Wim Allegaert – Head of Investor Relations Johan Thijs – Chief Executive Officer Rik Scheerlinck – Chief Financial Officer

Stefan Nedialkov – Citi Group Bruce Hamilton – Morgan Stanley Jean-Pierre Lambert – KBW Anton Kryachok – UBS Benoit Petrarque – Kepler Pawel Dziedzic – Goldman Sachs Alicia Chung – Exane Johannes Thormann – HSBC

Good morning from the headquarters of KBC in Brussels, and welcome to KBC call. Today is Thursday, May 11, 2017, and you are on the KBC Group earnings call for the first quarter results of 2017.

And my name is Wim Allegaert, I am the Head of IR. Today, we are in the company of Johan Thijs, Group CEO; and Rik Scheerlinck, Group CFO.

It is indeed my pleasure to introduce Rik, who has taken over as Group CFO on May 4. Rik has built up decades experience at KBC since he joined the group in 1984.

He’s taken up various positions within the group at head office and primarily abroad. The most recent ones were CFRO at CSOB in the Czech Republic and CEO of K&H in Hungary.

Both Johan and Rik will comment on our results and answer questions you might have on KBC. We will take roughly half an hour to guide you through the presentation for the analysts, which was posted this morning on our corporate website kbc.com.

And after this, there is a question time until around 10:30 our time. This conference call is taped and can be replayed via our website as from this afternoon on until 26th of May.

I’d also like to add that Investor Relations and Rik Scheerlinck are organizing a sell-side analyst meeting in London tomorrow at our offices in the city, Old Broad Street, 1111. This meeting starts at 8:30 local time.

It will be an excellent opportunity for you to meet our new CFO, and for Rik himself to get acquainted with the analyst community. So we would be very pleased to meet you – have you over and talk about KBC over a cup of coffee and crispy croissant.

Finally, as a reminder, our next appointment before the second quarter results presentation is on Wednesday, June 21, in Dublin, for our KBC Group investor visits 2017. A formal invitation will be sent out shortly.

So also there, obviously, we will be pleased to have your attendance in Dublin. And for now, it’s my pleasure to give the floor to Johan Thijs.

Thank you very much, Wim. And also from my side, a warm welcome to the disclosure of the first quarter results for 2017.

And as traditional, we do – we start with the key takeaways. I can say that indeed, the first quarter of 2017 was a very strong quarter with an excellent net result of €630 million despite the fact that we had a substantial amount of bank taxes to pay, and as you probably remember, those bank taxes are taken – largely taken up-front in the first quarter.

The €630 million boils down to a return on equity of 17%, I mean, which is indeed also a substantially better performance than our growth of equity. In terms of where it all boils down to, what is contributing in this group is in essence to be summarized by Hendrik.

It’s the bancassurance activity, which clearly delivers and in most of our markets – our activities we performed very well. What we have seen is an increase in volumes, what we haven’t seen is indeed a bit of pressure on the net interest income.

But after some adjustment of technical details, it’s actually quite okay. The – what we have seen is the bank insurance model clearly delivers because the pressure on that interest income is fully offset by an increase of the insurance activities in non-life and then perfectly and substantially adjusted by an increase of the fee business generated throughout the group.

In terms of quality, also, it was an excellent quarter, the combined ratio stands at an exceptionally low 79%, but also the cost income side, it’s at 52%, I mean, clearly below our targets. In terms of our impairments, again, this quarter was an excellent one.

We stand at a very historically low 0.02%, again credit cost ratio. And this is also driven by the performance of Ireland, in terms of their reversal of impairments, these have adjusted our guidance for the same guidance in the full year 2017, now to the tune of €120 million to €160 million.

In terms of capital. The capital remains in a very solid position 15.7%.

The 15.7% is a little bit influenced by technical elements that it is clearly, again, a very strong performance. Liquidity wise, KBC Group is and was a very solid group.

Also, the [indiscernible] liquidity ratios have been performing better than what we were used to. And in terms of our leverage ratio, we [indiscernible] 5.7%, which is also influenced a bit technically, but I will come back to that later on.

Last but not the least, I would like to bring to your attention that we are organizing a group investor visit in our premises in Ireland in Dublin on Wednesday, the 21st of June, where we will show what we are doing and what digital transformation and digital innovation means in reality. So we all welcome you for Investor Day in Dublin.

Let me now talk you through the details. And we will start, as usual, with the split-up between the banking and insurance activities.

As a matter of speaking, it is actually a very normal split-up. Usually, it’s about 85%, 15%, now it is 83%, 17%.

So perfectly in line with what we are used to. If you make that split for business units, then obviously, we’ll get a different result [indiscernible] and in Belgium at 70%-30%.

But let’s not spend too much time on these numbers and let’s go into the P&L components, which do matter, and then we start, obviously, with net interest income. At first glance, you would say the net interest income which has going – been going down 3% on the quarter, 4% on the year, it’s a poor performance.

But we need to adjust here a little bit with some technical elements. First of all, what we have seen in the different business units is that volumes were increasing.

On average, we have been growing 1% on the quarter and 4% on the year. If you look at the difference country to country, I will not go immediate into the detail, but volumes have been up comparable to what we have seen last quarter.

In terms of margin, there is a little bit of pressure, and the pressure is in general for the market, for us this is less in the case on the contrary for corporate banking and SME client segments. But – and also, I can make a split here between the countries.

We do clearly see that in Belgium, we have more pressure on the margin than we do have in Czech Republic. But the net interest margin went up, and the same is true for the business unit International Markets.

But if you then translate that into the net interest margin, and clearly looking on the banking side, then there is a difference between this quarter and previous quarter of about €18 million. Now we do have some technical elements.

First of all, the quarter counts a couple of days less than the previous quarter and that makes a difference of €9 million. And second thing is we take positions in terms of our dealing room.

We have taken positions on the euro Czech koruna and the American dollar. And as a consequence of the accounting rules, we have to take the negative lag of that position into the net interest income, and we take the positive lag of that outcome into financial instruments and fair value.

Now the impact is quite significant. In terms of the negative lags or the negative lags of the dealing room results in that interest income that makes a difference of €11 million on the quarter.

So combining that with the 2 days less, it’s a total of €20 million. That explains fully, already, the result of the net interest income.

On that outcome, it’s substantially higher for this, as I said, booked in the fair – in the financial instruments and fair value. I will come back to that later on.

If you can make the comparison on yearly basis, it’s more or less the same story. We do have a substantial difference of €36 million because of the same effect dealing with income negative in NII, positive in NIFE, and that clearly makes also the difference between the numbers which have been shown on Page 7.

So net interest income is under pressure. And for the same reasons as we have been mentioning before, we still are in a very low interest rate environment, which clearly had a negative impact on the reinvestment yields.

We do have, also, lower impairments – sorry, lower prepayments. And as a consequence, also lower prepayment fees.

Just for the sake of comparative completeness, the difference in the prepayments fees between previous quarter and this quarter is €4 million. So if you would add that on top of the net interest income adjustment, which I just explained, and you can see even the technical element fully explained the difference between Q4 and Q1, and definitely also explains the difference between Q1 2016 and Q1 of 2017.

Nevertheless, in terms of our guidance for 2017 as a whole, in terms of net interest income, we continue to guide our expectations that interest rates will only pick up by the end of 2018 from early 2019. And as a consequence, we do expect also that we will see some downward pressure on our NII in the course of 2017, will pick up in 2018.

One caveat to be made. Anything I said is not including UBB, and we do expect UBB, the deal, to be closed in the course of this quarter, so the second quarter.

And if you will add the interest income of UBB to the result of 2017, then it would be – and that would be happening also in the second quarter, then the net interest income would be flattish. Let me switch to then fee and commission business which has had an excellent quarter.

You can see that the net interest income – sorry, the fee and commission business went up 17% on the quarter and 27% on the year, which is an excellent result. It is delivered on the back of, obviously, financial markets which have been performing very well, and that has been translated, obviously, in that result.

But also because of the launch, end of last year, of a new type of product, this launch is mainly in Belgium, where we have seen a fundamental pickup in sales. The product is called expertise, the service which we provide to our customers called Easy Invest, and that has been clearly paying off in our results.

Appetite of customers because of the financial markets was coming back to normal and has been triggering a lot more sales in the mutual funds business, and as a consequence, we have seen the entry fees increasing, both on mutual fund and unit-linked life product. And also because of the good performance of the financial markets, we have seen higher management fees from both mutual funds and unit-linked services.

This is partially offset by a bit lower fees on the credit files and the banking guarantees and slightly lower fees on the payment services as well, but that is purely seasonal. In terms of our assets under management, we now stand at €216 billion.

This is a increase compared to the quarter and a year of very fundamental kind. We need to make a little remark there.

It’s – the 4% increase is actually due to – for the set net outflow of 2% and a price effect of 6%. But if you exclude that accounting, if you exclude advisory business and also some group asset and the investment advice, then clearly we do see an increase of assets under management because of the sales of mutual funds and unit-linked products.

That’s for the fee business. Switching to the insurance side.

We do see that our business in non-life was performing extremely well, 6% growth. This is a growth which is due to all countries.

We have a growth of [indiscernible] obviously in [indiscernible], much more important, in Belgium of 3%, the Czech Republic, 9% and the other countries we are doing an average of 14%. So there clearly the bank-insurance model is finding traction.

Also quality-wise, we had a very good quarter, 79% combined ratio is a exceptionally low combined ratio. If you compared it with previous quarter – sorry, with previous year, doesn’t make sense if we making comparison between Q4 and Q1 in non-life business.

But if you compare it with the same quarter last year, which stands at 92%, we have to make the remark that, that quarter influenced by the terrorist attacks at the – vicious sort of terrorist attacks in autumn. It was at that time €30 million.

And if you were to make that adjustment, we were talking about an 82% combined ratio for 2016 Q1. So still, 79% is substantially better, and that pays off clearly in our P&L.

It fully compensates the gross effect before the taxable adjustments of the net interest [indiscernible]. In terms of life business, I’m now on Page 10.

The life sales were good at – in unit-linked, as I just explained, and we’re a bit down in terms of our interest income – interest guaranteed products. The interest guaranteed products suffered from the low interest rate environment, and also we had some bigger trends in our portfolio in the life business, which will come into maturity and which have not been renewed entirely in interest guaranteed products that we shifted here into saving accounts either into the fee and commission business.

In terms of the financial instrument and fair value, the – I’m on Page 11 now. The – actually, the quarter was very good.

It seems to be a bit lower than previous quarter but that is mainly due to the fact that the mark-to-market of the ALM derivatives was having a decrease of €58 million between the 2 quarters, due to the fact that interest rates had been slightly decreasing at the end of the quarter. The positive result is mainly due to the performance of the dealing rooms.

And that’s what I just explained, we have to – we have been playing on the carry between the euro to Czech koruna and the American dollar. And this was – which we have been using for that are valued at market value in this particular line of our P&L.

So the positive impact is quite substantial, and the major component in – within the €190 million, which is mentioned on Page 11 is precisely a dealing room income. So the vast bulk of that amount is precisely the dealing room income.

In terms of the value adjustments and – the counterparty value adjustments, MDA, also there we have seen a negative change. In terms of the available-for-sale assets, €45 million, quite substantially up.

This is mainly realized in equity, €31 million out of the €45 million is equity. Also includes a sale of €10 million on the Japanese stock exchange that has to do with the liquidation of some of our activities and for that reason we have realized a substantial amount in equity in this quarter.

Net income – or other net income, this is the regular business like our system industry-leading business. Real estate, actually, it’s a normal run rate, difference between the €50 million run rate and the €77 million posted here has been due to a single one-off.

And that single one-off is totaling €40 million off the settlement from KBC Group over a legal case. So I would say quite normal besides that one-off.

In terms of operations expenses. Also the quarter was qualified very positively.

We did say that we have our cost sites normally under control, all the effort which we have invested over the last couple of quarters clearly pays off. The – if you make the comparison between the fourth quarter, obviously, the cost ratio is – the costs are down.

It has to do intrinsically with the seasonal factor which is included in Q4. As you all know, most of the time IT marketing expenses are actually closed at the end of the year.

Therefore, it’s distorting a little bit the Q4 number. I already mentioned at the beginning of the conversation that the true cost in the first quarter is completely distorted by the banking taxes.

The banking tax, totaling €361 million, are taken up-front in Belgium and Czech Republic. And that has, as a consequence, that the full quarter is heavily distorted by that number.

We do expect that the total cost for the bank taxes will be increasing to the tune of €450 million, more or less, and that will be then paid in the course of the remaining quarters. Let me come back to the comparison without banking taxes and make a comparison between Q1 2016 and ‘17.

There you can see, costs are up with 2% despite the fact that we have low were number of FTEs, that has to do with the inflation which kicks in, in Belgium. But the inflation is linked directly to the wages, is a direct indexation of wages have been going on in Belgium.

And despite that fact, we have been able to keep it at only 2%. Because of the bank taxes, if you then make – do the math, you come to the cost/income ratio of 66%.

If you would flatten out the bank taxes uniformly over the year, then our cost/income ratio will drop to 52%, actually it’s 51.6%, which brings our cost/income ratio at a very solid position, but keeping in line with our longer term target. Let me also slightly – give you a detail slightly on some insights to costs in the first quarter ‘17 and the negatively influenced also by some professional fees, which are linked to UBB transaction, more or less €3 million.

In terms of the results – or sorry, the bank tax. I will cover the bank tax in detail.

We have a nice slide on this [indiscernible]. So the bank tax totaling now 11.6% of our operational expenses, quite significant.

And this is actually spread out over the different countries. I’m not going to provide you [indiscernible] going to talk about all the detail.

Belgium, 11.4%, and that increase is quite substantial. And the other one, which is Hungary, was up the – level of the taxes, but as we see in Hungary that the taxes now are coming down slightly.

If we would exclude entirely the bank taxes, then our cost/income ratio will drop to a substantially lower number. We are talking about a 50% level, and full exclusion of the bank taxes, it will drop to 45% cost/income ratio, which is substantially below our target.

In terms of the asset impairments, they stand at €600 million. [indiscernible] Again, comparison between the quarter and previous quarter is a little bit difficult because of the seasonal effect in the fourth quarter.

So let me compare it with the first quarter of 2016. The comparison is easy to make.

It’s €6 million now. It’s €4 million on the receivables last year.

So the pessimist would say, wow, an increase of 50%, but let’s be straightforward, €6 million is extremely low. The credit cost ratio stands at 0.02% which means historically low, as you can see in the graph.

Now where does it all come from? We had seen an increase in our plans in Belgium.

Credit consolidation does stand at 24 basis points, which is a normal run rate I would say. It is due to 2 files, 2 big corporate files, they completely distort the picture, totaling €56 million for a good understanding.

That is fully compensated by re-leases in Ireland, €50 million. The re-leases in Ireland around the back of several things.

First of all, we do see an increase in housing prices ongoing and going on. This is something which we had anticipated for last – end of last year, when we provided the guidance at the end of the quarter, on the end of Q4.

But in reality, we now see that the anticipation which we did is clearly overshot by the market quite substantially. Second thing, what we do see is a great performance of our own portfolio.

So the NPLs are coming in which is good news, and obviously, also because of the unemployment rate in Ireland which is increasing significantly, and that pays off in our portfolio. On the back of those observations, we have come to the conclusion that we needed to adjust our guidance, and the guidance for Ireland now stands at €120 million to €160 million, and that takes into account the – of course, the housing prices and the further improvement of the quality in our portfolio.

Some other countries in our group have also had some net release. I’m talking about Hungary here, I’m talking about Czech Republic.

Actually, I’m talking about Greece and Belgium as well, but – and I’ve already talked sufficiently about the business unit Belgium. In terms of Bulgaria and Slovakia, they a have good ratios which are in line with our expectations.

No big surprise that our impaired loan loss ratio – impaired loans ratio is improving further. Now it stands at 6.8%, which is a good number and a fundamental improvement compared to, let’s say, 2, 3 years ago.

We are, obviously, not considered by [indiscernible] by ECB as an entity which has to be concerned about its impaired loans. If you look at the 90 days due – past due portfolio, that is also improving quite significantly and now stands at 3.6%.

If you look at the business units, I’m not going to talk about all the detail of every business units. Let me summarize in a couple of words.

Business units has been – in Belgium has been performing quite well in terms of its total results, which is 50% higher than last year. If you compare it with Q4, be aware that the bank taxes distort the numbers.

If you would flatten out the bank taxes and a substantial improvement even on Q4 2016. This was driven by NII but be careful because of the technical elements, that is pressure on NII in Belgium, mainly on the mortgage business.

But we follow a strategy of pushing up margins. The market did not follow as a consequence if – we did see some impact on our growth levels there.

We have been adjusting that position in the meanwhile. So that has been taken care of, and as you will see it in Q2.

On the other hand, all the other business lines, SME, corporates, are doing very well and have been performing greatly. In terms of non-life, fee business, loan impairments, cost ratio, everything that I said, for the Group is applicable to Belgium as well.

And that means that they have mostly good result. Czech Republic excellent result, €181 million, driven by actually underlying so that interest income was doing very well.

Mind you, that’s also a bit influenced by the positions which we have taken on the Czech koruna. The interest margin went up, also influenced by that position by the Czech koruna.

But nevertheless, we see that we can bring our margins stable in most of the product lines. Growing’s went up significantly, 49% in loans, including 12% in mortgages, also the deposits, it’s very good pickup.

Quality of the book is very good. Writebacks on the loans in the insurance business is performing very well.

We did see a pickup in the asset management sales. This is a smaller portfolio, I know, but 88% increase over the year is quite significant.

And then, obviously, the quality, both in insurance and impairments, is very good. So great result.

International Markets business unit, also a strong pickup on the total result, around €140 million, it’s almost double of what it was in 2016. Don’t compare it with Q4 for the same reason of the taxes.

The – in essence, where – because of the mixed bag obviously of several countries. So we want to grow, the loan book is growing.

Where we don’t want to grow it or we are building down. Our Legacy, for instance, is violent, it’s not growing on the legacy side.

I mean, it’s growing on the new books. In terms of quality, it’s doing very well.

75 basis points writeback on the credit – minus 75 basis points on the credit cost ratio, mainly driven by Ireland, Hungary and normal rates, good rates for Bulgaria and Slovakia. We have strong performance on the insurance side.

Fee business is quite small obviously, but it’s a positive evolution. And then on NII, and they were able – this was a bit country to country, but they were able to keep the NII at a slight growth and net interest margin stable, so great performance of that business unit.

If you translate that in ROACs, then the business units are doing very well, 20% for Belgium, 48% for Czech Republic and 23% for the International Markets. The only business unit I skipped is Group Centre.

And Group Centre has also posted the contribution of €34 million – no, €33 million sorry, and that was driven by several elements, I will not go through them. But let me emphasize one particular one because it’s a one-off.

The positive impact on our results of the liquidation of IIB Finance Ireland, that is part of our legacy Project Finance business, has a very positive contribution on the results, €66 million. This is a one-off clearly, and if you combine that with another one-off which we realized, the €14 million in legal cares then you have, more or less, growth of €80 million, net €77 million one-off included in the quarter.

So all [indiscernible] business units have been performing very well. All have been posting great results.

And I would say in all business lines. Translate that into our capital position.

I’m on Page 45 now. The capital ratio, what I would suggest only to talk about the fully loaded Basel III ratio, now stands at 16.7%, which is substantially higher than our pro forma regulatory minimum in both performance by ECB, 10.40%.

If you include the guidance of 100 basis points, even then we are substantially higher than what is requested by the ECB. If you compare the ratio with the previous 1, the full year 2016 number, it’s 10 basis points down.

Now that can be easily explained by technical elements. The first 1 is the dividend accrual.

Obviously, we have been accruing 50% of our profits. The second thing is that the DTAs on the loss carryforwards on the banking side has been increasing and that creates a negative impact, because they are deducted in the fully loaded number of Basel III.

And then last but not least, we do have the impact of – negative impact of the AFS revaluation results, impacted by the interest rates obviously. So if you would exclude – so if you would take that into account of technical elements, then you can see that – then these are solid number.

There’s a slight increase also on the risk-weighted assets. And those risk-weighted asset increases are due to the position which we had taken in our dealing rooms, the position which I explained in the FI asset fee line and also in the NII line, and that’s about €500 million.

Of which, €400 million is in [indiscernible] credit. So solid results.

The leverage ratio stand at 5.7%, which is also a good result, and that is also – explains the decrease, that is also explained by the technical elements I just mentioned. If you look at the liquidity position, rock solid, 70% is government-driven.

The LTR NSFR ratios are, in that respect, very good. And substantially above our target and also our short term and secured funding which we did cover almost 3x by other U.S.

instruments. So let me wrap up.

It’s a very strong commercial results. Definitely, if you look a little bit deeper than the blunt number, it is driven by our bank-insurance model and it – and represents our very good track record.

So we continue to have a very solid capital ratio and very solid liquidity position, which I think, combined profitability, solvency and liquidity is a nice positions to start for the preparation of the future. And taking into account that future, so we expect that ‘17 will be a year of a sustained economic growth, both in the Euro area and U.S.

And we think that we have been posting today in terms of overall conclusion, can be pull forward for the full year. So solid returns in the business units, good loan quality book.

And in Ireland, and we will make a fundamental adjustment with the guidance of €120 million to €160 million. And I’m very glad to say that business unit International Markets confirms what we said last year, that it is a solid positive result.

I would love to keep it here and give floor back to Wim, who will guide us through your questions.

Thank you. So the floor is now open for questions.

[Operator Instructions]. Thank you, the floor is open now.

Hi guys. Good morning.

It’s Stefan from Citi. I have 2 questions.

You did touch upon some of these items, but if you can give us some more colour, that will be really good. On NII, when I look at the breakdown of interest income and interest expense, it looks like the cost of amortized liabilities went up quite a bit.

Is that because of the – single some of the technical items that you described? Or is there something else on an underlying basis going on?

And my second question is on capital. Your hedging reserve declined Q-on-Q.

The DTA deduction increased as well. Could you just give some more colour again, what really drove the hedging reserve down?

Any particular currency, any particular decision that you took in the quarter with respect to your hedging program? And on the DTA, does it have any relation to the one-off DTA items through the P&L?

And if not, what is driving that increased deduction in the quarter? Thank you.

Thank you for your question. First of all, let me come back to the NII question.

Indeed, if you look at the details the difference between the income and the expense, then the amortized – the expense side is indeed driven by what I explained in the carry which we played with the Czech koruna, the euro and the dollar. So that is, indeed, fully explained, the difference, it’s the reason why it’s [indiscernible].

In terms of the impact of the DTAs, on the loss of carry forwards, this has mainly to do also with the bank, KBC Bank, indeed, where we had the post the full tax for the full year. And therefore, it brings the bank into a accounting loss, and that creates a – I have the right reminder, and I’m looking at my left-hand side, €100 million of extra DTAs.

So that’s explained the full bulk of the volume – the vast bulk of €135 million, which is mentioned on Page

74

Yes, 74.

And on the FX hedging reserve?

Sorry, can you repeat the question? I didn’t pick it up.

The FX hedging reserve declined Q-on-Q, would then the fully loaded capital. Is that also explained by what you guys did through the Czech koruna, U.S.

dollar and euro?

In terms of the FX reserves, the hedging reserves, we will provide you the detail later on, and we will take that offline. So on Page 74, you can see the detail, but the FX results are not mentioned in the – mentioned in one of those building blocks as to [indiscernible]

Yes, I am actually looking at the capital breakdown that you guys disclosed. And on that basis, I have a decline around €100 million also on the FX scheduling reserve, which basically takes away from your capital on a Q-on-Q basis.

But this is not having an effect on this number on capital. What we’re talking about is 2 different things.

So on Page 74 is an [indiscernible] happening. So you have the [indiscernible] bank of the interest rates on your [indiscernible] reserves which totaled €100 million – €104 million in total.

I’m talking about under the Danish Compromise obviously. And then the other elements are explained.

It’s part one of your first question. So indeed, the dealing room income has an impact on – sorry, the tax that had negative impact on the bank result.

And therefore, they create DTAs and losses carryforward, which in Basel III fully loaded approach are deducted.

Okay. Yes, I mean, let’s take it online, because I would ask you looking at the Page 37 of the report, which gives the hedging reserve at 1.274 versus 1.356 last Q.

So just trying to reconcile what the movement is Q-on-Q, moving to capital. But I have to take it offline.

Firstly, on the asset management performance, obviously a good [indiscernible] on fee and commission income. It looks like you’re saying net flows were kind of flat, so I just wanted to make sure I’ve understood it.

Within that, you’re seeing mutual fund inflows which is positive, but you’re seeing some outflows elsewhere. I guess importantly, as we look forward, presumably you get a seasonal effect in Q1 so we shouldn’t really be kind of extrapolating, or are you seeing continued upside for the kind of asset allocation products that you’re talking about?

That’s my one. And then secondly, in terms of regulations.

I mean the press is suggesting the U.S. has sort of resumed talks on Basel IV and maybe sort of soften that turn on output floor.

So I just wanted to get a sense of your latest thinking on timing possible impact. And how that – does that remains, as I understand, still the key constraints on the perhaps raising distribution above the 50%.

Any comment on that will be helpful.

Thank you for your question. Let me first go into the detail of your asset management question.

So what we have been seeing in the first quarter but also toward the end of the last quarter, that is that the product which we have launched is creating appetite and finds traction with our customers. What we do see is that we have 2 elements.

First of all, trying to shifting one product into the other. You know that we have quite a portfolio obviously of [indiscernible].

We don’t see some shifts there into the new products. And the second thing is that we do also see customers shifting from current accounts, saving accounts or life insurance products shifting into the new product as well.

This has obviously some effects on total income. The split between management fees and entry fees is more or less stable.

It is 70-30, roughly. Management fee, 70% obviously.

And – sorry, I’m making mistake. 70-30 between management – asset management products and banking products.

And within the 70%, it’s 80-20 management fees. And entry fees, that is more or less stable because a little bit.

But what we cannot do is take the quarters that said last 4 quarters and then just extrapolate the evolution of the last quarters into the future. That would bring it too far.

What we do expect is that the performance in terms of sales with the new products will continue to happen, so we’ll see what [indiscernible] but also new entries. The – obviously, that is impacted by market sentiment which is, as you know, very good in the first quarter.

But extrapolation straightforward would be excessive, and would be wrong. So we do expect still good performance in the next coming quarters, but don’t extrapolate the evolution of the last couple of quarters.

Your last question is a very difficult one to answer, Basel IV regulation. That was indeed – I’ve seen an e-mail or a conversation, which was mentioned by Bloomberg about the American authorities which are now willing to talk in – at least talk about finding a compromise between Europe, the U.S.

on Basel IV mainly on the output floors. But immediately, when that was issued, already we saw some reactions by [indiscernible] but also by some others.

Europe actually triggers to have a – you know that as I am referring to e-mail not everybody or an [indiscernible] message not everybody has seen. So the discussion is that the Americans tend to say less, we want to establish a talk and at least the perception is created that they are willing to talk about a 75% outlook.

So some people are now reacting on this and one of I’m not – I’m quoting him, but I’m not mentioning his name. But one of the guys who was quoted who said that is 75% output for will probably serve to be a building constraint for a number of firms worldwide not just in Europe.

So we’re not there yet. So what the outcome will be, I don’t know.

And I hop God knows. But what I do hope is that we do have ultimately and soon our conclusion on the output floors because that’s the only one which has real important to us.

As you know, the market and the market trends and the operational risk is not really having a big impact on fee. So we don’t know.

I mean, do you think it’s clarity by the end of the year? Or is that optimistic?

I mean, everybody said a while ago that it will be the end of the quarter, so the end of the second quarter. That clearly is not going to happen.

And let me say, I’m more positive now after reading all those conversations with Bloomberg that at least they want to reach a conclusion. If that is a conclusion before year ends, let’s hope.

But sooner the better.

Two questions. The first one is related to your guidance on provisions reversal for Ireland.

You talk about ‘17, is there any inclination you may say about the 2018. In other words, do you think the reversals will have been depleted in ‘17?

Or is this a trend which may continue? And under what scenarios may it continue?

The second question is about your insurance results which performed very well. Can we again see this as a sustainable level?

Or is there – I mean there is a seasonal factor? How do you see this going forward?

Is it a good base to look forward for the rest of the year?

Thank you for your question, Jean-Pierre. The question on Ireland.

That was very difficult exercise on giving guidance on impairments. Why is it it’s influenced by many, many elements.

Obviously, we have the economic growth in the country, which is dong very well estimates I saw at 4%. We can have the housing prices.

We anticipated previously 8%. That is now to [indiscernible], I think, the majority of analysts in Ireland are saying that it’s more or less 10%.

So we will see. The unemployment trends of course important for us, given the fact that the [indiscernible] book is the mortgage book.

And if you bring all those elements together, we anticipate now that it’s going to be full year ‘17 not further than we thought originally. And that’s mainly driven by housing prices that is part of model for calculation of provision.

What is this going to be going forward, even beyond 2017. It’s obviously taking into account all those elements as well.

And I’m not really making keen on predictions in that respect. We will see.

What we do see on our portfolio is that quality is continuously improving. Therefore, we think that if housing prices [indiscernible], what we have been doing for the last couple of quarters and quite solid and quite sure about the guidance which we have given €120 million, €160 million.

If housing prices would further increase, then we will make an adjustment on the guidance which we have given today. Then, so on the insurance business.

The question was, is it sustainable? Presumably, what we are referring to the worldwide business.

The – actually, you have to split up between 2 things. First of all, the growth.

It’s clearly the ambition to make it sustainable. There’s clearly the ambition which we put forward over a year ago throughout business unit to grow further in online business in a sound manner, which means also quality wise, it’s needs to be very good.

The 79% is, I think, exceptional, and therefore you cannot continue to extrapolate that for the full year. It will increase and it will clearly increase to a more normal level.

You know that our target is below 95%. And I mean, if you would make the reference to the last couple of years, I think that’s more sound in terms of guidance, than the 79% which was in first quarter.

I just have one question. I would like to follow up, please, on the fee and commission income split that you’ve mentioned for the asset management business.

I remember a couple of years ago in the first half of 2015 when you had similarly strong level of fee and commission income. You’ve talked about a positive impact of rotation within your existing client base when customers were shifting between one CPPI product with lower floors and locking in gains and going into another CPPI product with higher floors which was kind of benefiting you through the entry fees.

I was wondering whether that was a significant contributor to this quarter’s fee and commission income strength? Or is the strength more driven by the change in the management fees, please?

And also, you mentioned the new products that you’ve had a lot of success in distributing to your client base. Can you please give us a rough fee structure on that product?

Is it similar to the CPPI funds?

Thanks for your question. And it is very important to make your reference to 2015, where we also have very strong quarters.

I [indiscernible] specific relation between the situation now and the situation in 2015 that are actually completely different in terms of the buildup of the fee and commission result. First of all, what is the thing is that obviously the markets are doing – financial markets are doing very, very well.

And the business in terms is quite positive. Risk appetite has increased and for that reason, that’s true for both ‘15 and ‘17 for that reason already.

We have good ground to build asset management business. What is fundamentally different type of products which we are selling whereas in 2015, it was mainly driven by CPPI, where you know that indeed, the fee – management fee generated is dynamically linked to the underlying assets that the market is doing well, equity proportion is high and therefore management fee is high.

It’s no longer the case for the new products. So we had built – further build down our CPPI portfolio, more or less to €19 billion.

And at the end of the first quarter 2017, we’ve been shifting it into the product, as I mentioned, expertise or Easy Invest, which is having a more stable management fee. The management fee is also little bit linked to the underlying asset, but not – definitely not the same trend as is CPPI.

So in that respect, in fee and the commission business which generated in the first quarter is much more stable than it was the case in 2015. So market fluctuation would not be translated to the same opportunity and definitely not in terms of the opportunity as what we have seen in the first and the second half of 2015.

What we do expect is continuation of that evolution over 2017.

This is very helpful. And in terms of the shift from the CPPI into the Easy Invest and expertise products, do those products also carry an entry fee similar to the [indiscernible] bank funds?

Yes, this is Rik Scheerlinck speaking. So also a warm welcome from my side.

I’m looking forward to working with you. To continue on the question of the Easy Invest service, so Easy Invest service is actually moving in terms of discretionary asset management for retail customers, more the math and the low premium.

And basically, it is a product mix for what we see in sort of Easy Invest service as a different easy expertise products. And one could actually say that you have a mix of 3 main products in the portfolio.

You have flexible funds, and there again, we mechanically follow the markets, so the markets are as good as they have been in the first quarter, you will see a higher equity stake and thus you move more into bonds. Then you have open-ended fund.

There again, you look at the asset mix space on whether or not the customer has a defensive or dynamic profile. And then there is – there are still CPPIs in that service as well.

So basically, it’s mixing the 3 products in the service in function of the profile of the customer defensive or dynamic, and then following the markets mechanically and moving between equities and bonds and less in cash than before.

Two questions from my side. The first one will be on interest rate sensitivity.

It’s quite clear that low interest rates will continue to impact NII and net interest margin. I mean we are talking more and more about high interest rates.

We might get more info on that from ECB soon obviously. You have disclosed only the year 1 effect so far.

Could you talk a bit more about your €2 trillion, maybe for KBC in terms of how much potential impact could have on NII? And then on second question will be on the OpEx, could you update us on your IT investment programs, where you are on the old program?

And I was wondering, if we should expect an update at the Investor Day in June? Or it’s probably – It’s another timing to do that.

And just maybe a follow-up on the dealing room income, the €28 million one-off. I mean, it’s the second quarter, we’ve got a negative on NII.

How long – is that something we can expect in the coming quarters? Will that become a bit more recurring by nature?

Or is that the trend you will unwind in the coming quarters?

Thanks for your questions. Let me first go into the question on interest sensitivity and NII.

We got some e-mails and asking on the guidance I gave on the call with [indiscernible] I mentioned on the 2017 and 2019. So let me repeat what I said and I will come back to the interest sensitivity as well.

So in terms of guidance for NII, what we do think is 2017, that’s 2017 will be under pressure, because of all the elements we mentioned interest environment from before. And that is without UBB.

If you would include, and that will be the case as of Q2, so end of Q2 and this will have an effect in half – in second half of 2017, then the NII guidance for 2017, 17 will be flattish. We do expect interest rates to pick up as more significantly in 2018.

And as a consequence, after 2018, 2019, we expect also our NII to be impacting positively. So that is for the fact that it was particularly not on this understandable in the right manner in 2017 and 2019 as [indiscernible] pronounced in a very unclear manner.

I do apologize for that. Anyway, interest sensitivity.

So we briefly provide a guidance, a little bit guidance from that aspect. We did it for the first year, we do apologize.

We don’t give guidance for year two and year three in terms of interest sensitivity. We would have a [indiscernible] on 100 basis points.

We now give guidance on the back-of Q4. Previously, that we did that on the back of Q3 of 2016.

So if we would take into account Q4 numbers 2016, then the shift would bring a positive impact. I wish 100 basis point would help positive impact of somewhere in between 1.5% and 2%, so 150 and 200 basis points.

If you would translate that in normal terms, you’re talking about €65 million to €85 million more or less. In terms of your second question, OpEx, where are we with our deployment plan for the IT side of the story.

So we guided in 2014 that we would spend €0.5 billion on several elements in several countries. So with the vast – the vast bulk of that amount has been indeed funded and has been implemented in the transformational, the front-end business of all countries in 2015, 2016, and also this year, 2017.

What we are now going to do is also includes budgets for the transformation of what I call the back-end. So product [indiscernible] to make the full digital approach possible, which means for digital means the operational side not necessarily the distribution side.

And what that means and which kind of amount we’re talking about, will indeed be disclosed during our investor event in Ireland, where you can then combine the 2 things. You can experience already what we did, and we will explain what we’re going to do going forward.

In terms of the sustainability of the dealing room results, obviously, that’s a very difficult question to answer. As I explained, we have been building this result on the back of several elements.

But clearly also on the back of elements of the volatility of the stocks. And I cannot predict the future in that respect.

But as long – also and then the depegging, call it the depegging of the Czech koruna. Also, that created some volatility.

As long as volatility is there, that we can make some money on the dealing room [indiscernible]. But to give you guidance on what it will be the next quarters would be a jump in the dark.

That’s something which we try not to do. Thank you.

Hi good morning and thank you for the presentation .Just perhaps 2 follow-up questions. On your NIM in Belgium, you mentioned that there will be some pressure from the adjustment of your mortgage strategy.

Could you help us understand how big impact that could make on NIM? And also in Czech Republic, your NIM increased actually this quarter by 10 basis points on the back of lower savings rates.

Is there any chance this can be – this can continue going forward? Or this is pretty much how much you could have done?

And then I have a very short follow-up on your comments on the fee income. And I understand that you already said a lot.

But you mentioned that you can’t extrapolate the results from today. But also you mentioned that the management fee should be much more stable in the current environment and they were back in 2015.

Could you give us a little bit maybe more sense on what you see as a more normalized run rate in the coming quarters, assuming that the performance of the financial markets would be stable?

So thank you for your questions. First of all, and coming back on the net interest margin and then maybe focus on Belgium and Czech Republic.

First of all, what we did in Belgium as a market leader, we pushed for higher margins as we have been doing now for, I mean, eight or nine quarters, even longer. And see if the market follows our policy, if the market follows, we push further.

If the market doesn’t follow, and we drop out at a certain range, a range of acceptance, I would say, in terms of market share we adjust. What we have seen is that indeed in the first quarter of 2017, market has not followed.

That is mainly due to the refinancing of mortgages. And on refinancing, we lost some market share.

And so because of that, we adjusted our policy in the course of this quarter. So we’re talking about April and May, and after taking initiative by lowering our margin.

And we’re talking about lowering about 200 to 300 basis points of market share became back normal, let’s call it like that. We’ll see how the future evolves.

The policy remains the same, its combination of margins and volumes, and it’s not volumes – purely volumes and only volumes. That’s clear.

So what it will bring in the future depends obviously also on presentation, how we are going to react and how we are going to deal with that. But the policy remains the same.

In terms of Czech Republic, if indeed interest margin ends up quite significantly, 10 basis points, this has to do with several elements, but it has also to do with a positive impact on our income because of the position which we have taken on the Czech koruna. So 10 basis points partially will be continued in the course of the next quarters.

So we’ll say that it’s working. Second thing that is on fee and commission business.

Indeed, we already said quite a lot about that. The question now was more particular to is it – how do we have to position the fees, benefits fee generate through new product and compared to the old product.

I think, Rik already said – generally given partial answer to that as well. So in terms of the fee business generated in this new product, partially linked to the international market but not on CPPI as CPPI, as you know, depending on fully on equity, which is theoretical example, or fully in cash, which is as well a theoretical example.

Brings the fee more than 200 basis points to lower than 100 basis points. So that spread is wide, extremely wide.

In the new product, this is definitely not the case. And what I would say, we don’t disclose the run rate of the new product.

But the new run rate, if you would fully switch the whole portfolio in one day to the new product, then you would not have an impact on the fee business or the fee margins. Actually it’s generated today.

So that’s the only guidance which we provide in that respect. So which in one day, to the new products, you would see new impact altogether on the average margin you would see in the portfolio today, the situation today.

Alright thank you very much

Yes, good morning thank you for taking my question. There are some follow-up questions here on Basel IV.

Could you give us an idea what the 75% floor would mean for your CET1 ratio? Further on regulation, could you give us an update on how the trim process is evolving?

And then maybe just to come to sort of conclusion with fee and commission income, we cannot extrapolate the evolution, the growth but could we afford the next year if financial market do not, let’s say, disappoint extrapolate at least the absolute figures?

Thank you for your question. I will take the first one.

The Basel III – Basel IV, I mean, we already talked about it. But as you know, we don’t get detailed guidance previously.

A lot of instruments are available as well as reports are available which give an insight and what the impact on European bank and banking sector is. We don’t provide the details.

But as you know, we have of course a very important retail book, and retailers in terms are probably seeing impact. Bit more than 80% of our business is subject to internal modeling.

And then, I mean, advance and to that respect, the [indiscernible] will have an impact. The trim process just recently started.

It’s too early coming in April, it’s too early days, which will take long time before they come to a conclusion. And obviously, what we will bring, we have quite a lot of models in place.

Mainly they are looking into [indiscernible] books and all things which had a retails SME, but it’s too early to give you an indication on what it will be. It’s our – that’s not only for us.

It’s, I think, for the European authority is a hell of a job for tackling this process in the European bank.

On the fee and commission side, again, it’s very difficult to extrapolate the present results, and it’s not only a function of markets. Of course, markets play a role in that because they have an impact on the asset mix.

You also see certain shift also from retail customers to discretionaries, so that should help and that’s why we have the new product but investor confidence in general, which is not only driven by markets is going to play a role in that as well, which is very difficult to extrapolate or give further guidance on that.

Okay, thank you

Hi, everyone just to go back on the point around the dealing room activity. I mean, clearly, it seems to be a bit of a headwind at the moment on NII, although it benefits on fair value gains.

But it’s also a drag on RWA sort of 5% to 10% increase in RWAs quarter-on-quarter, which is mainly driven by the dealing room. Can you give a bit more color on the scope of the dealing room activity?

And also, obviously, it’s a – the results of the dealing activity are volatile. But how should we think about the impact on NII and in particular on RWAs going forward?

Can we expect that to continue to grow from here and to be a big contributor to RWA growth? Thanks.

Thank you for your question. So the impact for the [indiscernible] dealing room is on the capital side, it’s €400 million.

But if you look at pure return and then bringing all the different pieces of your question together now. If you look at the return which we generate on the capital which we have to use, then the return is very good, let me we use that word.

I would like to say something else. But it’s very, very, very good.

So in terms of capital €400 million – the risk-weighted asset, sorry, €400 million.

And sorry, and then going forward from here, can we expect further levels of growth in RWAs because of further dealing room activity? Or can we expect that it’s broadly flat from here?

Indeed, we are not planning to increase that further and it has to do with [indiscernible] the positions which we take on the Czech koruna. And you know by what has driven that is of course the [indiscernible] which was under pressure, which was taken away.

So we cannot expect it to increase further in the future.

Okay, thank you

Good morning, everybody Thormann at HSBC. First of all, the follow-up question on your capital position.

We saw this big increase quarter-on-quarter and even strong increase year-on-year, and your total asset base and then driving down capital ratios and especially the leverage ratio. You guided for another 54 bps decline from UBB.

Any countermeasures in the pipeline? Or do you want to keep the total asset base at those levels on a pro forma base?

And secondly, the strong decline in earned premiums in life business are, of course, offset by less technical charges. But is it fair to argue that this business is now getting more and more impacted by the low interest rates?

Or are there other drivers for this? Thank you

Thank you for your questions. On the leverage ratio, there’s indeed a strong increase on the asset side, but it is mainly driven by our activities in the dealing room.

Just to give you an idea, we have taken an extra position [indiscernible] at €11 billion, a bit more than €11 billion, which then are posted at the Czech National Bank with their knowledge for good understanding. We take 5 basis points in the Czech National Bank, and we borrow obviously below 0 at ECB.

So that’s why the assets went up tremendously, and that has a negative impact on our leverage ratio. If you would exclude that, obviously, the leverage ratio is completely different and much higher, more aligned with what it was before the previous one.

So it’s purely a technical element. Second part – second question, sorry, the decline of the life business.

I mean, we are a bank insurer and therefore, we actually [indiscernible] on the times perspective. So if a customer wants to buy a product X, we provided product X, doesn’t matter if it’s a bank or insurance product now.

That’s explanation you need to take into account if you look at the composition of our P&L and also look at the composition of our balance sheet, the sales in life business are driven obviously by the yield, the customer can make on his product. That is highly impacted by the low interest rate environment.

And at this instance, the alternative which is offered by the asset management product is much more interesting. So what we do see is that customers who do have maturing life business product, partially renew it in life business.

But also it definitely is looking into yield. There are vast majorities switching to the new asset management products.

And for that reason, we did see the decline in the life business. Is that going to be the same for the future?

We don’t give any particular guidance on that, but we expect that our bank-insurance model in total is going to be at the same level as what it was today, that is, very positive.

Okay, Thank you

All right. Indeed, so this sums it up for the call of today.

Thank you very much for attending the call, and we hope to see as many of you as possible tomorrow in London at 8:30. Thank you very much, and have a nice day.