BELGIAN BANK KBC accepted a €3.5 billion capital injection from the state yesterday, becoming the last major Belgian lender to turn to the Belgian government after a sharp fall in its share price.

The state is to buy non-voting securities that will boost KBC's core Tier 1 capital to above 8 per cent from below 7 per cent, but will not be dilutive to existing shareholders, KBC said. It will also raise KBC's insurance solvency margin to 280 per cent.

KBC employs 700 staff in Ireland, where it has operated since 1978. Until recently, it traded in Ireland as IIB Bank.

The terms of deal announced yesterday closely resemble those of a €10 billion injection into ING, the Dutch banking and insurance group, by the Dutch government a week ago.

Like ING, KBC's executives will take no bonus for 2008 and no dividend will be paid. The state will also nominate two directors to KBC's board.

Shares in KBC dropped 24 cent, or 0.9 per cent, to €26.46, slowing an earlier plunge of as much as 14 per cent.

KBC said two weeks ago it would report a third-quarter net loss of between €880 million and €930 million due to €1.6 billion in markdowns on its €9 billion structured credit portfolio. The bank insisted its operating business remained "satisfactory".

The capital injection is the fourth financial sector intervention by Belgium in as many weeks and follows the bailout by the government of both Fortis and Dexia.

Both finance minister Didier Reynders and KBC chief executive Andre Bergen insisted at a news conference that KBC was not being rescued, unlike the other Belgian-based financial institutions bailed out.

"We are back again among the groups with the best capitalisations in Europe," Mr Bergen said. -(Financial Times service/Reuters)