Kbc Group Sa Unsp/Adr

Good morning, ladies and gentlemen, and welcome to the KBC Group Earnings Release Third Quarter 2025. At this time, all participants are in listen-only mode. I would now like to turn the floor over to Kurt De Balmst, Head of Investor Relations. Please go ahead.

Thank you, operator. A very good morning to all of you from the headquarters of KBC in Brussels, and welcome to the Third Quarter Conference Call. Today is Thursday, November the 13th, 2025, and we are hosting the conference call on the third core results of KBC. As usual, we have the Group CEO, Johan Tess, as well as Group CFO, Bartel Pulings, with us, 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 third quarter results 2025. And as always, we start with the net results, which stands at a very excellent 1 billion and 2 million euros. So once again, the KBC bank assurance machine has been firing on all its cylinders, which also means that all entities in our group have been contributing positively to this result. As a matter of fact, it's once again perfectly balanced. Income 50-50 split over net interest income versus the non-net interest income bearing result, which once again shows that we keep up the pace with our, let's call it, ancillary business in compensating the growth on the net interest income side. If you look at the... The different lines, well, then it's very straightforward. Once again, strong performance on the net interest income side, which has been growing despite the fact that there was a significantly lower net interest income inflation linked bonds. Consequently, we also increase our guidance from what it was at least 5.85 billion euros to now at least 5.95 billion euro. This income growth on the net interest income side has been triggered amongst others by a strong but also again on a strong performance on the transformation results, so our replicating portfolio. Coming back to the diversification, well, both the fee business, which is generated through the asset management and bank services, has been growing significantly, as did the insurance business. The latter was also driven by good quality with a combined ratio. of eight point uh not of eight point seven percent that would be ridiculously low but at 87 which is indeed still excellent um if you take all those income lines in consideration you come to the conclusion that indeed we can further increase our guidance of our income site as well which we now state at at least seven and a half percent and if you then know that we stick to our guidance For the cost side, which means at least, sorry, no, maximum 2.5%, we know can also conclude that the jaws will be superior to 5%, which is indeed a very strong number. Coming back to that cost side, they are perfectly under control and perfectly within our guidance. And on the credit quality side, we post today a very excellent credit cost ratio of 12 basis points, which is significantly lower than the long-term average and also consequently lower than the guidance which we provided. No big surprise that our solvency position stands solid at 14.9%. And then on the liquidity side, as usual, we are performing very well with numbers 158 respectively, 134 for the LCR and the NSFR. And then also, last but not least, we also identified issued the interim dividend of one euro per share, which is paid on the 7th of November. And we also announced that two things. First of all, the acquisition of business lease in Slovakia and Czech Republic, but also our inaugural SRT, which is freeing up 23 basis points of capital, hereby fulfilling the promise speech we made on more active investments. management of our risk-weighted assets. When we go to the more digital side of our story, we go to page four. You can clearly see that Kate continues to grow. As a matter of fact, 5.8 million customers of ours in the meanwhile clicked on Kate and continued to use her in the further business which they're doing with KBC. We also see clearly that the number of interactions with our customers continue to increase, and not only the number of transactions increase, but also the fact that Kate can autonomously, which means without any help of a human being, that Kate can deal with those questions and provide the customer solutions in an autonomous way seven out of ten times. In that perspective, it's also important to understand that since October, we start launching CATE 2.0, which is actually a fully enabled LLM, so Large Language Model CATE, which allows us two things. First of all, to better anticipate the questions in the context by which they're asked, so therefore allowing us to provide more and better answers to our customers, which intrinsically means that more customers can be helped, and secondly, that the autonomy, which now stands at 70%, will further increase. So both will have a positive effect on the two sides of the cost-to-income ratio. First of all, it allows us to sell more via CATE. CATE 1.0, so the old version, generated actually sales, which allows us to do 400,000 sales over the period of 12 months. And then on the cost side, as I already said, the autonomy actually creates solutions without human being interfering. which means that CATE 1.0 today is doing the work of roughly 360 FTEs, which is already a quite significant number, which is going to improve going forward. Let me go into the different P&L lines because there were no exceptional items this quarter, which means that on the net interest income side, we do see overall an increase of 1% on the quarter and 10% on the year. But what is far more important, that is actually if you look at the underlying building blocks, then actually the net interest income on the banking side increases with 2%. Why? Because there is a very negative impact of, I mean, it has a positive impact on other things, but inflation was coming down. And therefore, the income which is generated through inflation-linked bonds was significantly down as well. 20 million euro difference on the quarter, and that obviously has some impact on the growth. A big chunk of that is booked on the insurance side. And therefore, if you purely look at the banking side, a 2% increase. Now, that is triggered by, in essence, two things. First of all, a further increase of our transformation results, which went significantly up due to the way how we replicate our portfolios. And the second one is a very strong performance on the lending side. As you know, there is still some competition on margins in the markets where we are present. but this is more than compensated by the loan growth, the loan growth which stands at 1.6% in the quarter, 8% on the year, and that is indeed a very strong number. Also, when you compare that with the guidance which we previously gave, then we also came to the conclusion that we increase our guidance to approximately 7% going forward. Year-to-date, So after nine months of 2025, the loan growth stands at 6.3%, if you would include the FX effect, even at 7.3%, which is indeed a very strong number. All the other elements are mentioned on the slide have far less impact. We are talking about better income on the dealing room side, cash management, the number of days, but let me not go into that detail. Let me go back to the margin, which now stands at 205 basis points, which is slightly down compared to previous quarter. But I have to make a caveat here. First of all, the impact here is quite clear of the inflation-linked bonds. That in itself already explains a big chunk of that difference, but also the strong loan growth, which is done at margins, which is slightly below the back book. It depends a little bit on the country. And last but not least, also on the fact that we do generate net interest income by investing liquidities in bonds, so using the higher spreads. This generates normally net interest income, but at margins which are obviously lower than the 208 basis points of previous quarter. And that has a positive effect on one side, but a slightly negative impact on the margin. Just to give you some insight how it works. What about the other drivers of that net interest income volume on the lending side already dwelled upon? What about the deposit side? Once again, we do see an increase of our core monies with our customers of 1.1 billion in the quarter. That is an obvious effect that we start to see the first moves of the monies which came in in Belgium as a recuperation of the state note monies invested in 2023 and Well, that money is coming to maturity, as you know, partially in the first part of this year, and the big chunk is going to mature in quarter four. But you clearly also can see that you see some effects already in the third quarter by the savings certificates, which were entirely freed up and not reinvested again in those savings certificates. In essence, it comes down to the story that What we do see in practice is when monies which were recuperated from the state mature, that the vast majority returns in either current account saving accounts or in mutual funds, only roughly 25% is reinvested back in term deposits. And that is translated in this slide. The evolution of the current accounts here is a very specific seasonal effect in corporate deposits in Belgium. This is temporary, and this will be corrected by the natural flows in quarter four of this year. If you look at the total picture, there's even more substantial 8.5 billion of monies flowing into our different pockets for our core customer monies. And this is translated in a fundamental increase on the current account saving account side and a fundamental decrease on the term deposit side, which in translation of margin is good news. Last but not least, but I'll come back to that in one second, that is the inflow of those monies which are maturing into the fee business generated through asset management and life insurance. Well, that has clearly also happened in quarter three. Which brings me immediately to that fee and commission business. Here, once again, a very strong result, up 6% on the quarter. Let's face it, after already high quarter one, two, and we now have a very strong quarter three. And also, if you look at the different contributor parts here, the asset management services or the banking services, both are up significantly, 7% up on the asset management services. and 5% up on the banking services. Starting with the former, well, that is driven by two things. First of all, the fact that obviously the management services had the fees on the management service as a positive impact on the performance of the financial markets, but also clearly there was a strong net inflow again on the asset management product side. As a matter of fact, we have seen a growth of net inflow of 1.8 billion in the quarter, which is for the third quarter a very strong number, and it tops up the first half of the year to a total of 5.3 billion of net sales. That is an all-time high after nine months. In terms of the build-up of those monies, we were also able to do it at a stronger management fee, but also at a stronger entry fee. In terms of the split-up, of responsible investments. Be aware that our book now, our total book stands at roughly 50% under the umbrella of responsible investments, whereas the inflow on the new monies is roughly 58% responsible investments. The other, so perhaps something on the assets under management, the consequences of all what I said obviously are positive for those assets under management. We now stand at $292 billion of assets under management, which is a strong 12 billion on one quarter up. If you compare it to the previous year, it is an increase of 8%, which is perfectly split 50-50 between inflows and so fees, sorry, and performance, also 50% being 4% in this case. Let me then go to the insurance side. Well, also here, Very good results, to use an understatement once again, up 8% on the quarter. On the non-life side, this is due to strong performance in Belgium and our Central European countries. Split up there is Belgium a bit more on the lower side, so 5-6%, whereas Central Europe in essence is growing more than 10%, depending on the country. The quality of that book stands at 87% combined ratio, which means excellent results again. and also a bit better than the period of nine months of last year. On the live side, the story holds as well. Again, the strong performance on the total live insurance book, we went up 29% on the quarter. And if you would make the comparison with the same period last year, 7% up significantly. Now, in both quarters, 24%, 25%, Quarter three, we did commercial campaigns. So the commercial campaigns this year was even more successful than it was last year. And this is amongst others due to the fact that we have monies maturing on the previous state note. Split up between unit length and interest guaranteed is roughly 50% versus 43%. Small detail, if you compare the number of after nine months with the same period last year, it's 15% up. And that is indeed something which is quite remarkable after the record of last year. Going into smaller P&L impact lines, you have the more volatile financial instruments at fair value. Well, they are 28 million euro lower than previous quarter. I can be very brief about this is mainly driven by the evolution of the market-market derivatives in essence. And on the net other income side, we are perfectly aligned with the run rate being roughly 50 million euro. We now stand at 47, but if you look at the underlying building blocks, one day they are perfectly spot on compared to what it was before. So the leasing and the assistance company have the same outcome as what it was last year and more or less the same outcome as this year. What about more serious stuff that is the OPEX evolution? Well, let me bring it to its essence. The costs are under control. As you remember on previous call, we always highlighted the difference if you make the comparison of, for instance, 2025 with 24, which was the trigger for the guidance, that you need to be careful that the distribution of the costs over the quarters is completely different comparison 24-25. But it was more backloaded in 24. It was more equally spread in 25. In that perspective, you now start to see the effect of what we always highlighted on previous quarter announcement. That is, cost evolution over the quarter three with quarter three of last year is now coming, if you exclude bank taxes, below 1%. And that makes it quite clear that if you look at the number over nine months that we're coming close to our range, our guidance. That is, we are now standing at, if you exclude bank tax, at 315, which is more or less 50 basis points higher than what it was previous quarter, but it starts to come into that range. Actually, as a matter of fact, if you look at our costs compared to the budget, which we had internally, we are better than our budget foreseen for nine months of 2025. So we are perfectly online today. to make our guidance perfectly on track, sorry, to make our guidance less than 2.5% cost increase true. Cost income ratio is obviously translated. If your income is growing more than roughly 8% and your costs are only growing 3%, then your jaws are significantly up. We are talking about 5% jaw translated in a cost income ratio, which goes down for 43% in 24 to 41% now. which I think is indeed an excellent performance. There are always certainties in life, and that is bank taxes, which are always reviewed, mostly reviewed for the upward. We do expect on the full year to pay €668 million of bank taxes. Currently, we stand at €615 million. In the third quarter, the bank taxes were pushed up because of additional national bank taxes and deposit and guarantee scheme contributions, mainly in Hungary. That is translated in more detail on, what is that, page 13, where you can see the split up over the different business units, but I suggest that we further continue with the credit cost ratio, where other strong performers can be mentioned. We now stand at 51%. million euro uh all all things combined um which is built up in essence about in in three parts the first one is the loan book with an impairment of 55 million euro but be aware that we um deliberately took 26 million euro um to cut down the shortfall the backstop shortfall you know the tool which is imposed upon us by the ecb um So we lowered that to 26 million euro, which actually generates a positive capital impact on the C to 1 ratio of two basis points. If you take that into account, then the impairments on our loan book are very, very low. If you look also at the evolution of the macro parameters, which are used in our model to calculate the geopolitical and macroeconomic buffer, Well, then we came to the conclusion that there is a release to be booked of €9 million, which makes the buffer now stand at €103 million. There were some €5 million in essence software impairments. And if you bring that all into account, then you see that our credit cost ratio now stands at 12 basis points. If you include the UCL buffer, if you would exclude that, we are at 13 basis points, which is significantly lower than the long-term average, which is perfectly in line with the guidance where we said it would be indeed better than that. Terms of quality, well, it's very simple. 1.8% NPL ratio, which is substantially lower than, for instance, the European average. If we would look at the EBA definition, it would even come to 140 bps, which is 40 bps lower than the European average. For good understanding, if you look at the migration matrices of our PD classes, then we do see a positive shift towards an improvement of the portfolio overall. And that is some reassuring news given the circumstances we are all in. What about capital? Well, also there, strong performance. We now stand at 14.9% at the end of the third quarter. This is mainly triggered by an increase of our risk-weighted assets, 1.6 billion. I mean, in essence, due to the growth of our lending book, 1.4 billion is entirely due to that growth. And it's also triggered by, obviously, the booking of our net interest, sorry, not net interest income, but net result, and, of course, the accrual of our dividends. Now, going forward, what do we expect for the fourth quarter? So we do still see some positive effect due to the liquidation of KBC Bank Ireland. You remember that we booked deferred tax assets. Those deferred tax assets contributed positively to the quarter three capital position in total 166 million euro, bringing it to 13 basis points. We do expect the further balance to come mainly in quarter four and a little bit in 26, depends on the profitability in the quarter. And that brings the positive impact. We do expect a further upstream of our Belgian GAAP insurance profit to KBC Group. And then obviously we do also still hope that we do get the approval in our 365 bank that is in its process and that will generate roughly max 50 basis points on the capital side. Also, in that perspective, it has nothing to do with the fourth quarter because we think that will be cleared by the first quarter next year. That the leasing side, it has only an immaterial impact on our CT1 ratio next year of roughly four basis points. Now, if you bring all those numbers into account, also taking into account the SHREP, which was issued a couple of weeks ago. Well, the MDA now stands at the same level as the OCR ratio, both at 1085, and that generates a buffer of 4.1%, which is indeed quite solid. In the meanwhile, also the National Bank of Belgium has made statements about a review which they are going to put into motion as of What is it, the first of July next year? That is, I mean, the sum of two parts, the kind of cyclical buffer and the systemic buffer that play around a little bit with those numbers, which has for us, given the composition of our book and given the way how it is applied, a negative impact of two basis points on our CET1 ratio, starting with the current number of risk-weighted assets. to be remembered strong performance and strong MDA buffer going forward. So that is then also translated into the solvency of the insurance side, which is increased to 216%, and then the leverage ratio, which is also 5.8% over the quarter. In terms of liquidity ratio, I already mentioned that it is managed, as you know, in a very specific way, and therefore, We do see the same solid performance on the liquidity side with around the numbers 160 and 130% respectively on the short term and on the long term. Going forward, we do expect that the economy is going to slightly pick up a little bit in 2026. That is definitely true for the Western European markets. For the Central European markets where we are present, we do see a more fundamental growth. at least double of the amount of Western Europe. Western Europe is estimated at roughly 1%. In terms of inflation, the European inflation hovering around 2%, and certain Central European countries like Hungary can be a little bit higher. But it is at least in such a way that ECB, we do not expect further rate cuts to happen in 2025, neither in 2026. And in the Central European side, we expect the Hungarian National Bank to further bring down their 6.5% policy rate. But in essence, we do expect a slightly positive view on the economic side, which also gives us the certainty to adapt our guidances for 2025 upward. I already mentioned the 7.5% at least for total income and the at least 5.95 billion euro for the net interest income side. As you remember from previous call, as always, KBC includes a certain margin of conservatism to, I mean, eliminate the uncertainty on certain parameters. Given that that uncertainty now has gone away, we have actually translated that conservatives into a more stricter guidance. But we will, let me say it as follows, be sure that we will make that number happen. I would not say fingers in the nose, but with a certain margin. The insurance revenues are solid, and I already dwelled upon the 2.5% cost side. No changes on the forward looking for 27. This is something which we're going to provide to you, as always, on the back of the fourth results, which are published in February. I will wrap it up here, and I will give back the floor to Kurt, who will guide us through the questions.