and loss 

account is translated at the average rate for the financial year. Differences 

arising because the exchange rate used for assets and liabilities items differs 

from that used for items constituting capital and reserves are included 

(together with the exchange rate differences on loans concluded to finance 

participating interests in foreign currency), in the amount of the Group’s 

share, under the liabilities heading, ‘Translation differences’. 

The cumulative translation differences stemming from the translation of 

financial statements expressed in an EMU currency for the period up to the 

currency’s incorporation into the euro will remain under this heading. 

Translation differences are taken to the profit and loss account upon the 

transfer in whole or in part of the participating interest.

c Amounts receivable 


Interest collected in advance and similar income (including such additional 

compensation as fees for foreign loans) for the entire loan period cannot be 

taken to the profit and loss account immediately, and is therefore posted to 

an accruals and deferrals heading. At month-end, the amount earned is 

written to the profit and loss account. 

Origination and processing fees charged are taken to the results immediately 

on the inception of the loans and advances concerned; credit insurance 

premiums are written to the profit and loss account annually when paid. 

Commissions due (payable in advance) for bank guarantees given are 

included in the profit and loss account immediately. The commissions 

awarded by KBC Bank for credit broking are charged to the profit and loss 

account when the credit is disbursed. 

Amounts receivable arising from advances or cash deposits are recorded in 

the balance sheet in the amount made available. The difference between the 

amount made available and the nominal value (discount) is recognized on an 

accruals basis and according to the straight-line method as interest receivable 

via the accruals and deferrals accounts. 

Long-term credit, consumer credit and receivables arising from leasing 

contracts are recorded in the balance sheet in the outstanding principal 

amount, plus the interest past due and sundry costs to be paid by customers. 

Interest received but not yet due (interest collected in advance) is recorded 

in the profit and loss account on an accruals basis via the accruals and 

deferrals headings. The other amounts receivable are recognized in the 

balance sheet at nominal value. 

Loans and advances that are transferred through securitization operations 

where the transfer qualifies as a sale under BFIC guidelines no longer constitute 

bank assets and consequently may not appear on the balance sheet of 

KBC Bank, although the amount is required to be recorded in the contingent 

accounts. During the term of the securitization operation, the entry in the 

contingent accounts is required to be adjusted at the end of each month in 

accordance with customers’ loan repayments. 

Any gains realized on the sale of securitized assets are taken to the profit 

and loss account immediately at the time of the sale. 

If the sales price is made up entirely or in part of a variable element 

dependent on the buyer’s operating profit, this element will only be taken to 

the profit and loss account when the operating profit is known and this 

element is therefore fixed. 

For loans with an uncertain outcome, general provisions are set aside, 

specific write-downs are charged and provisions are created for loans that 

are linked economically. All interest and various other receivables which 

have remained unpaid for three months after having become payable will not 

be recognized in the profit and loss account. 

Non-specific write-downs are calculated for domestic loans with an uncertain 

outcome on the basis of the principal amount whose repayment is uncertain, 

the percentage susceptible to reclassification (that portion of the ‘uncertain 

outcome’ portfolio that might become ‘doubtful’) and the loss percentage. 

The percentages are arrived at on the basis of their moving average over the 

latest twelve months. 

For foreign loans, additional non-specific provisions are posted, calculated 

on the basis of simple percentages. 

For loans classified as irrecoverable and doubtful, specific write-downs are 

posted on a case-by-case basis and charged to the assets heading in the 

annual accounts in which the risks appear, in order to cover the losses which 

are considered certain or likely to ensue on the outstanding loans. Interest 

due and charges are written to reserves. Loans are classified as irrecoverable 

and doubtful if the loan balance is payable and if debt-recovery procedures 

have been initiated in or out of court. 

The amount of any security is equal to the principal amount registered. 

Personal security is recorded in the accounts in the amount that can be 

obtained if execution is levied. Whenever the borrower makes a payment, 

the current amount of security has to be adjusted. If insufficient security is 

provided for a loan, a risk premium in the form of a higher rate of interest 

will be charged. The income this generates will be posted to ‘Net interest 

income’ on an accruals basis. 

For country risks, provisions are established that meet the relevant 

provisioning requirements imposed by the BFIC. In addition, the bank sets 

aside additional funds, which it considers necessary for the management of 

country risks. These are risks in respect of countries or groups of countries 

whose economic, financial, legal or political situation warrants the setting 

aside of provisions on prudential grounds. 

Amounts provisioned for country risks are broken down by type of counterparty 

(credit institution or non-credit institution) and recorded as an adjusting 

entry under the ‘Loans and advances to credit institutions’ or ‘Loans and 

advances to customers’ heading, as appropriate. 


Amounts receivable (debtors) are recorded in the balance sheet at nominal 

value. Interest earned but not yet due, the difference between acquisition 

cost and nominal value, and the discount on amounts receivable which bear 

an exceptionally low rate of interest or no interest at all are recorded under 

the ‘Deferred charges and accrued income’ heading and released to the profit 

and loss account pro rata temporis on the basis of the compound interest. 

If, at the close of the financial year, the realization value of a receivable is 

lower than its carrying value, and if this impairment in value can be considered 

real and lasting in nature, a write-down is applied in the amount of the 

established impairment in value. 


Amounts receivable are recognized at nominal value. 

If, at the close of the financial year, the realization value of a receivable is 

lower than its carrying value, and if this impairment in value can be considered 

real and lasting in nature, a write-down is applied in the amount of the 

established impairment in value. 

d Stocks of warehoused items 

Starting in financial year 2003, warehoused items (office supplies, printed 

matter, publicity and promotional material, etc.) will be included in a book 

inventory and valued at the moving average purchase price of the items 

(whereas previously, purchases and material stocks were recorded directly as 

a charge). 

e Securities 

Securities are recorded under assets headings III, IX and X. 

Securities are recognized at acquisition cost at the time of purchase, 

excluding costs and less subscription fees. The ancillary costs attendant on 

acquisition are charged directly to the result. 

e1 Investment portfolio 

Fixed-income investment securities are recorded at acquisition cost, less or 

plus the matured portion of the premium or discount. The difference 

between the acquisition cost and the redemption value is reflected as 

interest receivable in the profit and loss account on an accruals basis over 

the remaining term to maturity of the securities. It is included in the profit 

and loss account on a discounted basis, based on the internal rate of return 

at the time of purchase. 

Perpetual debt is valued at the lower of acquisition cost and market value. 

If redemption of a security is uncertain or doubtful, a write-down is recorded 

according to the principles that apply for the valuation of amounts receivable. 

If securities are sold, their carrying value is established on a case-by-case 

basis. Gains or losses are posted directly to the profit and loss account, 

except if they are derived from the sale by the banking business of fixedincome 

investment securities in certain arbitrage transactions. 


In accordance with Article 35ter, §5, of the Royal Decree on the annual 

accounts of credit institutions, gains and losses on the sale of fixed-income 

investment securities in arbitrage transactions that are carried out within 

the bounds set annually by the Executive Committee are reflected in the 

profit and loss account, spread over the same time period as the future 

income derived from the arbitrage. 

Listed shares and other variable-yield securities are valued each month at 

the lower of acquisition cost and market value at balance sheet date. Other 

securities are valued at least once a year, based on the annual accounts for 



107


108 

the previous year and material negative developments during the course of 

the year. 

No write-downs are posted for shares hedged against a decline in price by 

means of an option. 


Write-downs are posted on fixed-income investment securities serving to 

support liquidity if their market value is lower than the value arrived at by 

applying the other stipulations contained in these valuation rules and if 

uncertainty prevails regarding payment of all or part of the amount receivable 

on the maturity date. 

Shares and other variable-yield securities are valued at acquisition cost, with 

a write-down being charged in the event of a lasting impairment in value. 

According to this valuation rule, shares exhibiting an impairment in value for 

three consecutive years are marked to market. In addition, an impairment is 

recognized down to market value for those shares with a market price that is 

80% lower than their carrying value. Each share is moreover individually 

evaluated, and the Board of Directors decides on an ad hoc basis on any 

write-downs. 


The treasury shares the KBC Bank and Insurance Holding Company has in 

portfolio are valued at acquisition cost. 

This valuation method is justified by the fact that these shares are being 

held for the purposes of the employee stock option plans. Given that the 

acquisition cost of these shares is practically the same as the exercise price 

of these options, virtually no capital gains or losses will be realized when 

the options are exercised. Should the options not be exercised on the expiry 

date (owing to the share price being too low), the shares in question will be 

destroyed, without having any impact on the result. 

e2 Trading portfolio 

Securities belonging to the trading portfolio and investments for the benefit 

of life assurance policyholders who bear the investment risk are marked to 

market. The valuation differences this generates are recorded in the profit 

and loss account under, respectively, the ‘Profit (Loss) on financial transactions’ 

heading (for the banking operations) and under ‘Investment income 

and charges’ (for the insurance operations). 

f Financial fixed assets 

Financial fixed assets are recorded under assets headings IV, IX and XV and, 

depending on the area of activity concerned, include participating interests, 

(subordinated) loans and securities held in portfolio. 

Included in holdings or participating interests are the rights (shares) held in 

other companies with a view to creating specific, lasting ties with them. 

If there are no lasting ties and the shares are acquired for resale, then this 

investment will not be considered a financial fixed asset, but rather as part 

of the investment portfolio (by the bank), as another financial investment 

(by the insurer) or as an item that comes under ‘Investments and cash at 

bank and in hand’ (by the holding company), regardless of the size of the 

shareholding and the influence that could be exerted on the management of 

the company in question through this shareholding. 

Participating interests accounted for using the equity method are valued 

according to the share held in the relevant companies’ equity. Participating 

interests that are not included in the consolidation and shares constituting 

financial fixed assets are recognized at acquisition cost. Additional costs 

incurred on acquisition are charged forthwith to the results for the financial 

year. 

Write-downs are applied only in the event of a lasting impairment in or loss 

of value, established on the basis of the financial position, the profitability 

and the prospects of the company concerned. 

Participating interests, shares and share certificates classified as financial 

fixed assets may be revalued if, in light of their usefulness to the company, 

they exhibit an incontestable and lasting increase in value. 

Regardless of whether they are represented by securities, subordinated loans 

and advances to associated companies and companies linked by participating 

interests are valued according to the same principles as non-subordinated 

loans and advances. 


Financial fixed assets also include amounts receivable, which are recognized 

at nominal value. However, amounts receivable represented by fixed-income 

securities are valued at acquisition cost, minus or plus the accrued portion of 

the premium or discount that is released to the profit and loss account on a 

pro rata basis over the remaining term to maturity. If repayment of a security 

has become uncertain or doubtful, a write-down is posted according to 

the same principles that apply for valuing receivables that are not represented 

by securities. 

g Formation expenses and intangible fixed assets 

Formation expenses and intangible fixed assets are recorded under assets 

headings V, VIII and XIV. 

All formation expenses are charged directly to the profit and loss account for 

the financial year as administrative expenses. 

Software developed in-house is charged immediately to the profit and loss 

account. Systems software is written off at the same rate as hardware. 

Standard software and tailor-made software developed by third parties is 

capitalized and written off according to the straight-line method over its 

useful life (this was shortened in the insurance business in 2003 from ten to 

five years, the same as has always been used in the banking business). From 

the 2003 financial year, external staff charges incurred for the implementation 

of software will be capitalized in the same way as the purchased software 

itself. Capitalized goodwill is written off according to the straight-line 

method over a period of five years, unless the Board of Directors decides 

otherwise. To comply with new Belgian tax requirements, intangible fixed 

assets will be amortized from 1 January 2003 on an accruals basis during the 

first year of investment. 

For details on the impact on figures, please see ‘3 Changes in valuation 

rules’. 

h Goodwill on consolidation 

Goodwill on consolidation is recorded under assets headings V, VIII and XIV 

and under liabilities headings V and Vbis. 

* General principle 

Goodwill on consolidation is the difference at the time of acquisition 

between the acquisition cost and the corresponding share in the equity of 

the acquisition. 

If such differences are caused by the over- or undervaluation of certain 

assets or liabilities, they are allocated to those items, which leads to a 

restatement of the annual accounts of the company in which a participating 

interest is held and which is included in the consolidation. The remaining 

difference − resulting from expectations as to the future profitability of the 

Group − is the goodwill on consolidation. 

If the acquisition cost exceeds the share in the company’s possibly restated 

equity (i.e. after the difference is allocated to unrealized gains on the assets 

side or to overestimates of liabilities), the consolidation difference is 

positive (goodwill). If the acquisition cost is lower than the share in the 

company’s (possibly restated) equity, the consolidation difference is 

negative (negative goodwill, or ‘badwill’). 

* Treatment of goodwill on consolidation for acquisitions prior to 

1 January 1999 

Goodwill or negative goodwill on consolidation of up to 0.5 million euros is 

taken directly to the profit and loss account. Goodwill on consolidation in 

excess of 0.5 million euros is included in the consolidated accounts under 

the ‘Goodwill on consolidation’ heading on the assets or liabilities side of 

the balance sheet. 

Capitalized goodwill is, in principle, written off over a period of ten years for 

banks and other financial institutions and over a period of five years for 

other companies, unless the Board of Directors decides otherwise. Supplementary 

or extraordinary amortization charges are taken for goodwill if it is 

no longer economically justified to keep it in the consolidated balance sheet 

at that value because of changes in economic circumstances. 

Differences recorded on the liabilities side remain unchanged, unless the 

investment is subsequently sold or compensation is recorded for a positive 

difference subsequently established on an increase in the percentage interest 

taken.

* Exceptional derogation for the 1998 financial year 

For 1998 (on the creation of the KBC Bank & Insurance Group), the following 

principle was observed: all gains and goodwill on consolidation resulting 

from the transfers that took place within the Group following the creation of 

the KBC Bank and Insurance Holding Company NV were fully reflected in the 

1998 results as extraordinary income or an extraordinary charge, respectively. 

* Treatment of goodwill on consolidation for acquisitions after 

1 January 1999 

Goodwill on consolidation 

For acquisitions since 1 January 1999, the BFIC granted temporary authorization 

to depart from the rule and deduct positive goodwill on consolidation 

from the consolidated capital and reserves, specifically via liabilities heading 

’Vbis Imputed goodwill on consolidation’. These differences were transferred 

periodically to reserves commensurate with the relevant theoretical amortization 

(in this case, over a ten-year period). Accordingly, if a participation 

was sold within ten years of its having been acquired, the gains realized 

were set off against the goodwill still present under the ‘Vbis Imputed goodwill 

on consolidation’ heading in the capital and reserves. The Board of 

Directors decided on a case-by-case basis whether or not to have recourse to 

the derogation allowed by the BFIC. 

The (temporary) derogation allowed by the BFIC lapsed at the end of 2001, 

however. Consequently, the above method has been changed: 

* Goodwill on new acquisitions after 31 December 2001 is capitalized and 

amortized over a period of maximum twenty years (in accordance with international 

practice). 

* For all goodwill on consolidation that arose between 1 January 1999 and 

31 December 2001, the theoretical amortization period has been changed to 

twenty years. The figures for the 1999 and 2000 financial years were not 

adjusted to take this into account retroactively, the adjusting entries were 

all made in the 2001 financial year via a shift between the reserves and 

negative goodwill. 

In 2003, theoretical amortization under the derogation came to a total of 

279.5 million euros. If the BFIC had not authorized this derogation, return 

on equity would have come to 8.3% instead of 12.7%. 

Negative goodwill on consolidation 

These consolidation differences are included in the consolidated accounts 

under the ‘Goodwill on consolidation (negative goodwill)’ heading on the 

liabilities side of the balance sheet. 

Differences recorded on the liabilities side remain unchanged, unless the 

investment is subsequently sold or compensation is recorded for a positive 

difference subsequently established on an increase in the percentage interest 

taken. 

i Tangible fixed assets 

Tangible fixed assets are recorded under assets headings VI, XIII and XVII. 

All tangible fixed assets are recognized at acquisition cost, less accumulated 

depreciation. The rates of depreciation are determined on the basis of the 

anticipated useful economic life of the item and are applied according to the 

straight-line method. 

To comply with new Belgian tax requirements, all tangible fixed assets will 

be depreciated from 1 January 2003 on an accruals basis during the first year 

of investment. They will be recorded from now on at acquisition cost, including 

ancillary, directly allocable costs (acquisition costs, non-deductible VAT, 

etc.). These ancillary costs will now be written off over the useful life of the 

relevant asset. Previously certain ancillary costs were taken directly to the 

profit and loss account. Up to and including 2002, non-recoverable tax was 

included in the acquisition cost in the banking business and the holding 

company, but it was written off in full during the year of acquisition. Architects’ 

and engineers’ fees were recorded directly as a charge. In the insurance 

business, up to and including financial year 2002, non-deductible VAT 

and other costs relating to real property were written off in full in the year 

of acquisition. 

For details on the impact on figures, please see ‘3 Changes in valuation 

rules’. 

When tangible fixed assets are sold, the realized gains or losses are posted 

directly to the profit and loss account. If these assets are destroyed, the 

remaining amount to be written off is charged directly to the result. Tangible 

fixed assets which exhibit an incontestable and lasting appreciation in value 

compared to their carrying value may be revalued. This surplus is written off 

over the average residual useful life of the assets in question. 

j Accruals and deferrals accounts 

The accruals and deferrals accounts allow income and expenditure to be allocated 

to the proper accounting period. 

The option premiums received for the stock option plan are taken to the 

profit and loss account by the KBC Bank and Insurance Holding Company 

spread over a period of three years and five months, i.e. in the same way as 

the premiums paid at the Group companies. 

k Amounts owed 

Amounts owed as a result of advances or cash deposits received are recorded 

in the balance sheet in the amount made available, plus or minus any difference 

between this amount and the redemption price of the portion that has 

already accrued. The difference between the amount made available and the 

nominal value is reflected on an accruals basis in the profit and loss 

account. 

l Provisions for liabilities and charges 

Provisions for liabilities and charges are recorded under liabilities headings 

XIV, XIX and XXII. 

Provisions for liabilities and charges are intended to cover losses or charges, 

the nature of which is clearly defined and which at balance sheet date are 

either likely or certain to be incurred, but the amount of which is uncertain. 

These provisions are for: 

* Pensions 

Concerned here are commitments with regard to retirement and survivor’s 

pensions, benefits paid out on early retirement and other similar pensions or 

allowances (relating mainly to employees’ leaving employment early and endof-career 

schemes). 

* Income taxes 

This provision covers the commitments that may arise from a change in the 

tax base or in the calculation of direct tax. It covers at least the estimated 

amount of the final cost attendant on disputes that the company is aware of 

with the tax authorities at balance sheet date. 

* Provision for financial risks, insurance 

In the insurance business, a provision for financial risks is set aside in order 

to cope with the risk of a loss or charge being incurred as a result of positions 

held in foreign currency, in securities or in other financial instruments, 

such as share price risk, exchange risk and other market risks. This 

provision is topped up on a consistent basis until a certain required amount 

is reached. This amount varies, depending on the financial risk position. 

Funds will be transferred from this provision according as losses or charges 

are incurred due to the relevant risks. For instance, if the recurring income 

expected from the (listed) share portfolio does not materialize due to a 

change in conditions prevailing on the market, a financial risk will be 

deemed to have materialized. The recurring income expected from the 

(listed) share portfolio is calculated on the basis of a normalized historical 

return and the normalized historical market value of the (listed) share portfolio. 

* Other liabilities and charges 

This is a residual item relative to the above provisions (in the banking business) 

and includes provisions for litigation, commitment credit and indirect 

taxes (for a complete overview, see Note 17). 

m Contingent tax liabilities 

Contingent tax liabilities are recorded under liabilities headings XV, XX and 

XXIII. 

In the consolidated balance sheet and profit and loss account, account is 

taken of the difference on consolidation between the taxes to be allocated 

to the financial year and previous financial years and the taxes paid or still 

to be paid with respect to these financial years, if there are grounds for 

assuming that one of the consolidated companies will indeed incur charges 



109


110 

as a result in the foreseeable future. This rule is applied in the adjustment of 

the valuation rules of subsidiaries to bring them into line with those of the 

parent company for the purpose of consolidation. Where, on balance and per 

subsidiary, contingent tax liabilities of a temporary nature result, these are 

recorded in the accounts. 

n Technical provisions 

The technical provisions are recorded under liabilities headings XVI and XVII. 

For direct business, the provision for unearned premiums is, wherever 

possible, calculated according to the three-hundred-and-sixty-fifths method. 

For reinsurance ceded, the provision for unearned premiums is calculated 

according to the contractual stipulations. 

For reinsurance business received and retrocession, a rate of 50% of the 

eligible premiums for the current financial year is used for the computation. 

The provision for the group of life assurance activities is computed according 

to the prevailing actuarial principles. At the consolidated level, the following 

rules apply: 

* The technical provisions for (i) traditional, class-21 life assurance and (ii) 

universal, class-21 life assurance offering a guaranteed rate of interest on 

future payments are calculated using prospective actuarial formulas applied 

to basic underwriting assumptions made with regard to the contracts. 

For policies concluded prior to 1 January 1999 and for loan balance insurance 

taken out before 1 October 1999, the same rule applies, except as far 

as the interest rate is concerned, which in this case is 4%. 

* The technical provisions for universal, class-21 life assurance offering no 

interest-rate guarantee on future payments are calculated using retrospective 

formulas applied to the basic underwriting assumptions underlying 

the contracts. 

For policies concluded prior to 1 January 1999, the same rule applies, 

except as far as the interest rate is concerned, which in this case is 4%. 

* The technical provisions for class-23 (unit-linked) life assurance are 

computed by multiplying the number of units per fund by the price per unit 

of the fund in question. 

* From the 2003 financial year, in anticipation of the introduction of IFRS, 

contingent tax liabilities were recorded at the consolidated level for the 

interest buffer for the life assurance provision. For details on the impact on 

figures, please see ‘3 Changes in valuation rules’. 

Other technical provisions (mainly ‘non-life’): 

* The provision for claims outstanding is calculated per claim or per contract, 

and is based on known elements in the file. 

Amounts recoverable from third parties, the deductibles that have had to be 

paid to injured parties, the acquisition of the rights of insured persons 

against third parties (subrogation) and the acquisition of legal ownership of 

goods insured (salvage) are, in keeping with the law, not deducted from 

provisions for claims outstanding on the liabilities side of the balance 

sheet, but are capitalized under ‘debtors’. A prudent estimate is recorded 

which is reflected directly in the result. 

* All amounts in the equalization and catastrophe provision are for offsetting 

the non-recurring underwriting losses in the years ahead, for equalizing 

fluctuations in the loss ratio, and for covering special risks. Starting in 

financial year 2003, allocations to the equalization and catastrophe provision 

will be made at the consolidated level pursuant to local legislation. For 

details on the impact on figures, please see ‘3 Changes in valuation rules’. 

o Consolidated reserves 

The Group reserves include the reserves and the profit brought forward of the 

consolidating company, along with the Group’s share in the retained profits 

of the other fully or proportionally consolidated companies and of the 

companies accounted for using the equity method from the start. 

p Minority interests 

These include minority interests in the capital and reserves and in the profit 

(loss) of the fully consolidated companies. Minority interests also include 

the preference shares issued via KBC Bank. These shares may qualify as tier-1 

capital for the purpose of calculating the solvency ratio. 

q Financial instruments 

* Valuation rules for trading and non-trading activities 

Where trading activities are concerned, the unrealized profit or loss on 

revaluation is recognized at least at the end of every month. This revaluation 

takes into account any interest flows that have already been recognized on 

an accruals basis. In the event of a sale, liquidation or expiration, the 

profit/loss on the position is recognized immediately. Where illiquid currencies 

or securities are concerned, no profit on revaluation is recognized. 

The existing strategic positions the dealing room takes for its own account 

via derivatives with a view to generating a profit in the long term by way of 

capital gains or interest spreads are valued according to the same principles 

used for illiquid interest rate positions. 

For non-trading activities, where interest rate instruments are concerned, 

the gains or losses realized are only recognized on an accruals basis over the 

corresponding term. The valuation of non-interest-rate instruments (e.g., 

share option premiums) matches the valuation of the hedged position. 

In addition, non-trading activities carried out for the purpose of general, 

long-term management of interest rate products denominated in a foreign 

currency (macro-hedging) are also valued according to the ‘lower of cost and 

market’ principle, along with the associated on-balance-sheet products. 

Profit or loss on similar transactions carried out for general euro ALM interest 

rate management purposes is recognized solely on an accruals basis. 

Option premiums that are paid in advance are only taken to the profit and 

loss account on the due date or on liquidation, with the exception of option 

premiums for caps, floors and collars that have been concluded for hedging 

purposes (accruals-basis recognition). In the meantime, they are posted 

under the ‘Other assets’ or ‘Other liabilities’ items. Option premiums relating 

to trading activities are revalued at least at the end of every month. 

* Valuation of derivatives 

All derivatives are always recorded under specific off-balance-sheet headings 

on the transaction date. Amounts are written off the off-balance-sheet 

headings once the outcome of the transaction is definitive, even if the 

underlying term only starts at that time for certain interest rate products 

(FRAs). 

Trading transactions are marked to market, and the mark-to-market value is 

recognized in the trading results. 

Non-trading transactions are included in interest income on an accruals 

basis, which is the case for interest payable and interest receivable relating 

to interest rate swaps and foreign currency interest rate swaps. The swap 

difference arising on FX swaps (and FX outrights) is also released to the 

results on an accruals basis. The results from interest rate futures and FRAs 

are included in the profit and loss account spread over the term of the 

underlying hedged item. 

Equity swaps are treated in the same way as interest rate swaps. In practice, 

equity swaps (just like options) are only recorded in the trading book and 

consequently marked to market. 

KBC Bank makes use of the derogation allowed by the BFIC to Article 36 bis 

of the Royal Decree on the annual accounts of credit institutions. This 

derogation makes it possible to take interest rate derivatives that do not 

meet the hedging criteria to the profit and loss account on an accruals basis 

(interest rate derivatives classified as ALM or treasury management instruments). 

Please see the comments to Note 36 to the annual report, where the 

financial impact of this derogation is disclosed.

* Hedging criteria for forward interest rate transactions 

The general criteria are set out in Article 36bis of the Royal Decree on the 

annual accounts of credit institutions of 23 September 1992: 

* the hedged item or the combination of comparable hedged items must 

expose the credit institution to a risk of interest rate fluctuation; 

* the transaction must be recorded in the books as a hedge from its inception; 

* there must be a close correlation between fluctuations in the value of the 

hedged item and fluctuations in the value of the hedge; in the case of 

hedging options, there must be a correlation between fluctuations in the 

value of the hedged item and fluctuations in the value of the underlying 

financial instrument. 

In addition, specific company criteria apply. All these criteria must be met: 

if one criterion is no longer satisfied, the hedge will be considered a trading 

transaction and be subject to the appropriate accounting treatment. 

Hedging combinations that involve derivatives and are terminated before 

maturity will be considered trading transactions once the underlying position 

to be hedged no longer exists. Future interest rate positions can be hedged 

if it is reasonably certain that the position will actually materialize. Moreover, 

the amount, term and interest rate conditions must be sufficiently 

certain. 

* Calculation of unrealized profit/loss on revaluation 

Derivatives are always valued on a contract basis; positive and negative 

valuation differences are not netted in the accounting records. Only for 

calculating capital adequacy requirements relative to market risks is the 

market risk calculated on a net basis per counterparty. 

For forward interest rate and similar products (namely forward foreign 

exchange products), valuation occurs on the basis of the net present value 

of future, determinable cash flows using a single yield curve per currency, 

which is used throughout the bank. Any adjustments for operational and 

liquidity risks are deducted from the initial revaluation. Options are valued 

according to the usual valuation models. For off-balance-sheet forward interest 

rate products, calculations are always based on the assumption of a 

liquid market, provided the underlying currencies are liquid. 

If a credit granted to a counterparty is classified as ‘doubtful’ or ‘irrecoverable’, 

the receivables and commitments stemming from off-balance-sheet 

products involving the same counterparty will be given the same classification. 

For loans and advances, write-downs may be taken; for commitments, 

provisions will be set aside. 

3 Changes in valuation rules 

The main changes in the valuation rules (that have an estimated impact, 

per heading, on the net result after tax of more than 3 million euros) are 

summarized again in the table. 

CHANGES IN VALUATION RULES 

Heading Change Impact on net profit (loss) after tax 

(in millions of EUR) 

Intangible fixed assets Amortization on an accruals basis of intangible fixed assets will reduce costs during the first year of amortization. 1.8 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Capitalization of external staff charges for the implementation of software will reduce costs. 4.4 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Extra write-offs and ‘catch-up’ amortization of software (insurance business) due to the shortening of the useful life from -7.5 

ten to five years. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Tangible fixed assets Depreciation on an accruals basis of tangible fixed assets and the capitalization and depreciation of ancillary costs over the 25.9 

useful life of the relevant assets will reduce costs in the first year of depreciation. 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Technical provisions Calculation according to local legislation of the equalization and catastrophe provision. 62.4 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Recording of a deferred tax asset on the interest buffer for the life assurance provision. 91.0 



111


112 

NOTES TO THE BALANCE SHEET 

NOTE 1: GEOGRAPHIC AND MONETARY BREAKDOWN OF TOTAL ASSETS, BANKING 

(In thousands of EUR) 31-12-2001 31-12-2002 31-12-2003 Change 

Total assets, banking 215 880 978 208 501 227 210 858 390 1.1% 

Geographic breakdown 

Belgium 90 808 106 79 169 982 83 388 469 5.3% 

Abroad 125 072 872 129 331 245 127 469 921 -1.4% 

Euro zone 47 799 404 43 598 633 45 978 253 5.5% 

Monetary breakdown 

In euros 141 255 806 141 134 259 139 157 295 -1.4% 

In foreign currency 74 625 173 67 366 968 71 701 095 6.4% 

NOTE 2: LOANS AND ADVANCES TO CREDIT INSTITUTIONS, BANKING 


Total 28 291 266 29 298 616 27 068 844 -7.6% 

Trade bills eligible for refinancing at the central bank of the country in which 

the institution is established 


47 655 58 678 2 638 -95.5% 

Belgium 6 607 831 6 020 269 1 893 885 -68.5% 

Abroad 21 683 435 23 278 347 25 174 959 8.1% 

Euro zone 


7 037 317 10 598 445 12 666 638 19.5% 

In euros 17 219 087 20 346 115 16 569 654 -18.6% 

In foreign currency 

Breakdown according to remaining term to maturity 

11 072 179 8 952 501 10 499 190 17.3% 

Repayable on demand 4 259 807 1 874 114 4 257 969 - 

With agreed maturity dates or periods of notice 

* Not more than three months 

* More than three months but not more than one year 

* More than one year but not more than five years 

* More than five years 

* Undated 

24 031 459 

15 347 675 

7 059 715 

1 183 441 

144 645 

295 983 

27 424 503 

21 604 876 

4 828 800 

802 156 

105 329 

83 341 

22 810 875 

20 105 061 

2 031 566 

405 266 

66 403 

202 579 

-16.8% 

-6.9% 

-57.9% 

-49.5% 

-37.0% 

- 

Write-downs and provisions 31-12-2002 31-12-2003 

(For changes: see Note 4) Belgium Abroad Belgium Abroad 

Gross amount outstanding 6 020 269 23 308 608 1 893 885 25 194 768 

Write-downs and provisions 0 -30 262 0 -19 809 

Net amount outstanding 6 020 269 23 278 347 1 893 885 25 174 959 

Breakdown, write-downs and provisions 

Specific write-downs for loans and advances with an uncertain outcome 0 -9 493 0 -7 087 

General provision for country risks 0 -20 768 0 -12 722

NOTE 3: LOANS AND ADVANCES TO CUSTOMERS, BANKING 


Total 87 046 937 98 775 117 90 293 340 -8.6% 

Trade bills eligible for refinancing at the central bank of the country in which 

66 970 15 709 0 -100.0% 

the institution is established 

Subordinated loans 


27 057 39 390 51 458 30.6% 

Belgium 49 064 444 48 608 807 48 865 555 0.5% 

Abroad 37 982 492 50 166 310 41 427 786 -17.4% 

Euro zone 


9 971 372 10 432 953 11 325 835 8.6% 

In euros 59 278 933 71 305 983 66 370 081 -6.9% 



27 768 004 27 469 134 23 923 259 -12.9% 


*Not more than three months 




* Undated 

Breakdown by type of credit 

87 046 937 

20 370 865 

12 370 881 

24 326 836 

24 406 265 

5 572 088 

98 775 117 

27 364 426 

9 631 740 

24 293 574 

30 273 355 

7 212 022 

90 293 340 

24 949 281 

6 676 977 

18 179 163 

34 814 641 

5 673 278 

-8.6% 

-8.8% 

-30.7% 

-25.2% 

15.0% 

-21.3% 

Discount and acceptance credit 810 941 552 025 418 602 -24.2% 

Consumer credit 3 279 143 2 937 421 1 893 901 -35.5% 

Mortgage loans 17 817 050 20 521 136 22 715 458 10.7% 

Term loans at more than one year 37 025 382 36 533 250 34 982 511 -4.2% 

Term loans at not more than one year 13 788 351 24 114 271 16 528 228 -31.5% 

Current account advances 5 894 016 5 845 650 4 837 204 -17.3% 

Other amounts receivable 8 723 739 8 378 986 8 835 110 5.4% 

Doubtful loans, write-downs and provisions -291 683 -107 623 82 326 - 

Geographic breakdown 31-12-2002 31-12-2003 

Belgium Abroad Belgium Abroad 

Discount and acceptance credit 268 082 283 943 192 023 226 579 

Consumer credit 2 909 198 28 223 1 828 855 65 046 

Mortgage loans 15 868 346 4 652 790 16 398 104 6 317 355 

Term loans at more than one year 17 062 916 19 470 334 18 456 155 16 526 357 

Term loans at not more than one year 6 356 508 17 757 763 5 669 830 10 858 398 

Current account advances 3 561 132 2 284 518 2 845 332 1 991 872 

Other amounts receivable 2 329 441 6 049 546 3 226 301 5 608 809 

Doubtful loans, write-downs and provisions 253 185 -360 808 248 955 -166 629 

Total 48 608 807 50 166 310 48 865 555 41 427 786 

Write-downs and provisions 31-12-2002 31-12-2003 

(For changes: see Note 4) Belgium Abroad Belgium Abroad 

Loans and advances to customers, gross amount 49 632 804 51 485 004 49 876 465 43 070 039 

Write-downs and provisions -1 023 997 -1 318 695 -1 010 910 -1 642 253 

Loans and advances to customers, net amount 48 608 807 50 166 310 48 865 555 41 427 786 

Breakdown, write-downs and provisions 

Specific write-downs for doubtful and irrecoverable loans and advances -880 056 -581 343 -852 666 -934 694 

Specific write-downs for loans and advances with an uncertain outcome* -143 941 -600 033 -158 244 -571 626 

General provision for international credit 0 -112 349 0 -122 247 

General provision for country risks 0 -24 970 0 -13 687 

* Including write-downs for loans and advances with an uncertain outcome, calculated on a portfolio basis. 

Loans and advances to customers in the banking business fell by almost 9% to 90 billion euros. This was attributable to a number of factors, including a decline 

in reverse repos with a British clearing house (under ‘Term loans at not more than one year’), the sale of Krefima (affecting ‘Consumer credit’ and, to a less 

extent, ‘Mortgage loans’), a drop in current account advances and the depreciation of a number of currencies against the euro. On the other hand, the volume of 

outstanding home loans climbed by 11%, despite the sale of Krefima (+16% on an organic basis), owing to inter alia a sharp increase at IIB Homeloans and 

Finance in Ireland and at the subsidiaries in Central Europe. 



113


114 

NOTE 4: WRITE-DOWNS ON AND PROVISIONS FOR LOANS AND ADVANCES TO CREDIT INSTITUTIONS AND CUSTOMERS, BANKING 

(In thousands of EUR) 31-12-2002 31-12-2003 


Write-downs on and provisions for 1 023 997 1 348 956 1 010 910 1 662 062 

Loans and advances to credit institutions 0 30 262 0 19 809 

Loans and advances to customers 1 023 997 1 318 695 1 010 910 1 642 253 

Write-downs on and provisions for 1 023 997 1 348 956 1 010 910 1 662 062 

Irrecoverable and doubtful loans 880 056 581 343 852 666 934 694 

Loans with an uncertain outcome 143 941 609 527 158 244 578 713 

General credit risks* 0 112 349 0 122 247 

Country risks 0 45 738 0 26 409 

Write-downs on and provisions for loans and advances, 2003 Irrecoverable and 

doubtful loans 

Loans with an 

uncertain 

outcome 

General credit 

risks* 

Country risks 

Loans and advances to domestic borrowers 

Opening balance 880 056 143 941 0 0 

* Movements with an impact on results 

- Increase 146 956 26 505 0 0 

- Decrease -58 536 443 0 0 

* Movements without an impact on results 

- Write-offs -95 406 -1 241 0 0 

- Translation differences -18 714 0 0 0 

- Changes in the scope of consolidation and reclassification -1 690 -11 403 0 0 

Closing balance 852 666 158 244 0 0 

Loans and advances to borrowers abroad 

Opening balance 581 343 609 527 112 349 45 738 


- Increase 704 052 491 323 55 509 14 

- Decrease -380 490 -248 145 -50 789 -19 273 


- Write-offs -26 397 -115 081 -589 0 

- Translation differences -71 972 -82 202 -2 053 -69 

- Changes in the scope of consolidation and reclassification 128 158 -76 710 7 823 0 

Closing balance 934 694 578 713 122 247 26 409 

Loans and advances to credit institutions and customers 

Opening balance 1 461 399 753 467 112 349 45 738 


- Increase 851 008 517 827 55 509 14 

- Decrease -439 026 -247 702 -50 789 -19 273 


- Write-offs -121 803 -116 323 -589 0 

- Translation differences -90 686 -82 202 -2 053 -69 

- Changes in the scope of consolidation and reclassification 126 467 -88 113 7 823 0 

Closing balance 1 787 360 736 957 122 247 26 409 

* General provision for international credit. 

For additional information, see ‘Note 30: Write-downs on and provisions for credit risks, banking’.

NOTE 5: SECURITIES, BANKING 

A TOTAL PORTFOLIO 


Total 66 224 733 61 895 263 69 556 511 12.4% 


Belgium 22 604 189 21 639 183 21 524 112 -0.5% 

Abroad 43 620 544 40 256 080 48 032 399 19.3% 

Euro zone 25 719 433 19 118 388 18 522 795 -3.1% 


In euros 48 489 699 41 552 028 41 777 629 0.5% 


Breakdown by type of security 

Fixed-income securities 60 525 434 57 214 470 58 635 576 2.5% 

*Treasury bills eligible for refinancing at the central bank 3 468 148 2 949 606 2 237 384 -24.1% 

*Bonds and other fixed-income securities 57 057 285 54 264 864 56 398 192 3.9% 

Shares and other variable-yield securities 5 699 299 4 680 793 10 920 935 - 

Breakdown by type of security and portfolio 31-12-2002 31-12-2003 

Trading 

portfolio 

Investment 

portfolio 

Trading 

portfolio 

Investment 

portfolio 

Total fixed-income securities 15 313 433 41 901 037 16 542 389 42 093 187 

Treasury bills eligible for refinancing at the central bank 921 755 2 027 851 636 899 1 600 484 

Bonds and other fixed-income securities 14 391 678 39 873 186 15 905 490 40 492 703 

* Public issuers 6 865 865 31 737 763 8 147 186 31 355 443 

- Belgian government 2 136 517 16 917 664 1 263 023 18 229 487 

- Other governments 4 729 348 14 820 099 6 884 163 13 125 956 

* Other issuers 7 525 814 8 135 423 7 758 304 9 137 260 

A Belgian issuers 131 240 487 100 56 908 371 987 

Other issuers 7 394 573 7 648 323 7 701 396 8 765 272 

B Credit institutions 1 790 237 5 281 008 1 508 977 6 456 008 

Other 5 735 577 2 854 415 6 249 328 2 681 251 

Shares and other variable-yield securities 3 611 553 1 069 240 9 718 477 1 202 458 

- Belgian issuers 241 209 398 956 435 130 463 315 

- Other issuers 3 370 344 670 284 9 283 347 739 144 

Total, securities portfolio 18 924 986 42 970 277 26 260 866 43 295 645 

Premiums, discounts, etc. 31-12-2002 31-12-2003 

Trading 

portfolio 

Investment 

portfolio 

Trading 

portfolio 

Investment 

portfolio 

Bonds and other fixed-income securities 

Trading portfolio 

* Positive difference between market value and acquisition cost 369 - 45 877 - 

Investment portfolio 

*Premiums (positive difference between redemption value and carrying value) - 352 563 - 250 916 

*Discounts (negative difference between redemption value and carrying value) - 1 059 735 - 968 058 

Shares and other variable-yield securities 

Trading portfolio 

*Positive difference between market value and acquisition cost 28 199 - 11 520 - 



115


116 

NOTE 5: SECURITIES, BANKING 

B TOTAL PORTFOLIO, EXCL. TREASURY BILLS ELIGIBLE FOR REFINANCING AT THE CENTRAL BANK 

Breakdown according to remaining term to maturity 31-12-2002 31-12-2003 

Bonds Shares Bonds Shares 

Not more than one year 8 281 891 - 7 325 473 - 

More than one year 45 982 974 - 49 072 719 - 

Shares - 4 680 793 - 10 920 935 

Listing and market value 31-12-2002 31-12-2003 


Carrying value, unlisted securities 820 204 280 769 759 290 331 725 

Carrying value, listed securities 53 444 660 4 400 024 55 638 902 10 589 210 

Market value, listed securities 55 074 331 4 486 007 56 874 915 10 689 306 

Unrealized gains 1 629 671 85 982 1 236 013 100 096 

C INVESTMENT PORTFOLIO* 

Gross amount, net amount and write-downs 31-12-2002 31-12-2003 


Gross amount outstanding 39 933 000 1 332 276 40 518 032 1 402 038 

Write-downs -59 814 -263 036 -25 330 -199 580 

Net amount outstanding 39 873 186 1 069 240 40 492 703 1 202 458 

Gross amount outstanding 31-12-2002 31-12-2003 


Opening balance 

* Acquisitions 

* Carrying value, transfers 

* Accrued (discounts) premiums (Art. 35ter §§4 and 5 of Royal Decree of 23 Sept. 1992) 

* Translation differences 

* Transferred from one heading to another 

* Changes in the scope of consolidation 

48 371 721 

45 651 067 

-53 248 646 

-42 810 

-790 994 

0 

-7 337 

1 602 450 

411 856 

-712 036 

0 

-4 809 

0 

34 815 

39 933 000 

26 605 138 

-26 760 814 

844 

369 502 

196 580 

173 783 

1 332 276 

368 954 

-292 591 

0 

-8 351 

1 750 

0 

Closing balance 39 933 000 1 332 276 40 518 032 1 402 038 

Write-downs 31-12-2002 31-12-2003 




33 489 169 151 59 814 263 036 

- Increase 34 096 197 321 9 846 37 669 

- Decrease 


-425 -28 850 -32 036 -51 700 

- Write-offs -1 707 -32 722 -3 882 -43 080 

- Translation differences -131 -3 786 -8 412 -1 589 

- Changes in the scope of consolidation and reclassification -5 508 -38 078 0 -4 756 

Closing balance 59 814 263 036 25 330 199 580 

* Excluding treasury bills eligible for refinancing at the central bank. 

In 2003, the securities portfolio went up by approximately 12% to 70 billion euros, with some 62% being accounted for by the investment portfolio and 38% by 

the trading portfolio. Fixed-income paper was good for roughly 84% of the securities portfolio, shares and variable-yield securities for 16%. 

Total unrealized gains on securities came to 1 336 million euros at year-end 2003, compared with 1 716 million euros a year earlier. The decline occurred inthe 

bond portfolio, on which unrealized gains fell from 1.6 billion euros to 1.2 billion euros. At the end of 2003, unrealized gains on the equity portfolio amounted 

to approximately 100 million euros.

NOTE 6: FINANCIAL FIXED ASSETS, BANKING 


Total 193 817 686 385 610 016 -11.1% 

Participating interests 170 271 553 074 476 508 -13.8% 

Subordinated loans and advances 

Breakdown of participating interests 

23 546 133 312 133 508 0.1% 

Participating interests in companies accounted for using the equity method 

*Participating interests in credit institutions 

*Participating interests in other financial institutions 

*Other participating interests 

41 465 

16 886 

16 797 

7 782 

233 394 

180 325 

37 227 

15 841 

213 822 

179 452 

15 323 

19 047 

-8.4% 

-0.5% 

-58.8% 

20.2% 

Other participating interests 

*Participating interests in credit institutions 

*Participating interests in other financial institutions and other participating interests 

Breakdown of subordinated loans and advances 

128 806 

3 352 

125 454 

319 680 

110 929 

208 751 

262 686 

110 929 

151 757 

-17.8% 

0.0% 

-27.3% 

Participating interests in companies accounted for using the equity method 

*to credit institutions 

* to other financial institutions 

7 

0 

7 

120 007 

120 000 

7 

120 007 

120 000 

7 

0.0% 

0.0% 

0.0% 

Other participating interests 

* to other financial institutions 

* to other companies in which a participating interest is held 

Listing and market value, participating interests 

23 540 

20 886 

2 654 

13 305 

11 159 

2 145 

13 501 

9 048 

4 453 

1.5% 

-18.9% 

- 

Carrying value, unlisted securities 168 885 366 365 268 441 -26.7% 

Carrying value, listed securities 1 386 186 708 208 067 11.4% 

Market value, listed securities 3 041 213 378 308 801 44.7% 

Unrealized gains 1 655 26 670 100 734 - 

Acquisition cost, participating interests Companies 

accounted for 

using the equity 

method, 2002 

Other, 

2002 

Companies 

accounted for 


method, 2003 

Opening balance (gross) 41 465 168 732 233 394 396 345 

* Acquisitions 187 192 64 228 63 30 398 

* Carrying value, transfers -450 -13 523 -1 781 -79 018 

* Share in the result for the period 7 411 - 17 643 - 

* Translation differences 23 -213 -9 536 -3 189 

* Transferred from one heading to another 0 225 874 0 4 280 

* Changes in the scope of consolidation -392 -50 846 -12 666 -27 421 

* Change in uncalled amounts 0 2 093 0 0 

* Other movements -1 854 0 -13 293 -6 516 

Closing balance (gross) 233 394 396 345 213 822 314 879 

Gross amount, net amount and write-downs, participating interests Companies 

accounted for 


method, 2002 

Other, 

2002 

Companies 

accounted for 


method, 2003 

Gross amount outstanding 233 394 396 345 213 822 314 879 

Write-downs 0 76 665 0 52 193 

Net amount outstanding 233 394 319 680 213 822 262 686 

Other, 

2003 

Other, 

2003 



117


118 

NOTE 7: (IN)TANGIBLE FIXED ASSETS, GOODWILL ON CONSOLIDATION AND OTHER ASSETS, BANKING 


Intangible fixed assets and goodwill on consolidation 207 322 542 580 541 779 -0.1% 

Formation expenses and intangible fixed assets 171 611 195 570 173 677 -11.2% 

Goodwill on consolidation* 35 711 347 010 368 102 6.1% 

Tangible fixed assets 2 091 340 2 147 372 2 150 575 0.1% 

Land and buildings 1 111 431 1 129 750 1 154 077 2.2% 

Plant, machinery and equipment 217 677 229 585 173 940 -24.2% 

Furniture and vehicles 106 969 98 192 93 359 -4.9% 

Leasing and similar rights 11 916 22 099 46 654 - 

Other tangible fixed assets 542 227 601 197 649 905 8.1% 

- Operational leasing at KBC Lease Group 447 012 484 500 528 946 9.2% 

Assets under construction and advance payments 101 121 66 548 32 641 -51.0% 

Other assets 31 825 563 15 155 893 20 637 324 36.2% 

Cash in hand, balances at central banks and post office banks 1 259 396 1 210 540 1 263 721 4.4% 

Deferred charges and accrued income 19 117 385 9 740 457 13 374 349 37.3% 

Other assets 11 448 782 4 204 897 5 999 253 42.7% 

* See also ‘Changes in valuation rules’ and ‘Note 11: Capital and reserves, Group’. 

(In)tangible fixed assets, 2003 Formation 

expenses and 

intangible fixed 

assets 

Total 

tangible 

fixed assets 

Land and 

buildings 

Plant, 

machinery 

and 

equipment 

Furniture 

and 

vehicles 

Leasing 

and 

similar 

rights 

Other 

tangible 

fixed 

assets 

Assets under 

construction 

and advance 

payments 

Acquisition cost 

Opening balance 448 821 3 792 951 1 716 213 769 896 311 945 32 920 895 429 66 548 

* Acquisitions 70 821 901 979 126 120 149 994 24 969 36 085 474 463 90 348 

* Transfers and asset retirements -73 259 -710 971 -109 053 -81 001 -41 770 -2 349 -389 310 -87 488 

* Transferred from one heading to another 0 0 23 738 -9 252 2 081 3 722 10 648 -30 937 

* Translation differences -24 928 -89 122 -29 940 -30 793 -6 950 -6 636 -10 291 -4 512 

* Other movements -351 -7 114 22 -985 -712 0 -5 439 0 

Closing balance 421 104 3 887 723 1 727 100 797 859 289 563 63 742 975 500 33 959 

Revaluation surpluses 

Opening balance 0 112 036 112 036 0 0 0 0 0 

* Recorded 0 0 0 0 0 0 0 0 

* Written off 0 -3 264 -3 264 0 0 0 0 0 

Closing balance 0 108 772 108 772 0 0 0 0 0 

Write-downs and depreciation 

Opening balance 253 251 1 757 615 698 499 540 310 213 752 10 821 294 232 0 

* Recorded 68 285 317 254 47 292 122 439 23 180 8 402 115 941 0 

* Written back -3 161 -2 023 -2 023 0 0 0 0 0 

* Written off -59 918 -194 940 -56 923 -25 550 -31 352 892 -82 007 0 

* Transferred from one heading to another 0 0 2 663 -1 298 -5 192 -1 293 3 716 1 404 

*Translation differences -13 894 -34 207 -6 921 -18 380 -3 817 -1 735 -3 269 -85 

*Other movements 2 863 2 221 -792 6 397 -367 0 -3 017 0 

Closing balance 247 426 1 845 920 681 795 623 918 196 204 17 087 325 596 1 319 

Net carrying value 

as at the end of the financial year 173 678 2 150 575 1 154 077 173 940 93 358 46 654 649 905 32 640 

NOTE 8: INVESTMENTS, INSURANCE 


Carrying value 

Investments 8 657 609 10 063 997 11 105 222 10.3% 

*Land and buildings 164 369 201 860 210 343 4.2% 

*Participating interests in companies accounted for using the equity method 104 189 106 741 112 551 5.4% 

*Other participating interests 14 439 135 333 102 426 -24.3% 

*Shares and other variable-yield securities 2 793 655 2 812 570 2 791 264 -0.8% 

*Bonds and other fixed-income securities 5 168 591 6 238 954 7 460 705 19.6% 

*Participation in investment pools 39 724 39 421 39 511 0.2% 

*Loans guaranteed by mortgages and other loans 176 327 169 891 150 703 -11.3% 

*Deposits with ceding companies 132 792 129 921 133 714 2.9% 

* Other 63 521 229 307 104 003 -54.6% 

Investments for the benefit of life assurance policyholders who bear the investment risk 2 952 108 2 813 191 3 238 898 15.1% 

Total carrying value, investments 11 609 717 12 877 188 14 344 120 11.4%

NOTE 8: INVESTMENTS, INSURANCE 


Market value 

31-12-2001 31-12-2002 31-12-2003 Change 

Investments 

*Land and buildings 

*Participating interests in companies accounted for using the equity method 

*Other participating interests 

*Shares and other variable-yield securities 

*Bonds and other fixed-income securities 

*Participation in investment pools 

*Loans guaranteed by mortgages and other loans 

*Deposits with ceding companies 

*Other 

9 461 593 

264 358 

108 770 

16 565 

3 213 823 

5 442 474 

40 343 

176 327 

132 792 

66 140 

10 146 148 

303 009 

103 255 

192 339 

2 242 873 

6 736 443 

40 150 

169 891 

129 921 

228 267 

11 428 991 

296 500 

170 975 

122 993 

2 620 389 

7 788 762 

40 182 

150 703 

133 714 

104 771 

12.6% 

-2.1% 

65.6% 

-36.1% 

16.8% 

15.6% 

0.1% 

-11.3% 

2.9% 

-54.1% 

Investments for the benefit of life assurance policyholders who bear the investment risk 2 952 108 2 813 191 3 238 898 15.1% 

Total market value, investments 

Unrealized gains 

12 413 701 12 959 339 14 667 887 13.2% 

* Participating interests, shares and other variable-yield securities 

* Bonds and other fixed-income securities 

* Other 

426 875 

273 882 

103 227 

-516 177 

497 490 

100 838 

-91 884 

328 057 

87 595 

-82.2% 

-34.1% 

-13.1% 

Total unrealized gains 803 984 82 151 323 768 - 

At year-end 2003, investments represented 88% of the assets in the insurance business, with 20 percentage points accounted for by ‘Investments for the 

benefit of life assurance policyholders who bear the investment risk’. The equity portfolio (excluding participating interests) accounted for one quarter of 

the investment portfolio (based on carrying value, excluding unit-linked insurance). Thanks to rising share prices, the market value of this portfolio went up 

by 17% to 2 620 million euros in 2003, with unrealized losses on this portfolio (including participating interests) relative to the carrying value coming to 

92 million euros at the end of the year. 

On 31 December 2003, bonds and other fixed-income securities represented roughly two-thirds of the investment portfolio (based on carrying value, 

excluding unit-linked insurance). The market value of this portfolio rose by 16% to 7 789 million euros, unrealized gains on it amounting to 

328 million euros at 31 December 2003. 

Investments, 2003 


Land and buildings 

Participating interests 

in associated companies 


in companies linked 

by participating interests 

Debt securities issued 

by and loans and advances 

to companies linked by 

participating interests 


in companies accounted 

for using the equity method 

Shares, participating 

interests and other 

variable-yield securities 

Bonds and other 

fixed-income securities 

Debt securities issued 

by and loans and 

advances to 

associated companies 


Opening balance 341 119 4 192 136 732 0 106 741 3 128 358 6 247 827 2 479 

* Acquisitions 21 390 2 508 9 371 0 27 577 756 851 4 103 691 0 

* Transfers and asset retirements -6 234 -78 -45 172 0 0 -771 280 -2 877 047 -2 479 

* Transferred from one heading to another 10 340 0 0 0 0 -8 661 0 0 

* Translation differences 0 0 0 0 -19 913 0 0 0 

*Result for the period 0 0 0 0 16 719 0 0 0 

*Other movements 0 0 0 0 -18 573 -221 -3 882 0 

Closing balance 366 615 6 621 100 930 0 112 551 3 105 047 7 470 588 0 

Revaluation surpluses 

Opening balance 0 0 0 0 0 -1 762 3 000 0 

*Written off 0 0 0 0 0 -1 359 -531 0 

*Transferred from one heading to another 0 0 0 0 0 2 360 0 0 

*Other movements 0 0 0 0 0 34 29 0 

Closing balance 0 0 0 0 0 -727 2 499 0 


Opening balance 139 260 2 070 3 453 0 0 308 591 14 353 0 

*Recorded 10 348 122 0 0 0 130 952 457 0 

*Written back -3 071 0 0 0 0 -31 519 -51 0 

*Written off -606 0 -590 0 0 -94 517 -2 377 0 

*Transferred from one heading to another 10 340 0 0 0 0 -6 300 0 0 

Closing balance 156 272 2 192 2 863 0 0 307 208 12 382 0 

Uncalled amounts 

Opening balance 0 0 68 0 0 5 434 0 0 

*Movements during the financial year 0 0 0 0 0 415 0 0 

Closing balance 0 0 68 0 0 5 849 0 0 

Net carrying value as at the end of 

the financial year 210 344 4 429 97 999 0 112 551 2 791 263 7 460 705 0 



119


120 

NOTE 9: (IN)TANGIBLE FIXED ASSETS, GOODWILL ON CONSOLIDATION, DEBTORS AND OTHER ASSETS, INSURANCE 


Debtors 335 332 478 166 618 321 29.3% 

Arising out of direct insurance operations 130 934 190 661 195 999 2.8% 

Arising out of reinsurance operations 83 644 144 623 155 920 7.8% 

Other debtors and called capital as yet unpaid 120 755 142 882 266 402 86.4% 

Other assets 382 565 417 776 878 800 - 

Deferred charges and accrued income 184 216 205 542 209 159 1.8% 

Other assets 198 349 212 234 669 641 - 

Intangible fixed assets and goodwill on consolidation 82 344 100 894 205 879 - 

Formation expenses and intangible fixed assets 73 512 62 098 36 446 -41.3% 

Goodwill on consolidation (see Note 11: Capital and reserves) 8 832 38 796 169 434 - 

Formation expenses and intangible fixed assets 2002 2003 


Opening balance 146 042 155 547 

* Acquisitions 14 065 4 992 

* Transfers and asset retirements -4 560 -4 811 

* Other movements 0 -264 

Closing balance 155 547 155 465 


Opening balance 72 530 93 450 

* Recorded 24 948 26 533 

* Written back -3 983 -190 

* Written off -46 -774 

Closing balance 93 450 119 019 

Net carrying value 62 098 36 446 

NOTE 10: FINANCIAL FIXED ASSETS, HOLDING-COMPANY ACTIVITIES 


Total 336 955 341 313 250 412 -26.6% 

Other participating interests 336 955 341 313 250 412 -26.6% 

* Subordinated loans and advances 336 955 341 313 250 412 -26.6% 

‘Other participating interests’ are accounted for primarily by the subscription in the amount of 250 million euros by the KBC Bank and Insurance Holding 

Company NV (in 1999) to an ACB (a subordinated, automatically convertible bond loan) issued by KBC Bank NV and maturing in 2006. Since this loan has been 

eliminated under ‘Eliminations’ on the assets side and under ‘Subordinated liabilities’ on the liabilities side, it does not appear, on balance, on either the assets 

or the liabilities side of the balance sheet. The year-on-year decline in ‘Other participating interests’ is due to the conversion of 1993/1996-2003 MCBs into 

KBC Bank NV shares (see ‘Company annual accounts − KBC Bank and Insurance Holding Company NV’). 

NOTE 11A: RECONCILIATION OF THE CAPITAL AND RESERVES OF KBC BANK, 

KBC INSURANCE, KBCASSET MANAGEMENT AND THE KBC BANK AND INSURANCE HOLDING COMPANY 

The consolidated own funds of the KBC Bank and Insurance Holding Company are lower than the sum of the consolidated own funds of KBC Bank, KBC Insurance 

(as stated under the ‘Solvency’ section) and KBC Asset Management, owing to inter alia: 

*the elimination of intragroup transactions; 

*the elimination of treasury shares held by KBC Bank; 

*the contribution of the non-consolidated result of the KBC Bank and Insurance Holding Company; 

*leveraging at the level of the holding company.

NOTE 11B: GOODWILL ON CONSOLIDATION 2003 

(In thousands of EUR) Opening 

balance 

Increase in 

percentage of 

capital held 

Decrease in 

percentage of 

capital held 

Amounts 

written off 

Adjustment, 

amortization 

period 

Other 

movements 

Closing 

balance 



Capitalized goodwill (asset side) 87 514 49 011 -1 495 -13 637 0 -115 121 278 

Negative goodwill (liabilities side) 3 921 0 0 0 0 0 3 921 

Imputed goodwill (liabilities side) -1 430 669 0 0 274 368 0 -10 090 -1 166 391 

Goodwill via application of the equity method 

Capitalized goodwill (asset side) 259 496 9 919 0 -23 177 0 586 246 823 


Imputed goodwill (liabilities side) -7 0 0 0 0 7 0 



Capitalized goodwill (asset side) 38 115 4 650 -133 -3 257 0 0 39 374 


Imputed goodwill (liabilities side) -7 578 0 0 613 0 0 -6 965 


Capitalized goodwill (asset side) 681 129 420 -9 -34 0 0 130 059 


Imputed goodwill (liabilities side) -81 452 0 0 4 525 0 -6 -76 933 



Imputed goodwill (liabilities side) 0 0 0 0 0 0 0 

TOTAL 

Capitalized goodwill (asset side) 

Banking 347 010 58 930 -1 495 -36 814 0 472 368 102 

Insurance 38 796 134 070 -142 -3 291 0 0 169 433 


Imputed goodwill (liabilities side) -1 519 707 0 0 279 507 0 -10 089 -1 250 289 

The goodwill paid on acquisitions from 1 January 1999 through 31 December 2001 was deducted directly from capital and reserves (see valuation rules), under a 

temporary derogation authorized by The Belgian Banking, Finance and Insurance Commission. The amount of goodwill that has been deducted, after subtracting 

the relevant theoretical amortization charges, is included under liabilities heading ‘Vbis Imputed goodwill on consolidation’. The theoretical amortization of the 

imputed goodwill on consolidation since 1 January 1999 totalled 279.5 million euros in the 2003 financial year and also includes the accelerated amortization 

of imputed goodwill on consolidation still outstanding in respect of a number of Group companies. 

Since the temporary derogation referred to above expired on 1 January 2002, goodwill on new acquisitions after 31 December 2001 has been capitalized and 

amortized over a period of twenty years (in accordance with international practice). In 2001, the theoretical amortization period was changed to twenty years 

for all goodwill on consolidation that arose between 1 January 1999 and 31 December 2001. Consequently, the capitalized goodwill on consolidation relates to 

the goodwill that has not yet been written off on acquisitions made prior to 1 January 1999 or after 31 December 2001. 

The liabilities heading ‘V Goodwill on consolidation’ contains negative goodwill. 



121


122 

NOTE 11C: CHANGES IN CONSOLIDATED CAPITAL AND RESERVES 



Capital increase 

and conversion of MCBs 

Retained profit 

2002 

Capital 590 388 750 - - - - - 0 591 138 

Share premium account 2 009 421 8 759 - - - - - 0 2 018 180 

Revaluation reserve 10 162 - - - - - - -460 9 702 

Reserves and profit brought forward 6 871 067 - 573 886 -93 522 0 0 0 4 528 7 355 959 

Goodwill on consolidation 15 934 - - - - - - 677 16 611 

Imputed goodwill on consolidation -1 617 451 - - 98 415 0 - - -671 -1 519 707 

Translation differences -27 240 - - - - - -15 711 - -42 951 

Capital and reserves 7 852 280 9 509 573 886 4 893 0 0 -15 711 4 075 8 428 932 

2003 

Capital 591 138 16 602 - - - - - 0 607 740 

Share premium account 2 018 180 143 576 - - - - - 0 2 161 756 

Revaluation reserve 9 702 - - - - - - -459 9 243 

Reserves and profit brought forward 7 355 959 - 619 766 -279 507 0 0 0 1 176 7 697 395 

Goodwill on consolidation 16 611 - - - - - - 0 16 611 

Imputed goodwill on consolidation -1 519 707 - - 279 507 0 - - -10 090 -1 250 289 

Translation differences -42 951 - - - - - -51 712 - -94 663 

Capital and reserves 8 428 932 160 179 619 766 0 0 0 -51 712 -9 372 9 147 793 

For a detailed overview of the changes in capital, the share premium account and shareholdings, please see the notes to the company accounts. 

NOTE 11D: RESERVES AND PROFIT BROUGHT FORWARD 

(In thousands of EUR) 2002 2003 


* Profit (Group share) 

* Dividends 

* Directors 

* Theoretical amortization, goodwill on consolidation 

* Other 

6 871 067 

1 034 204 

-459 176 

-1 142 

-93 522 

4 528 

7 355 959 

1 118 989 

-498 079 

-1 144 

-279 507 

1 176 

Closing balance 7 355 959 7 697 395 

NOTE 11E: STATEMENT OF OWN SHARES 

Held in portfolio by Quantity As a%oftheissued 

shares 

Write-off of imputed 

goodwill on consolidation 

Adjustment, 

amortization period 

Transfer of Fund for 

General Banking Risks 

Translation 

differences 

Other movements 

Closing balance 

Carrying value (in 

thousands of EUR) 

Assurisk 1 100 0.00% 40 

IIB Bank 20 020 0.01% 979 

KBC Bank 55 661 0.02% 2 061 

KBC Bank and Insurance Holding Company 5 808 674 1.87% 240 259 

KBC Financial Products Group (trading portfolio) 1 147 136 0.37% 42 586 

KBC Securities (trading portfolio) 97 085 0.03% 3 328 

VITIS Life 11 300 0.00% 418 

At 31 December 2003, the KBC Bank and Insurance Holding Company held approximately 5.8 million of its own shares, which it had repurchased in recent years 

for the KBC stock option plans for staff. This represented 1.87% of the number of shares issued. 

NOTE 12: MINORITY INTERESTS, GROUP 


Total 2 219 123 1 967 094 1 825 496 -7.2% 

Minority interests 643 310 499 957 455 437 -8.9% 

Preference shares 1 575 812 1 467 137 1 370 059 -6.6%

NOTE 13: SUBORDINATED LIABILITIES, GROUP 


Total 6 745 978 6 285 850 6 098 253 -3.0% 

Convertible 786 258 725 542 503 350 -30.6% 

Non-convertible 5 959 720 5 560 308 5 594 903 0.6% 

Company 

Banking 7 077 732 6 620 965 6 339 987 -4.2% 

Insurance 19 336 19 336 17 724 -8.3% 

Eliminations -351 089 -354 451 -259 459 -26.8% 

Geographic breakdown, banking 

Belgium 3 547 708 3 700 081 3 788 635 2.4% 

Abroad 3 530 024 2 920 885 2 551 352 -12.7% 

Euro zone 353 230 2 606 478 2 394 623 -8.1% 

Monetary breakdown, banking 

In euros 6 603 976 6 201 764 5 811 140 -6.3% 

In foreign currency 473 755 419 201 528 847 26.2% 

Breakdown according to remaining term to maturity, banking (year maturing) 2004 2005 2006 2007 2008 

NOTE 14: FUND FOR GENERAL BANKING RISKS, BANKING 

898 585 1 786 590 904 498 528 165 460 102 

2009 2010 2011 2012 2013 

308 686 237 054 63 450 43 398 38 726 

2014 2015 Perpetual 

25 702 15 503 1 029 529 


Opening balance 1 841 379 0 0 - 

* Transfer to the reserves as a result of changes in the valuation rules -1 838 574 0 0 - 

* Other movements -2 804 0 0 - 

Closing balance 0 0 0 - 

At the end of 2001, KBC decided to transfer this fund to the ‘Reserves’ heading. 

NOTE 15: AMOUNTS OWED TO CREDIT INSTITUTIONS, BANKING 


Total 41 199 589 39 683 320 38 224 138 -3.7% 

Amounts owed as a result of the rediscounting of trade bills 14 373 21 139 0 -100.0% 


Belgium 3 449 404 2 266 819 3 231 349 42.5% 

Abroad 37 750 185 37 416 501 34 992 789 -6.5% 

Euro zone 13 414 693 16 270 855 14 793 106 -9.1% 


In euros 23 767 826 25 589 534 23 528 933 -8.1% 



Repayable on demand 6 077 690 2 233 198 3 402 965 52.4% 

With agreed maturity dates or periods of notice 35 121 899 37 450 122 34 821 173 -7.0% 

*Not more than three months 26 096 262 28 774 423 26 660 051 -7.3% 

*More than three months but not more than one year 7 064 573 7 922 274 7 041 804 -11.1% 

*More than one year but not more than five years 666 518 348 750 513 428 47.2% 

*More than five years 1 262 181 379 975 588 313 54.8% 

*Undated 32 364 24 700 17 577 -28.8% 



123


124 

NOTE 16: AMOUNTS OWED TO CUSTOMERS AND DEBTS REPRESENTED BY SECURITIES, BANKING 


Total 131 142 407 137 375 260 133 581 448 -2.8% 

Amounts owed to customers 110 097 895 113 719 463 108 622 973 -4.5% 

Debts represented by securities 21 044 512 23 655 798 24 958 475 5.5% 

Amounts owed to customers 


110 097 895 113 719 463 108 622 973 -4.5% 

Belgium 55 199 928 58 026 917 63 326 765 9.1% 

Abroad 54 897 967 55 692 546 45 296 208 -18.7% 

Euro zone 


9 753 176 9 474 112 8 068 987 -14.8% 

In euros 72 193 737 81 313 963 75 940 786 -6.6% 



37 904 158 32 405 500 32 682 187 0.9% 

Repayable on demand 26 590 182 27 979 650 42 531 157 52.0% 


* Not more than three months 




* Undated 

83 507 713 

41 081 702 

12 768 941 

4 468 787 

744 515 

24 443 768 

85 739 813 

44 602 277 

11 196 293 

2 361 642 

1 685 421 

25 894 180 

66 091 816 

20 494 612 

11 725 583 

3 275 295 

1 191 050 

29 405 276 

-22.9% 

-54.1% 

4.7% 

38.7% 

-29.3% 

13.6% 

Debts represented by securities 21 044 512 23 655 798 24 958 475 5.5% 


Belgium 7 960 632 6 819 733 5 976 550 -12.4% 

Abroad 13 083 880 16 836 065 18 981 925 12.7% 

Euro zone 6 140 206 7 257 448 8 192 795 12.9% 


In euros 12 289 034 14 541 676 14 346 228 -1.3% 



With agreed maturity dates or periods of notice 21 044 512 23 655 798 24 958 475 5.5% 

* Not more than three months 5 684 462 9 549 369 10 831 019 13.4% 

* More than three months but not more than one year 5 144 388 2 490 762 4 276 016 71.7% 

* More than one year but not more than five years 8 753 275 10 524 970 9 322 038 -11.4% 

* More than five years 1 441 354 1 035 271 495 224 -52.2% 

* Undated 21 033 55 426 34 178 -38.3% 

Amounts owed to customers and debts represented by securities, breakdown by type 131 142 407 137 375 260 133 581 448 -2.8% 

Total amounts owed to customers 110 097 895 113 719 463 108 622 973 -4.5% 

Demand deposits 20 620 544 20 800 120 23 322 373 12.1% 

Time deposits 44 890 835 37 533 966 36 643 193 -2.4% 

Savings deposits 20 172 408 24 245 774 25 988 182 7.2% 

Special deposits 2 567 650 2 918 115 3 214 052 10.1% 

Other deposits 21 846 458 28 221 489 19 455 173 -31.1% 

Total debts represented by securities 21 044 512 23 655 798 24 958 475 5.5% 

Savings certificates 7 695 938 6 694 706 5 399 845 -19.3% 

Bonds 5 414 609 7 006 960 7 294 315 4.1% 

Certificates of deposit 7 933 966 9 954 131 12 264 315 23.2% 

Amounts owed to customers and debts represented by securities, geographic breakdown 31-12-2002 31-12-2003 


Total amounts owed to customers and debts represented by securities 64 846 650 72 528 610 69 303 315 64 278 133 

Total amounts owed to customers 58 026 917 55 692 546 63 326 765 45 296 208 

Demand deposits 11 218 319 9 581 801 12 570 402 10 751 971 

Time deposits 18 602 954 18 931 012 19 833 248 16 809 945 

Savings deposits 23 246 972 998 802 24 949 529 1 038 653 

Special deposits 543 719 2 374 396 618 963 2 595 089 

Other deposits 4 414 953 23 806 535 5 354 623 14 100 551 

Total debts represented by securities 6 819 733 16 836 065 5 976 550 18 981 925 

Savings certificates 6 659 806 34 900 5 378 423 21 422 

Bonds 136 741 6 870 219 202 013 7 092 302 

Certificates of deposit 23 186 9 930 945 396 115 11 868 201

On 31 December 2003, customer deposits stood at 134 billion euros, down 3% on the year-earlier figure. Disregarding repos, this represents an increase of5%, 

characterized by a shift from time deposits and savings certificates to deposits withdrawable on demand (demand and savings deposits), and from bank deposits 

generally to life-assurance products and investment funds. 

NOTE 17: PROVISIONS AND DEFERRED TAXES, GROUP 2003 


balance 

Allocations Utilization and 

write-backs 

Total 

movements 

with an 

impact on 

results 

Other movements 

Closing 

balance 


Pensions 87 009 58 826 -34 146 24 681 1 270 112 959 

Future charges for buildings 12 944 0 -12 944 -12 944 0 0 

Litigation (VAT, legal, other) 42 383 70 913 -14 067 56 846 6 630 105 858 

Operational risks 84 898 0 -84 032 -84 032 -866 0 

Restructuring expenses 76 989 3 332 -38 654 -35 322 -11 914 29 752 

Car leasing 13 478 3 240 -2 194 1 046 -209 14 315 

Compulsory purchase of bad loans relating to IPB 153 706 0 0 0 -143 292 10 414 

Fraud at K&H Equities 0 33 920 0 33 920 -1 158 32 762 

Other provisions 38 200 6 356 -6 535 -178 -9 657 28 364 

Subtotal, provisions for liabilities and charges 509 606 176 588 -192 573 -15 985 -159 197 334 425 

Taxation 55 865 0 0 0 -2 653 53 212 

Commitment credit 91 503 29 187 -20 438 8 749 -10 958 89 294 

Total provisions 656 974 205 775 -213 011 -7 236 -172 809 476 930 

Deferred taxes 67 479 0 -19 752 -19 752 0 47 727 

Total provisions and deferred taxes 724 452 205 775 -232 762 -26 987 -172 809 524 657 


Taxation 12 325 0 -7 533 -7 533 0 4 792 

Restructuring expenses 21 724 478 -4 247 -3 769 0 17 956 

IT 99 0 0 0 0 99 

Financial risks 0 140 164 -46 738 93 425 0 93 425 

Other provisions 10 340 6 527 -4 865 1 661 0 12 001 

Total 44 488 147 169 -63 384 83 785 0 128 273 

NOTE 18: OTHER LIABILITIES, BANKING 


Total 26 134 514 14 514 152 21 983 732 51.5% 

Accrued charges and deferred income 20 862 891 9 628 487 13 537 025 40.6% 

Other 5 271 623 4 885 665 8 446 707 72.9% 



125


126 

NOTE 19: TECHNICAL PROVISIONS, INSURANCE 


Gross 

Technical provisions 7 366 963 8 860 576 10 196 859 15.1% 

*Provision for unearned premiums and unexpired risk 203 217 225 817 252 357 11.8% 

*Life assurance provision 4 637 766 5 884 296 7 287 843 23.9% 

*Provision for claims outstanding 2 217 100 2 441 635 2 395 130 -1.9% 

*Provision for bonuses and rebates 29 958 30 844 34 969 13.4% 

*Equalization and catastrophe provision 208 336 186 709 127 832 -31.5% 

*Other technical provisions 70 586 91 274 98 728 8.2% 

For life assurance policyholders who bear the investment risk 2 952 108 2 813 191 3 238 898 15.1% 

Total gross technical provisions 10 319 071 11 673 767 13 435 756 15.1% 

Reinsurers’ share 

Technical provisions 173 889 250 066 179 545 -28.2% 

*Provision for unearned premiums and unexpired risk 2 851 6 621 3 533 -46.6% 

* Life assurance provision 7 369 6 745 8 594 27.4% 

* Provision for claims outstanding 161 578 234 901 165 823 -29.4% 

* Provision for bonuses and rebates 21 0 -92 - 

* Other technical provisions 2 070 1 798 1 687 -6.2% 

Total, reinsurers’ share 173 889 250 066 179 545 -28.2% 

Net 

Technical provisions 7 193 074 8 610 510 10 017 314 16.3% 

* Provision for unearned premiums and unexpired risk 200 366 219 195 248 824 13.5% 

* Life assurance provision 4 630 397 5 877 551 7 279 249 23.8% 

* Provision for claims outstanding 2 055 522 2 206 734 2 229 307 1.0% 

* Provision for bonuses and rebates 29 937 30 844 35 061 13.7% 

* Equalization and catastrophe provision 208 336 186 709 127 832 -31.5% 

* Other technical provisions 68 516 89 476 97 041 8.5% 

For life assurance policyholders who bear the investment risk 2 952 108 2 813 191 3 238 898 15.1% 

Total net technical provisions 10 145 182 11 423 701 13 256 211 16.0% 

Secured by collateral security committed as a charge against the 

company’s assets 150 236 150 483 188 604 25.3% 

NOTE 20: OTHER LIABILITIES, INSURANCE 


Creditors 347 844 422 477 682 411 61.5% 

Arising out of direct insurance operations 91 489 150 692 130 311 -13.5% 

Arising out of reinsurance operations 14 317 50 748 32 826 -35.3% 

Other creditors 242 039 221 037 519 274 - 

Secured by collateral security committed as a charge against the 

company’s assets 131 513 101 867 0 -100.0% 

Accrued charges and deferred income 18 844 14 337 32 178 - 

NOTE 21: FINANCIAL LIABILITIES, HOLDING-COMPANY ACTIVITIES 

In 2003, the financial liabilities of the KBC Bank and Insurance Holding Company NV went up, on balance, by 1.3% to 1 335 million euros. 

See ‘Company annual accounts − KBC Bank and Insurance Holding Company NV’.

NOTE 22: ELIMINATIONS AND RELATIONSHIPS WITH ASSOCIATED COMPANIES AND WITH COMPANIES LINKED 

BY PARTICIPATING INTERESTS WHICH ARE NOT INCLUDED IN THE CONSOLIDATION OR ELIMINATED, GROUP 

(In thousands of EUR) Between the banking, 

insurance and holdingcompany 

activities 

Eliminations 

ASSETS 

Associated companies 

Companies linked by 

participating interests 

Not eliminated 

Not eliminated 

31-12-2002 31-12-2003 31-12-2002 31-12-2003 31-12-2002 31-12-2003 


I Loans and advances to credit institutions 0 0 124 368 352 391 21 735 120 919 

II Loans and advances to customers 570 515 712 830 74 017 400 336 151 232 79 636 

III Securities 

A Fixed-income 0 0 71 753 19 332 7 205 0 

IV Financial fixed assets 10 659 9 047 2 145 3 961 120 000 120 000 

VII Other assets 12 194 219 639 0 0 0 0 


IX Investments 2 479 0 2 123 4 427 133 211 97 999 

XII Debtors 0 0 5 630 7 149 325 54 

XIII Other assets 515 901 882 877 0 0 0 0 


XV Financial fixed assets 359 134 250 412 0 0 0 0 

XVI Investments and cash at bank and in hand 211 787 241 374 0 0 0 0 

XVII Other assets 14 781 13 665 0 0 0 0 

TOTAL ASSETS 1 697 451 2 329 843 280 035 787 596 433 707 418 608 

LIABILITIES 

IX Subordinated liabilities 354 451 259 459 6 333 9 048 0 0 


XI Amounts owed to credit institutions 0 0 128 059 140 617 10 134 475 

XII Amounts owed to customers 744 253 983 269 181 076 708 097 8 896 125 278 

XIII Debts represented by securities 0 0 0 99 915 0 0 

XV Other liabilities 16 038 158 634 0 0 0 0 


XX Other liabilities 71 332 174 701 13 193 9 317 288 317 


XXII Financial liabilities 476 048 676 544 0 0 0 0 

XXIII Other liabilities 35 330 77 237 0 0 0 0 

Subtotal, excluding subordinated liabilities 1 343 000 2 070 385 322 329 957 946 19 317 126 070 

TOTAL LIABILITIES 1 697 451 2 329 843 328 662 966 994 19 317 126 070 

PROFIT AND LOSS ACCOUNT 


C Net commission income 54 811 62 068 - - - - 



127


128 

NOTES TO THE PROFIT AND LOSS ACCOUNT 

NOTE 23: NET INTEREST INCOME, BANKING 


Net interest income 2 541 177 3 046 115 3 117 895 2.4% 

Interest receivable and similar income 11 543 950 9 501 009 7 980 744 -16.0% 

Loans and advances to credit institutions 3 473 399 1 259 847 904 366 -28.2% 

Loans and advances to customers 5 213 999 5 205 621 4 526 602 -13.0% 

Fixed-income securities, trading portfolio 309 514 538 904 597 413 10.9% 

Fixed-income securities, investment portfolio 2 547 039 2 496 638 1 952 362 -21.8% 

Net result, hedging operations 0 0 0 - 

Interest payable and similar charges -9 002 774 -6 454 894 -4 862 849 -24.7% 

Amounts owed to credit institutions -4 298 818 -1 721 955 -991 394 -42.4% 

Amounts owed to customers -3 089 475 -3 116 151 -2 355 309 -24.4% 

Debts represented by securities -1 118 505 -918 094 -777 692 -15.3% 

Subordinated liabilities -420 553 -369 170 -342 880 -7.1% 

Net result, hedging operations -75 423 -329 526 -395 574 20.0% 

Average interest-bearing assets 165 595 562 182 424 302 179 738 061 -1.5% 

Net interest margin (= net interest income/average interest-bearing assets) 1.54% 1.67% 1.73% - 

In 2003, net interest income rose by 2%, with the higher interest earnings in the second half of the year more than compensating for the pressure on 

net interest income during the first half. Not taking changes in the scope of consolidation into account (including Krefima), there was an increase of 5%. 

From 1.67% in 2002, the interest margin (see table for definition) widened a little to 1.73% in 2003. 

NOTE 24: INCOME FROM VARIABLE-YIELD SECURITIES, BANKING 


Total income from variable-yield securities 120 775 157 758 106 503 -32.5% 

Shares and other variable-yield securities, trading portfolio 58 106 95 626 54 658 -42.8% 

Shares and other variable-yield securities, investment portfolio 43 458 37 661 30 891 -18.0% 

Other income from financial fixed assets 19 211 24 470 20 954 -14.4% 

NOTE 25: PROFIT ON FINANCIAL TRANSACTIONS, BANKING 


Total 884 770 1 013 571 730 179 -28.0% 

From currency dealing and securities trading 609 557 615 140 479 943 -22.0% 

On the disposal of investment securities 275 213 398 432 250 236 -37.2% 

Fixed-income securities 215 804 374 765 217 429 -42.0% 

On the securitization of receivables 2 436 10 032 10 880 8.5% 

Variable-yield securities 56 973 13 635 21 927 60.8% 

The result from currency dealing and securities trading was fairly weak in 2003 (480 million euros, down 22% year-on-year), particularly in currency dealing and 

equity derivatives trading. Fixed-income products yielded a good result, and income from (cash) equity trading went up, although it is still very limited within 

the Group (in keeping with the strategic focus). 

A comparatively small amount of capital gains − 250 million euros − was realized on investments (4% of total income in the banking business), mainly in the 

first half of 2003 on a ‘free’ bond portfolio put together in the past specifically to cope with an anticipated decline in interest rates.

NOTE 26: NET COMMISSION AND OTHER INCOME, BANKING 


Total net commission and other income 1 427 645 1 530 845 1 683 137 9.9% 

Commission receivable 1 465 634 1 526 956 1 686 451 10.4% 

Securities and asset management 765 830 776 861 919 857 18.4% 

Commitment credit 129 265 127 521 127 671 0.1% 

Payments 247 128 324 116 332 479 2.6% 

Insurance 54 360 57 614 62 068 7.7% 

Other 269 050 240 844 244 377 1.5% 

Commission payable -408 823 -436 368 -435 610 -0.2% 

Acquisition costs -92 508 -87 358 -68 598 -21.5% 

Other commission payable -316 315 -349 010 -367 012 5.2% 

Other operating income 370 834 440 256 432 296 -1.8% 

Commission income experienced robust growth in 2003 (+15%, +12% on an organic basis), due mainly to brisk sales of capital-protected mutual funds and life 

assurance on the Belgian market. In Central Europe, too, commission income from investment products continued to mount (+9%). ‘Other operating income’ 

was more or less in line with last year’s figure (-2%), with a brisk increase in leasing income (+12% on an organic basis) and other factors making up for the 

non-recurrence of income recorded in 2002. 

NOTE 27: SHARE IN THE RESULT OF COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD, BANKING 


Total 2 907 7 411 17 643 - 

NLB 0 4 649 7 261 - 

NOTE 28: DETAILS CONCERNING THE RESULTS, BANKING 

(In thousands of EUR) 31-12-2002 31-12-2003 

Belgian branches 

and subsidiaries 

Foreign branches 


Belgian branches 


Foreign branches 


A Interest receivable and similar income 5 754 131 3 746 878 5 018 633 2 962 110 

B Income from variable-yield securities 

1 From shares and other variable-yield securities 58 736 74 551 22 272 63 277 

2 Participating interests and shares constituting financial fixed assets 4 171 20 299 6 532 14 422 

C Profit (Loss) on financial transactions 

1 From currency dealing and securities trading 230 291 384 849 50 598 429 344 

2 On the disposal of investment securities 388 749 9 682 248 195 2 040 

D 1 Commission receivable 816 682 710 274 913 301 773 150 

D 2 Other operating income 318 312 121 944 294 430 137 866 

Geographic breakdown of heading ‘B2 Participating interests and shares 

constituting financial fixed assets’ in the profit and loss account 

(in thousands of EUR) Belgium Germany Egypt Hungary 

6 532 133 10 137 

Ireland Italy Luxemburg Netherlands 

3 025 4 896 4 801 80 

Poland Portugal Czech Republic Total 

418 642 279 20 954 



129


130 

NOTE 29: GENERAL ADMINISTRATIVE EXPENSES AND OTHER CHARGES, BANKING 


General administrative expenses and other charges -3 510 048 -3 750 667 -3 694 548 -1.5% 

Staff charges -1 842 934 -1 982 473 -2 044 356 3.1% 

Remuneration -1 372 392 -1 489 477 -1 548 650 4.0% 

Employer’s social security contributions -378 128 -390 299 -392 918 0.7% 

Other staff charges -80 846 -87 973 -76 201 -13.4% 

Retirement and survivors’ pensions -11 568 -14 724 -26 588 80.6% 

Other administrative expenses -1 309 586 -1 348 738 -1 264 843 -6.2% 

VAT and other levies -130 835 -135 244 -122 571 -9.4% 

Other charges -1 178 751 -1 213 494 -1 142 272 -5.9% 

Depreciation, fixed assets -357 528 -419 456 -385 349 -8.1% 

Cost/income ratio 70.5% 65.2% 65.3% - 

In 2003, total expenditure was down by 1% (changes in the scope of consolidation had no significant impact here). In Belgium, it was 5% lower, in Central 

Europe 1%. Despite the improvement in costs, the cost/income ratio remained unchanged (65%) year-on-year, owing to the slight decline in gross operating 

income (which stemmed from a number of factors, including a lower amount of realized gains − if these had been equal, the ratio would have fallen from 67% 

to 65%). 

NOTE 30: WRITE-DOWNS ON AND PROVISIONS FOR CREDIT RISKS, BANKING 


Net transfer to the Fund for General Banking Risks 0 0 0 - 

Write-downs on and provisions for credit risks -321 383 -465 298 -676 317 45.4% 

Belgium -156 238 -144 046 -117 154 -18.7% 

Abroad -165 145 -321 252 -559 163 74.1% 

Details on increases/decreases in write-downs and provisions for credit risks 31-12-2002 31-12-2003 


Total write-downs and provisions 

Specific 

-144 046 -321 252 -117 154 -559 163 

For irrecoverable and doubtful loans 

* Write-downs and provisions 

* Write-backs and transfers from provisions 

-134 088 

-178 974 

44 886 

-206 139 

-559 383 

353 244 

-88 420 

-146 956 

58 536 

-323 562 

-704 052 

380 490 

For loans with an uncertain outcome 

* Write-downs and provisions 

* Write-backs and transfers from provisions 

-11 265 

-49 333 

38 068 

-170 733 

-425 842 

255 108 

-26 947 

-26 505 

-443 

-243 178 

-491 323 

248 145 

Commitment credit 

* Provision 

*Transfers from provision 

General 

1 307 

-549 

1 857 

-5 141 

-27 003 

21 862 

-1 786 

-5 413 

3 627 

-6 962 

-23 774 

16 811 

Credit risks 

*Write-downs and provisions 

*Write-backs and transfers from provisions 

0 

0 

0 

37 095 

-19 399 

56 494 

0 

0 

0 

-4 721 

-55 509 

50 789 

Country risks 

*Provision 

*Transfers from provision 

0 

0 

0 

23 666 

-4 697 

28 363 

0 

0 

0 

19 260 

-14 

19 273 

For 2003, details regarding loan loss provisioning were as follows: 

* On the first and second home markets, amounts provisioned were low in most countries. The loan loss ratio came to 0.24% in Belgium 

(compared to 0.29% in 2002), to 0.32% in Hungary (0.34% in 2002) and to 0.34% in the Czech Republic and Slovakia 

(in 2002, there was a net write-back which had left the ratio at -0.62%). 

* Losses in the international loan portfolio (i.e. excluding Belgium and Central Europe) also improved (loan loss ratio of 0.48%, compared to 0.70% in 2002). 

* In Poland, a credit screening project was carried out, leading to substantial loan loss provisioning (365 million euros in 2003 − loan loss ratio of 8.68%). 

* Consequently, the total loan loss ratio for the Group went up from 0.55% to 0.71% (0.35% excluding Poland). 

Information on non-performing loans can be found in the ‘Risk management’ section.

NOTE 31: WRITE-DOWNS ON SECURITIES, BANKING 


Total -88 690 -202 142 36 221 - 

Fixed-income securities 583 -33 671 22 190 - 

Write-downs -18 098 -34 096 -9 846 -71.1% 

Write-backs 18 681 425 32 036 - 

Variable-yield securities -89 274 -168 471 14 032 - 

Write-downs -105 854 -197 321 -37 669 -80.9% 

Write-backs 16 581 28 850 51 700 79.2% 

The uptrend in share prices from the second half of 2003 meant that value impairments previously recorded on the investment portfolio were able to be reversed. 

On balance, this had a positive impact of 36 million euros in 2003 (compared to a negative impact of 202 million euros in 2002). 

NOTE 32A: PROFIT ON ORDINARY ACTIVITIES, INSURANCE 31-12-2001 

(In thousands of EUR) Technical 

account 

Life 

Technical 

account 

Non-Life 

Non-technical 

account 

Gross premiums earned 1 694 131 876 256 0 2 570 387 

Outward reinsurance premiums -5 732 -56 193 0 -61 925 

Earned premiums, net of reinsurance (heading A) 1 688 399 820 063 0 2 508 461 

Gross claims paid -535 009 -533 635 0 -1 068 644 

Claims paid, reinsurers’ share 462 36 269 0 36 731 

Gross provision for claims outstanding -17 631 -63 746 0 -81 377 

Provision for claims outstanding, reinsurers’ share 1 025 -8 070 0 -7 045 

Bonuses and rebates, net of reinsurance -8 239 59 0 -8 180 

Other technical provisions -801 292 -15 206 0 -816 498 

Other technical income and charges -3 651 -12 236 0 -15 888 

Net technical charges (heading B) -1 364 335 -596 564 0 -1 960 899 

Investment income 0 0 694 171 694 171 

Value adjustments, unit-linked life assurance -369 280 0 0 -369 280 

Investment charges 0 0 -58 766 -58 766 

Other income and charges (non-technical) 0 0 -9 374 -9 374 

Allocation to the technical accounts 338 463 203 275 -541 738 0 

Investment income and charges (heading C) -30 817 203 275 84 294 256 752 

Results from participating interests in companies accounted 

for using the equity method (heading D) 0 0 4 978 4 978 

Net acquisition costs -92 169 -231 369 0 -323 538 

Administrative expenses -27 579 -55 848 0 -83 427 

General administrative expenses (heading E) -119 748 -287 216 0 -406 965 

Amortization of goodwill on consolidation (heading F) 0 0 -1 724 -1 724 

Recurring result from ordinary activities 173 499 139 557 87 548 400 604 

Non-recurring realized gains and losses 0 0 37 165 37 165 

Provision for financial risks 0 0 -29 377 -29 377 

Non-recurring income and charges (headings G and H) 0 0 7 788 7 788 

Result from ordinary activities 173 499 139 557 95 336 408 392 

Total 



131


132 



account 

Life 

Technical 

account 

Non-Life 

Non-technical 

account 

Gross premiums earned 2 247 948 996 882 0 3 244 829 


Earned premiums, net of reinsurance (heading A) 2 245 642 910 291 0 3 155 934 


Claims paid, reinsurers’ share 941 64 623 0 65 564 


Provision for claims outstanding, reinsurers’ share -281 50 730 0 50 449 

Bonuses and rebates, net of reinsurance -552 -77 0 -629 

Other technical provisions -809 706 13 576 0 -796 129 




Value adjustments, unit-linked life assurance -679 777 0 0 -679 777 




Investment income and charges (heading C) 

Results from participating interests in companies 

-278 604 211 974 33 450 -33 180 

accounted for using the equity method (heading D) 0 0 3 543 3 543 





Recurring result from ordinary activities 194 833 163 952 34 324 393 110 


Amounts recoverable from third parties 0 45 007 0 45 007 

Value adjustments 0 0 -298 663 -298 663 

Senescence reserves 12 046 -18 529 0 -6 482 

Provision for financial risks -12 046 -26 478 195 186 156 662 

Non-recurring income and charges (headings G and H) 0 0 9 483 9 483 

Result from ordinary activities 194 833 163 952 43 807 402 593 

Total



account 

Life 

Technical 

account 

Non-Life 

Non-technical 

account 

Gross premiums earned 2 442 343 1 117 017 0 3 559 361 


Earned premiums, net of reinsurance (heading A) 2 438 360 1 047 621 0 3 485 982 


Claims paid, reinsurers’ share 1 866 55 975 0 57 842 


Provision for claims outstanding, reinsurers’ share 1 680 -67 084 0 -65 404 

Bonuses and rebates, net of reinsurance -4 081 41 0 -4 039 

Other technical provisions -1 738 669 -42 197 0 -1 780 866 




Value adjustments, unit-linked life assurance 209 338 0 0 209 338 




Investment income and charges (heading C) 653 918 210 110 -61 779 802 249 

Results from participating interests in companies accounted 

for using the equity method (heading D) 

0 0 16 719 16 719 





Recurring result from ordinary activities 202 321 191 004 -48 351 344 974 


Non-recurring gains on real property and translation differences 0 0 -10 567 -10 567 

Value adjustments 0 0 -96 028 -96 028 

Equalization and catastrophe provision 0 92 163 0 92 163 

Provision for financial risks 0 -87 641 -52 523 -140 164 

Other -616 -4 522 2 703 -2 434 

Non-recurring income and charges (headings G and H) 0 0 -35 027 -35 027 

Result from ordinary activities 202 321 191 004 -83 378 309 947 

Recurring versus non-recurring 

Non-recurring income and non-recurring charges are components of the results linked to the ordinary activities of the insurance business, 

but which are one-off in nature. 

Non-recurring income comprises the capital gains which are considered as non-recurring and which are realized on shares and their application for setting aside 

(usually) extra non-recurring provisions. Recurring income from the equity portfolio is defined as the product of the ‘historical normalized return’ and the 

‘historical normalized market value’. The ‘historical normalized return’ is the average return expected on the equity portfolio held over the past ten years, while 

the ‘historical normalized market value’ is the average market value of the equity portfolio held over the past ten years. If the difference between dividends 

that are actually received plus realized gains and the recurring income that has been calculated is positive, it is booked as non-recurring income. 

If the difference is negative, the deficit is drawn from the provision for financial risks. 

Total 



133


134 

NOTE 32B: GROSS WRITTEN PREMIUMS, LIFE ASSURANCE 


Total 1 693 848 2 247 280 2 443 147 8.7% 

Accepted business 27 006 16 759 24 702 47.4% 

Direct business 1 666 842 2 230 521 2 418 445 8.4% 

Individual versus group 

Individual premiums (incl. unit-linked life assurance) 1 550 113 2 081 959 2 260 481 8.6% 

Premiums under group contracts 116 729 148 562 157 965 6.3% 

Periodic versus single 

Periodic premiums 487 197 540 672 564 097 4.3% 

Single premiums 1 179 645 1 689 849 1 854 349 9.7% 

Non-bonus versus bonus contracts and unit-linked life assurance 

Premiums from non-bonus contracts 99 676 118 321 106 669 -9.8% 

Premiums from bonus contracts 338 003 1 141 539 1 549 367 35.7% 

Premiums from contracts where the investment risk is not borne by the company (class 23) 1 229 163 970 662 762 410 -21.5% 

Reinsurance balance -670 -1 208 -1 447 19.8% 

Commissions -53 874 -62 878 -70 324 11.8% 

Premium income in the life business was up approximately 9% year-on-year (+8% on an organic basis), thanks entirely to products offering a guaranteed rate 

of interest (an increase of over 30%). The volume of premiums from unit-linked life assurance products (class 23) fell in line with the market trend (-22%). 

The bank branch distribution channel generated 81% of total premium volume (excluding reinsurance), with the Belgian market (which accounts for 95% of 

premium income) recording premium growth of 8% and Central Europe an (organic) increase of 13%.

NOTE 32C: OVERVIEW, NON-LIFE BUSINESS 


Gross premiums earned 876 256 996 882 1 117 017 12.1% 

Gross claims incurred 1 

-597 381 -769 002 -665 879 -13.4% 

Gross operating expenses 2 

-297 446 -322 690 -348 262 7.9% 

Reinsurance balance 3 

-18 742 42 751 -69 283 - 

Subtotal, non-life results (for a more detailed breakdown, see below) -37 313 -52 060 33 593 - 

Other technical provisions -14 169 14 940 -41 755 - 

Other technical income and charges -12 236 -10 902 -10 944 0.4% 

Investment income and charges 203 275 211 974 210 110 -0.9% 

Balance of the technical account, Non-life 139 557 163 952 191 004 16.5% 

1 Gross claims paid + provision for claims outstanding. 

2 General administrative expenses and acquisition costs (with no deduction of reinsurance commission and profit participation). 

3 Reinsurers’ share of technical charges - outward reinsurance premiums + commission received from reinsurers and bonuses. 

The operating result in the non-life business improved noticeably in 2003 (+16%), thanks to robust premium growth and lower expense and loss ratios. 

Income from earned premiums net of reinsurance was 15% higher than the year-earlier figure (there was no significant impact from changes in the scope of 

consolidation). In Belgium, premium growth of 7% was registered, and in Central Europe, earned premiums went up roughly a third (on an organic basis). 

There was also a striking increase (34%) in premium income from reinsurance activities, supported by higher premium rates. The growth in the direct 

insurance business was spread quite well across the various product lines. The bank branch distribution channel generated 10% of total premium volume in 

the non-life business (excluding reinsurance). 

The income derived from invested reserves fell slightly (-1%). The claims reserve ratio (excluding the premium reserve and the equalization provision) stood 

at 200%, somewhat lower than the year-earlier figure (217%), due to fewer (major) claims (chiefly in Belgium). The loss ratio fell from 72% to 65%, thanks 

to the absence of (major) claims and the good weather conditions on the various geographical markets (this contrasted with the situation in 2002, when 

the floods in Central Europe had had an adverse effect both directly and via reinsurance). The increase in charges was also smaller than the increase in 

premium volume, causing the expense ratio to fall from 33% to 31%. 

Results per class of business Gross premiums 

earned 

Gross claims 

incurred 

Gross operating 

expenses 

Reinsurance 

balance 

2002 

Total 996 882 -769 002 -322 690 42 751 -52 060 

Accepted business 206 656 -172 200 -60 462 -9 442 -35 448 

Direct business 790 225 -596 802 -262 228 52 193 -16 612 

1 Accident & Health (classes 1&2,excl. industrial accidents) 76 646 -46 431 -28 327 -264 1 624 

2 Industrial accidents (class 1) 64 290 -39 384 -14 530 506 10 882 

3 Motor, third-party liability (class 10) 233 763 -185 385 -69 725 1 546 -19 801 

4 Motor, other classes (classes 3, 7) 101 689 -62 164 -31 481 -3 535 4 509 

5 Shipping, aviation, transport (classes 4, 5, 6, 7, 11, 12) 4 129 -2 966 -1 174 -30 -41 

6 Fire and other damage to property (classes 8, 9) 217 792 -202 163 -82 227 57 745 -8 853 

7 General third-party liability (class 13) 57 224 -36 968 -23 754 -3 486 -6 985 

8 Credit and suretyship (classes 14, 15) 225 42 -42 -949 -725 

9 Miscellaneous pecuniary losses (class 16) 2 614 -2 017 -911 661 347 

10 Legal assistance (class 17) 27 730 -16 799 -8 548 0 2 382 

11 Assistance (class 18) 4 124 -2 568 -1 508 0 48 

2003 

Total 1 117 017 -665 879 -348 262 -69 283 33 593 

Accepted business 272 224 -189 237 -72 033 -27 718 -16 764 

Direct business 844 793 -476 642 -276 229 -41 565 50 357 

1 Accident & Health (classes 1&2,excl. industrial accidents) 79 748 -52 670 -28 421 -307 -1 650 

2 Industrial accidents (class 1) 68 914 -37 593 -14 467 -400 16 454 

3 Motor, third-party liability (class 10) 258 620 -177 489 -76 183 762 5 709 

4 Motor, other classes (classes 3, 7) 101 773 -54 596 -33 276 -2 136 11 765 

5 Shipping, aviation, transport (classes 4, 5, 6, 7, 11, 12) 4 043 -2 623 -1 113 -62 245 

6 Fire and other damage to property (classes 8, 9) 233 029 -78 392 -86 245 -35 558 32 834 

7 General third-party liability (class 13) 60 893 -48 511 -24 660 -3 558 -15 837 

8 Credit and suretyship (classes 14, 15) 84 11 -19 33 109 

9 Miscellaneous pecuniary losses (class 16) 3 136 -1 865 -972 -322 -24 

10 Legal assistance (class 17) 29 585 -20 761 -9 112 0 -287 

11 Assistance (class 18) 4 969 -2 152 -1 761 -17 1 039 

Total 



135


136 

NOTE 32D: OVERVIEW 


Recurring technical result, Life 173 499 194 833 202 321 3.8% 

Recurring technical result, Non-life 139 557 163 952 191 004 16.5% 

Recurring non-technical result 87 548 34 324 -48 351 - 

Recurring result from ordinary activities 400 604 393 110 344 974 -12.2% 

Non-recurring result 7 788 9 483 -35 027 - 

Result from ordinary activities 408 392 402 593 309 947 -23.0% 

Non-technical result: 

The recurring non-technical result was considerably lower than the 2002 figure, due to the generally lower level of investment income. The contribution made 

by Group companies accounted for using the equity method rose from 4 to 17 million euros, thanks to the good results achieved by the associated company in 

Ireland. 

Non-recurring result: 

In order to get a better insight into the results, income and charges specific to ordinary activities that are of a non-recurring nature are presented separately 

under the ‘Non-recurring result’ heading. 

For 2003, the non-recurring result came to -35 million euros, which can be attributed to the following: 

* The realization of capital gains (122 million euros) on the bond portfolio of the non-life business and on the bond portfolio related to equity not allocated to 

insurance activities (virtually entirely during the first quarter). 

* The recording of downward value adjustments on equity investments (96 million euros). 

* The transfer of 140 million euros to the provision for financial risks. 

* Other items, including the write-back in the first quarter of the ‘surplus amount’ from the equalization and catastrophe provision (92 million euros) for the 

purpose of applying the IFRS. 

NOTE 32E: INVESTMENT INCOME AND CHARGES 

(In thousands of EUR) Income and 

Value Gains and 

Total 

2002 

charges adjustments losses 

Total, excluding management charges 

* Land and buildings 

* Participating interests in companies accounted for using the equity method 

* Shares and other variable-yield securities 

* Bonds and other fixed-income securities 

* Participation in investment pools 

* Loans guaranteed by mortgages and other loans 

* Deposits with ceding companies 

* Investments for the benefit of life assurance policyholders who bear the investment risk 

* Other investments 

* Result from currency translation 

487 467 

19 251 

0 

89 642 

352 940 

3 043 

11 476 

5 213 

18 108 

-12 206 

0 

-695 532 

-9 702 

3 543 

-909 

811 

0 

79 

0 

-679 777 

-1 680 

-7 897 

197 971 

0 

0 

197 971 

0 

0 

0 

0 

0 

0 

0 

-10 094 

9 549 

3 543 

286 704 

353 751 

3 043 

11 555 

5 213 

-661 669 

-13 886 

-7 897 

Management charges -11 416 

Total, including management charges -21 510 

2003 

Total, excluding management charges 528 974 216 530 91 227 836 732 

*Land and buildings 18 441 -8 701 0 9 740 

*Participating interests in companies accounted for using the equity method 0 16 719 0 16 719 

*Shares and other variable-yield securities 123 944 -169 91 227 215 002 

*Bonds and other fixed-income securities 358 731 -313 0 358 418 

*Participation in investment pools 2 465 0 0 2 465 

*Loans guaranteed by mortgages and other loans 10 457 105 0 10 562 

*Deposits with ceding companies 5 939 0 0 5 939 

*Investments for the benefit of life assurance policyholders who bear the investment risk 16 753 209 338 0 226 091 

*Other investments -7 756 3 214 0 -4 542 

*Result from currency translation 0 -3 664 0 -3 664 

Management charges -10 131 

Total, including management charges 826 600

NOTE 33: PROFIT ON ORDINARY ACTIVITIES, HOLDING COMPANY 

Echoing the result achieved last year, a loss was recorded on the holding-company activities, due to debt-servicing charges and the operating expenses incurred by 

the Group for external financial communication, among other things. 

NOTE 34: EXTRAORDINARY RESULTS, GROUP 


Extraordinary results 77 736 4 153 43 022 - 

Extraordinary results, banking 79 455 12 347 51 880 - 

Extraordinary write-downs and depreciation (and write-backs) on fixed assets -13 008 -21 056 16 579 - 

Gains and losses realized on the disposal of tangible fixed assets -6 163 3 928 414 -89.5% 

Gains and losses realized on the disposal of financial fixed assets 99 776 29 953 35 032 17.0% 

Other extraordinary income and charges -1 150 -478 -145 -69.7% 

Extraordinary results, insurance -1 719 -8 194 -8 951 9.2% 

Amortization, intangible fixed assets 0 -5 922 -8 190 38.3% 

Restructuring provisions -3 879 -2 543 -2 000 -21.4% 

Other extraordinary income and charges 2 160 271 1 238 - 

Extraordinary results, holding-company activities 0 0 93 - 

Other extraordinary income and charges 0 0 93 - 

On balance, the extraordinary result in 2003 amounted to 43 million euros, due largely to the performance of the banking business (52 million euros, favourably 

influenced by inter alia the gains realized on the sale of Krefima and on the sale of financial fixed assets (KBC shares) at bank subsidiary Centea, and a reversal 

of write-downs on financial fixed assets). 

NOTE 35: TAXES, GROUP 

Taxes for the year were 14% lower than the 2002 figure. This decline was partly attributable to a deferred tax asset being recorded for the life business in accordance 

with IFRS principles. 



137


138 

NOTES TO THE OFF-BALANCE-SHEET HEADINGS 

NOTE 36: OFF-BALANCE-SHEET HEADINGS, BANKING 


1 Contingent liabilities 15 818 915 15 509 231 16 415 888 5.8% 

A Non-negotiated acceptances 35 265 57 454 61 601 7.2% 

B Guarantees in the nature of direct credit substitutes 6 694 224 5 879 207 6 830 542 16.2% 

C Other guarantees 8 108 579 8 489 870 7 982 297 -6.0% 

D Documentary credits 811 888 854 756 958 731 12.2% 

E Assets charged as collateral security on behalf of third parties 168 958 227 944 582 717 - 

2 Commitments which could give rise to a credit risk 46 471 078 40 001 975 41 884 315 4.7% 

A Firm credit commitments 635 907 1 821 013 7 689 778 - 

B Commitments arising from spot purchases of securities 1 583 559 1 022 365 802 574 -21.5% 

C Undrawn margin on confirmed credit lines 44 221 898 37 115 545 33 383 874 -10.1% 

D Underwriting and placing commitments 29 714 43 051 8 089 -81.2% 

3 Assets lodged with the companies included in the consolidation 89 250 955 88 089 318 114 198 359 29.6% 

A Assets held for fiduciary purposes 1 662 615 2 044 944 2 640 672 29.1% 

B Safe custody and equivalent items 87 588 340 86 044 374 111 557 687 29.7% 

4 Uncalled share capital 4 232 1 030 3 060 - 

Company (2003) Associated 

companies 

Companies linked 

by participating 

interests 

Other Total 

Banking 2 500 0 560 3 060 

African Export-Import Bank 0 0 475 475 

Kredietlease (UK) 2 128 0 0 2 128 

ModeNatie 0 0 81 81 

MTS Belgium 0 0 4 4 

Resiterra 372 0 0 372 

5 Forward off-balance-sheet transactions in securities, foreign currencies and other financial instruments (insurance business included) 

31-12-2002 

Notional 

Remaining term to maturity Replacement value Potential 

(in thousands of EUR) 

NON-TRADING 

amounts 

< 1 year 1-5 years > 5 years Positive Negative 

future credit 

exposure 

Derivatives 

1 In foreign currencies 

94 303 313 72 589 747 15 883 499 5 830 067 1 550 027 -1 816 559 399 266 

* Forward foreign exchange operations 

* Currency and interest rate swaps 

* Options 

2 In other financial instruments 

Interest rate contracts 

11 044 425 

1 968 990 

134 351 

10 423 551 

1 027 195 

107 660 

606 865 

622 611 

26 691 

14 010 

319 184 

0 

230 410 

55 318 

0 

-200 129 

-124 271 

0 

135 629 

65 341 

2 411 

* Interest rate swap agreements 

*Forward rate agreements 

*Interest rate futures 

*Interest rate options 

Other contracts 

77 631 339 

1 641 466 

685 853 

637 991 

58 467 027 

1 331 586 

608 392 

515 667 

13 708 245 

309 880 

77 460 

82 211 

5 456 067 

0 

0 

40 113 

1 262 273 

907 

0 

944 

-1 490 331 

-1 458 

0 

-350 

150 382 

1 549 

387 

1 013 

*Share options 

*Futures transactions 

451 754 

107 144 

1 526 

107 144 

449 535 

0 

693 

0 

0 

176 

0 

-20 

36 124 

6 429 

TRADING 

Derivatives 630 668 944 354 348 877 189 032 851 87 287 216 12 337 099 -12 992 269 8 171 830 


*Forward foreign exchange operations 87 312 010 85 993 252 1 285 081 33 677 1 164 108 -1 263 271 926 712 

*Currency and interest rate swaps 15 112 870 5 858 293 6 242 136 3 012 441 383 355 -437 037 596 623 

*Options 14 128 980 13 384 707 744 273 0 3 576 -4 226 171 061 



*Interest rate swap agreements 354 776 277 159 635 383 126 317 181 68 823 713 8 002 488 -8 718 224 1 663 942 

*Forward rate agreements 20 304 997 15 081 437 4 360 215 863 346 36 832 -29 630 34 751 

*Interest rate futures 22 819 032 18 949 726 3 869 306 0 32 721 -28 199 19 347 

*Interest rate options 52 248 590 19 511 234 23 340 237 9 397 120 478 922 -242 189 257 658 


*Share options 62 723 836 34 692 495 22 874 422 5 156 920 2 219 966 -2 259 515 4 427 195 

* Futures transactions 1 242 351 1 242 351 0 0 15 131 -9 979 74 541

NOTE 36: OFF-BALANCE-SHEET HEADINGS, BANKING (CONT.) 

31-12-2002 

Notional 



TOTAL, TRADING AND NON-TRADING 

amounts 


future credit 

exposure 

Derivatives 


724 972 257 426 938 624 204 916 350 93 117 283 13 887 126 -14 808 829 8 571 096 

*Forward foreign exchange operations 

*Currency and interest rate swaps 

*Options 



98 356 435 

17 081 860 

14 263 332 

96 416 803 

6 885 488 

13 492 367 

1 891 945 

6 864 747 

770 964 

47 687 

3 331 625 

0 

1 394 518 

438 673 

3 576 

-1 463 400 

-561 308 

-4 226 

1 062 342 

661 964 

173 472 

*Interest rate swap agreements 





432 407 616 

21 946 463 

23 504 884 

52 886 582 

218 102 410 

16 413 022 

19 558 118 

20 026 901 

140 025 426 

4 670 095 

3 946 767 

23 422 448 

74 279 780 

863 346 

0 

9 437 233 

9 264 761 

37 739 

32 721 

479 866 

-10 208 555 

-31 087 

-28 199 

-242 539 

1 814 324 

36 301 

19 734 

258 671 

* Share options 

* Futures transactions 

63 175 590 

1 349 494 

34 694 021 

1 349 494 

23 323 957 

0 

5 157 613 

0 

2 219 966 

15 307 

-2 259 515 

-9 999 

4 463 319 

80 970 

Derivatives: Breakdown by counterparty type 

Government 968 399 453 437 346 663 168 300 10 233 -15 051 4 603 

Financial institutions 562 840 891 338 760 987 157 728 088 69 660 869 9 080 286 -13 070 335 5 684 642 

Other 161 162 967 91 033 254 46 841 599 23 288 114 4 796 607 -1 723 443 2 881 851 

Impact on the results of the derogation from the valuation rule laid down in 

Article 36bis §2, regarding forward interest rate transactions 

Amount at year-end Difference between market value and 

carrying value 

Categories of forward interest rate transactions 

For the purpose of treasury management 53 664 104 -4 311 

For the purpose of ALM 8 826 813 -624 166 

31-12-2003 

Notional 



NON-TRADING 

amounts 


future credit 

exposure 

Derivatives 


53 755 275 36 662 590 13 309 488 3 783 196 650 568 -713 461 255 753 

* Forward foreign exchange operations 

* Currency and interest rate swaps 

* Options 



6 980 037 

2 279 852 

123 675 

6 766 614 

1 423 897 

123 099 

213 423 

585 244 

576 

0 

270 712 

0 

142 500 

51 096 

1 322 

-248 714 

-37 018 

-284 

78 099 

63 617 

935 

* Interest rate swap agreements 

* Forward rate agreements 

* Interest rate futures 



39 403 601 

3 498 716 

170 710 

1 218 554 

26 521 290 

666 624 

153 104 

1 006 175 

9 685 947 

2 542 093 

17 607 

187 147 

3 196 364 

290 000 

0 

25 232 

451 311 

466 

0 

3 873 

-421 205 

-748 

0 

-5 492 

94 021 

17 060 

88 

1 314 

*Share options 80 128 1 789 77 452 888 0 0 619 

TRADING 

Derivatives 654 490 991 328 950 335 209 894 580 115 646 076 16 088 201 -17 852 360 9 916 125 


*Forward foreign exchange operations 85 147 656 82 327 121 2 792 387 28 148 2 865 260 -2 701 956 988 893 

*Currency and interest rate swaps 17 644 540 7 909 161 6 350 267 3 385 111 594 063 -682 853 646 042 

*Options 26 145 785 24 593 592 1 552 192 0 71 755 -78 514 323 060 



*Interest rate swap agreements 376 074 828 134 639 481 148 131 857 93 303 490 8 252 115 -8 248 922 2 140 212 

*Forward rate agreements 8 785 493 8 307 290 478 202 0 6 860 -7 235 3 464 

*Interest rate futures 17 612 088 14 789 911 2 822 177 0 611 0 12 078 

*Interest rate options 44 525 534 12 371 047 18 041 252 14 113 234 462 712 -427 099 301 905 


*Share options 76 994 982 42 452 642 29 726 246 4 816 093 3 827 657 -5 672 227 5 406 867 

*Futures transactions 1 560 088 1 560 088 0 0 7 170 -33 554 93 605 



139


140 

NOTE 36: OFF-BALANCE-SHEET HEADINGS, BANKING (CONT.) 

31-12-2003 

Notional 



TOTAL, TRADING AND NON-TRADING 

amounts 


future credit 

exposure 

Derivatives 


708 246 266 365 612 925 223 204 068 119 429 273 16 738 769 -18 565 821 10 171 878 

*Forward foreign exchange operations 

*Currency and interest rate swaps 

*Options 



92 127 693 

19 924 392 

26 269 460 

89 093 735 

9 333 058 

24 716 691 

3 005 810 

6 935 511 

1 552 769 

28 148 

3 655 823 

0 

3 007 759 

645 159 

73 077 

-2 950 670 

-719 871 

-78 797 

1 066 992 

709 658 

323 995 

*Interest rate swap agreements 





415 478 429 

12 284 209 

17 782 798 

45 744 087 

161 160 771 

8 973 914 

14 943 015 

13 377 222 

157 817 804 

3 020 295 

2 839 783 

18 228 399 

96 499 854 

290 000 

0 

14 138 467 

8 703 426 

7 326 

611 

466 585 

-8 670 128 

-7 984 

0 

-432 591 

2 234 232 

20 525 

12 166 

303 219 

* Share options 

* Futures transactions 

77 075 110 

1 560 088 

42 454 431 

1 560 088 

29 803 697 

0 

4 816 982 

0 

3 827 657 

7 170 

-5 672 227 

-33 554 

5 407 486 

93 605 

Derivatives: Breakdown by counterparty type 

Government 848 950 751 750 72 500 24 700 10 685 -138 2 492 

Financial institutions 592 083 470 322 065 563 184 206 676 85 811 231 13 907 939 -14 796 457 7 697 940 

Other 115 313 845 42 795 612 38 924 892 33 593 341 2 820 145 -3 769 225 2 471 447 

Impact on the results of the derogation from the valuation rule laid down in 

Article 36bis §2, regarding forward interest rate transactions 

Amount at year-end Difference between market value 

and carrying value 

Categories of forward interest rate transactions 

For the purpose of treasury management 29 675 058 -4 522 

For the purpose of ALM 7 722 945 -515 126 

Trading book transactions 

Trading book transactions are entered into with a view to making a profit on the short term on fluctuations in prices or interest rates. Such transactions are 

marked to market. Deals concluded as a result of prices quoted on the market by the bank are, among other things, considered trading transactions. 

Transactions in the trading book are subject to the capital adequacy requirements for the hedging of interest rate risks. 

Non-trading transactions 

Hedging operations: Hedging operations are carried out to reduce the interest rate or exchange risk associated with a hedged position. Similar operations can 

be considered as a single homogeneous unit of items to be hedged, if there is no more than 10% deviation in the duration. The classification of an operation as 

a hedge is irrevocable; when a hedge is initiated, the position being hedged has to be explicitly identified. A hedging operation that no longer qualifies as a 

hedge will be considered a trading transaction. Partial hedges are allowed. In order to be effective, the hedge must be in the same currency as the position 

hedged. The Basis Point Value (BPV) of the hedge may not deviate by more than 20% from the BPV of the position hedged. 

Asset/Liability Management (ALM) in euros: Transactions in financial instruments entered into for the purpose of ALM in euros are ‘macro-hedges’ (hence they 

do not qualify as ‘micro-hedges’), and must therefore be taken to the profit and loss account on an accruals basis, pursuant to the framework decree of 

14 June 1994 issued by the Belgian Finance, Banking and Insurance Commission. 

Treasury management: Forward interest rate transactions which do not exceed the usual term for money market transactions and which have been concluded for 

treasury management purposes (in foreign currency) are taken to the profit and loss account on an accruals basis, pursuant to the framework decree of 14 June 

1994 issued by the Belgian Banking, Finance and Insurance Commission. 

Strategic positions in foreign currency: These are positions taken solely by the dealing room in Brussels via derivatives with a view to making a profit via capital 

gains or interest spreads on the longer term. The bank marks this portfolio to market, although, for reasons of prudence, unrealized gains (unlike unrealized 

losses) are not posted (if unrealized gains had been posted in 2003, then additional earnings of 18.1 million euros would have been recorded). 

Forward transactions in the strategic portfolio do not qualify as trading transactions as far as capital adequacy requirements are concerned. 

General management in foreign currency: The other forward interest rate transactions in foreign currency, which are carried out for the purpose of the general 

management of on- and off-balance-sheet transactions per currency are recorded in the profit and loss account on an accruals basis. Any loss per currency 

arising from marking these forward interest rate transactions to market must be posted to the profit and loss account after netting with any unrealized gains on 

balance-sheet products in the same currency. 

The last part of the table above (Art. 36bis §2) shows the amounts, on closure of the books, of the transactions concluded for the purpose of treasury and ALM 

management (ALM in euros + general management in foreign currency). If the treasury transactions were marked to market, an additional loss of 4.5 million 

euros would have been posted. If the ALM transactions were marked to market, an additional loss of 515.1 million euros would have been recorded. 

These unrealized losses should be seen against the unrealized gains on balance-sheet items that are not recorded in the profit and loss account, either.

Off-balance-sheet headings, insurance 

At the end of the 2003 financial year, the insurance group had 1.0 million euros worth of securities that had been sold but not yet delivered and 619.8 million 

euros worth of securities that had been purchased but not yet received. The Group’s reinsurance companies blocked 94.8 million euros in securities in favour of 

cedants. 

NOTE 37: UNCALLED SHARE CAPITAL, INSURANCE 

(In thousands of EUR) Associated 

companies 

Companies 

linked by 

participating 

interests 

Other Total 

Total 0 61 5 170 5 231 

4 AZA Bioscience 0 0 18 18 

Antwerps Innovatie Centrum 0 0 285 285 

Aquafin 0 0 496 496 

Big Bang Ventures 0 0 24 24 

Brussels I3 Fonds 0 0 495 495 

Capricorn Venture Fund 0 0 2 475 2 475 

Gemeenschappelijk Waarborgfonds 0 1 0 1 

Gemma Frisius Fonds 0 0 885 885 

Huis der Verzekering 0 59 0 59 

IMEC Incubatie Fonds 0 0 374 374 

Net Fund Europe 0 0 119 119 

NOTE 38: COLLATERAL SECURITY CONSTITUTED BY THE CONSOLIDATED ENTITY OR IRREVOCABLY COMMITTED AS A CHARGE 

AGAINST ITS OWN ASSETS, GROUP 


As security for the debts and commitments of the consolidated entity 

Liabilities headings 

* Discounting, repurchase agreements and secured advances 25 756 115 31 686 286 19 780 206 -37.6% 

* Fixed pledge in respect of European Investment Bank credit facility 529 253 633 850 676 845 6.8% 

* Asset pledge requirement, KBC New York 154 317 204 062 42 755 -79.0% 

* Pledge, Federal Reserve Bank of New York 0 1 045 000 1 318 000 26.1% 

* Other 606 675 96 372 629 865 - 

Off-balance-sheet headings 

* Options and futures 1 005 012 1 043 056 1 541 233 47.8% 

* Other 124 0 0 - 

As security for the debts and commitments of third parties 

Liabilities headings 

* Other 459 259 492 489 513 963 4.4% 

Off-balance-sheet headings 

*Other 19 893 42 483 46 095 8.5% 

KBC Bank irrevocably guaranteed all the commitments outstanding on 31 December 2003 listed in Section 5c of the Irish Companies Amendment Act of the 

following Irish companies, which are consequently eligible for exemption from certain disclosure requirements, pursuant to Section 17 of the Irish Companies 

Amendment Act. 

Bencrest Properties Limited 

Cluster Properties Limited 

Danube Holdings Limited 

Demilune Limited 

Dunroamin Properties Limited 

Glare Nominee Limited 

Homeloans and Finance Limited 

IIB Asset Finance Limited 

IIB Bank Limited 

IIB Commercial Finance Limited 

IIB Finance Limited 

IIB Homeloans and Finance Limited 

IIB Homeloans Limited 

IIB Leasing Limited 

IIB Nominees Limited 

Irish Homeloans and Finance Limited 

Kalzari Limited 

KBC Asset Management International Limited 

KBC Asset Management Limited 

KBC Fund Managers Limited 

KBC Asset Management Ireland Limited 

KBC Financial Services (Ireland) Limited 

KBC Homeloans and Finance Limited 

Khans Holdings Limited 

Lease Services Limited 

Linkway Developments Limited 

Maurevel Investment Company Limited 

Meridian Properties Limited 

Monastersky Limited 

Needwood Properties Limited 

Perisda Limited 

Proactive Mortgages Limited 

Staple Properties Limited 

Wardbury Properties Limited 



141


142 

OTHER NOTES 

NOTE 39: CASH FLOW STATEMENT OF THE KBC BANK AND INSURANCE HOLDING COMPANY NV (CONSOLIDATED) 

(In thousands of EUR) 2001 2002 2003 

CASH FLOW FROM OPERATING ACTIVITIES 

Consolidated profit 1 178 428 1 200 024 1 198 724 


Net write-downs on amounts receivable, commitments, investment securities and financial fixed assets 405 834 704 179 615 623 

Depreciation on fixed assets 381 084 456 662 422 353 

Net change in provisions -43 538 57 084 -69 656 


Depreciation on fixed assets 56 379 44 390 40 172 

Write-downs on investments 1 674 284 083 131 532 

Net change in non-life insurance provisions 253 875 1 418 375 1 458 227 

Net change in life assurance provisions 681 604 -139 856 374 283 

Net change in other provisions 4 031 -218 828 83 785 

Subtotal, internal financing 2 919 370 3 806 113 4 255 043 

Directors’ emoluments -1 304 -1 142 -1 144 


Effect of changes in the scope of consolidation on amounts written down on receivables 193 311 84 546 46 178 

Acquisition of investment securities -42 234 747 -46 062 923 -26 974 092 

Sale of investment securities 38 294 384 53 960 682 27 053 406 

Matured portion of premium/discount on investment securities -2 449 42 810 -844 

Change in deferrals and accruals 1 688 134 -1 857 475 274 645 

Change in working capital requirement -2 184 141 -6 556 771 -1 323 698 

Amounts eliminated on consolidation -409 741 -263 368 -33 464 


Acquisition of investment securities -2 707 726 -3 775 984 -5 347 094 

Sale of investment securities 1 610 336 2 207 657 3 738 281 

Change in deferrals and accruals 15 798 -25 833 14 224 

Change in working capital requirement -28 104 -72 680 -162 349 

Amounts eliminated on consolidation -25 967 333 557 261 127 


Change in working capital requirement -104 214 137 304 -19 853 

Amounts eliminated on consolidation 471 160 -66 827 -322 656 

Net cash flow from operating activities -2 505 898 1 889 667 1 457 710 

CASH FLOW FROM INVESTMENT ACTIVITIES 


Acquisition of financial assets -73 199 -384 732 -163 969 

Sale of financial fixed assets 114 843 37 520 214 111 

Acquisition of (in)tangible fixed assets -942 748 -1 323 014 -1 031 730 

Sale of (in)tangible fixed assets 


729 736 625 660 785 725 

Acquisition of (in)tangible fixed assets -31 517 -46 698 -139 062 

Sale of (in)tangible fixed assets 


13 557 577 4 488 

Acquisition of financial fixed assets -40 488 -4 358 90 901 

Net cash flow from investment activities -229 817 -1 095 045 -239 535 

CASH FLOW FROM FINANCING ACTIVITIES 

Income from the issue of shares 52 612 9 509 160 179 

Dividends paid -446 168 -459 176 -498 079 

Income from the issue of preference shares 35 997 -108 676 -97 078 

Subordinated bonds and borrowings via subsidiaries 389 162 -105 677 71 862 

Eliminations in respect of subordinated bonds on consolidation -351 089 -354 451 -259 459 

Non-subordinated bonds and borrowings via subsidiaries 892 269 1 592 352 287 354 

Goodwill written off -361 153 97 744 269 417 

Other changes 103 950 -411 474 -424 109 

Net cash flow from financing activities 315 580 260 152 -489 913

NOTE 39: CASH FLOW STATEMENT OF THE KBC BANK AND INSURANCE HOLDING COMPANY NV (CONSOLIDATED) 

(In thousands of EUR) 2001 2002 2003 

Cash and cash equivalents at the start of the financial year 5 857 373 3 437 237 4 492 012 

Net cash flow from operating activities -2 505 899 1 889 667 1 457 710 

Net cash flow from investment activities -229 817 -1 095 045 -239 535 

Net cash flow from financing activities 315 580 260 152 -489 913 

Cash and cash equivalents at the end of the financial year 


3 437 238 4 492 012 5 220 274 

Cash in hand, balances at central banks and post office banks 1 259 396 1 210 540 1 263 721 

Treasury bills eligible for refinancing at the central bank 3 582 772 3 023 992 2 240 022 

Loans and advances to credit institutions, repayable on demand 4 259 807 1 874 114 4 257 969 

Amounts owed to credit institutions, repayable on demand -6 077 690 -2 233 198 -3 402 965 

Amounts owed as a result of the rediscounting of trade bills 


-14 373 -21 139 0 

Liquid assets 


181 192 192 246 371 263 

Investments and cash at bank and in hand 246 132 445 458 490 263 

Total 3 437 236 4 492 012 5 220 274 

The cash flow statement of the KBC Bank and Insurance Holding Company (consolidated) provides an overview of changes in the Group’s cash and cash 

equivalents during the course of 2003. The cash flows shown − except for those stemming from financing activities − have been broken down across the banking 

business, the insurance business and the holding company. 

The cash flow statement has been drawn up using the indirect method. This entails adjusting consolidated profit for the items which constitute neither cash 

revenue nor expenditure. This internal financing, along with working-capital cash flows, constitute cash flow from operating activities. Also shown are the cash 

flows generated by investment and financing activities. The three types of cash flow are summed to arrive at the total cash flow between the beginning and the 

end of the financial year. 

NOTE 40: FINANCIAL RELATIONS WITH DIRECTORS AND PARTNERS, GROUP 

(In thousands of EUR) 31-12-2001 31-12-2002 31-12-2003 

A Amount of remuneration to directors* or partners of the consolidating company on the basis of their 

activity in that company, its subsidiaries and associated companies, including the amount of retirement 

pensions granted to former directors or partners on that basis 

8 652 8 004 7 769 

*of whom members of the Executive Committee 6 028 5 319 5 143 

B Advances and loans granted to the directors and partners referred to under A above 4 505 3 871 3 242 

The amounts shown under A in this note are higher than the amounts mentioned in the section on ‘Corporate governance’, since emoluments paid to nonexecutive 

directors of the KBC Bank and Insurance Holding Company NV by the other Group companies are included here. Any differences in the amounts shown 

here for the members of the Executive Committee (shown separately) and the amounts in the section on ‘Corporate governance’ are due to the time at which the 

income relating to their offices is charged. 

NOTE 41: REMUNERATION PAID TO THE STATUTORY AUDITOR 

Besides the remuneration established by the General Meeting of the KBC Bank and Insurance Holding Company NV, KBC Bank NV and KBC Insurance NV, the following 

additional remuneration (excl. VAT) was paid in 2003 to the statutory auditor and the companies he works with in a professional capacity: 

*KBC Bank and Insurance Holding Company NV: 18 900 euros for special assignments relating primarily to capital increases through the contribution of MCBs; 

*KBC Bank NV: 380 693 euros for special assignments relating primarily to preparations for switching to the IFRS, comfort letters concerning the issue of debt 

securities and Qualified Intermediary procedures; 

*KBC Insurance NV: 68 956 euros for special assignments relating primarily to preparations for switching to the IFRS. 

NOTE 42: PERSONNEL, GROUP 

Staff and pension charges (in thousands of EUR) 31-12-2001 31-12-2002 31-12-2003 Change 

KBC Bank and Insurance Holding Company NV 1 174 149 647 170 552 14.0% 

KBC Bank NV 1 820 961 1 831 603 1 878 763 2.6% 

KBC Insurance NV* 152 895 158 166 159 849 1.1% 

KBC Asset Management NV 21 973 24 466 24 748 1.2% 

Total 1 997 003 2 163 882 2 233 912 3.2% 

* The figures do not include the distribution network of the insurance companies. 

In the ‘Socially responsible business’ section, under ‘Personnel and in-house social policy’, the workforce is shown by activity (banking, insurance, 

asset management and holding-company activities) and by country/region (Belgium, Central Europe and the rest of the world). 

In 2003, the average workforce of the Group companies that are either fully or proportionally consolidated (hence excluding the companies accounted for via 

the equity method) came to 46 643 full-time equivalents, 2 164 of which at the holding company, 40 337 in the banking business, 3 845 in the insurance 

business, and 297 in the asset management business. 



143


144 

SOLVENCY 

SOLVENCY, KBCBANK 


Regulatory capital, KBC Bank (after profit appropriation) 14 568 779 12 976 020 12 657 978 -2.5% 

Tier-1 capital 8 754 560 8 388 177 9 045 262 7.8% 

Capital and reserves 7 007 267 7 277 514 7 879 330 8.3% 

Revaluation reserve -10 162 -9 702 -9 243 -4.7% 

Fund for General Banking Risks 0 0 0 - 

Formation expenses and intangible assets -171 611 -195 570 -173 672 -11.2% 

Own shares -55 269 -55 269 -55 269 0.0% 

Goodwill on consolidation -32 791 -381 117 -401 077 5.2% 

Preference shares* 1 313 184 1 258 227 1 356 789 7.8% 

Minority interests 703 942 494 094 448 404 -9.2% 

Tier-2 capital 5 743 427 5 202 282 4 199 058 -19.3% 

Revaluation reserve 

Upper-Tier-2 instruments 

10 162 9 702 9 243 -4.7% 

* Mandatory convertible loan (1993-2003) 



* Perpetuals 

243 958 

185 920 

250 000 

1 049 843 

243 704 

185 920 

250 000 

991 686 

0 

185 920 

250 000 

1 052 042 

-100.0% 

0.0% 

0.0% 

6.1% 

Subordinated liabilities 4 003 544 3 521 270 2 701 853 -23.3% 

Tier-3 capital 339 815 111 797 9 755 -91.3% 

Items to be deducted (participating interests) -269 023 -726 236 -596 098 -17.9% 

Total risk-weighted volume 99 081 256 94 983 778 94 836 508 -0.2% 

Credit risk, investment 92 060 206 86 243 090 85 652 971 -0.7% 

Credit risk, trading 2 042 450 3 151 625 3 272 900 3.8% 

Interest rate risk, trading 2 637 263 3 278 563 3 970 763 21.1% 

Trading portfolio position in equities 1 686 688 1 788 000 1 136 687 -36.4% 

Exchange risk 

Solvency ratios 

654 650 522 500 803 187 53.7% 

Tier-1 ratio 8.84% 8.83% 9.54% 

CAD ratio 14.70% 13.66% 13.35% 

Explanation regarding changes in solvency ratios Tier-1 ratio CAD ratio 

Situation as at 01-01-2003 8.83% 13.66% 

Acquisitions and disinvestment 

New funds and internal capital creation 

0.11% 0.24% 

* Preference shares 

* Subordinated loans and perpetuals 

* Retained profit 

* Conversion of 1993/1996-2003 MCB 

*Securitization 

*Other 

0.10% 

0.00% 

0.36% 

0.26% 

-0.28% 

-0.07% 

0.17% 

-0.97% 

0.32% 

0.00% 

-0.40% 

0.00% 

Organic growth in risk-weighted volume 0.23% 0.33% 

Situation as at 31-12-2003 9.54% 13.35% 

* The preference shares are recorded on the balance sheet under minority interests. 

The growth in tier-1 capital in 2003 was due primarily to the increase in consolidated own funds (by 602 million euros), which in turn can be put down mainly 

to the retention of profit (391 million euros) and the conversion of 1993/1996−2003 MCBs into share capital (245 million euros). 

The decline of roughly one billion euros in tier-2 capital is likewise due to the conversion of 1993/1996−2003 MCBs, as well as to the lower average remaining 

term to maturity of subordinated liabilities, which are taken into account when calculating Lower-Tier-2 capital. 

The decline in tier-3 capital is attributable to certificates which matured during 2003, and for which no new issues have taken place. 

Items to be deducted fell by 130 million euros due to, among other things: 

* the sale by bank subsidiary ČSOB of 75% of ČSOB Pojisˇt’ovna to KBC Insurance; 

* the end of the Cygnus 2000 securitization operation. 

Risk-weighted assets remained virtually unchanged, as a result of: 

* the decline in risk-weighted assets (860 million euros), owing to the sale of Krefima; 

* the increase in credit risks (3 088 million euros), due to the Cygnus 2000 securitization operation coming to an end; 

* the organic decline in risk-weighted assets for the purpose of controlling credit risks. 

KBC Bank’s solvency ratios were well above the in-house targets of 8% and 12% for the tier-1 and CAD ratios, respectively. Consequently, the excess is available 

to achieve further organic and external growth.

SOLVENCY, KBCINSURANCE 


Paid-up share capital 29 007 29 007 29 007 0.0% 

Share premium account 121 743 121 743 121 743 0.0% 

Reserves 1 563 076 1 719 129 1 799 701 4.7% 

Goodwill on consolidation -127 484 -81 199 -76 061 -6.3% 

Translation differences 1 580 -7 669 -34 625 - 

Total Group equity 1 587 921 1 781 011 1 839 765 3.3% 

Dividend payout, KBC Insurance -187 134 -190 080 -134 853 -29.1% 

Minority interests 8 155 8 458 9 680 14.4% 

Total capital and reserves 1 408 942 1 599 389 1 714 592 7.2% 

Subordinated liabilities 19 336 19 336 17 724 -8.3% 

Total capital resources 

Items to be deducted 

1 428 277 1 618 725 1 732 316 7.0% 

Intangible fixed assets -74 554 -62 923 -37 334 -40.7% 

Goodwill on consolidation -8 832 -38 796 -169 434 - 

Subtotal -83 386 -101 719 -206 767 - 

Total 1 344 891 1 517 006 1 525 549 0.6% 

Unrealized gains 791 555 69 721 311 338 - 

Total, including unrealized gains 2 136 446 1 586 727 1 836 887 15.8% 

Required solvency margin for ‘non-life’ business 

‘Non-life’ and industrial accidents-legal lines 135 985 152 053 182 939 20.3% 

Annuities 6 423 6 761 7 122 5.3% 

Total 

Required solvency margin for ‘life’ business 

142 408 158 815 190 061 19.7% 

Traditional (class 21) 256 038 317 791 374 444 17.8% 

Unit-linked (class 23) 25 123 19 438 16 075 -17.3% 

Total 281 160 337 229 390 519 15.8% 

Total required solvency margin 423 568 496 044 580 580 17.0% 

Explicit solvency ratio 318% 306% 263% 

Implicit solvency ratio 504% 320% 316% 

Explicit surplus 921 323 1 020 962 944 969 -7.4% 

Implicit surplus 1 712 877 1 090 683 1 256 306 15.2% 

KBC Insurance’s total capital resources (after items to be deducted) remained relatively stable in 2003 (up by 0.6% to 1 526 million euros), with the main 

changes relating to the retention of profit and the increase in goodwill (item to be deducted) posted when the participation in WARTA was stepped up. 

The total required solvency margin went up by 17% as a result of higher production. 

This caused the explicit solvency ratio, calculated as the ratio between the solvency capital − excluding unrealized gains − present in the insurance group 

and the required solvency capital, to fall by 43 percentage points to 263%. The implicit solvency ratio (i.e. the ratio of solvency capital − including unrealized 

gains − to required solvency capital) was adversely affected, too, by stricter solvency requirements and fell by 4 percentage points to 316%, despite higher 

unrealized gains. 



145

146

Company annual accounts 

KBC Bank and Insurance 


The company annual accounts of the KBC Bank and Insurance Holding 

Company NV are presented here in abridged form. As required by law, the 

company annual accounts, the report of the Board of Directors and the 

Statutory Auditor’s report are filed with the National Bank of Belgium. 

These documents are available free of charge on request from: 

KBC Bank and Insurance Holding Company NV 

Strategy & Expansion Division − SEE 

2 Havenlaan 

BE-1080 Brussels 

The auditor has delivered an unqualified audit opinion on the company 

annual accounts of the KBC Bank and Insurance Holding Company NV. 

147

Company annual accounts − KBC Bank and Insurance Holding Company NV KBC Bank & Insurance Group − 2003 Annual Report 

148 

BALANCE SHEET, PROFIT AND LOSS ACCOUNT AND PROFIT APPROPRIATION 

BALANCE SHEET AFTER PROFIT APPROPRIATION 


ASSETS 

Fixed assets 5 922 966 5 927 324 6 165 627 

IV Financial fixed assets 5 922 966 5 927 324 6 165 627 

A Associated companies 5 922 966 5 927 324 6 165 627 

1 Participating interests 5 586 011 5 586 011 5 915 216 

2 Amounts receivable 336 955 341 313 250 412 

Current assets 291 226 462 461 505 156 

VII Amounts receivable within one year 23 679 24 821 17 546 

B Other amounts receivable 23 679 24 821 17 546 

VIII Investments 148 839 225 824 340 259 

A Own shares 148 839 225 824 240 259 

B Time deposits 0 0 100 000 

IX Cash at bank and in hand 97 293 194 813 132 458 

X Deferred charges and accrued income 21 414 17 003 14 892 

Total assets 6 214 192 6 389 784 6 670 783 

LIABILITIES 

Capital and reserves 4 477 925 4 537 334 4 755 247 

I Capital 590 388 591 138 607 740 

A Subscribed capital 590 388 591 138 607 740 

II Share premium account 2 009 421 2 018 180 2 161 756 

IV Reserves 1 875 083 1 900 158 1 901 819 

A Legal reserve 59 039 59 114 60 774 

B Reserves not available for distribution 150 178 227 163 241 598 

C Untaxed reserves 189 869 189 869 189 869 

D Reserves available for distribution 1 475 997 1 424 013 1 409 578 

V Profit brought forward 3 032 27 857 83 932 

Creditors 1 736 267 1 852 450 1 915 535 

VII Provisions and deferred taxes 0 2 189 3 899 

VIII Amounts payable at more than one year 416 520 477 148 638 308 

A Financial debts 416 520 477 148 638 308 

1 Credit institutions 116 520 177 148 338 308 

2 Other loans 300 000 300 000 300 000 

IX Amounts payable within one year 1 243 303 1 301 169 1 196 085 

A Amounts payable at more than one year falling due within the year 0 0 38 840 

B Financial debts 793 780 800 500 607 870 

1 Credit institutions 0 0 11 

2 Commercial paper 793 780 800 500 607 859 

C Trade debts 0 98 190 

E Amounts owed because of taxation, remuneration and social security charges 148 22 784 47 583 

1 Taxes 14 3 168 152 

2 Remuneration and social security charges 134 19 617 47 431 

F Other creditors 449 375 477 788 501 601 

X Accrued charges and deferred income 76 444 71 945 77 244 

Total liabilities 6 214 192 6 389 784 6 670 783

PROFIT AND LOSS ACCOUNT 


CHARGES 

A Interest and other debt charges 123 521 97 403 88 824 

B Other financial charges 549 186 73 

C Services and sundry goods 2 068 9 168 9 126 

D Remuneration, social security charges and pensions 1 174 149 647 171 190 

F Depreciation, amortization, amounts written down and provisions for liabilities and charges 0 149 2 661 

G Other operating charges 0 0 347 

K Taxes 0 0 83 

L Profit for the period 555 557 510 218 556 958 

Total charges 682 869 766 771 829 260 

N Profit for the period available for appropriation 555 557 510 218 556 958 

INCOME 

A Income from financial fixed assets 616 498 565 563 606 138 

B Income from current assets 62 535 44 774 43 573 

C Other financial income 714 769 727 

D Other operating income 0 155 664 178 729 

E Other current income 4 0 0 

F Miscellaneous income 90 0 0 

G Extraordinary income 0 0 93 

I Gains on realization 3 027 0 0 

Total income 682 869 766 771 829 260 

APPROPRIATION ACCOUNT 


A Profit to be appropriated 556 005 513 250 584 815 

1 Profit for the period available for appropriation 555 557 510 218 556 958 

2 Profit brought forward from the previous financial year 448 3 032 27 857 

C Appropriations to capital and reserves -105 501 -25 075 -1 660 

1 To the legal reserve 501 75 1 660 

2 To other reserves 105 000 25 000 0 

D Profit (Loss) to be carried forward -3 032 -27 857 -83 932 

1 Profit to be carried forward 3 032 27 857 83 932 

F Profit to be paid out -447 471 -460 318 -499 223 

1 Dividends 446 168 459 176 498 079 

2 Directors’ entitlements 1 304 1 142 1 144 

DIVIDEND 

The Board of Directors will propose to the general meeting of shareholders that a gross dividend of 1.64 euros be paid out per share entitled to dividend. 

This corresponds to a net dividend per ordinary share of 1.23 euros and a net dividend per share with VV strip of 1.394 euros. 

Company annual accounts − KBC Bank and Insurance Holding Company NV 


149


150 

NOTES TO THE COMPANY ANNUAL ACCOUNTS 

NOTE 1: FINANCIAL FIXED ASSETS 

Financial fixed assets (in thousands of EUR) Associated companies Amounts receivable 

Carrying value as at 1 Jan. 2003 5 586 011 341 313 

Acquisitions 329 205 0 

Other movements 0 -90 901 

Carrying value as at 31 Dec. 2003 5 915 216 250 412 

The participating interests in associated companies comprise mainly the stakes the KBC Bank and Insurance Holding Company NV holds in KBC Bank NV 

(99.39%), in KBC Insurance NV (99.99%), in KBC Asset Management NV (55.25%) and, since the 2003 financial year, in KBC Exploitatie NV (99.99%). 

The increase in 2003 stems from the acquisition of the participation that KBC Bank NV and KBC Insurance NV had held in KBC Exploitatie NV (84.1 million 

euros) and from the subscription to the capital increase carried out by KBC Bank NV in 2003 (245.1 million euros). 

The ‘amounts receivable’ are accounted for primarily by an ACB (a subordinated, automatically convertible bond loan) issued in the amount of 250 million 

euros by KBC Bank NV and maturing in 2006, which was fully subscribed by the KBC Bank and Insurance Holding Company NV (in 1999). The decline in the 

amounts receivable in 2003 is accounted for mainly by the fact that the 1993/1996-2003 mandatory convertible bonds (MCBs) reached maturity. On the 

final maturity date, KBC Bank NV paid off the debt outstanding in full. 

Shown below is the structure of shareholdings in KBC Bank NV and KBC Insurance NV at the end of 2003: 

Shareholder structure, KBC Bank and KBC Insurance 

(31-12-2003) 

KBC Bank NV KBC Insurance NV 

Number of shares in % Number of shares in % 

KBC Bank and Insurance Holding Company NV 382 698 680 99.39 467 857 99.99 

KBC Bank NV 0 0.00 1 0.00 

KBC Insurance NV 1 0.00 0 0.00 

Centea NV 2 354 483 0.61 0 0.00 

Total 385 053 164 100.00 467 858 100.00 

NOTE 2A: CHANGES IN CAPITAL AND RESERVES 


balance 

01-01-2003 

Capital 

increase 

for staff 

Conversion, 

MCBs 

Retained 

profit 

Other 

changes 

Closing 

balance 

31-12-2003 

Capital 591 138 345 16 258 0 0 607 740 

Share premium account 2 018 180 5 616 137 961 0 0 2 161 756 

Reserves 1 900 158 0 0 1 660 0 1 901 819 

Profit (Loss) brought forward 27 857 0 0 56 075 0 83 932 

Capital and reserves 4 537 334 5 961 154 218 57 735 0 4 755 247

NOTE 2B: DETAILS OF CHANGES IN CAPITAL AND THE SHARE PREMIUM ACCOUNT 

Shares 

The capital of the KBC Bank and Insurance Holding Company NV consists solely of ordinary shares. No participation certificates or non-voting shares are issued. 

The shares are listed on Euronext Brussels. 

The shares issued within the framework of the capital increase reserved for personnel in 2003 and for the purpose of redeeming the 1993/1996-2003 MCBs that 

reached maturity in 2003 will only be entitled to dividend from financial year 2004. 

Share capital and share premium account 

Changes in capital and the share premium account in 2001, 2002 and 2003 

Share premium Number of 

(in EUR) Date Capital 

account 

shares 

Contribution of 1993/1996-2003 MCBs 01-01-2001 through 30-03-2001 585 477 456 1 962 670 164 299 346 776 

Contribution of 1998/2008 MCBs 30-03-2001 585 482 241 1 962 836 741 299 349 223 






Capital increase for personnel 27-12-2001 590 387 504 2 009 408 793 301 856 381 


................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 









Contribution of 1993/1996-2003 MCBs 30-12-2002 591 137 703 2 018 175 855 302 239 136 


................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 




Final maturity date of 1993/1996-2003 MCBs 01-12-2003 607 395 166 2 156 125 946 310 533 760 



At year-end 2003, the company’s issued share capital amounted to 607 740 199 euros, represented by 310 709 797 shares, 37 333 057 of which were VV shares. Of 

these last, 7 003 039 shares will only be entitled to dividend from the 2004 financial year. The share capital is fully paid up. 

During the course of the financial year, share capital increased by 16 602 370 euros. 

As a result of a capital increase decided upon by the Board of Directors under its authority to raise capital and which was reserved for the personnel of the KBC Bank 

and Insurance Holding Company NV and certain of its Belgian subsidiaries, 175 819 new VV shares were issued. Consequently, the pre-emption right of existing 

shareholders was suspended. The shares were issued at a price of 33.90 euros and will be blocked for five years, as required by law. Through this capital increase, the 

KBC Bank and Insurance Holding Company aims to strengthen its ties with its personnel and with the personnel of its subsidiaries. Given the limited extent of the 

capital increase, the financial ramifications for existing shareholders are minor. 

Further, during the course of the financial year, 1 467 200 new shares were created through the contribution of 146 720 subordinated 1993/1996-2003 MCBs, 

redeemable in KBC Bank and Insurance Holding Company shares, and 358 new shares were created via the contribution of 358 subordinated 1998/2008 MCBs 

redeemable in KBC Bank and Insurance Holding Company shares. 

As at 30 November 2003, the final maturity date of the 1993/1996-2003 MCBs, there were a total of 682 722 1993/1996-2003 MCBs in circulation that had not yet 

been contributed to the capital of the KBC Bank and Insurance Holding Company. On the final maturity date, these bonds were automatically converted into new KBC 

Bank and Insurance Holding Company shares. This resulted in the number of KBC Bank and Insurance Holding Company VV shares increasing by 6 827 220. 

As at 31 December 2003, there were a total of 2 648 990 1998-2008 MCBs in circulation (for a nominal amount of 185 508 770 euros, with a base rate of 3.5% and a 

maturity date of 30 November 2008), which had not yet been contributed to the capital of the KBC Bank and Insurance Holding Company. The holders of these bonds 

have the right until 30 November 2008 to request that their MCBs be converted according to a ratio of one new KBC Bank and Insurance Holding Company share for 

one MCB. MCBs which have not been contributed by their holders will be converted automatically into new KBC Bank and Insurance Holding Company shares at 

maturity. This will result in the number of KBC Bank and Insurance Holding Company VV shares increasing by 2 648 990. 

On 16 November 1998, the Board of Directors of the KBC Bank and Insurance Holding Company decided (as amended by the decisions of 26 November and 9 

December 1998) to proceed to the issue of warrants entitling holders of bonds issued (for an amount of 950 000 000 German marks, maturing on 10 December 2005) 

by KBC International Finance (Curaçao) to contribute them during the life of the bonds to the capital of the KBC Bank and Insurance Holding Company at a 

subscription price that was initially set at 156.3204 German marks (converted, 79.93 euros) per new share to be issued. The maximum number of new KBC Bank and 

Insurance Holding Company shares to be issued on the basis of this initial subscription price came to 6 077 261, or 2.05% of the total number of shares outstanding 

at the time of issue. These bonds were placed via the international capital market. KBC Bank decided in 2003 to buy and destroy a number of bonds and warrants, 

reducing the number of new KBC Bank and Insurance Holding Company shares to be issued to 5 229 003. 

Amount by which capital may be increased 

The authorization to increase capital may be exercised until 27 April 2005 for an amount of 197 862 055.52 euros. 



151


152 

NOTE 2C: SHAREHOLDERS 

As appears from the notifications received pursuant to the law of 2 March 1989 on the disclosure of significant participations in listed companies and the regulation 

of public takeover bids, and to Articles 631 and 632 of the Companies Code, the shareholder structure is as follows: 

Law of 2 March 1989 

On 29 December 2003, Almanij, acting in its own name and as agent for a number of associated companies, disclosed that it had a shareholding of 69.36% (based on 

the number of shares) and of 68.35% (based on the number of shares and the number of bonds that can be converted into shares). At that time, there were 

310 533 760 KBC Bank and Insurance Holding Company shares, 2 649 208 1998/2008 MCBs (which, on conversion, entitle the holder to one KBC Bank and Insurance 

Holding Company share per MCB) and 6 077 261 KBC International Finance (Curaçao) convertible bonds (maturing 10 December 2005) in circulation. 

A breakdown of this participating interest is given in the table. 

Shareholder structure on 29-12-2003 

(notification in accordance with the Law of 2 March 1989) Address number of shares and convertible bonds 

Almanij NV 33 Schoenmarkt, BE-2000 Antwerp 207 324 572 shares 

Assurisk SA 8-10 Avenue de la Gare, LU-1610 Luxembourg 1 100 shares 

Gevaert NV 27 Septestraat, BE-2640 Mortsel 329 137 shares 

IIB Bank Limited 91-93 Merrion Square, IE-Dublin 2 20 020 shares 

KBC Bank NV 2 Havenlaan, BE-1080 Brussels 55 661 shares 

2 158 132 convertible DEM 98-05 bonds 

KBC Bank and Insurance Holding Company NV 2 Havenlaan, BE-1080 Brussels 5 808 674 shares 

KBC Financial Products Brussels NV 12 Havenlaan, BE-1080 Brussels 486 245 shares 

KBC Investments Limited 111 Old Broad Street, GB-EC2N 1FP London 658 928 shares 

682 573 convertible DEM 98-05 bonds 

KBC Securities NV 12 Havenlaan, BE-1080 Brussels 6 782 shares 

Kredietbank SA Luxembourgeoise 43 Boulevard Royal, LU-2955 Luxembourg 678 500 shares 

VITIS Life Luxembourg SA 7 Boulevard Royal, BP 803, LU-2018 Luxembourg 11 300 shares 

This disclosure was made for the purpose of updating information, consequent on the 1993/1996-2003 MCB loan reaching maturity on 30 November 2003 and the 

repurchase of treasury shares by the KBC Bank and Insurance Holding Company for the purposes of the KBC Stock Option Plan. 

Companies Code 

The notifications received pursuant to the Companies Code regarding shareholdings as at 31 December 2003 are shown in the table. 

Shareholder structure on 31-12-2003 

(notification in accordance with the companies code) Address Number of shares 

Assurisk SA 8-10 Avenue de la Gare, LU-1610 Luxembourg 1 100 

IIB Bank Limited 91-93 Merrion Square, IE-Dublin 2 20 020 

KBC Bank NV 2 Havenlaan, BE-1080 Brussels 55 661 

KBC Financial Products Brussels NV 12 Havenlaan, BE-1080 Brussels 488 208 

KBC Investments Limited 111 Old Broad Street, GB-EC2N 1FP London 658 928 

KBC Securities NV 12 Havenlaan, BE-1080 Brussels 97 085 

VITIS Life Luxembourg SA 7 Boulevard Royal, BP 803, LU-2018 Luxembourg 11 300 

Together, these holdings represent 1 332 302 shares, or 0.43% of a total of 310 709 797 shares in circulation. 

On 31 December 2003, Almanij NV held 207 324 572 shares, or 66.73% of the total number of shares. 

As a result of the share-repurchase authority granted by the general meeting of shareholders on 27 April 2000, 26 April 2001, 25 April 2002 and 24 April 2003, 

the KBC Bank and Insurance Holding Company bought back a total of 411 200 of its own shares during the 2003 financial year for a purchase price of 

14 435 442.90 euros. When account is taken of the shares bought back during the previous financial years, the KBC Bank and Insurance Holding Company 

now holds 5 808 674 of its own shares, which represented 1.87% of the issued share capital at year-end 2003.

NOTE 3: CREDITORS 

‘Amounts payable at more than one year’ relate to an issue of Medium-Term Notes in 2000 (300 million euros via KBC IFIMA) and to the funding of the KBC stock 

option plans for personnel. The increase in this heading (on balance, 161.2 million euros) is the result of the transformation of short-term debt into long-term debt, 

which led to the drawdown of a straight loan in the amount of 200 million euros with due date in 2010, and the fact that part of the original long-term debt 

(38.8 million euros) became due within a year. 

‘Amounts payable within one year’ are accounted for primarily by outstanding commercial paper and dividends to be paid. 

NOTE 4: CHARGES 

At the start of 2002, a number of support services were transferred to the KBC Bank and Insurance Holding Company and a cost-sharing structure was set up to 

allocate the cost of these services amongst the Group companies based on objective criteria. In 2003, total costs shared amounted to 173.7 million euros 

(including rent charges passed on), which accounts for the bulk of the increase since 2002 in a number of headings including ‘Services and sundry goods’ and 

‘Remuneration, social security charges and pensions’. 

The remaining charges (relating to holding-company activities that are not covered by the cost-sharing structure) are debt-service charges and expenses stemming 

from KBC Group activities relating to acquisitions and external communication and include staff charges, fees, travel expenses and the cost of publications. 

NOTE 5: INCOME 

‘Other operating income’ has to do largely with the recovery of operating expenses incurred by the above-mentioned cost-sharing structure. 

The other income of the KBC Bank and Insurance Holding Company is accounted for mainly by dividends, which can be broken down as follows for 2003 

(in millions of euros): 

KBC Bank 358.5 

KBC Insurance 190.1 

KBC Asset Management 32.2 

NOTE 6: SPECIAL AUDIT ASSIGNMENTS 

A sum of 18 900 euros was recorded in the annual accounts for the 2003 financial year for the following special assignments carried out by the statutory auditor: 

* the compilation of a report on the status of subscriptions to the capital increase reserved for staff; 

* the redemption of MCBs. 

NOTE 7: KBC STOCK OPTION PLAN − CONFLICT OF INTERESTS 

Please see the ‘Corporate governance’ section, more particularly the passage entitled ‘KBC Stock Option Plan − Conflict of interests’. 



153


154 

GENERAL INFORMATION 

GENERAL INFORMATION ON THE KBC BANK AND INSURANCE HOLDING COMPANY 

Name KBC Bank and Insurance Holding Company NV 

Established 9 February 1935 as the Kredietbank NV 

the present name dates from 4 June 1998 

Registered office 2 Havenlaan, BE-1080 Brussels 

RLP 0403 227 515 

Legal form ‘Naamloze vennootschap’ (public limited company) under Belgian law, which solicits or has solicited savings from the public; 

the company is a financial holding company registered with the Belgian Banking, Finance and Insurance Commission. 

Life Indefinite 

Object The company is a financial holding company which has as object the direct or indirect ownership and management of 

shareholdings in other companies, including - but not restricted to - credit institutions, insurance companies and other 

financial institutions (Article 2 of the Articles of Association). 

DOCUMENTS OPEN TO PUBLIC INSPECTION 

The Articles of Association of the company are open to public inspection at the Registry of the Brussels Commercial Court. 

The annual accounts have been filed with the National Bank of Belgium. Decisions concerning the appointment and dismissal of members of the 

Board of Directors are published in the Appendices to the Belgian Official Gazette. Financial reports about the company and convening notices of general 

meetings of shareholders are also published in the financial press. 

Copies of the company’s annual reports are available at its registered office. They are sent annually to the holders of registered shares and to those who have 

applied for a copy. 

GENERAL MEETING OF SHAREHOLDERS 

Each year, at the registered office of the company or elsewhere, as indicated in the convening notice, a general meeting is held on the last Thursday in April or, 

if that day is a legal holiday, on the last business day immediately preceding it, at 11 a.m. To be admitted to the general meeting, holders of bearer shares or 

bonds must deposit these securities at least four business days prior to the meeting at the registered office of the company or elsewhere, as indicated in the 

convening notice. 

The holders of registered shares or bonds are likewise required to notify the company in writing at its registered office and within the same time constraints of 

their intention to attend the general meeting. Bondholders are entitled to attend the general meeting, but they have only advisory voting capacity.



155

156 

United States 

Mexico 

International 

Provided here is a basic overview of the international network of KBC Bank, 

FIRST HOME MARKET: BELGIUM 

ADD 

Almarisk 

Antwerpse Diamantbank 

CBC Banque 

Centea 

Fidea 

Fin-Force 

International Factors 


KBC Bank 

KBC Investco 

KBC Lease 

KBC Securities 


Secura 

* Via Kredyt Bank establishments, KBC is also present in Lithuania and Ukraine. 

SECOND HOME MARKET: CENTRAL EUROPE* 

Argosz (Hungary) 

ČSOB (Czech Republic and Slovakia) 

ČSOB Pojisˇt’ovna (Czech Republic) 

ERGO Poist’ovňa (Slovakia) 

K&H Bank (Hungary) 

K&H Life (Hungary) 

KBC Lease (Hungary, Poland) 

Kredyt Bank (Poland) 

NLB Vita (Slovenia) 

Nova Ljubljanska banka (Slovenia) 

Patria Finance (Czech Republic) 

WARTA (Poland) 

Germany 

Netherlands 

United Kingdom 

Ireland 

Belgium 

France 

Luxemburg 

Switzerland 

Spain 

Italy

Turkey 

presence of the KBC Group 

as well as the main subsidiaries, sub-subsidiaries and participating interests of 

the KBC Group in Belgium and abroad. 

REST OF EUROPE 

Assurisk (Luxemburg) 

Banque Diamantaire Anversoise (Suisse) (Switzerland) 

FBD (Ireland) 

IIB Bank (Ireland) 

KBC Asset Management Limited (Ireland) 

KBC Bank (branches in France, the UK and Ireland; representative 

office or network desks in Turkey, Italy and Spain; 

structured finance units in Ireland and the UK) 

KBC Bank Deutschland (Germany) 

KBC Bank Nederland (Netherlands) 

KBC Clearing (Netherlands) 

KBC Finance Ireland (Ireland) 

KBC Financial Products (UK) 

KBC IFIMA (Netherlands) 

KBC Lease (UK, Netherlands, France, Luxemburg, Germany 

and Switzerland) 

KBC Peel Hunt (UK) 

KBC Securities (France, Netherlands) 

Lucare (Luxemburg) 

VITIS Life (Luxemburg) 

Czech Republic 

Slovenia 

Poland 

Slovakia 

Hungary 

Iran 

India 

People's Republic 

Of China 

Singapore 

OUTSIDE EUROPE 

Antwerpse Diamantbank (India, US, Hong Kong) 

KBC Bank (branches in the People’s Republic of China, Hong 

Kong, Malaysia, the Philippines, Singapore, Taiwan and the 

US; representative offices in India, Iran and Mexico; structured 

finance units in the US, Hong Kong and Australia; 

a marketing office in Malaysia) 

KBC Bank Singapore (Singapore) 

KBC Financial Products (US, Japan, Hong Kong) 

Taiwan 

Japan 

Philippines 

Malaysia 

Australia 

157

158

CONSOLIDATED RESULTS, KBCGROUP 

Additional information 

QUARTERLY RESULTS FOR 2002 AND 2003 

(In millions of EUR) 1Q 2002 2Q 2002 3Q 2002 4Q 2002 1Q 2003 2Q 2003 3Q 2003 4Q 2003 

Banking 1 413.4 1 457.4 1 467.6 1 417.3 1 451.5 1 415.6 1 364.1 1 424.2 

Net interest income 737.2 778.6 814.6 715.7 718.5 773.2 826.2 799.9 

Dividends 9.7 101.3 23.4 23.4 29.3 50.1 15.1 12.0 


1.1 -0.5 4.3 2.5 3.7 4.0 2.1 7.9 

accounted for using the equity method 

Profit (Loss) on financial transactions 247.0 184.2 294.4 288.0 269.1 189.5 114.3 157.4 

On currency dealing and securities trading 170.6 161.0 101.3 182.4 146.0 133.9 96.4 103.6 

Realized gains and losses 76.5 23.2 193.1 105.6 123.1 55.5 17.8 53.8 

Net commission income 306.0 267.9 243.0 273.6 344.5 295.5 308.1 302.7 

Other operating income 112.4 125.9 87.9 114.1 86.5 103.3 98.3 144.3 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Insurance 212.5 209.7 229.4 200.8 210.9 222.4 206.8 207.1 

Earned premiums, net of reinsurance 941.3 913.4 644.9 656.2 956.5 1 219.1 598.6 711.8 

Net technical charges -880.9 -420.6 -275.8 -696.7 -800.3 -1 327.0 -586.4 -744.1 

Value adjustments, unit-linked life assurance 11.2 436.9 307.2 -75.5 87.4 -171.9 -33.6 -91.2 

Investment income and charges 149.8 -286.2 -135.8 239.0 53.4 325.1 182.7 241.0 

Realized gains and losses 67.3 8.0 61.2 61.5 49.9 -4.2 50.0 -4.5 

Value adjustments, unit-linked life assurance -11.2 -436.9 -307.2 75.5 -87.4 171.9 33.6 91.2 


2.3 3.0 -3.9 2.2 1.3 5.2 11.8 -1.6 

accounted for using the equity method 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Holding-company activities -4.7 -0.9 -5.7 -4.0 -3.1 5.1 -1.6 -4.7 

GROSS OPERATING INCOME 1 621.2 1 666.1 1 691.3 1 614.1 1 659.3 1 643.1 1 569.3 1 626.5 

Banking -924.0 -973.6 -884.4 -968.6 -928.9 -931.3 -896.7 -937.6 

Staff charges -495.7 -512.7 -483.9 -490.1 -523.9 -513.6 -478.2 -528.7 

Operating charges and depreciation on tangible fixed assets -428.3 -460.9 -400.5 -478.5 -404.9 -417.8 -418.5 -409.0 

Insurance -114.0 -107.4 -127.0 -108.2 -132.3 -131.8 -116.0 -118.9 

Acquisition costs -96.6 -88.2 -93.4 -83.3 -108.5 -102.9 -92.7 -93.4 

Operating charges -17.4 -19.2 -33.6 -24.8 -23.8 -29.0 -23.2 -25.5 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Holding-company activities -0.9 -0.5 -1.2 -1.9 -2.0 -1.2 -2.9 -2.0 

GENERAL ADMINISTRATIVE EXPENSES -1 038.8 -1 081.5 -1 012.6 -1 078.7 -1 063.1 -1 064.3 -1 015.5 -1 058.5 

OPERATING RESULT 582.3 584.6 678.7 535.4 596.2 578.8 553.8 568.0 

Banking 489.4 483.8 583.2 448.7 522.7 484.2 467.4 486.5 


................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Value adjustments -75.6 -180.9 -249.1 -157.4 -141.4 -74.8 -193.3 -214.6 

Write-downs on and provisions for credit risks -88.4 -85.3 -131.3 -160.3 -78.8 -141.5 -204.4 -251.6 

Value adjustments on securities 7.7 -77.3 -141.5 8.9 -73.8 69.5 12.1 28.4 

Transfer to, transfer from the contingency funds 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 

Provisions for other liabilities and charges 5.1 -18.4 23.7 -6.0 11.2 -2.9 -1.0 8.6 

................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Amortization of goodwill on consolidation -2.6 -6.8 -4.1 -7.0 -7.2 -17.6 -7.4 -7.9 

Non-recurring result, insurance -2.8 -4.1 -37.3 53.6 -13.0 8.8 -13.3 -17.6 

Extraordinary result, banking and insurance 2.2 42.2 -4.4 -35.8 17.3 -10.4 -2.5 38.6 

PROFIT (LOSS) BEFORE TAX 503.6 435.0 383.8 388.7 452.0 484.7 337.3 366.6 



................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 

Income taxes -135.5 -114.1 -195.9 -65.7 -105.6 -148.9 -63.8 -123.4 

Banking -126.0 -113.2 -165.6 -56.6 -127.4 -120.4 -52.2 -113.3 

Insurance -8.6 -0.8 -29.7 -8.5 22.3 -28.2 -9.1 -11.7 

CONSOLIDATED PROFIT 368.1 320.9 188.0 323.1 346.3 335.8 273.5 243.1 

Minority interests -52.2 -40.9 -36.5 -36.3 -42.1 -35.8 -17.7 15.8 

CONSOLIDATED PROFIT, Group share 315.9 280.0 151.5 286.8 304.2 300.0 255.8 259.0 



Holding-company activities -6.4 -1.6 -7.4 -6.4 -5.6 3.6 -6.9 -5.2 

159

Additional information KBC Bank & Insurance Group − 2003 Annual Report 

160 

PENDING LITIGATION 

Judicial inquiries 

In the so-called KB Lux case, a number of (former) employees 

of KBC Bank NV and its sister company, Kredietbank SA 

Luxembourgeoise, together with the former President of the 

Executive Committee of KBC Bank NV, have been placed under 

suspicion 1 . The individuals concerned deny the allegations 

levelled against them and will refute them in court. At the start 

of February 2004, the public prosecutor’s office formulated a 

request before the judge sitting in chambers with a view to 

establishing what further judicial procedure should be with 

regard to the persons previously placed under suspicion. 

They will subsequently decide whether to request that further 

investigations be conducted. The independent judge sitting in 

chambers will then decide whether the charges are sufficient 

to justify committal to the competent court. 

The Belgian judicial authorities have also instituted an inquiry 

into transactions in Italian bonds involving the foreign tax 

credit, and in 2002 the investigating magistrate placed some 

(former) members of the Executive Committee, as well as certain 

senior managers and employees of KBC Bank NV under 

suspicion 1 . KBC Bank NV is firmly convinced that the actions 

of these persons were lawful in every respect and that the 

legality of these transactions will be proved in court. 

Disputes no longer adversely affecting 

the profit and loss account 

In the above-mentioned KB Lux case, the Belgian tax authorities 

claimed withholding tax and stock exchange tax from KBC 

Bank NV because they did not accept the validity of the nonresident 

status claimed by a number of customers during a 

certain brief period in the past. In this case too, KBC Bank NV is 

convinced that the arguments advanced by the tax authorities 

are not viable and that the court will rule in its favour. 

Nonetheless, for policy reasons, KBC Bank NV has opted to pay 

the disputed withholding and stock exchange tax, without 

prejudice to any of its rights to pursue the matter before a 

court of law. 

Like all the other Belgian banks, KBC Bank NV has, since 1992, 

been involved in a discussion with the tax authorities about the 

exact method that should be used in grossing-up a foreign tax 

credit. Two Courts of Appeal and the Court of Cassation have 

already ruled in favour of the method used by the banks. 

Consequently, KBC Bank NV will endeavour to expedite the 

proceedings, so that the case can be settled. For policy 

reasons, KBC Bank NV has opted to pay the disputed tax, 

but expressly reserves all of its rights in this regard. 

KBC Insurance NV, the former ABB-insurance NV, is involved in 

a dispute with the Belgian tax authorities concerning the way 

in which underwriting reserves were calculated for its life 

assurance activities (ABB used a technical rate of 4% instead of 

the 4.75% used to calculate the inventory provisions, or the 

guaranteed rate of return for the persons insured). The tax 

authorities claim that the difference between these two 

calculations is taxable. After its initial appeal to the tax 

authorities was dismissed, KBC Insurance NV appealed to the 

courts and formed a provision of 55.8 million euros. The court 

has already dismissed the above-mentioned claim by the tax 

authorities, but they have appealed the decision. 

At the end of December, KBC appealed the decision issued by 

the court of first instance in Ghent at the end of November, 

ordering KBC to pay a fine in one particular case if certain 

information was not provided to the tax authorities within a 

certain period of time. KBC has, however, already provided the 

information requested to the tax authorities, subject to all 

possible procedural developments, so that there is no longer 

any call to pay the fine. 

Like a number of other banks, KBC Bank NV is involved in a 

dispute with the Belgian VAT Administration concerning specific 

aspects of the way in which the VAT deduction percentage is 

calculated (this is used to determine how much VAT the bank 

can recover). In previous tax audits, however, the bank’s 

method of calculation had been approved. The courts have in 

the meantime found that one of the other banks involved acted 

correctly, a decision that was not appealed by the competent 

authorities within the requisite period. KBC Bank NV has also 

taken this matter to court and likewise expects a favourable 

decision to be returned. Nevertheless, a provision of 

43 million euros was set aside in the 2003 financial year as a 

precautionary measure. 

1 This is neither a conviction nor an indictment, rather the act of an investigating 

magistrate that gives those placed under suspicion full rights to mount a defence 

and to gain access to the case prepared against them by the magistrate.

As provisions have either already been formed or sums paid, 

these disputes can have no further influence on the profit and 

loss accounts of either KBC Bank NV or KBC Insurance NV. 

Other litigation 

Through its Czech subsidiary ČSOB a.s., KBC Bank NV is involved 

(as plaintiff/claimant and/or defendant) in a number of civil 

and criminal cases arising from an ‘Agreement on Sale 

of Enterprise’ concluded with Investiční a Posˇtovní banka a.s., 

which had been placed under forced administration a few days 

prior to this operation. This same operation has led Nomura 

Principal Investment Plc to file a complaint against ČSOB and 

KBC Bank NV for unfair competition. The cases will be dealt with 

by the Czech court and/or via arbitrage. 

In 2003, a case of fraud occurred at K&H Equities, a subsidiary 

originally owned by ABN AMRO and K&H Bank, but which has 

now been wholly acquired by K&H Bank. See the ‘Central Europe’ 

section. 

In addition to the above actions and proceedings, the Group 

companies are subject to other suits and are involved in a 

number of other legal proceedings which have arisen in the 

ordinary course of business of the respective companies. 

Although the outcome is uncertain and some claims are for 

relatively large amounts in damages, the Group’s management 

does not believe that the liabilities arising from these claims 

will adversely affect the Group’s consolidated financial 

position or results, account taken of the provisions that have, 

where necessary, been set aside for this purpose. 

SWITCH TO IFRS FROM THE FIRST QUARTER OF 

2005 

Barring any unexpected developments, KBC will be switching to 

the International Financial Reporting Standards (IFRS) in its 

financial reports for the first quarter of 2005. 

The relevant preparations have been completed for the most 

part as regards those standards that have already received EU 

approval. For IAS 32 and 39 (presentation and measurement of 

financial instruments) KBC has so far based itself on the Revised 

IAS 32 and 39, as published in December 2003. These standards 

are, however, still subject to change by the IAS Board and have 

yet to be approved by the EU. At the time this annual report 

was written, KBC did not yet have any precise idea of what 

impact the possible changes to these standards might have, or 

when European approval would be forthcoming or indeed when 

the application of IAS 32 and 39 (or parts of these standards) 

would be compulsory. 

KBC had originally intended to switch to IFRS from the first 

quarter of 2004, but its plans were thwarted by the uncertainty 

surrounding IAS 32 and 39. When this uncertainty has cleared 

up, KBC will in due course announce its plans for switching to 

the IFRS and specify the main differences between the IFRS and 

the Belgian GAAP accounting principles and valuation rules. 



161

Additional information KBC Bank & Insurance Group − 2003 Annual Report 

162 

CONTACT DETAILS 

Customers 

Contact KBC-Telecenter (Monday to Friday from 8 a.m. to 10 p.m., and on Saturday and bank holidays from 9 a.m. to 5 p.m.) 

Tel. + 32 78 152 153 (Dutch) 

+ 32 78 152 154 (French, English and German) 

Fax + 32 3 283 29 50 

E-mail kbc.telecenter@kbc.be 

KBC Bank Customer Service 

Tel. + 32 78 15 20 45 

Fax +3216863038 

E-mail clientenservice@kbc.be 

Address KBC Bank NV, Customer Service Department − PCS, 100 Brusselsesteenweg, BE-3000 Leuven 

KBC Insurance Ombudsman 

Tel. + 32 16 24 37 38 

Fax +3216243737 

E-mail ombudsdienst@verz.kbc.be 

Address KBC Insurance NV, Ombudsdienst − OMB, 6 Waaistraat, BE-3000 Leuven 

Investors and analysts 

Contacts Luc Cool, Head of Investor Relations 

Nele Kindt, Investor Relations Assistant 

Lucas Albrecht, Financial Communications Officer 

Tel. + 32 2 429 49 16 

Fax + 32 2 429 44 16 

E-mail investor.relations@kbc.be 

Web site www.kbc.com 

Address KBC Bank and Insurance Holding Company, Strategy and Expansion Division − SEE, 2 Havenlaan, BE-1080 Brussels 

Press 

Contacts Viviane Huybrecht, Head of Press Office and Company Spokeswoman 

Stef Leunens, Press Officer 

Tel. + 32 2 429 85 45 

Fax + 32 2 429 81 60 

E-mail viviane.huybrecht@kbc.be 

Web site www.kbc.be or www.kbc.com 

Address KBC Bank and Insurance Holding Company, Press Office − CPR, 2 Havenlaan, BE-1080 Brussels 

FINANCIAL CALENDAR 

Please see the ‘Shareholder information’ section.

Editor-in-chief: Strategy and Expansion Division − SEE, 2 Havenlaan, BE-1080 Brussels 

Sub-editing, translation, concept and design: Communication Division − CMM, 100 Brusselsesteenweg, BE-3000 Leuven 

Printer: Van der Poorten, 624 Diestsesteenweg, BE-3010 Leuven 

Publisher: KBC Bank and Insurance Holding Company NV, 2 Havenlaan, BE-1080 Brussels 

This annual report has been printed on paper which is not harmful to the environment. 



163

KBC Bank & Insurance Group - Annual Report

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?