Wim Allegaert - IR Johan Thijs - CEO Luc Popelier - CFO

Stefan Nedialkov - Citigroup Bruce Hamilton - Morgan Stanley Anton Kryachok - UBS Farquhar Murray - Autonomous Nick Davey - Redburn Benoit Petrarque - Kepler Pawel Dziedzic - Goldman Sachs Bart Jooris - Degroof Petercam Jean-Pierre Lambert - KBW Kiri Vijayarajah - Barclays Capital Securities Ltd.

Good morning from the headquarters of KBC in Brussels and welcome to the KBC call. Today is Thursday, February 9th, 2017 and this is the second conference call of the year.

Indeed, after the call beginning of the year on the acquisition of UBB and Interlease, you're now on the one for the 2016 full year results of KBC. I'm Wim Allegaert, I'm Head of Investor Relations, and today, we are in the company of Johan Thijs, which is Group CEO; and Luc Popelier, Group CFO.

Today, we'll comment on our results and answer questions you might have on KBC. We will take about half an hour to guide you through the presentation for the analysts, which was posted this morning on our corporate website, kbc.com.

After this, there's, of course, time for questions until around 10:30 AM. This conference call is taped and can be replayed via our website as from this afternoon on until 24th of February.

I'd like to add that Investor Relations and Luc Popelier 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 will be very pleased to have you over and we're looking forward to that conversation.

Finally, as a reminder, our next appointments before the first quarter results publication are 31st of March, with the publication of the Annual Report as well as our risk report, followed by the Annual General Meeting on 4th of May. And for now, it's my pleasure to give the floor to Johan Thijs.

Thank you very much, Wim. Also from my side, a warm welcome to the announcement of the Q4 results of 2016.

I will talk you through the quarterly results; probably say also a very short word on the full year results. And let me start with the presentation which is at your disposal, at page three, with the key takeaways.

€685 million of profit for the quarter, which is a quite good result and actually, also shows that again, the KBC banc assurance machine has been firing on all its cylinders. It is also a reflection of all countries and all activities contributing to that positive result and that also translates into an ROE of 18%.

Now, as a main key takeaway, I would say that we have been performing on all our core lines in a very good way; in terms of volumes, in terms of margins, in terms of fee and commission business, in terms of our insurance business. Definitely when you take into account the not that nice market circumstances, volatility was again part of the quarter and also, the economic growth in the European area is okay, but not really bullish.

We have also been able to manage our costs in a quite strict manner and we have been having our -- we have been also respecting our guidance in terms of our loan loss provisions and therefore also we do see again a release of provisions. It now stands for €45 million for the full year, which also triggers us to do an announcement for guidance in Ireland for the full year, €25 million up to €75 million release of provisions.

In terms of capital and liquidity, again, liquidity-wise, KBC is as you know a very strong Group and also, that is confirmed in the fourth quarter. Also, the capital buildup in the fourth quarter was once again a given.

We are now standing at a fully loaded ratio of 15.8%, which is clearly exceeding the SREP target of 10.40% plus 100 basis points, the guidance 11.40%. Leverage ratio was 6.1%, quite stable, and that gives us also the possibility to propose a dividend to our Board for the full dividend €2.80 which is a bit more than 50% payout ratio.

Taking into account the AT1 coupon, it's perfectly in line with our guidance, which we have been constantly giving over the last quarters. And also today, we confirm that this dividend policy, including the interim dividend of €1 per share is confirmed -- going forward is confirmed for the future.

Last but not least, as a takeaway, Ireland is today defined as a core country where we want to establish our bank insurance model and also, our omni-channel model. But we will tweak it a little bit in Ireland because of the particularities of that market, including the particularity of KBC Bank Ireland; that is, we go for an omni-channel way in a digital first approach.

Now, what that explicitly means, we will give you a little bit flavor of that today, but we will invite all of you to an onsite visit in Ireland in Dublin, 21st of June, where we will give you the insight of what this means, particularly for Ireland, but also for the rest of our Group. Let me now talk you through the details and let me start with the traditional split of between the Bank and insurance activities.

87% profit for the quarter on the banking side, 13% on the insurance side. If you exclude the impact of the Group center, then it's more or less 85%-15%.

So, in that respect, it's quite traditional and I don't want to dwell too much upon this. Let me immediately go to the net interest income side, which is the main contributor for the banking operations and also for the life insurance operations.

So, in that respect, we can state that we have a slight decrease of 1% quarter-on-quarter, which is also true, the 1% decrease I mean, for the year-on-year result. And that is mainly due to all the elements you already know.

That is on the positive side, lower funding costs. We have been cutting the rates on different products, amongst others saving accounts.

We have seen good volume growth and we have been further strengthening our ALM management and using all possibilities there, which are to our possession. And the negative side to the story is also the same.

That is the reinvestment yields are low, given the very low -- persistently low interest rate environment. Despite the fact that we kept our margins stable at Group level, we do see some pressure on commercial margins.

And we are one way glad that we do see that the prepayments mainly in Belgium of mortgages are coming to an end but that has, obviously, some impact on our results also going forward. In that respect, the good news also is that the net insurance income on the banking side improved on the quarter, mainly because of all those elements I just explained.

And that the impact on the total number of NII was mainly influenced by the insurance side and the dealing room side -- the dealing room side because of, let's say, operational technical reasons. NIM stable at 1.90%, which reflects the policy of KBC Group, going forward.

It's not only about volumes, but it's definitely also about the margin. And in terms of volumes, we do see an increase of 1% on the quarter, which is translated in an increase of 4% on the year.

This is true for both mortgages and commercial loans, and this is true for all those countries where we wanted to increase. Let me translate that a bit more differently.

In some countries, for instance Ireland, we are not building up our corporate commercial loan portfolio and that is also translated in a shrinkage of that portfolio, going forward, that we'll maintain as well a given. So, taking that into account, where we do want to grow our loan portfolios it is growing.

So, in that respect good news. Other main contributor on the income side is obviously net fee and commission business.

We're now on page eight. The fee and commission business has been increasing now for the fourth quarter in a row and stands at €376 million, which is 2% up on the quarter.

If you compare it with a year ago, it's almost the same level, €5 million up, which is 1%. Why is that?

Mainly because of higher management fees; also, the unit life business performed quite well. Management fees up is also because of a reset date which took place in November of the CPPI product and as a consequence of good performing equity markets, that obviously kicks in into the results of that management fee bucket.

On the other part of the contribution of the fee and commission business, as you know, 70% is dealing with asset management, 30% is dealing with banking and distribution fees. We do see a good performance on the banking fees, mainly credit files and banking guarantees.

On the other hand, securities was a little bit lower, definitely on the quarter, but also true for the year. And last, but not least, we also see that the fees prepayment are at a lower level than what we have seen in previous quarters.

Now, in terms of assets under management, we do see an increase of 2% on the quarter, which is also an increase of about 2% on the year. But that is mainly driven by the positive price effect.

That is clearly true and that is not fully relating to an increase of sales. We did see in the fourth quarter that, despite the fact that we do have enormous amounts on saving accounts, current accounts blocked, mainly in Belgium, that risk appetite is okay but it is not booming.

And that is definitely a translation of all the volatility and the nervousness which we see in the market. I'm talking about the Brexit; I'm talking about the election of the new American President; I'm talking about uncertainty which is surrounding the situation in the Middle East, Turkey, and we do see also some nervousness regarding upcoming elections in Western Europe.

That obviously translates in some hesitance with our retail customers on the investment side. The insurance company, page nine, has been performing very well in all aspects.

What does it mean, performing was good? On the life side, we had a seasonally strong fourth quarter, which was dealing both on the unit linked and the interest-guaranteed products quite well.

We did see an increase on the quarter of 23% earned premiums and on the insurance non-life side. You know that it doesn't make too much of sense to compare the quarters, so let me make the comparison on a yearly basis, a 7% growth of premiums is excellent.

And this is a translation of all countries which have been increasing their premium income. Belgium double-up market growth, 3%, 4% despite the fact that we have shifted that purely internally Group Re from the business unit Belgium to the Group center, but still 4% growth, double-up market in Central European countries, most of them grow double digit in non-life.

Moreover, the combined ratio, which is an expression of the technical quality of that portfolio stands at 93%, which is an excellent result given, first of all, the terrorist attacks in Belgium in the beginning of 2016, and then almost traditional, I would say, the impact of natural catastrophes like flooding, wind storms, hail storms, not only in Belgium and Czech Republic, but throughout all our countries. So 93%, excellent result; combine it with a good growth, and you can see that insurance company has been performing very well, compensating more than the total loss on net interest income in the full year of 2016.

So, the bank-insurance model there is really contributing. Going to the instruments at fair value on page 11, we do see a big pickup on the quarter.

Now, the pickup is easily translated into three buckets; first of all, we do see a €43 million increase on the quarter of our dealing room activities. That is because of the usage of the volatility in the market; definitely on the FX side we saw net sale increase as well, so in that respect, it's very good news And last, but not least, we have been doing some arbitraging on the dollar/euro difference and also on the Czech krona versus the euro difference.

So in that respect, great performance of the dealing room for the second quarter in a row. The other elements which contribute a lot are mainly linked to the impact on the interest positions, which we have taken.

The fair value of swaps, and the fair value of the derivatives which we have contribute combined a bit more than €100 million, respectively, for the fair value valuation of market credit and fair value adjustments, we're talking about €47 million, whereas the derivatives account for €60 million in that number. If you compared it with a year ago, it's almost the same, so we have a great performance of the dealing rooms because of the same reasons; the volatility on the FX markets, sales income which increased and also the arbitraging between dollar/euro and Czech krona.

The derivative business is improving with about €50 million, and on the fair value valuation of all those instruments which I mentioned, CD, MD and FDA is more or less stable, €10 million minus. So, in that respect, great performance, and strong contribution to the P&L.

In terms of AFS assets, in the fourth quarter we did not realize too much, €6 million on shares, €2 million on bonds, combining to €8 million; substantially down compared with the previous quarter, but it has to do with the fact that also the second quarter had a big financial gain on Visa amongst others. In terms of other net income, it is clear that the fourth quarter is a very strong one; with €101 million we are actually doubling the normal run rate of EUR50 million.

The reason why this is so strong is actually attributable to two one-offs. The first one is a purely technical one which has to do with the cancellation of a contract in a transaction KBC has on the insurance side; therefore, income is shifted from one part of the P&L to another part of the P&L, so it was actually kind of a swing and roundabout.

The other one-off is a settlement of a court case which has delivered €26 million. By the way, the insurance technical side was also €25 million, fully explaining the difference between the €100 million and the normal run rate.

So last, but not least, the cost side. The cost side is, if you compare it with the previous quarter up, which is traditional and seasonal.

This is mainly due to one-off provisions for pre-retirement in Belgium. We have €33 million provisioned there; it was already announced last quarter, and has now been fully taken into the result.

All the other elements are traditional ones for the season, meaning higher marketing spend, meaning higher IT expenses, and meaning higher professional fees, so nothing special. If you would compare with the previous year, same quarter, and you would take out the one-off of the pre-retirement provision, then actually the costs are a little bit down.

So in that respect, cost maintenance and cost management was quite successful in the fourth quarter of 2016. If you compare it for the full year, it's true as well.

So cost levels have been maintained in KBC Group at a very sound level, so we are quite successful in doing that all the way through the Group. Translated in cost to income ratios, if you take into account the numbers as they are, the cost to income ratio stands at 55% which is quite okay.

If you deduct the one-off, then amongst others mark-to-market and derivatives and some banking taxes and so on and so forth, then you see that cost to income ratio stands at 57%, which is actually the same number as last year. And that's an important one, if you exclude fully the banking taxes, all of them, the cost to income ratio would stand at 50%, which is a quite remarkable number from two sides, not only because it's only 50%, but it's clearly indicating that the impact of the banking taxes is hitting KBC quite strongly.

In terms of banking taxes, now we mentioned the word, we have been paying €437 million of banking taxes for the whole Group, I'm now on page 13, which means also that it's quite significant chunk of our operational expenses, 11%. True for Belgium, €273 million, but also some other markets as explained on the page, we'll no longer dwell upon it.

Good news is that, amongst others, in Hungary the banking taxes are coming down. In terms of the positive element over the full year and clearly also on the quarter, that is the loan loss impairments.

Yes, I know the impairments have increased on the quarter, now stand at €54 million for the loans and receivables, but it was compared with a seasonally and unsustainably low loan loss impairment level in the third quarter. If you put all together, the impairments for the loan losses -- and provisions for the loan losses and you would add them up for the full year, we stand now at nine basis points which, as you can see on the graph, an historic low.

Impaired loans ratio dropped to 7.2%, which is also a further improvement on our historical position. And last but not least, we have seen some write-backs, amongst others in Hungary, but also in Ireland.

Again, €12 million reported, €45 million for the year, which actually triggers us to give some further guidance on Ireland in 2017, standing €25 million up to €75 million of write-backs on provisions for the full year. In terms of other impairments, mainly on AFS shares but also €15 million on some IT stuff which we wrote down in the fourth quarter of 2016.

As of page 15, we will have the performance of every individual business unit. Now do allow me not to go into the detail and let me briefly summarize it for all countries in a nutshell.

NII on Belgium is coming down; the volumes are up. The NIM margin was under pressure clearly and it was mainly because of the commercial loan side, has also to do with technical elements, somewhat bigger files.

But still NIM was under pressure, and NII was slightly down for that. Fee and commission business was up as well as the assets under management and non-life insurance company performed very well.

Cost are very good under control. The OpEx stands now at -- sorry, the cost ratio stands at 55%.

If you would exclude the banking taxes, we are below 50%, which is a very good result. Loan loss provisions at 12 basis points, which is excellent and that all translates into a return on allocated capital of 23%.

Czech Republic had a very good quarter. Interest income up, margins up, volumes up on to 9%.

1% for the quarter, 9% for the year, so it's quite significant. Sorry, it's 9% for the year and the 1% something else so it's 9% for the year.

The fee and commission business slightly down, as well as the assets under management, but it's negligible. Insurance company performs very well, clearly also on the non-life side.

OpEx down, so good news, well under control, 46% cost to income ratio. And the loan loss provision of 11 basis points, which is also historically low, gives are a ROAC of 41%.

And then last, but not least, international markets. Net interest income up, margins up quite significantly.

Volumes up in those countries where is does matter. Fee and commission business quite stable; here and there a little bit downward.

Non-life business very much improved, also quality-wise very good life business, up as well. OpEx down and, therefore, also the cost to income ratio for the whole business unit down.

Credit cost ratio a write-back of 16 basis points, which is obviously explained by the write-backs in Hungary and then Ireland. ROAC stands at 22%, Ireland included, which is obviously good news.

So, I would love to keep it there, but afterwards we can always answer any kind of detail. Allow me to go into one exception for one country in the business unit and international markets.

I'm on page 39 now, talking about Ireland. Ireland has, of course, been transformed from a loss-making entity to a profit-making entity.

That was condition number one to make it a -- to create the optionality for making it core country. After thorough exercise, we have decided to define Ireland as a core country.

Reasons why? First of all the market itself, it has strong demographic, it's a very solid macroeconomic fundamentals and has clearly growth prospects.

On the other hand, it's also a good diversification of KBC Group. Most countries in KBC Group are oriented, at least in their export-oriented versus Germany.

That is definitely not the case with Ireland where you have some dependency obviously, but it's clearly not comparable what we see in other of our core markets. We have a growing population, we have a young population which is very digital savvy, very well educated.

And last, but not least ,Ireland is one of the most strongest growing economies in Europe. The unemployment rates are coming down significantly, and what is also quite important for us is that the housing prices are increasing much faster than we have expected.

And for that reason, combining the good performance of Ireland KBC Bank Ireland, the good performance of the country Ireland, we actually came to the conclusion that, after the transformation of KBC Bank Ireland from what it was originally, a lender to a more full-fledged retail bank, we are now going to fully exploit that possibility and to create a customer-centric fully-fledged retail bank. This is a decision which is taken not lightly obviously, but it, once again, confirms the KBC commitment to Ireland.

Let's not forget we have been in Ireland for 40 years now, so since 1978, and we are now going to be further building upon that future to create a very solid, sustainable contributor to the P&L of KBC Group and a very solid contributor to client servicing in financial industry in Ireland. Ambition level is clear; we want to be a focused bank, a bank which is focusing on retail customers, micro SME customers, and striving for a market share of at least 10% in those segments, under the approach of a multichannel, so an omni-channel distribution approach, with a particular focus on digital first.

This is something which we have been working out now for the last one year and a half. We were quite successful in doing so, and we will build upon that to be further successful in the future.

I suggest to keep it here as far as Ireland is concerned. Let me go now to the positions on capital and liquidity; that brings us to, let me see, page 51.

So in terms of capital, let us focus only on the number of fully loaded which is, by far, the most important number. We do have a capital position now of 15.8%, which is obviously higher than the tax imposed upon us by the European authorities, 10.40%.

But you know that we have a guidance of 100 basis points, so intrinsically it's 11.40%. So we clearly have a buffer there, and in that respect, also taking into account a leverage ratio of 6.1%, we concluded that we, indeed, could bring a dividend to the market so we said 15%, perfectly in line with our guidance, also taking into account that the uncertainty remains regarding, for instance, Basel IV and other regulatory elements.

So, in that respect strong capital position, also a strong liquidity position which is explained on page 54, that is driven mainly also by our customer funding. We have very strong ratios, page 55, on the LCR and the NSFR side, 125% on the longer term, and the short-term 139%, clearly ahead of the targets imposed upon us.

And also a very good position, 308% regarding the ratio between the net short-term funding needs and the available liquid assets. So in that respect, a very liquid and very sound position of KBC Group.

That is all I wanted to say about the fourth quarter. As a wrap-up I could say again strong commercial results, once again showing the resilience and the performance capacity of KBC in not that easy a circumstances.

It again confirms the track record of a good earning and a good capital and liquidity position. The rest of the presentation actually is about the full year results.

Now, allow me to say two words about that. I think it's perhaps better to go into question mode rather than go to the presentation of the full year.

The full year now stands at €2.4 billion of profit; I already mentioned the ROE of 18%, which is I think good, not to say very good. The main drivers are the same as what I just said on the quarter, so NII has been performing, given circumstances, quite well.

There is some pressure, indeed, on some elements in the NII. If you look at the fee and commission business it is growing again, it's not at the level of what it was in 2015, but it's growing again.

Costs are under control and loan loss provisions are at a very low level. So, in that respect, the full year is a reflection of what we said on the third quarter, and clearly also on the fourth quarter.

In terms of going forward, we do expect KBC to be in a position to repeat what we have been doing in the year of 2015 and 2016, meaning to deliver solid results for all business units and it's clearly true also for the business unit, international markets, and that's next to Czech Republic, next to Belgium. We now have a third pillar, which is the international markets business unit, where we do have Ireland as a core country.

And also, let's not forget, after the acquisition of UBB, which that transaction is now in the process of being closed, after the acquisition of UBB and Interlease, the merger between UBB and CIBANK and DZI, we will be the largest bank insurer in Bulgaria and, therefore, it will be a main contributor to the results of the international markets business unit. I suggest that I keep it here and leave the floor open to questions.

I hand over the floor back to Wim.

Thank you, Johan. So indeed, now the floor is open for questions.

As usual, can we kindly ask to limit the number of questions to two in order to allow as much people as possible to ask questions. Thank you.

Hi, guys. Good morning.

Stefan from Citi. I've got two questions.

On Ireland, well, congratulations on taking a decision. I just wanted to get some more color on how do you view the risk of Ireland not being as attractive on a tax advantage basis, going forward?

And how have you factored that into your calculations as to the attractiveness of the market over the next three, four, five-plus years? And secondly, would you consider M&A in Ireland if, just like in Bulgaria, it turns out that you're not able to grow organically as much?

Thank you.

Thank you for your two questions. Let me start with the first one on the tax advantage.

Obviously, Ireland has a very low corporate tax level, but that's not the main driver of our decision. The decision is driven by other elements which are more to the core of our business, that is, it's a growing market.

Clearly, also, a market with a lot of prospects in terms of the mortgage business, a business where we are active in. It's a growing population and there's also a population which is quite digital savvy in that respect.

And that's the reason also why we have been doing what we have been doing over the last couple of years; that is, preparing our Bank for going into a digital-first approach, using the momentum, but also using and that's the big advantage of KBC Bank Ireland and that is we don't have a legacy system in IT. We don't have a legacy network.

So, we are already fully fledged in that respect, fully fledged retail bank, first-oriented versus the digital part. So, these are the reasons why we decided to go ahead with Ireland, also the possibility and the capability to make our book become profitable again.

Over the last couple of years, this was clearly shown that that is another driver. Tax advantage, yes, indeed, it's a given; it's not the reason why.

On the other hand, I think also if you look at the [Indiscernible] and a lot of European countries, corporate tax talk to be going downwards in plenty of countries, so that tax advantage is going perhaps to be a little under pressure now in Ireland but, as I said, it's not the main driver. Regarding the second part of your question, what about M&A?

As I said before, currently there are no files on the table in Ireland for doing a acquisition one way or the other, which means we don't have a file on the table on the banking side. We don't have a file on the table -- nor we have a file on the table on the insurance side.

It's quite clear. In terms of what would happen if the opportunity arises, then the answer is quite simple.

If the opportunity arises, we will do our homework, as we always do for assets which will become available in core markets. And if it does make sense, and then we are talking about both strategic and strategic meaning customer segments.

And second thing, also it makes sense on the financial side, in terms of ROE, ROI, then we will consider and, if it makes sense, if all the elements, all the boxes, can be ticked, then we will definitely conclude. If you really want to know what it means, that's how we dealt also with UBB.

Hi, morning guys. And thank you -- thanks for the slides.

A quick question on capital. Obviously, the capital continues to build strongly, 50 bps in the quarter; you're well above the minimum requirement.

So, you've paid out 50% in line with the minimum payout, but I just wondered why you continue to hold such big excess position because regulations appear to be moving in a more benign direction. So, is there something around IFRS 9 or the ECB's Project TRIM that is holding you back, or is it M&A optionality?

I'm just trying to understand what holds back a slightly high payout and whether that's something we could expect, going forward.

Thank you for your question. So, if you indeed compare our ratio of 50.8% with our current SREP minimum, 10.40% plus 1%, 11.40%, you're right, we do have a buffer.

We always were quite open how we did see our dividend policy. In other words, at least 50%.

And that surplus capital, if we were clear what our capital was that we would indeed consider a few options either, anyway finance our organic growth, but that's an obvious one. Then the two other optionalities were that if M&A would make sense, we would consider, but if not, then after getting certainty on the regulatory side, we would distribute capital to markets.

The dividend policy as concerned today going forward, it will be 50% at least, but what is not sure and that's, for us, a big disappointment because we really counted on this one, that is what about regulatory uncertainty. And I'm a bit surprised because of your conclusion on Basel IV.

Today, [Indiscernible] Basel IV Bill will be more benign. We have seen big swings in opinion recently.

The big swings were going from, it will be an output floor of 80% to no way there will be an output floor, it will be close to zero, to more recently it will be an output floor of 70%, 75% or even more, which is clearly impacting, and let me state it like this, European banks, amongst others KBC. The last comments made by the American President are also, in that respect, can be treated in two ways, which means all those rules do not hamper the American banks.

Basel IV is mainly hampering, I think, the European banks, and definitely if you look at the risk-weighted assets for credit. So, I'm not so sure about what it will be.

And as long as that uncertainty is not away -- we consistently have been announcing that as long as that uncertainty is not away, we will be cautious, because I think nobody will accept us to distribute capital; come then afterwards to the conclusion that there is a regulatory environment, which is pushing us through a certain limit, how much the impact of credit risk-weighted assets. There are a lot of analyst reports talking about that.

Nobody will accept us to have then a shortfall in capital; that would be bad. Last but not least, we always stated we want to be amongst the best capitalized groups in Europe.

That also takes into account that position. So, we just confirm what our dividend policy was.

We just filled it in according to that confirmation and to that statement and to that policy, and we are extremely disappointed. There is no certainty whatsoever on Basel IV.

IFRS 9 and IFRS 4 are to a lesser extent of importance.

Okay. Thank you.

Good morning. And thank you for taking my questions.

It's Anthony from UBS. Just two questions please.

The first one, continuing on the theme of capital, just to understand the rationale behind the payout ratio for this year. When you think about your profitability into 2017, can we say that your desire to start with a relatively lower payout this year is partially driven also by the fact that you want to show progressive DPS momentum as we go through in 2017 and 2018?

And also do you think you have enough capital to finance growth or is slightly lower DPS this year also a statement about your growth intent? Thank you.

And the second question please on net interest income. Last quarter you've guided that you expect net interest income to go down in 2017; obviously long-term rates have risen since then.

And I was wondering if you could, please, update your guidance. Do you still expect NII to be down, i.e., are you still seeing pressure on your reinvestment yields, despite the fact that the curve has steepened somewhat?

Thank you so much.

Thank you very much for your questions. Let me answer the first one on capital.

The payout ratio is, indeed, at least 50%. I just gave you the answer that we are a little -- not a little bit, we are disappointed about the uncertainty which is still there on Basel IV.

What we actually state for the period going forward, including the book year 2017, that is we confirm our dividend policy, which is at least 50% payout. So, in that respect, at least 50% is what it means.

It starts at 50% and ends with more than 50%. We don't have any change in that dividend policy, nothing regarding DPS, progressive or whatever.

We just state, listen it is at least 50%. It is influenced, with certainly, organic growth.

Where we think we are perfectly in line is the influence with potential M&As; you know our sense towards M&As. And it's clearly influenced by the regulatory uncertainty because that's still an uncertainty out there.

That's mainly it. We don't have a particular stance or a particular disclosure to make on dividends per share whatsoever in terms of nominal values.

And then, Anton, on the NII, our guidance is still that it will be slightly lower in 2017 for the full year, compared to the full year 2016. Just to show you that NII for this quarter was good, but there were -- obviously something we cannot sustain, going forward.

I would also emphasize the fact that we had some further positive effects of our ALM management in the fourth quarter of 2016 which was helped by the very benign environment. Secondly, we've also increased duration on the ALM management and we can't continue doing that.

So, to offset the continuing pressure on yields, the reinvestment yields are still far lower than the yields on our back book. Even if interest rates rose somewhat, that will not be sufficient to have NII above 2016 levels.

We have given, I think for the first time, some guidance on the sensitivity to interest rates rising, so 1% to 1.5% if there's a 100 basis point parallel shift. So, that means €40 million to €60 million, I'm rounding now a bit, €40 million to €60 million extra, that will not be sufficient to offset -- together with the volume growth will not be sufficient entirely to offset the pressure on reinvestment yields.

Thank you so much. And just to come back on this guidance, please, is it for a parallel shift in the curve of 100 basis points or is it the short-term or the long-term rates?

It's a range for both a parallel shift of 100 basis points long-term and short-term rates, and also for a steepening of the yield curve with the short-term staying at this level, and the long-term, this is the five years actually, increasing by 100 basis points.

Okay. And what is impact on NII for [Indiscernible] million?

This is what the impact would be on a starting basis, if you just apply it fully immediately now on the current book, yes.

Got it. Thank you so much.

You're welcome.

Good morning gentlemen. Just two questions, if I may.

Firstly, just coming back to the 50% payout ratio, you've obviously alluded to the disappointment you have in terms of Basel IV. I mean what would have happened if we'd had slightly more certainty, but unfortunately it was a 75% output floor; how would that have affected the dividend decision?

And then secondly, just coming round to Ireland, what options and scenarios is KBC exploring in terms of developing the bank insurance model there and how significant could that be in terms of capital allocation? Thanks.

Thank you for both questions. Let me answer the first one on the payout ratio and what about -- and if we would have certainty.

It's obviously a hypothetical question, so my answer is also a bit hypothetical in that respect. It means that, if we would have certainty on Basel, whatever the position may be, then we can tick that box.

We can define what is our capital position, what is our surplus, what is our position in respect to the regulatory minimum. And we have then the two options.

Organic growth, forget it; that is always a certainty which we have to deal with, you have the two options that is M&A and dividend payout. So, it's clear, and that's what we stated before, that's what we are stating now for the last couple of years, that we will do it in a -- I mean the M&A side, in a topping up, adding on acquisition way.

If they fit all the parameters, strategic, financial and so on, then we will consider it. If not, then it will be surplus capital and surplus capital will be distributed to shareholders.

If we cannot make it work, it goes back to the shareholders. And then the second question, what about the bank-insurance model in Ireland?

In Ireland, as you indeed pointed out, we have a banking activity. We do have the insurance activity running, but we work together with third-parties.

In our definition, and that's one of the slides in the pack which is available which we are discussing today, I think it's in the annexes, it's what we call level one bank-insurance model. Because it's a core country that is not the end goal, but as we said today, there are no options today.

We are not looking into options for considering any kind of acquisition in Ireland; I'm talking both the Bank and the insurance side. So, in that respect, if the opportunity arises we will build further our bank insurance model to make it go to level two or even level three, which is the end goal of the definition of core country.

Cool. Thanks.

Good morning everyone. Yes, just a couple of questions, please, on net interest income.

Firstly, sorry, just to come back to this enhanced ALM management, as you call it in the presentation. So, you've mentioned a few details there on lengthening the duration of your ALM book.

Could you give us any more detail at all on that? I think you used to say it was five and a half year duration; could you let us know what duration you've taken it to?

And maybe some comments about lengthening duration of the bond portfolio with yields this low, what's the strategic rationale of that? And then I know I'm pushing my luck, and I know you've not given us these numbers in the past, but if there's any way at all of talking about what yield that ALM book is at currently, or just give us some flavor of quite how high long bond yields need to rise before you stop having this reinvestment yield risk.

So, just any more detail there you're willing to give? And the second one, more briefly, could you just quantify the positive contribution from TLTRO in net interest income this quarter?

Thank you.

Okay, so on the enhanced ALM, when we're talking about durations, talking about durations of reinvestment of current accounts, savings accounts, that in itself has not changed much. I'm talking more about duration of the strategic position.

And there, we're more recent in terms of basis point value, so the sensitivity to long-term interest rate changes. So, we've enhanced that significantly on the strategic position only.

We didn't change much the durations of the reinvestment of current accounts and savings accounts. So, it has quite an impact in the fourth quarter.

Unfortunately, I can't give you any further details on this; it would bring us too detailed. What I could also say is that we will have some further effect of that in the first quarter, given that we started to increase the duration in the fourth quarter and not beginning of that fourth quarter.

And secondly, we will increase duration a little bit more in the first quarter 2017 as well. So, there will obviously be some further effect, but then that will decrease the next few quarters, the effects of that, for offsetting the reinvestment yield.

Other ones had to do with short-term actions where we can benefit from very short-term interest rates and pockets where we had better interest rates on short terms than the depositing with the ECB. On the yields for the back book, I can unfortunately not give you any details.

We have agreed to promise ourselves that we will not go into that. But all I can say is that you could see that, quarter by quarter, we are losing three to five basis points of margin with the current growth in loan volumes.

Now, you can actually calculate it back out because you know what the volume growth is, you have an idea of the margins, we've published those, so you can take that out, the volume growth. And then you can see how much the effect is of the reinvestment yields and the lower reinvestment yields.

And then the last question was on the effects of the TLTRO. We took up about €4.2 billion in 2016 in total, partly refinancing the old TLTRO, which was €2.7 billion, and that has now been minus 40 basis points, so compared to -- and then you have to see what is refinanced.

I don't have an absolute number, but we're talking about easily, I think, €30 million per year on a full year basis.

Very helpful. Thank you.

Welcome.

Two questions on my side. The first one will be on the life side.

We do see pretty strong technical margins on the life business, especially if I correct for the €25 million. I just wanted to understand, because the technical provisions have been stable in the year, there's not much growth in the business, so is that level of profit sharing, is that -- just try to understand why this is improving much, the life technical result basically in the year.

And do you see a combined ratio at around 93% in 2017, do you think this is a sustainable level? And then the next question will be on loan growth.

We have seen some slowdown of loan growth in Czech Republic for two quarters now. I think Czech Republic is growing 1% Q-on-Q in Q4, 7% in Q3.

What do you see in terms of loan growth at Group level and maybe in some specific countries like Belgium, Czech, and other countries, maybe also Ireland? And also, you see risk-weighted assets actually decreasing in the quarter while you are growing the loan book, so try to reconcile both trends there, I don't get it.

Thank you.

Thank you, Benoit, for your questions. Let me tackle question number one.

Luc is going to go through question number two. So, on the life business, it's actually a combination of several elements why the performance is that good.

First of all, the life business historically has been split up, obviously, between unit-linked and interest-guaranteed products, so for mainly Belgium business, there's been no Class 21 and Class 23 products. The performance in that respect, obviously, for unit linked, is mainly also dealing with management fees and entry fees.

We don't disclose the detail, unfortunately, but in terms of both, they are quite solid and they remain quite solid. They are not influenced by the position of the interest rate.

That's one thing. The second thing is that obviously the interest rate evolution has been triggering us to bring down the interest on interest-guaranteed products.

Currently, we're standing at 35 basis points, which is, in Belgium, quite low. Still, we are able to sell interest-guaranteed products at those rates, which means, obviously, also that we take, let's call it, a kind of hedge on our margin, which we make on the products.

We're talking about production now, but this is true already for many, many years. It actually means that for the traditional life book, I'm not talking about pension business, I'm talking about traditional life book, that margin is, kind of hedged, kind of guaranteed.

If your sales then increase, obviously you see the impact on your income side in the life business. Coming back to your second part on the insurance business, the non-life business, what about the 93% is that sustainable, yes or no.

It is sustainable. The combined ratio now in the insurance activities, the target is quite simple, internal target is 95%.

We have been achieving this target for many, many, many years now and this is also something which we are going to achieve, going forward. 93% is obviously influenced by wind storms and natural catastrophes in general.

True but still, even taking that into account, let's set aside wind storm which we have never seen before, so a once in a 100-years lifetime cycle, something like that or something else, but otherwise 93% is quite sustainable.

On the loan growth, I think to give a clear answer, we think loan growth can continue as we saw in 2016 for the full book. So about the same growth rate should be feasible, going forward.

Obviously, doesn't mean that every country will grow as fast as they historically did. There will be some changes country-by-country.

One example is Slovakia in particular, where we saw an extremely high loan growth for mortgages. It was driven, primarily, by law changes; the same thing in Slovak Republic in -- sorry in the Czech Republic.

We, on the other hand, see that we expect corporate loan growth and SME loan growth again to accelerate. The fourth quarter was a bit special case in Czech Republic, given that a number of clients have prepaid and repaid their term loans just before the end of year because a number of funds came in from government.

Same in Hungary, for example, where a number of funds were released by government towards SMEs in particular. They have been repaying short-term advances as well, so we had some short-term effects there.

It doesn't mean that we can speak of weakening. Going forward, we believe that the same rates can continue.

Then the second point on the RWAs, you're absolutely right, we are growing quite strongly our loan book but RWAs are coming down. These are different components.

RWAs, as a result of volume growth, are indeed increasing, but there are a number of offsetting factors. First of all, there are some positive PD migrations.

The most important one is the risk-weighted assets that we have to apply to the Hungarian Government exposure, where we had an upgrading of the rating of Hungary internally, and we could apply a better PD rating for Hungary. That had a significant impact, a positive impact, or reduction of RWAs.

There was, again, a model change for corporates, PD model for corporates, which also had quite a strong reduction of RWAs. Then we had, for example, also a reduction in operational risk, given that we have a further release of the legacy portfolios.

Operational risk is calculated on the back of the three last years' turnover, and bits of our legacy portfolios, which are moving out of that three-year average. Therefore, we also saw a reduction of our operational risk RWAs.

Last, but not least, also on our market risk, the models also led to a reduction because of less outliers that we have in our HVaR and SVaR calculations. So, a number of offsetting factors all coming together, which led to a reduction in RWAs.

Normally not sustainable; we should assume that, over the long-term, all these elements would more or less flatten off and we would have a continued pressure going up for RWAs coming from loan volume growth.

Great. Thank you very much.

Good morning and thank you for the presentation. Two follow-up questions; the first one is Ireland.

I was hoping if you could help us understand what is the timeline in which you plan to reach 10% market share in the sub-segments retail and micro SMEs, as you mentioned. And if you can give us a sense of any upfront or incremental costs associated with increasing the staff levels or investment in digitalization?

Then my second question is a follow-up on your comments you made about the regulations. Do you believe that, right now, we have a more realistic timeline for reaching the regulatory clarity?

And, I guess, assuming you would get that, what level of capital buffers you would be happy to maintain above your capital ratio? So in other words, currently your Core Tier 1 ratio implies over 400 basis points buffer above SREP, fully loaded SREP including [PIIG].

What would be reasonable management buffer in a situation when you have regularity clarity? Thank you.

Thank you for both of your questions. Let me start with the Irish question.

So, the ambition is to go to increase of our market share, or reaching our market share up to 10%, or at least 10% in the defined client segments, so retail, private persons and micro SMEs. What we actually did not point it out in the presentation, what it means, because we want to reach in the medium term.

It does not say medium term is X years. It means what it means, it's medium term.

So, we will try to reach that in a period of time. Now, the next [Indiscernible] I'm going to put a number on it now, but it's medium term.

I think you understand, but I mean it's not 10 years. What we are going to do in Ireland is, first of all, we already invested about €67 million on the digitalization -- or on the creation of open-architecture IT platform.

We are going to invest more in the near future. We are going to invest a likewise number for the next step of that digitalization.

You could say, when you add up both numbers, you will be ending more than €100 million. And if you compare that with some other banks in Ireland, is that not too little?

Is that not a low amount to invest? My stance on this one is the following.

We don't have a legacy ICT system, so we're building up one from scratch. We don't have to deal with systems which are there, client data which is there and so on and so forth.

So, that gives us the opportunity to build it from scratch, which is an easier job. And that also triggers us to say that we can be faster and more innovative than some others in the Irish market which we, by the way, have been proving over the last couple of quarters.

We are, as you know, the only bank in Ireland which can fully digitally on-board new customers and that is because of all this investment. So, are we going to go that step further?

Are we going to hire more people? Yes, potentially we will be hiring more people and we will definitely hire people if we do need specific skills which currently are not available in the organization.

How many? We'll see.

I mean the portfolio of the legacy book is also there. We will have, over time, smaller and smaller teams needed to manage those, it will be kind of compensating.

But we could easily be hiring more people than anybody have seen, I would say, up to 10% of the current staff position. In terms of your second question, what about the regulatory sides?

When do we think there will be more certainty? We had hoped we would have had certainty in all aspects, to be honest, not only Basel IV, also what would be the MRL target and so on and so forth by beginning of the year, beginning of 2017 for a good understanding.

That would give clarity, whatever that number may be, that could make us anticipate and go further in proactively fulfilling those needs. And that would also give us certainty how we have to deploy capital.

And how we can deploy it and create also certainty and clarity to the market. It is what it is, it's not there.

And I've been reading now over the last couple of weeks, some further statements on now the decision on Basel IV is going to be taken somewhere in March. We have to wait for the [Indiscernible] meeting, I don't know, I don't know.

I hope it's there ultimately before the end of the second quarter. I really hope it, because it would allow us to -- and not only us, I think it would allow a lot of banks, a lot of financial institutions, to do their homework and to give clarity on our capital position and capital deployment.

And the obvious question -- the obvious answer to the second part of your question, what about the buffer? That's the same.

I mean once we know what the regulatory side is going to decide on credit risk-weighted asset market, regular risk-weighted asset, operational risk-weighted assets and how to deal with it. And we take into account the position of KBC in terms of risk and you -- I mean I already said before that we are qualified as a low-medium risk bank by ECB.

If the statements are quite harsh that will -- if the Basel IV impact is maybe quite harsh and level playing field, therefore, not necessarily needed, given the risk profile of KBC, that will allow us to have a smaller buffer. If the other one is not true, yes, then there would have a negative impact on the buffer.

So, giving a number right now on the basis of purely hypothesis, would lead us to a discussion of 15 minutes, which we don't have. So, I prefer not to mention too much.

It is dynamic and it's clearly also taking into account that anyway KBC wants to be amongst the better capitalized banks in Europe, which creates certainty and which makes us a sustainable bank, going forward, allowing us to do what we have been doing over the last couple of years.

That's very clear. Thank you.

May I just have a short follow-up? When you say you want to be among the best capitalized banks in Europe, do you have any particular peer group in mind?

Yes, we have. Now your next question, I know it, next question is which are those banks?

We do have 12 banks which we follow-up. We don't disclose the names, out of respect of banks, but what I can say is they are like-wise institutions like us.

So, in terms of activities and in terms of digital banking and bank-insurance, and also geographical markets.

Perfect. Thank you very much.

Also two question from my side. So one on the risk costs; they stay very low.

You made your statement that this is unsustainable, but do you really expect a reversal in the short-term, even if you would exclude expected releases in Ireland? Or do we see the fourth quarter level as a sustainable level also excluding releases?

And then the second question on the CPPI fronts. What's the average percentage in equity and are there any positive resets to be expected in 2017?

Okay. On the credit cost ratio, we said that -- said maintained that through the cycle we believe that the current loan portfolio a 30 to 40 basis points credit cost ratio is realistic.

Obviously, we will not go to that level immediately and we see that in 2017. We will not reset those levels we believe.

Having said that, the current credit cost ratio of the fourth quarter is still below the expectations for next year. I think this is not something that you should extrapolate for 2017.

On the CPPI products what I can see -- we don't disclose the balance I think between bonds and equities, but what I can say is that the cash component in CPPI has considerably reduced from about 27% by the end of the third quarter to around 9% by the end of 2016. So, that has quite a strong impact on the fee that we could charge on the CPPI products.

Those are very clear. Thank you.

You're welcome.

Some more general questions, if possible. First one is, you will have a new entrant in the market at some point, which is Orange; they have 3 million customers, they want to offer mobile banking.

How do you see the impact on the market in Belgium and does it impact you in your view? Second question is related to this.

We hear a lot urban banks investing in digitalization and so on. How do you benchmark yourself versus peers?

And what are you looking at to say that you are in advance, are you ahead or you need to catch up? These are the two questions.

Thank you.

Thank you Jean-Pierre for the questions. For the sake of time, we're going to take this a little bit shorter in answering them.

So, new entrants on the market, also you refer to mobile -- Orange mobile, that's the first step that they -- I mean in the announcement that they made is the first step in their approach. We don't have any clue what that means in terms of how they are going to establish the business, what pricing and so on and so forth.

At this instance, what we are doing, that is true for mobile it is also true for other peers or other competitors which are mentioned like for instance Apple or Samsung or whatever, we are preparing ourselves with customer approach at full fledge meaning that we offer customers an integrated approach not only on mobile banking payments, but also on servicing them on the investments side, on the insurance side whatsoever, but with the same approach; ease of access, ease of dealing with us 24/7 availability and so on and so forth. And, if need be, we work together with third-parties as has been revealed where we announced the Payconiq agreement together with ING.

So, in that respect, we prepared ourselves and we'll see if competitors enter the market if we have to adjust, yes or no. In terms of payment, honestly I'm not too scared.

In terms of your second question where are we? It's very difficult to talk about yourself, it sounds perhaps like bragging or underestimating.

But what some others say, consultants, they say that KBC, in that respect so anticipating digitalization, is definitely not lagging behind. And that's a bit of an understatement.

So, we are in this respect anticipating what is happening. As you know, we have been winning, amongst others, prices also on the digital trade chain and block chain, European price.

We have been winning on the mobile banking, et cetera in all countries. So, we are preparing ourselves and I think we are doing not that badly.

That's at least what consultants are saying about us if they compare us with peers.

Thank you very much.

Welcome.

Yes, good morning gents. Thanks for taking my question.

Really, just going back to Ireland again. So, if you were hypothetically to hit your 10% market share ambition on the banking side, what's the RWAs associated with that level of market share uplift, really just to help us think about your kind of medium-term capital planning?

And then more shorter term, when should we start seeing the loan book actually start to grow in Ireland, because, as you said, it's been shrinking? Does it start to grow as early as this year or do we have to start -- or are you thinking kind of further out?

Thanks.

Thank you. First, for both questions.

On the risk-weighted assets we are doing some research to get the precise answer. We know what the risk weighted asset and the total amount is, we have a rounded number €6.5 billion of risk-weighted assets on the book.

What the impact will be if we go to a 10% market share, we will give you in detail afterwards. Coming back on the loan book, it's very difficult question to answer.

So, what we have been doing is we have been, since 2014, growing our loan book and markets already. So, in that respect, we do have a growth of our loan book in mortgages, but that is not fully offsetting in the voluntary build down of our loan book in commercial loans and in the legacy book.

So, as long as the legacy book is build down at a pace which we currently are doing, I think we will not overshoot under the competition or the new production is not bigger than the build down. In terms of ambition level, it is the ambition level not market share, but it's ambition level market share a good quality, so if we need to adjust in that respect we will definitely do so.

So, in summary, it is growing already since 2014, the mortgage book we have 11% up that depends on year-on-year, between 11% and 13% of the new production is already generated by KBC Bank Ireland. We will provide you the detail on the impact on risk-weighted assets for the 10% market share.

Great. Thanks guys.

Welcome.

So, this sums it up for the call, unfortunately. I know that we're a couple of people still in the waiting line, so we'll call them from Investor Relations immediately after this call; apologies for that.

But we do hope to see as many of you tomorrow in London, where we can definitely have a further conversation about today's results. Thank you very much for attending the call and speak soon.