S&P Reacts to Court Decision on KBC Merger

Business Wire, July 9, 1998

PARIS--(BUSINESS WIRE)--Standard & Poor's CreditWire 7/9/98-- Standard & Poor's has been informed of the decision of the Brussels court of appeal to overturn a commercial court judgement of July 1, 1998 that suspended the merger between Kredietbank N.V. (KB) and CERA Bank (Cera). The commercial court decision was a response to the concerns of a syndicate of Cera cooperative shareholders about the terms of the merger. The court of appeal ruling means that Standard & Poor's now considers that there is no reason to take any rating action on KBC Bank N.V.'s (KBC Bank) long-term and short-term counterparty ratings or on those of its affiliates. KBC Bank took over the banking activities of KB and Cera on June 3, 1998.

KBC Bank has a leading competitive position in Belgium, satisfactory profitability, and solid capital ratios relative to its risk profile. KBC Bank has a prominent position in Belgium, particularly in the prosperous Flanders region. Overall, KBC Bank's market shares is about 18% of total credits to the private sector in Belgium and 19% of total deposits. This strong domestic retail base will stabilize the bank's credit-risk profile as it expands internationally. Although KBC Bank's pro-forma ROA stood at only 39 basis points in 1997, Standard & Poor's considers its profitability to be satisfactory given its low-risk profile. With a pro-forma Tier 1 ratio of 6.7% at Dec. 31, 1997, KBC Bank's regulatory capital ratios are higher than those of KB alone. Moreover, Standard & Poor's estimates that undisclosed internal reserves set aside on a yearly basis understate KBC Bank's bottom-line profitability and capital ratios. KBC Bank's strong asset quality is an additional positive element in its ratings.

KBC Bank's shares are 100% held by a holding company, KBC Bank Insurance Holding, which also fully owns KBC Insurance N.V., the third-largest insurance group in Belgium by premium income. The bank and insurance group together will have 2.5 million customers, 23,300 employees, and access to a wide diversity of distribution channels, including traditional bank branches, tied insurance agents, and a network of independent brokers.

KBC Bank Insurance Holding is itself majority owned by Almanij N.V., a conglomerate that also has industrial holdings and controls a bank in Luxembourg. KBC Bank Insurance Holding is Almanij's main asset. Almanij N.V. is itself 38.5% owned by Cera Holding, in which Cera's cooperative members have interests. No potential support from Almanij N.V. is factored into KBC Bank's ratings, Standard & Poor's said. -- CreditWire

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