By Jakob Van Calster and Mateusz Rabiega

(Reuters) -KBC Group reported an estimate-beating first-quarter net profit on Thursday, driven by strong revenue from net interest and fees, and growth of its insurance business.

Belgian’s largest lender, which manages over 380 billion euros ($425.87 billion) in assets, posted a net profit of 546 million euros, above the average 529 million euros expected in a poll compiled by the bank.

Shares were up 2% at 0827 GMT, after hitting their highest price since March 27 in early trade, outperforming the pan-European STOXX index, which was 0.4% lower.

The bank also agreed to buy a 98.5% stake in Slovak lender 365. bank, based on a total market value of 761 million euros.

KBC joins a list of European banks which have reported stronger-than-expected earnings for the first quarter, with Morgan Stanley analysts calculating that 87% of regional lenders had beaten estimates on pre-provision operating profit.

The bank also updated its dividend and capital deployment policy, and plans to pay a dividend corresponding to 50% to 65% of its consolidated earnings from 2025, with an interim dividend of one euro per share to be paid in November.

Last week, it paid out a dividend of 4.85 euros per share for the 2024 accounting year, translating to a total of 1.93 billion euros distributed to shareholders.

"The focus will predominantly be on further organic growth alongside mergers and acquisitions," CEO Johan Thijs said in a statement.

"We see a 13% un-floored, fully loaded common equity ratio as the minimum," he said, referring to the outlook for capital deployment.

At end of the quarter ended March 31, the ratio stood at 14.5%.

Analysts at ING said that the "shift to higher payout and dividends", as well as the lower threshold of CET1 (common equity) ratio - which compares a bank's capital to its assets - might make KBC consider additional share buybacks.

($1 = 0.8923 euros)

(Reporting by Jakob Van Calster and Mateusz Rabiega in Gdansk; Editing by Mrigank Dhaniwala and Rachna Uppal)