Kbc Group Sa Unsp/Adr

Hello and welcome to the KBC Group earnings release first quarter 2025 conference call. On today's call, we have Mr. Johan Theiss, CEO, Bartel Puelings, CFO, and Kurt De Benst, Head of Investor Relations. Please note, this call is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad. And if you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Mr. Kurt De Banst, head of investor, to begin today's conference. Thank you.

Thank you, operator. Also, 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, May 15th, 2025, and we are hosting the conference call on the first quarter results of KBC, the updated dividend and capital deployment policy, as well as the acquisition of 365 Bank in Slovakia. As usual, we have Johan Theijs, Group CEO, with us, as well as our Group CFO, Bartel Pulings, and they will both elaborate on the results and add some additional insights. As such, it's my pleasure to give the floor to our COE1 Tess, who will quickly run you through the presentation.

Thank you very much, Kirsten. And also from my side, a warm welcome to all of you on the announcement of the first quarter results of 2025. And we do that with the traditional start with the key highlights. So we posted this quarter a 546 million euro result, which is, as you know, heavily distorted by the upfront booking of actually all bank taxes for the year 2025. As a matter of fact, €539 million of bank taxes were booked in this quarter. It gives you a completely different picture of the €546 million. Now, to summarize what that actually entails, that €546 million, I can clearly say that once again, the commercial bank insurance franchise of KBC has been firing on all its cylinders As a matter of fact, also the diversification has worked perfectly in this quarter. The income is in a 49-51 split up between interest-bearing income and non-interest-bearing income, showing what indeed diversification this group can deliver. If I look in the detail, then start with net interest income, which is indeed a very strong number again, and it's clearly ahead of of our guidance and also in that perspective, as it's ahead of the plan, which he had for this first quarter. It is driven by a very good customer loan increase, 2.43% on the year. If you compare that with the guidance, which we gave 4%, then it's indeed a very strong performance. And on top of that, we saw a core customer money inflow of 2.4 billion euro in this first quarter. But what is even more important, I would say is that we do see what we indeed assumed and announced at the back of the fourth quarter. We do see that there is a shift coming from term deposits to saving accounts further underpinning net interest income for the quarters to come. In other P&L lines, we have a strong performance on the fee and commission basis where we do have a record sale In the investment products, it is the best quarter ever in that perspective with a net sale inflow of 2 billion euro. We did have also very strong results on the insurance side with a 9% growth on the non-life side and a whopping 39% growth compared to last year, which is indeed also a record high. We do have higher net results of the financial investment fair value and also good performance on the net order income. So all P&L lines actually have been doing better than planned and have been delivering results which are strongly underpinning our guidance. In that perspective, if you look at the other side of the P&L, the outflowing monies, costs are under control. They are slightly up compared to the same quarter last year. but they are lower than what we originally planned for this quarter. It has to do with the seasonality of the first quarter last year, which was extremely low. We do have a cost-income ratio of 41% expressing what I just said on that good performance. We have lower loan loss impairments and we do have consequently also an excellent credit cost ratio. Consequently, we do have a very solid liquidity and solvency ratio. And it is in that perspective and also no surprise that we, despite the volatility and the turbulence on the financial market and in the macroeconomic domain, we do reconfirm the short term and the long items today going forward. Last but not least, we also update the dividend and the capital deployment policy. I will go into that in a second. So let me then immediately switch to that dividend policy and that capital deployment policy. Well, straightforward, we are having, let me start with a dividend policy. We are having a clearer definition. Now we take into account also certain limitations, which were linked to the current dividend policy, namely the at least triggered amongst others, the ECB to say that we could not consolidate interim the profits, which we made in our results and in our capital. So not in our results, in our capital ratio. I mean, this, this annoyance we have overcome. by redefining that dividend policy and the payout ratio will be, including the 81 coupon going forward as of this year 2025, between 50 and 65% of consolidated profit. Just for all clarity, if you look at the 65%, if you look at the payout of dividends, which we have done over the last 10 years, well, including share by backs, including surplus capital distribution, including regular dividends, including all the one-offs which we did over the last years, the average is just below that 65% threshold. So it means indeed we are stretching it to what was done in the past as well. Traditionally, we pay one euro interim dividend per share in the month of November and that completes the dividend policy going forward. once defined dividend policy going forward we do also redesign our capital deployment and also here we take into account a couple of things which were linked to the previous capital deployment which had this merit quite clearly we worked at that time with a threshold for the definition of surplus capital that was as you know the 15 c to 1 ratio well we abandoned that that philosophy And we actually come back to a dividend policy, which allows us now to better manage our capital, better manage our capital, taking into account how we want to deploy better our capital going forward. And that is both in growth and remuneration of our shareholders. So translated into the capital deployment policy as of 2025, that philosophy now means that we remain and we want to be amongst the better capitalized financial institutions in Europe. And this is a crucial one. You know this was part of our policy in the past and it will remain definitely our policy in the future. So on the back of that philosophy amongst the better capitalized institutions, our board will have every year a decision to be taken at its discretion what are we going to do with the capital deployment. The focus there is also clearly on organic growth and M&A. So just to emphasize what that means, If I look over the last five years, what we did on organic growth, then the asset growth, lending growth, is roughly 5% a year over the period 2020 till 2014. And that obviously consumes, also under the Basel IV regulation, that consumes quite a lot of capital. And last but not least, we want to do M&A. Four years ago, we did the acquisition of Raiffeisen Bulgaria. And now today we announced another acquisition, namely the acquisition of 365 Bank in Slovakia. So going forward, the board will take that decision at its discretion with the focus I just explained. There is an absolute minimum threshold of 13% unfloored fully loaded CET1 ratio. And we will start to use, as of now, the AT1 and Tier 2 buckets to be filled up and SRTs to manage our risk-rated assets in a more optimal way. which is, as I said, now possible, given the new capital deployment policy. As a matter of fact, using the SRT can be translated in that we will be asking a grant from the ECB, from the European Central Bank, for a first SRT on KBC's side by the end of this year. Coming back to the M&A side, let me immediately go into the other news, which is important to be announced today, that is the acquisition of 365 Bank in Slovakia. So KBC has reached an agreement with the owners of 365 Bank in Slovakia for the acquisition of 98.45%. of that institution. Well, that comes to a total consideration of €749 million to be paid. The total value stands at €761 million and it is going to be paid in cash. The bank itself is a retail-focused bank. This bank which transformed itself over the last years clearly from a, let's call it, more universal bank to a more digital and retail-focused bank. What is important to understand is that the combination together with our subsidiary in Slovakia will give us a top three position in that banking environment with a market share of roughly 16%. It is also giving us a leadership position on the retail banking side. That's quite clear. And it will definitely give us the possibility to further strengthen the bank insurance model going forward in that country. In perspective, on the financial side, we pay 1.4 times book value and 9.4 times price earning and we are able to realize significant amount of synergies which is translated as 75 million pre-tax and which allows us to have a return on investment of roughly 16-17% as of the year 2028 when we do assume that those synergies will start to kick in. The return on equity on this deal is roughly 15%. and it also is calculated as of the moment that synergies kick in. So this means that we do consider an integration process going to take place over the period of the next 24 months. The track record of KBC, as you know, is that we deliver certainly within the promises which we make, has been proven recently, but also in the earlier past when we did acquisitions in Bulgaria, amongst others. In terms of accretiveness, well, this deal is EPS accretive as of as of year one onwards. So EPS accretion is 1% to 2% of the first two years when we do the full integration. Afterwards, when the integration is done and the synergies start to come up to speed, the EPS accretion is at least 3%. And both calculations are made on a very conservative basis. Capital impact for the group is at closing roughly 50 basis points and so perfectly in line with our capital deployment And of course, you will understand that this transaction announced today is subject to approval by the regulatory authorities. Given the experiences we have with previous deals, we assume this to be happening before end of year 2020-25. On the next slide, you see the overview of the diversification which we have in KBC Group. And once again, we can confirm that also this quarter, despite the very strong growth on the lending side, Despite a very good performance on the transformation result side, we keep up with other income to make the diversification of our income almost equal to the 50-50 split. Actually, 49% net interest income linked and 51% for the non-interest-bearing income. The same is true for the diversification on the geographical part, but I will not go into that deal. But also there, we have a strong growth in Central Europe compared to the Western European market in essence Belgium. On the next page, you see the split up between the bank and insurance activity, 74% on the banking side, 26% on the insurance side, and that is more and better than the traditional split of 85-15. But as you probably can already understand, it is also linked to the fact that bank taxes are kicking in more heavily than insurance and taxes in the first quarter. CATE, well, CATE is doing super well. It goes much faster than we anticipated. And what is far more important, Customers start to use it more and more. 5.5 million customers are using it on a daily basis, but also they start to like it much more. The NPS continuously increases, and the autonomy of Kate is not strange to that. Kate's autonomy, the ability to answer questions of customers without any KBC employee interfering, now is at 70% in Belgium and even 74% at Czech Republic. We do assume this to grow further when we will launch CATE 2.0, which is going to happen in the course of quarter four, quarter one next year. So in that perspective, just to give an idea, CATE realizes roughly 100,000 sales anonymously every quarter. Over the last 12 months, we have realized 383,000 sales via CATE or via CATE-LEADS. And last, so it pushes your revenue, and last but not least, Kate is doing today, if I can calculate it in a very conservative manner, Kate is doing today the work of 300 FTEs on a daily basis, the equivalent of that. Next slide is about all the other things which are related to sustainability and some other positions which we have, but let me skip that and immediately go to the exceptional items. We have one exceptional item qualified, that is the extra windfall taxes, which was defined on a temporary basis by the Hungarian government, kicks in for 53 million euro. After tax, that is 50 million euro, a bit less than 50 million euro. Unfortunately, we do think that it's not certain that it's temporary, so it could be that it becomes a recurring will see going forward. Let me start with roughly 49% of our income, that is the net interest income side. Well, today we are, if you look at the straightforward numbers, today we are posting a result of 1 billion 421 million euro over the quarter, which is significantly more than it was in the same period of last year, a little bit lower than what it was previous quarter. But that is entirely due to two things. First of all, the one-off booking of a net interest income, which was linked to a change in the Bulgarian entity of 9 million euro and the number of days, which are lower than quarter one. If you would exclude those two numbers, well, then the net interest income also nominally would be higher this quarter than in previous quarter. As a matter of fact, if you look at the underlying building blocks, and the two main drivers here are lending income and transformation result, the analysis is quite straightforward. We have seen, again, in the first quarter of this year, a higher commercial transformation result than previous quarter. And the growth is 3% perfectly in line with the guidance which we gave. As a matter of fact, the €1,421,000 net interest income of this quarter is lower than the own assumption which we made for this quarter and which was the basis of the total guidance which we gave earlier this year for the total net interest income. Same can be said about the lending income. The lending income was higher than previous quarter And it was driven by a very strong loan growth, so a very strong volume increase, 2.43% correction of FX included. If you would exclude the FX impact, then it's even 2.7%. Compared to the guidance on full year base of 4%, it is indeed a strong result. That growth is realized in all countries, and the growth is also realized in that perspective in mortgages and corporate lending business. One country is doing a bit better than the other. I can go into that detail later on with questions if needed. If I look at the dealing room, also there is stronger performance than previous quarters, so also there is very strong contribution to net interest income. What are the offsetting factors? I already mentioned €50 million negative impact of the lower number of days, and then inflation-linked bonds suffered, but we expect this to come back in the course of 2025, quarter two, three, and four. All other things you can read on the slides, but in essence, the two main drivers, net interest income, are performing better, and that's the strongest message I can give. Net interest margin standard 205 basis points, which is slightly lower than the 208 basis points of previous quarter, but it can entirely be explained by the one-offs, which I was referring to. If you correct those one-offs, the net interest margin would be even a little bit higher than the 208 basis points of previous quarter. On the deposit side, I will switch to the next slide, which gives you an insight on the detail. Well, core money went up with 2.4 billion euro. And that's a combination of two parts. First of all, 2 billion inflow on the investment product side, which is indeed, as I already said, a record high. But also, we do see a positive contribution of 0.4 billion on the deposit side. And that's actually good news because traditionally the first quarter is one of the weakest quarter in that perspective. Why? Quarter four is driven by extra payments which are done by employers to their employees, which is called mostly of time third month, 13th month, and so on and so forth. So that comes in around the Christmas period. And then the second quarter mostly of time is driven by the payout of bonuses and variable compensation. And that comes in the second quarter. And in between, you have a quarter where all the year bills need to be paid and so on and so forth. Nevertheless, we saw an increase of 0.4 billion, and what is far more important, that comes from positive inflow on the saving accounts, which is fueled by the maturities of term deposits in the first quarter. Also in that perspective, very important to notice that in the maturity of those term deposits, the first part of the monies which were recovered in the state note in Belgium came to maturity. The important thing there to notice is that what we already assumed and also explained in guidance which we give is happening in reality but even stronger than what was guided for. Only 38% of term deposits which are maturing, money is coming back from the state note, are reinvested in low-yielding term deposits. The remainder, be it 60%, is most of that is invested in saving accounts yielding higher than then what uh what the term deposit is delivering as a matter of fact that also boosts net interest income going forward because as you know we have the this the bulk of that state of money maturing in quarter three of this year so in terms of fee and commission that is then the immediate bridge to the next slide well we had a very strong quarter 690 million euro which is uh substantially more than what it was in the same period last year as a matter of fact It is 12% higher. If you compare the previous quarter, perhaps you say, wait a second, it's a little bit lower. But here again, we have booked two one-offs in the fourth quarter last year. You remember from the call at that time that we had roughly 20 million euro year-end effects, which was, amongst others, exceptional performance fees, which were booked. uh in czech republic and amongst others also one of in hungary if you would exclude the 20 million euro you clearly see that net and that fee and commission business is 10 million up on this quarter how come well it's driven by by in essence two things the investment products so the asset management production um both on the asset management sorry on the management fee side and on the entry fee side we saw an increase of that money combined to roughly €8 million, so that explains the difference with previous quarter. As I already said, we have a very strong growth of the net sales, €2 billion up, which is indeed a record high, and that is also supported by a further strong inflow from the regular investment plans, so I call this the saving account amongst the investment products, €439 million in this quarter. Indeed, also other services have been doing Very well, definitely on our trading platforms, we had record results on our trading platforms, both in Belgium and in Czech Republic, with a very strong increase of the fees there. As a matter of fact, we have 26% more volume than last year's fourth quarter, which was in itself already a record quarter again. So indeed, we do have a strong increase in fees consequently, which are linked to that as well. Seasonally high payment services in fourth quarter cannot be matched in the first quarter, so there we have a little bit of offsetting factors, but nevertheless, the sum of all parts is significantly higher than what it was. Currently, we stand at 273 assets under management, which are, of course, a little bit down, and that is fully driven by the turbulence in the financial market. And you can imagine yourself what is the cause of that turbulence, because all of us have been suffering. the statements of the American president. Anyway, let's go forward. We go to the insurance business. 9% growth on the quarter, 8% if you exclude the FX effect. On the non-life side, also coming with a very good quality, 86% combined ratio, which levels almost the 85% combined ratio of previous border. As a matter of fact, if you would exclude the fallout of the storm borders, on the claim side in 2025 first quarter, then the combined ratios would have been equal. But nevertheless, it is substantially lower, better than our guidance of 91 combined ratio. In terms of the live sales, whatever quarter you take, quarter one, quarter four, it is substantially higher this quarter. This is due to a very strong performance on the unit link side, due to commercial campaigns in Belgium, 39% up on the quarter, 32% up on the year, driven by both unit-linked and interest-guaranteed products. Indeed, it is a strong performance. In the split up between unit-linked and interest-guaranteed products, we now stand at roughly 66-31, and the remainder is hybrid products. Let's go into financial instrument fair value. It can be short about that. Well, it's significantly better than what it was, but it's mainly driven by the dealing room income, which was up thanks to interest rate fluctuations. All the other elements are mentioned there in detail. The MVAs, CVAs, and FEAs were up 5 million euros. And then also on the derivative side, we had a better performance in 13 million euro. Given the volatility of those numbers, I think you're more interested in other elements of the P&L. So therefore, I'm also not going to dwell too much upon the other income, which is perfectly in line with the overall average of 45, 50 million euro, if you take into account a one-off gain, which we booked on the real estate side, roughly 9 million euro. Let me come then immediately to costs. Costs are significantly higher. compared to the previous quarter because of the bank taxes, which in itself are at €539 million. And there, perhaps, let me finalize this one. The bank taxes, €539 million, are higher than before. Why? Because the freefall of taxes, which are linked to the resolution fund, are consumed by the Belgian government. €42 million higher contribution to the deposit guarantees team, which brings the coverage to 1.8%. which, as you know, the requirement by Europe is 0.8, so it is significantly higher. This will come to an end, by the way, in the course of 2025. And what is also taking in this perspective is the fact that we recovered more from the state note and covered deposits are the trigger for these taxes. It's offset a little bit by what is lower in the single resolution from the other countries and the total sum. is an increase of 19 million euro. We do estimate for year-end this to be at 692 million euro, which is a whopping number. Let me come back to the essence of the cost without bank taxes. Well, if you compare it with previous quarter, it is lower, but that is obviously also triggered by seasonality. If you compare it with previous year, then you do see an increase of 4%. There is a small but to add. First of all, the costs at the level of first quarter last year were extremely low in the pattern of the year. Therefore, the 4% is exaggerated. As a matter of fact, if we do have our cost planning for this year led to the guidance of 2.5%, then the current cost position of €1,106,000,000 is lower than our internal planning for 2025 quarter one. So it's perfectly in line with what we do expect. Another thing to mention that is if you make the stronger performance on the income side and the cost side linked two ways. First of all, the cost income ratio stands at 41%, which is indeed better than our guidance. And the second thing, if you look at the jaws, which are realized in this quarter, then we stand now at 4%, which is better than the guidance, which we gave off at least 3%. Or you could say it's in line because it was at least 3%. So in that perspective, cost evolution, is better than planned, but you need to have some explanation to see it normally. Packing taxes, I elaborated on on the previous slides. Let's skip this one and we come to the asset impairment side. Well, asset impairments were very strong. They stand nominally at 38 million euro. Let me express that differently to make an understanding easier. It's eight basis points credit cost ratio, which is substantially lower than the guidance of somewhere in between 25 and 30 basis points. If you look into the detail, then you see that on the lending book, it's 83 million euro. But in that 83 million euro, we did a further cleanup of the very old NPLs, backstop it is called. And of the 83 million euros, 41 million euros of that backstop were taken into the number. So the underlying loan loss impairments were actually substantially lower. In terms of the ECL buffer, which is, as you know, 100% model-driven, the parameters which we use, also the forward-looking macroeconomic parameters like GDP, gross inflation, and so on and so forth, Well, even if we take those parameters forward looking into account, then there is a decrease of €45 million of that buffer, which brings down the total impairment at €38 million. What is left over in the buffer is €72 million for emerging risk and so on and so forth. In terms of impaired loans, further decrease of the impaired loans ratio, we now stand at 1.9%, of which roughly 1% is 90 days past due. If you compare that with the European definition, EBA definition, we stand at 1.4%, which is indeed lower than the previous quarter and which is indeed lower than the European average. Let us go into the impact of Basel IV on the risk-rated assets. Well, we guided earlier several times on the basis of a static balance sheet. This time we do have indeed, again, a static balance sheet, but the latest observation which means also that the impact which we guided for in reality is lower. The first-time application impact is €0.9 billion, of which the vast majority is linked to the growth of the balance sheets, and that is translated in risk-weighted assets for the operational risk. And then the first-time application is also coming down, now stands at €1.6 billion, so a total €2.5 billion, bringing the impact of Basel IV forward. for those two elements at 37 bits. Now all the rest is output floor that is 2033. We do not consider this in all our numbers. Why? First of all, it's a long time to go and a lot of measures can be taken to mitigate that impact. And you know, the reality is when you take the original guidance, which we had, which was indeed conservative as always. And you look at the guidance, which we give today, which is still conservative, then it's already substantially lower, given the changes which have been happening over the last one and a half, two years. Now, what does it result in terms of capital? So as I said, the original position of last year, Basel III was 15%. If you take purely the impact of Basel IV, then that ratio would drop mechanically to 14.6. Today, we post under Basel IV a 14.5% capital ratio. which is entirely driven by the growth of our loan book. As a matter of fact, the number is a little bit artificial. Given the much higher bank taxes we had to pay, the growth of the loan book is kicking in full on the risk-weighted assets, and the profit is reduced by €539 million because of the bank taxes. When you also look forward, and we give you some idea of what that might bring in the nearby future, Well, we will have, first of all, higher profit retention. Second thing is that we will also upstream from Belgium GAP, the insurance profits. We do this in principle only quarter two and quarter four. So therefore, it's also a distortion of this 14.5. And then last but not least, we are also going to have two elements. First of all, the positive impact of the deferred tax assets, which are linked to the liquidation of KBC Bank. We expect this to come in in the third quarter of 2025 for roughly 20 basis points. And then last but not least, we are going to fill up, we do capital management, balance sheet management by using AT1 and Tier 2 instruments, and then for sure going to use the tailwinds of the SRTs in the course of 2025, more focused towards year end, so the fourth quarter of this year. If you translate that in OCR and MDA, positions. Well, the OCR now stands at 10.83% and the MDA stands at 11.47% because of the fact that we did not fill up the 81 and tier 2 buffers yet, which brings us at very solid buffers of 3% at least, depends on which you use. If you use the OCR buffer, then the buffer OCR numbers, then the buffer stands at 3.6%, which roughly 4.5 billion. Leverage ratios are remain very solid with 5.4%. Liquidity ratios have a buffer of at least 40 to 50% compared to the absolute minimum and also the solvency ratio of the insurance company increased slightly to 210 basis points. Which brings me to the forward-looking part. Well, economically, there's a lot of turbulence out there. Financial markets are extremely nervous. And it obviously has to do with the policies of the American Trump administration. You have the tariff policies, which, you know, liberation day were very rough, which in the meanwhile have been halted and have been in certain instances even significantly lower. We'll see what will happen going forward. But also we do see at the European side reflections that indeed Europe has to reunite and rethink its previous policies. which have been resulted in statements about the rearm policy and statements on the German side of spending more than what they did before. And the schwarzenull is in that perspective no longer an absolute minimum, and therefore economic growth might be boosted by infrastructure investments amongst others. In terms of where we are, we look towards the future with a little bit different better numbers than before. We do expect that the European growth GDP will be still moderate. We talk about an average of 0.9% this year, similar next year and slightly higher in the year above, year beyond. In terms of the split up, it's important to notice that in the central European parts of our group, growth is at least 100 basis points higher than the 0.9 I said a second ago. And that depends a little bit on the country. Certain countries will be clearly above 2% growing. In terms of the impact of the tariffs, well, KBC is in that perspective pretty okay positioned. If we take a very conservative stance on our loan book and therefore we take granted loans, not outstanding loans, then the potential impact is limited to roughly 7% of our book. And let me repeat, it was done in a very conservative way. We have very limited exposure on the US dollar in bonds and in equity. So in that perspective, also the impact will be limited. And therefore, given what I just said of the economic growth, given what I just said on the exposure, we do consider our short-term and long-term financial guidance as valid and therefore reconfirm that today. I think this sums it up for the part on the group. All the countries I leave open for potential questions, and therefore I give back the floor to Kurt.