Kbc Group Sa Unsp/Adr

Good day and welcome to today's KBC Group Earnings Release Q2 2025 Conference Call. This meeting is being recorded, and now I'd like to hand the call over to Kurt de Bunst, Head of Investor Relations. Please go ahead, sir.

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. August the 7th, 2025, and we are hosting the conference call on the second quarter results of KWC. As usual, we have Johan Tess, Group CEO, with us, as well as our 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, Johan Tess, 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 second quarter results of 2025. And as always, we start with the key takeaways, the highlights of this quarter. And let me start with the net results, which stands at a very strong 1 billion and 18 million euros for the quarter. And so again, we pulled the net results over the billion. which I would say, given the taxes being booked in the first quarter up front, is the third quarter in a row. As a matter of fact, the commercial franchise, bank insurance franchise, has been firing on all the cylinders in KBC Group. That has, amongst others, led to the fact that also KBC's group diversification kicked in very well. As a matter of fact, 49% of the income was related to the net interest income side, which means that diversification to other products in essence, insurance products and fee and commission products delivered a 51% of our total income. Coming back to the interest betting part of our P&L, well, we had a very strong quarter given our deposits and our lending side, both increased significantly on the quarter and delivered excellent results which resulted amongst others in growth of net interest income on the lending side but also record high money inflows. We have a very strong quarter on the sales side of the asset management side despite the turbulence which was generated in the first part of this quarter giving the announcement of the tariffs in the US. We had a very strong quarter on the insurance side both on the sales side and on the outcome of the quality of the underwritten products with a combined ratio of 85%. And we kept our cost perfectly under control. There is an increase of our cost, but this is perfectly in line with the foreseen budget of KVC in the first half of year as a matter of fact is slightly below that budget. In terms of our loan impairments, also they're perfectly under control as a matter of fact. We have added a one-off buffer extra of roughly €40 million, to be precise €38 million, which still leads to an excellent credit cost ratio of 15 basis points. No big surprise that our solvency and our liquidity positions remained very strong and this also allows us to announce today the interim dividend of €1 per chair, which as usual is paid out in November of this year. In other parameters defined, the return on equity of this quarter stands at 15% if you equally spread the taxes over the year. Let me go now into more detail. I already mentioned on the next page the diversification. As a matter of fact, the split up between the banking and the insurance activities was 81 on the banking side and 18% on the insurance side, which means that the insurance performed very well. As a matter of fact, had a very strong performance with €181 million, higher than normal. And that also plays its role in our CET1 ratio. I will come back to that later on. But the €181 million of profit is indeed €41 million more than the normal run rate, which normally stands at roughly 15%. Our probably best-known employee, besides Kurt de Baans, is probably Kate. And that means that Kate is delivering more and more to our customers. First of all, it's used more and more by our customers. 5.7 million customers group-wide are using Kate. They're not only using it more, but they are also using it until the end of the process for which they started up Kate, which intrinsically means that Kate has been contacted 73 million times by our customers in the quarter. that she has delivered answers to seven out of 10 questions which are raised, which means that Kate delivers without any kind of employee of KBC involved, interfering whatsoever, the solution to our customers, which allows us to indeed state that if we calculate in a super conservative way, the number of staff which is replaced by Kate to be at least at the level of 320 people. This is a very conservative assumption, because I'll give you one example, we only consider eight minutes to be spent by a customer when he or she asks a question in the branch, eight minutes, that is absolute, absolute minimum. Also there, that's on the cost side, the positive side, on the income side, be aware that the leads which are triggered by CATE and transferred to our network that they are growing and that they are, in essence, roughly around 14% of them are converted into a sales transaction, which led over the last 12 months, roughly to 414,000 extra sales conclusions made. As a matter of the fact, you should combine the two, the time which is saved by Kate for our bank branch managers, bank branch people, sorry, are used to get in contact with customers on the sales side for processes which are a bit more sophisticated and therefore need human intervention. And that has paid off indeed in this quarter. On the one-off side, well, this has been a very normal quarter. Hardly any one-offs. The total is €1 million of difference if you exclude them, so not worth to mention it. So let me go immediately to the things which are more relevant, and that is First of all, the net interest income. Well, we have a very strong quarter on the side of net interest income. 1.5 billion and 9 million euros is delivered in this quarter, which is 88 million euro net interest income more than previous quarter, which is a whopping 233 million more than previous year, same quarter. The reason why this increased so strongly is actually materializing in, let's say, three elements in essence. What we already said for a longer period on several occasions during quarter result announcements is that our transformation result is going to deliver higher and higher net interest income results. And this is this quarter effect as well. 27 million Euro more on the quarter driven by higher yields, but also on the fact that we do have more volumes generated through the incoming core monies. Also on the lending side, there was a fundamental uptake in the net interest income, where we speak about the combination of margin and volume. The main driver here is the volumes. We have a growth of 2.2% in the quarter. As a matter of fact, 7% on the year, which is extremely strong. If we look into the performance of the loans year to date, then we already have achieved our target which we guided the 4% at least is already achieved in this quarter year to date 4.7% is the case. So we are going to review those targets and consequently also the targets on net interest income. What was also a strong uptake was the inflation link bonds net interest income, whether it was negative in the first it was positive in the second quarter and that made a difference over the quarter of 29 million euro. As a matter of fact, we guided the market that we would see on the net interest, sorry, on the net interest income ILB side, inflation link bond side, roughly 20 to 30 million euro for the full year, probably more tailored towards the lower end of the range. Well, today, year to date, we are already at 19 million euro due to this uptake in the second quarter. A couple of other elements play here the role as well. The number of days, €7 million up, and that is something which is, of course, particularly linked to this quarter. But nevertheless, net interest income is significantly up, given what I just said. On the year, something similar, but I'm not going to dwell upon that. What is far more important, that is to see that the margin now stands at 208 basis points. which is three basis points up on the quarter, that's around that number because it's closer in that perspective to what is mentioned, two basis points in the tax. Now in the overall scheme of things, what is driving this, that is translated on the net interest income side, what I just said about amongst all this transformation result and sold as commercial margins are under pressure. be it that this quarter in Belgium and Czech Republic and Bulgaria, we were able to raise higher margins on almost all the products compared to previous quarter and even previous year. The countries where it is under pressure is Hungary and Slovakia still. So coming back to the building blocks, let me talk about the volumes. Well, volumes were up 2.2% on the quarter. Actually, as a matter of fact, if you exclude the volatility of the foreign branches, which is deposits of very low margins, it was up 7%. If you include them, 6%, which means indeed there's a very strong performance. This is also translated on slide eight, where you can see the inflow of core customer money that is on the quarter, 5 billion Euro up. And if you would, make abstraction of the fact that also in last year when we recuperated the monies which were invested in the state note and which we recuperated in this quarter, then the 5 billion euro inflow is indeed an extremely well number. It is, and that is a positive one, it is first of all flowing in into current accounts and saving accounts, whereas in the term deposits we now see the gradual build down of those term deposits And that is something which we have to bear in mind going forward because this will have a very positive impact on our net interest income for quarter three and quarter four. In terms of the year-to-date number, well, we do have 7.4 million car customer money inflow, which is translated, as you can see in the slide, on a fundamental shift, more than $7 billion. on the current accounts and saving accounts, that is in total 7.8 billion, and the decline of the term deposits, which is shifting, as I said, to or current account saving accounts or mutual funds, well, that is standing at the year at 3.9 billion. Remind all of you that in the third quarter, in October is actually the fourth quarter, to be straightforward, we do have the maturity of the recuperated money from the state note, which is invested mainly in term deposits, and we will see there an impact. Now, I also, in this slide, you can see a very strong performance on the mutual funds, 1.5 billion positive impact. I'll come back to that in a second, but let me finish first on the net interest income. Well, you can clearly see that you know, on all the building blocks of that net interest income, we have outperformed what we guided before. So it's no big surprise that we are going to update the guidance which we have again. Earlier, we guided the net interest income for the full year 25 at at least 5.7 billion euro. As always, we build in conservatism in this perspective and it's clearly also shown here in the results today. Today we're going to review that conservatism in the same way and still update the guidance with €150 million extra. So with the same form of conservatism, the new guidance on the net interest income is at least €5.85 billion. Now when I look at the assumptions which the analyst community made on the previous guidance, What about the conservative KBC puts in? That was roughly 120 million euro. We're not surprised. And I repeat what I said, we keep the same conservatism in the new guidance. Let me go then to the guidance on the loan side. Well, we are today already at 4.7% in terms of the loan guidance. Well, we have already overshot that number and therefore we also are going to increase that guidance on the loan growth as well to at least 6.5% growth. Both numbers are, as I said, floors. So the upside is a given, given the conservatism, which we always build in. Let me go to fee and commission business. Well, at first glance, it looks 23 million euro lower than what it was previously. And in reality, in the hard numbers, it's indeed the given. There is a small but, and the small but is that 23 million euro which is the difference between previous quarter and current quarter, is driven in essence by asset management fees, which are triggered by the assets under management. Now, in the beginning of this quarter, too, there was an announcement made by the American president regarding the tariffs, and that disturbed the financial market significantly, for short also the stock market. And because the stock markets play an important role in our assets under management, the start of the quarter, was very negative and that had a negative impact on our management fee under the asset management business. What was mitigating that impact was the sales which took place in that second quarter. We posted in quarter two 1.5 billion net sales, which is an absolute strong number. definitely if you compare it with the same period of last year, where we had in the quarter to 2024, 0.6 billion net sales. So this quarter, we were able despite the turbulence to sell two and a half times more than the same period last year. It almost gets to the record level of the first quarter, which stood at 2 billion. And therefore indeed it is a mitigant for the negative impact which we have seen at the beginning of the quarter 2020-25, quarter two, of the impact of the financial markets on the management side. Now, what has happened over the quarter is that that financial market has recovered over the quarter towards quarter end. So that is a good starting base for quarter three, but of course it does not translate itself in the quarter two in full. And therefore, the 23 million euro is actually a good result given the net sales I just highlighted. If you look at the banking services, well, that is slightly below the previous quarter, but it has to do with seasonality and it has also to do with the record high numbers which were posted, for instance, on our secure trading platforms in Belgium and Czech Republic, which were now also at a very high level, but not at the same record level as previous quarter. As a matter of fact, if you look at those trading platforms, we do see, if you compare the first half of this year with the first half of previous year, a 37% increase of the trading activities. As a matter of fact, we do see an increase of 50% of new customers over the same period. So it's quite striking. If you look at the assets under management, as I said, beginning of the quarter was recuperated. The decline of the beginning of the quarter was recuperated over the following part. And therefore, at the end of the quarter, we stood at 280 billion assets under management, where you could clearly see also with the direct client money, an increase of 3 billion, which was driven by two things, the strong sales and also the market performance at the end of the quarter. This is a picture on the end of the quarter. In terms of the... Gross sales, also there, we had a very strong quarter with 3.9 billion sales, which is almost a billion more than the record quarter of the quarter one 2020-25. Insurance side, well, 8% growth on the non-life side, which is clearly better than the guidance. And it's also delivered with a very good quality because the combined ratio stands at 85%. which is substantially lower than the guidance which we have given in that perspective. Live insurance sales sites were good when you compare them with the previous quarter because live insurance, this is driven by commercial campaigns, by new issues and some support. You need to be aware that in the second quarter we launched no new specific commercial campaigns. We had no new emissions on structured products, live insurance products, and therefore, it's good to make the comparison between quarter two, 2020-25 with the same quarter in 24. And you can clearly see there that there is an increase of the sales volumes of 6%, mainly due to the interest guaranteed products. Also in that perspective, good to understand that the CSM, the margin on the life insurance products increased to 17% also there. The quality of the sales which are generated are very good. What I forgot to say about the combined ratio, apology for that, is that all countries in the meanwhile deliver combined ratio below 100%, including Slovakia, where it was above 100% on previous occasions. So it has been restored back to profitability after interventions on the technical side. Let me go to the financial instrument fair value. I'm not going to dwell upon this very long. It's better 11 million euro than previous quarter is mainly due do amongst others good performance in the dealing rooms despite the fact that the income we declined a little bit has to do with of course the financial the movements on the financial market but the results are actually in in the total uh very good um if you look at the net other income it is substantially better than the run rate of 50 million euro but also here i would say let's be careful, the 77 million euro is influenced by a sale of a real estate which generated an extra value of 20 million euro. If I would deduct that, then we're more or less in the run rate of 50 million euro. As a matter of fact, we would be at 57 million euro. Far more interesting is the cost side. Well, if you look at the evolution of the cost, it comes down significantly compared to the previous quarter. But here again, be aware that in the previous quarter, the upfront booking of the majority of the bank and insurance taxes is done. So it distorts the picture completely. Let's compare the real cost. So the underlying operating expenses that now stands at $1,125,000. So if you compare it with the previous quarter, it is up 2%. if you compare it to previous year is up 5%. Now that 5% is clearly higher than the guidance which we provided for full years, that is 2.5%. But let's be aware that in quarter one and quarter two, 2024, we had very low cost evolution. As a matter of fact, in 2024, the cost evolution, which is normally kind of equally distributed over the year was more back-loaded to quarter three and quarter four. So if you compare rather low, let's call it abnormally low costs in 24 with 25, then the uptake of 5% is quite easy to explain. As a matter of fact, if we compare them with our internal budgets for the quarters, then the 1,125,000,000 euro is still below our budget. We still have a margin there. And that means that we are very comfortable to give you also a confirmation of our early given guidance of 2.5%. of the cost evolution full year 2025 compared to full year 2024. It also is reflected the strong performance on the income side and the cost control on the cost side is reflected in the cost income ratio, which if you exclude bank insurance taxes now stands at 41%, which is indeed a very low number. Certainties in life exist, definitely when you talk about taxes, the taxes go up and now stand at a whopping 500, 660 million euro for KBC Group. Well, we do expect this number to be at the year end at roughly 669 million euro, which is indeed a fundamental increase of 7% compared to previous year. What about asset impairments? Well, the asset impairments stand this quarter at €124 million, which is significantly more than previous quarter and previous year. It needs to have some further flavor because the €124 million actually can break up into three buckets. €8 million on what we call other, which is in essence €4 million of net notification losses and then certain impairments on software. So if you exclude that as €8 million, it's more or less similar to previous quarters, then you end up with €116 million on, let's call it more or less, impairments on the lending book. Now, in that €116 million, the real impairments are only €76 million. So the real impairments on our lending book are €76 million, which is lower than the €83 million of previous quarter. What we did differently this quarter, that is the buffer for geopolitical and macroeconomic uncertainties. We reviewed that buffer. That buffer generated a slight increase, 2 million euro, giving all the terminology going on in the world. But we put in a management overlay extra for an extreme situation and that extreme situation translated in the buffer of 30 million euro one-off on top of the geographical emerging risk buffer. So the 38 is an extra safety margin when we apply an extreme test and therefore the total stands at 116 million euro. Now, if you conclude both into the credit cost ratio, The credit cost ratio, despite the buffer, which we actually put in, only stands at 15 basis points, which is substantially lower than the longer term credit cost ratio and the guidance. And this is something we feel quite comfortable with also going forward. It's also translated in the impaired loan loss ratios, which further comes down, stands at 1.8%, according to KBC calculation. If you would apply the EBA definition, it would stand at 135 basis points, which is significantly lower than the European average. Let's go to the sum of all these parts into capital. Well, if you bring it all together, we stand at 14.6% C to one ratio. Let me add to that a little bit of flavor. The 14.6 is actually driven down by the evolution of our available capital. First of all, we had a very strong performance on the insurance side, and that very strong performance on the insurance side, which is, as I said earlier, 41 million euro higher than the normal run rate, is because of the Danish compromise deducted in full of our results. So that's 41 million euro, which is only compensated by dividend, and you know that on the dividend side, we have a lagging factor. The lagging factor in this perspective means that we only bring in the delta of the remaining dividend over full year 2024 is not offsetting that deduction. So long story short, 41 million euro compared to normal situations is because of the outperformance of the insurance result deducted extra and that is roughly three, three and a half basis points on our CT1. Also, we deducted now in full the remaining part of what is called by the ECB old non-performing loans. As you know, the ECB wants all the banks to reduce the very old non-performing loans in full from their P&L or from their capital. We decided to write it down in full from our capital this quarter, and that is roughly 50 million euro, which we deduct from the available capital. Now, this is also one-off. If you translate that in CT1, well, that is four basis points. The insurance plus the NPL combined is seven basis points, which actually brings the 14.6 to what it should have been, 14.7. The both, be aware, both numbers, so the insurance deduction and the capital deduction come back. The insurance comes back next quarters, and the capital deduction comes back in a reduction of the MDA buffer, sorry, a reduction of the pillar two requirement, which has a positive effect on the MDA buffer in our numbers of eight basis points. Obviously, the increase of the risk-weighted assets are entirely linked to the evolution of the volumes. So the strong performance on the volume side translates the fundamental, or translates the most important part of the increase of the risk-weighted assets, as you can see in the numbers. On the next slide, you can see the MDA buffers, given the fact that KBC filled up its full 81 and therefore compensates the 77 basis points, which is granted by the ECB as a potential replacement for capital. The MDA buffer now stands at the level of the OCR, which means 10.8%, and that is also giving us a clearer view on what are the buffers. And now you can see that those buffers for the three buckets, CP1, 81 included, total capital is more or less at the same level, roughly, let me round the number, €5 billion, 4%. Let me go quickly into liquidity and leverage ratio. Further approval of the leverage ratio now stands at 5.6. Liquidity stands super solid at very high levels compared with the minima, and also the solvency on the insurance side has improved with 200 basis points. Yeah, correct, 2%. mainly driven by the evolutions of the interest rate curves and the strong performance of the insurance company, as I said. So let me wrap up with forward-looking. First of all, economic outlook. Well, we all read there is a tariff agreement concluded on the 27th of July between Europe and the US. The details are still in the process of being worked out. We will further see how this develops. But this also has some influence on the economic growth Going forward, I think the economic growth in this perspective is more or less hovering around 1%. This year, 1.2. Next year, 0.9. And the year thereafter, probably back again to 1.2, 1.3%. So there is a negative impact of that tariff on the European, but it is, quote, unquote, under control. Of course, that is offset definitely in the medium term for the expected defense spending and infrastructure investments in the European domain. The fortunate thing about KBC is the diversification into central Europe, which has stronger growth and a substantially higher number in that perspective compared to the western part of Europe because of the catch-up driven by, amongst others, continuous FDIs. Also, regarding the tariffs, there are, of course, more certain sectors which are more vulnerable than others. If you look back to those sectors, and we include Traditionally, metals, we include, apology, pharma, we include chemicals. Well, KDC has analyzed what is then impacting our book. This is limited to only roughly 7% of our books, roughly 8 billion euro, and in that book, only a small part might be under significant stress. anyway kbc has very limited exposure on the us through its bonds and through its dollar exposure so it allows us to say also that going forward the guidance can be updated and the guidance can be updated i already mentioned the net interest income so we go from the at least 5.7 to an at least 5.9 Sorry, at least 5.85 billion number with the conservatism of the first guidance remaining intact. We do increase our lending to 6.5% coming from at least 4%. We are very comfortable with our 7% guidance on insurance. We confirm our guidance on the cost side. which intrinsically means that the jaws, which were originally at 3%, are now shifted upwards with 1.5% ending at at least 4.5%, which I think is a very confident message also giving the results which we have posted today. On the combined ratio and on the credit cost ratio, given the numbers which we have concluded today, we are pretty confident also to confirm again this guidance. I skip all the rest regarding the countries. I think it's much better to leave the floor to all of you for questions and I give back the floor to Kurt.