(KBC IFIMA NV) KBC Bank NV

3rd December, 2002

KBC INTERNATIONALE FINANCIERINGSMAATSCHAPPIJ N.V. (KBC IFIMA N.V.) (incorporated with limited liability in The Netherlands)

PROGRAMME FOR THE ISSUE OF BONDS

denominated in EUR and USD of 3, 5, 7, 10 and 12 years up to a maximum amount of EUR 1 billion or its equivalent in USD

Unconditionally and irrevocably guaranteed on a subordinated basis by KBC Bank NV (incorporated with limited liability in Belgium)

Banks: HSBC CCF KBC Bank NV Rabobank International

Application has been made to list the Bonds issued under the Programme on the Luxembourg Stock Exchange. As required by the rules of the Luxembourg Stock Exchange, this memorandum will be reviewed on a yearly basis. KBC Internationale Financieringsmaatschappij N.V. (hereinafter referred to as “KBC IFIMA N.V.” or the “Issuer”), and KBC Bank NV (hereinafter referred to as the “Guarantor”) having made all reasonable enquiries, confirm that this Prospectus contains all information with regard to the Issuer, the Guarantor, the Bonds and the Guarantor’s Guarantee (hereinafter referred to as the “Guarantee”) which is material in the context of the issue of the Bonds and the Guarantee, that such information is true and accurate in all material respects and is not misleading, that the opinions and intentions expressed herein are honestly held and that there are no other facts the omission of which makes this Prospectus as a whole or any of such information or the expression of any such opinions or intentions misleading. The Issuer and the Guarantor accept responsibility accordingly.

In connection with the issue and offering of Bonds, no person has been authorized to give any information or to make any representation other than those contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Issuer, the Guarantor or the Banks (as defined under “Underwriting and Placement”). Neither the delivery of this Prospectus nor any sale made in connection herewith shall, under any circumstances, create any implication that the information herein is correct as of any time subsequent to its date.

The distribution of this Prospectus and the offering of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer, the Guarantor and the Banks to inform themselves about and to observe any such restrictions.

This Prospectus does not constitute, and may not be used for purposes of, an offer, invitation or solicitation by anyone in any jurisdiction or in any circumstances in which such offer, invitation or solicitation is not authorized or to any person to whom it is unlawful to make such offer, invitation or solicitation.

Each Bank has agreed that it has not taken, and will not take, any steps which would constitute a public offer of Bonds in Belgium, as defined under and interpreted in accordance with Belgian laws and regulations.

In this Prospectus references to USD are to United States Dollars and references to EUR are to Euro. On 1st November, 2002 the exchange rate between USD and EUR was approximately EUR1=USD0.9864.

2 TABLE OF CONTENTS

Page

Description of the Programme ...... 4

Underwriting and Placement ...... 5

General Information ...... 5

Use of Proceeds ...... 8

Terms and Conditions of the EUR Bonds ...... 9

Terms and Conditions of the USD Bonds ...... 15

Guarantee of KBC Bank NV with respect to the Bonds ...... 21

Description of the Issuer ...... 22

Description of the Guarantor ...... 26

Selected Financial Data of the Guarantor ...... 57

3 DESCRIPTION OF THE PROGRAMME

The Programme has been set up to permit a continuous offer of EUR Bonds and USD Bonds; no specific end date has been foreseen, but the offering will be closed if the total amount of outstanding Bonds exceeds EUR 1 billion or its equivalent in USD in nominal value.

The Programme consists of 10 undated segments, for each of which there are successive issue periods, during which Bonds may be issued and subscribed for (each an “Issue Period”).

Segment A allows for the issue of tranches of 3 year EUR Bonds; Segment B allows for the issue of tranches of 5 year EUR Bonds; Segment C allows for the issue of tranches of 7 year EUR Bonds; Segment D allows for the issue of tranches of 10 year EUR Bonds; Segment E allows for the issue of tranches of 12 year EUR Bonds; Segment F allows for the issue of tranches of 3 year USD Bonds; Segment G allows for the issue of tranches of 5 year USD Bonds; Segment H allows for the issue of tranches of 7 year USD Bonds; Segment I allows for the issue of tranches of 10 year USD Bonds; Segment J allows for the issue of tranches of 12 year USD Bonds;

Each Issue Period comprises maximum 3 issue and payment dates, falling at monthly intervals, adjustable to coincide with an appropriate business day. The first issue and payment date of an Issue Period is the first day of such Issue Period. Each Issue Period allows for the issue of one or more tranches of either EUR or USD Bonds of either 3, 5, 7, 10 or 12 years. Whenever issued, the term of each Bond is to commence on the first day of the Issue Period during which it is issued.

The interest rate will be determined from time to time by mutual agreement by the Issuer and KBC Bank NV in accordance with market conditions at the beginning of an Issue Period with respect to all Bonds to be issued within such Issue Period and forming a specific tranche. Interest will accrue as from the first day of such Issue Period and will be paid annually on the anniversary of the first day of such Issue Period.

The issue price for each tranche of Bonds to be issued on a particular issue and payment date will be determined and may be adjusted by mutual agreement by the Issuer and the Banks at any time before such issue and payment date in accordance with market conditions. As a consequence, different issue prices can apply with respect to one issue and payment date. Payment for the Bonds to be issued on a particular issue and payment date will be made on such issue and payment date at the issue price prevailing at the time application for subscription was made. The issue price will be increased with interest accrued from the first day of the Issue Period wherein such issue and payment date falls, in case of issue on another day than the first day of such Issue Period.

The Issuer can, subject to specific approval of KBC Bank NV and Kredietbank S.A. Luxembourgeoise, decide whether or not to accept subscriptions for Bonds. The Issuer also reserves the right to prematurely terminate an Issue Period at any time, without, however, affecting the Bonds (and the rights attached thereto) issued before such termination of an Issue Period. A new Issue Period will start immediately thereafter or at such later date as the Issuer determines.

All Bonds issued during the same Issue Period and forming a specific tranche shall be consolidated and form a single series and shall rank pari passu in all respects (save for the issue date, the issue price and additions of accrued interest). In general, all Bonds have the same terms and conditions, as hereinafter set forth, except for the currency, the issue date, the term, the interest rate and the issue price.

4 UNDERWRITING AND PLACEMENT

The following financial institutions (hereinafter referred to as the “Banks”) have agreed to underwrite and to monitor the issue and placement of the Bonds pursuant to an Underwriting Agreement dated 3rd December, 2002.

COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A. CCF KBC BANK NV

GENERAL INFORMATION

The Luxembourg Stock Exchange has allocated to the Programme the number 12 433 for listing purposes.

The issue of the Bonds, the terms and conditions of which are set forth hereinafter, has been duly authorized by the Issuer pursuant to a resolution of its Board of Managing Directors and its Supervisory Board adopted on 10th September, 2002. The issuance of the Guarantee (herein referred to as the “Guarantee”) has been duly authorized by the Guarantor pursuant to a resolution taken by its Executive Committee on 10th September, 2002.

The Articles of Association of the Issuer and of the Guarantor were registered with the Greffier en Chef du Tribunal d’Arrondissement de et à Luxembourg and a legal notice relating to the Bonds will be registered with such Greffier, where the public may examine such documents and obtain copies thereof. The text of the Guarantee and the Fiscal Agency Agreement with respect to the Bonds will be available for inspection at the principal office of the Fiscal Agent (as such terms are defined in the terms and conditions of the Bonds), currently at 43, Boulevard Royal, Luxembourg.

Application has been made to list the Bonds when issued under the Programme, on the Luxembourg Stock Exchange. As long as the Bonds are listed on the Luxembourg Stock Exchange copies of the most recent annual accounts of the Issuer and of the most recent annual report and the latest unaudited interim semi- annual consolidated financial information of the Guarantor will be made available at the principal office of the Fiscal Agent. There will be no interim financial statements of the Issuer available for the public, except for the information required by Dutch law. The figures relating to the Issuer set out in this document and given as of 30th June, 2002 are extracted from the books and records of the Issuer (which are not available). These figures are used by KBC Bank and Insurance Holding Company NV for consolidation purposes.

PLACEMENT AND UNDERWRITING

The Banks are offering the Bonds for sale at the issue price together with accrued interest, if any. The Issuer will pay the Banks an initial aggregate commission, to be adjusted from time to time, of up to 1.375 per cent. (for Bonds of 3 years), of 1.875 per cent. (for Bonds of 5 and 7 years) and of 2 per cent. (for Bonds of 10 and 12 years) of the aggregate principal amount of the Bonds if and when issued. The Banks are entitled to terminate the Underwriting Agreement upon notice.

5 GLOBAL CERTIFICATE AND DEFINITIVE BONDS

A temporary Global Certificate representing each tranche of Bonds will be deposited on or about each issue and payment date for such tranche, at the office of a common depositary on behalf of both Clearstream Banking société anonyme, Luxembourg (“Clearstream”) and Euroclear Bank S.A./N.V., as operator of the Euroclear System (“Euroclear”).

The Issuer will undertake to cause definitive Bonds to be made available for delivery in exchange for such Global Certificate.

LITIGATION

Neither the Issuer nor the Guarantor is involved in any litigation, arbitration or administrative proceedings relating to claims or amounts which are material in the context of the issue of the Bonds and the Guarantee and, so far as the Issuer or the Guarantor is aware, no such litigation, arbitration or administrative proceedings are pending or threatened, except as disclosed herein.

NO MATERIAL ADVERSE CHANGE

There has been no material adverse change in the financial position or prospects of the Issuer and the Guarantor since the last audited financial statements.

CLEARING

The Bonds have been accepted for clearance through Clearstream and Euroclear. A Common Code and an Isin Code will be allocated to all Bonds issued within the same Issue Period with the same redemption date and denominated in the same currency.

INCORPORATION BY REFERENCE

The annual accounts of the Issuer and the audited consolidated balance sheet and profit and loss account of the Guarantor for the financial year ended 31st December, 2000 and 31st December, 2001 and the interim non-audited financial statements of the Guarantor are hereby incorporated by reference. The annual accounts of the Issuer and the annual report of the Guarantor that are most recently available shall be deemed to be incorporated herein by reference from time to time. Copies thereof are available free of charge at the offices of the Fiscal Agent specified in the terms and conditions of the Bonds.

6 PRICING SUPPLEMENT

A Pricing Supplement will be made on each issue and payment date in respect of each issue of Bonds under the Programme and such Pricing Supplement will contain the following information in respect of the issue of Bonds to which it relates: the issue date, the currency of the Bonds, the principal amount of each tranche of Bonds issued on such date, the redemption date, the issue price, the interest rate, the ISIN Code and Common Code allocated by Clearstream and/or Euroclear and any other relevant information which is not inconsistent with the Programme.

KBC IFIMA N.V. unconditionally and irrevocably guaranteed on a subordinated basis by

KBC Bank NV Pricing Supplement No [] Dated [] to the prospectus dated 3rd December, 2002 with respect to the Programme for the issue of EUR Bonds and USD on 3, 5, 7, 10 and 12 years EUR : Denominations of 1,000, 5,000 and 10,000 USD : Denominations of 1,000, 5,000 and 10,000

EUR Bonds U.S. Dollar Bonds Issue Period: Issue Period: Issue Date: Issue Date:

3 years Tranche 3 years Tranche Amount: Amount: Redemption date: Redemption date: Interest rate: Interest rate: Issue price: Issue price: ISIN Code: ISIN Code: Common Code: Common Code: Temporary ISIN code: Temporary ISIN code:

5 years Tranche 5 years Tranche Amount: Amount: Redemption date: Redemption date: Interest rate: Interest rate: Issue price: Issue price: ISIN Code: ISIN Code: Common Code: Common Code: Temporary ISIN code: Temporary ISIN code:

7 years Tranche 7 years Tranche Amount: Amount: Redemption date: Redemption date: Interest rate: Interest rate: Issue price: Issue price: ISIN Code: ISIN Code: Common Code: Common Code: Temporary ISIN code: Temporary ISIN code:

7 10 years Tranche 10 years Tranche Amount: Amount: Redemption date: Redemption date: Interest rate: Interest rate: Issue price: Issue price: ISIN Code: ISIN Code: Common Code: Common Code: Temporary ISIN code: Temporary ISIN code:

12 years Tranche 12 years Tranche Amount: Amount: Redemption date: Redemption date: Interest rate: Interest rate: Issue price: Issue price: ISIN Code: ISIN Code: Common Code: Common Code: Temporary ISIN code: Temporary ISIN code:

USE OF PROCEEDS

The net proceeds to be received by the Issuer from the issue of the Bonds, will be used by the Issuer to contribute to the financing of the activities of the Guarantor or the KBC Bank and Insurance Holding Company.

8 TERMS AND CONDITIONS OF THE EUR BONDS

The following terms and conditions, subject to completion and amendment, will be reproduced on each Bond.

I. Denomination – Currency – Form – Issue Price – Title The Bonds are issued in bearer form, serially numbered, with annual coupons (“Coupons”) attached, each in the denomination of EUR 1,000, EUR 5,000, EUR 10,000 and at an issue price as will be determined from time to time.

Title to the Bonds and Coupons passes by delivery.

II. Redemption Unless previously repaid or redeemed as provided herein, the Bonds will be redeemed by KBC Internationale Financieringsmaatschappij N.V. (the “Issuer”) at par on the date specified as such on the front side of the Bonds.

III. Interest The Bonds bear interest at the rate per annum as set out on the front side of the Bonds and accruing as from the first day of the issue period (the “Issue Period”) during which such Bonds are issued. Annual interest Coupons, payable on the anniversary of the first day of such Issue Period, are attached to the Bonds. Each Bond will cease to bear interest from the due date for redemption thereof unless, upon due presentation, payment of principal thereof is improperly withheld or refused or unless default is otherwise made in respect of such payment. In such event, interest will continue to accrue (as well after as before any judgement) up to but excluding the date on which, upon further presentation thereof, payment in full of the principal is made or (if earlier) the second day after which notice has duly been given in accordance with Article X below, that upon further presentation thereof being duly made such payment will be made, provided that (upon further presentation thereof being duly made) such payment is in fact made. Where interest is required to be calculated for a period of less than one year, it shall be calculated on the basis of a 360-day year consisting of 12 months of 30 days each and, in the case of an incomplete month, on the number of days elapsed.

IV. Guarantee KBC Bank NV (the “Guarantor”) has, by the guarantee endorsed on each of the Bonds (the “Guarantee”) unconditionally and irrevocably guaranteed on a subordinated basis the payment of the principal of and interest on the Bonds when and as the same shall become due and payable (including any additional amounts required to be paid according to the terms and conditions of the Bonds) in accordance with the terms thereof. In case of the failure of the Issuer punctually to make any such payment, the Guarantor will cause such payment to be made punctually when and as the same shall become due and payable, whether at maturity, upon redemption by acceleration of maturity or otherwise, as if such payment were made by the Issuer in accordance with the terms thereof. The Guarantor has in the Guarantee waived any requirement that the holder of any Bond or Coupon, in the event of any default in such payment by the Issuer, first make demand upon or seek to enforce remedies against the Issuer before seeking to enforce the Guarantee; has agreed that its obligations under the Guarantee shall be unconditional and irrevocable, irrespective of any circumstance which might constitute a legal or equitable discharge or defence of a guarantor; and has covenanted that the Guarantee will not be discharged except by complete performance of the obligations contained in said Bond, said Coupon and the Guarantee. The Guarantee is endorsed on each Bond.

V. Payment of Interest and Reimbursement of Principal Payments of interest and reimbursement of principal shall be made to the bearer, upon presentation and surrender of the Bond or Coupons, as the case may be in EUR at the main office of any of the paying banks, subject in each case to any applicable laws and regulations in effect in the country of payment. 9 The paying banks are Kredietbank S.A. Luxembourgeoise and KBC Bank NV. Additional paying banks may be appointed and the appointment of any paying bank may be terminated in accordance with the provisions of a fiscal agency agreement (the “Fiscal Agency Agreement”, which expression shall be construed as a reference to that agreement as the same may be amended, supplemented or restated from time to time) dated 3rd December, 2002 between the Issuer, the Guarantor, Kredietbank S.A. Luxembourgeoise (the “Fiscal Agent”) and the other agents named therein provided that notice thereof be published by the Fiscal Agent pursuant to the Fiscal Agency Agreement in accordance with Article X below and that, as long as the Bonds are listed on the Luxembourg Stock Exchange, the Issuer shall maintain a paying bank in Luxembourg. The Fiscal Agency Agreement contains provisions for the resignation or replacement of the Fiscal Agent.

Neither the Issuer nor the Guarantor nor the Fiscal Agent or any paying bank shall be required to verify the capacity or right of any bearer of any Bond or Coupon, except as may be prescribed by applicable laws and regulations in the country where such payment is made.

The Issuer unconditionally undertakes to pay interest on and to reimburse the principal of the Bonds at the respective due dates without discrimination as to nationality or domicile of the holders of Bonds or Coupons, as the case may be, and without requiring the presentation of an affidavit of any kind or the fulfilment of any other formality, except as may be prescribed by applicable laws or regulations in the country in which such payment is made.

The Issuer, the Guarantor, the Fiscal Agent and the paying banks may deem and treat the bearer of any Bond or Coupon as the absolute owner of such Bond or Coupon, for the purpose of receiving payment thereof, or on account thereof, and for all other purposes, whether or not such Bond or Coupon shall be overdue and notwithstanding any notation of ownership or other writing thereon or any notice of any previous loss or theft thereof, and neither the Issuer, the Guarantor, the Fiscal Agent nor the paying banks shall be affected by any notice to the contrary.

Each Bond presented for redemption is to be presented accompanied by all Coupons appertaining thereto which are due after the date fixed for redemption; the aggregate face amount of all missing Coupons due after such date shall be deducted from the principal to be paid on redemption, and the amount of principal so deducted with respect to any such missing Coupon will be paid upon surrender of the relevant missing Coupon at any time before the expiration of a period of 10 years after its due date.

If the due date for payment of any amount of principal or interest in respect of any Bond is not a banking business day at any place of payment, no entitlement to payment shall arise until the next following banking business day in the relevant place of payment and there shall be no entitlement to further interest or other payment in respect of such delay. For the purposes of this Article V “banking business day” means any day other than a Saturday or a Sunday, on which banks are open for business and on which dealings in foreign currencies may be carried on in the relevant place of payment and on which the TARGET system is open.

The Issuer and the Guarantor may at any time purchase Bonds in the open market or otherwise. Such Bonds may at the option of the Issuer or the Guarantor be held, resold or cancelled.

VI. Tax Status (a) All payments of principal and interest by the Issuer or, as the case may be, the Guarantor in respect of the Bonds will be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or other charges of whatever nature imposed or levied by or on behalf of The Netherlands or, as the case may be, of Belgium or any political subdivision or any authority therein or thereof having power to tax, unless the withholding or deduction of such taxes, duties, assessments or other charges is required by law or regulation. In that event, the Issuer or, as the case may be, the Guarantor will pay such additional amounts as may be necessary in order that the net amounts received by the holders of the Bonds and the Coupons after such withholding or deduction shall not be less than the respective amounts of principal and interest which would have been receivable in respect of the Bonds or, as the case may be, the Coupons in the absence of such withholding or deduction; except that no such additional amounts shall be payable with respect to any Bond or Coupon presented for payment:

10 (i) by, or on behalf of, a holder who is liable for such taxes, duties, assessments or other charges by reason of his having some connection with The Netherlands (in the case of payment(s) by the Issuer) or Belgium (in the case of payment(s) by the Guarantor) other than the mere holding of such Bond or Coupon; or (ii) in Belgium or through an intermediary in Belgium; or (iii) by or on behalf of a holder who would be able to avoid such withholding or deduction by making a declaration of non-residence or similar claim for exemption but fails to do so; or (iv) more than 30 days after the Relevant Date except to the extent that the relevant holder thereof would have been entitled to such additional amounts on presenting the same for payment on such thirtieth day; or (v) where such withholding or deduction imposed on a payment to a holder of any Bond or Coupon, is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of 26th-27th November, 2000 (the “Directive”) or any law implementing or complying with, or introduced in order to conform to, the Directive; or (vi) where any Bond or Coupon is presented for payment by or on behalf of a holder of such Bond or Coupon, who would have been able to avoid such withholding by presenting the relevant Bond and/or Coupon to another Paying Agent in a Member State of the EU.

With regard to paragraph (a) (vi) above, the Issuer undertakes that, if the conclusions of the ECOFIN Council meeting of 26th-27th November, 2000 are implemented, it will ensure that it maintains a paying agent in a Member State of the EU that will not be obliged to withhold or deduct tax pursuant to the Directive or any law implementing or complying with, or introduced in order to conform to, the Directive.

As used herein, the “Relevant Date” in respect of any payment means whichever is the later of (x) the date on which such payment first becomes due, and (y), if the full amount of the moneys payable has not been unconditionally received by the Fiscal Agent on or prior to such due date, the date on which, the full amount of such moneys having been so received, notice to that effect shall have been duly published in accordance with Article X below.

References herein to principal and interest in respect of the Bonds shall be deemed to include any additional amounts which may be payable under this Article VI.

(b) If, (i) as a result of any change in, or amendment (or any proposed change or amendment which is the subject of draft legislation being considered by the relevant legislature) to, the laws of The Netherlands or Belgium or any taxing authority thereof or therein having power to tax, affecting taxation, or any change in the official application or interpretation of such laws, the Issuer or the Guarantor becomes or will in the future become obliged to pay additional amounts pursuant to the provisions under paragraph (a) of this Article, or (ii) the Guarantor is unable for reasons beyond its control to pay to the Issuer, any sums necessary to enable the Issuer to make payments on the Bonds or Coupons or to make payments in relation to the on-lending of the net proceeds of the Bonds, without such sums being subject to withholding or deduction for or on account of any present or future taxes or duties of whatsoever nature, imposed or levied by or within Belgium or by any authority thereof or therein having power to tax, or (iii) the Guarantor would be unable for reasons outside its control to procure payment by the Issuer and, in making payment itself, would be required to make such additional payments as aforesaid, the Bonds may be redeemed at par at the option of the Issuer, in whole but not in part, at any time, and together with accrued interest to the date set for redemption, by publishing a notice of redemption in accordance with Article X below not less than 30 days and not more than 60 days prior to the date set for redemption.

VII. Status of the Bonds and the Guarantee The Bonds and the Coupons are and shall be direct, unconditional, unsecured and unsubordinated obligations of the Issuer and rank and will rank pari passu, without preference among themselves, with all

11 other present and future, unsecured and unsubordinated obligations of the Issuer except for obligations given priority by law.

The rights of the holders of Bonds and Coupons under the terms of the Guarantee are and shall be direct and unconditional obligations of the Guarantor and shall, in the event of liquidation (meaning any event creating a “samenloop van schuldeisers”, including “vrijwillige vereffening”, “gerechtelijk akkoord” or “faillissement” under the laws of Belgium) of the Guarantor, be subordinated in right of payment to the claims of depositors and all other unsecured creditors of the Guarantor (other than creditors in respect of indebtedness which is subordinated to at least the same extent as the Guarantee).

Moreover in relation to Bonds with a term of 3 years, no payment of interest or reimbursement of principal shall be made if as a result the Guarantor is, or such payment would cause the Guarantor to fall, below its overall minimum regulatory capital requirement.

VIII. Default; Acceleration of Maturity The bearer of any Bond may, upon written notice given to the Fiscal Agent, if any of the following events should occur and be continuing, cause such Bond to become due and payable at par together with accrued interest thereon, as of the date on which said notice of acceleration is received by the Fiscal Agent: in the event of liquidation or dissolution of the Issuer or the Guarantor in whatever manner (in the case of the Guarantor meaning any event creating a “samenloop van schuldeisers”) including without limiting the generality of the foregoing, in the case of the Issuer, bankruptcy, composition and voluntary liquidation, and, in the case of the Guarantor, “faillissement”, “gerechtelijk akkoord” and “vrijwillige vereffening”.

IX. Financial Information As soon as they are available after the close of each fiscal year during the term of the Bonds, the Issuer and the Guarantor shall provide the Fiscal Agent with copies of its annual accounts (in the case of the Issuer) and its annual report (in the case of the Guarantor) for such fiscal year. Copies of such annual accounts and annual reports will be made available to holders of Bonds or Coupons at the principal office of the Fiscal Agent during the term of the Bonds.

X. Notices Any notice to the holders of Bonds and Coupons shall be validly given if published in the Luxemburger Wort (Luxembourg) or, if said newspaper shall cease to be published or timely publication therein shall not be practicable, in such other newspaper(s) as the Fiscal Agent shall deem necessary to give fair and reasonable notice to the holders of Bonds and Coupons.

XI. Prescription Bonds and Coupons will become void unless presented and surrendered for payment within a period of 10 years in the case of Bonds and 5 years in the case of Coupons, respectively, from the Relevant Date (as defined in Article VI above) relating thereto.

XII. Replacement of Bonds and Coupons In case of theft, loss or other involuntary dispossession or mutilation of any Bond or Coupon, application for replacement thereof is to be made at the principal office of the Fiscal Agent. Any such Bond or Coupon shall be replaced by the Issuer in compliance with such procedures and on such terms as to evidence and indemnification as the Issuer may require. Subject to applicable laws and regulations, all such costs as may be incurred in connection with the replacement of any Bond or Coupon shall be borne by the applicant. Mutilated Bonds or Coupons must be surrendered before new ones will be issued.

12 XIII. Substitution of Debtor The Issuer may, on having given not less than 30 days’ notice to the holders of Bonds and the holders of Coupons in accordance with the provisions of Article X above, provided that the conditions referred to below are fulfilled, procure that any affiliated or associated corporation of the Issuer or the Guarantor is substituted for the Issuer as the debtor under the Bonds and the Coupons by assigning all its rights and obligations under the Bonds and the Coupons to such other corporation (the “New Issuer”). Each holder of any Bond and Coupon expressly consents to such substitution and assignment and, upon the New Issuer duly assuming all the rights and obligations of the Issuer under the Bonds and the Coupons as fully and effectively as though it had been the original issuer of the Bonds, the Issuer shall be released from all liabilities under the Bonds and the Coupons and the Bonds and the Coupons shall thereafter be deemed to be modified as set out below.

The aforesaid conditions are that: (a) no payment of principal or of interest on the Bonds or the Coupons is overdue and no other circumstances exists capable of causing the acceleration of maturity of the Bonds; (b) the New Issuer shall have obtained all necessary authorizations to duly perform all of the obligations to be assumed by it under the terms and conditions of the Bonds including all payment obligations under the Bonds and the Coupons and such obligations shall be legal, valid and enforceable; (c) the Guarantor agrees on the provisions of such substitution as described herein, undertakes that the provisions in the Guarantee with respect to the Issuer will apply to the New Issuer in the event of such substitution and shall be bound by all the obligations to be fulfilled by it under the Guarantee and the terms and conditions of the Bonds as a result of such substitution and such obligations shall be legal, valid and enforceable; (d) the New Issuer agrees to unconditionally indemnify upon first demand the holder of each Bond and Coupon against all the expenses and charges (including taxes and governmental charges of every kind) of whatsoever nature incurred by the latter in connection with or as a result of such substitution in respect of the Bonds and the Coupons without limiting the rights to redeem the Bonds in accordance with Article VI above; (e) the jurisdiction under the laws of which the New Issuer is constituted does not impose or levy, and no political subdivision or any authority thereof or therein having the power to tax imposes or levies, any taxes, duties, assessments or other charges of whatever nature (whether through withholding or deduction or otherwise) on payments of interest or principal under the Bonds or the Coupons, irrespective of the residence or domicile of the respective holders thereof; (f) the provisions in these terms and conditions of the Bonds with respect to the Issuer will entirely apply to the New Issuer; and (g) the provisions with respect to The Netherlands in Article VI above and paragraph (b) of Article XV below will apply to the jurisdiction under the laws of which the New Issuer is constituted.

XIV. Meetings of Holders of Bonds and Modification of Terms and Conditions The Fiscal Agency Agreement contains provisions for convening meetings of the holders of Bonds to consider any matters affecting their interests, including modification to the terms and conditions of the Bonds and any provisions of the Fiscal Agency Agreement directly applicable to the Bonds. Any such modifications must be authorized by an Extraordinary Resolution of the holders of Bonds (which means a resolution passed by a majority consisting of not less than seventy-five per cent. of the votes cast thereon). The quorum at any meeting will be two or more persons present in person holding or representing a majority in principal amount of the Bonds for the time being outstanding, and at any adjourned meeting two or more persons being or representing holders of Bonds whatever the principal amount of Bonds so held or represented, provided that any such meeting, the business of which includes certain modifications of the terms and conditions of the Bonds, the necessary quorum for passing an Extraordinary Resolution is two or more persons holding or representing not less than two-thirds in principal amount of the Bonds for the time being outstanding. An Extraordinary Resolution duly passed at a meeting will be binding on all the holders of Bonds (whether present at the meeting or not) and all the holders of Coupons.

13 The Fiscal Agent may agree without the consent of the holders of Bonds and the holders of Coupons to any modification of the Fiscal Agency Agreement or of the terms and conditions of the Bonds which, in the opinion of the Fiscal Agent, is not materially prejudicial to the interests of the holders of Bonds and the holders of Coupons or for the purpose of curing any ambiguity or of curing, correcting or supplementing any defective provision therein or herein.

No modification to the terms and conditions of the Bonds and the Fiscal Agency Agreement can be adopted without the consent of the Issuer and the Guarantor.

For the purpose of this Article XIV Bonds means all Bonds constituting a specific tranche of 3, 5, 7, 10 or 12 year Bonds, issued within the same Issue Period.

XV. Applicable Law (a) The provisions of the Bonds and the Coupons shall be governed by and interpreted in accordance with the laws of the Grand Duchy of Luxembourg provided that Articles 86 through 94-8 of the Law of 10th August, 1915 on Commercial Companies (as amended) related to representation of bondholders shall not be applicable. The Guarantee shall be governed by and interpreted in accordance with the laws of the Grand Duchy of Luxembourg, except for the subordination provision which shall be governed by the laws of the Kingdom of Belgium.

(b) The holders of Bonds or Coupons shall be free to enforce their rights against the Issuer in the courts of the Grand Duchy of Luxembourg and in the courts of The Netherlands to the non-exclusive jurisdiction of which the Issuer hereby irrevocably submits.

(c) The holders of Bonds or Coupons shall be free to enforce their rights against the Guarantor in the courts of the Grand Duchy of Luxembourg and in the courts of Belgium to the non-exclusive jurisdiction of which the Guarantor hereby irrevocably submits.

(d) For the purpose of any action or proceeding brought in the Grand Duchy of Luxembourg in connection with the Bonds or the Guarantee, as the case may be, the Issuer and the Guarantor hereby elect domicile at the principal office of Kredietbank S.A. Luxembourgeoise for all acts, formalities or procedures.

14 TERMS AND CONDITIONS OF THE USD BONDS

The following terms and conditions, subject to completion and amendment, will be reproduced on each Bond.

I. Denomination – Currency – Form – Issue Price – Title The Bonds are issued in bearer form, serially numbered, with annual coupons (“Coupons”) attached, each in the denomination of USD 1,000, USD 5,000 or USD 10,000 and at an issue price as will be determined from time to time.

Title to the Bonds and Coupons passes by delivery.

IV. Guarantee KBC Bank NV (the “Guarantor”) has, by the guarantee enfaced on each of the Bonds (the “Guarantee”) unconditionally and irrevocably guaranteed on a subordinated basis the payment of the principal of and interest on the Bonds when and as the same shall become due and payable (including any additional amounts required to be paid according to the terms and conditions of the Bonds) in accordance with the terms thereof. In case of the failure of the Issuer punctually to make any such payment, the Guarantor will cause such payment to be made punctually when and as the same shall become due and payable, whether at maturity, upon redemption by acceleration of maturity or otherwise, as if such payment were made by the Issuer in accordance with the terms thereof. The Guarantor has in the Guarantee waived any requirement that the holder of any Bond or Coupon, in the event of any default in such payment by the Issuer, first make demand upon or seek to enforce remedies against the Issuer before seeking to enforce the Guarantee; has agreed that its obligations under the Guarantee shall be unconditional and irrevocable, irrespective of any circumstance which might constitute a legal or equitable discharge or defense of a guarantor; and has covenanted that the Guarantee will not be discharged except by complete performance of the obligations contained in said Bond, said Coupon and the Guarantee. The Guarantee is endorsed on each Bond.

V. Payment of Interest and Reimbursement of Principal Payments of interest and reimbursement of principal shall be made to the bearer, upon presentation and surrender of the Bond or Coupons, as the case may be in USD at the main office of any of the paying banks, subject in each case to any applicable laws and regulations in effect in the country of payment. 15 The paying banks are Kredietbank S.A. Luxembourgeoise and KBC Bank NV. Additional paying banks may be appointed and the appointment of any paying bank may be terminated in accordance with the provisions of a fiscal agency agreement (the “Fiscal Agency Agreement”, which expression shall be construed as a reference to that agreement as the same may be amended, supplemented or restated from time to time) dated 3rd December, 2002 between the Issuer, the Guarantor, Kredietbank S.A. Luxembourgeoise (the “Fiscal Agent”) and the other agents named therein provided that notice thereof be published by the Fiscal Agent pursuant to the Fiscal Agency Agreement in accordance with Article X below and that, as long as the Bonds are listed on the Luxembourg Stock Exchange, the Issuer shall maintain a paying bank in Luxembourg. The Fiscal Agency Agreement contains provisions for the resignation or replacement of the Fiscal Agent.

If the due date for payment of any amount of principal or interest in respect of any Bond is not a banking business day at any place of payment, no entitlement to payment shall arise until the next following banking business day in the relevant place of payment and there shall be no entitlement to further interest or other payment in respect of such delay. For the purposes of this Article V “banking business day” means any day, other than a Saturday or a Sunday, on which banks are open for business and on which dealings in foreign currencies may be carried on in the relevant place of payment and in New York.

The Issuer and the Guarantor may at any time purchase Bonds in the open market or otherwise. Such Bonds may at the option of the Issuer or the Guarantor be held, resold or cancelled.

16 (i) by, or on behalf of, a holder who is liable for such taxes, duties, assessments or other charges by reason of his having some connection with The Netherlands (in the case of payment(s) by the Issuer) or Belgium (in the case of payment(s) by the Guarantor) other than the mere holding of such Bond or Coupon; or (ii) in Belgium or through an intermediary in Belgium; or (iii) by, or on behalf of, a holder who would be able to avoid such withholding or deduction by making a declaration of non-residence or similar claim for exemption but fails to do so; or (iv) more than 30 days after the Relevant Date except to the extent that the relevant holder thereof would have been entitled to such additional amounts on presenting the same for payment on such thirtieth day; or (v) where such withholding or deduction, imposed on a payment to a holder of any Bond or Coupon, is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of 26th-27th November, 2000 (the “Directive”) or any law implementing or complying with, or introduced in order to conform to, the Directive; or (vi) where any Bond or Coupon is presented for payment by or on behalf of a holder of such Bond or Coupon, who would have been able to avoid such withholding by presenting the relevant Bond and/or Coupon to another Paying Agent in a Member State of the EU.

With regard to paragraph (a) (vi) above, the Issuer undertakes that, if the conclusions of the ECOFIN Council meeting of 26th-27th November 2000 are implemented, it will ensure that it maintains a paying agent in a Member State of the EU that will not be obliged to withhold or deduct tax pursuant to the Directive or any law implementing or complying with, or introduced in order to conform to, the Directive.

References herein to principal and interest in respect of the Bonds shall be deemed to include any additional amounts which may be payable under this Article VI.

17 other present and future, unsecured and unsubordianted obligations of the Issuer except for obligations given priority by law.

X. Notices Any notice to the holders of Bonds and Coupons shall be validly given if published in the Luxemburger Wort (Luxembourg), or, if said newspaper shall cease to be published or timely publication therein shall not be practicable, in such other newspaper(s) as the Fiscal Agent shall deem necessary to give fair and reasonable notice to the holders of Bonds and Coupons.

18 XIII. Substitution of Debtor The Issuer may, on having given not less than 30 days’ notice to the holders of Bonds and the holders of Coupons in accordance with the provisions of Article X above, provided that the conditions referred to below are fulfilled, procure that any affiliated or associated corporation of the Issuer or the Guarantor is substituted for the Issuer as the debtor under the Bonds and the Coupons by assigning all its rights and obligations under the Bonds and the Coupons to such other corporation (the “New Issuer”). Each holder of any Bond and Coupon expressly consents to such substitution and assignment and, upon the New Issuer duly assuming all the rights and obligations of the Issuer under the Bonds and the Coupons as fully and effectively as though it had been the original issuer of the Bonds, the Issuer shall be released from all liabilities under the Bonds and the Coupons and the Bonds and the Coupons shall thereafter be deemed to be modified as set out below.

The aforesaid conditions are that: (a) no payment of principal or of interest on the Bonds or the Coupons is overdue and no other circumstance exists capable of causing the acceleration of maturity of the Bonds; (b) the New Issuer shall have obtained all necessary authorizations to duly perform all of the obligations to be assumed by it under the terms and conditions of the Bonds including all payment obligations under the Bonds and the Coupons and such obligations shall be legal, valid and enforceable; (c) the Guarantor agrees on the provisions of such substitution as described herein, undertakes that the provisions in the Guarantee with respect to the Issuer will apply to the New Issuer in the event of such substitution and shall be bound by all the obligations to be fulfilled by it under the Guarantee and the terms and conditions of the Bonds as a result of such substitution and such obligations shall be legal, valid and enforceable; (d) the New Issuer agrees to unconditionally indemnify upon first demand the holder of each Bond and Coupon against all the expenses and charges (including taxes and governmental charges of every kind) of whatsoever nature incurred by the latter in connection with or as a result of such substitution in respect of the Bonds and the Coupons without limiting the rights to redeem the Bonds in accordance with Article VI above; (e) the jurisdiction under the laws of which the New Issuer is constituted does not impose or levy, and no political subdivision or any authority thereof or therein having the power to tax imposes or levies, any taxes, duties, assessments or other charges of whatever nature (whether through withholding or deduction or otherwise) on payments of interest or principal under the Bonds or the Coupons, irrespective of the residence or domicile of the respective holders thereof; (f) the provisions in these terms and conditions of the Bonds with respect to the Issuer will entirely apply to the New Issuer; and (g) the provisions with respect to The Netherlands in Article VI above and paragraph (b) of Article XV below will apply to the jurisdiction under the laws of which the New Issuer is constituted.

XIV. Meetings of Holders of Bonds and Modification of Terms and Conditions The Fiscal Agency Agreement contains provisions for convening meetings of the holders of Bonds to consider any matters affecting their interests, including modification to the terms and conditions of the Bonds and any provisions of the Fiscal Agency Agreement directly applicable to the Bonds. Any such modifications must be authorized by an Extraordinary Resolution of the holders of Bonds (which means a resolution passed by a majority consisting of not less than seventy-five per cent. of the votes cast thereon). The quorum at any meeting will be two or more persons present in person holding or representing a majority in principal amount of the Bonds for the time being outstanding, and at any adjourned meeting two or more persons being or representing holders of Bonds whatever the principal amount of Bonds so held or presented, provided that at any such meeting, the business of which includes certain modifications of the terms and conditions of the Bonds, the necessary quorum for passing an Extraordinary Resolution is two or more persons holding or representing not less than two-thirds in principal amount of the Bonds for the time being outstanding. An Extraordinary Resolution duly passed at a meeting will be binding on all the holders of Bonds (whether present at the meeting or not) and all the holders of Coupons.

19 The Fiscal Agent may agree without the consent of the holders of Bonds and the holders of Coupons to any modification of the Fiscal Agency Agreement or of the terms and conditions of the Bonds which, in the opinion of the Fiscal Agent, is not materially prejudicial to the interests of the holders of Bonds and the holders of Coupons or for the purpose of curing any ambiguity or of curing, correcting or supplementing any defective provision therein or herein.

No modification to the terms and conditions of the Bonds and the Fiscal Agency Agreement can be adopted without the consent of the Issuer and the Guarantor.

For the purpose of this Article XIV Bonds means all Bonds constituting a specific tranche of 3, 5, 7, 10 or 12 year Bonds, issued within the same Issue Period.

XV. Applicable Law (a) The provisions of the Bonds and the Coupons shall be governed by and interpreted in accordance with the laws of the Grand Duchy of Luxembourg provided that Articles 86 through 94-8 of the Law of 10th August, 1915 on Commercial Companies (as amended) relating to representation of bondholders shall not be applicable. The Guarantee shall be governed by and interpreted in accordance with the laws of the Grand Duchy of Luxembourg, except for the subordination provisions which shall be governed by the laws of the Kingdom of Belgium.

20 GUARANTEE OF KBC BANK NV WITH RESPECT TO THE BONDS

The following, subject to completion and amendment, is the text of the Guarantee in the form in which it will appear on each Bond.

KBC Bank NV (the “Guarantor”), pursuant to a resolution of its Executive Committee adopted on 10th September, 2002, hereby unconditionally and irrevocably guarantees to the holder of this Bond issued on the date specified as such on the front side thereof by KBC Internationale Financieringsmaatschappij N.V. (the “Issuer”) the payment of the principal of said Bond and to the holder of any Coupon appertaining to said Bond the payment of interest thereon, when and as the same shall become due and payable (including any additional amounts required to be paid according to the terms of said Bond) in accordance with the terms thereof. In case of the failure of the Issuer punctually to make any such payment, the Guarantor hereby undertakes to cause such payment to be made punctually when and as the same shall become due and payable, whether at maturity, upon redemption by acceleration of maturity or otherwise, as if such payment were made by the Issuer in accordance with the terms thereof. The Guarantor hereby waives any requirement that the holder of said Bond or the holder of any of said Coupons, in the event of any default in such payment by the Issuer, first make demand upon or seek to enforce remedies against the Issuer before seeking to enforce this Guarantee; agrees that its obligations under this Guarantee shall be unconditional and irrevocable, irrespective of the validity, regularity or enforceability of said Bond or any of said Coupons, the absence of any action to enforce the same, any waiver or consent by the holder of said Bond or the holder of any of said Coupons with respect to any provisions thereof, the recovery of any judgment against the Issuer or any action to enforce the same, any consolidation, merger, conveyance or transfer by the Issuer or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor; and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in said Bond, any of said Coupons and this Guarantee.

The rights of the holder of said Bond and the holder of any of said Coupons under this Guarantee are and shall be direct and unconditional obligations of the Guarantor and shall in the event of liquidation (meaning any event creating a “samenloop van schuldeisers”, including “vrijwillige vereffening”, “gerechtelijk akkoord” or “faillissement” under the laws of Belgium) of the Guarantor be subordinated in right of payment to the claims of depositors and all other unsecured creditors of the Guarantor (other than creditors in respect of indebtedness which is subordinated to at least the same extent as the Guarantee).

The Guarantor agrees that it will comply with and be bound by all provisions contained in the terms and conditions of said Bond which are expressed to relate to it as if such provisions were set out in full in this Guarantee and that for the purposes of such terms and conditions this Guarantee and that for the purposes of such terms and conditions this Guarantee forms part of said Bond.

The Guarantor will not exercise any right of subrogation against the Issuer pursuant to this Guarantee or take any other action to assert claims it may have against the Issuer until all of the principal of, and interest, on the Bonds (including any additional amounts required to be paid pursuant to the terms and conditions of the Bonds) is paid.

The provisions of this Guarantee shall be governed by and construed in accordance with the laws of the Grand Duchy of Luxembourg, except for the subordination provisions which shall be governed by the laws of the Kingdom of Belgium. The holder of said Bond and the holder of any of said Coupons shall be free to enforce his rights against the Guarantor in the courts of the Grand Duchy of Luxembourg and/or in the courts of Belgium, to the non-exclusive jurisdiction of which the Guarantor hereby irrevocably submits. For the purpose of any action or proceeding brought in the Grand Duchy of Luxembourg in connection with this Guarantee, the Guarantor hereby elects domicile at the principal office of Kredietbank S.A. Luxembourgeoise for all acts, formalities or procedures.

KBC Bank NV

21 DESCRIPTION OF THE ISSUER

KBC INTERNATIONALE FINANCIERINGSMAATSCHAPPIJ N.V.

KBC Internationale Financieringsmaatschappij N.V. (the “Issuer” or “KBC IFIMA N.V.”), a wholly owned subsidiary of the Guarantor, was incorporated in The Netherlands on 15th April, 1982 for an indefinite duration in the form of a limited liability company. The registered office of the Issuer is at Westersingel 88, 3015 LC Rotterdam, The Netherlands. The Issuer assists in the financing of the activities of companies belonging to the KBC Group (as defined on page 26). The Issuer has a 100 per cent. investment in KBC International Finance N.V., Curaçao and a 100 per cent. investment in Cerinvest N.V. Rotterdam (as of 21st November, 2001) .

Management The Issuer is managed by a Management Board, which is supervised by a Supervisory Board. The members of the Management Board and the members of the Supervisory Board may be appointed by the General Meeting of Shareholders.

Management Board G. Libot Wassenaar, The Netherlands

J.J.M. Sluijter Breda, The Netherlands

Supervisory Board L. Philips Managing Director of KBC Bank NV Steenokkerzeel, Belgium

P. Roppe Global Treasurer of KBC Bank NV Braine-L’Alleud, Belgium

Auditor As of 1st January, 2001 the auditors of KBC Internationale Financieringsmaatschappij N.V. are Ernst & Young Accountants, Drentestraat 20, 1083 HK Amsterdam, The Netherlands.

The Issuer publishes annual non-consolidated audited financial statements.

22 CAPITALISATION OF KBC IFIMA N.V.

The following table sets out the unaudited capitalisation of the Issuer as at 30th June, 2002.

As of 30th June, 2002(1) (euro) Stockholders’ Equity Subscribed and paid-up share capital(2) ...... 4,803,263 Retained earnings ...... 2,939,108 Earnings for the period ...... 756,500 Interim Dividend ...... – ––––––––––––––– 8,498,871 Long-term-Liabilities Loans contracted...... 5,144,435,495 Current Liabilities Other liabilities ...... 211,080,583 ––––––––––––––– Total Capitalisation ...... 5,364,014,949 –––––––––––––––

(1) There has been no material change in the capitalisation of the Issuer since 30th June, 2002. (2) The authorised share capital of the Issuer consists of 50,000 common shares of NLG 1,000 each. 10,585 shares have been issued and paid up in full; all of those shares have been issued to KBC Bank NV.

23 BALANCE SHEET OF KBC IFIMA N.V. (before appropriation of profit)

31st December, 31st December, 30th June, 2000 2001 2002 (unaudited) (euro) (euro) (euro) Fixed assets Tangible fixed assets...... 2,571 3,482 6,681 Financial fixed assets ...... 511,578,112 2,943,227,136 5,151,973,701 ––––––––––––––– ––––––––––––––– ––––––––––––––– 511,580,683 2,943,230,618 5,151,980,382 Current assets Loans falling due within one year ...... 251,564,919 63,760,217 157,113,318 Interest receivables and accrued expenses ...... 23,333,659 50,601,314 53,378,947 Deposits...... 100,484 – – Cash ...... 761,101 1,474,070 1,542,302 ––––––––––––––– ––––––––––––––– ––––––––––––––– 275,760,163 115,835,601 212,034,567 Total assets ...... 787,340,846 3,059,066,219 5,364,014,949 ––––––––––––––– ––––––––––––––– –––––––––––––––

31st December, 31st December, 30th June, 2000 2001 2002 (unaudited) (euro) (euro) (euro) Capital and reserves Paid-in and called-up share capital ...... 4,537,802 4,803,263 4,803,263 Retained earnings...... 1,204,644 2,939,108 3,695,608 ––––––––––––––– ––––––––––––––– ––––––––––––––– 5,742,446 7,742,371 8,498,871 Long-term liabilities...... 506,532,702 2,935,908,481 5,144,435,495

Current liabilities Issued bonds falling due within one year ...... 251,564,919 63,760,217 157,113,322 Other current liabilities ...... 23,500,779 51,655,150 53,967,261 ––––––––––––––– ––––––––––––––– ––––––––––––––– 275,065,698 115,415,367 211,080,583 Total liabilities ...... 787,340,846 3,059,066,219 5,364,014,949 ––––––––––––––– ––––––––––––––– –––––––––––––––

24 PROFIT AND LOSS ACCOUNT OF KBC IFIMA N.V.

The following table set out the Profit and Loss Account of the Issuer for the years ended 31st December, 2000 and 2001 and for the six-months ended 30th June, 2002

31st December, 31st December, 30th June, 2000 2001 2002 (unaudited) (euro) (euro) (euro) Net income from financing activities Interest income ...... 29,824,472 168,188,213 97,347,708 Interest expense ...... 29,463,291 167,588,620 96,445,953 ––––––––––––––– ––––––––––––––– ––––––––––––––– 361,181 599,593 901,755 Other interest income ...... 368,172 362,391 169,021 ––––––––––––––– ––––––––––––––– ––––––––––––––– Gross margin ...... 729,353 961,984 1,070,776 General and administrative expenses ...... (114,158) (187,791) (117,061) Income from participating interests ...... 100,000 389,527 132,785 ––––––––––––––– ––––––––––––––– ––––––––––––––– Profit before taxation ...... 715,195 1,163,720 1,086,500 Corporation tax ...... (250,445) (270,967) (330,000) ––––––––––––––– ––––––––––––––– ––––––––––––––– Net profit for the period ...... 464,750 892,753 756,500 ––––––––––––––– ––––––––––––––– –––––––––––––––

25 DESCRIPTION OF THE GUARANTOR

KBC BANK NV

References to KBC Group are to KBC Bank and Insurance Holding Company NV and its consolidated subsidiaries

I. Creation KBC Bank NV (“KBC Bank”), a wholly-owned subsidiary of the KBC Bank and Insurance Holding Company NV (“KBC Holding”), was incorporated in Belgium in June 1998 for an indefinite duration in the form of a limited liability company and operates under the laws of Belgium. KBC Bank was formed through the merger of the banking operations of the Almanij (Algemene Maatschappij voor Nijverheidskrediet)-Kredietbank Group and CERA Bank CV (“CERA”). The merger combined the operations of four Belgian banks: Kredietbank NV (“Kredietbank”), CERA, Bank van Roeselare NV and CERA Investment Bank CV (“Cera Investment”).

KBC Bank and its consolidated subsidiaries operate all of the banking operations of the KBC Group. KBC Bank is registered as a credit institution with the Belgian Banking and Finance Commission (Commissie voor Bank- en Financiewezen) (the “CBF”).

II. Brief description of activities (“business areas”) The activities of KBC Bank can be broken down into four major business areas: retail and private bancassurance, corporate services, asset management and market activities, as well as a fifth Central European business area, reflecting KBC Bank’s focus on the development of its businesses in this region. KBC Bank provides segmented financial information for each of these five business areas.

Retail and private bancassurance covers the banking activities (including those pursued via electronic channels) of KBC Bank’s branches and agents which cater to private persons, the self-employed and local businesses (retail bancassurance) and to high-net-worth individuals (private bancassurance).

Corporate services comprise all banking services provided to corporate customers. This includes the domestic corporate and multinational segments, most of the activities carried on in the international network and the niche activities of such specialised subsidiaries as the Antwerpse Diamantbank NV, International Factors NV and the corporate finance activities of KBC Securities NV.

Asset management is the business of managing the assets of private persons, of institutional investors, and of investment funds that are sold primarily via the retail network.

Market activities comprise the activities of KBC Bank’s dealing rooms in Belgium and abroad, the market activities of KBC Securities NV and all the activities engaged in by the KBC Financial Products group (“KBC Financial Products”), KBC Clearing NV and KBC Peel Hunt Plc .

Central Europe comprises all retail bank services, corporate services, asset management and market activities in the Czech Republic, Slovakia, Hungary, Poland and Slovenia.

26 The table below provides an overview as at 30th June, 2001 (six months), 31st December, 2001 (full year) and 30th June, 2002 (six months) of the profit contribution and return on equity figures per business area. The methodology is described in the ‘Half-year report 1H2002’ of KBC Group, page 16.

Retail and private Asset bancas- Corporate Manage- Market Central Group Total Banking urdnce services ment Activities Europe Item 30-06-2001 (6 months)(1) Profit contribution EUR mln 71.0 123.7 43.0 83.9 86.8 40.5 449.0 % of total 15.8% 27.6% 9.6% 18.7% 19.3% 9.0% 100.0% Return on allocated equity 7.3% 9.6% – 16.0% 15.5% – 11.4% 31-12-2001 (full year) Profit contribution EUR mln 51.5 215.0 95.1 46.5 131.1 158.4 697.6 % of total 7.4% 30.8% 13.6% 6.7% 18.8% 22.7% 100.0% Return on allocated equity 2.7% 8.6% – 4.1% 8.2% – 9.9% 30-06-2001 (6 months) Profit contribution EUR mln 48.3 133.7 57.1 51.3 119.9 11.2 421.5 % of total 11.5% 31.7% 13.5% 12.2% 28.4% 2.7% 100.0% Return on allocated equity 4.9% 12.1% – 9.0% 14.4% – 10.4% Profit contribution is including minority interests; in the calculation of the ROE, FGBR is seen as profit. (1) Due to changed methodology, figures differ from those published in the “Half-Year Report 1H2001”.

III. Network Domestic network In its domestic market (Belgium), KBC Bank engages primarily in retail and private bancassurance through the network of bank branches and agents in Belgium (of KBC Bank NV, CBC Banque SA and Centea NV) and KBC Lease NV; in corporate banking via its corporate branches, multinationals division, structured finance divisions and various specialised subsidiaries (such as Antwerpse Diamantbank NV, International Factors NV and Fin-Force NV); in asset management via its subsidiary KBC Asset Management NV; and in securities brokerage, derivatives trading, capital markets activities and clearing via its dealing rooms and a number of specialised subsidiaries (such as KBC Financial Products Brussels NV and KBC Securities NV).

KBC Bank’s domestic branch network consists of the branches of KBC Bank NV (in the Dutch-speaking part of Belgium) and CBC Banque SA (“CBC Banque”) (in the French-speaking part of Belgium), as well as the network of Centea NV agents. As at 30th June, 2002, KBC Bank NV and CBC Banque had a total of 1,223 branches, while Centea NV had 930 agents. The domestic (i.e. Belgian) branch network is divided into retail outlets, corporate outlets and private banking outlets.

International network Internationally, KBC Bank has established businesses in Central Europe, in which it is developing retail, corporate, asset management and market activities.

v v The Central European subsidiaries are Ceskoslovenská Obchodní Banka a.s. (“CSOB”) and Patria Finance a.s. in the Czech and Slovak Republics, Kereskedelmi és Hitelbank Rt. (“K&H Bank”) in Hungary and Kredyt Bank SA in Poland. On 6th September, 2002, KBC acquired a minority stake in Nova Llubljanska banka (“NLB”) in Slovenia.

Besides Central Europe, KBC Bank has representative offices or branches in a number of countries, which are predominantly active in corporate banking. Further details are set out in the “Corporate Services” section below.

KBC Bank’s majority-owned subsidiaries are also active in a wide range of activities, from retail and corporate banking to asset management and market activities. As at 30th June, 2002, the main majority-owned

27 subsidiaries with a presence outside of Belgium and Central Europe were: KBC Bank Deutschland AG in Germany; KBC Bank Nederland NV in the Netherlands; IIB Bank Ltd and KBC Finance Ireland in Ireland; KBC (Singapore) Ltd. in Singapore; KBC Securities NV, with outlets in France, the Netherlands and the United States; KBC Financial Products with outlets in the United States, the United Kingdom, France, Hong Kong, Italy and Japan; KBC Lease NV, with outlets in the Netherlands, Germany, Luxembourg, the United Kingdom and France; KBC Clearing NV in the Netherlands; KBC Asset Management NV with a subsidiary in Ireland; KBC Peel Hunt Plc. in the United Kingdom; and Antwerpse Diamantbank NV, with a subsidiary in Switzerland.

At 30th June, 2002, KBC Bank was present via its foreign establishments in approximately 30 countries outside Belgium.

Size and ranking As at 30th June, 2002, KBC Bank’s consolidated assets came to approximately 212 billion EUR (216 billion EUR 31st December, 2001). Figures relate to the ‘banking business’ of the KBC Group. Together with its domestic subsidiaries, KBC Bank had roughly 3 million banking customers in Belgium and approximately 5.6 million banking customers in Central Europe (NLB included, see below). At 30th June, 2002, KBC Bank had 13,386 employees (full-time equivalents, excluding employees of its subsidiaries and excluding the employees that were transferred to KBC Holding (around 2000)) and 38,028 including employees of its majority-owned subsidiaries (full-time equivalents, excluding the employees that were transferred to KBC Holding).

As at mid 2002, KBC Bank was one of the top-three banks in Belgium (together with Fortis and Dexia). It is one of the largest asset managers in Belgium and is a market leader in securities and derivatives activities.

IV. Detailed business description Figures regarding the contribution to net profit relate to the “banking business” of the KBC Group. Various adjustments were made in the methodology of calculating the performance figures regarding the activities of KBC Bank in 2001. The methodology is described in the ‘Half-year report 1H2002, page 16.

1. Retail and Private Bancassurance. Business area description “Retail and private bancassurance” covers the banking activities (including those pursued via electronic channels) of KBC Bank’s branches and agents that cater to private persons, the self-employed and local businesses (retail bancassurance) and to high-net-worth individuals (private bancassurance).

Performance As at 31st December, 2001, this business area accounted for 7.4 per cent. (51.5 million EUR, including minority interests) of the total consolidated group profit of KBC Bank. For 2000, the corresponding figures are 13.5 per cent. and 120.5 million EUR, respectively (in calculating these figures, capital gains realised on the sale of the stake in Crédit Commercial de France (“CCF”) were not taken into account).

As at 30th June, 2002, this business area accounted for 11.5 per cent. (48.3 million EUR, including minority interests) of the total consolidated group profit of KBC Bank. For 30th June, 2001, the corresponding figures are 15.8 per cent. and 71.0 million EUR, respectively.

Network Branch network. As at 30th June, 2002, retail clients were offered retail services in Belgium through a network of 1,165 retail branches, including the branches of CBC Banque. Retail customers have been subdivided into private individuals, “top” private individuals (individuals who generate higher-than-average profits for KBC Bank), young people, the self-employed and professionals, small and medium-sized businesses, agricultural and horticultural businesses and small and medium-sized public sector entities. In addition, the domestic

28 subsidiary Centea NV, a savings bank, has a network of 930 agents, primarily in the Dutch-speaking part of Belgium. KBC Bank is currently restructuring its banking operations with a view to maximising synergies. As part of this restructuring programme, KBC Bank aims to reduce the number of its domestic retail branches to less than 850 in 2004. The branches operate as independent commercial and accounting units and are primarily commercial outlets, which will be freed from as much non-revenue-generating administrative work as possible. In addition to the usual bank counters and consultation areas where advice can be provided to customers, 24-hour automated banking facilities are being introduced. KBC Bank also provides relationship banking services to a select target group of high-net-worth individuals through a network of 28 specialised private banking branches (both of KBC Bank and CBC Banque). These branches are located throughout Belgium. The specialised and personalised service covers all aspects of asset management and investment advice.

Integration of the IT networks of the merged entities. The KBC Group is continuing the task of integrating the various operational systems of the merged entities. The new computer platform for the banking business is based on the platform used by the former CERA Bank. The migration of customers to the new platform started in 2000. The process is fully automated, with a view to ensuring error-free transfers and allowing large volumes to be handled during the “overnight migrations”. As a result of the integration process, KBC Bank may continue to incur merger-related costs for several years to come. At mid 2002, approximately 80 per cent. of KBC Bank’s customers (personal and corporate) had been transferred to the new information technology (“IT”) platform.

Electronic distribution channels A “Remote Banking and Insurance Division” (“BVA”) has been set up, which is responsible for all alternative distribution channels including telephone and on-line banking. KBC Bank intends to continue to develop the BVA to support the branch network.

Teller machines, the telecentre and phone banking. The branch network is supplemented by 1,115 (as at 30th June, 2002) automated “KBC Matic” teller machines that allow customers to make fund transfers and receive account statements. In addition to the KBC Matic automated teller machines, KBC Bank has introduced the “KBC-Telecenter,” which allows customers to effect most current transactions, including securities trading, by phone. Customers who want to do their banking business directly by phone are offered “KBC-Phone” and “Tele-KBC-Foon” facilities.

Internet banking. Following the strategic decision taken in 1999 to step up KBC Bank’s investment in Internet banking, various e-business programmes were launched for private persons, top-drawer clientele, local businesses, corporate customers and institutional investors. On the KBC web site visitors can find a variety of information and can carry out loan-, investment- and insurance-related simulations. In June 2002, the number of visits to the KBC Web site per month hit 1,856,000 (compared to 420,000 in December 2000). 2001 furthermore saw the creation of a separate web site with specialised information for professionals and investors (www.kbc.com). PC and Internet banking can be done via “KBC-Online”. Using KBC-Online, customers can, for example, retrieve account information, transfer funds, create reports and payee files, buy investment funds and place buy and sell orders on different stock exchanges. Furthermore, via “My KBC” users are enabled to retrieve personalised information via e-mail, SMS (Short Message Service) and WAP (Wireless Application Protocol) technology.

The numerous packages for businesses include the KBC Payment Button, for safe and swift payment via the Internet; Banxafe, jointly developed security technology for online Proton, Visa, MasterCard and Bancontact transactions; and Isabel, a software tool enabling companies to automate their financial transactions.

Market share KBC Bank estimates that, in Belgium and as at 30th June, 2002, it had a 26.2 per cent. share of the consumer credit market, a 25.7 per cent. share of the home loan market, a 19.5 per cent. share of the deposit book market, a 17.4 per cent. share of the saving certificates market (including subordinated retail certificates) and a 29.6 per cent. share of the in investment fund market in Belgium.

29 Bancassurance KBC Bank offers certain insurance products through its branch network. In line with the KBC Group’s bancassurance strategy, the branches sell standardised insurance products that are aimed at individuals who do not require specialist advice. The branches refer requests for non-standard products to the agents of KBC Insurance NV (“KBC Insurance”). Claims processing is handled by the agents, a call centre and KBC Insurance’s head office and not by the branches.

In the first half of 2002, over 90 per cent. of the premium income (direct business) of the KBC Group’s life assurance business was sold via the bank channel. For non-life insurance, the corresponding figure is 8.9 per cent.

Securitisations In 2001, KBC Bank securitised a 650 million EUR portfolio of home loans owned by IIB Homeloans and Finance Ltd. (a subsidiary of IIB Bank Ltd.).

2. Corporate Services Business area description Corporate services comprise all banking services provided to corporate customers. This includes the domestic corporate and multinational segments, most of the activities carried on in the international network and the niche activities of such as specialised subsidiaries as the Antwerpse Diamantbank NV, International Factors NV, and the corporate finance activities of KBC Securities NV.

Performance As at 31st December, 2001, this business area accounted for 30.8 per cent. (215.0 million EUR, including minority interests) of the total consolidated group profit of KBC Bank. For 2000, the corresponding figures are 18.7 per cent. and 167.3 million EUR, respectively (in calculating these figures, capital gains realised on the sale of the stake in CCF were not taken into account).

As at 30th June, 2002, this business area accounted for 31.7 per cent. (133.7 million EUR, including minority interests) of the total consolidated group profit of KBC Bank. For 30th June, 2001, the corresponding figures are 27.6 per cent. and 123.7 million EUR, respectively.

Network Corporate branch network in Belgium. KBC Bank’s domestic corporate clients are served via the 17 corporate branches of KBC Bank NV (down from 19 as of the end of 2001) and also via the 13 “succursales” of CBC Banque. The KBC Bank branches provide customised service and advice through relationship managers who work closely with the corporate customer. Each relationship manager handles a limited number of accounts and acts as the customer’s direct contact.

Services to multinational customers. The relationships with a select group of (as at the end of 2001) 70 multinationals are managed by a Multinationals Division. The aim is to enter into long-term relationships with these customers, taking on important commitments for lending and other international activities, including trade finance, project finance and derivatives. Naturally, the division co-operates in many cases with other specialised KBC Group units, such as “Structured Finance”.

Specialised services in Belgium and abroad: KBC Bank is positioning itself as a major payments bank in the euro zone and has developed extensively automated and efficient payment systems. In 2000, KBC Bank and Electronic Data Systems Inc. (“EDS”), established Fin-Force NV (90 per cent. owned by KBC Bank and 10 per cent. owned by EDS), which, besides processing international payments for KBC Bank, offers other banks the opportunity to entrust it with all or some of their international payments processing under their own label.

KBC Bank is also active in other specialised services such as international cash management, trade finance, foreign trade finance, real estate operations (including real estate securitisation, real estate investment and

30 project development), leasing (via its subsidiary KBC Lease), factoring (via International Factors NV, a joint- venture with Bank Brussel Lambert), derivatives, corporate finance, structured finance (project finance, structured trade finance and aerospace finance) and diamond financing (through the subsidiary Antwerpse Diamantbank NV).

International network. KBC Bank offers a variety of banking products and financial services, including some of the specialised services mentioned above, through its international network of representative offices, branches and subsidiaries. As at 31st December, 2001, loans and advances to foreign borrowers represented approximately 44 per cent. (38.0 billion EUR) of total loans and advances to customers. As at 30th June, 2002, this was 46 per cent. and 41.0 billion EUR, respectively. Most units in the international network focuses on serving corporate customers, as described below. The establishments that focus on other areas (such as markets or Central Europe) are described in other sections.

As at 31st December, 2001, KBC Bank (excluding its subsidiaries) had representative offices in Iran, Italy, Turkey, Malaysia (a marketing office), and Mexico. It has branches engaging mainly in corporate banking in France, the Netherlands, the UK, Ireland, the USA, Hong Kong, Singapore, Taiwan, China, India (see below), Malaysia and the Philippines. The branches in Western Europe cater primarily to large domestic and international enterprises, as well as Belgian customers operating in these regions. The branch situated in the International Financial Services Centre in Dublin deals mainly with syndicated loans and asset-based swaps. The branch in the United States caters to the top 1,000 US companies and has a share of the credit enhancement market for cities, municipalities, hospitals etc. Besides the branch in New York City, there are loan-producing offices in Los Angeles and Atlanta. The various branches in China and Southeast Asia focus mainly on providing trade finance and serving a selection of large enterprises and network customers doing business in the region.

In 2001, the international network was further rationalised by, among other things, the closure of the KBC Bank branch in Frankfurt (with the bulk of its customers being acquired by KBC Bank Deutschland), the conversion of the representative office in Munich into a fully fledged KBC Bank Deutschland branch, the consolidation of eight KBC Bank Nederland corporate branches into three regional branches, and the closure of the representative offices in Johannesburg (Sandton) and Madrid (in Spain, KBC Bank has a network desk at Banco Urquijo to serve its customers). In addition, KBC Bank converted its representative office in Nanjing (People’s Republic of China) into a fully operational branch, the third such establishment of its kind in that country, following the opening of branches in Shanghai and Shenzen. Located in the prosperous Jiangsu province, KBC Bank Nanjing branch targets an existing customer base of companies with international partners, as well as local enterprises and financial institutions. Lastly, the Monetary Authority of Singapore announced at the end of 2001 that it was granting wholesale banking privileges to the KBC Bank branch in Singapore, to take effect beginning in 2002. Among other things, this will enable KBC Bank Singapore branch to step up its lending in Singapore dollars (SGD) and provide a wide range of treasury services linked to the SGD.

In the first half of 2002, additional changes were made in the international network by, among other things, closing of the representative office in Cairo, further transforming the Mumbai branch (India) into a representative office, the start of the physical relocation (which should be completed by the end of the year) at one and the same address of a number of KBC entities located throughout London. Specifically, this will affect KBC Bank’s London branch, Structured Trade Finance, KBC Financial Products UK and KBC Peel Hunt. In addition, the activities of KBC Bank Nederland (KBCN – see below) were repositioned. KBCN now intends to concentrate its corporate banking activities on providing relationship management and operational support to the corporate ‘network customers’ of the KBC Group from a central corporate branch in Rotterdam. It is intended that KBCN will provide products and services to both the Dutch subsidiaries and the Dutch parent companies of corporate customers with which the KBC Group already has an established relationship either in Belgium or elsewhere. Retail services will be gradually phased out by the end of 2003 at the latest. KBC Bank also intends to transfer the dealing room activities in Amsterdam to the central dealing room in Brussels.

In February 2002, KBC Bank’s Shanghai branch received a ‘Local Currency Licence’ from the People’s Bank of China. This will give KBC Bank the opportunity to provide services in China in local currency (Renminbi).

KBC Bank has subsidiaries focusing on corporate banking in Germany, the Netherlands and Ireland.

31 In Ireland, KBC Bank’s fully-owned subsidiary IIB Bank Ltd is primarily a merchant bank engaging in a variety of activities, including lending, providing financial solutions for the real estate sector, market activities and private banking. It also provides back office services to the KBC Bank Dublin branch and KBC Finance Ireland, both of which are established in the International Financial Services Centre. IIB Bank Ltd is, via its subsidiary IIB Homeloans and Finance Ltd, also active on the Irish retail market (home loans and consumer credit). Through KBC Finance Ireland, specialised finance services such as project, structured trade and aerospace finance are provided.

In Germany, KBC Bank’s wholly-owned subsidiary, KBC Bank Deutschland AG, operates through a limited network of branches and focuses primarily on medium-sized to large companies, private individuals (private banking), banks and Belgian companies operating in Germany. KBC Bank Deutschland AG also set up a Central European Desk, which specialises in services to a number of German companies operating in Central Europe, and in providing assistance and guidance to Central European companies active in the German market.

In the Netherlands, KBC fully owns the subsidiary KBC Bank Nederland NV. The repositioning of the activities of this subsidiary are explained above.

Besides being active in Belgium, KBC Bank’s subsidiary, KBC Lease NV, also engages in leasing activities, mainly vendor activities (providing a financing and/or marketing tool to vendors via the refinancing of lease contracts, and enabling them to offer leasing options at the time of purchase etc.), via a number of subsidiaries in various Western European countries.

KBC Bank’s global structured finance activities (project finance, structured trade finance and aerospace finance) are supported via a network of business units in (besides Belgium) the UK, the US, Hong Kong, Australia and Ireland. As regards “project finance”, KBC Bank was, as at 31st December, 2001, involved in approximately 240 projects in 60 countries, spread over a range of industry sectors of which “energy” was the most important. As regards structured trade, KBC Bank is often involved in “performance risk” credits and benefits from support, where appropriate, from OECD government export credit agencies. In general, performance risk involves financing the export of commodities from “emerging market” countries to OECD- based buyers under firm purchase contracts. As regards “aerospace finance”, the bulk of the portfolio is secured by mainly new-generation aircraft. In 2001, KBC Bank decided to scale down the shipping finance activities of KBC Finance Ireland.

Main new acquisitions and participation changes in 2001 and the first half of 2002 At the start of 2001, KBC Bank acquired Investco from Almanij and integrated its venture capital activities into those of KBC Invest, which carried out the private equity activities of the KBC Group. The resulting newly formed KBC Investco has approximately a dozen specialized investment managers and operates primarily in Belgium, France and the Netherlands, providing venture capital in the form of equity and mezzanine finance (such as loans with warrants). In 2001, KBC Investco participated in ten new projects, with total assets of over 300 million EUR being invested in venture capital operations as at the end of the year.

At the beginning of 2002, an agreement was concluded with Henfin Holding (De Beers) concerning the sale of its 12.83 per cent. stake in the Antwerpse Diamantbank NV (ADB) to KBC Bank. As a result of this operation, KBC Bank now owns virtually all of ADB.

Securitisations In 2001, KBC Bank securitised 2.0 billion EUR worth of commercial loans and bonds of its Belgian and international corporate portfolio by way of a synthetic “Collateralised Loan Obligation”. KBC Bank intends to continue to use this technique in the future for the active management of its capital base and to improve its profitability ratios.

In the first half of 2002, KBC Bank through its subsidiary KBC Financial Products also sponsored a ‘managed Collateralized Debt Obligation’ (see below under ‘Market Activities’)

32 3. Asset Management Business area description Asset management comprises the business of managing the assets of private persons, of institutional investors and of investment funds that are sold primarily via the retail network.

Performance As at 31st December, 2001, this business area accounted for 13.6 per cent. (95.1 million EUR, including minority interests) of the total consolidated group profit of KBC Bank. For 2000, the corresponding figures are 12.2 per cent. and 108.7 million EUR, respectively (in calculating these figures, capital gains realised on the sale of the stake in CCF were not taken into account).

As at 30th June, 2002, this business area accounted for 13.5 per cent. (57.1 million EUR, including minority interests) of the total consolidated group profit of KBC Bank. For 30th June, 2001, the corresponding figures are 9.6 per cent. and 43.0 million EUR, respectively.

Assets under management KBC Asset Management NV manages investment funds (known in Belgium as Undertakings for Collective Investment or “UCIs”), including pension-savings funds, and provides asset management services and investment advice to private individuals and institutional clients.

Since the first half of 2000, the KBC Group started to spin off its asset management activities into KBC Asset Management NV, a company that was established on 30th December, 1999 and which incorporates, among other things, the former KBC Asset Management & Investments Directorate. With this move, KBC Bank has responded to the trend for asset managers to operate independently. The services offered by KBC Asset Management NV include individual asset management, institutional asset management (pension funds, insurance companies, social security funds, corporate liquidity management), as well as collective asset management, backed by research, product development, advisory, management and marketing support.

At 30th June, 2002, KBC Asset Management NV had a total of 66.1 billion EUR assets under management. Compared to 31st December, 2001, this is a decrease of 2.7 per cent, the result of a small volume increase combined with a decline in the value of the funds themselves (related to the the difficult stock market conditions).

Retail UCIs went down 4.4 per cent, the result of volume growth of 3.5 per cent. and a decline in the value of the funds themselves (a decrease of 7.9 per cent. on average). The larger part of the decline was accounted for by equity funds (a decrease of 17.5 per cent, due to a 20.4 per cent. drop in value and a small net volume increase of 2.9 per cent). Remarkable growth was noted in capital-guaranteed, fixed-income funds (an increase of 17.4 per cent) and money market funds (an increase of 17.0 per cent), which was accounted for almost entirely by an increase in volume.

Assets managed for institutional investors remained fairly stable. Institutional funds almost 10 per cent, predominantly due to the success of institutional cash funds (40 per cent. volume growth).

33 Assets under management can be broken down as follows:

Assets under management at KBC AM 31st 31st December, December, 30th June, 2000 2001 2002 Change (in millions of EUR) Retail UCIs Equity funds ...... 9,473 8,192 6,760 -17.5% Bond funds ...... 4,784 5,121 4,956 -3.2% Mixed funds ...... 4,628 5,437 5,451 0.3% Capital-guaranteed fixed-income funds...... 1,786 3,239 3,802 17.4% Capital-guaranteed equity funds ...... 13,397 13,310 12,955 -2.7% Money market funds ...... 974 1,044 1,222 17.0% Unit-linked products ...... 1,950 2,560 2,328 -9.1% Funds of funds ...... 3,175 3,171 2,748 -13.4% –––––––––––– –––––––––––– –––––––––––– –––––––––––– Total ...... 40,168 42,075 40,222 -4.4% –––––––––––– –––––––––––– –––––––––––– –––––––––––– Assets managed for institutional investors Institutional funds ...... 2,879 3,179 3,497 10.0% Third-party assets ...... 3,462 3,852 4,054 5.3% Group assets ...... 9,382 8,945 9,307 4.1% KBC Asset Management Limited (Ireland) ...... 8,594 8,284 7,358 -11.2% –––––––––––– –––––––––––– –––––––––––– –––––––––––– Total ...... 24,317 24,260 24,217 -0.2% –––––––––––– –––––––––––– –––––––––––– –––––––––––– Assets managed for private persons Discretionary management ...... 975 1,579 1,623 2.8% –––––––––––– –––––––––––– –––––––––––– –––––––––––– Total assets under management Total ...... 65,460 67,913 66,061 -2.7% –––––––––––– –––––––––––– –––––––––––– ––––––––––––

Note: due to minor changes in classification methodology, some subtotals may differ slightly from those shown in previous reports.

In 2001, KBC Asset Management NV introduced 94 new investments on the Belgian market and two on the Czech market. During the first half of 2002, KBC Asset Management NV launched 50 new investment funds. In addition to this number, it introduced several funds for third parties (for which it handles both the investment management and fund administration services).

At 31st December, 2001, KBC Asset Management NV’s market share of the UCI market in Belgium was estimated at 29.3 per cent. As at 30th June, 2002, it had risen further to 29.6 per cent.

4. Market Activities Business area description Market activities comprise the activities of KBC Bank’s dealing rooms in Belgium and abroad, the market activities of KBC Securities NV and all the activities engaged in by KBC Financial Products, KBC Clearing NV and KBC Peel Hunt Plc.

Performance As at 31st December, 2001, this business area accounted for 6.7 per cent. (46.5 million EUR, including minority interests) of the total consolidated group profit of KBC Bank. For 2000, the corresponding figures were 25.6 per cent. and 228.2 million EUR, respectively (in calculating these figures, capital gains realised on the sale of the stake in CCF were not taken into account).

34 As at 30th June, 2002, this business area accounted for 12.2 per cent. (51.3 million EUR, including minority interests) of the total consolidated group profit of KBC Bank. For 30th June, 2001, the corresponding figures were 18.7 per cent. and 83.9 million EUR, respectively.

Network KBC Bank’s market activities are conducted by the various dealing rooms and by the specialised subsidiaries KBC Securities NV, KBC Financial Products (including the former KBC Derivatives NV (“KBC Derivatives”), KBC Clearing NV and Peel Hunt Plc.

KBC Bank’s dealing rooms and debt capital markets. In 2001, proprietary trading with professional counterparties continued to be centralised as much as possible in Brussels. The shift in strategy by the dealing rooms abroad to focus on local or regional treasury and liquidity management, to expand sales and provide sales support, and to develop individual niche activities where possible, also met with success. In 2001, KBC Bank was an active player on the primary Eurobond market, participating in 380 internationally syndicated loans. In over 70 per cent. of these issues, KBC Bank acted as lead or co-lead manager. During 2001, it managed public loans for, among others, Erste Bank, NIB Capital Bank, Swedish Export Credit, Bekaert, Almanij, Kredietbank SA Luxembourgeoise, Koninkrijk België and Phoenix Funding Plc. KBC Bank was also active on markets in commercial paper (in Belgium, it has a share of approximately 25 per cent. of this market) and in medium-term notes (MTN), as well as in structured and non-structured private placements. Via KBC IFIMA N.V., KBC Bank placed floating- and fixed-rate debt instruments on the public market for its own account worth 2.26 billion euros in 2001.

In the first half of 2002, Global Treasury continued to implement its strategic priorities (i.a. shifting away from a trading to a sales focus), and despite a difficult and volatile environment, results were as budgeted. The sales activities increased volumes, focusing on custom-made products, both linear and non-linear. A new platform for offering Eurobonds has been developed via Bloomberg, and KBC offers a selection of 500 bonds on this platform. To support this activity, the research team also offers weekly news on credit research. KBC Bank issued floating rate notes worth 2.2 billion EUR in order to ensure its strategic liquidity, and also issued a Collateralized Debt Obligation (CDO – see below). In the first half of the year, Quasar Securitization Company NV (an SPV set up to acquire client liabilities and obtain the requisite funding on the CP market) became fully operational.

Specialised subsidiaries KBC Securities NV and KBC Financial Products KBC Securities group. KBC Securities, which is wholly-owned by KBC Bank, is Belgium’s largest stockbroking company, whose activities include equity trading for its own account, order execution, online investment for retail customers via “Bolero online”, full-service brokerage for institutional customers, and international investment banking services for companies and public authorities. In view of the important position KBC Securities has on Euronext Brussels and the liquidity it offers institutional investors in numerous Belgian shares, the weakening of equity activities in 2001 adversely affected the group’s equity-related business. Naturally, the stock market malaise also had an adverse impact on KBC Securities’ corporate finance activities. Nevertheless, KBC Securities succeeded in capturing the top spot for market share on Euronext Brussels for the fifth time in a row, and still figures among the leading foreign brokerages in France.

The difficult economic climate in the first half of 2002 continued to have an adverse impact on stock market volumes and also resulted in a decreasing number of mergers and acquisitions, which again had a negative impact on KBC Securities’ results for that period. Nevertheless, a number of successful deals were done in the first half of 2002. Among the public offerings brought to a successful conclusion by KBC Securities in Belgium were Almafin’s public bid for City Hotels and Almanij’s bid for Gevaert. Important mergers and acquisitions in Belgium included the take-over of Suikerfabriek van Veurne by Warcoing and the merger of Spector with Photo Hall. KBC Securities France handled important capital market transactions for Archos, OPEN and Morel & Prom. It is KBC Securities’ intention to strategically reposition itself, especially at its Paris outlet, and to focus even more than in the past on European small- and mid-caps.

KBC Financial Products group. KBC Derivatives was established in 1993 as a joint venture with Petercam NV, a Belgian brokerage firm. In December 1999, KBC Bank purchased the remaining 50 per cent. stake in KBC

35 Derivatives, making it a wholly-owned subsidiary of KBC Bank. The company specialises in the development, structuring, risk management and hedging of equity derivatives. Most of KBC Derivatives’ business is done with other financial institutions in Europe, for whom it provides a variety of hedging products. In the Benelux markets, KBC Derivatives is a warrant provider for the retail and institutional market.

KBC Financial Products was formed in 1999, from the acquisition by KBC Bank of the financial products businesses of D.E. Shaw & Co. L.P. KBC Financial Products is a leading market participant in the sale, structuring, syndication and trading of convertible bonds, warrants, equity and credit derivatives, structured notes and other equity-linked products. KBC Financial Products has branches in London, New York, Hong Kong, Tokyo, Paris and Madrid.

At the end of 2000, it was decided to combine the management, product expertise, client base and technology of KBC Financial Products and KBC Derivatives. On 1st January, 2001, KBC Derivatives NV was renamed KBC Financial Products Brussels NV, and all of KBC Bank’s convertibles and equity derivatives activities worldwide have been operating as KBC Financial Products.

The difficulties experienced on the equity and equity-linked markets in 2001 were clearly reflected in the results of the KBC Financial Products. Although its convertible bond business succeeded in significantly increasing trading revenues in both the US and Europe, trading revenues from Japan were down and those from Asia remained virtually unchanged. Moreover, the trading revenues from the equity derivatives business fell sharply, due to the bad performance of institutional transactions in Japan and Asia, and to retail transactions as a whole. KBC Financial Products Brussels N.V.’s result was seriously undermined by the market movements that followed the events of 11 September, a much higher level of volatility, the downward revision of the dividend outlook and other changed factors. Given the subdued market conditions, KBC Financial Products N.V. started rationalising its business activities, which included discontinuing its joint- venture to participate in the ISE (the electronic options exchange in the US). It diversified by establishing two new activities, a credit derivatives dealing business and a fund management business beginning with the establishment of a fund for arbitraging convertible bonds. It also stepped up its international presence by opening a representative office in Milan.

Despite the difficult market conditions that continued to prevail in the first half of 2002, KBC Financial Product’s results were satisfactory in that period. The convertible bond business performed robustly, with volumes remaining at a high level and revenues comparable to those earned in the first half of 2001. The derivatives business also performed well, with good contributions coming from the US and European markets. The credit derivatives business recorded very strong revenue growth during the first six months of the year. KBC Financial Products successfully launched its first managed synthetic CDO (Collateralized Debt Obligation – see below) and traded in excess of 5 billion USD in credit default swaps during this period. The risk profile of KBC Financial Products Brussels was reduced, and its result (which was negative in 2001) improved significantly. In addition, the convertible hedge funds that were launched in co-operation with KBC Asset Management last year resulted in strong growth in assets under management, with no less than 350 million USD being raised during the six-month period to take assets under management up to 850 million USD as of 30th June, 2002

Main new acquisitions and participation changes in 2001 and the first half of 2002 KBC Peel Hunt. At the end of February 2001, KBC successfully became the sole owner of Peel Hunt Plc (“Peel Hunt”). Peel Hunt is a British securities house for institutional investors that specialises in small and mid-cap companies. Its activities include corporate finance, research, agency sales, market making and private equity capital services. It also owns Rhine Securities, a London-based securities house specialised in German stocks.

At the start of 2002, the company name was changed to KBC Peel Hunt.

KBC Clearing. KBC Bank increased its shareholding in KBC Clearing (a clearing house for market makers, located in Amsterdam) from 75.0 per cent. to 94.9 per cent. Subsequent to this share purchase, KBC subscribed at the end of June to a capital increase at a rate proportionate to its shareholding. With this deal, KBC Bank reaffirmed its commitment to being a leading service-provider to specialized players (including market makers) on the options and futures exchanges.

36 Securitizations In the first half of 2002, KBC Financial Products sponsored a 1,335-million EUR ‘managed Collateralized Debt Obligation’ (CDO). KBC Financial Products acts as portfolio manager of the underlying assets, which included credit derivatives and (the underlying credit risk related to) corporate and convertible bonds.

5. Central Europe Business area description Central Europe comprises all retail bank services, corporate services, asset management and market activities in the Czech Republic, Slovakia, Hungary, Poland and, since 6th September, 2002, Slovenia.

Performance As at 31st December, 2001, this business area accounted for 18.8 per cent. (131.1 million EUR, including minority interests) of the total consolidated group profit of KBC Bank. For 2000, the corresponding figures were 10.0 per cent. and 89.0 million EUR, respectively (in calculating these figures, capital gains realised on the sale of the stake in CCF were not taken into account).

As at 30th June, 2002, this business area accounted for 28.4 per cent. (119.9 million EUR, including minority interests) of the total consolidated group profit of KBC Bank. For 30th June, 2001, the corresponding figures were 19.3 per cent. and 86.8 million EUR, respectively.

Network As at 30th June, 2002, KBC Bank was present in Central Europe via the following subsidiaries:

v v Ceskoslovenská Obchodní Banka a.s. (“CSOB”) in the Czech Republic and Slovakia, of which KBC Bank owns 84.01 per cent, after the take-over (as at 28th June, 2002) of the participation KBC Insurance held in this company. Since its take-over of the assets and liabilities of Investicvni Pojisvt’ovna a.s. (“IPB”), v CSOB is the leading financial institution in the Czech Republic, serving around 3.3 million customers via a network of 252 branches and about 3,400 points of sale in post offices. In the Czech Republic, v CSOB has an estimated market share of roughly 15 per cent. in lending and 24 per cent. in customer deposits. In Slovakia, its corresponding market share is 6 per cent. (loans) and 7 per cent. (customer v deposits). In addition, CSOB has a considerable share of the leasing, pension fund and mortgage loan markets, among others, in the Czech Republic, thanks to the activities pursued by its specialised subsidiaries. In 2001, agreement was reached with the Czech authorities regarding the implementation of the agreement concluded when IPB was acquired, especially in relation to the then specified state guarantees. The agreement stipulated, among other things, which IPB assets were to be retained by v v CSOB and which were to be taken over by the government (Ceská konsolidacní agentura). The actual v operational integration of IPB’s activities into CSOB, which started immediately after the acquisition, was virtually completed by the end of 2001. This was the main factor leading to an approximately 10 per v cent. reduction in the combined CSOB and IPB workforce in 2001.

Patria Finance a.s. in the Czech Republic, of which KBC Bank and KBC Securities NV together own 100 per cent. as at 31st December, 2001. Patria is active in the securities business, in corporate finance, asset management, capital-market transactions and venture capital finance.

Kereskedelmi és Hitelbank Rt. (K&H Bank) in Hungary, of which its owns 59.33 per cent. as at 30th June, 2002. In 2001, the merger of the former K&H Bank with the Hungarian subsidiary of ABN AMRO lead to the creation of the country’s second largest bank group (see further under “Main new acquisitions and participation changes in 2001 and the first half of 2002”).

Kredyt Bank S.A. (“Kredyt Bank”) in Poland, of which its owns, since the end of 2001, a majority stake. See further under “Main new acquisitions and participation changes in 2001 and the first half of 2002”.

Nova Llubljanska banka (“NLB”) in Slovenia. See further under “Main new acquisitions and participation changes in 2001 and the first half of 2002”.

37 The bankassurance concept will be (further) developed in this region by, among other things, the cooperation between the above-mentioned banks and the Central European insurance companies belonging to the KBC v Group (CSOB Pojisvt’ovna a.s. and IPB Pojisvt’ovna a.s (Czech Republic), K&H Life Rt. and Argosz Insurance Company Ltd. (Hungary), Agropolisa SA (Poland) and TUir Warta SA (Poland)).

Main new acquisitions and participation changes in 2001 and the first half of 2002 Merger of K&H Bank with ABN AMRO Magyar. On 1st July, 2001, the new K&H Bank was officially registered at the commercial court, signaling the completion of the legal merger between the old K&H Bank and ABN AMRO Magyar Bank. The new K&H Bank group is ranked second in Hungary, with around 550,000 customers and an estimated market share of 12.5 per cent. in lending and 12.6 per cent. in customer deposits as at mid 2002. As at 30th June, 2002, KBC Bank owns 59.33 per cent. of the new K&H Bank and ABN AMRO 40.2 per cent, the remainder being held by small shareholders.

Majority stake in Kredyt Bank. Kredyt Bank is ranked fifth in Poland, with over 750,000 customers and a distribution network of 388 branches.

After acquiring a majority stake in Kredyt Bank in the fourth quarter of 2001, KBC was required to launch a public bid for the remaining shares. As a result, on 31st January, 2002, its shareholding came to 56.6 per cent. This was further augmented by KBC Bank’s acquisition of shares from Portugal’s Banco Espirito Santo (BES), resulting in a participating interest of 66.5 per cent., and, in July, from BES’s pension fund (resulting in a participating interest of 76.5 per cent). This will enable KBC Bank to further strengthen its legal and economic control over the Polish Kredyt Bank.

Stake in NLB. On 8th May, 2002, an agreement was signed between the Slovenian Minister of Finance and KBC Bank regarding the acquisition of a 34 per cent. stake in Nova Ljubljanska banka (“NLB”), the largest bank in Slovenia. The price for the 34 per cent. shareholding comes to 435 million EUR. The deal was closed on 6th September, 2002.

At year-end 2001 and account taken of its main participating interests, NLB had a market share of approximately 45 per cent. in Slovenia, catered for roughly 1 million customers and boasted 242 domestic branches. Besides a number of subsidiary banks, NLB also owns subsidiary companies specialized in leasing, factoring, trade finance and other activities, and recently started an expansion programme in the other states of the former Yugoslavia.

Through co-operation with the local management of NLB, KBC Bank’s aim is to promote growth opportunities and to facilitate the expansion of this major Central European bank. KBC will work together with NLB to develop the retail bancassurance concept, initially through the establishment of a ‘greenfield’ life assurance business. This will be augmented by the (continued) introduction of network segmentation, as well as the transfer of know-how and co-operation in such areas as payments, money and capital markets, asset management and ICT. KBC will also work closely together with the management of NLB in order to increase that bank’s presence in the countries of the former Yugoslavia.

v CSOB acquires IPB Pojisvt’ovna. After agreement was reached in February 2002 with respect to the dispute v concerning the ownership of IPB Pojisvt’ovna, CSOB acquired this Czech insurance company. With an estimated market share of just under 7 per cent. (11.2 per cent. in the life and 4.6 per cent. in the non-life businesses at year-end 2001), IPB Pojisvt’ovna is the third largest life insurer and fourth largest non-life insurer in the Czech Republic. It also owns 35 per cent. of the Slovak insurer Ergo (KBC concluded an agreement with the Slovakian holding company PSIS a.s. to acquire the remaining 65 per cent. (in two phases), conditional to approval by the competent Slovakian authorities).

v CSOB also raised IPB Pojisvt’ovna’s capital significantly to support the insurer’s development going forward. v KBC and CSOB furthermore aim to gradually integrate the Czech insurance activities by 2003 and to develop the bancassurance concept in the Czech Republic and Slovakia along the lines of the model being implemented in Belgium.

38 V. Competition All of KBC Bank’s operations face intense competition in the sectors they serve.

In general, KBC Bank competes with commercial banks, saving banks and loans institutions, credit unions, consumer finance companies, major retailers, investment banks, brokerage firms and investment companies providing commercial banking products and services. In view of KBC Bank’s bancassurance concept and its ties with KBC Insurance, KBC Bank also competes with other insurance institutions. The trend towards bank consolidation in the banking sector, both at a national and an international level, is creating large and globally active financial groups that are able to provide competitive products in each of the sectors served by KBC Bank. In addition, the implementation of the euro has already started increasing cross-border competition.

In the traditional domestic banking sector, KBC Bank competes for private and small and medium-sized business and public sector clients primarily with a number of large universal banks operating in Belgium. As a top three provider of products and services in this sector, KBC Bank believes that, with its dense multi- channel network covering Belgium, strong name brand and customer relationship management, it is well- placed to meet its competitive challenges in this sector.

In the traditional international banking sector, KBC Bank competes against many large regional and global banking and financial groups that offer their corporate clients specialised banking services on a world-wide basis. Competition in these sectors is intense and based largely on interest margins. KBC Bank believes that the strong client relationships that it has built up in these sectors will enable it to continue to compete effectively for multinational and international business.

In the asset management sector, KBC Bank competes against other banks and the investment funds of other financial groups, as well as with insurance companies. KBC Bank is the market leader in Belgium in this sector.

In the treasury and capital markets sector, KBC Bank competes primarily against large pan-European banking and financial groups.

In Central Europe, lastly, KBC Bank is one of the leading financial institutions, with major market positions in the Czech Republic, Slovakia, Poland, Hungary and Slovenia. It faces competition from both local banks and international groups.

VI. Risk Management 1. General There are a number of typical risks associated with the business of banking, such as counterparty risk, country risk, various market risks and liquidity risk.

During 2001 and 2002 KBC Bank has made steady progress towards an integrated approach to risk management within the central Risk Management Division at head office. On credit risk management, apart from the modelling of the internal rating models, the Risk Management Division is now also responsible for all follow-up and reporting. Since early 2002 operational risk is also covered by the Risk Management Division. As far as risk governance is concerned a Credit Risk Committee and an Operational Risk Committee have been established according to the some risk governance principles as were already in place for the Market Committee and the Investment Committee. Finally, a process has been put in motion, whereby the risk management activities of the KBC Bank and KBC Insurance will be integrated into a risk management division at the holding company level covering the KBC Group. This standardisation and integration of risk governance and monitoring enhances transparency, improving the understanding of risk management.

2. Counterparty risk Definition Counterparty risk, or credit risk, is the risk that a debt will not be repaid due to the counterparty’s insolvency or lack of willingness to pay.

39 Monitoring counterparty risk Counterparty risk (and country risk, discussed below) is monitored through a set 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.

Acceptance process. Credit proposals must always be submitted in writing. Applications for larger and/or riskier loans are screened beforehand by a credit adviser who, in formulating his or her advice, takes account of general lending policy, as well as all relevant risk-related aspects.

In principle, decisions are taken on a collegial basis by two or more individuals, whether meeting as a credit committee or otherwise. At least one of these individuals must be a loan officer with decision power. For smaller, domestic loans, a scoring system can be used instead of having recourse to a loan officer.

The Executive Committee itself will decide on the biggest and/or riskiest loans. The other decision levels are located on different levels of KBC Bank’s hierarchy, ranging from the branch itself to the “Extended Credit Committee”, whose powers are second only to those of the Executive Committee itself and whose chairman is a member of that body.

Using decision matrices that take account of such parameters as the “Group risk total” (see below), the “risk class” (see below) and the type of counterparty (private persons, companies, governments, financial institutions), the relevant decision level is determined.

The “Group risk total” is the sum of all credit and limits that all companies in the Group to which the counterparty belongs already have or have applied for from all KBC Group companies. No amounts are deducted for security or guarantees received. Moreover, security is also included in the Group risk total of the counterparty providing it.

The “risk class” reflects the assessment of the risk relating to the credit. This can be determined in two ways: The “old” way, in which a credit is categorised on the basis of experience (from “low risk” to “loss”). The new way, which is being phased in gradually, is supported by internally developed rating tools, by which a process level, ranging from I (lowest risk) to IV (highest risk) can be determined, based on the combination of Expected Default Frequency (“EDF”) and Expected Loss (“EL”) ratings.

Loan documentation, perfection and authorization of drawings. As a rule, approved credits can only be made available for utilisation if all conditions precedent are fulfilled. For the international credits, all procedures regarding loan documentation, perfection of collateral and the authorisation of drawings are executed within the introducing entities and are monitored by KBC Bank’s audit division.

For the domestic credits, the loan execution is performed either at the head office or at a regional level. For the standardized domestic retail credits, loan execution has been automated for a large part. Once approved, a so-called ‘advice for execution’, is entered into an electronic dispatch system that will generate automatically all necessary documents (e.g. the credit agreement).

Drawings on facilities when not all conditions precedent have been fulfilled can be allowed on an exceptional and temporary basis. For these drawings special procedures apply: e.g. for international credits they are – for delegation purposes – seen as overdrafts and the same special delegations and approval procedures for overdrafts are applicable.

Supervision and monitoring processes. In principle, a member of a credit committee will supervise decisions taken at the decision level immediately below his or her decision level. This entails checking whether the decision is consistent with general policy guidelines and lending policy.

Each loan is subsequently subject to a periodic review. How often a loan is reviewed depends on a number of factors, including the class of risk to which it belongs. Weaker, riskier credit is reviewed at least once a year.

Besides adequate monitoring of limit-overruns and arrears of payment, continuous monitoring is conducted to detect heightened risks. First of all, the branch network is responsible for alert credit monitoring and has to

40 report immediately any event that substantially increases credit risk to the competent decision authority. Monitoring of domestic loans is supported by automated procedures which screen for negative signals that might indicate a higher credit risk. Moreover, since 2000 part of the loan portfolio has been screened for heightened risks using the ‘KMV Credit Monitor’, a tool that calculates a company’s chances of going bankrupt on the basis of a number of variables such as its share price and degree of indebtedness. In 2002, the KMV Credit Monitor was complemented by Bloomberg’s Stockscreener, another tool that can be used as an early warning system for increased credit risk with respect to listed companies.

For domestic debtors facing adverse developments of a structural nature, the relationship with the borrower is directed and/or managed by the Special Credit Management Division, with a view to controlling and reducing the risk and safeguarding the bank’s position to the greatest extent possible. For domestic debtors facing a short-lived credit crunch, the network itself remains responsible for credit monitoring. Abroad, the branch network is responsible for alert credit monitoring, although any changes made to problem loans must always be submitted to a credit committee at head office. Decisions regarding problem loans are taken according a stricter delegation matrix. An overview of actual problem loans is submitted to the Executive Committee each quarter.

In principle, individualised provisions are decided upon on a case-by-case basis. For smaller, domestic loans however, provisions may be calculated on a portfolio basis, based on statistically supported provisioning percentages. Provisions are set aside as soon as the repayment of a loan is no longer fully assured. This may be the case long before a bankruptcy or the termination of a loan. As a precautionary measure, provisions may also be charged for borrowers experiencing certain difficulties, though still managing to meet their obligations. The provison amount reflects the estimated loss and hence takes into account collateral provided (among other things).

For special events that might have a negative impact in the (near) future on credit quality, the booking of a non-individualized (= general) provisions may be decided, if necessary. For foreign credit risks a (general) provision for international credits exists, based on the ‘still good’ part of the international credit portfolio. This general provision is calculated, based on the low, medium and high risk part of the outstanding international credit portfolio (0.25 per cent. on low risks, 0.50 per cent. on medium risks and 1.00 per cent. on high risks). On top of this, a (general) provision for country risks exists.

Portfolio management. Supervision on a portfolio basis is carried out by means of, among other things, a quarterly report being submitted to the Executive Committee on the size and composition of the consolidated loan portfolio. The largest risk concentrations are monitored via various periodic and ad hoc reports that are submitted to the Extended Credit Committee. An overview is also prepared each year for the Board of Directors, showing all non-financial counterparty groups representing a net risk of more than one-third of the consolidated net profit of KBC Bank.

In 2001, moreover, a portfolio management desk was set up to manage and monitor the loan portfolio more actively. Its specific aims include gaining a better insight into the overall risk profile and risk correlations, increasing the liquidity of the portfolio and co-ordinating securitisation operations.

The counterparty limit system. Whereas international credits and credit-equivalents are approved on a case- by-case basis, short-term commercial, professional and international payment transactions are in principle subject to pre-approved counterparty limits. The limits themselves have to be approved by the competent decision levels and follow the procedures and guidelines issued on credit granting and monitoring.

Internal credit risk models 2001 and 2002 saw KBC Bank continuing to focus on credit risk modelling with a view to achieving more economically sound and quantitatively oriented credit risk management notwithstanding the changed timetable for the Basel II Accord. As regards KBC Bank’s core activities in Belgium and Western Europe, the development of various rating models (in order to calculate the ‘Expected Default Frequency’ and ‘Expected Loss’) will soon be completed. A number of models (such as the model for Western European corporate customers) is already being used in the credit acceptance process. The modeling of niche activities and activities for Central Europe will get under way in the second half of 2002.

41 Attention is also being paid to gathering and storing credit data. The archtitecture for a ‘credit risk database’ has already been designed and budgets have been assigned. Such a database should not only be able to provide capital adequacy requirement data according to the ‘internal rating based’ approach but should also be able to generate even more sophisticated risk management reporting.

Counterparty risk figures The loan portfolio includes all payment credit, guarantee credit, standby credit and credit derivatives granted or issued by KBC Bank and all its majority-held subsidiaries to private persons, companies, governments and banks. Bonds in the investment portfolio are not included, unless otherwise stated.

The tables below provides a breakdown of the loan portfolio (granted amounts) into economic sectors and into country rating classes.

Loan portfolio, sector breakdown 31st December, 2001 30th June, 2002 (share in portfolio of credit granted) Private individuals ...... 14.2% 14.6% Financial and insurance services ...... 13.4% 13.4% Retail and wholesale trade ...... 10.6% 10.9% Non-financial services ...... 10.8% 10.7% Real estate ...... 5.5% 5.5% Construction...... 4.9% 5.0% Utilities...... 6.1% 4.8% Automobile industry ...... 4.4% 4.4% Governments ...... 4.1% 4.2% Chemical industry ...... 3.8% 3.6% Agriculture, stock farming and fishing ...... 2.5% 2.7% Food industry ...... 2.4% 2.4% Electronics ...... 2.0% 2.0% Traders ...... 1.2% 2.0% Metals...... 2.0% 1.9% Oil, gas and other fuels ...... 1.9% 1.9% Telecom ...... 1.9% 1.8% Aviation ...... 1.3% 1.2% Shipping ...... 1.1% 1.1% Horeca ...... 1.2% 1.1% Other ...... 4.8% 4.9% –––––––––– –––––––––– Total ...... 100.0% 100.0% –––––––––– ––––––––––

Loan portfolio country breakdown 31st December, 2001 30th June, 2002 (share in portfolio of credit granted) Investment-grade countries...... 98.7% 99.1% Non-investment-grade countries * ...... 1.3% 0.9% –––––––––– –––––––––– Total ...... 100.0% 100.0% –––––––––– ––––––––––

* The decrease of the share of the portfolio located in non-investment grade countries is mainly due to the upgrade, from non- investment grade to investment grade, of Slovakia’s rating.

Non-performing loans are loans (or bonds in the investment portfolio) for which principal repayments or interest payments are more than ninety days in arrears. This definition is already used throughout the network abroad and is set to be introduced in the domestic network (given the quantity of mainly small loans and the size of the retail network, the new definition will be phased into lending processes, and this should be

42 completed by the end of 2003). For the time being, the domestic loan portfolio still uses the “bankruptcies and loans called in” approach.

The table below provides an overview of the non-performing loans, as a percentage of the outstanding portfolio.

31st December, 31st December, 30th June, Non-Performing 2000 2001 2002 Loan portfolio Non-performing(1) as a % of the overall portfolio – in Belgium...... 2.5% 2.6% 2.7% – abroad...... 1.7% 3.1% 3.2% – total, KBC Bank...... 2.1% 2.8% 2.9% –––––––––– –––––––––– –––––––––– Cover via write-downs for non-performing loans – in Belgium...... 67.2% 64.7% 61.5% – abroad...... 68.6% 56.0% 56.0% – total, KBC Bank...... 67.7% 60.6% 59.0% –––––––––– –––––––––– –––––––––– Loans and investment portfolio Non-performing as a % of the overall portfolio – in Belgium...... 1.7% 1.9% 2.0% – abroad...... 1.0% 1.8% 1.9% – total, KBC Bank...... 1.4% 1.8% 1.9% –––––––––– –––––––––– –––––––––– Cover via write-downs for non-performing loans – in Belgium...... 67.2% 64.7% 61.5% – abroad...... 65.0% 55.0% 55.2% – total, KBC Bank...... 66.5% 60.1% 58.6% –––––––––– –––––––––– ––––––––––

(1) Non-performing: in Belgium, bankruptcies and loans that have been called in; abroad, loans or securities in the investment portfolio for which principal repayments or interest payments are more than 90 days in arrears. Cover amounts take contingent tax savings into account. Excluding CSOB’s ‘historic’ or ‘legacy’ portfolio, which is fully covered by collateral, guarantees and write-downs.

The quality of the loan portfolio remains good, although the worldwide economic slowdown has caused bad loans to increase slightly. Roughly 2.9 per cent. of the loan portfolio is now classified as ‘non-performing’ (an increase of 13 basis points compared to year-end 2001), almost 60 per cent. of which is covered by specific provisions (the non-provisioned part reflects the collateral provided, among other things).

If the investment portfolio is taken into account as well, only 1.9 per cent. of the portfolio is ‘non-performing’, and approximately 59 per cent. is covered by specific write-downs.

Two-thirds of the increase in the non-performing ratio during 2001 was due to the full inclusion of Kredyt Bank in the figures. With a non-performing ratio of around 11 per cent, Kredyt Bank hence accounts for 40 v basis points of KBC Bank’s total non-performing ratio (loan portfolio). The non-performing ratios of both CSOB (excluding the ‘historic’ portfolio’) and K&H Bank, on the other hand, are in line with (or even slightly better than) the KBC Bank average.

The quality of the loan portfolio may deteriorate in the near future as a consequence of the less favourable economic conditions that prevail. Risk management is hence concentrating on limiting the new production of high risk loans and reducing possible risk concentrations in the portfolio.

Over and above the provisions for non-performing loans, KBC Bank also makes provisions for loans that are still performing. As at the end of June 2002, these amounted to approximately 0.4 billion EUR (cover amount).

43 Besides these specific provisions, KBC Bank also holds a number of credit-related general provisions, which are summed up in the table below.

Other credit-related provisions 31st December, 31st December, 30th June, Cover amounts(1), in millions of EUR) 2000 2001 2002 General provision for foreign loan losses ...... 228.9 257.1 187.9 General provision for the dioxin crisis/MAP...... 17.3 0.0 0.0 General provision for country risks ...... 117.6 112.5 101.7 General provision for credit risks ...... 0.0 0.0 46.0 –––––––––– –––––––––– –––––––––– Total ...... 363.8 369.6 335.6 –––––––––– –––––––––– ––––––––––

(1) Contingent tax savings included (approximate amounts, in view of the variety of tax systems concerned).

The following changes were recorded in the first half of 2002:

– There was a decline in the general provision for foreign loan losses (which is related to the size and risk breakdown of the international loan portfolio), mainly because of an adjustment made to eliminate some over-provisioning for a securitization operation.

– The small decrease in the general provision for country risks was related, among other things, to the fact that specific provisions were set aside for some Argentine banks (which resulted in a decrease in the basis of calculation for country provisions).

– The general loan loss provision in the amount of 13 million euros (representing cover of an estimated 22 million euros) that was set aside during the first quarter of 2002 in view of the economic slowdown in the US and Europe was increased to 27.5 million euros (covering approximately 46 million euros) in the second quarter.

3. Country Risk Definition Country risk is the risk of non-payment occasioned not by the counterparty’s insolvency or lack of willingness to pay, but rather by events or actions taken by the political or monetary authorities of a particular country.

Organisation of country risk management Country risk is managed by setting limits per country and per maturity, limits which are broken down into sublimits for transfer risks, performance risks and IFC “B” loans. It is calculated for each country separately according to a conservative method (see below). 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 the head office and, after independent credit advice is taken, submitted for approval at the competent level of authority. Before any new transactions are entered into, availability under the country limits and, where relevant, the relevant sublimits have 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 in the calculation of country risk:

credit, such as payment credit, commitment credit and credit derivatives, including so-called medium- term export credit, IFC “B” loans and performance risks;

44 bonds and shares in the investment portfolio;

placements and other professional transactions, such as forex transactions, swaps, etc.;

short-term commercial transactions, such as documentary credit and pre-export finance.

Aside from “other professional transactions”, all transactions are given a weighting of 100 per cent. (“amount granted” for “committed” facilities, “amount outstanding” for “uncommitted” facilities). The other professional transactions are calculated according to the relevant BIS regulations (mark-to-market, if positive, plus add-ons).

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 provisions For exposure to a specific set of countries (as at 30th June, 2002: Argentina, Brazil, Indonesia, Russia and Turkey), the Belgian Banking and Finance Commission (CBF) requires banks to set aside provisions equaling a certain percentage of the outstanding credit risks (excluding transactions with a limited country risk). It is up to the banks to decide, within a defined bracket, what percentage precisely is to be applied, but KBC Bank has always opted for the upper limit. Moreover, KBC Bank also sets aside considerable “non-compulsory” loan-loss provisions over and above the provisions required by the CBF.

Consequently, at 31st December, 2001, the provision for country risks came to approximately 113 million EUR (cover amount), 54 million EUR of which was “compulsory” and 59 million EUR “non-compulsory”. At 30th June, 2002, the provision for country risks came to approximately 102 million EUR (cover amount), 47 million EUR of which was ‘compulsory’ and 55 million ‘non-compulsory’.

Country risk figures Country risk exposure to Asia comes to around 3.1 billion EUR, nearly 20 per cent. less than at year-end 2001. Exposure in this region of the world is mainly to Singapore, Taiwan, Hong Kong, South Korea, mainland China, the Philippines and Japan.

Given KBC’s significant presence in Central Europe, its country risk in respect of this region is fairly high. As at 30th June, 2002, it amounted to 6.6 billion EUR. NLB’s portfolio has not yet been included since it is not majority-owned by KBC Bank.

Exposure to Latin America, at 0.7 billion EUR, is relatively minor and decreased from 0.9 billion EUR as at year-end 2001. Only 50 million EUR of this is accounted for by Argentina (a reduction of some 40 per cent. on the end of 2001), and consists mainly of short-term commercial transactions (38 per cent), IFC ‘B’ loans and performance risks (29 per cent, combined). Brazil accounts for 81 million EUR (85 per cent. of which relates to short-term commercial transactions) and Uruguay for a mere 0.3 million EUR.

45 Country risk in respect of the Middle East is likewise limited (0.8 billion EUR). Almost half of the exposure to this region is accounted for by commercial transactions and performance risks.

Breakdown by Country risk Total exposure remaining tenor Breakdown by transaction type

IFC Perfor- Bonds MLT (in millions 31-12- 30-06- ≤1 1 ‘B’ mance & Profes- export ST com- of EUR) 2001 2002 year >year loans risks Loans shares sional finance mercial

COUNTRY EXPOSURE PER REGION Western Europe (excl. Euro zone) 11,188 10,671 5,357 5,314 28 45 3,246 1,213 5,734 297 110 Asia 3,838 3,130 1,956 1,174 32 28 2,091 181 683 8 107 North America 3,996 4,317 1,684 2,633 0 0 2,297 542 1,473 1 3 Central and Eastern Europe 6,013 6,646 2,361 4,285 13 235 5,257 550 557 6 28 Latin America 931 736 318 419 40 45 458 23 5 1 165 Oceania 612 446 149 297 0 15 203 180 48 0 0 Middle East 821 832 291 541 9 36 321 0 122 4 341 Africa 543 493 264 229 29 126 211 0 85 15 27 Int’l institutions 168 287 167 120 1 0 151 87 9 0 40 Total 28,108 27,558 12,546 15,012 151 531 14,234 2,776 8,715 331 821

PROBLEM COUNTRIES (BFC LIST) Indonesia 57 50 4 45 3 0 46 0001 Brazil 143 81 73 850510169 Argentina 84503416410161 0 019 Russia 157 159 40 119 0 155 01021 Turkey 160 129 106 23 8 30 22 0 0 1 68

4. Market Risk and liquidity risk Definition Market risk is the potential for loss due to adverse changes in the value of positions held by the bank on the interest rate, forex, equity and derivatives markets. Liquidity risk concerns the difficulties that may arise in funding KBC Bank’s ordinary business activities at acceptable terms.

Organisation of market risk management The objective of KBC Bank’s risk management system is to identify, measure, control and monitor the risks arising from KBC Bank’s business operations. The Executive Committee sets risk limits, subject to later confirmation by the Board of Directors. The Risk Management Division monitors these risk limits, analyses the positions on an ongoing basis and reports on them to the Market Committee (trading risks) and the Investment Committee (ALM risks as defined below). These risk committees, either directly or indirectly via the Executive Committee of KBC Bank, may decide to order corrective actions. Such control is exercised separately from the operating entities in KBC Bank that take on such risks.

KBC Bank’s risk management policies are aimed at instilling risk awareness throughout the Bank and, as a result, senior management is actively involved in the risk management activities of the bank.

The Board of Directors of KBC Bank (the “Board”) is briefed on the methodology used to measure market risks and the monitoring of those risks by means of periodic presentations made to the Audit Committee, a sub- committee of the Board, as well as via annual presentations to the full Board. The Board itself decides on the limits to be applied to market risks.

The Executive Committee continues to demonstrate its commitment to risk management activities by delegating two (out of five) of its members to sit on the supervisory committees (see below). All of the members of the Executive Committee are kept informed of the deliberations that take place at those meetings, as they all receive copies of the weekly reports and discussion papers submitted to these meetings.

46 The risk committees referred to are the Market and the Investment Committees. The Market Committee is to oversee the various risks encountered in the dealing rooms, while the Investment Committee is responsible for monitoring and managing ALM risks.

Asset and Liability Management At KBC 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 dealing room activities). This mainly concerns managing the euro interest rate risk associated with the transformation of maturities, an essential bank activity. As equities are held as part of a diversified, long-term investment portfolio, there is also an equity risk. The activities carried on abroad (participating interests in a foreign currency, results posted at branches/subsidiaries abroad) also create a structural currency risk.

KBC Bank’s euro ALM activities are managed via a system of market-oriented internal pricing for dated products and via a benchmarking system for undated products (demand and savings accounts, capital and reserves). For these last products, a benchmark maturity and a core amount (an amount that is relatively certain to remain available to KBC Bank) are fixed, in order to allow these products to be incorporated without difficulty into the internal risk-measurement system and internal funds transfer pricing system

In order to monitor its vulnerability, KBC Bank resorts to such techniques as interest-rate-sensitivity analysis, Basis-Point-Value, gap analysis, the duration approach, scenario analysis and Value-at-Risk.

The table below provides an indication of the degree to which interest income for the coming year (interest rate sensitivity) and the value of the portfolio (Basis-Point-Value, or “BPV”) will be affected by a 10-basis-point drop (0.10 per cent.) in interest rates across the entire curve. It also shows the Value-at-Risk (“VAR”) of the equity investment portfolio (10-day holding period and 99 per cent. one-sided confidence interval). The figures relate to KBC Bank and, starting 2002, also CBC Banque and Centea (consequently, there has been a visible increase since the beginning of 2002 in the risk figures in the table below).

(in millions of EUR) ALM activities Transformation equity position portfolio INTEREST RATE SENSITIVITY OF INCOME BPV(1) VAR(2) Average, 1st quarter 2001 ...... 4.0 40.4 12.5 Average, 2nd quarter 2001...... 3.4 38.9 13.6 Average, 3rd quarter 2001 ...... 4.6 48.0 14.2 Average, 4th quarter 2001...... 5.6 56.4 15.6 Average, 1st quarter 2002 ...... 4.3 63.6 41.5 Average, 2nd quarter 2002...... 3.8 65.5 40.5 30-06-2002...... 4.2 64.8 36.0 Maximum in 1st half of 2002...... 6.5 68.4 42.9 Minimum in 1st half of 2002 ...... 2.5 60.2 36.0

(1) BPV: Basis-Point-Value (change in the value of the portfolio given a 10-basis-point shift in the yield curve). (2) VAR: Value-at-Risk (99 per cent. confidence interval, 10-day holding period).

Dealing room activities and activities of the specialised subsidiaries KBC Bank has a number of dealing rooms, spread across four geographical regions, namely Western Europe, Central Europe, the United States and the Far East. These dealing rooms are active primarily in managing interest rate and forex risks in a broad range of currencies. Through its specialised subsidiaries, KBC Securities NV and KBC Financial Products, the KBC Bank group also engages in trading in equities and their derivatives, such as options and convertible bonds. Other equity subsidiaries, not active in derivatives, further include

47 Patria Finance a.s. and Peel Hunt Plc. The bank is not active on the commodity markets and the currency risks it runs are limited.

To measure and monitor interest rate and forex exposures, KBC Bank resorts primarily to the 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. In applying this method, KBC Bank respects the BIS standards (10-day holding period and 99 per cent. one-sided confidence interval, historical data going back at least 250 days). To supplement the system, KBC Bank uses various other instruments such as gap analysis, Basis-Point-Value, concentration limits, maturity restrictions and stop-loss limits. The foreign exchange VAR system is supplemented primarily by concentration limits.

During the second half of 2002, KBC Bank will switch its risk measurement methodology from a parametric (variance-covariance) VAR -approach towards historical simulation. This more sophisticated methodology will trigger higher VAR-numbers (however, limits will remain stable). In the second half of 2002, a request will also be addressed to the CBF (as defined in “Supervision and Regulation” below), the Belgian regulator, for approval of the new VAR methodology as a basis for an internal model.

For option-linked products, KBC Bank uses a method which entails estimating the potential loss by means of a scenario analysis that covers a broad range of price and volatility shocks, with a limit being imposed for the most negative outcome. 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, changes in volatility and the passing of time. The options activities on forex and interest rate markets are rather limited. In contrast, KBC Bank runs a more pronounced risk in its equities and equity-linked businesses.

The table below shows the VAR for the KBC Bank’s dealing rooms on the money and capital markets and the results of the scenario analysis for KBC Financial Products and KBC Securities NV.

(in millions of EUR) Dealing room activities and specialized subsidiaries VAR(1) Scenario interest VAR(1) Scenario analysis, analysis, rate forex KBC Financial KBC activities activities Products(2) Securities(2) BRUSSELS OTHER Average, 1st quarter 2001 ..... 16.6 1.6 22.6 22.4 10.3 Average, 2nd quarter 2001.... 20.9 1.5 8.2 18.9 6.8 Average, 3rd quarter 2001..... 15.0 1.3 26.9 8.1 Average, 4th quarter 2001..... 16.6 1.8 15.7 8.5 Average, 1st quarter 2002 ..... 17.7 1.5 23.4 8.7 Average, 2nd quarter 2002.... 7.7 2.3 31.1 4.6 30-06-2002 ...... 9.0 2.5 23.4 3.8 Maximum in 1st half of 2002 25.7 4.2 44.1 12.9 Minimum in 1st half of 2002. 5.4 0.6 1.8 2.9 (1) VAR: Value-at-Risk (99 per cent. one-sided confidence interval, 10-day holding period). (2) In mid-2001, the method of calculation used for the specialized equity subsidiaries was changed, which led to a ‘mechanical’ virtual doubling of the figures. Figures for the period prior to mid-2001 were increased by the same factor. Moreover, since mid- 2001, the limits and hence also the risk calculated have been combined for KBC FP Brussels and the rest of KBC FP.

Derivatives Derivative instruments are contracts whose value is derived from, inter alia, interest rates, foreign exchange rates and prices of securities or financial or commodity indices. Derivatives include swaps, futures, forwards and option contracts. Derivatives are generally either negotiated as over-the-counter contracts or standardised contracts executed on an exchange. Standardised exchange-traded derivatives include futures and option contracts. Negotiated over-the-counter derivatives include forwards, swaps and option contracts. Over-the- counter derivatives are generally not traded like securities; however, in the normal course of business, with the agreement of the original counterparty, they may be unwound or assigned to another counterparty. The timing of cash receipts and payments related to derivatives is generally determined by contractual agreement.

48 The various risk aspects of derivatives are fully integrated into our risk management processes together with the more classical financial products.

KBC Bank’s primary derivatives activities consist of activities in connection with the management of interest rate and currency exposure. In addition, KBC Securities NV and KBC Financial Products are involved in equity derivative activities. The principal counterparties are large financial institutions headquartered in countries that are members of the OECD. Counterparty risk (the risk of default by individual trading partners in derivatives operations) is, in accordance with general market practice, assessed on a portfolio basis inasmuch as possible, and this across a broad range of product groups. Wherever possible, account is taken of KBC Bank’s total exposure to a counterparty.

KBC Bank has entered into master netting agreements with its trading partners to reduce counterparty risk. These agreements provide for a reciprocal set-off of receivables and payables arising from individual derivatives transactions prior to or upon occurrence of an event of insolvency.

Risk can also be reduced through collateralisation or credit support contracts. Collateralisation or credit support contracts involve a counterparty providing security (in cash, securities, or in any other agreed form) to cover the net positive mark-to-market value of the total position of the counterparty for KBC Bank. If the security can be matched to the exposure as closely as possible, by, for instance, marking the transactions to market and calculating the collateral required every day, then not only will the exposure in the amount of the positive market value be covered, but so will, to a large extent, the potential future credit exposure that may still arise during the remaining term to maturity of the transactions. KBC Bank set up a group wide collateral management programme to hedge specific exposures and put in place (with Legal Department support) collateralisation contracts with counterparties. The Central Collateral Unit manages the margining of derivatives exposures from KBC Bank and KBC Financial Products Brussels NV in accordance with the terms of ISDA collateral documentation. The collateral received consists mainly of cash and OECD-government debt. Already a large number of entities within the KBC Group are included, and their number is increasing. All entities should be covered by 2003.

During the course of 2002, the range of products to be margined was expanded to include repos and securities lending.

CBF has recognised the credit risk mitigating effects of netting and collateral for the purpose of regulatory capital requirement.

As regards information about derivative instruments used by KBC Bank as at 31st December, 2001, reference is made to the table in KBC Group’s annual report for the financial year ending 31st December, 2001 (“Annual accounts and additional information”, under “note 36: Off-balance-sheet headings, banking”, sub-table 5 (“Forward off-balance-sheet transactions in securities, foreign currencies and other financial instruments”).

Organisation of liquidity risk management KBC Bank is able to limit its liquidity risk thanks to its stable and broad customer base and widespread international reputation. KBC Bank funds its activities across a broad range of maturities, currencies, target groups, countries, instruments and intermediary channels. It is also cautious in calculating core amounts used for benchmarking undated products: a large proportion of the amounts available (15-20 per cent. of the assets on demand and savings accounts) are invested for the very short term in order to cope with any sudden fund withdrawals by customers.

KBC Bank has also started using a number of liquidity ratios, as defined by the Financial Services Authority in the UK. This approach is regularly refined, based on in-house experience.

Various entities within the bank are now requested to follow-up on liquidity on the basis of the stock liquidity ratio and the liquidity mismatch ratio, as defined by the Bank of England. Regular reporting has been organized and based on experiences over a period of over half a year , limits will be set in the second half of 2002. Furthermore, the impact of unutilised credit lines on the global liquidity position of the bank group has been restricted to a particular percentage of the KBC Group’s consolidated capital and reserves and regular reporting is being organized.

49 5. Operational Risks Definition Operational risk, as defined by the Basel Committee, relates to the risk of loss, resulting from inadequate or failed internal processes, people and systems or from external events.

Internal Control Policy Manual In 2001 KBC Bank finished its Internal Control Policy Manual (ICPM), which sets out the Bank’s best practices for managing process-related risks for virtually all the KBC Group’s banking and support activities (such as accounting, ICT and human resources management). All business lines of KBC Bank were requested to organize a self-assessment, benchmarking themselves to the ICPM-principles. These self-assessments were finalized during the year 2002.

A start was also made on an ICPM for the insurance business for both life and non-life insurance business. The Manual is expected to be completed gradually during 2002 and 2003.

Risk diagnosis As part of its approach of operational risk management, KBC Bank will identify the various processes within each business line and will organize a risk diagnosis for every process. Such diagnosis includes a risk identification, a risk evaluation, a definition of the various control measures, monitoring via critical risk and control indicators, drawing –up of an action plan, etc. Such diagnosis has to be repeated at various time intervals (e.g. yearly) in order to adjust the control principles in view of the evolution in the risk profile and in best practices. This approach will be taken care of by design teams composed of various relevant specialists. Line management has to take overall responsibility for operational risk management. Local operational risk managers will be appointed in order to coordinate efforts within every business line.

Operational loss database KBC Bank already has a system in place for the detection of operational loss events. Reporting to the Executive Committee takes place on a regular basis. In order to satisfy requirements of solid operational risk management practices and to include recommendations by the Basel Committee, an enhanced tool will be put in place. Systematic recording of loss events within a refined risk classification and process specification system, integrated into our accounting procedures, will allow the Bank to spot weaknesses in our operational controls and trigger remediary actions.

Risk governance As pointed out earlier, an Operational Risk Committee has been set up to guide and monitor progress of the Bank in operational risk management. This Committee will operate according to established risk governance principles in KBC Bank with e.g. chairmanship by a member of the Executive Committee and regular reporting to the whole Executive Committee.

Basel 2 and operational risk management As far as future capital requirements for operational risk under Basel-2 are concerned, KBC Bank aims to report such requirements according to the standardised approach. This includes a definition of business lines which will satisfy both KBC Bank’s economic as well as Basel’s regulatory points of view.

VII. Staff At 30th June, 2002, KBC Bank had 13,386 employees (full-time equivalents, excluding employees of its subsidiaries and excluding the employees that were transferred to KBC Holding (around 2000)) and 38,028 including employees of its majority-owned subsidiaries (full-time equivalents, excluding the employees that were transferred to KBC Holding).

50 v KBC Bank’s main subsidiaries in terms of staff are CSOB in the Czech Republic (8,732), K&H Bank in Hungary (3,993), Kredyt Bank in Poland (7,374) and CBC Banque in the French-speaking part of Belgium (1,275). A number of these employees are members of various unions.

On 26th November, 2001, the unions and employers’ association for the banking industry in Belgium concluded a collective bargaining agreement that was binding on KBC Bank for 2002. In implementation of this agreement, KBC Bank and the unions signed a collective labour agreement on 26th February, 2002. An innovative feature of this agreement was that the personnel could choose holidays instead of a wage increase. More than a quarter of the bank’s employees decided to take the holiday option.

New talks at industry level will start at the end of 2002 (and later on at KBC Bank) to conclude a new sectoral agreement for 2003 and beyond. In addition, a new round of negotiations will be entered into with the unions at KBC Bank about a new concept for the distribution of bank products.

In October 2001, KBC Bank took a number of decisions that would affect its organizational structures and staffing levels. Because extra staff were needed, among other things, to meet the various challenges thrown up by the merger, staffing levels are actually higher than they were when the merger got under way. At head office, a number of directorates have been merged and hierarchical lines of authority shortened, while, in the network, provincial and regional structures are simplified. As a result, the plan aims to reduce the ranks of senior management by 15 per cent. over the next two years. The total workforce of KBC Bank in Belgium will be reduced by around 1,650 by the end of 2004, not via outright dismissals, but rather through a combination of retirement schemes, approved social plans, ’time credit’ arrangements (one of the first collective labour agreements in this area in Belgium) and voluntary redundancies. Due to this natural attrition of an estimated 2,000 people, KBC Bank expects that the 1,650 employees referred to above will for the most part be able to fill the positions that become vacant. On 30th June, 2002, KBC Bank had already succeeded in cutting its workforce by 600 (full-time equivalents), in comparison with the figures on 30th September, 2001.

VIII. Supervision and Regulation Introduction KBC Bank, being a credit institution governed by the laws of Belgium, is subject to detailed, comprehensive regulation in Belgium, supervised by the Belgian Banking and Finance Commission (Commissie voor Bank- en Financiewezen, or “CBF”), an autonomous public agency. European Community (EC) directives have had and will continue to have a significant impact on the regulation of the banking business in the European Union, as such directives are implemented through legislation adopted within each member state, including Belgium. The general objective of these EC directives is to allow the realization of a unified internal market and to improve standards of prudential supervision and market efficiency through harmonization of core regulatory standards and mutual recognition among EC Member States of regulatory supervision, in particular, licensing. The Maastricht Treaty provides that certain bank regulatory responsibilities could be delegated to the European Central Bank (“ECB”).

Supervision and Regulation in Belgium The banking regime in Belgium is governed by the Law on the Legal Status and Supervision of Credit Institutions of 22nd March, 1993 (the “Banking Act”) which, among other things, implements the EC Second Banking Directive. The Banking Act sets forth the conditions under which credit institutions may operate in Belgium and defines the regulatory and supervisory powers of the CBF. The main objective of the Banking Act is to protect public savings and the stability of the Belgian banking system in general. Supervision of Belgian credit institutions is the responsibility of the CBF.

Supervision of Credit Institutions All Belgian credit institutions must obtain a licence from the CBF before they may commence operations. In order to obtain a licence and keep it, each credit institution must fulfil numerous conditions, including certain minimum paid-up capital requirements. In addition, any shareholders holding 5 per cent. or more (directly or indirectly, acting in concert with third parties) of the capital or the voting rights of the institution must be of

51 “fit and proper” character to ensure proper and prudent management. The CBF therefore requires the disclosure of the identity and equity participation of any shareholder with a 5 per cent. or greater capital or voting interest. If the CBF considers that the participation of a shareholder in a credit institution jeopardizes its sound and prudent management, the supervisory authority can suspend the rights attached to this participation and, if necessary, request the shareholder to transfer to a third party its participation in the credit institution’s capital. Prior notification to the CBF is necessary each time a person intends to acquire a holding representing 5 per cent. of the capital or the voting rights or a multiple thereof. Furthermore, a shareholder who wishes to sell his participation or a part thereof, which would result in his shareholding dropping below any of the above-mentioned thresholds, needs to notify the CBF thereof one month in advance. A Belgian bank is further under obligation to notify the CBF of any such transfer when it obtains knowledge thereof.

The Banking Act requires credit institutions to provide detailed periodic financial information to the CBF and to the BNB. The CBF also supervises the enforcement of laws and regulations with respect to the accounting principles applicable to credit institutions. The CBF, in consultation with the BNB and subject to the approval of the Ministers of Finance and of Economic Affairs, sets the minimum capital adequacy ratios that apply to credit institutions. The CBF may also set other ratios, for example, with respect to the liquidity and gearing of credit institutions.

Pursuant to the Banking Act, the CBF may, in order to exercise its prudential supervision, require that all information with respect to the organisation, functioning, condition and activities of a credit institution be reported to it. The CBF may supplement these communications by on-site inspections. The CBF also exercises its comprehensive supervision of credit institutions through statutory auditors who collaborate with the CBF in its prudential supervision. A credit institution selects its auditors from among the list of auditors or firms of auditors accredited by the CBF.

Within the context of the European System of Central Banks, the BNB issues certain recommendations regarding monetary controls and in that regard works closely with the CBF. As the lender of last resort to credit institutions, the BNB is empowered to make recommendations, which it may eventually render compulsory, to banks and other financial institutions. It is also empowered to enforce compliance with standards for balance sheet ratios. The BNB may require banks to make special deposits with it and to maintain set proportions of government paper holdings. It may impose ceilings on credit facilities and on interest rates payable on certain liabilities.

If the CBF finds that a credit institution is not operating in accordance with the provisions of the Banking Act, that its management policy or its financial position is likely to prevent it from honouring its commitments or does not offer sufficient guarantees for its solvency, liquidity or profitability, or that its management structure, administrative and accounting procedures or internal control systems present serious deficiencies, it will set a deadline by which the situation must be rectified. If the situation has not been rectified by the deadline, the CBF has the power to appoint a special commissioner to replace management, to suspend or dispose of all or part of its activities, and finally, to revoke the licence of the credit institution.

Bank Governance Belgian law and regulatory practices make a fundamental distinction between the management of banking activities, which, if the articles of association contain the possibility for the Board of Directors to delegate all or some of the management powers, lies within the competence of the Management or Executive Committee, and the supervision of the management and the definition of the credit institution’s general policy, which must be entrusted to the Board of Directors. In order to ensure that such a distinction is maintained, Belgian regulatory practices require a credit institution, its main shareholders and the CBF to enter into a protocol on bank autonomy to ensure the autonomy of the banking function. The protocol also requires the main shareholders of a credit institution to ensure the institution’s autonomy and stability.

Solvency Supervision Capital requirements and capital adequacy ratios are provided for in the CBF’s 1995 Decree (as amended) on own funds of credit institutions, which implements the principles of the European Coordination Directive 2000/12 of 20th March, 2000 relating to the taking up and pursuit of the business of credit institutions and

52 the European Directive 93/6 of 15th March, 1993 concerning capital adequacy for investment companies and credit institutions (referred to as the ‘CAD Directive’). The payment of dividends by Belgian credit institutions is not limited by Belgian banking regulations, except indirectly through capital adequacy and solvency requirements and is further limited by the general provisions of Belgian Company Law.

The 1995 Decree requires that the solvency of Belgian credit institutions be measured by a ratio that serves as the basis for the calculation of the minimum required capital. This capital requirement is principally determined by the degree of credit risk that is inherent in each item of the balance sheet and in each off- balance-sheet item. Each bank subject to the 1995 Decree must maintain a capital adequacy ratio (the ‘CAD ratio’) (also referred to as ‘Total Capital Ratio’ in reports of the Bank) of total capital (Tier I and Tier II) to risk- weighted assets, of no less than 8 per cent. The CAD ratio takes into account market risk with respect to a bank’s trading book (including interest rate and foreign currency exposure) in the calculation of weighted risk. The CAD ratio may increase to cover temporary large exposures that exceed the exposure limit described below.

Solvency is also measured by the gearing ratio, which compares shareholders’ equity to debt to third parties, as defined in applicable regulations. The 1995 Decree also requires that in no event may the share capital of credit institutions be less than total fixed assets.

Large Exposure Supervision Belgian regulations also ensure the solvency of credit institutions by imposing limits on the concentration of risk in order to limit the impact of failure on the part of a large debtor. For this purpose, credit institutions must limit the amount of risk exposure to any single counterparty to 25 per cent. of total capital and the total amount of concentrated risks (single counterparty exposures larger than 10 per cent. of total capital) to 800 per cent. of total capital. Belgian regulations also require that the credit institutions establish procedures to limit risk with respect to loans granted to foreign countries. Credit institutions must establish loss reserves for country risks within a framework defined periodically by the CBF.

Equity Investments Belgian credit institutions may make equity investments in commercial and industrial companies. However, such investments (of 10 per cent. or more) may not exceed: (i) 15 per cent. of the shareholders’ equity of the credit institution on a per investment basis, or (ii) 45 per cent. of the shareholders’ equity of the credit institution in the aggregate.

Money Laundering Belgium has implemented EC Directive 91/308 of 10th June, 1991 on the prevention of the use of the financial system for the purpose of money-laundering in a law of 11th January, 1993, as amended. This legislation covers the laundering of proceeds from a broad spectrum of criminal activities and imposes strict client identification rules, internal reporting, processing and compliance mechanisms, and employee training requirements on various categories of institutions and professionals, including credit and financial institutions. When, after investigation, a credit or financial institution suspects money laundering to be the purpose of a transaction, it promptly notifies an independent administrative authority, the Financial Intelligence Unit. The unit is designated to receive reports on suspicious transactions, to investigate them and if need be to report to the criminal prosecutors to initiate proceedings. Belgian criminal law specifically addresses the crime of money-laundering (Article 505, 3°, Criminal Code) and sanctions it with a jail term of minimum 15 days and a maximum of 5 years and/or a penalty of a minimum of 130 EUR and a maximum of 500,000 EUR. The CBF has issued guidance to credit and financial institutions and supervises their compliance with the legislation.

Supervision of the Group KBC Bank is subject to consolidated supervision on the basis of the consolidated financial situation of the Group, which covers solvency and large exposure as described above, pursuant to Article 49 § 4 of the Banking Act.

53 IX. Board of Directors and Management The composition of the Executive Committee and Board of Directors of the Guarantor is as follows:

Executive Committee: Mr Remi Vermeiren, President of the Executive Committee Mr Herman Agneessens Mr Frans Florquin Mr Luc Philips Mr Jan Vanhevel

Board of Directors: Mr Willy Breesch, Chairman of the Board of Directors Mr Herman Agneessens Mr Rik Donckels Mr Frans Florquin Mr Jan Huyghebaert Mr Eric Mertens Mr Luc Philips Mr Hubert Plouvier Mr Jan Vanhevel Mr. Germain Vanthiegem Mr Herman Van Thillo Mr Ferdinand Verdonck Mr Remi Vermeiren Mr Marc Wittemans

The Guarantor is a limited liability company “naamloze vennootschap/société anonyme” incorporated under Belgian law. Its registered office is at Havenlaan 2, 1080 Brussels, Belgium.

X. Litigation (a) Judicial inquiries A judicial inquiry was instituted in mid-1996 by the Belgian judicial authorities relating to the alleged co- operation by directors or staff of KBC Bank NV and Kredietbank SA Luxembourgeoise (“KB Lux”) in tax evasion committed by clients of KBC Bank NV and KB Lux. This inquiry has now come to an end and has resulted in eight members of the staff of KBC Bank NV, and the President of its Executive Committee, being placed under suspicion*. It is a well known fact that KBC Bank NV has always denied the allegations. Accordingly, the President and the members of staff concerned will mount a defence to refute the charges in court.

Another judicial inquiry was started in mid-1995 by the Belgian judicial authorities relating to transactions in Italian bonds involving the foreign tax credit (or FBB or QFIE) of 1988 and 1989. The investigating magistrate placed nine (former) directors and employees under suspicion*. KBC Bank NV is firmly convinced that the actions of the directors and employees were legal in every aspect and that full proof of the legality of these transactions will be given before the court.

*It should be noted that being placed under suspicion is not a conviction or an indictment but the act of an investigating judge to give the persons placed under suspicion their full rights of defence and access to the criminal file of the judge.

(b) Disputes without further influence on the profit and loss account In relation to the above-mentioned KB Lux case, the Belgian tax administration claimed the withholding tax in the hands of KBC Bank NV because they do not agree with the non-resident status of several clients during a limited period in the past. Likewise in the criminal investigation (as referred to above sub a) -1st section), KBC Bank NV is convinced that the arguments of the tax administration are not viable and that a final court

54 ruling will be favourable for KBC Bank NV. Nevertheless for prudential reasons, KBC Bank NV paid the disputed withholding taxes while retaining all its rights to discuss the matter before a court.

Like all other Belgian banks, KBC Bank NV has since 1992 been involved in a discussion with the tax authorities about the exact method to calculate the grossing-up of a foreign tax credit. Already one court has decided in favour of the method used by the banks. This court decision has been appealed by the Belgian tax administration. A negative final court ruling for the banks would be against all expectations. Nevertheless for prudential reasons, KBC Bank NV paid the disputed tax while retaining all its rights to discuss the matter before a court.

As sums have already been paid, these disputes can have no further influence on the profit and loss accounts of KBC Bank NV.

(c) Other litigation 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 (input tax) KBC Bank NV can recover.

In previous tax audits, however, KBC Bank NV’s method of calculation had been approved.

The courts have in the meantime found that one of the other banks involved has 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 judgment.

v v On 19th June, 2000, Ceskoslovenská obchodní banka, a.s., (“CSOB”), concluded an ‘Agreement on Sale of Enterprise’ with another Czech bank, Investicvní a Posvt’ovní banka, a.s., (“IPB”), that had been put under forced administration on 16th June, 2000. The execution of this agreement was approved by the Czech National Bank (“CNB”).

v In connection with the acquisition by CSOB of the Enterprise of IPB (“IPB Enterprise”), the Ministry of Finance of the Czech Republic (acting on behalf of the Czech Republic) has entered into an agreement with and v v provided a State guarantee to CSOB and the CNB has entered into an indemnity agreement with CSOB. The v purpose of these two documents is, inter alia, to protect CSOB against (i) losses existing as at the date of the sale of the IPB Enterprise as reflected in the results of extraordinary audits of the IPB Enterprise which are to v be carried out after the closing of the acquisition of the IPB Enterprise by CSOB and (ii) damage resulting to v CSOB from the acquisition of the IPB Enterprise.

v CSOB is a party (as plaintiff and/or defendant) to a number of civil and criminal actions that were triggered by this acquisition. In particular, following the lifting of the forced administration over IPB (at present renamed v to IP banka) in June 2002, IP banka filed complaint against CSOB demanding surrender of IPB Enterprise’s items back to IP banka. In principal, IP banka alleges that IPB under the forced administration was not entitled v to sell IPB Enterprise to CSOB and that the legal actions performed under the Agreement on Sale of IPB Enterprise are not valid. The case shall be pleaded before both the Czech court and the arbitration under the ICC Rules.

v Nomura Principal Investment plc (“Nomura”) filed a complaint against CSOB and KBC Bank NV relating to v protection against unfair competition. Nomura alleges that CSOB and KBC Bank NV (with a view to securing its market position and redirecting public support from IPB) acted in bad faith and attempted to influence the Czech government and the Czech National Bank to ensure that IPB did not receive public support or any other type of rescue package and that it would not be sold to an investor in a transparent tender procedure. Nomura demands, inter alia, that the defendants be jointly obliged to pay Nomura CZK 31.5 billion as satisfaction and to cover the material detriment suffered by Nomura due to the conduct of both defendants. The case shall be pleaded before the Czech court.

The KBC Bank group is subject of a number of other claims and is either itself or via its subsidiaries involved in a number of other legal proceedings which have arisen in the ordinary course of its business, over and above the claims and proceedings outlined above. Although the outcome is uncertain and some claims are

55 for relatively large amounts, 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.

XI. Auditors The auditors of the Issuer are Ernst & Young Accountants, Drentestraat 20, 1083 HK Amsterdam, The Netherlands as from 1st January, 2001. The Issuer’s financial statements for the year 2000 has been audited by Deloitte & Touche, Orly Plein 50, 1043 DP Amsterdam, The Netherlands in accordance with The Netherlands GAAP. The auditors of the Guarantor are Ernst & Young Bedrijfsrevisoren BCV (erkend revisor/réviseur agrée), represented by D. Vermaelen and J.-P. Romont, with offices at Schelde II-gebouw, Moutstraat 54, B-9000 Gent. The financial statements of the Guarantor for the year ended 31st December, 2001 have been audited by Ernst & Young Bedrijfsrevisoren BCV (erken revisor/réviseur agrée) in accordance with Belgian GAAP and resulted in an unqualified opinion. The financial statements of the Guarantor for the year ended 31st December, 2000 has been audited by Ernst & Young and PricewaterhouseCoopers in accordance with Belgian GAAP and resulted in an unqualified opinion.

XII. Recent Developments The following information concerns the “banking business” of the Group, like it was published in the “Press Release” on 21st November, 2002 regarding the Group’s 3rd Quarter and 9 months results.

For the first nine months of 2002, the bank’s profit contribution came to 544 million EUR, a 6 per cent. increase year-on-year. Although there was a sharp rise in the operating result (+43 per cent., +33 per cent. on an organic basis), net profit was depressed mainly by higher valuation losses on the loan and equity portfolios and by the significant increase in taxes (partly because the bulk of the aforementioned valuation losses are not tax-deductible).

Third-quarter profit came to 122 million EUR, up 49 million EUR (+68 per cent.) year-on-year. Compared to the second quarter of this year, profit was down by 63 million EUR (-34 per cent.) on account of, among other things, the seasonal nature of dividend income, the higher loan losses and the increase in (unrealized) impairment losses recorded on the equity portfolio.

3Q 01 3Q 02 % 9M 01 9M 02 % (in millions of EUR) Gross operating income ...... 1,165 1,468 +26% 3,553 4,338 +22% General administrative expenses .. -779 -884 +14% -2,461 -2,782 +13% Operating result ...... 386 583 +51% 1,092 1,556 +43% Value adjustments on credit risks...... -79 -131 +66% -161 -305 +89% Value adjustments on securities, banking...... -92 -142 +53% -114 -211 +85% Other...... 1 21 - -10 -1 - Profit on ordinary activities ...... 216 331 +53% 807 1,039 +29% Extraordinary result ...... -24 -4 -81% 68 40 -42% Taxes ...... -76 -166 +117% -231 -405 +75% Minority interests...... -43 -38 -12% -129 -131 +1% Contribution, consolidated Group profit ...... 73 122 +68% 515 544 +6%

When making a comparison of the profit figures, account should be taken of the fact that, in 2001, the former ABN Amro subsidiary in Hungary was included in Group figures and the Polish Kredyt Bank was fully consolidated. So far this year, there have been no major changes in the scope of consolidation. The results of Nova Ljubljanska Banka (Slovenia) will be included from the fourth quarter of 2002.(1)

(1) ABN Amro Magyar, following the merger with K&H Bank, has been included in the accounts since the third quarter of 2001. Because the 50 per cent. shareholding threshold was crossed, Kredyt Bank has been fully consolidated since the fourth quarter of 2001 (formerly accounted for via the equity method). NLB’s results will be accounted for via the equity method starting in the fourth quarter of this year. However, NLB is already included in the consolidated balance sheet at 30th September, 2002.

56 Gross operating income Gross income was largely unchanged in the third quarter from the second (+1 per cent.), but considerably higher than a year earlier (+26 per cent.). On an organic basis too (i.e. without taking the expansion in the scope of consolidation into account), strong year-on-year growth (+17 per cent.) was posted, although this was supported by a higher percentage of (non-recurring) realized gains on bonds. The effect of these gains on the net result was greatly tempered by additional value impairments taken on the equity portfolio (see below).

For the first nine months of the year, gross operating income went up by 22 per cent. (12 per cent. on an organic basis). If the gains realized (mainly in the third quarter) are not taken into account, there would have been a 19 per cent. increase. Growth was registered in all the components of income, aside from revenues generated by securities trading.

3Q 01 3Q 02 % 9M 01 9M 02 % (in millions of EUR) Net interest income...... 632 815 +29% 1,819 2,330 +28% Net commission income ...... 244 243 - 756 817 +8% Income from currency dealing and securities trading ...... 134 101 -25% 458 433 -5% Gains realized on investments...... 66 193 +193% 165 293 +77% Dividend income ...... 11 23 +109% 100 134 +34% Result, equity method ...... -9 4 - -3 5 - Other operating income ...... 86 88 +3% 259 326 +26% ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Total gross operating income ...... 1,165 1,468 +26% 3,553 4,338 +22% ––––––– ––––––– ––––––– ––––––– ––––––– –––––––

A breakdown is given below of developments underlying the various headings:

The growth in net interest income has persisted quarter after quarter, and after nine months, this item is 28 per cent. higher than it was a year ago (+17 per cent. on an organic basis). The biggest (organic) increase occurred in the dealing rooms. In Belgium, the commercial margin has widened slightly since the start of the year. Growth in Central Europe is good (after nine months: +22 per cent. on an organic basis), though the figure has been favourably influenced by exchange rate effects, among other things.

Commission income suffered under the poor stock market climate. Although the figure for the third quarter is little changed year-on-year, it is lower than the second-quarter figure. In particular, income from the securities business and corporate finance proved disappointing, while fee income from fund management activities remained more or less up to par. On the other hand, commission income from payments grew, particularly in Central Europe. On balance, for the first nine months of the year, commission income went up by 8 per cent., although this can be put down entirely to the expansion in the scope of consolidation.

Revenues from currency dealing and securities trading were down for the second quarter in a row. The decline was most pronounced in the dealing rooms, although there the drop in earnings on securities trading was offset by higher net interest income (see above). Trading profits generated by the group’s equity companies held up relatively well under the adverse stock market climate. For the first nine months of 2002, earnings on currency dealing and securities trading fell 5 per cent. (-12 per cent., organically).

Owing to the continuing malaise on the financial markets, the third quarter saw a further decline in capital gains realized on shares in the investment portfolio. On the other hand, considerable gains were realized on bonds (206 million EUR). These bonds came from a portfolio which has nothing to do with the reinvestment of customer deposits. On balance, the gains accounted for 7 per cent. of total gross income for the first nine months of the year (compared with 5 per cent. last year). On 30th September, 2002, the balance of gains and losses on the securities portfolio (mainly on bonds) in the banking business still came to 1.5 billion EUR.

57 Third-quarter “other operating income” remained more or less unchanged year-on-year. Income from leasing is under pressure, however, owing to the weak state of the economy. For the first nine months of 2002, the “other operating income” heading showed a substantial increase, but most of this was accounted for by non-recurring income from a securitization operation carried out in the first half of the year.

General administrative expenses In the banking business, operating charges fell to their lowest level of the past three quarters (down by 9 per cent. on the preceding quarter). Compared with last year, however, they have gone up, but this can be accounted for to a large extent by the wider scope of consolidation. The organic increase in charges for the first nine months of 2002 came to 2 per cent. (with staff charges up 4 per cent., depreciation/amortization up 18 per cent., and other operating charges down 5 per cent.).

For the first nine months of the year, the cost/income ratio came to 64.1 per cent., a striking improvement on the year-earlier figure (69.3 per cent.).

General administrative expenses 3Q 01 3Q 02 % 9M 01 9M 02 % (in millions of EUR) Staff charges ...... 408 484 +18% 1,326 1,492 +13% Depreciation on fixed assets ...... 76 106 +41% 249 324 +30% Other operating charges ...... 295 294 -0% 887 966 +9% ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Total, general administrative expenses ...... 779 884 +14% 2,461 2,782 +13% ––––––– ––––––– ––––––– ––––––– ––––––– –––––––

The cost trend has been affected by:

the implementation of cost-cutting plans by the various Group companies, especially in Belgium. At KBC Bank (non-consolidated), for instance, outlays fell 2 per cent. from the preceding quarter. For the first nine months of the year, costs were 5 per cent. lower, thanks mainly to merger-related savings.

expansion-related investments in Central Europe, such as modernization of IT systems and the bank branch network. For the first nine months of this year, depreciation charges in the region went up on an organic basis by nearly 50 per cent., compared with last year (the figure has admittedly been inflated by exchange rate effects).

Value adjustments for credit risks and investment securities 3Q 01 3Q 02 % 9M 01 9M 02 % (in millions of EUR) Credit risks ...... 79 131 +66% 161 305 +89% Investment securities ...... 92 142 +53% 114 211 +86%

Third-quarter loan loss provisioning came to 131 million EUR, considerably more compared to the second quarter of this year (+54 per cent.) and to the reference quarter in 2001 (+66 per cent.). Nonetheless, the figure is lower than the peak amount reached in the closing quarter of 2001 (160 million EUR). Provisions for the first nine months were nearly twice as high in 2002 as in 2001.

Much of the third-quarter provisioning was carried out in Poland. First of all, the local economy there is in bad shape. Secondly, after the controlling stake in the Polish subsidiary was acquired, its loan portfolio was thoroughly screened, and this led to a substantial increase in the level of provisions. Credit quality in the other Central European countries is very good. In Hungary, loan losses were again very limited (loan loss ratio: 0.16 per cent.) and in the Czech Republic and Slovakia, provisions could again be written back (loan loss ratio: -0.38 per cent.).

58 At the end of September 2002, the non-performing ratio(2) came to 2.8 per cent. (largely on a par with the figures for 30th June, and year-end 2001). 62 per cent. of the non-performing loans are covered by (specific) loan loss provisions, and another 12 per cent. by general credit provisions. For the first nine months of 2002, the loan loss ratio came to 0.49 per cent. (annualized).(3)

Besides write-downs on and provisions for credit risks, the poor situation on the financial markets led to additional (unrealized) valuation losses of 142 million EUR being posted on investment securities (mainly equities) in the third quarter. For the first six months of the year, the impairment losses had come to 70 million EUR, bringing the amount for the first nine months to 211 million EUR.

Other profit and loss account headings Here, the most significant developments were:

the 24 million EUR reduction in provisions for liabilities and charges in the third quarter, which was brought about by a number of different factors. For the first nine months of the year, 10 million EUR was written back on balance.

the absence of any material extraordinary results for the third quarter. For the first nine months of 2002, the extraordinary result came to 40 million EUR, about 50 per cent. less than last year.

the noticeable increase in the tax burden, due mainly to the decline in tax-free gains on shares and the higher non-deductible impairments in value. It should be noted that the considerable gains realized on bonds are subject to tax. Consequently, taxes increased for the third quarter and for the first nine months of the year by 117 per cent. and 75 per cent., respectively, year-on-year.

(2) The percentage of the portfolio of outstanding loans which are 90 days or more in arrears. (3) Ratio of specific provisions/write-downs to the average volume of credit outstanding.

59 CAPITALISATION OF THE GUARANTOR

The following table sets out the consolidated capitalisation of the Guarantor as at 30th September, 2002.

As of 30th September, 2002 (in thousands of EUR) Capital and Reserves Capital ...... 3,558,698 Share premium...... 449,464 Revaluation surpluses...... 9,817 Reserves and profit brought forward...... 4,868,500 Goodwill on consolidation...... -1,351,106 Translation differences...... -24,105 ––––––––––––––– Total Capital and Reserves...... 7,511,268 ––––––––––––––– Minority interests ...... 2,091,902 Subordinated loans ...... 6,814,940 Fund for general banking risks ...... 0 ––––––––––––––– Total Capital Resources ...... 16,418,111 –––––––––––––––

There has been no material change in the capitalisation of the Guarantor since 30th September, 2002.

The issued share capital amounts to EUR 3,558,697,544.89 represented by 364,130,107 ordinary shares of no par value. All of the Guarantor’s authorized share capital has been issued and fully paid. All shares are registered.

60 GUARANTOR

Consolidated balance sheet

Audited for the years ended 31st December, 2000 and 31st December, 2001 Non audited for the nine month period 1st January, 2002 to 30th September, 2002

ASSETS

31st 31st 30th December December September 2000 2001 2002 (in ’000 euro) (in ’000 euro) (in ’000 euro)

I. Cash in hand, balances at central banks and post office banks...... 729,988 1,257,070 1,189,680

II. Treasury bills eligible for refinancing at the central bank ...... 3,858,170 3,468,148 3,869,994

III. Loans and advances to credit institutions...... 21,836,606 28,285,733 30,469,288 A. Repayable on demand ...... 3,062,476 4,257,741 2,520,097 B. Other loans and advances (with agreed maturity dates or periods of notice)...... 18,774,130 24,027,992 27,949,191

IV. Loans and advances to customers...... 78,923,284 87,026,501 93,885,582

V. Bonds and other fixed-income securities ...... 47,983,388 57,057,285 55,692,959 A. Issued by public bodies ...... 36,008,965 43,162,134 41,261,941 B. Issued by other borrowers...... 11,974,423 13,895,151 14,431,018

VI. Shares and other variable-yield securities ...... 6,312,863 5,628,086 4,372,484

VII. Financial fixed assets ...... 695,123 286,127 576,026 A. Companies consolidated according to the equity method 1. Participating interests...... 335,027 139,083 358,479 2. Subordinated loans ...... 42,994 7 7 B. Other companies 1. Participating interests, shares ...... 302,638 123,498 193,382 2. Subordinated loans ...... 14,464 23,540 24,158

VIII. Formation expenses and intangible fixed assets ...... 120,956 171,611 174,765

IX. Goodwill on consolidation ...... 40,767 32,791 384,534

X. Tangible fixed assets ...... 1,800,411 2,088,308 2,151,509

XI. Own shares ...... 55,269 55,269 55,269

XII. Other assets ...... 8,555,419 11,449,752 4,289,482

XIII. Deferred charges and accrued income ...... 6,051,853 19,117,385 19,429,501

TOTAL ASSETS ...... 176,964,097 215,924,069 216,541,074

61 LIABILITIES

31st 31st 30th December December September 2000 2001 2002 (in ’000 euro) (in ’000 euro) (in ’000 euro)

I. Amounts owed to credit institutions...... 41,961,169 41,195,789 46,711,282 A. Repayable on demand ...... 2,128,256 6,077,690 2,893,941 B. Amounts owed as a result of the rediscounting of trade bills .... 103,593 14,373 21,011 C. Other debts (with agreed maturity dates or periods of notice)... 39,729,320 35,103,726 43,796,330

II. Amounts owed to customers...... 82,281,801 110,191,245 103,990,122 A. Savings deposits...... 18,436,743 20,172,408 20,096,792 B. Other debts...... 63,845,058 90,018,838 83,893,330 1. Repayable on demand ...... 19,038,438 25,226,119 26,544,114 2. With agreed maturity dates or periods of notice ...... 44,806,620 64,792,719 57,349,216 3. As a result of the rediscounting of trade bills ...... 0 0 0

III. Debts represented by securities ...... 24,966,660 21,044,512 24,864,101 A. Bonds and other fixed-income securities in circulation...... 13,416,922 13,110,546 14,465,591 B. Other debt instruments ...... 11,549,738 7,933,966 10,398,510

IV. Other liabilities...... 4,625,371 5,599,980 4,344,193

V. Accrued charges and deferred income...... 6,071,517 20,859,546 19,522,159

VI. Provisions and deferred taxes A. Provisions for liabilities and charges ...... 958,414 662,274 641,236 1. Pensions and similar commitments...... 71,719 82,747 76,745 2. Taxation...... 54,256 54,902 54,973 3. Other liabilities and charges ...... 832,439 524,625 509,518 B. Deferred taxes ...... 6,867 5,969 49,872

VII. Fund for General Banking Risks...... 1,841,379 0 0

VIII. Subordinated liabilities ...... 7,004,208 7,077,732 6,814,940

CAPITAL AND RESERVES...... 5,299,052 7,007,267 7,511,268

IX. Capital...... 3,558,698 3,558,698 3,558,698 A. Subscribed capital ...... 3,558,698 3,558,698 3,558,698 B. Uncalled capital ...... 0 0 0

X. Share premium account...... 449,464 449,464 449,464

XI. Revaluation reserve ...... 10,630 10,162 9,817

XII. Reserves and profit brought forward ...... 2,283,083 4,433,981 4,868,500

XIII. Goodwill on consolidation ...... -989,091 -1,416,217 -1,351,106

XIV. Translation differences (+/-)...... -13,731 -28,820 -24,105

THIRD-PARTY INTERESTS...... 1,947,659 2,279,755 2,091,902

XV. Third-party interests ...... 1,947,659 2,279,755 2,091,902

TOTAL LIABILITIES ...... 176,964,097 215,924,069 216,541,074

62 Consolidated off-balance-sheet accounts

31st 31st 30th December December September 2000 2001 2002 (in ’000 euro) (in ’000 euro) (in ’000 euro)

I. Contingent liabilities...... 15,621,467 15,818,915 15,262,834 A. Non-negotiated acceptances...... 39,726 35,265 58,861 B. Guarantees in the nature of direct credit substitutes ...... 6,350,499 6,694,224 6,959,602 C. Other guarantees ...... 7,936,666 8,108,579 7,257,381 D. Documentary credits ...... 737,431 811,888 756,022 E. Assets charged as collateral security on behalf of third parties.. 557,145 168,958 230,968

II. Commitments carrying a potential credit risk...... 49,352,438 46,471,078 46,596,388 A. Firm credit commitments ...... 3,615,076 635,907 2,465,109 B. Commitments arising from spot purchases of securities ...... 253,165 1,583,559 1,643,585 C. Undrawn margin on confirmed credit lines ...... 45,390,249 44,221,898 42,447,805 D. Underwriting and placing commitments...... 93,948 29,714 39,889 E. Commitments as a result of open-ended sale and repurchase agreements ...... 0 0 0

III. Assets lodged with the companies included in the consolidation ..... 92,434,244 89,250,955 87,515,209 A. Assets held for fiduciary purposes...... 1,197,365 1,662,615 2,496,053 B. Safe custody and equivalent items ...... 91,236,879 87,588,340 85,019,156

IV. Uncalled share capital...... 28,068 4,232 26,185

63 Consolidated profit and loss account

31st 31st 30th December December September 2000 2001 2002 (in ’000 euro) (in ’000 euro) (in ’000 euro)

I. Interest receivable and similar income ...... 10,066,214 11,543,636 7,186,041 Of which income from fixed-income securities...... 2,892,957 2,856,553 2,328,737

II. Interest payable and similar charges...... -7,758,194 -8,992,337 -4,846,818

III. Income from variable-yield securities...... 144,449 115,198 131,884 A. From shares and other variable-yield securities ...... 117,277 102,046 128,672 B. From participating interests and shares constituting financial fixed asset...... 27,172 13,152 3,212

IIIbis Share in the result of the companies consolidated according to the equity method ...... 47,186 67,277 82,732

IV. Commission receivable ...... 1,437,967 1,294,240 893,901

V. Commission payable ...... -403,613 -410,680 -308,164

VI. Profit/(Loss) on financial transactions...... 808,931 884,923 723,837 A. On the trading of securities and other financial instruments.. 590,101 609,591 432,892 B. On the disposal of investment securities ...... 218,830 275,331 290,945

VII. General administrative expenses ...... -2,638,258 -2,909,047 -2,335,279 A. Remuneration, social security costs and pensions ...... -1,674,560 -1,820,225 -1,383,206 B. Other administrative expenses...... -963,698 -1,088,823 -952,073

VIII. Depreciation and write-downs on formation expenses, and on intangible and tangible fixed assets ...... -304,390 -365,135 -334,156

IX. Adjustments to write-downs (Write-downs) on receivables and write-back of provisions (provisions) for Off-balance-sheet headings ‘I. Contingent liabilities’ and ‘II. Commitments carrying a potential credit risk’ ...... -241,281 -321,383 -305,018

X. Adjustments to write-downs (Write-downs) on the investment portfolio in bonds, shares and other fixed-income and variable-yield securities...... -82,321 -86,150 -207,122

XI. Utilization and write-back of provisions for liabilities and charges other than those referred to in Off-balance-sheet headings ‘I. Contingent liabilities’ and ‘II. Commitments carrying a potential credit risk’...... 98,632 150,431 71,411

XII. Provisions for liabilities and charges other than those referred to in Off-balance-sheet headings ‘I. Contingent liabilities’ and ‘II. Commitments carrying a potential credit risk’ ...... -83,557 -107,791 -60,954

XIII. Transfer from (Transfer to) the Fund for General Banking Risks...... -15,772 0 0

XIV. Other operating income ...... 301,619 390,850 358,913

XV. Other operating charges ...... -159,344 -220,434 -122,643

XVI. Profit (Loss) on ordinary activities, before tax, of the companies included in the consolidation...... 1,218,268 1,033,597 928,562

64 Consolidated profit and loss account (continued)

31st 31st 30th December December September 2000 2001 2002 (in ’000 euro) (in ’000 euro) (in ’000 euro)

XVII. Extraordinary income ...... 731,876 105,693 49,556 A. Adjustment to depreciation and write-downs on intangible and tangible fixed assets...... 293 294 100 B. Adjustments to write-downs on financial fixed assets ...... 58 2,212 333 C. Adjustments to provisions for extraordinary liabilities and charges...... 0 0 0 D. Gains on the disposal of fixed assets ...... 722,174 102,000 47,786 E. Other extraordinary income ...... 9,351 1,188 1,338

XVIII Extraordinary charges ...... -38,705 -29,925 -9,619 A. Extraordinary depreciation and write-downs on formation expenses, and on intangible and tangible fixed assets ...... -8,632 -14,851 -7 B. Write-downs on financial fixed assets...... -21,414 -666 -2,145 C. Provisions for extraordinary liabilities and charges...... 0 0 -101 D. Losses on the disposal of fixed assets ...... -7,362 -12,069 -3,611 E. Other extraordinary charges ...... -1,297 -2,338 -3,754

XIX. Profit for the financial year, before tax, of the companies included in the consolidation...... 1,911,439 1,109,365 968,500

XIX.bis A. Transfer to deferred taxes...... -1,010 -643 -8,277 B. Transfer from deferred taxes...... 5,731 528 14,604

XX. Income taxes ...... -247,385 -272,431 -343,289 A. Income taxes ...... -258,586 -281,482 -345,277 B. Adjustments to income taxes and amounts written back from tax provisions...... 11,201 9,052 1,988

XXI. Consolidated profit...... 1,668,775 836,820 631,538

XXII. Third-party interests in the result ...... 171,137 171,387 137,864

XXIII. Group interests in the result ...... 1,497,638 665,433 493,674

65 THE ISSUER

KBC IFIMA N.V. Westersingel 88 NL-3015 LC Rotterdam The Netherlands

THE GUARANTOR

KBC Bank NV Havenlaan 2 B-1080 Brussels Belgium

AUDITORS

To the Issuer To the Guarantor Ernst & Young Accountants Ernst & Young Bedrijfsrevisoren Drentestraat 20 Schelde II-gebouw NL-1083 HK Amsterdam Moutstraat 54 The Netherlands B-9000 Gent Belgium

FISCAL AND PRINCIPAL PAYING AGENT

Kredietbank S.A. Luxembourgeoise 43, Boulevard Royal L-2955 Luxembourg

PAYING AGENT

KBC Bank NV Havenlaan 2 B-1080 Brussels Belgium

LISTING AGENT

Kredietbank S.A. Luxembourgeoise 43, Boulevard Royal L-2955 Luxembourg

66 Perivan Financial Print 200644