Kbc Group Sa Unsp/Adr

Hello and welcome to the KBC Group Earnings Release Quarter 4, 2024. My name is Caroline and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen-only mode. However, you will have an opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star 0 and you'll be connected to an operator. I will now hand over the call to your host. Kurt Stebans, the head of investor relations, to begin today's conference. Thank 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, the 13th of February, 2025, and we are hosting the conference call of the fourth quarter and full year 2024 results of KBC. As usual, we have Johan Tijs, Group CEO, with us, as well as Group CFO Bartel Poelings, 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, Johan Tijs, who will quickly run you through the presentation.

Thank you very much, Kurt, and also from my side, a warm welcome to the announcement of the quarter four results of 2020-24, and then obviously, given the last quarter of the year, the full year results of the same year. Well, let me start with the main message. The KDC engine has been firing on all its bank insurance cylinders. We have posted a quite significant result in the fourth quarter with €1,116,000,000. And that is indeed a very nice number. It's influenced by a one-off, which is related to the exit in Ireland. That is €318,000,000. tax benefit, which is kicking into the result. But nevertheless, if you look at the underlying lines, well, indeed, then the bank insurance machine has been firing on all its cylinders. As a matter of fact, if I look at the split up between net interest income and non-net interest income, well, then we have in this quarter four a split 49-51, perfectly in line with what we have seen in previous quarters. And it also shows that a diversification of income in KBC Group is quite significant. Now, in terms of where we are with the net interest income side, well, the good news is net interest income was up on the quarter and was actually then consequently resulting in a higher than a guided full year result 2024 net interest income. This is due to amongst others, the transformation result, which was all but also the fact that we have increased significantly our loan book and our customer deposits. Same can be said about the fee and commission in business, which was sharply up on the quarter, and the insurance sales both on the non-life side as on the life insurance side were significantly up. So in that perspective, all those income lines have been contributing significantly to the result. partly offset by a lower net result from financial instrument at fair value and not net other income, which is due to a one-off. Anyway, in terms of impairments, well, they are lower, and also there the credit cost ratio is significantly lower than the guidance which we have given with 10 basis points, or if you exclude the geographical emerging risk buffer, it stands at 16%. significantly below the guidance we do have a cost the cost evolution which is perfectly under control and is also up but well within the guidance resulting in a cost income ratio 47 percent all included but if you would exclude the bank taxes we stand at a very good 43 percent on the insurance side costing the combined ratio was at 90 percent also below the guidance of 91%, and the number is, as you know, heavily influenced by the storm borders, mainly in Central Europe. When you look at the solvency position, very solid with 15% common equity tier 1 ratio, and on the liquidity side, very solid with NSFR ratios 139 and an LCR ratio of 158%. We will provide you also with an updated guidance. I will go through that in more detail later on. But on the dividend side, we are going to have a gross dividend over the full year of 4.85 euro, of which 70 cents is already paid in May 2024, which was the payout of the surplus capital above the 15% threshold CET1. The genuine dividend is €4.15 consequently, of which €1 is already paid as an interim dividend in November, and the remaining will be paid in May 2025 after approval by the AGM. Now, if you add up those numbers and you include the 81 coupon, we will end up at a payout of 51% of the 2024 net profit. Further detail on where we are going to be with our dividend policy going forward, that will be provided in May with the announcement of the first quarter results. Let me then walk you through a couple of other things. Very briefly, this split up between banking and insurance activities is now roughly 13% on the insurance side, and the remainder 87 is on the banking side. What is very important for KBC is the result of our investments on the digital side, the AI implementations via Kate is further digging into our customer servicing. More and more customers are picking up Kate and 5.3 million of our customers are already using Kate in one or the other way. And the autonomy, which means that the solution Kate is able to answer the questions of our customers independently from any other help from a KBC employee now stands at 70%, which means indeed that 7 out of 10 questions are provided with solutions via Kate. On the next page, you can see a couple of things on the sustainability side. KBC was once again granted a listing on the carbon disclosure project, and we're very proud on this one. But coming back to more numbers of the year, then on page six, you can see the list of exceptional items. I referred already to the biggest one, that is the 380 million euro tax benefits, which is generated through the liquidation of KBC Bank Ireland and or by its remaining shell, which is called Execon. 380 million euro, there is another one-off that is 38 million euro in Hungary, which is linked to a legal case, bringing the total to 270 million euro exceptional items post-tax. Let me then go into the more important P&L lines, starting as usual with net interest income. Well, again, we are able to increase our net interest income. This is due 3% up on the quarter and 5% up on the year. This is due to the further increasing commercial transformation result in previous calls. We already made reference to this, that this has to do with the way KBC has hatched its portfolio, and therefore it's quite mitigating towards the rate cuts of the ECB, and it is once again proven here in the fourth quarter NII results. On the other side, on the other hand, we do have also a further increasing lending income, which was driven by strong growth of the loan volumes, and thereby we are also beating our own guidance. The loan growth now stands at 5%, which is more than the guidance for 4%. In terms of the net interest income, we do have a one-off, which is linked to a special accounting treatment in Bulgaria on the mortgage brokerage fees. 9 million euros, so be aware of that. But otherwise, all the other elements are contributing positively to the results of the net interest income. Amongst others, the short-term cash management was up 8 million euros. The minimum reserve requirements were a little bit better than the run rate. So in this perspective, the result is pretty significant up despite the fact, and that's the number which we already provided for in previous sessions, despite the fact that the negative impact on net interest income due to the state note kicked in in this quarter for €22 million. What about margin? It stayed flattish at 208 basis points. What about the evolution of a loan book, 2% to 5% quarter and year result, which is split up on the mortgage side, 1% to 4%. In terms of the evolution of our deposits, very significant increase of the current accounts and the saving accounts. And also, you can clearly see here also a negative evolution in term deposits. All these numbers are, of course, influenced by the further role of the effects of the state note. But it's quite clear that the trend which we have seen, first and foremost, in Central Europe, in Czech Republic, where we have seen, due to the rate cuts of the policy rates by the Czech National Bank, that customers are shifting back again from term deposits, maturing term deposits. to current accounts and savings accounts, we do see the same trend in the Eurozone as well, which is a repeat of the trends indicating already in the second quarter and definitely in the third quarter of 2024 in Belgium as well. Total amounts on the customer money, 5.4 billion up on the quarter. bringing us to roughly 20 billion more customer money in the full year of 2024. Let me highlight already here two things. First of all, the strong evolution of term deposit, which is linked to the state note, and that has in the fourth quarter definitely a positive effect on net interest income going forward in 2025, but also the record results on the mutual fund business where we have a gross, sorry, a net sale of more than 5 billion. which makes immediately the bridge to the fee and commission income 700 million euro in one single quarter is a record high. That's due to two things. First of all, strong performance on the asset management services fees, which is obviously linked to the further increasing monies which we have, assets under the management which we have available. We had in this quarter, despite the fact that we, as you know, had already record results in the first nine months of this year, we still had a positive inflow in quarter four of 382 million euro, resulting, as I said, the total net sales to 5 billion 30 million euro, of which 1.6 billion is linked to the regular investment plans, creating some stability going forward 25, 26. In terms of the gross sales, also fourth quarter was almost at the same level as the same period last year. In terms of, perhaps to the next page, in terms of insurance sales, the other diversification factor, well, we have a growth of 8% on the year-on-year, but if you exclude The FX effect, then the growth is 9%, beating again the guidance which we have given at the beginning of this year for the non-life insurance sales. So in this perspective, 2024 has been a rock-solid year on the insurance side. Also on the side of the quality with a combined ratio of 89.7%. It stands solid definitely if you know that borders the storm which affected significantly Central Europe, is fully absorbed in that number. If you would exclude Boris to see what is the underlying result of the book, well, then the combined ratio stands at 88%, which is indeed a very strong number. Live sales compared to previous quarter, which was a record quarter as well, hold up pretty strongly. It's more or less the same. It's clearly down on the unit link product side, but it's clearly up on the interest guaranteed products and on the hybrid products. with specific numbers plus 19% on the quarter for interest guaranteed products and 35% on the year. So also in this perspective, the life insurance sales for the full year 25 were up on the year 25%, which is indeed a very strong number. Financial instruments at fair value, this is a more volatile contributor to the P&L. Well, it was... It was deteriorating with roughly €32 million for the quarter, which is linked to, in essence, the ALM derivatives. Most of it is linked to the ineffectiveness of hedge accounting and on the increase of the Czech 10-year interest rates, which has kicked in negatively as well for €7 million. The last part was the lower decrease of the one-year interest rates on receiver swaps, which relate to the state note. So in total, this is the full explanation of the difference between third quarter and the fourth quarter. The dealing room results was slightly up on the quarter to a million euro, but not shifting the needle. Let me go to net order income. There, there is a big difference. Well, the difference is due to the fact that we had a legal case, in Hungary for which we provisioned 28 million Euro. Normally, if this would not have happened, we would have ended up with 55 million Euro, which is perfectly aligned with the run rate for this net other income P&L line. Going to operating expenses, well, operating expenses are seasonally up. This is linked to the seasonally higher marketing costs and professional fee expenses. Mostly also the invoices for the ICT costs come in. And you have, obviously, as well, the implementation of the regulatory costs, which, as you know, are always going up. So, given that seasonal effect, total cost side increased by 6% on the quarter, 3% on the year, but remained perfectly within the guided number. We have a cost increase, if you exclude the bank assurance tax and commissions paid, of 1.6% perfectly in line. with the guidance which we provided for. Cost income ratio therefore also stands at a solid 43% if you exclude the bank insurance taxes, which is similar to last year. And there are certainties in life, that certainty in life that bank insurance taxes are normally growing 623%, 623 million percent would be great, but 623 million euro which is down because of the single resolution fund contribution, which dropped to zero, but unfortunately it was partly compensated by other elements in the bank taxes part. It now stands at 12% of our total expenses, which is quite significant. You can see on slide 13 all the split ups between the different countries. In essence, the bank taxes are Very high in two countries, Belgium and short, also Hungary. Let me go to impairments. Well, impairments are at the level of 78 million euro, more or less in line with previous quarter. The buildup is in two parts. 100 million euro loan loss impairments, which are directly linked to the lending book. And that is offset by a model-driven release of the geographically emerging risk buffer of 55.0 million euro. totaling €50 million net impairment. On top of that, we have €28 million other impairments, which are in essence software impairments. If you exclude the €4 million of modification losses, then you have the total number. In the emerging, geographical emerging risk buffer, we still hold €117 million. And as I said, this is fully model-driven also going forward. In terms of credit cost ratio, well, it now stands at a solid 10 basis points if you take into account the geographical and macroeconomic uncertainties. But if you would exclude them, it would end up at 16 basis points. Also there, once again, well below the through the cycle 25, 30 bits guidance which we gave before. So also there, we achieved the guidance as it was indicated. Impairment, impaired loans ratio now stands at 2% came down compared to previous quarter. And also in terms of the EVA definition, if you would use that, KBC stands significantly below the average of the European sector. Now, if you wrap up all these numbers and you translate that into solvency numbers, then our fully loaded Basel III CT1 ratio stands at 15%. Let me remark two things. First of all, there is an increase of our risk-weighted assets for 3 billion. which is driven in essence by volumes, 2 billion extra because of the strong growth of our SME and corporate book, and roughly 800 million for the year-end, traditional year-end review of the operational risk-weighted assets, which is also driven by the size of our balance sheet. So the increase of all these risk-weighted assets are 100% linked to the business performance of KBC. Let me remind you as well that there's a particular thing on the deeper tax assets of Ireland. The €380 million, as you know, is taken in two different treatments. First of all, in capital, it is neutralized. But as we do accrue 50% of that dividend going forward, you will have a gap on your allocation of the capital in the ratio CET1. So in essence, we do lack 13 basis points because of this effect, which is just an accounting effect. And that accounting effect will be recuperated in the year 25 and vast majority in 25 and in a little bit in 2026. So that 13 basis point negative impact will be recuperated going forward in 2025. Brings us to the buffer slide, definitely when you compare it with the OCR and the MDA buffer. Well, the buffers remain very solid with 4.1%, 3.8%, 3.8%, sorry, 3.5% respectively on the OCR side and the MDA side. I'm not going to dwell too long upon this. On the next page, you can see the leverage ratio. 5.5% for the full year compared with last year. Is there a difference? And this is mainly driven by the fact that we have higher cash and cash balances with central banks on our balance sheet negatively influencing that leverage ratio. The equity ratio is already mentioned. The solvency ratio of the insurance company stands at 200% or solidly above the required levels from the authorities. Which brings us to the guidance going forward. Well, for 2025, on the back of the, amongst others, the evolutions which we do see taking into account the forwards of early February, we do also start from the position what we know what the decisions of governments have been until now, and we continue to apply, as always, a very conservative pass-through. Well, if you take all those elements into account, we will end up with a guidance which says that we will have at least 5.7 billion euro of net interest income, which is also built upon a growth of the loan book of roughly 4%. That net interest income of at least 5.7 billion combined with an at least growth of the insurance side of 7% allows us to say that we will have a total income increase of at least 5.5%. We continue to apply, as we have introduced last year, the floors and the ceiling approach. So this is for us definitely a floor. On the cost side, we consider the cost increases to be below 2.5% on the year basis, so here we do have a ceiling. If you take both numbers into account, then we have a draw which is at least 3% for the year 2025. On the insurance side combined ratio and on the credit cost ratio, we stick to the guidance which we have also given last year that is well below 25-30 bps for the credit cost ratio and below 91% for the the combined ratio in all life. If you translate those numbers in the period to come 25, 26, 27, well, then it's more or less similar. Also, once again, we see a strong performance on the net interest income side, where we do predict that we will have caters of at least 5%, so a floor. We do apply at least 7% for the insurance revenue, again a floor, and that results in a total income floor of at least 6%. The operating expenses are sealed to or have a ceiling of max 3%, so it will remain below 3%, giving us a draw of, again, at least 3%. The guidance on combined ratio for no life and credit cost ratio for the lending book is the same as always. So in this perspective, it's a rock solid guidance, which is actually building upon the realizations of 2024, definitely also on the different P&L lines, which are mentioned in this guidance. There is nothing new on the guidance for the Basel IV evolution, so that was already announced a while ago, so 1 billion first-time application. and the remainder is the Tale of Deir, which is 2033, which is a long time to go. Let me go into the wrap-up. Well, KBC remains to be a very well-diversified group, and I always want to emphasize that in that perspective, we are diversified in two ways. First of all, geographically. One part of our book is linked to Western Europe and Athens, Belgium. The other part is linked To Central Europe, there is a clear difference between, for instance, the GDP growth in these countries also going forward. In Western Europe, we expect a GDP growth of roughly, depends on the year, roughly between 0.7 and 1.1%, whereas in Central Europe, the GDP growth is forecast to be at least double. The other diversification factor is the split up between net interest income and the non-interest income contributions being the insurance activities and the asset management activities. This is resulting in a top line diversification of 50-50 split up net interest income, non-net interest income and we do see this going forward as well in 24, 5, 6, 7. I think I can conclude with that. On the next slide, you have all the details, but I think it's far more useful to answer your questions. So please, Kurt.