Good day everyone, and welcome to the KBC Group Earnings Release Q1 2022 conference hosted by Ilya Vercammen. During the presentation, our lines will remain on listen only. If you require assistance at any time, please key star zero and a coordinator will be happy to assist you. I would like to advise everyone this call will be recorded. Now it's my pleasure to hand the call over to Ilya Vercammen. Please proceed.
Thank you, operator. 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, the 12th of May, and we are hosting the conference call on the first quarter results of KBC. As usual, we have Johan Thijs, our Group CEO with us, as well as our Group CFO, Luc Popelier. They will both elaborate on the results and add some additional insights. It's my pleasure to give the floor to our CEO, Johan Thijs, who will quickly run you through the presentation.
Thank you very much, Ilya, and also from my side, a warm welcome to the disclosure of the first quarter results 2022. Let me begin with the key takeaways as always. We have posted an excellent result of EUR 458 million in the first quarter 2022. The reason why we call it an excellent result is actually in the fact that we have, in this quarter, a couple of things which are quite remarkable also in terms of bringing the EUR 458 million down and some one-offs. Let me explain the latter. First of all, this quarter is, as traditional, characterized by the fact that the bulk of the bank taxes are paid in one quarter.
This is also true for this quarter, which means that we have paid EUR 514 million in bank taxes in this quarter. This is an amazing amount. If you would exclude those bank taxes, then the profit of this quarter would have been around EUR 870 million after tax, and then all of a sudden the number becomes completely different. As a matter of fact, if we would exclude the one-offs, which are particularly in this quarter, then the picture becomes also completely different. Let me give you the one-offs which I'm referring to.
First of all, we have booked in this quarter a extraordinary bonus of EUR 41 million, which we have paid out to our staff, and this is reflecting the very difficult COVID year 2021 and the excellent job done at that time. Next to that, we have also a couple of one-offs which are related to the sales transactions in Ireland, totaling EUR 31 million. We have put in a EUR 11 million write down on the sale of a headquarters building here in Brussels that is EUR 11 million. Now, if we would bring that into account, then we are talking about, in total, EUR 170 million of one-offs.
If we bring that into the numbers, then all of a sudden the number, which is EUR 458 million becomes EUR 600 million, and then it is indeed a completely different picture. I will explain later on that we have put in a safety buffer as well on the impairment side, and that safety buffer is reflecting the very difficult situation we are all in in Europe, which means among others, the war in Ukraine, Russia, and also the impact of that war on the commodity price, energy prices, inflation, and so forth. For that reason, we put a safety buffer of EUR 223 million.
If I would compare apples with apples, and I would make a comparison between quarter one of last year and quarter one of this year, and I will take out the one-offs which I just highlighted, then the picture becomes completely different. The picture means that the profit has grown with 44%, and that's indeed a very strong performance. Now let me explain how that extremely strong performance is translated in the underlying P&L numbers. Well, first of all, I can summarize it in one sentence. The commercial machine in all our activities in all our countries have been performing excellently. First of all, we boosted the sales of our loan book, both on the mortgage side and on the commercial side. We had a growth of 3% on the quarter.
We have a strong increase in our deposits, 5%. We had one of the best quarters ever in terms of our sales on asset management. As a matter of fact, we have outperformed the top year 2021, almost entirely in one quarter. I think this is indeed a stellar performance. Next to that, we have also realized already now all our responsible investing targets of the full year. In that perspective, also on sustainability side, things were doing excellent. The non-life insurance business has performed tremendously with a 9% growth. Life insurance business on the unit-linked was more than 30% up on the year.
Despite the fact that we were hit by the worst windstorm for a very long period, the combined ratio on the insurance side stands at only 83%. Regarding the costs, the costs are maintained well under control. As a matter of fact, the cost income ratio before bank taxes stands at the same low level as it stood last year, which I think is a stellar performance. It's 48%. Why is it stellar performance? Because 2021, remember, was a COVID year, and for that reason there were a lot of costs, like travel costs and so on so forth, and investment costs on the IT side, a little bit lower than normal, which is indeed fully compensated now by the cost maintenance, which we have done in the past quarter.
You will not be surprised when I say that, the return on equity is again, at 14%, including the extra safety buffer on the impairments of more than EUR 200 million and the ratios in terms of our capital stand at a very solid 15.3% CET1 ratio, 50% above the legal requirements. In that perspective, yes, indeed, it was a very strong quarter, or let me say it as follows, it is a very strong quarter. I already highlighted, and you can see that on the next page, the fact that, the Russian-Ukrainian War has impact, of course, on our society and as a consequence, also on the results of KBC. Let me be straightforward. The immediate impact, the direct impact across the board for KBC is zero. We don't have any direct impact yet.
If I look into the exposures which we have had, so as you know, we already disclosed that beforehand. KBC has no direct exposure, nor to Russia, nor to Belarus, nor to Ukraine. That respect is indeed zero. The only thing which we have is some trade finance activities and therefore some transfer risk to Russia, and that is limited to only EUR 55 million. We took a very conservative stance, and we put that to zero in our provisioning. We have also taken into account a certain philosophy. I will explain that later on our other loans which we have in the other countries, which are not loans to Russia or Ukraine or Belarus, but just loans to our customers in our core countries, and we've taken provisions for that.
I'll come back to that in detail later on. Regarding the insurance side, no exposure. Asset management, no exposure. Let me correct myself. We have EUR 150,000 of exposure to Russian and Ukrainian assets, which I can easily translate, giving the total assets under management as zero. Cyber risk, we're taking full measures, and we are, in this perspective, not more under attack than it was in the recent past. In that perspective, all additional preventive measures have been taken. We do expect an impact on the GDP growth of between 100 and 150 basis points, and that's already guided on previous occasions.
To be very concrete, for the euro area, we conclude that there will be a negative impact on the GDP growth for 2022 of 120 basis points, bringing it down to 2.3%. The impact, the direct impact of the fact that Sberbank Europe went into default, and as a consequence, their subsidiaries in the different countries where they are active indeed went also to default. Our exposure in that perspective was zero. Given the fact that Sberbank Hungary went into default, the deposit guarantee fund stepped in, and the sector had to contribute in that perspective to compensate for that deposit guarantee fund. Our stake in that compensation was EUR 24 million, which is taken into account of the increase of the bank taxes.
That is what about the exposure on Russia. I go into the detail for the safety buffer, which we set aside on the lending side later on. In terms of the Page 5, where you see the overview of our profitability, solvency and sustainability and digitization targets, you can see that KBC is in the dark green zone, so we're performing quite well. The performances are the first two on European level. The last two are on global level, where we are performing indeed quite well. Page 6, giving you an overall view of the building blocks, is actually indicating the diversification of KBC Group. In that perspective, also, I can say that the diversification is driven by asset management and for sure also the insurance side.
Obviously, with the increase of the starting increase of the interest rates, we will see here, KBC is in principle, if you do a recalculation, a 50/50 balance, net interest income, other income, that will indeed change a little bit in near future, but it's constantly showing our good diversification in our results. The exceptionals I already highlighted on Page 7, so I'm not going to dwell upon this. Mind you, in the biggest impact there is EUR 41 million of stock bonus. But I, as I indicated, it is totaling EUR 101 million as a consequence. On Page 10, you can see the split up between the banking and the insurance contributions.
There's a bit more now on the insurance side, 25% of the total, which is obviously due to the fact that on the banking side, the impact of the bank taxes is kicking in a very significant manner. Okay, now to more serious stuff. What about net interest income? In that perspective, we can indeed announce good news. The net interest income continues to rise. We have an increase of 2% on the quarter, 12% on the year. This is driven by two things. First of all, very strong growth of our lending book. The growth of the lending book is 2% on the quarter, 7% on the year. This is on the total loan book.
I mean, if you would start to exclude, for instance, the fact that we are on the exit on Ireland, which is still a EUR 10 billion loan portfolio. If you would start to exclude that, the numbers would be significantly better. Start to speak about 2.7% growth. In terms of the split up between retail loans and commercial loans is more or less the same. So it's about 2% growth each, which is indeed stellar performance. It's 7% on the year, and that shows indeed very strong evolution of KBC in the different countries in the lending business. Deposits were growing 5% on the year. Given the interest rate increases, this is no longer bad news. It also clearly shows that KBC is a well-trusted partner for a lot of customers, a lot of countries.
We could clearly see that again when Russia invaded Ukraine as of the twenty-fourth of February. We were indeed considered by a lot of customers, also customers of smaller banks, as a safe haven in all the countries where we are present in that region. In terms of growth, we also see that our net interest margin has gone up in this quarter with six basis points. Now it stands at 191 basis points, and this is primarily driven by the fact that the interest or the policy rates in Czech Republic and in Hungary, to a lesser extent, are moving upwards.
For the other Eurozone countries, the margin, for instance in Belgium, went slightly down, and that is mainly due to the fact that competition is still very strong and that, of course, KBC is also growing its book and defends its market share. As a consequence, it mitigates a little bit downward the growth of our net interest margin. In terms of the other contributors on the net interest income, I can clearly say that KBC continues to build upon its short-term cash management. It's definitely driven also by what is happening in Czech Republic in terms of the policy rates. We continue to grow our negative charging of monies and current accounts that went up to EUR 12.2 billion, which is a rise of EUR 2.7 billion.
In terms of the fee and commission income, I can again say, this was indeed a very strong quarter because it was despite the fact that the financial markets had a negative impact on the assets under management. The turbulence on the market generated a decline of the assets under management of EUR 13 billion. Now, we grew our book on the contrary, in our sales side, and as a consequence, the total number, the net number, is a decline of EUR 8 billion. Now, let me come back to that in detail. First of all, we grew our book significantly. In terms of inflows, we had EUR 1.6 billion of net inflows in this quarter. As a matter of fact, that was booked mainly in the first eight weeks of this quarter.
That actually to express what it means, EUR 1.6 billion of net inflows is as much as the net inflows in three quarters in 2021. Then you remember that last year we had net inflows in every quarter. This is indeed stellar result. We see, of course, a little bit the inflows declining after the war, after the start of the war, but still, also in March, we had positive net inflows in KBC Group under the investment product side. Fee and commission business was up significantly on the entry fee side. It was because of the decline of the assets under management and the fact that management fees are calculated as a percentage of those assets under management that was revised downwards.
In terms of the other contributors, we know that of course, asset managers do one-third of the pack. 1/3 is related to fee business generated through credit fees to payment business and so on, so forth. Payment business was slightly down compared to previous quarter. Mind you, the fourth quarter is traditional, very, very good in terms of payment because of, yeah, the Christmas period and so on, so forth. If you compare the payment fees with previous year, same quarter, then it's up significantly. As a matter of fact, EUR 23 million up. Obviously, COVID is going out of our life, at least in terms of lockdowns and so on, so forth. That means that payment business coming back to normal territory. Credit fees were up on the quarter and on the year.
What was again, very good was the business which is related to securities trading. In that perspective, despite the fact that we have a record year 2019, a record year 2020, a record year 2021, this quarter started even better. We have seen the number of customers flowing in on, for instance, the Bolero trade platform in Belgium with 6%. We have seen the transactions rise with 22%, and the same can be said about the trading platform in Patria, in Czech Republic and in Hungary. That is doing actually very great. In terms of the distribution cost went down compared to previous quarter. It has to do with the seasonality of the fourth quarter.
If you compare it with previous year, you can see that it is slightly up EUR 5 million, and that is fully linked to the fact that the insurance business is boosting and of course commissions are paid on those sales. If you have a strong growth on your insurance side, then you have to pay more commissions. Now, let me go immediately into that insurance business. Non-life insurance business was up on the written premium with 8%. Far more important is the earned premium that went up with 9%, and that is indeed an amazing number. This is driven by Belgium and the Central European countries. In that perspective, indeed, the bank insurance model continues to pay off.
What is also true is that in this quarter, we had a big windstorm in Belgium. As a matter of fact, I already said it in the introduction, this is one of the biggest one. I mean, it's at least the biggest one I can remember. I'm about, what is it, almost 30 years in the insurance business. So it was a windstorm totaling EUR 87 million of claims provisions, about 38,000 claims at quarter end. In that perspective, it obviously overshoots the reinsurance contract. I mean, the reinsurance priority kicks in, and that is limiting this type of claims down to EUR 40 million. Take into account our captive structure and group re as well, then we will be more or less at EUR 47 billion net claims.
If you add those numbers to our combined ratio and to other claims, then the combined ratio is increasing to 83%, which is an extraordinary result, given the impact of the storm. How come that the 83% or the combined ratio is that good? It has to do with the fact that on the rest of the portfolio in all countries, the major claims and, let's say the normal, the regular claims were quite low. It shows again the underwriting quality in all countries because the combined ratios in all countries involved are hovering around 83%, 84%. That is indeed a token of good underwriting over a long period of years. In terms of the life sales, no big surprise here.
We do see that the low interest rates in the Eurozone, and that is mainly Belgium, of course, is having a downward effect on the sales. Definitely, if you compare it on the quarter, you need to be aware that sales are driven seasonally, and in that respect, the fourth quarter is always a top quarter, also driven by tax reasons in Belgium. If you compare it with previous year, it's exactly the same amount. We are talking about a difference of only EUR 3 million, and that's not a lot. Positive news there to say is that the unit-linked business grew 35%, which is quite a lot, if you compare it on previous quarter, it grew with 39%. Sorry, it grew, yes, indeed, to 39%, which is a significant increase.
Unit-linked is now totaling 54% of our life insurance sales in this quarter. Other good news is the performance on the financial instruments at fair value, where we do see a significant increase on the quarter, EUR 182 million up. That's mainly driven by two things. First of all, the dealing rooms had a stellar performance in this quarter. One hundred, I round the numbers, EUR 100 million increase compared to previous quarter, EUR 40 million increase compared to previous year. Reason, it's obvious, first of all, a lot of volatility in the market, which helps a lot in dealing rooms, obviously, because customers are using them, hedges in order to to mitigate the impact.
Second thing is the upward shifts of the interest rate, yield curves, and the widening of the cross-currency spreads, which is then triggering, of course, reactions of our customers. The second big contributor is the mark-to-market of our ALM derivatives, which are indeed EUR 80 million upwards moving on the quarter. That has to do with the fact that, amongst others, the impact of the increasing HUF rates are now put into hedge accounting, as we announced last year. This has positively contributed significantly to that mark-to-market of the ALM derivatives. All the other things, the FCAs and the equity is more or less neutral compared to previous quarters. We'll not spend any time there.
What about net other income stands EUR 54 million, which is a bit higher than a normal run rate, which is, more, I mean, hovering around EUR 45-50 million. We are now at EUR 54 million, so it's a slight overshooting that run rate, but let's not waste too much time here because it's not important as such. Going into the cost side. Well, the cost excluding the bank taxes and the one-off items decreased quarter-on-quarter. That's indeed the good news. I think it makes also much more sense to compare to the previous year. Also there, the cost performance is actually extremely well. If you look at the bank taxes, which are, as I said, on the rise, EUR 90 million.
If you exclude the FX effect and you exclude the one-offs, among others, the EUR 41 million staff bonus, then you will see that our costs are only up 5% on the year where we are comparing with a COVID year, which was extraordinarily low. In that perspective, we are even lower than the guidance which we gave beforehand. Our cost income ratio now stands at 48%, excluding all the bank taxes. If you compare it with last year, it was 51% in full year 2021. If you compare it with not excluding the bank taxes, but spreading it around or uniformly over the year, which is actually what you normally could expect, then the cost income ratio goes to 53%.
If you compare it with last year, it stood at 55%, also there an improvement. In this perspective, it indeed is showing that we have been able to manage our costs significantly downwards in the quarter. Now, what is going forward going to happen? Well, inflation kicks in. We already see that in the first quarter in this, in this year, and the inflation kicks in more significantly than what was originally budgeted by KBC. In that perspective, going forward, indeed, you might expect a raise or a rise, sorry, of the costs in the quarters to come.
The fortunate thing is that not only the costs will be reviewed upwards, and the cost side is indeed because of inflation, but also the income side will be reviewed upwards, and that is because of continued good sales, and then according to plan, and then of course, the upward move of the interest rates and the policy rates, and that will be translated in a strong increase of income. As a matter of fact, if we then look at the evolution of the cost income ratio for this year, the guidance which we have given will be of course reviewed. What I can say already today is that the guidance which we have given will be reviewed in a more positive way as what we have announced. What is it? About three months ago.
To express it in terms of jaws, the jaw which was linked to the original guidance is positively reviewed after this quarter. We will give also further detail on that guidance for the long-term guidance, which means until 2024 on the back of the second quarter results, where we will have more insight of the evolution of the war, because this is a crucial element in that perspective. We will have then also more insight on the evolution of interest rates and inflation. Coming back to bank taxes, Page 17, significant impact. Already mentioned that 13% of our OpEx is now bank taxes, and this is different in every country. You can read the numbers on Page 17. But let me go immediately into the impairment side. What is crucial in that perspective is that we have...
If you look at the underlying book, we have EUR 33 million of releases. On the regular book, EUR 33 million of releases, which is mainly driven by Belgium and to a lesser extent, Czech Republic. In that perspective, it is also logical that if we have releases on our regular book, we can immediately conclude that there is no impact anymore of COVID on the traditional lending book in our group. As a consequence, of course, we have a release of the COVID buffer. The COVID buffer stood at EUR 289 million at the end of last year. We are releasing now, as a sort of a consequence of what I just said, EUR 205 million.
Because of the evolution of the sale transaction in Ireland, we also wrote down an extra EUR 31 million on that COVID buffer, which means that EUR 50 million is still left in that COVID buffer, which is then set aside for potential extra highly critical, vulnerable sectors and for the exposure which we have in Hungary, where the government has indeed, as you know, in November, made statements about the moratoria. We, as a methodology, say when the moratoria run down, we have a, let's call it a probation period of six months, and after that six months we can release. For that reason, we keep EUR 50 million COVID buffer left over.
It means, as I said, in principle, EUR 33 million loan impairment releases, EUR 205 million impairment releases on the COVID buffer. Now, given the evolution of what is happening in our European world, given the evolution of the Russian invasion of Ukraine and the impact on commodity prices by that invasion, but also by the fallout of the COVID crisis, we have reconsidered our position in terms of potential emerging risks going forward. Inflation is high, negative impact on credit growth, and so what is the potential impact going forward? Let me start with the most important thing. Yes, Page 20, you can see the detail. The most important thing is, as we speak, the impact is zero. Going forward, we have thought of potential consequences.
On Page 20, you have the full split up. On the direct impact, the answer is zero. We have no direct subsidiaries in the countries Russia, Belarus and Ukraine. Second thing is, if you look at our commercial exposure, which is in asset and trade finance, and therefore we have a transfer risk on Russia, the exposure is EUR 55 million. EUR 49 million is that trade finance exposure. We decided to put that immediately into write-down, which I think is a very conservative stance. There is, for good understanding, no exposure on Russian sovereigns. Second thing is, there it stops. In principle, there it stops. Secondary effects. What about secondary effects? We made an analysis on our clients.
If those clients had an exposure, for instance, to the country itself in terms of sales, in terms of profit generation and so on and so forth, which is more than 20%, then those companies which we are lending to, for instance, in Czech Republic or in Hungary or whatever country or in Belgium, doesn't matter. For those countries, for those companies, sorry, we took a very conservative stance, and we took a hit on that book. The total outstanding exposure, we calculated at EUR 2 billion, which is resulting from a detailed analysis of our portfolio, which is then extrapolated. The total P&L charge on that EUR 2 billion exposure, which we took into account, is EUR 33 million, which goes immediately into Stage 2.
In terms of secondary effects going forward, and this is true for all of us, that is, what is the impact over time on both retail and non-retail portfolios in terms of, you know, the higher energy prices, the supply bottlenecks, the rising interest rates which are coming and so on and so forth. What is the potential impact? Let's make an assumption there, and let's see how much of our book could potentially be hit. Now, in terms of calculation, we came to an outstanding exposure. Once again, same philosophy, detailed analysis on our portfolio, and an extrapolation EUR 5.9 billion exposure on which we took a hit or a provision at least of EUR 135 million, totaling EUR 223 million.
As I said, this is quite conservative stance, because as we speak, the reality is zero. All those things which I mentioned on exposures C and D are put into Stage 2. We do take into account an extra buffer of EUR 223 million. If you combine all the things together, then we come to the conclusion that our credit cost releases of EUR 238 million, minus EUR 223 million is indeed going down with EUR 15 million, resulting in a credit cost ratio of -0.03%, which is indeed very low. In terms of further impairments on other things, we accelerated a couple of things in Ireland, as I said, which goes into cost but also into impairments.
On the intangible and tangible assets, we have pulled forward EUR 24 million in Ireland and then the real estate impairment of EUR 11 million, totaling EUR 22 million of impairments for this quarter. The credit cost ratio is not only low on the rule book, it also means that the impaired loans to risk ratio drops to 2.3% now, and that is, of course, triggered by the sale of the non-performing loans book in Ireland. Now on pages 19, 20, already spoke about 21, 22, and 23. Let me see. Yeah, 23. That is the detail which I explained a second ago. I'm going not to repeat that again. On Page 25, you see then back again the balance sheet, already highlight the fact that we grew our book significantly.
7% on the commercial and retail side, 5% on deposit side. You can pick out your favorite country where you look at the growth. Clearly, you see the zero in Ireland, which is obvious, the consequence of the decision we took to exit the country. All the other countries are then indeed having strong growth levels, significantly high on both the retail book and on the commercial loan book. I'm not going to go into the detail of every country for good understanding. That saves a little bit more time. Let us go to the solvency and liquidity positions of KBC Group.
The KBC Group has posted a 15.3 CET1 ratio that takes into account a new Pillar 2 requirement of 186 basis points. That obviously also take into account the profit contribution of this quarter. The reason why it came down is twofold. First of all, because of the increase of the risk-weighted assets, risk-weighted assets which went up by EUR 2.7 billion, mainly driven by volume growth and a strong loan performance, obviously, is translated to an increase of the risk-weighted assets and to a EUR 0.4 billion increase of the market activities.
On top of that, the impact of the capital side is negatively influenced by the fact that we have to take into account EUR 500 million of bank taxes in one single go. If you would exclude that, then the capital CET1 ratio would go north of 15.5%. It's anyway strongly above the MDA levels and the OCR levels. If you would take into account Article 104a of CRD V, then you could even deduct all those levels, 81 basis points, which indeed is showing that KBC has a very strong buffer. On Page 48, you see the detail of the composition MDA OCR. Let's skip that. You see the capital ratios on Page 49, sorry, and you see the leverage ratios at Page 50.
For good understanding drop, which you can see between 2021 and 2022, obviously driven by the cash positions, the money market, the short-term money market, and repo opportunities which we use to indeed underpin our net interest income. In that perspective, if you would exclude the excess cash positions which we have to have, then the leverage ratio would go back to 5.4%. In terms of Solvency II ratio of the insurance company, strong 217%. The increase is triggered by the interest rate increase, of course, and also the correction on the symmetric adjustment factor, which is driven by the decline on the equity markets, is contributing.
It sounds counterintuitive, but this is now the way how it is calculated contributes to a positive contribution of that solvency ratio. Main driver there is the interest rates, 12% . Liquidity is super strong. We stand at the midterm, 149%, the short term, 162%, which is indeed a very strong performance. Let me then sum up all the things in one slide, which is Slide 53. I already highlighted the fact that it is indeed a strong performance, which, I mean, this is negatively influenced by the bank taxes and the fact that we put in a safety buffer for quarters to come of EUR 200 million.
If you take out the one-offs, if you take out the bank tax, then it's a 40% increase compared to the same quarter last year. What is also very strong is our solvency and liquidity position, which is reassuring going forward, given taking into account what is happening in our European area. Then also last but not least, I would like to highlight that our assistant, Kate, is growing like like hell. Customers are picking up Kate more and more. In the meanwhile, we have 2 million active users of Kate who completed 2.9 million interactions in one quarter. To express it in terms of growth, this is 170% up year-on-year. If you look at the interactions, it's even more flabbergasting. It is 221% up.
What is very comforting in that perspective is that customers are using Kate not only to check things and do a transaction, but they start to also communicate with Kate in an interactive mode. About 1 million of our customers have not only used a single step Kate, but also started communicating in Kate by asking her questions and going into a conversation with Kate. Clearly, we also reached another milestone, and that is the digital sales. If you look at the current accounts, consumer loans, then vast majority is already sold digitally. To give you one idea, we have in the first quarter of this year in Czech Republic, more than 50% of our standard products. What is a standard product? These are the products which you use anyway, if you're private individual.
More than 50% of those standard products are sold digitally. That is the first time ever. In terms of autonomy of Kate, to give you an idea, autonomy means that you address Kate with a question, and Kate gives you the answer and the solution without human interference, so without somebody from the network or the call center interfering. That autonomy stands now at 43%, which means that she can answer 43% of all the questions which are asked to Kate. To give you an idea, the 43% is much better than we originally anticipated because the year-end target was 25%. This is growing like hell. Looking forward, what is going to bring the future? Well, there is one fundamental unknown that is what the war is going to. What the war is going to bring the war.
Let's keep fingers crossed that this will not be an escalating war. In our base case assumption, we assume that the war will go on for months, but it will not escalate. It will have a negative impact on the economic growth. It will have a negative impact on inflation. Those two things are translated indeed into reactions of the different central banks. We already saw the reactions of the Czech National Bank. We saw the reaction of the Magyar Nemzeti Bank. We saw the reactions of the Fed, but we also will see the reactions of the ECB. The rhetoric of the last days and weeks is indicating that indeed rate hikes can be expected already in the third quarter, and then definitely in the third and fourth quarter. What is the impact on our guidance?
Well, last quarter, we guided indeed concrete numbers on 2022 and 2024. As I already indicated during the call, the impact is of course significant on those numbers. Let's face it, costs will go up. It will be slightly higher than what we have indicated, and the fortunate thing is that net interest income will indeed be going up more strongly than the cost side. As a matter of fact, that same way, I can easily say that what the differences between the income growth and the cost growth previously guided and currently guided is that there will be an improvement for the year 2022, so the jaws will be better than what they were in 2022. In terms of the net interest. Sorry, not net interest income.
In terms of the credit cost ratio, we guided 10 basis points. Well, because we put in a buffer of EUR 223 million, which is, as I said, not a single penny of that is used yet. We put in a buffer of EUR 223 million. We now guide a credit cost ratio, which is higher than 10 basis points, but below 25 basis points. For good understanding, the 25-30 was the through the cycle and guidance of previously. To good understanding, we will continue to monitor the situation, and we will adapt that guidance in concrete terms also for 2024 on the back of the second quarter results. Also have then the opportunity to have more insights of the evolution of the situation in Ukraine. I would like to keep it there and give back the floor for questions from your side.
Everyone, your question and answer session will now begin. If you wish to ask a question on the phone, please press star one. If you then decide to withdraw your question, you can press star two. We do have a few questions in the queue. The first one will come from the line of Benoît Pétrarque . please, go ahead. Your line's open.
Yes. Good morning, everyone. Yeah. The first question is actually on the NI sensitivity. Could you update us on, well, the sensitivity obviously in Czech Republic. We've seen some hikes recently, and I was curious to understand how much positive NI we could still see in the coming quarter from that. Also probably more importantly in kind of Eurozone, maybe mainly Belgium, when do you expect the headwinds on the replicating portfolio and we continue to see some drag from low rates in the first quarter. When you expect that to turn into a tailwind on the kind of Eurozone NI for KBC. You know, looking at what the ECB is saying, you know, how much NII at least we could get from 25-50 basis points hikes?
That will be the first question. Then maybe turning more into this Russia-Ukraine exposure, the EUR 2 billion. Yeah. Did you run any kind of scenarios like you've done during the COVID, like, you know, base case, more optimistic and more pessimistic scenario on credit losses potentially linked to those counterparties which are well highly exposed to Russia and Ukraine? I was also wondering if you how much risk-weighted assets you have on this book, and if we could see some risk-weighted asset inflation in the coming quarter from that. Thank you.
Hello, Benoît Pétrarque. This is Luc Popelier, the CFO. Yeah, we're just discussing who is going to respond to which question. Now, for the NII sensitivity and the potential tailwinds on the euro current accounts, savings accounts, I will answer that. The sensitivity going forward, we do not provide any very detailed sensitivity, but as you know that, we've given you a simulation on the parallel shift of interest rates, and that is mainly driven by the euro, obviously, because that's the largest book. There we have an increase of 4% in the first year. This is a year-on-year basis, 4% increase versus the current level of interest income. That will increase, because next, the year thereafter, it's already 11%.
That gives you a sense of how it evolves. I think it makes less sense to give you, for example, a sensitivity on the short term, for example, ECB rates, because when ECB rates move, the whole yield curve tends to move. And the sensitivity quickly gets compensated or enhanced by movements in other parts of the curve. On the tailwind potential when the current accounts, savings accounts will potentially provide support to the NII, I think we're very close to that. Yeah. Because with the strong interest rates rises that we've seen in euro, I think we will be very, very close to that.
Czech Republic. Sorry, I forgot. The next question was Czech Republic?
Yeah. The sensitivity for the Czech Republic, that is now down to about EUR 15 million, down from EUR 20 million before. The reason for that is that obviously, as you know, there have been shifts from deposits from current accounts and savings accounts to term deposits. Overall, as Johan already said, we have in our deposits increased overall, but there was a shift clearly from current accounts and savings accounts to term deposits, and therefore the sensitivity has reduced. Secondly, we have been already for a bit lengthening our duration on the replicating portfolio of current accounts and savings accounts. Johan, I think, will answer the other question.
Yeah. We'll go Benoit also, hello, from my side. We will go to the second question, which is the exposures on, I mean, the emerging risks, which are mainly related to indeed inflation, GDP, higher interest rate, let's call it the war. What about the exposure of EUR 2 billion? Indeed, we have underpinned the numbers, the exposures which you could see on Page 20. We have underpinned those with a sector analysis. You can see that on the pages 20. Let me see. Let me look back. On pages 20 and 21 and 22 of the pack and 23. On those pages, you have an insight of how it is built up. Let me explain it in two words.
What we have done is we have taken, first of all, an approach like you were familiar with in the COVID buffer. We have done a quick scan of the different sectors, and then we did a deep dive in those sectors on concrete files. On those concrete files, we started to analyze. So a good understanding, they are not directly active in Russia or Ukraine or Belarus. They are not located there, but they do business with parties which can influence their turnover or their profit or their cost side. On the basis of the deep dive, we extrapolated that to our portfolios, and there we came to the exposure of EUR 2 billion.
We took a very conservative stance, and that drove the P&L charge to EUR 33 million. The same approach was done on the secondary indirect credit impact of the whole portfolio. Then we looked into non-business-related impact, direct impact for customers which are doing transactions with Russian counterparts. Let me give you an example. The two billion includes, for instance, a customer of KBC in Belgium, which is doing actual transactions with a customer in Germany. That customer in Germany is having an exposure, not to KBC, but having exposure to, for instance, Russian turnover. I mean, you could consider this to be super conservative, but that's how we did it. The emerging risks since, the bucket number three, bucket number D.
That is going even further. You take the entire portfolio and you say, what would happen if energy prices would rise? What would happen if the cost of living goes up significantly? What would happen if the interest rates are rising significantly? What would that mean for our retail customers? What would that mean for our corporate customers and SME customers? There we drill down a portfolio of about EUR 6 billion of potential worries, and there we took conservative stance of EUR 135 million of P&L charge. As I said during the call, currently the impact and the reality is zero, and so we don't see anything. Also your question about what about the impact of risk-weighted assets, there is hardly any move on the PDs as we speak.
What is on Page 20 is just a provision. We don't see any PD movements yet. What we expect going forward depends on how the war will evolve, how inflation will evolve, and so on, so forth. Then, obviously, we'll have a change of environment and that might then translate into PD moves. This provision is just a safety buffer. It has nothing to do with PD moves and has zero impact on risk-weighted assets.
Great. Thank you very much.
The next question in the queue is coming from Giulia Aurora Miotto.
Mm-hmm.
Yes. Good morning. Two questions from me. The first one on momentum. Johan, you opened the call talking about the commercial machine working very well in Q1. I just wanna ask you, is that a bit backward-looking? Is the situation changing now we are in May? What do you see on the ground, especially in CEE? Is loan growth slowing, you know, sales of insurance products, asset management, et cetera. That would be my first question. Then the second question, a bit more technical. Back to the NII. I think in the prepared remarks, you mentioned margins in Belgium on the asset side, being impacted, and saying that KBC is defending the market share, but yeah, the margins are still low.
What are you seeing on the asset side of things? Are you managing to pass on the higher swap rates to customers, especially on the mortgages? Not yet. Do you expect to be able to? Any update there? Thank you.
Okay, NII.
Yeah. Yeah, that's cool. Yeah.
Okay. Thanks, Giulia, for your question. Let me answer the first one on the momentum and the commercial machine, where are we and what do we see or what do we get to see in the near future? First of all, what I was explaining was indeed for the third quarter in total, including the month of March, where we already had the war. Let me go bucket by bucket, but very briefly. On the lending side, in the first quarter, I mean, throughout the entire quarter, we do see strong sales on the lending side, both on mortgages and on commercial loans, be it SMEs, be it corporates.
Now, if you wanna know what's going to go forward, actually, I'm talking about the second quarter, which is a bit early, but let me give you an insight what we have seen. First of all, on the commercial side, I mean, it goes very strong still. Honestly, and this is my personal opinion, I think we will only see effects after the summer. That's my expectation. Then it all depends on how the war is evolving. Currently, we don't see it yet on the commercial side, so commercial lending side. On the mortgage business, they start to see the impact, I'm talking about, let me say the last five days, six days, you start to see the impact of the increasing interest rates.
Yesterday there was an article in the Belgian press saying the mortgages have been never that expensive since the last three or four years, five years, which is true. That translates the for good understanding, interest rates are still low, if you compare it, for instance, with 10 years ago, but still. You start to see that. Now, you don't necessarily see it negatively because not every country is the same. In that perspective, what we have seen in the first quarter was really extraordinary. If we would see a slowdown, then I'm comparing with the first quarter. I'm not necessarily comparing with the same quarter last year. Let me summarize that.
The guidance which we have given in the first quarter, sorry, on the basis of the full year results three months ago on the loan growth, where we said, listen, we expect 4%-5%, and we are clearly above that level now. We stick to our guidance for sure. As a matter of fact, because of the advance which we have taken by the very strong performance in the first quarter, we have already realized 45% of the target after one quarter. The remaining part, 55% of the absolute number, which we had to do to get our target done, achieved, that 55%, we have three quarters to deliver. That's a reason why we say we confirm.
In terms of asset management, super performance in the first two months. Net inflow even in March, we don't expect this to be the same in the quarters to come because of the volatility. It all depends on the evolution of the war. On the sales side of insurance, no difference. We see zero impact also because the commercial activities continue to go on. Of course, we will see a little bit slowdown of car sales because of supply issues, but it does mean that those cars are ordered, that those cars are going to be delivered. It's just a bit of delay. I don't expect, from that perspective, any fundamental change, and therefore we have on the income side confirmed our guidance, as on the contrary, we have actually increased our guidance going forward.
On the net interest margin on the asset side in Belgium, well, given the increasing rates, we are not able to fully pass that through to our clients at the moment. That is due to a number of reasons. There is technical reason. For example, we give a guaranteed period for a short while so that people can then see whether they can buy the property, and then they, when we give an offer, that they can eventually sign the offer, so they have a period in which that rate is fixed. Secondly, there is competition, which makes it more difficult in a increasing environment to pass it fully through. And of course, thirdly, consumer behavior, if we do it too radically, there could be a backlash. That we do it gradually.
It does have an impact, therefore, on margins. You can also see that clearly on Slide 28, where you see in new production for mortgages a clear further decrease. We believe margins will remain under pressure as long as interest rates rise, but we do expect to recover that over time. We see that already in the Czech Republic, by the way. There we had also quite strong margin pressures because of the very strong increase in rates. We now see that the margins are improving again or have improved again. It's a bit, sometimes up, sometimes down. There we always see that sometimes we are able to improve margins again. It will take a while, obviously, as in Euroland, if interest rates continue to increase.
Thank you.
Our next questioner is Kiri Vijayarajah. Please go ahead.
Yes, good morning, everyone. A couple of questions on capital, if I may. Firstly, on Ireland, could you just remind us what the remaining capital impact is there? Because you're taking some upfront impairments through the P&L, on things like real estate in Ireland. I'm not sure if those impairments were included in your earlier guidance. Also kind of hypothetically, if the competition authorities in Ireland impose some conditions alongside granting approval, 'cause I think, you know, granting approval is still the base case here, but maybe there's some conditions, could that influence or impact the size and timing of the eventual capital release? You know, basically, is that 90 basis points you gave us before still the right number and are there kind of the moving parts around that we need to think about.
Secondly, thinking about the timeline on the kind of next capital return plan beyond, you know, your ordinary and interim dividend, later on this year. Is it the case that, you know, Ireland, Bulgaria, they all need to close and then you take stock of the situation, also, I guess, the geopolitics as well, and then take a view at the year-end stage, i.e., February next year? Or could you contemplate doing something sooner, you know, in the second half of this year? Just your thoughts on timeline about what you could do in terms of extra capital return beyond the ordinary dividends. Thank you.
Many thanks for those questions. First of all, the capital impact, when we do this sale transaction to Bank of Ireland, that is still about 90 basis points impact in quarter one. Positive impact quarter one, mainly driven by the fact that we'll be releasing risk-weighted assets. That's we have about EUR 5 billion still locked in, and that'll be released in two waves. The first one when we complete the transaction, then we will releasing approximately EUR 4 billion, and the rest will be released over time, because part of that release has to do, for example, with operational risks, which have a three-year average calculation and so on. 4+ 1 billion, after that, a total of EUR 5 billion.
The impairments that we saw in the last few quarters, which we took, are purely a shift in time. Impairments which we would have thought to be taken at completion of the transaction, we've front-loaded those. The last one you see now in this quarter, to the tune of EUR 25 million impairments, has to do with the fact that when we looked at the value of our assets, we looked at two scenarios. A scenario where the Bank of Ireland would be sold and where it would not be sold. When it would not be sold, then we would continue our operations. As you know, we've now a few weeks ago decided that if the sale would not go through, then we would stop business anyway. We've communicated that during Easter.
Therefore, if the sale of Bank of Ireland would not go through, those assets would not be valuable anymore. That's why we decided to also write that down. And we come to a-
I'll take your second question. What about the distribution of capital? We're not talking about the regular dividend, we are talking about the extra dividends. The dividend policy has not changed. For good understanding, what we announced or the position towards the dividend policy had not changed. What we announced a couple of months ago still remains valid. Let me repeat for good understanding, at least 50% of our profit, including AT1 coupon is distributed to our shareholders. We have an interim dividend of EUR 1.
Per share, normally in November. Then we have a definition of surplus capital, which stands at 15%. All surplus capital, in that perspective, that will be a discretionary decision by our board to see what we are going to do with that. In principle, it is turned out to or is paid out to our shareholders. In what kind of format is the decision of the supervisory board? That has not changed, also not taking into account the current circumstances we are living in. That means that we are not going to reposition ourselves in the second half of this year, but we will take that decision on the back of the full year's result somewhere in the first quarter next year, which is the same as we did this year. Therefore it's a confirmation of what we have been doing.
Great. That's very clear. Thank you.
The next one in the queue is Flora Bocahut. Please go ahead.
Yes, thank you. Good morning. I'd like to talk about the Belgian business first. Obviously we're seeing cost pressure from the high inflation in the country. Unlike the Czech Republic, it doesn't go with rate hikes yet. The NIM continues to go down. For Belgium, what I'd like to better understand is how much of a squeeze we could see, especially this year between the revenue pressure on the NII with also, you know, the TLTRO benefit going away later this year and the cost inflation. Should we consider that the Belgian costs are probably gonna grow a high single digit this year and that the NII will remain under pressure this year, maybe even next year?
On the Czech Republic, what I really would like to understand is maybe the risk, you know, on provisions and thanks very much for the Slide 20 because that's very clear, very useful. The question here is really the EUR 135 million provision that you took this quarter against the EUR 5.9 billion exposure that you consider is potentially at risk. Do you think this is enough or you don't rule out that there could be more provisioning coming there in the next quarters? Thank you.
Thank you for your questions. Let me try to answer those. First of all, I mean, on the guidance of the costs and on the guidance of the income, actually we stick to what I just said. We will have evolution on the cost side, which is indeed influenced by inflation, which is indeed not necessarily the same between Belgium and other countries. As you know, a big chunk of our costs are related to staff expenses, obviously. In Belgium, staff expenses are automatically linked to the inflation. In that perspective, you have that automatically pass through, let's call it like that, to into our cost side. In terms of Czech Republic, but also the other countries, inflation is not automatically passed through into our costs.
That grows gradually, and that has to do with market reactions, how is the market picking up rate increases and so on and so forth, which are obviously influenced by the inflation. In that perspective, costs side are going up. What I said, costs are going up more than what we have guided in January of this year or in February. Well, it was February this year. As I said, the guidance on interest rate returns, which are linked to, among others, the net interest income, are going up as well, and they go up more significantly. Now, we don't give this explicit split up between the countries, not for the cost, not for the revenue side.
The outcome of the sum of the two is that the draw has increased because of the combined effect of cost and income review. As a matter of fact, it has been positively reviewed. There was a second part on the risk provision, and now I lost my clue. Was it enough? It wasn't enough. Was the 135 enough? Well, it is with what we know today. I mean, let me be very explicit. This is conservative, okay? With what you know today, this is very conservative. So the outstanding exposure of EUR 5.9 billion is a conservative stance. If the war would escalate and we would go into a really significantly exposed war where potentially more countries are involved, then we have a completely different picture. We have more countries involved, countries. I'm talking about countries which are currently under the NATO surveillance.
If that would happen, then we have a completely different picture. We have a completely different picture on GDP growth, a completely different picture on inflation, interest rates, and so on and so forth. For sure, all of us, wherever we are, in whatever industry we are, not necessarily in the financial industry, we will have a completely different picture. Yes, this is, with the situation we know today, conservative stance, but it all depends on the evolution of the war. Let us assume that the second quarter will give us some more insight. On the back of that second quarter, we will further assess not only the guidance on costs and on the revenues, but also the guidance on Page 20 going forward.
Very clear. Thank you.
The next questioner is Tarik El Mejjad. Please proceed.
Hi. Good morning. Just a very quick question. Can you update us on your prospects for M&A entering new home markets on the back of the recent events? Is that something you still contemplate in CE or you feel more cautious or say wait for things to clarify? The opportunity on price, what where do you stand? Thank you.
Hi, Tarik. Good morning also from our side. On the M&A side, actually we stick to our policy. That is, we do consider M&A in our core countries, and that includes the bank and the insurance business. Then we always look at in the same way. That means the assets or the company, which is then under investigation, needs to add value. Also in terms of the return on equity on the mid-term, it should contribute to KBC Group, and it needs to have a strategic fit, so both on the business side and on the geographical side. That means we're not interested in investment banking activities and so on, so forth you know the story. That has not changed.
If tomorrow we get a possibility of strengthening our position on the bank, on the insurance side, in the core countries, we will have a look at those assets. To be very specific, besides Ireland and Raiffeisen Bank in Bulgaria, we have no concrete files on the table.
But my question, Johan, was more on the, I mean, on the new market, you know, the idea that you would consider something else. I know you said there's nothing on the table, but would you still consider that, or are you back to your previous strategy of focus on core markets or present markets?
I mean, let me explain again, what I think I explained also on previous calls. We have looked into a while ago into a specific file which was outside of the core market, and that's what I flagged to the markets. The policy remains, we stick to our core markets, and those core markets I'll repeat them for good understanding, are Belgium, Czech Republic, Slovakia, Hungary, Bulgaria, and that it stops. The strengthening of the position on both on the banking side and currently we have no file, not in the core countries, nowhere else in the world, on our table.
Okay. Thank you for the clarification. Thank you.
We have one more question in the queue. The participant was unregistered. If you press star one, you can proceed. The line is open.
Hi, can you hear me? It's Rahul from JP Morgan. Hello.
Yes, we can hear you. Can you please introduce yourself?
Hi, it's Rahul Sinha from JPMorgan.
Thank you. Your line is open now.
Thank you. Good morning. Sorry for all that. I just had a couple of questions from my side. The first one is on the total benefit of negative charging on NII. I was wondering if you could give us an update on what the contribution to NII is from that. Secondly, related to that, I was wondering if you might be able to share some color on the impact of asset floors on your NII as rates in the Eurozone move from negative towards zero. The second question is on the outlook for loan growth as inflation picks up. Obviously, mortgage is very strong here. Do you expect loan growth to continue, you know, especially on the mortgage side at these levels? Do you think that there might be a slowdown later in the year? Thank you.
Thanks, Rahul, for your questions. I don't know if you were in the entire call, because the question on loan growth, I answered already in detail earlier to another colleague. I would say my answer to you is exactly the same one. Coming back to the negative carry and to the asset floors. Indeed, we have EUR 12.2 billion of negative carry, and that is a significant amount. Indeed, EUR 8.6 billion out of that comes out of Belgium. I will combine the two answers, the two questions. What about the impact of the asset floors? With negative carry and also with contributions there. What happens with the interest rates are going up? Let me give you the.
We don't give the details now and the precise number. We don't disclose this. What is true is obviously that because of the negative carry, because of the asset floors, the floor credits, of course, the rate increases in Europe, in the Eurozone will not have an immediate effect. That effect is mitigated by that. We take that, of course, into account when we are saying that we have shifted our net interest income and as a consequence our income guidance upwards, so more significantly than we did in February of this year. We took then the mitigating impact of those asset floors and those negative carry into account. The precise number, how much impact that has, we don't disclose.
Thank you. Sorry, I had some issues on my phone line.
Don't worry at all. I mean, we can take it offline as well because I prefer not to repeat it again. But if you want to, we can read the question on the loan growth. We can take it offline as well.
The next question is coming from Robin van den Broek. Please go ahead.
Yes. Good morning, y'all. I'm Luke. I was, like, quite late on the call as well, so I'll just ask one question, which I'm sure has not been asked before. It's about your insurance activities. When I look at non-life, I think your performance from an underlying perspective has been quite stellar. I think, if you put the storm impact back, I think it's for non-life, if we would see the results, you're probably around EUR 270 million. That compares to a run rate of last year of around EUR 200 million per quarter. Your peer yesterday came out with results and was basically saying that, yeah, the traffic has sort of normalized, but that there are still 20% frequency benefits basically on the back of people basically rearranging their day.
How do you look at, yeah, the two run rates that I've given you and, yeah, these potentially sticky benefits from COVID? Yeah. What should we do with that? Any guidance there? Thank you.
Thank you, Robin, for your question. Indeed, it is a question which has not been asked yet. I think your question is spot on. First of all, the combined ratio of KBC is with 83% very low. In that perspective, what is reassuring is that the combined ratio in all countries is at similar levels. We have a little bit of difference there. We speak about one, two, three percentage points, but that's not much, definitely not when you're in the 83% area. In that perspective, it reflects the underwriting quality. The underwriting quality, as you know, is not going to deteriorate overnight. In that perspective, what we now see is a very low combined ratio.
That low combined ratio in terms of underlying quality will remain throughout the year. You cannot destroy that by attracting new business in the next coming period. The only thing which influences this number is natural catastrophes, of course. Fingers crossed, we already got a windstorm in which has a significant impact. We have put in EUR 87 million for this quarter. I mean, we still got some further claims in the second quarter, give you the total number, EUR 3 million extra. Then you have the full picture of provisions. Have a good understanding, these are not payments yet. That's one thing.
The other thing which is influencing is let's be aware that the 83 number, 83% number will deteriorate anyway because in Belgium we book, we have to book by law. In the first quarter, all the premiums of workmen's compensations. The premiums are in, and the claims will follow in quarter two, three, and four. Therefore, you have a logical deterioration of the number. Where will it end? Well, our guidance was originally 92%, but given where we are and assuming we don't have a further big impact of a storm or a flooding or whatever, then we will definitely not get to that number. It will be substantially better going forward.
As a matter of fact, on the basis of this underwriting, we continue to build our business because as you rightfully pointed out, the economic activity is definitely compared to 2021, for sure, compared to 2022, coming back to normal. Economic activity is back to normal with that understanding that we do see people working from home. Therefore, traffic is more dense than it was in 2021 and for sure in 2020, but it is not at the same level as it was in 2019 or 2018. I think structurally, there is an improvement of the quality. Now, the mere fact that KBC is at low levels, and I saw the disclosures of some of our peers in the recent days on their combined ratios in the markets where we are active.
It shows one thing we know to underwrite, and it shows another thing, we have a competitive advantage given our low combined ratio. We can continue to keep the growth levels at the level which they are, which is hovering around 9%-10%. To just add one more thing to the latter, the pattern of KBC and non-life insurance business, KBC Group, on non-life insurance business for the last years is indeed always around 8%-10%. Despite the fact that we are growing significantly, our combined ratio remains extremely low. It is because we have a fully automated underwriting process. We will use further our commercial skills to enhance our non-life diversification factor, which is called non-life.
That's great color, Johan. Thanks.
The next questioner is Farquhar Murray. Please go ahead.
Morning, all. Just one question from me, please. Just coming back to Slide 28 and the mortgage margin question in Belgium, where understandably, you're saying it'll take a bit of time to pass on higher rates. Please, could you just tell us in broad terms how much KBC has increased the Belgian mortgage rates so far to this date? I presume it's embedded into that slide. Are you stating that a material part of that move has been in the last week or so? I'd be a bit surprised by that. Thanks.
Perhaps on the increase in rates, they have an increase of a few tens of basis points. Of course, it depends on whether you take a fixed rate or a variable rate. Most of the, as you know, 95% of production is now a fixed rate for the full period, and that's a few tens of basis points.
Okay. That's tens of basis points since the start of the year?
I have to check that. I'm not entirely sure since when exactly that happened. Yeah. We'll come back to you on the precise number. It's public. Yeah, it's very easy to find back.
Okay.
Thank you.
Thank you.
The next one in the queue is Omar Fall. Please proceed.
Good morning. Just one question, please. So looking at the Czech curve, it's quite inverted, and I think you referenced that in your outlook around the front loading of policy rate hikes. You know, things are moving around a lot, but if what the market is implying ends up being the outcome, shouldn't NII in Czech Republic fall no matter any realistic level of loan growth next year? You know, especially if every quarter the sensitivity is going down due to higher pass-through rates. I guess the idea here is that, you know, the Czech Republic helps a lot this year in terms of NII then falls to be offset by the benefit of euro rates starting to feed through on the replicating portfolio.
Is that roughly the path of things as rates stand? Thanks.
Thanks, Omar, for your question. My answer to your question, it depends on where you put the emphasis. Is it on the roughly, or is it on the in line with? It is indeed roughly in line with for sure. It is a bit more nuanced. In essence, the Czech net interest income is indeed fundamentally improving. In that perspective, we also have seen very strong growth, as you could see in the numbers which we published today. Going forward, that's what I said on an earlier question, you might expect there's some slowdown, but be careful. The slowdown is the comparison between quarters to come and the first quarter of this year, which was a record quarter.
If I compared it with our guidance, then the slowdown is perfectly in line with our targets, and therefore we have confirmed our growth targets, which we have guided before. It's a little bit nuanced. The question is, if that goes down, is it then compensated by the interest increases in the Eurozone? The answer straightforward is of course yes. That is picking up. Luc has already answered on a previous question that the margin will be positively influenced. There is certain delay because of the commercial aspect and certain legal aspects in several countries, but it is indeed compensating.
The big thing is, of course, that if you look at the composition of the portfolios, we have more euro portfolios than we have Czech koruna portfolios, so you have an upward lift. Let me give you one more detail. I hesitated to say it earlier on the question when I said, listen, on the mortgage loans, I said there is a positive effect. There is a negative effect, of course, on demand when you see the interest rates increasing. I was talking about Belgium, but it can also be a positive effect. I hesitated to say what that positive effect was. Let me give it to you now, because it's a second quarter effect. The positive effect is that certain customers anticipate the Eurozone increases and therefore take out mortgage loans.
We see that in some of our jurisdictions significantly because the growth of mortgages done in the second quarters outpacing every budget which we had put forward.
Very clear. Thank you.
The next question is coming from Guillaume Tiberghien. Please proceed.
Yes, good morning. My question is around the capital. You mentioned that you could activate 83 basis points if you decided to apply Article 104a. My question, I guess, is when and on what basis would you decide to activate it? Would it be that, for example, you decide next year to do an exceptional distribution that would take you below 15 and therefore to stay above 15 and still do elevated distribution, you would activate that? Thanks.
There is no intention to accelerate that, so we're not going to apply that. We don't need it. It's not a purpose to apply that immediately. You have to run it through P&L, as you know. There's no intention.
Okay.
We have no further questions in the queue. Just to remind everyone, if you wish to ask one, please press star one on your device. Thank you. No more questions in the queue.
This concludes the conference call. Tomorrow we'll be obviously in London, and we can answer more questions there. See you all tomorrow.
Thank you, everyone. This concludes your conference call for today. You may now disconnect. Thank you very much for joining, and enjoy the rest of your day.