KBC Group (OTC:KBCSY) NV (KBC.BR), a prominent bank insurance group, has reported strong first-quarter results for 2024, with a net profit of €506 million, despite significant bank taxes and a challenging economic environment. The group showed growth in key areas such as net interest income, customer loans, and deposits, as well as fee and commission income.
A dividend payout of €280 million from surplus capital was announced, reflecting the company's solid capital position and commitment to its dividend policy. KBC Group's digital assistant, Kate, exhibited substantial user engagement, which underscores the company's successful digital strategy.
Key Takeaways
- KBC Group's Q1 net result stands at €506 million, even after hefty bank taxes of €518 million.
- Net interest income rose by 1% quarter-over-quarter and 3% year-over-year.
- Customer loans increased by 4%, while the deposit base grew by 1%.
- Fee and commission income saw an uptick of €14 million.
- Insurance sales demonstrated strong growth, with non-life and life sales up by 9% and 12% respectively.
- The capital ratio is robust at 15.2%, with a €280 million surplus to be distributed as dividends.
- The company plans to maintain a dividend policy of at least 50% of consolidated profit, with a review scheduled for 2025.
- KBC Group's digital assistant, Kate, reached 4.5 million users and facilitated over 41 million interactions.
Company Outlook
- KBC Group expects modest growth in Belgium and Central Europe but projects only 0.5% growth for the total Eurozone area.
- The bank anticipates bank taxes to total €638 million by the end of the year.
- Net interest income is projected to remain broadly flat in 2024 compared to 2023, with sustainable loan growth.
Bearish Highlights
- The company reported a decrease in net interest income by €8 million due to fewer production days.
- Inflation-linked bonds negatively impacted results by €26 million.
- Margins are under pressure in the SME and corporate sectors, with no significant improvement expected.
- The company is cautious about the potential impact of interest rate cuts and inflation on margins.
Bullish Highlights
- Customer deposits increased by €2 billion, driven by strong mutual fund business.
- Insurance business experienced robust growth, with non-life insurance sales exceeding guidance.
- The retail mortgage side in the Czech Republic is growing with improving margins.
Misses
- The company noted a reduction in overdraft and short-term facilities, mainly due to destocking and slower economic growth.
Q&A Highlights
- Luc Popelier and Johan Thijs discussed cost management, fees, and the mix of investment products.
- The company did not provide specific guidance on the shape of net interest income throughout 2024.
- The share buyback program is ongoing, with approximately €400 million to be executed by July 31.
KBC Group, with its strong Q1 performance and strategic initiatives, remains focused on maintaining its market position and delivering value to shareholders despite the economic headwinds. The company's digital transformation, evidenced by the success of its AI-driven service assistant, Kate, and its conservative cost growth target, positions it well for the future.
Still, KBC Group remains cautious about the impact of potential ECB rate cuts and inflation on its margins, and it continues to monitor the competitive landscape and macroeconomic factors that could influence its performance.
InvestingPro Insights
KBC Group NV's recent strong performance is reflected in several key metrics from InvestingPro. With a market capitalization of $29.8 billion and a P/E ratio of 8.45, the company is trading at a low price relative to near-term earnings growth, which is notable given the current economic environment. This is further emphasized by the adjusted P/E ratio for the last twelve months as of Q4 2023, which stands at an even lower 7.73.
An important InvestingPro Tip to consider is that KBC Group has been profitable over the last twelve months, which aligns with the reported Q1 net profit and the company's ability to maintain a strong dividend payout. Moreover, analysts predict the company will remain profitable this year, reinforcing the positive outlook shared in the company's earnings report.
Investors should also note that KBC Group has experienced a large price uptick over the last six months, with a 39.61% total return. This bullish signal is supported by the company's consistent growth in customer loans and deposits, as well as fee and commission income.
For those looking to delve deeper into KBC Group's financials and future prospects, InvestingPro offers additional insights. Currently, there are 5 more InvestingPro Tips available for KBC Group, which can be accessed at InvestingPro KBCSY Q1 2024:
Operator: Hello. And welcome to the KBC Group Earnings Release First Quarter 2024. My name is Natalie, and I will be your coordinator for today’s event. Please note this call is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. [Operator Instructions] I will now hand you over to your host, Kurt De Baenst, General Manager, Investor Relations to begin today’s conference. Thank you.
Kurt De Baenst: Thank you, Operator. A very good morning to all of you from the headquarters of KBC in rainy Brussels and welcome to the KBC conference call. Today is Thursday, May 16, 2024, and we are hosting the conference call of the first quarter results of KBC. As usual, we have Johan Thijs, Group CEO with us; as well as Luc Popelier, Group CFO, and they will both elaborate on the results and add some additional insights. As such, it’s my pleasure to give the floor to our CEO, Johan Thijs, who will quickly run you through the presentation.
Johan Thijs: Thank you very much, Kurt, and also from my side, a warm welcome to the announcement of the first quarter results 2024, and as usual, we’ll start with the key takeaways. Let me begin immediately with the announcement of an excellent €506 million net result for the first quarter 2024. One of the reasons why I say it’s an excellent result is that it is heavily distorted by bank taxes, which are, as you all know, mainly booked full year. Bank taxes are mainly booked in the first quarter. That is a whopping €518 million. And if you would correct that, then indeed, this is an excellent quarter, which is even better than what we have saw -- what we have seen in the previous quarters and it’s perfectly in line with what we saw with last year’s quarter. Let me translate a little bit differently. It’s a return on equity of 14%-ish. If you equally spread the bank taxes, but it’s also quite clear that if you look at the results, it’s once again a proof that KBC Group is much more than a net interest income bank. Diversification of our results is, again, stellar in this quarter. As a matter of fact, the bank insurance franchise has been firing on all its cylinders. We have seen a very good evolution of our net interest income. We have seen growth on our customer loans and on our customer deposits. We have seen a strong growth on our fee and commission income. We have seen a strong growth on the insurance side, both non-life and life. We have seen very limited net impairments on our loans. And we have seen a decline, which is positive news, on our cost side. So in that perspective, it’s no surprise that our capital position has grown to 15.2%, but because we have decided to pay out a surplus capital of €280 million roughly, which will be a €0.70 dividend per share and that 15.2% is resulting after the payout -- after the cash payout into a common equity Tier 1 ratio fully loaded 14.93%. Also, on the liquidity side, we stand super strong with ratios which are north -- substantially north of the regulatory targets. Let me highlight the most important one. The short-term LCR stands at 162%. Also, the insurance company, 202% of Solvency II ratio is extremely well. So as a consequence, I will go to the dividend policy immediately on the next page. We have indeed decided to execute what was announced in our capital deployment plan 2023, that is the interim dividends, sorry, the dividends which already have been concluded in total €4.15 per share, but also the amount above the 15% threshold. After discussion and decision by our Board, they have decided to bring an extraordinary interim dividend of €0.70 per share to the shareholders and that will be paid out on the 29th of May. This brings the total cash payout ratio for KBC Group at 59%, excluding the effect of the share buyback, which as you know, is still running. In this perspective, we also have the discussion about the dividend policy for 2024. Well, that remains unchanged, which means that the payout ratio policy dividend and AT1 coupon will stand at at least 50% of the consolidated profit for the accounting year and we will continue to pay an interim dividend of €1 per share in November as an advance on the total dividend. Regarding the capital deployment, also that one remains unchanged. That means that the definition of the surplus capital is unchanged and remains 15% of the CT1 ratio and the surplus capital, what’s going to happen with that is going to be a discretionary decision by our Board in the same period of the year 2025 and that will be then either distributed in the form of a, if the decision is to take to be a distribution, either in the form of a share buyback, a cash dividend or a combination of both. Regarding the capital deployment, we also give you further information that given the introduction of Basel IV, where we already have disclosed the impacts in -- at the end of quarter four last year, that impact and the introduction of Basel IV will also trigger a review of the dividend policy and the capital deployment, including the threshold in the course of 2025, and that will be announced more or less in the same period as today, but then next year. On the next slide, you can find a couple of elements which are quite crucial for the operational activities of KBC Group. The split up between the banking and insurance profit is more than the average, or let’s call it, the through-the-cycle effect. We have now 26% of our profit coming from the insurance side, but it’s mainly driven by the bank taxes, obviously, which are booked in the first quarter. In terms of the operational activities, the impact of our AI-driven assistant -- service assistant to our customers, Kate, well, that impact is growing significantly. It goes, as I said before, much faster than we originally anticipated, massively picked up by our customers. We have now 4.5 million users across the Group, which we are using more than --more -- which we are using Kate on a regular basis and we have more than 41 million interactions between our customers and Kate, which means that more or less, and this is definitely true on the Belgian level, more or less 45% of all interactions between KBC’s customers and KBC is now done via Kate and that is after an introduction three years ago. I think this is a very remarkable result. Kate becomes also more and more smarter, which means that the autonomy, she is able to answer all the questions of our customers without any interaction of our people, so it means that 41 million conversations are picked up by Kate autonomously to 65% of the total, which means two-thirds of all questions are provided solution for by Kate without any interaction from somebody of the back office, which ultimately generates productivity gains, as you can imagine. The other way around, when Kate addresses our customers on different elements, amongst others, product-oriented approaches, well, we do see a quite significant uptick there in terms of sales, but also in terms of contact ratios, so 16% of all the signals which have been sent out by Kate are picked up by our customers and are translated into an ever-increasing sale, so also in the first quarter, we had more than 30,000, as a matter of fact, more than 32,000 sales extra on top of the normal sales of our branches and our direct channels, and that is a 16% contact to contract ratio, which is quite significant. By the way, over the last 12 months, Kate concluded 85,000 sales in total. Going to the next page, where you see the different building blocks of our net result. Well, the most interesting part of that is the split up between the revenues, net interest income, so interest bearing and all the others. Today, KBC stands at a split of roughly 50-50, so as a matter of fact, 50.5% is related to net interest income and all the rest is then related to insurance and asset management and business, which means, indeed, this is a very diversified income and less vulnerable to fluctuations on the interest side. Looking at the exceptional items, well, in this quarter, we have roughly €69 million of exceptionals, which is mainly driven by extra taxes, temporary taxes on the Hungarian domain. For the rest, we have a couple of smaller uptakes linked to Raiffeisen and linked to the Euro adoption in Bulgaria in total, before taxes, €76 million, after taxes, €69 million. Let me now go into the next slide, sorry, is also related to a couple of things, which are linked to sustainability and our digitization position, which are then judged by third parties. As you can see, KBC is a frontrunner in many aspects, but I think you guys are much more interested on the details of our income line rather than on the number of awards which we are winning. So let me go immediately into the net interest income and that is totaling now €1,369 million, which is an increase of 1% on the quarter and 3% on the year, which is a clear sign of the further increasing reinvestment yield. So the transformation result, as we call it, is indeed picking up positively. This is driven by a couple of things. Let’s face it, two things. First of all, loan volume growth is up 4% on the year, 1% on the quarter, which is excellent news, and it’s underpinning here indeed what we will be guided for, at least 3% growth. So we are perfectly in line with that guidance. In terms of the margin -- the commercial margins on the lending business, well, there is clear pressure on commercial -- on lending margins in our different franchises. So it depends a little bit from country-to-country, but it’s quite clear that the general trend is that it is a downward push on those commercial -- on those lending margins, which brings also the lending income slightly down compared to what it was, for instance, a quarter ago despite volume increases. In terms of the NIM, that is increasing to -- with 9 basis points, it now stands at 208 basis points. This is a translation of the impact of the different elements. Be aware that the NIM is calculated only for the banking business, and the banking business, as you can see in the graph on the left side of your slide, is increasing with €13 million. So it is also taking into account only that, not all the other effects. One of the offsetting effects in the net interest income is linked to the negative FX effect. So we have an €11 million delta compared to previous quarter and the number of days, which is a minus €8 million. I always find it funny that they can have such an impact, but it clearly shows that we are using every day to produce what we have to produce. So if you take those negative elements into account, adding the temporary effect of the inflation-linked bonds, which have a negative quarter-on-quarter minus €26 million, then in total this sums up €45 million, which is distorting the total net interest income in a kind of, let’s call it, one-off manner. In terms of the growth of the deposit base, well, the deposit base is growing 1% on the quarter and 1% as well on the year. And that is good, giving the strong competition, which is ongoing in many of our countries. In order to see what the total effect is, I go to the next slide where you have a nice overview of the total evolution of core customer money. So we set aside the FX impact and the -- which is quite significant. This is mainly due to the depreciation of the Czech krona and the Hungarian foreign. And of course, also we take into account the foreign branches effect on deposit side, where we had major shifts from current account saving accounts to term deposits and that is in this perspective, mostly of temporary kind and very volatile. For that reason, we take them out of the picture. If we look at the core monies, then we see a shift of current account, saving accounts to term deposits, which is in total €3.5 billion shifting and this is an expression of the strong competition, which is ongoing in several countries. This is still in line with our guidance, but clearly to the higher end, and as a consequence also on the -- of that element, we do see that as a downward pressure on the guidance which we have here. On the other hand, it’s clear to see that the total evolution of our core customer’s deposit is €2 billion positive and that is underpinned by a strong increase, again, of our mutual fund business, €1.9 billion extra, which is extremely strong. Definitely also when you take into account what has already happened last year, even then is even an improvement. So, all in all, we do see shifts from current account, saving accounts towards term deposits through in most countries and this is on the higher end of our range. We do expect it for that reason. We don’t change our guidance as there’s a flawed guidance on the net interest income as you could -- as we already explained at the end of last year. We are perfectly in line with that guidance, be it that we will be somewhere between €5.4 billion, €5.5 billion rather than towards the tail end of that guidance, €5.3 billion. So let me immediately shift to what I already referred to. That is the fee and commission income. While the fee and commission income was up €14 million, which is a quite strong number, definitely after the stellar results of last year. But this is driven by two things. First of all, the strong performance of the assets under management via the financial markets. They were up €14 billion on the quarter and €41 billion on the year. This is of course a very strong number. As I said, it’s market performance driven, but what is also quite crucial, that is the net sales. We had €1.9 billion net sales extra in quarter one of this year, which is even better than the result of last year, which was a record result. So indeed, our investment products machine has been turning all -- has been firing all the cylinders and was also giving the performance of our funds to the benefit of our customers as well. To give you an idea, €1.9 billion is amongst others translated by our regular investment plans, which is a crucial element in underpinning the stability of those sales. They are totaling roughly €400 -- €0.4 billion, so €383 million to be precise, but also if you look at the gross sales, then we do have an increase of 38% on the quarter and we do have an increase of 43% on the year. And as you remember last year, it was an absolute record. So indeed, quarter one was extremely strong. In terms of the responsible investment sales, that is also worthily mentioned, 44% of all sales are responsible investments. Now, translating what I just said on the assets under management into the commission, well, strong performance on the assets under management side means that we have seen a strong growth. On our management fee, a strong sales side is also translated in a positive growth of our entry fees and that brings also the asset management business €50 million up compared to the previous quarter. What is lagging a little bit behind, but is perfectly normal, that is the banking services and mainly the payment business. Payment business compared to quarter four is comparing to a seasonal high number. Traditionally, a year end with all the payment transactions and all the credit card transactions is a stellar result. So in that perspective, it is not surprising that it is a bit lower. In this perspective, it was €13 million lower, which means if you take that into account, then the €614 million fee and commission is even more positive than it at first glance looks like. So, good performance in that service -- in that banking service business amongst others on the retail brokerage businesses, both in Belgium and Czech Republic. There are a couple of other details when I’m talking about differences of €1 million or €2 million and not worth to mention it here. So, let me skip to the other diversifying factor that is the insurance business. Page, what is that, 10, we do have, again, a strong increase of our sales on the non-life side. 9% up on the year, which is indeed very strong and it’s actually true for all the different building blocks in the non-life insurance business and it’s also true for all countries which are part of our group. So, we speak in Belgium of roughly a bit more than 8% growth and in Central Europe, all above double digits. So, all above 10% growth. In terms of the underwriting quality, well, that is, again, extremely well. It stands at 85%, which is substantially below our target, as you know, 91%. And it’s also a definition of the underwriting quality, but also the fact that we were not confronted with any major storm. We had some impact on the flooding side, but we are not confronted with big natural catastrophes as we have seen them, for instance, two years ago. So, good growth and good underwriting quality. Same can be said on the life sales. This is an absolute record result in the first quarter. You know that traditionally we have some campaigns in quarter four and even that was beaten in this quarter. We have a strong growth of 12% on the quarter and a significant increase of 60% compared year-on-year. This is due to a couple of commercial actions we did in the private banking domain in Belgium and the launch of a new structured fund in Belgium, which has clearly paid off. Unit-Linked business was growing significantly. They were up 34% on the quarter and more than doubled on the year. So, this is indeed something which is, to use an understatement, extremely well. Let’s translate Unit-Linked in total. They are now 62% -- 34% of all sales, whereas the hybrid products, which is a small portfolio, is increasing as well. So the split up plus 20%, sorry, we’ll use the international language, interest guaranteed products versus Unit-Linked is now standing at 34% versus 66%. Going into the financial instruments at fair value, as always super volatile and also this quarter is not an exception. We have seen a very strong dealing room income, whereas we do see much more volatility, this time in a positive way for all our MVAs, CVAs and FVAs. And there is a negative impact on -- of about €84 million, which is linked to the ALM -- the mark-to-market of the ALM derivatives, including order. So in this perspective, this can be translate -- this can be explained or the vast majority of this shift can be explained by three or four smaller elements, a couple of elements, which are linked to interest rates in Czech Republic, which have been decreasing on the short-term and having been increasing on the long-term, and that has a negative impact on our position. Some more amortizations of swaps, amongst others, the Hungarian foreign swap, some cash desk activities, which we have in Brussels, where we have been using cross-currency swaps, and therefore, you need to mark-to-market and evolution of interest rates has an impact, and then also some parts which are linked to the ineffectiveness of hedge counting. If you sum that up, then it’s almost, that’s the most significant part of that €84 million of difference between quarter four and quarter one. In terms of the cost side, we are going, oh, sorry, I forgot one thing, the net other income. I usually forget that, why? Because it’s always the same run rate. So we are now at, what is it, €58 million, which is clearly on the level of the traditional run rate of roughly €50 million. The comparison by last year, for good understanding, doesn’t make too much sense because that quarter was characterized by two one-offs. First of all, the one-off gain of €405 million on Ireland and then the recuperation of bank insurance taxes in Belgium to the tune of €48 million. So the difference is fully explained by those two elements combining €453 million. So if you deduct that, then it’s perfectly aligned, and therefore it was a reason to forget this result. In terms of the cost side, far more important? Well, also here it shows again that we are able to keep our costs under control. Let me start with the cost income ratio. It stands at 43%, which is pretty good and which is also perfectly aligned with our guidance. As a matter of fact, it’s substantially better than our guidance, given the fact that the operating costs are decreasing 9% on the quarter and 1% on the year, which is due to a couple of things. If you compare it on the quarter, definitely with seasonality, most of the time quarter four is characterized by a couple of things which are traditionally in that quarter, ICT, marketing, professional fee expenses and so on. But also most of the time a little bit catch up on the facility side. All those elements have been improved in quarter one and that clearly defines a minus 9%. If you make the comparison on the quarter one last year, be careful. Ireland is included in that comparison. And Ireland now, we have been handing over our license in April. So we have been building down massively our headcount and that is now clearly paying off in 2024 in terms of the cost reduction. So if you take all those elements into account, then I can say, well, we have been able to keep our costs under control, we have been able to keep our FTEs under control, not only in Ireland, but also the other countries. And as a consequence, we have outperformed the income, sorry, the increase of inflation, which is automatically linked to certain of our personnel staff, as you know, and we have been able to bring that cost income ratio to a low 43% better than what we had before. In terms of bank taxes, already highlighted the total amount of €580 million. If we already flagged on earlier occasions that despite the reduction of the European Single Resolution Fund contribution, which is bringing us €121 million benefit, this is consumed by other tax increases in some other jurisdictions. As a matter of fact, this is consumed by roughly €28 million additional national bank taxes in Belgium, only for the bigger banks. Then another €28 million in Belgium because of an increase of deposit guarantee scheme. And then another €11 million because of the tax deductibles -- the tax deductibility, which was brought to zero for those bank taxes. But if you add them up, then the €121 million is consumed for roughly €70 million, a bit more than €70 million in this perspective. So in total, we do expect the bank taxes -- bank and insurance taxes, I should say, to be roughly €638 million by year end, which is a striking number. Translated in a different way, expressed in terms of our OpEx is 13% of that OpEx, which you can see on Page 13. Let me go into loan impairments. Well, here also some good news. Despite the fact that we had one or the other big files in the newspaper in Belgium, the results on the impairment site, besides those files were actually really good. So we have seen €43 million impairments of our lending book, which is related to a couple of larger corporate files, as I said, mainly in Belgium. But on the other hand, given the improvement of macroeconomic factors, we had a release of €27 million in our geographically emerging risk buffer. The sum of the two bars total €16 million, which brings the credit cost ratio to 4 basis points, which is clearly below the 25 basis points to 30 basis points, which is the longer term average. And as a matter of fact, we said significantly below that long-term reference. Well, we are perfectly in line with the guidance which we have given. So in this perspective, 10 basis points, credit cost ratio, when you exclude the release of the buffer. For good understanding, after the release, the buffer stands at €223 million, which is 11 basis points of our total lending book equivalent. As a matter of fact, it’s still half of what we had on the long-term average credit cost ratio. Impaired loans stand at 2.1%, whereas 1% is 90 days past due. So, all in all, if we sum up all these things, we end up with a capital ratio, as I said, of 15.2%. But given the fact that we decided or the Board decided to pay out the surplus capital, €280 million, if you take that into account, then the capital ratio stands at 14.93% and it’s built up as you can see on Page 15 in all detail. So a slight increase of the risk-weighted assets and -- which are mainly driven by volume and a couple of other things which are reflecting FX changes and model changes. But it’s -- I mean, the number is pretty limited. So the impact in that perspective is bringing it all to 14.9%. Translated that in buffers, given the fact that we have also filled up a couple of buffers and you know that we have been quite active in the MRR [ph] market, our MRR buffer is now standing at 3.7%. The -- if you look at the different building blocks, total capital buffer stands at €5.2 billion. OCR level is 10.9%. MDA buffer is 11.20%, which brings me to actually the liquidity ratios and the leverage ratio. Leverage ratios stand at 5.4%. The liquidity ratio is substantially higher than what is requested. I already mentioned that we have substantial buffers compared to the legal requirements and the insurance activities because of the impact of the interest rates evolution. Strong performance equity in the market has slightly shifted downwards to 202%, which is double of what we had requested by the supervisors. Looking forward, well, it all starts with the economic outlook, of course. The -- I mean, there is clearly pressure on the economic growth. We have seen a very difficult fourth quarter in that perspective, slight contraction that is picking up now. What we don’t expect is a significant growth improvement in the course of this year. It will be better than what we have seen last year, what we are going into the territory. Depending a little bit on the different countries, for Belgium, we do expect to have an economic growth of 1.2%. Central Europe, in essence, is roughly 1% to 1.5% higher than that. But in the total Eurozone area, mainly driven by Germany, where we are not present, we do expect a growth of roughly 0.5% this year. Inflation seems to be under control, but is very vulnerable given the geopolitical tensions, potential supply structures, which might be linked to that. It is speaking with two words. We all know that evolution of inflation is downward and that is obviously influencing as well interest rate cuts. There has been a lot said about this. We do expect, indeed, a first cut at the ECB level now in June and then we will see, we do expect two further cuts in the course of this year, probably the last one at the year end. So, impact of that to be seen, and we will, as all of you, follow closely the news related to that. Coming to our guidance, the guidance was built with a specific purpose as we normally always did. That is we give guidance once a year and we try to deliver and over deliver on those guidances. That was also the concept which we put forward in at the end of last quarter. So we worked with floors on the net interest income, on the revenues and on the everything which is linked to growth, and we worked with ceilings for everything which is linked to costs. So the guidance in this perspective is indeed not updated because all the elements which I have explained until now are confirming this guidance on the net interest income side already mentioned we will be higher end of the range which we gave clearly above the floor of €5.3 million and more or less somewhere between €5.4 million and €5.5 million. And on the insurance revenues here above the operating expenses will be low and the cost income ratio will be clearly below as well including the impairment ratio. So in this perspective I think also Basel IV is also unchanged. We have given guidance in this perspective and taking into account what I already said nothing has to be updated here. So I’ll skip the part on the countries and I’ll give back the floor to Kurt who will guide us through your questions.
Kurt De Baenst: Thank you. I open the floor now for questions. So, Operator, please go ahead.
Operator: Thank you. [Operator Instructions] Thank you. We will now take our first question from Giulia Miotto from Morgan Stanley. Your line is open. Please go ahead.
Giulia Miotto: Yes. Hi. Good morning. My first question is on Slide 8. So how is this tracking versus what you are expecting? Is this going faster, in line, better and is this continuing into Q2 or is this slowing? So that’s my first question. And then the second question is again on NII on asset margins. So Johan you said there is pressure, but shouldn’t this ease once rates start going down or you just expect that there will continue to be pressure? Thank you. And if you can give us some color on where does this come from, which products, which markets? Thank you.
Johan Thijs: Okay. Giulia I’ll take the first question. The move that you saw on Slide 8, €3.2 billion plus €0.3 billion, so €3.5 billion shift is a bit higher than we expected. That is true. But it’s still in line with what we expect of full year. As we always mentioned is that we always expected in the first quarter to have higher shifts than the next quarters. And if we look at historically in the first quarter last year we also had a big shift of more than €6 billion. And then the second quarter and third quarter if you exclude the state note we had a shift of about €3.9 billion. So these were higher than we see now. The only exception was the fourth quarter of last year. That was only €1.5 billion. But we just had the state note issuance where that creamed off already quite some current accounts, same accounts deposits, yeah. So the full year we had €20 -- almost €22 billion last year. So we’re currently averaging below that trend and we see that coming down slowly over the next few quarters, that shift.
Luc Popelier: And then I will answer your second question Julia. Good morning. So on the margins, well, we see that first of all in the countries where we are present there is pressure on the economic growth, and in that perspective liquidity is still ample and therefore there is strong competition amongst banks for the asset demand, which is giving the low growth obviously not increasing. We clearly see differences between the retail market, let’s say the mortgage market, and the commercial banking activities, SMEs and corporates, and it differs a bit from country-to-country. So it’s a mixed bag model. Countries are the same. But let me highlight, for instance, I mean the difference between Belgium, Czech Republic and then let’s call all the rest international markets. So our countries Hungary, Slovakia and Bulgaria. So it’s quite clear if I look at the retail business margins are under pressure on the mortgage side if you compare it with for instance two years or three years ago. Now the good news is that the margins in Belgium have been stable over the quarter and the volumes are slightly picking up, but it’s quite clear also going forward that margin pressure will continue to be there. There’s a very strong competition ongoing in Belgium. Despite the fact that the growth is now slightly picking up, the pressure is clearly on the margins, so I don’t expect this to grow significantly going forward. As a matter of fact, KBC is able to keep its market share roughly a little bit higher than normal market share, 21%, so that’s on the volume side good news. On the SMEs and corporate side, also clear pressure on the margins, but in terms of growth, SMEs are picking up. That’s the good news in terms of volume. On the corporate side, we’re comparing with an extremely strong quarter four. It has been stable. The good news there is there is a pipeline, which is quite strong, and therefore we expect that we will be within our reach of our guidance going forward. Czech Republic, split up between retail and let’s call it commercial banking. Well, on the retail mortgage side, it’s very good in terms of growth. It is definitely going up again in the right direction and margins are picking up significantly. On the corporate SME side, well, both the corporate loans and the SME loans are significantly up with good margins, which are above the portfolio level. Central Europe, as I said, sorry, international markets, as I said, a bit of a mixed bag. It depends on the country, but in essence, I would say volumes are picking up in -- on average and they are better than what we anticipated for, so a little bit better than our guidance. Margin is under pressure, commercial margins are under pressure and we do expect to stabilize those margins, but not fundamentally to improve those margins. So, all in all, this gives you a more detailed insight in what I said earlier in the call.
Giulia Miotto: Thanks.
Operator: We will now take our next question from Tarik El Mejjad from Bank of America. Your line is open. Please go ahead.
Tarik El Mejjad: Hi. Good morning, everyone. Two questions for myself, please. First, on capital, I think, it was highly expected that you would not change your definition of surplus capital and stick with 15% threshold. However, could you maybe help us understand what kind of discussions you had with the Board and the logic, because I guess you have contemplated doing something. So, first of all, you mentioned it’s Basel -- after Basel IV implementation, but you reiterated that the first time application is for you zero RW inflation and then it goes to €2.6 billion down the road in 2028. So Basel IV, clearly, I don’t think it was an uncertainty for you to do something already now. So just to understand really what’s the logic, why you postponed that to first half next year? Is M&A something that went into the equation? Just to understand that. Secondly, on the insurance, non-life came strong again, double-digit growth year-on-year, way above your guidance. Is that just due to seasonality or you can argue that you see upside to your guidance? I’ll keep it two questions and thank you very much.
Johan Thijs: Thanks, Tariq, for your questions. Let me answer and Luc can step in if he wants to. He’s hopping up and down to answer your questions as well. But let me start with capital. So first of all, indeed, we kept the surplus threshold definition at stable at 15%. One of the main reasons for doing so is obviously that we take into account the philosophy that we want to be amongst the better capitalized financial institutions in Europe. And if you look at the peers and you can take all peers, even if you want to, then the median in that perspective is close to that 15%. As a matter of fact, it’s almost spot on, on that 15%. So in that context, the philosophy is respected and also the discussions of the Board were tailored more into that direction. What is important, that is, and a little bit surprised that we are one of the few who have already disclosed the impact or potential impact of Basel IV. When we gave that impact, we were very open about that and we are now also looking into what our peers are going to say about this. And then we apply the same philosophy. If the impact of Basel IV is more or less in line with what KBC has published, then we can position ourselves around that new surplus target. If the impact is different, then also we still take that into account. And that’s the reason why we have postponed the review of the capital threshold until publications of the impact with our peers going forward and we do expect that because it comes into play the 1st of Jan in 2025, we do expect that to see happening in the next coming quarters, at least at the end of quarter four, and therefore, we will reposition ourselves and review the dividend policy and the capital deployment going forward. Your sub question was, is there any M&A involved? Concretely, we do not have a file on the table, but we constantly monitor the market to see if we can further improve our positions in the countries where we are present on both the banking and the insurance side. But as I said, currently, we don’t have any file on the table. And then regarding the insurance business, well, it has actually nothing to do with seasonality. As a matter of fact, we have been growing our book in all countries in the same way. That is in two ways. First of all, in certain countries, amongst others in Belgium, we have an automatic indexation of certain of your products amongst others, property insurance, which is linked to inflation. But it’s quite clear that we have also had strong campaigns for growing our book, being a banker. Sure, this is, as you know, one of the core elements of our group, and the ambition is clearly to beat the market in each and every country in a significant manner. The manner depends a bit on the country, but 50% is the average target which we have in terms of KBC versus the market growth and this has been indeed translated in the strong numbers you have seen. Let me nuance a little bit for Belgium. In Belgium, there is seasonality, but because of the workman’s compensation premiums, which are booked the 1st Jan -- in the first part of the year, January. But we could understand because we compare year-on-year that is filtered out, because it’s the same effect every year again. So, no seasonality, strong growth, purely linked to the position in which we have as a banker, sure, and therefore, it is organic growth.
Tarik El Mejjad: Okay. Thank you very much.
Operator: We will now take our next question from Raul Sinha from JPMorgan. Your line is open. Please go ahead.
Raul Sinha: Hi. Good morning. Thanks very much for taking my questions. The first one, just drilling down into Belgium, net interest margin, that seems to be up 4 basis points in the quarter, despite some of the trends we have seen in terms of deposit migration. So I was just wondering if there is anything you would call out there in terms of driving the main driver for the pickup in NIM. And I guess related to that, we have been getting indications from quite a few banks across the sector that deposit migration might be more or less done. I think one of your peers yesterday, for example, in Netherlands talked about, how most of the customers have already repositioned their savings or time deposit balances and that pressure on deposit competition from a time deposit perspective was coming down. So would you agree that we are at the end of deposit migration? Perhaps more for Belgium, I guess, than other trends in some of your CE countries. And then the second follow up is just on FX translation impact, which is offsetting some of the very strong underlying performance in Czech Republic and Hungary. Are you expecting within your NII guidance that FX translation will reverse in the second half of the year? Thank you.
Johan Thijs: I’ll take the question on Belgium. So the margin has increased at 4 basis points, mainly as a result of the underlying strong transformation results and so we still have an increasing yield on the replication book. And that is to, well, more than offsetting the shift that we explained at the shift from current accounts, savings accounts, time deposits. That is the main explanation. There’s also a technical explanation that interest margin that we see here is on the banking activities. So you should deduct the insurance NII from this, first of all. And we’ve also reduced all the short-term volatile elements from this. Of course, also on the asset side, all the volatile assets have been removed as well. The definition of that you can find back in the glossary. So it’s a technical element that also explains why we have somewhat high improvement in margins versus the stable NII you see in between the two quarters.
Luc Popelier: On the FX effect perhaps, yes. We do not see or have included in our guidance any improvement in FX. So that would be a bonus if that would happen. Yeah, we’ll see. Okay, so we were discussing who would answer the other question on the competition from term deposits. We do not see what you’re flagging in the Dutch market. We still see a lot of competition for term deposits. As a matter of fact, many of our banking colleagues here are introducing new type of instruments like debt certificates for retail purposes and also some insurance products competing with our deposits. Yeah. That’s good. Thank you all for reminding me. Of course, there’s also in light of the state note that will expire in September, everyone is positioning itself to capture the €20 billion, almost €22 billion of cash that is invested in the state note and that will become free in September. So everybody is positioning themselves.
Raul Sinha: Thank you.
Operator: We will now take our next question from Sharath Kumar from Deutsche Bank. Your line is open. Please go ahead.
Sharath Kumar: Good morning. Thank you for taking my question. So I have two, please. Firstly, sticking with NII, still a couple of follow-ups. Firstly, the Belgium retail bond issue was a bit of a non-event in March 2024. So wanted to understand your expectations in terms of new issuances for the remainder of the year, especially in the wake of elections and the Treasury’s plans there. And sticking with NII, again, a clarification. Do you -- would you stick to public guidance of NII being broadly flat in 2024 versus 2023, because I also want to check if the 2% sequential loan growth that we saw there would be sustainable? So that was the first question. And secondly, on capital, just wanted to understand your updated thoughts on the preference to fill the 81 shortfall through additional Tier 1 issuances? Thank you.
Johan Thijs: So on the Belgian retail notes, every quarter, the government issues some retail notes. These are without any benefit of a reduced retailing tax, which was the case in September last year. This is not the case anymore, it never -- because the banking law has, sorry, the law in gov -- in Belgium will expire in June. But it is clear that for the issuance in March, they did not use the benefit of reduced withholding tax. It is unlikely they will do that also for June. In September, the banking law has expired -- the law has expired to reduce any withholding tax on the state notes and it is unlikely that a government will have been formed by that time. So a new law could not be voted. That means that we expect for the new issuances in June and September, certainly in June, there will not be a lot of, I would say, a lot of registrations by clients. In September, we will have to see how the government positions itself, because obviously €22 billion is expiring, and they may want to capture part of that, even if they have no benefit of a reduced withholding tax. So that’s a bit more uncertain.
Luc Popelier: And then coming back to your question regarding the capital position and then the updates on 81s and the shortfall. So indeed, we have not taken a decision to fulfill or to fill up what is possible by Article 104 of CRD V, that is that you can use the Tier 2 and the 81 buckets to fill up your CRD I. As you can see in the numbers, this is now filled up on the Tier 2, but this is just an anticipating of maturing bonds, which we have already taken. We have used momentum in the last four months to anticipate the maturing bonds and also on the 81 we have done the same. So, no, we have not taken decision or the Board has not taken a decision yet on the on the Article 104 CRD V possibility and therefore the positions remains what they are.
Sharath Kumar: Thank you. And also the follow-up on the Czech Republic 2024 NII guidance.
Johan Thijs: We remain with that with that guidance for the time being. Yeah.
Sharath Kumar: Okay. Thank you.
Operator: We will take our next question from Benoit Petrarque from Kepler. Your line is open. Please go ahead.
Benoit Petrarque: [Foreign Language] So the first question is really on the on the NII run rate currently. So you are -- yeah, you’re flying at €5.5 billion finalized the first quarter. Can you already confirm that you are likely to be on the high end of the €5.3 billion to €5.5 billion range already or this is too early looking at, yeah, the mix shift we’ve seen in Q1 and we might see in the coming quarters. Just wanted to get a bit of a sense on where we could be on this range? And also on NII, so we’ve seen a strong NII of €9 million quarter-on-quarter despite the inflation-linked bond effect, despite the FX effect, despite number of days. So clearly you mentioned the transformation result has been very strong. Could you guide us a bit more or give us a bit of feeling about how much you still expect from this transformation book say in the coming years that would be very useful? And then the final question is on the cost because costs were very strong at minus 1% year-on-year, and frankly, your target of less than 1.7% cost growth for 2024 looks a bit conservative. So will you share this view or again do you expect maybe some cost growth somewhere coming for the rest of the year which we need to take into account? Thank you.
Johan Thijs: Thank you very much Benoit for your questions. Coming back to your first one and Luc will step in as well. So what I indeed said, so there are a couple of elements which have delivered a very strong €1.369 billion and as you rightfully pointed out there are a couple of elements in there which are negative now and definitely when you compare them also with previous quarter amongst others the inflation-linked bonds. But also the FX effect and that is not necessarily, I mean, this is for sure not on the inflation-linked bonds and also what I see happening in the first quarter, but Luc just gave the answer of the total year. This is definitely something which we do not see return going forward. So it is indeed a very strong result and that is indeed a very strong result for the transformation result. The rationale behind that on the transformation result I think we explained already in the previous quarter and we can only confirm today that it’s because the way we hatched our books we shortened the tenor at the right moment and we lengthened the tenor at the right moment as well and therefore we do expect a transformation result even when we would have rate cuts in June and potentially two further in the rest of the year. That result is positively contributing to our net interest income so it continues to increase. The offsetting element there is and that’s also kind of highlighted in an earlier question that is the strong competition which is ongoing on strong competition resulting in margins and I would like to highlight specifically the impact on the margins giving the shifts between current accounts, saving accounts and term deposits. As Luc just explained that is indeed we are at a higher end of that range but we do expect still ongoing competition given the fact definitely in Belgium not in Czech Republic because there the cycle is much further evolved, but definitely in given the fact that there is a lot of money becoming available at the beginning of September because of the state note it’s €22 billion which is out there. And we do see what’s happening in this country the last four days, is it four days, three days in the newspapers, every day there was an announcement of one of the other company announcing actions to capture that money, which is going available in September because of the mature of the state note. So there will be a continuation on pressure on margins and on shifts current accounts, sorry, how much is it much stronger than the guidance not necessarily, and Luc, he’s just explained it will be in a more or less in the same range, but it’s clearly an offsetting factor. If you take all into account, then I would say, the net interest income, this perspective, which was guided between €5.3 billion, €5.4 billion and 5.5 is towards the higher end of that range. I would say somewhere in between €5.4 billion and €5.5 billion. If our outlook, which I just described, and competition and so on and so forth is a bit too conservative, then we will notice that for sure in quarter three and certainly in quarter three. So, all in all, I think, it’s towards the, you call it the higher end of the range, somewhere in between €5.4 billion and €5.5 billion. And then the second one was on the 1% cost decrease. So, yes, indeed, if you compare that with the guidance which we gave, this is something which is substantially lower and in this perspective, indeed, much better than what we have put into the market. Are we too conservative there and do we think that it will now be catched up in the next coming quarters? Well, there are today no signs which would change our position. So there is no reason that we don’t change the guidance today to believe that as a consequence, nasty things would happen on the cost evolution going forward. We continue to do what we are doing to continue to create those productivity gains. We continue to keep the finger on the pulse also on the, what I call the little costs. And we continue to do what we have announced in terms of investments and on the innovation side. So there is no reason to believe that we changed, that we don’t change the guidance that you can conclude out of that and in the next coming part of the year, the cost evolution. There’s one caveat that is of course the FX side. And so FX has been positively contributing to the costs in the first quarter and we will see how that evolves going forward. Yeah.
Luc Popelier: Maybe just to add, maybe to compliment, if you look year-on-year, minus 1% is also driven by Ireland. In the first quarter of last year, we had about €47 million of costs in Ireland that has reduced now to €10 million. So you should make a fraction from that and then you have a cost growth rather than a reduction.
Benoit Petrarque: Great. Thank you very much.
Operator: Next question comes from Sam Moran-Smyth from Barclays. Your line is open. Please go ahead.
Sam Moran-Smyth: Hi. Good morning. Thanks for taking my question. So firstly on the NII and I apologize to be following up on something that’s been asked a few times. But am I correct to understand that term deposits grew significantly in Belgium this quarter due to bonus rates offered to clients to avoid losing those deposits to the state bond in Q1? And if so, even without a withholding tax discount in June or even in September, should we continue to expect similar mixture for KBC driven by your own pricing actions? And then secondly, a follow-up to Tarik’s question. If I understand correctly, you’re waiting for your peer group to print their Basel IV CET1 ratios before revising your own threshold. My question is whether all the banks you consider in your peer group are governed by the same regulator, the ECB. I ask because it’s possible that there’s timing difference in implementation between the ECB, the U.K. regulator, Swiss regulator, Nordic regulators, and so on? Thanks.
Luc Popelier: On the term deposit shifts, as I explained, we seek indeed competition and that’s why for term deposits in the market, we explained that, and that’s why the shift in this quarter was a bit higher than we expected. There will still be competition, obviously, as Johan explained, for the second quarter, because we’re all positioning ourselves for the state note that expires in September. But we see that shift reducing, because the actions are being taken at this point, well, in the first quarter at this point in time. But then, of course, once the state note has expired, then the first of all, there’ll be money flowing back to the banks. And secondly, the competition for new term deposits will also lessen. So that’s why we say that we see a gradual, but not necessarily a linear reduction in the shift between now and the end of the year.
Johan Thijs: Sam on for your second question regarding the follow-up on the question of Tarik, that is, what about the threshold and the updates, which we are going to give in the course of 2025? Yes, you’re right, of course, that Basel IV impact will be not necessarily the same in every jurisdiction, depending also on the supervisor. We look, of course, to banks which have a similar profile to us and which have similar kind of activities to us and that is mainly influenced by the ECB. So in that perspective, I think, it’s very realistic to say that most of the impacts will be known in the course of 2024, ultimately, by quarter four 2024, and therefore, it will be a good basis for us to make the judgments in all detail.
Sam Moran-Smyth: Great. Thank you very much.
Operator: We will now take our next question from Chris Hallam from Goldman Sachs International. Your line is open. Please go ahead.
Chris Hallam: Yeah. Thank you. Two questions. So, first, if I look outside retail and mortgage lending on the SME and the corporate side, do you have a sense for whether the type of loan demand has shifted there at all, particularly whether the mix of demand is shifting from sort of shorter working capital financing to longer term CapEx and investment-related lending? Just trying to think about the predictability of that lending stream. And then second, on Kate, if I ask Kate what I should do with the excess euros I have sat in my current account, what does Kate tell me to do? So I’m just trying to square the comments you made that 45% of all customer interactions are via Kate, and then the big shifts from current and savings accounts to term deposits, which you’ve outlined on Slide 8.
Luc Popelier: So on the development in SME and corporate loans, well, country-by-country is a bit different, but we see -- generally speaking, we see more reduction in overdraft in short-term facilities. Yeah, that has to do with, as we see that, with destocking, first of all, and secondly also -- and that’s due to the deceleration, of course, in economic growth. And secondly, the commodity prices, which have subsided, we see that particularly in Central and Eastern Europe, but also partly in Belgium, because the commodity prices having come down considerably, less overdrafts are necessary. The third aspect is that we see for the short-term facilities that banks, sorry, corporates and SMEs are managing their cash much more carefully, given the higher interest rate environment. So they are using much more their existing cash, whereas previously they would have left cash much more in their balance sheet and took out some overdrafts as well. So that has been much more efficient from their standpoint. There is still good, healthy demand for term loans, which you want to explain, certainly in Central and Eastern Europe. In Belgium, SME is very strong, but corporate is a bit hesitating compared to last quarter, but last quarter was a very strong quarter in corporate. So there’s a bit of, I think, overhang effect. We do see a strong pipeline going forward in the corporate side of the term loans.
Johan Thijs: And then, Chris, going back to your second question, it’s a very interesting one. So if you would ask Kate what you have to do with your surplus liquidity, Kate would immediately make an appointment for you in one of our branches and will bring you in contact with our client account managers, who then will give you with -- will give specifically for you a tailored approach what you have to do with your surplus liquidity and there are multiple options. Depending on your profile, that means we have plenty of options on the asset management side, by the way, with a very strong performance last year, which is substantially higher than what you can earn on any kind of certificate or the state note or even on term loans. But if you would be willing to go much more in, let’s call it, fixed return assets, then you indeed will be also proposed. But tailored, because we don’t have fixed rates which are published on the web, we would make you a tailored solution, taking into account those products as well. So the sum of the three parts, the third part is obviously life insurance, but in Belgium, as you know, some tax advantages will be tailored to your specific needs, depending on the customer profile you have and that is what Kate is taught to be doing, because it’s a very, very specific, customer-driven, one-to-one approach.
Chris Hallam: That’s very helpful. Thank you.
Operator: Our next question comes from Kiri Vijayarajah from HSBC. Your line is open. Please go ahead.
Kiri Vijayarajah: Yes. Good morning, everyone. A couple of questions from my side. So, firstly, coming back to the Czech Republic, you’ve had a nice pickup in the loan growth to 7%. I guess the rate cuts are stimulating demand there. But the NII did look a little bit soft there. And I wonder if that weaker dealing room NII in the Czech Republic is part and parcel of the same thing as lower rates come through. So, my question is, does that sort of drag from dealing room NII persist for the coming quarters on the Czech NII specifically? And then secondly, turning to your AUM breakdown, Slide 9, and specifically the investment advice segment that’s growing much faster than the overall AUM. My question is really, what are you doing differently in terms of driving that growth, and eventually, should that be driving a higher fee margin versus the other segments? And would you describe that as kind of stickier money, but maybe more cost-intensive to provide those deeper advisory capabilities on that investment advice segment? So just in color there, please. Thank you.
Johan Thijs: Okay. In Czech Republic, we indeed had some headwinds from the dealing room, where again, there was more money made. First of all, the dealing room did very well in the Czech Republic, but money was more made on the fair value side and on the NII side. So we had a negative NII impact, quite a strong one in the Czech Republic. That explains the first one. Secondly, we also had the term deposits, which are under pressure. Yeah, the volume was increasing, but the pressure was on the margins there. And thirdly, we had, of course, a negative FX effect, yeah, 5% on average, quarter-on-quarter. These explain most of these headwinds compared to still strong underlying transformation results. And the investment fees, I will take a question as well. There, this investment advisory are very low margins. In fact, these are contracts that we sign with clients, particularly in premium banking, where you -- they pay a flat fee to get advice on their investments. They make their investments themselves and we only gain their portfolio advisory fee plus some transaction fees, obviously, because as we give advice, they do transactions and that generates transaction fees for us, FX fees and so on. But it’s a very low margin business. Why did it increase so much? There are two main reasons. First of all, each quarter of the first quarter of the year, we do active campaigns to increase the number of clients to sign up for these type of contracts. And these are clients which have no investment bank, sorry, in the wealth, sorry, in the management -- wealth relationship with us, and therefore, we do actions to reach out to them and that has been very successful in the first quarter. There’s also a technical reason that is an ongoing transition from retail clients, which are moved from the retail segment to the private banking segment. Yeah, where the contracts then are signed up formally and also is then registered as investment advice.
Kiri Vijayarajah: Understood. Thank you.
Operator: We will take our next question from Guillaume Tiberghien from BNP Paribas (OTC:BNPQY) Exane. Your line is open. Please go ahead.
Guillaume Tiberghien: Yes. Good morning. One question on capital and the other one on the Hungarian tax, please. So, on the capital on Slide 15, where I look at the RWA, you have a plus €400 million for other, which includes FX and model changes. But I guess FX was a negative fall in RWA, and therefore, model changes might have been €1.5 billion or so. Can you confirm that? And then on the Hungarian bank tax, is the windfall tax of €71 million next year fully disappearing or can you just remind us what to expect on that front? Thank you very much.
Luc Popelier: I’ll take the question on the capital. So, in the order of €0.4 billion positive, indeed, there is a negative FX effect, as the krona and Hungarian forint have depreciated. It is not entirely the number you say, but you’re not very far off. Yeah, but it’s a bit lower than what you’re suggesting. There are some other small, a range of smaller offsetting factors. One of them is a very particular one, which is RWA is that we have to book for residual accounting positions. And in this quarter, we had a Good Friday, which fell on the 31st of March, which is the end of the quarter, which was a banking holiday in Belgium, but not in our foreign branches. So, we have some positions which were not squared between assets and liabilities as a result of that banking holiday. Of course, on that Monday, those positions were squared and the squared assets fell away and that’s one of the elements that was increasing RWA’s. But it’s all these small things that were offsetting the FX effect.
Johan Thijs: Okay. And then going back, Guillaume, to your second question regarding the bank tax -- the taxes -- the windfall taxes in Hungary. In principle, indeed, it is temporary, and it was foreseen for two years. But I’m always very cautious when I’m talking about governments and taxes which are introduced. So, let’s say it’s temporary until further notice.
Guillaume Tiberghien: Okay. Thank you.
Operator: Our next question comes from Mike Harrison from Redburn Atlantic. Your line is open. Please go ahead.
Mike Harrison: Oh! Hi, guys. Thanks so much for taking questions. I’ve got two. Firstly, does the choice of bringing special dividend as well as the buyback signal anything about your view of where current share price is trading relative to your own view of KBC’s intrinsic value? And secondly, just thinking about NII again, obviously, as has been discussed, the 1Q number analyzes towards the top end of your guidance. I’m just wondering if you could give us any color on the shape of how you think 2024 evolves and should we be expecting the first half for the ECB cut rates to sort of be overshooting a guidance and then the second half of the year, unshooting the guidance or how should we think about the cadence of NII throughout this year? Thanks very much.
Luc Popelier: Thanks, Mark, for your question. The line quality was very poor. So, I don’t know if we fully understood the question, but please correct us if we’re answering something which you were not asking. So, we understood that the first question was, I think, about why not the share buyback now for the €280 million. At least that’s what we understood. So as you know…
Mike Harrison: Yeah. And whether you think that suggests your shares -- where your shares are trading relative to your view of intrinsic value?
Luc Popelier: Okay. So, no, I mean, the decision which we have taken to distribute the €280 million in cash has nothing to do with that. So, we only decided that given the fact that there is still a share buyback ongoing, which needs to be executed until, as you know, the 31st of July, roughly around the number now, roughly another €400 million to be executed. We thought that it was more appropriate to hand over now the €280 million in cash. That is always considered as one of the options. We have, by the way, also repeated that again in the capital deployment for this year. There’s always an option to choose between cash, share buyback or a combination of the two, and this is one of the options which we have taken given the fact that there is still an outgoing -- ongoing, sorry, share buyback until the 31st of July.
Mike Harrison: Okay. Clear. Thank you. And then, sorry, if the line cuts out, the second question was just around the shape of how you think the 2024 NII evolves. Should we think of the first half of the year being better than the second half or should we think of it being roughly similar from one quarter to the next?
Luc Popelier: We do not prefer to give any guidance on that, because if you ask me to give quarter-on-quarter guidance, that’s going to be very, very difficult. There are a number of moving parts. As you mentioned, there are further cuts, of course, in the ECB rate that we have a negative one, but we have some other offsetting factors. And then making -- giving an outcome quarter-by-quarter, that’s going to be very difficult for us. We don’t give any guidance on this.
Mike Harrison: All right. Thank you.
Operator: We will now take our next question from Anke Reingen from RBC. Your line is open. Please go ahead.
Anke Reingen: Yeah. Thank you for taking my question. Just two, please. On the credit cost, is it fair to assume everything else staying equal, that your buffer of the €220 million may be released by year-end 2024? And then in terms of the credit cost ratio, I mean, you keep the €25 to €30 there, but we trade still well below the guidance. What -- why -- what stops you from actually lowering the guidance here? And then on the, yeah, investment product mix, I mean, I guess you have a wide range as in mutual funds, insurance, deposits. And should we sort of like expect, should there be like a shift more towards insurance products rather than other asset management products to explain somewhat of the P&L moves or is it really depending on the environment and obviously the client preferences? And just a small question, when you write the guaranteed interest rate life insurance products, what is the current guaranteed rate? Thank you.
Luc Popelier: Thank you, Anke, for your questions. So let me answer the first one on the credit cost. Yes, it depends what you use, €4 to €10. Substantially lower than the average or the long-term average of €25 to €30. There is no reason to conclude that not updating the guidance, that therefore we do expect further increase of significant increase in the quarters two, three, and four to come. That is unrelated. So we have decided, and that’s what we did and announced quarter four last year or in the back of the quarter four last year’s results, that the guidance which we gave on the credit cost ratio is a flow -- is a ceiling, sorry, and that we will be significantly below that, which is proven by the current position and we do not expect any fundamental deterioration of that number. As a matter of fact, if you look at the PDs in KBC Group also in the first quarter, then we hardly see any change there. So it’s pretty stable over the quarters, and we -- I mean, over the quarters, we are making references of the last 10, 15 quarters. It’s pretty stable. So no, there is no reason to believe that. Regarding the buffer, the geographical economic risk buffer, which is €223 million, the releases are driven by the evolution of macroeconomic parameters amongst others. And then, of course, direct exposure, as you know, is very limited in KBC. So if parameters are going to change positively and are going to be in line with what the common expectations are in terms of inflation, economic growth, and so on and so forth, then you might expect indeed further releases going forward. If those parameters change in the opposite direction, and obviously, that changes the position on the releases of €223 million. So in brief, there is no position taken that it will be released at any cost in the course of 2024. It’s driven by models.
Luc Popelier: And with regards to your side question on the guaranteed interest rates on life insurance products, well, there are a whole range of life insurance products we have and the interest rate guarantees differ from product to product. But give you a flavor, the most important savings plan in life insurance has a guaranteed interest rate now currently for 2%. These are modern life insurance means that there’s no guarantee for future premiums. It’s only currently for the premiums that are paid at this point in time, not for future premiums. Others, like, for example, pension products for independent employees and so on, they range between 1.5% and 1.7%. The group insurances are around 2% at the moment and so on. So virtually around, I’d say, 2%.
Anke Reingen: Okay. Thank you.
Johan Thijs: And if I may compliment Luc for the first part of that question, where is, could we expect further evolution, preferably more into the direction of life insurance business rather than other businesses? By the way, this is not driven by what we want. It is, amongst others, also driven by what customers want. So we provide customer solutions, which are then tailored to their specific needs. The reason why we had an uptick in the first quarter was that we launched a new product, which perfectly fits the desire of our customers. So therefore, I’d say there is no necessarily a shift going to happen from one product to the other. It’s quite clear that if we look into our customers’ asset base, that the, let me put it differently, if you look into the means of our customers, that we prefer to anchor those means in KBC Group for a longer period, and therefore, products like investment, asset management products, life insurance products, are indeed tailored perfectly for doing so and the shift between the two depends on the demand of our customers.
Anke Reingen: Thank you very much.
Operator: [Operator Instructions] We will now take our next question from Farquhar Murray from Autonomous. Your line is open. Please go ahead.
Farquhar Murray: Good morning, all. Just two questions I’ll make. Firstly, on the cost side of things, obviously, down year on year is quite solid indeed. Just as a follow-up to Benoit’s question, I take it from that, that basically you’re suggesting that 1Q is reasonably indicative for the coming quarters, except for probably 4Q seasonality. And as such, is it fairer to assume probably being close to flat year on year than probably the 1.7 bp -- percentage points on the slide? And then secondly, just on the fee side of things, could I ask about the net flow? It’s been reasonably stable at 1%, but obviously, is that partly because Belgian retail is still remaining reasonably conservative in its kind of asset allocation side of things? And then secondly, could I ask you within the €258 billion of AUM, could I ask for what’s the equity allocation component of that? Thanks.
Luc Popelier: Thank you, Farquhar, for your question. We’ll take the first one on the cost side. So, I mean, I think, I answered the question on the previous request, that is indeed cost side is much better than guidance. Guidance is a ceiling. So therefore, it is perfectly in line with what we guided and it is much better than the number which is forecasted. Can you conclude from that, that we are going to have different positions in quarter two, quarter three and quarter four? Not necessarily. Is then the conclusion that it’s going to be year-end flattish? Well, we stick to our guidance, which means it is not necessarily flattish. So, it’s indeed a head start and to lift the tip of the veil, we do not expect to be breaching anyway our guidance and not even anywhere soon. We don’t give a specific guidance, but we think it will be precisely by year-end because then I’ll change the guidance and it’s not the purpose.
Johan Thijs: Okay. And just to complement, as I mentioned before, the -- we should take -- we should adjust for the fact that Ireland was still -- the cost in Ireland was still much higher in the first quarter of 2023 and much more limited in the first quarter of 2024. So, €47 million a year ago, €10 million now, €47 million difference. So, if you adjust for that, costs are above zero percent, they’re not stable, they are still increasing. So, just to make sure that you don’t get over excited on this side. But we still believe that we are going to be well within the guidance for the full year. On the fees, I didn’t entirely understand your question, I think, okay, but I -- what I can say here is the €1.9 billion of inflow in direct client money is across all countries. And if you look at the composition, what we see, first of all, is that fixed -- balanced regular is the most popular product and then fixed income and money markets. Yeah, equity as well, but we see some outflows in multi-signal, as we call that, is our algorithm driven formulas and the famous CPPIs as well, still further outflows as expected. And then what is also changing compared to the last years is that the amount of regular investment plans, the percentage of that has come down much more because it’s more stable, but only represents 22% in this quarter. Yeah, it’s still stable, as you mentioned, about €400 million to €450 million per quarter, but €1.9 billion, therefore, comes from all the other products, not regular investment plans. Then the equity components, if you look through all the asset classes, then the equity is about slightly more than 50%. Yeah.
Farquhar Murray: Okay. Thanks a lot.
Operator: There are no further questions, so I’ll hand this back to Mr. Kurt De Baenst, General Manager, Investor Relations, to conclude today’s conference.
Kurt De Baenst: Thank you, Operator. This sums it up for this call. Thank you very much for your attendance and have a great day. Bye-bye.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.