Kbc Group Sa Unsp/Adr

Good morning, ladies and gentlemen, and welcome to the conference call of KBC Group Earnings Release First Quarter 2026. At this time, all participants are in listen and remote. If you would like to ask a question during today's call, please press star 1 on your telephone keypad. I would now like to turn the floor over to Kurt De Bunst, General Manager, Investor Relations. Please go ahead. Thank you.

Thank you, Operators. Also from my side, a very good morning to all of you from the headquarters of KFC in Brussels, and welcome to the KFC conference call. Today is Tuesday, May the 12th, 2036, and we are hosting the conference call on the first quarter results of KFC. As usual, we have Feuilloin Tess, Group CEO, with us, as well as Group CFO Bartel Pulings, and they will both elaborate on the results. As such, it's my pleasure to give the floor to our COE Juan Tez, who will quickly run you through the presentation.

Thank you very much, Kirsten. Also from my side, a warm welcome on the announcement of the first quarter results of 2026. And despite the fact that we have been working in a very rough environment, the geopolitical turmoil was not creating the best environment for financial institutions, despite all that turmoil. The results in the first quarter were excellent, with a return on tangible equity of 16%, totaling €575 million over the quarter. This €557 million is posted after paying €549 million bank taxes. Now, it is quite reassuring to once again then see the machine has been firing on all cylinders, And that means that all countries have been contributed and that the bank insurance diversification has worked very well. Let me start with indicating customer loans and customer deposit. The strong growth on the lending side with a very strong 1.6% increase over the quarter, but also customer money inflows totaling 5.4 billion in this quarter. We have seen consequently then as well a strong increase of the net interest income. which was then also completely copied by the non-manned interest income totaling net fee and commission and insurance income. Net fee and commission income, strong growth driven by strong performance on the sales side of direct client monies, but also on the insurance side, we have seen a strong performance on the non-life side and on the life side. In terms of the volatility, you clearly see that reflected in our financial income our instruments of financial income at fair value and that is totaling again a strong growth on the total income side on the let's say outgoing monies we do see first of all that the lending book in terms of the quality has performed very well with a very good cost credit cost ratio spending at a like to like basis 15 basis points which is well below the 25-30 basis points. We also saw a very good combined ratio with 84%. And we did, in that perspective, also see that costs are under control, be it that you need to be aware that this is the first quarter where we integrate 365 and business lease into our numbers. We'll come back to that in more detail. Solvency position both on the bank side and the insurance side remains solid with respectively a CT1 ratio of 14.4% and a solvency to ratio of 231% and you also know that on the AGM last week it was decided to pay out the 4.1 dividend, which will be paid out on the 20th of May. Let me go immediately into the detail. On the next slide, you can see actually the split up, in essence, between our interest-bearing income and our non-interest-bearing income. The split up over the period was hovering around 50%, which is also the case for this quarter. This quarter, it is 51.49%. which is pretty much in line as what we have seen on the previous quarters and years. In terms of where we are with the technology and the evolution of the innovation side in KBC, well, it has performed again on a very strong level. We have seen further increase of the usage of Kate that is now reaching 6.1 million of our customers, which are using Kate on a regular basis. That also means that Kate is answering their questions We have two versions of CAIT out now in Belgium since the, let's say, end of last year. We have launched a full large language model driven CAIT, we call it CAIT 2.0, which has an autonomy rate of roughly 80%. This quarter is a little bit lower, has to do with customers asking more and more questions, questions which are not yet, at this stage, fully straight to process. And when they're not straight to process, we don't consider this to be a provided answer. according to our standards. In the Central European countries, we still have the older version of CATE 1.0. The new version will be rolled out in the course of 26. We do see Czech Republic at 69%, but other countries like Hungary, Bulgaria stand at an autonomy of 75%. All of that has led to the further gains which we do on the productivity side. To say something, when we look only on the commercial side, then CAIT is doing the job of roughly 400 people. If we look at how many leads are converted by CAIT, then we speak about 420,000 sales over the last 12 months. For good understanding, we see now three consecutive quarters in increase of those converted leads driven by CAIT. Last but not least, what... also is happening when Kate is answering questions. Processes are fully automated, which means that also back office processes are automated. We don't take them into the number of 400, so in essence Kate is doing the work of much more than the reference made, than the 400 people I was earlier referring about. On the next page you see the other positions which we have on the sustainability side and how others are judging us in terms of innovation, but I would not dwell too much upon that. Let me go to the one-offs. There are multiple one-offs this quarter. First of all, in this quarter, after the approval of the AGM on the matter, we are going to, we have booked the one-off bonus for our staff. The one-off bonus is totaling 23 million euro, ultimately. which also means that that will be part of our cost for good understanding. This was not part of our cost guidance for the simple reason that the decision had to be taken by the AGM. Also, what we do see is in Hungary quite a series of one-offs. The first one is linked to a correction on the subsidized loans where an interpretation was not followed by the authorities. The correction totaled 10 million euros. but more significantly is that we won a legal case against those Hungarian authorities, which ultimately delivered €33 million in positive. Last, definitely not least, is that the Hungarian authorities introduced a new windfall tax, so on top of the previous one, for a whopping €134 million, which completely changes the picture in the first quarter, where those majority of taxes are booked. In terms of total amounts, we now stand after taxes as €121 million, exceptional, so one-offs, which clearly more than what we have seen in the same quarter last year, and definitely also much more than what we have seen on previous quarter. Let me now go into the building blocks, so first starting with net interest income. Net interest income, as such, is up 4% on the quarter and 18% on the year. Of course, this is significantly influenced by the absorption of 365 Bank and business lease. For good understanding, what I'm going to say further in this presentation, 365 Bank, I always mean the combination of the two. So the integration of both of entities have triggered that strong increase. If you would exclude them, then we would see an increase of 2% on the quarter and 15% on the year. which actually means that underlying our net interest income has been performing very well. In that perspective, to give you an idea, the strong, if we exclude J65 and business needs, we have a strong performance of our commercial transformation result, which is benefiting further from the reinvestment yields, and then also the fact that the volumes have been on the current account saving accounts have been continuously flowing in, and in that perspective are prolonging our strategy. In terms of the lending income, also a slight increase. So we do see in that perspective, of course, also the influence of the integration of 365. But even if you would exclude that M&A part, then we do see an increase of our lending income, which is driven by 1.6% quarter-on-quarter growth. which is very strong translated over the year. It means that we do see a growth of roughly 7%, to be precise, 6.6%, which is indeed, despite the political turmoil, a very good result. Part of that is offset by margin pressure. Well, we do see margin pressure on certain products. It is a bit of a mixed picture. Not all products, we do see the margin going down. On the contrary, but in essence all in all i would say commercial margins are still under pressure over the countries as a whole so lending income slightly up given the combination of the two we do also see that some other parts are indeed also increasing and they're only offset by two negative things in essence The number of days are lower than on the previous quarter, which has a negative impact of 17 million euro. And we do also see that the inflation-linked bonds have quarter on quarter delivered a difference of 17 million euro. As you know, inflation is on the rise. The calculation of those inflation-linked bonds is always on the inflation of two months ago, which means the delay factor plays against us, but we will recuperate that in the course of the year. Therefore, going forward, the inflation-linked bonds result full year will be guided for 30 to 40 million euro. Also, a negative off-site is the 10 million euro I was earlier referring to in Hungary. How is the template and the net interest margins? Well, margins are up significantly, now total 217 basis points. This is obviously influenced By the things I just mentioned, I have to add that also, for instance, the MRR in Bulgaria has a positive uptick in this quarter. But if you would leave out 365 banks, even then margins would be growing to 214 basis points. On the remainder of the page, you can see the split over the total loans. So we have also seen a growth of 1% on the quarter for the mortgages, totaling 6% over the year. And in terms of volumes on the deposit side, positive 2% up on the quarter, 5% up on the year, but I think it's better and more easier to explain it on using the next slide on page 8, where you can clearly see, if you exclude the foreign branches and you exclude the FX effect, that we do have an increase of deposits inflow, or let me say it differently, we do see have an increase of custom money inflows of 5.4 billion euro. Now, what is the... the split up of those of that 5.4 billion euro well 1.6 billion euro is linked to again a very strong net sale on the asset management product side so mutual funds totaling 1.6 billion which actually means that roughly 3.8 billion euro is linked to let's call it customer deposit current account saving accounts totaling 1.3 billion positive and term deposits do see an increase of 2.4 billion. Now, of course, this number is also influenced by the acquisition of 365 Bank. And if we would exclude 365 Bank, well, then the number 5.4 will become 1.9 billion net core money, customer money inflow. Now, if you translate that in a different way, the 1.6 remains the same on the mutual fund business, which actually says that what we do see is saving accounts are unchanged, 0.6, but current accounts, we do see a clear shift from current accounts to current deposits, which is different than what we saw in the previous quarters. The reason behind that is actually linked to two countries, in essence, Belgium and Czech Republic, and this has to do with two completely different things. First of all, Because of the war, because of the turmoil on the financial markets, we did see a pickup of the interest rates. And therefore, in private banking Belgium, some of the customers have actually split up their investments on two sides. Part of the money was shifted into asset management products. Other part of the money were locked in into term deposits. We're talking about 0.7 billion euro, which was an anticipation on the fact that if the war is a short-lived one, then interest rates would come down again, and therefore locking it in for the year does make sense. The other country where we see the effect of outflowing current accounts is Slovakia, which is linked to a certain extent the retail bond, which was issued in the quarter, and then a purely seasonal effect, which is linked to tax payments by micro SMEs in Slovakia. Last but not least, also in Belgium, we saw a seasonal effect that is corporate accounts, which is traditional going down every year in the first quarter, but normally picks up in the course of the year. So all in all, customer monies have been continuously inflowing, and that, in that perspective, is creating the still solid base going forward. In terms of fee and commission income, I already mentioned that we have seen a strong sale. Well, that's also translated overall in the net fee and commission in total, up 1% on the quarter and up 6% on the year. If you would exclude a 365 bank, well, then, of course, you have a little bit different numbers, minus 2 on the quarter, plus 3 on the year. Where does it come from? Well, we have seen strong sales, which is indeed 1.6 billion, quite an achievement. If you compare that with the records of last year, it's only slightly down. So that is, despite the war, is an excellent result. And also we see the same more or less in the gross sales. So also in gross sales, we have the second highest first quarter ever realized in 2026. which means that the asset management services fees increased by 1%, but also that the entry fees went up as well. Bank services went up with 1%, which is in essence due to fees linked on the credit side, but also fees which were linked to our securities trading platform, like Bolero and Patria, Bolero and Belgium, Patria and Czech Republic, to just give you an indication The number of transactions in Bolero in the first quarter were 26% up compared with the same quarter last year. For good understanding, quarter one, 2025, was a record high. We do also see that, sorry, I made a mistake. The 26% is about customers. It's not about transactions. About transactions, it's 13% up. So what you also have to bear in mind, that is, in this quarter, we also deducted for the first time the S&P cost, contributing a minus 6 million euro to this fee and commission income. In terms of assets under management, well, obviously, the negative sentiment on the financial market have put down the assets under management. It's roughly 2% on the total, €4.5 billion. and it is only partly compensated by the net inflow of the 1.6 billion euro, which I reflected upon earlier. Small add-on on the net sales. We also saw, again, a strong performance on the regular investment plans. Let's say the stable solid base of the net sales. It is totaling €450 million, which is also, again, translated in a further increase of the number of regular investment plans, increased with 9% over the year. In terms of non-life insurance business, already mentioned that it was having a strong growth of 7%. This is triggered by all countries. Belgium is having a growth and more mature market at 6%, where we do see growth of double digit in Czech Republic, Bulgaria, and 9% in Hungary. In terms of the quality, 84% combined ratio, which is an excellent result. This is true for all countries. Small caveat, we do have extra windfall taxes or windfall taxis, In Hungary, if we would exclude those windfall taxes in Hungary, the combined ratio there stands at 93%, but also most countries are having combined ratios below even 80%. Life sales side, super strong. You can make a comparison on the previous quarter, which was indeed a record high, but even that quarter was beaten with a 9% growth. If you compare it with the same quarter last year, which is traditionally a very strong quarter, Well, 15% up, and that is quite a striking result. The split up between the products is 36% guaranteed interest product, whereas unit linked is 58%, and the remainder is in the hybrid products. In terms of the financial instruments at fair value, we do see a negative evolution here. of 96 million euro compared with the previous quarter that has to do of course with the volatility in the markets we do see the impact of negative or a negative impact better of the increased interest rates and the rest is linked to the hedge accounting ineffectiveness on the dealing room we also saw because of the turbulence a negative evolution there of roughly 26 million euro which the sum of the two combined actually explains more than the 96 I was earlier referring to. Net other income was up significantly, as you can see, 89 million euro, which is actually much better than the normal run rate of, let's say, roughly 50 million euro. Well, that has to do with two things in essence. Well, first of all, the contribution of business lease, which is in for the first time, it's 7 million euro, but also the fact that we want a legal case, net 29 million euro is here in the result, and that was already mentioned earlier with the exceptional results. If you would exclude both of them, then we are closer to the run rates, a little bit higher, 10% higher, but €56 million. What about operating expenses? Well, this quarter, of course, is completely different than the previous quarter because of the bank taxes. But let me start with the real costs, that is the operating expenses, €1,214,000,000, which is, compared to previous quarter, down €10,000,000, despite the fact that we included in this quarter €23,000,000 of one-offs, and despite the fact that in this quarter also €30,000,000 is included because of 365. More sense does make to make the comparison with previous year, same quarter, well, then we do see an increase, but also here, be aware, there are one-offs which you need to make the distinction between the consolidation of the different underlying assets. So, as I said, 365 is included this year, and then also the one-off bonus is included, and you have an effects effect of roughly 13 million euro. So, what about cost income, it's 41%, which indicates already that we have been able to keep our costs well under control. As a matter of fact, if you do a comparison on a like for like basis between quarter one last year and quarter one this year, then we do see an increase of 3.7%, which is slightly higher than the guide at 3.4%, but this is 100% due to timing differences. So we take into account already some costs in the first quarter where the benefits are only going to be seen in the course of 2026. So as a matter of fact, we are perfectly aligned with our planned cost evolution in this quarter. In terms of bank taxes, well, bank taxes are at the level of 549 million euro, which is significantly higher than last year, and this is due to, in essence, two effects. First of all, we see an increase of the windfall taxes in Hungary. They added €134 million. If you compare it with previous quarter, that is an increase of €81 million. In total, if you take into account some SRF contributions and a financial tax levy, we end up at €87 million. In terms of the Belgian situation, well, the deposit guarantee scheme in Belgium was fully filled up, so that contribution fell to zero. The difference was for more than 50% filled up by the Belgian government by traditional national taxes, bringing the total to a positive evolution of €67 million. So in total, bank taxes of €13 million, we do expect by year-end to pay €724 million of taxes and the split up of the 514 over the different countries and what that means in OPEX you can see on slide 30. Let me go immediately to acid impairments. We do have in total 165 million euro of impairments which are actually split up in two parts. First is The business as usual impairment, so what is the quality of the underlying lending book? Well, 89 million euro compares to 76 million euro, which means that you do see an increase of 13 million euro. There is a small but in 89 is included 365 for 11 million euro. And on top of that, we also took a further provision on the non-performing loans exposure of 16 million euro. The reason why I'm mentioning that is by taking that 16 million euro, you will have a positive impact on your CET1, and it's of course a voluntary choice. So if you would exclude that 27 million, actually the business as usual impairments are better than what we have seen in previous quarter but also better what we have seen in the same quarter on previous year so quality wise it is actually a good quarter we also see that in the pd shifts in this country in this quarter which are actually pretty stable which is also translated in the impaired loans ratio of 1.8 percent for those who are more familiar with the eva definition we now stand at 148 basis points which is substantially better than the European average of 180 or the European median of 170 basis points. Another way to reflect the underlying quality of the lending book is the credit cost ratio like-for-like basis. Well, that stands at 15 basis points, which is perfectly comparable with the 13 of last year and the 16 the year before. and that's definitely much better than the longer-term average or the guidance which we gave, 25, 30 basis points. What else? We added, given the very difficult situation out there, a conservatism extract to what we already had as a buffer. The previous buffer was 100 million euro. We now decided, given that turbulence in the Middle East, that management overlay... is indeed added to the tune of 72 million euro. 3 million euro was extra added because of the previous buffer. So in total we do have 75 million euro. What is particular about this buffer is that it is one-to-one linked to the IRB shortfall and therefore this buffer actually adds to the CET1 ratio for basis points extra positive. So total buffer at the end of this quarter, €175 million, with the evolution of the conflict in the Middle East as we have seen it, with the evolution also of the situation in Ukraine, we do not expect to touch the €72 million management overlay in the remaining part of this year. Which is then translated to... page 15, where we do give you some more detail on our exposure to the Middle East, which is very limited to only 0.2% of our outstanding loan book. And the same can be said about vulnerable sectors. Given the conflict in the Middle East, KBC already in the past was anticipating potential issues and therefore was scrutinizing those portfolios. But to give you an idea, actually we do have limited exposures on those sectors which might be vulnerable, amongst others oil and gas, amongst others automotive, amongst others chemicals. Aviation and software, you can clearly see that the exposures which we have are very limited. We are talking about max 2.4% in the automotive, but most of those exposures are smaller than 1% of our outstanding loan book. In terms of, and that's just a confirmation of what we said on previous occasions, previous quarter, private credit, hardly any exposure. Private equity limited to less than 0.5% of our lending book. Let me go immediately into the capital ratio. Well, the buildup of capital is definitely triggered by the net result and the upstreaming of the dividend of the insurance company. We also added the goodwill and the intangibles of 365 Bank to the tune of €260 million, which actually brings capital to €19.3 million. In terms of the risk-rated assets, obviously, the integration of 365 Bank and Business Lease have added risk-rated assets to this. This is 2.5 billion euro rounded. All the rest is, in essence, the vast majority of that is explained by volume increases. So, the strong loan growth triggers the increase of 1.5 billion. And all the rest is explained by model changes and also higher risk-rated asset counterparty risk. So, totaling 134.5 billion of risk-rated assets, bringing the capital ratio to 14.4%. Let me remind you that KBC always includes in its CP1 ratio, fully loaded, the phase-in of Basel IV. If you would exclude that, the ratio would stand at 14.54%. In terms of the MDNA position, so we have an OCR ratio, 10.9%, which gives us a buffer of 3.5%. If we include the shortfall, which can be financed with CFD1 on AT1 and Tier 2, the MDA level stands at 11.13%, giving us a buffer of more than 4.4, of roughly 4.4 billion euro. The leverage ratio stands at 5.6%. The solvency ratio already mentioned, 231, let me repeat as well, LCR and the NSFR respectively, 139%. and 159, 135. Then, in terms of guidance, in essence, we never give new guidances in the first quarter. Also, given the turbulence today, it's extremely difficult to give any sensible comments on, for instance, net interest income, what it will be. Multiple scenarios are still possible. So, the guidance which you see on page 19 is unchanged. The only remark I would like to make is that be aware that we included 23 million euro costs, which were previously not part of the guidance, given the fact that decision is only taken in 2026. So, in wrap-up, it's a pretty good quarter. A lot of things are moving on, but business-wise, the machine has been firing on all cylinders, and I'll give back the floor to Kirsten, who will guide us through your questions.