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.

The floor is now open for questions. Please restrict the number of questions to two to allow for a maximum number of people to raise questions. Thank you.

Thank you, sir. And as a reminder, if you would like to ask a question, please press star one on your telephone keypad. If you change your mind and want to withdraw your question, please press star two. And please ensure your lines are unmuted locally as you'll be prompted when to ask your question. So again, we kindly ask you to limit yourself to two questions only. The first question today comes from a line of Tariq Elmejad from Bank of America. Please go ahead.

Hi, good morning, everyone. Two questions. I mean, first, I would just come back on your point about, you know, your always arguments about NII is a floor and revenue is a floor and cost guidance is a cap. And I understand where is the upside could come from both. first on nii um i would like to understand what volume assumptions you use for loans and deposits i mean for loans you gave the five percent year on year in 26 but once which sounds to me quite low bold given your delivery and the pickup in growth in ce and in eurozone but once you weigh on this and what's the outlook for beyond 26 um is it fair still to apply the usual two one two percent nii conservatism buffer you guys always had worked quite well in the past. So just wondering if you still have this cautiousness there. And then on costs, I understand the scope effect change, but on the AI and tech and basically, you know, growing CAIT further, how much actually allocated on investments on this? I mean, for AI and tech, for banking, it turned from banks being winners to losers in the last few weeks. What do you think of that and do you see it really as a pain first then benefit or you think you can reap the benefit first?

Thank you. Well, good morning to you all.

I will respond to the first question of Tariq related to the development of the loan volumes and the deposit volumes going forward. So indeed, I mean, we recorded an exceptional 7.4% organic growth in the loan portfolio in 2025. But this is indeed exceptional. We now guide in 2026 for approximately 5% growth. The reason why we had a very strong growth in 2025, which is rather exceptional, was of course triggered by the first half of the year, particularly in advance also of the uncertainty related to the tariffs. where we saw quite some increase also in anticipation of those status of production in Europe. That's one element of that. And secondly, we also indicated that basically the strong growth in the first half was driven by a number of large transactions, mainly M&A transactions of some of our core customers, which drove the increase to indeed for the full year 7.4%. We do not expect that to be repeated in the 26. That is the reason why we guide 5%, but obviously 5% is based and driven by the fact that we typically look at the composition of the GDP growth on the one hand and the inflation. So if you, that's the rule of thumb that we always use, particularly in Central Europe, GDP growth plus inflation. which indeed is bringing you to roughly 5%. And by the way, when you look back over the past five years, we always have been able to grow our loan portfolio by 5% organic growth. So that is where the 5% comes from. Then as far as the deposit side is concerned, so we never guide on the growth of deposits, but as you have seen, we have 2.8% organic growth for the full year and 4% growth for the full year non-organic. This gives you an indication of potential future growth obviously also here. The wealth conversion and the GDP growth in Central Europe is going to contribute to that and so we have a positive view on the further growth from that perspective. So that explains where we come from. We do not guide on the loan and deposit growth for the 27 and 28 for obvious reasons.

And Tariq, good morning also from my side. I will answer your second question. Indeed, there is at this, let's say last quarter, there is a big shift in terms of also media attention and statements made on artificial intelligence and impact on business development, but also on efficiency, not only in the financial industry, but in general. But specifically for the financial industry, I think our sector is in that perspective really, really prone to using and embracing artificial intelligence if productivity gains need to be achieved. So giving this general statement, you can imagine that we are continuously emphasizing this. We have been doing this for the last 11 years already and KBC started with its artificial intelligence applications in in our organizational structures and in operations in 2014-15 so we will continue to do so we have an intention to further optimize the way we are working and that is done in in two ways first of all we continue to develop our backbone because in KBC the philosophy of using artificial intelligence and that is, I think, a little bit different than what you sometimes read in the press. I have the impression that in the press sometimes people are believing that when they mention the word artificial intelligence that only the fact that it is mentioned already increases productivity gains. I do not think that is a given. I think you have artificial intelligence productivity gains only when you tailor your AI solutions to the specific needs of your company. That's the first thing. And second thing, we will continue to do so. You can read it in our presentation as part of our Q4 announcement, but it's already in that pack for, let's say, 10 years. We continue to develop our front end and our back end connected via AI solutions. This is translated via CATE, amongst others, but we will continue to develop those going forward. Straight to processing, which means using AI tools to tailor solutions to customer needs without any human being interfering in KBC and the commercial processes stands now at roughly 65% and the ambition is to bring it higher. And that's something which we launched in 2025 beginning of the year and this is now coming to maturity. We also are doing this exactly same thing that is connecting your front end and your back end, the front end in this case the internal people for the non-commercial processes. and that is also using AI for good understanding and that needs to deliver its results in the course of 26, 7 and 8. So in that perspective, yes, we will continue to invest in artificial intelligence or using innovation, but we will continue and that is, I think, far more important to use artificial intelligence to automate the processes in what we call a dark factory mode. So without any human beings interfering. The total summary of all investments is also part of the pack, including the transformation of the back offices, which is the trigger, including the front office applications, including artificial intelligence, is cash-wise $2 billion for the next three years and is roughly $1.5 billion in terms of OPEX, also over three years.

Thank you.

The next question comes from a line of Namita Santani from Barclays. Please go ahead.

Good morning and thank you for taking my questions. My first question, I see the footnote on the net interest income guidance says you include conservative pass-through assumptions. Can I clarify, do you mean pass-through of policy rates or pass-through of your replicating portfolio yield? Just wondering, because both your Benelux peers are guiding to around 100% pass-through of the uptick in their replicating portfolio to savers. Are you similarly conservative there? My second question, could you please give us an outlook for banks and insurance taxes, please? Because when I look at a country level, Belgium is going to be up around 35 billion year-on-year, Hungary is going to be up 60 million, and you're guiding to 5% deposit growth or something similar. I find consensus being up only 25 million year on year quite confusing. So is my math wrong or can you give some color here, please?

Thank you. Good morning, Namita.

So actually what the conservatism that we guide for is basically the external rate on the saving accounts, which is of course going to be depending on the evolution of the policy rates going forward.

Okay, and then I will take your second question. So on the bank taxes, indeed, there is no guidance provided yet for the simple reason that there is uncertainty on one big element, that is what the Belgian government is going to do. So it is unclear, definitely in the detail, how and what the Belgian decision in this matter is going to be. And therefore, we cannot give you now right insight in what the evolution of the bank taxes is going to be. I am not, so I know you made a reference to certain articles in the newspapers, I'm not convinced this is the real situation yet in Belgium, so therefore I recommend to wait until the end of quarter one when we are going to announce anyway the guidance or the expectations on bank taxes for the full year. because then we have better insight how it's going to work. The other element on bank taxes is, of course, Hungary, where the Hungarian government has already positioned itself. As you know, part of that positioning is actually passed through to customers. The other part is impacting our P&L, and that has already been disclosed earlier. So all the other countries, no bank tax changes are foreseen, and therefore we will give you full guidance on the bank taxes when we have more insight, more clarity, on the Belgian position, end of quarter one.

Thanks. Sorry, can I just follow up on the savings account? Can you quantify the pass-through, or are you assuming an increase in deposit costs if base rates are stable?

Thanks.

No, basically what we're doing, I mean, you always need to take into account, of course, what the commercial impact is going to be. And also, of course, when the policy rates would be increasing, then obviously it's likely that we would be required to increase our external rates on the saving accounts as well. And that's the reason why we put some conservatism on the external rates of the saving accounts.

Thanks very much.

The next question comes from a line of Benoit Petrac from Kepler Chevrolet. Please go ahead.

Yes, good morning. So my first question will be on the assumptions on NI for 26 and 28. So on the volume growth, I think you've clarified that. Could you maybe clarify what your assumptions are on asset margins going forward? Also in terms of shift from term deposits to other types of deposits and also clarify on the pass-through rate assumption. Sorry to come back on that. What time of marginal pass-through rate assumption do you expect in your guidance? So that's the first question. Number two is on OPEX. Thanks for the slide 19 and the organic OPEX growth of 3.4%. It sounds still a bit high. I'm looking at the Belgium inflation and we know we have indexation there. This is coming down quite sharply. So I'm trying to understand why you expect 3.4% and did you include any maybe one-off investments? We talked about AI and are there any specific investments in that number?

Thank you.

So as far as your first question is concerned, first of all, the margins on the asset side. Basically, I mean, already indicated and I should have also highlighted that on the mortgage side, let me start by that one, we still expect some quite some nice growth. Also in Belgium, actually, also this year, started off quite nicely with continuous growth also on the mortgage side, but particularly in Central Europe and this in all countries. In terms of margins on the mortgages, in Belgium, as Johan has been highlighting, we further reduced the gap between the margin on the front book and the margin on the back book in the fourth quarter by roughly eight basis points. However, what we see is in the beginning of this year that competition has somewhat increased, and as a result of that, margins are somewhat more under pressure in Belgium. This is less the case in certain countries in Central Europe, where particularly in Hungary, due to the fact that we have the Home Start program and the fact that now 80% of the business is being subsidized, this also leads to significantly higher margins. and supporting of course further growth also of the mortgage business. In Bulgaria also there we see a very strong and continuous growth. You know that in anticipation of the Euro adoption, the mortgage business increased quite significantly, but we see that pattern continuing also after the post the Euro adoption at margins that are now at least compared to the Euro board in a positive range. However, Also, you know that there is a very particular funding approach and replication approach in Bulgaria, where the margins or the external rates are directly linked also to the external rates on the deposit side. As far as the Czech Republic is concerned, also there we continue to see quite nice growth of the mortgage portfolio, but also their margins somewhat more under pressure. being still aligned with the margins on the back book. Slovakia also there continuous growth margins similar to the Czech Republic approaching more also the margin on the back book. Then on the mortgage side on the corporate and SME side we also expect continuous growth in both segments where in most of the countries the margins are quite strong and continue to be, we expect them to continue to be quite strong going forward. Also in Belgium, although there, of course, competition might increase in the course of the year. So that on the asset margins. As far as the shift is concerned towards term deposits, as you have seen and indeed as Johan has been highlighting, there has been a huge shift of term deposits to, say, Gaza, particularly in Belgium, following, of course, the maturity of the term deposits that were issued one year ago following the repayment of the state note, or state bond, I should say. Basically, 50% went actually back to Gaza. So this is obviously a, you know, one of experience, but we do expect going forward that that shift will continue going, will continue as well, depending of course on the development of the policy rates. And that's because of course, if the policy rates would increase, it might be that some would return from Gaza to term deposits as well as of course, the continuous growth of our asset management business. where we will continue also to focus on increasing particularly the net sales. So that as far as the shift is concerned of term deposits towards Gaza and as far as the pass-through are concerned basically the pass-through as such we do not guide specifically.

Good morning Benoit, I will take your second question. Yes, indeed, as you pointed already out, the cost increase organically for 26 is mainly driven by inflation. But I would nuance the word inflation because I would more specifically refer to wage inflation. In general, we do expect a wage inflation of roughly 3.7% for the group, which means not only Belgium, where it is indeed indexed, as you rightly pointed out, but obviously also have promotions and so on support. And the sum of all parts means that the wage inflation is 3.7%, which immediately indicates that if the guidance which we gave 3.4% cost rise for 2026 organically, it means that efficiency gains are bringing down the number of wage inflation to the total cost increase. Let me translate it more boldly. We do more work, more output with less people because the inflation of the salaries is otherwise eating up your cost performance. So in essence, this is not only true for 2026, but this is indeed the same for 2007, for 2028, where the CAGR of the cost side, of the wage inflation side, sorry, is also roughly the same amount, 3.7, 3.8%. So in that perspective, yes, indeed, we do the investment. That was the answer to Namita's question, or sorry, on Tarek's question, sorry. That is, indeed, the efficiency gains are triggered by the automation via artificial intelligence solutions. And therefore, we are able to bring down the wage inflation to a lower cost level. Your question about investments and more specifically one-off investments. Well, I would not call it a one-off investments, but in the numbers of 26, 27 and 28, we do have actually for the first time, bigger parts coming in on the cost side, which are related to investments. Let me highlight one thing, the investments which we are doing in Czech Republic on both the banking and the insurance side where we're building new platforms are here again front loaded so you see that more into the cost and the benefits will come later on so in the course of the next coming years while that is increasing for instance on the Czechoslovakian banking side the cost 26 versus 20 25 with another 12 million euro but as I said you don't see it in the keggers why because we are making more gains on the efficiency side on the uh let's call it automation ai side and therefore all those investments are returning into the p l which allows us as i said to make more revenues substantially more revenues i'm talking about hundreds of millions of euro with less people and therefore with a strong positive contribution thank you very much and the next question comes from a line of fresh river starver from city

Please go ahead.

Hi, and thank you for taking my questions. Two for me, please. The first is, you've had all the way till 2028 to be notably below your through-the-cycle cost of risk of 25 to 30 bits. At what point do you start to question the through-the-cycle range rather than just commit to being below it year after year? And my second one is another one on artificial intelligence. And Kate, you mentioned when you introduced your large language model, you drove an increase in autonomy off 15 percent um what are the latest figures on this because you've obviously had three months more now um to test it it was very new at the time um could you give an idea of sort of latest developments here if there's been a higher increase in autonomy or if you have a greater level of confidence thanks

Thank you for your questions, Wei.

Let me answer, well, I'll probably take both. Anyway, so your question about the longer term or the cycle on the credit cost ratio. Well, as a matter of fact, we already reviewed it a year ago when we took out a couple of one-off effects amongst others, the longer term cycle, which is somewhere in the pack. I don't know the number, the page number by heart. um but it is indeed roughly 30 basis points we reviewed it why because in in those numbers the longer term 25 years number was including obviously the the financial crisis and was including ireland which is no longer part of a group so we reviewed the numbers what you see here uh the the 25 30 bits is the group as it is over the last 20 years Do we need to review it? Well, I mean, we could give you more detail by saying the last 10 years or the last five years or whatever. But this is what the group is in the longer term. So through the cycle number is 25, 30 bits reviewed in the composition as it is, composition of the group as it is today. Then going to the artificial intelligence and the increase of autonomy. As I said during the announcement of the results, there is indeed an increase of the efficiency of the tool which we use and which is used and in the front end and in the back end. You referred to earlier said 15% increase of autonomy. Well, it is actually today in reality, so in production since, what is it, four months, it's actually 20%. Originally, CATE, when we changed it, had an autonomy of 70% in Belgium. Now we do have an autonomy of 82%, which is roughly 20% plus. The Central European entities are today, as you can see it on the slides, 69% in Czech Republic, but in Hungary and Bulgaria and so on support is 71%, 72%. So in summary, it's there roughly 70%. We will use the new tool, the CATE 2.0, also in the next coming quarters in the Central European countries and therefore you can expect the rise of that autonomy indeed in line with what we have seen in Belgium. Two other small remarks. First one, there's not only the autonomy which is up significantly But we do see that customers are using more and more CATE because of the new tool. Why? It's far more intuitive. It can answer contextual questions and so on and so forth. And therefore, customer satisfaction was significantly up as well, translated in more usage. More usage means more efficiency. It means more work done by CATE. As you have already seen in this quarter, that is number of FTEs is on the rise. That's the first thing. Second thing is we also use this CATE in the back offices let me give you a silly example at the first glance it's silly um you know every bank has a database where which contains all the information which our employees needs to to use regulation product features what they do in the in the past they are going into the database but they have a question they look for the information they spend x minutes for instance 10-15 minutes before they find the answer to that question well this has been translated into CATE 1.0 already, but is now translated in CATE 2.0, which has a huge boost on the efficiency. Whereas previously an employee was not always able to find the answer, it took 10, 15 minutes to find the answer. Today with CATE 2.0, all answers are found and the throughput time is one second. And therefore, we just celebrated the 100,000th question in Belgium under the tool. um Kate for staff and that means that efficiency gain is translated into the numbers as well so it sounds silly but the impact is quite significant for good understanding this tool is rolled out through right does that make sense um thank you very much just if I may quickly follow up um on the first one you mentioned 25 to 30 is good

uh is the through the cycle for the entire group but obviously 2028 is a way away and you must have some degree of confidence to guide for something which is two or three years away so just what gives you confidence uh in 2028 um being well below the 25 to that year through the cycle now so indeed yes we i mean the floor ceiling approach you know the given the fact this is the ceiling we are very confident that it will be low as a matter of fact

When I look into the portfolio, the guidance which we gave is based on underpinning elements, obviously. One of the most important underpinning elements I highlighted briefly during the call, that is, what about PD migrations? And the PD migrations in quarter two, three, and four of 2025, and it sounds perhaps counterintuitive given the, I mean, the world, the shape of the world we are in, the PD migrations have been improving. So we do see in our entire loan book the PD migrations shifting to the better side. So a number of defaults, that is improving. What of course can happen is that there is a bigger file here and there. But if you take that into account and you take into account the observations which we have for 26, 27, 28, given, and that is an assumption, the same economic environments which we have, well, then there's no reason to assume that the 13 basis points which we have seen for 2025 is going to be fundamentally different than in 26, 27, 28, which means significantly below the 25, 30 bps. One caveat, and you probably know what I'm now going to say, no escalations of wars, no other things which are popping up which are disrupting the environment, the economic or political environment significantly globally.

Thank you very much. Very helpful.

And the next question comes from a line of Julia Aurora Miyoto from Morgan Stanley. Please go ahead.

Hi. Hi, good morning. Thank you for taking my questions. I have two. Sorry, just to go back on the NII. Did I understand it correctly that you are assuming continued faster growth of current account versus savings in term, i.e., mix shift towards current account which is more profitable or are you assuming stable mix shift from here and I know we had a great mix shift in the quarter I'm just looking forward and then secondly SRTs you started doing some how much shall we assume every year in addition to what you have already done and I don't know if you can share any economics on this in terms of you know, the costs to do so. Thank you.

Giulio, I apologize. Can you repeat your second question?

Because I mean, it's very difficult to understand. No, no, please. Sorry.

Ah, OK. I was just asking about SRTs. How much are you planning to do every year on SRT? SRT, OK, sorry. Yes, SRT, yes. Significant risk transfer.

Because we missed the word SRT, and therefore... Ah, right, then it doesn't make sense.

Okay.

Okay, Julia, I will respond to both of your questions. So as far as the shift is concerned, we never indicated that it would be a shift only to current accounts. When I was referring to a shift, it's a shift that goes from turn deposits to both current and saving accounts. So we do not specifically mention that it was only to current accounts. Secondly, as far as your SRTs is concerned, indeed, I mean, as we have always been saying, we see the SRTs as a means to an end. We are, of course, actively engaging into portfolio management, which is a number of tools that we used, and one of them is indeed SRTs. The reason why we're doing that is that we do not want to become fully dependent on the SRT market going forward. Having said that, you know that we did our first inaugural SRT back in the fourth quarter, which was a very successful one, 4.3 billion, out of which we generated a 2.3 billion of risk-weighted asset saving, which is an efficiency of more than 50%. And also, as we indicated, This is at a cost which is well below the cost of capital of KBC. So therefore also contributing quite nicely. Going forward, we do intend to further invest or launch SRTs. We are currently making an analysis of the portfolio. We have a relatively good view on which portfolios we will include. And indeed, you can expect further SRTs depending, of course, also on the approvals that we get from the ECB, because you also know that they have launched the so-called fast lane track, but there are quite a number of conditions that need to be fulfilled in order to be able to benefit from that fast lane approach. And so therefore, it's very uncertain whether we would be able to benefit. Take into account that we will probably launch a second SRT in the second quarter and a third SRT in the fourth quarter of 26. The amounts that remains to be seen and depends on the portfolio and the efficiency that we can generate on those portfolios, but we will keep you posted on that going forward.

Thank you very much. And if I can just follow up on the first question, so the mix shift. So basically you assume less term, more current and savings. And you base these go-to levels on history. So can you share basically the split that you are using?

Well, it's very difficult to anticipate how much exactly is going to shift from the term deposits to CASA. And as I stated before, to a large extent, this will also depend on the development, of course, of the policy rates. Because if policy rates would go up again, you can expect, of course, that less will be shifting and we might even have to see a return from saving accounts to term deposits. So that's the reason why it's very difficult to give you a clear indication of what the shift is going to be. But we do expect that for the time being, if, of course, policy rates remain as they are, that we will continue to see a shift from term deposits to CASA and particularly also to mutual funds.

Got it. Thanks.

The next question comes from Chris Hallam from Goldman Sachs International. Please go ahead.

Good morning, everybody. Just two left. So I think both pretty simple ones. So why did 50% of the state notes go back to CASA? I know the rates on offer on term deposits aren't as generous as they were, but I guess they're still better than CASA rates, which is why do you think clients are proactively rebalancing their liquidity from locked up savings, from locked up saving strategies into more operational accounts? I know the difference between the flow, but just specifically when the state note matured and that flow back happened, maybe it caters. telling them to do that. And then, perhaps I missed this earlier, but could you give us your best sense on the timeline on ETIAS, where that currently stands? I know we've had a mark-to-market on that in prior calls. I know it's not directly relevant for you as well, but any color you have on the timeline for BELFIUS and whether or not there could be any connection between those two processes.

Thank you. First of all, as far as your

First question is concerned and why indeed 50% of the maturing turn deposits went back to Gaza. Obviously, when you look at the current external rates that we are able to generate, because of course the main difference with last year is that the market has returned to more rationality. and as a result of that basically we are able to offer term deposits now not at negative rates but of course at negative margins but at positive margins so the the rates on the term deposits have come down significantly and therefore people are very unlikely or willing to continue to lock in their money for a longer term at such rates and that's the reason they probably shifted more to kasa awaiting also for opportunities and that's also what we're doing

uh to further invest in mutual funds so that is exactly what we are expecting that we are moving uh that we will we see also more moving into uh the uh mutual funds going forward uh thanks uh chris for your questions i will take the second one if i add one more flavor to what bartle just said be aware that a lot of people which invest in the deposit were very wealthy people and therefore they are inclined to go more into investment products Anyway, going back to your second question, well, the government has taken position, also on the record, on what they're going to do with their assets, and that is entailing, in essence, two things. The one, you know, is Belpheus. They have the possibility to investigate a private placement of roughly 20% of the capital, which then also means that they could maintain their dividends which goes into the budget, as you know, of the government. The 20% sale goes into that GDP position of the government. And then at the same announcement, they also indicated that the position on ETH is investigated, which means that in the course of 2026, they will position themselves. And that position can be twofold. That is either launch it in terms of a sale, partial sale, whatever sale, of ETH and then secondly the other option would be no we keep it for whatever reason. The position in this perspective of KBC is quite clear. We will struggle, Beltheus is not possible for us giving the concentration risk in terms of market share and the second one ETH we are clearly interested. I said this on multiple occasions and this is not changing so we are definitely looking into that possibility for that reason we also prepared ourselves and if the outcome of the government will be launched we will be ready if the outcome of the government no launch then and clear statement that it will not be solved then it is considered for us to be gone and in that perspective we will reconsider our position on the capital which we hold specifically for that acquisition

Okay, thank you.

The next question comes from a line of Anke Huygens from RBC. Please go ahead.

Yeah, thank you very much. Just one follow-up question on the capital distribution. I'm sorry if I missed this. I'm just wondering what was the thinking? You moved to a 60% payout ratio, and you didn't go out all the way to the 65%. And so I just want to wrap on the EPS. You said there's also partial sale discussed. Would you be interested? I mean, I guess it depends on all the moving parts, but would a partial sale be of interest as well as a full acquisition?

Thank you. Thank you, Anke, for your questions.

So on the dividend, Well, you know, what is our policy is straightforward. We want to grow further our book. And that growth of book is in two ways. Organic growth, which we established this year, 9%, 8.7% to be precise. And also acquisitions, which we did this year as well with the acquisition 365 and the leasing companies in Czech Republic and in Slovakia. The outlook for 2026 is indeed, given the government statement, a potential acquisition. So 365 and business lease is going to be deducted from our capital this quarter. Sorry, this quarter, which is quarter one. So that is roughly 50, that is 50 basis points, 46 plus four. And then our capital ratio stands at 14.4%. The acquisition of ATLs, if it comes to the table, will have an impact. I mean, according to the analyst reports, we don't comment on this precise impact, but according to analyst reports, most of them under Danish compromise consider this to be max 100 basis points. You can make the calculations yourselves. So in this perspective, the 60% payout is in a further execution continuation of our dividend policy, which brings it now to 5.10 euro per share and is aligned with what I just explained on the potential acquisitions. and the potential M&A, which we can do in 2026-2027. In that perspective, it is also clear that it was also the answer which I just gave on Chris' question. If it is not coming to the table, then this capital is no longer allocated to this part and becomes part of the distribution, clear. So in this perspective, we just keep, let's call it, the powder dry. and we bring a very decent payout and the consideration on the future in that perspective is quite clear or we do an acquisition or we release that part of our capital in terms of capital distribution. What about a partial sale? Well I mean at this stage if there is a partial sale with a straightforward message that no longer it is possible to do a full sale Well, that would completely change our position because we are not interested to participate in an acquisition where we withhold, for instance, not the 100% or withhold a position where there is a firm stake of the government involved. So in that perspective, we still assume the position to be fully released by the authorities.

Thank you very much.

The next question comes from Aquamarie from Autonomous. Please go ahead.

Just one detailed question from me, actually, in this case on the non-life side. I just wondered whether you factor in any cyclical softening to pricing in the non-life outlook when you look out towards full year 28. And maybe more in the here and now, are there any actual signs of such softening of energy in the markets you operate? Thanks.

thanks for your question um so um be aware in the position which we we have and and softening of pricing is obviously related to two things and that is what what is the current growth of your economy which is triggering uh two things on the normal life side for sure the growth of your potential growth of your book and the second part is how profitable is your book in terms of our profitability we are a positive outlier compared to peers also in the Belgian market portfolios have improved in the market in general but not to the same extent as where we are with KBC so therefore we have a competitive edge and to go immediately into the extreme version of soft pricing that is a price war I don't expect this to happen why because the margins are good but the margins are not super in the sector and KBC the 87% in that perspective is not representative of what we see in the market and this is true in the majority of the countries where we are present. So do we expect a softening of the price? The outlook is at least not that we go into a strong version of softening and definitely not into a price war. So in that perspective, the reason why we continue to see the growth of insurance companies and even upgraded the guidance to 7.5% is tailored to two things. First of all, what I just said, GDP growth is quite significant. Don't forget that GDP growth in Central Europe is roughly 100 to 150 basis points, at least higher than what we see in Western Europe. Western Europe is considered to grow roughly 1%, 1.1%. And then secondly, be aware that the underwriting of our non-life insurance business is fully automated. Same standards apply in the same group. This is one of the reasons why the combined ratio is what it is, but also allows us to, in that perspective, target very specifically the bank customers and other customers via the models which we use. And they are pushed amongst others by Kate.

Thanks.

The next question comes from a line of Shahat Kumar from Deutsche Bank. Please go ahead.

Good morning. Thank you for taking my questions. I have two. Firstly, on free growth, what are the embedded assumptions for your midterm guidance? I calculate around a 6% CAGR between now and 2028. Would you agree with it? And what sort of assumptions predicate this? Specifically on asset management, do you think the 5% organic flow rate that we saw in 2025 is sustainable? Are there any positive extraordinary performance fees that we need to be aware of in 2025? Secondly, on capital distribution, a follow-up on the Etias comment that you made. Assuming it does not happen, what is your excess capital stance? Would 14% be a realistic flow rather than the 13% minimum that you have in your policy?

Thank you. Okay, thank you. I will take the first question on net fee and commission income.

Basically, you know that we are not guiding net fee and commission income for the very simple reason that basically to a large extent, the development of net fee and commission income is defined by the asset management business and therefore also of course by the development of the assets under management and the market performance. So because basically 55% of our net fee and commissioning income, roughly 55% comes from asset management and of the 55%, roughly 50% of our portfolio is in equity. We are subject, of course, to quite some market evolutions, but the numbers that you have calculated in terms of the non-NII growth are more or less, I mean, are numbers that I would be able to subscribe. Do we see some extraordinary fees or whatever, you know, that in the fourth quarter there was a 50 million Euro performance fee that was paid by the pension company in the Czech Republic. This you cannot extrapolate, obviously, because it's performance related, but it is indeed the only annual performance fee that we have. So from that perspective, the answer to your question is negative.

And I will take your second question, Sharaf. So on the capital side, what would happen in terms of excess capital if ATRs does not come to the table? Well, first of all, in terms of the final destination, that is, if we don't have any M&A possibilities concretely at the end of 26, beginning of 27, when we decide on the dividend, well, then this is considered to be surplus capital or capital which we cannot make work in terms of organic growth and M&A. And as I said, that will be then prone for distribution. How much capital is excess? Well, we don't speak in terms of excess capital. So as we did, what is it, two years ago, this is no longer valid. We have a clear position there. We have an absolute minimum of 13% on the C81 ratio. We do have our current capital position 14.4, if you take into account 365 and business lease. And then obviously you add to that the performance in terms of capital in the course of 2026 to end up with the number. And that will be compared to our peers in a non-mechanical way. So we want to be amongst the better capitalized financial institutions. That is something which we don't forego on and that will be then decided by our board in all discretion. Let me emphasize one more thing which Barton said earlier. We will continue to optimize our capital structure It means, amongst others, that SRTs are tools which we have on the table, which we are preparing, and which are going to be indeed influencing positively the capital position.

Thank you.

There are no further questions, so I'm back over to your host for closing remarks.

Thank you. This sums it up for this call. I would like to thank you for your attendance and enjoy the rest of the day. Bye bye.

Thank you for joining today's call. You may now disconnect your line.