Kbc Group Sa Unsp/Adr

Hello and welcome to the KBC Group Earnings Release Q4 2025 conference call hosted by Johannes, CEO, Bartel Pullinks, CFO, and Kurt de Berndt, Head of Investor Relations. Please note this conference is being recorded and for the duration of the call, your lines will be on listen only. However, you'll have the opportunity to ask questions after the presentation This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you'll be connected to an operator. I will now hand over to Kurt de Bans 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, February the 12th of 2026, and we are hosting the conference call on the fourth quarter and full year results of KBC, as well as the 26th and 28th financial guidance. As usual, we have Johan Tess, our Group CEO, with us, as well as Group CFO Bartel Poelings, and they will both elaborate on the results and add some additional insight on the new short-term and long-term financial guidance. As such, it's my pleasure to give the floor to our COO on 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 fourth quarter results of 2025, which was also obviously is then the announcement of the full year results of the very same year. Let me start with the highlights. um and as a matter of fact and i always use in this perspective the same thing glenn you know what i'm going to say the machine has been firing on all its cylinders yes indeed all the different aspects of our bank insurance franchise have been performing excellently um you know first of all we have continued to operate at a diversified split of 50 net interest income and 50 non net interest income, despite the fact that our net interest income grew significantly, which clearly means that we are able to perform also on the asset management side and the insurance side, life, no life, at the same growth pace as the increasing net interest income. Coming back to that net interest income, it was significantly up compared to previous quarter and obviously significantly up compared to previous years, which was triggered by in essence, two things. First of all, a further continuation of the strong performance of what we call the transformation results or replicating portfolio, which was further boosted by the further continuation shift of term deposits into current accounts, saving accounts. Next to that, we also saw a strong performance, our loan and our customer deposits. Both are growing significantly in all the countries and therefore contributed to the net interest income. We saw as well a record net sales over the full year, which was supported with, again, a positive net sale on the fee and commission business, so asset management business, in the fourth quarter. The insurance business performed excellently also with growth numbers, double digit, both on non-life and on the life side, which was, by the way, improving even the record results of 2020-24. In that perspective, we also see that the underlying, sorry, first of all, the total income in total grew 9% on the year. Well, our costs maintained at the guided level of 2.5% in that perspective, excluding obviously the bank taxes and the FX effect. which is giving us a draw of more than 6%, as a matter of fact, 6.4%. Quality-wise, impairments under control, 13 basis points, significantly better than the guidance, and the combined ratio also 87%, also significantly better than the guidance. As a matter of fact, all the elements which we provided for as a guidance in last year were achieved, or let me say it differently, overachieved. This has two consequences. First of all, if you wrap it up in your capital ratio, then our common equity T1 ratio now stands at 14.9% and our liquidity ratios stand at very solid positions, both in the short term and in the mid term, which allows us to say that the dividends which we are going to propose to the annual general meeting will be 5.1 euro per share and if you include there the 81 coupon that means a payout ratio of 60% giving the exceptional character of 2025 not only in terms of the results but also in terms of customer satisfaction in terms of employee satisfaction and also on the digital front where we have once again the nominated having the best banking app in the world we also decided to contribute a a profit allocation to the tune of 25 million euro into um into a what we call team blue bonus for our staff we also provide guidance for the period to come but i will go into that in more detail later on and we will then immediately switch into the detail of quarter four first On the next page, you can clearly see the performance of our digital initiatives. This is underpinned by what you already know, CAAT. It's performing better and better. It has been retrained, as I said, on previous occasions. And it now is a fully fledged large language model included, which means also that the autonomy of CAAT under that new formula, so CAAT 2.0, is now having an increase of its autonomy, which means the ability to solve questions of our customers without any human being interfering. And solving the question means providing the requested product or providing the requested answer to the customer indeed. Well, that has increased with roughly 20% compared to the previous version and now brings the autonomy to 82%. As a matter of fact, we will be launching this in the Central European countries in the quarters to come. And that will mean that efficiency gains in that perspective will be to the same tune because the autonomy in Central Europe is now hovering around 70%, which indeed is the previous number of Belgium. In terms of the job done by Kate of the equivalent FTEs, we talk now more than 400 FTEs. But what is also very much more important, that is, CAIT is able to deliver 400,000 sales independently from the traditional network. Also in that perspective, we will continue to invest in the nearby future on the same developments on the innovation front. And just to highlight, we launched in quarter four a ecosphere around mobility. That ecosphere was triggered, was launched in Belgium, was triggered in the first month by 73,000 users, which were generating indeed already a lot of data, which is enabling us to sell more products to these customers. In terms of one office, there was a very normal quarter. You can see that on page five, roughly eight, seven after tax, nine before tax. of exceptional income. It's not worth to talk about it. There is of course a bigger impact in 2024 end of year, so be careful. The DDA of Ireland was at that stage included. Now, more importantly is what about the evolution of the net interest income? Well, we do report today €1,608,000,000 of net interest income. which is a significant rise of the net income compared to previous quarter, 5% and even 12% compared to previous year. What is the driver? As we said on previous occasions, it is the result of the commercial transformation result, which continues to increase significantly. What is underpinned by two things. First of all, the reinvestment yields, which continue to rise. and we confirm here today that through the cycle of the guidance 26, 27, 28, this will be again the case. Second element which is crucial in this perspective is the continued increase of our deposits, first of all, and secondly, also the shift from term deposits back into current account saving account, which allows stability on our transformation result. So in this perspective, indeed, commercial transformation result has boosted the net interest income will continue to do so going forward. Second main contributor is the net interest income generated on the lending side. Well, here again, we had a good quarter in 2025, quarter four, with a growth of 1.1%, which brings the total growth of 2025 on the lending side to 7.4%. which is much better than we originally anticipated and which we guided for. And therefore, it contributes to the lending growth. What remains under pressure, obviously, are the commercial margins. It is not true that in every type of product in every country, the margin will go down. This is not the case. For instance, the margin of mortgages in Belgium went up with eight or nine basis points. But in general, I would say that is commercial pressure, but this is offset. by the volume increase, and therefore also the increase of market share, which we see in most of our countries. In summary, the net interest margin went up to 211 basis points, which is significantly higher than previous quarter, and this is indeed triggered by three things. The replication portfolio, which continues to perform excellently, as explained, the shifts between turn deposits and current savings accounts, and then obviously also the fact that in Belgium we brought down the loyalty premium on the savings account to 10 basis points. Now, in terms of all the other elements of net interest income, well, they're more or less in line, so I would not dwell upon this too much. But let's say, in essence, they are in line with what we have seen in previous quarters, if you talk about inflationary bonds, if you talk about the short-term cash management, so on and so forth. So not worth to spend too much time, but we will be happy to answer all of your questions in that perspective. Far more important is the next slide where you see the evolution of our customer money and the core customer money. And the message is very straightforward. In the fourth quarter, again, a positive evolution of €4.5 billion, which is triggered by two things. First of all, the shift of term deposits into current accounts and saving accounts. As a matter of fact, there is a positive delta of roughly €4 billion. And then on top of that, we do see monies flowing in further continue to flow in into the mutual fund business again a positive growth of 0.7 billion euro so in total for the full year this brings us an inflow of a striking 13 and a half billion euro which is in essence split up as a shift of let me round the number roughly 9 billion euro of term deposits and savings certificates into current accounts and saving accounts, totaling that amount as an inflow of roughly 16 billion euro, further underpinning the replicating portfolio. And then last but not least, a record year in inflow into our investment products, mutual fund business of 6 billion, but that is worth in itself a further explanation in a second. So to wrap it up, we do see a continuous shift from lower yielding term deposits into higher yielding sorry, current accounts, saving accounts, but also mutual funds. And this is a trend which we continue to see in 26 and also expect to happen going forward, given the evolution of the policy rates of the central banks. Let me then go immediately into fee and commission. Well, fee and commission, €725 million, which is up roughly 2% on the quarter and 4% on the year. And this is again driven by the performance mainly on the asset management services side. So first of all, we did see a good performance on the management fees for obvious reasons. And secondly, we do see also a good performance on the sales side, which is further contributing to the growth of those asset management services fees. In terms of the banking services, well, in essence, we do see there also a good performance. There is one caveat. And the caveat is when you do excellently on the sale of certain banking products, you have to pay commissions, and those commissions are deducted here from the fee and commission, and that is €11 million. Otherwise, banking services would be on the rise as well. So in that perspective, the fourth quarter is a continuation of what we have seen in the three previous quarters and is then bringing the total of assets under management to a record high €300 billion. Direct client money, you can see it on the graph, is also on the rise, and this is mainly triggered by end market performance, but also on net inflows, as I just explained. Just for information purposes, if you look at the gross sales of 2025, we have a striking 16.5 billion of gross sales, which is translated net sales of 6 billion euro, and this is indeed a record high. Also, small detail, we do see strong performance on our trading platforms. And in those trading platforms, we have two major contributors, the Belgian Bolero platform, which saw an increase of 25% of customers over the year and a 45% increase of transactions. And more or less the same can be said about the Czech platform, which is used in Central Europe. So not only in Czech Republic, where we did see the same kind of performance or a likewise performance. Anyway, what about the other part of the diversification insurance? Well, if you look on the year-on-year results, 11% up. If you look year-to-date, it's 9% up, which is indeed a striking number. And this is translated not only in a strong growth, but also in good quality, because the combined ratio now stands at 86.7%. And that is better than guided, but also better than last year. So continuation of good growth, 9%. and good quality with the delta compared to the 100% combined ratio of 13 points per cent. Live insurance sales, well, we have until third quarter already a record performance and fourth quarter has topped that up with a whopping 26% increase, which is triggered by both unit linked as interest guaranteed products. Mainly interest guaranteed products due to commercial campaigns run both in Belgium and Central Europe. So this performance of growth in the live insurance side is also true for Central Europe. Let me emphasize something I forgot on the fee and commission. The growth of the fee and commission business on the asset management side was also driven by Central Europe in essence. So in this perspective, we do see again a very strong growth, which means that the guaranteed interest products and the Unilink both roughly are 45% of the total production, which means that it's very well balanced. In terms of the more volatile results, financial instruments, fair value, we do see a fundamental increase of the contribution, which is mainly linked to the fact that the ALM derivatives have been performing better due to, in essence, the difference between the previous quarter and this quarter is mainly driven by positive contribution of the ineffectiveness of hedge accounting and on the better performance due to better interest rate swaps. Coming to the net order income, while the run rate is roughly 45 million euros, so with 39 we're slightly below, but this is a detail and in essence I would say it's perfectly in line with what this should be. Let me then go to an important line that is the operating expenses line. Well, you know, we guided in the beginning of the year a growth of 2.5% year-to-date, year-to-date, and we delivered on that precisely 2.5% cost increase full year 25 compared to full year 24, excluding obviously bank taxes and the FX impact. So in this perspective is perfectly in line in the guidance and that entails also the efficiency because intrinsically, if you look at the contributors, we have the seasonal effects in the fourth quarter of IT contributors, marketing expenses and so on and so forth. But if you look at the underlying result, well, in essence is very simple. We build down the total number of FTEs KBC group wide. So we have less people but we have nine percent more revenues generated in 2025 and it is that efficiency which we are going to continue in the years to come 26 27 and 28. how is this translated well this is translated in a further improvement of the cost income ratio if you do more with less people then your cost income ratio goes to 41 when you exclude the bank taxes and bank taxes speaking We now have 666 million euro. It's a very interesting number and is therefore also called bank taxes. No further comments. On the next page you see the detail. And let me go then immediately into impairments. Well, impairments are well under control. We had actually a good quarter in quarter four. 76 million euro were related to the loan book, which was triggered by one or two bigger files. But this is perfectly in line with the guidance which we gave and on the buffer which we hold for geographical and emerging risks. We only had a release of 3 million euro which brings the buffer to 100 million euro which can be used for circumstances if they would derail in the future. We also had a 48 million euro impairment on goodwill which is mainly triggered by an impairment on software. This is software mainly in the Central Europe entities where we have, as you know, installed new platforms and we impaired other parts of solutions which were built in that perspective. In terms of the remaining amounts, €9 million is linked to a government initiative in Slovakia, €9 million of modification losses and €7 million on goodwill impairment, which sums it up to €48 million. What about credit cost ratio and unpaired loans ratio? Well, we continue to see a very good credit cost ratio, 13 basis points regardless of the buffer, and the 13 basis points compared to the guidance which we gave below 25 to 30 basis points, which is that box is ticked. And also when you compare it in the longer term credit cost ratio of 25, 30 basis points, well, then this is significantly better. The ratio is good. Why? Because also the underlying portfolio on impaired loans is further improving. It now stands at 1.8%. If you would use the EBA definition because of the KBC definition a bit harsher, then the number stands at 137 basis points, which is significantly better than the European average. Also, if you would look into the evolution of the PD classes, which you can find in the quarterly report as well, then you see there that in quarter four, we had a further improvement of the PD evolutions in our loan book triggering indeed this credit cost ratio and saying that the quality of the book is good. Going to the capital ratios which you know are built up by two sides in the numerator part we add the contribution of the quarter four and we obviously also add the dividend payments of KBC insurance which is as you know lagging one quarter behind in the insurance side so the result you see here is the dividend of the previous quarter which is booked And totaling 19.2 billion capital, CT1 capital. What about the denominator? Well, that denominator is influenced by two things. First of all, actually three things. First of all, growth. Given the fact that we're strongly growing our asset sites or loan book, that has an impact on the risk-related assets to the tune of 1.7 billion. Next to that we have the traditional booking of the operational risk-weighted assets totaling 1.2 billion and some changes on the market risk-weighted assets 0.8. So in total let's say around the number roughly 4 billion euro but this was offset by the inclusion of the impact of the SRT which we run in the fourth quarter and that SRT brings down the risk-weighted asset increase to roughly 1.7 billion euro. In that perspective, the capital ratio now stands at a solid 14.9%. What is not included in this capital ratio are, in essence, two things. First of all, we have closed the acquisitions of 365 Bank. And two days ago in the acquisition of business lease, Czech Republic and Slovakia, And the sum of the two will have an impact of 50 basis points. And then what is also to be known is that we will continue to further optimize our capital position risk-weighted assets position in the course of 2026 with SRTs and therefore try to mitigate the impact of the volume increase which we foresee as we speak in 26, 27 and 28. Going to the ratios then, well, we end up with a OCR ratio of 10.87%, which is two basis points higher than before. This has to do by legal changes on the systemic buffer and so on and so forth. It's only two basis points, so let's not dwell too long upon this. And then the MDA stands at 1091. This is triggered by a four points percent, no, not four points percent, four basis points difference on the tier two. and that is almost fully but not entirely compensated by the 81 surpluses. Leverage ratio stands at 5.6%, which is a further increase, which is also true for the liquidity ratios, already mentioned them, and also the insurance stands at a very solid 227% solvency 2 ratio, which was positively triggered by the evolution of the spreads on the bonds and also obviously by the contribution of the results of the insurance company. Which brings us to the future. What about the future? Well, the guidance this time is a bit more difficult because we are comparing 2025 as a base year with 26, 27, 28, where KBC group changes from a composition. 25 does not contain 365 nor business lease acquisitions. So therefore let's be careful and therefore we prefer to give also guidance on the underlying performance of KBC Group in 26, 27 and 28. On the first slide, this is on page 19, you can see what actually we guided last year for 26 and 27. If you look at the performance, the underlying total income growth, which we forecasted a year ago, is 5.3%. And if you look at the guidance, longer-term guidance from last year for 26 and 27 on the cost side, then we guided an increase of 3.3%. Well, if I just take now a look at 26, 27 and 28, purely organically, so forget about the acquisitions, then we guide that our income growth for 26 will be stronger than the 5.3%, so 6.8%. And the efficiency, the cost evolution will be roughly the same as what we guided a year ago, so 3.4%. Let me translate that differently. We use the same efficiency, but we add hundreds of millions to our bottom line P&L. So in the operating profit, there will be a strong positive contribution remaining the efficiency of what we had. Or let me use it differently, with the same people doing even more revenues. Intrinsically, what we do then add for the long-term guidance is the acquisition of 365 and business lease. 365 added in 2026 means that we are adding a company which still is not working according to the KVC standards. We do foresee max 24 months to make 365 business lease working according to the efficiency and productivity standards of KBC. That means that we will have the full benefit on the revenue side and on the cost side fully into 28. Not 26, 27, because you just absorb them as of the 1st of January of this year. As a matter of fact, this also then gives for 2028 the same underlying results. We will continue to see the underlying growth of our costs 3.4% with that difference that our top line will grow even faster than what was done in 26 and 27. So 7.7%. So adding them at the end of 2028, the efficiency, the benefits of 2,000 of 365 and businesses will add another 100 million euro on your bottom line. So in summary, the In essence, underlying, you will have a draw of 3.4%. And this is true for the entire cycle. The difference is that we will continue to grow our total income further and stronger than what we did last year. And therefore, it adds to your operational profit hundreds of millions of euro. How do you translate that then in efficiency? Well, we do see the cost-income ratio of 26 guided at roughly 40%. And given what I just said, we do more income with less people, we will guide the cost income for the longer term below 38%. All the rest on the guidance is more or less in line. We increase the guidance on our insurance business from 7% to 7.5%. Combined ratio goes to 91% below. And then credit cost ratio is well below the 25-30 basis points. let me emphasize again this is what we call the floor ceiling approach so everything which is related to income is a floor so it's at least and everything which related to costs or claims or impairments is considered to be a ceiling so max in that perspective one more detail we do expect our net interest income for this year to be at least 6 billion 725 million euro which is compared to previous year, roughly 11% growth as a floor. So it is at least. Let me go then in the wrap up. The wrap up is, in that perspective, a repeat. So let me actually emphasize only one slide. That is a slide of full year 2025. If you look at 2025 as a summary of fourth quarters, then this is indeed 3.568 million euro of profit, which is significantly better as last year. If you exclude the one-off effect of the DDA in Ireland out of the year 2024, then the profit rose with 18%. And given the fact that, you know, the guidance which we just gave of 26, 27 and 28, it's just a prolongation and a continuation of the effect of 25. the outlook on the operating profit is more or less in line with what I just said on 25-24. Given the exceptional character of this year, where we not only had record results, but also record performance on the customer satisfaction, employee satisfaction, and the best banking app in the world, we also decided, or not decided, we proposed to our board yesterday evening to grant an exceptional bonus of €25 million for the entire group to our staff. This bonus is yesterday positively advised and now will be proposed to the AGM in May. The reason why it goes to the AGM, it is an allocation of profit and therefore under Belgian GAAP it will be indeed, when it is approved by the AGM, it will be booked under the profit allocation. In the IFRS, the rules are a little bit different. That profit allocation is considered to be a cost, and that will be then, if positively decided by the AGM, will be contributed to the costs. That cost, given the fact that decision needs to be taken, is not in the guidance. So this sums it up. I am not going to dwell upon all the other slides. I give you time for your questions, so I give back the floor to Kurt. Thank you, Johan.