Kbc Group Sa Unsp/Adr

Good morning, ladies and gentlemen, and welcome to the conference call of KBC Group. At this time, all participants are in listen-only mode. I would now like to turn the call over to Mr. Kurt de Bans, Investor Relations General Manager. Mr. de Bans, over to you.

Thank you, operator. A very good morning to all of you from the headquarters of KBC in Brussels, and welcome to the KBC conference call. Today is Thursday, November 7th, 2024, and we are hosting the conference call on the third quarter results of KDC. As usual, we have Ioan Theijs, Group CEO with us, as well as Group CFO Bartel Pulings, and they will both elaborate on the results and add some additional insight. As such, it's my pleasure to give the floor to our CEO, Ioan Theijs, who will quickly run you through the presentation.

Thank you very much, Kirsten. Also from my side, a warm welcome on the announcement of the third quarter results 2024. We will do that as usual via the slides which are at your disposal. Starting with the highlights, well, we posted an excellent result of €868 million, which is indeed once again an expression of the commercial machine firing on all its cylinders. All countries have contributed very well. And also what is for sure something which you have on the mind, what happens with the recovery of the state note monies in Belgium? Well, we, as you remember, we had an outflow of 5.7 billion. We recuperated 6.5 billion of our customer monies, which means that in excess of 0.8 billion came on top. And that is an expression how we have positioned ourselves in the market. And that is not only true for Belgium, but in essence for all of our markets in the group. Consequently, we see that our net interest income has risen 1%, that we have been able to sell more customer loans than before, and that we have been able to increase our fee business significantly as our insurance business as well. In terms of where we are with the sales in our life insurance business, also there we had a very strong increase over the quarter and over the year. In terms of outflowing monies, we have seen a one-off, which is a gain on a participation in an associated company of 79 million euro. But on the other hand, costs are under control. There is an uptake of our cost of 6%, but it's perfectly aligned with the guidance given earlier. And we have seen good results on the insurance side, despite the fact that natural catastrophes in the form of windstorms, but also floodings in Central Europe called Boris, have kicked in quite significantly. Impairments are lower than previous quarter or in that perspective, also perfectly under control. And as a summary of all these numbers, the solvency ratio of KBC has further improved as has done the liquidity position. We therefore also feel very confident to announce again, fully in line with our dividend policy that we are going to pay out an interim dividend of one euro per share on the 14th of November of this year. To express some elements in terms of more relative numbers, you can see that on the right-hand side of the slide, the results are translated in return of equity of roughly 14%. Let me go into other slides. First of all, we are very proud also to flag that KVC has been nominated by an external part of SEER partners as having the best performing mobile banking app globally, and we are pretty proud on this one. It's the second time that we have the honor to have won this prize, and it also translates all the efforts and all the results which KVG has put into and has achieved by using technology, amongst others AI technology, group-wide. The good news about winning this prize is also that it translates in our results. We have in the meanwhile more than 5 million of our customers which have been in contact with Kate and start to use it. We do see that what they are doing is paying also off in terms of our productivity we do have a productivity gain of one to one and a half percent linked to all the usage of that technology but what is more imminent is that if you only look at kate then we see that 52 messages are pushed to kate to our customers that kate is in itself able to sell 236 000 products to our customers fully independently in the last 12 months and this is a exponentially growing curve, and that if you would calculate this in terms of customers interacting with Kate, and you would calculate it in a kind of conservative way, then we are roughly around 300 people where Kate is doing the equivalent work off. What about the split bank and insurance? Well, it's an 88, 12% split, which is more or less in line with what we have seen in the longer term average. So let me skip over that. And let me indeed also go over the next slide, which is stressing again that we are doing everything what is in the green is amongst the better part of the peloton on sustainability, on solvency, on profitability, but also on digitization. In terms of one-offs, I already mentioned a one-off of 79 million euro because of the share of results in an associated company. The company is in Belgium Payment Fintech. which is giving us an extra surplus value of 79 million euro. All the rest are actually tiny amounts and therefore let me skip over it and go immediately to things which are more important, that is net interest income. First of all, KBC, as you know, is a very well diversified institution. Net interest income is therefore only 50% of our total income. But that 50% has further increased over the quarter with 1%, despite the fact that inflation-linked bonds impact this quarter was negative minus 23 million euro. So despite this drawback, we have been able to outperform our previous quarters and also same quarter last year in a significant manner, and this is mainly the result of higher commercial transformation results. As we already indicated on earlier calls, the hedging strategy of KBC allows us to indeed be very confident that our transformation result will continue to increase going forward, despite the fact that rate cuts are kicking in. Next to that, we also see that the lending income has grown further. In this perspective is mainly driven by volume growth. We have been growing 1% on the quarter and 5% on the year. By the way, this is also a confirmation that we are very confident we will achieve the 4%, the corrected and the amended growth level on year basis 4% that we will definitely achieve that by year end. Today, we are year to date at 3.25% of that loan growth. But also, I mean, in terms of the margin, it's quite clear that, and it depends from country to country. So in certain countries, we do see margin increasing, but in general, that is pressure, commercial pressure on the margins, on the lending business. Consequently, also because of the fact that the interest bearing assets have increased significantly with more than 3 billion euros the net interest margin has dropped. On the slide, you can see two points, but in reality is a bit more than 1.5 basis points, sorry, and now stands at 208 basis points. Let me come back to the net interest income. I already mentioned the inflationary bonds. We are still very confident that what we guided for will be reached in the fourth quarter as well. And all the rest are more smaller numbers Therefore, let me not go into the detail and also let me skip the year-on-year difference. But all in all, this result on the net interest income is something we are very confident to see evolving in the same way in the next coming quarters. Sorry, before I go to fee and commission, what about the core customer money? So as a matter of fact, What about the impact also of the Belgian state note? In total, for the entire group, we saw this quarter a very strong 8.7 billion inflow of core monies. This is translated as a shift on, in essence, current account savings of roughly 1 billion euro, which is flowing in in two types of products. First of all, mainly the term deposits on the one hand and savings certificates on the other hand. in total 7.6 billion, but also we have seen a very strong increase of the net inflow on the asset management and life insurance product mutual funds, which is translated in an extra inflow in this quarter only of 2.1 billion. So it sums up to a whopping 8.7 billion. And if you then make the calculation over nine months of this year, you come to the conclusion that the custom money dynamic is a positive of 14.4 billion in this year. Let me highlight as well that over nine months we were able to even, despite the commercial pressure, we were able to increase the volumes on our current and our saving accounts with 0.4 billion, which is better than what we have anticipated for the beginning of the year in terms of shifts. When I speak about these numbers in the third quarter, obviously they are influenced by the recuperation of the maturing 22 billion state note in September in Belgium. You can see that on slide eight. And, well, the result for KBC is, in terms of volume, absolutely excellent. So we had an outflow of 5.7 billion. We recuperated 6.5 billion euro, which means that we have been able to collect 0.8 billion more than what we have seen in an outflow a year ago. split up of that six and a half billion is on on slide eight six billion went into term deposits 1.2 billion and saving certificates we had shift in our current saving accounts and we that that shift went partly into other funds or other friends like asset management products but also life insurance contracts and sort likes so the total is six and a half billion now this also means Two things. First of all, giving the very fierce competition which happened during that period. And as you know, KBC, or perhaps you don't know, therefore let me highlight it. KBC only participated in this competition during 14 days, whereas some of our peers were collecting over a month their funds. So the negative impact, given the fierce competition of the total action in September, is going to be €87 million, of which €26 million in 2024, that means roughly three and a half months, and the impact in 2025 is €61 million. The €61 million, for good understanding, will be partially offset by a couple of other things, We have summed up a list of potential things. Be aware that given the fact that we have collected more than roughly $6.5 billion of deposits, that it will have a positive impact on our funding needs in 2025. It will clearly also pay off in terms of our fee and commission income. And then last but not least, also on the maturity date of the state note in 2025, There, obviously, the things were fundamentally different because we will be in a completely different rate environment by that date. Let me go to fee and commission. On page 9, here again, a very solid result. Once again, we have seen an increase of the fee and commission business generated through the banking services and then the asset management services with €18 million. There is 3% extra. of which 3% is also the evolution of our asset management services. The asset management services are driven by, in essence, two things. Of course, the good market performance, but clearly also the fact that over the year, we have seen already a strong increase in, as you know, in terms of asset management margins, sorry, asset management fees that is built upon the stock as well. In terms of the net inflow, I already mentioned we had a very strong inflow this quarter 2.1 billion on the quarter if I compare that with the previous quarter that is 1.4 billion more if I compare that with the same quarter last year that is even 1 billion more in total we are now at 4.6 billion inflow of our funds and that is absolutely a record as a matter of fact when we had the budgeted this year we did not budget for 4.6 for the full year So in this perspective, it is even better than the position of last year, which was a record result. It also translates in gross sales, which are also at record highs, 3.4 billion. That's significantly better than what we have seen in the same period last year. Let me go to the other contributing elements. Banking services are up significantly as well. This is mainly triggered by payment services, payment services which are seasonally bound. And given the composition of third quarter, which is intrinsically at least two months holiday period, it is no surprise that they are performing very well. In terms of the asset under management, we now stand at $269 billion. This is 18% more year on year, just to express what I just said. In terms of insurance business, well, insurance business has grown 8% over the year. which is the contribution in Belgium 6% and more than 10% in the Central European countries, so both have known a very solid growth. The combined ratio stands at 89%, and that is negatively influenced by roughly 2%, given the impact of natural catastrophes. For good understanding, the natural catastrophes, I mean in essence the storm Boris in Central Europe, it has had a very devastating impact. There are many casualties. And on top of that, we have seen significant damages to infrastructure and housing. For us, it translated in a cost price of 77 million euro gross in terms of net impacts. So after reinsurance, we are talking about 33 million euro pre-tax only for storm borders. If I take into account all wind storms, including the ones in Belgium and others in Central Europe, then it is quite clear that the natural catastrophes are a significant part of our business on the insurance side 49 million euro after reinsurance total impact in this quarter in terms of the life insurance sales it can be very brief excellent quarter much better than previous quarter much better than last year same period 28% up respectively 80% up and this is driven by commercial campaigns which we have followed in this quarter and traditionally you know when we do commercial campaigns on these matters, then it has a positive impact on the result. In the meanwhile, unit link stands for 51% of the total production, whereas interest guaranteed rates stand in 42%. The difference balance between 100% of the numbers I just mentioned are hybrid products. What about the financial instruments and fair value, super volatile P&L line? As you know, this quarter there is a difference of 45 million euro with previous quarter. mainly driven by the negative credit funding and market value adjustments, which are the result of a decrease in the Euro and the Czech Runa rates. And, you know, this is, I think, the most important part I could say about this. The other one, which is also quite important, that is the dealing room result has performed a little bit better despite difficult circumstances, and it has contributed not substantially more, but €1 million at least better. Net order income, slightly lower than the run rate of 50 million euro now stands at 45 million euro. So let's consider this to be normal and let's go to more important P&L lines that is the cost side. KBC has seen an increase of their costs of 6% on the year basis, which is mainly driven by traditional stocks. So we have invested, we are investing significant amounts in ICT and we have beefed up those investments a little bit more in third quarter. You have the inflation which kicks in and which is marked amongst others in Belgium. of an indexation of wages in the second quarter, which are for the first time in the results in the third quarter, and we do see higher facility expenses and higher depreciation. That is offset by a decrease of lower FTEs, but of course not in total. In this perspective, we need to understand that over a period of nine months, costs are flattish despite the inflation. So we are perfectly in line with our guidance. and we are perfectly in line with the longer term targets which we have put on this. Cost income ratio stands at 43% without bank taxes and that is also perfectly in line with the cost income ratio of last year despite the whopping inflation as you know. Certainties in life, bank taxes continue to go up. This time this is mainly triggered by an intervention of the Hungarian authorities asking us 37 million euro more bank taxes as a matter of fact This is even a mitigated number. Perhaps you remember from the second quarter announcement that there were a couple of mitigating actions. Well, we have taken those into action and therefore we brought down the impact of the Hungarian bank taxes by buying Hungarian government bonds. In this perspective, 37 million euro is the end result. 9 million euro extra in Slovakia and then 1 million in Czech Republic sums it up to 47 million euro. Bank taxes are then explicitly mentioned on page 13 in all detail. It is significant, 13% of our total OPEX, and therefore, I mean, no further comment. On the next page, we have the asset impairments. Well, the good news is that the assets are, the total impairments are 69 million euro, which is split up in two parts, an impairment in essence on software, 7 million euro, and the real impairments on loans are €61 million. Now, that €61 million comes in two parts. First of all, €132 million impairments on the lending book, but in that €130 million we took a deliberate impairment on old non-performing loans, amongst others pushed also by the ECB, which is pushing for this already for several years with all the banks, not only KBC, this is a common denominator and consequence of taking 54 million euro which in essence two files is giving us a release of four basis points potential increase on our pillar two requirement going forward so that remains stable so it shifts from one side to the other total remains then that we have roughly let's say 78 million euro of impairments which are clearly in line with what we have seen in previous quarters. The credit cost ratio consequently, sorry, I forgot to mention one thing, 71 million euro was released out of the buffer of geographically emerging risks, which means that the buffer still holds at 168 million euro of provisions. If you translate that in credit cost ratio, the credit cost ratio stands at 10 basis points all in, stands at 16 basis points if you exclude the ECL buffer, which is indeed significantly better than the longer term guidance, than the guidance which we have given, including the longer term numbers on this perspective. Impaired loans stand at 2.1%. If you use the EBA definition, it stands at 1.56%, which is significantly lower than the European average. Now, all the other numbers are then also related to the, no, let me first go into the CD1 numbers. So in terms of the capital position of KBC, we stand at 15.2%, which is a further improvement of our previous number with one basis points. The building blocks I mentioned there on the slides, in essence, the risk-weighted assets have been creeping up in essence because of volume growth on the lending business side. In terms of buffers, we are with an OCR at 11.8%, giving us a buffer of 4.4% and an MDA buffer of 4.1% coming out of an MDA ratio of 11.1%. In terms of solvency and leverage ratio, well, we are at a leverage ratio of 5.7%, which is a slight increase compared to previous quarter, mainly driven by the fact that we lowered our cash and cash balances with central banks. we have a liquidity ratio which stands solidly above the requirements, 159% in the short-term and 142% in the mid-term liquidity ratios. And it's obviously a position of the insurance company is just slightly below 200%, which is mainly triggered by a widening of the spreads in government bonds area. And given the fact that KBC is investing mainly in its sovereigns, of the home countries, there is not an adjustment or not a full adjustment by the volatility adjustment because that is investing on the European basis and that is not necessarily concentrated in Belgium and amongst others, the Czech Republic. Anyway, looking forward, well, we do see that the third quarter was known by a moderate growth of 0.4% which comes in total for a full year on a growth of roughly 1% in the Eurozone. Well, we are well positioned because the Eurozone is split up in two parts. Clearly, that is Western Europe hovering around that 1%, whereas in Central Europe, the growth ratios are higher, most of the time at least 1% higher. So in that perspective, you also see that over 2025, same evolution can be expected. Growth levels for 2025 roughly around 1%. 1.1% in Western Europe, and then in Central Europe at least 100 basis points higher. For certain countries like Hungary, for instance, Czech Republic, we expect even 1.5% higher. On slides 19 and 20, first of all 19, the guidance, well, we have stated that our numbers would be roughly 5.5 ballpark, On the previous occasion, we said that given the potential impact of the state node, we would expect that midpoint 5.5 minus the impact of the state node would lead us that a fully net interest income would be more toward the lower end of the range. Well, today, we are confirming our guidance that we will easily reach the 5.5 midpoint as a matter of fact. giving the impact of the state node, giving the strong evolution of our transformation result and the continuous strong performance on the lending side, we are very confident to say that we will easily reach the 5.5 billion going forward. As a matter of fact, all the other elements which are on the slide in terms of guidance will be achieved. And we can say that officially now, even at the end of the third quarter, will be easily achieved going forward by year end. The longer-term guidance we don't provide yet with one small detail that is on the net interest income giving the evolution of the transformation result and our lending book giving the expectations which we have going forward on GDP. We are quite confident that for 2025 on the net interest income side we will come with a net interest income of let's say roughly 5.6 billion and I would add to that at least. The further detail on this matter will be given, of course, at the back of the fourth quarter results announcement, because we are in the middle of the process of our budget exercise, and that budget exercise will be concluded in December. And we will update you more, not only on 25, but also 26 and 27 going forward at the end of the fourth quarter, at the end of the announcement of the fourth quarter results. I would end with Basel IV. We have conducted a full review of the Basel IV impact, where more and more details come to the surface now. We have used the numbers of the second quarter of 2024, compared them also with the second quarter of 2023, which was the previous calculation. Well, the situation remains more or less stable. You have here and there a little bit of small shifts, because we now have more detail. on all parameters which are replacing proxies which we used in the previous calculation. And let me summarize it, the total impact is eight and a half billion of risk-related assets fully loaded, of which five billion is at the very end of the tail, so in 2033, it's related to the output floor, and to be very bold, that's a long time to go, so it will be possible to take a lot of mitigating actions in order to mitigate the impact of that output floor the first time, the first time impact, first time impact is the, sorry, the first time application impact is roughly one billion and then over the period 26, 20, 33, we'll see two and a half billion impact going forward. So more or less in line with what we announced earlier, but now with more detail and with more certainty. I will skip the entire part of the countries and I'll give back the floor to Kurt will guide us through your questions. Thank you, Johan.