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.

Thank you, Yvonne. And 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. Ladies and gentlemen, if you have a question or comments, please press star followed by one on your touchstone telephone at this time. If at any point your question is answered, you may exit the queue by pressing the pound key. Star two, sorry. Questions will be taken in the order they are received. Thank you. We will now take our first question from Giulia Aurora Mirto of Morgan Steadley. Your line is open. Please go ahead.

Good morning. Thank you for taking my question. I have two on net interest income. So I hear you that you don't want to upgrade the guidance already, given the uncertainty. the NAI result was solid, there is very good deposit and long growth, so I would assume we get an upgrade in Q2, and I don't know if you can, if you agree, and if you can quantify the upside if the rate curve stays where it is. And then secondly, So slide 8 surprised me a little bit because it's different from what you had mentioned before, and I think before you mentioned that KDC was assuming a deposit needs shift towards current and savings, and this quarter we see the opposite. What are you seeing quarter to date in Q2? So is this trend towards term continuing or, in fact, you know, it is reversing towards your assumption, and does it make sense for banks to increase the cost in term deposit if the rate hikes are expected to be temporary? Thanks.

Thanks, Julia, for your questions.

I will take the first one. Actually, your question is this guy's way to ask for guidance update. So let me highlight why we're not giving you an update. So first of all, I mean, the war is creating, I mean, I'm talking about the war in the Middle East. It's creating a lot of volatility, as we all know. And depending on the outcome of that conflict, is it short list or long list? I mean, it will fundamentally change the... the numbers and definitely also the situation for all financial institutions. Let me highlight in brief what we have in mind. We still think that this war is a short-lived one, which means, let's say, you know, two months, three months, max four months, and then the ceasefire will be there, which intrinsically, according to the statements of the senior politicians on both sides of the conflict, are today already stating. So if it is a short-lived war, then we are in the situation which you see today. Okay, there is a slightly lower GDP growth in Europe. The predictions are 0.4, 0.5 points percent lower GDP growth, but still it is good. And in that environment, in the first quarter, we published a 1.6 percent lending growth. So we are quite good in dealing with that kind of situation. But what is also far more important is that, you know, inflation is going up. This is what we see in this quarter. but if it is short-lived, the assumption is that it will not last. So in 2027, we will definitely have a normalized, normalized to be roughly around 2% inflation position. As a consequence, the central banks will look through the inflation and will not start to hike, which is different as what the forwards today are saying. Forwards still are assuming three rate hikes before the end of 2026. So therefore, you know, also in our net interest income, you will have a positive impact on certain things, which you already saw in this quarter. We will have a positive upside on our fashion link bonds, which is not calculated in this quarter. We will have the slowdown of the shifts of current and savings account to turn deposits, which are part of this quarter. because interest rates will not go down and customers have anticipated because of the war the longer term interest rates which were given in this quarter so that will shift that shift will go down and indeed as you indicated this is something which we have not seen in quarter three and four where there was no war for good understanding what we see now when there is a war that this is happening so also in in other parts of the pnl it will have an impact if we would Now, on the other hand, a long-lived contract, well, then it's completely different. Then you will see inflation going much higher. Probably central banks will anticipate with rate hikes, and then we probably come closer to the forward rates. When the forward rates are materializing, we see a completely different picture on that interest income side. You probably will see also interest rates on other products increasing, giving the fact that interest rates are in the rise. and you will have a clearly higher inflation, therefore higher inflationary bonds. So it's completely different to say what it is. But we will have a better view on that in the weeks to come, which means in the second quarter, and we'll clearly give you some insight where we will be at quarter two. And to wrap it up, if you listen carefully to what I said, I agree with your position that the current guidance which we have given is very conservative.

Okay, and then good morning also from my side to everyone. And Julia, your second question, the shift from Gaza to term deposits now seems to be halted and turned around. But let me give you some exact numbers. First of all, indeed, when you look at the slide related to the direct customer or core customer money, that you see 2.4 billion increase in the term deposits, but out of those 2.4 billion, 1.4 billion comes from 365 in Slovakia, so you should deduct that. Secondly, we see some indeed shift, as Johan was explaining, in Belgium in private banking, from current accounts to the term deposits, for the reasons explained. But this is only in Belgium. In the Czech Republic actually we continue to see a shift the other way around. And that is then a net impact of 0.8 billion and then basically we also see some increase in term deposits but mainly driven in Slovakia by the corporates where we had a campaign on term deposits for the corporates to attract additional deposits. So that's in total 2.4 billion. So, is this going to continue? Actually, as Ioan has been explaining, Depends a bit, of course, on the duration of the war. If indeed the situation in the Middle East lasts longer, as we have already been indicating openly, that this is likely also going to indeed trigger back a shift from current accounts, same-week accounts, to term deposits. But when the war is short-lived, we do not believe that this is going to continue going forward.

Thanks. Thank you. And we'll now take our next question from Jarek Kumar of Barrier to Bear. And your line is open. Please go ahead.

Good morning. Thank you for taking my questions. My first one, sticking with NII, wanted to dwell a bit more on the moving parts of NII and how it progresses for the remaining quarters. I see in first quarter we had both positives and negatives. Dealing room NII, if I have to look at positives, was elevated. So do you see risks of this To the other hand, if I account for negatives like inflation, linked bonds, lower day count, overall I see underlying first quarter annualized run rate closer to 6.9 billion, conferences around 6.8. So if you could comment on how to think about the NII progression in the remaining quarters, it would be helpful. And you had previously shared a plus 50 million NII sensitivity for a 25 basis points rise in interest rates. Just wanted to check if this has changed. Second, on asset quality, you've already added 75 million to your ECL buffers. Oil prices have remained elevated. I appreciate this is not 2022 where the risks were higher for Europe, but there we saw ECL buffers continuously added in all the quarters. So, Generally wanted to understand the risks of further additions to ECL buffers and more broadly on asset quality trends in the wake of current geopolitical risks.

Thank you. Thank you, Sharad, for your question.

I will take the first one. It's a bit a continuation of what I said earlier to Julia's question. But if we go with the moving parts, I mean, on net interest income, intrinsically, it's very simple. Roughly 90% of all net interest income is built by two parameters, and that is the transformation result and the lending income. Now, on the transformation result, Bartle just highlighted what is crucial in that perspective, that is, customer deposits inflow. And as he highlighted, that is at least stable, but it is in reality growing. and therefore the positions which we take and have been taken can be continued, which actually means that transformation results are going to increase, not only in this quarter, as they did on the previous X quarters, but also in the future quarters. We do anticipate that not only for 26, but also for 27, 28, we will see further continuation of that transformation result to go up. And when I'm saying 28, I'm saying at least 28. Now, What is crucial to understand, that is, the roughly 90% of net interest income build up a transformation result and lending income. The moving part, the really moving part, is the transformation result. What is to a lesser extent the case for the lending income. So if you see the differences quarter on quarter, far more important transformation result than lending income. On lending income, it's very straightforward. Two things are crucial, volume on one side, margin on the other side. So let me start with volumes. We had a very strong quarter in published quarter one, 1.6% growth. But the good news is that if we look at the pipeline, it's quite strong from the commercial SME side going forward. And in Belgium, and in Czech Republic, as a matter of fact, in all countries, except to a certain extent Hungary, we do have a very strong commercial banking pipeline filled. So, the 1.6% I do not see as an exception. We guided for 5% currently with the evolution which we see we are above that and also given the fact that we have been rolling this off in a period where uncertainty was key given the conflicts which are ongoing, we are quite confident that the 5% will be reached by us going forward. What about margins then? Well, we continue to play the game of pushing up the margins in a sound and commercial way. Sound way means acceptable for customers. Commercial way means we take also into account our market share. But we do see a drop in our market share, for instance, which happened in the first quarter, 26 in Belgium, where we were pushing up the margins on the mortgage side. The market was not following. We just adapt the situation, which means that by the end of the quarter, we restored our market shares again. This is how it works. So I would say it depends a little bit on the market. And in that perspective, I do not expect that we will see a major uplift in the commercial margin. So the product of the two, what actually means that we will see a further continuation of what we have seen in quarter one of this year. So let's then discuss the remaining parts. You mentioned dealing room income. Let's face it, dealing room income has a positive contribution, of course. But let's face it, it's only roughly 3% of our total net interest income. So even if you have their changes, which are what, 3 million, 5 million, it is not going to shift the needle on net interest income. The same can be said on, for instance, cash management. We don't necessarily always mention that, but cash management is a positive contribution, but it's more, I mean, an adjustment rather than a fundamental influence. You also mentioned inflation-linked bonds. That's quite crucial. In this quarter, it is negative. But we do expect the inflation-linked bonds total for the year to be at roughly 30-40 million euros. So that is an adjustment compared to this quarter in total of, let's say, roughly between 40 and 50 million euros. And the same can be said also if you want to extrapolate quarter one, be careful, number of days are different, has a negative impact, and also be careful there are a negative one-off in this quarter on the Hungarian side. So all in all, we do see that the pickup of the net interest income over the last quarters and last years is going to be continued going forward. And therefore, I said what I said to Julia as well, the 6.725 billion guidance is on the conservative side, and we'll give you an update in quarter two. The last thing you mentioned was the parallel shift of 25% already on earlier occasions. Sorry, of course, 25 basis points. 25%, that would be a nightmare. But 25 basis points, we already said on earlier occasions that the impact would be roughly 60 million euro. Be careful, parallel shift is a parallel shift. We don't see that in reality. The short end and the long end move in different directions and we have more flattening of the curve. But in that perspective, no change in our guidance.

As far as your second question is concerned related to the ECL buffer which we indeed increased to 175 million with what I would call a one-off fixed management overlay. This is bringing indeed the total buffer to 175 million which is roughly 60% of the or impairments that we have as a business as usual on the year and we feel comfortable with that. Going forward we do not anticipate that as I said it is a fixed one so we do not anticipate to further increase that. What I can say as well as Johan has been highlighting as well this is also helping us to reduce the ILB shortfall. The impact of that is for basis points. Now, for the time being, also as far as your question is concerned, what is the outlook? Of course, there what we see is today we are particularly in Belgium in what we call the reduce season. That means that we are incorporating in our PDs the 2025 corporate results. What we see is today the PDs are stable, but we do expect potentially a slight increase in the Stage 1 and Stage 2 as a result of this integration of the 2025, but this is more a normalization. than a structural deterioration. So we do not believe or think that there will be a structural deterioration. Of course, unless the war continues for a very long period of time, because of course companies are suffering. But if the war is certainly shortlisted, then lift, I should say, then basically we do not expect a structural deterioration. It's rather a normalization, and therefore we maintain the guidance of well below the 25 to 30 basis points.

Thank you.

Thank you. And we'll now take our next question from Shrey of City. Your line is open. Please go ahead.

Good morning and thank you very much for taking my question. I'm going to give you a break from the net interest income and ask about Kate. Thank you for your comments on the autonomy decrease in Belgium at the beginning. I want to actually shift focus to the Czech Republic where if you compare the first quarter of last year to the first quarter of this year, I believe your autonomy rates are down something like 5%. If I could just understand what's driving that, is it people are asking more difficult questions or is it something else? And my second question is on the amount of leads generated by CAPE. It's increased to 420,000 this quarter from, I believe, 398,000 the quarter before in the last 12 months, which implies a quite substantial step up sort of in the quarterly run rates. relative to a year ago. So, if you can just talk about what you see as the latest developments there. Thank you.

Thanks, Shrey.

Sorry, we just were discussing because there was a little blip in the line. We could not understand a part of your second question, but anyway. So in terms of the first question about Kate and then more particularly Czech Republic, well, indeed, there is a fundamental difference in the autonomy. And let me define again, autonomy is quite crucial. Autonomy means that if you ask a question to Kate, Kate provides you not only the answer, but if the answer entails a product, she also delivers the product without any human being interfering. So what we call straight-through processing is a particular parameter which is judged upon autonomy. when we are calculating the autonomy. So in Belgium, the autonomy is hovering around 80%. Czech Republic, which is CATE 1.0, so not the full LLM CATE, that autonomy is now, what was it, 67%, which is indeed down compared on previous quarter. Now, how come, and actually it's true for both countries, because also the autonomy was slightly down, it has to do with the type of questions customers are asking to Kate. Because, first of all, more and more usage is made of Kate. We do see an increase of 11% compared to previous years on the usage of Kate. That is the first thing. And secondly, when they start using it, the NPS score is very high, which means there are much more customers are using it, they are much more satisfied, and as you already indicated in your question, they start to ask questions beyond the traditional stuff. And if it is not foreseen in the solutions which we have that they are straight through process, we can provide an answer, but we do not provide the product. For example, when customers are asking for overdrafts or for particular products, which are potentially linked to fraudulent actions, we do not, of course, provide the answers and we do not provide the solutions. And in that perspective, we do not count them in the autonomy. Check Republic is now in the process of rolling out its K2.0. It is already rolled out to internal staff and the aim is to roll it out to customers by mid of this year. So we do hope to see that indeed the autonomy is increasing there as well. In other Central European countries, K2.0 will be rolled out in the course of end of 2026, early 2027. Their autonomy currently stands at 75 to 77%.

As far as your second question is concerned, related to the strong increase of the leads from indeed 398,000 to 420,000, this is mainly driven by Belgium and to some extent also the Czech Republic. This is entirely driven also by the stronger conversion ratio, which has increased from 13% to 14%. What does that mean? Basically that is that it's a whole process. So you start out with a pick-up ratio, then you have the contact-to-pick-up ratio, which means the relationship manager contacts the client. Then you, of course, have the sales talk, which leads to the contact ratio, and then subsequently the final conclusion of that, which is indeed the total conversion ratio. One of the reasons why it has significantly picked up also compared to particularly the last quarter and quarter three is mainly also because in Belgium we had also the maturity of the term deposits which of course also forced our sales force to pay attention to that. and that is having an impact on a slower conversion ratio in the last two quarters. The seniors' pickup now is 14%, leading indeed to a significant increase in the conversion ratio of, in total, 420,000, and we expect that to increase further and further also for the reasons that Johan explained before.

Understood. Thank you very much.

Thank you. And we'll now move on to our next question from Namita from Perni of Barclays. Your line is open. Please go ahead.

Morning, and thank you for taking my questions. My first one, just on hungry net interest income in the first quarter, even excluding all the one-offs, so the 10 million negative and the 4 million positive, and excluding FX, net interest income looks flat quarter on quarter. And I just wanted to understand why this was, because the slides point to a higher commercial transformation involved in a growing balance sheet quarter on quarter. Are you seeing increased competition in Hungary, and what does the competitive landscape look like there? And certainly on Czech, the loans are growing a lot faster than deposits, and that's been the case for some quarters now. Do you think this is a sustainable strategy, and why do you not become more aggressive on deposit growth going forward? to be one. Thank you.

Thank you. Thank you for your questions.

Let me take the first one. So indeed, in Hungary, we do see a couple of one-offs, which are resulting in a slight, I mean, influence of roughly 6 million euro on the net interest income side. And as you pointed out, indeed, the net interest income is evolving positively, but is not at the same pace growing as in the rest of the group. Now, in terms of the building blocks, well, here we do see the same pattern as in the group, so commercial transformation result is performing better, which also means that on the other elements there is a compensating effect. Well, the compensating effect has to do with the fact that, and I mentioned that earlier, that, for instance, the growth on the corporate side in Hungary is below our expectations. and this has to do with different elements which are part of the Hungarian domain and that is of course the elections which were creating some nervousness and also in terms of the appetite for investors of the, for investments, sorry, of the business development, they were subdued. So in that perspective, the explanation is actually pretty straightforward. What is the expectation going forward? Well, on the short term, I know that there are huge expectations regarding the Hungarian government. But honestly, I think that the Hungarian government will need some time before they start to build up the transition, which everybody is expecting from urban policy, let's call it like that, to a more Europe-oriented transition. policy. In the short term, and we know that there are two deadlines, on the freeing of the European budgets, the European subsidies, there is a very short term target and there is one in June, sorry, in August. Well, I think the August target to free up the European subsidies for Hungary is more realistic than the upcoming one in, I think it is this month, in May. Well, that might trigger, of course, further economic development and consequently further loan growth. So, yes, it is flattish now, but the outlook is, at least when you take into account the European subsidies, is more positive.

Good morning, Namita. On your question on the Czech Republic, Basically, indeed, we have seen quite strong loan growths, stronger than the growth of the deposit base, but bear in mind that the loan-to-deposit ratio in the Czech Republic today still stands at 82%. This is something that obviously we monitor closely and further efforts will be taken within this respect. Bear in mind as well that we have been somewhat reducing the external rates on the saving accounts, notwithstanding that basically our market share has remained quite stable. So also there, the net inflow is quite positive in deposits, which is indeed a growth of 0.5% quarter-on-quarter, but still 2.2% year-on-year. As far as your question is concerned on the sensitivity in the Czech Republic, well, a parallel shift of 25 basis bonds in the Czech Republic has only a very minor impact of more or less 3 million euros.

Thank you.

Thank you. And we'll now take our next question from Amit Ranjan of JP Morgan. Your line is open. Please go ahead.

Yes, hi. Good morning and thank you for taking my questions. The first one is on the two acquisitions that you have done, 365 and business lease. How do the contributions in the first quarter compare to your planning or expectations lease? And the second one is just a clarification on dividend accruals. What was the ratio that you accrued in the first quarter? Thank you.

Thank you, Amit, for your question.

Let me take the first one. So we guided for 365 and business lease. The detail is in the quarter announcement of quarter 4, 2025. So actually, we guided for this year net interest income of €157 million, €104 million non-net interest income, and then that totals €261 million as total income. This is full year, for good understanding. OPEX, €156 million, and cost-income ratio of 59.8%. When I look in, when you translate that on a quarterly basis, well, you will have 39 million euro expectation net interest income, 26 on non-NII, and then 65 million totaling income. On the OPEC side, 39 million. Then you have the full split up. Well, where are we in reality? We are 37 million euro on the net interest income. If you combine that with... Businesses is more or less 38, so it's, let's say, 1 million lower than forecasted. The non-NII is also 1 million lower, it's 25 million, which brings the total income at roughly 2 million lower than what it was. On the OPEC side, on the other hand, the reality was 32 million euro, which is 7 million better than what it was. So ultimately, P&L-wise, Yes, it's a bit better result. Cost income ratio stands at 51.6%. So, hereby you have the full detail.

And then as far as your second question is concerned, I mean, it's related to the accrual, dividend accruals. So, actually, we always accrual 50% in the first, second, and third quarter. And then, obviously, in the fourth quarter, we accrue in line with the final dividend decision.

Thank you.

Thank you. There are no further questions in queue. I will now hand it back to Kurt for closing remarks. Thank you.

Thank you, operator. Okay, this sums it up for this call then. Thank you for your attendance and enjoy the rest of the day. Bye-bye.

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.