Q2 2026 KBC Group NV Earnings Call

Speaker #1: Results conference call. For the first part of the conference call, the participants will be in listen-only mode. During the Q&A session, participants are able to ask questions by dialing #5 on their telephone keypad. Now, I will hand the conference over to Kurt de Bonst, Head of Investor Relations.

Operator: Results conference call. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing pound key five on their telephone keypad. I will hand the conference over to Kurt De Baenst, Head of Investor Relations. Please go ahead, sir.

Speaker #1: Please go ahead, sir.

Speaker #2: Thank you. A very good morning to all of you from the headquarters of KBC in Brussels, and welcome to the KBC conference call. Today is Thursday, August 6, 2026, and we are hosting the conference call on the second quarter results of KBC.

Kurt De Baenst: Thank you. A very good morning to all of you from the headquarters of KBC in Brussels, and welcome to the KBC conference call. Today is Thursday, 6 August 2026, we are hosting the conference call on the Q2 results of KBC. As usual, we have Johan Thijs, our Group CEO, with us, as well as Group CFO, Bartel Puelinckx, they will both elaborate on the results. As such, it is my pleasure to give the floor to our CEO, Johan Thijs, who will quickly run you through the presentation.

Speaker #2: As usual, we have Johan Thijs, our Group CEO, with us, as well as Group CFO Bartel Peulings, and they will both elaborate on the results.

Speaker #2: As such, it's my pleasure to give the floor to our CEO, Johan Theis, who will quickly run you through the presentation.

Speaker #3: Thank you very much, Kurt, and also from my side, a warm welcome to the announcement of the second-quarter results. As always, we start with the overview.

Johan Thijs: Thank you very much, Kurt, also from my side, a warm welcome on the announcement of the Q2 results. As always, we start with the overview. I am very happy to announce a very excellent result over the Q2, totaling EUR 1,152,000,000. This is a return on tangible equity of 18%, once again, it highlights that KBC is not only a very well-integrated bank insurance group, but that KBC is once again able to make the machine turn on all its fire on all its cylinders. All countries performed excellently in delivering this result, that is also translated in, amongst others, customer loans growth and customer deposits growth over the quarter again, that also totals in a very strong inflow of core customer monies, now totaling in one single quarter, EUR 6 billion.

Speaker #3: And I'm very happy to announce a very excellent result over the second quarter, totaling 1 billion 152 million euro. This is a return on tangible equity of 18%, and once again, it highlights that KBC is not only a very well-integrated bank insurance group, but that KBC is once again able to make the machine turn on all its fire on all its cylinders.

Speaker #3: All countries performed excellently in delivering this result, and that is also translated, among others, into customer loans growth and customer deposits growth over the quarter.

Speaker #3: Again, and that also totals in a very strong inflow of core customer monies, now totaling in one single quarter 6 billion. It also translates and transpires in an excellent net interest income result, which allows us to increase the guidance to approximately 7 billion 50 million euros.

Johan Thijs: It also translates and transpires in an excellent net interest income result, which allows us to increase the guidance to approximately EUR 7,050,000,000. Not only the interest income part was delivering, as I said, the diversification into the fee and commission business and the insurance business both delivered excellent results. Again, very strong inflow on the asset management business, also on the life and non-life side, if you compare it with same periods in previous year, then we see a strong growth more than 10% each. In terms of guidance, also there, we will further increase the guidance. In terms of the sum of all parts, you will not be surprised that also total income guidance is now brought to approximately 11%, as it is a comparison to 9.9%. An increase of roughly 1.2%. Costs are well under control.

Speaker #3: Not only the interest income part was delivering, but as I said, the diversification into the fee and commission business and the insurance business both delivered excellent results.

Speaker #3: Again, very strong inflow on the asset management business, but also on the life and non-life side, if you compare it with previous periods in the same periods, sorry, in previous years, then we see a strong growth, more than 10% each.

Speaker #3: In terms of guidance, also there, we will further increase the guidance. In terms of the sum of all parts, you will not be surprised that also total income guidance is now brought to approximately 11% as it is a comparison to 9.9%, so an increase of roughly 1.2%.

Speaker #3: Costs are well under control. They're perfectly in line with the guidance which we gave at the end of, on the back of the fourth quarter results.

Johan Thijs: They're perfectly in line with the guidance which we gave on the back of the Q4 results, is now also perfectly in line with our internal trajectory of the cost evolution. As a matter of fact, we have some advance in that perspective. That trajectory was used to put the guidance in place. In terms of loan loss impairments, excellent credit cost ratio, we have taken some impairments on other matters, I will come back to that in a second. Solvency and liquidity positions remain very strong with a solvency position of 14.4%, which allows us also to announce today, as usual, the execution of our dividend policy, indicating that we are going to pay out a EUR 1 per share interim dividend as usual in November of this year. Let me go more into the detail.

Speaker #3: And it is now also perfectly in line with our internal trajectory on the cost evolution. As a matter of fact, we have some advance in that perspective. That trajectory was used to put the guidance in place.

Speaker #3: Now, in terms of loan loss impairments, we have an excellent credit cost ratio, and we have taken some impairments on other matters. But I will come back to that in a second.

Speaker #3: Solvency and liquidity positions remain very strong, with the solvency position at 14.4%. This also allows us, as usual, to announce today the execution of our dividend policy, indicating that we are going to pay out a €1 per share interim dividend, as usual, in November of this year.

Speaker #3: Let me go, then, more into detail on the next slide. You can see what I just said about the diversification in general—it's more or less a 50/50 split this quarter.

Johan Thijs: On the next slide, you can see what I just said about the diversification. In general, it's more or less 50/50 split. This quarter, it was a little bit more on the net interest income side. It is a 50% to 48%, this is confirming what I said, highly diversified. In KBC, both growth costs are under control because of the investments which we do in the digital environment, artificial intelligence, amongst others, that is then transpiring into what you all know under the name Kate. Kate is continuously improving its deliveries in terms of both the revenue side, on the cost side. More than 6.2 million of our customers are in contact with Kate using it, the autonomy in that perspective of Kate is hovering around 80%, so 77 in Belgium this quarter, 75% in Czech Republic, where we launched Kate 2.0.

Speaker #3: It was a little bit more on the net interest income side. It is a 52/48%, and this is confirming what I said: highly diversified.

Speaker #3: In KBC, both growth and costs are under control because of the investments we make in the digital environment, artificial intelligence, among others, and that is then transpiring into what you all know under the name Kate.

Speaker #3: Kate is continuously improving its deliveries in terms of both the revenue side and the cost side. More than 6.2 million of our customers are in contact with Kate and using it. The autonomy, in that perspective, of Kate is hovering around 80%—so, 77% in total this quarter and 75% in the Czech Republic, where we launched Kate 2.0.

Speaker #3: In the other Central European countries, Kate 2.0 is going to be launched in the quarters to come, which also means that there you can expect, indeed, a further increase.

Johan Thijs: In the other central European countries, Kate 2.0 is going to be launched in the quarters to come, which also means that there you can expect indeed a further increase, as you know, we want to have numbers of autonomy 80% or more. In terms of the translation into what is the effect on the cost side, well, Kate is doing the equivalent of work of at least 420 of our commercial employees, it is calculated in a very conservative way. Let me also highlight something else. Kate is generating on the back of customer data leads, which are then sent out to our employees in a dedicated way. On the back of that, Kate was able to trigger roughly half a million sales in this quarter. To be precise, 488,000 sales were delivered on the back of that.

Speaker #3: And as you know, we start—we want to have numbers of autonomy, 80% or more. In terms of the translation into what is the effect on the cost side, well, Kate is doing the equivalent work of at least 420 of our commercial employees, and it is calculated in a very conservative way.

Speaker #3: But let me also highlight something else. Kate is generating, on the back of customer data, leads which are then sent out to our employees in a dedicated way. On the back of that, Kate was able to trigger roughly half a million sales in this quarter; to be precise, 488,000 sales were delivered on the back of that.

Speaker #3: Just to give you an idea, this is a success rate of roughly 19%—for instance, in the Business Unit Belgium—lead to contract.

Johan Thijs: Just to give you an idea, this is a success rate of roughly 19%, for instance, in the business unit Belgium, lead to contract. On the next page, you can see an overview of where we are in terms of the different positions, profitability, sustainability, let me skip that to spend more time on the really technical numbers. This quarter was also characterized by a couple of one-offs. The most important one-off, which is in this pack, is the adjustment for the modification losses in Hungary. Well, that in essence is very straightforward. As you remember, there is a cap on the interest rates for mortgages in Hungary. That cap goes by the normally taking 6 months timeline. Every 6 months it was decided if the cap would be withheld or not, triggering an impairment, a modification loss.

Speaker #3: On the next page, you can see an overview of where different positions' profitability and sustainability stand. But let me skip that to spend more time on the really technical numbers.

Speaker #3: This quarter was also characterized by a couple of one-offs. The most important one-off, which is in this pack, is the adjustment for the modification losses in Hungary.

Speaker #3: Well, that is, in essence, very straightforward. As you remember, there is a cap on the interest rates for mortgages in Hungary. That cap was, normally, taking a six-month timeline.

Speaker #3: So every six months, it was decided if the cap would be withheld or not, triggering an impairment or a modification loss. The previous government, the Orban government, just before they handed over the bar to the Peter Magyar government, changed that and actually decided to get rid of that temporary six-month cap. Therefore, the impairment needs to be calculated over the full lifetime of the loans, totaling €42 million.

Johan Thijs: The previous government, Orbán government, just before they handed over the bar to the Péter Magyar government, they changed that and actually have decided to get rid of that temporary six months cap. Therefore, the impairment needs to be calculated over the full lifetime of the loans, totaling EUR 42 million. As we speak, Hungarian government is indeed reconsidering that position. Then bringing back the caps again. A couple of things needs to be discussed on that matter, but it is potentially possible that we are going to review that EUR 42 million in the quarters to come. Then obviously we will write back that impairment. In essence, over the full quarter, after taxes, EUR 38 million total one-offs, which is, as you can see on the graph, a bit different than on previous quarter.

Speaker #3: As we speak, the Hungarian government is indeed reconsidering that position, and then bringing back the caps again. A couple of things need to be discussed on that matter, but it is potentially possible that we are going to review that €42 million in the quarters to come, and then, obviously, we will write back that impairment.

Speaker #3: So in essence, over the full quarter after taxes, €38 million total one-offs—which is, as you can see on the graph, a bit different than in the previous quarter.

Speaker #3: Let me go into the different P&L lines, and as usual, we always start with net interest income. Well, we had an extremely good quarter: €1,805 million is indeed a strong performance, and it's triggered by its two main drivers.

Johan Thijs: Let me go into the different P&L lines. As usual, we always start with net interest income. Well, we have an extremely good quarter. EUR 1.805 billion is indeed a strong performance and it is triggered by its two main drivers, plus an extra. The two main drivers are the transformation results. First of all, transformation results round up significantly over the quarter on the back of two things. First of all, higher yields. Second thing, a continuous inflow of benchmark deposit volumes. I will come back to that in a second, but in this quarter, we had a very strong inflow again on current accounts and savings accounts. Next to that, we had a strong increase of our lending income, roughly EUR 28 million more than before, which is due to two things. First of all, the traditional lending income generated by volumes and margin.

Speaker #3: Plus an extra. The two main drivers are the transformation results. First of all, transformation results bounced up significantly over the quarter on the back of two things.

Speaker #3: First of all, higher yields, and second, a continuous inflow of benchmark deposit volumes. I will come back to that in a second. But in this quarter, we had a very strong inflow again on current accounts and savings accounts.

Speaker #3: Next to that, we had a strong increase in our lending income—roughly €28 million more than before—which is due to two things.

Speaker #3: First of all, the traditional lending income is generated by volumes and margin. Volumes were up in all countries, and in a very significant way compared to our guidance.

Johan Thijs: Volumes were up on all countries and in a very significant way compared to our guidance. In this quarter alone, volumes increased with 2.8%, and that is 7.2% on the year for good understanding, which is indeed significant. As a matter of fact, year to date, given the Q2 result, we now have an increase of our lending volumes of 4.3%, which is already almost achieving the full-year target guidance, which we gave at least 5%. On the back of that, we are going to increase that guidance for the loan growth to at least 6% for 2026. Gross volume is one thing. What about the margin? It's clear that in a lot of markets where we are present, and on the mortgage side and on the corporate side, margins are under pressure. It's not always downward.

Speaker #3: In this quarter alone, volumes increased with 2.8%, which is indeed that is 7.2% on the year for good understanding, which is indeed significant. As a matter of fact, year to date, giving the second quarter result, we now have a increase of our lending volumes of 4.3%, which is already almost achieving the full year target guidance which we gave at least 5%.

Speaker #3: And on the back of that, we are going to increase that guidance for loan growth to at least 6% for 2026. Growth in volume is one thing.

Speaker #3: What about the margin? It's clear that in a lot of markets where we are present, and on the mortgage side, and on the corporate side, margins are under pressure.

Speaker #3: It's not always downward. Sometimes we are able to increase margin, but in general, I would say there is commercial pressure on the margins on the lending side.

Johan Thijs: Sometimes we are able to increase margin, but in general, I would say there is commercial pressure on the margins on the lending side. In terms of the total margin for the entire book, the margins on the deposit side replicating before, the margin on the lending side, and all other products which are generating interest income, the margin went up from 217 basis points to 223 basis points, which is indeed a very strong increase. If you compare it over the year, then the increase is 15 basis points, and that is indeed very significant. I said two drivers, I just explained them, and an extra. The extra is inflation-linked bonds. As we have indicated on the announcement of the previous quarter, where inflation-linked bonds were contributing negatively, this quarter was stellar.

Speaker #3: In terms of the total margin for the entire book, that means the margins on the deposit side, the replicating portfolio, and the margin on the lending side, and all other products which are generating interest income, the margin went up from 217 basis points to 223 basis points, which is indeed a very strong increase.

Speaker #3: If you compare it over the year, then the increase is 15 basis points, and that is indeed very significant. So I said two drivers.

Speaker #3: I just explained them, and an extra. The extra is inflation-linked bonds. As we indicated in the announcement of the previous quarter, where inflation-linked bonds were contributing negatively, this quarter was stellar.

Speaker #3: €45 million net interest income was generated through those inflation-linked bonds, which makes the difference back-to-back with the previous quarter, €57 million.

Johan Thijs: EUR 45 million net interest income was generated through those inflation-linked bonds, which makes the difference back to back the previous quarter, EUR 57 million. As a matter of fact, the totals, the interest income for the inflation-linked bonds over this year already to EUR 34 million. We guided previously between EUR 30 million and EUR 40 million, so we are getting close to that. You cannot extrapolate the EUR 45 million this quarter going forward. Probably will generate a couple of million EUR every quarter in the two coming quarters to come. What about the other adjustments to a lesser extent, number of days, EUR 9 million extra, where it was previously negative. All in all, a very strong number, but let me come back to what I said on the volumes. There was a 2% growth overall on the quarter of our deposits.

Speaker #3: As a matter of fact, the total interest income for the inflation-linked bonds over this year is already €34 million. We previously guided between €30 and €40 million, so we are getting close to that.

Speaker #3: You cannot extrapolate the €45 million of this quarter going forward; it will probably generate a couple of million euro every quarter in the coming quarters.

Speaker #3: What about the other adjustments? There are, to a lesser extent, a number of days. €9 million extra where it was previously negative. So all in all, a very strong number, but let me come back to what I said on the volumes.

Speaker #3: There was a 2% growth overall in the quarter for our deposits. If you look at the inflow of core customer monies on the next slide, it is indeed a very strong quarter.

Johan Thijs: If you look at the inflow of core customer monies on the next slide, it is indeed a very strong quarter. EUR 6 billion of inflow of core customer monies. What is even more important is that in comparison to previous quarter, this quarter was characterized by a strong inflow on current accounts and saving accounts rather than on term deposits. As a matter of fact, the inflow on current account and saving accounts is double of the term deposits, which is a different trend as what was probably assumed in Q1. If you sum it up of all parts, we are almost at EUR 12 billion net inflow of core customer monies. You also see that in that perspective, we do see 1.4 billion inflow on the mutual fund business, which already gives you an indication on the strong performance of last year.

Speaker #3: 6 billion euro of inflow of core customer monies, and what is even more important is that this in comparison to previous quarter, this quarter was characterized by a strong inflow on current accounts and saving accounts rather than on term deposits.

Speaker #3: As a matter of fact, the inflow on current and savings accounts is double that of the term deposits, which is a different trend from what was probably assumed in Q1.

Speaker #3: If you sum up all the parts, then we are almost at €12 billion net inflow of core customer monies. You also see that, in that perspective, we do see a €1.4 billion inflow in the mutual fund business, which already gives you an indication of the strong performance from last year.

Speaker #3: Let me say one more word on the term deposits. Term deposits here are also used as a defensive instrument. This defensive instrument is used, for instance, when competition is launching these kinds of products, or when states are launching state notes with higher interest rates.

Johan Thijs: Let me say one more word on the term deposits. Term deposits here are also used as a defensive instrument. This defensive instrument is used, for instance, when competition is launching these kind of products, when states are launching state notes with higher interest rates. Well, term deposits are often used to actually facilitate our customers with short-like products. There is one fundamental difference. Most of the time, we do see that clearly, for example, in the business unit Belgium, where private banking is using this instrument for the same reason, that most customers lock in those monies in a very short term. 55% of all the monies which are on term deposits in that perspective in Belgium are having a tenor of less than three months.

Speaker #3: Well, term deposits are often used to actually facilitate our customers with sort-like products, but there is one fundamental difference. Most of the time, we do see that clearly—for example, in the Business Unit Belgium, or Private Banking is using this instrument for the same reason—that most customers lock in those monies for a very short term.

Speaker #3: Fifty-five percent of all the monies which are on term deposits, in that perspective in Belgium, have a tenor of less than three months. Seventy-five percent have a tenor of less than six months, which means it's just an instrument to mitigate potential other investments in the future. Amongst all those mutual funds—let me just say it differently—amongst all those products with higher yields.

Johan Thijs: 75% have a tenor of less than six months, which means it is just an instrument to mitigate potential other investments in the future, amongst others, mutual funds. Let me say it differently, amongst others, products with higher yields. Let me go into immediate bridge to the fee and commission. Already mentioned the very strong inflows, EUR 758 million put net fee and commission income at a record high. This is due to actually two things, in essence, 4% growth on the asset management services and 4% as well growth on the banking services. Asset management services, as you know, is also driven on the evolution of the market. The market performance is generating here a very strong uptick.

Speaker #3: Let me then go into the immediate bridge to the fee and commission, already mentioning very strong inflows. That was €758 million put to net fee and commission income, at a record high.

Speaker #3: And this is due to actually two things: in our sense, 4% growth in the asset management services, and 4% growth as well in the banking services.

Speaker #3: Asset management services, as you know, are also driven by the evolution of the market. So, the market performance is generating here a very strong uptick.

Speaker #3: Our assets under management grew to 328 billion euro. Which is an increase of 10% on the quarter, and that 10% is actually generated to roughly 9 to 10% market performance and 1% net inflow.

Johan Thijs: Our assets under management grew to EUR 328 billion, which is an increase of 10% on the quarter, and that 10% is actually generated to roughly 9% to 10% market performance and 1% net inflow. Given that market performance, there is no big surprise that the asset management fees are increasing indeed strongly over the quarter, and that net inflows follow up, but to a lesser extent, that is a translation of the strong inflow of the EUR 1.4 billion. In terms of the banking services, very strong performance on the payment services. Payment services are the bulk of those banking services, but also very strong performance on the network income and the credit files linked to the loan growth, but also on the security-related fees, which we get on our trading platforms in Belgium, Czech Republic, and Hungary.

Speaker #3: Now, given that market performance, there is no big surprise that the asset management fees are increasing indeed strongly over the quarter, and that net inflows follow up, but to a lesser extent. That is a translation of the strong inflow of the €1.4 billion.

Speaker #3: In terms of the banking services, a very strong performance on the payment services. Payment service are the bulk of those banking services, but also very strong performance on the network income and the credit files linked to the loan growth, but also on the security-related fees, which we get on our trading platforms in Belgium, Czech Republic, and Hungary.

Speaker #3: Just to give you an idea, we had, again, on the record of last quarter, another improvement: 12% more customers on the Bolero platform in Belgium over the year, compared to 36% more transactions.

Johan Thijs: Just to give you an idea, we had, again, on the record of last quarter, we had another improvement, 12% more customers on the Bolero platform in Belgium over the year compared 36% more transactions. All in all, very strong performance on the fee and commission side. We stand now at EUR 3 billion net sales inflow in H1 of this year, and it is perfectly in line with our ambition in this perspective. As you know, we don't give detailed guidance, but we are quite positive about the evolution. Just to give you an idea, in the first months of this Q3, we have achieved a sale of EUR 1 billion net as well. Well, what about the insurance side? Non-life business is doing excellently, 10% sales increase, which is quite significant. This is due to all countries, Belgium 7%, more mature market, bigger portfolio.

Speaker #3: So all in all, very strong performance on the fee and commission side. We stand now at 3 billion gross sorry, 3 billion net sales inflow in the first half of this year, and this is a perfect in line with our ambition.

Speaker #3: In this perspective, as you know, we don't give detailed guidance, but we are quite positive about the evolution. Just to give you an idea, in the first months of this third quarter—yes, third quarter—we have achieved a sale of €1 billion net as well.

Speaker #3: What about the insurance side? Well, non-life business is doing excellently. 10% sales increase, which is quite significant. This is due to all countries. Belgium 7%, more mature market, bigger portfolio, and then the Central European portfolios, they all grew above their targets, more than 10%, 12% in Bulgaria, Hungary 16%, and 14% in Czech Republic and Slovakia is a bit lower.

Johan Thijs: The central European portfolios, they all grew above their targets, more than 10%, 12% in Bulgaria, Hungary 16% and 14% in Czech Republic, and Slovakia is a bit lower. Why on purpose? Because of the reshuffling which we're doing on the portfolios, and this is mainly due to the MTPL portfolio. Combined ratios in all countries are performing excellently, despite the fact that we had thunderstorms with consequences in Belgium and in Hungary, but also a couple of big fires in, amongst others, Czech Republic. If you all take that into account and you put it into a combined ratio, then you see that combined ratio stands at an excellent 85%, perfectly comparable with the same period previous year and clearly below the target of lower than 91%.

Speaker #3: Why? On purpose, because of the reshuffling we’re doing on the portfolios. This is mainly due to the MTBL portfolio. Combined ratios in all countries are performing excellently.

Speaker #3: Despite the fact that we had thunderstorms with consequences in Belgium and in Hungary, but also a couple of big fires in, amongst others, the Czech Republic.

Speaker #3: But if you all take that into account and you put it into a combined ratio, then you see that the combined ratio stands at an excellent 85%, perfectly compatible with the same period previous year, and clearly below the target of lower than 91%.

Speaker #3: So this is a clear token that the underlying quality of this portfolio is of such a kind that it allows us to absorb even a couple of calamities, which can happen in a quarter.

Johan Thijs: This is a clear token that the underlying quality of this portfolio is of such kind that allows us to absorb even a couple of calamities which can happen in a quarter. What about the life business? Well, the quarter performance looks, compared to previous quarter, subdued. This is not correct observation. As you know, a lot of sales in these portfolios are driven by campaigns, and the first quarter characterized by very strong campaignment, not only in Belgium but also Central European countries, amongst others, Czech Republic. This was not the case in the second quarter. We had only one campaign in Belgium and in Bulgaria. Nevertheless, we were able to generate 24% more sales in this quarter than in the same period last year, where you have the same seasonality.

Speaker #3: What about the live business? Well, the quarter performance looks compared to previous quarter subdued. Well, this is not correct observation, as you know, a lot of sales in these portfolios are driven by campaigns, and the first quarter characterized by very strong campaignment, not only in Belgium, but also Central European countries, amongst others, Czech Republic.

Speaker #3: This was not the case in the second quarter. We had only one campaign in Belgium and in Bulgaria, and nevertheless, we were able to generate 24% more sales in this quarter than in the same period last year, where you have the same seasonality.

Speaker #3: So, combining the two quarters, the first half of the year’s net sales was 18% higher than the same period last year, just to indicate that also in that perspective, the commercial machine has been doing its utmost to generate extra sales.

Johan Thijs: Combining the two quarters, H1 net sales was 18% higher than the same period last year. Just to indicate that also in that perspective, the commercial machine has been doing its utmost to generate extra sales. Quality-wise, also the margin which we deliver on those products, CSM margin, has further increased. It now is solidly above the 17%, which is a fundamental uptick in comparison with, for instance, the same position a year ago. We go on to more volatile results, that is the financial instruments at fair value. As you can see, we have a clear improvement on the derivatives, which are used for our mark-to-market positions, EUR 42 million better, which is on the back of the lower ineffectiveness of our macro hedges. All the other stuff you can read in the detail.

Speaker #3: Quality-wise, also the margin which we deliver on those products—CSM margin—has further increased. It's now solidly above 17%, which is a fundamental uptick in comparison with, for instance, the same period at the same position a year ago.

Speaker #3: Then we go on to more volatile results—that is, the financial instruments at fair value. As you can see, we have a clear improvement on the derivatives, which are used for our mark-to-market positions.

Speaker #3: €42 million BEPA, which is on the back of the lower ineffectiveness of our macro hedges. All the other stuff, you can read in the detail.

Speaker #3: In essence, the total result improved with roughly 26 million euro over the quarter, which is totaling minus 92 million euro. Net other income, the income generated through the leasing and real estate, and the assistance company is here perfectly in line with the run rate, 50 million euro is precisely the results which we have booked in this quarter.

Johan Thijs: In essence, the total result improves to roughly EUR 26 million over the quarter, which is totaling EUR -92 million. Net other income, the income generated through the leasing and real estate and the assistance company is here perfectly in line with the run rate, EUR 50 million is precisely the result which we have booked in this quarter. Coming to the operating expenses. Well, operating expenses are significantly lower than previous quarter. Once again here, be careful. Bank taxes are, as you know, upfront paid in Q1, let's ignore that. If you look purely at the underlying operating expenses, well, the expenses this quarter are roughly EUR 5 million lower than previous quarter. If you take into account the FX effect, we had a very strong appreciation of the forint. To a lesser extent, the Czech koruna.

Speaker #3: Coming to the operating expenses—well, operating expenses are significantly lower than the previous quarter. But, once again, be careful: bank taxes are, as you know, paid upfront in the first quarter.

Speaker #3: So let's ignore that, and if you look purely at the underlying operating expenses, then the expenses this quarter are roughly €5 million lower than the previous quarter.

Speaker #3: If you take into account the FX effect, we had a very strong appreciation of the foreign, to a lesser extent, the Czech koruna. If you exclude—so make it a like-for-like comparison—well, then the cost growth is €9 million, which is a translation that keeps costs under control.

Johan Thijs: If you exclude to make it like-for-like comparison, well the cost growth is EUR 9 million, which is a translation that costs are under control. The comparison made by previous quarter need to be aware we paid EUR 23 million bonus in that quarter. Despite the fundamental uptick of inflation, despite the fundamental uptick of the FX effect, we were able to keep costs more or less in line compared to previous quarter. Also that transpires in a calculation of the underlying effectiveness of KBC Group. You make a like-for-like comparison. If you exclude the FX effect I just was referring to, the one-off profit bonus, of course the acquisition of 365.bank.

Speaker #3: The comparison made with the previous quarter needs to be kept in mind—we paid a €23 million bonus in that quarter. So, despite the fundamental uptick of inflation, and despite the fundamental uptake of the FX effect, we were able to keep costs more or less in line compared to the previous quarter.

Speaker #3: And also that transpires in a calculation of the underlying effectiveness of KBC Group. If you exclude, so you make a like for like comparison, if you exclude the FX effect I just was referring to, the one of profit bonus, and then, of course, the acquisition of 365 bank, let me remind you, that the integration of 365 bank at this stage is an integration of a not efficient institution.

Johan Thijs: Let me remind you that the integration of 365.bank at this stage is an integration of a not efficient institution, at high cost, that the benefits of that, the synergies, that they will be reaped in 2028. Start to do that in 2027, ultimately the big chunk comes in 2028. It is front-loading the cost and backloading the efficiencies or the synergies. Well, if you exclude that 365.bank to make a comparison on a like-for-like basis, we do see this quarter an increase of our cost of 3.4%, absorbing indeed what I just said, wage inflation, which I think is a major achievement. This is perfectly in line with the guidance and also, these are numbers you obviously don't know, perfectly in line with the trajectory which we had forecasted for ourselves to get to the guidance.

Speaker #3: So, at high cost, and that the benefits of that, so the synergies, that they will be reaped in 2028, start to do that in 2027, but ultimately the big chunk comes in 2028.

Speaker #3: So, it is front-loading the cost and back-loading the efficiencies or the synergies. Well, if you exclude that 365 bank to make a comparison on a like-for-like basis, then we do see this quarter an increase of our cost of 3.4%.

Speaker #3: Absorbing indeed what I just said, which is inflation. Which I think is a major achievement. This is perfectly aligned with the guidance, and also these are numbers you obviously know—perfectly in line with the trajectory which we had forecasted for ourselves to get to the guidance.

Speaker #3: So, the cost-income ratio now stands at 39.8%. When you exclude the bank taxes, that is better than the 41% of the previous year. Certainties in life are bank taxes.

Johan Thijs: Cost-income ratio now stands at 39.8% when you exclude the bank taxes, and that is better than the 41% of previous year. Well, certainties in life are bank taxes, we paid another EUR 64 million, mainly triggered by the windfall taxes in Hungary, EUR 54 million. We do expect that by year-end, the sum of all taxes paid is EUR 730 million. That is indeed quite a lot. Going to asset impairments. Well, asset impairments are very benign in this quarter, despite the very difficult circumstances, which were part of our lives, EUR 135 million. If you look at really underlying impairments on loans, it is only EUR 53 million. That EUR 53 million is translated into 11 basis points credit cost ratio, which is indeed a very good result. If you compare that with previous quarter, it is an improvement.

Speaker #3: Well, we paid another 64 million euro, mainly triggered by the windfall taxes in Hungary, 54 million euro. We do expect that by year end, the sum of all taxes paid is 730 million euro.

Speaker #3: And that is indeed quite a lot. Going to asset impairments—well, asset impairments are very benign in this quarter. Despite the very difficult circumstances which were part of our lives: €135 million.

Speaker #3: But if you look at the really underlying impairments on loans, it's only €53 million. That €53 million translates into an 11 basis points credit cost ratio.

Speaker #3: Which is indeed a very good result. And if you compare that with the previous quarter, it's an improvement. If you compare that with the results of last year, it's another improvement.

Johan Thijs: If you compare that with the results of last year, it is another improvement. Indeed, the quality of our portfolio is and remains good. The impairment loans ratio stands at 1.8%, which is stable over the years. If you translate it at EBA level, then it is 146%, and that is clearly below the European average. We have added a couple of things to those impairments this quarter, and that is, first of all, given the turbulence in the world, the parameters change, and therefore, the modeled ECL buffer has increased with EUR 13 million. As I indicated on Q1, the EUR 75 million management overlay we would not touch. If you add both numbers together, then the total buffer for geopolitical and macroeconomic uncertainties, plus the management overlay stands at EUR 188 million, which is roughly 8 basis points of our lending book.

Speaker #3: So indeed, the quality of our portfolio is and remains good. Now, the impaired loans ratio stands at 1.8%, which is stable over the years, and if you translate it at EBA level, then it's 146%, and that's clearly below the European average.

Speaker #3: Now, we have added a couple of things to those impairments this quarter, and that is, first of all, given the turbulence in the world, the parameters changed, and therefore the modeled ECL buffer has increased by €13 million.

Speaker #3: As I indicated in the previous quarter, the €75 million management overlay we would not touch. And if you add both numbers together, then the total buffer now stands—total buffer for geopolitical and macroeconomic uncertainties plus the management overlay—at €188 million, which is roughly 8 basis points of our lending book.

Speaker #3: The other impairment which we took is the €42 million modification losses, which I explained earlier, and which we potentially are going to take back in the coming quarters.

Johan Thijs: The other impairment which we took, is the EUR 42 million modification losses, which I explained earlier, and which we potentially are going to take back in the coming quarters. We also took a EUR 28 million impairment on software. That impairment is in seasonal exercise, which we do for H1 and end of year. Probably we will do it every quarter now going forward because also this impairment has a positive impact on our capital position and therefore, it will indeed have a positive contribution to our CT1 ratio. Let me go into the exposures which we have particularly on our portfolio. You might have questions about that. We already indicated in Q1 and it has not changed, that we do have no exposure to private credit. We have hardly any exposure to private equity, and we have hardly exposure to the Middle East.

Speaker #3: But we also took a €28 million impairment on software. That impairment is in seasonal exercise, which we do for sure half a year and end of year.

Speaker #3: Probably we'll do it every quarter now, going forward, because also this impairment has a positive impact on our capital position, and therefore, it will indeed have a positive contribution to our CET1 ratio.

Speaker #3: Let me go into the exposures we have, particularly on our portfolio. You might have questions about that. We already indicated this in the first quarter, and it has not changed.

Speaker #3: We do not have any exposure to private credit. We have hardly any exposure to private equity, and we have hardly any exposure to the Middle East.

Speaker #3: 0.2% in the letter on our outstanding book is indeed limited, but also seconds, which can be qualified as vulnerable. Our exposures are limited. You can see the numbers on this page.

Johan Thijs: 0.2% in the latter on our outstanding book is indeed limited, but also sectors which can be qualified as vulnerable, our exposures are limited. You can see the numbers on this page. I am not going to dwell upon this in detail. Might you have questions about it, we are happy to answer those questions. We go to the sum of all parts, which brings us to the CET1 ratio. Well, the CET1 ratio stands at 14.4%, which is the consequence of capital distribution through the profit generation. Mind you that it might occur that the dividend which is coming from the insurance company is pretty low. As you know, this has to do with the dividends which are generated through the Belgian GAAP results and paid out, so there is always a quarter delay. That EUR 25 million will be, in the next quarter, for instance, EUR 208 million.

Speaker #3: I'm not going to dwell upon this in detail. You might have questions about it—we're willing and happy to answer those. That brings us to the CT1 ratio.

Speaker #3: Well, the CT1 ratio stands at 14.4%. Which is the consequence of capital distribution. Through the profit generation, mind you that it might occur that the dividend, which is coming from the dividend sorry, from the insurance company, is pretty low.

Speaker #3: As you know, this has to do with the dividends, which are generated through the Belgian GAAP results and paid out. So there's always a quarter delay.

Speaker #3: That €25 million will be in the next quarter; for instance, €208 million. So there is some seasonality in those numbers. And then the second thing is, of course, the evolution of the risk-weighted assets.

Johan Thijs: There is some seasonality in those numbers. The second thing is, of course, the evolution of the risk-weighted assets. We have had a strong growth of the volume. I indicated already that on the back of that, we increased our guidance. This, of course, translates itself in the volume increase of our risk-weighted assets. As you can see, EUR 2.3 billion out of the EUR 3.5 billion directly comes from that volume increase, and also have X affect the very strong uptick of the forint and, to a lesser extent, the Czech koruna, have generated 0.6% extra risk-weighted assets. Sum of two parts is explaining roughly 90% of that increase. 14.4% on the capital side, which actually triggers also buffers roughly EUR 4.8 billion if you compare them with the MDA of the OCR level.

Speaker #3: We have had strong growth in volume. I indicated already that, on the back of that, we increased our guidance. But this, of course, translates itself into the volume increase of our risk-weighted assets.

Speaker #3: As you can see, €2.3 billion out of the €3.5 billion directly comes from that volume increase. And we also have the FX effect, the very strong uptake of the forint, and to a lesser extent, the Czech koruna.

Speaker #3: We have generated a 0.6% extra risk-weighted assets. The sum of two parts explains roughly 90% of that increase. So, 14.4% on the capital side, which actually also triggers buffers of roughly €4.8 billion.

Speaker #3: If you compare them with the MDA of the OCR level, there is a small adjustment on the MDA—that 5 basis points come on, sorry, on the OCR.

Johan Thijs: There is a small adjustment on the MDA that 5 basis points come on Sorry, on the OCR. 4 basis points come on top of that because of an increase of the countercyclical buffer in Czech Republic as of 1 July of this year. MDA buffer now stands at 10.99, which is due to a 5 basis point shortfall on the 81. Leverage ratios are actually in line with what it was previous quarter. The liquidity ratios are super stable and the insurance company stands at a rock-solid 231% solvency ratio. I already mentioned that in the introduction, given the strong results, we actually updated, and I should say upgraded, our guidance. The guidance now stands for the total income 11%, which compares to the previous guidance, 9.9%.

Speaker #3: Four basis points come on top of that because of an increase in the countercyclical buffer in the Czech Republic as of the 1st of July this year.

Speaker #3: MDA buffer now stands at 10.99, which is due to a 5 basis point shortfall on the 81. Leverage ratios are actually in line with what they were in the previous quarter.

Speaker #3: Also, the liquidity ratios are super stable, and the insurance company stands at a rock-solid 231% solvency ratio. Now, I already mentioned that in the introduction. Given the strong results, we actually updated—and I should say upgraded—our guidance.

Speaker #3: The guidance now stands for total income at 11%, which compares to the previous guidance of 9.9%. This is mainly triggered by an interest income guidance increase to approximately €7.05 billion.

Johan Thijs: This is mainly triggered by an interest income guidance increase to approximately EUR 7.05 billion, and an increase of the insurance revenue to approximately 9%. You'll already notice there is a difference in the wording where we used previously "at least" we now use more precisely, "approximately." The difference is, at the beginning of the year, the world is very uncertain. We make a prediction for the full year. Now, 7 months down the road, it becomes quite clear where we are, and therefore, we're making a guidance now, which is far more precise than the previous one, which has given you a bigger range. This is the reason why we have changed that, and that is also translated in the operating expenses, which we now guide at approximately 3.4% year-on-year. The JAWS are standing now 3.3%, which means that we also upgraded the JAW.

Speaker #3: And an increase of the insurance revenues to approximately 9%. You'll already notice there is a difference in the wording compared to what we used previously, at least.

Speaker #3: We now use, more precisely, 'approximately.' The difference is that at the beginning of the year, the world is very uncertain. We make a prediction for a full year.

Speaker #3: Now, seven months down the road, it becomes quite clear where we are, and therefore we're making a guidance now which is far more precise than the previous one, which gave you a bigger range.

Speaker #3: So this is the reason why we had changed that, and that is also reflected in the operating expenses, which we now guide at approximately 3.4% year-on-year.

Speaker #3: Consequently, the JAWS are now standing at 3.3%, which means that we also upgraded the JAW. Previously, the JAWS stood at 2.2%. So, the full increase of income is indeed calculated on top of the JAWS.

Johan Thijs: Previously, the JAW stood at 2.2%. The full increase of income is indeed calculated on top of the JAWS, that benefit is fully taken into the JAW. The cost income ratio will be approximately 40%. The rest of the guidance remains unchanged. We didn't touch the guidance of 2028, that guidance is only done once a year, that is, as you know, always at the back of a budget exercise, which is currently starting up. Update on 2028, but also giving you insights on 2029 will be delivered as always in the month of February on the back of the Q4 results. Well, I keep it here, and I'll give back the floor to Kurt, who will guide us through your questions.

Speaker #3: So that benefit is fully taken into the JAW. The cost-income ratio will be approximately 40%, and the rest of the guidance remains unchanged.

Speaker #3: We didn't touch the guidance for 2028 because that guidance is only given once a year, and that is, as you know, always at the back of a budget exercise, which is currently starting up.

Speaker #3: So updated on 28, but also giving you insights on 29 will be delivered as always in the month of February on the back of the 4th quarter results.

Speaker #3: Well, I'll keep it here, and I'll give back the floor to Kurt, who will guide us through your questions.

Speaker #1: Thank you. Let's open the floor for questions. Please restrict the number of questions to two. This will allow a maximum number of people to raise questions.

Kurt De Baenst: Thank you, Willem. Let's open the floor for questions. Please restrict the number of questions to two to allow for a maximum number of people to raise questions. Thank you.

Speaker #1: Thank you.

Operator: If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Tarik El Mejjad from BofA. Please go ahead.

Speaker #3: If you wish to ask a question, please dial the pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial the pound key 6 on your telephone keypad.

Speaker #3: The next question comes from Tariq El-Mejad from Bofa. Please go ahead.

Speaker #4: Hi, good morning. Thanks for taking my questions. Two from my side, please. First, on the M&A and HS deal, could you please update us on what's the latest on the discussions from the government side on the optionality around HES?

Tarik El Mejjad: Hi. Good morning. Thanks for taking my questions. Two from my side, please. First on the M&A and HES deal, could you please update us on what's the latest on the discussion from the government side, on the optionality around HES, this recent report, what you make of it. Also, you've been open about distributing the equivalent capital to shareholders in case that deal doesn't happen. I think from the LY perspective, it's probably not the best to deal cash or a buyback. Would you consider opening up to another M&A option across Europe, Central Europe. You've been always transparent about what could be the target, which country, or at least when asked, not pushing back too much on commenting. Would you be opening up to another option to use the capital? Second question is on costs, especially in Belgium.

Speaker #4: This recent report—what do you make of it? And also, I mean, you've been open about distributing the equivalent capital to shareholders in case that deal doesn't happen.

Speaker #4: I mean, I think from the ROI perspective, it's probably not the best being cash or a buyback. Would you consider opening up to another M&A option across Europe, Central Europe, and being I mean, you've been always transparent about what could be the target, which country.

Speaker #4: Or at least, when asked, not pushing back too much on commenting. So, would you be open to another option to use the capital?

Speaker #4: And second question is on costs, especially in Belgium. So your last comment about 'approximately' versus 'at least' seems that you're confident about your cost target.

Johan Thijs: Your last comment about approximately versus at least seems that you're confident about your cost target

Speaker #4: What do you make of the fact that if inflation picks up because of this uncertain macro environment, especially in the Middle East, it could push cost inflation up and then costs in Belgium up?

Tarik El Mejjad: What do you make of the fact that if inflation picks up because of this uncertain macro environment, especially in the Middle East, take cost inflation up and that cost in Belgium up. Have you identified any levers to offset that inflation, in case it persists? Thank you.

Speaker #4: So, have you identified any levers to offset that inflation in case it persists? Thank you.

Speaker #2: Thank you very much, Tariq. For your questions and let me take the first one. So indeed, what we said about potential M&A and then especially the ATS file, we said it is at this stage, I mean, on the previous quarter, I mean, I said at this stage, it's only certain that Belfius will come to the market.

Johan Thijs: Thank you very much, Tariq, for your questions, and let me take the first one. Indeed, what we said about potential M&A and then especially the Ethias file. We said at this stage, on the previous quarter, I said, on this stage, it is only certain that Belfius will come to the market. The government is trying to sell 20% stake, and that process has now started up. We expect by year-end that the government will make a clear statement about what they are going to do with Ethias. Well, where we are today, and that is also in the newspapers and also picked up by analyst reports. Actually, that statement which we made last quarter before, is confirmed by the official declarations of the government. It is quite clear that the government has launched a process to sell 20% stake in Belfius.

Speaker #2: The government is trying to sell a 20% stake, and that process has now started. We expect that by year-end, the government will make a clear statement about what they're going to do with ATS.

Speaker #2: Well, where we are today, and that is also in the newspapers and also picked up by analyst reports, actually that statement which we made last quarter, quarter before, is confirmed by the official declarations of the government.

Speaker #2: So, it's quite clear that the government has launched a process to sell a 20% stake in Belfius. The government has also tasked an investment firm to give an analysis on what to do with ATS.

Johan Thijs: The government has also triggered an investment firm to give an analysis on what to do with Ethias, and then also to comment on the possibilities of merging Belfius and Ethias at this stage. The intermediate conclusions, which have been also sounded by the Minister of Finance, were that a merger between Belfius and Ethias is not possible when you do a launch of the sale of 20% stake in Belfius, as is happening today. As a matter of fact, also economically, it makes a lot of sense to merge Ethias with another financial institution, a bank and insurance company, which means actually that they are now indicating that the process of Belfius is one and potential process of Ethias is another.

Speaker #2: And then also to comment on the possibilities of merging Belfius and ATS at this stage. The intermediate conclusions, which have been also sounded by the Minister of Finance, were that a merger between Belfius and ATS is not possible when you do a launch of the sale of a 20% stake in Belfius.

Speaker #2: As is happening today. As a matter of fact, also economically, it makes a lot of sense to merge ATS with another financial institution, a bank, an insurance company.

Speaker #2: Which means, actually, that they are now indicating that the process of Belfius is one, and the potential process of ATS is another. The minister is going to come back—or, sorry, the investment firm is going to come back—to the Belgian government before the end of September, and then, on the back of that, the government is going to take a decision on ATS.

Johan Thijs: The investment firm is going to come back to the Belgian government before the end of September, and then on the back of that, the government is going to take a decision on Ethias, which means before the year ends, we know what they are going to do with Ethias. Let me remind you that whatever happens, so if the government is willing to sell Ethias, we will be a candidate. For the right price, we will pursue that transaction. If the government would decide not to sell it will not break KBC because we are growing our market share on the insurance side. We are the meanwhile number three in Belgium and growing, and in that perspective, that is what to do when the monies. I agree with you that you have two options. In essence, you would go for building business, which we are currently doing.

Speaker #2: And which means before the year end, we know what they're going to do with ATS. And let me remind you that whatever happens—so, if the government is willing to sell ATS, we will be a candidate.

Speaker #2: And for the right price, we will pursue that transaction. And if the government would decide not to sell it, it will not break KBC because we are growing our market share on the insurance side.

Speaker #2: We are a minimal number number three in Belgium and growing. And in that perspective, you know, that's what to do when the money's I agree with you.

Speaker #2: You have two options. In essence, you would go for building business, which we're currently doing. Let's not forget that we grew our lending book roughly 5% this quarter.

Johan Thijs: Let's not forget that we grew our lending book roughly 5% this quarter. We grow our insurance book roughly 10% in this quarter. If you take that into account, then I could say that we grow the size of an Ethias every year again, roughly over two years, I think it will be roughly there. Over five years, we grew the size of a company like ČSOB organically. What we definitely will do continuously is screen the market for opportunities. In the first place, in the countries where we are present. This is translated into, for instance, the acquisition of 365 and others in the previous years. As I said before, we look in specific markets that if an opportunity arises which fits our strategy and which clearly fits also our business model, that we will at least consider.

Speaker #2: We grew our insurance book roughly 10% in this quarter. So if you take that into account, then I could say that we grow the size of an ATS every year. Again, roughly over two years, I think it will be roughly there.

Speaker #2: Over five years, we grew the size of a company like Chez OP organically. What we definitely will do continuously is screen the market for opportunities.

Speaker #2: And the first place in the countries where we are present, this is translated into for instance, the acquisition of 365 and others in the previous years.

Speaker #2: And as I said before, we look in specific markets that, if an opportunity arises which fits our strategy and clearly fits our business model, we will at least consider it.

Speaker #2: And countries which we have mentioned in the past were, amongst others, Romania. If it is an opportunity, then we'll definitely pursue it. In terms of business development, given the returns which we are making, I think it also makes a lot of sense for investors that we use our capital to expand our business organically, for sure, but, if possible, inorganically as well.

Johan Thijs: Countries which we have mentioned in the past were, amongst others, Romania. If it is an opportunity, then we'll definitely pursue. In terms of business development, given the returns which we are making, I think also it makes a lot of sense for investors that we use our capital to expand our business organically, for sure, but, if possible, inorganically as well.

Speaker #4: A very good morning to all of you from my side, and good morning, Tariq. Tariq, is one of your questions on OPEX? So, basically, indeed, as Johan has been highlighting, we maintain our guidance on the OPEX evolution.

Bartel Puelinckx: A very good morning to all of you from my side, and good morning, Tariq. Thanks for your question on OpEx. Basically, indeed, as Johan has been highlighting, we maintain our guidance on the OpEx evolution. We made it more specific by changing it below to approximate. We maintain the 7.7% year on year on a non-organic basis and the 3.4% organic basis, excluding 365 and also the fixed impact. As far as wage inflation in Belgium is concerned, there we are very clear that we, as Johan also has been highlighting, that we anticipate that we will be able to absorb in 2026 the inflation increase by further efficiency improvements, driven mainly by, of course, Kate and the impact on that on our FTE savings, theoretical FTE savings. From that perspective, you should take that into account that we will absorb that.

Speaker #4: We made it more specific by changing it below to 'approximate.' So, we maintain the 7.7% year-on-year on a non-organic basis and the 3.4% on an organic basis.

Speaker #4: So excluding 365 and the fixed impact. As far as wage inflation is in Belgium is concerned, there we are very clear that we, as Johan also has been highlighting, that we anticipate that we will be able to absorb in 26 the inflation increase by further efficiency improvements driven mainly by, of course, Kate and the impact on that on our FTE savings theoretical FTE savings.

Speaker #4: So from that perspective, you should take into account that we will absorb that. Okay, thank you very much.

Tarik El Mejjad: Okay. Thank you very much.

Speaker #1: The next question comes from Julia Aurora Meado from Morgan Stanley. Please go ahead.

Operator: The next question comes from Giulia Aurora Miotto from Morgan Stanley. Please go ahead.

Speaker #5: Hi, good morning. Thank you for taking my two questions. And first of all, on NII, I hear you that you have changed from at least to approximately.

Giulia Aurora Miotto: Hi. Good morning. Thank you for taking my two questions. First of all, on NII. I hear you that you have changed from at least to approximately. I'm just trying to understand if this is a realistic or still sort of conservative guidance. If I take Q2 and I assume it's flat in Q3 and Q4, I'm already at or above the EUR 705 guidance. Of course, you still have got loan growth and deposit growth coming. Is the difference because the contribution from the inflation-linked bonds is going to be lower, or is it conservatism? Some comments on that. Secondly, loan growth is ahead of deposit growth in each market. For now, I think it's fine because loans are still below deposits.

Speaker #5: But I'm just trying to understand if this is realistic or still a sort of conservative guidance. If I take Q2 and I assume it's flat in Q3 and Q4, I'm already at or above the 705 guidance.

Speaker #5: And then of course, you still have got long growth and deposit growth coming. So is the difference because the contribution from the inflation linked bonds is going to be lower or is it conservatism?

Speaker #5: So some comments on that. And then secondly, long growth is ahead of deposit growth in each market. And for now, I think it's fine because loans are still below deposits.

Speaker #5: But is there a moment, or do you think we are approaching a moment, where there needs to be much more deposit competition because loan growth is accelerating and banks need to fund the loan growth?

Giulia Aurora Miotto: Is there a moment, or do you think we are approaching a moment where there needs to be much more deposit competition because loan growth is accelerating and banks need to fund the loan growth? Thank you.

Speaker #5: Thank you.

Speaker #2: Thank you, Julia, for your questions. Let me answer the first one. So of course, I mean, like always, your calculation is correct. And then the question is how you what is the driver behind that?

Johan Thijs: Thank you, Julia, for your questions. Let me answer the first one. Of course, like always, your calculation is correct. The question is, what is the driver behind that? Well, if you make the analysis on the evolution net interest income, then first of all, two main drivers are transformation result. Transformation result is triggered by inflows, and I just highlighted that we do have a very strong performance on the inflow of core deposit money, and that the yields are higher. On transformation result, actually, the outlook is the same as what we have given already for many quarters. That will continue to increase. On the lending side, while we gave guidance that it is at least 6%, and that the current position after six months is 4.3%, which means the Q2 is not going to grow as fast.

Speaker #2: Well, if you make the analysis on the evolution, that interest income, then first of all, two drivers are two main drivers are transformation result.

Speaker #2: Transformation result is triggered by inflows and I just highlighted that we do have a very strong performance on the that we do have a very strong performance on the inflow of core deposit money.

Speaker #2: And that the yields are higher. So, on inflation and transformation results, actually the outlook is the same as what we have given already for many quarters.

Speaker #2: That will continue to increase. On the lending side, we gave guidance that it is at least 6%, and the current position after six months is 4.3%.

Speaker #2: Which means the second quarter is not going to grow as fast, or we do expect that it's not going to grow as fast as it did in the first half of the year.

Johan Thijs: We do expect that it's not going to grow as fast as it did in H1. In that perspective, some slowdown, assuming same margins, well, you will have anyway some slowdown in that perspective. We already highlighted the impact in Q2. You need to be careful. Inflation-linked bonds have been totaling EUR 45 million this quarter. You cannot keep that constant going forward. We expect inflation-linked bonds to generate a couple of million EUR every quarter, but definitely not the EUR 45, which you have seen in this quarter. In all pieces, if you put them together, well, you will see some further increase on your net interest income, which brings us to the approximately EUR 705. That the margin of conservatism, which was in the first guidance, well, that margin of conservatism has certainly come down.

Speaker #2: So in that perspective, some slowdown, assuming same margins, well, you will have anyway some slowdown in that perspective. And then the you already highlighted the impact in the second quarter, they need to be careful inflation linked bonds have been totally in 45 million euro in this quarter.

Speaker #2: You cannot keep that constant going forward. So we expect inflation-linked bonds to generate a couple of million euros every quarter, but definitely not the €45 million which you have seen in this quarter.

Speaker #2: So, in all, if you put the pieces together, you will see some further increase in your net interest income, which brings us to approximately 705.

Speaker #2: But that the margin of conservatism, which was in in the first guidance, well, that margin of conservatism has certainly come down. I'm not saying it's zero, but it's certainly come down.

Johan Thijs: I'm not saying it's zero, but it's certainly come down.

Speaker #4: Good morning, Julia. On your question regarding loan growth, which is higher than deposit growth—you're absolutely correct. We have 2.8% organic growth on the loan side and 2% on the deposit side.

Bartel Puelinckx: Good morning, Giulia. On your question on the loan growth, which is higher than the deposit growth, obviously correct. We have 2.8% organic growth on the loan side and 2% on the deposit side. Now, there's two elements I would like to highlight. First of all, you're also seeing that basically we have a strong inflow into our asset management business. Net sales, EUR 1.4 billion, EUR 3 billion for the year. That also you should take into account. We are indeed also driving our inflows in order to generate higher investment returns, which is also where the margins are also well north of 100 basis points, and which ties in the clients even better. It improve also the client loyalty. Secondly, also within KBC, we've always done that, whereas we obviously guide and steer our entities on loan growth. We do the same also on the deposit growth.

Speaker #4: Now, there are two elements I would like to highlight. First of all, you have also seen that, basically, we have a strong inflow into our asset management business: net sales of €1.4 billion, and €3 billion for the year.

Speaker #4: So that also you should take into account. We are indeed also driving our inflows in order to generate higher investment returns, which is also where the margins are well known—of 100 basis points.

Speaker #4: And which ties in the clients even better. So it's improved also the loan the client loyalty. But secondly, also within KBC, we've always done that.

Speaker #4: Whereas we obviously guide and steer our entities on loan growth, we do the same. Also on the deposit growth. So they need to focus also on growing deposits obviously.

Bartel Puelinckx: They need to focus also on growing deposits, obviously, without generating a deposit war. A good example of that you can see in Slovakia. In Slovakia, where we had the loan-to-deposit ratio of well above 140%, this has now dropped to 127%, exactly because also in the Slovakias have been focusing on increasing their deposit bills. Moreover, thanks to Kate as well, and thanks to the fact that we've been aiming into increase our NPS scores, we are also able to attract new clients, and new clients means also nice deposit growth. From that perspective, our loan-to-deposit ratio for the whole group still stands at a very favorable 88%. It will grow somewhat, but we will definitely manage that to avoid that it would be increasing dramatically.

Speaker #4: Without generating a deposit war. And a good example of that you can see in Slovakia. In Slovakia where we had the loan to deposit ratio of well above 140%.

Speaker #4: This is now dropped to 127% exactly because also in the Slovakians have been focusing on increasing their deposit bills. Moreover, thanks to Kate as well and thanks to the fact that we've been able to increase our NPS scores, we are also able to attract new clients and new clients means also nice deposit growth.

Speaker #4: So from that perspective, our loan to the deposit ratio for the whole group still stands at a very favorable 88%. And so that it will grow somewhat, but we will definitely manage that to make to avoid that it would be increasing dramatically.

Speaker #1: Thanks. The next question comes from Midas Mtani from Barclays. Please go ahead.

Giulia Aurora Miotto: Thanks.

Operator: The next question comes from Namita Samtani from Barclays. Please go ahead.

Speaker #6: Morning and thank you for taking my questions. My first question is the net interest income in Belgium. It's up 18% year on year and the second quarter, but loans grow below that at 6% year on year and deposits only 2% year on year.

Namita Samtani: Morning. Thank you for taking my questions. My first question is the net interest income in Belgium. It's up 18% year on year in Q2, but loans grew below that at 6% year on year and deposits only 2% year on year. You've spoken about lending margin pressure. Can you just break down to me the components of how Belgium NII can grow 18% year on year? I just wondered if it's all the replicating portfolio with saving rates not moving. My second question, which is again on the loan-to-deposit ratio, but in Czech. The Czech loan-to-deposit ratio was 67% three years ago, and now it's 80%. Are you happy for the loan-to-deposit ratio to continue to grind upwards there, or is there a limit? What assumption for the Czech retail bond have you made in your NII guidance? Thank you.

Speaker #6: And you've spoken about lending margin pressure. So can you just break down to me the components of how Belgium NII can grow 18% year on year?

Speaker #6: I just wondered if it's all the replicating portfolio with saving rates, not moving. And then my second question, which is again on the loan-to-deposit ratio, but in Czech.

Speaker #6: So the check loan to deposit ratio is 67% three years ago and now it's 80%. Are you happy for the loan to deposit ratio to continue to grind upwards there or is there a limit?

Speaker #6: And what assumption for the check retail bond have you made in your NII guidance? Thank you.

Speaker #2: Thank you, Namita, for your questions. I will take the first one. So indeed, we do have in Belgium a very strong beat in the net interest income.

Johan Thijs: Thank you, Namita, for your questions. I will take the first one. Indeed, we do have in Belgium, a very strong beat in the net interest income, and that is driven by the two elements which I highlighted for the group in essence. First of all, you have in Belgium a very strong performance on the transformation side, given the fact that inflow of core money, so current accounts and saving accounts, is indeed also happening in Belgium. As you know, this is by far the biggest portfolio. We do see that net interest income. We're now talking about nominal amounts, whereas inflow, we mostly speak about percentages. In net interest income is indeed generated through the transformation result at a higher yield on a higher volume in current account saving accounts, which are the two products which have the highest margin in this perspective.

Speaker #2: And that is driven by the two elements which I highlighted for the group in essence. So first of all, you have in Belgium a very strong performance on the transformation side, given the fact that inflow of core money, so current accounts and saving accounts is indeed also happening in Belgium and as you know, this is by far the biggest portfolio.

Speaker #2: We do see that net interest income, we're now talking about nominal amounts, whereas inflow we mostly speak about percentages. So in net interest income is indeed generated through the transformation result at a higher yield on a higher volume in current account saving accounts, which are the two products which have the highest margin in this perspective.

Speaker #2: And as a consequence, we do see in Belgium that the transformation result increases significantly. As you know, we don't give a precise number, and definitely not per country, but believe me, it was significant.

Johan Thijs: As a consequence, we do see in Belgium that the transformation result increases significantly. As you know, we don't give a precise number, and definitely not per country, but believe me, it was significant. The other element is the lending income. Belgium had a very strong quarter on the growth. In that perspective, the growth was on two sides, both on the mortgage side, where, as you know, we tried in Q1 to push up the margins. Also, in Q4 of 2025, push up the margin. We lost some market share consequently because the competition did not follow. We do see that in Q2, that has completely been restored to the detriment, certain extent of our margin. You can see that in the detail which we have published. Volumes have come up significantly.

Speaker #2: The other element is the lending income. Belgium had a very strong quarter on the growth. And in that perspective, the growth was on two sides.

Speaker #2: Both on the mortgage side, where, as you know, we tried in the first quarter to push up the margins, and also in the last quarter of '25, it pushed up the margin.

Speaker #2: We lost some market share consequently because the competition did not follow. But we do see that in the second quarter, that has completely been restored.

Speaker #2: To the detriment certain extent of our margin. You can see that in the detail which we have published. But volumes have gone up significantly.

Speaker #2: In Belgium, we do see an increase of our volumes on the terminals with 4%, and roughly a percent on the mortgages, restoring our market share back to 21%.

Johan Thijs: In Belgium, we do see an increase of our volumes on the term loans with 4% and roughly 8% on the mortgages restoring our market share back to 21%. Both have been contributing significant increase of that net interest income. Let's not forget, in Belgium, inflation-linked bonds is the main bulk of the inflation-linked bonds are booked in Belgium on the insurance company. The EUR 45 million is almost entirely on the interest income of the business unit, Belgium.

Speaker #2: So both have been contributing a significant increase to the net interest income. And let's not forget, in Belgium, the main bulk of the inflation-linked bonds is booked in Belgium.

Speaker #2: On the insurance company, and so the 45 million euro is almost entirely on the inflation on the interest income of the business here in Belgium.

Speaker #3: Good morning, Namita. Your question on the loan to deposit ratio in the Czech Republic. Indeed, our loan to deposit ratio currently stands at 83%, which is indeed up compared to the previous quarters.

Bartel Puelinckx: Good morning, Namita. Your question on the loan to deposit ratio in the Czech Republic. Indeed, our loan to deposit ratio currently stands at 83%, which is indeed up compared to the previous quarters. This needs to be put somewhat into perspective. What I said earlier, with respect to the focus on loan growth and then also on the deposit growth is also valid, of course, for the Czech Republic. There, what you clearly see, indeed, is the impact, of course, of the retail state bond, which was more successful than anticipated. They expected to raise CZK 40 billion, now at CZK 74 billion, which is significantly up, roughly EUR 3 billion. That only led to an outflow within of roughly CZK 7 billion, which is well below the market share of 21% on the deposit side.

Speaker #3: But this does need to be put somewhat into the spec. What I said earlier, with respect to the focus on loan growth, and also on deposit growth, is also valid, of course, for the Czech Republic.

Speaker #3: There, what you clearly see, indeed, is the impact, of course, of the retail state bond, which was more successful than anticipated. They expected to raise CZK 40 billion, now at CZK 74 billion.

Speaker #3: Which is significantly up, roughly €3 billion. Now, that only led to an outflow within TSOB of roughly €7 billion, which is well below the market share of 21% on the deposit side.

Speaker #3: Moreover, you should also take into account that, notwithstanding the fact that we have that in the Czech Republic—we had, of course, also a policy rate increase—the market continues to react quite in a reasonable way.

Bartel Puelinckx: Moreover, you should also take into account that notwithstanding the fact that in the Czech Republic, we had, of course, also a policy rate increase. The market continues to react quite in a reasonable way, in the sense that the top rate remains at 400 basis points. We, by the way, as I already highlighted on Q1, have been decreasing the top rate, so the top rate for the saving accounts from 400 basis points to 380 basis points. Nevertheless, our market share in saving accounts did not drop. We continue to see also quite some strong growth.

Speaker #3: In the sense that the top rate remains at 400 basis points. We, by the way, as I already highlighted in the first quarter, have been decreasing the top rate for the savings accounts from 400 basis points to 380 basis points.

Speaker #3: And nevertheless, our market share in savings accounts did not drop, so we continue to see also quite some strong growth. We will not do crazy things.

Bartel Puelinckx: We will not do crazy things. On top of that, we are also focusing in the Czech Republic on shifting part of that towards our investment products, in order that again, to also link better our clients, which we do with quite a success, because also you can see that our private banking and wealth market shares continue to increase, and our assets under the management also continue to increase. Take also those two aspects into account.

Speaker #3: And on top of that, we're also focusing in the Czech Republic on shifting part of that towards our investment products. In order, again, to also link better our clients which we do with quite a success because also you can see that our private banking and wealth market shares continue to increase and our assets under the management also continue to increase.

Speaker #3: So they take also those two aspects into account.

Speaker #6: That's helpful. Thanks very much.

Namita Samtani: That's helpful. Thanks very much.

Speaker #1: The next question comes from Ahmed Ranjan from JP Morgan. Please go ahead.

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

Speaker #5: Yes, hi. Good morning, and thank you for taking my questions. The first one is on risk-rated assets. Besides loan volume, should we expect any other drivers going forward?

Amit Ranjan: Yes. Hi, good morning, thank you for taking my questions. The first one is on risk-weighted assets. Besides loan volume, should we expect any other drivers going forward? In that context, if you could also talk about SRTs, if you plan to undertake more in the H2, please. The second one is just generally on asset quality. Is there any pockets or signs of stress anywhere that you're seeing? If you could talk about the different geographies, please. Thank you.

Speaker #5: And in that context, if you could also talk about SRTs—if you plan to undertake more in the second half, please. And the second one is just generally on asset quality.

Speaker #5: Are there any pockets or signs of stress anywhere that you're seeing? If you could talk about the different geographies, please. Thank you.

Speaker #3: Yes, good morning. So in terms of your question related to the risk-rated assets, indeed risk-rated assets for this quarter increased by 3.5 billion, 2.6%.

Bartel Puelinckx: Yes, good morning. In terms of your question related to the risk-weighted assets, indeed, risk-weighted assets for this quarter increased by EUR 3.5 billion, 2.6%. That is, as you have seen in the company presentation, is mainly driven by volume increase. Also by Ethias, obviously. To some extent, we also have seen an increase as a result of the defaulted loan portfolio now there. To be very clear, this is not immediately linked to a potential deterioration of the loan portfolio. This is simply because we have been writing off quite a number of legacy files with higher provision coverage than the inflow of new files, which explains the increase of the risk-weighted assets on that side. We see a relatively modest, but something that you cannot avoid, increase in our risk-weighted assets from models and model changes.

Speaker #3: That, as you have seen in the company presentation, is mainly driven by volume increase, and also by ethics, obviously. To some extent, we have also seen an increase as a result of the defaulted loan portfolio.

Speaker #3: Now, to be very clear, this does not immediately link to a potential deterioration of the loan portfolio. This is simply because we have been writing off quite a number of legacy files with higher provision coverage than the inflow of new files, which explains the increase of the risk-rated assets on that side.

Speaker #3: We see a relatively modest, but unavoidable, increase in our risk-rated assets from the models and model changes. This is obviously related to updates of models, but also interventions by the regulator.

Bartel Puelinckx: This is obviously related to updates of models, also interventions of the regulator. As we indicated already before, we will mitigate that by, of course, using or further managing through portfolio management initiatives. These are, amongst others, SRTs, but it's also more than SRTs. We are also looking obviously at credit insurance, but we're also looking at further improving our data and also being much more aware of what the impact is of potential increases in loan volumes on the risk-weighted assets side. In terms of SRTs, we have been issuing our second SRT in June, which was on a EUR 1.25 billion corporate portfolio in Belgium, generating an RWA saving of EUR 0.7 billion. We do have indeed another number of SRTs into our planning, still also for this year.

Speaker #3: As we indicated already before, we will mitigate that by of course using or further managing our through management portfolio management initiatives. These are amongst others SRTs.

Speaker #3: But it's also more than SRTs. We are also looking obviously at credit insurance but we're also looking at further improving our data and also being much more aware of what the impact is of potential increases in loan volumes on the risk-rated asset side.

Speaker #3: So, in terms of SRTs, you know we issued our second SRT in June, which was on a €1.25 billion corporate portfolio in Belgium, generating an RWA saving of €0.7 billion.

Speaker #3: We do have, indeed, another number of SRTs in our planning, still also for this year. But it's too early to give you an indication on what the impact would be, and on what the portfolio would be, because, as you know, the impact depends on the concentration of the portfolio.

Bartel Puelinckx: It's too early to give you an indication on what the impact would be and on what the portfolio would be, because as you know, the impact is depending on the concentration of the portfolio. Yes, if there are any further impacts of model changes, et cetera, we will, to the extent possible, manage that through portfolio management. Amit, I will take your second question. What about asset quality and what about potential stress? Well, if you look at the numbers, which are also part of our disclosures today, both in the PowerPoint analyst presentation, as in the detailed quarterly report, you can see that our loan asset impairment ratio and our credit cost ratio are actually either stable or improving. The answer to your question on basis of this macro picture of our portfolio is actually very straightforward.

Speaker #3: But yes, if there are any further impacts of model changes, et cetera, we will, to the extent possible, manage that through portfolio management.

Speaker #2: Ahmed, I will take your second question. So, what about asset quality and what about potential stress? Well, if you look at the numbers, which are also part of our disclosures today—both in the PowerPoint analyst presentation and in the detailed quarterly report—you can see that our asset impairment ratio and our credit cost ratio are actually either stable or improving.

Speaker #2: So the macro picture in answer to your question, on the basis of this macro picture of our portfolio, is actually very straightforward. Well, you don’t see any kind of deterioration.

Bartel Puelinckx: Well, we don't see any kind of deterioration despite the stress which is there. There are some shocks given the straight up home disclosures and some support, but we don't see it transpiring directly in a fundamental uptick into our numbers. One of the reasons is we are not exposed to, first of all, directly the region, and secondly, the number of sectors which are very sensitive to this are not present in our portfolios in a large extent. That detail is provided in the analyst presentation. Looking into specifically the ratios, as I said, in the quarterly report, you also find an overview of the PD classes, the different buckets, PD 1 to 4, 5 to 7, 8, and 9, and then you have 10 to 12.

Speaker #2: Despite the stress that is there, there are some shocks given the straight-up hormones, closures, and so on and so forth, but we don't see it transpiring directly in a fundamental optic into our numbers.

Speaker #2: One of the reasons is we are not exposed to, first of all, directly the region. And secondly, the number of sectors which are very sensitive to this are not present in our portfolios in a large extent.

Speaker #2: That detail is provided in the analyst presentation. Now, looking specifically at the ratios—as I said—in the quarterly report, you also find an overview of the PD classes.

Speaker #2: The different buckets: PD 1 to 4, 5 to 7, 8 and 9, and then you have 10, 11, 10 to 12. Well, if you make that average and you look into the evolution over time, if you would do that exercise, you would see that the second quarter is better than the previous one.

Bartel Puelinckx: Well, if you make that average and you look into the evolution over time, if you would do that exercise, you will see that the Q2 is better than the previous one. As a matter of fact, those quarters are perfectly in line with what you have seen over the last 2 years. As a matter of fact, they're slightly higher than 2022, which was a period when the credit cost ratio was absolutely at its lowest level. Hardly zero or hardly positive and close to zero. Our guidance remains. If you look at what is happening, you look at our credit cost ratio, it is improving. It is 11 basis points. It will now go back to zero. We do expect that we will have a normalization of the underlying impairments on our portfolio. This would be a normal way of thinking.

Speaker #2: And, as a matter of fact, those quarters are perfectly in line with what you have seen over the last two years. As a matter of fact, they're slightly higher than 2022, which was a period when the credit cost ratio was absolutely at its lowest level.

Speaker #2: And so, hardly zero, or hardly positive and close to zero. So our guidance remains: if you look at what is happening, you look at our credit cost ratio, it is improving—it is 11 basis points—it will now go back to zero.

Speaker #2: We do expect that we will have a normalization of the underlying impairments on our portfolio. This would be a normal way of thinking. It is not crystallizing yet in our portfolios, but we remain extremely, extremely vigilant about that, extremely attentive about that.

Bartel Puelinckx: It is not crystallizing yet in our portfolios, but we remain extremely vigilant about that, extremely attentive about that. We do on every book for every country, particular exercises on sectors which might be vulnerable to external factors, amongst others, the conflicts in the Middle East. As I said, that attentiveness makes us sure that we will not have big jumps in our credit cost ratio. A normalization is what we guided before and which we continue to say today.

Speaker #2: We do, on every book for every country, particular exercises on sectors which might be vulnerable to external factors, among others, the conflicts in the Middle East.

Speaker #2: And as I said, that attentive makes us sure that we will not have big jumps in our credit cost ratio. But a normalization is what we guided before and which we continue to say today.

Speaker #1: Very helpful. Thank you.

Amit Ranjan: Very helpful. Thank you.

Speaker #4: The next question comes from Benoit Petrarch from Kepler Cheuvreux. Please go ahead.

Operator: The next question comes from Benoit Petrarque from Kepler Cheuvreux. Please go ahead.

Speaker #1: Yes, good morning. So the first question is actually to come back on the 28th target. So again, what is the reason not to upgrade the 28th numbers given your upgraded 26 guidance?

Benoit Petrarque: Yes, good morning. The first question is actually to come back on the 2028 targets. Again, what is the reason not to upgrade the 2028 numbers given your upgraded 2026 guidance? I think your exit NI will be at about EUR 7.2 billion in the Q4. You've been guiding for EUR 7.9 billion by 2028, in fact or more than that, actually. Trying to understand why you decide not to upgrade the 2028. Is that just a budgetary exercise which did not take place, or are there assumptions, especially on the net interest income, for the future? The second one is on the NII guidance, the EUR 7.05 billion. What type of assumptions did you take for the rest of the year in terms of pass-through rates and also mix shift?

Speaker #1: I think your exit and I will be at about 7.2 billion in the fourth quarter. You've been guiding for 7.9 billion by 28 implicitly or more than that actually.

Speaker #1: So, trying to understand why you decided not to, yeah, to upgrade the 28. Is that just a budgetary exercise which did not take place, or are there sensitivities around, you know, assumptions—especially on the net interest income for the future?

Speaker #1: The second one is on the NI guidance, the €7.05 billion. So, what type of assumptions did you take for the rest of the year in terms of pass-through rates and also mix shift?

Speaker #1: I just wanted to understand a bit how you view the competition in the second part of the year on the deposit side. And maybe just one last question: what about the net interest generated from lending?

Benoit Petrarque: Just wanted to understand a bit how you view the competition in H2 on the deposit side. The last one is on the NII generated from lending. I think you've been able to grow it in H1, and I think you flagged some margin pressure in some countries. I think the mortgage margin is under pressure in Belgium, and there's some margin pressure also in Southeastern Europe. Overall, can you start to grow again your lending NII, or you think it's going to be more on the flattish side? Thank you.

Speaker #1: I think you've been able to grow it in H1 and I think you flagged some margin pressure in some countries. I think the mortgage margin is under pressure in Belgium and there are some margin pressure also in Southwestern Europe.

Speaker #1: But overall, can you start to grow again your lending NI or you think it's going to be more on the flattish side? Thank you.

Speaker #3: Bonjour, Benoit. As far as your first question is concerned, related to the upgrade of the 28 numbers, indeed, you are actually already gave yourself the answer.

Bartel Puelinckx: Bonjour, Benoit. As far as your first question is concerned, related to the upgrade of the 2028 numbers, indeed, you actually already gave yourself the answer. We enter into our budget exercise as of September, we typically do not upgrade the 2028 numbers because we have not yet run our budget exercise. That's the reason why we have not upgraded that. As far as the second question is concerned, this is mainly the assumptions in terms of our EUR 7.05 billion approximately guidance for the NII.

Speaker #3: I mean, we enter into our budget exercise as of September, and we typically do not upgrade the 2028 numbers because we have not yet run our budget exercise.

Speaker #3: So that's the reason why we have not upgraded that. As far as the second question is concerned, this is mainly the assumptions in terms of our €7.05 billion, approximately, guidance for the NI.

Speaker #3: As you know, and as we've been indicating already in the past, we have been taken into account indeed some impact particularly in Belgium on the pass-through rates.

Bartel Puelinckx: As you know, as we've been indicating already in the past, we have been taking into account indeed some impact, particularly in Belgium, on the pass-through rates, in the sense that obviously when you still have, and it's still the case today, a pass-through on the savings accounts or an external rate on the savings accounts in Belgium 60 basis points, which is historically low with the current evolution of the rates and also, of course, the replication portfolios of banks. It is not unlikely to expect that there might be some increase. We did include some increases, particularly over the full cycle until 2028.

Speaker #3: In the sense that, obviously, when you still have—and it's still the case today—a pass-through on the savings accounts or an accelerate on the savings accounts in Belgium of 60 basis points, which is historically low with the current evolution of the rates, and also, of course, the replication portfolios of banks, it is not unlikely to expect that there might be some increase.

Speaker #3: So, we did include some increases, particularly over the full cycle until '28. Now, what is important here is that what we see in Belgium today is that we see a very rational behavior of competition, in the sense that none of the large banks has increased their rates on the savings accounts.

Bartel Puelinckx: Now, what is important here is that what we see in Belgium today is that we see a very rational behavior of competition in the sense that none of the large banks has increased their rates on the savings accounts, I'm referring on the standard savings accounts. What we did see is that quite a number of banks, including ourselves, have been increasing their external rates on the specific savings accounts, so savings accounts with specific features. In our case, this is the Start to Save savings accounts, which means that basically we have increased our external rate on that to 315 basis points. Of course, the amounts of that are limited. It's limited to up to EUR 500 a month maximum. The impact of that today is roughly EUR 4 billion. It's only a small part of our total savings.

Speaker #3: And then, when I am referring to the standard savings accounts, what we did see is that quite a number of banks, including ourselves, have been increasing their external rates on the specific savings accounts.

Speaker #3: So saving accounts with specific features in our case this is the start to save saving accounts which means that basically we are have increased our external rate on that to 315 basis points.

Speaker #3: But of course, the amounts for that are limited. It's limited to up to €500 a month maximum. The impact of that for today is roughly €4 billion.

Speaker #3: So only a small part of our total savings. So we do not expect an irrational behavior as we have seen in the past particularly in Belgium.

Bartel Puelinckx: We do not expect an irrational behavior as we have seen in the past, particularly in Belgium, but we can, of course, not exclude going forward that there will be further initiatives taken on that side, depending also on what is going to happen with the policy rates going forward. As far as on NII on the lending side is concerned, NII on the lending is obviously increasing. We saw a quite nice increase of our NII on the lending quarter-on-quarter. This, to some extent, also of course, was also driven by the correction on the calculation of the interest rates on the subsidized loans in Hungary. But all in all, thanks to the strong loan growth, we do see an increase. There is margin pressure, as everyone has been highlighting. It has an impact on the NII income, but mainly indeed on the mortgages.

Speaker #3: But we can of course not exclude going forward that there will be further initiatives taken on that side depending also on what is going to happen with the policy rates going forward.

Speaker #3: As far as NI on the lending side is concerned, NI on lending is obviously increasing. We saw a quite nice increase of our NI on lending quarter-on-quarter.

Speaker #3: This, to some extent, was also, of course, driven by the correction on the calculation of the interest rates on the subsidized loans in Hungary.

Speaker #3: But all in all, thanks to the strong loan growth, we do see an increase. There is margin pressure, as one has been highlighting. It has an impact on the NI income, but mainly indeed on the mortgages.

Speaker #3: In Belgium, the mortgages are currently the margins on mortgages are indeed under pressure again. Minus 19 basis points quarter on quarter on the margin.

Bartel Puelinckx: In Belgium, the margins on mortgages are indeed under pressure again, -19 basis points quarter-on-quarter on the margin. But as you know, in Belgium, the sales of mortgages is mainly driven by, of course, the ancillary business that you can generate. If you take that into account, the margins remain quite very attractive, well north of 100 basis points. Also in the Czech Republic, we see some pressure on the margins, but there the margins now are somewhat less lower, but only a few basis points than the back book. Indeed, there is some pressure. The good news, however, is that basically in Belgium, we have seen a very strong growth on the corporate side with margins that actually have increased. From that perspective, there is some compensation, but indeed, NII on the lending side is going to be under pressure going forward.

Speaker #3: But as you know, in Belgium the sales of mortgages is mainly driven by of course the ancillary business that you can generate if you take that into account the margins remain quite very attractive well not of 100 basis points.

Speaker #3: Also in the Czech Republic we see some pressure on the margins but there the margins now are somewhat less lower but only a few basis points than the backbook.

Speaker #3: So indeed there is some pressure. The good news however is that basically in Belgium we've seen a very strong growth on the corporate side.

Speaker #3: With margins that actually have increased. So from that perspective there is some compensation but indeed NI on the lending side is going to be under pressure going forward.

Speaker #1: Great. Thank you very much.

Benoit Petrarque: Great. Thank you very much.

Speaker #2: The next question comes from Sharath Kumar from Deutsche Bank. Please go ahead.

Operator: The next question comes from Sharad Kumar from Deutsche Bank. Please go ahead.

Speaker #1: Good morning. Thank you for taking my questions. I have two, please. Firstly, on fees, I wanted to understand about asset management flows in the context of the shorter-tenure term deposits comment you made earlier.

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

Speaker #1: Overall asset management flows at 1% does not look high in the context of very strong markets. So what explains this? Do you expect flows to go towards mutual funds from term deposits in the coming quarters?

Speaker #1: Secondly, a follow-up on M&A. It's very clear that your near-term priority is ETIAS. Maybe Romania—previously, you spoke about Greece as an interesting market over the near to medium term.

Speaker #1: Do you see the need to accelerate interest in this market in the wake of the successful hostile takeover of Commerzbank by UniCredit? Can you provide a pecking order of your M&A preferences as of today?

Speaker #1: Thank you.

Speaker #3: Good morning Sharath. I will take the question on fees and inflows of asset management. So as far as asset management is concerned, we have actually seen a quite nice increase in our assets under management from 295 billion to 328 billion.

Bartel Puelinckx: Good morning, Sharath. I will take the question on fees and inflows of asset management. As far as asset management is concerned, we have actually seen a quite nice increase in our assets under management from EUR 295 billion to EUR 328 billion. Also, the inflow of direct client money increased quite significantly to a total of EUR 141 billion, which is up roughly by EUR 13.7 billion. Out of that, as Johan has been highlighting, EUR 1.4 billion net sales. What is important is that particularly that net sales is supported by a kind of what I would always call our bread and butter in terms of support of our assets under management, which are the RIPs, the Regular Investment Plans, which continue to generate quite some nice inflows.

Speaker #3: Also the inflow of direct client money increased quite significantly to a total of 141 billion which is up roughly by 13.7 billion. Out of that as Johan has been highlighting 1.4 billion net sales.

Speaker #3: But what is important is that particularly that net sales is supported by a kind of what I would always call our bread and butter in terms of support of our assets under management.

Speaker #3: Which is, which are the RIPs, the regular investment plans, which continue to generate quite some nice inflows. This quarter, this was €557 million, which is roughly one-third of the net sales, which is actually continuously growing.

Bartel Puelinckx: This quarter, this was EUR 557 million, which is roughly one-third of the net sales and which is actually continuously growing, not only in terms of the number of RIPs that we are selling, both in Belgium and in the Czech Republic, and in Central Europe, but also in terms of the average inflow on a monthly basis in Belgium, that increased now from EUR 121 to EUR 125. In the Czech Republic, we are almost at EUR 60 to EUR 59 per month, increase up from EUR 55. In also international markets, we are now already at EUR 54. Next to that, as you know, only a small part of our asset management flows come today from the Central Europe.

Speaker #3: Not only in terms of the number of RIPs that we are selling both in Belgium and in the Czech Republic but also and in Central Europe but also in terms of the average inflow on a monthly basis in Belgium that increased now from 121 to 125 euro and in the Czech Republic we're even almost at we are almost at 659 euro per month to decrease up from 55 in also international markets we are now already at 54.

Speaker #3: Next to that as you know a only a small part of our asset management flows come today from the Central Europe but what is clearly happening and what we always expecting is the wealth conversion and we still we see a proportion strong growth of our assets under management in particularly in Central Europe going forward.

Bartel Puelinckx: What is clearly happening and what we always expecting is the wealth conversion, and we see a proportionate strong growth of our assets under management in particularly in Central Europe going forward. From that perspective, we do not guide, of course, our net fee and commission income because this is to a large extent also depending on the market performance. 50% of the portfolio is equity, and that, of course, is depending on external market performance. The other 50% is, of course, non-market, there the impact would be less. That's how you should look at the future development of our flows. We're certainly not negative on that.

Speaker #3: So from that perspective the we do not guide of course our net fee and commission income on because this is to a larger extent also depending on our on the market performance.

Speaker #3: You know 50% of the portfolio is equity and that of course is depending on external market performance but the other 50% is of course non-markets where the impact would be less.

Speaker #3: So that's how you should look at the future development of our flows. So we're certainly not negative on that.

Speaker #4: And I will answer your second question, Sharath. So on the M&A, let me actually repeat what I answered to the question of Tariq earlier.

Johan Thijs: I will answer your second question, Sharad. On the M&A, let me actually repeat what I answered to the question of Tarek earlier. We will continue to monitor the markets in terms of M&A, definitely the core countries we are present, that is for banking and insurance activities or related activities. In the past, on the back of also some rumors in the market, we reacted indeed that we were interested in opening a banking insurance franchise in Romania. Until further notice, this has not been materialized, given that no opportunities or not opportunities which allow us to take a significant position in that market. For a good understanding, we never said that we were interested in the Greek market. I know that some investment bankers are running around with packages saying that we should buy something in Greece, that's something else.

Speaker #4: We will continue to monitor the markets in terms of M&A, definitely in the core countries where we are present, and that is for banking and insurance activities.

Speaker #4: Or related activities. And in the past, on the back of also some rumors in the market, we reacted indeed that we were interested in opening a banking insurance franchise in Romania.

Speaker #4: Until further notice, this has not been materialized, given that there are no opportunities or not opportunities which allow us to take a significant position in that market.

Speaker #4: But for a good understanding, we never said that we were interested in the Greek market. I know that some investment bankers are running around with packages saying that we should buy something in Greece, but that's something else.

Speaker #4: But until further notice, we have never made a statement that we would be interested in Greece, and I confirm today that we are not looking into entering Greece.

Johan Thijs: Until further notice, we have never made a statement that we would be interested in Greece, I confirm today that we're not looking into entering Greece.

Speaker #1: Thank you.

Sharath Kumar: Thank you.

Speaker #2: The next question comes from Chris Hallam from Goldman Sachs International. Please go ahead.

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

Chris Hallam: Hi. I have a follow-up on M&A and then a question on NII, but maybe just the NII one first. On the transformation side of things, we're moving into a slightly different rates backdrop to what we thought about at the start of the year. A few of your peers have changed the shape and the size of the structural hedge. I know you don't want to give precise details on what the hedge looks like, but just are you making any changes in how that hedge is set up that would impact either NII growth for the next few years, but also rate sensitivity as we go forward? Just mechanical on NII. Secondly, on M&A.

Speaker #5: I have a follow-up on M&A and then a question on NI, but maybe just the NII one first. On the transformation side of things, you know we're moving into a slightly different rates backdrop than what we thought about at the start of the year.

Speaker #5: A few of your peers have changed the shape and the size of the structural hedge. I don't I know you don't want to give you know precise details on what the hedge looks like but just are you making any changes in how that hedge is set up that would impact either NII growth for the next few years but also rate sensitivity as we go forward.

Speaker #5: So, just mechanical on NII. Secondly, on M&A: so if ETIAS is a no-go, and you talked about looking at other opportunities, would that mean that you start looking properly and setting things in motion after getting clarity on ETIAS at the end of this year? Because I guess you have around €2 billion of excess capital versus your 13% floor today. If you start looking for alternative options after the end of this year, I mean I can assume that's going to take a year or more to close. Likewise, anything, you know, in terms of accelerated investment to the business, you could probably cover that by organic capital generation. You're doing 18% ROT today, so am I right in thinking that if ETIAS is a no-go, you're almost certainly going to need to distribute some of that excess capital at the end of this year? Because otherwise the timeframes are becoming just too extended. And maybe if you could remind us of the moving parts on how much capital ETIAS could consume. I know there's obviously a wide range of potential numbers there, but just what you think that would look like. And you mentioned Romania a few times—there's obviously one big opportunity in, or one big option in, Romania, but that's closer to 300 basis points of capital consumption.

Chris Hallam: If Ethias is a no-go, and you talked about looking at other opportunities, would that be that you start looking properly and setting things in motion after getting clarity on Ethias at the end of this year? Because I guess you have around EUR 2 billion of excess capital versus your 13% floor today. If you start looking for alternative options after the end of this year, I can assume that's going to take a year or more to close. Likewise, anything, in terms of accelerated investment to the business, you could probably cover that by organic capital generation. You're doing 18% ROTE today. Am I right in thinking that if Ethias is a no-go, you're almost certainly going to need to distribute some of the excess capital at the end of this year, because otherwise the time frames are becoming just too extended.

Chris Hallam: Maybe if you could remind us the moving parts on how much capital Ethias could consume. I know there's obviously a wide range of potential numbers there, but just what you think that would look like. You mentioned Romania a few times. There's obviously one big opportunity or one big option in Romania, but that's closer to 300 basis points of capital consumption.

Speaker #5: So, just any thoughts about how much further up you'd be willing to take CT1 to sit on a bigger sum of excess in order to give you more flexibility with regards to Romania?

Chris Hallam: Just any thoughts about how much further up you'd be willing to take CT1 to sit on a bigger sum of excess in order to give you more flexibility with regards to Romania. Thank you.

Speaker #5: Thank you.

Speaker #3: Good morning, Chris. I will take the first question; Johan will take the second. As far as our replication portfolio is concerned—and you're right, so from that perspective, we do not disclose too much, because we consider that our internal kitchen. But, having said that, I can confirm that yes, we have been somewhat reviewing the hedge, and that we have started to shorten the duration gradually. This will allow us, indeed, to further benefit going forward.

Bartel Puelinckx: Good morning, Chris. I will take the first question. Johan will take the second. As far as our replication portfolio is concerned, you are right. From that perspective, we do not disclose too, because we consider that as our internal kitchen. Having said that, I can confirm that yes, we have been somewhat reviewing the hedge, and that we have started to shorten somewhat the duration gradually, which will allow us indeed to further benefits going forward. I would like to recall that anyway, we do not yet see the infliction point in the coming cycle in the sense that we expect our transformation result to further increase over the next cycle.

Speaker #3: I would like to recall that, anyway, we do not yet see the inflection point in the coming cycle, in the sense that we expect our transformation result to further increase over the next cycle.

Speaker #4: Thank you for your second question, Chris, and indeed, I think it was a perfect analysis of all the topics which are on our table.

Johan Thijs: Thank you for your second question, Chris. Indeed, I think it was a perfect analysis of all the topics which are on our table. In essence, let me highlight a couple of potential answers to your questions. For good understanding, we never disclose the impact or the potential acquisition of ADS may be. I know that in the market, some assumptions are made by, amongst others, analysts, and investment firms. We never disclose any precise number. What is clear is that when an ADS comes to the market and when we would acquire it, we would do it under the Danish Compromise, and we would acquire via the insurance company of KBC Group. We do have indeed, in that perspective, the opportunity of the Danish Compromise.

Speaker #4: So in essence, let me highlight a couple of answers to your questions—potential answers, that is. For good understanding, we never disclose the impact or the potential acquisition that ETIAS may bring.

Speaker #4: I know that in the market some assumptions are made by, amongst others, analysts and investment firms, but we never disclose any precise numbers. What is clear is that when an ETIAS comes to the market, and when we would achieve it, we would acquire it—sorry, we would do it under the Danish compromise, and we would acquire it via the insurance company of KBC Group.

Speaker #4: So we do have, in that indeed, that perspective—the opportunity of the Danish compromise—which is also mentioned then by a lot of investment firms, that the impact might max be 100 basis points.

Johan Thijs: What is also mentioned then by a lot of investment firms that the impact might max the 100 basis points. I do not comment on that. We never disclose the precise number besides the fact that it is indeed under the Danish Compromise. The question is, what happens if it doesn't fly? What happens if it is not for sale or we consider it not to be at the right price? We will end up with the capital position, which we have today, plus then the upcoming period of profit and everything else which is influencing the risk-weighted assets evolution and the capital position. Well, it's clear if we do not have any opportunities for building our book inorganically, then we do have capital which is exceeding the threshold of, let's call it the surplus capital. We do not have a precise threshold anymore, as you know.

Speaker #4: I do not comment on that. But we never disclose the precise number, besides the fact that it is indeed under the Danish compromise. So the question is: what happens if it doesn't fly? About what happens if it is not for sale, or we consider it not to be at the right price, so we will end up with the capital position which we have today, plus the upcoming period of profits and everything else which is influencing the risk and its evolution.

Speaker #4: And the capital position. Well it's clear we if we do not have any opportunities for building our book inorganically then we do have capital which is exceeding the threshold of let's call it the surplus capital.

Speaker #4: We do not—I mean, we do not have a precise threshold anymore, as you know. That means it is at the discretion of the board what to do with it. But it's quite clear that surplus capital, or capital which we cannot make work—so, which is more than what we need for organic growth and for any opportunities in the, let's call it, the short term or midterm—that capital will be distributed to shareholders.

Johan Thijs: That means that it is at the discretion of the board what to do with it. It's quite clear that surplus capital or capital which we cannot make work, which is more than what we need for organic growth and for any opportunities in the, let's call it the short-term, midterm, that capital will be distributed to shareholders. We were quite clear about that, quite vocal about that on previous occasion. We are not going to change that today. What is the ideal position in terms of capital? For instance, Romania, you pointed out what a potential acquisition might cost. I agree with you, it's fundamentally higher than what, for instance, an acquisition of ADS would cost. Well, that position is taken into consideration when we take the decision on what to do with capital and what to do with distribution.

Speaker #4: We were quite clear about that, quite vocal about that, on previous occasions, and we are not going to change that today. What is the ideal position in terms of capital? For instance, Romania—you pointed out what a potential acquisition might cost, and I agree with you, it's fundamentally higher than what, for instance, an acquisition of ETIAS could cost.

Speaker #4: Well that position is taken into consideration when we take the decision on what to do with capital and what to do with distribution. Distribution will be anyway to the higher end of the range which is currently in our dividend policy that is 50 to 65% and the higher range means that it indeed is at the very end of that range.

Johan Thijs: Distribution will be anyway to the higher end of the range, which is currently in our dividend policy, that is 50% to 65%, and the higher range means that it indeed is at the very end of that range. What it is in terms of capital distribution, I cannot disclose because we simply didn't have that discussion with our board because at this stage, we are still having a potential opportunity on the table called ADS. We will clearly come back to that to you in the period to come on definitely after year-end and give you much clarification.

Speaker #4: What it is in terms of capital distribution, I cannot disclose, because we simply haven't had that discussion with our board yet. At this stage, we still have a potential opportunity on the table called ETIAS.

Speaker #4: So we will come back to that—clearly come back to that—to you in the period to come, and definitely after year-end, and give you much clarification.

Speaker #5: That's really helpful. Thank you.

Chris Hallam: That's really helpful. Thank you.

Speaker #1: The next question comes from Shrey Srivastava from Citi please go ahead.

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

Speaker #2: Hi and thank you for taking my question. It's actually just a follow up on an eye and obviously your guidance is predicated on forward rates as of early August which actually implies more than one incremental rate hike this year.

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

Speaker #2: So, if you were to instead, for example, assume flat rates for the rest of this year or only one hike, how would that affect your net interest income?

Speaker #2: Guidance. Thank you.

Speaker #3: Good morning, Shiran. Well, you're right—of course, forwards I'm taking into account for the guidance. So what is important here, indeed, they do include a rate hike. But what I can give you is what we gave you before; that is, of course, the sensitivity on our NII, which is—and which we maintain—that a parallel shift of 25 basis points would have an impact, on a yearly basis, of sixty million—six-zero million—euro. But obviously, we do not expect a parallel shift, so it would be more on the short side than on the long end.

Johan Thijs: Good morning, Shrey. Well, you're right. Of course, forwards are taken into account for the guidance. Now, what is important here, indeed, they do include a rate hike. What I can give you is what we gave you before. That is, of course, the sensitivity on our NII, which we maintain at the parallel shift of 25 basis points, would have an impact on a yearly basis of EUR 60 million, six zero million EUR. Obviously, we do not expect a parallel shift, it will be more on the short side than on the long end.

Speaker #2: And even, qualitatively, how the shortening of the duration of your replicating portfolio sort of affected this. Thank you.

Shrey Srivastava: Even sort of qualitatively, how has the shortening of the duration of your replicating portfolio sort of affected this? Thank you.

Speaker #3: Well, of course, that's the reason why we shortened somewhat the duration, because we expect this to provide a positive impact—that goes without saying.

Bartel Puelinckx: Well, of course, that's the reason why we shortened somewhat the duration, because we expect this to provide a positive impact. That goes without saying.

Speaker #2: And that's expected to offer you some sort of benefit this year, from this year itself.

Shrey Srivastava: That's expected to offer you some sort of benefit from this year itself.

Speaker #3: Well, yes, I mean, we are five months to go, so from that perspective, this will already have an impact indeed and has been taken into account, of course, also in the guidance.

Bartel Puelinckx: Well, yes. We have five months to go. From that perspective, this will have already an impact indeed, and has been taken into account, of course, also in the guidance.

Speaker #2: Thank you.

Shrey Srivastava: Thank you.

Speaker #1: There are no more questions at this time, so I will hand the conference back to the speakers for any closing comments.

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

Speaker #4: All right, if there are no further questions, this sums it up for this call. I would like to thank you for your attendance and wish you an enjoyable rest of the day.

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

Speaker #4: Bye bye.

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

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