Wim Allegaert - Director of IR Johan Thijs - Group CEO Luc Popelier - Group CFO

Jean Pierre Lambert - KBW Tarik El Mejjad - Bank of America Merrill Lynch Anton Kryachok - UBS Andrew Coombs - Citi Benoit Petrarque - KeplerCheuvreux Eleni Papoula - Berenberg Jan Willem Knoll - ABN Amro Riccardo Rovere - Mediobanca Johannes Thormann - HSBC Flora Benhakoun - Deutsche Bank Guillaume Tiberghien - Exane BNP Paribas Kiri Vijayarajah - Barclays

Good morning, from the headquarter of KBC in Brussels. Today is February 12 and it’s a busy morning for results it seems.

So this is the KBC conference call on the fourth quarter results for 2014. We have Johan Thijs, Group CEO; as well as Luc Popelier, Group CFO on the call and they will both elaborate on the results and give additional financial insight on KBC.

This will take roughly 30 minutes and we will use the presentation for the analysts, which can be found at our corporate website, kbc.com. After this 30 minutes there is of course time for questions until around 10:30 Brussels time.

The conference call is also taped and can be replayed until the 26th of February. As usual Investor Relations and the CFO are organizing a sell-side Analyst Meeting in London tomorrow morning at our offices in the city, which is Old Broad Street, 111.

This meeting starts at 8:30 local time and we would be pleased to have you over. There will coffee and croissants as well plenty of time to discuss the financials or listen to our financial story And now it’s my pleasure to give the floor to Johan Thijs.

Thank you very much, Wim, also from my side, ladies and gentlemen good morning and welcome to conference call on our results of the fourth quarter and as a consequence also a brief overview of our results for the full year 2014. Let me start with fourth quarter and I am very pleased to announce that again KBC has performed in a very strong manner.

In the fourth quarter we were able to come to a €457 million results on the net basis and if you would look at the adjusted net result then the result is €477 million, which is once again a proof of our ability to perform in very strong manner. If you look at a total year basis and I will come back to that later on, we will end up with a total net result of almost €1.8 billion, and underlying of €1.6 billion which brings us to an ROE of 13%, which is I think in this difficult market and circumstance a quite excellent result.

Coming back to the fourth quarter, actually the KBC Bank Insurance machine has turned on all cylinders. We have been performing quite well in all of our core markets and all core activities.

We have seen our volumes going up both on the loan side and on the deposit side. We have seen our interest income performing very well and we have also seen an improvement of our net interest margin.

The details will be provided within a second but just as a key takeaway also quite important again we have seen an increase of our net fee and commission income, combined with a further rise in our assets under management. Technically the combined ratio stood at 94% in the full year, which is an excellent result definitely, given also some difficult circumstances on the natural catastrophe side.

Also our cost income to ratio in the fourth quarter stands at 53% which is excellent, brings the overall cost to income ratio to 54% in the full year, perfectly in line with our ambitions and perfectly indicating that we have our costs under control. Also good news to ring on the impairment side, we had a good fourth quarter.

It was slightly up compared to the record quarter of the Q3, 2014. But still it is at a very low level, brings our credit cost ratio to 42 basis points and also there we can indicate that the loan loss provisions in Ireland were in line with our guidance, €41 million for the quarter, €198 million for the year, which is at the higher end as we already indicated a while, at higher end of our guidance but perfectly in line with that guidance.

Also important to mention is that the AQR exercise have been fully accessed and that accounting conclusion when needed were included in the 2014 accounts. Specifically for the fourth quarter there was no material impact whatsoever from those AQR exercise.

Consequently solid capital ratio, solid liquidity ratio and therefore we are announcing today as well that we are going to propose to our AGM a dividend payout of €2 per share for the accounting year of 2014 and we do confirm our dividend policy going forward for year 2015, this is actually not to pay dividend as of 2016, to pay out a ratio of 50% on dividend coupon included. Let me talk you through some of the details.

I will speak because otherwise we will eat sometime of the question part and I think this is also very important. I will talk about mainly Q4 and then very briefly on the year result.

First thing to mention is that the adjusted net result and the net result are coming close together again. We already said this for a while.

We come to the conclusion this is now becoming a regular pattern and therefore we will probably cancel the distinction between the net result, adjusted net result for 2015. Only a difference of €20 million which is mainly related to the divestment filed and for Diamond Bank in Germany but all the rest is very normal.

On page seven you can see the split between the bank and insurance activities, 80-20 which is actually a normal split up between the two. So let’s not spend too much of time and let’s go immediately to page eight where we do see the net interest income.

The net interest income on the quarter compared with the previous quarter is flattish which means that actually because of the previous quarter was an excellent result. Once again this is a good result.

It is compared to the same quarter last year an increase of 11%, which is quite substantial and this is driven negatively by the refinancing of maturing investments. The negative - the lower re-investment yield but it is fully compensated by commercial margins which have been pushed up.

As you have seen we have been slowly cutting down rates on the savings accounts, not only in Belgium but also in other countries. We have been able to push up the volumes, both on the deposit side and on the lending business.

So our commercial machine has done an terrific job there in difficult circumstances but also there and this is something which is very particular for the Belgium business unit, we have seen, as we have already indicated in the previous quarter, in the previous conference call that the prepayments in Belgium, so refinancing of mortgage loans has been further picking up and is now adding to net interest income about €51 million, which is a difference of €33 million for the quarter compared to previous year. So this has a positive impact on the net interest income.

It has also a positive impact on the net interest margin but this is something which is obviously not sustainable and as of next year what has been refinanced will be generating a lower net interest income. So we will have there a negative effect as of 2015 for €69 million.

Now coming back to the margin, also there you can see the pickup, which is now at 260 basis points which is quite good but once again this is actually translation of several things, the commercial margins which have been put up on both the balance sheet asset and liability side, this has also to do with the prepayment fees, as I explained and therefore this is not sustainable. If you would exclude it then you would end up with about, let’s say, 205 basis points which is perfectly in line with the good quarter of 2014, quarter number two.

So going to page nine, we see again a further increase on the fee and commission income. They increase on quarter with 1% which is driven by excellent mutual fund business and also by higher fees on the credit files in Belgium.

The comparison with the same quarter a year ago, so the fourth quarter of 2013, actually expresses much better the evolution on the fee and commission business of the KBC Group. It’s an increase with 12%, which is mainly driven by commercial activities.

So mutual fund business up, unit link and life insurance up and then also a little bit of correction because of the credit files at the end of the third and fourth quarter in 2014 in the business unit Belgium. But they once again a confirmation on the strong performance commercially and the ability of KBC to drive to its commercial strategy on the investment product side.

This is also translated in a further increase of the assets under management. You can see the increase of quarter-to-quarter 3% which is driven by price effect but also by net entries.

The majority is driven by the way by those net entries and if you compare it on yearly basis, so previous year, fourth quarter that we see an increase at 14% and also there this is mainly driven by net inflows and also by a positive price effect for about 8%. On the insurance side I’m now on page ten, first of all the evolution on earned premiums, therefore one has to be careful with the life side.

As you think unit-linked premiums are not included in this picture. First of all good news we have seen a further increase of the premiums there.

The increase on a quarterly basis is mainly driven by the life business, about 15% up in terms of non-life it is flattish, but as you all know it doesn’t make sense to make a comparison between the third quarter and fourth quarter in the life business. We would rather do a comparison year-on-year and therefore the fourth quarter is up 2% compared to the fourth quarter in 2013.

So in that respect given the low market growth this is good evolution. This is also translated in a good and this is far more important technical result.

The combined ratio split here under 94% and this is an excellent achievement given all the difficult periods with national catastrophes. You’ll remember the hail storm in Belgium which kicked in for €41 million, net after reinsurance.

We also had some difficult natural situations in Bulgaria, but all-in-all 94% is very good, definitely taking into account performance of our peers. On slide 11, we can have a bit more insight in the split up in the life sales between unit link and guaranteed interest products.

The purple bars are expressing the guaranteed interest and there you can see that we had an increase of 24% in written premiums. This is quite significant and it brings also the unit link production compared to the total production down to 38%.

38%, which is still a very good result given the impact of the tax treatment of these kinds of products introduced by the Belgium government, now about almost a year ago. Now in this respect unit linked performed slightly different country-to-country but the growth overall is flattish on the yearly basis.

In terms of fair value gains, this is on page 12, we do see an increase of our fair value gains of €81 million. This is driven by actually two elements.

First of all, the ALM derivatives we have seen and the far lower negative and mark-to-market impact of those derivatives, minus €7 million compared to the €46 million in the third quarter substantial difference but also we have seen a positive impact of the market value adjustment which was mainly driven by a CVA model review, kicking in for €47 million positive. So this is actually explaining fully the difference between the third quarter and the fourth quarter and therefore I’ll suggest to immediately go to the other box which is the gains realized on available for sale, €80 million quite low, if you compare with the run rate for 2014, which stands in only about somewhere between €35 million and €40 million.

This is rather low, so we didn’t use too much of this, €14 million was made up with shares, $3 million was made of advances so it is driven by gains on shares. Other income, not to dwell about it, the run rate is about €50 million so this quarter it was a little bit higher but nothing special to mention there.

In terms of more important drivers, let’s come back to the operational expenses, and we are on page 13 where you can see that the operational expenses, first of all expressed as a ratio, stands for this quarter at an excellent 53%. Now 53% in the fourth quarter, if you would exclude the effect, which I have been excluding now for all quarters, namely the effect of the one-offs mark-to-market derivatives, then it would be 54%, perfectly in line with our ambitions, which brings also by the way, the ratio to a 54% for the full quarter.

On the other hand if you compare the nominal [ph] numbers quarter-on-quarter you can see an increase of about €88 million, so let’s round the number €90 million. This €90 is as you can see in previous years always driven by seasonal effects and the seasons effects rounds about €50 million is normal, mainly driven by market costs, ICT cost which are included at the end of the year.

So we had actually an increase of there of €40 million. Now that increase is fully driven by one-off elements.

Where does it come from? In Belgium the new government, Michel the first, as we call it, has introduced some changes in the retirement age.

So the retirement age is [indiscernible] with the few years and that has been translated into our numbers, which bring an extra one off cost of €20 million. On the other hand we have seen some one-off costs in Hungary, depreciation of software and also is something very particular we have concluded a sponsoring contract which has to the tune of €5 million, which is fully tax deductible, which will be taken in expense to P&L has zero effect but on the cost side because of the split and treatment, it is €5 million extra.

And then add on to these we had in Ireland severance provision taken for €5 million. So if you add up all these one-offs then it come to a total of almost €40 million, explained fully the difference between the third and the fourth quarter in terms of nominal amount.

So in that respect I would to say that indeed we have our cost under control and we are perfectly in line with our target and with our ambition, with the cost income ratio of 54% for the year and 54% for the quarter. Page 14, you can see the amount of taxes which KBC pays under different entities, totaling quite substantial amount, €335 million.

Definitely if you express it in terms of our operational expenses then we are at 9%. It’s quite impressive and it is once again indicating that the banking sector is in that respect contributing quite a lot to several countries budgets.

In terms of asset impairments, page 15, asset impairments actually are very good, €191 million, it totals €156 million for the loans and receivable. And this is actually a very good result if you compare it with the quarter and definitely if you compare it with previous year.

Compared to previous year it’s substantially down and this is mainly driven obviously by Ireland, where we had a big one-off as you remember but also if you compare without the one-off then we can see that the impairments have come down quite significantly. This first, perhaps on the total amount we are now at 42 basis points, which is 1 basis points up if you compare with the quarter three of 2014, but if you compare it with the longer-term cycle over the last 15 years of KBC Group, then the cost ratio would stand 54 basis points.

You can see the 42 is substantially better. Again I think this is proof of the solid position KBC has in quality terms on his lending book.

Particular situation obviously is Ireland. Ireland has a loan loss now of €41 million.

I will come back to the detail later on but €41 million is perfectly in line with our guidance and what that also means for the future, we confirm our guidance which we have given earlier for Ireland, for 2015 and 2016 we gave a guidance for our loan loss provisions of €50 million up to €100 million for the next coming two years. In terms of the impaired loans percentage, almost 10%; 9.9%.

But what is quite important as well is that our non-performing loans dropped from third to fourth quarter with 50 basis points and now stands at 5.5. I am not going to go into the detail of the different business unit.

Very briefly all of them have been performing actually very well. Also in the fourth quarter here and there you have some differences in some details but all-in-all they have been performing quite good.

The only thing I would like to mention is Ireland, because Ireland is of course of a particular concern and probably we will get some questions on Hungary afterwards in the question session but actually all-in-all there was nothing special to mention on Hungary. In terms of Ireland, I am looking for the correct page, it’s page 44.

You can see first of all the evolution of our loan book, with homeloan reported on page 45, the evolution of our impairments. As a summary we have net impact of our impairment charge of €3 million on the, let’s call it the retail side, or home loan portfolio which is mainly driven by actually model changes which we have been implementing.

So the bad book performed actually quite well but as we have put in because of model changes some extra provisions on the good book. In terms of the corporate book, which is on page 46, there you can see that we had a net impairment charge of €38 million which was also on the bad book part.

So therefore the total impact stands at €41 million which is perfectly aligned with our guidance given earlier. Crucial to mention that is on pages 47-48, is the evolution of the Irish situation.

I already said that we can see some sparkles of lights in the dark [ph] turnover which was over the previous years. Ireland we see arrears coming in, we see also our non-performing, impaired loans and mortgage areas which is page 48 having a positive stay back.

So there we can see indeed positive improvements. That’s for the countries.

So in terms of impact of profitability on allocated capital on page 51 you can see the details. Both Belgium and Czech Republic are performing very well with ROAC respectively 26% and 37%.

Obviously Ireland drags down the international market return. Without Ireland it will be very positive.

So they get on €175 million profit and Hungary was confronted with the one-off on the FX loans. Otherwise they would be contributing also within ROAC standing about 18% to 20%.

In terms of capital position and liquidity position, we are on page 53 now. We were able to drive up our Basel III fully loaded common equity one ratio.

This is under Danish Compromise to 14.3%. It is quite significant improvement if you compare it with 12.8% of last year and this is obviously due to strong business performance and also the capital optimization, which we had announced earlier on the insurance side.

Also the leverage ratio now stands at 6.4% at KBC Group which is also a comparison on European level and compared with the common equity ratio, a good result. The bank consolidated stands at solid 5% also there quite well.

As a consequence we are also pleased to announce that the dividends for 2014, over the book year 2014 will be proposed to AGM being €2 per share and that is obviously fully financed from the profit in the accounting year. Now we confirm again the intention to pay out dividend, as I already announced, zero for 2015 and as of 2016 50% coupon, AT1 included.

Liquidity is very solid. It remains mainly driven by customer input, solid 73% then also if you look at wholesale funding, short-term wholesale funding is more than three and half times covered with very liquid assets.

So there very good performance as well, also the LCR and NSFR ratio has remained very solid. This is fully explained on page 56, which allows me to say that indeed quarter four also in the details was a good quarter.

Solid performance, good strong commercial results, good capital ratio, best of liquidity relations and it is once again a confirmation of our track record. Actually this is summary, which I also could use for the full year 2014.

Over the four quarters we have been performing in very consistent manner, which resulted in a €1.8 billion net result, spread out quite uniformly over the year. The net and the adjusted come close together which means volatility is getting out of our books, and the legacy page has indeed been turned.

Some will say that the fourth quarter’s been dull. Actually in this respect I am pleased to have a dull quarter if it shows like this.

ROE, 13%, excellent fee commission business up, interest income up, definitely if you compare on the yearly basis net margin up, commercial margin up, volumes up, all good news, technical results are good, combined ratio is very solid, 54 for cost to income ratio, perfectly in line with our target. And also the AQR exercise which was performed under the guidance of ECB, all the results have been fully assessed and has been taken into the books in course of 2014.

So also there quite good results. ‘14 was an excellent result in terms of capital and liquidity remained very strong.

All-in-all it was a strong year. What’s about the future?

Obviously we are going to work into the same manner for the period following. We are going to see continued stable and solid returns on Belgium and Czech Republic.

We will definitely have breakeven result in the international market business unit. It’s a bit of a pity because of the FX transformation in Hungary otherwise this year 2014 would have already been a positive result.

The Irish situation will be considered still to be profitable, as of 2016 and we will still work with an absolute minimum capital common equity run ratio of 10.5 and LCR has a target of at least 105 basis points. I suggest that I keep it here and let me give the floor free for questions which are probably there.

So Wim please.

Thank you. So now the floor is indeed open for question.

Please restrict the number of questions to two so that we can have the maximum number of people to ask questions.

Yes, good morning. Thank you for the presentation, two questions.

The first one is regarding the deposit and guarantee side contribution. Some banks have giving indication in numbers and I was wondering if could give some guidance on that point and also whether this cost would affect your cost-to-income target medium-term?

Second question is the guidance you gave on the average provisioning for 2015 and I was wondering first of all why you didn’t change it to a lower number because actually the Irish economy is doing well as your slides demonstrate? And secondly what would be necessary for you to change your views on the provision, what will be the trigger, the key element to change that?

Thank you very much.

Thank you for your question. First one, so the Single Resolution Fund.

Our contribution is €75 million of the year. Now, we have a little bit of a very particular situation in Belgium.

This is contribution from the Single Resolution Fund comes on top of the taxes which we already paid. But we have a very particular situation in Belgium.

Probably you know in Belgium we are already paying what is called a financial stability contribution. Now the financial stability contribution was originally meant to disappear as of the moment that there was a European resolution fund.

Now the latter is the case and the discussion is ongoing with the Belgium government, on using all those contribution of the financial stability contribution to compensate for the Single Resolution Fund. As I said this is ongoing so final conclusion is not taken, something the government has to decide in the next coming let’s say quarters.

If that would be taken then the contribution of €55 million would drop with about €35 million. This is, by the way this is included in our guidance for our cost-to-income ratio, where we guided to be at a 53% cost to income target in 2017.

This included already the contributions of the single resolution fund. The second one was the Irish provisioning.

The guidance which we have given is indeed the same as what we have guided previous quarters. This means also that we take indeed because you are definitely referring to the improved situation, as we take indeed a conservative stance this, as you know, our retail portfolio and the provisioning for debt contains elements which take into account the housing prices, analyst reports often mention the improved situation of the housing prices.

And that’s indeed true. We do see a fundamental increase in those housing prices not only in the Dublin area but we also start to see this now in other areas, non-Dublin area, about 55% of our portfolio by the way is concentrated in the Dublin area.

So therefore, indeed our numbers do contain in that respect a kind of a buffer. Now the question is how conservative are you in using that buffer or not using that buffer?

One could say that a part of the housing prices are - the increase of the housing prices are driven by the lack of supply and lower those [ph] deal type financed with cash. As of the moment that situation becomes a bit more solid and as of the moment that has becomes a bit more predictable.

We could look into our current situation but as long as it is not clear we will maintain the guidance of €50 million to €100 million. I think that Luc will add something to that well.

Yes, the next thing is what we always said in the previous quarters as well is that there is still a weakness in the corporate portfolio. So we expect to see further provisioning on the corporate portfolio and that will also lead to this guidance.

Great, thank you very much.

Hi, good morning. I have a couple of question please.

First clarification about this Single Refund contribution. So what you have in your numbers, is it the €75 million or the net amount of €25 million if you use the financial stability contribution?

And the second question is you guided for some provision in Belgium for the AQR arrear size. Can you guide please what is the amount that you booked in Q4?

And similarly for Ireland while I am sure the data is there but what it the extra RWAs you have booked in the quarter for the change in the model? Thank you very much.

Thank you for the question. So come back on the single resolution fund, for good understanding this is obviously something which will be in the numbers as of 2016.

The numbers which we have been mentioning, what we have taken into our guidance is that €75 million. If there would be agreement with the Belgium authorities on the financial stability contribution, that would mean that, that number would reduce with €25 million, so the €75 would become more or less €50 million, €51 million more or less, but we have taken into account in our guidance the €75 million.

On the AQR in the fourth quarter, as we keep to the not material [ph] because we try to make distinction between what would be AQR effect and what are not AQR effect and that is quite difficult particularly because we started in certain files in the normal course of the credit application refuse, with the balance already taken due to events which happened during the 2014, which were actually also taken by the regulator for the AQR exercise, because AQR exercise has been done during 2014 and they took into account already events which happened in 2014. So the distinction is quite difficult to make but it's non material.

Perhaps on the RWAs for Ireland, increase is due to model changes is about €1.4 billion.

Thank you.

Good morning. Thank you very much for taking my questions.

Just two questions please, one is on capital and state aid payment, the base of capital build continues to surprise positively and it has been the case for last few quarters. Now I was wondering what could be the catalyst for you to reassess your state aid repayment deadline target?

And the second question please is on acquisitions. Given that European stress test is behind us and turmoil in the CE continues, do you see any opportunities arising within the space of next 12 months or so to deploy your excess capital, via acquisitions, something that you have talked about during the Capital Markets Day?

Thank you.

Thank you for your question. Coming back on the first one indeed with the capital ratio of 14.3% and our current external target of common equity tier 1 and the Danish compromise of 10.5% you could easily say what about [ph] state aid repayment scheme.

Now coming back to what we are going to do, actually I am going to confirm today what I already said on previous occasions. So state aid will be definitely gone by 2017 end of year.

We have that possibility easily and we are looking into what in this respect are different options. Now and the reason we are so conservative is obvious that we don't have full detail on all the elements which are coming towards us and one of those elements is the new capital minimum target will be imposed upon us by the ECD.

That target is expected to be announced to us at the end of February, let's say end of February, beginning of March. We will come back to the market with that as soon as we know it and after that our board has approved our stance on that.

Second thing is obviously there are in the pipeline some more elements coming up, but all sector discussions on level playing field are ongoing. We know very well that KBC has been - that the outcome of the stress test has been treated quite strongly in terms of weighing of certain risk classes, sovereign weighting of home loans for instance from some [ph] countries for instance is one of those elements.

Anyway, some changes are to be expected going forward as well. Now last but not least given all these circumstances, 2015 is a year that we are not going to be coupon.

So in that respect this state aid as a matter of speaking is at zero capital cost for the year 2015. So we will not make - the two combined conservative stance from uncertainties, we don't have to at zero cost, we don't have to pay it back.

It means that we are not going to pay back before year end. Now if you want to have my real mindset, I don't like to have state aid on my books as well.

So that's very clear. Combining now question one with question two, what about acquisitions and how do we see the market evolving?

It is indeed true that lately we have seen some movements on the market in terms of assets becoming available. There was a rumor in the press that KBC was looking in Czech Republic at a file.

This is correct. We were looking at it and we came to the conclusion that it was not of our interest, so we declined our interest recently.

Now what about other files? As we said before we will be looking into opportunities of acquisitions in our core markets, if we can strengthen our position.

Now strengthening our positions means two things. We are talking about activities in our core activities of traditional banking, insurance, asset management, leasing whatever, in our core markets and second element is it has to fully comply with our financial targets, which as you know are quite strict.

So currently there is nothing on the table but we will look at each and every opportunity that arises and if it can add value not only in the short but definitely also in the long term then we will look at it, but we will be conservative as ever to strengthen our ROE further ongoing.

Thank you. That's very clear.

Yes, good morning. A couple more on capital play, perhaps slightly different angle.

Especially a technical, in your capital ratio, I think was a 0.3 billion improvement in the hedging was say if you could just clarify what drove that improvement quarter on quarter. My second question would be a bigger picture question.

You are at 14.3% now or 11% pro forma plus full state aid payment, is still relatively strong. I note your point about the ECB minima and clarification by in March.

But given you're generating 200 basis points per year class, you're not paying a dividend in 2015. It looks like you're going to have a significant capital surplus by the time we hit 2016.

And so with that in mind, assuming there is no M&A opportunities that arise would you be willing to consider buybacks and/or special dividends in addition to 50% plus ordinary payout in 2016. Thank you.

Andrew could you repeat your first question because you said about hedging reserve but we couldn't follow you said.

So if I look at page 62 of your release and obviously you have strong improvement quarter-on-quarter in the capital ratio. Part of that's due to attained earnings but I was wondering that the hedging reserves or the cash flow hedge appears to have had a positive movement as well.

So I just want to clarify what drove that.

So coming back to the roll-up of indeed capital I think your analysis is correct and indeed if you look at our current position, if you extrapolate and what we have been guiding to the markets then we have indeed buildup of capital over the next coming years, which is quite substantial. Now what are we going to do with that capital is perfectly in line what we also disclosed at the Investor Day.

It means that - and in your question you assumed that let’s assume there is no acquisition possible, then the two other options are left, that is we will definitely strengthen our organic growth. It will consume about one third of our capital build up in the year's following.

And the second thing is that obviously we have state aid on our books and that could mean that if we don't do acquisitions and if we build up capital as you indicated that this will be priority number one for sure. Now all the elements which I have not mentioned till now but what I mentioned on the previous question, that is what about the uncertainly of the ECB, whether they're going to drive us to it in terms of risk weighting, what are they going to drive us to in terms of middle capital ratio is the unknown and in function of that I can then deduct the buffer which is still available.

If the buffer is substantial we can consider the option of, the other options which you have indicated. Now there are some sarcastic [ph] elements in that question.

So I prefer not to answer now on the basis of those sarcastic unknown elements and it rather treat the certainties but as an indication build up, no acquisitions than priority number one is the payback of state aid.

Okay, Andrew. I think you're referring to the hedging reserve cash flow hedges.

These cash flow hedges first of all have become more negative due to the further decrease in interest rates but they are filtered out of the capital. On the other side you have investment gains which are not filtered out.

These cash flow hedges by the way are also used to hedge our loan portfolio but given that we can prove there is a strong correlation in cash flows with certain assets to be hedged we can filter those our under hedge accounting.

Understood. Thank you.

Yes, good morning. One question remaining on that side.

On the impact of prepayment in 2014 has been substantial. You have been guiding for a recurring impact of negative impact of €70 million going forward.

I was wondering how much of this impact of €70 million is already in the 2014 results and how much is kind of incremental for 2015. And is that actually coming on the top of the one-off fees which have been booked in 2014.

Thank you very much.

Yes, so the €70 million impact is indeed due to the refinancing in 2014. The number which is already in the accounts of 2014 is of course a mixture of prepayment which have been in 2013 but they are very minimal and what happened already in 2014.

And as a guidance it's broadly between around €30 million.

€13 million?

€30 million.

Thank you.

Thank you. I just wanted to clarify with you that the replacement of €500 million shareholder capital held within the insurance business is yet to accrue in the first quarter.

And if so can you just remind us what is the benefit for your - to your Basel III common equity ratio once this occurs that would be over and above of course the increase in your common equity ratio following - if we include the retained earnings in the first quarter. Thank you.

So the impact of the €500 million issues and that's indeed going to be performed in first quarter 2015. It depends a bit on which methodology, calculation methodology used.

If you use the Danish compromise, which currently given then the impact is 30 basis points positive. We also have disclosed at the very end of the 10-Q [ph] which is on our website the impacts of the different other calculations methodologies.

So the building block methodology and the deduction methods. Now there could be some pressure from the ECB towards the deduction method.

Therefore also we will disclose the impact there. If we would do the €500 million issue then the impact is about 60 basis points of under the reduction method.

Yes, good morning. A question on the shift from term deposits into let's cheap deposits and off balance sheets products which you talked about in the last quarter.

I think you've reduced term deposits by €1.3 billion in Belgium, I think in the third quarter. Have you seen similar developments in the fourth quarter and what sort of magnitude?

And let’s say for 2015 what can we expect in terms of this process of shifting deposits into short term cheaper savings products and off balance sheets products? Maybe secondly on your revenue growth target of 2.75% CAGR over your strategy period, post the very strong second half of last year and in light of the low interest rate environment, I mean this will be a very tough target to reach, I believe and if you were to come out with the revenue growth targets on the 2014 revenue base, what sort of revenue CAGR should we be looking at.

Thanks.

Perhaps the first question, the shift to term deposits yes I can confirm indeed in the third quarter was €1.3 billion lower. If you look at the balance sheet and you don't see a decrease in term deposits, but in effect there has been a reduction again in the term deposits in the retail segment, there were the most expensive ones, to the tune of around €600 million in Belgium and a bit more, a few hundred millions in the - slightly €100 million in the Central European countries.

The reason why term deposits actually go up is because there were more term deposits in the dealing rooms, where professional counterparties institutionals have increased their term deposits with the KBC. But these are and have always been and are still at [indiscernible] to market rates.

And Johan I think will answer the second question.

Yeah, in terms of the CAGR targets, which have been communicated at indeed - at the occasion of the Investor Day in June, did you write in your assessment that the second half of 2014 was actually a good performance and has contributed quite a lot to that CAGR even if we would exclude Hungary, where we had the one-off as you know of the FX transformation, [indiscernible] transformation if we would exclude that we would have ended up with a 230% performed which is quite good, perfectly in line with our targets. Yes, indeed the only thing which we can see is that on the short term, you're right the environment has become challenging.

If you compare the situation, let's say first half of 2014 with today, then it's indeed true that the interest rates, long term interest rates have come under pressure, the QE exercise will further have a negative impact on that. On the other hand the growth rates are much, let's say kind of in line with what we have used for calculation on the basis of which we had announced the 225.

But given the fact that we are now, let's say six months down the road, it's a bit too early to reassess fundamentally those targets. We come to the conclusion that is no longer feasible the link [ph] on the conclusive market such a kind that we will get back to you with this business is far too soon, these targets are targets meant for 2017, 2017is another three years to go.

Fair enough. Thanks.

Yes. Good morning to everybody.

Couple of questions from my side. Getting back to NII, do you think that the current level of rates could in any case provide you the possibility to keep margins flat, meaning that you can compensate on the funding side indeed the pressure on asset, especially taking in consideration that covered bond bong legislation is pretty new in Belgium and the level of spreads, and [indiscernible] on covered bonds seems to be extremely low?

This is my first question. The second question I have after collapsing CDOs, after a renegotiating the shareholder loan, after re-leveraging, let's say the insurance operations, is there anything else left on the risk weighted asset side or on the numerator side that could bring additional basis points of capital on top of the traditional organic capital generations from the profits.

Thank you.

Okay, on the NII front we indeed have a number of things that we can still do to reduce the interest rate costs, and you mentioned the funding cost indeed. There is still some expensive senior unsecured debt that will mature in 2015, overall it’s about €3 billion of institutional term funding that matures and a large part of that is expensive funding.

It will be replaced either with cheaper covered bonds, maybe even some further drawdowns on TLTRO [ph] that remains to be seen. And we also watch carefully whether we could actually reduce the amount of term funding, depends on how volumes evolve.

There is potentially also some room to further reduce the term, more expensive term deposits and I think we are running out of steam in, as regards current accounts in Belgium but perhaps there is some room in Central Eastern Europe. Having said that, given the very low interest rate environment we're living in, I think this will be become very big challenge to offset that low investment yield with all the measures I’ve just mentioned.

Now one thing reminds me of course there is - given the very low yield environments and the flooding of liquidity of the markets by the QE, there is also we expect also further pressure on margins.

Coming back on the other question the risk weighted assets, yes indeed, I mean the big risk weighted asset savings, which you could expect from KBC has been happening. I mean the big chunks are there.

You indicated yourself some of them. So in that respect the big jumps in our risk-weighted asset reduction cannot be expected.

We will closely monitor risk-weighted asset uses, as we have been doing in the past as well. So we will continue to do so but the big jumps are not there.

So I think your analysis is correct.

Thank you very much. Thanks.

Good morning everybody and just a question on the potential repayment of the yield and securities. As you said the uncertainty is remaining and then I guess it will only gradually shift down.

So do you rather expect a gradual repayment over the next three years or rather see lumpy events. Thank you.

Thank you for your question. You indicated two options.

And as I already said on the previous question and as we have already told them I was not intended to give much of a detail, how we are going to do this and in what manner. I mean let's take back my first answer to the previous question.

We have taken always the conservative stance, we don't take in this respect risks, definitely not over the years 2015, looked to what is coming towards us and then we will take a decision and what is 100% sure is that the state aid will be out of our books at the ultimate end of 2017 and all the rest will be announced at the appropriate moment.

Okay. Thank you.

Good morning. I have got two questions as well.

The first question is on the loan growth potential, whether you could basically elaborate on how you see loan growth develop in each of your key markets. And second question is on Hungary.

There has been quite a few announcements recently in the country. You've seen I am sure that the government took a stake in Erste subsidiary.

They also announced that they are willing to reduce the bank tax I think by close to half from 2016 onwards. So my second question is really about Hungary.

How do you see the developments in the country and the prospective for there? Thank you.

Going back - I am sorry, coming back to your first question, the loan growth, obviously the loan growth is driven by market circumstances, by loan demand and by evolution in that respect. What is happening with, in terms of growth, I mean the situation is what it is, Europe is not in an environment where the growth will be, in Western Europe at least exceeding 2%, 3% definitely not, more one-ish, 1.5 best case.

In other of our core markets, the growth is little bit higher. We talk about 2.5%, 3% there and Ireland is even higher.

Now in terms of growth, that's one element. The second element is our commercial skills.

Even in the previous years where loan demand was even poorer and growth was even lower we were able to drive up the loan yield margin but also our volumes quite significant, always beat the market and it's definitely clear that in our ambitions it is that we are going to strengthen our position in our core markets also via organic growth. So in that respect we are also doing our utmost in order to improve our commercial positions in terms of loan growth.

In those markets we are interested in, in those markets where it will make sense it means that we will not push for instance on strong growth in the corporate area in Ireland, to give you an example. Coming back to your second question Hungary, on several other occasions I mentioned that Hungary is always the particular country with very particular behavior towards the banks, that particular behaviors has been quite harsh.

As a matter of fact the banking sector has been contributing to a significant extent to solving the debt position and the budget position of the Hungarian government. So always I said on the short term, it's difficult but on the longer term if you look a bit further in the future it is clear that KBC, KNH have been performing very well in Hungary, we were profitable, we had a good growth, good market presentation and last but not least we had an excellent reputation in Hungary.

And therefore I always said let's see what it brings. I am not convinced that the government will continue to do so because one day probably they will change the position because you need banking sector in order to finance your growth.

Now I have had a meeting with the Prime Minister in Hungary recently and he confirmed what I just said. Actually the good reputation of KNH, the fact that KNH has been performing very well in terms of underpinning economic growth, I mean commercial lending business was a major point of action of KNH and also reputation wise the Hungarian Prime Minister confirmed that KNH was in that respect doing very well.

He also announced some - and that is public now, he also announced that he was considering to review the bank's access and that is already a given. If it's true, because details are not known yet, that indeed 40% of those bank taxes would disappear.

That would bring positive but have a positive definitely positive impact on our results. And also there he confirmed that he sees an explicit role for the banking sector in underpinning the economic growth of Hungary and let's be clear over the last few years, also in terms of economic growth Hungary has actually been doing quite well.

So in that respect our position in Hungary is clear and we are maintaining in that respect, confirming our belief in the country and good performance of KNH and we will further strengthen our commercial activities there in creating organic growth as we have been doing in the recent past and as we have been doing successfully also P&L wise.

Thank you.

Yes, good morning. The question relates to net interest income again.

Asking the question another way, do you think that you can offset the headwind on margin that you see from with volume and therefore can you guide us for continued rise in NII, or you think stability is the best case we can hope for? Thank you.

Sorry from the current level of Q4, not from the level of full year.

That's a magical question. Obviously we believe we can to some extent and maybe to a large extent offset the margin pressures with volume increases.

But obviously that it’s more risky because volume development will depend on the economic situation going forward and that is more difficult to predict than all the measures we could take for example in 2014 which was in our own hands. So I would say that there is a higher risk that NII would not be - remain stable.

Thank you very much.

Yes, good morning everyone. First one sort of following on from the last question, I mean conceptually do you think negative interest rates could be possible on deposits in Belgium on the mainstream kind of retail side?

And secondly more technical follow-up, what's the impact of losing the Danish compromise from your capital ratios today? I know you said it would offset 60 bps benefit, but once you include the 60 bps of benefits what’s the net impact of losing Danish compromise and moving to full deduction based on today's ratios?

So the last, because there was a bit of over the line into the first question you should perhaps repeat but on page, what is it again, 89 you can find the differences between the different calculations netted. There you can see that the impact of the reduction methods compared to the Danish compromise fully loaded is 60 basis points.

And then you asked a question about retail in Belgium but I missed the first part of your question could you please repeat that?

Yeah, it's more just a conceptual question on whether you think you could actually move to negative interest rates on your retail deposits.

And the answer is no.

Okay, and then sorry and just going back to sort of 60 - on slide 89 does that include or excludes the 1Q movement to leverage up the insurance company?

It excludes the transaction, that we will do in the first quarter, i.e. have capital increase of 500.

Okay.

And to come back on that initial question after the transaction, the €500 million capital decrease then the difference between the reduction methods and the Danish compromise will be reduce to 30 basis points, three-zero.

Okay yes. Thanks.

You're welcome.

Okay, then I think that sums it up for today. Thank you very much for all for attending the call and we're looking forward to see some of you tomorrow in London as well.

Thank you and have a very nice day.