Kbc Group Sa Unsp/Adr

Welcome to the KBC Group second quarter 2026 results conference call. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to Kurt De Baenst, Head of Investor Relations. Please go ahead, sir.

Thank you. 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, August 6th, 2026, and we are hosting the conference call on the second quarter results of KBC. As usual, we have Johan Thiers, our Group CEO with us, as well as Group CFO Bartel Puelinckx, and they will both elaborate on the results. As such, it's my pleasure to give the floor to our CEO, Johan Thiers, who will quickly run you through the presentation.

Thank you very much, Kurt. And also from my side, a warm welcome on the announcement of the second quarter results. And as always, we start with the overview. And I'm very happy to announce a very excellent result over the second quarter, totaling €1,152,000,000. This is a return on tangible equity of 18%. And once again, it highlights that KBC is not only a very well integrated bank assurance group, But that KBC is once again able to make the machine turn on all its fire on all its cylinders. All countries performed excellently in delivering this result and that is also translated in amongst others customer loans growth and customer deposits growth over the quarter again. And that also totals in a very strong inflow of core customer monies, now totaling in one single quarter, 6 billion. It also translates and transpires in an excellent net interest income result, which allows us to increase the guidance to approximately 7 billion 50 million euros. Not only the interest income part was delivering, but as I said, the diversification into the fee and commission business and the insurance business both delivered excellent results. Again, very strong inflow on the asset management business, but also on the life and more life side. If you compare it with previous periods in the same period, sorry, in previous year, then we see a strong growth, more than 10% each. In terms of Guidance also there, we will further increase the guidance. In terms of the sum of all parts, you will not be surprised that also total income guidance is now brought to approximately 11% as it is a comparison to 9%, so an increase of roughly 1.2%. Costs are well under control. They're perfectly in line with the guidance which we gave on the back of the fourth quarter results and is now also perfectly in line with our internal trajectory on the cost evolution. As a matter of fact, we have some advance in that perspective. That trajectory was used to put the guidance in place. Now in terms of loan loss impairments, excellent credit cost ratio and we have taken some impairments on other matters but I will come back to that in a second. Solvency and liquidity positions remain very strong with a solvency position of 14.4% which allows us also to announce today as usual the execution of our dividend policy indicating that we are going to Pay out a 1 euro per share interim dividend as usual in November of this year. Let me go then more into the detail on the next slide. You can see what I just said about the diversification. In general it's more or less 50-50 split. This quarter it was a little bit more on the net interest income side. It is a 50 to 48% and this is confirming what I said, highly diversified. In KBC both growth and costs are under control because of the investments which we do in the digital environment, artificial intelligence amongst others and that is then transpiring into what you all know under the name CATE. Kate is continuously improving its deliveries in terms of both the revenue side and on the cost side. More than 6.2 million of our customers are in contact with Kate and using it and the autonomy in that perspective of Kate is So 77% in Belgium this quarter, 75% in Czech Republic where we launched K2.0. In the other Central European countries, K2.0 is going to be launched in the quarters to come, which also means that there you can expect indeed a further increase. And as you know, we want to have numbers of autonomy 80%. In terms of the translation into what is the effect on the cost side, well, CAIT is doing the equivalent of work of at least 420 of our commercial employees, and it is calculated in a very conservative way. But let me also highlight something else. CAIT is generating on the back of customer data leads, which are then sent out to our employees and dedicated And on the back of that, Kate was able to trigger roughly half a million sales in this quarter. To be precise, 488,000 sales were delivered on the back of that. Just to give you an idea, this is a success rate of roughly 19%, for instance, in the business unit Belgium. Lead to contract. On the next page, you can see an overview of where we are in terms of the different positions, profitability, sustainability. But let me skip that to spend more time on the really technical numbers. This quarter was also characterized by a couple of one-offs. The most important one-off, which is in this pack, is the adjustment for the modification losses in Hungary. In essence, it's very straightforward. As you remember, there is a cap on the interest rates for mortgages in Hungary. That cap was by the normally taking six months timeline. So every six months, it was decided if the cap would be withhold or not, during an impairment, a modification loss. The previous government, Orban government, just before they handed over the bar, Petr Magyar As we speak, the Hungarian government is indeed reconsidering that position and then bringing back the caps again. A couple of things need to be discussed on that matter, but it is potentially possible that we are going to review that 42 million euro in the quarters to come, and then obviously we will write back that impairment. So in essence, over the full quarter after taxes, 38 million euro total one-offs, which is, as you can see on the graph, A bit different than on previous quarter. Let me go into the different P&L lines. And as usual, we always start with net interest income. Well, we have an extremely good quarter. €1,805,000,000 is indeed a strong performance and it's triggered by its two main drivers plus an extra. The two main drivers are the transformation result. First of all, transformational results wound up significantly over the quarter on the back of two things. First of all, higher yields. And second thing, a continuous inflow of benchmark deposit volumes. I will come back to that in a second. But in this quarter, we had a very strong inflow again on current accounts and saving accounts. Next to that, we had a strong increase of our lending income, roughly €28 million more than before, which is due to two things. First of all, the traditional lending income generated by volumes and margin. Volumes were up on the In this quarter alone, volumes increased with 2.8%, which is indeed significant. As a matter of fact, year-to-date, given the second quarter result, We now have an increase of our lending volumes of 4.3%, which is already almost achieving the full year target guidance, which we gave at least 5%. And on the back of that, we are going to increase that guidance for the loan growth to at least 6% for 2026. Grosses volume is one thing. What about the margin? It's clear that in a lot of markets where we are present and on the mortgage side and on the corporate side, margins are under pressure. It's not always downward. Sometimes we are able to increase margin, but in general, I would say there is commercial pressure on the margins on the lending side. In terms of the total margin for the entire book, that means and the margins on the deposit side replicated before and the margin on the lending side and all other products which are generating interest income, the margin went up from 217 basis points to 223 basis points, which is indeed a very strong increase. If you compare it over the year, then the increase is 15 basis points and that is indeed very significant. So I said two drivers, I just explained them, and an extra. The extra is inflation-linked bonds. As we have indicated on the announcement of the previous quarter, where inflation-linked bonds were contributing negatively, this quarter was stellar. 45 million euro net interest income was generated through those inflation-linked bonds, which makes the difference, back to back with previous quarter, 57 million euro. As a matter of fact, the interest income for the inflation-linked bonds over this year Already to 34 million euro. We guided previously between 30-40 million euro. So we are coming getting close to that. You cannot extrapolate the 45 million euro this quarter going forward. Probably will generate a couple of million euro every quarter in the to-coming quarters to come. What about the other adjustments there to a lesser extent? Number of days, 9 million euro extra where it was previously negative. So all in all, a very strong number. But let me come back to what I said on the volumes. There was a 2% growth overall on the quarter of our deposits. If you look at the inflow of core customer monies on the next slide, then it is indeed a very strong quarter. €6 billion of inflow of core customer monies. And what is even more important is that in comparison to previous quarter, This quarter was characterized by a strong inflow on current accounts and saving accounts rather than on term deposits. As a matter of fact, the inflow on current account saving coins is double of that of the term deposits, which is a different trend as what was probably assumed in quarter one. If you sum it up of all parts, then we are almost at 12 billion euro net inflow of core customer monies. You also see that in that perspective, we do see 1.4 1.4 billion inflow on the mutual fund business which already gives you an indication on the strong performance of last year. Let me say one more word on the term deposits. Term deposits here are also used as a defensive instrument. This defensive instrument is used for instance when competition is launching these kind of products, when states are launching state notes Thank you very much. are having a tenor of less than three months. 75% have a tenor of less than six months, which means it's just an instrument to mitigate potential other investments in the future, amongst others, mutual funds. Let me say it differently, amongst others, products with higher yields. Let me then go into the immediate bridge to the fee and commission already mentioned the very strong inflows. But 758 million euro put the net fee and commission income at a record high. And this is due to actually two things. In essence, 4% growth on the asset management services and 4% as well growth on the banking services. Asset management services, as you know, is also driven on the evolution of the market. So the market performance is generating here a very strong uptick. Our assets under management grew to €328 billion, which is an increase of And that 10% is actually generated through roughly 9 to 10% market performance and 1% net inflow. Now, given that market performance, there is no big surprise that the asset management fees are increasing indeed strongly over the quarter and that net inflows follow up. But to a lesser extent, that is a translation of the strong inflow of the 1.4 billion euro. In terms of the banking services, very strong performance on the payment services. Payment services are the bulk of those banking services, but also very strong performance on the network income and the credit files linked to the loan growth, but also on the security related fees, which we get on our trading platforms in Belgium, Czech Republic and Hungary. Just to give you an idea, we had again on the record of last quarter, we had another improvement, 12% more customers on the Bollero platform in Belgium over the year compared to 36% more transactions. So all in all, very strong performance on the fee and commission side. We stand now at 3 billion gross, sorry, 3 billion net sales inflow in the first half of this year. And this is a perfect in line with our ambition in this perspective. As you know, we don't give detailed guidance, but we are quite positive about the evolution. Just to give you an idea, in the first months of this third quarter, yes, third quarter, We have achieved a sale of 1 billion euro net as well. What about the insurance side? Well, non-life business is doing excellently. 10% sales increase, which is quite significant. This is due to all countries. Belgium 7%, more mature market, bigger portfolio. And then the central European portfolios, they all grew above their targets, more than 10%. 12% in Bulgaria, Hungary 16% and 14% in Czech Republic and Slovakia is a bit lower. Why? On purpose because of the reshuffling which we're doing on the portfolios and this is mainly due to the MTPL portfolio. Combined ratios in all countries are performing excellently. Despite the fact that we had thunderstorms with consequences in Belgium and in Hungary, but also a couple of big fires in amongst others Czech Republic. But if you all take that into account and you put it into a combined ratio, then you see that combined ratio stands at an excellent 85%. Perfectly comparable with the same period previous year and clearly below the target of lower than 91%. So this is a clear token that the underlying quality of this portfolio is of such kind that allows us to absorb even a couple of calamities which can happen in a quarter. What about the live business? Well, the quarter performance looks, compared to previous quarter, subdued. Well, this is not a correct observation. As you know, a lot of sales in these portfolios are driven by campaigns and the first quarter characterized by Thank you very much. Thank you very much. Combining the two quarters, the first half of year net sales was 18% higher than the same period last year. Just to indicate that also in that perspective, the commercial machine has been doing its utmost to generate extra sales. Quality-wise, also the margin which we deliver on those products, the CSM margin, has further increased. It now is solidly above the 17%. which is a fundamental uptake in comparison with, for instance, the same position a year ago. Then we go on to more volatile results, that is the financial instruments of fair value. As you can see, we have a clear improvement on the derivatives, which are used for our mark-to-market positions. 42 million better, which is on the back of the lower ineffectiveness of our macro hedges. All the other stuff you can read in the detail. In essence, the total result improves with roughly 26 million euro over the quarter, which is totaling minus 92 million euro. Net other income, the income generated through the leasing and real estate and the assistance company is here perfectly in line with the run rate 50 million euro is precisely the result which we have booked in this quarter. Coming to the operating expenses. Well, operating expenses are significantly lower than previous quarter. But once again, here, be careful. Bank taxes are, as you know, upfront paid in the first quarter. So let's ignore that. And if you look purely at the underlying operating expenses, well, then the expenses this quarter are roughly €5 million lower than previous quarter, if you take into account the FX effect. We had a very strong appreciation of the foreign, to a lesser extent, the Czech koruna. If you exclude, so make it like-for-like comparison, well, then the cost growth is 9 million euro, which is a translation that costs are under control. The comparison made by previous quarter, we need to be aware, we paid 23 million euro bonus in that quarter. So despite the fundamental uptake We were able to keep costs more or less in line compared to previous quarter. And also that transpires in a calculation of the underlying effectiveness of KBC Group. If you exclude the FX effect I just was referring to, the one of profit bonus, And then, of course, the acquisition of 365 Bank. Let me remind you that the integration of 365 Bank at this stage is an integration of a not efficient institution. So at high costs and that the benefits of that, so the synergies that they will be reaped in 2028, start to do that in 2027, but ultimately the big chunk comes in 2028. So it is front loading the costs and back loading the efficiencies or the synergies. Well, if you exclude that 365 bank to make a comparison on a like-for-like basis, then we do see this quarter an increase of our cost of 3.4%, absorbing indeed what I just said, wage inflation. which I think is a major achievement. This is perfectly aligned with the guidance and also, but these are numbers you obviously don't know, perfectly in line with the trajectory which we had forecasted for ourselves to get to the guidance. So cost income ratio now stands at 39.8%. When you exclude the bank taxes, and that is better than the 41% of previous year. Certainties in life are bank taxes. Well, we paid another 64 million euro, mainly triggered by the windfall taxes in Hungary, 54 million euro. We do expect that by year end, the sum of all taxes paid is 730 million euro. And that is indeed quite a lot. Going to asset impairments. Well, asset impairments are very benign in this quarter. Despite the very difficult circumstances which were part of our lives, €135 million. But if you look at the really underlying impairments on loans, it's only €53 million. That 53 million euro is translated into 11 basis points credit cost ratio, which is indeed a very good result. And if you compare that with previous quarter, it's an improvement. If you compare that with the results of last year, then it's another improvement. So indeed, the quality of our portfolio is and remains good. The impairment loans ratio stands at 1.8%. We have added a couple of things to those impairments this quarter and that is first of all giving the turbulence in the world the parameters change and therefore the modeled ECL buffer has increased with 13 million euro. As I indicated on previous on previous quarter the 75 million management overlay we would not touch and if you add both numbers together then the total buffer now stands for total buffer for geopolitical and macroeconomic uncertainties plus the management overlay stands at 188 million euro. The other impairment which we took is the 42 million modification losses which I explained earlier and which we potentially are going to take back in the coming quarters but we also took a 28 million euro impairment on software that impairment is in seasonal exercise which we do for sure half a year and the end of year This impairment has a positive impact on our capital position and therefore it will indeed have a positive contribution to our CT1 ratio. Let me go into the exposures which we have particularly on our portfolio. You might have questions about that. We already indicated in In the first quarter, it has not changed that we do have no exposure to private credit. We have hardly any exposure to private equity and we have hardly exposure to the Middle East. 0.2% in the letter on our outstanding book is indeed limited, but also sectors which can be qualified as vulnerable, our exposures are limited. You can see the numbers on this page. I'm not going to dwell upon this in the detail. Might you have questions about it or willing Happy to answer those questions. Let me go to the sum of all parts, which brings us to the CET1 ratio. Well, the CET1 ratio stands at 14.4%. Which is the consequence of capital distribution through the profit generation. Mind you that it might occur that the dividend which is coming from the insurance company is pretty low. As you know, this has to do with the dividends which are generated through the Belgian GAAP results and paid out. So there's always a quarter delay. That 25 million euro will be in the next quarter, for instance, 208 million euro. So there is some seasonality in those numbers. And then the second thing is, of course, the evolution of the risk-weighted assets. We have had a strong growth of the volume. I indicated already that on the back of that, we increased our guidance. But this, of course, translates itself in the In the volume increase of our risk-weighted assets, as you can see, 2.3 billion out of the 3.5 directly comes from that volume increase. And also, AVEX effect, the very strong uptake of the foreign and to a lesser extent the Czech Koruna, have generated 0.6% extra risk-weighted assets. The sum of two parts is explaining roughly 90% of that increase. So 14.4% on the capital side, which actually triggers also buffers roughly of 4.8 billion if you compare them with the MDA of the OCR level. There is a small adjustment on the MDA that five basis points come on, Sorry, on the OCR, four basis points come on top of that because of an increase of the counter-cyclical buffer in Czech Republic as of the 1st of July of this year. MDA buffer now stands at 10.99, which is due to a five basis point shortfall on the 81. Leverage ratios are actually in line with what it was previous quarter. Also, the liquidity ratios are super stable and the insurance company stands at a rock solid 231% solvency ratio. Now, I already mentioned that in the introduction, given the strong results, We actually updated and I should say upgraded our guidance. The guidance now stands for the total income 11%, which compares to the previous guidance 9.9%. This is mainly triggered by an interest income guidance increase to approximately 7.05 billion euro. and an increase of the insurance revenue to approximately 9%. You already noticed there is a difference in the wording where we used previously at least, we now use more precisely approximately. The difference is At the beginning of the year, the world is very uncertain. We make a prediction for a full year. Now, seven months down the road, it becomes quite clear where we are. And therefore, we're making a guidance now, which is far more precise than the previous one, which is giving you a bigger range. So this is the reason why we have changed that. And that is also translated in the operating expenses, which we need to guide at approximately 3.4% year on year. Consequently, the JAWS are standing now at 3.3%, which means that we also upgraded the JAWS. Previously, the JAWS stood at 2.2%, so the full increase of income is indeed calculated on top of the JAWS, so that benefit is fully taken into the JAWS. The cost-income ratio will be approximately 40% and the rest of the guidance remains unchanged. We didn't touch the guidance of 2028 because that guidance is only done once a year and that is, as you know, always at the back Thank you very much.