KBC Aktie

Good morning, ladies and gentlemen, and welcome to the conference call of KBC Group Earnings Release First Quarter 2026. [Operator Instructions] I would now like to turn the floor over to Kurt De Baenst, General Manager, Investor Relations. Please go ahead. Thank you.

Thank you, operator. Also from my side, a very good morning to all of you from the headquarters of KBC in Brussels, and welcome to the KBC conference call. Today is Tuesday, May 12, 2026, and we are hosting the conference call on the first quarter results of KBC. As usual, we have Johan Thijs, 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 Thijs, 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 first quarter results of 2026. And despite the fact that we have been working in a very rough environment, the geopolitical turmoil was not creating the best environment for financial institutions. Despite all that turmoil, the results in the first quarter were excellent with a return on tangible equity of 16%, totaling EUR 575 million (sic) [ EUR 557 million ] over the quarter. This EUR 557 million is posted after paying EUR 549 million bank taxes. Now it is quite reassuring to once again then see the machine has been firing on all cylinders. And that means that all countries have been contributed and that the bank insurance diversification has worked very well.

Let me start with indicating customer loans and customer deposits, a strong growth on the lending side with a very strong 1.6% increase over the quarter, but also customer money inflows totaling EUR 5.4 billion in this quarter. We have seen consequently then as well a strong increase of the net interest income, which was then also completely copied by the non-net interest income totaling net fee and commission and insurance income. Net fee and commission income, strong growth driven by strong performance on the sales side of direct client monies, but also on the insurance side, we have seen a strong performance on the non-life side and on the life side.

In terms of the volatility, you clearly see that reflected in our financial income -- our instruments and financial income at fair value. And that is totaling, again, a strong growth on the total income side. On the, let's say, outgoing monies, we do see, first of all, that the lending book in terms of its quality has performed very well with a very good cost -- credit cost ratio standing at a like-for-like basis, 15 basis points, which is well below the 25, 30 basis points. We also saw a very good combined ratio with 84% and we did, in that perspective, also see that costs are under control, be it that you need to be aware that this is the first quarter where we integrate 365 and Business Lease into our numbers. We'll come back to that in more detail.

Solvency position, both on the bank side and the insurance side remains solid with respectively, a CET1 ratio of 14.4% and a Solvency II ratio of 231%. And you also know that on the AGM last week, it was decided to pay out the EUR 4.1 dividend, which will be paid out on the 20th of May. Let me go immediately into the detail. On the next slide, you can see the -- actually the split up in essence between our net interest income bearing -- sorry, our interest-bearing income and our non-interest-bearing income, the split up over the period was hovering around 50%, which is also the case for this quarter. This quarter, it is 51%, 49%, which is pretty much in line as what we have seen on the previous quarters and years.

In terms of where we are with the technology and the evolution of the innovation side in KBC, well, it is performing again on a very strong level. We have seen further increase of the usage of Kate. That is now reaching 6.1 million of our customers, which are using Kate on a regular basis. That also means that Kate is answering their questions. We have 2 versions of Kate out now in Belgium since the, let's say, end of last year. We have launched a full large language model-driven Kate, we call it Kate 2.0, which has an autonomy rate of roughly 80%. This quarter, a little bit lower, has to do with customers asking more and more questions, questions which are not yet at this stage, fully straight-through process. And when they are not straight-through process, we don't consider this to be a provided answer according to our standards.

In the Central European countries, we still have the older version of Kate 1.0. The new version will be rolled out in the course of '26. We do see Czech Republic at 69%, but other countries like Hungary, Bulgaria stand at an autonomy of 75%. All of that has led to the further gains which we do on the productivity side. To say something, when we look only on the commercial side, then Kate is doing the job of roughly 400 people. If we look at how many leads are converted by Kate, then we speak about 420,000 sales over the last 12 months.

For good understanding, we see now 3 consecutive quarters, an increase of those converted leads in -- driven by Kate. Last but not least, what also is happening when Kate is answering questions, processes are fully automated, which means that also back-office processes are automated. We don't take them into the number of 400. So in essence, Kate is doing the work of much more than the reference made than the 400 people I was earlier referring about.

On the next page, you see the other positions which we have on the sustainability side and how others are judging us in terms of innovation, but I would not dwell too much upon that. Let me go to the one-offs. There are multiple one-offs this quarter. First of all, in this quarter, after the approval of the AGM on the matter, we are going to -- we have booked the one-off bonus for our staff. The one-off bonus is totaling EUR 23 million ultimately, which also means that, that will be part of our cost.

For good understanding, this was not part of our cost guidance for the simple reason that the decision had to be taken by the AGM. Also, what we do see is in Hungary quite a series of one-offs. The first one is linked to correction on the subsidized loans where an interpretation was not followed by the authorities. The correction totaled EUR 10 million. But more significantly is that we won a legal case against those Hungarian authorities, which ultimately delivered EUR 33 million in positive.

Last and definitely not least is that the Hungarian authorities introduced a new windfall tax. So on top of the previous one for a whopping EUR 134 million, which completely changes the picture in the first quarter where those majority of taxes are booked. In terms of total amounts, we now stand after taxes as EUR 121 million exceptionals, so one-offs, which clearly more than what we have seen in the same quarter last year and definitely also much more than what we have seen on previous quarter.

Let me now go into the building blocks. So first, starting with net interest income. Net interest income, as such, is up 4% on the quarter and 18% on the year. Of course, this is significantly influenced by the absorption of 365.bank and Business Lease. For good understanding, when I'm going to say further in this presentation, 365.bank, I always mean the combination of the 2. So the integration of both entities have triggered that strong increase. If you would exclude them, then we would see an increase of 2% on the quarter and 15% on the year, which actually means that underlying our net interest income has been performing very well.

In that perspective, to give you an idea, the strong -- if we exclude 365 and Business Lease, we have a strong performance of our commercial transformation result, which is benefiting further from the reinvestment yields and then also the fact that the volumes have been on the current account, saving accounts have been continuously flowing in and in that perspective, are prolonging our strategy.

In terms of the lending income, also a slight increase. So we do see in that perspective, of course, also the influence of the integration of 365. But even if you would exclude that M&A part, then we do see an increase of our lending income, which is driven by 1.6% quarter-on-quarter growth, which is very strong, translated over the year. It means that we do see a growth of roughly 7%, to be precise, 6.6%, which is indeed despite the political turmoil, a very good result. Part of that is offset by margin pressure. Well, we do see margin pressure on certain products. It is a bit of a mixed picture. Not all products we do see the margin going down on the contrary. But in essence, all in all, I would say commercial margins are still under pressure over the countries as a whole.

So lending income slightly up given the combination of the 2. We do also see that some other parts are indeed also increasing and they are only offset by 2 negative things. In essence, the number of days are lower than on the previous quarter, which has a negative impact of EUR 17 million. And we do also see that the inflation-linked bonds have quarter-on-quarter delivered a difference of EUR 17 million. As you know, inflation is on the rise. The calculation of those inflation-linked bonds is always on the inflation of 2 months ago, which means the delay factor plays against us, but we will recuperate that in the course of the year. Therefore, going forward, the inflation-linked bonds result full year will be guided for EUR 30 million to EUR 40 million.

Also, a negative upside is the EUR 10 million I was earlier referring to in Hungary. How is that translated in net interest margins? Well, margins are up significantly, now totaled 217 basis points. This is obviously influenced by the things I just mentioned. I have to add that also, for instance, the MRR in Bulgaria has a positive uptick in this quarter, but if you would leave out 365.bank, even then margins would be growing to 214 basis points. On the remainder of the page, you can see the split of the total loans. So we have also seen a growth of 1% on the quarter for the mortgages totaling 6% over the year. And in terms of volumes on the deposit side, positive 2% up on the quarter, 5% up on the year, but I think, it's better and easier -- more easier to explain it on -- using the next slide on Page 8, where you can clearly see, if you exclude the foreign branches and you exclude the FX effect that we do have an increase of deposits inflow -- or let me say it differently, we do have an increase of customer money inflows of EUR 5.4 billion.

Now what is the split up of those -- of that EUR 5.4 billion? Well, EUR 1.6 billion is linked to, again, a very strong net sale on the asset management product side. So mutual funds totaling EUR 1.6 billion, which actually means that roughly EUR 3.8 billion is linked to, let's call it, customer deposits. Current account, saving accounts totaling EUR 1.3 billion positive and term deposits do see an increase of EUR 2.4 billion. Now of course, this number is also influenced by the acquisition of 365.bank. And if we would exclude 365.bank, well, then the number EUR 5.4 billion will become EUR 1.9 billion net core money -- customer money inflow.

Now if you translate that in a different way, the EUR 1.6 billion remains the same on the mutual fund business, which actually says that what we do see is saving accounts are unchanged, EUR 0.6 billion. But current accounts, we do see a clear shift from current accounts to term deposits, which is different than what we saw in the previous quarters. The reason behind that is actually linked to 2 countries, in essence, Belgium and Czech Republic. And this has to do with 2 completely different things. First of all, because of the war, because of the turmoil on the financial markets, we did see a pickup of the interest rates. And therefore, in Private Banking, Belgium, some of the customers have actually split up their investments on 2 sides.

Part of the money were shifted into asset management products. Other part of the money were locked in into term deposits. We're talking about EUR 0.7 billion, which was an anticipation on the fact that if the war is a short-lived one, then interest rates would come down again and therefore, locking it in for the year does make sense. The other country where we see the effect of outflowing customer accounts -- current accounts, sorry, is Slovakia, which is linked to a certain extent, the retail bond, which was issued in the quarter and then a purely seasonal effect, which is linked to tax payments by micro SMEs in Slovakia.

Last but not least, the -- also in Belgium, we saw a seasonal effect that is corporate accounts, which is traditional going down every year in the first quarter, but normally picks up in the course of the year. So all in all, customer monies have been continuously inflowing. And that, in that perspective, is creating the still solid base going forward. In terms of fee and commission income, I already mentioned that we have seen a strong sale. Well, that's also translated overall in the net fee and commission in total, up 1% on the quarter and up 6% on the year. If you would exclude 365.bank, well, then, of course, you have a little bit different numbers, minus 2 on the quarter, plus 3% on the year.

Where does it come from? Well, we have seen strong sales, which is indeed EUR 1.6 billion, quite an achievement. If you compare that with the record of last year, it's only slightly down. So that is -- despite the war is an excellent result. And also, we see the same more or less in the gross sales. So also in gross sales, we have the second highest first quarter ever realized in 2026, which means that the asset management services fees increased by 1%, but also that the entry fees went up as well. Bank services went up with 1%, which is in essence due to fees linked on the credit side, but also fees, which were linked to our securities trading platform like Bolero in Belgium, Patria in Czech Republic.

To just give you an indication, the number of transactions in Bolero in the first quarter were 26% up compared with the same quarter last year. For good understanding, quarter 1 2025 was a record high. We do also see that -- sorry, I made a mistake, the 26% is about customers. It's not about transactions, about transactions is 13% up. So what you also have to bear in mind that is in this quarter, we also deducted for the first time the SRT cost contributing a minus EUR 6 million to this fee and commission income.

In terms of assets under management, well, obviously, the negative sentiment on the financial market have put down the assets under management on the -- it's roughly 2% on the total EUR 4.5 billion, and it is only partly compensated by the net inflow of the EUR 1.6 billion, which I reflected upon earlier. Small add-on on the net sales. We also saw, again, a strong performance on the regular investment plans, let's say, the stable solid base of the net sales. It is totaling EUR 450 million, which is also again translated in a further increase of the number of regular investment plans increased with 9% over the year.

In terms of Non-Life Insurance business already mentioned that it was having a strong growth of 7%. This is triggered by all countries. Belgium is having a growth in a more mature market at 6%, where we do see growth of double-digit in Czech Republic, Bulgaria and 9% in Hungary. In terms of the quality, 84% combined ratio, which is an excellent result. This is true for all countries. Small caveat, we do have extra windfall taxes or windfall taxes in Hungary. If we would exclude those windfall taxes in Hungary, the combined ratio there stands at 93%, but also most countries are having combined ratios below even 80%.

Life sales side, super strong. You can make the comparison on the previous quarter, which was indeed a record high, but even that quarter was beaten with a 9% growth, if you compare it with the same quarter last year, which is traditionally a very strong quarter, well, 15% up, and that is quite a striking result. The split up between the products is 36% guaranteed interest products, whereas unit-linked is 58% and the remainder is in the hybrid products. In terms of the financial instruments at fair value, we do see a negative evolution here of EUR 96 million compared with the previous quarter. That has to do, of course, with the volatility in the markets.

We do see the impact of negative -- a negative impact, rather, of the increased interest rates and the rest is linked to the hedge accounting ineffectiveness. On the dealing room, we also saw because of the turbulence, a negative evolution there of roughly EUR 26 million, which the sum of the 2 combined actually explains more than the EUR 96 million I was earlier referring to. Net other income was up significantly, as you can see, EUR 89 million, which is actually much better than the normal run rate of, let's say, roughly EUR 50 million. Well, that has to do with 2 things in essence.

Well, first of all, the contribution of Business Lease, which is in for the first time, it's EUR 7 million, but also the fact that we won a legal case, EUR 29 million is here in the result and that was already mentioned earlier with the exceptional results. If you would exclude both of them, then we are closer to the run rate, a little bit higher, 10% higher, but EUR 56 million. What about operating expenses? Well, this quarter, of course, is completely different than the previous quarter because of the bank taxes. But let me start with the real costs that is the operating expenses, EUR 1.214 billion, which is compared to previous quarter, down EUR 10 million despite the fact that we included in this quarter EUR 23 million of one-offs and despite the fact that in this quarter, also EUR 30 million is included because of 365.

More sense it does make to make the comparison with previous year same quarter, well, then we do see an increase. But also here, be aware there are one-offs which you need to make the distinction between the consolidation of the different underlying assets. So as I said, 365 is included this year and then also the one-off bonus is included and you have an FX effect of roughly EUR 13 million. So what about cost/income? It's 41%, which indicates already that we have been able to keep our costs well under control.

As a matter of fact, if you do a comparison on a like-for-like basis between quarter 1 last year and quarter 1 this year, then we do see an increase of 3.7%, which is slightly higher than the guided 3.4%, but this is 100% due to timing differences. So we take into account already some costs in the first quarter where the benefits are only going to be seen in the course of 2026. So as a matter of fact, we are perfectly in line with our planned cost evolution in this quarter. In terms of bank taxes, well, bank taxes are at a level of EUR 549 million, which is significantly higher than last year. And this is due to, in essence, 2 effects.

First of all, we see an increase of the windfall taxes in Hungary. They added EUR 134 million. If you compare it with previous quarter, that is an increase of EUR 81 million. In total, if you take into account some SRF contributions and financial transaction levy, we end up at EUR 87 million. In terms of the Belgian situation, well, the Deposit Guarantee Scheme in Belgium was fully filled up. So that contribution fell to 0. What the difference was for more than 50% filled up by the Belgian government by additional national taxes, bringing the total to a positive evolution of EUR 67 million. So in total, bank taxes up EUR 13 million. We do expect by year-end to pay EUR 724 million of taxes and the split up of the EUR 549 million over the different countries and what that means on OpEx, you can see on Slide 13.

Let me go immediately to asset impairments. We do have in total EUR 165 million of impairments, which are actually split up in 2 parts. First is the business as usual impairment. So what is the quality of the underlying lending book? Well, EUR 89 million compares to EUR 76 million, which means that you do see an increase of EUR 13 million. There is a small but. In EUR 89 million is included 365 for EUR 11 million. And on top of that, we also took a further provision on the nonperforming loans exposure of EUR 16 million. The reason why I'm mentioning that is by taking that EUR 16 million, you will have a positive impact on your CET1, and it's, of course, a voluntary choice. So if you would exclude that EUR 27 million, actually the business as usual impairments are better than what we have seen in previous quarter, but also better what we have seen in the same quarter on previous year.

So quality-wise, it is actually a good quarter. We also see that in the PD shifts in this country -- in this quarter, which are actually pretty stable, which has also translated in the impaired loans ratio of 1.8%. For those who are more familiar with the EBA definition, we now stand at 148 basis points, which is substantially better than the European average of 180 or the European median of 170 basis points. Another way to reflect the underlying quality of the lending book is the credit cost ratio like-for-like basis. Well, that stands at 15 basis points, which is perfectly comparable with the 13 of last year and the 16 the year before, and that's definitely much better than the longer-term average or the guidance which we gave, 25, 30 basis points.

What else? We added, given the very difficult situation out there, a conservatism extra to what we already had as a buffer. The previous buffer was EUR 100 million. We now decided given the turbulence in the Middle East that management overlay is indeed added to the tune of EUR 72 million, EUR 3 million was extra added because of the previous buffer. So in total, we do add EUR 75 million. What is particular about this buffer is that it is 1:1 linked to the IRB shortfall. And therefore, this buffer actually adds to the CET1 ratio 4 basis points extra positive.

So total buffer at the end of this quarter, EUR 175 million. With the evolution of the conflict in the Middle East as we have seen it with the evolution also of the situation in Ukraine, we do not expect to touch the EUR 72 million management overlay in the remaining part of this year, which is then translated to Page 15, where we do give you some more detail on our exposure to the Middle East, which is very limited to only 0.2% of our outstanding loan book. And the same can be said about vulnerable sectors. Given the conflict in the Middle East, KBC already in the past was anticipating potential issues and therefore, was scrutinizing those portfolios.

But to give you an idea, actually, we do have limited exposures on those sectors, which might be vulnerable amongst others, oil and gas; amongst others, automotive; amongst others, chemicals, aviation and software. You can clearly see that the exposures which we have are very limited. We are talking about max 2.4% in the automotive, but most of those exposures are smaller than 1% of our outstanding loan book. In terms of -- and that's just a confirmation of what we said on previous occasions, previous quarters, private credit, hardly any exposure, private equity limited to less than 0.5% of our lending book.

Let me go immediately into the capital ratio. Well, the buildup of capital is definitely triggered by the net result and the upstreaming of the dividend of the insurance company. We also added the goodwill and the intangibles of 365.bank to the tune of EUR 260 million, which actually brings capital to EUR 19.3 billion. In terms of the risk-weighted assets, obviously, the integration of 365.bank and Business Lease have added risk-weighted assets to this. This is EUR 2.5 billion rounded. All the rest is -- in essence, the vast majority of that is explained by volume increases. So the strong loan growth triggers the increase of EUR 1.5 billion. All the rest is explained by model changes and also higher risk-weighted asset counterparty risk.

So totaling EUR 134.5 billion of risk-weighted assets, bringing the capital ratio to 14.4%. Let me remind you that KBC always includes in its CET1 ratio fully loaded, the phased-in of Basel IV. If you would exclude that, the ratio would stand at 14.54%. In terms of the MREL -- sorry, not the MREL, the MDA position, so we have an OCR 10.9%, which gives us a buffer of 3.5%. If we include the shortfall, which can be financed with CET1 on AT1 and Tier 2, the MDA level stands at 11.13%, giving us a buffer of more than -- of roughly EUR 4.4 billion. The leverage ratio stands at 5.6%. The solvency ratio already mentioned, 231%. Let me repeat as well, LCR and the NSFR, respectively, 139% and -- 159%, 135%.

Then in terms of guidance, in essence, we never give new guidances in the first quarter. Also given the turbulence today, it's extremely difficult to give any sensible comments on, for instance, net interest income, what it will be. Multiple scenarios are still possible. So the guidance, which you see on Page 8 -- sorry, Page 19 is unchanged. The only remark I would like to make is that be aware that we included EUR 23 million costs, which were previously not part of the guidance, given the fact that decision is only taken in 2026.

So in wrap up, it's a pretty good quarter. A lot of things are moving on. But business-wise, the machine has been firing on all cylinders, and I will give back the floor to Kurt, who will guide us through your questions.

Thank you, Johan. The floor is now open for questions. Please restrict the number of questions to 2 to allow for a maximum number of people to raise questions. Thank you.

[Operator Instructions] We will now take our first question from Giulia Aurora Miotto of Morgan Stanley.

I have 2 on net interest income. So I hear you that you don't want to upgrade the guidance already, given the uncertainty. However, the NII result was solid. There is very good deposit and loan growth. So I would assume we get an upgrade in Q2. And I don't know if you can -- if you agree and if you can quantify the upside if the rate curve stays where it is?

And then secondly, so Slide 8 surprised me a little bit because it's different from what you had mentioned before. And I think before you mentioned that KBC was assuming a deposit mix shift towards current and savings. And this quarter, we see the opposite. What are you seeing quarter-to-date in Q2? So is this trend towards term continuing? Or in fact, it is reversing towards your assumption? And does it make sense for banks to increase the cost in term deposit if the rate hikes are expected to be temporary?

Thanks, Giulia, for your questions. I will take the first one. And Actually, your question is [indiscernible] way to ask for guidance update. So let me highlight why we are not giving you an update. So first of all, I mean, the war is creating -- I mean, I'm talking about the war in the Middle East. It's creating a lot of volatility, as we all know. And depending on the outcome of that conflict, is it short-lived or long-lived? I mean, it will fundamentally change the numbers and definitely also the situation for all financial institutions.

Let me highlight in brief what we have in mind. We still think that this war is a short-lived one, which means, let's say, 2 months, 3 months, max, 4 months and then cease fire will be there, which intrinsically, according to the statements of the senior politicians on both sides of the conflict are today already stating. So if it is a short-lived war, then we are in the situation which you see today. Okay, there is a slightly lower GDP growth in Europe, the predictions are 0.4%, 0.5% points lower GDP growth, but still it is good.

And in that environment, in the first quarter, we published a 1.6% lending growth. So we are quite good in dealing with that kind of situation. But what is also far more important is that inflation is going up. This is what we see in this quarter. But if it is short-lived, the assumption is that it will not last. So in '27, we will definitely have a normalized, be it roughly around 2% inflation position. As a consequence, the central banks will look to -- look through the inflation and will not start to hike, which is different than what the forwards today are saying. Forwards still are assuming 3 rate hikes before the end of 2026. So therefore, also in our net interest income, you will have a positive impact on certain things, which you already saw in this quarter.

We will have a positive upside on our inflation-linked bonds, which is not calculated in this quarter. We will have the slowdown of the shifts of current and savings account to term deposits, which are part of this quarter because interest rates will not go down and customers have anticipated because of the war, the longer-term interest rates, which were given in this quarter. So that shift will go down. And indeed, as you indicated, this is something which we had not seen in quarter 3 and 4, where there was no war for good understanding. What we see now, when there is a war, that this is happening.

So also in other parts of the P&L, it will have an impact. If we would now, on the other hand, a long-lived conflict, well, then it's completely different. Then you will see inflation going much higher. Probably central banks will anticipate with rate hikes and then we probably come closer to the forward rates. When the forward rates are materializing, we see a completely different picture on the net interest income side. You probably will see also interest rates on other products increasing given the fact that interest rates are in the rise and you will have a clearly higher inflation, therefore, higher inflation-linked bonds.

So it's completely different to say what it is. But we will have a better view on that in the weeks to come, which means in the second quarter, and we clearly give you some insight where we will be at quarter 2. And to wrap it up, if you listen carefully to what I said, I agree with your position that the current guidance, which we have given is very conservative.

Okay. And then good morning also from my side to everyone. Giulia, your second question, the shift from CASA to term deposits and now seems to be halted and turned around. But let me give you some exact numbers. First of all, indeed, when you look at the slide related to the direct customer or core customer money that you see EUR 2.4 billion increase in the term deposits. But out of those EUR 2.4 billion, EUR 1.4 billion comes from 365 in Slovakia. So you should deduct that. Secondly, we see some indeed shift, as Johan was explaining, in Belgium in private banking from current accounts to the term deposits for the reasons explained. But this is only in Belgium.

We -- in the Czech Republic, actually, we continue to see a shift the other way around. And that is then a net impact of EUR 0.8 billion. And then basically, the -- we also see some increase in term deposits, but mainly driven in Slovakia by the corporates where we had a campaign on term deposits for the corporates to attract additional deposits. So that's in total, EUR 2.4 billion. So is this going to continue? Actually, as Johan has been explaining, depends a bit, of course, on the duration of the war. If indeed the situation in the Middle East lasts longer, as we have already been indicating openly that this is likely also going to indeed trigger back a shift from current accounts and saving accounts to term deposits. But when the war is short-lived, we do not believe that this is going to continue going forward.

And we'll now take our next question from Sharath Kumar of Deutsche Bank.

My first one, sticking with NII. I wanted to dwell a bit more on the moving parts of NII and how it progresses for the remaining quarters. I see in first quarter, we had both positives and negatives Dealing room NII, if I have to look at positives, was elevated. So do you see risks of this reversing? On the other hand, if I account for negatives like inflation-linked bonds, lower day count, overall, I see underlying first quarter annualized run rate closer to EUR 6.9 billion, consensus around EUR 6.8 billion. So if you could comment on how to think about the NII progression in the remaining quarters, it would be helpful. And you had previously shared a plus EUR 50 million NII sensitivity for a 25 basis points rise in interest rates. Just wanted to check if this has changed.

Second, on asset quality, you've already added EUR 75 million to your ECL buffers. Oil prices have remained elevated. I appreciate this is not 2022 where the risks were higher for Europe. But there, we saw ECL buffers continuously added in all the quarters. So generally wanted to understand the risks of further additions to ECL buffers and more broadly on asset quality trends in the wake of current geopolitical risks?

Thank you, Sharath, for your question. I will take the first one. It's a bit a continuation of what I said earlier to Giulia's question. But if I go in the moving parts, I mean, on net interest income, intrinsically, it's very simple. Roughly 90% of all net interest income is built by 2 parameters, and that is the transformation results and the lending income. Now on the transformation result, Bartel just highlighted what is crucial in that perspective, that is customer deposits inflow. And as he highlighted, well, that is at least stable, but it is in reality growing. And therefore, the positions which we take and have been taken can be continued, which actually means that transformation results are going to increase not only in this quarter, as they did on the previous ex-quarters, but also in the future quarters.

We do anticipate that not only for '26, but also for '27, '28, we will see further continuation of that transformation result to go up. And when I'm saying '28, I'm saying at least '28. Now, what is crucial to understand that is the -- or the roughly 90% of net interest income buildup of transformation result and lending income. The moving part -- the really moving part is the transformation result. What is to a lesser extent, the case for the lending income. So if you see the differences quarter-on-quarter, far more important transformation result than lending income.

On lending income, it's very straightforward. Two things are crucial, volume on one side, margin on the other side. So let me start with volumes. We had a very strong quarter in published quarter 1, 1.6% growth. But the good news is that if we look at the pipeline, with quite strong on the commercial SME side going forward and in Belgium and in Czech Republic. As a matter of fact, in all countries, except to a certain extent, Hungary, we do have a very strong commercial banking pipeline filled. So the 1.6%, I do not see as an exception. We guided for 5% currently, with the evolution, which we see, we are above that. And also given the fact that we have been rolling this off in a period where uncertainty was key given the conflicts which are ongoing, we are quite confident that the 5% will be reached by us going forward.

What about margins then? Well, we start -- we continue to play the game of pushing up the margins in a sound and commercial way. Sound way means acceptable for customers. Commercial way means we take also into account our market share. Where we do see a drop in our market share, for instance, which happened in the first quarter '26 in Belgium, where we are pushing up the margins on the mortgage side, the market was not following, we just adapted the situation, which means that by the end of the quarter, we restored our market shares again. This is how it works. So I would say it depends a little bit on the market. And in that perspective, I do not expect that we will see a major uplift in the commercial margin.

So the product of the 2 would actually means that we will see a further continuation of what we have seen in quarter 1 of this year. So let's then discuss the remaining parts. You mentioned dealing room income. Let's face it, dealing room income has a positive contribution, of course. But let's face it, it's only roughly 3% of our total net interest income. So even if you have there changes, which are, what, EUR 3 million, EUR 5 million, it is not going to shift the needle on net interest income. The same can be said on, for instance, cash management.

We don't necessarily always mention that, but cash management is a positive contribution, but it's more -- I mean, an adjustment rather than a fundamental influence. You also mentioned inflation-linked bonds. That's quite crucial. In this quarter, it is negative. But we do expect the inflation-linked bonds total for the year to be at roughly EUR 30 million, EUR 40 million. So that is an adjustment compared to this quarter in total of, let's say, roughly between EUR 40 million and EUR 50 million. And the same can be said also if you want to extrapolate quarter 1, be careful, number of days are different, has a negative impact and also be careful there are a negative one-off in this quarter on the Hungarian side.

So all in all, we do see that the pickup of the net interest income over the last quarters and last year is going to be continued going forward. And therefore, I said what I said to Giulia as well, the EUR 6.725 billion guidance is on the conservative side, and we will give you an update in quarter 2. The last thing you mentioned was the parallel shift of 25% already on other occasions -- sorry, of course, 25 basis points. 25% that will be a nightmare. But 25 basis points, we already said on earlier occasions that the impact would be roughly EUR 60 million. Be careful, parallel shift is a parallel shift. We don't see that in reality. The short end and the long end move in different directions, and we have more flattening of the curve. But in that perspective, no change in our guidance.

Sharath, as far as your second question is concerned related to the ECL buffer, which we indeed increased to EUR 175 million with what I would call a one-off fixed management overlay. This is bringing indeed the total buffer to EUR 175 million, which is roughly 60% of the provisions or impairments that we have on -- as a business as usual on the year, and we feel comfortable with that. Going forward, we do not anticipate that -- as I said, it's a fixed one. So we do not anticipate to further increase that. What I can say as well, as Johan has been highlighting as well, this is also helping us to reduce the IRB shortfall. The impact of that is 4 basis points.

Now for the time being, also as far as your question is concerned, what is the outlook? Of course, there, what we see is today, we are particularly in Belgium, in what we call, the review season. That means that we are incorporating in our PDs, the 2025 corporate results. What we see is today, the PDs are stable, but we do expect potentially a slight increase in the Stage 1 and Stage 2 as a result of this integration of the 2025, but this is more a normalization than a structural deterioration. So we do not believe or I think that there will be a structural deterioration, of course, unless the war continues for a very long period of time because, of course, companies are suffering. But if the war is certainly short lifted -- lived, I should say, then basically, we do not expect a structural deterioration. It's rather a normalization, and therefore, we maintain the guidance of well below the 25 to 30 basis points.

And we'll now take our next question from Shrey of Citi.

I'm going to give you a break from the net interest income and ask about Kate. Thank you for your comments on the autonomy decrease in Belgium at the beginning. I want to actually shift focus to the Czech Republic, where if you compare the first quarter of last year to the first quarter of this year, I believe your autonomy rates are down something like 5%. So if I could just understand what's driving that? Is it people are asking more difficult questions? Or is it something else?

And my second question is on the amount of leads generated by Kate. It's increased to 420,000 this quarter from, I believe, 398,000 the quarter before in the last 12 months, which implies a quite substantial step-up sort of in the quarterly run rate relative to a year ago. So if you can just talk about what you see as the latest developments there.

Thanks, Shrey. Sorry, we just were discussing because there was a little blip in the line. We could not understand a part of your second question. But anyway, so in terms of the first question about Kate, and then more particular, Czech Republic. Well, indeed, there is a fundamental difference in the autonomy. And let me define again, autonomy is quite crucial. Autonomy means that if you ask a question to Kate, Kate provides you not only the answer, but if the answer entails a product, she also delivers the product without any human being interfering. So what we call straight-through processing is a particular parameter, which is judged upon when we are calculating the autonomy.

So in Belgium, the autonomy is hovering around 80%. Czech Republic, which is Kate 1.0, so not the full LLM Kate, that autonomy is now, what was, 67%, which is indeed down compared to previous quarter. Now how come? And actually, it's true for both countries because also in Belgium, the autonomy was slightly down. It has to do with the type of questions customers are asking to Kate because, first of all, more and more usage is made of Kate. We do see an increase of 11% compared to previous year on the usage of Kate. That is the first thing.

And secondly, when they start using it, the NPS score is very high, which means there are much more customers using it. They are much more satisfied. And as you already indicated in your question, they start to ask questions beyond the traditional stuff. And if it is not foreseen in the solutions which we have that they are straight-through process, we can provide an answer, but we do not provide the product. For example, we -- when customers are asking for overdrafts or for particular products, which are potentially linked to fraudulent actions, we do not, of course, provide the answers, and we do not provide the solutions. And in that perspective, we do not count them in the autonomy.

Czech Republic is now in the process of rolling out its Kate 2.0, is already rolled out to internal staff. And the aim is to roll it out to customers by mid of this year. So we do hope to see that indeed, the autonomy is increasing there as well. In other Central European countries, Kate 2.0 will be rolled out in the course of end of 2026, early 2027. Their autonomy currently stands at 75% to 77%.

As far as your second question is concerned related to the strong increase of the leads from indeed 398,000 to 420,000, this is mainly driven by Belgium and to some extent, also the Czech Republic. And this is entirely driven also by the stronger conversion ratio, which has increased by -- from 13% to 14%. What does that mean? Basically, that is that it's a whole process so you start up with a pickup ratio, then you have the contact to pickup ratio, which means the relationship manager contacts the client, then you, of course, have the sales talk, which leads to the contact ratio and then subsequently the final conclusion of that, which is indeed the total conversion ratio.

Now one of the reasons why it has significantly picked up also compared to particularly the last quarter and the quarter 3 is mainly also because in Belgium, we had the -- also the maturity of the term deposits, which, of course, also forced our sales force to pay attention to that. And that is having an impact on a slower conversion ratio in the last 2 quarters. The senior pickup now is 14%, leading indeed to a significant increase on the conversion ratio of, in total, 420,000, and we expect that to increase further and further also for the reasons that Johan explained before.

And we'll now move on to our next question from Namita Samtani of Barclays.

My first one, just on Hungary net interest income in the first quarter. Even excluding all the one-offs, so the EUR 10 million negative and the EUR 4 million positive and excluding FX, net interest income looks flat quarter-on-quarter. And I just wanted to understand why this was because the slides point to a higher commercial transformation result and a growing balance sheet quarter-on-quarter. Are you seeing increased competition in Hungary? And what does the competitive landscape look like there?

And secondly, on Czech, the loans are growing a lot faster than deposits, and that's been the case for some quarters now. Do you think this is a sustainable strategy? And why do you not become more aggressive on deposit growth going forward? And if you're just able to quantify the impact on net interest income from a Czech rate hike, if there were to be one?

Thank you for your questions. Let me take the first one. So indeed, in Hungary, we do see a couple of one-offs, which are resulting in a slight -- I mean, influence of roughly EUR 6 million on the net interest income side. And as you pointed out, indeed, the net interest income is evolving positively, but it's not at the same pace growing as in the rest of the group. Now in terms of the building blocks, well, here, we do see the same pattern as in the group. So commercial transformation result is -- in that is performing better, which also means that on the other elements, there is compensating effect.

Well, the compensating effect has to do with the fact that, and I mentioned that earlier that, for instance, the growth on the corporate side in Hungary, is below our expectation. And this has to do with different elements which are part of the Hungarian domain. And that is, of course, the elections, which were creating some nervousness and also in terms of the appetite for investors of the -- for investments, sorry, of the business development, they were subdued. So in that perspective, the explanation is actually pretty straightforward.

What is the expectation going forward? Well, on the short term, I know that there are huge expectations regarding the Hungarian government. But honestly, I think that the Hungarian government will need some time before they start to build up the transition, which everybody is expecting from Orban policy, let's call it like that, to a more Europe-oriented policy. In the short term, and we know that there are 2 deadlines on the freeing up the European budget, the European subsidies, there is a very short-term target, and there is one in June -- sorry, in August.

Well, I think the August target to free up the European subsidies for Hungary is more realistic than the upcoming one in -- I think it is in this month in May. Well, that might trigger, of course, further economic development and consequently further loan growth. So yes, it is flattish now, but the outlook is at least when you take into account the European subsidies is more positive.

On your question on the Czech Republic, basically, indeed, we have seen a quite strong loan growth, stronger than the growth of the deposit base. But bear in mind that the loan-to-deposit ratio in the Czech Republic today still stands at 82%. This is something that obviously we monitor closely and further efforts will be taken into the -- within this respect. Bear in mind as well that we have been somewhat reducing the external rates on the saving accounts, notwithstanding that, basically, our market share has remained quite stable.

So also there, the net inflow is quite positive in deposits, which is indeed a growth of 0.5% quarter-on-quarter, but still 2.2% year-on-year. As far as your question is concerned on the sensitivity in the Czech Republic, well, a parallel shift of 25 basis points in the Czech Republic has only a very minor impact of more or less EUR 3 million.

And we'll now take our next question from Amit Ranjan of JPMorgan.

The first one is on the 2 acquisitions that you have done, 365 and Business Lease. How do the contributions in the first quarter compared to your planning or expectations, please? And the second one is just a clarification on dividend accruals. What was the ratio that you accrued in the first quarter?

Thank you, Amit, for your question. Let me take the first one. So we guided for 365 and Business Lease. The detail is in the quarter announcement of quarter 4 2025. So actually, we guided for this year net interest income of EUR 157 million, EUR 104 million non-net interest income and then that totals EUR 261 million as total income. This is full year for good understanding. OpEx, EUR 156 million and cost/income ratio of 59.8%. When I look -- when you translate that on a quarterly basis, well, you will have EUR 39 million expectation net interest income, EUR 26 million on non-NII and then EUR 65 million totaling income on the OpEx side, EUR 39 million. Then you have the full split up.

Well, where are we in reality? We are EUR 37 million on the net interest income. If you combine that with businesses is more or less EUR 38 million. So it's, let's say, EUR 1 million lower than forecasted. The non-NII is also EUR 1 million lower, EUR 25 million, which brings the total income at roughly EUR 2 million lower than what it was. On the OpEx side, on the other hand, the reality was EUR 32 million, which is EUR 7 million better than what it was. So ultimately, P&L-wise, gives you a -- it's a bit better result. Cost/income ratio stands at 51.6%. So hereby, you have the full detail.

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

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

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

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

Hello, and welcome to the KBC Group Earnings Release Q4 2025 Conference Call hosted by Johan Thijs, CEO; Bartel Puelinckx, CFO; and Kurt De Baenst, Head of Investor Relations. Please note, this conference is being recorded. [Operator Instructions]

I will now hand over to Kurt De Baenst to begin today's conference. Thank you.

Thank you, operator. 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, February 12, 2026, and we are hosting the conference call on the fourth quarter and full year results of KBC as well as the '26 and '28 financial guidance.

As usual, we have Johan Thijs, our Group CEO, with us; as well as the Group CFO, Bartel Puelinckx, and they will both elaborate on the results and add some additional insight on the new short-term and long-term financial guidance.

As such, it's my pleasure to give the floor to our CEO, Johan Thijs, who will quickly run you through the presentation.

Thank you very much, Kurt. And also from my side, a warm welcome to the announcement of the fourth quarter results of 2025, which was also, obviously, is then the announcement of the full year results of the very same year.

Let me start with the highlights. And as a matter of fact, and I always use in this perspective, the same thing, [ Glenn ], you know what I'm going to say, the machine has been firing on all its cylinders. Yes, indeed, all the different aspects of our bancassurance franchise have been performing excellently.

First of all, we have continued to operate at a diversified split of 50% net interest income and 50% noninterest income despite the fact that our net interest income grew significantly, which clearly means that we are able to perform also on the asset management side and the insurance side, life, non-life at the same growth pace as the increasing net interest income.

Coming back to that net interest income, it was significantly up compared to previous quarter and obviously significantly up compared to previous years, which was triggered by, in essence, 2 things: first of all, a further continuation of the strong performance of what we call the transformation results or our replicating portfolio, which was further boosted by the further continuation shift of term deposits into current accounts and saving accounts.

Next to that, we also saw a strong performance of our loan and our customer deposits, both are growing significantly in all the countries and therefore, contributed to the net interest income. We saw as well a record net sales over the full year, which was supported with again a positive net sale on the fee and commission business, so asset management business in the fourth quarter.

The insurance business performed excellently also with growth numbers double digit, both on non-life and on the life side, which was, by the way, improving even the record results of 2024. In that perspective, we also see that the underlying -- sorry, first of all, the total income in total grew 9% on the year, while our costs maintained at the guided level of 2.5% in that perspective, excluding obviously the bank taxes and the FX effect, which is giving us a jaw of more than 6%, as a matter of fact, 6.4%.

Quality-wise, impairments under control, 13 basis points, significantly better than the guidance. And the combined ratio also 87%, also significantly better than the guidance. As a matter of fact, all the elements which we provided for as a guidance in last year were achieved or let me say differently, overachieved.

This has 2 consequences. First of all, if you wrap it up then your capital ratio -- then our common equity Tier 1 ratio now stands at 14.9% and our liquidity ratios stand at very solid positions, both in the short term and in the midterm, which allows us to say that the dividend, which we are going to propose to the Annual General Meeting will be EUR 5.1 per share, and if you include there the AT1 coupon, that means a payout ratio of 60%.

Given the exceptional character of 2025, not only in terms of the results, but also in terms of customer satisfaction, in terms of employee satisfaction and also on the digital front, where we have once again been nominated having the best banking app in the world, we also decided to contribute a profit allocation to the tune of EUR 25 million into what we call Team Blue bonus for our staff. We also provide guidance for the period to come, but I will go into that in more detail later on, and we will then immediately switch into the detail of quarter 4 first.

On the next page, you can clearly see the performance of our digital initiatives. This is underpinned by what you already know, Kate. It's performing better and better. It has been retrained, as I said on previous occasions, and it now is a fully fledged large language model included, which means also that the autonomy of Kate under that new formula, so Kate 2.0 is now having an increase of its autonomy, which means the ability to solve questions of our customers without any human being interfering and solving the question means providing the requested product or providing the requested answer to the customer indeed, well, that has increased with roughly 20% compared to the previous version and now brings the autonomy to 82%.

As a matter of fact, we will be launching this in the Central European countries in the quarters to come, and that will mean that efficiency gains in that perspective will be to the same tune because the autonomy in Central Europe is now hovering around 70%, which indeed is the previous number of Belgium.

In terms of the job done by Kate of the equivalent FTEs, we talk now more than 400 FTEs. But what is also very much more important that is Kate is able to deliver 400,000 sales independently from the traditional network. Also in that perspective, we will continue to invest in the nearby future on the same developments on the innovation front.

And just to highlight, we launched in quarter 4, an ecosphere around mobility. That ecosphere was triggered -- was launched in Belgium, was triggered in the first month by 73,000 users, which were generating indeed already a lot of data, which is enabling us to sell more products to these customers.

In terms of one-offs, it was a very normal quarter. You can see that on Page 5, roughly [ EUR 8 million, EUR 7 million ] after tax, [ EUR 9 million ] before tax of exceptional income. It's not worth to talk about it. There is, of course, a bigger impact in 2024 end of year. So be careful, the DTA of Ireland was at that stage included.

Now more importantly is what about the evolution of the net interest income? Well, we do report today EUR 1.608 billion of net interest income, which is a significant rise of the net interest income compared to previous quarter, 5% and even 12% compared to previous year.

What is the driver? As we said on previous occasions, it is the result of the commercial transformation result, which continues to increase significantly. What is underpinned by 2 things. First of all, the reinvestment yields, which continue to rise, and we confirm here today that through the cycling -- sorry, the cycle of the guidance, '26, '27, '28, this will be again the case. Second element, which is crucial from this perspective is the continued increase of our deposits, first of all, and secondly, also the shift from term deposits back into current account, saving accounts, which allows stability on our transformation result. So in this perspective, indeed, commercial transformation result has boosted the net interest income and will continue to do so going forward.

Second main contributor is the net interest income generated on lending side. Well, here again, we had a good quarter in 2025 quarter 4, with a growth of 1.1%, which brings the total growth of 2024 on the lending -- sorry, '25, obviously, on the lending side to 7.4%, which is much better than we originally anticipated and which we guided for. And therefore, it contributes to the lending growth.

What remains under pressure, obviously, are the commercial margins. It is not true that in every type of product in every country, the margin will go down. This is not the case. For instance, the margin of mortgages in Belgium went up with 8 or 9 basis points. But in general, I would say there is commercial pressure, but this is offset by the volume increase and therefore, also the increase of market share, which we see in most of our countries.

In summary, the net interest margin went up to 211 basis points, which is significantly higher than previous quarter. And this is indeed triggered by 3 things: the replication portfolio, which continues to perform excellently, as explained, the shifts between term deposits and current account, saving accounts and then obviously, also the fact that in Belgium, we brought down the loyalty premium on the savings account at 10 basis points.

Now in terms of all the other elements of net interest income, well, they're more or less in line. So I would not dwell upon this too much. But let's say, in essence, they are in line with what we have seen in previous quarters, if you talk about inflation-linked bonds, if you talk about the short-term cash management, so on and so forth. So not worth to spend too much time, but we will be happy to answer all of your questions in that perspective.

Far more important is the next slide, where you see the evolution of our customer money and the core customer money. And the message is very straightforward. In the fourth quarter, again, a positive evolution of EUR 4.5 billion, which is triggered by 2 things. First of all, the shift of term deposits into current account and saving accounts. As a matter of fact, there is a positive delta of roughly EUR 4 billion. And then on top of that, we do see monies flowing in, further continue to flow into the mutual fund business, again, a positive growth of EUR 0.7 billion.

So in total for the full year, this brings us an inflow of a striking EUR 13.5 billion, which is, in essence, split up as a shift of, let me round the number, roughly EUR 9 billion of term deposits and savings certificates into current accounts and saving accounts, totaling that amount as an inflow of roughly EUR 16 billion, further underpinning the replicating portfolio.

And then last but not least, a record year in inflow into our investment products, mutual fund business of EUR 6 billion, but that is worth in itself a further explanation in a second.

So to wrap it up, we do see a continuous shift from lower-yielding term deposits into higher-yielding term -- sorry, current account, saving accounts, but also mutual funds. And this is a trends which we continue to see in '26 and also expect to happen going forward, given the evolution of the policy rates of the central banks.

Let me then go immediately into fee and commission. Well, fee and commission, EUR 725 million, which is up roughly 2% on the year -- on the quarter and 4% on the year. And this is again driven by the performance mainly on the asset management services side. So first of all, we did see a good performance on the management fees for obvious reasons. And secondly, we do see also a good performance on the sales side, which is further contributing to the growth of those asset management services fees.

In terms of the banking services, well, in essence, we do see there also a good performance. There is one caveat. And the caveat is when you do excellently on the sale of certain banking products, you have to pay commissions and those commissions are deducted here from the fee and commission, and that is EUR 11 million. Otherwise, banking services will be on the rise as well.

So in that perspective, fourth quarter is a continuation of what we have seen in the 3 previous quarters and is then bringing the total of assets under management to a record high EUR 300 billion. Direct client money, you can see it on the graph, is also on the rise, and this is mainly triggered by end market performance, but also on net inflows, as I just explained.

Just for information purposes, if you look at the gross sales of 2025, we have a striking EUR 16.5 billion of gross sales, which is translated in net sales of 6 billion, and this is indeed a record high.

Also small detail, we do see strong performance on our trading platforms. And in those trading platforms, we have 2 major contributors, the Belgium Bolero platform, which saw an increase of 25% of customers over the year and a 45% increase of transactions. And more or less, the same can be said about the Czech platform, which is used in Central Europe, so not only in Czech Republic, where we did see the same kind of performance or a likewise performance.

Anyway, what about the other part of the diversification insurance? Well, if you look on the year-on-year results, 11% up. If you look year-to-date, it's 9% up, which is indeed a striking number. And this is translated not only in a strong growth, but also in good quality because the combined ratio now stands at 86.7%, and that is better than guided, but also better than last year. So continuation of good growth, 9%; and good quality with the delta compared to the 100% combined ratio of 13%.

Life insurance sales, well, we had until third quarter already a record performance and fourth quarter has topped that up with a whopping 26% increase, which is triggered by both unit-linked as interest guaranteed products, mainly interest guaranteed products due to commercial campaigns run both in Belgium and Central Europe. So this performance of growth in the life insurance side is also true for Central Europe. And let me emphasize something I forgot on the fee and commission. The growth of the fee and commission business on the asset management side was also driven by Central Europe in essence. So in this perspective, we do see, again, a very strong growth, which means that the guaranteed interest products and the unit linked both roughly are 45% of the total production, which means that it is very well balanced.

In terms of the more volatile results, financial instruments fair value, we do see a fundamental increase of the contribution, which is mainly linked to the fact that the ALM derivatives have been performing better due to, in essence, the difference between previous quarter and this quarter is mainly driven by positive contribution of the ineffectiveness of hedge accounting and on the performance -- better performance due to better interest rate swaps.

Coming to the net other income, while the run rate is roughly EUR 45 million. So with EUR 39 million, we're slightly below, but this is a detail. And in essence, I would say it's perfectly in line with what this should be.

Let me then go to an important line that is the operating expenses line. Well, we guided in the beginning of the year a growth of 2.5% year-to-date, and we delivered on that precisely 2.5% cost increase full year '25 compared to full year '24, excluding, obviously, bank taxes and the FX impact. So in this perspective, it's perfectly in line with the guidance and if that entails also the efficiency because intrinsically, if you look at the contributors, we have the seasonal effects in the fourth quarter of IT contributors, marketing expenses and so on and so forth. But if you look at the underlying result, well, in essence, it's very simple, we built down the total number of FTEs KBC group-wide. So we have less people, but we have 9% more revenues generated in 2025. And it is that efficiency, which we are going to continue in the years to come, '26, '27 and '28.

How is this translated? Well, this is translated in a further improvement of the cost/income ratio. If you do more with less people, then your cost/income ratio goes to 41% when you exclude the bank taxes. And bank taxes speaking, we now have EUR 666 million. It's a very interesting number and is therefore also called bank taxes. No further comments on the next page, you see the detail.

And let me go then immediately into impairments. Well, impairments are well under control. We had actually a good quarter in quarter 4, EUR 76 million were related to the loan book, which was triggered by 1 or 2 bigger files, but this is perfectly in line with the guidance which we gave. And on the buffer, which we hold for geographical and emerging risks, we only had a release of EUR 3 million, which brings the buffer to EUR 100 million, which can be used for circumstances if they would derail in the future.

We also had a EUR 48 million impairment on goodwill which is mainly triggered by an impairment on software. This is software mainly in the Central Europe entities where we have, as you know, installed new platforms, and we impaired other parts of solutions, which were built in that perspective. In terms of the remaining amounts, EUR 9 million is linked to a government initiative in Slovakia, EUR 9 million of modification losses and EUR 7 million on goodwill impairment, which sums it up to EUR 48 million.

What about credit cost ratio and impaired loans ratio? Well, we continue to see a very good credit cost ratio, 13 basis points regardless of the buffer and the 13 basis points compared to the guidance, which we gave below 25 to 30 basis points, which is that box is ticked. And also when you compare it in the longer term credit cost ratio of 25, 30 basis points, well, then this is significantly better.

The ratio is good. Why? Because also the underlying portfolio on impaired loans is further improving. It now stands at 1.8%. If you would use the EBA definition because of the KBC definition a bit harsher, then the number stands at 137 basis points, which is significantly better than the European average. Also, if you would look into the evolution of the PD classes, which you can find in the quarterly report as well, then you see there that in quarter 4, we had a further improvement of the PD evolution in our loan book, triggering indeed this credit cost ratio and saying that the quality of the book is good.

Going to the capital ratios, which you know are built up by 2 sides. In the numerator part, we add the contribution of the quarter 4, and we obviously also add the dividend payments of KBC Insurance, which is, as you know, lagging 1 quarter behind in the insurance side. So the result you see here is the dividend of the previous quarter, which is booked and totaling EUR 19.2 billion capital, CET1 capital.

What about the denominator? Well, that denominator is influenced by 2 things. First of all -- actually 3 things. First of all, growth, given the fact that we're strongly growing our asset side, so our loan book, that has an impact on the risk-weighted assets to the tune of EUR 1.7 billion. Next to that, we have the traditional booking of the operational risk-weighted assets totaling EUR 1.2 billion and some changes on the market risk-weighted assets, EUR 0.8 billion. So in total, let's say, round the number, roughly EUR 4 billion, but this was offset by the inclusion of the impact of the SRT, which we run in the fourth quarter, and that SRT brings down the risk-weighted asset increase to roughly EUR 1.7 billion. In that perspective, the capital ratio now stands at a solid 14.9%.

What is not included in this capital ratio are, in essence, 2 things. First of all, we have closed the acquisitions of 365 bank and 2 days ago or -- yes, 2 days ago, the acquisition of Business Lease, Czech Republic and Slovakia. And the sum of the 2 will have an impact of 50 basis points. And then what is also to be known is that we will continue to further optimize our capital position, risk-weighted asset position in the course of 2026 with SRTs and therefore, try to mitigate the impact of the volume increase, which we foresee as we speak in '26, '27 and '28.

Going to the ratios then. Well, we end up with an OCR ratio of 10.87%, which is 2 basis points higher than before. This has to do by legal changes on the systemic buffer and so on and so forth. It's only 2 basis points, so let's not dwell on this.

And then the MDA stands at 10.91%. This is triggered by a 4 points percent -- no, not 4 points percent, 4 basis points difference on the Tier 2, and that is almost fully but not entirely compensated by the AT1 surpluses.

Leverage ratio stands at 5.6%, which is a further increase, which is also true for the liquidity ratios already mentioned them. And also the insurance stands at a very solid 227% Solvency II ratio, which was positively triggered by the evolution of the spreads on the bonds and also obviously, by the contribution of the results of the insurance company, which brings us to the future.

What about the future? Well, the guidance this time is a bit more difficult because we are comparing 2025 as a base year with '26, '27, '28, where KBC Group changes from a composition. '25 does not contain 365 nor Business Lease acquisitions. So therefore, let's be careful. And therefore, we prefer to give also guidance on the underlying performance of KBC Group in '26, '27 and '28.

On the first slide, this is on Page 19, you can see what actually we guided last year for '26 and '27. If you look at the performance, the underlying total income growth which we forecasted a year ago is 5.3%. And if you look at the guidance -- longer-term guidance on last year for '26 and '27 on the cost side, then we guided an increase of 3.3%.

Well, if I just take now a look at '26, '27 and '28 purely organically, so forget about the acquisitions, then we guide that our income growth for '26 will be stronger than the 5.3%, so 6.8% and the efficiency, the cost evolution will be roughly the same as what we guided a year ago, so 3.4%.

Let me translate that differently. We use the same efficiency, but we add hundreds of millions to our bottom line P&L. So in the operating profit, there will be a strong positive contribution remaining the efficiency of what we had or let me use it differently with the same people doing even more revenues.

Intrinsically, what we do then add for the long-term guidance is the acquisition of 365 and Business Lease. 365 added in 2026 means that we are adding a company which still is not working according to the KBC standards. We do foresee max 24 months to make 365, Business Lease working according to the efficiency and productivity standards of KBC. That means that we will have the full benefit on the revenue side and on the cost side fully into '28, not '26, '27 because you just absorb them as of the 1st of January of this year. As a matter of fact, it also then gives for 2028, the same underlying results. We will continue to see the underlying growth of our cost, 3.4% with that difference that our top line will grow even faster than what was done in '26 and '27, so 7.7%. So adding then at the end of 2028, the efficiency, the benefits of 365 and Business Lease will add another EUR 100 million on your bottom line.

So in summary, in essence, underlying, you will have a jaw of 3.4%. And this is true for the entire cycle. The difference is that we will continue to grow our total income further and stronger than what we did last year. And therefore, it adds to your operational profit hundreds of millions of euro.

How you translate that then in efficiency? Well, we do see the cost-income ratio of '26 guided at roughly 40%. And given what I just said, we do more income with less people, we will guide the cost-income for the longer term below 38%. All the rest on the guidance is more or less in line.

We increased the guidance on our insurance business from 7% to 7.5%. Combined ratio goes to 91% below and then credit cost ratio is well below the 25, 30 basis points. And let me emphasize again, this is what we call the floor ceiling approach. So everything which is related to income is a floor, so it's at least and everything which is related to costs or claims or impairments is considered to be a ceiling, so max.

In that perspective, one more detail, we do expect our net interest income for this year to be at least EUR 6.725 billion, which is compared to previous year, roughly 11% [Technical Difficulty] as a floor, so it is at least.

Let me go then in the wrap-up. The wrap-up is in that perspective a repeat. So let me actually emphasize only one slide that is a slide of full year 2025. If you look at '25 as a summary of fourth quarters, then this is indeed [ EUR 3,568 million ] of profit, which is significantly better as last year. If you exclude the one-offs -- the one-off effect of the DTA in Ireland out of the year 2024, then the profit rose with 18%. And given the fact that the guidance, which we just gave of '26, '27 and '28 is just a prolongation and a continuation of the effect of '25. The outlook on the operating profit is more or less in line with what I just said on '25, '24.

Given the exceptional character of this year, where we not only had record results, but also record performance on the customer satisfaction, employee satisfaction and the best banking app in the world, we also decided or not decided, we proposed to our Board yesterday evening to grant an exceptional bonus of EUR 25 million for the entire group to our staff. This bonus is yesterday positively advised and now will be proposed to the AGM in May. The reason why it goes to the AGM, it is an allocation of profit. And therefore, under Belgian GAAP, it will be -- indeed when it is approved by the AGM, it will be booked under the profit allocation. In the IFRS, the rules are a little bit different. That profit allocation is considered to be a cost, and that will be then, if positively decided by the AGM, will be contributed to the cost. That cost, given the fact that decision needs to be taken is not in the guidance.

So this sums it up. I am not going to dwell upon all the other slides. I give you time for your questions. So I give back the floor to Kurt.

Thank you, Johan. The floor is now open for questions. [Operator Instructions] Thank you.

[Operator Instructions] The first question today comes from the line of Tarik El Mejjad from Bank of America.

Two questions. I mean, first, I would just come back on your point about your always arguments about NII is a floor and -- or revenue is a floor and cost guidance is a cap. And I understand where is the upside could come from both. First, on NII, I would like to understand what volume assumptions you use for loans and deposits? I mean for loans, you gave the 5% year-on-year in '26, but one which sounds to me quite low bold given your delivery and the pickup in growth in CEE and in Eurozone. But I want to hear on this and what's the outlook for beyond '26? Is it fair still to apply the usual 1%, 2% NII conservatism buffer you guys always had worked quite well in the past. So just wondering if you still have this cautiousness there.

And then on costs, I understand the scope effect change, but on the AI and tech and basically growing Kate further, how much actually allocated on investments on this? I mean for AI and tech for banking, it turned from banks being winners to losers in the last few weeks. What do you think of that? And do you see it really as a pain first than a benefit? Or you think you can reap the benefit first?

I will respond to the first question of Tarik related to the development of the loan volumes and the deposit volumes going forward. So indeed, I mean, we recorded an exceptional 7.4% organic growth in the loan portfolio in '25. But this is indeed exceptional. We now guide in '26 for approximately 5% growth. The reason why we had a very strong growth in the '25, which is rather exceptional was, of course, triggered by the first half of the year, particularly in advance also of the uncertainty related to the tariffs, where we saw quite some increase also in anticipation of those tariffs of production in Europe. That's one element of that.

And secondly, we also indicated that basically the strong growth in the first half was driven by a number of large transactions, mainly M&A transactions of some of our core customers, which drove the increase to indeed for the full year, 7.4%. We do not expect that to be repeated in the '26. That is the reason why we guide 5%. But obviously, 5% is based and driven by the fact that we typically look at the composition of the GDP growth on the one hand and the inflation. So if you -- that's a rule of thumb that we always use, particularly in Central Europe, GDP growth plus inflation, which indeed is bringing you to roughly 5%. And by the way, when you look back over the past 5 years, we always have been able to grow our loan portfolio by 5% organic growth. So that is where the 5% comes from.

Then as far as the deposit side is concerned, so we never guide on the growth of deposits. But as you have seen, we have 2.8% organic growth for the full year and 4% growth for the full year nonorganic. This gives you an indication of potential future growth. Obviously, also here, the wealth conversion and the GDP growth in Central Europe is going to contribute to that. And so we have a positive view on the further growth from that perspective. So that explains where we come from. We do not guide on the loan and deposit growth for the '27 and '28 for obvious reasons.

And Tarik, I will answer your second question. Indeed, there is -- at this, let's say, last quarter, there is a big shift in terms of also media attention and statements made on artificial intelligence and impact on business development, but also on efficiency and not only in the financial industry, but in general. But specifically for the financial industry, I think our sector is in that perspective, really, really prone to using and embracing artificial intelligence if productivity gains need to be achieved.

So giving this general statement, you can imagine that we are continuously emphasizing this, we have been doing this for the last 11 years already. KBC started with its artificial intelligence applications in our organizational structures and in our operations in 2014, '15. So we will continue to do so. We have an intention to further optimize the way we are working, and that is done in 2 ways. First of all, we continue to develop our backbone because in KBC, the philosophy of using artificial intelligence, and that is, I think, a little bit different than what you sometimes read in the press. I have the impression that in the press, sometimes people are believing that when they mentioned the word artificial intelligence, that only the fact that it is mentioned already increased productivity gains. I do not think that is a given. I think you have artificial intelligence productivity gains only when you tailor your AI solutions to the specific needs of your company. That's the first thing.

And second thing, we will continue to do so. You can read it in our presentation as part of our Q4 announcement, but it's already in that pack for, let's say, 10 years. We continue to develop our front-end and our back-end connected via AI solutions. This is translated via Kate amongst others, but we will continue to develop those going forward.

Straight-through processing, which means using AI tools to tailor solutions to the customer needs without any human being interfering in KBC, and the commercial processes stands now at roughly 65%, and the ambition is to bring it higher. But -- and that's something which we launched in 2025 beginning of the year, and this is now coming to maturity. We also are doing this exactly same thing that is connecting your front end and your back end, the front end in this case, the internal people for the noncommercial processes, and that needs to -- that is also using AI for good understanding, and that needs to deliver its results in the course of '26, '27 and '28.

So on that perspective, yes, we will continue to invest in artificial intelligence, so using innovation, but we will continue, and that is, I think, far more important to use artificial intelligence to automate the processes in what we call a dark factory mode, so without any human beings interfering. The total summary of all investments is also part of the pack, including the transformation of the back offices, which is the trigger, including the front office applications, including artificial intelligence is cash-wise EUR 2 billion for the next 3 years and is roughly EUR 1.5 billion in terms of OpEx, also over 3 years.

The next question comes from the line of Namita Samtani from Barclays.

My first question, I see the footnote on the net interest income guidance says you include conservative pass-through assumptions. Can I clarify, do you mean pass-through of policy rates or pass-through of your replicating portfolio yield? Just wondering because both your Benelux peers are guiding to around 100% pass-through of the uptick in the replicating portfolio to savers. So are you similarly conservative there?

And my second question, could you please give us an outlook for banks and insurance taxes, please? Because when I look at a country level, Belgium is going to be up around EUR 35 billion year-on-year. Hungary is going to be up EUR 60 million, and you're guiding to 5% deposit growth or something similar. So I find consensus being up only EUR 25 million year-on-year, quite confusing. So is my math wrong? Or can you give some color here, please?

Namita, so actually, what the conservatism that we guide for is basically the external rate on the saving accounts, which is, of course, going to be depending on the evolution of the policy rates going forward.

Okay. And then I will take your second question. So on the bank taxes, indeed, it is not a guidance provided yet for the simple reason that there is uncertainty on one big element that is what Belgian government is going to do. So it is unclear definitely in the detail how and what the Belgian decision in this matter is going to be. And therefore, we cannot give you now a right insight in what the evolution of the bank taxes is going to be.

I am not -- so I know you made a reference to certain articles in the newspapers. I'm not convinced this is the real situation yet in Belgium. So therefore, I recommend to wait until the end of quarter 1 when we are going to announce anyway the guidance or the expectations on bank taxes for the full year because then we have better insight how it's going to work.

The 2 -- the other element on bank taxes is, of course, Hungary, where the Hungarian government has already positioned itself. As you know, part of that positioning is actually passed through to customers. The other part is impacting our P&L, and that has already been disclosed earlier. So all the other countries, no bank tax changes are foreseen. And therefore, we will give you full guidance on the bank taxes when we have more insight, more clarity on the Belgium position end of quarter 1.

Sorry, can I just follow up on the savings account? Can you quantify the pass-through? Or are you assuming any increase in deposit costs if base rates are stable?

Well, no, we can -- basically, what we're doing, I mean, there is -- you always need to take into account, of course, what the commercial impact this is going to be. And also, of course, when the policy rates would be increasing, then obviously, it's likely that we would be required to increase our external rates on the saving accounts as well. And that's the reason why we put some conservatism on the external rates of the saving accounts.

The next question comes from the line of Benoit Petrarque from Kepler Cheuvreux.

So my first question will be on the assumptions on NII for '26 and '28. So on the volume growth, I think you've clarified that. Could you maybe clarify what your assumptions are on asset margins going forward also in terms of shift from term deposits to other type of deposits? And also clarify on the pass-through rate assumption, sorry to come back on that. What type of marginal pass-through rate assumption do you expect in your guidance? So that's the first question.

Number two is on OpEx. Thanks for the Slide 19 and the kind of organic OpEx growth of 3.4%. It sounds still a bit high. I'm looking at the Belgium inflation, and we know we have indexation there. This is coming down quite sharply. So I'm trying to understand why you expect 3.4%. And did you include any maybe one-off investments? We talked about AI. And are there any specific investments in that number?

Benoit, so as far as your first question is concerned, first of all, the margins on the asset side. Basically, I mean, already indicated and I should have also highlighted that on the mortgage side, let me start by that one. We still expect some -- quite some nice growth. Also in Belgium, actually, also this year started well off quite nicely with continuous growth also on the mortgage side, but particularly in Central Europe and this in all countries.

In terms of margins on the mortgages, in Belgium, as Johan has been highlighting, we saw a -- we further reduced the gap between the front -- the margin on the front book and the margin on the back book in the fourth quarter by roughly 8 basis points. However, what we see is in the beginning of this year that competition has somewhat increased. And as a result of that, margins are somewhat more under pressure in Belgium. This is less the case in certain countries in Central Europe, where, particularly in Hungary, due to the fact that we have the home start program and the fact that now 80% of the business is being subsidized, this also leads to significantly higher margins and supporting, of course, further growth also of the mortgage business.

In Bulgaria, also there, we see a very strong and continuous growth. You know that in anticipation of the euro adoption, the mortgage business increased quite significantly, but we see that pattern continuing also after the positively euro adoption at margins that are now at least compared to the Euribor in a positive range. However, also you know that there is a very particular funding approach and replication approach in Bulgaria, where the margins or the external rates are directly linked also to the external rates on the deposit side.

As far as the Czech Republic is concerned, also there, we continue to see quite nice growth of the mortgage portfolio but also there, margins somewhat more under pressure, being still aligned with the margins on the back book. Slovakia, also there, continuous growth, margins similar to the Czech Republic, approaching more also the margin on the back book.

Then on the mortgage side, on the corporate and SME side, we also expect continuous growth in both segments, where in most of the countries, the margins are quite strong and continue to be -- we expect them to continue to be quite strong going forward also in Belgium, although there, of course, competition might increase in the course of the year. So that's on the asset margins.

As far as the shift is concerned towards term deposits, as you have seen and indeed, as Johan has been highlighting, there has been a huge shift of term deposits to CASA, particularly in Belgium, following, of course, the maturity of the term deposits that were issued 1 year ago following the repayment of the state note or state bond, I should say. Basically, 50% went actually back to CASA. So this is obviously a one other experience, but we do expect going forward that, that shift will continue as well, depending, of course, on the development of the policy rates, and that's because, of course, if the policy rates would increase, it might be that some would return from CASA to term deposits as well as, of course, the continuous growth of our asset management business, where we will continue also to focus on increasing particularly the net sales. So that as far as the shift is concerned of term deposits towards CASA. And as far as the pass-through are concerned, basically the pass-through as such, we do not guide specifically.

Benoit, I will take your second question. Yes, indeed, as you pointed already out, the cost is -- the cost increase organically for '26 is mainly driven by inflation, but I would nuance the word inflation because I would more specifically refer to wage inflation. In general, we do expect a wage inflation of roughly 3.7% for the group, which means not only Belgium, where it is indeed indexed, as you rightfully pointed out, but obviously, you also have promotions and so on and so forth. And the sum of all parts means that the wage inflation is 3.7%, which immediately indicates that if the guidance which we gave 3.4% cost rise for 2026 organically, it means that efficiency gains are bringing down the number of wage inflation to the total lower cost increase.

Let me translate it more boldly. We do more work, more output with less people because the inflation of the salaries is otherwise eating up your cost performance. So in essence, this is not only true for 2026, but this is indeed the same for 2007 (sic) [ 2027 ], for 2028, where the CAGR of the cost side -- of the wage inflation side, sorry, is also roughly the same amount, 3.7%, 3.8%. So in that perspective, yes, indeed, we do the investment, and that was the answer to Namita's question -- or sorry, on Tarik's question, sorry, that is indeed, the efficiency gains are triggered by the automation via artificial intelligence solutions. And therefore, we are able to bring down wage inflation to a lower cost level.

Your question about investments and more specifically one-off investments. Well, I would not call it a one-off investments. But in the numbers of '26, '27 and '28, we do have actually, for the first time, bigger parts coming in on the cost side, which are related to investments. Let me highlight one thing, the investments which we are doing in Czech Republic on both the banking and the insurance side, where we're building new platforms are here again, front-loaded. So you see that more into the cost and the benefits will come later on, so in the course of the next coming years. While that is increasing, for instance, on the Czech Slovakia and banking side, the cost '26 versus 2025 with another EUR 12 million.

But as I said, you don't see it in the CAGRs. Why? Because we are making more gains on the efficiency side, on the, let's call it, automation and AI side. And therefore, all those investments are returning into the P&L, which allows us, as I said, to make more revenues, substantially more revenues, I'm talking about hundreds of millions of euro with less people and therefore, with a strong positive contribution.

And the next question comes from the line of Shrey Srivastava from Citi.

Two for me, please. The first is you guide all the way until 2028 to be notably below your through-the-cycle cost of risk of 25 to 30 bps. At what point do you start to question the through-the-cycle range rather than just commit to being below it year after year?

And my second one is another one on artificial intelligence and Kate. You mentioned when you introduced your large language model, you drove an increase in autonomy of 15%. What are the latest figures on this because you've obviously had 3 months more now to test it. It was very new at the time. Could you give an idea of sort of latest developments here if there's been a higher increase in autonomy or if you have a greater level of confidence?

Thank you for your questions, Shrey. Let me answer -- well, I'll probably take both anyway. So your question about the longer term or the cycle on the credit cost ratio. Well, as a matter of fact, we already reviewed it a year ago when we took out a couple of one-off effects, amongst others, the longer-term cycle, which is somewhere in the pack. I don't know the number -- the page number by heart, but it is indeed roughly 30 basis points. We reviewed it. Why? Because in those numbers, the longer-term 25 years number was including, obviously, the financial crisis and was including Ireland, which is no longer part of the group. So we reviewed the numbers.

What you see here, the 25, 30 bps is the group as it is over the last 20 years. Do we need to review it? Well, I mean, we could give you more details by saying the last 10 years or the last 5 years or whatever. But this is what the group is in the longer term. So the through-the-cycle number is 25, 30 bps reviewed in the composition as it is -- composition of the group as it is today.

Then going to the artificial intelligence and the increase of autonomy. As I said during the announcement of the results, there is indeed an increase of the efficiency of the tool, which we use and which is used in the front end and in the back end.

To -- you referred to earlier said 15% increase of autonomy. Well, it is actually today in reality, so in production since, what is it, 4 months, it's actually 20%. So Originally, Kate, when we changed it, had an autonomy of 70% in Belgium. Now we do have an autonomy of 82%, which is roughly 20% plus. The Central European entities are today, as you can see it on the slide, 69% in Czech Republic, but in Hungary and Bulgaria and so on and so forth is 71%, 72%. So in summary, it's there roughly 70%. We will use the new tool, the Kate 2.0 also in the next coming quarters in the Central European countries. And therefore, you can expect the rise of that autonomy indeed in line with what we have seen in Belgium.

Two other small remarks. First one, it's not only the autonomy, which is up significantly, but we do see that customers are using more and more Kate because of the new tool. Why? It's far more intuitive. It can answer contextual questions and so on and so forth. And therefore, customer satisfaction was significantly up as well, translated in more usage, more usage means more efficiency, means more work done by Kate. As you have already seen in this quarter, that is a number of FTEs is on the rise. That's the first thing.

Second thing is we also use this Kate in the back offices. Let me give you a silly example, at the first glance at silly. Every bank has a database which contains all the information which our employees need to use, regulation, product features, da, da, da. What they do in the past, they are going into that database, but they have a question, they look for the information. They spend X minutes, for instance, 10, 15 minutes before they find the answer to that question. Well, this has been translated into Kate 1.0 already, but it's now translated into Kate 2.0, which has a huge boost on the efficiency, whereas previously, an employee was not always able to find the answer. It took 10, 15 minutes to find the answer. Today, with Kate 2.0, all answers are found and the throughput time is 1 second. And therefore, we just celebrated the 100,000th question in Belgium under the tool Kate for staff. And that means that efficiency gain is translated into the numbers as well. So it sounds silly, but the impact is quite significant. For good understanding, this tool is rolled out group wide.

That makes sense. Just if I may quickly follow up on the first one. You mentioned 25% to 30% is the through the cycle for the entire group. But obviously, 2028 is a way away, and you must have some degree of confidence to guide for something which is 2 or 3 years away. So just what gives you confidence in 2028 being well below the 25% to 30% through-the-cycle figure...

So indeed, yes, we -- I mean, the floor ceiling approach you know, given the fact this is a ceiling, we are very confident that it will be low. As a matter of fact, when I look into the portfolio, the guidance which we give is based on underpinning elements, obviously. One of the most important underpinning elements I highlighted briefly during the call that is what about PD migrations. And the PD migrations in quarter 2, 3 and 4 of 2025, and it sounds perhaps counterintuitive given the -- I mean, the world and the shape of the world we are in, the PD migrations have been improving. So we do see in our entire loan book, the PD migrations shifting to the better side. So a number of defaults that is improving.

What, of course, can happen is that there is a bigger file here and there. But if you take that into account and you take into account the observations which we have for '26, '27, '28, given and that is an assumption, the same economic environment, which we have, well, there is no reason to assume that the 13 basis points, which we have seen for 2025 is going to be fundamentally different than in '26, '27, '28, which means significantly below the 25, 30 bps. One caveat, you probably know what I'm now going to say, no escalations of wars, no other things which are popping up, which are disrupting the environment, the economic or political environment significantly globally.

And the next question comes from the line of Giulia Aurora Miotto from Morgan Stanley.

I have 2. Sorry, just to go back on the NII. Did I understand it correctly that you are assuming continued faster growth of current account versus savings and term, i.e., a mix shift towards current account, which is more profitable? Or are you assuming a stable mix shift from here? And I know we had a great mix shift in the quarter. I'm just looking forward.

And then secondly, SRTs, you started doing some. How much shall we assume every year in addition to what you have already done? And I don't know if you can share any economics on this in terms of the costs to do so.

Giulia, I apology, can you repeat your second question, because we -- I mean, it's very difficult to understand. No, no, please, sorry.

Okay. I was just asking about SRTs. How much are you planning to do every year...

SRT, okay, sorry.

Yes, SRT. Yes, significant risk transfer.

Because we missed the word SRT. And therefore, we...

All right. Then it doesn't make sense. Okay.

Okay. Giulia, I will respond to both of your questions. So as far as the shift is concerned, we never indicated that it would be a shift only to current accounts. When I was referring to a shift, it's a shift that goes from term deposits to both current and saving accounts. So we do not specifically mention that it was only to current accounts.

Secondly, as far as your SRTs is concerned, indeed, I mean, as we have always been saying, we see the SRTs as a means to an end. We are, of course, actively engaging into portfolio management, which is a number of tools that we used and one of them is indeed SRTs. The reason why we're doing that is that we do not want to become fully dependent on the SRT market going forward.

Having said that, you know that we did our first inaugural SRT back in the fourth quarter, which was a very successful one, EUR 4.3 billion, out of which we generated a EUR 2.3 billion of risk-weighted asset saving, which is an efficiency of more than 50%. And also, as we indicated, this is at a cost which is well below the cost of capital of KBC. So therefore, also contributing quite nicely.

Going forward, we do intend to further invest or launch SRTs. We do not -- we are currently making an analysis of the portfolio. We have a relatively good view on which portfolios we will include. And indeed, you can expect further SRTs depending, of course, also on the approvals that we get from the ECB because you also know that they have launched the so-called fast lane track, but there are quite a number of conditions that are need to be fulfilled in order to be able to benefit from that fast lane approach. And so therefore, it's very uncertain whether we would be able to benefit. So therefore, taking into account that we will probably launch a second SRT in the second quarter and a third SRT in the fourth quarter of '26. The amounts that remains to be seen and depends on the portfolio and the efficiency that we can generate on those portfolio, but we will keep you posted on that going forward.

And if I can just follow up on the first question, so the mix shift. So basically, you assume less term, more current and savings. And you base these go-to levels on history. So what -- can you share basically the split that you are using?

Well, it's very difficult to anticipate how much exactly is going to shift from the term deposits to CASA. And as I stated before, to a large extent, this will also depend on the development, of course, of the policy rates because if policy rates would go up again, you can expect, of course, that less will be shifting and we might even have to see a return from saving accounts to term deposits. So that's the reason why it's very difficult to give you a clear indication of what the shift is going to be, but we do expect that for the time being, if, of course, policy rates remain as they are, that we will continue to see a shift from term deposits to CASA and particularly also to mutual funds.

The next question comes from the line of Chris Hallam from Goldman Sachs International.

Just 2 left. So I think both pretty simple ones. So why did 50% of the state notes go back to CASA? I know the rates are from term deposits aren't as generous as they were, but I guess they're still better than CASA rates. So why do you think clients are proactively rebalancing their liquidity from locked up saving strategies into more operational accounts? I know there's a difference between the flow, but just specifically when the state note matured and that flowback happened, maybe Kate is telling them to do that.

And then perhaps I missed this earlier, but could you give us your best sense on the time line on Ethias where that currently stands? I know we've had a mark-to-market on that in prior calls. I know it's not directly relevant for you as well, but any color you have on the time lines of Belfius and whether or not there could be any connection between those 2 processes?

First of all, as far as your first question is concerned, I mean, why indeed 50% of the maturing term deposits went back to CASA. Obviously, are you -- when you look at the current external rates that we are able to generate because, of course, the main difference with last year is that the market has returned to more rationality. And as a result of that, basically, we are able to offer term deposits now not at negative rates, but of course, negative margins, but at positive margins. So the rates on the term deposits have come down significantly. And therefore, people are very unlikely or willing to continue to lock in their money for a longer term at such rates. And that's the reason they probably shifted more to CASA, awaiting also for opportunities, and that's also what we are doing to further invest in mutual funds. So that is exactly what we are expecting that we are moving, that we will -- we see also more moving into the mutual funds going forward.

Thanks, Chris, for your questions. I will take the second one. If I add one more flavor to what Bartel just said, be aware that a lot of people which invest in term deposits were very wealthy people. And therefore, they are inclined to go more into investment products.

Anyway, going back to your second question, well, the government has taken position also on the record on what they're going to do with their assets, and that is entailing in essence, 2 things. The one is Belfius. They have the possibility to investigate a private placement of roughly 20% of the capital, which then also means that they could maintain their dividend, which goes into the budget, as you know, of the government. The 20% sale goes into the that GDP position of the government.

And then they have the same announcement, they also indicated that the position on Ethias is investigated, which means that in the course of 2026, they will position themselves and that position can be twofold and is either launched in terms of a sale, partial sale, whatever sale of Ethias. And then secondly, the other option would be no, we keep it for whatever reason.

The position in this perspective of KBC is quite clear. We will struggle. Belfius is not possible for us giving the concentration risk in terms of market share. And the second one, Ethias, we are clearly interested. I said this on multiple occasions, and this is not changing. So we are definitely looking into that possibility. For that reason, we also prepared ourselves. And if the outcome of the government will be launched, we will be ready. If the outcome of the government, no launch, then and a clear statement that it will not be sold, then it is considered for us to be gone. And in that perspective, we will reconsider our position on the capital, which we hold specifically for that acquisition.

The next question comes from the line of Anke Reingen from RBC.

Just one follow-up question on the capital distribution. I'm sorry if I missed this. I'm just wondering what was the thinking you moved to about 60% payout ratio and you didn't go out all the way to the 65%. And sorry, just one follow-up on the EPS. You said there's also partial sale discussed. Would you be interested? I mean, I guess it depends on all the moving parts, but would a partial sale be of interest as well as a full acquisition?

Thank you, Anke, for your questions. So on the dividend, well, what is our policy is straightforward. We want to grow further our book. And in that growth of book is in 2 ways, organic growth, which we established this year, 9%, or 8.7% to be precise. And also acquisitions, which we did this year as well with the acquisition of 365 and the leasing companies in Czech Republic and in Slovakia.

The outlook for 2026 is indeed, given the government statement, a potential acquisition. So 365 and Business Lease is going to be deducted from our capital this quarter -- sorry, this quarter, which is quarter 1. So that is roughly -- that is 50 basis points, 46 points plus 4. And then our capital ratio stands at 14.4%.

The acquisition of Ethias, if it comes to the table, will have an impact. I mean, according to the analyst reports, we don't comment on this precise impact. But according to analyst reports, most of them under Danish Compromise consider this to be max 100 basis points. You can make the calculation yourself. So in this perspective, the 60% payout is a further execution continuation of our dividend policy, which brings it now to EUR 5.10 per share and is aligned with what I just explained on the potential acquisitions and the potential M&A, which we can do in '26, '27.

In that perspective, it is also clear that it was also the answer which I just gave on Chris' question. If it is not coming to the table, then this capital is no longer allocated to this part and becomes part of the distribution, clear. So in this perspective, we just keep, let's call it, the powder dry and we bring a very decent payout and the consideration on the future in that perspective is quite clear or we do an acquisition or we release that part of our capital in terms of capital distribution.

What about a partial sale? Well, I mean, at this stage, if there is a partial sale with a straightforward message that no longer it is possible to do a full sale, well, that would completely change our position because we are not interested to participate in an acquisition where we withhold, for instance, not the 100% or withhold a position where there is a firm stake of the government involved. So in that perspective, we still assume the position to be fully released by the authorities.

The next question comes from the line of Farquhar Murray, Autonomous.

Just one detailed question from me actually in this case on the non-life side. I just wondered whether you factor in any cyclical softening to pricing in the non-life outlook when you look out towards full year '28? And maybe more in the here and now, are there any actual signs of such softening emerging in the markets you operate?

Thanks, Farquhar, for your question. So be aware in the position which we have and softening of pricing is obviously related to 2 things, and that is what is the current growth of your economy, which is triggering 2 things on the non-life side, for sure, the growth of your -- potential growth of your book, and the second part is how profitable is your book.

In terms of our profitability, we are a positive outlier compared to peers also in the Belgian market. Portfolios have improved in the market in general, but not to the same extent as where we are with KBC. So therefore, we have a competitive edge. And to go immediately into the extreme version of soft pricing, that is a price war, I don't expect this to happen. Why? Because the margins are good, but the margins are not super in the sector. And KBC, the 87% in that perspective is not representative of what we see in the market.

And this is true in the majority of the countries where we are present. So do we expect a softening of the pricing? The outlook is at least not that we go into a strong version of softening and definitely not into a price war. So in that perspective, the reason why we continue to see the growth of insurance companies and even upgraded the guidance to 7.5% is tailored to 2 things. First of all, what I just said, GDP growth is quite significant. Don't forget that GDP growth in Central Europe is roughly 100 to 150 basis points, at least higher than what we see in Europe and Europe -- Western Europe, sorry. Western Europe is considered to grow roughly 1%, 1.1%. And then secondly, be aware that the underwriting of our non-life insurance business is fully automated. Same standards apply in the same group. That's one of the reasons why the combined ratio is what it is, but also allows us to, in that perspective, target very specifically the bank customers and other customers via the models which we use. And they are pushed, amongst others by Kate.

The next question comes from the line of Sharath Kumar from Deutsche Bank.

I have 2. Firstly, on fee growth, what's the embedded assumptions for your midterm guidance? I calculate around a 6% CAGR between now and 2028. Would you agree with it? And what sort of an assumptions predicate this? Specifically on asset management, do you think the 5% organic flow rate that we saw in 2025 is sustainable? Are there any positive extraordinary performance fees that we need to be aware of in 2025?

Secondly, on capital distribution, a follow-up on the Ethias comment that you made. Assuming it does not happen, what is your excess capital stand? Would 14% be a realistic floor rather than the 13% minimum that you have in your policy?

Okay. Thank you. I will take the first question on net fee and commission income. Basically, you know that we are not guiding net fee and commission income for the very simple reason that basically, to a large extent, the development of net fee and commission income is defined by the asset management business and therefore, also, of course, by the development of the assets under management and the market performance. So because basically, 55% of our net fee and commission income, roughly 55% comes from asset management. And of the 55%, roughly 50% of our portfolio is in equity. So there we are subject, of course, to quite some market evolutions.

But the numbers that you have calculated in terms of the non-NII growth are more or less -- I mean, are some numbers that I would be able to subscribe. Do we see some extraordinary fees or whatever? You know that in the fourth quarter, there was a EUR 50 million fee that was paid -- performance fee that was paid by the pension company in the Czech Republic. This you cannot extrapolate, obviously, because it's performance related. But it is indeed that the only annual performance fee that we have. And so from that perspective, the answer to your question is negative.

And I will take your second question, Sharath. So on the capital side, what would happen in terms of excess capital if Ethias does not come to the table? Well, first of all, in terms of the final destination that is if we don't have any M&A possibilities, concretely at the end of '26, beginning of '27 when we decide on the dividend. Well, then this is considered to be surplus capital or capital which we cannot make work in terms of organic growth and M&A. So -- and as I said, that will be then pronged for distribution.

How much capital is excess? Well, that's -- we don't speak in terms of excess capital. So as we did, what is it 2 years ago, this is no longer valid. We have a clear position there. We have an absolute minimum of 13% on the CET1 ratio. We do have our current capital position, 14.4% if you take into account 365 and Business Lease. And then obviously, you add to that the performance in terms of capital in the course of 2026 to end up with the number, and that will be compared to our peers in a nonmechanical way. So we want to be amongst the better capitalized financial institutions. That is something which we don't forgo on, and that will be then decided by our Board in all discretion.

Let me emphasize one more thing, which Bartel said earlier. We will continue to optimize our capital structure. It means, amongst others, that SRTs are tools which we have on the table, which we are preparing and which are going to be indeed influencing positively the capital position.

There are no further questions. So I hand back over to your host for closing remarks.

Thank you. 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.

Thank you for joining today's call. You may now disconnect your lines.

Good morning, ladies and gentlemen, and welcome to the KBC Group's Earnings Release Third Quarter 2025. [Operator Instructions]

I would now like to turn the floor over to Kurt De Baenst, Head of Investor Relations. Please go ahead.

Thank you, operator. A very good morning to all of you from the headquarters of KBC in Brussels, and welcome to the third quarter conference call. Today is Thursday, November 13, 2025, and we are hosting the conference call on the third quarter results of KBC. As usual, we have the group CEO, Johan Thijs as well as group CFO, Bartel Puelinckx with us, and they will both elaborate on the results and add some additional insight.

As such, it's my pleasure to give the floor to our CEO, Johan Thijs, who will quickly run you through the presentation.

Thank you very much, Kurt. And also from my side, a warm welcome to the announcement of the third quarter results 2025. And as always, we start with the net results, which stands at a very excellent EUR 1.02 billion. So once again, the KBC bancassurance machine has been firing on all its cylinders, which also means that all entities in our group have been contributing positively to this result. As a matter of fact, it's once again perfectly balanced income, 50-50 split over net interest income versus the non-interest income bearing results, which once again shows that we keep up the pace with our, let's call it, ancillary business in compensating the growth on the net interest income side.

If you look at the different lines, well, then it's very straightforward. Once again, strong performance on the net interest income side, which has been growing despite the fact that there was a significantly lower net interest income on inflation-linked bonds. Consequently, we also increased our guidance from what it was at least EUR 5.85 billion to now at least EUR 5.95 billion. This income growth on the net interest income side has been triggered, amongst others, by a strong loan growth, but also again on a strong performance on the transformation results, so our replicating portfolio.

Coming back to the diversification, well, both the fee business, which is generated through the asset management and bank services have been growing significantly as did the insurance business, the bit latter was also driven by good quality with a combined ratio of -- not of 8.7%, that would be ridiculously lower, but at 87%, which is indeed still excellent. If you take all those income lines in consideration, you come to the conclusion that indeed we can further increase our guidance of our income side as well we now stayed at least 7.5%. And if you then know that we stick to our guidance for the cost side, which means at least -- sorry, maximum 2.5%, we know can also conclude that the jaws will be superior to 5%, which is indeed a very strong number.

Coming back to that cost side, they are perfectly under control and perfectly within our guidance. And on the credit quality side, we posted a very excellent credit cost ratio of 12 basis points, which is significantly lower than the long-term average and also consequently lower than the guidance which we provided. No big surprise that our solvency position stands solid at 14.9%. And then on the liquidity side, as usual, we are performing very well with numbers 158%, respectively, 134% for NSFR -- for the LCR and the NSFR. And then also, last but not least, we also issued the interim dividend of EUR 1 per share, which is paid on the 7th of November.

And we also announced that do things. First of all, the acquisition of Business Lease in Slovakia and Czech Republic, but also our inaugural SRT, which is freeing up 23 basis points of capital, hereby fulfilling the promise which we made a more active management of our risk-weighted assets.

When we go to the more digital side of our story, we go to Page 4, you can clearly see that Kate continues to grow. As a matter of fact, 5.8 million customers of ours in the meanwhile clicked on Kate and continue to use her in the further business, which we are doing with KBC.

We also see clearly that the number of interactions with our customers continue to increase, and not only the number of transactions increase, but also the fact that Kate can autonomously, which means without any help of a human being that Kate can deal with those questions and provide the customer solutions in an autonomous way, 7 out of 10 times.

In that perspective, it's also important to understand that since October, we start launching Kate 2.0, which is actually a fully enabled LLM, so large language model Kate, which allows us 2 things. First of all, to better anticipate the questions in the context by which they are asked, so therefore, allowing us to provide more and better answers to our customers, which intrinsically means that more customers can be helped. And secondly, that the autonomy, which now stands at 70% will further increase. So both will have a positive effect on the 2 sides of the cost-to-income ratio.

First of all, it allows us to sell more via Kate, Kate 1.0, so the old version generated actually sales, which allows us to do 400,000 sales over the period of 12 months. And then on the cost side, as I already said, the autonomy actually creates solutions without human being interfering, which means that Kate today is -- Kate 1.0 today is doing the work of roughly 360 FTEs, which is already a quite a significant number, which is going to improve going forward.

Let me go into the different P&L lines because there were no exceptional items this quarter, which means that on the net interest income side, we do see overall an increase of 1% on the quarter and 10% on the year. But what is far more important that is actually, if you look at the underlying building blocks, then actually the net interest income on the banking side increases with 2%. Why? Because there is a very negative impact of -- I mean, it has a positive impact on other things, but inflation was coming down.

And therefore, the income, which is generated through inflation-linked bonds, was significantly down as well, EUR 20 million difference on the quarter, and that obviously has some impact on the growth. Big chunk of that is booked on the insurance side. And therefore, if you purely look at the banking side, a 2% increase. Now that is triggered by, in essence, 2 things. First of all, a further increase of our transformation results, which went significantly up due to the way how we replicate our portfolios. And the second one is a very strong performance on the lending side. As you know, there is still some competition on margins in the markets where we are present, but this is more than compensated by the loan growth. The loan growth, which stands at 1.6% in the quarter, 8% on the year, and that is indeed a very strong number.

Also, when you compare that with the guidance, which we previously gave, then we also came to the conclusion that we increased our guidance to approximately 7% going forward. Year-to-date -- so after 9 months, of 2025, the loan growth stands at 6.3%. If you would include the FX effect, even at 7.3%, which is indeed a very strong number. All the other elements are mentioned on the slides, have far less impact. We are talking about better income on the dealing room side, cash management, the number of days, but let me not go into that detail.

Let me go back to the margin, which now stands at 205 basis points, which is slightly down compared to previous quarter, but I have to make a caveat here. First of all, the impact here is quite clear of the inflation-linked bonds. If you -- that itself already explains a big chunk of that difference, but also the strong loan growth, which is done at margins, which is slightly below the back book. It depends a little bit on the country. And last but not least, also on the fact that we do generate net interest income by investing liquidities in bonds, so using the higher spreads. This generates normally net interest income, but at margins which are obviously lower than the 208 basis points of previous quarter. And that has a positive effect on one side, but a slightly negative impact on the margin.

Just to give you some insight how it worked. What about the other drivers of that net interest income, volume on the lending side already dwelled upon. What about the deposit side? Once again, we do see an increase of our core monies with our customers of EUR 1.1 billion in the quarter. That is a bit -- that is an obvious effect that we start to see the first moves of the monies which came in, in Belgium as a recuperation of the state monies invested in 2023. Well, that money is coming to maturity, as you know, partially in the first part of this year, and the big chunk is going to mature in quarter 4. But you clearly also can see that you see some effects already in the third quarter by the savings certificates, which were entirely freed up and not reinvested again in those savings certificates.

In essence, it comes down to the story that what we do see in practice is one moneys, which were recuperated on the state mature that the vast majority returns in either current accounts, saving accounts or in mutual funds, only roughly 25% is reinvested back in term deposits. And that has translated in this slide. The evolution of the current accounts here is very specific seasonal effect in corporate deposits in Belgium. This is temporary, and this will be corrected in -- by the natural flows in quarter 4 of this year.

If you look at the total picture, that is even more substantial, EUR 8.5 billion of monies flowing in into our different pockets for our core customer monies. And this is translated in a fundamental increase on the current account, savings account side and the fundamental decrease on the term deposit side, which in translation of margin is good news. Last but not least, but I'll come back to that in one second, that is the inflow of those monies, which are maturing into the fee business generated through asset management and life insurance, while that has clearly also happened in quarter 3, which brings me immediately to that fee and commission business. Here, once again, a very strong result, up 6% on the quarter. Let's face it, after already high quarter 1, 2, we now have a very strong quarter 3. And also if you look at the different contributor parts here, the asset management services or the banking services, both are up significantly, 7% up on the Asset Management Services and 5% up on the banking services.

Starting with the former, well, that is driven by 2 things. First of all, the fact that obviously, the management services had the fees or the management services has a positive impact on the performance of the financial markets. But also clearly, there was a strong net inflow again on the asset management product side. As a matter of fact, we have seen a growth of net inflow of EUR 1.8 billion in the quarter, which is for the third quarter, a very strong number, and it tops up the first half of the year to a total of EUR 5.3 billion of net sales. That is an all-time high after 9 months.

In terms of the buildup of those monies, we were also able to do it at a stronger management fee, but also at a stronger entry fee. In terms of the split up of responsible investments, be aware that our book now -- our total book stands at roughly 50% under the umbrella of Responsible Investments, whereas the inflow on the new monies is roughly 58% Responsible Investments.

The other -- so perhaps something on the assets under management, the consequence of all of what I said, obviously, are positive for those assets under management. We now stand at EUR 292 billion of assets under management, which is a strong EUR 12 billion on 1 quarter up. If you compare it with previous year, it is an increase of 8%, which is perfectly split 50-50 between inflows and so -- fees -- sorry, and performance also 50% being 4% in this case.

Let me then go to the insurance side. Well, also here, very good results to use an understatement, once again, up 8% on the quarter. On the non-life side, this is due to strong performance in Belgium and our Central European countries, split up there is Belgium a bit more on the lower side, so 5%, 6%, whereas Central Europe in essence is growing more than 10%, depending on the country. The quality of that book is -- stands at 87% combined ratio, which means excellent results again and also a bit better than the period of 9 months of last year. On the life side, the story holds as well. Again, the strong performance on the total life insurance book. We went up 29% on the quarter. And if you would make the comparison with the same period last year, 7% up significantly.

Now in both quarters, '24, '25, quarter 3, we did commercial campaigns. So the commercial campaigns this year was even more successful than it was last year, and this is amongst others due to the fact that we have monies maturing on the previous state note. Split up between unit-linked and interest guaranteed is roughly 50% versus 43%. Small detail, if you compare the number after 9 months with the same period last year, it's 15% up and that is indeed something which is quite remarkable after the record of last year.

Going into smaller P&L impact lines, you have the more volatile financial instruments at fair value. Well, they are EUR 28 million lower than previous quarter. I can be very brief about this. This is mainly driven by the evolution of the mark-to-market derivatives in essence. And on the net other income side, we are perfectly in line with the run rate being roughly EUR 50 million. We now stand at EUR 47 million. But if you look at the underlying building blocks, when they are perfectly spot on compared to what it was before. So the leasing and the assistance company have the same outcome as what it was last year and more or less the same outcome of this year.

What about the more serious stuff that is the OpEx evolution? Well, let me bring it to its essence. The costs are under control. As you remember on previous call, we always highlighted the difference, if you make the comparison of, for instance, 2025 with '24, which was the trigger for the guidance, that you need to be careful that the distribution of the costs in over the quarters is completely different comparison '24, '25. But it was more back loaded in '24, it was more equally spread in '25. In that perspective, you now start to see the effect of what we always highlighted on previous quarter announcement, that is costs evolution over the quarter 3 with quarter 3 of last year is now coming -- if you exclude bank tax, it is below 1%. And that makes it quite clear that if you look at the number over 9 months, that we're coming close to our range, our guidance. That is we are now standing at -- if you exclude bank tax at EUR 315 million, which is more or less 50 basis points higher than what it was previous quarter, but it starts to come into that range.

Actually, as a matter of fact, if you look at our costs compared to the budget, which we had internally, we are better than our budget foreseen for 9 months of 2025. So we are perfectly online to make our guidance -- perfectly on track, sorry, to make our guidance less than 2.5% cost increase true. Cost-to-income ratio is obviously translated, if your income is growing more than roughly 8% and your costs are only growing 3%, then your jaws are significantly up. We are talking about 5% jaw translated in a cost-income ratio, which goes down for 43% in '24 to 41% now, which I think is indeed an excellent performance.

There are always uncertainties in life, and that is bank taxes, which are always reviewed -- most of them reviewed for the upward. We do expect on the full year to pay EUR 668 million of bank taxes. Currently, we stand at EUR 615 million. In the third quarter, the back taxes were pushed up because of additional national bank taxes and deposit guarantee scheme contributions mainly in Hungary. That has translated to more detail on what is that Page 13, where you can see the split up over the different business units, but I suggest that we further continue with the credit cost ratio, where other strong performance can be mentioned. We now stand at EUR 51 million, all things combined, which is built up, in essence, about in 3 parts.

The first one is the loan book with an impairment of EUR 55 million. But be aware that we deliberately took EUR 26 million to cut down the shortfall, the backstop shortfall, the tool, which is imposed upon us by the ECB. So we lowered that with EUR 26 million, which actually generates a positive capital impact on the CET1 ratio of 2 basis points. If you take that into account, then the impairments on our loan book are very, very low.

If you look also at the evolution of the macro parameters, which are used in our model to calculate the geopolitical and macroeconomic buffer, well, then we came to the conclusion that there is a release to be booked for EUR 9 million, which makes the buffer now stand at EUR 103 million. There were some EUR 5 million in asset software impairments. And if you bring that all into account, then you see that our credit cost ratio now stands at 12 basis points if you include the ECL buffer. If you would exclude that, we are at 13 basis points, which is significantly lower than the long-term average, which is perfectly in line with the guidance where we said it would be indeed better than that.

In terms of quality, well, it's very simple, 1.8% NPL ratio, which is substantially lower than, for instance, the European average. If we would look at the EBA definition, it would even come to 140 bps, which is 40 bps lower than the European average. For good understanding, if you look at the migration metrics of our PD classes, then we do see a positive shift towards an improvement of the portfolio overall, and that is some reassuring news given the circumstances we're all in.

What about capital? Well, also there, a strong performance. We now stand at 14.9% at the end of the third quarter. This is mainly triggered by an increase of our risk-weighted assets, EUR 1.6 billion. I mean, in essence, due to the growth of our lending book, EUR 1.4 billion is entirely due to that growth. And it's also triggered by, obviously, the booking of our net interest -- sorry, not net interest income, but net result and, of course, the accrual of our dividend.

Now going forward, what do we expect for the fourth quarter? So we do still see some positive effect due to the liquidation of KBC Bank Ireland. You remember that we booked deferred tax assets. Those deferred tax assets contributed positively to the quarter 3 capital position. In total, EUR 166 million, bringing it to 13 basis points. We do expect the further balance to come mainly in quarter 4, a little bit in '26, depends on the profitability in the quarter. And that brings the positive impact. We do expect further upstream of our Belgian GAAP insurance profit in -- to KBC Group.

And then obviously, we do also still hope that we do get the approval in our 365 Bank that is in its process and that will generate roughly max 50 basis points on the capital side. Also, in that perspective, it has nothing to do with the fourth quarter because we think that will be cleared by the first quarter next year, that the leasing side, it has only an immaterial impact on our CET1 ratio next year of roughly 4 basis points.

Now if you bring all those numbers into account, also taking into account the SREP, which was issued a couple of weeks ago, well, the MDA now stands at the same level as the OCR ratio, both at 10.85%, and that generates a buffer of 4.1%., which is indeed quite solid. In the meanwhile, also the National Bank Belgium has made statements about the review, which they are going to put into motion as of what is it the 1st of July next year. That is, I mean, some of 2 parts, the countercyclical buffer and the systemic buffer that play around a little bit with those numbers, which has for us, given the composition of our book and given the way how it is supplied, a negative impact of 2 basis points on our CET1 ratio, starting with the current number of risk-weighted assets.

So to be remembered, strong performance and strong MDA buffer going forward. So that is then also translated into the solvency of the insurance side, which has increased to 216%, and then the leverage ratio, which is also 5.8% over the quarter. In terms of liquidity ratio, already mentioned that it is managed, as you know, in a very specific way. And therefore, we do see the same solid performance on the liquidity side with -- around the numbers, 160% and 130%, respectively, on the short term and on the long term.

Going forward, we do expect that the economy is going to slightly pick up a little bit in 2026. That is definitely true for the Western European markets, for the Central European markets where we are present, we do see a more fundamental growth, at least double of the amount of Western Europe. Western Europe is estimated at roughly 1%. In terms of inflation, the European inflation hovering around 2% in certain Central European countries like Hungary. It can be a little bit higher, but it is at least in such a way that ECB, we do not expect further rate cuts to happen in 2025, neither in 2026. And in the Central European side, we expected Hungarian National Bank to further bring down their 6.5% policy rate.

But in essence, we do expect a slightly positive view on the economic side, which also gives us the certainty to adapt our guidances for 2025 upward. I already mentioned the 7.5% at least for total income and the at least EUR 5.95 billion for the net interest income side. As you remember from previous call, as always, KBC includes a certain margin of conservatism to -- I mean, eliminates the uncertainty in certain parameters given that, that uncertainty has gone away, we have actually translated to that conservatism into a more stricter guidance, but we will -- let me say it, as follows, be sure that we will make that number happen. I would not say fingers in the nose, but with a certain margin.

The insurance revenues are solid, and I already dwelled upon the 2.5% cost side. No changes on the forward looking for '27. This is something which we're going to provide to as always on the back of the fourth quarter results, which are published in February.

I will wrap it up here, and I will give back the floor to Kurt, who will guide us through the questions.

Thank you, Johan. The floor is open for questions now. [Operator Instructions]. Thank you.

[Operator Instructions] We'll now take our first question from Tarik El Mejjad of Bank of America.

I'll stick to 2. The first one on net interest income. If we take the Q4 implied exit rates and then we adjust for all the inflation-linked bonds and so on, clearly, the run rate is quite attractive versus consensus. Could you give us some indication in terms of '26? I know you updated with the full year, but given where you see consensus and I think I see quite a lot of upside there, if you can help on seeing the upside, it would be very helpful, indication for '25, but '26 is important.

And then the second question is on M&A, specifically on Ethias. This is clearly very important for your investment case and you've been always helpful giving us the latest on what government thinks and so on. Can you maybe refresh us on where we are in the process? And what do you think are your odds to run successfully that bid?

Thank you very much, Tarik, for your questions. And let me provide you answers to both. So first of all, obviously, I mean, what you asked in your question and where you were making reference to the interest rate evolution, the yield curve evolution, you're 100% spot on. They are indeed better than what it was, for instance, a year ago. We do also see that translated for sure in our results of 2025. And that is also something which is indeed true for 2026 as well. Obviously, taking into account that -- I mean, there are a couple of drivers in the economic environment, which are crucial. For instance, the situation of the war in Ukraine, if that would escalate that we have completely different picture. But all those parameters taken into account being stable, then you're right in your analysis that certain of those drivers of the net interest income are evolving positively compared to a year ago.

So indeed, you can expect that on the net interest income side, there is a positive effect and I can only confirm. To provide you already the detail of what 2026 is going to be, well, we are going to do this on the back of our quarter 4 results. As a matter of fact, we will have discussions on the budget. We had a preliminary discussion on the budget of '26, '27 and '28 earlier this week, but the fundamental discussions and also the approval by the Board is going to happen in the next week and the week to come. So it would be a bit preliminary to already elaborate that in an analyst call.

But the first part of your question, I can only confirm as having a positive impact on the evolution of our net interest income, which, as I said, for 2025 is at least EUR 5.95 billion with a certain degree of conservatism. You could say easily EUR 6 billion that you can start to add up.

Regarding your second question, the M&A, more specifically about Ethias, well, today, and that is something which I already indicated in, I think, previous call or 2 calls ago, my expectation was that Ethias would not come to the table in 2025, but it would be prepared by the government in 2026 because the urgency, Belgium is not having a favorable budget situation nor the debt GDP situation that, that is not imminently on the table for pushing 1, 2 assets out of the portfolio of the Belgian state. And I can only confirm that today.

So my guess is that Ethias -- as far as Ethias is concerned that the preparation will be done by the government in the course of 2026 and then bringing it to the market by the end of the year potentially even early '27, we'll see. It depends a little bit on where the budget discussions end. On other assets, for instance, Belgium, it might be going a little bit faster, at least for a small part of it. Where are we? So we are indeed fully prepared for the file. We have a clear business case for that. And when you were asking about the ops, what we will do our utmost without doing stupid things on pricing.

As always, for us, it needs to tick a couple of boxes on the strategic side. It makes a lot of sense for KBC to go for an acquisition of Ethias. It is a core market for sure. And it is delivering added values, I think, for both sides. And then last but not least, it obviously needs also to tick the boxes on the return on investment, return on equity. That is something which triggers me to say we will not pay stupid prices. I recommend everybody not to pay stupid prices. But for sure, we will not do so. So we are prepared and will be further continued.

So just to understand on the timing for TS from the government perspective. So you think there will not be any decision to sell it before the next budget discussions, basically, right? So with the conclusion in the second part of the year. Is that what you said?

That is indeed my reading of what is happening today.

Our next question comes from Giulia Miotto of Morgan Stanley. .

I'm afraid I will follow up on NII and ask about Q4 and the exit rate. So the guidance of EUR 5.95 billion is extremely conservative in my view because it would imply NII to go down in Q4, whereas I think it should increase quarter-on-quarter given the tailwind. And from that into next year, can you help us understand or quantify at least the benefit you see from the hedges? Some of your peers give a slide with some quite clear disclosure on benefit from hedges over the next couple of years, and also how you expect loan growth to evolve? Because it's very strong. And from here, perhaps it could only accelerate, I guess, with the German fiscal stimulus, hopefully helping see countries indirectly.

So yes, I would love your thoughts on these moving parts. And then secondly, Kate 2.0, historically, you said that Kate helps with 1% of efficiency each year. So essentially, you managed to grow costs less than revenues. Do you already have an estimate of how much efficiency will Kate 2.0 help you with? I would expect a higher efficiency.

Thank you, and good morning to you all. I will tackle the NII question and Q4. So the -- indeed, the guidance that we've given is EUR 5.95 billion at least. So this is a floor. So it will be most likely higher. Also, as Johan was indicating, I mean, the difference indeed, if you just simply add the third quarter, once again to the fourth quarter, you more or less come to your -- the analyst consensus level. So there is indeed still some conservatism included in that guidance.

Now as far as your question is concerned related to the hedges. So as you know, we are not fully disclosing the -- how we hedge that portfolio. Part of it is, of course, considered as being noncore money and noncore money is being replicated overnight whilst the core money is replicated, obviously, at longer terms. These are cyclical reinvestments. The average duration, as indicated before, on the current accounts is 4 to 4.5 years. On the saving accounts, it's 2.5 years. And then, of course, on the excess equity, it's about 5 years.

Now basically, that is, if you have then a kind of sensitivity, what you can indicate is that we can use is that for a parallel shift of 25 basis points, you can take into account roughly EUR 50 million.

Now coming back also to the recent developments with respect to the repayment or the maturity of the term deposits that were issued back at the maturity of the state bond, you remember that we lost EUR 5.7 billion with the state bonds, we recovered actually EUR 6.5 billion. Out of that EUR 6.5 billion, EUR 6 billion was reinvested in term deposits. At that time, as you will recall, negative margins.

Now we issued at that time, 2 types of term deposits. There was a term deposit at 6 months and a term deposit at 12, 13 months. And so that means that the 6-month term deposit came to maturity in March. And there, what we have seen, we have seen a shift back into term deposits of only 38%. 40% went into CASA and the remainder went to in mutual funds and some outflow. Now in October this year, so a couple of weeks ago, we had the maturity of the most substantial part of the term deposits of 13 months. And there, we have some positive news in the sense that it clearly demonstrated that the market has become rational again, as we expected in the sense that out of the maturing deposits 50%, 5-0, went into CASA. Only 25% went into term deposits and then in term deposits, obviously at positive margins and 25% went either into maturity -- mutual funds or some part, small part exit. So that's a bit what you can take into account for next year for the head start that we will see next year.

Giulia, I will answer your second question. So Kate 2.0 is indeed giving us productivity gain. As you rightfully pointed out in the past, Kate 1.0, I mean, generated roughly between 1% and 1.5% of productivity gains. We launched Kate 2.0 actually in October. So it's in very early days to make already conclusions what it will be and definitely make those conclusions public in an analyst call. What I can say -- so it's too early to judge. But what I can say is that given the fact that Kate 2.0, which is actually Kate 1.0 retrained in a full LLM environment. So previously, Kate was already using some LLM, but not extensively. That is -- that we do see in the trials, which we have been running over the first 5, 6 months that we had indeed an increase of our autonomy of roughly 15%, which is quite strong.

If that will be translated in full of -- for a productivity gain, that needs to be further fine-tuned. But what is also important to see and that is the second element, which we tend to forget that is the fact that customers are using Kate more and more because they find solutions via Kate and don't have to queue anymore in branches or whatever, don't have to take the car anymore looking for parking places, makes them use Kate more and more, which actually means also that they are not only using it more for -- and therefore, generating cost side, but also allow us to address the more specifically, more tailor-made solutions on the back of the traces, which they leave with us, so the data analysis. And that is obviously triggering us more sales, which is the combined effect. So when we speak about productivity gain, ultimately, it is translated in the cost-income ratio. So the outlook is positive, and the outlook is if I use the floor to play at least what we guided before.

And we'll now take our next question from Namita Samtani of Barclays.

My first question, you flagged in your forward-looking guidance that you include no speculation on potential measures of any government. Could you please give some color on anything you're watching there that might positively or negatively impact earnings next year?

And secondly, just on Ethias, if it's not coming to the market until 2027, would you consider to pay back some of the excess capital that you have as a special dividend in 2026? Otherwise, I just struggle to see how this isn't trapped capital.

Okay. Thank you, Namita. So as far as the potential measures of the government are concerned, it might have an impact on the earnings going forward. You're mainly referring obviously to the banking taxes and how we see the evolution of the banking taxes. First of all, as far as Belgium is concerned, we still do not see and do not expect any significant increase in banking taxes. They are already had a quite high level.

Of course, also the question is going to be and remains still because there's still no clarity what the government is going to announce because basically, normally, the banking taxes to somehow drop as a result of the fact that, of course, the deposit guarantee fund in Belgium has now been replenished and actually only contribution should be limited to the increase, of course, in eligible deposits. Were it not for that one sentence, of course, in the government agreement that indicates that banking sector should at least remain at the same level. But due to the political situation currently in Belgium and the fact that the budget discussions have been postponed, there is no clarity yet on this side.

Where there is some more clarity is the decision of the European Court of Justice compared with respect to the loyalty premium and, of course, also the tax benefit that you get for the first part of the savings and the saving accounts, which have been considered as indeed discriminatory. We will see what the impact of that is going to be. And we are looking now at what the impact is going to be on the loyalty premium. Most likely an alternative version of the loyalty premium will be foreseen, but we do not expect any major impact of that for the very simple reason that actually, first of all, the loyalty premium with KBC is already low, 20 basis points. But next to that, also already 95% of our deposits are eligible for loyalty premium. So the impact of that is going to be very small.

Last for Belgium then at least is also the added value tax that is under discussion, but also that has been postponed as a result of the postponement of the budget discussions because it still requires, of course, the adoption of a former loan law to actually charge the taxes. And as long as you don't have that law, you cannot charge taxes. We already as KBC, so we will implement that, but it will depend, of course, at the initiatives that are being taken by the government.

Then as far as Belgium is concerned, for the Czech Republic, we have some good news in the sense that basically we do not expect, and it's not part of the government agreement of the new established government under Babiš. So Basically, there is no sign of a further increase of banking taxes in the Czech Republic. And as you know, for the banking industry, the windfall tax in the Czech Republic is actually having no impact. So that's good news.

Also in Bulgaria, as you know, the government for the time being is not considering implementing any banking taxes whatsoever, apart from the fact that they have established an alternative version, which is more a kind of a prefinancing of the taxes going forward. Slovakia, there basically also, there is no sign of a further increase of the banking taxes. There, the government sticks to the agreement that they made with the banking sector in the sense that it will be gradually decreasing to '27. There are also some alternative measures that are being taken, such as also having a tax-free benefit on the state bonds because they're also issuing some state bonds in Slovakia, but the impact of that is also limited.

And then, of course, we come to cherry on the cake, which is Hungary, where indeed there -- that they already -- the bank -- the windfall tax that was supposed to be temporary is far from temporary that has been extended and the indication of -- is that basically they consider windfall as long as the policy rate is above 3%. And as they are today at 6.5%, this is still likely to last for a while. There are, however, some rumors, and there was indeed an announcement or at least some indication by the Minister of Finance, Mr. Nudge, that there might be going forward, again, an increase in the banking tax -- in the windfall tax and also a limitation of the mitigating measures, but that so far has not yet been confirmed, but there is a risk that, that would have a negative impact going forward on Hungary.

Good morning, Namita, and also, I will take the second question. So regarding the capital position and your reference to potential trapped capital beyond 2027, well, I would use the dividend policy, which probably as good as I know is quite explicit in that perspective. So first of all, we have a couple of priorities now and that is straightforward. First, we want to grow our book in an autonomous way. And it sounds perhaps fluffy, but it is definitely not. Just look at our track record. Over the last 5 years, we have grown a company like Czech Republic, Chairs of Bay, in terms of the loan and in terms of the deposit side, autonomously, so organically. And if you then look very specifically of what we're doing this year, which is not included in those 5 years I was referring to, it's even better.

So the guidance now, we're approximately 7.5%, let's round the number, 8% growth on the year. Well, that is something which we will continue to strive for going forward. The other element is, of course, that next to that organic growth, which consumes risk-weighted assets, as we all know, we will have a further eye on the market in terms of M&A. So Ethias is the one we are focusing on because that is the bigger one, which we can do, by the way, by a Danish compromise solution by our insurance company. But let's not forget that we recently also and that this approval still happening as we speak, as we did an acquisition of a bank in Slovakia and a smaller leasing company in Czech Republic and in Slovakia.

Well, these are things which were officially not on the radar, but it doesn't mean that they were not becoming available. And that is something which we are going to look into going forward. So capital is used for those 2 priorities, growth autonomously and growth by M&A going forward. Let's not forget that given the strong profitability, dividend will have a very strong position given our payout ratios, which has the range between 50% and 65% without preempting now already on what the final dividend over 2025 is going to be, I mean, look at our track record over the last years, well, it is more towards the higher end of that range.

So all in all, given what I should have said, there are 3 components and then the fact that we want to be amongst the better capitalized financial banks, financial institutions in Europe, we have a very solid position and not necessarily will have what you call trapped capital. And in the event, you know that our minimum is 13%. And in the event that it becomes clear that, for instance, an acquisition we have in our mind is not going to happen. Well, then the policy is quite straightforward. The Board will take that decision then as a definition of capital, which we no longer need because the availability of M&A is not there.

The position is solid. So let's bring that capital back to shareholders because we cannot make it work within KBC. That's straightforward. So the risk of having trapped capital in our company is nonexistent given our policy and given how the way we are executing our business as we speak.

I will now take our next question from Benoit Petrarque of Kepler Cheuvreux.

So the first question is on the Belgium deposit market. We see a lot of discipline also in September, by the way. So it's a very attractive market currently. Looking at previous cycles where we have a bit of steepening and the curve is quite attractive. And also, yes, there's a ramp-up of the transformation results expected for next year. In such a market, would you expect discipline to be maintained? Or what is your kind of view on the deposit market into '26? Do you expect discipline to be retained like this? That's number one.

And number two is on the lending NII in Belgium. It's clearly turning around, let's say, more positive in the latest quarter, especially driven by a very strong loan growth, 6% year-on-year. And I was wondering what -- where it comes from, basically. We've seen actually the competition not at that level, and you seem to be gaining market share. So I wanted to get a bit more underlying reason for that very strong performance. And just maybe also thinking about NII on '26, you have been very conservative on your guidance. You have been too conservative in '25. And I just hope that there will be a bit less conservatism in a way and more accuracy in the guidance, but that's just on a separate note.

So as far as your question is concerned on the Belgium deposit market, which indeed, I concur is -- remains very attractive. Also the steepening of the curve is indeed going to ramp up the deposits. Now in terms of potential further developments going forward, it looks like we are quite confident that we will be able to continue to move into that part and to, of course, raise additional deposits going forward.

The only thing that is popping up somewhat more. You know that we've been reducing and all markets has been reducing the external rates on the saving accounts. We moved them from 90 basis points at the beginning of the year, 45 basis points -- loyalty program and 45 basis points base rate dropped now to 60 basis points being 40 basis points base rate and 20 basis points loyalty premium. All others -- all banks have been following on this side, apart from some smaller banks. And this has raised some attention also from the government.

So the Ministry of Finance has indicated and has publicly stated that he will be looking into the further development of the external rates on the saving accounts. So we might see some drawback from that going forward. But for the time being, there is nothing specific.

And then perhaps on the guidance, the side note which you made, I obviously understand where you come from. You said too conservative, make it a bit sharper going forward. But I would like to comment in 2 ways on this. First of all, to a certain degree, you're just purely looking -- I agree with what you say. On the other hand, I would like to add that given also the question about the discipline in as we speak, the biggest markets for us in terms of deposits is Belgium. The 2 combined actually triggered us to put the guidance where it was. So there was a big, big, big amount of money being freed up, as you know, EUR 6 billion. And if things would repeat what happened in 2023 or in 2024, then obviously, you would have completely different picture. We had those term deposits at a negative margin.

Unfortunately, this did not materialize. And I think the main trigger for that is to be found in the results of our peers, which have been involved in that deposit war in 2024. That is quite straightforward that, that discipline is there. So it allows us indeed now to take that uncertainty out of our guidance. And as of the moment, that uncertainty is gone, you can make more accurate predictions. I would actually say, in that perspective, we will continue to make our guidances because KBC has a track record of underpromising and overdelivering. It's better than the other way around. But we take your side note or your side remark for granted. Thank you. Sorry, sorry -- in my excitement -- Sorry, I forgot about the margins on lending.

Well, yes, in that perspective, so there are 2 reasons. So first of all, I think there's a bit more discipline in the market. So let's also not forget that all the banks being pushed by the ECB on risk-weighted assets. You remember what happened to KBC 2 years ago. But this is also happening to other banks, which you can clearly see in the announcements which they all make either via the mother ship, either via the local entities. So if you want to keep your capital ratios intact, then you need to achieve a return on risk or a risk-adjusted return on capital, and therefore, your margins cannot be lowered anymore. That is something which we see next to that and that is what we are striving for.

KBC obviously has had a very strong loan growth in the first 9 months of the year, which allows us also to be more -- to be a bit more selective in terms of the margins. You can clearly see in the detail, which is provided in Belgium that is on Page 25. I do not make a mistake that indeed, we are pushing now for several quarters already to bring that margin to a more sound level given the capital consumption. And that is something which is also possible, given the fact of the strong performance of the loan volumes, which we have year-to-date. So yes, we are working on the margins. Yes, there is more discipline. And yes, we are comfortable giving the loan growth, which we have already realized in the first 9 months and the pipeline, which we have for the quarters to come.

And we will now take our next question from Sharath Kumar of Deutsche Bank.

A couple of follow-ups. Most of my questions have been answered. Firstly, on loan growth, can you comment on the sustainability of the double-digit levels in most international markets? Also, is it a fair conclusion to say that the level of loan growth in 2026, 2025 level would be the floor? And if you can comment on the type of areas that you're getting this loan growth from, so it will be useful.

Secondly, on M&A, can you confirm that there are any other active files rather than Ethias? Also if you could confirm there is no interest to get back into Ireland?

So I will take the first question on the double-digit growth. And I presume that what you're mainly referring to is the double-digit growth that we see basically in Central Europe. And there, of course, you have a particularly strong growth in -- first off, to start with in Bulgaria, where we see a year-on-year growth of 18%, which is mainly driven by the very strong growth on the mortgage side. And the mortgage side is actually due to the fact that you have the euro adoption, as you know, in Central Europe in Bulgaria and people are more or less concerned about the potential inflation after the euro adoption.

So from that perspective, that explains why we see significant growth currently. We, however, expect that to continue, however, at a somewhat lower pace after the euro because, obviously, in Bulgaria, the disposable income has increased quite significantly and also the quality of housing in Bulgaria is not at the same level, of course, as the level that we see in Western Europe. So that is as far as Bulgaria is concerned.

The Czech Republic there, obviously, we also continue to see a very strong year-on-year growth on -- of the loans of 11%. There, what we see is that also the mortgage business is doing and continues to do very well. There is somewhat a small impact on the margins, but the margins are well above the back book. So that continues to generate quite some nice growth. So year-on-year growth on the model portfolio is almost 7%, but also in the Czech Republic, we continue to expect some further loan growth due to the fact that also GDP growth continues to be quite significant. They recently increased actually their projections for GDP growth from 2.5% to 2.7%. And typically, as a rule of thumb, what we use within KBC is that you can see a loan growth, which is equal at the GDP growth plus inflation.

Also in Slovakia, and Slovakia continues to perform quite nicely, particularly on the mortgage side, also there at quite stable margins and nice margins. On the corporate side, they have been performing quite well as well, and we expect that to continue. You know that they are in the market. The growth today in Slovakia is somewhat subdued at 0.5%, but this is expected to pick up again in the next year, particularly also because Slovakia being an open economy with also more benefit from the German initiatives in spending.

And then last is Hungary. Hungary also, despite the fact that Hungarian economy is not growing significantly either, we continue to see quite some strong growth, particularly in the mortgage business. And also the recently announced new government initiative with the Home Start program, increasing the services should help further also the mortgage growth, together with also at quite attractive margins. On the corporate side, there is somewhat more competition, somewhat more pressure going forward. So basically, that as far as the expected loan growth is concerned going forward.

I will take your question regarding the M&A. So first of all, we are constantly monitoring the markets. Otherwise, we would never ever have detected 365, nor the leasing activity acquisitions. But do we have interest in other files? Well, I cannot answer those questions concretely because then it would make very obvious what we are looking into and what competition perhaps should be finding interesting as well. But to be very concrete, your question on Ireland, we are not going to go back to Ireland, no.

Any further questions? We now will take the line of Chris Hallam from Goldman Sachs.

I just have 2, one on SRTs and then one on capital. So regarding the inaugural SRT on the corporate loans, I guess that comes back to the EUR 8.2 billion RWA add-on that was imposed on KBC back in 2023. Is that the right way to think about it, that the risk weights on those corporate and SME loans was artificially high? And then if so, how much more is there to go on those high-risk weight loans, either in terms of the amount of relevant loans you could still SRT or the amount of that EUR 8.2 billion add-on you might look to recover via future SRTs?

And then secondly, on capital. You said earlier that the risk of there being trapped capital in KBC is nonexistent. Should we interpret that as a commitment that the CET1 capital ratio at the end of 2026 will be as close as possible to the target for a 13% pro forma for any announced acquisitions or distributions?

Thank you for your questions. I will take your first question related to the SRTs. As indeed, we announced this morning the -- our inaugural issuance of EUR 4.2 billion SRT leading to EUR 2 billion of risk-weighted assets relief and having a 23 basis points impact on our positive impact of scores on the common equity Tier 1. Your assessment is indeed correct. Basically, the higher risk-weighted asset density created is due to the add-on of 2 years ago, indeed, is impacting that. Now we always stated that we consider SRTs as a means to an end and not as a strategic development.

So basically, that means it is one of the tools that we will use to further optimize the portfolio management. So if your question is, are we going to continue to do SRTs? Yes, we are continuing to launch SRTs, but this is -- we do not want to become dependent on the SRT market as some of our peers are. So from that perspective, there is going to be further SRTs. These SRTs will remain focused indeed on those portfolios that have the highest risk-weighted asset density in view of the efficiency of those SRTs. And -- but it is not going to be a major significant increase for the years to come.

Thank you, Chris, for your questions. And let me come back to the very concrete topic if that by the end of, let me say, 2027, it should be somewhere in the neighborhood of 13%. Well, the -- what I said on the previous question, the previous -- and I don't remember who asked it. Actually, the dividend policy is pretty straightforward. And the dividend policy in that perspective allows us to distribute capital. There is one constraint you need to take into account as well, and that is the constraint of to be amongst the better capitalized financial institutions in Europe. We have more freedom there to decide are we -- yes or no than we did previously because previously, it was mechanically so there is more possibility to have in that perspective, a discretionary decision by our Board, but that's a trigger.

So if the entire sector would go to 13%, 12.5%, whatever, and there are no M&A opportunities, there is clearly a possibility to finance our economic growth, which -- autonomous growth, which is quite significant in terms of percentages, which you know, but then the Board will take a decision in all discretion. All those elements into account, can I make a hard commitment on the execution of the policy? Yes. Can I take a hard commitment that it's going to be 13%? For obvious reasons, I can't.

And we'll now take our next question from Shrey of Citi.

Just changing tack a little bit. On fee development, you've actually managed to keep margins sort of broadly stable. And I know the very strong inflows and higher margin direct client money. Looking forward, how do you see net inflows in sort of this component versus the others? And I suppose in turn, what do you see as the outlook for margins in the asset management business specifically?

Thank you, Shrey, for your question. Indeed, we've seen a 3.4% growth on our direct client money. And basically, this is, on the one hand, of course, driven by the very strong net sales that we see of EUR 1.8 billion for this quarter, bringing it already to EUR 5.3 billion for the 9 months. And what is important here is that this is true for more than 1/3 driven actually by what we call our RIPs. This has nothing to do with rest in peace, but these are the regular investment plans, whereby households continue to regularly invest on a monthly basis, a relatively small amount, but this is a sustainable amount. And we actually see the number of those RIPs increasing continuously.

Today, we have 2.3 million of those RIPs with an average contribution in Belgium of roughly EUR 120 per month; in the Czech Republic, roughly EUR 40 million per month; and in the other countries, slightly higher than the EUR 40 million -- EUR 40, of course, a month. So that gives you an insight into the relatively sustainable growth of that portfolio going forward. The remainder, obviously, is going to depend on the market performance. And as you know, we are not guiding on that part of the portfolio.

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

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

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

Good day, and welcome to today's KBC Group Earnings Release Q2 2025 Conference Call. This meeting is being recorded. And now I'd like to hand the call over to Kurt De Baenst, Head of Investor Relations. Please go ahead, sir.

Thank you, operator. 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 7, 2025, and we are hosting the conference call on the second quarter results of KBC. As usual, we have Johan Thijs, Group CEO with us; as well as our Group CFO, Bartel Puelinckx and they'll 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.

Thank you very much, Kurt. And also from my side, a warm welcome to the announcement of the second quarter results of 2025. And as always, we start with the key takeaways, the highlights of this quarter, and let me start with the net results, which stands at a very strong EUR 1.18 billion for the quarter. And so again, we put the net result over EUR 1 billion which I would say, given the taxes being booked in the first quarter, upfront is the third quarter in a row.

As a matter of fact, the commercial franchise bank insurance franchise has been firing on all the cylinders in KBC Group that has, amongst others, led to the fact that also KBC's Group diversification kicked in very well. As a matter of fact, 49% of the income was related to the net interest income side, and which means that diversification to other products, in essence, insurance products and fee and commission products delivered at 51% of our total income. Coming back to the interest-bearing part of our P&L. Well, we had a very strong quarter given our deposits and our lending side both increased significantly on the quarter and delivered excellent results, which resulted, amongst others in growth of net interest income on the lending side, but also record high money inflows.

We have a very strong quarter on the sales side of the asset management side despite the turbulence which was generated in the first part of this quarter. Given the announcement of the tariffs in the U.S. We had a very strong quarter on the insurance side, both on the sales side and on the outcome of the quality of the underwritten products with a combined ratio of 85%. And we kept our cost perfectly under control. There is an increase of our cost, but this is perfectly in line with the foreseen budget of KBC in the first half of year, as a matter of fact, it's slightly below that budget.

In terms of our loan impairments but also there perfectly under control, as a matter of fact, we have added a one-off buffer extra of roughly EUR 40 million to be precise, EUR 38 million, which still leads to an excellent credit cost ratio of 15 basis points. No big surprise that our solvency and our liquidity positions remained very strong, and this also allows us to announce today the interim dividend of EUR 1 per share, which, as usual, is paid out in November of this year. In other parameters defined, the return on equity of this quarter stands at 15% if you equally spread and the taxes over the year.

Let me go now into more detail. I already mentioned on the next page, the diversification. As a matter of fact, the split-up between the banking and the insurance activities was 81% on the banking side and 18% on the insurance side, which means that the insurance performed very well.

As a matter of fact, had a very strong performance with EUR 181 million higher than normal. And that also places role in our CET1 ratio. I will come back to that later on. But the EUR 181 million of profit is indeed EUR 41 million more than the normal run rate, which normally stands at roughly 15%. Our probably best known employee besides Kurt De Baenst is probably Kate. And that means that Kate is delivering more and more to our customers. First of all, it's used more and more by our customers, 5.7 million customers group-wide are using Kate.

They're not only using it more, but they are also using it until the end of the process for which they started up Kate, which intrinsically means that Kate has been contacted 73 million by our customers in the quarter that she has delivered answers to 7 out of -- sorry, 7 out of 10 questions which are raised, which means that Kate delivers without any kind of employee of KBC involved interfering whatsoever, the solution to our customers, which allows us to indeed state that if we calculate in a super conservative way, the number of staff, which is replaced by Kate to be at least at the level 300, 320 people.

This is a very conservative assumption because I'll give you one example. We only consider 8 minutes to be spent by a customer when he or she asks a question in the branch, 8 minutes that is absolute, absolute minimal. Also there, that's on the cost side, the positive side, on the income side. Be aware that the leads, which are triggered by Kate and transferred to our network that they are growing and that they are, in essence, roughly around 14% of them are converted into a sales transaction, which led over the last 12 months roughly to 414,000 extra sales conclusions made. As a matter of the fact, you should combine the 2, the time which is saved by Kate for our bank branch managers -- bank branch people, sorry, are used to get in contact with customers on the sales side for processes, which are a bit more sophisticated and, therefore, need human intervention. And that is paid off indeed in this quarter.

On the one-off side, well, this has been a very normal quarter hardly any one-offs in the total is EUR 1 million of difference, if you would exclude them. So not worth to mention it. So let me go immediately to the things which are more relevant, and that is, first of all, the net interest income. Well, we have a very strong quarter on the side of net interest income EUR 1.5 billion and EUR 9 million is delivered in this quarter, which is EUR 88 million net interest income more than previous quarter, which is a whopping EUR 233 million more than previous year same quarter. The reason why this increased so strongly is actually materializing in, let's say, 3 elements in our sense. What we already said for a longer period on several occasions during quarterly result announcement is that our transformation result is going to deliver higher and higher net interest income results. And this is -- this quarter effect as well. EUR 27 million more on the quarter, driven by higher yields but also on the fact that we do have more volumes generated through the incoming core monies.

Also, on the lending side, there was a fundamental uptick in the net interest income where we speak about the combination of margin and volume. The main driver here is the volumes. We have a growth of 2.2% in the quarter. As a matter of fact, 7% on the year, which is extremely strong. If we look into the performance of the loans year-to-date, then we already have achieved our target, which we guided the 4% at least, is already achieved in this quarter year-to-date, 4.7% is the case. So we are going to review those targets and consequently, also the targets on net interest income.

What was also a strong uptick was the inflation-linked bonds net interest income, whether it was negative in the first quarter, it was positive in the second quarter, and that made a difference over the quarter of EUR 29 million. As a matter of fact, we guided the market that we would see on the net interest -- sorry, on the net interest income ILB side, inflation-linked bond side, roughly EUR 20 million to EUR 30 million for the full year, probably more tailored towards the lower end of the range. Well, today, year-to-date, we are already at EUR 19 million due to this uptick in the second quarter.

A couple of other elements play here the role as well, the number of days, EUR 7 million up, and that is something which is, of course, particularly linked to this quarter. But nevertheless, net interest income is significantly up given what I just said. On the year, something similar, but I'm not going to dwell upon that. What is far more important that is to see that the margin now stands at 208 basis points, which is 3 basis points up on the quarter. That's around that number because closer in that perspective to what is mentioned 2 basis points in the tax. Now in the overall scheme of things, what is driving this that is translated on the net interest income side, what I just said about, amongst other transformation results and so on. Commercial margins are under pressure, be it that this quarter in Belgium, in Czech Republic and in Bulgaria, we were able to write higher margins on almost all the products compared to previous quarter and even previous year. The countries where it is under pressure is Hungary and Slovakia still.

So coming back to the building blocks. Let me talk about the volumes. Well, volumes were up 2.2% on the quarter. Actually, as a matter of fact, if you exclude the volatility of the foreign branches, which is deposits of very low margins, it was up 7%. And if you include them, 6%, which means, indeed, there's a very strong performance. This has also translated on Slide 8 where you can see the inflow of core customer money that is on the quarter, EUR 5 billion up. And if you would make abstraction of the fact that also in last year, when we recuperated the monies which were invested in the state note, and which we recuperate this quarter, then the EUR 5 billion inflow is indeed an extremely well number.

It is -- and that is a positive one. It is, first of all, flowing in into current accounts and saving accounts whereas in the term deposits, we now see the gradual build down of those term deposits and that is something which we have to bear in mind going forward, because this will have a very positive impact on our net interest income for quarter 3 and quarter 4. In terms of year-to-date number. Well, we do have EUR 7.4 million core customer money inflow, which is translated, as you can see in the slide, on a fundamental shift, more than EUR 7 billion on the current accounts and saving accounts, that is in total EUR 7.8 billion and the decline of the term deposits, which is shifting, as I said, to or current account savings accounts or mutual funds, well, that is standing at the year at EUR 3.9 billion.

Remind all of you that in the third quarter, in October is actually the fourth quarter, to be straightforward. We do have the maturity of the recuperated money from the state note, which is invested mainly in terms deposits, and we will see there an impact. Now I also -- in this slide, you can see a very strong performance on the mutual funds, EUR 1.5 billion positive impact. I'll come back to that in a second. But let me finish first on the net interest income. Well, you can clearly see that on all the building blocks of that net interest income, we have outperformed what we guided before. So it's no big surprise that we are going to update the guidance, which we have given. Earlier, we guided the net interest income for the full year '25 at least EUR 5.7 billion.

As always, we built in conservatism in this perspective. And that's clearly also shown here in the results today. Today, we're going to review that conservatism in the same way and still update the guidance with EUR 150 million extra. So with the same form of conservatism, the new guidance on the net interest income is at least EUR 5.85 billion. Now when I look at the assumptions which the analyst community made on the previous guidance. What about the conservative KBC puts in, that was roughly EUR 120 million? We are not surprised. And I repeat what I said, we keep the same conservatism in the new guidance.

Let me go then to the guidance on the loan side. Well, we are today already at 4.7% in terms of the loan guidance. while we have already overshot that number. And therefore, we also are going to increase that guidance on the loan growth as well to at least 6.5% growth. Both numbers are, as I said, floors, so the upside is given the conservatism which we always build in.

Let me go to fee and commission business. Well, at first glance, it looks EUR 23 million lower than what it was previous year. And in the reality in the hard numbers, it's indeed the given. There is a small but and a small but is that EUR 23 million which is the difference between previous quarter and current quarter, is driven in essence by asset management fees, which are triggered by the assets under management. Now in the beginning of this quarter 2, there was an announcement made by the American President regarding the tariffs and that disturbed the financial market significantly, for sure, also the stock market. And because the stock markets play an important role in our assets under management, the start of the quarter was very negative and that had a negative impact on our assets -- sorry, on our management fee under the asset management business.

What was mitigating that impact was the sales, which took place in the second quarter. We posted in quarter 2, EUR 1.5 billion net sales which is an absolute strong number. Definitely, if you compare it with the same period of last year, where we had in the quarter 2 2024, EUR 0.6 billion net sales. So this quarter, we were able, despite the turbulence to sell 2.5x more than the same period last year. It almost gets to the record level of the first quarter, which stood at EUR 2 billion. And therefore, indeed, it is a mitigant for the negative impact, which we have seen at the beginning of the quarter 2025 quarter 2 of the impact of the financial markets on the management fee.

Now what has happened over the quarter is that, that financial market has recovered over the quarter towards quarter end. So that is a good starting base for quarter 3 but of course, it does not translate itself in the quarter 2 in full. And therefore, the EUR 23 million is actually a good result given the net sales I just highlighted. If you look at the banking services, well, that is slightly below the previous quarter, but it has to do with seasonality and it has also to do with the record high numbers, which were posted, for instance, on our security trading platforms in Belgium and Czech Republic, which were now also at a very high level, but not at the same record level as previous quarter. As a matter of fact, if you look at those trading platforms, we do see, if you compare the first half of this year, with the first half of previous year, a 37% increase of the trading activities.

As a matter of fact, we do see an increase of 50% of new customers over the same period. So it's quite striking. If you look at the assets under management, as I said, beginning of the quarter was recuperated, the decline at the beginning of the quarter was recuperated over the following part. And therefore, at the end of the quarter, we stood at EUR 280 billion assets under management where you could clearly see also with the direct client money, an increase of EUR 3 billion, which was driven by 2 things: the strong sales and also the market performance at the end of the quarter. This is a picture on the end of the quarter.

In terms of the gross sales. Also there, we had a very strong quarter with EUR 3.9 billion sales, which is almost EUR 1 billion more than the record quarter of the quarter 1 2025. Insurance side, well, 8% growth on the non-life side, which is clearly better than the guidance, and it's also delivered with a very good quality because the combined ratio stands at 85% which is substantially lower than the guidance which we have given in that perspective.

Life insurance sales side were good, when you compare them with the previous quarter because life insurance, this is driven by commercial campaigns, by new issues and so on and so forth. You need to be aware that in the second quarter, we launched no new specific commercial campaigns. We had no new emissions on structured products, life insurance products, and therefore, it's good to make the comparison between quarter 2, 2025 with the same quarter in '24. And you can clearly see there that there is an increase of the sales volumes of 6%, mainly due to the interest guaranteed products.

Also, in that perspective, good to understand that the CSM, the margin on the life insurance products increased to 17%, also there. The quality of the sales which are generated are very good. What I forgot to say about the combined ratio, apology for that, is that all countries in the meanwhile, delivered a combined ratio below 100%, including Slovakia, where it was above 100% on previous occasions. So it has been restored back to profitability after interventions on the technical side. Let me go to the financial instrument fair value. I'm not going to dwell upon this very long. It's better EUR 11 million than previous quarter is mainly due to, amongst others, good performance in the dealing rooms despite the fact that the income we declined a little bit has to do with, of course, the financial -- the movements on the financial market. But the results are actually in the total very good.

If you look at the net other income, it is substantially better than the run rate of EUR 50 million. But also here, I would say, let's be careful, the EUR 77 million is influenced by a sale of a real estate of -- which generated an extra value of EUR 20 million. If I would deduct that, then we're more or less in the run rate of EUR 50 million. As a matter of fact, we would be at EUR 57 million. Far more interesting is the cost side. Well, if you look at the evolution of the cost, it comes down significantly compared to the previous quarter. But here, again, be aware that in the previous quarter, the upfront booking of majority of the bank and insurance taxes is done. So it distorts the picture completely. Let's compare the real costs. So the underlying operating expenses that now stands at EUR 1.125 billion, so if you compare to the previous quarter, it is up 2%, if you compare it to the previous year, it's up 5%. Now that 5% is clearly higher than the guidance, which we provided for full year, that is 2.5%. But let's be aware that in quarter 1 and quarter 2 2024, we had very low cost evolution.

As a matter of fact, in 2024, the cost evolution, which is normally kind of equally distributed over the year, was more backloaded towards quarter 3 and quarter 4. So if you compare rather low, so let's call it abnormally low costs in '24 with '25, then the uptake of 5% is quite easy to explain. As a matter of fact, if we compare them with our internal budgets for the quarters, then the EUR 1.125 billion is still below our budget. We still have a margin there, and that means that we are very comfortable to give you also a confirmation of our early given guidance of 2.5% of the cost evolution full year 2025 compared to full year 2024.

It also is reflected the strong performance on the income side and the cost control on the cost side is reflected in the cost income ratio, which if you exclude bank insurance taxes now stands at 41%, which is indeed a very low number. Certain things in life exists. Definitely, when you talk about taxes, the taxes go up, and now stand at a whopping EUR 500 million, EUR 660 million for KBC Group.

Well, we do expect this number to be at the year-end at roughly EUR 669 million, which is indeed a fundamental increase of 7% compared to previous year. What about asset impairments? Well, the asset impairments stand this quarter at EUR 124 million. which is significantly more than previous quarter and previous year. It needs to have some further flavor because the EUR 124 million actually you can break up in 3 buckets. EUR 8 million on what we call other, which is in essence, EUR 4 million of net notification losses and then certain impairments on software. So if you exclude that, as EUR 8 million is more or less similar to previous quarters, then you end up with EUR 116 million on, let's call it, more or less impairments on the lending book. Now in that EUR 116 million, the real impairments are only EUR 76 million. So the real impairments on our lending book are EUR 76 million, which is lower than the EUR 83 million of previous quarter.

What we did differently this quarter, that is the buffer of our geographically and emerging risks. So geographical, sorry, geopolitical and macroeconomic uncertainties. We review that buffer. That buffer generated a slight increase, EUR 2 million, giving all the turmoil, which is going on in the world. But we put in a management overlay extra for an extreme situation, and that extreme situation is translated in the buffer of EUR 30 million one-off on top of the geographical emerging risk buffer. So the EUR 38 million is an extra safety margin when we apply an extreme test and therefore, total stands at EUR 116 million. Now if you conclude both into the cost -- sorry, into the credit cost ratio, the credit cost ratio, despite the buffer, which we extra put in only stands at 15 basis points which is substantially lower than the longer-term credit cost ratio and the guidance. And this is something we feel quite comfortable with also going forward.

It's also translated in the impaired loan loss ratios, which further comes down, stands at 1.8% according to KBC calculation, if you would apply the EBA definition, it would stand at 135 basis points, which is significantly lower than the European average. Let's go to the sum of all these parts into capital. Well, if you bring it all together, we stand at 14.6% CET1 ratio. Let me add to that a little bit of flavor. The 14.6% is actually driven down by the evolution of our available capital. First of all, we had a very strong performance on the insurance side, and that's very strong performance on the insurance side, which is, as I said earlier, EUR 41 million higher than the normal run rate is because of the Danish compromise deducted in full of our results.

So that EUR 41 million, which is only compensated by dividend. And you know that on the dividend side, we have a lagging factor, the lagging factor in this perspective, means that we only bring in the delta of the remaining dividend over full year 2024 is not offsetting that deduction. So long story short, EUR 41 million compared to normal situation is because of the outperformance of the insurance result, deducted extra, and that is roughly 3, 3.5 basis points on our CET1. Also, we deducted now in full, the remaining part of what is called by the ECB, old nonperforming loans. As you know, the ECB wants all the banks to reduce the very old nonperforming loans in full from their either -- from their P&L or from their capital. We decided to write it down in full from our capital this quarter, and that is EUR 50 million -- roughly EUR 50 million, which we deduct from the available capital.

Now if you -- this is also a one-off, if you translate that in CET1, well, that is 4 basis points. The insurance plus the NPL combined 7 basis points, which actually brings to 14.6% to what it should have been 14.7%. Both, be aware, both numbers. So the insurance reduction and the capital reduction come back. The insurance come back next quarter and the capital reduction comes back in the reduction of the MDA buffer -- sorry, a reduction of the Pillar 2 requirement which has a positive effect on the MDA buffer in our numbers of 8 basis points. Obviously, the increase of the risk-weighted assets are entirely linked to the evolution of the volumes. So the strong performance on the volume side translates the fundamental or translates the most important part of the increase of the risk-weighted assets, as you can see in the numbers.

On the next slide, you can see the MDA buffers, given the fact that KBC filled up its full AT1 and therefore, compensates the 77 basis points, which is granted by the ECB as a potential replacement for capital. The MDA buffer now stands at the level of the OCR which means 10.8%, and that is also giving us a clearer view on what are the buffers. And now you can see that those buffers for the 3 buckets CET1, AT1 included total capital is more or less at the same level, roughly, let me round the number, EUR 5 billion, 4%. Let me go quickly into liquidity and leverage ratio. Further improvement of the leverage ratio now stands at 5.6%. Still liquidity stands super solid at very high levels, compared with the minima. And also the solvency on the insurance side has improved with 200 basis points, yes, correct, 2%, mainly driven by the evolution of the interest rate curves and the strong performance of the insurance company, as I said.

So let me wrap up with forward-looking. First of all, economic outlook, well, we all read, there is a tariff agreement concluded on the 27th of July between Europe and the U.S. The details are still in the process of being worked out. We will further see how this develops. But this also has some influence on the economic growth. Going forward, I think the economic growth in this perspective is more or less hovering around 1%. This year, 1.2% next year, 0.9% and the year thereafter, probably back again to 1.2%, 1.3%. So there is this -- that is a negative impact of that tariff on the European, but it is "under control." Of course, that is offset definitely in the medium term for the expected defense spending and infrastructure investments in the European domain.

The fortunate thing about KBC is a diversification into Central Europe, which has stronger growth and a substantially higher number in that perspective compared to the western part of Europe because of the catch-up driven by, amongst others, continuous FDIs. Also regarding the tariffs that are, of course, more certain sectors which are more vulnerable than others. If you look back to those sectors and there we include traditionally metals, we include pharma, we includes chemicals, Well, KBC has analyzed what is then impacting our book. This is limited only roughly 7% of our books, roughly EUR 8 billion. And in that book, only a small part might be under significant stress. Anyway, KBC has very limited exposure on the U.S. through its bonds and through its dollar exposure.

So it allows us to say also that going forward, the guidance can be updated and that the guidance can be updated. I already mentioned the net interest income. So we go from the at least EUR 5.7 billion to an at least EUR 5.9 billion -- sorry, at least EUR 5.85 billion number, with the conservatism of the first guidance remaining intact. We do increase our lending to 6.5%. Coming from at least 4%. We are very comfortable with our 7% guidance on insurance. We confirm our guidance on the cost side, which intrinsically means that the jaws, which were literally at 3% are now shifted upwards with 1.5%, ending at, at least 4.5%. And which I think is very confident message also given the results, which we have posted today.

On the combined ratio and on the credit cost ratio, given the numbers which we have concluded today, we are pretty confident also to confirm again, this guidance. I skip all the rest regarding the countries, I think it's much better to leave the floor to all of you for questions, and I give back the floor to Kurt.

Thank you. The floor is open for questions now. Please restrict the number of questions to 2 to allow for maximum number of people to raise questions. Thank you.

[Operator Instructions]

Our first question is from Namita Samtani from Barclays.

The first question, on your net interest income guide for 2025 and I guess also looking out to 2026. I just wondered what you baked in for the maturity of last year's deposit campaigns. Do you continue to expect to keep the majority of these deposits in-house? And do you expect that some competitors may once again offer negative margin products like they did last year?

And my second question, are you as confident on a potential Ethias acquisition as you were in the first quarter? Just curious on your thoughts, given some government parties have some very strong opinions on what should happen to that asset?

Thank you very much, Namita, for your question. We didn't hear the beginning of your first question. Could you repeat that? Because we're now guessing what was the topic. Could you repeat the second question first part.

Sure. Just on your net interest income guide for 2025.

No, no, no. The second quarter -- The second question, sorry.

Just on the Ethias acquisition, you're very confident in the first quarter. So I'm just -- I just wondered what your thoughts are now because there have been some government parties that have had some very strong opinions.

Yes. Okay, clear. So thank you for your questions. So Bartel or myself can take the first question. I'll give it to Bartel.

Okay. Namita, thanks for your question. As far as the NII guide is concerned and your question related to the potential migration -- continuous migration following the maturity of the term deposits in the fourth quarter, basically and also the reduction of the competitors. First of all, of course, what we have been seeing continuous shift from term deposits to saving accounts and also to mutual funds.

We had quite some significant maturities already because we issued initially also part of it in -- on 6 months, and we have seen that in the first quarter, those maturities resulted into a shift of only 38% of -- back to term deposits. The remainder went to 40% to the saving accounts and then, of course, also to the mutual funds. So that gives you already an indication. Certainly, when you look at -- also take into account that the policy rates will further continue to drop. That will have -- that gives you an indication of what you can expect also in the fourth quarter. As far as competition is concerned, obviously, we never know -- you never know what is going to happen, but we see is that competition seems to get back to more and in particularly one competitor in a more rational approach.

And then you look at actually the drop of the external rates on the saving accounts in Belgium, where all banks actually have been following with a quite significant drop in saving accounts. I will inform you that basically at the beginning of this year, the external rate on saving accounts in Belgium was 90 basis points, 45 basis point base rate and 45 basis points, the loyalty premium. Today, as of the first of July, we will be at 60 basis points, 40 base rate and 20 on the loyalty premium. And you would have seen also that most of the competitors are following that. So that seems to indicate that there will be a more rational behavior in the market. But obviously, you never know.

We will now move to our next question from Benoit...

Excuse me, operator, but we are -- still have to answer the second part of Namita's question, so apologies. So Namita, coming back to your second question regarding the potential sale of Ethias and then also the governance statements, which were made around that during the summer period. Indeed, there was a statement made by French politician about what was going to happen with Ethias, which clearly indicates that the Ethias will be on the table in the period to come.

And that means not necessarily that it will happen this year because the statement was made that it should happen before the 21st of July, which is National Day in Belgium. I mean, the National Day has passed, the statement has not been made, which makes also quite clear that the decision is not taken yet. I'll come back to my earlier statements. I'm still convinced that those are true. I expect that on the Ethias file, there will be a clear indication definitely by year-end, and I expect it to move in 2026, and that will be triggered by the, in essence, 3 parties, which are involved that is the federal government, the Flemish government and then the Walloon government which hold, let's say, more or less 1/3 of Ethias.

And if they come to the market, we will be one of the candidates, and we will be certainly looking into the file, as I said and stated on earlier occasions. So right now, it is not on the table yet, but it's quite clear that the politicians are debating the matter, and I expect things to move ultimately by beginning of 2026.

Now we move to our next question from Benoit Petrarque from Kepler Cheuvreux.

So the first one is actually on the transformation results. The transformation income keeps delivering more income quarters after quarters. And I was wondering if you could help us to quantify how much average yield you are generating as we speak? And how much you are -- did you get from the current yield and how much transformation income will actually come in the coming quarters. I think many banks are actually providing some guidance on that. It will be very useful if KBC could also provide that as well.

And also linked to that, I was wondering if you could give us the -- your view on the clean NII for the second quarter. I think there have been a few one-offs, I mean, the inflation-linked bonds, maybe some dealing room income as well were high. So it would be useful to get a clean NII for the second quarter? And just maybe on Ethias, I think your message is clear. I think it's the French MR, which well, is in favor of the merger between Ethias and Belfius. What is your view on that?

And what do you -- I know you are closed from Flemish politicians as well? And what do you think their reaction is when they listen to Georges-Louis Bouchez talking about a merger with Belfius, what have you seen in terms of kind of reaction from the Flemish side?

So thanks very much, Benoit, for your questions. Let me come back to the first part of your first question regarding the transformation result. So we don't give the details of what is the average yield in our transformation results. What we do give that is that, first of all, we -- given the fact that we have taken specific positions roughly 2 years ago. where we sacrifice short-term income for the longer-term income. So we shortened at a certain stage the durations. And when interest rates were increasing, and coming at the 4% level, we hedged it for a longer period. Well, that is now paying off, clearly.

We -- you know that in our replicating portfolio, we have different durations, roughly 4 years on the current accounts, roughly 2.5 years on the saving accounts. These are indications which we give. And given the evolution of the interest rates, given what I just said, we are having a strong mitigating factor even in an environment where interest rates are cut by the Central Banks, where interest rates are coming down. We said on earlier occasions that we are confident that the transformation result continues to increase for '25 and '26, and we repeat that today. We are confident that we are going to see our net interest income increasing going forward on the transformation result for '26, '27.

What I want to like to add to that -- that is due to 2 reasons because net interest income is the outcome of the product between -- of the multiplication between volume on one side. And you saw today that we are able to increase our volumes in a very stable fashion. And what Bartel just said to Namita's question is that also in the next coming quarters, there is going to be a majority or a significant amount of term deposits. Well, that is to our expectation. And if we only use in a very conservative manner, the term deposits a renewal, then it's for sure that from a negative margin in that product now, we are going to go to at least a positive margin on the term deposit renewal, but the vast majority will be transformed into current accounts and savings accounts at higher margin and therefore, higher income.

We did not calculate that into our guidance. So there's a super conservatism indeed included. But it also allows us to say that in terms of volumes, we can continue our strategy, which we have on the transformation side. And then on the yield. So on the margin, which we have on the transformation result, that margin increases as it did in this quarter and the previous quarter and it will continue going forward. How much it is we don't disclose.

Yes, Benoit, in order to give you some numbers on the clean NII as you requested, I mean we generated EUR 1.509 billion of NII in the second quarter. Deduct from that the impact of the NII on the inflationary bonds of EUR 24 million. And then you have more or less a clean one, of course, taking into account also for the second quarter that, as Johan was highlighting that it probably will not repeat. So you cannot extrapolate that. Take into account also somewhat lower loan volumes. And as far as the dealing room, NII is concerned, we do not disclose that, but it's relatively limited. So that should give you an idea of what the clean NII would be.

And then coming back to your question or your more detailed questions Ethias, so indeed the statement, which was referred to was a statement by Georges-Louis Bouchez, the President of the French speaking liberals, who indeed emphasized that there would also be the possibility of a merger between Ethias and Belfius. I mean, that is not a statement, which is -- this is a statement on his behalf. It's not necessarily the final outcome. I think this is just a matter of the debate amongst the government because the government is doing this for specific reason.

One of the specific reasons, if not the specific reason is to collect extra budgets which they need to have to support their budget of the fiscal year 2025 and '26 and forward. So in that perspective, we all know that the decisions have been taken, for instance, on the defense spending side, which come on top of Belgium's not that comfortable budgetary situation. And in that perspective, the assets which the government holds can be instrumental.

So if you do then the analysis, if you bring everything together, then it's not that obvious that Ethias and Belfius are put into a merger that it would make sense to do it differently to go for the sale of that company is far more contributing to the budget of the Belgian state. So let me cut the study short. It was indeed a remark made by Mr. Bouchez. Flemish politicians have not reacted openly on this, and both come together in the federal government, where both parties are involved, including the French speaking liberals and the Flemish.

So in that perspective, 2 out of the 3 voices have not reacted officially. We will see, and that is my answer on Namita's question, we will see what that brings in the quarters to come and therefore, I expect an outcome in the course of end of year '25, beginning of 2026.

And our next question is from Giulia Aurora Miotto from Morgan Stanley.

I have 2. One maybe to wrap up on the NII. When I put together the previous questions and answers, I think it's fair to say that the real guidance is basically EUR 6 billion because if you start from a clean EUR 1.485 billion, and you assume at least flat if -- but I mean, it should be higher given the deposit migration, loan growth of the replicating result, you get closer to EUR 6 billion. Yes, let me -- is that correct?

And then secondly, I hear that you're very interested in Ethias. Is there any other file or is there anything interesting coming up in CEE that you're also looking at or on the M&A side, we should mostly have in mind, Ethias?

Thanks, Giulia, for both your questions. So coming back on your question regarding the NII. So I said, I mean, traditionally, KBC puts in a conservative margin when we do give guidance because we want to deliver on what we promise. When we put forward the guidance on the EUR 5.7 billion at least, sort of floor, we built in that conservatism. The results, which we have made over the first half of year indicate clearly that we're going to make those numbers. And we just put forward the guidance to 5.85% with the same conservative.

Now you said, listen, if I look at the consensus, and I'll see the guidance, and there is a difference of roughly EUR 120 million. The EUR 120 million added to the new guidance brings close to 6 million. So I mean your calculation is definitely correct. We guide at least EUR 5.85 billion with the same conservatism. And then you said, listen, if I look at the consensus and I see the guidance, then there is a difference of roughly EUR 120 million. The EUR 120 million you added to the new guidance brings us close to EUR 6 billion. So I mean, your calculation is definitely correct. We guide at least EUR 5.85 billion with the same conservatism. And there I keep it and the rest I leave over to your interpretation.

Coming back to Ethias, I understood your question that we now come up with Ethias. I think I've said it on previous occasions as well. So we are interested in Ethias. And as I answered on the previous 2 questions, we still are, and we're definitely looking into it. And with regards to Central Europe, there is the same thing. We constantly screen the market not only on what is officially available as we have demonstrated by the acquisition of 365. That means officially 365 was not on the market, but we spoke to the owners of 365, and we brought this deal home. We expect this to be closed by year-end, by the way.

So we will look in anything what is available in the market on an official matter and in the unofficial matters, we can't make the conversations with parties where we think it makes sense for them to reallocate their capital allocation. That means that they might reconsider their assets in Central Europe, which could be of our interest. Now the names in that perspective, I cannot release because they're not officially on the market, but we constantly have conversations.

We will now move to our next question from Tarik El Mejjad from Bank of America.

A few questions from my side. First of all, I will back up on the -- not too much to be said on Ethias because I'm not very familiar with this political contingencies and I think it will be very challenging to make a view on this. But the -- let's say, it goes to Belfius or it's sell to another competitor. Your excess capital will keep building up. I mean, you have great profitability, good capture generation even putting a 65% payout with the -- and assuming this extraordinary growth you had in the first half continues, you'll be diverting from your new CET1 targets. Would you adjust your dividend policy if there is no deal coming on the table? And how quick would you react to that?

And I mean, you just last -- your last question on Giulia on M&A. I mean, were you referring to Romania and kind of geographies or Poland or I mean without maybe the banks, but just to have a sense. And the other question on Kate. It's probably the most famous employee, but I'm not sure it's the most popular internally. But I mean, it's been a very successful project, where you can see it, see it and feel it in the cost control in all aspects and also your digitization on the client onboarding and compliance has been very successful. Are you working on projects to make that broader into SMEs, maybe even mid-corp in terms of automation and digital, maybe not be called Kate, but that kind of sense...

Thank you, Tarik. We were just discussing who was going to take what. So sorry for the delay. Let me come back on your first question. I know -- because there are 2 parts in the first question. I just lost it, I'm sorry. And so on the dividend policy, so I start from your assumption that is, Ethias is not available and it is -- or it is not coming to the market or it goes to competitor whatever. Our capital deployment plan in that perspective is quite straightforward. We pay out a regular dividend between 50% and 65%, and we want to be amongst the better capitalized financial institutions in Europe. Our capital generative power is the one you know, close to 300 basis points before distribution.

So after distribution, let's say, the CET1 increases, as you indicated, this is a very plausible scenario. We will, at that stage. I mean, we -- the Board will, at that stage observe the possibilities. I will use your assumptions. That means Ethias not there, and there is not in the foreseeable future, anything available on the market. So I will use your assumption, and it's quite clear that we do have surplus capital. And in that perspective, our Board will see how they will bring that surplus capital back to the shareholders because we cannot invest it in -- because organic growth is already absorbed in the numbers I was just referring, we cannot, in the foreseeable future, see it translated into M&A.

Then your second part of that question, are we looking in the Central European markets. So what Giulia was asking in further detail into that. The answer is yes, of course, we are interested, amongst others in Romania. And in that perspective, yes, we are having had conversations with potential assets, which might be of our interest. Until now, nothing is on the table concretely, as you know, and as I answered to Giulia's question, all the other conversations which are happening bilaterally, I'm not going to disclose for obvious reasons. As we speak, we were approach for Poland, but we have, given the fact there was no possibility to establish in a significant country bancassurance model, we were not interested. So we have declined.

And then I will do Kate as well, Bartel, okay. Then I will continue with Kate. Yes, indeed, it is taking off very well. This is, as I said, also on earlier occasions, we are a bit overwhelmed by the performance. We were making assumptions at the time how it would interfere in our business and what would be potentially the positive uptick and Kate is beating them in all -- to all standards. Both on the cost side, both on the income side. As we speak, we are developing Kate 2.0 which is going to be launched by October, let's say, by year-end. And that Kate 2.0 is a further enhanced Kate, which can do what the tool is doing today, but go beyond that as well. The expectation is that our autonomy rate will be go further beyond the 70% easily. And that means that it becomes -- it's something which is going to be the ultimate solution for all questions of all customers. That is one thing.

Second thing is, this is part of a bigger project, which we have been working out now for 10 years and which goes step by step. So the solutions which we provide by Kate, the solutions which we provide by Kate Coins are translated in a fully automated ecosphere strategy and the ecospheres, which we are working out are related to -- I mean, the most obvious things for a bancassurer, that is everything which is related to mobility, everything which is related to housing and everything what is related to amongst others health. And what we're going to do. I'm not -- I don't have time enough to explain that in this call, but we are going to launch end of this year, early next year, the fully integrated ecosphere solutions, which we are working out. And that will be end-to-end for the automated by ultimately 2026. So there is a little bit of an indication where we are going to. I'm happy to explore more what I just answered, but I need at least an hour.

And our next question is from Farquhar Murray from Autonomous.

Just 2 questions if I may. Firstly, we've all seen the kind of recent Pillar 3 and Basel IV disclosures, which kind of in place are a bit of thread bear as compared to what KBC has disclosed and your reporting approach. I just wondered how those practical limitations might flow into your benchmarking exercise and your approach to the kind of CET1 threshold at year-end.

And then secondly, could I get your preliminary take on the summer accords from the new federal government, both the bank and the insurance businesses. I appreciate there's a lot of detail still to be filled in there, but I just wondered what the key focus points were for you, possible implications and where, clearly, obviously, some more details will be needed.

Thank you, Farquhar for your question. To understand correctly, are you referring to what was disclosed in the transparency templates under the stress test and also in the Pillar 3 disclosures compared to what we have disclosed in the presentation, the corporate presentation on the Basel IV impact. Is that your question?

It's largely that, yes, indeed. So -- but mainly probably the Pillar 3 of 1Q is probably what I'm talking about.

Yes. I mean what you should know, I mean, you should reflect to the -- I mean, you look at what we've been disclosing in the corporate presentation. which is based, of course, on a different reporting period that is mainly on the fourth quarter static balance sheet of '24, where indeed, you see a first time implication impact of EUR 0.9 billion, and then a transition of an additional EUR 1.6 million with a output floor impact of EUR 2.6 billion, bringing to a total of EUR 5.1 billion. The reason why there is a deviation in some of the disclosure is because it's a different reporting period and secondly, also because, of course, in the meantime, a number of measures have been taken to mitigate further the impact of Basel IV.

And we also have -- are using more granular calculation in the calculation tools. Now having said that, for benchmarking, of course, there is certain limitation because some of the banks now decided to no longer disclose the fully loaded impact, including the output floor and to go to a transitional only the transitional impact. This is correct. This is something that we will have to deal with.

How will you deal with it?

Well, that is something that we are currently looking into. We are currently in the process of making the benchmark analysis based also on what has been disclosed in the stress test, and then that is what we will take into account going forward.

Perhaps, Farquhar, if I add to Bartel's comment. If you just look how we calculate the CET1, the disclose fully loaded and floor CET1, we include the phased part as well of Basel IV. And if you would not do that as some of our peers are doing, they only give the FDA or they only take into account the FDA. Well, then our CET1 ratio would stand at 14.8 rather than 14.6. So that is a difference of roughly precisely 19 basis points, so roughly 20 basis points. If you would take it all, so also the floor in 2033, which is, I think, a long shot, that has a negative impact of 30 basis points. But as I said, that is a long shot because there will be a lot of things happening between now and 2033.

Now let me come back to your second question. Well, indeed, the government has taken -- the federal government in Belgium has taken a lot of decisions, which are part of a summer agreement as they call it. Well, the thing is that in that summer agreement, a lot of elements are included, which have not necessarily a direct impact on the banking industry. There are some of which might have an impact and there is one for sure, who has an impact on the operational side. That is -- on the bank taxes, the statement is that in the summer agreement that the bank taxes remained at the level of last year, which means you do not -- cannot expect that there is any kind of decline, which we also not expect going forward.

What -- how does it translate in hard numbers? Well, that is not defined. So it is at the level of 2024, which means no reduction whatsoever. That's one thing. The other thing is that there are a couple of things translated in the summer agreement regarding our saving accounts, because they are expecting one or the other judgment of -- on one of the other questions on the loyalty premium in Belgium. That might change a couple of things in the way how we are setting up saving accounts, how we deal with the remuneration of those saving accounts, specifically loyalty premiums, but even when it changes, if the market is in the behavior of today, that is working with products, which include loyalty premium, it should not have an immediate negative impact on our numbers.

Why? Because the vast majority of customers, which do have product, the loyalty premium. There, we also pay out loyalty premium. I'm talking about more than 90% is paid out. So even if that would be changed in the agreement that would not have a negative impact on the numbers. For good understanding, the judgment is only to be expected in the third quarter of this year. So before the changes are made, I expect this to be ultimately 2026, but probably quarter 4 of this year. We'll see.

And then the -- what is the precise translation? The capital gains tax, well, the capital gains tax is debt and is given. So there is no way that is going to disappear. The capital gain tax is something which has no direct impact on the banks in the form of we have to pay more taxes. That is due for our customers. The thing is we do need to implement it because it starts at the first of January 2026, and that will -- first of all, that is on a very short notice, it's not 6, what is it? 5.5 months to go. And the unfortunate thing is that what it is and how it should be implemented is not defined yet.

So the expectation is that after summer in October, this will become clear in the government. So then we have a couple of months to implement that, which is impossible. So we do expect indeed that comes to the table that we're going to implement it. It has no direct impact on our P&L because of the capital gains tax itself, but it has definitely some impact on our cost side and that is something which we are going to see going forward because in October, we do expect the final detail about that. The preparation on the cost side is included in our guidance.

Our next question is from Chris Hallam from Goldman Sachs.

I just have one question left, which is on deposit trends. So obviously quite strong in the second quarter, 6% to 7% growth, I just wondered, are there any lingering state note impacts in there with regards to the win-back campaigns and then the roll-off of those campaigns. I've just lost track a bit about when that should have all washed out. So is that 6% to 7% number indicative of core underlying trends? Or is it still being impacted by the 23 state notes? And is that sort of the right base to look at going forward?

Chris, can you repeat the first part of your question, please? It didn't come in clearly.

Yes, I know it's just whether or not the growth rate you saw in deposits in the second quarter, 6% to 7%, whether or not that's still being impacted by the lingering effects from the state notes in 2023, so you had the win-back campaigns and then those campaigns rolling off. And I've just lost track of the ebbs and flows of the impact from the state note.

So thanks, Chris. We have a very poor line, so we hardly understand you. But what we made out of what you asked is if there are any kind of campaigns going forward coming to the market now in September, October regarding the maturity of the previously recuperated state note monies.

Well, we'll see, Bartel already answered in the previous question that today, we do see a very disciplined behavior in the market. Also, if you look at the results of some of our peers, the net interest income on their side is toning down. So it's always with a negative. We do not expect that in the market now, we will have a war again, as we have seen it 2 years ago and last year. So in that perspective, we are fully prepared for eventually an aggressive campaign of one or the other competitor that is on our side, normal behavior to be expected, but fully prepared in the event it would be different.

Thank you. We will now move to our next question from Anke Reingen from RBC.

Just 2 small questions, please. First is on your operating leverage. I mean, I guess you have the top line upgrade, but stick to the cost guidance. Is that largely a function of the mix of the upgrade to the top line? Or is there like -- are you making more successes as well on savings initiatives and that helps the keeping costs flat as well?

And then in terms of the Belgium loan momentum and really good volume goals plus spreads are holding up really well. Do you think that's sort of like a new environment? And do you think that's sustainable? Or if loan growth slows down, then it becomes a bit more competitive on the spreads as well?

Thanks, Anke, for your questions. So regarding the first one. So if you look at the performance in, let's say, the first half of this year, so combination quarter 1, quarter 2, indeed, we do see an uptick on specific domains. We just do better on specific elements. Part of that outperformance is driven by let's call it, interventions, which we did at headquarters and which I explained earlier, that is amongst others the way how we hedged and so on and so forth, not necessarily consuming extra effort in our bank branches or in our headquarters on the banking side. And for that reason, Indeed, we are able to grow our income.

And secondly, keep that cost part under control. And then let's not underestimate the impact of Kate. We -- I mean we can disclose numbers, which are very conservative. The reality is that 70% of the questions of our customers are answered by Kate. Let me disclose another number. We do have, on a monthly basis, let me give you one country for Belgium alone, EUR 84 million -- 84 million interventions on our mobile which means that customers are dealing with our mobile first, to solve their questions.

And there Kate plays an important role. That time which is freed up is used to do the business we are referring to. So the answer is yes to your question, despite the fact that the income is growing significantly. We are doing this either because of certain actions which we took in the past and which are not necessarily related to operational activity in the branches. And the second thing is an important chunk of work, which is cumbersome. So time consuming, so let's call it administrative work is fully now tackled by Kate and the growth of the interaction of our customers in our mobile, I didn't give the references. So 83 million interaction is now a bit more than a year ago.

It was roughly 70 million interactions with our customers. So it's growing like how -- so that means that, that operational part is taken by the machine and no longer by human beings, which allows them to do the more sophisticated conversations with our customers, the more time consuming efforts with our customers. So yes, it allows us to keep the cost evolution stable.

Anke, as far as your second question is concerned, I understood that this is mainly focused on the loan. The deposit volume growth in Belgium. There basically, as I already stated in the first quarter, what we typically see is that in Belgium, you have a seasonally low amount of deposit volume, mainly due to the fact that there are no bonus payments or holiday allowances or any other kind of allowances being paid in the first quarter. On the contrary, there are a lot of utility bills, et cetera, and insurance premiums to be paid for the year. So typically, in Belgium, the deposit volumes in the first quarter are somewhat lower.

The second quarter here, you've seen indeed an uptick, and that is definitely driven by the fact that you get indeed the bonus payments, but also this was also seasonally driven by higher corporate volumes in this quarter, the third quarter there, you will see that there is going to be an impact somewhat of the -- of course, the holiday season and people have been spending there. And the fourth quarter, again, will be quite strong as a result also of the -- in Belgium, very typical, what is called a 13-month payment that typically has a positive impact also together with, of course, also the corporate volumes. Just to give you an idea on how the seasonality is.

But I was actually -- thank you for this detail. I was actually wondering about the loan side on the spreads in Belgium, they're holding up really well. Do you think that's sort of like sustainable? Or is there some seasonality potentially in that as well?

Okay. Sorry, I misunderstood that. But on the loan side, I think for the second half, it would -- I would not recommend you to also not in Belgium to extrapolate the extraordinary results of the first half of the year. Very simply because, of course, on the corporate side, we've seen quite significant increase on corporate loans, which should be more likely not be repeated in the second half.

We'll take our final question today from Sharath Kumar from Deutsche Bank.

I have 2 left, please. Firstly, on deposit growth and mix shift, I know you didn't previously provide, but for the second quarter, can you now provide us a split between the maturity of term deposits related to the Belgium state note and the organic shift? Also be interested in understanding the sensitivity around the mix shift in deposits towards your NII guidance?

Secondly, on additional Tier 1 notes, the EUR 1 billion issuance in May looks much higher than the shortfall that you needed to fill. So just checking if there are any callable bonds later this year. Is it possible to provide any guidance on your AT1 costs for the year?

Thank you, Sharath, for your questions. We were just distributing the 2 questions between us. On the deposit question, so for good understanding, the -- so indeed, in Belgium, we do have -- as you could see in the previous presentation, roughly EUR 6.5 billion recuperated amongst the state note monies, and part of it came from us, parts was coming from the market. And that was invested in term deposits in KBC Group in 2 parts, that was -- a certain part was invested term deposits with a tenor of 6 months and the vast majority was invested in a tenure of 30 months because it was originated in September.

You have the maturity of the first part, the 6-month part in March this year, which was part of quarter 1. So what you see in quarter 2, the EUR 5 billion core monies flowing in has nothing to do with the term deposit of the state note. So that is pure attraction of new monies of customers and that is purely driven on the strength of KBC without any kind of transformation. And that is what I said at the beginning of the call, perhaps I did not emphasize it enough the strong performance indeed because, indeed, current accounts and saving accounts in that second quarters have performed positively EUR 5.5 billion. So the maturity of the internal term deposits in the second quarter are just term deposits, as such, not linked to the state note. And also there, of course, we do see maturities and we see them coming indeed into current accounts and savings accounts, but have nothing to do with the recuperation of the state note money.

That part is going to mature in October of this year. And that part Bartel said earlier, if you even take the original historical assumption of the first quarter, that is only 38% going back to term deposits will deliver a lot of net interest income. Be aware, we didn't put that into the guidance. And therefore, I said we maintained our conservatism levels. Also on the lending side, we included conservative levels. So that still has to come.

Okay. Sharath, as your question related to the AT1 is concerned. Your calculation is correct. But please take into account that we will call EUR 364 million in October on all AT1 million. So that, I think, answers your question.

There are currently no further questions at this time. With this, I'd like to hand the call back over to our host for closing for remarks.

Thank you very much. This sums it up for this call. I would like to thank you for your attendance, your interesting questions, and enjoy the rest of the day. Bye-bye.

Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.