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.

Thank you Johan. Let's open the floor for questions. Please restrict the number of questions to two to allow for a maximum number of people to raise questions. Thank you.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Tariq El Mejad from BOFA. Please go ahead.

Hi, good morning. Thanks for taking my questions. Two from my side, please. First, on the M&A and ATS deal, could you please update us on what's the latest on the discussion from the government side on the optionality around ATS, this recent report, what you make of it? And also, I mean, you've been open about distributing the equivalent capital to shareholders in case That deal doesn't happen. I mean, I think from the ROI perspective, it's probably not the best deal, cash or a buyback. Would you consider opening up to another M&A option across Europe, Central Europe? I mean, you've been always transparent about what could be the target, which country, or at least when asked, not pushing back too much on commenting. So would you be opening up to another option to use the capital? And second question is on costs, especially in Belgium. So your last comment about approximately versus at least seems that you're confident about your cost target. What do you make of the fact that if inflation picks up because of this uncertain macro environment, especially in the Middle East, take inflation up and the cost in Belgium up? So have you identified any levers to offset that inflation in case it persists? Thank you.

Thank you very much, Tariq, for your questions. And let me take the first one. So indeed, what we said about potential M&A and then especially the ETIOS file, we said at this stage, I mean, on the previous quarter, I mean, I said on this stage, it's only certain that Belfast will come to the market. The government is trying to sell 20% stake and that process is now started up. We expect by year end that the governments will make a clear statement about what they're going to do with ETIOS. Well, where we are today, And that is also in the newspapers and also picked up by analyst reports. Actually, that statement which we made last quarter, quarter before, is confirmed by the official declarations of the government. So it's quite clear that the government has launched a process to sell 20% stake in Belfius. The government has also triggered an investment firm to give an analysis on what to do with ETIOS and then also to comment on the possibilities of merging Belfius and ETIOS at this stage. The intermediate conclusions which have been also sounded by the Minister of Finance were that a merger between Belfius and ETIOS is not possible when you do a launch Thank you very much. The investment firm is going to come back to the Belgian government before the end of September. And then on the back of that, the government is going to take a decision on ATLs. Which means before the year end, we know what they're going to do with ATLs. And let me remind you that whatever happens, if the government is willing to sell ATLs, we will be a candidate And for the right price, we will pursue that transaction. And if the government would decide not to sell it, it will not break KBC because we are growing our market share on the strong side. We are the number three in Belgium and growing. And in that perspective, we are not desperate. What to do with the monies? I agree with you that you have two options in essence. You would go for building business, which we're currently doing. Let's not forget that we grew our lending book roughly 5% this quarter. We grow our insurance book roughly 10% in this quarter. So if you take that into account, then I could say that we grow the size of an ATLs every year again, roughly over two years, I think it will be roughly there. Over five years, we grew the size of a company like ChSOP organically. What we definitely will do continuously is screen the market for opportunities. In the first place, in the countries where we are present, this is translated into, for instance, the acquisition of 365 and others in the previous years. And as I said before, we look in specific markets that if an opportunity arises which fits our strategy and which clearly fits also our business model, that we will at least consider. And countries which we have mentioned in the past We're amongst others, Romania, and if it is an opportunity, then we'll definitely pursue. In terms of business development, given the returns which we are making, I think also it makes a lot of sense for investors that we use our capital to expand our business organically, for sure, but if possible, inorganically as well.

Very good morning to all of you from my side and good morning, Tarek. Thanks for your question on OPEX. So basically, indeed, as Johan has been highlighting, we maintain our guidance on the OPEX evolution. We made it more specific by changing it below to approximate. So we maintain the 7.7% year-on-year and on the non-organic basis and the 3.4% organic basis, so excluding 365 and the fixed impact. As far as wage inflation in Belgium is concerned, There we are very clear that we, as Johan also has been highlighting, that we anticipate that we will be able to absorb in 26 the inflation increase by further efficiency improvements driven mainly by, of course, CATE and the impact on that on our FTE savings, theoretical FTE savings. So from that perspective, you should take that into account that we will absorb that.

Okay, thank you very much.

The next question comes from Giulia Aurora Miato from Morgan Stanley. Please go ahead.

Hi, good morning. Thank you for taking my two questions. First of all, on NII, I hear you that you have changed from at least to approximately. But I'm just trying to understand if this is a realistic or still sort of conservative guidance. If I take Q2 and I assume it's flat in Q3 and Q4, I'm already So is the difference because the contribution from the inflation linked bonds is going to be lower or is it conservatism? So some comments on that. And then secondly, loan growth is ahead of deposit growth in each market. And for now, I think it's fine because loans are still below deposits. But is there a moment or do you think we are approaching a moment where there needs to be much more deposit competition because loan growth is accelerating and banks need to fund the loan growth? Thank you.

Thank you, Julia, for your questions. Let me answer the first one. So, of course, I mean, like always, your calculation is correct. And then the question is, what is the driver behind that? Well, if you make the analysis on the evolution net interest income, then first of all, the two drivers are The main drivers are transformational results. Transformational results are triggered by inflows and I just highlighted that we do have a very strong performance on the inflow of core deposit money and that the yields are higher. So on transformational results, actually the outlook is the same as what we have given On the lending side, we gave guidance that it is at least 6% and that the current position after six months is 4.3%. The second quarter is not going to grow as fast or we do expect that it's not going to grow as fast as it did in the first half of year. So in that perspective, some slowdown, assuming same margins. Well, you will have anyway some slowdown in that perspective. And then we already highlighted the impact in the second quarter. They need to be careful. Inflation link bonds have been totaling 45 million euro in this quarter. You cannot keep that constant going forward. We expect inflation-linked bonds to generate a couple of million euros every quarter, but definitely not the 45 which you have seen in this quarter. So in all pieces, if you put them together, well, you will see some further increase on your net interest income, which brings us to the approximately 7.05, but that the margin of conservatism, which was in the First guidance? Well, that margin of conservatism has certainly come down. I'm not saying it's zero, but it's certainly come down.

Good morning, Julia. On your question on the loan growth, which is higher than the deposit growth, it's obviously correct. We have 2.8% organic growth on the loan side and 2% on the deposit side. Now, there's two elements that I would like to highlight. First of all, you're also seeing that basically we have a strong inflow into our asset management business, net sales 1.4 billion, 3 billion for the year. So that also you should take into account. Indeed, also driving our inflows in order to generate higher investment returns, which are also where the margins are also well known of 100 basis points and which ties in the clients even better. So it's improved also the client loyalty. But secondly, also within KBC, we've always done that, whereas we obviously We guide and steer our entities on loan growth. We do the same also on the deposit growth. So they need to focus also on growing deposits, obviously, without generating a deposit war. And a good example of that you can see in Slovakia. In Slovakia, where we had the loan to deposit ratio of well above 140%, this has now dropped to 127%. Exactly because also in the Slovakians have been focusing on increasing their deposit bills. Moreover, thanks to Kate as well, and thanks to the fact that we've been aiming to increase our NPS scores, we are also able to attract new clients and new clients means also nice deposit growth. So from that perspective, our loan to the deposit ratio for the whole group still stands at a very favourable 88%. The next question comes from Namita Semtani from Barclays. Please go ahead. Morning and thank you for taking my questions.

My first question is the net interest income in Belgium. It's up 18% year-on-year in the second quarter, but loans grow below that at 6% year-on-year and deposits only 2% year-on-year. And you've spoken about lending margin pressure. So can you just break down to me the components of how Belgium and I can grow 18% year-on-year? I just wondered if it's all the replicating portfolio with saving rates And then my second question, which is again on the loan to deposit ratio, but in Czech. So the Czech loan to deposit ratio was 67% three years ago and now it's 80%. Are you happy for the loan to deposit ratio to continue to grind upwards there or is there a limit? And what assumption for the Czech retail bond have you made in your NII guidance? Thank you.

Thank you, Namita, for your questions. I will take the first one. So indeed, we do have in Belgium a very strong beat in the net interest income, and that is driven by the two elements which I highlighted for the group, in essence. First of all, you have in Belgium a very strong performance on the transformation side, given the fact that the inflow of core monies, so current accounts and saving accounts, is indeed also happening in Belgium. And as you know, this is by far the biggest portfolio. We do see that net interest income, we're now talking about nominal amounts, whereas inflow, we mostly speak about percentages. So in net interest income is indeed generated through the transformation result at a higher yield on a higher volume in current account saving accounts, which are the two products which have the highest margin. In this perspective. And as a consequence, we do see in Belgium that the transformation result increases significantly. As you know, we don't give a precise number and definitely not per country. But believe me, it was significant. The other element is the lending income. Belgium had a very strong quarter on the growth. And in that perspective, the growth was on two sides. Both on the mortgage side where, as you know, we tried in the first quarter to push up the margins. Also in the last quarter of 25, we pushed up the margin. We lost some market share consequently because the competition did not follow. But we do see that in the second quarter that has completely been restored to the detriment, to a certain extent, of our margin. You can see that in the detail which we have published. But volumes have gone up significantly. In Belgium we do see an increase of our volumes on the term loads with 4% and roughly 1% on the market share, restoring our market share back to 21%. So both have been contributing significant increase of that net interest income. And let's not forget In Belgium, inflation-linked bonds is the main bulk of the inflation-linked bonds are booked in Belgium on the insurance company. And so the 45 million euro is almost entirely on the interest income of the business unit in Belgium.

Good morning, Namita. Your question on the loan-to-deposit ratio in the Czech Republic. Indeed, our loan-to-deposit ratio currently stands at 83%, which is indeed up compared to the previous quarters. But this needs to be put somewhat into perspective. As what I said earlier, with respect to the focus on loan growth and then also on the deposit growth, is also valid, of course, for the Czech Republic. There, what you clearly see indeed is the impact, of course, of the retail state bond, which was more successful than anticipated. They expected to raise 40 billion of CZK, now at 74 billion, which is significantly up, roughly 3 billion of euro. Now, that only led to an outflow within CSOB of roughly 7 billion, which is well below the market share of 21% on the deposit side. Moreover, You should also take into account that notwithstanding the fact that in the Czech Republic we had of course also a policy rate increase, the market continues to react quite in a reasonable way. In the sense that the top rate remains at 400 basis points. We, by the way, as I already highlighted on the first quarter, have been decreasing the top rate for the saving accounts from 400 basis points to 380 basis points. And nevertheless, our market share in saving accounts did not drop. So we continue to see also quite some strong growth. We will not do crazy things. And on top of that, we are also focusing in the Czech Republic on shifting part of that towards our investment products in order, again, to also link better our clients. which we do with quite a success because also you can see that our private banking and wealth market shares continue to increase and our assets under the management also continue to increase. So they take also those two aspects into account.

That's helpful, thanks very much.

The next question comes from Amit Ranjan from JP Morgan. Please go ahead.

Yes, hi, good morning and thank you for taking my questions. The first one is on risk-weighted assets. Besides loan volume, should we expect any other drivers going forward? And in that context, if you could also talk about SRTs, if you plan to undertake more in the second half, please. And the second one is just generally on asset quality. Is there any pockets or signs of stress anywhere that you're seeing? If you could talk about the different geographies, please. Thank you.

Yes, good morning. So in terms of your question related to the risk-weighted assets, indeed risk-weighted assets for this quarter increased by 3.5 billion, 2.6%. That is, as you have seen in the company presentation, is mainly driven by volume increase. And also by FX, obviously. To some extent, we also have seen an increase as a result of the defaulted loan portfolio now there. To be very clear, this is not immediately linked to a potential deterioration of the loan portfolio. Because we have been writing of quite a number of legacy files with higher provision coverage than the inflow of new files, which explains the increase of the risk-weighted assets on that side. We see a relatively modest but something that you cannot avoid increase in our risk-weighted assets from The fund models and model changes. This is obviously related to updates of models but also interventions of the regulator. As we indicated already before, we will mitigate that by of course using or further managing our portfolio management initiatives. These are amongst others SRTs. But it's also more than SRTs. We are also looking obviously at credit insurance, but we're also looking at further improving our data and also being much more aware of what the impact is of potential increases in loan volumes on the risk-weighted asset side. So in terms of SRTs, you know, we have been issuing our second SRT in June, which was on a 1 billion 250 million corporate portfolio in Belgium, generating a RWA saving of 0.7 billion. We do have indeed another number of SRTs into our planning still also for this year but it's too early to give you an indication on what the impact would be and on what the portfolio would be because as you know the impact is depending on the concentration of the portfolio but yes if there are any further impacts of model changes etc we will to the extent possible manage that through portfolio management.

Amit, I will take your second question. So what about asset quality and what about potential stress? Well, if you look at the numbers, which are also part of our disclosures today, both in the PowerPoint analyst presentation as in the detailed quarterly report, you can see that our known asset impairment ratio and our credit cost ratio are actually either stable or improving. So the answer to your question on the basis of this macro picture of our portfolio is actually very straightforward. Well, we don't see any kind of deterioration despite the stress which is there. So there are some shocks given the straight-up hormones closures and so on and so forth. But we don't see it transpiring directly in a fundamental optic into our numbers. One of the reasons is we are not exposed to first of all directly the region and secondly the number of sectors which are very sensitive to this are not present in our portfolios in a large extent. That detail is provided in this presentation. Now, looking into specifically the ratios, as I said in the quarterly report, you also find an overview of the PD classes, the different buckets, PD 1-4, PD 5-7, PD 8-9, and then you have PD 10-12. Well, if you make that average and you look into the evolution over time, if you would do that exercise, you would see that the second quarter is better than the previous one. And as a matter of fact, those quarters are perfectly in line with what you have seen over the last two years. As a matter of fact, they're slightly higher than 2022. So our guidance remains. If you look at what is happening, you look at our credit cost ratio, it is improving. It is 11 basis point, it will now go back to zero. We do expect that we will have a normalization of the underlying impairments on our portfolio. This would be a normal way of thinking. It is not crystallizing yet in our portfolios, but we remain extremely, extremely vigilant about that, extremely attentive about that. We do on every book for every country, particular exercises on sectors which might be vulnerable to external factors, amongst others, the conflicts in the Middle East. And as I said, that the tentative makes us sure that we will not have big jumps in our credit cost ratio. But the normalization is what we guided before and which we continue to say today. Very helpful. Thank you.

The next question comes from Benoit Petrarch from Kepler Chouvreau. Please go ahead.

Yes, good morning. So the first question is actually to come back on the 28 targets. So again, what is the reason not to upgrade the 28 numbers given your upgraded 26 guidance? I think your exit NI will be at about $7.2 billion in the fourth quarter. You've been guiding for 7.9 billion by 2028 or more than that, actually. So trying to understand why you decided not to upgrade to 2028. Is that just a budgetary exercise which did not take place or are there other sentences around assumptions, especially on the net interest income for the future? The second one is on the NIT. So what type of assumptions did you take for the rest of the year in terms of pass-through rates and also makeshift? I just wanted to understand a bit how you view the competition in the second part of the year on the deposit side. And just maybe last one is on the NI generated from lending. I think you've been able to grow it in H1 and I think you flagged some margin pressure in some countries. I think the mortgage margin is under pressure in Belgium and there's some margin pressure also in South-Western Europe. But overall, can you start to grow again your lending and I or you think it's going to be more on the flat East side? Thank you.

Bonjour Benoit. As far as your first question is concerned, related to the upgrade of the 28 numbers, indeed, you actually already gave yourself the answer. I mean, we enter into our budget exercise as of September and we typically do not upgrade the 28 numbers because we have not yet run our budget exercise. So that's the reason why we have not upgraded that. As far as the second question is concerned, this is mainly the assumptions in terms of our 7 billion 50 million approximately guidance for the NII. As you know, and as we've been indicating already in the past, we have been taking into account indeed some impact, particularly in Belgium, on the pass-through rates in the sense that obviously when you still have, and it's still the case today, a pass-through on the saving accounts or an external rate on the saving accounts in Belgium, 60 basis points, which is historically low. With the current evolution of the rates and also of course the replication portfolios of banks it is not unlikely to expect that there might be some increase and so we did include some increases particularly over the full cycle until 28. Now what is important here is that what we see in Belgium today is that we see a very rational behavior of competition In the sense that none of the large banks has increased their rates on the saving accounts. And then I'm referring on the standard saving accounts. What we did see is that quite a number of banks, including ourselves, have been increasing their external rates on the specific saving accounts with specific features. In our case, this is the start to save saving accounts, which means that basically we have increased our external rate on that to 315 basis points. But of course, the amounts of that are limited. It's limited to up to 500 euro a month maximum. The impact of that for today is roughly 4 billion. So it's only a small part. So we do not expect an irrational behavior as we have seen in the past, particularly in Belgium, but we can of course not exclude going forward that there will be further initiatives taken on that side, depending also on what is going to happen with the policy reads going forward. As far as NII on the lending side is concerned, NII on the lending is obviously increasing. We saw a quite nice increase of our NII on the lending quarter on quarter. This to some extent also, of course, was also driven by the correction on the calculation of the interest rates on the Thank you very much. Thank you very much. In Belgium, the margins on mortgages are indeed under pressure again, minus 19 basis points quarter on quarter on the margin. But as you know, in Belgium, the sales of mortgages is mainly driven In the Czech Republic we see some pressure on the margins, but there the margins now are somewhat less lower, but only a few basis points than the back book. So indeed, there is some pressure. The good news, however, is that basically in Belgium, we've seen a very strong growth on the corporate side with margins that actually have increased. So from that perspective, there is some compensation. But indeed, NII on the lending side is going to be under pressure going forward. Great. Thank you very much.

The next question comes from Sharath Kumar from Deutsche Bank. Please go ahead.

Good morning. Thank you for taking my questions. I have two, please. Firstly, on fees, I wanted to understand about asset management flows in the context of the shorter 10-year term deposits comment you made earlier. Overall asset management flows at 1% does not look high in the context of very strong markets. So what explains this? Do you expect flows to go towards mutual funds from term deposits in the coming quarters? Secondly, a follow-up on M&A. It's very clear that your near-term priority is ETHIAS, maybe Romania. Previously, you spoke about Greece as an interesting market over the medium term. Do you see the need to accelerate interest in this market in the wake of successful hostile takeover of Commerce Bank by IndyCredit? Can you provide a pecking order of your M&A preferences as of today?

Thank you.

Good morning, Sharad. I will take the question on fees and inflows of asset management. So as far as asset management is concerned, we have actually seen a quite nice increase in our assets under management from 295 billion to 328 billion. Also, the inflow of direct client money increased quite significantly. To a total of 141 billion, which is up roughly by 13.7 billion out of that as Johan has been highlighting 1.4 billion net sales. But what is important is that particularly that net sales is supported by a kind of what I would always call our bread and butter in terms of support of our assets under management. Which are the RIPs, the regular investment plans, which continue to generate quite some nice inflows. This quarter, this was 557 million euro, which is roughly one third of the net sales, which is actually continuously growing. And not only in terms of the number of RIPs that we are selling, both in Belgium and in the Czech Republic, And in Central Europe, but also in terms of the average inflow on a monthly basis in Belgium that increased now from 121 to 125 euro. And in the Czech Republic, we are almost at 59 euro per month, the decrease up from 55. And also international markets, we are now already at 54. Next to that, as you know, only a small part of our asset management flows come today from the Central Europe. But what is clearly happening and what we're always expecting is the wealth conversion and we see a proportionate strong growth of our assets under management, particularly in Central Europe going forward. So from that perspective, we do not guide our net fee and commission income because this is to a large extent also depending on the market performance. 50% of the portfolio is equity and that of course is depending on external market performance. But the other 50% is of course non-marginal, so the impact would be less. So that's how you should look at the future development of our flows. So we're certainly not negative on that.

And I will answer your second question, Sharad. So on the M&A, let me actually repeat what I answered to the question of Tariq earlier. We will continue to monitor the markets in terms of M&A. Definitely the core countries were present and that is For banking and insurance activities or related activities and in the in the past on the back of also some rumors in the market we reacted indeed that we were interested in opening in banking insurance franchise in Romania Until further notice, this has not been materialized, given that no opportunities or not opportunities which allow us to take a significant position in that market. But for a good understanding, we never said that we were interested in the Greek market. I know that some investment banks are running around with packages saying that we should buy something in Greece, but that's something else. But until further notice, we have never made a statement that we would be interested in Greece, and I confirm today that we are not looking into entering Greece.

Thank you.

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

I have a follow up on M&A and then a question on NII, but maybe just the NII one first. On the transformation side of things, we're moving into a slightly different rates backdrop to what we thought about at the start of the year. A few of your peers have changed the shape and the size of the structural hedge. I know you don't want to give precise details on what the hedge looks like. But just are you making any changes in how the hedge is set up that would impact either NII growth for the next few years, but also rate sensitivity as we go forward? So just mechanical on NII. Secondly, on M&A. So if ETIAS is a no-go, and you talked about looking at other opportunities, would that be that you start looking properly and setting things in motion after getting clarity on ETIAS at the end of this year? Because I guess you have around 2 billion of excess capital versus your 13% floor today. If you start looking for alternative options after the end of this year, I mean, I can assume that's going to take a year or more to close. Likewise, anything in terms of accelerated investment to the business, you could probably cover that by organic capital generation. You're doing 18% ROT today. So am I right in thinking that if ETIAS is a no-go, you're almost certainly going to need to distribute some of the excess capital at the end of this year, because otherwise the timeframes are becoming just too extended. And maybe if you could remind us The moving parts on how much capital SES could consume I know there's obviously a wide range of potential numbers there but just what you think that would look like and you mentioned Romania a few times there's obviously one big opportunity in or one big option in Romania but that's closer to 300 basis points of capital consumption so just any thoughts about how much further up you'd be willing to take CT1 to sit on a bigger sum of excess in order to give you more flexibility with regards to Romania thank you

Good morning, Chris. I will take the first question. Johan will take the second. As far as our replication portfolio is concerned, you're right. So from that perspective, we do not disclose because we consider that as our internal kitchen. But having said that, I can confirm that, yes, we have been somewhat reviewing the hedge and that we have started to shorten somewhat the duration. I would like to recall that anyway we do not yet see the inflection point in the coming cycle in the sense that we expect our transformation result to further increase over the next cycle.

Thank you for your second question, Chris. And indeed, I think it was a perfect analysis of all the topics which are on our table. So, in essence, let me highlight a couple of answers to your questions. So for good understanding we never disclose the impact for the potential acquisition of ATS may be. I know that in the market some assumptions are made by amongst others analysts and investment firms, but we never disclose any precise number. What is clear is that when an ATS comes to the market and when we would achieve it, we would acquire it, sorry, We would do it under the Danish compromise and we would acquire it via the insurance company of KBC Group. So we do have indeed in that perspective the opportunity of the Danish compromise. What is also mentioned then by a lot of investment firms that the impact might max be 100 basis points. I do not comment on that, but we never discuss the precise number besides the fact that it is indeed under the Danish compromise. So the question is, what happens if it doesn't fly? What happens if it is not for sale or we consider it not to be at the right price? So we will end up with the capital position which we have today, plus then the upcoming period of profit and everything else which is influencing the risk-weighted assets evolution and the capital position. Well, it's clear, if we do not have any opportunities for building our book inorganically, Then we do have capital which is exceeding the threshold of let's call it the surplus capital. We do not have a precise threshold anymore, as you know. That means that it is at the discretion of the board what to do with it. But it's quite clear that surplus capital or capital which we cannot make work, which is more than what we need for organic growth and for any opportunities in the let's call it the short-term, mid-term, that capital will be distributed to shareholders. Quite clear about that, quite vocal about that. On previous occasion, we are not going to change that today. What is the ideal position in terms of capital? For instance, Romania, you pointed out what potential acquisition might cost. And I agree with you, it's fundamentally higher than what, for instance, an acquisition of ETH would cost. Well, that position is taken into consideration when we take a decision on what to do with capital and what to do with distribution. Distribution will be anyway to the higher end of the range, which is currently in our dividend policy, that is 50% to 65%, and the higher range means that it indeed is at the very end of that range. That's really helpful, thank you.

The next question comes from Shrey Srivastava from Citi. Please go ahead.

Hi, and thank you for taking my question. It's actually just a follow-up on NI. And obviously your guidance is predicated on forward rates as of early August, which actually implies more than one incremental rate hike this year. So if you were to instead, for example, assume flat rates for the rest of this year, How would that affect your net interest income guidance? Thank you

Good morning, Sharon. Well, you're right, of course, for what I'm taking into account for the guidance. What is important here, indeed, they do include a rate hike. What I can give you is what we gave you before. That is, of course, the sensitivity on our NII. We maintain that a parallel shift of 25 basis points would have an impact on a yearly basis of €60 million, but obviously we do not expect a parallel shift, so it would be more on the short side than on the long end.

and even sort of qualitatively how the shortening of the duration of your replicating portfolio sort of affected this.

Thank you.

Well of course that's the reason why we shorten somewhat the duration because we expect this to provide a positive impact that goes without saying.

And that's expected to offer you some sort of benefit this year from this year itself.

Well, yes, I mean, we have five months to go. So from that perspective, this will have already an impact indeed and has been taken into account, of course, also in the guidance.

Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

All right, if there are no further questions, this sums it up for this call. I would like to thank you for your attendance and enjoy the rest of the day. Bye bye.

Thanks for joining today's call. You may now disconnect.