The European Commission approved on Thursday an emergency recapitalization worth 3.5 billion euros (about US$5.12 billion) that the Belgian government has intended to grant to KBC Group N.V..

The commission found the measure to be in line with its state aid policies during the current financial crisis, constituting "an adequate means to remedy a serious disturbance in the Belgian economy while avoiding undue distortions of competition."

KBC has an important role within the Belgian financial sector --a loss of confidence in this institution would have led to a further disturbance of the current financial situation and harmful spill-over effects to the economy as whole, said the commission.

In particular, the measure is limited in scope, requires an adequate remuneration and provides safeguards to minimize distortions of competition, said the commission.

"The capital injection is necessary to maintain the market's confidence in KBC and to ensure its contribution in providing loans to the real economy," said Competition Commissioner Neelie Kroes.

On Dec. 1, the Belgian authorities notified their plans to the commission to recapitalize KBC Group N.V. with 3.5 billion euros via a special type of securities.

The subsequent changes to the foreseen transactions agreed to by the Belgian government and KBC have been communicated to the commission on Dec. 5.

Due to the current financial crisis, even fundamentally sound institutions like KBC Group N.V. may experience distress and be required to reassure financial markets of their stability.

Against this background, it was considered necessary to strengthen KBC's capital base against possible future losses.

Thus, the capital injection will increase the tier 1 ratio of KBC Bank to above 10 percent and the solvency ratio of KBC Insurance to 280 percent. (US$1 = 0.6842 euros)

(Xinhua News Agency December 19, 2008)