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

Tarik El Mejjad - Bank of America Merrill Lynch Anton Kryachok - UBS Johannes Thormann - HSBC Benoit Petrarque - Kepler Cheuvreux Riccardo Rovere - Mediobanca Albert Ploegh - ING Jean-Pierre Lambert - Keefe, Bruyette & Woods Flora Benhakoun - Deutsche Bank Alex Koagne - Natixis Securities Kiri Vijayarajah - Barclays

Very good morning from KBC headquarters in Brussels to every each and one of you on the call. Today is May 12, and we will be discussing the first quarter results for KBC, first quarter 2015.

On the call today, we have Johan Thijs, Group CEO; and Luc Popelier, Group CFO. And they will both comment on the results and give some additional financial insight on KBC.

We will take roughly 30 minutes to guide you through the presentation for the analysts, which can be found at our corporate website, kbc.com. After this, there is of course time for questions, until around 10:30 Brussels time.

I would like to highlight as well that this conference call is taped and can be replayed until Friday, May 29. As usual, Investor Relations and the CFO are organizing a sell-side Analyst Meeting in London, tomorrow morning at our offices in the city, Old Broad Street, 111.

This meeting starts at 8:30 local time, and we would be pleased to have you over. There will be plenty of time to discuss the financials or listen to our financial story with a cup of hot coffee or tea.

And now, I give the floor to Johan Thijs.

Thank you very much, Wim. Also from my side, good morning to all of you on this conference call, regarding the first quarter results of 2015.

I will talk you through on the basis of the slides, and I will start with the key takeaways on Page 3. Actually let me summarize it.

Quarter one was an excellent quarter. We have a very strong start of 2015, with the result of €510 million.

And this result of €510 million is even distorted by the large upfront banking taxes, which we have to take, because of the IFRIC 21 regulation. If you would exclude those taxes, then the result would have come to €620 million, which is substantially increase compared to last year's first quarter of last year's fourth quarter.

It also means that currently we - for the first quarter of 2015, with this result we come at a return on equity of 17%. This is for an adjusted basis obviously, but this is quite solid.

The reason why the results was quite good is actually because of our bancassurance engine has been turning on all cylinders. It means both the banking insurance sides and most of our core markets and core activities have been performing very well.

We had seen good fee and commission income. We had seen good insurance income.

We have seen better than anticipated impairments. We have clearly our costs under control, which compensates the slightly lower net interest income, and we also had a positive in terms of the income taxes, which is somewhat different part and I will go into the detail later on.

The income taxes contributed for €11 million positively, which also reflects in a very strong solvency position of 14.9%, and the liquidity position, which is traditionally very strong at KBC. So therefore, yes, it was a very strong start.

And therefore it is indeed to our satisfaction that we can present today those good results. Let me talk you through the details, starting at Page 6, very briefly.

It is actually since a long time that we can announce that we don't make any distinction anymore between the net result, and what we call previously, the adjusted net result, as you can see in Page 6 the difference is zero, which clearly means that KBC has turned the black page of its legacy and that we are now focusing on the net result as a total without making continuously that distinction between underlying results and the legacy business. On Page 7, you can see the traditional split out between the banking and the insurance activities, which stands at, let's say, 80%, 20% is the difference; 77% versus 23% for the insurance company, but in itself that is not of that important.

Far more important is the evolution of the underlying different elements, which is starting with Page 8, the net interest income and the net interest margin. In terms of net interest income, and in terms of the net interest margin, we’re definitely coming at a turning point here.

What we have seen is that the net interest income decreased to 3% on the quarter and increased by 7% year-on-year, both effects can be explained by more or less the same elements. In terms of the quarter-on-quarter decrease, we do see that the mortgages in Belgium continued to have prepayments.

We have seen on this quarter €2.3 billion of prepayments, mainly in Belgium. And therefore, because of those prepayments, we do see prepayment fees, but they are coming substantially down compared to last quarter.

It’s €22 million less prepayment fees. And also the hedging losses on previously refinanced mortgages are now kicking in, about €30 million quarter-on-quarter.

On top, the decrease is also driven by the lower reinvestment yields and the fact that the first quarter in 2015 counts two days less than the fourth quarter of 2014. Now all those elements are partly offset by the lower funding cost.

We continue to improve our funding costs, and the fact that we continued to improve our commercial margins by cutting down the rates on savings accounts. I'm not going to dwell on the year-to-year difference, mainly driven by the same elements, a bit different, because we do see their volume increases and we do see that we have higher prepayment fees in the first quarter of this year compared to first quarter last year.

But moreover, it’s far more important to focus on the first quarter and the fourth quarter last year. In terms of the net interest margin, it now stands still at a solid 208 basis point, but is indeed 8 basis points lower than the previous quarter.

This is mainly driven by the prepayment fees, which lowered as I just said, and also by the hedging losses, which we have occurred on our - on those refinancements, and obviously the pressure of the lower reinvestment yields which is partly offset by the rate cuts and the commercial margins, which we continue to push upward. In terms of volumes, you can see over the bottom end of the page that actually the volumes have been falling quite well, both on the mortgages as on the commercial loans.

We have been able to increase our position definitely year-on-year. Also on our customer deposit side, the increase was quite substantial with 6%.

The biggest beats and the biggest jump ahead was in terms of fee and commission business. We have seen a €52 million increase in fee and commission compared to previous quarter, which is quite substantially 13%.

If you compare it with last year's first quarter, that's even more substantial. We're talking about 22% increase, and this is mainly driven both - are mainly driven by higher entry fees from mutual funds, but also from the unit-linked life insurance products, which have been doing very well, mainly in Belgium.

We also have seen management fees increasing, and we have seen also higher management - higher payment - higher fees for payment transactions. This is also reflected in the assets under management, which have seen also a very important growth.

We have seen €22 billion increase of the assets under management compared to previous quarter, and now also we have reached the €200 billion ceiling. This is the first time ever, so it’s quite a milestone.

The reason why we have seen this increase is actually two-fold. First of all, you have some price effects.

The 12% is explained for 8% because of the price effects, but also by 4% of the net entries. Another positive news to mention is the insurance side.

I already briefly mentioned unit-linked. I’ll come back to that later on.

But in terms of the non-life business, it was actually a very good quarter, not only because of the premium increased 4% on the level of the earned premium, 5% on the level of the written premium, which is very good and which is perfectly in line with our targets going forward, but also in terms of quality. The combined ratio of the insurance business group-wide stood at 82%, which is very good, and I will even say it's unsustainably good.

But this is mainly due to the fact that we hardly had a winter and also the large claims in most of countries were absent and therefore the ratio stands at an superb 82%. In terms of the life business, I suggest to flip to Page 11, because there it gives you a better picture.

We are talking about a decline in the interest guaranteed products of 12% quarter-on-quarter, but this is mainly due to the fact that in the fourth quarter traditionally, Belgium which is by far the most important market for the life insurance business, we do have some seasonal campaigns, which are not happening in the first quarter of the year. So if you compare year-on-year, also there we do see a 3% decline of our life interest guaranteed sales.

On the other hand, that’s a positive news. This is fully reflected also in the fee and commission business.

20% growth in the unit-linked compared to year-on-year, which is very good result, more or less flattish compared with the quarter four. This is fully reflecting the capacity of the bank insurance activities of KBC, and we are very proud to announce this today.

In terms of the fair value gains on Page 12. It's very important to mention that there is a substantial drop here of €56 million between the first quarter and the previous quarters or the fourth quarter of last year.

This is actually somewhat different parts, but is mainly driven by some market valuation adjustment, the credit valuation adjustment and funding valuation adjustments, which were very positive in the fourth quarter 2014, and which are negative in the first quarter. Last year, the impact of the CVA model amongst others was €47 positive, whereas this year in the first quarter, the sum of those three parts MVA, CVA and FVA stands at minus €33 million.

So the difference, the delta between the two quarters is €80 million. It's quite significant, and we will continue to see this going forward - this kind of volatility we will continue to see this going forward.

In terms of the AFS assets, which we gain to be realized on those assets, there will be not a surprise if I tell you that we have made substantially higher capital gains on those assets compared to previous quarter, but also compared to last year's first quarter. €79 million compared to, for instance, €50 million same quarter last year.

The split up between shares and bonds is almost 50/50. We have €41 million on shares.

The remainder of the balance is on bonds obviously. And this is compared with the average of 2014 of €36 million, quite important realization of AFS gains.

Fully in line with the performance of the financial markets. Fully in line what we anticipated in the quarter going forward.

On the other hand, other net income, €49 million which is actually perfectly in line with the run rate of that part of the P&L. Now on the other hand, this is also sum of the lot of parts.

Here this also includes that a provisional release of the Curia decision in Hungary of about €70 million. There were some negatives, as well pricing adjustment on some of our divestments, which obviously bulk are [ph] Germany, which had been taken into account and which almost compensates the positive provisional release on the Curia decision in Hungary.

So in that respect, perfectly in line with normal run rate. On the other side of our P&L, the expense side, we do see that - and I'm now on Page 13, that our operating expenses are under control.

Now at first sight, our cost/income ratio stands at 63% at a very high level, but it is obviously fully distorted by the taxes which we are paying upfront because of the IFRIC 21 regulation. Now the impact of that IFRIC 21 regulation is explained on the very same page, left-hand bottom corner.

You can see there the taxes which we have taken upfront totaling €264 million. If you would split up those taxes, €264 million in total being upfront, €222 million spread out over the year, you can see what it means, but in the first quarter of 2015 it would have been - sorry, it is €43 million.

Now including in those €222 million, we do have €62 million of contribution to the European Resolution Fund. As you know, in the IFRIC 21, we have to take 70% of those taxes upfront, 32% will be spread over the year.

Now already mentioned that those taxes distort completely the cost/income ratio. If you were to exclude the banking taxes, then our cost/income ratio would drop to bit more than 52%, which is excellent and which is perfectly in line with our targets.

In terms of overall [ph] amounts, pure operational costs. So without the banking taxes, if you compare it on the quarter, fourth quarter to first quarter, 6% down, which is mainly driven by traditional elements, lower marketing, lower pension costs and so on.

But if you compare it with the previous quarter - with previous year first quarter, then it’s slightly up 2% and this is mainly due higher staff expense, the up-staffing for our digital program in Belgium, Czech Republic and other countries, but also some smaller increases amongst other IT, same reason, but also pension costs in Belgium. Summarized, except for the banking taxes, which we don't have under control, the operational cost are well under control and well maintained, despite the fact that we are substantially investing in our transformation into the digital era.

On the Page 14, you can see the bank taxes. What it then means.

It’s obviously €264 million of bank taxes kick-in seriously on our operational expenses. It stands at almost 24% of the total operational expenses of the first quarter, which is substantial.

Now if you would pro rata all these numbers, we are talking about 9% for the Group of our operational expense in terms of bank taxes. This is very substantial.

And now if you would exclude those taxes, then our cost/income ratio would not only drop to 52% but it would drop to 47%, which would be superb. Anyway, asset impairments, Page 15.

Also there, very positive news. Our asset impairments are substantially lower than previous quarter and we’re talking about €140 million lower, of which, €83 million on loans and receivables.

This is driven by mainly Ireland. We have seen in Ireland €7 million impairments on loans.

If you compare it with previous quarter, that was standing at €41 million is substantial difference. But also in Czech Republic, we have seen these impairments coming down substantially.

This is mainly due to some releases and the very favorable development in all the segments in the Czech Republic. Other business units are doing quite well as well.

You will not be surprised amongst other Belgium, but for Belgium I have to add that we have seen in the first quarter actually with 28 basis points a distortion because of a large corporate file we had in one single file, €25 million of impairments, which obviously has a serious impact on the first quarter result. That will start to fade out or mitigate across the year when other quarters are going to kick in.

In terms of the credit cost ratio, it stands at the very good 21 basis points. And you can compare this with the long-term average in KBC of 54 basis points, so this is really good.

And also the impaired loans ratio now stand at 9.6%, which is also as you could see a very good performance in terms of non-performing loans. And that is actually for the Group.

As on Page 16, we are going into the business units I am not going to go to every detail of every business unit. I will leave that over to questions.

But allow me to highlight some important elements. So let's start with Belgium.

In Belgium, we have seen some one-off effects, which are related to the income taxes amongst others. In Belgium, we have seen in the income taxes, €12 million negative impact because of taxes which we have to pay it on the pension scheme for retired employees, also because of the change in the ruling for asset management which are consolidated in the business unit Belgium, same amount €12 million.

And also in Belgium, I already mentioned the funding value adjustment, which is quite significant. It stands at €25 million.

So those three elements together accounts for €49 million negative in the business unit Belgium. So that definitely distorts the picture here a little bit and that explains also the difference between the fourth quarter and the first quarter.

Already mentioned the €25 million of the big file, so also there that’s prudent. So Belgium was actually performing very well if you take into account those different elements.

Czech Republic. Very well performance.

Good results in all entities, in all activities. Good growth.

Solid margins and so on. Other business units.

The international markets business units and we are quite pleased to announce that they have made a profit in the first quarter. It has been a long time since this happened.

€24 million positive compared to the €28 million negative in the same quarter last year, and mainly due to impairments which have been increasing - the impairments which have been decreasing and therefore have a positive effect totaling €48 million. And then obviously it has a very positive effect.

We have also seen higher net interest income amongst others in Ireland, but all in all these business units are very well. Very positive, Slovakia.

Hungary, impacted by the banking taxes which are taken upfront, if not, would have had a very good important €5 million, which is normal performance of Bulgaria. And Ireland, which is a particular element.

I'm going to flip to Page 40. Ireland has actually performed very well, only €7 million of impairments, bringing the result of Ireland to minus €2 million, so close to zero.

But I need to adjust here, there are some positive dimensions to mention. The reason why we do have €7 million of impairments on the loans is actually due to a write-back on one significant impaired corporate loan of €14 million.

Now if you would adjust for that, then the write-backs would be at - the impairments would be standing at €21 million for the quarter. Rough calculation multiplied by four, bringing us at €80 million, which allows us to say that we maintain our guidance for the full-year in Ireland to somewhere in the range between €50 million and €100 million in terms of provisions for the full-year.

By the way, this is also the guidance which we keep for the years 2016. So the same guidance there provisions full-year ‘16, somewhere there between €50 million and €100 million.

The good news in Ireland is that for the 13 months in a row, we have seen the arrears coming down, and also we have seen both the home loan portfolio and the corporate loan portfolio, the impaired portfolio reducing by roughly €80 million and €90 million. Coverage ratio for both portfolios are up, and that detail is explained on Page 41.

So we do see some lights in that dark Irish tunnel. Last but not least, Group Centre on Page 43.

Also there, there is a positive dimension. We have net result of €13 million, and this is actually mainly due to a positive impact of €49 million of deferred tax assets.

This has to do with the fact that we have to take into account a balanced way between the deferred tax liabilities and the deferred tax assets. The deferred tax liabilities actually go through equity, whereas the deferred tax assets go through P&L, and therefore we have to take this on board.

This has been triggered for obvious reasons by the high level of the AFS gains. Now, €49 million, positive for the Group Centre, but be aware, I already mentioned that we also had some negative effects somewhere out in some other business units.

So actually the €49 million is almost completely offset by €12 million taxes for retired employees in Belgium, €12 million on a ruling asset management and €14 million tax effect on the Curia decision, totaling €38 million negative impact also on those taxes. So €49 million, almost completely offset, resulting in a positive effect of €11 million at the Group level.

Let's keep it here for the business units. We can later on answer all of your questions obviously.

But let's now look at the solvency and the liquidity position of KBC Group and it won't be a surprise, that also there we can bring good news. KBC currently stands at a common equity ratio Basel 3 fully-loaded under the Danish Compromise at 14.9%, which is excellent.

And if you compare it with the 10.5% floor set by the ECB, we now have a buffer of more than €4 billion. If you make the calculation on the basis of the financial conglomerate - from the financial conglomerate directive, then our Basel 3 ratio stands at 15.4%.

Be aware this is under the current solvency regulation for the insurance companies, Solvency I. So 15.4%, that's also very solid to use an understatement.

Now if you would exclude the assets and indeed also would exclude the penalty to be paid, then those ratio would come at - and I will only talk about the Danish Compromise fully-loaded ratio would come at 11.7%, which is clearly causing the floor of 10.5% set by the ECB. So we feel quite comfortable with those ratios.

Same is true for the leverage ratio, still stands at 6.4% at Group level, 4.9% at the bank consolidated level. It's slightly lower than the previous quarter, but this has to do with the up-streaming of capital from the bank towards as a Group.

On page 47, you do see the total capital ratio of KBC. As you know, we have put forward a target of 17%, but specific building blocks which I mentioned on the page, we are currently standing at 19.2% but also there you can see the decomposition into different types of capital.

It’s very solid. It's well exceeding our targets, and therefore confirming our solvency position.

In terms of liquidity, also there I can repeat what we have been saying over the previous quarters. KBC has a very solid liquidity position.

It is customer-driven in terms of funding, for this 74% coming from those customers. And we currently have - at Page 50, we currently have LCRs and NSFR ratios which exceed by far and the targets set at 105% at the time.

Currently we are at NSFR at 126% and LCR at 132%. Be aware, this calculation which we made is according to the new definition and our interpretation of that new definition setup by the Basel Committee that was published somewhere in October 2014.

You also see the definition old versus new in the same table, but far more important is currently we are still at a very solid position in terms of liquidity. Also if we have to go to the markets for short-term unsecured funding of KBC has now 3x buffer, which is also giving a lot of comfort in that respect.

So allow me to wrap it up. The first quarter was indeed a strong start.

The first quarter was underpinned by good business, good volumes, strong margins, and is actually reflecting the bank insurance commercial skills of KBC. It is promulgation of a successful underlying earnings track record, which you now have seen for several quarters, and is underpinned by strong solvency and a strong liquidity position.

And therefore we are quite comfortable also to continue giving our guidance, which we have been giving already for a while, that is that we can continue on this pace for Belgium and Czech Republic. We think that business unit international markets will become profitable at the end of this year, and very specifically within that business unit, Ireland will do same in 2016.

I suggest that I can keep it here and that Luc Popelier and myself will be very happy to answer all of your questions. Wim?

Yes indeed, the floor is now open for questions. Maybe ask to restrict the number of questions per person to two to allow for maximum number of people to raise questions.

Thank you.

Hi, good morning everyone. Couple of questions please.

First on capital. It has been impressive capital buildup for the last few quarters, including some one-offs, but nevertheless you reached some quite impressive levels.

So in the past, you were arguing that you still are watching the tier-two level and so on. Now even tier-two is exceedingly your targets.

So what's your new guidance in terms of the use of this excess capital? Would it be bullish from our place to assume earlier repayments unless come from a [indiscernible] capital and then restatement earlier of dividend, or is it completely off the table?

Second question is on the fees and commissions. Could you probably share with us more granular data on the fees coming from - management fees from unit-linked products and so on, if it's possible?

Thank you.

I will take the second part of your first question, the earlier prepayments of the stated. As you know, we are obliged to pay back before 2020, and that is definitely not an option to wait until then.

We already said that we will definitely pay back before the end of 2017. Now as you also know, for 2015, we don't have to pay a coupon.

And this is €170 million of difference. At this instance, we also do see that in the pipeline of the regulator still are some topics which could increase risk-weighted assets sector-wide.

We're not 100% sure if this really would come to effect. When it would come to effect?

It will come in effect probably in 2018, so probably a bit early, we don't know yet for sure. That takes our position, which is a repeat of our position of previous quarter that we are not intending to pay back before year-end.

And that we will consider at year-end how much we are going to pay back. At this instance, it’s clear that we are assuming to pay back significant chunk by year-end.

Okay. I will give you some guidance.

Of course I'm not going to give you any details, but some guidance on the fee and commission income. The bulk, as you can guess, comes from asset management, mutual funds in particular, and life insurance unit-linked.

The bulk of those fee and commission incomes is also management fees, on mutual funds and life insurance. Then the second order is the entry fees.

Now, here I have to mention that a large part in this quarter of the entry fees is driven by, what we call, switches and transfers. Switches are changes within the Class-23 products from people who sell one Class-23 product and buy another one.

And there obviously we also gain some entry fees. So this quarter has been particularly supported by this, also by transfers out of the interest rate guaranteed product.

As you can see, interest rate guaranteed products have been on a decline, because that’s mainly because of switches into mutual funds and into these unit-linked products, also generating entry fees. And then that's a much lower in the picking order is the payment services.

Domestic payments, foreign payments and so on, which also constitutes a portion. And then the smaller contributions comes from, particularly securities transactions, which was also quite good in the first quarter, given that secondary market transactions obviously with these foreign markets is very excellent market circumstances that were much more security transactions in secondary markets.

Thank you. If I can follow-up quickly just on the capital question.

What are the main major concern you have in terms on the revelatory front? Is it the risk-weighted asset changes or what exactly is still pending and concerns you?

Thanks.

It is indeed the risk-weighted assets, which are under scrutiny by amongst other - also the ECB as you know, Madame Nouy, wants to have a more uniformed approach in terms of the national discretions. She wants also to have those discussions out.

We do know that also on the operational risk side and on the mortgage side there are some IDs floating around. And those IDs all have an impact on risk-weighted assets.

So taking that into account and that keeps us at the very conservative stands combined with what I just said on the coupon, makes it our position what it is today.

Okay. Thank you.

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

Two questions please. One on NII and net interest margins specifically.

You have seen some drop in net interest margin, although I understand that a big part of it was driven by the fact that the prepayment fees have come down in the quarter. Given the interest rate outlook, can you please give us some guidance on how you expect net interest margin to develop in the year and whether the current level of your prepayment fees of around €30 million in the Belgian unit is at the sustainable number, or would you expect it to decrease or increase from here?

And the second question please on capital gain. And I'm sorry for returning to the same topic, but I just wanted to understand given that we’ve spent almost 12 months since your Capital Markets Day last year, and one of the things that you have highlighted back then was potentially deploying capital through acquisitions.

Have you seen any opportunities in that space, and would you say that the likelihood of you make an acquisition has decreased from the same time last year or has increased? Thank you.

So, on the NII and NIM evolution, very difficult question that you're asking me, Anton, but I'll try to give you some pointers. First of all, it is clear that the reinvestment yields are a serious drag and will continue to be a serious drag on our net interest income, and that will continue just because our reinvestment portfolio is running off over time and we will be facing quite a drop in reinvestment yields next few quarters.

Obviously we've been able to offset that substantially by rate cuts on the savings accounts, volume increases, good margins and increase in loan portfolios. But going forward, you can see that if you followed the rates evolution same as it accounts that we are nearing the end, particularly in Belgium.

Maybe there is some elements we can do still, but that will be limited also in Central Eastern Europe. We also have the fact that volume increases previously were supporting but the current increases we see in savings account actually now are generating negative returns, given the low reinvestment yields and the fact that in Belgium for example, it is different - we cannot go with negative deposit rates, and we also have the bank taxes on those savings accounts.

And on the current accounts, we see quite a lot of increase in volumes, but a large part comes from corporates and institutionals where we are hesitant to reinvest those on our longer durations. So that's also giving a drag on net interest income going forward, and NIM in particular.

And then the last part is the prepayment evolution. And I would also mention the hedging losses, that we believe that the prepayments will start to reduce the amount of prepayments going forward probably gradually, but that also means that prepayment fees that have been supporting the NII last few quarters will decrease and also put pressure on NII evolution.

I should mention here that next sort of prepayment fees which were €29 million in the first quarter versus €51 million in the last quarter, sets a delta of €22 million. Next to that, we also see hedging losses kicking in.

Hedging losses are the loss on the prepayments of mortgages on the swap side, and that is already a delta of €8 million fourth quarter against the first quarter of this year. And that €8 million plus €22 million on lower prepayment fees is a €30 million, that Johan just mentioned.

And the hedging losses, so an €8 million negative delta already in the third quarter will further increase obviously with prepayments continuing on mortgages. We are able to offset that partly still with funding costs.

As you know, we still have a lot of senior unsecured which will mature this year. There is also term deposits will continue to mature and the large portion of the term deposits which matured in the first quarter were mostly institutional and corporate term deposits, not that many retail.

That will be more for the next few quarters. So that will offset to some extent, but it's getting harder and harder.

Coming back to your second question, Anton, about the appetite for acquisitions, has it changed. As a matter of fact, it has not changed.

I mean, we are currently having the same opinion on acquisition as we have had, let's say, in June 2014 when we made the announcement on the Investor Day. So yes, we are looking into opportunities to strengthen our positions in our core countries, and I'm talking for both, the bank and the insurance side, which means that we are looking in the countries definitely Czech Republic, Slovakia.

We are not actively looking in Hungary. We are also not actively looking but have our eyes and ears open in all the other countries.

In that respect, our position remains the same. If opportunities arise, then we will definitely have a look at and make the analysis.

And if they contribute to our targets, strengthening our position and contributing to the return of our Group, and also in the short-term, return in our entities, then we will definitely consider doing so. So in that respect, acquisition appetite has remained the same as it was compared with last year's, let's say, month of June.

Very clear. Thank you very much.

Good morning, everybody. Johannes Thormann, HSBC.

A follow-up question on the RWA topic. Could you give us an upside risk or a scenario what you would see as a potential RWA increase, just give us a ceiling?

And secondly in terms of costs, you previously provided a cost breakdown, but you stopped to quarters ago. Could you leverage what has been driving your underlying cost base?

So how much personnel costs have declined over time, and then other costs, what has been driving them the decline if you adjust for the banking tax?

This is also very difficult question, the first one on the risk-weighted assets. The reason why it's a difficult question is not that we don't have the numbers, but that the ideas are not necessarily concrete or not necessarily final.

I think we all know what we are talking about. I think we have the same things in mind.

We are talking about, for instance, floor on mortgages. We have in mind also the operational expenses.

And there, there is a whole set of rumors out, which could potentially impact our risk-weighted assets. To disclose all those numbers, I think it would not be wise, because it is very uncertain and it would create or too much excitement in a positive way or too much of disappointment in a negative way, which then afterwards is not underpinned by reality.

So therefore, I would abstain from making any further comments on the risk-weighted assets, but it's clear that we take that into account that uncertainty when we take our decisions on either payback stated or either acquisitions, if any.

Thank you.

Then on the underlying costs, we see still some continued cost pressure at the moment. If you look at including bank tax, costs went up around 3% year-on-year, that's quarter-on-quarter obviously, not for the full-year.

Having said that, there are, as you know, a number of plans that we are rolling out both in many countries. In Belgium in particular, that will take some time, given that because of the reorganization possibilities in Belgium, it always takes longer.

I suspect that in Czech Republic that will be a bit easier and you will see cost savings coming through more rapidly. And in Hungary, you can also already see that serious cost savings have been made in the first quarter compared to last year.

So, still some bit pressure at the moment underlying, but we see that fading out with cost saving programs running full stream.

But could you elaborate a little bit more, as this is more personnel, or more other expenses driving this pressure?

Obviously, most of the cost that the institution has is personnel expenses. We have brains.

So that will be the biggest driver. Obviously there will also be some savings on ICT side, on hardware, some software with renegotiation of new contracts.

But most - the biggest driver obviously will be containment of personnel expenses.

Okay. Thank you.

Yes. Good morning, everybody.

Two questions on my side. First one will be on Ireland.

We've seen some improvement on the net interest income. I was wondering, what is the main driver of this improvement.

Is that coming from lower funding cost charge by the Group Centre or is that real kind of improvement on the mortgage side - mortgage margins or even deposit margin locally? And it seems that Belgium is a bit weak.

Have you done any kind of changes in the chance of allocation of foreign costs from Belgium to the Group Centre to Ireland? Is there anything special there to mention?

And then again on Ireland, first write-back. I will say it’s a good news.

Are you expecting more write-backs going forward? How comfortable are you with the stock off provisions versus the macro improvements you're seeing in Ireland?

It seems that you're still putting a guidance of €50 million to €100 million for Ireland. That seems to be pretty cautious.

So just wanted to get your view on that. Thanks.

On the interest income in Ireland. Yes, there has indeed been an improvement.

Most of the - well, a part of the improvement comes from improved margins, on particularly mortgage loans, but that's a small part only. The major driver of this is reduction in the allocation of liquidity costs from the Centre to Ireland.

And that has to do with the change in the funding mix. As you can see with Ireland, has managed to increase its local funding quite potentially, both in retail but also in corporate deposits on a stand-alone basis.

And secondly, what is happening overall is that that Group as a whole has reduced funding costs quite considerably over the last few quarters, also in the first quarter of this year. And obviously that also transpires into the costs which are allocated to Ireland, and that is the biggest driver.

And is there a drag on Belgium coming from that?

No. Because it's the average cost that the Group has, which is transferred to Ireland.

If the Group costs - the average Group cost funding - funding costs come down, then Ireland also benefits from this. So there is no switch between the Group and Ireland.

It's just putting through advantages that the Group has of having lower funding costs.

Okay. Thanks.

And then coming back to your second part of the question, what about write-back, potential write-backs for Ireland. It is clear that the situation in Ireland, in general, I'm not talking about specifically about the bank or our bank.

That the situation in Ireland is fundamentally improving. Economy is doing very well.

Also what we do see and that's very important for us is that domestic demand is picking up. What we'd also see is that after a quarter of, let's call it, stabilization of prices slightly downwards, the housing prices are now coming up in general, and also on the countryside.

So that's all positive news to mention. So you're right.

You could expect easily because those housing prices are part of our models to anticipate our provisions, and yes indeed, if those housing prices going up, that's created some oxygen. So in that respect, we could need expect going forward, and now I'm talking about the longer term, some write-backs to come to our books.

How much, how and when is another question and it's something which we don't disclose yet. What we do have as a potential margin there and also what we can say is, you know that we are always very conservative in approaching those positions, because how sustainable is the recovery of the housing prices in Ireland, we all know that there is a big gap between the supply and demand and that's something going forward would change the Irish economy.

It would start to perform at this level. So given that conservatives, you could say, yes, we could expect some write-backs going forward, let's say, 12 months performing.

But we will be very conservative observing the market and we only will do so, if it is really sustainable.

Okay. Thank you very much.

Good morning to everybody. Just one question from my side.

In this set of numbers, we see pretty low loan losses in Czech Republic and Slovakia. What is in your view, the potential normalized cost of risk in these two regions, given the current conditions?

And maybe a second question. Is there any regulatory pressure on the pricing of products, especially with regard to fee income across the whole Group?

Thank you.

Well, we don't disclose - we don't give any guidance on credit costs going forward. It’s always difficult to predict, but obviously what do you see in the first quarter both in Czech Republic and Slovakia is unsustainable low.

That is also due to reversals that we saw. And I've given some guidance previously in the Czech Republic what a normal run rate would be per quarter.

And if you look at historically the last few years, you can see that this is generally - well last year or so if you exclude one-offs which I mentioned, that you’re between €15 million and €20 million per quarter. And Slovakia a bit more difficult to predict, because the corporate portfolio is, relatively speaking, quite much larger and therefore it has more volatility.

But there if you look at the last few quarters, it was around €4 million, €5 million, but also including some reversals. So it should be probably bit higher if you exclude those reversals.

And then coming back to your second question, if I understood it well, what about the pressure for going into fee and commission business and how we are doing this across the Group. Actually in terms of approach, we don't make a distinction commercially between Belgium and the other entities.

So in that respect, the commercial approach is for all entities the same. So it means as we have been doing now for, I would say, let's say these last eight quarters, we continue to work in the direction of diversifying our income and make less dependent on the interest rates.

And therefore fee and commission business, which is then a sum of the asset management products and the life insurance products, is quite important. So in that respect, Central Europe, Belgium is - I mean, they've had a tremendous quarter in 2015.

Central Europe, there is still some room from improvement is available, so we will continue to work in the direction going forward. The other diversification is obviously to know my business, but this is definitely not part of the fee and commissioning business, but there will be further continuation in terms of pressure to go forward and to build our long life franchises in all our countries, not only Belgium but also in Central Europe.

Okay. Thank you very much.

Thanks.

Yes, good morning. Two questions from my end.

One is on the fee income, which clearly was very strong. Can you maybe give a little bit color on how much do you think this was basically due to push basically from marketing on the side of KBC for clients to move into mutual funds, and how much you will see this as also of a client behavior change, which could be also more recurring going forward?

So that’s the first question. The second one on the comeback - sorry, on the NIM and outlook, especially for Belgium.

You already mentioned you cannot really - got deposit ratio much further I believe there is minimum you had to charge of around 10 basis points. Yes, but what is - this is also a mandatory on the corporate side, or can you basically charge negative interest rates on the corporate side, and do you potentially see this regulation changing as well?

Thank you.

Thank you for your question. First of all, in terms of push.

It's clear that the current interest rate environment really kicks in also but customers in general. The interest rates are very low, to use again an understatement, and people start to get noise with the return which they have on the traditional products.

And this is something which we do see in Belgium, but also in the Central European countries that people start really to get annoyed with those returns. Now, as a consequence and because of the situation which is generally improving, talking about the situation in the financial sector, we do see a change of behavior.

We do see the change of behavior amongst our customers. There is clearly more risk appetite, and therefore people start to look for alternatives compared to the savings account.

But we do want to see some change with financial or people - journalists who write about financial topics in newspapers. And quite non-specialized Belgium journals newspapers, we have seen recently quite a lot of articles, referring to indeed asset management products as better alternative given the current circumstances.

And that underpins the change of behavior, and that's something which we clearly can grasp to be a market leader in that domain in not only in Belgium but also for instance in Hungary. We clearly benefit from that change of behavior that's for sure.

In terms of the NIM and in terms of the outlook. I think that Popelier has already answered the question quite extensively.

Indeed there will be some pressure. We are limited and that’s true for regulated saving accounts in Belgium with the minimal guarantee there or the minimum interest rates one-plus-10 loyalty - one-plus-10 basis point loyalty premium.

Therefore it is what it is. But this is not applied to saving accounts or current accounts for corporates or SMEs.

And we have been applying, as you probably have picked up in some newspapers, we have been already applying for large corporate deposits. I'm talking really large corporate deposit negative interest rates.

We will follow-up the markets, see what happens and see how it is applied, and we will act accordingly. But there is no limit in that respect on the corporate and the SME side.

Okay. Thank you very much.

Yes, good morning. Two questions.

The first one is, if we take the macro picture and we see the pressure on NII in Belgium, do you think overall it will be compensated in the future by fees and commissions, or more the Czech Republic development or international development or a mix of both? The second question is related to a reference in the press release on dealing room net profit in light of the revaluation of Swiss Franc.

So if you could explain what kind of operations were behind this, and if you reduced your positions? Thank you.

Thank you very much Jean-Pierre for your question. I will answer the first one.

So NII, yes, we already explained lengthy what the impact can be and will be, like went into the detail. It will be - it has been offset now - more than offset by the impact of fee and commission business, but also with the performance on the - and I always view this business clear countercyclical diversification by the impact on insurance side, the non-life insurance side.

Going forward, what will be compensating potential pressure on the net interest income will be more fee and commission business, or will it be Czech Republic or international markets? I think it will be a combination of all of them.

So in terms of fee and commission business obviously, there is also, going back to the previous question, which I answered is also related to risk appetite. It’s also related to the atmosphere and the environment in general, which is very positive today.

And therefore we do see a substantial growth. It is clear that Czech Republic and definitely in the international markets business unit, there is further room improvement in terms of profitability, not necessarily in terms of ROIC [ph] and I don’t talk about the Czech Republic, but in terms of diversification in the fee and commission business and also in the insurance business.

And that's true for both Czech Republic and international markets business unit. There was a very specific points is obviously in international markets the Irish activities.

They were heavily loss-making last year, but €180 million negative for the year. Now if you encounter that, that obviously kicks in seriously in the entrance of KBC Group and therefore can be largely offsetting the NII potential downwards pressure.

With regards to the dealing room. Yes, Belgium has not benefited as much as the other business units from these strong bond markets in particular, but that was clearly as mentioned in the press release because of some dealing losses on the Swiss Franc currency.

That is the major driver of that. These were not that large positions but obviously with the large jump that we saw in the Swiss currency that gave some impacts, and therefore we had some headwinds.

Those positions are completely closed with obviously the dealing room continuously has positions in various currencies. The Swiss Franc was a special case, given the ceiling well defended by the Swiss Bank, and that's I think a different situation from all the other currency position that we have outstanding - the major currencies we have outstanding.

Thank you very much.

Yes, good morning. I'd like to come back to the NII please.

There is two things actually that haven't yet been discussed, and on which I'd like to get your opinion. The first one is on the loan volumes.

Obviously you have a loan growth of 4% year-on-year, excluding FX impact this quarter. So I was wondering, first of all, whether you could give us your feeling on, let's say, your guidance on upcoming loan growth for the rest of this year, and whether this volume impact is going to offset the potential pressure we will see on the margin?

And the second thing on the NII is also whether you're seeing that, thanks to higher loan volumes, you can maybe get some more fundings with the TLTROs that are still to come, which would also help you further lower the funding cost and therefore improve the net interest margin. And just one last thing, also as for other quarters whether you could also give us your peak-to-trough assumption on the Irish house prices, when you do the mortgage provisioning?

Thank you.

Okay. Flora for NII, yes, we have seen good volume growth year-on-year, but obviously partly driven by the strong mortgage market evolution in Belgium, given that we had the tax incentives reduced in 2015.

Despite that, we see mortgages have continued to be doing well in Belgium, although they are flat, given that we have a bubble in the fourth quarter. We still see mortgage share volumes in Belgium continuing to grow, but more and more driven by refurbishments rather than new house purchases.

On the corporate side, we see that the economic environment is improving and the sentiment in Belgium with our corporate clients is also improving. So that should also help further the evolution of our corporate loans.

In Czech Republic, you also see mortgage is doing - continuing to do well going forward, as we see corporate loans with actually even better than we expected manufacturing activity in Czech Republic. So that should also support strongly the development of corporate loans.

Should that loan volume offset the negative reinvestment yields? Well, obviously that is the golden question.

I think it will be pretty difficult if this low current - this low yield environment will sustain. It will be difficult, but then obviously we have other line items such as fee and commission income to help further support the - or to mitigate NII pressures.

On your question on TLTRO, we are continuously monitoring whether we should or should not draw under the TLTRO. For the second tranche, for the tranche we had in March, we decided not to draw, and we will not draw on the June 1, because at the moment we made the decision the difference in pricing between TLTRO and corporate bonds was very marginal.

And in corporate bonds, we were able to issue, as you saw, a covered bond below - especially below swap rate for a six-year term with TLTRO already matured in 2018. And the next disadvantage of TLTRO is the fact that all of them mature in 2018.

So we have great 8-point [ph] risk. So at this moment - this point in time, we opted for a covered bond rather than TLTRO, but obviously we are constantly looking at the price differential between covered bonds on the one hand and TLTRO on the other one.

And then coming back to your question on the housing crisis and the peak-to-trough and what is in our modern? Unfortunately, Flora, we don't disclose this information.

So we have indeed some margin in our models. But we don't disclose what is in our model and therefore what is our margin there.

Okay. Thank you.

That's very clear. Just on the very later question, just to understand because if I'm right, you're the only bank that is not disclosing that buffer you have basically on future potential write-backs.

Could you just tell me why you're not disclosing that number, please?

That's a choice we made a while ago. And we just don't disclose it.

The main reason why we didn't disclose it is we only disclose numbers when they are sustainable. And what we had seen in the previous quarter was also that the housing prices are coming down, and therefore, we said let's keep that at a conservative stands.

We do have a buffer and indeed we don't disclose it.

Okay. Thank you very much.

Yes. Hi everybody.

I just have one to two questions. The first one is on the solvency.

So I was a bit surprised by the level of common equity tier-1 required by the ECB. I was just wondering if you can just discuss about that, and if you expect this number to be revised down going forward in 2015 or ‘16 exercise?

And one very quick question on your NII. As focused on term issue [ph] I expect the NII to grow in 2015, and I was also a little bit surprised by the fact that you keep on increasing the LCR, given the negative impact on your NII.

So could you just comment on those two elements? Thank you.

Thank you very much for your question, Alex. I'll take the first one on Boards, the 10.5% floor of the ECB and why it's 10.5% fully-loaded.

That's a good one. It’s quite awkward that a regulator takes a stance on the capital target fully-loaded whereas the law actually applies the phase-in possibility.

The fact that it also is at 10.5% is quite surprising, and if you compare it with peers of KBC European-wide, then indeed then it’s quite high. Now the underlying reason why it's this, and I’m a bit - I just I can't disclose the reason, but that's just do it.

So we have had a discussion with the ECB. The full joint capital decision was actually prepared by the National Bank Belgium because of the transition period that ECB itself is in.

They have - they is the National Bank Belgium. They’ve continued to work on what was given in 2013.

Obviously it's clear for KBC. We have fundamentally reduced our risk position, but we can easily withstand that 10.5% capital target.

That's not an issue whatsoever. And the National Bank has actually advised ECB just to go forward with the 10.5% on the basis of fully loaded.

Now what we know and that’s something which we found out after the stress test is that in terms of level-playing fields, this is not, let's be careful now, this is not really 100% the case if you compare us in treatment of certain elements in our risk position compared with our peers. Now in discussions which we have had with the ECB, they confirm that at European level, the level-playing field in terms of capital and capital decision is not 100% there.

And also what we have understood in bilateral discussion between us and the ECB is that the current capital position of 10.5% was a transitional exercise as of next year, so actually the excess will be performed in course of this year, but as of next year, their current decision will be - joint capital decision will be defined on a different basis taking into account a true underlying risk, taking into a kind of more level-playing field in Europe, and therefore that 10.5% is not necessarily minimum going forward for KBC. This was expressly stated by ECB, so we'll see.

Maybe on the NII, as I already mentioned to Flora, with the - if the lower reinvestment - the low yield environment continues, then it will be pretty difficult to compensate the NII pressures from that with volume growth. So that I think gives you an answer.

Why do we keep LCR so high? Well, you saw that indeed there was an increase compared to last year.

A deliberately choice, although this costs us some money, but given that it’s LCR, not that much, it's mostly the NSFR which costs us more money if we keep it high. But the reason is that we wanted to prepare for potential turmoil in the European markets with the Greek situation.

Thank you very much.

Yes, good morning guys. Couple of questions on capital.

I want to firstly just a follow-up. I think you mentioned you're worried about [indiscernible] and mortgage risk-weighted.

Do you infer from that you're comfortable with your corporate risk-weighted and also your market risk RWAs?

As a matter of fact in terms of risk-weighted assets, there are plenty of the studies available on risk-weighted assets of this sector. I think your institution as well has established a study on risk-weights a while ago.

And within that study you can see that KBC is actually doing quite well in all different, if you look at risk-weighting at all different angles. Now you're talking about some of the parts, both on the mortgages and also on the corporate book.

Now if one would compare us, for instance on the mortgage book with financial institutions amongst some others the Scandinavian's [ph], you can see that we are and the whole total of Europe - let's say in first part of the paler tone [ph], if you compare us with the Scandinavian, we have substantially lower like other financial institutions in Western Europe. But if you compare then - if you would then increase that risk-weighting floor and you compare it with a total that means that our corporate book is very well in terms of - very well perform in terms of risk-weighted assets.

So in that respect, there is a very balanced view, and we will see how the regulator will be over that, takes into account a very particular element of our book as you know our impairments on our, for instance, mortgage loans are very low and are sustainably very low and therefore reflect the quality of our book, but also reflect the quality of our market. So in general we'll see what happens and we are quite comfortable with our current level, which we have in the different parts of our book.

Okay. And just a quick clarification on the different leverage ratios.

I think on Slide 46 you show Bank and Group. Which is the one of the regulator cares more about, because I think one was moving back but then the other one was sort of sideways this quarter.

So just which is the one that we have invested and the regulator should focus on?

Well, a lot of us should be surprised about the answer, but obviously both. They look at Group and Bank separately, but also because the ECB primarily is concerned with KCB as a banking institution, but obviously they also understand that the large part of funding and activities are happening at Group level, and therefore they also look at the Group.

Okay. Thank you.

And with the leverage ratio, we'll end this call. Thank you very much for your attention.

And we hope to see many of you tomorrow at 8:30 and at Old Broad Street in London at KBC. Thank you and have a nice day.