Thank you, Nigel. A very good morning to all of you from the headquarters of KBC in Brussels and welcome to the KBC Conference Call.

Today is Thursday, February 14th, 2019. We are hosting the conference call on the fourth quarter/full-year 2018 results of KBC.

Today we have Johan Thijs, Group CEO, with us as well as Rik Scheerlinck, Group CFO, and they will both elaborate on results and add some additional insights. As such it's my pleasure to give the floor to our CEO, Johan Thijs.

Thank you very much, Kurt. Also from my side, a warm welcome to the announcement of the fourth quarter results of 2018 for KBC which are also then as a consequence, the full-year results of the same year.

So let me start with the number of the quarter, €621 million given circumstances which were quite difficult in the month of December, this is actually a quite good result, this is result which is characterizing some performance in all our bank insurance franchises in the whole group. Let me emphasize a little bit what happened in that fourth quarter.

It was, I mean, you could split it up into parts six weeks were actually quite stellar, we have seen good sales in, for instance, our asset management business. And then, the second six week of that very same quarter were quite rough, strong decline of stock markets 11% down, we have seen lot of turbulence in the financial market.

But nevertheless €621 million which expresses a return on equity of 16% is in that respect a good result. Also in this quarter, we experienced the outcome of the TRIM exercise which has been conducted on the balance and credit books and which resulted in an impact of €0.8 billion.

Without that TRIM exercise, with the straightforward payout policy of 50% which we have in our dividend policy the capital ratio of KBC would have amounted to 16.22%, if you would exclude also the TRIM impact, then you would add another 14 basis points, and so it would have come to 16.36%, and we also had the negative impact for instance on our different benefit obligations which by the way already came in, in January of 2019, if you would include that as well. I want to come where -- our common equity Tier 1 ratio which stand at 16.44%.

The reality is reality, trends has been kicking in, the impact of financial market amongst other on defined benefit obligations as well. So therefore, the common equity stood at 16.22%.

If we translate that in dividend policy payout, we increased the dividend policy payout to 59% bringing the common equity back to 16% as indicated before and has resulted in a dividend payout of €3.5 per share. If you would include the TRIM, if you would include the question on the defined benefit obligation which I already said that it came in fundamentally in January, then that would add €0.60 per share as well.

So it would be indeed more or less four part figure €4 per share. Anyway €3.5 per share will be the dividend that's what we are going to propose.

And let me go through the detail in every line but in essence, as you can see the key takeaways, we have beaten on all the quality lines, our expectations. So on Page 4, you have the building blocks I'm not going to talk on that, also on the one-offs the exceptional items in Page 5, I'm not going to spend too much time, the most important one there is a settlement of an old legal file in Belgium €33 million.

All the rest are something which we indicated already before, so let's not spend too much time there, which brings on the split between the bank and the insurance company that is also a traditional ratio 85% of the profit is coming from the banking side whereas 15% is coming as a consequence from the insurance side. Let me go to the first line which is of significant importance, under this net interest income line, here I can bring some good news also here a quality improvement is further achieved.

We have seen an increase of the net interest income with 3% on the quarter and 2% on the year even the quarter-to-quarter increase was driven by the, as we all know, the rate hikes in Czech Republic and as a consequence the interest rate income there increased significantly. But also and I will put forward for a set of previous occasions with disclosure to numbers, actually the net interest income generated through lending business has been growing up as well.

And that is most as usual; this is the combination of volume multiplied by margin and on both sides saw further increase. So the volumes were up on the order with 1% which brings the year-on-year increase to 5%, if you look at particularly mortgages then on those respective numbers of 1% and 3%.

Margin is up four basis points. Now it stands at 202 basis points and that's a translation of an increase of margins in both business unit Belgium and clearly in the business unit of Czech Republic where it now stands at 335 basis points.

So lending business up. The transformation result also up, also first, funding cost came down which is good news and then also strong performance on the back off that increased rate hikes in Czech Republic.

The dealing room results were also significantly up. So quality wise, good news on the net interest income side and there is also something which we continue to state going forward in terms of our guidance for full-year 2019.

We guide you to what you guys have been putting forward in your forecast for 2019 which means the ballpark figure of €4.6 billion for the full-year. Then let's go to Page 10 that is the fee and commission business and I mean, this is a no-brainer to understand that the financial markets and the turbulence in the last six weeks of 2018 have been kicking in significantly on the fee and commission business.

The fee and commission business now stands at €407 million of income which is a decrease of 7% on the quarter and which is a decrease also of 2% on the year. Now how come actually we over split-up the fee and commission business in, as you know three parts, you have the traditional asset management business including the unit-linked business life, you have the banking services, and the distribution side, distribution side increases because the insurance company is growing faster than previous quarter.

I come back to that in a second but the financial services business more or less is in line with what we saw the previous time. So that's not going to spend too much time on this matter, it's slightly up by €5 million, €6 million if you compare with the year it’s €4 million down but it is not important.

The important thing is obviously the asset management stuff. And here we do see a decline, €24 million on the quarter, €36 million on the year for the pure management fees and the good news is that the entry fees went up €5 million quarter-on-quarter.

Now how come, we had a very strong first six weeks in the fourth quarter of 2018 and as consequence the entry fees went up, this means that the total impact for the quarter-on-quarter comparison is €21 million. This is driven by two things, a) the assets under management dropped because of the stock market decline €30 million, which is a decrease of 6% on the quarter if you compare that with a decline of the stock markets of 11% is still acceptable, if you look at the year-on-year comparison it's 8% down is also in line with what I just said on the stock market decline.

So first of all impact on assets under management and the second thing is the management fees as such. As you know they are influenced by the underlying asset allocation which is mainly driven by the CPPI product and that CPPI product has cashed out quite a lot of its underlying assets, it now stands at the end of the fourth quarter 2018 at almost 55% in cash whereas in the third quarter it stood at 16%.

Now most things have a double effect and the double effect is just as I translated that is -- translated in a decline of the income on the asset -- sorry on the management fees side of €20 million. Now what is the good news or the better news than what I just explained that is the impact of those stock markets change fluctuations have come in significantly already in January of this year.

In the first weeks of this year we recuperated €4 billion of the decline and that also has same positive effect on the underlying asset allocations of our CPPI. Just to mention one thing, at the end of January 2019, we have the reset in our CPPI products for €1.5 billion so that has positive impact on the management fee margin as such.

Let me keep it here for the management fees, I'm not going to develop on as I said details of the payment services so on and so forth. But if you have any questions, we will answer gladly on them afterwards.

The next topic is the insurance and once again so that is the third quality line which has been delivering a good result. We saw a strong increase of the premium growth on written premium is 9% up on earned premium is 7% up.

And also we have seen a very strong performance in terms of quality of the lines that is a 88 combined ratio as a reference position which is in line with last year but to remind you that last year we had a one-off release of provisions of €26 million in the business unit Belgium which is not the case today. So in this respect, we have good growth and good quality and so both indicate that the portfolio is doing very well.

On the life side, we had a strong increase of the interest guaranteed products. Perhaps I can better use here Slide 12 where you can see indeed that interest guaranteed products were up in that respect the increase was on the quarter 48% it's quite a lot, it's also due to the savings campaign, which we exhibitionally hold in the month of October in Belgium.

On the unit-linked business, it’s better than previous quarter but it's worst than previous year and it has to do obviously with the very difficult environment. And that's an environment but also [indiscernible] we pay that high taxes which are offered for this kind of product by the Belgium government.

So at this instance, fourth quarter unit-linked sales were at 33% of total life insurance sales in KBC Group. Switching to page 13, it gives me the insight in the fair value gains and here we have seen strong decline which is entirely driven by the adjustments on markets credit and funding value adjustments, so the mark-to-market there has been kicking in negatively.

If you look on the quarter-on-quarter difference, we have a €93 million on those markets credit and funding value adjustments but as you compare it year-on-year it's €121 million. The other element there to bridge the difference between the €93 million and €77 million is that the ALM derivatives had positive contribution of €21 million over the quarter and €35 million over the year.

So in that respect, we are mitigating the impact that truly -- accounting impact off all those value adjustments. On the equity side, we also had a minus €5 positioned quarter-on-quarter and a minus €20 million positioned on the year-on-year comparison which is I think perfectly acceptable if you regard these stock markets performance.

The other element on the page is the net order income, I mean this is always more or less the same we see in uptick this quarter if you compare previous quarter of €20 million that is mainly driven or entirely driven by a settlement of an old legal file in the business unit Belgium already indicated that before which stands at €33 million and therefore explains the total difference. All the rest is the same we had the leasing company, the assistance company all have been contributing perfectly in line with budgets and previous performance so normal quarter in that respect.

So let's go to the outgoing money side that is the first of all the cost side and also here another quality line where we have delivered strongly. We have a cost reduction in the fourth quarter compared with the third quarter, but also compared to the same quarter last year; we already indicated in previous quarters that we have been more uniformly spreading out the marketing expenses amongst others.

But we also succeeded in lowering the stock expenses and with about €13 million despite the fact that we have a very strong wage inflation in most countries and with most countries I should actually say all countries. So in that respect, good performance we also have less one-off cost but that is far more -- far less important than what I said on the marketing and the staff expenses and partially also we continue to invest in the digital transformation which is obviously costing a bit more money than in the previous quarter.

Now what does it mean in reality, the cost income ratio stands at 57% if we exclude the specific items which are the bank taxes, the ALM derivatives, and the one-off, so 57% in full-year 2018 compared to 55% full-year 2017, this was far more important is that if you look at the consolidated impact of UBB, which was not entirely in 2017. If you adjust the €43 million increase on the banking taxes side and you exclude also the FX impact then for the full-year 2018 and the full-year 2017 comparison costs were only rising 1.7% and that's I think quite an achievement given the high wage inflation and given the series of investments that we have been doing on the digital transformation side.

So I think in this respect, cost management is a continuation of what we have been doing in the past and it also starts to deliver its results, if you look at Page 15, I already mentioned the fact that the bank taxes have been growing up now stands at €462 million which is quite a lot, it's almost 11% of the total OpEx of the Group which is I think very high and if you would exclude the bank taxes imagine in an ideal world then our cost income ratio would drop to 50% which I think is indeed very good even on the European platform. On Page 16, we have the asset impairments.

Asset impairments totaled €43 million of which €30 million is due to a impairment on the leasing activities in Czech Republic has to do with residual values of financial car leases there. We already have some of those in the previous quarters, so it's not something new.

On the lending business, we have seen €30 million of impairments which is mainly due to an increase of impairments in Belgium; we had a number of corporate files seven or eight corporate files where we have an increase of impairments. This is actually also be explained by four files which totaled €30 million, so I mean that puts €28 million little bit in older perspective.

Anyway what we have seen in other countries is some releases, this is true for Bulgaria, this is true for Hungary, but this is also true for Ireland, where we have seen a release of €15 million 1-5, bringing the total to €112 million over the year. For the whole group, we have now a credit cost ratio of four basis points negative which is indeed a very good news and which is a continuation of what we have seen in the previous quarters and also seen last year.

This is obviously not something which is sustainable that is something which we guide already in previous quarter in 2019, 2020 and further on, the average credit cost ratio through the cycle is somewhat in between 30 and 40 basis points not necessarily for next year but for 2019 already but through the cycle at 30, 40 basis points and not negative as we have seen previous three years. Just a detail on that.

Belgium stands at nine basis points, Czech Republic three basis points, international market business unit and the negative 46 basis points which is driven obviously by Ireland minus almost minus 1%. Because of the sale of €1.9 billion of non-performing loans and British loans in Ireland, our business entity in Ireland we have strongly improved our impaired loan loss ratio which now stands at 4.3% down from 5.5% which is also expressed in the 90 days past due buckets which now stands at 2.5% down from 3.2% sorry, which is indeed a strong improvement but that was already indicated before.

So KBC is clearly not a high NPL bank as defined by the ECB we are under no way of scrutiny by ECB in this respect. In terms of the business profile page 18, you see a lot of numbers there with all the different business units, I'm not going to develop on this but the only thing perhaps to mention is that the number of branches start continues to decline, we saw strong decline of number of open branches in Belgium 75 down and we have seen Czech Republic also there, strong further decline and came in true for all the other countries more or less in the same relative perspective.

Then we go to the business units, I mean, the business units have all contributed already stated there, I'm not going to go through the detail but if you look at Page 37 where you can see the final outcome weighted in the allocated capital and you can clearly see that all business units at least contribute 22% and Czech Republic tops that with a whopping 39%. So they all performed quite well and the emphasis is in every business unit is little bit different, for instance in Czech Republic's strong net interest income, strong fee and commission business, strong life business, slightly grown cost, cost income ratio of 46%.

In Belgium we have over the full-year bit pressure on the net interest income but that is mainly due to the short-term cash management which went down a little bit. Lending business interest income was significantly up, the fee and commission business was down, the insurance business was up, and the cost side was quite under control.

And for international markets, it's more or less the same as Czech Republic, interest income significantly up, fee and commission business is fundamentally up, insurance business extremely strong performance, and then on the cost side, fee investments which were doing in the three of those countries on the IT side by the implementation of an entirely new IT platform. So I would keep it here for the summary of the business units.

But as I said before any questions will be gladly answered by Rik and myself. In terms of the balance sheet, page 38, we see a strong growth of the asset side 5% growth on the lending business, retail mortgage stands at 3%, on the liability side, deposits are growing up 1%, detail is provided on the very same page as well.

Let me summarize it, where it needs to go up it went up, where it needs to go down, it went down. So we have been decreasing our exposure in Ireland on as I said the business is growing in mortgages quite significantly there over the last four years we build up a portfolio of more than €3 billion mortgages and Bulgaria exactly same thing occurs, we have been writing down some portfolios, more NPL portfolios, and also been selling off those NPL portfolios.

In that respect we are clearly ahead of our original plan for the cleanup of UBB. UBB which is now entirely integrated in the business entity of CIBANK, or you could even say the other way around CIBANK integrating UBB because in terms of size it's like that, but also there we have six months ahead of plan and also the cleanup of the legacy portfolio is at least six months ahead of plan.

Going through Page 40 about the capital ratio we already indicated that normally it should have stand at 16% if we would not have the TRIM and the connection on the defined benefit operations which have been 16.44%. The reality says it's -- there is TRIM, there is a stock market and therefore 16% after dividend payout 3.5% which is a continuation of our dividend policy, capital distribution policy which is at least 50% and that also we intended, if we cannot make the capital work about say 50%, we payout that capital at our discretion, which we did in the proposal to our AGM as indicated on Page 40.

In terms of capital ratio, we stand now at 19.2% mind you that we have called our AT1, that will be called in March, the total capital ratio does not include, we still have it on our books, a very good understanding but in terms of accounting rules, we have to exclude that from our total capital ratio a little bit bizarre but that's the case so therefore it drops to 19.2%, if that would not be the case then obviously this would have been completely different number. In terms of the leverage ratio, we stand at 6.1% also here you have already the impact of the calling of the AT1, the banking leverage ratio stands at 5.2%.

Now we see a combined group leverage ratio with the capital CET 1 ratio then we would be indeed in a very strong position on the European platform. So the fee insurance is at 217% which is also other a further confirmation of the already excellent level of previous quarter and in that respect not something new.

Funding side also nothing new. NSFR and the LCR ratio stands substantially higher than the capital requirements by the regulators.

We have a 77% customer driven liquidity which is also a kind of guarantee in turbulent times. So in this respect nothing new let's not spend too much time here and then on Page 44 it gives you a nutshell overview of the full-year results.

Let me summarize it €2.6 billion of profit which I think is quite good, 16% return on equity, which I think is quite good, and I use the word two times quite that's an understatement. The cost income ratio stands at 57% combined 88% for the full-year and then the ratios of capital I already explained.

So in that respect I think indeed the €3.5 business per share are rightly so and are an expression of the confidence which we have going forward. Now talking about that going forward that's on Page 46, we do see indeed that in the European domain, economic conditions despite the fact that they are solid, it's clear that the growth beat is behind us.

The forecast for the European growth have been put downwards by lot of institutions amongst others, our own. And they are still okay but clearly behind the peak.

Nevertheless we say that we continue to have solid returns for all business units. We are waiting obviously for an outcome on two important matters actually two-and-a-half important matters that is the Brexit and in March obviously the outcome on negotiations between the Chinese and the American governments on their trade policies.

We will see what that will bring in May we will have obviously also some elections upcoming, so we will see what it goes, what it is going to bring and how it goes to impact the economic I mentioned in Europe. But nevertheless, the reasons I consider to be followed, we also guide for two accounting impacts IFRS 16 will be having an impact as well this year of about six basis points.

And then on Basel IV we recalculated the numbers on the back of 2018, full-fledged -- full loaded impact at the year-end corresponds to 9% of risk weighted asset inflation and a 1.3% impact on the CET 1 but that is precisely the same as what we have seen on the back half of numbers of 2017. So there is nothing new here.

As a lot of paper falling, but I suppose that all of you have far more interest in asking questions and listening to our answers rather than me going through these slides. So I give the floor back to Kurt who will guide us through the questions.

Thank you, Johan, and the floor is now open for questions. Please restrict the number of questions to two to allow for maximum number of people to raise questions.

Thank you.

Yes, good morning, it’s Benoit Petrarque from Kepler. So two questions on my side, first one will be on Czech Republic, most of your competitors are guiding for flat net interest margin in 2019, I was wondering what is your guidance on the net interest margin for this country, what you see on lending margins and deposit margins as well, it seems that lower lending margin will be offset by higher deposit margins.

But I wanted to get a feeling about or you feel the net will trend. And also if you see clients actually a bit more sensitive to the rate moves we have seen recently so looking for remunerated accounts and a bit of more remuneration on deposits.

That is the first question. The second one was on again one cost and especially on Czech Republic in terms of wage inflation what do you see in 2019.

Have you agreed with your collective agreements with unions? And maybe more generally what you see your overall group cost trending in 2019 and if I may just a small one on the transformation results in Belgium, you committed to kind of €10 million this quarter and I was wondering what do you mean by that because that's in volume deposits, volumes deposits flat Q on Q, so have you changed a bit the duration on the deposit side?

I was wondering on that. Thanks.

Thank you, Benoit for your question; it was a bit difficult line. So I don’t know we understood everything.

Let me try to answer your questions on the interest positions on the different building blocks. So as you know, we don't give a particular guidance on each and every building block there, but for the NIM in essence for the Group as I already said during the presentation, we give a guidance for full-year 2019 of a ballpark figure of €4.6 billion which is in line which I think consents with all of you.

On the other hand, in terms of building blocks, the -- I think this clearly we have seen in 2018 through the year pressure on the different products in terms of margin. The positive side is that that margin pressure is I mean perhaps too early but what we have seen in the end of fourth quarter is that we see to see that level bottoming out in some countries amongst other is Belgium, which is not a detail, and also in the first weeks of 2019, we saw the same effect.

In Czech Republic, the NIM increased obviously because of the repo rate hikes and very modest pass-through. So there's no big impact in that respect and we don't -- I mean that's what we would like to keep it because otherwise I'm giving all the details on the building blocks something which we in principle don’t do.

In terms of the second question, in terms of the cost what about Czech Republic and how you are going to deal with wage inflation, wage inflation is something which is happening in all the countries, also in Belgium let's not forget we had 2% inflation index of the wages and Czech Republic is a little bit higher there, as you know now the official numbers, let's be careful because the wage inflation in Czech Republic is mainly driven by the public authorities and the public domain. So we do not have that same impact in our wages in Czech Republic.

And as you all know the ultimate expense for stock is a combination of what you paid per head and how many heads you have to pay. And in that respect, the guidance I can give you is that in Czech Republic we are indeed optimizing the number of staff which are working for us it already came down in the fourth quarter.

In terms of the guidance given for cost side, we stick to our guidance which is translated into a cost on cost, year-on-year evolution of 1.6% and we stick to that.

Good morning from my side to everybody as well and I want to comment to your third question, the transformation result in Belgium. On the volumes, indeed, overall there has not been such big change but there has been a shift from term deposits.

So we have about €800 million term deposits flowing out and we had savings accounts increasing by €800 million to similar amount and of course in savings accounts we can do the verification and term deposits actually are negative in terms of yield and in terms of performance savings accounts are positive. So in that sense the volume has indeed increased from that point of view from the point that replicate.

The second thing I already announced that last quarter as well, we do on a quarterly basis an in-depth behavior analysis of savings policy of our customers and we see that in the low for longer environment that indeed money is more sticky than we would have in an environment where interest rates are going up and a result of that we have indeed increased the volume of the deposits that you're replicating. So overall, your assumption that we have been extending duration somewhat is in that sense correct because we moved somewhat from the lower duration bucket to longer duration bucket.

Yes, hi guys. Good morning.

It's Stefan from Citi. My questions revolve around capital, number one what was the precise TRIM impact in 4Q in terms of basis points or IWA and what do you expect that to be in 2019 once the whole process is completed?

Secondly it looks like the capital was weaker not just on the pension plan but also on a negative mark-to-market on the equities portfolio. Could you just give us some color on whether the decline in 4Q for the equities portfolio was outsized versus the general market and what is the nature of that portfolio, is that something temporary?

And lastly if I may, just give us some color around the CPPI product, please in terms of overall volumes, you did mention it's 55% cash up from 16%, if the overall amount less than 3Q? Thank you.

Thank you very much, Stefan, for your questions. Let me answer the first one, the TRIM impact stands at €0.8 billion which is the equivalent of 12 basis points on the common equity Tier 1 ratio.

Going forward to 2019, there is a TRIM exercise conducted on the corporate books they are still doing that and we expect only a result after summer. We don't have a clue where it is going to lead us to because they don't disclose anything.

They -- it's difficult to understand they don't disclose anything at all. And what they say is it's always good that's what -- that's what their communication is always about.

What other line are they going to do as well that is on the financial markets but that's also only to be conducted in the course of the second half of this year, so outcome will be also to be expected at best by year-end. So in 2019, I can't guide you a lot, I'm sorry for that but the exercises are running and we don't have any insights in the outcome.

And then, Stefan, on the impact of the credit value adjustments and funding value adjustments of course these are the items that resulted in a somewhat lower income in the fourth quarter. And as you already said the delta versus the quarter before was €93 million, so basically what happens as a result of equity markets dropping and especially the long end of the curve dropping quite substantially on the interest rates side.

If you look at those swap activities that we have with counterparties, so these are mostly corporate counterparties but these are also asset management funds. As a result of that basically the market value of the swaps with the counterparties increased, so that means our credit risk on these counterparties also increased.

So the risk to default increase is there. And the second part given the spreads moving during the fourth quarter then again that also increases the credit risk on the corporate.

So that was great value adjustment on the funding value adjustment, it is also a higher exposure to funding risk because the value for swap against we provided collateral decrease that means we have to provide more collateral against those swaps and that comes at a higher funding value adjustments. So these are two main reasons.

And then going back on the question about the CPPI, the outstanding volumes at the end of fourth quarter were €12.9 billion which is let me see €1.5 billion down on the previous quarter which stood at €14.6 billion. And if you compare it year-on-year, it’s down from €16.4 billion, so €3.5 billion.

We have indeed indicated that 54.7% to be precise is in cash whereas on previous quarter it was 16.3%, now €1.5 billion is already reset at the end of Jan, we have other resets dates coming up in April, in July and October and they more or less are around €1 billion each. So in that respect, you can expect the evolution of the CPPI going forward.

What does that money transfer to? First of all you have a inflow in our easy invest product and the second thing is you have -- we have obviously also some people which got their money back on the saving accounts.

So we don’t have any outflow out of KBC Group.

Yes. Good morning everyone.

So firstly just a quick follow-up on the TRIM. And -- so can I clarify, does that €800 million RWA increase, does that actually flow-through into your Basel IV RWAs?

Or do they just get absorbed when the output flows get applied there? And then turning secondly to Ireland and the compression in pre-provision profits and particularly the kind of the revenue erosion.

I know you've done a lot to derisk and you've sold NPL portfolios through the back end of last year. But my question's really, has the revenue base and the pre-provision profit kind of now stabilized and actually should start growing from here because the volume metrics that you show actually look quite impressive, but it hasn't really translated into the P&L for that division?

Thank you.

Okay. Thanks Kiri for your question.

Let me come back again on the TRIM, so the TRIM is 0.8 as I stressed and your question was what about the impact of Basel IV now the output flows are not impacting KBC, so in this respect the TRIM impact comes from top of Basel IV impact.

Okay.

And for Ireland basically as you said we have been de-risking the portfolio quite substantially as Johan said that €1.9 billion of loans that are gone and as we said in the past that has a recurring negative impact on NII in the year 2019 of €16 million. So €1-6 million, so that is the impact as a result of indeed selling that legacy portfolio.

And then we had because of the tracker mortgage investigation going on we had additional OpEx of substantial amount in Ireland and then we had specific OpEx also related to the transaction -- to the sales transaction and these are then elements that will taper out during the year 2019.

Good morning everyone. A couple of questions from me.

Firstly, just to go back on the cost and just to confirm your guidance around costs which you said was you were sticking to the guidance of 1.6% CAGR in terms of absolute costs, is that for 2019-2020 or the expense of that timeframe or can we think of that in terms of 2019 itself as well? And are you able to give us a bit of color as to how you're going to get that obviously there are a number of headwinds such as yourself but obviously for other banks in terms of the level of wage inflation that you're seeing across your geographical footprint and also in terms of investment spend and then also would that include any restructuring cost and how should we think about that for 2019?

That's my first question on cost. And then secondly you talked a little bit in your guidance about the fact that we are now past the peak of the cycle and you talked about on a number of occasions recently, given where we are, what's your view on loan growth from here.

Do you expect to temper loan growth in certain areas whether by geography or by products and how should we think about that going forward? Thank you.

Thank you very much for your question. So the CAGR is 1.6% for the full period, it’s bit difficult to give it year-for-year because we don’t give an explicit cost guidance for every year but it is a 1.6% over the whole horizon.

Now what you need to take into account and that is we have been frontloading a little bit of our IT investments and digital transformation. And as a consequence, I mean you always have a line effect between the investments and the return.

As we have been investing in 2018 already quite substantial and in 2019 we will do exactly the same thing. You will start to see the benefits of those investments of 2018 coming in; let me say something in the middle of 2019, end of 2019.

It’s indeed true that we have some headwinds and if we would go back in time where we gave you, the indication of our cost growth, we were not expecting wage inflations as we have seen them today. So it's more than what we expected.

On the other hand, we have also seen a stronger growth which, as you know, in the cost income ratio translate differently, so that's beneficial factor. So in that respect, yes indeed the cost forecast is kept at this level and we will do our utmost as we have been doing in the previous quarters to obtain what we have guided before.

Thank you. And just in terms of -- sorry just in terms of any restructuring cost we can expect going forward?

So we have had some restructuring cost in the third quarter in Czech Republic, those restructuring costs are on the short-term not to be changed, so I don’t see any big impact any day, any quarter soon. So in that respect what has been put in, in the third quarter in Czech Republic is not an easy we won't repeat it going forward.

Yes, good morning. Thank you for taking my questions, I have two as well.

First one is on the capital you highlighted the potential TRIM impact as well as the IFRS 16, is there any other capital headwinds that you expect for 2019 such as the NPE guidance for example, it was my first question? Second question is on trading on the fair value item, it was actually quite low in 2018 at €213 million, can you just give us a little bit more color or guidance towards going forward, is the average of the last couple of years, is that the best guess or is there certain drivers for this trading revenue?

Thank you.

I'm sorry but I think we should still answer the second question of your other colleague. So the question was loan growth, what do we expect.

Because, I indeed, mentioned that the peak of the cycle is behind us. We expect for this year we have 5% as you remember we expect 4-percent-ish growth in 2019.

So it’s still okay, remind you I also said that despite the fact that behind the cycle the expectation European domain is still a solid growth. Now there is one big elephant in the room that is if we would have fundamental impact of the Brexit, we still assume a softish Brexit which means that is a proper deal, if we would go into something completely different then all predictions are for that la puella.

And in terms of fair value gains, again as you know that is a volatile item if you compare year-over-year there were some restatements we have said that. But then on Page 53 we give you a pro forma year-over-year and indeed the volatility that we have seen in the market especially in the fourth quarter were the main reason why the number came in at the level where it came in.

So I could kind of just come back on that please, Rik, so if you were to consider that 2018 is a very poor year for this trading item or is this more the normalized going forward?

No, again if you look at just what's happened in the fourth quarter, so that €93 million shift in funding value adjustments and credit value adjustment, that is -- that sense quite exceptional. So if we would take that out and the number you have before that in a normal volatile market, it's probably a better indication where we should be but as you know on 5th it is very difficult to guide.

Yes, good morning. Two questions from me as well please.

The first question is regarding your common equity Tier 1 target, I see there hasn't been any update here, you just keep talking about the median for peers looking at the full-year 2017, so the first question is whether we should expect potentially all adjustment of that target maybe with Q1 results for example? And the second question is whether if you could give us a quick view on where you stand on potential M&A?

Thank you.

Thanks, Flora, for your questions. Let me start with the common equity Tier 1 target, so indeed we do update that target once a year.

And as you already indicated we will do so at the end of -- in the back of the first quarter results, we will give you that update because I know the numbers of our peers are available. So we can calculate our 14% capital position again.

In terms of our M&A, where we are today is, yes, as you've seen the Hungarian government has come out with an indication that they are going to bring Budapest Bank to the market and we are clearly interested in that, we have already identified our interest to the Hungarian government, so we're looking forward to see the bidding process and how the process will be ongoing normally in the course of the next coming quarters. This should happen.

We also look into some other opportunities in our core markets on smaller entities but I cannot give you any further detail on that matter as we are clearly not looking into expanding our geographical presence as we have sit today. So to be more precise we are not looking in countries beyond our current core markets.

If no more questions, this sums it up for this call. Thank you very much for your attendance and hope to see many of you at the sell-side equity Analyst Meeting in London tomorrow morning at our offices in the City Old Broad Street 111.

This meeting starts as usual at 8:30 AM local time and we would be pleased to welcome you there. In the meantime, enjoy the rest of the day.

Cheers.